UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: KRISTEN MILLAN
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MAY 31
Date of reporting period: NOVEMBER 30, 2018
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED NOVEMBER 30, 2018
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USSA CORNERSTONE AGGRESSIVE FUND]
================================================================================
SEMIANNUAL REPORT
USAA CORNERSTONE AGGRESSIVE FUND (UCAGX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
3
Portfolio of Investments
27
Notes to Portfolio of Investments
33
Financial Statements
36
Notes to Financial Statements
52
Financial Highlights
EXPENSE EXAMPLE 53
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 11/30/18 o
(% of Net Assets)
iShares Core MSCI EAFE ETF ............................................... 7.9%
Schwab Fundamental International Large
Company Index ETF ...................................................... 6.4%
Vanguard S&P 500 ETF ..................................................... 4.6%
Vanguard FTSE Developed Markets ETF ...................................... 4.5%
Vanguard FTSE Europe ETF ................................................. 3.4%
Schwab Fundamental Emerging Markets Large
Company Index ETF ...................................................... 3.2%
Vanguard Short-Term Bond ETF ............................................. 2.5%
iShares Core MSCI Emerging Markets ETF ................................... 2.3%
U.S. Treasury Note, 1.13%, 2/28/2021 ..................................... 2.1%
Vanguard Total Bond Market ETF ........................................... 2.1%
*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.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o ASSET ALLOCATION* - 11/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EQUITY SECURITIES 36.6%
U.S. EQUITY SECURITIES 33.8%
U.S. TREASURY SECURITIES 9.5%
FIXED-INCOME EXCHANGE-TRADED FUNDS 7.6%
U.S. GOVERNMENT AGENCY ISSUES 4.0%
GLOBAL REAL ESTATE EQUITY SECURITIES 3.3%
CORPORATE OBLIGATIONS 1.5%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 1.3%
MONEY MARKET INSTRUMENTS 0.7%
ASSET-BACKED SECURITIES 0.5%
EURODOLLAR AND YANKEE OBLIGATIONS 0.5%
COMMERCIAL MORTGAGE SECURITIES 0.2%
CONVERTIBLE SECURITIES 0.1%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
BANK LOANS 0.1%
[END PIE CHART]
*Does not include futures and short-term investments purchased with cash
collateral from securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY SECURITIES (36.6%)
COMMON STOCKS (0.4%)
BASIC MATERIALS (0.1%)
----------------------
CHEMICALS (0.1%)
2,040 Linde plc $ 324
--------
INDUSTRIAL (0.3%)
-----------------
ELECTRONICS (0.2%)
6,450 TE Connectivity Ltd. 496
--------
ENVIRONMENTAL CONTROL (0.1%)
8,480 Pentair plc 362
--------
Total Industrial 858
--------
TECHNOLOGY (0.0%)
-----------------
SEMICONDUCTORS (0.0%)
3,130 Kulicke & Soffa Industries, Inc. 68
--------
Total Common Stocks (cost: $1,274) 1,250
--------
EXCHANGE-TRADED FUNDS (36.1%)
51,700 Invesco FTSE RAFI Developed Markets ex-US 2,066
224,100 Invesco FTSE RAFI Emerging Markets 4,616
458,200 iShares Core MSCI EAFE ETF 27,025
159,380 iShares Core MSCI Emerging Markets ETF 7,884
61,900 iShares Edge MSCI Min Vol EAFE ETF(a) 4,307
66,200 iShares Edge MSCI Min Vol Emerging Markets ETF 3,797
262,000 iShares MSCI Canada ETF 6,980
72,000 iShares MSCI United Kingdom ETF 2,263
397,400 Schwab Fundamental Emerging Markets Large Company Index ETF 10,921
783,300 Schwab Fundamental International Large Company Index ETF 21,643
81,800 Schwab Fundamental International Small Company Index ETF 2,563
14,790 SPDR S&P Emerging Markets SmallCap ETF 641
16,000 USAA MSCI Emerging Markets Value Momentum Blend Index ETF(b) 705
383,600 Vanguard FTSE Developed Markets ETF 15,248
800 Vanguard FTSE Emerging Markets ETF 32
227,200 Vanguard FTSE Europe ETF 11,685
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
16,645 WisdomTree Emerging Markets SmallCap Dividend Fund $ 720
--------
Total Exchange-Traded Funds (cost: $120,697) 123,096
--------
PREFERRED STOCKS (0.1%)
FINANCIAL (0.1%)
----------------
INSURANCE (0.1%)
12,000 Delphi Financial Group, Inc., cumulative redeemable, 5.93%,
(3 mo. LIBOR + 3.19%)(c) (cost: $302) 273
--------
Total International Equity Securities (cost: $122,273) 124,619
--------
U.S. EQUITY SECURITIES (33.8%)
COMMON STOCKS (28.4%)
BASIC MATERIALS (0.5%)
----------------------
CHEMICALS (0.3%)
3,700 AdvanSix, Inc.(d) 106
4,270 Eastman Chemical Co. 337
3,680 LyondellBasell Industries N.V. "A" 343
7,800 Rayonier Advanced Materials, Inc. 115
--------
901
--------
FOREST PRODUCTS & PAPER (0.1%)
9,960 Resolute Forest Products, Inc.(d) 109
3,090 Schweitzer-Mauduit International, Inc. 88
--------
197
--------
IRON/STEEL (0.1%)
3,830 Nucor Corp. 232
6,990 Steel Dynamics, Inc. 246
--------
478
--------
Total Basic Materials 1,576
--------
COMMUNICATIONS (3.2%)
---------------------
ADVERTISING (0.4%)
27,630 Interpublic Group of Companies, Inc. 649
8,610 Omnicom Group, Inc. 663
--------
1,312
--------
INTERNET (0.9%)
550 Amazon.com, Inc.(d) 930
170 Booking Holdings, Inc.(d) 322
2,170 CDW Corp. 201
1,880 F5 Networks, Inc.(d) 323
5,030 GoDaddy, Inc. "A"(d) 328
================================================================================
4 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
1,740 Netflix, Inc.(d) $ 498
1,560 Palo Alto Networks, Inc.(d) 270
620 Stamps.com, Inc.(d) 106
--------
2,978
--------
MEDIA (1.1%)
17,240 Comcast Corp. "A" 673
17,440 Discovery, Inc. "A"(d) 536
15,450 DISH Network Corp. "A"(d) 506
18,110 Entravision Communications Corp. "A" 58
1,380 Nexstar Media Group, Inc. "A" 114
42,860 Sirius XM Holdings, Inc.(a) 267
9,510 TEGNA, Inc. 126
9,010 Twenty-First Century Fox, Inc. "A" 446
24,060 Viacom, Inc. "B" 742
3,030 Walt Disney Co. 350
--------
3,818
--------
TELECOMMUNICATIONS (0.8%)
15,710 AT&T, Inc. 491
13,130 CenturyLink, Inc. 247
3,280 Ciena Corp.(d) 107
1,010 InterDigital, Inc. 76
2,920 Motorola Solutions, Inc. 383
950 Shenandoah Telecommunications Co. 48
5,860 T-Mobile US, Inc.(d) 401
18,030 Verizon Communications, Inc. 1,087
2,940 Vonage Holdings Corp.(d) 31
--------
2,871
--------
Total Communications 10,979
--------
CONSUMER, CYCLICAL (3.4%)
-------------------------
AIRLINES (0.3%)
7,270 Delta Air Lines, Inc. 441
5,230 Southwest Airlines Co. 286
3,310 United Continental Holdings, Inc.(d) 320
--------
1,047
--------
APPAREL (0.2%)
6,230 NIKE, Inc. "B" 468
--------
AUTO MANUFACTURERS (0.2%)
30,620 Ford Motor Co. 288
5,520 PACCAR, Inc. 343
5,460 Wabash National Corp. 85
--------
716
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT (0.3%)
2,620 Allison Transmission Holdings, Inc. $ 123
7,800 Dana, Inc. 113
4,820 Meritor, Inc.(d) 80
1,930 Methode Electronics, Inc. 58
2,860 Tenneco, Inc. "A" 97
4,070 WABCO Holdings, Inc.(d) 494
--------
965
--------
DISTRIBUTION/WHOLESALE (0.1%)
1,820 WESCO International, Inc.(d) 97
760 WW Grainger, Inc. 239
--------
336
--------
ENTERTAINMENT (0.0%)
3,350 Red Rock Resorts, Inc. "A" 88
--------
HOME BUILDERS (0.0%)
4,010 TRI Pointe Group, Inc.(d) 50
--------
HOME FURNISHINGS (0.0%)
2,160 Ethan Allen Interiors, Inc. 45
--------
LEISURE TIME (0.3%)
1,120 Brunswick Corp. 59
5,650 Carnival Corp. 341
5,470 Norwegian Cruise Line Holdings Ltd.(d) 281
2,640 Royal Caribbean Cruises Ltd. 298
--------
979
--------
LODGING (0.0%)
3,100 Boyd Gaming Corp. 77
--------
OFFICE FURNISHINGS (0.1%)
2,360 Herman Miller, Inc. 80
3,640 Knoll, Inc. 71
6,010 Steelcase, Inc. "A" 97
--------
248
--------
RETAIL (1.9%)
780 Asbury Automotive Group, Inc.(d) 54
5,070 Best Buy Co., Inc. 327
1,260 Big Lots, Inc. 55
5,470 Bloomin' Brands, Inc. 107
2,070 Buckle, Inc. 40
2,740 Costco Wholesale Corp. 634
720 Cracker Barrel Old Country Store, Inc. 130
7,530 Del Taco Restaurants, Inc.(d) 81
================================================================================
6 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
1,790 Dick's Sporting Goods, Inc. $ 64
1,600 Foot Locker, Inc. 90
14,820 Gap, Inc. 404
1,180 Group 1 Automotive, Inc. 66
4,450 Hibbett Sports, Inc.(d) 69
3,470 Home Depot, Inc. 626
5,510 Kohl's Corp. 370
1,680 La-Z-Boy, Inc. 49
710 Lithia Motors, Inc. "A" 59
11,750 Macy's, Inc. 402
1,300 MSC Industrial Direct Co., Inc. "A" 115
890 Nu Skin Enterprises, Inc. "A" 59
970 O'Reilly Automotive, Inc.(d) 336
1,190 Penske Automotive Group, Inc. 52
23,770 Qurate Retail, Inc.(d) 528
4,430 Ross Stores, Inc. 388
2,460 Rush Enterprises, Inc. "A" 94
2,960 Sonic Corp. 129
8,580 Target Corp. 609
9,300 TJX Companies, Inc. 454
1,300 Williams-Sonoma, Inc. 74
--------
6,465
--------
Total Consumer, Cyclical 11,484
--------
CONSUMER, NON-CYCLICAL (7.3%)
-----------------------------
AGRICULTURE (0.3%)
5,040 Altria Group, Inc. 276
14,040 Archer-Daniels-Midland Co. 646
--------
922
--------
BEVERAGES (0.4%)
4,820 Brown-Forman Corp. "B" 230
13,980 Coca-Cola Co. 704
5,240 Molson Coors Brewing Co. "B" 345
--------
1,279
--------
BIOTECHNOLOGY (0.9%)
2,400 Biogen, Inc.(d) 801
280 Bio-Rad Laboratories, Inc. "A"(d) 77
1,160 Cambrex Corp.(d) 55
5,230 Celgene Corp.(d) 378
1,240 Emergent BioSolutions, Inc.(d) 90
4,700 Exelixis, Inc.(d) 95
8,400 Gilead Sciences, Inc. 604
4,160 Halozyme Therapeutics, Inc.(d) 69
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
1,160 Illumina, Inc.(d) $ 392
1,790 Myriad Genetics, Inc.(d) 58
1,080 REGENXBIO, Inc.(d) 65
3,700 United Therapeutics Corp.(d) 437
--------
3,121
--------
COMMERCIAL SERVICES (1.1%)
1,680 AMN Healthcare Services, Inc.(d) 107
1,900 Avis Budget Group, Inc.(d) 56
3,210 Booz Allen Hamilton Holding Corp. 165
13,390 H&R Block, Inc. 362
6,730 Hackett Group, Inc. 119
2,960 Moody's Corp. 471
3,620 Quad/Graphics, Inc. 59
2,570 S&P Global, Inc. 470
27,280 Sabre Corp. 697
2,260 Sotheby's(d) 90
2,560 United Rentals, Inc.(d) 300
3,590 Verisk Analytics, Inc.(d) 443
21,810 Western Union Co. 408
--------
3,747
--------
COSMETICS/PERSONAL CARE (0.3%)
2,320 Estee Lauder Companies, Inc. "A" 331
7,810 Procter & Gamble Co. 738
--------
1,069
--------
FOOD (1.0%)
1,490 Cal-Maine Foods, Inc. 69
4,220 Flowers Foods, Inc. 83
9,020 Hormel Foods Corp. 407
6,020 Hostess Brands, Inc.(d) 70
4,020 Ingles Markets, Inc. "A" 117
3,330 Ingredion, Inc. 348
3,080 JM Smucker Co. 322
19,780 Kroger Co. 587
2,980 McCormick & Co., Inc. 447
740 Sanderson Farms, Inc. 84
5,710 Sysco Corp. 385
6,000 Tyson Foods, Inc. "A" 354
--------
3,273
--------
HEALTHCARE-PRODUCTS (0.7%)
640 ABIOMED, Inc.(d) 213
2,290 Bruker Corp. 76
2,000 Edwards Lifesciences Corp.(d) 324
================================================================================
8 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
2,790 Henry Schein, Inc.(d) $ 249
1,180 Hill-Rom Holdings, Inc. 114
1,670 IDEXX Laboratories, Inc.(d) 340
650 Intuitive Surgical, Inc.(d) 345
920 Masimo Corp.(d) 102
5,660 Meridian Bioscience, Inc. 107
17,600 MiMedx Group, Inc.(d) 53
3,850 Patterson Companies, Inc. 98
1,120 STERIS plc 133
1,910 Stryker Corp. 335
--------
2,489
--------
HEALTHCARE-SERVICES (0.8%)
2,340 Centene Corp.(d) 333
340 Chemed Corp. 108
2,170 Cigna Corp. 485
1,460 Encompass Health Corp. 110
1,920 HCA Healthcare, Inc. 276
2,570 Laboratory Corp. of America Holdings(d) 374
2,150 MEDNAX, Inc.(d) 86
3,830 Quest Diagnostics, Inc. 339
4,800 Select Medical Holdings Corp.(d) 93
3,850 Universal Health Services, Inc. "B" 531
470 WellCare Health Plans, Inc.(d) 120
--------
2,855
--------
HOUSEHOLD PRODUCTS/WARES (0.2%)
6,970 ACCO Brands Corp. 57
6,350 Church & Dwight Co., Inc. 420
510 Helen of Troy Ltd.(d) 73
--------
550
--------
PHARMACEUTICALS (1.6%)
5,730 AmerisourceBergen Corp. 509
8,400 Cardinal Health, Inc. 461
3,870 Concert Pharmaceuticals, Inc.(d) 56
5,540 Corcept Therapeutics, Inc.(d) 77
6,270 CVS Health Corp. 503
840 Eagle Pharmaceuticals, Inc.(d) 42
2,600 Eli Lilly & Co. 309
760 Enanta Pharmaceuticals, Inc.(d) 60
10,610 Lannett Co., Inc.(d) 63
3,150 McKesson Corp. 392
5,450 Merck & Co., Inc. 432
12,260 Mylan N.V.(d) 415
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
28,330 Pfizer, Inc. $ 1,310
1,360 Phibro Animal Health Corp. "A" 46
860 PRA Health Sciences, Inc.(d) 100
1,840 Prestige Consumer Healthcare, Inc.(d) 71
1,700 Supernus Pharmaceuticals, Inc.(d) 81
6,250 Zoetis, Inc. 587
--------
5,514
--------
Total Consumer, Non-cyclical 24,819
--------
DIVERSIFIED (0.0%)
------------------
HOLDING COMPANIES-DIVERSIFIED (0.0%)
780 Spectrum Brands Holdings, Inc. 39
--------
ENERGY (1.8%)
-------------
COAL (0.1%)
6,670 Warrior Met Coal, Inc. 158
--------
ENERGY-ALTERNATE SOURCES (0.1%)
3,450 Renewable Energy Group, Inc.(d) 93
1,800 SolarEdge Technologies, Inc.(d) 70
--------
163
--------
OIL & GAS (1.3%)
20,150 Antero Resources Corp.(d) 265
7,890 Apache Corp. 277
4,540 Cimarex Energy Co. 372
13,330 ConocoPhillips 882
3,480 Continental Resources, Inc.(d) 159
8,480 Devon Energy Corp. 229
4,510 Hess Corp. 243
9,100 HollyFrontier Corp. 569
10,790 Laredo Petroleum, Inc.(d) 47
3,230 Mammoth Energy Services, Inc. 81
11,510 Marathon Oil Corp. 192
7,490 Marathon Petroleum Corp. 488
2,960 Matador Resources Co.(d) 68
4,510 Par Pacific Holdings, Inc.(d) 76
2,140 PBF Energy, Inc. "A" 83
19,750 Southwestern Energy Co.(d) 95
15,230 SRC Energy, Inc.(d) 88
4,440 Valero Energy Corp. 355
--------
4,569
--------
================================================================================
10 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
OIL & GAS SERVICES (0.0%)
5,140 ProPetro Holding Corp.(d) $ 84
5,160 U.S. Silica Holdings, Inc. 73
--------
157
--------
PIPELINES (0.3%)
4,060 Cheniere Energy, Inc.(d) 248
5,860 ONEOK, Inc. 360
11,370 Plains GP Holdings, LP "A"(d) 251
4,610 Targa Resources Corp. 206
--------
1,065
--------
Total Energy 6,112
--------
FINANCIAL (4.3%)
----------------
BANKS (1.9%)
1,970 Bank of Hawaii Corp. 157
4,170 BankUnited, Inc. 144
5,620 Cadence BanCorp 115
4,070 Capital One Financial Corp. 365
4,610 Comerica, Inc. 365
1,600 Cullen/Frost Bankers, Inc. 161
10,630 East West Bancorp, Inc. 571
22,320 Fifth Third Bancorp 623
3,730 Great Western Bancorp, Inc. 139
9,170 Hope Bancorp, Inc. 139
7,390 J.P. Morgan Chase & Co. 822
5,250 Meta Financial Group, Inc. 120
37,100 Regions Financial Corp. 610
4,230 Signature Bank 522
1,330 SVB Financial Group(d) 339
13,640 U.S. Bancorp. 743
3,050 Western Alliance Bancorp(d) 143
10,550 Zions Bancorp. N.V. 513
--------
6,591
--------
DIVERSIFIED FINANCIAL SERVICES (1.5%)
2,200 Affiliated Managers Group, Inc. 244
3,080 Alliance Data Systems Corp. 617
20,130 Ally Financial, Inc. 537
2,830 American Express Co. 318
1,600 CME Group, Inc. 304
3,000 Encore Capital Group, Inc.(d) 84
1,980 Federal Agricultural Mortgage Corp. "C" 131
11,350 Franklin Resources, Inc. 385
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
3,800 Mastercard, Inc. "A" $ 764
2,130 Nelnet, Inc. "A" 116
10,634 Synchrony Financial 276
3,550 T. Rowe Price Group, Inc. 353
5,460 Virtu Financial, Inc. "A" 137
4,330 Visa, Inc. "A" 614
6,070 Waddell & Reed Financial, Inc. "A" 124
1,040 World Acceptance Corp.(d) 113
--------
5,117
--------
INSURANCE (0.9%)
8,420 Aflac, Inc. 385
3,150 American Equity Investment Life Holding Co. 108
5,290 Athene Holding Ltd. "A"(d) 230
2,470 Employers Holdings, Inc. 111
3,990 Essent Group Ltd.(d) 154
1,070 Primerica, Inc. 127
5,490 Principal Financial Group, Inc. 271
6,440 Progressive Corp. 427
2,850 Prudential Financial, Inc. 267
4,400 Torchmark Corp. 380
2,410 Universal Insurance Holdings, Inc. 106
9,190 Voya Financial, Inc. 413
--------
2,979
--------
Total Financial 14,687
--------
INDUSTRIAL (2.6%)
-----------------
AEROSPACE/DEFENSE (0.1%)
1,200 Boeing Co. 416
--------
BUILDING MATERIALS (0.3%)
2,090 Apogee Enterprises, Inc. 76
8,270 Fortune Brands Home & Security, Inc. 362
1,550 Masonite International Corp.(d) 83
6,700 NCI Building Systems, Inc.(d) 76
7,740 Owens Corning 404
1,630 Patrick Industries, Inc.(d) 65
--------
1,066
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
2,030 Generac Holdings, Inc.(d) 116
--------
ELECTRONICS (0.7%)
8,350 Arrow Electronics, Inc.(d) 643
3,870 Atkore International Group, Inc.(d) 79
3,220 Jabil, Inc. 80
================================================================================
12 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
4,750 Keysight Technologies, Inc.(d) $ 294
890 Mettler-Toledo International, Inc.(d) 567
1,554 SYNNEX Corp. 126
970 Tech Data Corp.(d) 87
2,520 Waters Corp.(d) 500
--------
2,376
--------
ENGINEERING & CONSTRUCTION (0.1%)
6,570 Fluor Corp. 269
--------
ENVIRONMENTAL CONTROL (0.2%)
4,950 Waste Management, Inc. 464
--------
HAND/MACHINE TOOLS (0.1%)
1,390 Regal Beloit Corp. 109
1,530 Snap-on, Inc. 254
--------
363
--------
MACHINERY-DIVERSIFIED (0.2%)
4,760 AGCO Corp. 284
2,510 Cummins, Inc. 379
4,800 Ichor Holdings Ltd.(d) 88
--------
751
--------
METAL FABRICATION/HARDWARE (0.0%)
2,350 Timken Co. 94
--------
MISCELLANEOUS MANUFACTURERS (0.4%)
1,300 Crane Co. 112
6,340 Eaton Corp. plc 488
2,100 Hillenbrand, Inc. 93
870 Sturm Ruger & Co., Inc. 46
7,730 Textron, Inc. 434
2,470 Trinseo S.A. 125
--------
1,298
--------
PACKAGING & CONTAINERS (0.2%)
3,210 Berry Global Group, Inc.(d) 162
4,630 Silgan Holdings, Inc. 119
4,890 Westrock Co. 230
--------
511
--------
SHIPBUILDING (0.1%)
1,030 Huntington Ingalls Industries, Inc. 222
--------
TRANSPORTATION (0.2%)
2,730 Air Transport Services Group, Inc.(d) 51
3,380 CH Robinson Worldwide, Inc. 312
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
2,380 Union Pacific Corp. $ 366
1,670 Werner Enterprises, Inc. 56
--------
785
--------
TRUCKING & LEASING (0.0%)
1,790 Greenbrier Companies, Inc. 88
--------
Total Industrial 8,819
--------
TECHNOLOGY (4.4%)
-----------------
COMPUTERS (1.7%)
5,570 Apple, Inc. 995
780 CACI International, Inc. "A"(d) 129
6,800 Cognizant Technology Solutions Corp. "A" 484
6,300 DXC Technology Co. 397
2,720 Fortinet, Inc.(d) 201
34,880 Hewlett Packard Enterprise Co. 523
1,610 Insight Enterprises, Inc.(d) 72
6,970 International Business Machines Corp. 866
8,540 Leidos Holdings, Inc. 538
2,250 MAXIMUS, Inc. 160
3,120 NCR Corp.(d) 87
4,190 NetApp, Inc. 280
1,630 Science Applications International Corp. 113
14,120 Seagate Technology plc 608
9,560 Western Digital Corp. 434
--------
5,887
--------
OFFICE/BUSINESS EQUIPMENT (0.0%)
10,390 Pitney Bowes, Inc. 88
--------
SEMICONDUCTORS (1.1%)
13,090 Advanced Micro Devices, Inc.(d) 279
6,270 Applied Materials, Inc. 234
2,050 Cirrus Logic, Inc.(d) 77
13,590 Intel Corp. 670
2,040 Lam Research Corp. 320
16,560 Micron Technology, Inc.(d) 638
2,270 NVIDIA Corp. 371
4,150 QUALCOMM, Inc. 242
2,520 SMART Global Holdings, Inc.(d) 86
2,820 Texas Instruments, Inc. 282
8,480 Ultra Clean Holdings, Inc.(d) 80
4,120 Xilinx, Inc. 381
--------
3,660
--------
================================================================================
14 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
SOFTWARE (1.6%)
1,790 Adobe, Inc.(d) $ 449
2,650 Broadridge Financial Solutions, Inc. 281
6,180 Citrix Systems, Inc.(d) 674
3,490 CSG Systems International, Inc. 123
22,970 First Data Corp. "A"(d) 438
2,900 Intuit, Inc. 622
1,760 j2 Global, Inc. 130
2,670 Manhattan Associates, Inc.(d) 132
10,310 Microsoft Corp. 1,143
1,860 MSCI, Inc. 292
16,270 Oracle Corp. 793
2,790 salesforce.com, Inc.(d) 398
--------
5,475
--------
Total Technology 15,110
--------
UTILITIES (0.9%)
----------------
ELECTRIC (0.7%)
7,810 Consolidated Edison, Inc. 628
11,280 Exelon Corp. 523
1,370 IDACORP, Inc. 135
2,790 NextEra Energy, Inc. 507
10,270 PPL Corp. 314
13,370 Spark Energy, Inc. "A" 121
--------
2,228
--------
GAS (0.2%)
2,810 New Jersey Resources Corp. 136
1,600 Southwest Gas Holdings, Inc. 126
9,340 UGI Corp. 537
--------
799
--------
Total Utilities 3,027
--------
Total Common Stocks (cost: $94,438) 96,652
--------
EXCHANGE-TRADED FUNDS (5.1%)
11,610 iShares Russell 2000 ETF 1,772
60,980 Vanguard S&P 500 ETF 15,457
--------
Total Exchange-Traded Funds (cost: $15,553) 17,229
--------
PREFERRED STOCKS (0.3%)
COMMUNICATIONS (0.0%)
---------------------
TELECOMMUNICATIONS (0.0%)
8,000 Qwest Corp., 6.50%(e) 167
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
CONSUMER, NON-CYCLICAL (0.1%)
-----------------------------
AGRICULTURE (0.1%)
8,000 CHS, Inc., cumulative redeemable "B", 7.88%(e),(f) $ 216
--------
FOOD (0.0%)
2,000 Dairy Farmers of America, Inc., cumulative redeemable, 7.88%(e),(f),(g) 201
--------
Total Consumer, Non-cyclical 417
--------
ENERGY (0.1%)
-------------
OIL & GAS (0.1%)
600 Chesapeake Energy Corp., 5.75%(e),(f),(g) 338
--------
FINANCIAL (0.1%)
----------------
BANKS (0.1%)
235 M&T Bank Corp., cumulative redeemable, 6.38%(e),(f) 236
--------
Total Preferred Stocks (cost: $1,298) 1,158
--------
Total U.S. Equity Securities (cost: $111,289) 115,039
--------
-------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-------------------------------------------------------------------------------------------------------------
BONDS (24.1%)
ASSET-BACKED SECURITIES (0.5%)
ASSET BACKED SECURITIES (0.5%)
------------------------------
AUTOMOBILE ABS (0.4%)
$ 86 Americredit Automobile Receivables Trust 3.15% 3/20/2023 86
240 Americredit Automobile Receivables Trust 3.50 1/18/2024 238
125 Avis Budget Rental Car Funding AESOP, LLC(g) 2.96 7/20/2020 125
89 Avis Budget Rental Car Funding AESOP, LLC(g) 3.75 7/20/2020 89
271 Avis Budget Rental Car Funding AESOP, LLC(g) 2.50 2/20/2021 269
162 Credit Acceptance Auto Loan Trust(g) 4.29 11/15/2024 163
165 Credit Acceptance Auto Loan Trust(g) 3.55 8/15/2027 165
280 OSCAR U.S. Funding Trust IX, LLC(g) 3.63 9/10/2025 281
--------
1,416
--------
CREDIT CARD ABS (0.0%)
137 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 134
--------
OTHER ABS (0.1%)
120 Element Rail Leasing I, LLC(g) 3.67 4/19/2044 120
40 NP SPE II, LLC(g) 3.37 10/21/2047 39
88 SCF Equipment Leasing, LLC(g) 3.41 12/20/2023 88
--------
247
--------
================================================================================
16 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
STUDENT LOAN ABS (0.0%)
$ 50 Navient Student Loan Trust (1 mo. LIBOR + 1.50%) 3.82%(c) 8/25/2050 $ 50
--------
Total Asset Backed Securities 1,847
--------
Total Asset-Backed Securities (cost: $1,848) 1,847
--------
BANK LOANS (0.1%)(H)
CONSUMER, CYCLICAL (0.1%)
-------------------------
RETAIL (0.1%)
201 Academy, Ltd. (1 mo. LIBOR + 4.00%) 6.30 7/01/2022 148
95 Academy, Ltd. (1 mo. LIBOR + 4.00%) 6.31 7/01/2022 69
--------
Total Consumer, Cyclical 217
--------
Total Bank Loans (cost: $235) 217
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
MORTGAGE SECURITIES (0.1%)
--------------------------
39 Sequoia Mortgage Trust (1 mo. LIBOR + 0.90%) 3.20(c) 9/20/2033 38
180 Structured Asset Mortgage Investments Trust
(1 mo. LIBOR + 0.50%) 3.05(c) 7/19/2035 169
34 Wells Fargo Mortgage Backed Securities Trust 4.13(i) 4/25/2035 34
--------
Total Mortgage Securities 241
--------
Total Collateralized Mortgage Obligations (cost: $252) 241
--------
COMMERCIAL MORTGAGE SECURITIES (0.2%)
MORTGAGE SECURITIES (0.2%)
--------------------------
COMMERCIAL MBS (0.2%)
41 Banc of America Commercial Mortgage Trust 5.86(i) 7/10/2044 15
10 Banc of America Commercial Mortgage Trust 6.79(i) 2/10/2051 10
15 Bear Stearns Commercial Mortgage Securities Trust(g) 5.66(i) 9/11/2041 15
160 BT-h21 Mortgage-Backed Securities Trust
(1 mo. LIBOR + 2.50%)(g) 4.46(c) 10/07/2021 160
2 Commercial Mortgage Trust 5.38 12/10/2046 2
113 Credit Suisse Commercial Mortgage Trust
(1 mo. LIBOR + 0.19%) 2.49(c) 2/15/2040 112
806 CSAIL Commercial Mortgage Trust(j),(k) 1.95(i) 1/15/2049 73
250 FREMF Mortgage Trust(g) 3.69(i) 8/25/2045 250
20 GE Capital Commercial Mortgage Corp. 5.61(i) 12/10/2049 19
3 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 3
88 J.P.Morgan Chase Commercial Mortgage Securities Trust 5.37 5/15/2047 88
857 UBS Commercial Mortgage Trust(g),(j),(k) 2.25(i) 5/10/2045 48
--------
Total Mortgage Securities 795
--------
Total Commercial Mortgage Securities (cost: $822) 795
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES (0.1%)
BASIC MATERIALS (0.1%)
----------------------
MINING (0.1%)
$ 400 Pretium Resources, Inc. (cost: $373) 2.25% 03/15/2022 $ 346
--------
CORPORATE OBLIGATIONS (1.5%)
COMMUNICATIONS (0.1%)
---------------------
TELECOMMUNICATIONS (0.1%)
250 Hughes Satellite Systems Corp.(e) 6.50 6/15/2019 254
--------
CONSUMER, CYCLICAL (0.2%)
-------------------------
AIRLINES (0.0%)
31 Continental Airlines, Inc. Pass-Through Trust "B" 6.25 10/11/2021 32
--------
AUTO MANUFACTURERS (0.2%)
300 Harley-Davidson Financial Services, Inc.(e),(g) 3.55 5/21/2021 298
350 Hyundai Capital America(e),(g) 3.75 7/08/2021 347
--------
645
--------
Total Consumer, Cyclical 677
--------
CONSUMER, NON-CYCLICAL (0.0%)
-----------------------------
HEALTHCARE-SERVICES (0.0%)
300 Community Health Systems, Inc.(e) 6.88 2/01/2022 150
--------
ENERGY (0.4%)
-------------
PIPELINES (0.4%)
100 Enbridge Energy Partners, LP(e) 7.38 10/15/2045 123
400 EQM Midstream Partners, LP(e) 4.75 7/15/2023 397
401 Rockies Express Pipeline, LLC(e),(g) 6.00 1/15/2019 402
190 Southern Union Co. (3 mo. LIBOR + 3.02%)(e) 5.56(c) 11/01/2066 155
150 Tallgrass Energy Partners, LP / Tallgrass
Energy Finance Corp.(e),(g) 5.50 9/15/2024 151
--------
Total Energy 1,228
--------
FINANCIAL (0.5%)
----------------
BANKS (0.1%)
200 Compass Bank(e) 3.88 4/10/2025 191
50 First Maryland Capital Trust I
(3 mo. LIBOR + 1.00%)(e) 3.44(c) 1/15/2027 47
200 SunTrust Capital I (3 mo. LIBOR + 0.67%)(e) 3.29(c) 5/15/2027 178
--------
416
--------
================================================================================
18 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (0.0%)
$ 175 Cullen/Frost Capital Trust II
(3 mo. LIBOR + 1.55%)(e) 4.29%(c) 3/01/2034 $ 158
--------
INSURANCE (0.4%)
200 Allstate Corp. (3 mo. LIBOR + 2.94%)(e) 5.75(l) 8/15/2053 198
350 Athene Holding Ltd.(e) 4.13 1/12/2028 319
200 HSB Group, Inc. (3 mo. LIBOR + 0.91%)(e) 3.35(c) 7/15/2027 171
300 Nationwide Mutual Insurance Co.
(3 mo. LIBOR + 2.29%)(e),(g) 4.62(c) 12/15/2024 300
200 Prudential Financial, Inc.
(3 mo. LIBOR + 3.92%)(e) 5.63(l) 6/15/2043 201
--------
1,189
--------
INVESTMENT COMPANIES (0.0%)
100 Ares Capital Corp.(e) 3.63 1/19/2022 98
--------
Total Financial 1,861
--------
INDUSTRIAL (0.2%)
-----------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
100 Artesyn Embedded Technologies, Inc.(e),(g) 9.75 10/15/2020 94
--------
MISCELLANEOUS MANUFACTURERS (0.1%)
105 General Electric Co.(e) 5.50 1/08/2020 106
--------
TRANSPORTATION (0.1%)
350 Ryder System, Inc.(e) 3.50 6/01/2021 348
--------
Total Industrial 548
--------
UTILITIES (0.1%)
----------------
ELECTRIC (0.1%)
267 NextEra Energy Capital Holdings, Inc.(e) 3.34 9/01/2020 266
--------
Total Corporate Obligations (cost: $5,046) 4,984
--------
EURODOLLAR AND YANKEE OBLIGATIONS (0.5%)
BASIC MATERIALS (0.0%)
----------------------
MINING (0.0%)
100 Newcrest Finance Pty. Ltd.(e),(g) 4.45 11/15/2021 101
--------
CONSUMER, CYCLICAL (0.1%)
-------------------------
AUTO MANUFACTURERS (0.1%)
400 BMW U.S. Capital, LLC(e),(g) 3.25 8/14/2020 399
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
ENERGY (0.3%)
-------------
OIL & GAS (0.3%)
$ 400 Petrobras Global Finance B.V.(e) 5.38% 1/27/2021 $ 407
400 Petroleos Mexicanos(e) 5.38 3/13/2022 392
--------
799
--------
OIL & GAS SERVICES (0.0%)
6 Schahin II Finance Co. SPV Ltd.(g),(m) 8.00 5/25/2020 6
261 Schahin II Finance Co. SPV Ltd.(g),(n) 5.88 9/25/2023 28
--------
34
--------
Total Energy 833
--------
FINANCIAL (0.1%)
----------------
INSURANCE (0.1%)
200 QBE Capital Funding III Ltd. (USD Swap
Semi-Annual 30/360 10 YR + 4.05%)(e),(g) 7.25(l) 5/24/2041 211
--------
Total Eurodollar and Yankee Obligations (cost: $1,729) 1,544
--------
-------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------
FIXED-INCOME EXCHANGE-TRADED FUNDS (7.6%)
96,587 Invesco Fundamental High Yield Corporate Bond ETF(a) 1,742
41,510 iShares iBoxx $High Yield Corporate Bond ETF(a) 3,470
99,620 SPDR Bloomberg Barclays High Yield Bond ETF(a) 3,460
107,500 Vanguard Short-Term Bond ETF(a) 8,394
23,200 Vanguard Short-Term Corporate Bond ETF 1,802
91,700 Vanguard Total Bond Market ETF 7,166
--------
Total Fixed-Income Exchange-Traded Funds (cost: $26,688) 26,034
--------
-------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (4.0%)(o)
COMMERCIAL MBS (0.5%)
$ 250 Fannie Mae(+) 2.15% 1/25/2023 241
700 Freddie Mac(+) 3.00 12/25/2025 684
300 Freddie Mac(+) 3.33(i) 5/25/2025 299
500 Freddie Mac(+) 3.51 4/25/2030 489
--------
1,713
--------
================================================================================
20 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
FGLMC COLLATERAL (3.5%)
$ 461 Freddie Mac(+)(e) 3.00% 4/01/2046 $ 440
1,375 Freddie Mac(+)(e) 3.00 6/01/2046 1,313
500 Freddie Mac(+)(e) 3.00 9/01/2046 477
252 Freddie Mac(+)(e) 3.00 10/01/2046 240
849 Freddie Mac(+)(e) 3.00 11/01/2046 811
1,747 Freddie Mac(+)(e) 3.00 1/01/2047 1,666
879 Freddie Mac(+)(e) 3.00 1/01/2047 839
848 Freddie Mac(+)(e) 3.00 3/01/2047 810
901 Freddie Mac(+)(e) 3.00 4/01/2047 859
271 Freddie Mac(+)(e) 3.00 4/01/2047 258
699 Freddie Mac(+)(e) 3.00 9/01/2047 666
472 Freddie Mac(+)(e) 3.00 10/01/2047 450
2,561 Freddie Mac(+)(e) 3.50 4/01/2046 2,522
482 Freddie Mac(+)(e) 3.50 4/01/2048 473
--------
11,824
--------
Total U.S. Government Agency Issues (cost: $14,240) 13,537
--------
U.S. TREASURY SECURITIES (9.5%)
BONDS (1.6%)(P)
30 U.S. Treasury Bond (STRIPS Principal) (Zero Coupon) 0.00 8/15/2044 13
3,100 U.S. Treasury Bond (STRIPS Principal) (Zero Coupon) 0.00 5/15/2045 1,287
100 U.S. Treasury Bond 2.50 2/15/2045 86
200 U.S. Treasury Bond 3.00 11/15/2044 189
700 U.S. Treasury Bond 3.00 5/15/2047 660
500 U.S. Treasury Bond 3.00 8/15/2048 470
2,250 U.S. Treasury Bond 3.13 8/15/2044 2,179
500 U.S. Treasury Bond 3.38 11/15/2048 506
--------
5,390
--------
INFLATION-INDEXED NOTES (0.9%)
2,130 Inflation-Index Note 0.13 4/15/2021 2,074
1,053 Inflation-Index Note 0.13 7/15/2026 986
--------
3,060
--------
NOTES (7.0%)(P)
7,500 U.S. Treasury Note(q) 1.13 2/28/2021 7,226
800 U.S. Treasury Note 1.63 4/30/2023 759
3,200 U.S. Treasury Note 1.63 2/15/2026 2,929
600 U.S. Treasury Note 1.63 5/15/2026 547
100 U.S. Treasury Note 2.00 2/15/2025 95
1,000 U.S. Treasury Note 2.25 11/15/2025 957
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 2,600 U.S. Treasury Note 2.25% 2/15/2027 $ 2,463
1,250 U.S. Treasury Note 2.25 8/15/2027 1,179
2,500 U.S. Treasury Note 2.25 11/15/2027 2,353
1,500 U.S. Treasury Note 2.38 5/15/2027 1,433
2,000 U.S. Treasury Note 2.75 2/15/2028 1,959
2,000 U.S. Treasury Note 2.88 5/15/2028 1,978
--------
23,878
--------
Total U.S. Treasury Securities (cost: $33,592) 32,328
--------
Total Bonds (cost: $84,825) 81,873
--------
-------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------
GLOBAL REAL ESTATE EQUITY SECURITIES (3.3%)
COMMON STOCKS (1.5%)
FINANCIAL (1.5%)
----------------
DIVERSIFIED FINANCIAL SERVICES (0.0%)
6,261 Altisource Portfolio Solutions S.A.(d) 149
--------
REAL ESTATE (0.4%)
9,330 CBRE Group, Inc. "A"(d) 408
3,710 HFF, Inc. "A" 150
2,510 Jones Lang LaSalle, Inc. 359
7,960 Realogy Holdings Corp. 153
1,910 RMR Group, Inc. "A" 124
--------
1,194
--------
REITS (1.1%)
46,580 Annaly Capital Management, Inc. 468
6,790 CoreCivic, Inc. 149
6,760 GEO Group, Inc. 157
20,600 Host Hotels & Resorts, Inc. 391
20,980 Kimco Realty Corp. 343
7,170 Ladder Capital Corp. 127
2,450 Lamar Advertising Co. "A" 186
3,650 LTC Properties, Inc. 169
3,896 PotlatchDeltic Corp. 144
8,420 Prologis, Inc. 567
6,880 Tanger Factory Outlet Centers, Inc. 163
6,770 Ventas, Inc. 430
================================================================================
22 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
21,170 Washington Prime Group, Inc. $ 132
10,930 Weyerhaeuser Co. 289
--------
3,715
--------
Total Financial 5,058
--------
Total Common Stocks (cost: $5,355) 5,058
--------
EXCHANGE-TRADED FUNDS (1.8%)
76,730 Vanguard Real Estate ETF (cost: $6,081) 6,290
--------
Total Global Real Estate Equity Securities (cost: $11,436) 11,348
--------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.3%)
COMMON STOCKS (0.0%)
BASIC MATERIALS (0.0%)
----------------------
MINING (0.0%)
8,197 Hycroft Mining Corp.(d),(j),(m),(r) (cost: $257) -
--------
EXCHANGE-TRADED FUNDS (1.3%)
16,300 First Trust Global Tactical Commodity Strategy Fund 304
28,600 Invesco DB Commodity Index Tracking Fund(d) 437
52,800 United States Commodity Index Fund(d) 2,020
77,900 VanEck Vectors Gold Miners ETF 1,487
12,000 VanEck Vectors Junior Gold Miners ETF 319
--------
Total Exchange-Traded Funds (cost: $5,471) 4,567
--------
Total Precious Metals and Commodity-Related Securities (cost: $5,728) 4,567
--------
-------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.7%)
COMMERCIAL PAPER (0.2%)
$ 300 CNH Industrial Capital, LLC(e),(g) 3.25% 1/07/2019 299
460 Victory Receivables Corp.(e),(g) 2.30 12/06/2018 460
--------
Total Commercial Paper (cost: $759) 759
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.5%)
1,707,449 State Street Institutional Treasury Money Market Fund
Premier Class, 2.19%(e),(s) (cost: $1,707) $ 1,707
--------
Total Money Market Instruments (cost: $2,466) 2,466
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (3.7%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.7%)
1,115 HSBC U.S. Government Money Market Fund Class I, 2.13%(s) 1
8,639,553 Invesco Government & Agency Portfolio Institutional Class, 2.12%(s) 8,640
3,703,276 Western Asset Institutional Government Reserves Institutional Class, 2.10%(s) 3,703
--------
Total Short-Term Investments Purchased with Cash Collateral
from Securities Loaned (cost: $12,344) 12,344
--------
TOTAL INVESTMENTS (COST: $350,361) $352,256
========
-------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION NOTIONAL CONTRACT (DEPRECIATION)
CONTRACTS DESCRIPTION DATE AMOUNT (000) VALUE (000) (000)
-------------------------------------------------------------------------------------------------------------
FUTURES (3.2%)
LONG FUTURES
EQUITY CONTRACTS
117 E-mini S&P 500 12/21/2018 USD 16,975 $16,136 $(839)
------- -----
TOTAL LONG FUTURES $16,136 $(839)
------- -----
SHORT FUTURES
EQUITY CONTRACTS
10 E-mini Russell 2000 12/21/2018 USD (747) $ (767) $ (20)
49 Swiss Market Future
Index 12/21/2018 CHF (4,394) (4,432) (34)
------- -----
TOTAL SHORT FUTURES $(5,199) $ (54)
------- -----
TOTAL FUTURES $10,937 $(893)
------- -----
================================================================================
24 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
International Equity Securities:
Common Stocks $ 1,250 $ - $- $ 1,250
Exchange-Traded Funds 123,096 - - 123,096
Preferred Stocks - 273 - 273
U.S. Equity Securities:
Common Stocks 96,652 - - 96,652
Exchange-Traded Funds 17,229 - - 17,229
Preferred Stocks - 1,158 - 1,158
Bonds:
Asset-Backed Securities - 1,847 - 1,847
Bank Loans - 217 - 217
Collateralized Mortgage Obligations - 241 - 241
Commercial Mortgage Securities - 795 - 795
Convertible Securities - 346 - 346
Corporate Obligations - 4,984 - 4,984
Eurodollar and Yankee Obligations - 1,544 - 1,544
Fixed-Income Exchange-Traded Funds 26,034 - - 26,034
U.S. Government Agency Issues - 13,537 - 13,537
U.S. Treasury Securities 31,028 1,300 - 32,328
Global Real Estate Equity Securities:
Common Stocks 5,058 - - 5,058
Exchange-Traded Funds 6,290 - - 6,290
Precious Metals and Commodity-
Related Securities:
Common Stocks - - - -
Exchange-Traded Funds 4,567 - - 4,567
Money Market Instruments:
Commercial Paper - 759 - 759
Government & U.S. Treasury
Money Market Funds 1,707 - - 1,707
Short-Term Investments Purchased
with Cash Collateral from
Securities Loaned:
Government & U.S. Treasury
Money Market Funds 12,344 - - 12,344
-------------------------------------------------------------------------------------------------------------
Total $325,255 $27,001 $- $352,256
-------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Futures(1) $ (893) $ - $- $ (893)
-------------------------------------------------------------------------------------------------------------
Total $ (893) $ - $- $ (893)
-------------------------------------------------------------------------------------------------------------
(1)Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
For the period of June 1, 2018, through November 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
26 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 37.9% of net assets at November 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
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 27
================================================================================
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages paydown.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable cash flows than regular mortgage
securities, but such cash flows can be difficult to predict because of the
effect of prepayments.
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.
COMMERCIAL PAPER - Consists of short-term unsecured promissory notes with
maturities ranging from one to 270 days, issued mainly by corporations.
Commercial paper is usually purchased at a discount and matures at par
value; however, it also may be interest-bearing. Rate represents an
annualized yield at time of purchase or coupon rate, if applicable.
================================================================================
28 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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.
STRIPS Separate trading of registered interest and principal of
securities
Zero Coupon Normally issued at a significant discount from face value and
do not provide for periodic interest payments. Income is earned
from the purchase date by accreting the purchase discount of
the security to par over the life of the security.
o SPECIFIC NOTES
(a) The security, or a portion thereof, was out on loan as of November 30,
2018.
(b) Investment in affiliated exchange-traded fund.
(c) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at November 30, 2018.
(d) Non-income-producing security.
(e) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2018.
(f) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(g) 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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
USAA Mutual Funds Trust's Board of Trustees, unless otherwise noted as
illiquid.
(h) Senior loans (loans) - are not registered under the Securities Act of
1933. The loans contain certain restrictions on resale and cannot be
sold publicly. The stated interest rates represent the all in interest
rate of all contracts within the loan facilities. The interest rates
are adjusted periodically, and the rates disclosed represent the
current rate at November 30, 2018. The weighted average life of the
loans are likely to be shorter than the stated final maturity date due
to mandatory or optional prepayments. The loans are 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.
(i) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(j) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(k) Security is interest only. 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.
(l) Fixed to floating security that initially pays a fixed rate and
converts to a floating rate coupon at a specified date in the future.
The rate presented is a fixed rate.
================================================================================
30 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
(m) Security was fair valued at November 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 $6,000, which represented less than 0.1% of the Fund's net assets.
(n) At November 30, 2018, the issuer was in default with respect to
interest and/or principal payments.
(o) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by
the full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Federal Home Loan Mortgage Corporation (Freddie Mac
or FHLMC) and Federal National Mortgage Association (Fannie Mae or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow from the U.S. Treasury, the discretionary authority of the
U.S. government to purchase the GSEs' obligations, or only by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury. In September of
2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under
conservatorship and appointed the Federal Housing Finance Agency (FHFA)
to act as conservator and oversee their daily operations. In addition,
the U.S. Treasury entered into purchase agreements with Fannie Mae and
Freddie Mac to provide them with capital in exchange for senior
preferred stock. While these arrangements are intended to ensure that
Fannie Mae and Freddie Mac can continue to meet their obligations, it
is possible that actions by the U.S. Treasury, FHFA, or others could
adversely impact the value of the Fund's investments in securities
issued by Fannie Mae and Freddie Mac.
(p) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
(q) Securities with a value of $1,927,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(r) Security was classified as Level 3.
(s) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
32 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in unaffiliated securities, at market value (including
securities on loan of $12,010) (cost of $349,591) $351,551
Investments in affiliated underlying funds, at market value (cost of $770) 705
Cash 846
Cash denominated in foreign currencies (identified cost of $109) 107
Receivables:
Capital shares sold 378
USAA Asset Management Company (Note 6) 133
Dividends and interest 454
Securities sold 2,334
Other 21
--------
Total assets 356,529
--------
LIABILITIES
Payables:
Upon return of securities loaned 12,344
Securities purchased 2,343
Capital shares redeemed 142
Variation margin on futures contracts 892
Accrued management fees 167
Accrued transfer agent's fees 68
Other accrued expenses and payables 100
--------
Total liabilities 16,056
--------
Net assets applicable to capital shares outstanding $340,473
========
NET ASSETS CONSIST OF:
Paid-in capital $322,773
Distributable earnings 17,700
--------
Net assets applicable to capital shares outstanding $340,473
========
Capital shares outstanding, no par value 27,568
========
Net asset value, redemption price, and offering price per share $ 12.35
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 1
Dividends 3,057
Interest 840
Securities lending (net) 67
--------
Total income 3,965
--------
EXPENSES
Management fees 1,045
Administration and servicing fees 261
Transfer agent's fees 614
Custody and accounting fees 77
Postage 25
Shareholder reporting fees 15
Trustees' fees 18
Registration fees 18
Professional fees 42
Other 7
--------
Total expenses 2,122
Expenses reimbursed (207)
--------
Net expenses 1,915
--------
NET INVESTMENT INCOME 2,050
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain on:
Investments 3,990
Foreign currency transactions 1
Futures transactions 671
Change in net unrealized appreciation/(depreciation) of:
Unaffiliated investments (18,256)
Affiliated investments (Note 8) (63)
Futures contracts (1,031)
--------
Net realized and unrealized loss (14,688)
--------
Decrease in net assets resulting from operations $(12,638)
========
See accompanying notes to financial statements.
================================================================================
34 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended
May 31, 2018
-------------------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
-------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,050 $ 3,742
Net realized gain on investments 3,990 20,754
Net realized gain on foreign currency transactions 1 138
Net realized gain on long-term capital gain distributions
from other investment companies - 8
Net realized gain on futures transactions 671 3,040
Change in net unrealized appreciation/(depreciation) of:
Investments (18,319) (1,046)
Foreign currency translations - (16)
Futures contracts (1,031) (990)
---------------------------
Increase (decrease) in net assets resulting from operations (12,638) 25,630
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS: - (20,579)
---------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 38,133 99,547
Reinvested dividends - 19,583
Cost of shares redeemed (29,790) (63,280)
---------------------------
Increase in net assets from capital share transactions 8,343 55,850
---------------------------
Net increase (decrease) in net assets (4,295) 60,901
NET ASSETS
Beginning of period 344,768 283,867
---------------------------
End of period $340,473 $344,768
===========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,988 7,677
Shares issued for dividends reinvested - 1,525
Shares redeemed (2,333) (4,870)
---------------------------
Increase in shares outstanding 655 4,332
===========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds. The
USAA Cornerstone Aggressive Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek capital
appreciation over the long term and also considers the potential for current
income.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
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
================================================================================
36 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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.
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
================================================================================
38 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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 debt securities that are valued using market inputs
and other observable factors deemed by the Manager to appropriately
reflect fair value.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
================================================================================
40 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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 November 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
interest or exchange rates or securities prices moving unexpectedly in an
unfavorable direction, in which case, the Fund may not achieve the
anticipated benefits of the futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2018*
(IN THOUSANDS)
LIABILITY DERIVATIVES
------------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF
ACCOUNTED FOR AS ASSETS AND INTEREST FOREIGN
HEDGING LIABILITIES RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
------------------------------------------------------------------------------------------------
USAA Distributable $- $(893)** $- $(893)
Cornerstone earnings
Aggressive Fund
------------------------------------------------------------------------------------------------
*For open derivative instruments as of November 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 NOVEMBER 30, 2018 (IN THOUSANDS)
NET REALIZED GAIN (LOSS)
------------------------------------------------------------------------------------------------
DERIVATIVES NOT
ACCOUNTED FOR AS STATEMENT OF INTEREST FOREIGN
HEDGING OPERATIONS RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
------------------------------------------------------------------------------------------------
USAA Net realized gain $- $671 $- $671
Cornerstone on Futures
Aggressive Fund transactions
------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
------------------------------------------------------------------------------------------------
DERIVATIVES NOT
ACCOUNTED FOR AS STATEMENT OF INTEREST FOREIGN
HEDGING OPERATIONS RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
------------------------------------------------------------------------------------------------
USAA Change in net $- $(1,031) $- $(1,031)
Cornerstone unrealized
Aggressive Fund appreciations/
(depreciation) of
Futures contracts
------------------------------------------------------------------------------------------------
================================================================================
42 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
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 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. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can take
place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of 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.
================================================================================
44 | USAA CORNERSTONE AGGRESSIVE 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
committed loan agreement, the assessed facility fee on the amount of the
additional commitment will be 15.0 basis points.
For the six-month period ended November 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 November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
-------------------------------------------------------------------------------
USAA Cornerstone
Aggressive Fund $13,779,000 $(11,884,000) $1,895,000
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$173,273,000 and $160,328,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no
================================================================================
46 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
brokerage commissions incurred. The affiliated transactions executed by the
Fund, including short-term securities, during the six-month period ended
November 30, 2018 were as follows:
PURCHASES SALES NET REALIZED GAIN
--------------------------------------------------------------------------------
$268,000 $- $-
(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 November 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
--------------------------------------------------------------------------------
$12,010,000 $- $12,344,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(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, and for directly
managing the day-to-day investment of the Fund's assets, subject to the
authority of and supervision by the Board. The Manager is authorized to select
(with approval of the Board and without shareholder approval) one or more
subadvisers to manage the day-to-day investment of all or a portion of the
Fund's assets. For the six-month period ended November 30, 2018, the Fund had no
subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.60% of the Fund's average daily net assets. For the
six-month period ended November 30, 2018, the Fund incurred management fees,
paid or payable to the Manager, of $1,045,000.
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 November 30, 2018, the
Fund's management fee was reimbursed by the Manager in an amount of $1,000.
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 daily net assets for the fiscal year. For the six-month period ended
November 30, 2018, the Fund incurred administration and servicing fees, paid or
payable to the Manager, of $261,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 2018, the Fund reimbursed the Manager $4,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
================================================================================
48 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
EXPENSE LIMITATION - The Manager agreed, through September 30, 2019, to limit
the total annual operating expenses of the Fund to 1.10% of its average daily
net assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Fund for all expenses in excess
of that amount. This expense limitation arrangement may not be changed or
terminated through September 30, 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 November 30, 2018, the Fund incurred reimbursable
expenses of $207,000, of which $133,000 was receivable from the Manager, which
includes affiliated ETF(s) management fee reimbursement expenses and
receivables.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund based on an annual charge of $23 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. For the six-month period ended November 30, 2018, the
Fund incurred transfer agent's fees, paid or payable to SAS, of $614,000.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution. At November 30, 2018, USAA and its affiliates owned
1,111,000 shares, which represents 4.0% of the Fund's outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the affiliated USAA Funds for
the purpose of exercising management or control; however,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
investments by the Fund may represent a significant portion of the
affiliated USAA Funds' net assets. The affiliated funds' annual or
semiannual reports may be viewed on usaa.com. At November 30, 2018, the Fund
owned the following percentages of the total outstanding shares of each of
USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
MSCI Emerging Markets Value Momentum Blend Index ETF 0.4
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides details
related to the Fund's investment in the underlying USAA Funds for the
six-month period ended November 30, 2018:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST PROCEEDS INCOME (LOSS) DISTRIBUTIONS (DEPRECIATION) 5/31/18 11/30/18
------------------------------------------------------------------------------------------------------------------
MSCI
Emerging
Markets Value
Momentum
Blend Index
ETF $468 $- $1 $- $- $(63) $300 $705
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed
certain requirements related to liquidity classification, highly liquid
investment minimums, and board approval of the liquidity risk management
programs to June 1, 2019. The Manager continues to evaluate the impact of this
rule on the Fund's financial statements and various filings.
================================================================================
50 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
(10) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
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 reporting
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 reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
FINANCIAL HIGHLIGHTS
(UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-----------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.81 $ 12.57 $ 11.33 $ 12.35 $ 12.40 $ 11.30
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .16 .15 .17 .15 .16
Net realized and
unrealized gain (loss) (.53) .94 1.26 (.95) .29 1.13
-----------------------------------------------------------------------------------
Total from investment
operations (.46) 1.10 1.41 (.78) .44 1.29
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.14) (.17) (.16) (.17) (.14)
Realized capital gains - (.72) - (.08) (.32) (.05)
-----------------------------------------------------------------------------------
Total distributions - (.86) (.17) (.24) (.49) (.19)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 12.35 $ 12.81 $ 12.57 $ 11.33 $ 12.35 $ 12.40
===================================================================================
Total return (%)* (3.59) 8.85 12.59 (6.26) 3.65 11.48
Net assets at end of
period (000) $340,473 $344,768 $283,867 $222,224 $202,327 $150,358
Ratios to average
daily net assets:**
Expenses (%)(a) 1.10(b) 1.10 1.10 1.10 1.10 1.10(c)
Expenses, excluding
reimbursements (%)(a) 1.22(b) 1.25 1.36 1.46 1.45 1.47(c)
Net investment
income (%) 1.18(b) 1.18 1.32 1.57 1.32 1.48
Portfolio turnover (%) 47 65 70 81(d) 46 46
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $347,322,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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) Reflects increased trading activity due to changes in asset allocation
strategies.
================================================================================
52 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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 | 53
================================================================================
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
--------------------------------------------------------------
Actual $1,000.00 $ 964.10 $5.42
Hypothetical
(5% return before expenses) 1,000.00 1,019.55 5.57
*Expenses are equal to the Fund's annualized expense ratio of 1.10%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (3.59)% for the six-month period of June 1,
2018, through November 30, 2018.
================================================================================
54 | USAA CORNERSTONE AGGRESSIVE FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
97452-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE CONSERVATIVE FUND]
================================================================================
SEMIANNUAL REPORT
USAA CORNERSTONE CONSERVATIVE FUND (USCCX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be
made available on usaa.com, and you will be notified by mail each time a report
is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 4
Financial Statements 5
Notes to Financial Statements 8
Financial Highlights 20
EXPENSE EXAMPLE 21
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 11/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
FIXED-INCOME FUNDS 79.4%
EQUITY & ALTERNATIVE 19.9%
MONEY MARKET INSTRUMENTS 0.7%
[END PIE CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (79.4%)
FIXED-INCOME FUNDS (79.4%)
254,500 USAA Core Intermediate-Term Bond ETF $ 12,142
4,500 USAA Core Short-Term Bond ETF 222
3,950,235 USAA Government Securities Fund Institutional Shares 37,409
726,406 USAA High Income Fund Institutional Shares 5,586
4,429,900 USAA Income Fund Institutional Shares 55,152
2,917,095 USAA Intermediate-Term Bond Fund Institutional Shares 29,580
718,836 USAA Short-Term Bond Fund Institutional Shares 6,491
--------
Total Fixed-Income Funds (cost: $152,043) 146,582
--------
Total Bonds (cost: $152,043) 146,582
--------
EQUITY SECURITIES (19.9%)
EQUITY & ALTERNATIVE (19.9%)
25,701 USAA Aggressive Growth Fund Institutional Shares 1,251
173,808 USAA Emerging Markets Fund Institutional Shares 2,909
57,061 USAA Growth Fund Institutional Shares 1,812
106,272 USAA Income Stock Fund Institutional Shares 2,146
366,228 USAA International Fund Institutional Shares 10,987
2,100 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 92
51,100 USAA MSCI International Value Momentum Blend Index ETF 2,278
1,100 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 57
51,100 USAA MSCI USA Value Momentum Blend Index ETF 2,574
56,945 USAA Precious Metals and Minerals Fund Institutional Shares(a) 601
144,248 USAA S&P 500 Index Fund Reward Shares 5,678
155,503 USAA Small Cap Stock Fund Institutional Shares 2,816
172,983 USAA Value Fund Institutional Shares 3,636
--------
Total Equity & Alternative (cost: $32,114) 36,837
--------
Total Equity Securities (cost: $32,114) 36,837
--------
MONEY MARKET INSTRUMENTS (0.7%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.7%)
1,334,922 State Street Institutional Treasury Money Market Fund Premier Class, 2.19%(b)
(cost: $1,335) 1,335
--------
TOTAL INVESTMENTS (COST: $185,492) $184,754
========
================================================================================
2 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Bonds:
Fixed-Income Funds $146,582 $- $- $146,582
Equity Securities:
Equity & Alternative 36,837 - - 36,837
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 1,335 - - 1,335
------------------------------------------------------------------------------------------------------------------
Total $184,754 $- $- $184,754
------------------------------------------------------------------------------------------------------------------
For the period of June 1, 2018, through November 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 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 8.8% of net assets at November 30,
2018.
The underlying USAA Funds in which the Fund invests are managed by USAA
Asset Management Company, an affiliate of the Fund. The Fund invests in the
Reward Shares of the USAA S&P 500 Index Fund, 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.
o SPECIFIC NOTES
(a) Non-income-producing security.
(b) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
4 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at market value
(cost of $184,157) $183,419
Investments in unaffiliated securities, at market value (cost of $1,335) 1,335
Receivables:
Capital shares sold 102
USAA Asset Management Company (Note 6) 27
Dividends from affiliated underlying funds 207
Interest 1
Other 1
--------
Total assets 185,092
--------
LIABILITIES
Payables:
Securities purchased 207
Capital shares redeemed 106
Other accrued expenses and payables 61
--------
Total liabilities 374
--------
Net assets applicable to capital shares outstanding $184,718
========
NET ASSETS CONSIST OF:
Paid-in capital $188,046
Distributable earnings loss (3,328)
--------
Net assets applicable to capital shares outstanding $184,718
========
Capital shares outstanding, no par value 17,814
========
Net asset value, redemption price, and offering price per share $ 10.37
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 5
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 2,682
Interest income 3
Securities lending (net) 13
-------
Total income 2,698
-------
EXPENSES
Custody and accounting fees 27
Postage 9
Shareholder reporting fees 8
Trustees' fees 18
Registration fees 19
Professional fees 35
Other 7
-------
Total expenses 123
Expenses reimbursed (27)
-------
Net expenses 96
-------
NET INVESTMENT INCOME 2,602
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on sales of affiliated underlying funds (2,011)
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds (2,829)
-------
Net realized and unrealized loss (4,840)
-------
Decrease in net assets resulting from operations $(2,238)
=======
See accompanying notes to financial statements.
================================================================================
6 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended May 31,
2018
------------------------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,602 $ 5,504
Net realized gain (loss) on sales of affiliated underlying funds (2,011) 145
Net realized gain on capital gain distributions from
affiliated underlying funds - 787
Change in net unrealized depreciation of affiliated
underlying funds (2,829) (3,428)
-------------------------------
Increase (decrease) in net assets resulting from operations (2,238) 3,008
-------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS: (2,588) (5,500)
-------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 18,993 70,509
Reinvested dividends 2,575 5,478
Cost of shares redeemed (28,316) (51,957)
-------------------------------
Increase/(decrease) in net assets from capital
share transactions (6,748) 24,030
-------------------------------
Net increase (decrease) in net assets (11,574) 21,538
NET ASSETS
Beginning of period 196,292 174,754
-------------------------------
End of period $184,718 $196,292
===============================
CHANGE IN SHARES OUTSTANDING
Shares sold 1,803 6,527
Shares issued for dividends reinvested 244 509
Shares redeemed (2,690) (4,819)
-------------------------------
Increase (decrease) in shares outstanding (643) 2,217
===============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 7
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA Cornerstone Conservative Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek current
income. The Fund also considers the potential for capital appreciation.
The Fund is a "fund of funds" in that it invests in a selection of USAA mutual
funds and exchange-traded funds (ETFs) (underlying USAA Funds) managed by USAA
Asset Management Company (AMCO or Manager), an affiliate of the Fund.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of AMCO, the investment adviser to the Fund, and USAA Transfer Agency
Company, d/b/a USAA Shareholder Account Services (SAS), the transfer agent to
the Fund, announced that AMCO and SAS would be acquired by Victory Capital
Holdings, Inc. (Victory), a global investment management firm headquartered in
Cleveland, Ohio (the Transaction). The closing of the Transaction is expected to
be completed during the second quarter of 2019, pending satisfaction of certain
closing conditions and approvals, including certain approvals of the Fund's
Board of Trustees and of the Fund's shareholders at a special shareholder
meeting to be held in 2019. The Transaction is not expected to result in any
material changes to the Fund's investment objectives and principal investment
strategies.
================================================================================
8 | USAA CORNERSTONE CONSERVATIVE 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, an affiliate of
the Fund. Among other things, these monthly meetings include a review and
analysis of backtesting reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Investments in the underlying USAA Funds and other open-end investment
companies, other than ETFs are valued at their net asset value (NAV) at
the end of each business day and are categorized in Level 1 of the fair
value hierarchy.
2. Equity securities, including ETFs, except as otherwise noted, traded
primarily on a domestic securities exchange or the over-the-counter
markets, are valued at the last sales price or official closing price on
the exchange or primary market on which they trade. Securities traded
primarily on foreign securities exchanges or markets are valued at the
last quoted sale price, or the most recently determined official closing
price calculated according to local market convention, available at the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 9
================================================================================
time a fund is valued. If no last sale or official closing price is
reported or available, the average of the bid and ask prices generally
is used.
3. The underlying USAA Funds have specific valuation procedures. In the
event that price quotations or valuations are not readily available, are
not reflective of market value, or a significant event has been
recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the fair
value price. Valuing these securities at fair value is intended to cause
a fund's NAV to be more reliable than it otherwise would be.
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.
================================================================================
10 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. 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.
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
F. 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $1,000, which represents 0.2% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, in
accordance with applicable federal tax law.
================================================================================
12 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
Distributions of net investment income are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are made
annually in the succeeding fiscal year or as otherwise required to avoid the
payment of federal taxes.
At May 31, 2018, the Fund had net capital loss carryforwards of $1,097,000 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 $ 164,000
Long-Term 933,000
----------
Total $1,097,000
==========
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
---------------------------------------------------------------------------------------
USAA Cornerstone Conservative Fund $5,142,000 $(5,880,000) $(738,000)
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$27,794,000 and $36,293,000, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
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 November 30,
2018, the Fund had no securities on loan.
(6) AGREEMENTS WITH MANAGER
ADVISORY AGREEMENT - The Manager carries out the Fund's investment policies and
manages the Fund's portfolio pursuant to an Advisory Agreement. The Manager does
not receive any management fees from the Fund for these services.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. The Manager does not receive any fees from
the Fund for these services.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the billing of
these expenses to the Fund. These expenses are included in the professional fees
on the Fund's Statement of Operations and, for the six-month period ended
November 30, 2018, were $2,000 for the Fund.
================================================================================
14 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
EXPENSE LIMITATION - The Manager agreed, through September 30, 2019, to limit
the total annual operating expenses of the Fund to 0.10% of its average daily
net assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Fund for all expenses in excess
of that amount. This expense limitation arrangement may not be changed or
terminated through September 30, 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 November 30, 2018, the Fund incurred reimbursable
expenses of $27,000, of which all was receivable from the Manager.
TRANSFER AGENCY AGREEMENT - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund. SAS does not receive any fees from the Fund for
these services.
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 USAA, a large, diversified financial
services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the affiliated underlying
USAA Funds for the purpose of exercising management or control; however,
investments by the Fund may represent a significant portion of the
affiliated underlying USAA Funds' net assets. The affiliated underlying
funds' annual or semiannual reports may be viewed on usaa.com. At
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
November 30, 2018, the Fund owned the following percentages of the total
outstanding shares of each of the underlying USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
-----------------------------------------------------------------------------------
Aggressive Growth 0.1
Core Intermediate-Term Bond ETF 7.3
Core Short-Term Bond ETF 0.3
Emerging Markets 0.3
Government Securities 3.6
Growth 0.1
High Income 0.3
Income 0.7
Income Stock 0.1
Intermediate-Term Bond 0.8
International 0.3
MSCI Emerging Markets Value Momentum Blend Index ETF 0.1
MSCI International Value Momentum Blend Index ETF 0.8
MSCI USA Small Cap Value Momentum Blend Index ETF 0.1
MSCI USA Value Momentum Blend Index ETF 0.7
Precious Metals and Minerals 0.1
S&P 500 Index 0.1
Short-Term Bond 0.2
Small Cap Stock 0.2
Value 0.3
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides details
related to the Fund's investment in the underlying USAA Funds for the
six-month period ended November 30, 2018:
CHANGE IN
NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST PROCEEDS INCOME (LOSS) DISTRIBUTIONS (DEPRECIATION) 05/31/2018 11/30/2018
--------------------------------------------------------------------------------------------------------------------------
Aggressive
Growth
Fund $ - $ - $ - $ - $- $ 28 $ 1,223 $ 1,251
Core
Intermediate-
Term Bond
ETF 485 - 193 - - (238) 11,895 12,142
Core
Short Term
Bond ETF - - 3 - - (1) 223 222
================================================================================
16 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
CHANGE IN
NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST PROCEEDS INCOME (LOSS) DISTRIBUTIONS (DEPRECIATION) 05/31/2018 11/30/2018
----------------------------------------------------------------------------------------------------------------------------
Emerging
Markets
Fund
Institutional
Shares $ - $ - $ - $ - $- $ (357) $ 3,266 $ 2,909
Flexible
Income Fund
Institutional
Shares 9 10,826 8 (1,041) - 670 11,188 -
Government
Securities
Fund
Institutional
Shares 18,347 - 347 - - (173) 19,235 37,409
Growth
Fund
Institutional
Shares - - - - - 38 1,774 1,812
High Income
Fund
Institutional
Shares 168 - 168 - - (202) 5,620 5,586
Income
Fund
Institutional
Shares 7,717 2,000 967 (100) - (1,116) 50,651 55,152
Income
Stock Fund
Institutional
Shares 139 - 17 - - 68 1,939 2,146
Intermediate-
Term Bond
Fund
Institutional
Shares 729 15,00 729 (772) - (16) 44,639 29,580
International
Fund
Institutional
Shares - 250 - 9 - (1,013) 12,241 10,987
MSCI
Emerging
Markets Value
Momentum
Blend Index
ETF - - -* - - (13) 105 92
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
CHANGE IN
NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST PROCEEDS INCOME (LOSS) DISTRIBUTIONS (DEPRECIATION) 05/31/2018 11/30/2018
----------------------------------------------------------------------------------------------------------------------------
MSCI
International
Value
Momentum
Blend Index
ETF $ - $ - $ 31 $ - $- $ (317) $ 2,595 $ 2,278
MSCI
USA Small
Cap Value
Momentum
Blend Index
ETF - - -* - - (2) 59 57
MSCI
USA Value
Momentum
Blend Index
ETF - - 19 - - (77) 2,651 2,574
Precious
Metals and
Minerals
Fund
Institutional
Shares - - - - - (143) 744 601
S&P
500 Index
Fund
Reward
Shares 50 250 50 30 - 99 5,749 5,678
Short-Term
Bond Fund
Institutional
Shares 150 7,844 150 (126) - 75 14,236 6,491
Small
Cap Stock
Fund
Institutional
Shares - - - - - (141) 2,957 2,816
Value Fund
Institutional
Shares - 123 - (11) - 2 3,768 3,636
----------------------------------------------------------------------------------------------------------------------------
Total $27,794 $36,293 $2,682 $(2,011) $- $(2,829) $196,758 $183,419
----------------------------------------------------------------------------------------------------------------------------
* Represents less than $500.
================================================================================
18 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10233, 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. The requirements to implement a liquidity risk management program
and establish a 15% illiquid investment limit became effective December 1,
2018. However, in February 2018, the SEC issued Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which delayed certain requirements related to liquidity
classification, highly liquid investment minimums, and board approval of the
liquidity risk management programs to June 1, 2019. The Manager continues to
evaluate the impact of this rule on the Fund's financial statements and various
filings.
(10) UPCOMING ACCOUNTING PRONOUNCEMENT
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The
amendments to Regulation S-X took effect on November 5, 2018, and the financial
statements have been modified accordingly, for the current and prior periods.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
FINANCIAL HIGHLIGHTS
(UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.64 $ 10.76 $ 10.27 $ 10.68 $ 10.77 $ 10.60
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .14 .30 .31 .35 .31 .34(a)
Net realized and
unrealized gain (loss) (.27) (.11) .49 (.37) (.06) .17(a)
------------------------------------------------------------------------------
Total from investment
operations (.13) .19 .80 (.02) .25 .51(a)
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.31) (.31) (.34) (.32) (.32)
Realized capital gains - - - (.05) (.02) (.02)
------------------------------------------------------------------------------
Total distributions (.14) (.31) (.31) (.39) (.34) (.34)
------------------------------------------------------------------------------
Net asset value at
end of period $ 10.37 $ 10.64 $ 10.76 $ 10.27 $ 10.68 $ 10.77
==============================================================================
Total return (%)* (1.22) 1.79 7.93 (.05) 2.37 4.99
Net assets at end of
period (000) $184,718 $196,292 $174,754 $137,705 $145,626 $109,013
Ratios to average
daily net assets:**
Expenses (%)(b) .10(c) .10 .10 .10 .10 .10(d)
Expenses, excluding
reimbursements (%)(b) .13(c) .12 .15 .15 .15 .20(d)
Net investment income (%) 2.71(c) 2.87 3.02 3.38 3.03 3.27
Portfolio turnover (%) 15 5 7(e) 43(f) 5 1
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $191,649,000.
(a) Calculated using average shares.
(b) Does not include acquired fund fees, if any.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratio by less than 0.01%.
(e) Reflects a return to normal trading levels after a prior year transition or
allocation shift.
(f) Reflects increased trading activity due to changes in asset allocation
strategies.
================================================================================
20 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
EXPENSE EXAMPLE
November 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 Fund operating expenses. This example is intended to help you
understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds. The Fund also indirectly bears its
pro-rata share of the expenses of the underlying USAA Funds in which it invests
(acquired funds). These acquired fund fees and expenses are not included in the
Fund's annualized expense ratios used to calculate the expense estimates in the
table on the next page.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2018, through
November 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
================================================================================
EXPENSE EXAMPLE | 21
================================================================================
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher. Acquired fund fees and
expenses are not included in the Fund's annualized expense ratio used to
calculate the expenses paid in the table below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
---------------------------------------------------------------
Actual $1,000.00 $ 987.80 $0.50
Hypothetical
(5% return before expenses) 1,000.00 1,024.57 0.51
*Expenses are equal to the Fund's annualized expense ratio of 0.10%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (1.22)% for the six-month period of June 1,
2018, through November 30, 2018.
================================================================================
22 | USAA CORNERSTONE CONSERVATIVE FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
97450-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE EQUITY FUND]
================================================================================
SEMIANNUAL REPORT
USAA CORNERSTONE EQUITY FUND (UCEQX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 3
Financial Statements 4
Notes to Financial Statements 7
Financial Highlights 18
EXPENSE EXAMPLE 19
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 11/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 99.5%
MONEY MARKET INSTRUMENTS 0.4%
[END PIE CHART]
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
November 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.5%)
EQUITY & ALTERNATIVE (99.5%)
202,363 USAA Aggressive Growth Fund Institutional Shares $ 9,849
488,638 USAA Emerging Markets Fund Institutional Shares 8,180
334,739 USAA Growth Fund Institutional Shares 10,631
513,966 USAA Income Stock Fund Institutional Shares 10,377
1,236,072 USAA International Fund Institutional Shares 37,082
236,200 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 10,412
586,200 USAA MSCI International Value Momentum Blend Index ETF 26,129
124,200 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 6,402
578,200 USAA MSCI USA Value Momentum Blend Index ETF 29,126
121,320 USAA Precious Metals and Minerals Fund Institutional Shares(a) 1,281
734,531 USAA S&P 500 Index Fund Reward Shares 28,911
302,256 USAA Small Cap Stock Fund Institutional Shares 5,474
543,605 USAA Value Fund Institutional Shares 11,427
--------
Total Equity & Alternative (cost: $181,893) 195,281
--------
Total Equity Securities (cost: $181,893) 195,281
--------
MONEY MARKET INSTRUMENTS (0.4%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.4%)
871,768 State Street Institutional Treasury Money Market Fund Premier Class,
2.19%(b) (cost: $872) 872
--------
TOTAL INVESTMENTS (COST: $182,765) $196,153
========
------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $195,281 $- $- $195,281
Money Market Instruments:
Government & U.S. Treasury Money Market Funds 872 - - 872
------------------------------------------------------------------------------------------------------------
Total $196,153 $- $- $196,153
------------------------------------------------------------------------------------------------------------
For the period of June 1, 2018, through November 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
2 | USAA CORNERSTONE EQUITY FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 41.7% of net assets at November 30,
2018.
The underlying USAA Funds in which the Fund invests are managed by USAA
Asset Management Company, an affiliate of the Fund. The Fund invests in the
Reward Shares of the USAA S&P 500 Index Fund, 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.
o SPECIFIC NOTES
(a) Non-income-producing security.
(b) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 3
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at market value (cost of $181,893) $195,281
Investments in unaffiliated securities, at market value (cost of $872) 872
Receivables:
Capital shares sold 253
USAA Asset Management Company (Note 6) 13
Interest 2
--------
Total assets 196,421
--------
LIABILITIES
Payables:
Capital shares redeemed 55
Other accrued expenses and payables 48
--------
Total liabilities 103
--------
Net assets applicable to capital shares outstanding $196,318
========
NET ASSETS CONSIST OF:
Paid-in capital $174,110
Distributable earnings 22,208
--------
Net assets applicable to capital shares outstanding $196,318
========
Capital shares outstanding, no par value 13,251
========
Net asset value, redemption price, and offering price per share $ 14.82
========
See accompanying notes to financial statements.
================================================================================
4 | USAA CORNERSTONE EQUITY FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 949
Interest 14
Securities lending (net) 3
-------
Total income 966
-------
EXPENSES
Custody and accounting fees 21
Postage 13
Shareholder reporting fees 8
Trustees' fees 18
Registration fees 14
Professional fees 33
Other 8
-------
Total expenses 115
Expenses reimbursed (13)
-------
Net expenses 102
-------
NET INVESTMENT INCOME 864
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on sales of affiliated underlying funds 98
Change in net unrealized appreciation/(depreciation) of affiliated underlying funds (9,884)
-------
Net realized and unrealized loss (9,786)
-------
Decrease in net assets resulting from operations $(8,922)
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 5
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended
May 31, 2018
------------------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 864 $ 2,582
Net realized gain on sales of affiliated underlying funds 98 5,665
Net realized gain on capital gain distributions from affiliated underlying funds - 2,528
Change in net unrealized appreciation/(depreciation) of affiliated
underlying funds (9,884) 4,757
----------------------
Increase (decrease) in net assets resulting from operations (8,922) 15,532
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM DISTRIBUTABLE EARNINGS: - (3,424)
----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 27,847 78,676
Reinvested dividends - 3,420
Cost of shares redeemed (22,793) (37,676)
----------------------
Increase in net assets from capital share transactions 5,054 44,420
Capital contribution from USAA Transfer Agency Company - 1
----------------------
Net increase (decrease) in net assets (3,868) 56,529
NET ASSETS
Beginning of period 200,186 143,657
----------------------
End of period $196,318 $200,186
======================
CHANGE IN SHARES OUTSTANDING
Shares sold 1,808 5,111
Shares issued for dividends reinvested - 220
Shares redeemed (1,479) (2,448)
----------------------
Increase in shares outstanding 329 2,883
======================
See accompanying notes to financial statements.
================================================================================
6 | USAA CORNERSTONE EQUITY FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA Cornerstone Equity Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek capital
appreciation over the long term.
The Fund is a "fund of funds" in that it invests in a selection of USAA mutual
funds and exchange-traded funds (ETFs) (underlying USAA Funds) managed by USAA
Asset Management Company (AMCO or Manager), an affiliate of the Fund.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of AMCO, the investment adviser to the Fund, and USAA Transfer Agency
Company, d/b/a USAA Shareholder Account Services (SAS), the transfer agent to
the Fund, announced that AMCO and SAS would be acquired by Victory Capital
Holdings, Inc. (Victory), a global investment management firm headquartered in
Cleveland, Ohio (the Transaction). The closing of the Transaction is expected to
be completed during the second quarter of 2019, pending satisfaction of certain
closing conditions and approvals, including certain approvals of the Fund's
Board of Trustees and of the Fund's shareholders at a special shareholder
meeting to be held in 2019. The Transaction is not expected to result in any
material
================================================================================
NOTES TO FINANCIAL STATEMENTS | 7
================================================================================
changes to the Fund's investment objectives and principal investment strategies.
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, an affiliate of
the Fund. Among other things, these monthly meetings include a review and
analysis of backtesting reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Investments in the underlying USAA Funds and other open-end investment
companies, other than ETFs are valued at their net asset value (NAV) at
the end of each business day and are categorized in Level 1 of the fair
value hierarchy.
2. Equity securities, including ETFs, except as otherwise noted, traded
primarily on a domestic securities exchange or the over-the-counter
markets, are valued at the last sales price or official closing price on
================================================================================
8 | USAA CORNERSTONE EQUITY FUND
================================================================================
the exchange or primary market on which they trade. Securities traded
primarily on foreign securities exchanges or markets are valued at the
last quoted sale price, or the most recently determined official closing
price calculated according to local market convention, available at the
time a fund is valued. If no last sale or official closing price is
reported or available, the average of the bid and ask prices generally
is used.
3. The underlying USAA Funds have specific valuation procedures. In the
event that price quotations or valuations are not readily available, are
not reflective of market value, or a significant event has been
recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the fair
value price. Valuing these securities at fair value is intended to cause
a fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
================================================================================
NOTES TO FINANCIAL STATEMENTS | 9
================================================================================
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. 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.
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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.
================================================================================
10 | USAA CORNERSTONE EQUITY FUND
================================================================================
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. 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 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily net assets for the period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
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 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $1,000, which represents 0.3% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
--------------------------------------------------------------------------------
USAA Cornerstone
Equity Fund $19,359,000 $(5,971,000) $13,388,000
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$9,882,000 and $2,358,000, respectively.
================================================================================
12 | USAA CORNERSTONE EQUITY 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 November 30,
2018, the Fund had no securities on loan.
(6) AGREEMENTS WITH MANAGER
ADVISORY AGREEMENT - The Manager carries out the Fund's investment policies and
manages the Fund's portfolio pursuant to an Advisory Agreement. The Manager does
not receive any management fees from the Fund for these services.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. The Manager does not receive any fees from
the Fund for these services. In addition to the services provided under its
Administration and Servicing Agreement with the Fund, the Manager also provides
certain compliance and legal services for the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
benefit of the Fund. The Board has approved the billing of these expenses to the
Fund. These expenses are included in the professional fees on the Fund's
Statement of Operations and, for the six-month period ended November 30, 2018,
were $2,000 for the Fund.
EXPENSE LIMITATION - The Manager agreed, through September 30, 2019, to limit
the total annual operating expenses of the Fund to 0.10% of its average daily
net assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Fund for all expenses in excess
of that amount. This expense limitation arrangement may not be changed or
terminated through September 30, 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 November 30, 2018, the Fund incurred reimbursable
expenses of $13,000, of which $13,000 was receivable from the Manager.
TRANSFER AGENCY AGREEMENT - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund. SAS does not receive any fees from the Fund for
these services.
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 USAA, a large, diversified financial
services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the affiliated underlying USAA
Funds for the purpose of exercising management or control; however,
investments by the Fund may represent a significant portion of the
affiliated underlying USAA Funds' net assets. The affiliated underlying
================================================================================
14 | USAA CORNERSTONE EQUITY FUND
================================================================================
funds' annual or semiannual reports may be viewed on usaa.com. At November
30, 2018, the Fund owned the following percentages of the total outstanding
shares of each of the underlying USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
----------------------------------------------------------------------------
Aggressive Growth Fund Institutional Shares 0.6
Emerging Markets Fund Institutional Shares 0.9
Growth Fund Institutional Shares 0.4
Income Stock Fund Institutional Shares 0.4
International Fund Institutional Shares 1.0
MSCI Emerging Markets Value Momentum Blend Index ETF 6.2
MSCI International Value Momentum Blend Index ETF 8.9
MSCI USA Small Cap Value Momentum Blend Index ETF 7.5
MSCI USA Value Momentum Blend Index ETF 7.4
Precious Metals and Minerals Fund Institutional Shares 0.3
S&P 500 Index Fund Reward Shares 0.4
Small Cap Stock Fund Institutional Shares 0.3
Value Fund Institutional Shares 0.8
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides details
related to the Fund's investment in the underlying USAA Funds for the
six-month period ended November 30, 2018:
CHANGE
($ IN 000s) IN NET
AFFILIATED REALIZED CAPITAL UNREALIZED
USAA PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
FUND COST PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 5/31/18 11/30/18
------------------------------------------------------------------------------------------------------------------------
Aggressive
Growth Fund
Institutional
Shares $1,500 $ - $ - $ - $- $ 184 $ 8,165 $ 9,849
Emerging
Markets Fund
Institutional Shares - 1,427 - 59 - (1,175) 10,723 8,180
Growth Fund
Institutional
Shares - - - - - 224 10,407 10,631
Income Stock
Fund Institutional
Shares 86 - 86 - - 313 9,978 10,377
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
CHANGE
($ IN 000s) IN NET
AFFILIATED REALIZED CAPITAL UNREALIZED
USAA PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
FUND COST PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 5/31/18 11/30/18
------------------------------------------------------------------------------------------------------------------------
International
Fund
Institutional
Shares $1,027 $ - $ - $ - $- $(3,340) $ 39,395 $ 37,082
MSCI Emerging
Markets Value
Momentum Blend
Index ETF 1,729 - 33 - - (1,271) 9,954 10,412
MSCI International
Value Momentum
Blend Index ETF 802 - 345 - - (3,577) 28,904 26,129
MSCI USA Small Cap
Value Momentum
Blend
Index ETF 2,635 - 23 - - (334) 4,101 6,402
MSCI USA
Value Momentum
Blend Index ETF 1,451 - 210 - - (869) 28,544 29,126
Precious
Metals and
Minerals Fund
Institutional Shares - - - - - (304) 1,585 1,281
S&P 500
Index Fund
Reward Shares 652 431 252 14 - 572 28,104 28,911
Small Cap
Stock Fund
Institutional Shares - - - - - (275) 5,749 5,474
Value Fund
Institutional Shares - 500 - 25 - (32) 11,934 11,427
------------------------------------------------------------------------------------------------------------------------
TOTAL $9,882 $2,358 $949 $98 $- $(9,884) $197,543 $195,281
------------------------------------------------------------------------------------------------------------------------
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10233, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS
(Liquidity Rule). The Liquidity Rule requires funds
================================================================================
16 | USAA CORNERSTONE EQUITY FUND
================================================================================
to establish a liquidity risk management program and enhances disclosures
regarding funds' liquidity. The requirements to implement a liquidity risk
management program and establish a 15% illiquid investment limit became
effective December 1, 2018. However, in February 2018, the SEC issued Release
No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION
GUIDANCE FOR IN-KIND ETFs, which delayed certain requirements related to
liquidity classification, highly liquid investment minimums, and board approval
of the liquidity risk management programs to June 1, 2019. The Manager continues
to evaluate the impact of this rule on the Fund's financial statements and
various filings.
(10) UPCOMING ACCOUNTING PRONOUNCEMENT
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
FINANCIAL HIGHLIGHTS
(UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 15.49 $ 14.31 $ 12.51 $ 13.61 $ 13.22 $ 11.71
------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .06 .22 .19 .16 .24 .17
Net realized and
unrealized gain (loss) (.73) 1.26 2.02 (.82) .42 1.55
------------------------------------------------------------------------------------------
Total from investment
operations (.67) 1.48 2.21 (.66) .66 1.72
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.22) (.19) (.15) (.24) (.16)
Realized capital gains - (.08) (.22) (.29) (.03) (.05)
------------------------------------------------------------------------------------------
Total distributions - (.30) (.41) (.44) (.27) (.21)
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 14.82 $ 15.49 $ 14.31 $ 12.51 $ 13.61 $ 13.22
==========================================================================================
Total return (%)* (4.33) 10.32 17.99 (4.77) 5.08 14.84
Net assets at
end of period (000) $196,318 $200,186 $143,657 $99,974 $91,726 $66,040
Ratios to average
daily net assets:**
Expenses (%)(a) .10(b) .10 .10 .10 .10 .10(c)
Expenses, excluding
reimbursements (%)(a) .11(b) .13 .20 .22 .24 .33(c)
Net investment income (%) .86(b) 1.46 1.39 1.36 1.77 1.45
Portfolio turnover (%) 1 38(d) 7 15 8 2
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $201,377,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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) Reflects an increase in trading activity due to asset allocation shifts.
================================================================================
18 | USAA CORNERSTONE EQUITY FUND
================================================================================
EXPENSE EXAMPLE
November 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 Fund operating expenses. This example is intended to help you
understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds. The Fund also indirectly bears its
pro-rata share of the expenses of the underlying USAA Funds in which it invests
(acquired funds). These acquired fund fees and expenses are not included in the
Fund's annualized expense ratios used to calculate the expense estimates in the
table on the next page.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2018, through
November 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
================================================================================
EXPENSE EXAMPLE | 19
================================================================================
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher. Acquired fund fees and
expenses are not included in the Fund's annualized expense ratio used to
calculate the expenses paid in the table below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
------------------------------------------------------
Actual $1,000.00 $ 956.70 $0.49
Hypothetical
(5% return before expenses) 1,000.00 1,024.57 0.51
*Expenses are equal to the Fund's annualized expense ratio of 0.10%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (4.33)% for the six-month period of
June 1, 2018, through November 30, 2018.
================================================================================
20 | USAA CORNERSTONE EQUITY FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
97453-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATELY]
================================================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATELY
AGGRESSIVE FUND (USCRX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 28
Financial Statements 34
Notes to Financial Statements 37
Financial Highlights 55
EXPENSE EXAMPLE 56
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 11/30/18 o
(% of Net Assets)
Vanguard FTSE Developed Markets ETF ....................................... 6.4%
iShares Core MSCI EAFE ETF ................................................ 5.5%
Vanguard S&P 500 ETF ...................................................... 3.6%
Vanguard FTSE Europe ETF .................................................. 3.0%
Schwab Fundamental International Large
Company Index ETF ........................................................ 3.0%
U.S. Treasury Bond, 3.13%, 8/15/2044 ...................................... 2.9%
iShares Core MSCI Emerging Markets ETF .................................... 2.7%
U.S. Treasury Note, 1.13%, 2/28/2021 ...................................... 2.2%
Vanguard Total Bond Market ETF ............................................ 2.1%
Schwab Fundamental Emerging Markets
Large Company Index ETF .................................................. 2.1%
*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.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o ASSET ALLOCATION* - 11/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EQUITY SECURITIES 30.3%
U.S. EQUITY SECURITIES 25.3%
U.S. TREASURY SECURITIES 14.2%
FIXED-INCOME EXCHANGE-TRADED FUNDS 8.8%
U.S. GOVERNMENT AGENCY ISSUES 8.6%
CORPORATE OBLIGATIONS 4.4%
GLOBAL REAL ESTATE EQUITY SECURITIES 2.5%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 1.4%
ASSET-BACKED SECURITIES 1.3%
EURODOLLAR AND YANKEE OBLIGATIONS 1.0%
COMMERCIAL MORTGAGE SECURITIES 0.9%
MONEY MARKET INSTRUMENTS 0.7%
CONVERTIBLE SECURITIES 0.2%
BANK LOANS 0.1%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.1%
[END PIE CHART]
*Does not include futures and short-term investments purchased with cash
collateral from securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
BONDS (39.6%)
ASSET-BACKED SECURITIES (1.3%)
ASSET BACKED SECURITIES (1.3%)
------------------------------
AUTOMOBILE ABS (0.9%)
$ 571 Americredit Automobile Receivables Trust 3.15% 3/20/2023 $ 570
4,640 Americredit Automobile Receivables Trust 3.50 1/18/2024 4,613
3,050 Avis Budget Rental Car Funding AESOP, LLC(a) 2.96 7/20/2020 3,044
1,933 Avis Budget Rental Car Funding AESOP, LLC(a) 3.75 7/20/2020 1,934
4,530 Avis Budget Rental Car Funding AESOP, LLC(a) 2.50 2/20/2021 4,491
2,665 Credit Acceptance Auto Loan Trust(a) 4.29 11/15/2024 2,680
2,701 Credit Acceptance Auto Loan Trust(a) 3.55 8/15/2027 2,704
4,600 OSCAR U.S. Funding Trust IX, LLC(a) 3.63 9/10/2025 4,622
----------
24,658
----------
CREDIT CARD ABS (0.1%)
2,648 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 2,598
----------
OTHER ABS (0.2%)
2,320 Element Rail Leasing I, LLC(a) 3.67 4/19/2044 2,308
773 NP SPE II, LLC(a) 3.37 10/21/2047 759
1,728 SCF Equipment Leasing, LLC(a) 3.41 12/20/2023 1,717
----------
4,784
----------
STUDENT LOAN ABS (0.1%)
1,800 Navient Student Loan Trust (1 mo. LIBOR + 1.50%) 3.82(b) 8/25/2050 1,798
2,094 SLM Student Loan Trust (3 mo. LIBOR + 0.22%) 2.71(b) 1/25/2041 1,966
798 SLM Student Loan Trust (3 mo. LIBOR + 0.55%) 3.04(b) 10/25/2065 765
----------
4,529
----------
Total Asset Backed Securities 36,569
----------
Total Asset-Backed Securities (cost: $36,407) 36,569
----------
BANK LOANS (0.1%)(c)
CONSUMER, CYCLICAL (0.1%)
-------------------------
RETAIL (0.1%)
3,614 Academy, Ltd. (1 mo. LIBOR + 4.00%) 6.30 7/01/2022 2,658
1,702 Academy, Ltd. (1 mo. LIBOR + 4.00%) 6.31 7/01/2022 1,252
----------
Total Consumer, Cyclical 3,910
----------
Total Bank Loans (cost: $4,279) 3,910
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.1%)
MORTGAGE SECURITIES (0.1%)
--------------------------
$ 540 Sequoia Mortgage Trust (1 mo. LIBOR + 0.90%) 3.20%(b) 9/20/2033 $ 526
601 Structured Asset Mortgage Investments Trust
(1 mo. LIBOR + 0.50%) 3.05(b) 7/19/2035 565
511 Wells Fargo Mortgage Backed Securities Trust 4.13(d) 4/25/2035 501
----------
Total Mortgage Securities 1,592
----------
Total Collateralized Mortgage Obligations (cost: $1,630) 1,592
----------
COMMERCIAL MORTGAGE SECURITIES (0.9%)
MORTGAGE SECURITIES (0.9%)
--------------------------
COMMERCIAL MBS (0.9%)
4,086 Banc of America Commercial Mortgage Trust 5.86(d) 7/10/2044 1,501
191 Banc of America Commercial Mortgage Trust 6.79(d) 2/10/2051 192
4 Banc of America Merrill Lynch Commercial
Mortgage, Inc. (a) 5.60(d) 12/10/2042 4
306 Bear Stearns Commercial Mortgage Securities Trust(a) 5.66(d) 9/11/2041 308
2,320 BTH-21 Mortgage-Backed Securities
Trust (1 mo. LIBOR + 2.50%)(a) 4.46(b) 10/07/2021 2,322
26 Commercial Mortgage Trust 5.38 12/10/2046 26
5,313 Credit Suisse Commercial Mortgage Trust
(1 mo. LIBOR + 0.19%) 2.49(b) 2/15/2040 5,250
28,712 CSAIL Commercial Mortgage Trust(e) 1.95(d) 1/15/2049 2,604
7,800 FREMF Mortgage Trust(a) 3.69(d) 8/25/2045 7,800
899 GE Capital Commercial Mortgage Corp. 5.61(d) 12/10/2049 901
109 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 109
1,250 GMAC Commercial Mortgage Securities, Inc. 4.98(d) 12/10/2041 1,247
1,728 J.P.Morgan Chase Commercial Mortgage
Securities Trust 5.37 5/15/2047 1,730
23,189 UBS Commercial Mortgage Trust(a),(e) 2.25(d) 5/10/2045 1,293
----------
Total Mortgage Securities 25,287
----------
Total Commercial Mortgage Securities (cost: $27,474) 25,287
----------
CONVERTIBLE SECURITIES (0.2%)
BASIC MATERIALS (0.2%)
----------------------
MINING (0.2%)
1,050 Hycroft Mining Corp.(e),(f),(g),(h) 15.00(i) 10/22/2020 31
5,800 Pretium Resources, Inc. 2.25 3/15/2022 5,017
----------
Total Basic Materials 5,048
----------
Total Convertible Securities (cost: $6,559) 5,048
----------
================================================================================
4 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (4.4%)
COMMUNICATIONS (0.2%)
---------------------
TELECOMMUNICATIONS (0.2%)
$ 4,000 Hughes Satellite Systems Corp.(j) 6.50% 6/15/2019 $ 4,062
----------
CONSUMER, CYCLICAL (0.4%)
-------------------------
AIRLINES (0.0%)
152 America West Airlines, Inc. Pass-Through
Trust (INS - AMBAC Assurance Corp.)(j) 7.93 7/02/2020 152
----------
AUTO MANUFACTURERS (0.4%)
5,700 Harley-Davidson Financial Services, Inc.(a),(j) 3.55 5/21/2021 5,669
5,700 Hyundai Capital America(a),(j) 3.75 7/08/2021 5,647
----------
11,316
----------
Total Consumer, Cyclical 11,468
----------
CONSUMER, NON-CYCLICAL (0.1%)
-----------------------------
HEALTHCARE-SERVICES (0.1%)
5,600 Community Health Systems, Inc.(j) 6.88 2/01/2022 2,801
----------
ENERGY (0.7%)
-------------
PIPELINES (0.7%)
1,300 Enbridge Energy Partners, LP(j) 7.38 10/15/2045 1,593
3,530 Energy Transfer Operating, LP (3 mo.
LIBOR + 3.02%)(j) 5.56(b) 11/01/2066 2,912
500 Enterprise TE Partners, LP (3 mo.
LIBOR+ 2.78%)(j) 5.52(b) 6/01/2067 454
5,600 EQM Midstream Partners, LP(j) 4.75 7/15/2023 5,557
4,000 Rockies Express Pipeline, LLC(a),(j) 6.00 1/15/2019 4,011
2,352 Southern Union Co. (3 mo.
LIBOR + 3.02%)(j) 5.56(b) 11/01/2066 1,917
2,550 Tallgrass Energy Partners, LP / Tallgrass Energy
Finance Corp.(a),(j) 5.50 9/15/2024 2,569
----------
Total Energy 19,013
----------
FINANCIAL (2.4%)
----------------
BANKS (0.6%)
1,000 Allfirst Preferred Capital Trust (3 mo.
LIBOR + 1.50%)(j) 3.94(b) 7/15/2029 879
2,700 Compass Bank(j) 3.88 4/10/2025 2,584
4,000 First Maryland Capital Trust I (3 mo.
LIBOR + 1.00%)(j) 3.44(b) 1/15/2027 3,720
2,000 Huntington Capital (3 mo. LIBOR + 0.63%)(j) 2.96(b) 6/15/2028 1,778
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
$ 6,039 Manufacturers & Traders Trust Co. (3 mo.
LIBOR + 0.64%)(j) 3.38%(b) 12/01/2021 $ 5,997
1,000 SunTrust Capital I (3 mo. LIBOR + 0.67%)(j) 3.29(b) 5/15/2027 893
----------
15,851
----------
DIVERSIFIED FINANCIAL SERVICES (0.3%)
9,000 Cullen/Frost Capital Trust II (3 mo.
LIBOR + 1.55%)(j) 4.29(b) 3/01/2034 8,113
----------
INSURANCE (1.3%)
5,900 Allstate Corp. (3 mo. LIBOR + 2.94%)(j) 5.75(k) 8/15/2053 5,848
3,607 AmTrust Financial Services, Inc.(j) 6.13 8/15/2023 3,410
5,750 Athene Holding Ltd.(j) 4.13 1/12/2028 5,246
4,550 HSB Group, Inc. (3 mo. LIBOR + 0.91%)(j) 3.35(b) 7/15/2027 3,890
11,510 Nationwide Mutual Insurance Co. (3 mo.
LIBOR + 2.29%)(a),(j) 4.62(b) 12/15/2024 11,510
5,400 Prudential Financial, Inc. (3 mo.
LIBOR + 3.92%)(j) 5.63(k) 6/15/2043 5,427
----------
35,331
----------
INVESTMENT COMPANIES (0.2%)
5,950 Ares Capital Corp.(j) 3.63 1/19/2022 5,814
----------
REITS (0.0%)
1,000 Sabra Health Care, LP(j) 5.13 8/15/2026 950
----------
Total Financial 66,059
----------
INDUSTRIAL (0.5%)
-----------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
800 Artesyn Embedded Technologies, Inc.(a),(j) 9.75 10/15/2020 754
----------
MISCELLANEOUS MANUFACTURERS (0.1%)
1,725 General Electric Co.(j) 5.50 1/08/2020 1,739
----------
TRANSPORTATION (0.4%)
5,325 BNSF Funding Trust I (3 mo. LIBOR + 2.35%)(j) 6.61(k) 12/15/2055 5,711
5,750 Ryder System, Inc.(j) 3.50 6/01/2021 5,723
----------
11,434
----------
Total Industrial 13,927
----------
UTILITIES (0.1%)
----------------
ELECTRIC (0.1%)
3,800 NextEra Energy Capital Holdings, Inc.(j) 3.34 9/01/2020 3,782
----------
Total Corporate Obligations (cost: $121,083) 121,112
----------
================================================================================
6 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS (1.0%)
BASIC MATERIALS (0.1%)
----------------------
CHEMICALS (0.0%)
$ 500 Braskem Finance Ltd.(l) 6.45% 2/03/2024 $ 526
----------
MINING (0.1%)
3,000 Newcrest Finance Pty. Ltd.(a),(j) 4.45 11/15/2021 3,035
----------
Total Basic Materials 3,561
----------
CONSUMER, CYCLICAL (0.2%)
-------------------------
AUTO MANUFACTURERS (0.2%)
5,700 BMW U.S. Capital, LLC(a),(j) 3.25 8/14/2020 5,689
----------
ENERGY (0.5%)
-------------
OIL & GAS (0.4%)
5,800 Petrobras Global Finance B.V.(j) 5.38 1/27/2021 5,894
5,800 Petroleos Mexicanos(j) 5.38 3/13/2022 5,687
----------
11,581
----------
OIL & GAS SERVICES (0.0%)
111 Schahin II Finance Co. SPV Ltd.(a),(f) 8.00 5/25/2020 103
4,465 Schahin II Finance Co. SPV Ltd.(a),(m) 5.88 9/25/2023 491
----------
594
----------
PIPELINES (0.1%)
1,400 Transcanada Trust (3 mo. LIBOR + 3.53%)(j) 5.63(k) 5/20/2075 1,306
----------
Total Energy 13,481
----------
FINANCIAL (0.2%)
----------------
INSURANCE (0.2%)
5,900 QBE Capital Funding III Ltd. (USD Swap
Semi-Annual 30/360 10 YR + 4.05%)(a),(j) 7.25(k) 5/24/2041 6,217
----------
Total Eurodollar and Yankee Obligations (cost: $32,048) 28,948
----------
----------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------------
FIXED-INCOME EXCHANGE-TRADED FUNDS (8.8%)
277,500 Invesco Fundamental High Yield Corporate Bond ETF(l) 5,006
50,000 iShares 7-10 Year Treasury Bond ETF "B" 5,089
591,540 iShares iBoxx $High Yield Corporate Bond ETF(l) 49,453
1,124,920 SPDR Bloomberg Barclays High Yield Bond ETF(l) 39,069
906,900 Vanguard Mortgage-Backed Securities ETF 46,170
488,330 Vanguard Short-Term Bond ETF(l) 38,129
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
13,580 Vanguard Short-Term Corporate Bond ETF $ 1,055
762,700 Vanguard Total Bond Market ETF 59,597
----------
Total Fixed-Income Exchange-Traded Funds (cost: $249,367) 243,568
----------
----------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
----------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS (0.0%)
TEXAS (0.0%)
$ 150 Ector County Hospital District 6.80% 9/15/2025 152
300 Ector County Hospital District 7.18 9/15/2035 302
----------
454
----------
Total Municipal Obligations (cost: $456) 454
----------
U.S. GOVERNMENT AGENCY ISSUES (8.6%)(n)
COMMERCIAL MBS (1.4%)
3,750 Fannie Mae(+) 2.15 1/25/2023 3,608
14,000 Freddie Mac(+) 3.00 12/25/2025 13,674
8,400 Freddie Mac(+) 3.33(d) 5/25/2025 8,374
9,000 Freddie Mac(+) 3.51 4/25/2030 8,807
4,285 Freddie Mac(+) 3.70(d) 1/25/2033 4,304
----------
38,767
----------
FGLMC COLLATERAL (7.0%)
13,588 Freddie Mac(+) 3.00 4/01/2046 12,972
36,400 Freddie Mac(+) 3.00 6/01/2046 34,751
4,130 Freddie Mac(+) 3.00 8/01/2046 3,943
12,664 Freddie Mac(+) 3.00 1/01/2047 12,079
12,311 Freddie Mac(+) 3.00 1/01/2047 11,752
38,126 Freddie Mac(+) 3.00 3/01/2047 36,393
8,233 Freddie Mac(+) 3.00 4/01/2047 7,857
25,279 Freddie Mac(+) 3.00 4/01/2047 24,121
13,711 Freddie Mac(+) 3.00 6/01/2047 13,084
21,909 Freddie Mac(+) 3.50 4/01/2046 21,573
7,709 Freddie Mac(+) 3.50 4/01/2048 7,566
9,757 Freddie Mac(+) 4.00 7/01/2048 9,821
----------
195,912
----------
FNMA COLLATERAL (0.2%)
5,670 Fannie Mae(+) 4.00 11/01/2045 5,713
----------
GNMA COLLATERAL (0.0%)
5 Ginnie Mae I Pool 6.50 4/15/2024 5
----------
Total U.S. Government Agency Issues (cost: $251,384) 240,397
----------
================================================================================
8 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (14.2%)
BONDS (5.8%)(o)
$ 15,820 U.S. Treasury Bond (STRIPS Principal)
(Zero Coupon) 0.00% 8/15/2044 $ 6,730
15,000 U.S. Treasury Bond 3.00 11/15/2044 14,197
59,700 U.S. Treasury Bond 3.00 5/15/2045 56,468
5,000 U.S. Treasury Bond 3.00 5/15/2047 4,711
82,200 U.S. Treasury Bond 3.13 8/15/2044 79,610
----------
161,716
----------
INFLATION-INDEXED NOTES (0.9%)
25,562 Inflation-Index Note 0.13 4/15/2021 24,889
----------
NOTES (7.5%)(o)
63,000 U.S. Treasury Note(p) 1.13 2/28/2021 60,698
1,970 U.S. Treasury Note 1.63 8/15/2022 1,885
390 U.S. Treasury Note 1.63 11/15/2022 372
29,000 U.S. Treasury Note 1.63 4/30/2023 27,523
52,000 U.S. Treasury Note 1.63 2/15/2026 47,587
6,000 U.S. Treasury Note 1.88 7/31/2022 5,798
1,000 U.S. Treasury Note 2.25 11/15/2024 964
5,000 U.S. Treasury Note 2.25 11/15/2025 4,786
30,800 U.S. Treasury Note 2.25 11/15/2027 28,992
1,800 U.S. Treasury Note 2.38 8/15/2024 1,751
8,100 U.S. Treasury Note 2.38 5/15/2027 7,737
10,000 U.S. Treasury Note 2.50 6/30/2020 9,952
1,000 U.S. Treasury Note 2.75 11/15/2023 995
7,800 U.S. Treasury Note 2.75 2/15/2028 7,640
----------
206,680
----------
Total U.S. Treasury Securities (cost: $409,498) 393,285
----------
Total Bonds (cost: $1,140,185) 1,100,170
----------
----------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY SECURITIES (30.3%)
COMMON STOCKS (0.3%)
BASIC MATERIALS (0.1%)
----------------------
CHEMICALS (0.1%)
12,800 Linde plc 2,036
----------
INDUSTRIAL (0.2%)
-----------------
ELECTRONICS (0.1%)
41,190 TE Connectivity Ltd. 3,169
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL (0.1%)
54,730 Pentair plc $ 2,337
----------
Total Industrial 5,506
----------
TECHNOLOGY (0.0%)
-----------------
SEMICONDUCTORS (0.0%)
10,720 Kulicke & Soffa Industries, Inc. 231
----------
Total Common Stocks (cost: $7,885) 7,773
----------
EXCHANGE-TRADED FUNDS (29.8%)
527,552 Invesco FTSE RAFI Developed Markets ex-US 21,081
1,361,600 Invesco FTSE RAFI Emerging Markets 28,049
2,567,315 iShares Core MSCI EAFE ETF 151,420
1,532,210 iShares Core MSCI Emerging Markets ETF 75,798
258,500 iShares Edge MSCI Min Vol EAFE ETF(l) 17,986
260,200 iShares Edge MSCI Min Vol Emerging Markets ETF 14,925
1,883,000 iShares MSCI Canada ETF 50,163
83,771 iShares MSCI EAFE ETF 5,258
617,520 iShares MSCI United Kingdom ETF(l) 19,409
2,076,900 Schwab Fundamental Emerging Markets Large Company Index ETF 57,073
2,993,200 Schwab Fundamental International Large Company Index ETF 82,702
509,600 Schwab Fundamental International Small Company Index ETF 15,966
107,983 SPDR S&P Emerging Markets SmallCap ETF 4,677
68,000 USAA MSCI Emerging Markets Value Momentum Blend Index ETF(q) 2,998
4,480,000 Vanguard FTSE Developed Markets ETF 178,080
224,000 Vanguard FTSE Emerging Markets ETF 8,891
1,632,400 Vanguard FTSE Europe ETF 83,954
202,622 WisdomTree Emerging Markets SmallCap Dividend Fund 8,770
----------
Total Exchange-Traded Funds (cost: $793,812) 827,200
----------
PREFERRED STOCKS (0.2%)
FINANCIAL (0.2%)
----------------
INSURANCE (0.2%)
309,253 Delphi Financial Group, Inc., cumulative redeemable, 5.93%,
(3 mo. LIBOR + 3.19%)(b) (cost: $7,388) 7,036
----------
Total International Equity Securities (cost: $809,085) 842,009
----------
U.S. EQUITY SECURITIES (25.3%)
COMMON STOCKS (20.4%)
BASIC MATERIALS (0.2%)
----------------------
CHEMICALS (0.2%)
12,670 AdvanSix, Inc.(r) 364
26,830 Eastman Chemical Co. 2,114
================================================================================
10 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
23,170 LyondellBasell Industries N.V. "A" $ 2,162
26,700 Rayonier Advanced Materials, Inc. 394
----------
5,034
----------
FOREST PRODUCTS & PAPER (0.0%)
34,130 Resolute Forest Products, Inc.(r) 375
10,570 Schweitzer-Mauduit International, Inc. 301
----------
676
----------
Total Basic Materials 5,710
----------
COMMUNICATIONS (2.4%)
---------------------
ADVERTISING (0.3%)
175,230 Interpublic Group of Companies, Inc. 4,118
54,610 Omnicom Group, Inc. 4,203
----------
8,321
----------
INTERNET (0.7%)
3,450 Amazon.com, Inc.(r) 5,831
1,020 Booking Holdings, Inc.(r) 1,930
13,810 CDW Corp. 1,280
11,840 F5 Networks, Inc.(r) 2,036
31,710 GoDaddy, Inc. "A"(r) 2,069
11,120 Netflix, Inc.(r) 3,182
10,100 Palo Alto Networks, Inc.(r) 1,747
2,130 Stamps.com, Inc.(r) 365
----------
18,440
----------
MEDIA (0.8%)
109,340 Comcast Corp. "A" 4,265
110,590 Discovery, Inc. "A"(l),(r) 3,397
98,000 DISH Network Corp. "A"(r) 3,211
62,010 Entravision Communications Corp. "A" 200
4,720 Nexstar Media Group, Inc. "A" 390
266,390 Sirius XM Holdings, Inc.(l) 1,660
32,570 TEGNA, Inc. 433
57,180 Twenty-First Century Fox, Inc. "A" 2,829
152,560 Viacom, Inc. "B" 4,708
19,160 Walt Disney Co. 2,213
----------
23,306
----------
TELECOMMUNICATIONS (0.6%)
99,660 AT&T, Inc. 3,113
83,260 CenturyLink, Inc. 1,565
11,200 Ciena Corp.(r) 365
3,460 InterDigital, Inc. 261
18,430 Motorola Solutions, Inc. 2,419
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
3,250 Shenandoah Telecommunications Co. $ 162
37,150 T-Mobile US, Inc.(r) 2,543
114,310 Verizon Communications, Inc. 6,893
10,060 Vonage Holdings Corp.(r) 107
----------
17,428
----------
Total Communications 67,495
----------
CONSUMER, CYCLICAL (2.4%)
-------------------------
AIRLINES (0.3%)
46,250 Delta Air Lines, Inc. 2,808
33,320 Southwest Airlines Co. 1,819
21,020 United Continental Holdings, Inc.(r) 2,033
----------
6,660
----------
APPAREL (0.1%)
39,590 NIKE, Inc. "B" 2,974
----------
AUTO MANUFACTURERS (0.2%)
194,870 Ford Motor Co. 1,834
35,180 PACCAR, Inc. 2,189
18,700 Wabash National Corp. 290
----------
4,313
----------
AUTO PARTS & EQUIPMENT (0.2%)
8,970 Allison Transmission Holdings, Inc. 423
26,690 Dana, Inc. 387
16,490 Meritor, Inc.(r) 272
6,610 Methode Electronics, Inc. 200
9,790 Tenneco, Inc. "A" 331
25,210 WABCO Holdings, Inc.(r) 3,062
----------
4,675
----------
DISTRIBUTION/WHOLESALE (0.1%)
6,240 WESCO International, Inc.(r) 333
4,910 WW Grainger, Inc. 1,542
----------
1,875
----------
ENTERTAINMENT (0.0%)
11,480 Red Rock Resorts, Inc. "A" 300
----------
HOME BUILDERS (0.0%)
13,740 TRI Pointe Group, Inc.(r) 172
----------
HOME FURNISHINGS (0.0%)
7,360 Ethan Allen Interiors, Inc. 153
----------
================================================================================
12 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
LEISURE TIME (0.2%)
3,850 Brunswick Corp. $ 204
36,610 Carnival Corp. 2,207
35,640 Norwegian Cruise Line Holdings Ltd.(r) 1,829
16,880 Royal Caribbean Cruises Ltd. 1,909
----------
6,149
----------
LODGING (0.0%)
10,630 Boyd Gaming Corp. 264
----------
OFFICE FURNISHINGS (0.0%)
8,060 Herman Miller, Inc. 273
12,470 Knoll, Inc. 241
20,590 Steelcase, Inc. "A" 334
----------
848
----------
RETAIL (1.3%)
2,650 Asbury Automotive Group, Inc.(r) 183
32,280 Best Buy Co., Inc. 2,085
4,320 Big Lots, Inc. 188
18,710 Bloomin'Brands, Inc. 366
7,060 Buckle, Inc.(l) 135
17,310 Costco Wholesale Corp. 4,003
2,460 Cracker Barrel Old Country Store, Inc.(l) 445
25,790 Del Taco Restaurants, Inc.(r) 276
6,140 Dick's Sporting Goods, Inc. 221
5,470 Foot Locker, Inc. 308
94,220 Gap, Inc. 2,571
4,050 Group 1 Automotive, Inc. 228
15,210 Hibbett Sports, Inc.(r) 236
22,020 Home Depot, Inc. 3,971
34,980 Kohl's Corp. 2,350
5,730 La-Z-Boy, Inc. 167
2,460 Lithia Motors, Inc. "A" 204
74,690 Macy's, Inc. 2,556
4,470 MSC Industrial Direct Co., Inc. "A" 396
3,050 Nu Skin Enterprises, Inc. "A" 201
6,180 O'Reilly Automotive, Inc.(r) 2,143
4,070 Penske Automotive Group, Inc. 177
147,920 Qurate Retail, Inc.(r) 3,287
28,040 Ross Stores, Inc. 2,456
8,400 Rush Enterprises, Inc. "A" 320
10,120 Sonic Corp. 440
53,960 Target Corp. 3,829
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
58,680 TJX Companies, Inc. $ 2,867
4,450 Williams-Sonoma, Inc. 252
----------
36,861
----------
Total Consumer, Cyclical 65,244
----------
CONSUMER, NON-CYCLICAL (5.3%)
-----------------------------
AGRICULTURE (0.2%)
32,010 Altria Group, Inc. 1,755
88,880 Archer-Daniels-Midland Co. 4,090
----------
5,845
----------
BEVERAGES (0.3%)
30,502 Brown-Forman Corp. "B" 1,456
88,500 Coca-Cola Co. 4,460
32,620 Molson Coors Brewing Co. "B" 2,145
----------
8,061
----------
BIOTECHNOLOGY (0.7%)
15,200 Biogen, Inc.(r) 5,073
970 Bio-Rad Laboratories, Inc. "A"(r) 266
3,970 Cambrex Corp.(r) 190
33,100 Celgene Corp.(r) 2,391
4,220 Emergent BioSolutions, Inc.(r) 307
16,060 Exelixis, Inc.(r) 326
53,110 Gilead Sciences, Inc. 3,821
14,260 Halozyme Therapeutics, Inc.(r) 235
7,270 Illumina, Inc.(r) 2,454
6,130 Myriad Genetics, Inc.(r) 198
3,710 REGENXBIO, Inc.(r) 222
23,380 United Therapeutics Corp.(r) 2,761
----------
18,244
----------
COMMERCIAL SERVICES (0.8%)
5,750 AMN Healthcare Services, Inc.(r) 366
6,490 Avis Budget Group, Inc.(r) 190
10,970 Booz Allen Hamilton Holding Corp. 563
85,190 H&R Block, Inc. 2,301
23,010 Hackett Group, Inc. 406
18,960 Moody's Corp. 3,016
12,400 Quad/Graphics, Inc. 203
16,440 S&P Global, Inc. 3,006
172,050 Sabre Corp. 4,399
7,760 Sotheby's(r) 310
16,400 United Rentals, Inc.(r) 1,921
================================================================================
14 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
23,010 Verisk Analytics, Inc.(r) $ 2,838
137,610 Western Union Co. 2,578
----------
22,097
----------
COSMETICS/PERSONAL CARE (0.2%)
14,650 Estee Lauder Companies, Inc. "A" 2,090
50,160 Procter & Gamble Co. 4,741
----------
6,831
----------
FOOD (0.7%)
5,110 Cal-Maine Foods, Inc. 239
14,430 Flowers Foods, Inc. 286
57,020 Hormel Foods Corp. 2,571
20,580 Hostess Brands, Inc.(r) 240
13,730 Ingles Markets, Inc. "A" 399
21,340 Ingredion, Inc. 2,229
20,400 JM Smucker Co. 2,132
125,200 Kroger Co. 3,713
18,850 McCormick & Co., Inc. 2,828
2,530 Sanderson Farms, Inc. 286
35,770 Sysco Corp. 2,411
36,690 Tyson Foods, Inc. "A" 2,163
----------
19,497
----------
HEALTHCARE-PRODUCTS (0.5%)
4,140 ABIOMED, Inc.(r) 1,377
7,810 Bruker Corp. 259
12,600 Edwards Lifesciences Corp.(r) 2,041
17,640 Henry Schein, Inc.(r) 1,573
4,020 Hill-Rom Holdings, Inc. 390
10,570 IDEXX Laboratories, Inc.(r) 2,154
4,230 Intuitive Surgical, Inc.(r) 2,246
3,150 Masimo Corp.(r) 348
19,350 Meridian Bioscience, Inc. 367
60,250 MiMedx Group, Inc.(l),(r) 181
13,200 Patterson Companies, Inc. 335
3,830 STERIS plc 456
12,210 Stryker Corp. 2,142
----------
13,869
----------
HEALTHCARE-SERVICES (0.6%)
14,700 Centene Corp.(r) 2,091
1,150 Chemed Corp. 364
13,600 Cigna Corp. 3,038
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
5,000 Encompass Health Corp. $ 376
12,300 HCA Healthcare, Inc. 1,771
16,240 Laboratory Corp. of America Holdings(r) 2,365
7,360 MEDNAX, Inc.(r) 296
24,210 Quest Diagnostics, Inc. 2,144
16,410 Select Medical Holdings Corp.(r) 318
24,360 Universal Health Services, Inc. "B" 3,362
1,610 WellCare Health Plans, Inc.(r) 411
----------
16,536
----------
HOUSEHOLD PRODUCTS/WARES (0.1%)
23,850 ACCO Brands Corp. 193
40,220 Church & Dwight Co., Inc. 2,662
1,760 Helen of Troy Ltd.(r) 252
----------
3,107
----------
PHARMACEUTICALS (1.2%)
36,740 AmerisourceBergen Corp. 3,266
52,830 Cardinal Health, Inc. 2,897
13,230 Concert Pharmaceuticals, Inc.(r) 190
18,950 Corcept Therapeutics, Inc.(r) 264
39,620 CVS Health Corp. 3,177
2,850 Eagle Pharmaceuticals, Inc.(r) 144
16,420 Eli Lilly & Co. 1,948
2,600 Enanta Pharmaceuticals, Inc.(r) 206
36,310 Lannett Co., Inc.(r) 214
19,950 McKesson Corp. 2,484
34,480 Merck & Co., Inc. 2,736
77,500 Mylan N.V.(r) 2,624
179,020 Pfizer, Inc. 8,276
4,630 Phibro Animal Health Corp. "A" 157
2,940 PRA Health Sciences, Inc.(r) 343
6,270 Prestige Consumer Healthcare, Inc.(r) 243
5,820 Supernus Pharmaceuticals, Inc.(r) 276
39,240 Zoetis, Inc. 3,683
----------
33,128
----------
Total Consumer, Non-cyclical 147,215
----------
DIVERSIFIED (0.0%)
------------------
HOLDING COMPANIES-DIVERSIFIED (0.0%)
2,670 Spectrum Brands Holdings, Inc. 132
----------
ENERGY (1.3%)
-------------
COAL (0.0%)
22,880 Warrior Met Coal, Inc. 542
----------
================================================================================
16 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
ENERGY-ALTERNATE SOURCES (0.0%)
11,830 Renewable Energy Group, Inc.(r) $ 319
6,170 SolarEdge Technologies, Inc.(l),(r) 240
----------
559
----------
OIL & GAS (1.0%)
127,640 Antero Resources Corp.(r) 1,676
49,630 Apache Corp. 1,744
28,800 Cimarex Energy Co. 2,361
84,820 ConocoPhillips 5,613
22,000 Continental Resources, Inc.(r) 1,006
53,730 Devon Energy Corp. 1,452
28,590 Hess Corp. 1,541
57,580 HollyFrontier Corp. 3,597
36,930 Laredo Petroleum, Inc.(r) 161
11,090 Mammoth Energy Services, Inc. 279
72,340 Marathon Oil Corp. 1,207
47,650 Marathon Petroleum Corp. 3,105
10,150 Matador Resources Co.(r) 232
15,440 Par Pacific Holdings, Inc.(r) 261
7,320 PBF Energy, Inc. "A" 283
67,630 Southwestern Energy Co.(r) 326
52,150 SRC Energy, Inc.(r) 301
28,090 Valero Energy Corp. 2,244
----------
27,389
----------
OIL & GAS SERVICES (0.0%)
17,590 ProPetro Holding Corp.(r) 285
17,720 U.S. Silica Holdings, Inc.(l) 252
----------
537
----------
PIPELINES (0.3%)
25,740 Cheniere Energy, Inc.(r) 1,573
37,110 ONEOK, Inc. 2,280
72,030 Plains GP Holdings, LP "A"(r) 1,594
29,240 Targa Resources Corp. 1,305
----------
6,752
----------
Total Energy 35,779
----------
FINANCIAL (3.1%)
----------------
BANKS (1.4%)
6,750 Bank of Hawaii Corp. 538
14,300 BankUnited, Inc. 494
19,240 Cadence BanCorp 395
25,670 Capital One Financial Corp. 2,302
29,160 Comerica, Inc. 2,309
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
5,500 Cullen/Frost Bankers, Inc. $ 552
67,190 East West Bancorp, Inc. 3,607
141,220 Fifth Third Bancorp 3,944
12,770 Great Western Bancorp, Inc. 476
31,380 Hope Bancorp, Inc. 477
46,740 J.P. Morgan Chase & Co. 5,197
18,000 Meta Financial Group, Inc. 411
234,520 Regions Financial Corp. 3,858
26,780 Signature Bank 3,303
8,520 SVB Financial Group(r) 2,171
86,610 U.S. Bancorp. 4,717
10,450 Western Alliance Bancorp(r) 490
67,010 Zions Bancorp. N.V. 3,261
----------
38,502
----------
DIVERSIFIED FINANCIAL SERVICES (1.1%)
13,930 Affiliated Managers Group, Inc. 1,548
19,450 Alliance Data Systems Corp. 3,897
126,580 Ally Financial, Inc. 3,377
17,950 American Express Co. 2,015
10,230 CME Group, Inc. 1,944
10,270 Encore Capital Group, Inc.(l),(r) 287
6,800 Federal Agricultural Mortgage Corp. "C" 449
72,460 Franklin Resources, Inc. 2,456
24,230 Mastercard, Inc. "A" 4,872
7,290 Nelnet, Inc. "A" 397
67,114 Synchrony Financial 1,744
22,280 T. Rowe Price Group, Inc. 2,214
18,710 Virtu Financial, Inc. "A" 471
27,690 Visa, Inc. "A"(l) 3,924
20,770 Waddell & Reed Financial, Inc. "A" 423
3,530 World Acceptance Corp.(r) 385
----------
30,403
----------
INSURANCE (0.6%)
53,260 Aflac, Inc. 2,436
10,790 American Equity Investment Life Holding Co. 368
33,540 Athene Holding Ltd. "A"(r) 1,459
8,430 Employers Holdings, Inc. 379
13,660 Essent Group Ltd.(r) 527
3,650 Primerica, Inc. 434
34,740 Principal Financial Group, Inc. 1,713
40,610 Progressive Corp. 2,692
18,050 Prudential Financial, Inc. 1,692
================================================================================
18 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
28,050 Torchmark Corp. $ 2,424
8,250 Universal Insurance Holdings, Inc. 362
58,410 Voya Financial, Inc. 2,626
----------
17,112
----------
Total Financial 86,017
----------
INDUSTRIAL (1.8%)
-----------------
AEROSPACE/DEFENSE (0.1%)
7,720 Boeing Co. 2,677
----------
BUILDING MATERIALS (0.2%)
7,160 Apogee Enterprises, Inc. 261
51,300 Fortune Brands Home & Security, Inc. 2,247
5,300 Masonite International Corp.(r) 284
22,950 NCI Building Systems, Inc.(r) 261
48,020 Owens Corning 2,504
5,580 Patrick Industries, Inc.(r) 222
----------
5,779
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
6,930 Generac Holdings, Inc.(r) 394
----------
ELECTRONICS (0.5%)
49,220 Arrow Electronics, Inc.(r) 3,789
13,230 Atkore International Group, Inc.(r) 270
11,020 Jabil, Inc. 275
30,300 Keysight Technologies, Inc.(r) 1,873
5,730 Mettler-Toledo International, Inc.(r) 3,648
5,318 SYNNEX Corp. 429
3,300 Tech Data Corp.(r) 297
16,160 Waters Corp.(r) 3,209
----------
13,790
----------
ENGINEERING & CONSTRUCTION (0.1%)
40,790 Fluor Corp. 1,670
----------
ENVIRONMENTAL CONTROL (0.1%)
31,660 Waste Management, Inc. 2,968
----------
HAND/MACHINE TOOLS (0.1%)
4,740 Regal Beloit Corp. 370
9,510 Snap-on, Inc. 1,581
----------
1,951
----------
MACHINERY-DIVERSIFIED (0.2%)
30,460 AGCO Corp. 1,818
16,030 Cummins, Inc. 2,421
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
16,430 Ichor Holdings Ltd.(l),(r) $ 299
----------
4,538
----------
METAL FABRICATION/HARDWARE (0.0%)
8,040 Timken Co. 323
----------
MISCELLANEOUS MANUFACTURERS (0.2%)
4,450 Crane Co. 384
39,370 Eaton Corp. plc 3,029
7,180 Hillenbrand, Inc. 318
2,960 Sturm Ruger & Co., Inc. 159
47,940 Textron, Inc. 2,692
8,490 Trinseo S.A. 429
----------
7,011
----------
PACKAGING & CONTAINERS (0.1%)
11,000 Berry Global Group, Inc.(r) 554
15,860 Silgan Holdings, Inc. 408
31,030 Westrock Co. 1,462
----------
2,424
----------
SHIPBUILDING (0.0%)
6,900 Huntington Ingalls Industries, Inc. 1,487
----------
TRANSPORTATION (0.2%)
9,350 Air Transport Services Group, Inc.(r) 173
21,410 CH Robinson Worldwide, Inc. 1,977
15,140 Union Pacific Corp. 2,328
5,690 Werner Enterprises, Inc. 193
----------
4,671
----------
TRUCKING & LEASING (0.0%)
6,100 Greenbrier Companies, Inc. 298
----------
Total Industrial 49,981
----------
TECHNOLOGY (3.3%)
-----------------
COMPUTERS (1.3%)
35,560 Apple, Inc. 6,350
2,660 CACI International, Inc. "A"(r) 439
43,280 Cognizant Technology Solutions Corp. "A" 3,083
39,280 DXC Technology Co. 2,476
17,310 Fortinet, Inc.(r) 1,278
222,300 Hewlett Packard Enterprise Co. 3,334
5,500 Insight Enterprises, Inc.(r) 245
43,970 International Business Machines Corp. 5,464
55,420 Leidos Holdings, Inc. 3,491
7,700 MAXIMUS, Inc. 548
================================================================================
20 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
10,710 NCR Corp.(r) $ 297
26,390 NetApp, Inc. 1,765
5,560 Science Applications International Corp. 387
88,980 Seagate Technology plc 3,834
61,020 Western Digital Corp. 2,770
----------
35,761
----------
OFFICE/BUSINESS EQUIPMENT (0.0%)
35,540 Pitney Bowes, Inc. 300
----------
SEMICONDUCTORS (0.8%)
83,350 Advanced Micro Devices, Inc.(r) 1,775
39,980 Applied Materials, Inc. 1,490
6,990 Cirrus Logic, Inc.(r) 262
85,600 Intel Corp. 4,221
13,340 Lam Research Corp. 2,094
105,460 Micron Technology, Inc.(r) 4,066
14,360 NVIDIA Corp. 2,347
26,460 QUALCOMM, Inc. 1,542
8,630 SMART Global Holdings, Inc.(r) 296
18,030 Texas Instruments, Inc. 1,800
29,040 Ultra Clean Holdings, Inc.(r) 273
26,310 Xilinx, Inc. 2,433
----------
22,599
----------
SOFTWARE (1.2%)
11,560 Adobe, Inc.(r) 2,900
16,860 Broadridge Financial Solutions, Inc. 1,785
38,950 Citrix Systems, Inc.(r) 4,244
11,970 CSG Systems International, Inc. 420
146,450 First Data Corp. "A"(r) 2,794
18,340 Intuit, Inc. 3,935
6,020 j2 Global, Inc. 444
9,130 Manhattan Associates, Inc.(r) 452
65,740 Microsoft Corp. 7,290
11,720 MSCI, Inc. 1,841
99,660 Oracle Corp. 4,860
18,070 salesforce.com, Inc.(r) 2,580
----------
33,545
----------
Total Technology 92,205
----------
UTILITIES (0.6%)
----------------
ELECTRIC (0.5%)
49,920 Consolidated Edison, Inc. 4,011
72,000 Exelon Corp. 3,340
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
4,680 IDACORP, Inc. $ 460
17,800 NextEra Energy, Inc. 3,235
65,550 PPL Corp. 2,005
45,740 Spark Energy, Inc. "A"(l) 416
----------
13,467
----------
GAS (0.1%)
9,640 New Jersey Resources Corp. 468
5,490 Southwest Gas Holdings, Inc. 432
57,510 UGI Corp. 3,304
----------
4,204
----------
Total Utilities 17,671
----------
Total Common Stocks (cost: $543,270) 567,449
----------
EXCHANGE-TRADED FUNDS (4.3%)
50,000 Invesco S&P MidCap Low Volatility ETF 2,424
50,000 Invesco S&P SmallCap Low Volatility ETF(l) 2,382
71,120 iShares Russell 2000 ETF 10,854
14,000 Vanguard Mid-Cap ETF 2,156
399,030 Vanguard S&P 500 ETF 101,146
----------
Total Exchange-Traded Funds (cost: $108,387) 118,962
----------
PREFERRED STOCKS (0.6%)
COMMUNICATIONS (0.2%)
---------------------
TELECOMMUNICATIONS (0.2%)
220,000 Qwest Corp., 6.50%(j) 4,603
----------
CONSUMER, NON-CYCLICAL (0.2%)
-----------------------------
AGRICULTURE (0.0%)
30,000 CHS, Inc., cumulative redeemable "B", 7.88%(s) 811
----------
FOOD (0.2%)
45,000 Dairy Farmers of America, Inc., cumulative redeemable, 7.88%(a),(s) 4,523
----------
Total Consumer, Non-cyclical 5,334
----------
ENERGY (0.2%)
-------------
OIL & GAS (0.2%)
11,400 Chesapeake Energy Corp., 5.75%(a),(s) 6,418
----------
FINANCIAL (0.0%)
----------------
BANKS (0.0%)
500 M&T Bank Corp., cumulative redeemable, 6.38%(s) 502
----------
================================================================================
22 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
INSURANCE (0.0%)
3,500 American Overseas Group Ltd., non-cumulative, 6.29%,
(3 mo. LIBOR + 3.56%)(b),(e),(f),(g) $ 875
----------
Total Financial 1,377
----------
Total Preferred Stocks (cost: $22,262) 17,732
----------
Total U.S. Equity Securities (cost: $673,919) 704,143
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (2.5%)
COMMON STOCKS (1.0%)
FINANCIAL (1.0%)
----------------
DIVERSIFIED FINANCIAL SERVICES (0.0%)
21,660 Altisource Portfolio Solutions S.A.(l),(r) 514
----------
REAL ESTATE (0.3%)
58,650 CBRE Group, Inc. "A"(r) 2,562
12,720 HFF, Inc. "A" 514
15,870 Jones Lang LaSalle, Inc. 2,272
27,250 Realogy Holdings Corp.(l) 525
6,560 RMR Group, Inc. "A" 424
----------
6,297
----------
REITS (0.7%)
293,440 Annaly Capital Management, Inc. 2,946
23,250 CoreCivic, Inc. 510
23,160 GEO Group, Inc. 538
130,080 Host Hotels & Resorts, Inc. 2,472
132,450 Kimco Realty Corp. 2,166
24,570 Ladder Capital Corp. 434
8,370 Lamar Advertising Co. "A" 635
12,480 LTC Properties, Inc. 580
13,344 PotlatchDeltic Corp. 495
53,120 Prologis, Inc. 3,577
23,550 Tanger Factory Outlet Centers, Inc.(l) 557
43,070 Ventas, Inc. 2,734
72,460 Washington Prime Group, Inc. 453
70,780 Weyerhaeuser Co. 1,869
----------
19,966
----------
Total Financial 26,777
----------
Total Common Stocks (cost: $28,046) 26,777
----------
EXCHANGE-TRADED FUNDS (1.5%)
526,850 Vanguard Real Estate ETF (cost: $41,914) 43,191
----------
Total Global Real Estate Equity Securities (cost: $69,960) 69,968
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.4%)
COMMON STOCKS (0.1%)
BASIC MATERIALS (0.1%)
----------------------
IRON/STEEL (0.1%)
24,480 Nucor Corp. $ 1,479
45,140 Steel Dynamics, Inc. 1,589
----------
3,068
----------
MINING (0.0%)
216,393 Hycroft Mining Corp.(e),(f),(g),(r) 2
----------
Total Basic Materials 3,070
----------
Total Common Stocks (cost: $11,758) 3,070
----------
EXCHANGE-TRADED FUNDS (1.3%)
10,000 First Trust Global Tactical Commodity Strategy Fund 186
256,100 Invesco DB Commodity Index Tracking Fund(r) 3,916
297,000 United States Commodity Index Fund(l),(r) 11,363
893,000 VanEck Vectors Gold Miners ETF 17,047
101,000 VanEck Vectors Junior Gold Miners ETF 2,686
----------
Total Exchange-Traded Funds (cost: $41,107) 35,198
----------
Total Precious Metals and Commodity-Related Securities (cost: $52,865) 38,268
----------
----------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
----------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.7%)
COMMERCIAL PAPER (0.6%)
$ 4,100 CNH Industrial Capital, LLC(a) 3.25% 1/07/2019 4,087
3,000 CNH Industrial Capital, LLC(a) 3.25 1/08/2019 2,990
6,000 Enable Midstream Partners(a) 2.91 12/11/2018 5,996
1,500 Energy Transfer Partners(a) 2.85 12/03/2018 1,500
893 Energy Transfer Partners(a) 2.95 12/03/2018 893
----------
Total Commercial Paper (cost: $15,463) 15,466
----------
----------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
4,300,801 State Street Institutional Treasury Money Market Fund
Premier Class, 2.19%(t) (cost: $4,301) 4,301
----------
Total Money Market Instruments (cost: $19,764) 19,767
----------
================================================================================
24 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED (5.0%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (5.0%)
40,256,001 HSBC U.S. Government Money Market Fund Class I, 2.13%(t) $ 40,256
41,829,284 Invesco Government & Agency Portfolio Institutional
Class, 2.12%(t) 41,829
56,875,582 Western Asset Institutional Government Reserves Institutional
Class, 2.10%(t) 56,876
Total Short-Term Investments Purchased with Cash
Collateral from Securities Loaned (cost: $138,961) 138,961
----------
TOTAL INVESTMENTS (COST: $2,904,739) $2,913,286
==========
----------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE (000) (000) (000)
----------------------------------------------------------------------------------------------------------
FUTURES (2.5%)
LONG FUTURES
EQUITY CONTRACTS
282 E-mini S&P 500 12/21/2018 USD 40,449 $ 38,892 $(1,557)
--------- -------
TOTAL LONG FUTURES $ 38,892 $(1,557)
--------- -------
SHORT FUTURES
EQUITY CONTRACTS
438 Swiss Market Future
Index 12/21/2018 CHF (39,251) $ (39,573) $ (322)
--------- -------
INTEREST RATE CONTRACTS
490 U.S. Treasury Bond 3/20/2019 USD (68,258) $ (68,554) $ (296)
--------- -------
TOTAL SHORT FUTURES $(108,127) $ (618)
--------- -------
TOTAL FUTURES $ (69,235) $(2,175)
========= =======
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Bonds:
Asset-Backed Securities $ - $ 36,569 $ - $ 36,569
Bank Loans - 3,910 - 3,910
Collateralized Mortgage Obligations - 1,592 - 1,592
Commercial Mortgage Securities - 25,287 - 25,287
Convertible Securities - 5,017 31 5,048
Corporate Obligations - 121,112 - 121,112
Eurodollar and Yankee Obligations - 28,948 - 28,948
Fixed-Income Exchange-Traded
Funds 243,568 - - 243,568
Municipal Obligations - 454 - 454
U.S. Government Agency Issues - 240,397 - 240,397
U.S. Treasury Securities 386,555 6,730 - 393,285
International Equity Securities:
Common Stocks 7,773 - - 7,773
Exchange-Traded Funds 827,200 - - 827,200
Preferred Stocks - 7,036 - 7,036
U.S. Equity Securities:
Common Stocks 567,449 - - 567,449
Exchange-Traded Funds 118,962 - - 118,962
Preferred Stocks - 16,857 875 17,732
Global Real Estate Equity Securities:
Common Stocks 26,777 - - 26,777
Exchange-Traded Funds 43,191 - - 43,191
Precious Metals and Commodity-
Related Securities:
Common Stocks 3,068 - 2 3,070
Exchange-Traded Funds 35,198 - - 35,198
Money Market Instruments:
Commercial Paper - 15,466 - 15,466
Government & U.S. Treasury
Money Market Funds 4,301 - - 4,301
Short-Term Investments Purchased
with Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 138,961 - - 138,961
------------------------------------------------------------------------------------------------------------------
Total $2,403,003 $ 509,375 $908 $2,913,286
------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Futures(1) $ (2,175) $ - $ - $ (2,175)
------------------------------------------------------------------------------------------------------------------
Total $ (2,175) $ - $ - $ (2,175)
------------------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
================================================================================
26 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
The Portfolio of Investments uses the Bloomberg Industry Classification
System(BICS), which may differ from the Fund's compliance classification.
For the period of June 1, 2018, through November 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
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 | 27
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 32.6% of net assets at November 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
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 payment generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
================================================================================
28 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages paydown.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable cash flows than regular mortgage
securities, but such cash flows can be difficult to predict because of the
effect of prepayments.
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.
COMMERCIAL PAPER - Consists of short-term unsecured promissory notes with
maturities ranging from one to 270 days, issued mainly by corporations.
Commercial paper is usually purchased at a discount and matures at par
value; however, it also may be interest-bearing. Rate
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
represents an annualized yield at time of purchase or coupon rate, if
applicable.
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.
STRIPS Separate trading of registered interest and principal of
securities
Zero Coupon Normally issued at a significant discount from face value and do
not provide for periodic interest payments. Income is earned
from the purchase date by accreting the purchase discount of the
security to par over the life of the security.
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the securities.
INS Principal and interest payments are insured by the name listed.
Although bond insurance reduces the risk of loss due to default by
an issuer, such bonds remain subject to the risk that value may
fluctuate for other reasons, and there is no assurance that the
insurance company will meet its obligations.
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
================================================================================
30 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
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 November 30, 2018.
(c) Senior loans (loans) - are not registered under the Securities Act
of 1933. The loans contain certain restrictions on resale and cannot be
sold publicly. The stated interest rates represent the all in interest
rate of all contracts within the loan facilities. The interest rates are
adjusted periodically, and the rates disclosed represent the current
rate at November 30, 2018. The weighted average life of the loans are
likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loans are 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.
(d) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(e) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(f) Security was fair valued at November 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 $1,011,000, which represented less than 0.1% of the
Fund's net assets.
(g) Security was classified as Level 3.
(h) 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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
(i) All of the coupon is PIK.
(j) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2018.
(k) Fixed to floating security that initially pays a fixed rate and converts
to a floating rate coupon at a specified date in the future. The rate
presented is a fixed rate.
(l) The security, or a portion thereof, was out on loan as of November 30,
2018.
(m) At November 30, 2018, the issuer was in default with respect to interest
and/or principal payments.
(n) U.S. government agency issues - Mortgage-backed securities issued
by certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by the
full faith and credit of the U.S. government. Securities issued by other
GSEs, such as Federal Home Loan Mortgage Corporation (Freddie Mac or
FHLMC) and Federal National Mortgage Association (Fannie Mae or FNMA),
indicated with a "+", are supported only by the right of the GSE to
borrow from the U.S. Treasury, the discretionary authority of the U.S.
government to purchase the GSEs' obligations, or only by the credit of
the issuing agency, instrumentality, or corporation, and are neither
issued nor guaranteed by the U.S. Treasury. In September of 2008, the
U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship
and appointed the Federal Housing Finance Agency (FHFA) to act as
conservator and oversee their daily operations. In addition, the U.S.
Treasury entered into purchase agreements with Fannie Mae and Freddie
Mac to provide them with capital in exchange for senior preferred stock.
While these arrangements are intended to ensure that Fannie Mae and
Freddie Mac can continue to meet their obligations, it is possible that
actions by the U.S. Treasury, FHFA, or others could adversely impact the
value of the Fund's investments in securities issued by Fannie Mae and
Freddie Mac.
================================================================================
32 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
(o) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(p) Securities with a value of $9,635,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(q) Investment in affiliated exchange-traded fund.
(r) Non-income-producing security.
(s) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(t) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in unaffiliated securities, at market value
(including securities on loan of $137,576) (cost of $2,901,276) $2,910,288
Investments in affiliated underlying funds, at market value (cost of $3,463) 2,998
Cash denominated in foreign currencies (identified cost of $1,301) 1,265
Receivables:
Capital shares sold 2,277
USAA Asset Management Company (Note 6) 420
Dividends and interest 5,828
Securities sold 29,590
Other 161
----------
Total assets 2,952,827
----------
LIABILITIES
Payables:
Upon return of securities loaned 138,961
Securities purchased 19,095
Capital shares redeemed 1,236
Bank overdraft 9,844
Variation margin on futures contracts 2,172
Accrued management fees 1,344
Accrued transfer agent's fees 154
Other accrued expenses and payables 261
----------
Total liabilities 173,067
----------
Net assets applicable to capital shares outstanding $2,779,760
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,693,816
Distributable earnings 85,944
----------
Net assets applicable to capital shares outstanding $2,779,760
==========
Capital shares outstanding, no par value 114,561
==========
Net asset value, redemption price, and offering price per share $ 24.26
==========
See accompanying notes to financial statements.
================================================================================
34 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 22,106
Interest 14,815
Securities lending (net) 382
---------
Total income 37,303
---------
EXPENSES
Management fees 8,369
Administration and servicing fees 2,128
Transfer agent's fees 3,279
Custody and accounting 246
Postage 125
Shareholder reporting fees 63
Trustees' fees 18
Registration fees 50
Professional fees 67
Other 25
---------
Total expenses 14,370
Expenses reimbursed (471)
---------
Net expenses 13,899
---------
NET INVESTMENT INCOME 23,404
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain on:
Investments 49,983
Foreign currency transactions 7
Futures transactions 5,932
Change in net unrealized appreciation/(depreciation) of:
Unaffiliated investments (107,632)
Affiliated investments (Note 8) (311)
Foreign capital gains tax 51
Foreign currency translations (14)
Futures contracts (3,764)
---------
Net realized and unrealized loss (55,748)
---------
Decrease in net assets resulting from operations $ (32,344)
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended
May 31, 2018
---------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
---------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 23,404 $ 40,658
Net realized gain on investments 49,983 137,280
Net realized gain on foreign currency transactions 7 1,093
Net realized gain on long-term capital gain
distributions from other investment companies - 46
Net realized gain on futures transactions 5,932 28,848
Change in net unrealized appreciation/(depreciation) of:
Investments (107,943) (45,009)
Foreign capital gains tax 51 (41)
Foreign currency translations (14) (118)
Futures contracts (3,764) (7,268)
------------------------
Increase (decrease) in net assets resulting from operations (32,344) 155,489
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS (69,760) (184,409)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 107,162 224,649
Reorganization (Note 9) 381,150 -
Reinvested dividends 69,209 182,859
Cost of shares redeemed (169,540) (283,112)
------------------------
Increase in net assets from capital share transactions 387,981 124,396
------------------------
Net increase in net assets 285,877 95,476
NET ASSETS
Beginning of period 2,493,883 2,398,407
------------------------
End of period $2,779,760 $2,493,883
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,292 8,519
Reorganization shares (Note 9) 17,570 -
Shares issued for dividends reinvested 2,755 7,016
Shares redeemed (6,786) (10,732)
------------------------
Increase in shares outstanding 17,831 4,803
========================
See accompanying notes to financial statements.
================================================================================
36 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA Cornerstone Moderately Aggressive Fund (the Fund) qualifies as a
registered investment company under Accounting Standards Codification Topic 946.
The information presented in this semiannual report pertains only to the Fund,
which is classified as diversified under the 1940 Act and is authorized to issue
an unlimited number of shares. The Fund's investment objective is to seek
capital appreciation with a secondary focus on current income.
The Cornerstone Moderately Aggressive Fund acquired the assets and liabilities
of the First Start Growth Fund, in a reorganization that was effective at the
close of business on June 22, 2018. The shareholders of the First Start Growth
Fund approved a Plan of Reorganization and Termination on May 30, 2018. See Note
9 for additional information.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
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, 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
================================================================================
38 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
to local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and ask prices generally is used. Actively traded
equity securities listed on a domestic exchange generally are categorized
in Level 1 of the fair value hierarchy. Certain preferred and equity
securities traded in inactive markets generally are categorized in Level 2
of the fair value hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the foreign
markets may be closed. Therefore, the calculation of the Fund's net asset
value (NAV) may not take place at the same time the prices of certain
foreign securities held by the Fund are determined. In many cases, events
affecting the values of foreign securities that occur between the time of
their last quoted sale or official closing price and the close of normal
trading on the NYSE on a day the Fund's NAV is calculated will not need to
be reflected in the value of the Fund's foreign securities. However, the
Manager 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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.
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
================================================================================
40 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the fair
value price. Valuing these securities at fair value is intended to cause
the Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation systems.
General factors considered in determining the fair value of securities
include fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, evaluation of credit
quality, and an evaluation of the forces that influenced the market in
which the securities are purchased and sold. Level 2 securities include
debt securities that are valued using market inputs and other observable
factors deemed by the Manager to appropriately reflect fair value.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
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, and forward
contracts, under circumstances in which such instruments are expected by the
portfolio manager to aid in achieving the Fund's investment objective. The
Fund also may use derivatives in circumstances where the portfolio manager
believes they offer an economical means of gaining exposure to a particular
asset class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty to
all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the transaction.
The Fund's derivative agreements held at November 30, 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
================================================================================
42 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
contract at the time it was opened and the value at the time it was closed.
Upon entering into such contracts, the Fund bears the risk of interest or
exchange rates or securities prices moving unexpectedly in an unfavorable
direction, in which case, the Fund may not achieve the anticipated benefits
of the futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2018*
(IN THOUSANDS)
LIABILITY DERIVATIVES
-----------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF
ACCOUNTED FOR AS ASSETS AND INTEREST FOREIGN
HEDGING LIABILITIES RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-----------------------------------------------------------------------------------------------
USAA Distributable $(296)** $(1,879)** $- $(2,175)
Cornerstone earnings
Moderately
Aggressive Fund
-----------------------------------------------------------------------------------------------
* For open derivative instruments as of November 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 NOVEMBER 30, 2018 (IN THOUSANDS)
NET REALIZED GAIN (LOSS)
-----------------------------------------------------------------------------------------------
DERIVATIVES NOT
ACCOUNTED FOR AS STATEMENT OF INTEREST FOREIGN
HEDGING OPERATIONS RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-----------------------------------------------------------------------------------------------
USAA Net realized gain $2,307 $3,625 $- $5,932
Cornerstone on Futures
Moderately transactions
Aggressive Fund
-----------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
-----------------------------------------------------------------------------------------------
DERIVATIVES NOT
ACCOUNTED FOR AS STATEMENT OF INTEREST FOREIGN
HEDGING OPERATIONS RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-----------------------------------------------------------------------------------------------
USAA Change in net $(2,668) $(1,096) $- $(3,764)
Cornerstone unrealized
Moderately appreciations/
Aggressive Fund (depreciation) of
Futures contracts
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
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 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. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies and to distribute substantially all of its taxable income and net
capital gains, if any, to its shareholders. Therefore, no federal income tax
provision is required.
For the six-month period ended November 30, 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.
F. 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.
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
================================================================================
44 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts received. At the
end of the Fund's fiscal year, net realized foreign currency gains/losses are
reclassified from accumulated net realized gains/losses to accumulated
undistributed net investment income on the Statement of Assets and
Liabilities, as such amounts are treated as ordinary income/loss for federal
income tax purposes. Net unrealized foreign currency exchange gains/losses
arise from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rate.
H. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can take
place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
securities on a delayed-delivery or when-issued basis and delayed-draw loan
commitments may increase the volatility of the Fund's NAV to the extent that
the Fund makes such purchases and commitments while remaining substantially
fully invested.
I. 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily net assets for the period.
================================================================================
46 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
The Trusts may request an optional increase of the committed loan agreement from
$500 million up to $750 million. If the Trusts increase the committed loan
agreement, the assessed facility fee on the amount of the additional commitment
will be 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $11,000, which represents 3.3% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
(3) DISTRIBUTIONS
The difference between book-basis and tax-basis unrealized appreciation of
investments is attributable to the tax deferral of losses on wash sales, REIT
return of capital dividend, return of capital dividend, partnership basis,
passive foreign investment company, futures contracts marked to market and
hybrid interest accrual adjustments.
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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
May 31, 2018, the Fund had no capital loss carryforwards, for federal income tax
purposes.
Prior to the merger, the First Start Growth Fund had no unused capital loss
carryforwards.
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
-------------------------------------------------------------------------------
USAA Cornerstone Moderately
Aggressive Fund $117,352,000 $(108,805,000) $8,547,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$1,397,915,000 and $1,359,745,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended November 30,
2018 were as follows:
PURCHASES SALES NET REALIZED GAIN
-----------------------------------------------------------------------------------
$1,222,000 $- $-
(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.
================================================================================
48 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
At November 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
---------------------------------------------------------------------------------------------------------
$137,576,000(1) $2,430,000 $138,961,000
(1) Includes $10,094,000 of securities on loan that were sold prior to November
30, 2018.
(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, and for directly
managing the day-to-day investment of the Fund's assets, subject to the
authority of and supervision by the Board. The Manager is authorized to select
(with approval of the Board and without shareholder approval) one or more
subadvisers to manage the day-to-day investment of all or a portion of the
Fund's assets. For the six-month period ended November 30, 2018, the Fund had no
subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.59% of the Fund's average daily net assets. For the six-
month period ended November 30, 2018, the Fund incurred management fees, paid or
payable to the Manager, of $8,369,000.
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 November 30, 2018, the
Fund's management fee was reimbursed by the Manager in an amount of $3,000, 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 the Fund's
average daily net assets for the fiscal year. For the six-month period ended
November 30, 2018, the Fund incurred administration and servicing fees, paid or
payable to the Manager, of $2,128,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 2018, the Fund reimbursed the Manager $30,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed, through September 30, 2019, to limit
the total annual operating expenses of the Fund Shares to 0.98% of its average
daily net assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Fund Shares for all expenses in
excess of that amount. This expense limitation arrangement may not be changed or
terminated through September 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 November 30, 2018, the Fund incurred reimbursable
expenses of $471,000, of which $419,000 was receivable from the Manager, which
includes affiliated ETF(s) management fee reimbursement expenses and receivable.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund based on an annual charge of $23 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. For the six-month period ended November 30, 2018, the
Fund incurred transfer agent's fees, paid or payable to SAS, of $3,279,000.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
50 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
(8) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the affiliated USAA Funds for
the purpose of exercising management or control; however, investments by the
Fund may represent a significant portion of the affiliated USAA Funds' net
assets. The affiliated funds' annual or semiannual reports may be viewed on
usaa.com. At November 30, 2018, the Fund owned the following percentages of
the total outstanding shares of each of USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------------
MSCI Emerging Markets Value Momentum Blend Index ETF 1.8
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides details
related to the Fund's investment in the underlying USAA Funds for the
six-month period ended November 30, 2018:
CHANGE
($ IN 000s) IN NET
AFFILIATED REALIZED CAPITAL UNREALIZED
USAA PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
FUND COST PROCEEDS INCOME (LOSS) DISTRIBUTIONS (DEPRECIATION) 5/31/18 11/30/18
------------------------------------------------------------------------------------------------------------
MSCI
Emerging
Markets Value
Momentum
Blend Index
ETF $511 $- $- $- $- $(311) $2,798 $2,998
(9) ACQUISITION OF USAA FIRST START GROWTH FUND
On June 22, 2018, the First Start Growth Fund was acquired by the Fund pursuant
to a Plan of Reorganization and Termination, which was approved by shareholders
of the First Start Growth Fund on May 30, 2018. The reorganization was
accomplished by a tax-free exchange of 17,570,000 shares of the Fund (valued at
$440,752,000) for 32,676,000 shares of the First Start Growth Fund (100% of the
voting equity interests) outstanding on June 22, 2018. The reason for the
transaction was to combine two funds with comparable investment objectives to
create one larger fund with the potential for lower total operating expenses
borne by shareholders. The
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
tax-free exchange of shares by the Fund for the assets and liabilities of the
First Start Growth Fund on the date of the reorganization was as follows:
PRIOR TO
REORGANIZATION AFTER REORGANIZATION
SHARES ISSUED BY TOTAL NET ASSETS TOTAL NET ASSETS
USAA TOTAL NET ASSETS OF THE OF THE
CORNERSTONE OF THE USAA CORNERSTONE CORNERSTONE
MODERATELY FIRST START MODERATELY MODERATELY
AGGRESSIVE FUND GROWTH FUND MERGER RATIO AGGRESSIVE FUND AGGRESSIVE FUND
------------------------------------------------------------------------------------------------------------
17,570,000 $440,752,000(b) .538 $2,490,669,000(a) $2,931,421,000
(a) Includes undistributed net investment income of $6,090,000 and unrealized
appreciation on investments of $107,487,000 with a fair value of
$2,486,634,000 and identified cost of $2,379,147,000.
(b) Includes $59,602,000 of unrealized appreciation on investments.
Assets received, and shares issued by the Fund were recorded at fair value;
however, the cost basis of the investments received by the Fund was carried
forward to align ongoing reporting of the portfolio's realized and unrealized
gains and losses with amounts distributable for tax purposes.
The pro forma results of operations for the six-month period ended November 30,
2018, assuming the reorganization had been completed on June 1, 2018 (the
beginning of the annual period), are as follows:
Net investment income $ 1,653,000
Net realized gain on investments $ 66,000
Change in unrealized appreciation/(depreciation) on investments and
foreign currency translations $(1,159,000)
Net increase in net assets resulting from operations $ 560,000
The combined investment portfolios have been managed as a single portfolio since
the merger was completed on June 22, 2018. Thus, it is not practicable to
separate the amounts of revenue and earnings of the First Start Growth Fund that
has been included in the Fund's Statement of Operations since June 22, 2018.
(10) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10233, INVESTMENT COMPANY LIQUIDITY RISK
================================================================================
52 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
MANAGEMENT PROGRAMS (Liquidity Rule). The Liquidity Rule requires funds to
establish a liquidity risk management program and enhances disclosures regarding
funds' liquidity. The requirements to implement a liquidity risk management
program and establish a 15% illiquid investment limit became effective December
1, 2018. However, in February 2018, the SEC issued Release No. IC-33010,
INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR
IN-KIND ETFs, which delayed certain requirements related to liquidity
classification, highly liquid investment minimums, and board approval of the
liquidity risk management programs to June 1, 2019. The Manager continues to
evaluate the impact of this rule on the Fund's financial statements and various
filings.
(11) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
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 reporting
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 reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
(12) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
54 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
FINANCIAL HIGHLIGHTS
(UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 25.78 $ 26.09 $ 24.08 $ 26.27 $ 26.02 $ 24.17
----------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .21 .42 .45 .55 .56 .62
Net realized and
unrealized gain (loss) (1.01) 1.28 2.06 (2.06) .33 1.83
----------------------------------------------------------------------------------------------
Total from investment
operations (.80) 1.70 2.51 (1.51) .89 2.45
----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.44) (.50) (.56) (.64) (.60)
Realized capital gains (.61) (1.57) - (.12) - -
----------------------------------------------------------------------------------------------
Total distributions (.72) (2.01) (.50) (.68) (.64) (.60)
----------------------------------------------------------------------------------------------
Net asset value at
end of period $ 24.26 $ 25.78 $ 26.09 $ 24.08 $ 26.27 $ 26.02
==============================================================================================
Total return (%)* (3.19) 6.52 10.59 (5.73) 3.47 10.24
Net assets at end of
period (000) $2,779,760 $2,493,883 $2,398,407 $2,278,762 $2,526,548 $2,491,487
Ratios to average
daily net assets:**
Expenses (%)(a) .98(b),(f) .97 1.06 1.13 1.16 1.18(c),(d)
Expenses, excluding
reimbursements (%)(a) 1.01(b) .97 1.06 1.13 1.16 1.18(d)
Net investment income (%) 1.65(b) 1.64 1.78 2.18 2.14 2.46
Portfolio turnover (%) 49(g) 56 69 87(e) 62 57
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $2,828,430,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Prior to October 1, 2013, the Manager voluntarily agreed to limit the annual
expenses of the Fund to 1.28% of the Fund's average daily net assets.
(d) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratio by less than 0.01%.
(e) Reflects increased trading activity due to changes in subadviser(s) and
asset allocation strategies.
(f) Effective June 22, 2018, the Manager has voluntarily agreed to limit the
annual expenses of the Fund to 0.98% of the Fund's average daily net assets.
(g) For the six-month period ended November 30, 2018, the portfolio turnover
calculation excludes the value of securities purchased of $370,785,000 and
sold of $3,096,000 after the Fund's acquisition of First Start Growth Fund.
================================================================================
FINANCIAL HIGHLIGHTS | 55
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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 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
================================================================================
56 | USAA CORNERSTONE MODERATELY AGGRESSIVE FUND
================================================================================
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
--------------------------------------------------------------
Actual $1,000.00 $ 968.10 $4.84
Hypothetical
(5% return before expenses) 1,000.00 1,020.16 4.96
*Expenses are equal to the Fund's annualized expense ratio of 0.98%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (3.19)% for the six-month period of June 1,
2018, through November 30, 2018.
================================================================================
EXPENSE EXAMPLE | 57
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
27800-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATELY CONSERVATIVE FUND]
================================================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATELY CONSERVATIVE FUND (UCMCX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 22
Financial Statements 27
Notes to Financial Statements 30
Financial Highlights 46
EXPENSE EXAMPLE 47
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 11/30/18 o
(% of Net Assets)
Vanguard Total Bond Market ETF ........................................... 3.9%
iShares Core MSCI EAFE ETF ............................................... 3.9%
U.S. Treasury Bond, 3.13%, 8/15/2044 ..................................... 3.9%
U.S. Treasury Note, 1.13%, 2/28/2021 ..................................... 3.3%
Vanguard FTSE Developed Markets ETF ...................................... 3.1%
Vanguard FTSE Europe ETF ................................................. 2.9%
Schwab Fundamental International Large Company Index ETF ................. 2.8%
U.S. Treasury Note, 2.25%, 11/15/2025 .................................... 2.7%
iShares iBoxx $ High Yield Corporate Bond ETF ............................ 2.3%
Freddie Mac, 3.50%, 4/01/2046 ............................................ 2.1%
*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.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o ASSET ALLOCATION* - 11/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EQUITY SECURITIES 23.1%
U.S. TREASURY SECURITIES 20.7%
U.S. EQUITY SECURITIES 16.1%
U.S. GOVERNMENT AGENCY ISSUES 13.5%
FIXED-INCOME EXCHANGE-TRADED FUNDS 11.3%
CORPORATE OBLIGATIONS 6.1%
ASSET-BACKED SECURITIES 1.9%
GLOBAL REAL ESTATE EQUITY SECURITIES 1.7%
EURODOLLAR AND YANKEE OBLIGATIONS 1.3%
MONEY MARKET INSTRUMENTS 1.2%
COMMERCIAL MORTGAGE SECURITIES 1.1%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 1.0%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.3%
CONVERTIBLE SECURITIES 0.3%
BANK LOANS 0.2%
[END PIE CHART]
*Does not include futures and short-term investments purchased with cash
collateral from securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (56.7%)
ASSET-BACKED SECURITIES (1.9%)
ASSET BACKED SECURITIES (1.9%)
-----------------------------
AUTOMOBILE ABS (1.4%)
$ 143 Americredit Automobile Receivables Trust 3.15% 3/20/2023 $ 143
480 Americredit Automobile Receivables Trust 3.50 1/18/2024 477
375 Avis Budget Rental Car Funding AESOP, LLC(a) 2.96 7/20/2020 374
233 Avis Budget Rental Car Funding AESOP, LLC(a) 3.75 7/20/2020 233
608 Avis Budget Rental Car Funding AESOP, LLC(a) 2.50 2/20/2021 603
324 Credit Acceptance Auto Loan Trust(a) 4.29 11/15/2024 326
329 Credit Acceptance Auto Loan Trust(a) 3.55 8/15/2027 329
560 OSCAR U.S. Funding Trust IX, LLC(a) 3.63 9/10/2025 563
--------
3,048
--------
CREDIT CARD ABS (0.2%)
320 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 314
--------
OTHER ABS (0.2%)
240 Element Rail Leasing I, LLC(a) 3.67 4/19/2044 239
93 NP SPE II, LLC(a) 3.37 10/21/2047 91
200 SCF Equipment Leasing, LLC(a) 3.41 12/20/2023 198
--------
528
--------
STUDENT LOAN ABS (0.1%)
200 Navient Student Loan Trust (1 mo. LIBOR + 1.50%) 3.82(b) 8/25/2050 200
--------
Total Asset Backed Securities 4,090
--------
Total Asset-Backed Securities (cost: $4,083) 4,090
--------
BANK LOANS (0.2%)(c)
CONSUMER, CYCLICAL (0.2%)
-------------------------
RETAIL (0.2%)
402 Academy, Ltd. (1 mo. LIBOR + 4.00%) 6.30 7/01/2022 296
189 Academy, Ltd. (1 mo. LIBOR + 4.00%) 6.31 7/01/2022 139
--------
Total Consumer, Cyclical 435
--------
Total Bank Loans (cost: $472) 435
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.3%)
MORTGAGE SECURITIES (0.3%)
-------------------------
$ 39 Sequoia Mortgage Trust (1 mo. LIBOR + 0.90%) 3.20%(b) 9/20/2033 $ 37
661 Structured Asset Mortgage Investments Trust
(1 mo. LIBOR + 0.50%) 3.05(b) 7/19/2035 621
34 Wells Fargo Mortgage Backed Securities Trust 4.13(d) 4/25/2035 34
--------
Total Mortgage Securities 692
--------
Total Collateralized Mortgage
Obligations (cost: $731) 692
--------
COMMERCIAL MORTGAGE SECURITIES (1.1%)
MORTGAGE SECURITIES (1.1%)
-------------------------
COMMERCIAL MBS (1.1%)
163 Banc of America Commercial Mortgage Trust 5.86 7/10/2044 60
38 Banc of America Commercial Mortgage Trust 6.79(d) 2/10/2051 38
92 Bear Stearns Commercial Mortgage Securities Trust (a) 5.66(d) 9/11/2041 92
320 BTH-21 Mortgage-Backed Securities Trust
(1 mo. LIBOR + 2.50%)(a) 4.46(b) 10/07/2021 320
7 Commercial Mortgage Trust 5.38 12/10/2046 7
275 Credit Suisse Commercial Mortgage Trust
(1 mo. LIBOR + 0.19%) 2.49(b) 2/15/2040 272
3,201 CSAIL Commercial Mortgage Trust(e),(f) 1.95(d) 1/15/2049 291
830 FREMF Mortgage Trust (a) 3.69(d) 8/25/2045 830
88 GE Capital Commercial Mortgage Corp. 5.61(d) 12/10/2049 88
11 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 11
352 J.P. Morgan Chase Commercial Mortgage
Securities Trust 5.37 5/15/2047 352
2,704 UBS Commercial Mortgage Trust(a),(e),(f) 2.25(d) 5/10/2045 151
--------
Total Mortgage Securities 2,512
--------
Total Commercial Mortgage Securities
(cost: $2,617) 2,512
--------
CONVERTIBLE SECURITIES (0.3%)
BASIC MATERIALS (0.3%)
---------------------
MINING (0.3%)
700 Hycroft Mining Corp.(e),(g),(h),(i) 15.00(j) 10/22/2020 21
700 Pretium Resources, Inc. 2.25 3/15/2022 605
--------
Total Basic Materials 626
--------
Total Convertible Securities (cost: $1,356) 626
--------
================================================================================
4 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (6.1%)
COMMUNICATIONS (0.2%)
--------------------
TELECOMMUNICATIONS (0.2%)
$ 500 Hughes Satellite Systems Corp. 6.50% 6/15/2019 $ 508
--------
CONSUMER, CYCLICAL (0.7%)
------------------------
AIRLINES (0.1%)
133 Continental Airlines, Inc. Pass-Through Trust "B" 6.25 10/11/2021 136
--------
AUTO MANUFACTURERS (0.6%)
700 Harley-Davidson Financial Services, Inc.(a) 3.55 5/21/2021 696
700 Hyundai Capital America(a) 3.75 7/08/2021 694
--------
1,390
--------
Total Consumer, Cyclical 1,526
--------
CONSUMER, NON-CYCLICAL (0.2%)
----------------------------
HEALTHCARE-SERVICES (0.2%)
600 Community Health Systems, Inc. 6.88 2/01/2022 300
ENERGY (1.5%)
------------
PIPELINES (1.5%)
650 Enbridge Energy Partners, LP 7.38 10/15/2045 796
400 Energy Transfer Operating, LP
(3 mo. LIBOR + 3.02%) 5.56(b) 11/01/2066 330
700 EQM Midstream Partners, LP 4.75 7/15/2023 695
200 Martin Midstream Partners, LP / Martin
Midstream Finance Corp. 7.25 2/15/2021 196
800 Rockies Express Pipeline, LLC(a) 6.00 1/15/2019 802
200 Southern Union Co. (3 mo. LIBOR + 3.02%) 5.56(b) 11/01/2066 163
300 Tallgrass Energy Partners, LP/ Tallgrass
Energy Finance Corp.(a) 5.50 9/15/2024 302
--------
Total Energy 3,284
--------
FINANCIAL (2.8%)
---------------
BANKS (0.5%)
100 Compass Bank 3.88 4/10/2025 96
100 First Maryland Capital Trust I
(3 mo. LIBOR + 1.00%) 3.44(b) 1/15/2027 93
1,000 Suntrust Capital I (3 mo. LIBOR + 0.67%) 3.29(b) 5/15/2027 892
--------
1,081
--------
DIVERSIFIED FINANCIAL SERVICES (0.4%)
1,000 Cullen/Frost Capital Trust II
(3 mo. LIBOR + 1.55%) 4.29(b) 3/01/2034 901
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
INSURANCE (1.7%)
$ 700 Allstate Corp. (3 mo. LIBOR + 2.94%) 5.75%(k) 8/15/2053 $ 694
332 AmTrust Financial Services, Inc.(l) 6.13 8/15/2023 314
700 Athene Holding Ltd. 4.13 1/12/2028 639
550 HSB Group, Inc. (3 mo. LIBOR + 0.91%) 3.35(b) 7/15/2027 470
1,100 Nationwide Mutual Insurance Co.
(3 mo. LIBOR + 2.29%)(a) 4.62(b) 12/15/2024 1,100
600 Prudential Financial, Inc. (3 mo. LIBOR + 3.92%) 5.63(k) 6/15/2043 603
--------
3,820
--------
INVESTMENT COMPANIES (0.2%)
350 Ares Capital Corp. 3.63 1/19/2022 342
--------
Total Financial 6,144
--------
INDUSTRIAL (0.5%)
----------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
100 Artesyn Embedded Technologies, Inc.(a) 9.75 10/15/2020 94
--------
MISCELLANEOUS MANUFACTURERS (0.1%)
210 General Electric Co. 5.50 1/08/2020 212
--------
TRANSPORTATION (0.3%)
700 Ryder System, Inc. 3.50 6/01/2021 697
--------
Total Industrial 1,003
--------
UTILITIES (0.2%)
---------------
ELECTRIC (0.2%)
467 NextEra Energy Capital Holdings, Inc. 3.34 9/01/2020 465
--------
Total Corporate Obligations (cost: $13,283) 13,230
--------
EURODOLLAR AND YANKEE OBLIGATIONS (1.3%)
BASIC MATERIALS (0.2%)
---------------------
MINING (0.2%)
300 Newcrest Finance Pty. Ltd.(a) 4.45 11/15/2021 304
--------
CONSUMER, CYCLICAL (0.3%)
------------------------
AUTO MANUFACTURERS (0.3%)
700 BMW U.S. Capital, LLC(a) 3.25 8/14/2020 699
--------
ENERGY (0.7%)
------------
OIL & GAS (0.6%)
700 Petrobras Global Finance B.V. 5.38 1/27/2021 712
700 Petroleos Mexicanos 5.38 3/13/2022 686
--------
1,398
--------
================================================================================
6 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
OIL & GAS SERVICES (0.1%)
$ 23 Schahin II Finance Co. SPV Ltd.(a),(g) 8.00% 5/25/2020 $ 21
912 Schahin II Finance Co. SPV Ltd.(a),(m) 5.88 9/25/2023 100
--------
121
--------
Total Energy 1,519
--------
FINANCIAL (0.1%)
---------------
INSURANCE (0.1%)
250 QBE Capital Funding III Ltd. (USD Swap
Semi-Annual 30/360 10 YR + 4.05%)(a) 7.25(k) 5/24/2041 263
--------
Total Eurodollar and Yankee Obligations (cost: $3,450) 2,785
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
FIXED-INCOME EXCHANGE-TRADED FUNDS (11.3%)
16,600 Invesco Fundamental High Yield Corporate Bond ETF 299
58,860 iShares iBoxx $ High Yield Corporate Bond ETF(l) 4,921
81,030 SPDR Bloomberg Barclays High Yield Bond ETF(l) 2,814
63,300 Vanguard Mortgage-Backed Securities ETF 3,223
57,500 Vanguard Short-Term Bond ETF(l) 4,490
2,040 Vanguard Short-Term Corporate Bond ETF 158
110,000 Vanguard Total Bond Market ETF 8,595
--------
Total Fixed-Income Exchange-Traded Funds (cost: $25,111) 24,500
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (13.5%)(n)
COMMERCIAL MBS (1.4%)
$ 500 Fannie Mae(+) 2.15% 1/25/2023 481
1,100 Freddie Mac(+) 3.33(d) 5/25/2025 1,096
1,000 Freddie Mac (+) 3.51 4/25/2030 979
536 Freddie Mac (+) 3.70(d) 1/25/2033 538
--------
3,094
--------
FGLMC COLLATERAL (12.1%)
1,535 Freddie Mac (+) 3.00 4/01/2046 1,466
3,640 Freddie Mac (+) 3.00 6/01/2046 3,475
1,665 Freddie Mac(+) 3.00 9/01/2046 1,590
839 Freddie Mac(+) 3.00 10/01/2046 801
1,699 Freddie Mac(+) 3.00 11/01/2046 1,621
3,930 Freddie Mac(+) 3.00 1/01/2047 3,749
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 2,638 Freddie Mac(+) 3.00% 1/01/2047 $ 2,518
4,777 Freddie Mac(+) 3.00 3/01/2047 4,560
4,631 Freddie Mac(+) 3.50 4/01/2046 4,560
1,927 Freddie Mac(+) 3.50 4/01/2048 1,891
--------
26,231
--------
Total U.S. Government Agency Issues (cost: $30,798) 29,325
--------
U.S. TREASURY SECURITIES (20.7%)
BONDS (7.9%)(o)
4,000 U.S. Treasury Bond (STRIPS Principal) (Zero Coupon) 0.00 8/15/2044 1,702
300 U.S. Treasury Bond 2.50 2/15/2045 257
2,285 U.S. Treasury Bond 3.00 11/15/2044 2,163
3,000 U.S. Treasury Bond 3.00 5/15/2045 2,837
1,000 U.S. Treasury Bond(p) 3.00 5/15/2047 942
1,000 U.S. Treasury Bond(p) 3.00 8/15/2048 941
8,700 U.S. Treasury Bond 3.13 8/15/2044 8,426
--------
17,268
--------
NOTES (12.8%)(o)
7,600 U.S. Treasury Note(q) 1.13 2/28/2021 7,322
3,800 U.S. Treasury Note 1.63 4/30/2023 3,607
2,000 U.S. Treasury Note(p) 1.63 2/15/2026 1,830
618 U.S. Treasury Note 2.00 2/15/2023 597
800 U.S. Treasury Note 2.25 11/15/2024 771
6,200 U.S. Treasury Note(p) 2.25 11/15/2025 5,934
1,000 U.S. Treasury Note(p) 2.25 2/15/2027 948
1,000 U.S. Treasury Note(p) 2.25 11/15/2027 941
1,500 U.S. Treasury Note 2.38 8/15/2024 1,459
2,000 U.S. Treasury Note(p) 2.38 5/15/2027 1,910
1,500 U.S. Treasury Note 2.50 5/15/2024 1,471
1,000 U.S. Treasury Note(p) 2.75 2/15/2028 980
--------
27,770
--------
Total U.S. Treasury Securities (cost: $46,905) 45,038
--------
Total Bonds (cost: $128,806) 123,233
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY SECURITIES (23.1%)
COMMON STOCKS (0.1%)
INDUSTRIAL (0.1%)
----------------
ELECTRONICS (0.1%)
1,890 TE Connectivity Ltd. 146
--------
================================================================================
8 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL (0.0%)
2,490 Pentair plc $ 106
--------
Total Industrial 252
--------
Total Common Stocks (cost: $253) 252
--------
EXCHANGE-TRADED FUNDS (22.7%)
31,400 Invesco FTSE RAFI Developed Markets ex-US 1,255
87,600 Invesco FTSE RAFI Emerging Markets(l) 1,804
143,935 iShares Core MSCI EAFE ETF 8,489
76,168 iShares Core MSCI Emerging Markets ETF 3,768
30,300 iShares Edge MSCI Min Vol EAFE ETF(l) 2,108
19,800 iShares Edge MSCI Min Vol Emerging Markets ETF 1,136
148,000 iShares MSCI Canada ETF 3,943
44,000 iShares MSCI United Kingdom ETF 1,383
151,700 Schwab Fundamental Emerging Markets Large Company Index ETF 4,169
216,800 Schwab Fundamental International Large Company Index ETF 5,990
43,100 Schwab Fundamental International Small Company Index ETF 1,350
7,496 SPDR S&P Emerging Markets SmallCap ETF(l) 325
9,770 USAA MSCI Emerging Markets Value Momentum Blend Index ETF(r) 431
169,200 Vanguard FTSE Developed Markets ETF(l) 6,726
121,100 Vanguard FTSE Europe ETF 6,228
5,259 WisdomTree Emerging Markets SmallCap Dividend Fund 227
--------
Total Exchange-Traded Funds (cost: $49,075) 49,332
--------
PREFERRED STOCKS (0.3%)
FINANCIAL (0.3%)
----------------
INSURANCE (0.3%)
27,414 Delphi Financial Group, Inc., cumulative redeemable, 5.93%,
(3 mo. LIBOR + 3.19%)(b) (cost: $690) 624
--------
Total International Equity Securities (cost: $50,018) 50,208
--------
U.S. EQUITY SECURITIES (16.1%)
COMMON STOCKS (11.0%)
COMMUNICATIONS (1.4%)
---------------------
ADVERTISING (0.2%)
8,120 Interpublic Group of Companies, Inc. 191
2,530 Omnicom Group, Inc. 194
--------
385
--------
INTERNET (0.4%)
160 Amazon.com, Inc.(s) 270
50 Booking Holdings, Inc.(s) 95
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
640 CDW Corp. $ 59
560 F5 Networks, Inc.(s) 96
1,480 GoDaddy, Inc. "A"(s) 97
500 Netflix, Inc.(s) 143
460 Palo Alto Networks, Inc.(s) 80
--------
840
--------
MEDIA (0.5%)
5,070 Comcast Corp. "A" 198
5,120 Discovery, Inc. "A"(s) 157
4,540 DISH Network Corp. "A"(s) 149
12,600 Sirius XM Holdings, Inc.(l) 78
2,650 Twenty-First Century Fox, Inc. "A" 131
7,070 Viacom, Inc. "B" 218
890 Walt Disney Co. 103
--------
1,034
--------
TELECOMMUNICATIONS (0.3%)
4,620 AT&T, Inc. 144
3,860 CenturyLink, Inc. 73
860 Motorola Solutions, Inc. 113
1,720 T-Mobile US, Inc.(s) 118
5,310 Verizon Communications, Inc. 320
--------
768
--------
Total Communications 3,027
--------
CONSUMER, CYCLICAL (1.2%)
-------------------------
AIRLINES (0.1%)
2,130 Delta Air Lines, Inc. 129
1,540 Southwest Airlines Co. 84
970 United Continental Holdings, Inc.(s) 94
--------
307
--------
APPAREL (0.1%)
1,840 NIKE, Inc. "B" 138
--------
AUTO MANUFACTURERS (0.1%)
9,000 Ford Motor Co. 85
1,630 PACCAR, Inc. 101
--------
186
--------
AUTO PARTS & EQUIPMENT (0.1%)
1,190 WABCO Holdings, Inc.(s) 145
--------
DISTRIBUTION/WHOLESALE (0.0%)
220 WW Grainger, Inc. 69
--------
================================================================================
10 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
LEISURE TIME (0.1%)
1,660 Carnival Corp. $ 100
1,600 Norwegian Cruise Line Holdings Ltd.(s) 82
770 Royal Caribbean Cruises Ltd. 87
--------
269
--------
RETAIL (0.7%)
1,490 Best Buy Co., Inc. 96
810 Costco Wholesale Corp. 187
4,370 Gap, Inc. 119
1,020 Home Depot, Inc. 184
1,630 Kohl's Corp. 110
3,460 Macy's, Inc. 119
280 O'Reilly Automotive, Inc.(s) 97
6,990 Qurate Retail, Inc.(s) 155
1,300 Ross Stores, Inc. 114
2,520 Target Corp. 179
2,720 TJX Companies, Inc. 133
--------
1,493
--------
Total Consumer, Cyclical 2,607
--------
CONSUMER, NON-CYCLICAL (2.9%)
-----------------------------
AGRICULTURE (0.1%)
1,480 Altria Group, Inc. 81
4,120 Archer-Daniels-Midland Co. 190
--------
271
--------
BEVERAGES (0.2%)
1,422 Brown-Forman Corp. "B" 68
4,110 Coca-Cola Co. 207
1,550 Molson Coors Brewing Co. "B" 102
--------
377
--------
BIOTECHNOLOGY (0.4%)
700 Biogen, Inc.(s) 233
1,540 Celgene Corp.(s) 111
2,480 Gilead Sciences, Inc. 178
340 Illumina, Inc.(s) 115
1,090 United Therapeutics Corp.(s) 129
--------
766
--------
COMMERCIAL SERVICES (0.4%)
3,960 H&R Block, Inc. 107
870 Moody's Corp. 139
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
750 S&P Global, Inc. $ 137
8,030 Sabre Corp. 205
780 United Rentals, Inc.(s) 91
1,050 Verisk Analytics, Inc.(s) 130
6,410 Western Union Co. 120
--------
929
--------
COSMETICS/PERSONAL CARE (0.1%)
690 Estee Lauder Companies, Inc. "A" 99
2,290 Procter & Gamble Co. 216
--------
315
--------
FOOD (0.4%)
2,650 Hormel Foods Corp. 120
980 Ingredion, Inc. 103
910 JM Smucker Co. 95
5,810 Kroger Co. 172
880 McCormick & Co., Inc. 132
1,680 Sysco Corp. 113
1,770 Tyson Foods, Inc. "A" 104
--------
839
--------
HEALTHCARE-PRODUCTS (0.2%)
180 ABIOMED, Inc.(s) 60
590 Edwards Lifesciences Corp.(s) 95
820 Henry Schein, Inc.(s) 73
490 IDEXX Laboratories, Inc.(s) 100
190 Intuitive Surgical, Inc.(s) 101
560 Stryker Corp. 98
--------
527
--------
HEALTHCARE-SERVICES (0.3%)
680 Centene Corp.(s) 97
640 Cigna Corp. 143
570 HCA Healthcare, Inc. 82
750 Laboratory Corp. of America Holdings(s) 109
1,130 Quest Diagnostics, Inc. 100
1,130 Universal Health Services, Inc. "B" 156
--------
687
--------
HOUSEHOLD PRODUCTS/WARES (0.1%)
1,860 Church & Dwight Co., Inc. 123
--------
PHARMACEUTICALS (0.7%)
1,680 AmerisourceBergen Corp. 149
2,470 Cardinal Health, Inc. 136
================================================================================
12 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
1,850 CVS Health Corp. $ 148
760 Eli Lilly & Co. 90
930 McKesson Corp. 116
1,610 Merck & Co., Inc. 128
3,610 Mylan N.V.(s) 122
8,350 Pfizer, Inc. 386
1,830 Zoetis, Inc. 172
--------
1,447
--------
Total Consumer, Non-cyclical 6,281
--------
ENERGY (0.7%)
-------------
OIL & GAS (0.6%)
5,920 Antero Resources Corp.(s) 78
2,320 Apache Corp. 82
1,330 Cimarex Energy Co. 109
3,930 ConocoPhillips 260
1,020 Continental Resources, Inc.(s) 47
2,490 Devon Energy Corp. 67
1,320 Hess Corp. 71
2,680 HollyFrontier Corp. 167
3,380 Marathon Oil Corp. 56
2,210 Marathon Petroleum Corp. 144
1,310 Valero Energy Corp. 105
--------
1,186
--------
PIPELINES (0.1%)
1,190 Cheniere Energy, Inc.(s) 73
1,720 ONEOK, Inc. 105
3,340 Plains GP Holdings, LP "A"(s) 74
1,350 Targa Resources Corp. 60
--------
312
--------
Total Energy 1,498
--------
FINANCIAL (1.7%)
----------------
BANKS (0.8%)
1,190 Capital One Financial Corp. 107
1,350 Comerica, Inc. 107
3,130 East West Bancorp, Inc. 168
6,560 Fifth Third Bancorp 183
2,170 J.P. Morgan Chase & Co. 241
10,910 Regions Financial Corp. 179
1,240 Signature Bank 153
390 SVB Financial Group(s) 99
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
4,030 U.S. Bancorp. $ 220
3,120 Zions Bancorp. N.V. 152
--------
1,609
--------
DIVERSIFIED FINANCIAL SERVICES (0.6%)
640 Affiliated Managers Group, Inc. 71
900 Alliance Data Systems Corp. 180
5,920 Ally Financial, Inc. 158
830 American Express Co. 93
470 CME Group, Inc. 90
3,330 Franklin Resources, Inc. 113
1,120 Mastercard, Inc. "A" 225
3,127 Synchrony Financial 81
1,040 T. Rowe Price Group, Inc. 104
1,270 Visa, Inc. "A" 180
--------
1,295
--------
INSURANCE (0.3%)
2,480 Aflac, Inc. 114
1,550 Athene Holding Ltd. "A"(s) 67
1,610 Principal Financial Group, Inc. 79
1,900 Progressive Corp. 126
830 Prudential Financial, Inc. 78
1,290 Torchmark Corp. 112
2,720 Voya Financial, Inc. 122
--------
698
--------
Total Financial 3,602
--------
INDUSTRIAL (0.9%)
-----------------
AEROSPACE/DEFENSE (0.1%)
360 Boeing Co. 125
--------
BUILDING MATERIALS (0.1%)
2,410 Fortune Brands Home & Security, Inc. 105
2,260 Owens Corning 118
--------
223
--------
ELECTRONICS (0.3%)
2,450 Arrow Electronics, Inc.(s) 189
1,390 Keysight Technologies, Inc.(s) 86
260 Mettler-Toledo International, Inc.(s) 165
740 Waters Corp.(s) 147
--------
587
--------
ENGINEERING & CONSTRUCTION (0.0%)
1,920 Fluor Corp. 79
--------
================================================================================
14 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL (0.1%)
1,450 Waste Management, Inc. $ 136
--------
HAND/MACHINE TOOLS (0.0%)
440 Snap-on, Inc. 73
--------
MACHINERY-DIVERSIFIED (0.1%)
1,400 AGCO Corp. 84
730 Cummins, Inc. 110
--------
194
--------
MISCELLANEOUS MANUFACTURERS (0.1%)
1,850 Eaton Corp. plc 142
2,260 Textron, Inc. 127
--------
269
--------
SHIPBUILDING (0.0%)
320 Huntington Ingalls Industries, Inc. 69
--------
TRANSPORTATION (0.1%)
990 CH Robinson Worldwide, Inc. 91
700 Union Pacific Corp. 108
--------
199
--------
Total Industrial 1,954
--------
TECHNOLOGY (1.9%)
-----------------
COMPUTERS (0.7%)
1,630 Apple, Inc. 291
2,000 Cognizant Technology Solutions Corp. "A" 142
1,850 DXC Technology Co. 117
800 Fortinet, Inc.(s) 59
10,250 Hewlett Packard Enterprise Co. 154
2,050 International Business Machines Corp. 255
2,510 Leidos Holdings, Inc. 158
1,240 NetApp, Inc. 83
4,170 Seagate Technology plc 180
2,810 Western Digital Corp. 127
--------
1,566
--------
SEMICONDUCTORS (0.5%)
3,850 Advanced Micro Devices, Inc.(s) 82
1,840 Applied Materials, Inc. 69
4,020 Intel Corp. 198
600 Lam Research Corp. 94
4,860 Micron Technology, Inc.(s) 187
660 NVIDIA Corp. 108
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
1,220 QUALCOMM, Inc. $ 71
830 Texas Instruments, Inc. 83
1,210 Xilinx, Inc. 112
--------
1,004
--------
SOFTWARE (0.7%)
520 Adobe, Inc.(s) 131
780 Broadridge Financial Solutions, Inc. 82
1,820 Citrix Systems, Inc.(s) 198
6,760 First Data Corp. "A"(s) 129
850 Intuit, Inc. 182
3,040 Microsoft Corp. 337
550 MSCI, Inc. 87
4,780 Oracle Corp. 233
820 salesforce.com, Inc.(s) 117
--------
1,496
--------
Total Technology 4,066
--------
UTILITIES (0.3%)
----------------
ELECTRIC (0.2%)
2,290 Consolidated Edison, Inc. 184
3,310 Exelon Corp. 154
820 NextEra Energy, Inc. 149
3,020 PPL Corp. 92
--------
579
--------
GAS (0.1%)
2,760 UGI Corp. 159
--------
Total Utilities 738
--------
Total Common Stocks (cost: $22,686) 23,773
--------
EXCHANGE-TRADED FUNDS (3.5%)
1,200 iShares Core S&P 500 ETF 334
4,490 iShares Russell 2000 ETF 685
17,860 Vanguard S&P 500 ETF 4,527
16,400 Vanguard Small-Cap Value ETF 2,128
--------
Total Exchange-Traded Funds (cost: $6,702) 7,674
--------
PREFERRED STOCKS (1.6%)
COMMUNICATIONS (0.2%)
---------------------
TELECOMMUNICATIONS (0.2%)
20,000 Qwest Corp., 6.50% 418
--------
================================================================================
16 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
CONSUMER, NON-CYCLICAL (0.6%)
-----------------------------
AGRICULTURE (0.4%)
32,000 CHS, Inc., cumulative redeemable "B", 7.88%(t) $ 865
--------
FOOD (0.2%)
5,000 Dairy Farmers of America, Inc., cumulative redeemable, 7.88%(a),(t) 503
--------
Total Consumer, Non-cyclical 1,368
--------
ENERGY (0.3%)
-------------
OIL & GAS (0.3%)
1,220 Chesapeake Energy Corp., 5.75%(a),(t) 687
--------
FINANCIAL (0.5%)
----------------
BANKS (0.5%)
1,035 M&T Bank Corp., cumulative redeemable, 6.38%(t) 1,038
--------
Total Preferred Stocks (cost: $3,808) 3,511
--------
Total U.S. Equity Securities (cost: $33,196) 34,958
--------
GLOBAL REAL ESTATE EQUITY SECURITIES (1.7%)
COMMON STOCKS (0.4%)
FINANCIAL (0.4%)
----------------
REAL ESTATE (0.1%)
2,750 CBRE Group, Inc. "A"(s) 120
730 Jones Lang LaSalle, Inc. 105
--------
225
--------
REITS (0.3%)
13,700 Annaly Capital Management, Inc. 138
6,070 Host Hotels & Resorts, Inc. 115
6,180 Kimco Realty Corp. 101
2,490 Prologis, Inc. 168
1,990 Ventas, Inc. 126
3,210 Weyerhaeuser Co. 85
--------
733
--------
Total Financial 958
--------
Total Common Stocks (cost: $988) 958
--------
EXCHANGE-TRADED FUNDS (1.3%)
34,610 Vanguard Real Estate ETF (cost: $2,752) 2,837
--------
Total Global Real Estate Equity Securities (cost: $3,740) 3,795
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (1.0%)
COMMON STOCKS (0.2%)
BASIC MATERIALS (0.2%)
----------------------
CHEMICALS (0.1%)
1,250 Eastman Chemical Co. $ 98
640 Linde plc 102
1,100 LyondellBasell Industries N.V. "A" 103
--------
303
--------
IRON/STEEL (0.1%)
1,120 Nucor Corp. 68
2,050 Steel Dynamics, Inc. 72
--------
140
--------
MINING (0.0%)
24,262 Hycroft Mining Corp.(e),(g),(h),(s) -
--------
Total Basic Materials 443
--------
INDUSTRIAL (0.0%)
-----------------
PACKAGING & CONTAINERS (0.0%)
1,440 Westrock Co. 68
--------
Total Common Stocks (cost: $1,458) 511
--------
EXCHANGE-TRADED FUNDS (0.8%)
6,700 First Trust Global Tactical Commodity Strategy Fund 125
22,900 Invesco DB Commodity Index Tracking Fund(s) 350
13,900 United States Commodity Index Fund(s) 532
23,800 VanEck Vectors Gold Miners ETF 454
8,800 VanEck Vectors Junior Gold Miners ETF 234
--------
Total Exchange-Traded Funds (cost: $2,068) 1,695
--------
Total Precious Metals and Commodity-Related Securities (cost: $3,526) 2,206
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.2%)
COMMERCIAL PAPER (0.5%)
$ 600 CNH Industrial Capital, LLC(a) 3.25% 1/07/2019 598
500 Ridgefield Funding Company, LLC(a) 2.35 12/03/2018 500
--------
Total Commercial Paper (cost: $1,098) 1,098
--------
================================================================================
18 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.7%)
1,499,837 State Street Institutional Treasury Money Market Fund Premier Class,
2.19%(u) (cost: $1,500) $ 1,500
--------
Total Money Market Instruments (cost: $2,598) 2,598
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (8.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (8.8%)
10,758 HSBC U.S. Government Money Market Fund Class I, 2.13%(u) 11
10,835,605 Invesco Government & Agency Portfolio Institutional
Class, 2.12%(u) 10,836
8,214,315 Western Asset Institutional Government Reserves Institutional
Class, 2.10%(u) 8,214
--------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $19,061) 19,061
--------
TOTAL INVESTMENTS (COST: $240,945) $236,059
========
------------------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE (000) (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES (2.9%)
LONG FUTURES
EQUITY CONTRACTS
8 E-mini S&P 500 12/21/2018 USD 1,114 $ 1,103 $(11)
------- ----
TOTAL LONG FUTURES $ 1,103 $(11)
------- ----
SHORT FUTURES
EQUITY CONTRACTS
7 E-mini Russell 2000 12/21/2018 USD (523) $ (537) $(14)
31 Swiss Market Future
Index 12/21/2018 CHF (2,779) (2,801) (22)
------- ----
$(3,338) $(36)
------- ----
INTEREST RATE CONTRACTS
29 U.S. Treasury Bond 3/20/2019 USD (4,040) $(4,057) $(17)
------- ----
TOTAL SHORT FUTURES $(7,395) $(53)
------- ----
TOTAL FUTURES $(6,292) $(64)
======= ====
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------
Bonds:
Asset-Backed Securities $ - $ 4,090 $ - $ 4,090
Bank Loans - 435 - 435
Collateralized Mortgage Obligations - 692 - 692
Commercial Mortgage Securities - 2,512 - 2,512
Convertible Securities - 605 21 626
Corporate Obligations - 13,230 - 13,230
Eurodollar and Yankee Obligations - 2,785 - 2,785
Fixed-Income Exchange-Traded Funds 24,500 - - 24,500
U.S. Government Agency Issues - 29,325 - 29,325
U.S. Treasury Securities 43,336 1,702 - 45,038
International Equity Securities:
Common Stocks 252 - - 252
Exchange-Traded Funds 49,332 - - 49,332
Preferred Stocks - 624 - 624
U.S. Equity Securities:
Common Stocks 23,773 - - 23,773
Exchange-Traded Funds 7,674 - - 7,674
Preferred Stocks - 3,511 - 3,511
Global Real Estate Equity Securities:
Common Stocks 958 - - 958
Exchange-Traded Funds 2,837 - - 2,837
Precious Metals and Commodity-Related
Securities:
Common Stocks 511 - - 511
Exchange-Traded Funds 1,695 - - 1,695
Money Market Instruments:
Commercial Paper - 1,098 - 1,098
Government & U.S. Treasury Money
Market Funds 1,500 - - 1,500
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 19,061 - - 19,061
------------------------------------------------------------------------------------------------------------
Total $175,429 $60,609 $21 $236,059
------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------
Futures(1) $(64) $- $- $(64)
------------------------------------------------------------------------------------------------------------
Total $(64) $- $- $(64)
------------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
================================================================================
20 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
For the period of June 1, 2018, through November 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
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 | 21
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 25.6% of net assets at November 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
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,
================================================================================
22 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages paydown.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable cash flows than regular mortgage
securities, but such cash flows can be difficult to predict because of the
effect of prepayments.
COMMERCIAL PAPER - Consists of short-term unsecured promissory notes with
maturities ranging from one to 270 days, issued mainly by corporations.
Commercial paper is usually purchased at a discount and matures at par
value; however, it also may be interest-bearing. Rate represents an
annualized yield at time of purchase or coupon rate, if applicable.
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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 23
================================================================================
STRIPS Separate trading of registered interest and principal of
securities
Zero Coupon Normally issued at a significant discount from face value and do
not provide for periodic interest payments. Income is earned from
the purchase date by accreting the purchase discount of the
security to par over the life of the security.
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 November 30, 2018.
(c) Senior loans (loans) - are not registered under the Securities Act
of 1933. The loans contain certain restrictions on resale and cannot be
sold publicly. The stated interest rates represent the all in interest
rate of all contracts within the loan facilities. The interest rates are
adjusted periodically, and the rates disclosed represent the current
rate at November 30, 2018. The weighted average life of the loans are
likely to be shorter than the stated final maturity date due to
mandatory or optional prepayments. The loans are 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.
(d) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(e) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
================================================================================
24 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
(f) Security is interest only. 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.
(g) Security was fair valued at November 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 $42,000, which represented less than 0.1% of the Fund's
net assets.
(h) Security was classified as Level 3.
(i) 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.
(j) All of the coupon is PIK.
(k) Fixed to floating security that initially pays a fixed rate and
converts to a floating rate coupon at a specified date in the future.
The rate presented is a fixed rate.
(l) The security, or a portion thereof, was out on loan as of November
30, 2018.
(m) At November 30, 2018, the issuer was in default with respect to
interest and/or principal payments.
(n) U.S. government agency issues - Mortgage-backed securities issued
by certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 25
================================================================================
Ginnie Mae) and certain other U.S. government guaranteed securities are
supported by the full faith and credit of the U.S. government.
Securities issued by other GSEs, such as Federal Home Loan Mortgage
Corporation (Freddie Mac or FHLMC) and Federal National Mortgage
Association (Fannie Mae or FNMA), indicated with a "+", are supported
only by the right of the GSE to borrow from the U.S. Treasury, the
discretionary authority of the U.S. government to purchase the GSEs'
obligations, or only by the credit of the issuing agency,
instrumentality, or corporation, and are neither issued nor guaranteed
by the U.S. Treasury. In September of 2008, the U.S. Treasury placed
Fannie Mae and Freddie Mac under conservatorship and appointed the
Federal Housing Finance Agency (FHFA) to act as conservator and oversee
their daily operations. In addition, the U.S. Treasury entered into
purchase agreements with Fannie Mae and Freddie Mac to provide them with
capital in exchange for senior preferred stock. While these arrangements
are intended to ensure that Fannie Mae and Freddie Mac can continue to
meet their obligations, it is possible that actions by the U.S.
Treasury, FHFA, or others could adversely impact the value of the Fund's
investments in securities issued by Fannie Mae and Freddie Mac.
(o) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(p) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2018.
(q) Securities with a value of $963,000 are segregated as collateral
for initial margin requirements on open futures contracts.
(r) Investment in affiliated exchange-traded fund.
(s) Non-income-producing security.
(t) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(u) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
26 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in unaffiliated securities, at market value (including securities on
loan of $18,536) (cost of $240,476) $235,628
Investments in affiliated underlying funds, at market value
(cost of $469) 431
Cash denominated in foreign currencies (identified cost of $70) 66
Receivables:
Capital shares sold 166
USAA Asset Management Company (Note 6) 118
Dividends and interest 576
Securities sold 3,353
Other 17
--------
Total assets 240,355
--------
LIABILITIES
Payables:
Upon return of securities loaned 19,061
Securities purchased 1,490
Capital shares redeemed 212
Bank overdraft 1,913
Payable to broker 16
Variation margin on futures contracts 64
Accrued management fees 89
Accrued transfer agent's fees 27
Other accrued expenses and payables 94
--------
Total liabilities 22,966
--------
Net assets applicable to capital shares outstanding $217,389
========
NET ASSETS CONSIST OF:
Paid-in capital $217,836
Distributable earnings loss (447)
--------
Net assets applicable to capital shares outstanding $217,389
========
Capital shares outstanding, no par value 19,954
========
Net asset value, redemption price, and offering price per share $ 10.89
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 1
Dividends 1,488
Interest 1,672
Securities lending (net) 56
-------
Total income 3,217
-------
EXPENSES
Management fees 554
Administration and servicing fees 166
Transfer agent's fees 282
Custody and accounting fees 84
Postage 12
Shareholder reporting fees 12
Trustees' fees 18
Registration fees 15
Professional fees 42
Other 6
-------
Total expenses 1,191
Expenses reimbursed (194)
-------
Net expenses 997
-------
NET INVESTMENT INCOME 2,220
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain on:
Investments 644
Foreign currency transactions 1
Futures transactions 174
Change in net unrealized appreciation/(depreciation) of:
Unaffiliated investments (8,654)
Affiliated investments (Note 8) (37)
Futures contracts (234)
-------
Net realized and unrealized loss (8,106)
-------
Decrease in net assets resulting from operations $(5,886)
=======
See accompanying notes to financial statements.
================================================================================
28 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended
May 31, 2018
-------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
-------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,220 $ 3,989
Net realized gain on investments 644 7,893
Net realized gain on foreign currency transactions 1 50
Net realized gain on long-term capital gain
distributions from other investment companies - 6
Net realized gain on futures transactions 174 1,573
Change in net unrealized appreciation/(depreciation) of:
Investments (8,691) (4,872)
Foreign currency translations - (11)
Futures contracts (234) (381)
--------------------
Increase (decrease) in net assets resulting from operations (5,886) 8,247
--------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS: (2,083) (9,089)
--------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 22,563 54,580
Reinvested dividends 1,976 8,519
Cost of shares redeemed (20,902) (49,806)
--------------------
Increase in net assets from capital share transactions 3,637 13,293
--------------------
Net increase (decrease) in net assets (4,332) 12,451
NET ASSETS
Beginning of period 221,721 209,270
--------------------
End of period $217,389 $221,721
====================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,021 4,770
Shares issued for dividends reinvested 177 746
Shares redeemed (1,876) (4,344)
--------------------
Increase in shares outstanding 322 1,172
====================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA Cornerstone Moderately Conservative Fund (the Fund) qualifies as a
registered investment company under Accounting Standards Codification Topic 946.
The information presented in this semiannual report pertains only to the Fund,
which is classified as diversified under the 1940 Act and is authorized to issue
an unlimited number of shares. The Fund's investment objective is to seek
current income with a secondary focus on capital appreciation.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
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
================================================================================
30 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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.
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
================================================================================
32 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 debt securities that are valued using market
inputs and other observable factors deemed by the Manager to
appropriately reflect fair value.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
================================================================================
34 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to,
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio manager
to aid in achieving the Fund's investment objective. The Fund also may use
derivatives in circumstances where the portfolio manager believes they offer
an economical means of gaining exposure to a particular asset class or
securities market or to keep cash on hand to meet shareholder redemptions or
other needs while maintaining exposure to the market. With exchange-listed
futures contracts and options, counterparty credit risk to the Fund is
limited to the exchange's clearinghouse which, as counterparty to all
exchange-traded futures contracts and options, guarantees the transactions
against default from the actual counterparty to the transaction. The Fund's
derivative agreements held at November 30, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2018* (IN THOUSANDS)
LIABILITY DERIVATIVES
-----------------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF
ACCOUNTED FOR AS ASSETS AND INTEREST FOREIGN
HEDGING LIABILITIES RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-----------------------------------------------------------------------------------------------------
USAA Cornerstone
Moderately Distributable
Conservative Fund earnings loss $(17)** $(47)** $- $(64)
-----------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 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 NOVEMBER 30, 2018 (IN THOUSANDS)
NET REALIZED GAIN (LOSS)
-------------------------------------------------------------------------------------------------
DERIVATIVES NOT
ACCOUNTED FOR AS STATEMENT OF INTEREST FOREIGN
HEDGING OPERATION RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-------------------------------------------------------------------------------------------------
USAA Cornerstone Net realized gain
Moderately on Futures
Conservative Fund transactions $137 $37 $- $174
-------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
-------------------------------------------------------------------------------------------------
DERIVATIVES NOT
ACCOUNTED FOR AS STATEMENT OF INTEREST FOREIGN
HEDGING OPERATION RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-------------------------------------------------------------------------------------------------
USAA Cornerstone Change in net
Moderately unrealized
Conservative Fund appreciation/
(depreciation) of
Futures contracts $(25) $(209) $- $(234)
-------------------------------------------------------------------------------------------------
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
================================================================================
36 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straight-line method for short-term
securities.
E. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies and to distribute substantially all of its taxable income and net
capital gains, if any, to its shareholders. Therefore, no federal income tax
provision is required.
For the six-month period ended November 30, 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.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
Such fluctuations are included with the net realized and unrealized gain or
loss from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts received. At the
end of the Fund's fiscal year, net realized foreign currency gains/losses are
reclassified from accumulated net realized gains/losses to accumulated
undistributed net investment income on the Statement of Assets and
Liabilities, as such amounts are treated as ordinary income/loss for federal
income tax purposes. Net unrealized foreign currency exchange gains/losses
arise from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can take
place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of 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.
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,
================================================================================
38 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $1,000, which represents 0.3% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
---------------------------------------------------------------------------------
USAA Cornerstone Moderately
Conservative Fund $5,253,000 $(10,139,000) $(4,886,000)
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$88,950,000 and $78,721,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended November 30,
2018 were as follows:
PURCHASES SALES NET REALIZED GAIN
----------------------------------------------------------------------------------
$61,000 $- $-
================================================================================
40 | USAA CORNERSTONE MODERATELY CONSERVATIVE 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 November 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
------------------------------------------------------------------------------------------------------------
$18,536,000(1) $- $19,061,000
(1) Includes $1,399,000 of securities on loan that were sold prior to November
30, 2018.
(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, and for directly
managing the day-to-day investment of the Fund's assets,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the day-to-day investment of all or
a portion of the Fund's assets. For the six-month period ended November 30,
2018, the Fund had no subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.50% of the Fund's average daily net assets. For the
six-month period ended November 30, 2018, the Fund incurred management fees,
paid or payable to the Manager, of $554,000.
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 November 30, 2018, the
Fund's management fee was reimbursed by the Manager in an amount of less than
$500.
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 daily net assets. For the six-month period ended November 30, 2018, the
Fund incurred administration and servicing fees, paid or payable to the Manager,
of $166,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 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 September 30, 2019, to limit
the total annual operating expenses of the Fund to 0.90% of its average daily
net assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Fund for all expenses in excess
of that amount. This expense limitation arrangement may not be changed or
terminated through September 30, 2019, without approval of the
================================================================================
42 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
Board, and may be changed or terminated by the Manager at any time after that
date. For the six-month period ended November 30, 2018, the Fund incurred
reimbursable expenses of $194,000, of which $118,000 was receivable from the
Manager, which includes affiliated ETF(s) management fee reimbursement expenses
and receivables.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund based on an annual charge of $23 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. For the six-month period ended November 30, 2018, the
Fund incurred transfer agent's fees, paid or payable to SAS, of $282,000.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution. At November 30, 2018, USAA and its affiliates owned
890,000 shares, which represents 4.5% of the Fund's total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the affiliated USAA Funds for
the purpose of exercising management or control; however, investments by the
Fund may represent a significant portion of the affiliated USAA Funds' net
assets. The affiliated funds' annual or semiannual reports may be viewed on
usaa.com. At November 30, 2018, the Fund owned the following percentages of
the total outstanding shares of each of USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
---------------------------------------------------------------------------------
MSCI Emerging Markets Value Momentum Blend Index ETF 0.3
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides details
related to the Fund's investment in the underlying USAA Funds for the
six-month period ended November 30, 2018:
CHANGE
IN NET
($ IN 000S) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST PROCEEDS INCOME (LOSS) DISTRIBUTIONS (DEPRECIATION) 5/31/18 11/30/18
-----------------------------------------------------------------------------------------------------------------------
MSCI
Emerging
Markets
Value
Momentum
Blend
Index ETF $268 $- $1 $- $- $(37) $200 $431
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed
certain requirements related to liquidity classification, highly liquid
investment minimums, and board approval of the liquidity risk management
programs to June 1, 2019. The Manager continues to evaluate the impact of this
rule on the Fund's financial statements and various filings.
(10) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
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
================================================================================
44 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
security's contractual life to the earliest call date. It is anticipated that
this change will enhance reporting 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 reporting
disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
FINANCIAL HIGHLIGHTS
(UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.29 $ 11.34 $ 10.67 $ 11.42 $ 11.52 $ 11.05
------------------------------------------------------------------------------
Income(loss) from
investment operations:
Net investment income .11 .21 .23 .28 .26 .25
Net realized and
unrealized gain (loss) (.40) .23 .68 (.68) .03 .61
------------------------------------------------------------------------------
Total from investment
operations (.29) .44 .91 (.40) .29 .86
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.21) (.24) (.26) (.27) (.26)
Realized capital gains - (.28) - (.09) (.12) (.13)
------------------------------------------------------------------------------
Total distributions (.11) (.49) (.24) (.35) (.39) (.39)
------------------------------------------------------------------------------
Net asset value at
end of period $ 10.89 $ 11.29 $ 11.34 $ 10.67 $ 11.42 $ 11.52
==============================================================================
Total return (%)* (2.63) 3.89 8.65 (3.50) 2.58 8.00
Net assets at end of
period (000) $217,389 $221,721 $209,270 $194,376 $204,535 $167,742
Ratios to average
daily net assets:**
Expenses (%)(a) .90(b) .90 .90 .90 .90 .90(c)
Expenses, excluding
reimbursements (%)(a) 1.07(b) 1.07 1.09 1.09 1.05 1.08(c)
Net investment income (%) 2.00(b) 1.84 2.12 2.56 2.43 2.40
Portfolio turnover (%) 37 45 55 70(d) 37 36
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $220,961,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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) Reflects increased trading activity due to changes in asset allocation
strategies.
================================================================================
46 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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 values and
expenses may not be used to estimate the actual ending account
================================================================================
EXPENSE EXAMPLE | 47
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
-------------------------------------------------------------
Actual $1,000.00 $ 973.70 $4.45
Hypothetical
(5% return before expenses) 1,000.00 1,020.56 4.56
*Expenses are equal to the Fund's annualized expense ratio of 0.90%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (2.63)% for the six-month period of June 1,
2018, through November 30, 2018.
================================================================================
48 | USAA CORNERSTONE MODERATELY CONSERVATIVE FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
97451-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CORNERSTONE MODERATE FUND]
================================================================================
SEMIANNUAL REPORT
USAA CORNERSTONE MODERATE FUND (USBSX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 28
Financial Statements 34
Notes to Financial Statements 37
Financial Highlights 53
EXPENSE EXAMPLE 54
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS - 11/30/18 o
(% of Net Assets)
iShares Core MSCI EAFE ETF ............................................... 4.7%
Vanguard FTSE Developed Markets ETF ..................................... 4.0%
U.S. Treasury Bond, 3.13%, 8/15/2044 ..................................... 3.7%
Schwab Fundamental International Large
Company Index ETF ..................................................... 3.4%
U.S. Treasury Bond, 3.00%, 5/15/2045 ..................................... 3.2%
Vanguard Total Bond Market ETF ........................................... 3.1%
Vanguard S&P 500 ETF ..................................................... 2.8%
Vanguard FTSE Europe ETF ................................................. 2.6%
U.S. Treasury Note, 1.13%, 2/28/2021 ..................................... 2.4%
iShares iBoxx $ High Yield Corporate
Bond ETF .............................................................. 2.1%
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o ASSET ALLOCATION* - 11/30/18
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EQUITY SECURITIES 26.8%
U.S. EQUITY SECURITIES 18.4%
U.S. TREASURY SECURITIES 17.3%
U.S. GOVERNMENT AGENCY ISSUES 11.6%
FIXED-INCOME EXCHANGE-TRADED FUNDS 10.2%
CORPORATE OBLIGATIONS 6.7%
GLOBAL REAL ESTATE EQUITY SECURITIES 2.1%
ASSET-BACKED SECURITIES 1.7%
EURODOLLAR AND YANKEE OBLIGATIONS 1.4%
COMMERCIAL MORTGAGE SECURITIES 1.1%
MONEY MARKET INSTRUMENTS 1.0%
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES 0.9%
CONVERTIBLE SECURITIES 0.2%
COLLATERALIZED MORTGAGE OBLIGATIONS 0.2%
BANK LOANS 0.2%
[END CHART]
*Does not include 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%.
================================================================================
2 | USAA CORNERSTONE MODERATE FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
BONDS (50.6%)
ASSET-BACKED SECURITIES (1.7%)
ASSET BACKED SECURITIES (1.7%)
------------------------------
AUTOMOBILE ABS (1.2%)
$ 343 Americredit Automobile Receivables Trust 3.15% 3/20/2023 $ 342
2,640 Americredit Automobile Receivables Trust 3.50 1/18/2024 2,625
1,700 Avis Budget Rental Car Funding AESOP, LLC(a) 2.96 7/20/2020 1,697
933 Avis Budget Rental Car Funding AESOP, LLC(a) 3.75 7/20/2020 934
2,704 Avis Budget Rental Car Funding AESOP, LLC(a) 2.50 2/20/2021 2,680
1,483 Credit Acceptance Auto Loan Trust(a) 4.29 11/15/2024 1,491
1,503 Credit Acceptance Auto Loan Trust(a) 3.55 8/15/2027 1,505
2,560 OSCAR U.S. Funding Trust IX, LLC(a) 3.63 9/10/2025 2,572
----------
13,846
----------
CREDIT CARD ABS (0.1%)
1,461 Synchrony Credit Card Master Note Trust 2.95 5/15/2024 1,434
----------
OTHER ABS (0.3%)
1,320 Element Rail Leasing I, LLC(a) 3.67 4/19/2044 1,313
426 NP SPE II, LLC(a) 3.37 10/21/2047 419
975 SCF Equipment Leasing, LLC(a) 3.41 12/20/2023 969
----------
2,701
----------
STUDENT LOAN ABS (0.1%)
950 Navient Student Loan Trust (1 mo. LIBOR + 1.50%) 3.82(b) 8/25/2050 949
399 SLM Student Loan Trust (3 mo. LIBOR + 0.55%) 3.04(b) 10/25/2065 382
----------
1,331
----------
Total Asset Backed Securities 19,312
----------
Total Asset-Backed Securities (cost: $19,294) 19,312
----------
BANK LOANS (0.2%)(c)
CONSUMER, CYCLICAL (0.2%)
-------------------------
RETAIL (0.2%)
1,941 Academy, Ltd. (1 mo. LIBOR + 4.00%) 6.30 7/01/2022 1,428
914 Academy, Ltd. (1 mo. LIBOR + 4.00%) 6.31 7/01/2022 672
----------
Total Consumer, Cyclical 2,100
----------
Total Bank Loans (cost: $2,273) 2,100
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
MORTGAGE SECURITIES (0.2%)
-------------------------
$ 193 Sequoia Mortgage Trust (1 mo. LIBOR + 0.90%) 3.20%(b) 9/20/2033 $ 188
1,916 Structured Asset Mortgage Investments Trust (1 mo.
LIBOR + 0.50%) 3.05(b) 7/19/2035 1,800
201 Wells Fargo Mortgage Backed Securities Trust 4.13(d) 4/25/2035 198
----------
Total Mortgage Securities 2,186
----------
Total Collateralized Mortgage Obligations (cost: $2,296) 2,186
----------
COMMERCIAL MORTGAGE SECURITIES (1.1%)
MORTGAGE SECURITIES (1.1%)
--------------------------
COMMERCIAL MBS (1.1%)
1,323 Banc of America Commercial Mortgage Trust 5.86(d) 7/10/2044 486
191 Banc of America Commercial Mortgage Trust 6.79(d) 2/10/2051 192
309 Bear Stearns Commercial Mortgage Securities Trust (a) 5.66(d) 9/11/2041 310
1,200 BTH-21 Mortgage-Backed Securities Trust (1 mo.
LIBOR + 2.50%)(a) 4.46(b) 10/07/2021 1,201
17 Commercial Mortgage Trust 5.38 12/10/2046 17
2,398 Credit Suisse Commercial Mortgage Trust (1 mo.
LIBOR + 0.19%) 2.49(b) 2/15/2040 2,369
15,168 CSAIL Commercial Mortgage Trust(e),(f) 1.95(d) 1/15/2049 1,376
4,200 FREMF Mortgage Trust(a) 3.69(d) 8/25/2045 4,200
107 GE Capital Commercial Mortgage Corp. 5.61(d) 12/10/2049 108
54 GMAC Commercial Mortgage Securities, Inc. 4.97 12/10/2041 54
500 GMAC Commercial Mortgage Securities, Inc. 4.98(d) 12/10/2041 499
41 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 41
879 J.P.Morgan Chase Commercial Mortgage Securities
Trust 5.37 5/15/2047 880
12,576 UBS Commercial Mortgage Trust(a),(e),(f) 2.25(d) 5/10/2045 701
----------
Total Mortgage Securities 12,434
----------
Total Commercial Mortgage Securities (cost: $13,147) 12,434
----------
CONVERTIBLE SECURITIES (0.2%)
BASIC MATERIALS (0.2%)
----------------------
MINING (0.2%)
367 Hycroft Mining Corp.(e),(g),(h),(i) 15.00(j) 10/22/2020 11
3,100 Pretium Resources, Inc. 2.25 3/15/2022 2,682
----------
Total Basic Materials 2,693
----------
Total Convertible Securities (cost: $3,333) 2,693
----------
================================================================================
4 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (6.7%)
COMMUNICATIONS (0.2%)
---------------------
TELECOMMUNICATIONS (0.2%)
$ 2,250 Hughes Satellite Systems Corp.(k) 6.50% 6/15/2019 $ 2,285
----------
CONSUMER, CYCLICAL (0.6%)
-------------------------
AIRLINES (0.0%)
121 America West Airlines, Inc. Pass-Through Trust
(INS - AMBAC Assurance Corp.)(k) 7.93 7/02/2020 122
----------
AUTO MANUFACTURERS (0.6%)
3,300 Harley-Davidson Financial Services, Inc. (a),(k) 3.55 5/21/2021 3,282
3,250 Hyundai Capital America (a),(k) 3.75 7/08/2021 3,220
----------
6,502
----------
Total Consumer, Cyclical 6,624
----------
CONSUMER, NON-CYCLICAL (0.1%)
-----------------------------
HEALTHCARE-SERVICES (0.1%)
3,000 Community Health Systems, Inc.(k) 6.88 2/01/2022 1,501
----------
ENERGY (1.4%)
-------------
PIPELINES (1.4%)
2,950 Enbridge Energy Partners, LP(k) 7.38 10/15/2045 3,615
1,900 Energy Transfer Operating, LP (3 mo.
LIBOR + 3.02%)(k) 5.56(b) 11/01/2066 1,567
2,500 Enterprise TE Partners, LP (3 mo.
LIBOR + 2.78%)(k) 5.52(b) 6/01/2067 2,270
3,300 EQM Midstream Partners, LP(k) 4.75 7/15/2023 3,274
800 Martin Midstream Partners, LP / Martin Midstream
Finance Corp.(k) 7.25 2/15/2021 784
2,500 Rockies Express Pipeline, LLC (a),(k) 6.00 1/15/2019 2,507
1,000 Southern Union Co. (3 mo. LIBOR + 3.02%)(k) 5.56(b) 11/01/2066 815
1,400 Tallgrass Energy Partners, LP / Tallgrass Energy
Finance Corp.(a),(k) 5.50 9/15/2024 1,410
----------
Total Energy 16,242
----------
FINANCIAL (3.5%)
----------------
BANKS (1.3%)
1,000 Allfirst Preferred Capital Trust (3 mo.
LIBOR + 1.50%)(k) 3.94(b) 7/15/2029 879
2,000 Compass Bank(k) 3.88 4/10/2025 1,914
2,850 First Maryland Capital Trust I (3 mo.
LIBOR + 1.00%)(k) 3.44(b) 1/15/2027 2,650
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 2,000 Huntington Capital (3 mo. LIBOR + 0.63%)(k) 2.96%(b) 6/15/2028 $ 1,778
2,000 Manufacturers & Traders Trust Co. (3 mo.
LIBOR + 0.64%)(k) 3.38(b) 12/01/2021 1,986
6,000 SunTrust Capital I (3 mo. LIBOR + 0.67%)(k) 3.29(b) 5/15/2027 5,355
----------
14,562
----------
DIVERSIFIED FINANCIAL SERVICES (0.3%)
4,000 Cullen/Frost Capital Trust II (3 mo.
LIBOR + 1.55%)(k) 4.29(b) 3/01/2034 3,606
----------
INSURANCE (1.6%)
3,200 Allstate Corp. (3 mo. LIBOR + 2.94%)(k) 5.75(l) 8/15/2053 3,172
1,921 AmTrust Financial Services, Inc.(k) 6.13 8/15/2023 1,816
3,200 Athene Holding Ltd.(k) 4.13 1/12/2028 2,920
2,575 HSB Group, Inc. (3 mo. LIBOR + 0.91%)(k) 3.35(b) 7/15/2027 2,201
5,670 Nationwide Mutual Insurance Co. (3 mo.
LIBOR + 2.29%) (a),(k) 4.62(b) 12/15/2024 5,670
2,800 Prudential Financial, Inc. (3 mo. LIBOR + 3.92%)(k) 5.63(l) 6/15/2043 2,814
----------
18,593
----------
INVESTMENT COMPANIES (0.2%)
1,600 Ares Capital Corp.(k) 3.63 1/19/2022 1,564
----------
REITS (0.1%)
1,000 Sabra Health Care, LP(k) 5.13 8/15/2026 950
----------
Total Financial 39,275
----------
INDUSTRIAL (0.7%)
-----------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
500 Artesyn Embedded Technologies, Inc.(a),(k) 9.75 10/15/2020 471
----------
MISCELLANEOUS MANUFACTURERS (0.1%)
960 General Electric Co.(k) 5.50 1/08/2020 968
----------
TRANSPORTATION (0.6%)
3,000 BNSF Funding Trust I (3 mo. LIBOR + 2.35%)(k) 6.61(l) 12/15/2055 3,217
3,200 Ryder System, Inc.(k) 3.50 6/01/2021 3,185
----------
6,402
----------
Total Industrial 7,841
----------
UTILITIES (0.2%)
----------------
ELECTRIC (0.2%)
2,133 NextEra Energy Capital Holdings, Inc.(k) 3.34 9/01/2020 2,123
----------
Total Corporate Obligations (cost: $75,907) 75,891
----------
================================================================================
6 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
EURODOLLAR AND YANKEE OBLIGATIONS (1.4%)
BASIC MATERIALS (0.2%)
----------------------
MINING (0.2%)
$ 2,285 Newcrest Finance Pty. Ltd.(a),(k) 4.45% 11/15/2021 $ 2,311
----------
CONSUMER, CYCLICAL (0.3%)
-------------------------
AUTO MANUFACTURERS (0.3%)
3,200 BMW U.S. Capital, LLC (a),(k) 3.25 8/14/2020 3,194
----------
ENERGY (0.6%)
-------------
OIL & GAS (0.5%)
3,100 Petrobras Global Finance B.V.(k) 5.38 1/27/2021 3,150
3,100 Petroleos Mexicanos(k) 5.38 3/13/2022 3,040
----------
6,190
----------
OIL & GAS SERVICES (0.0%)
35 Schahin II Finance Co. SPV Ltd.(a),(g) 8.00 5/25/2020 32
1,407 Schahin II Finance Co. SPV Ltd.(a),(m) 5.88 9/25/2023 155
----------
187
----------
PIPELINES (0.1%)
600 Transcanada Trust (3 mo. LIBOR + 3.53%)(k) 5.63(l) 5/20/2075 560
----------
Total Energy 6,937
----------
FINANCIAL (0.3%)
----------------
INSURANCE (0.3%)
3,430 QBE Capital Funding III Ltd. (USD Swap
Semi-Annual 30/360 10 YR + 4.05%)(a),(k) 7.25(l) 5/24/2041 3,614
----------
Total Eurodollar and Yankee Obligations (cost: $16,966) 16,056
----------
----------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------------------------------
FIXED-INCOME EXCHANGE-TRADED FUNDS (10.2%)
44,400 Invesco Fundamental High Yield Corporate Bond ETF(n) 801
282,610 iShares iBoxx $ High Yield Corporate Bond ETF(n) 23,626
453,140 SPDR Bloomberg Barclays High Yield Bond ETF(n) 15,738
340,800 Vanguard Mortgage-Backed Securities ETF 17,350
179,080 Vanguard Short-Term Bond ETF 13,983
106,950 Vanguard Short-Term Corporate Bond ETF 8,308
456,800 Vanguard Total Bond Market ETF 35,694
----------
Total Fixed-Income Exchange-Traded Funds (cost: $118,265) 115,500
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (11.6%)(o)
COMMERCIAL MBS (2.0%)
$ 2,250 Fannie Mae(+) 2.15% 1/25/2023 $ 2,165
8,300 Freddie Mac(+) 3.00 12/25/2025 8,107
5,200 Freddie Mac(+) 3.33(d) 5/25/2025 5,184
5,000 Freddie Mac(+) 3.51 4/25/2030 4,893
2,679 Freddie Mac(+) 3.70(d) 1/25/2033 2,690
----------
23,039
----------
FGLMC COLLATERAL (9.4%)
7,446 Freddie Mac(+) 3.00 4/01/2046 7,109
10,516 Freddie Mac(+) 3.00 6/01/2046 10,039
8,261 Freddie Mac(+) 3.00 8/01/2046 7,887
7,860 Freddie Mac(+) 3.00 1/01/2047 7,497
14,949 Freddie Mac(+) 3.00 1/01/2047 14,270
16,072 Freddie Mac(+) 3.00 3/01/2047 15,341
20,765 Freddie Mac(+) 3.00 4/01/2047 19,814
9,293 Freddie Mac(+) 3.00 8/01/2047 8,867
8,069 Freddie Mac(+)(k) 3.50 4/01/2046 7,945
7,709 Freddie Mac(+)(k) 3.50 4/01/2048 7,566
----------
106,335
----------
FNMA COLLATERAL (0.2%)
2,835 Fannie Mae(+)(k) 4.00 11/01/2045 2,856
----------
Total U.S. Government Agency Issues (cost: $138,195) 132,230
----------
U.S. TREASURY SECURITIES (17.3%)
BONDS (7.8%)(p)
250 U.S. Treasury Bond (STRIPS Principal)
(Zero Coupon) 0.00 8/15/2044 106
6,000 U.S. Treasury Bond 3.00 11/15/2044 5,678
38,200 U.S. Treasury Bond 3.00 5/15/2045 36,132
4,000 U.S. Treasury Bond 3.00 5/15/2047 3,769
44,100 U.S. Treasury Bond 3.13 8/15/2044 42,711
----------
88,396
----------
INFLATION-INDEXED NOTES (1.0%)
11,716 Inflation-Index Note 0.13 4/15/2021 11,407
----------
NOTES (8.5%)(p)
28,500 U.S. Treasury Note(q) 1.13 2/28/2021 27,459
17,000 U.S. Treasury Note 1.63 4/30/2023 16,134
25,000 U.S. Treasury Note 1.63 2/15/2026 22,878
2,000 U.S. Treasury Note 2.25 11/15/2024 1,929
================================================================================
8 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
$ 5,000 U.S. Treasury Note 2.25% 11/15/2025 $ 4,786
5,000 U.S. Treasury Note 2.25 2/15/2027 4,737
15,000 U.S. Treasury Note 2.25 11/15/2027 14,119
5,000 U.S. Treasury Note 2.75 2/15/2028 4,897
----------
96,939
----------
Total U.S. Treasury Securities (cost: $204,955) 196,742
----------
Total Bonds (cost: $594,631) 575,144
----------
----------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY SECURITIES (26.8%)
COMMON STOCKS (0.1%)
INDUSTRIAL (0.1%)
-----------------
ELECTRONICS (0.1%)
9,810 TE Connectivity Ltd. 755
----------
ENVIRONMENTAL CONTROL (0.0%)
12,880 Pentair plc 550
----------
Total Industrial 1,305
----------
TECHNOLOGY (0.0%)
-----------------
SEMICONDUCTORS (0.0%)
6,040 Kulicke & Soffa Industries, Inc. 130
----------
Total Common Stocks (cost: $1,467) 1,435
----------
EXCHANGE-TRADED FUNDS (26.3%)
224,400 Invesco FTSE RAFI Developed Markets ex-US(n) 8,967
597,600 Invesco FTSE RAFI Emerging Markets 12,310
902,080 iShares Core MSCI EAFE ETF 53,205
360,660 iShares Core MSCI Emerging Markets ETF 17,842
274,500 iShares Edge MSCI Min Vol EAFE ETF 19,100
130,400 iShares Edge MSCI Min Vol Emerging Markets ETF 7,480
748,000 iShares MSCI Canada ETF 19,927
258,080 iShares MSCI United Kingdom ETF(n) 8,111
856,200 Schwab Fundamental Emerging Markets Large Company Index ETF 23,528
1,389,900 Schwab Fundamental International Large Company Index ETF 38,403
231,700 Schwab Fundamental International Small Company Index ETF 7,259
34,497 SPDR S&P Emerging Markets SmallCap ETF 1,494
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
51,500 USAA MSCI Emerging Markets Value Momentum Blend Index ETF(r) $ 2,270
1,137,000 Vanguard FTSE Developed Markets ETF 45,196
47,000 Vanguard FTSE Emerging Markets ETF 1,865
576,000 Vanguard FTSE Europe ETF 29,624
59,797 WisdomTree Emerging Markets SmallCap Dividend Fund 2,588
----------
Total Exchange-Traded Funds (cost: $295,191) 299,169
----------
PREFERRED STOCKS (0.4%)
FINANCIAL (0.4%)
----------------
INSURANCE (0.4%)
167,198 Delphi Financial Group, Inc., cumulative redeemable, 5.93%, (3 mo.
LIBOR + 3.19%)(b) (cost: $4,062) 3,804
----------
Total International Equity Securities (cost: $300,720) 304,408
----------
U.S. EQUITY SECURITIES (18.4%)
COMMON STOCKS (13.3%)
BASIC MATERIALS (0.1%)
----------------------
CHEMICALS (0.1%)
7,140 AdvanSix, Inc.(s) 205
5,570 LyondellBasell Industries N.V. "A" 520
15,050 Rayonier Advanced Materials, Inc. 222
----------
947
----------
FOREST PRODUCTS & PAPER (0.0%)
19,240 Resolute Forest Products, Inc.(s) 211
5,960 Schweitzer-Mauduit International, Inc. 170
----------
381
----------
Total Basic Materials 1,328
----------
COMMUNICATIONS (1.5%)
---------------------
ADVERTISING (0.2%)
41,970 Interpublic Group of Companies, Inc. 986
13,080 Omnicom Group, Inc. 1,007
----------
1,993
----------
INTERNET (0.4%)
830 Amazon.com, Inc.(s) 1,403
250 Booking Holdings, Inc.(s) 473
3,290 CDW Corp. 305
2,860 F5 Networks, Inc.(s) 492
7,640 GoDaddy, Inc. "A"(s) 498
2,650 Netflix, Inc.(s) 758
================================================================================
10 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
2,370 Palo Alto Networks, Inc.(s) $ 410
1,200 Stamps.com, Inc.(s) 206
----------
4,545
----------
MEDIA (0.5%)
26,180 Comcast Corp."A" 1,021
26,480 Discovery, Inc."A"(s) 814
23,470 DISH Network Corp."A"(s) 769
34,970 Entravision Communications Corp."A" 113
2,660 Nexstar Media Group, Inc."A" 220
65,070 Sirius XM Holdings, Inc.(n) 405
18,370 TEGNA, Inc. 244
13,690 Twenty-First Century Fox, Inc."A" 677
36,540 Viacom, Inc."B" 1,128
4,590 Walt Disney Co. 530
----------
5,921
----------
TELECOMMUNICATIONS (0.4%)
23,870 AT&T, Inc. 746
19,940 CenturyLink, Inc. 375
6,320 Ciena Corp.(s) 206
1,950 InterDigital, Inc. 147
4,440 Motorola Solutions, Inc. 583
1,830 Shenandoah Telecommunications Co. 91
8,890 T-Mobile US, Inc.(s) 608
27,380 Verizon Communications, Inc. 1,651
5,670 Vonage Holdings Corp.(s) 60
----------
4,467
----------
Total Communications 16,926
----------
CONSUMER, CYCLICAL (1.6%)
-------------------------
AIRLINES (0.1%)
11,030 Delta Air Lines, Inc. 670
7,930 Southwest Airlines Co. 433
5,030 United Continental Holdings, Inc.(s) 486
----------
1,589
----------
APPAREL (0.1%)
9,480 NIKE, Inc. "B" 712
----------
AUTO MANUFACTURERS (0.1%)
46,500 Ford Motor Co. 437
8,370 PACCAR, Inc. 521
10,550 Wabash National Corp. 164
----------
1,122
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT (0.2%)
5,060 Allison Transmission Holdings, Inc. $ 239
15,050 Dana, Inc. 218
9,300 Meritor, Inc.(s) 154
3,730 Methode Electronics, Inc. 113
5,520 Tenneco, Inc. "A" 186
6,170 WABCO Holdings, Inc.(s) 749
----------
1,659
----------
DISTRIBUTION/WHOLESALE (0.1%)
3,520 WESCO International, Inc.(s) 188
1,160 WW Grainger, Inc. 364
----------
552
----------
ENTERTAINMENT (0.0%)
6,470 Red Rock Resorts, Inc. "A" 169
----------
HOME BUILDERS (0.0%)
7,750 TRI Pointe Group, Inc.(s) 97
----------
HOME FURNISHINGS (0.0%)
4,160 Ethan Allen Interiors, Inc. 87
----------
LEISURE TIME (0.1%)
2,170 Brunswick Corp. 115
8,580 Carnival Corp. 517
8,310 Norwegian Cruise Line Holdings Ltd.(s) 427
4,010 Royal Caribbean Cruises Ltd. 453
----------
1,512
----------
LODGING (0.0%)
5,990 Boyd Gaming Corp. 149
----------
OFFICE FURNISHINGS (0.0%)
4,550 Herman Miller, Inc. 154
7,030 Knoll, Inc. 136
11,610 Steelcase, Inc. "A" 188
----------
478
----------
RETAIL (0.9%)
1,500 Asbury Automotive Group, Inc.(s) 104
7,720 Best Buy Co., Inc. 499
2,440 Big Lots, Inc. 106
10,560 Bloomin' Brands, Inc. 206
3,980 Buckle, Inc.(n) 76
4,160 Costco Wholesale Corp. 962
1,390 Cracker Barrel Old Country Store, Inc.(n) 251
14,550 Del Taco Restaurants, Inc.(s) 156
================================================================================
12 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
3,460 Dick's Sporting Goods, Inc. $ 125
3,090 Foot Locker, Inc. 174
22,550 Gap, Inc. 615
2,280 Group 1 Automotive, Inc. 128
8,580 Hibbett Sports, Inc.(s) 133
5,270 Home Depot, Inc. 950
8,380 Kohl's Corp. 563
3,230 La-Z-Boy, Inc. 94
1,380 Lithia Motors, Inc. "A" 114
17,880 Macy's, Inc. 612
2,520 MSC Industrial Direct Co., Inc. "A" 223
1,720 Nu Skin Enterprises, Inc. "A" 114
1,480 O'Reilly Automotive, Inc.(s) 513
2,290 Penske Automotive Group, Inc. 100
36,090 Qurate Retail, Inc.(s) 802
6,730 Ross Stores, Inc. 590
4,740 Rush Enterprises, Inc. "A" 181
5,710 Sonic Corp. 248
13,030 Target Corp. 925
14,120 TJX Companies, Inc. 690
2,510 Williams-Sonoma, Inc. 142
----------
10,396
----------
Total Consumer, Cyclical 18,522
----------
CONSUMER, NON-CYCLICAL (3.4%)
-----------------------------
AGRICULTURE (0.1%)
7,650 Altria Group, Inc. 419
21,330 Archer-Daniels-Midland Co. 982
----------
1,401
----------
BEVERAGES (0.2%)
7,320 Brown-Forman Corp."B" 349
21,240 Coca-Cola Co. 1,070
7,960 Molson Coors Brewing Co."B" 524
----------
1,943
----------
BIOTECHNOLOGY (0.4%)
3,650 Biogen, Inc.(s) 1,218
540 Bio-Rad Laboratories, Inc."A"(s) 148
2,240 Cambrex Corp.(s) 107
7,950 Celgene Corp.(s) 574
2,380 Emergent BioSolutions, Inc.(s) 173
9,060 Exelixis, Inc.(s) 184
12,760 Gilead Sciences, Inc. 918
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
8,040 Halozyme Therapeutics, Inc.(s) $ 133
1,760 Illumina, Inc.(s) 594
3,460 Myriad Genetics, Inc.(s) 112
2,090 REGENXBIO, Inc.(s) 125
5,610 United Therapeutics Corp.(s) 663
----------
4,949
----------
COMMERCIAL SERVICES (0.5%)
3,250 AMN Healthcare Services, Inc.(s) 207
3,660 Avis Budget Group, Inc.(s) 107
6,190 Booz Allen Hamilton Holding Corp. 318
20,400 H&R Block, Inc. 551
12,980 Hackett Group, Inc. 229
4,500 Moody's Corp. 716
6,990 Quad/Graphics, Inc. 115
3,910 S&P Global, Inc. 715
41,410 Sabre Corp. 1,059
4,370 Sotheby's(s) 175
3,980 United Rentals, Inc.(s) 466
5,460 Verisk Analytics, Inc.(s) 673
33,120 Western Union Co. 620
----------
5,951
----------
COSMETICS/PERSONAL CARE (0.1%)
3,520 Estee Lauder Companies, Inc."A" 502
11,860 Procter & Gamble Co. 1,121
----------
1,623
----------
FOOD (0.4%)
2,880 Cal-Maine Foods, Inc. 135
8,140 Flowers Foods, Inc. 161
13,690 Hormel Foods Corp. 617
11,610 Hostess Brands, Inc.(s) 135
7,750 Ingles Markets, Inc."A" 225
5,060 Ingredion, Inc. 529
4,680 JM Smucker Co. 489
30,050 Kroger Co. 891
4,530 McCormick & Co., Inc. 679
1,430 Sanderson Farms, Inc. 162
8,660 Sysco Corp. 584
9,110 Tyson Foods, Inc."A" 537
----------
5,144
----------
HEALTHCARE-PRODUCTS (0.4%)
980 ABIOMED, Inc.(s) 326
4,410 Bruker Corp. 146
================================================================================
14 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
3,030 Edwards Lifesciences Corp.(s) $ 491
4,230 Henry Schein, Inc.(s) 377
2,270 Hill-Rom Holdings, Inc. 220
2,530 IDEXX Laboratories, Inc.(s) 515
990 Intuitive Surgical, Inc.(s) 526
1,780 Masimo Corp.(s) 197
10,920 Meridian Bioscience, Inc. 207
33,980 MiMedx Group, Inc.(n),(s) 102
7,440 Patterson Companies, Inc. 189
2,160 STERIS plc 257
2,900 Stryker Corp. 509
----------
4,062
----------
HEALTHCARE-SERVICES (0.4%)
3,550 Centene Corp.(s) 505
650 Chemed Corp. 206
3,300 Cigna Corp. 737
2,820 Encompass Health Corp. 212
2,920 HCA Healthcare, Inc. 420
3,900 Laboratory Corp. of America Holdings(s) 568
4,150 MEDNAX, Inc.(s) 167
5,810 Quest Diagnostics, Inc. 515
9,260 Select Medical Holdings Corp.(s) 180
5,850 Universal Health Services, Inc."B" 807
910 WellCare Health Plans, Inc.(s) 232
----------
4,549
----------
HOUSEHOLD PRODUCTS/WARES (0.1%)
13,460 ACCO Brands Corp. 109
9,650 Church & Dwight Co., Inc. 639
990 Helen of Troy Ltd.(s) 142
----------
890
----------
PHARMACEUTICALS (0.8%)
8,700 AmerisourceBergen Corp. 773
12,750 Cardinal Health, Inc. 699
7,470 Concert Pharmaceuticals, Inc.(s) 107
10,690 Corcept Therapeutics, Inc.(s) 149
9,510 CVS Health Corp. 763
1,610 Eagle Pharmaceuticals, Inc.(s) 81
3,940 Eli Lilly & Co. 467
1,460 Enanta Pharmaceuticals, Inc.(s) 116
20,480 Lannett Co., Inc.(s) 121
4,790 McKesson Corp. 596
8,280 Merck & Co., Inc. 657
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
18,610 Mylan N.V.(s) $ 630
43,000 Pfizer, Inc. 1,988
2,610 Phibro Animal Health Corp."A" 89
1,660 PRA Health Sciences, Inc.(s) 194
3,540 Prestige Consumer Healthcare, Inc.(s) 137
3,290 Supernus Pharmaceuticals, Inc.(s) 156
9,490 Zoetis, Inc. 891
----------
8,614
----------
Total Consumer, Non-cyclical 39,126
----------
DIVERSIFIED (0.0%)
------------------
HOLDING COMPANIES-DIVERSIFIED (0.0%)
1,500 Spectrum Brands Holdings, Inc. 74
----------
ENERGY (0.9%)
-------------
COAL (0.0%)
12,910 Warrior Met Coal, Inc. 306
----------
ENERGY-ALTERNATE SOURCES (0.0%)
6,670 Renewable Energy Group, Inc.(s) 180
3,480 SolarEdge Technologies, Inc.(n),(s) 135
----------
315
----------
OIL & GAS (0.7%)
30,620 Antero Resources Corp.(s) 402
11,970 Apache Corp. 421
6,910 Cimarex Energy Co. 566
20,220 ConocoPhillips 1,338
5,280 Continental Resources, Inc.(s) 241
12,890 Devon Energy Corp. 348
6,860 Hess Corp. 370
13,820 HollyFrontier Corp. 863
20,830 Laredo Petroleum, Inc.(s) 91
6,250 Mammoth Energy Services, Inc. 157
17,470 Marathon Oil Corp. 292
11,370 Marathon Petroleum Corp. 741
5,720 Matador Resources Co.(s) 130
8,710 Par Pacific Holdings, Inc.(s) 147
4,130 PBF Energy, Inc."A" 160
38,140 Southwestern Energy Co.(s) 184
29,410 SRC Energy, Inc.(s) 170
6,740 Valero Energy Corp. 539
----------
7,160
----------
================================================================================
16 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
OIL & GAS SERVICES (0.0%)
9,920 ProPetro Holding Corp.(s) $ 161
9,990 U.S. Silica Holdings, Inc.(n) 142
----------
303
----------
PIPELINES (0.2%)
6,170 Cheniere Energy, Inc.(s) 377
8,900 ONEOK, Inc. 547
17,280 Plains GP Holdings, LP "A"(s) 382
7,010 Targa Resources Corp. 313
----------
1,619
----------
Total Energy 9,703
----------
FINANCIAL (2.1%)
----------------
BANKS (1.0%)
3,800 Bank of Hawaii Corp. 303
8,060 BankUnited, Inc. 278
10,850 Cadence BanCorp 222
6,180 Capital One Financial Corp. 554
7,000 Comerica, Inc. 554
3,100 Cullen/Frost Bankers, Inc. 311
16,140 East West Bancorp, Inc. 867
33,890 Fifth Third Bancorp 947
7,200 Great Western Bancorp, Inc. 269
17,700 Hope Bancorp, Inc. 269
11,230 J.P. Morgan Chase & Co. 1,249
10,140 Meta Financial Group, Inc. 232
56,320 Regions Financial Corp. 926
6,430 Signature Bank 793
2,030 SVB Financial Group(s) 517
20,670 U.S. Bancorp. 1,126
5,890 Western Alliance Bancorp(s) 276
15,990 Zions Bancorp. N.V. 778
----------
10,471
----------
DIVERSIFIED FINANCIAL SERVICES (0.7%)
3,340 Affiliated Managers Group, Inc. 371
4,670 Alliance Data Systems Corp. 936
30,560 Ally Financial, Inc. 815
4,310 American Express Co. 484
2,430 CME Group, Inc. 462
5,790 Encore Capital Group, Inc.(n),(s) 162
3,830 Federal Agricultural Mortgage Corp."C" 253
17,230 Franklin Resources, Inc. 584
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
5,780 Mastercard, Inc."A" $ 1,162
4,110 Nelnet, Inc."A" 224
16,152 Synchrony Financial 420
5,400 T. Rowe Price Group, Inc. 536
10,550 Virtu Financial, Inc."A" 265
6,570 Visa, Inc."A" 931
11,720 Waddell & Reed Financial, Inc."A" 239
2,000 World Acceptance Corp.(s) 218
----------
8,062
----------
INSURANCE (0.4%)
12,790 Aflac, Inc. 585
6,080 American Equity Investment Life Holding Co. 208
8,030 Athene Holding Ltd."A"(s) 349
4,760 Employers Holdings, Inc. 214
7,700 Essent Group Ltd.(s) 297
2,060 Primerica, Inc. 245
8,340 Principal Financial Group, Inc. 411
9,780 Progressive Corp. 648
4,330 Prudential Financial, Inc. 406
6,680 Torchmark Corp. 577
4,660 Universal Insurance Holdings, Inc. 205
13,940 Voya Financial, Inc. 627
----------
4,772
----------
Total Financial 23,305
----------
INDUSTRIAL (1.2%)
-----------------
AEROSPACE/DEFENSE (0.1%)
1,820 Boeing Co. 631
----------
BUILDING MATERIALS (0.2%)
4,030 Apogee Enterprises, Inc. 147
12,540 Fortune Brands Home & Security, Inc. 549
2,990 Masonite International Corp.(s) 161
12,940 NCI Building Systems, Inc.(s) 147
11,740 Owens Corning 612
3,150 Patrick Industries, Inc.(s) 125
----------
1,741
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
3,910 Generac Holdings, Inc.(s) 223
----------
ELECTRONICS (0.3%)
12,670 Arrow Electronics, Inc.(s) 975
7,460 Atkore International Group, Inc.(s) 152
6,210 Jabil, Inc. 155
7,210 Keysight Technologies, Inc.(s) 446
================================================================================
18 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
1,350 Mettler-Toledo International, Inc.(s) $ 860
3,001 SYNNEX Corp. 242
1,860 Tech Data Corp.(s) 167
3,830 Waters Corp.(s) 761
----------
3,758
----------
ENGINEERING & CONSTRUCTION (0.0%)
9,970 Fluor Corp. 408
----------
ENVIRONMENTAL CONTROL (0.1%)
7,520 Waste Management, Inc. 705
----------
HAND/MACHINE TOOLS (0.0%)
2,670 Regal Beloit Corp. 209
2,230 Snap-on, Inc. 370
----------
579
----------
MACHINERY-DIVERSIFIED (0.1%)
7,220 AGCO Corp. 431
3,810 Cummins, Inc. 575
9,270 Ichor Holdings Ltd.(n),(s) 169
----------
1,175
----------
METAL FABRICATION/HARDWARE (0.0%)
4,540 Timken Co. 182
----------
MISCELLANEOUS MANUFACTURERS (0.2%)
2,510 Crane Co. 217
9,620 Eaton Corp. plc 740
4,050 Hillenbrand, Inc. 179
1,670 Sturm Ruger & Co., Inc. 90
11,720 Textron, Inc. 658
4,790 Trinseo S.A. 242
----------
2,126
----------
PACKAGING & CONTAINERS (0.1%)
6,200 Berry Global Group, Inc.(s) 312
8,940 Silgan Holdings, Inc. 230
7,420 Westrock Co. 350
----------
892
----------
SHIPBUILDING (0.0%)
1,600 Huntington Ingalls Industries, Inc. 345
----------
TRANSPORTATION (0.1%)
5,270 Air Transport Services Group, Inc.(s) 98
5,140 CH Robinson Worldwide, Inc. 474
3,620 Union Pacific Corp. 557
3,210 Werner Enterprises, Inc. 109
----------
1,238
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
TRUCKING & LEASING (0.0%)
3,440 Greenbrier Companies, Inc. $ 168
----------
Total Industrial 14,171
----------
TECHNOLOGY (2.1%)
-----------------
COMPUTERS (0.8%)
8,470 Apple, Inc. 1,513
1,500 CACI International, Inc."A"(s) 247
10,330 Cognizant Technology Solutions Corp."A" 736
9,560 DXC Technology Co. 603
4,130 Fortinet, Inc.(s) 305
52,950 Hewlett Packard Enterprise Co. 794
3,100 Insight Enterprises, Inc.(s) 138
10,580 International Business Machines Corp. 1,315
12,960 Leidos Holdings, Inc. 817
4,340 MAXIMUS, Inc. 309
6,040 NCR Corp.(s) 167
6,360 NetApp, Inc. 425
3,140 Science Applications International Corp. 218
21,450 Seagate Technology plc 924
14,530 Western Digital Corp. 660
----------
9,171
----------
OFFICE/BUSINESS EQUIPMENT (0.0%)
20,050 Pitney Bowes, Inc. 169
----------
SEMICONDUCTORS (0.5%)
19,890 Advanced Micro Devices, Inc.(s) 424
9,520 Applied Materials, Inc. 355
3,940 Cirrus Logic, Inc.(s) 147
20,640 Intel Corp. 1,018
3,100 Lam Research Corp. 486
25,160 Micron Technology, Inc.(s) 970
3,450 NVIDIA Corp. 564
6,300 QUALCOMM, Inc. 367
4,860 SMART Global Holdings, Inc.(s) 167
4,290 Texas Instruments, Inc. 428
16,380 Ultra Clean Holdings, Inc.(s) 154
6,260 Xilinx, Inc. 579
----------
5,659
----------
SOFTWARE (0.8%)
2,720 Adobe, Inc.(s) 682
4,030 Broadridge Financial Solutions, Inc. 427
9,380 Citrix Systems, Inc.(s) 1,022
================================================================================
20 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
6,750 CSG Systems International, Inc. $ 237
34,890 First Data Corp."A"(s) 666
4,400 Intuit, Inc. 944
3,390 j2 Global, Inc. 250
5,150 Manhattan Associates, Inc.(s) 255
15,660 Microsoft Corp. 1,737
2,820 MSCI, Inc. 443
24,720 Oracle Corp. 1,205
4,230 salesforce.com, Inc.(s) 604
----------
8,472
----------
Total Technology 23,471
----------
UTILITIES (0.4%)
----------------
ELECTRIC (0.3%)
11,860 Consolidated Edison, Inc. 953
17,120 Exelon Corp. 794
2,640 IDACORP, Inc. 259
4,230 NextEra Energy, Inc. 769
15,600 PPL Corp. 477
25,800 Spark Energy, Inc."A"(n) 235
----------
3,487
----------
GAS (0.1%)
5,430 New Jersey Resources Corp. 264
3,090 Southwest Gas Holdings, Inc. 243
14,210 UGI Corp. 816
----------
1,323
----------
Total Utilities 4,810
----------
Total Common Stocks (cost: $148,159) 151,436
----------
EXCHANGE-TRADED FUNDS (3.9%)
30,600 iShares Core S&P 500 ETF 8,507
25,400 iShares Russell 2000 ETF 3,876
125,990 Vanguard S&P 500 ETF 31,936
----------
Total Exchange-Traded Funds (cost: $38,401) 44,319
----------
PREFERRED STOCKS (1.2%)
COMMUNICATIONS (0.2%)
--------------------
TELECOMMUNICATIONS (0.2%)
112,000 Qwest Corp., 6.50%(k) 2,344
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
CONSUMER, NON-CYCLICAL (0.6%)
-----------------------------
AGRICULTURE (0.4%)
161,682 CHS, Inc., cumulative redeemable "B", 7.88%(k),(t) $ 4,373
----------
FOOD (0.2%)
28,000 Dairy Farmers of America, Inc., cumulative redeemable, 7.88%(a),(k),(t) 2,814
----------
Total Consumer, Non-cyclical 7,187
----------
ENERGY (0.3%)
-------------
OIL & GAS (0.3%)
5,500 Chesapeake Energy Corp., 5.75%(a),(k),(t) 3,096
----------
FINANCIAL (0.1%)
----------------
INSURANCE (0.1%)
1,500 American Overseas Group Ltd., non-cumulative, 6.29%, (3 mo. LIBOR +
3.56%)(b),(e),(g),(h) 375
----------
Total Preferred Stocks (cost: $14,852) 13,002
----------
Total U.S. Equity Securities (cost: $201,412) 208,757
----------
GLOBAL REAL ESTATE EQUITY SECURITIES (2.1%)
COMMON STOCKS (0.7%)
FINANCIAL (0.7%)
----------------
DIVERSIFIED FINANCIAL SERVICES (0.0%)
12,230 Altisource Portfolio Solutions S.A.(n),(s) 290
----------
REAL ESTATE (0.2%)
14,170 CBRE Group, Inc."A"(s) 619
7,170 HFF Inc."A" 290
3,810 Jones Lang LaSalle, Inc. 546
15,370 Realogy Holdings Corp.(n) 296
3,700 RMR Group, Inc."A" 239
----------
1,990
----------
REITS (0.5%)
70,710 Annaly Capital Management, Inc. 710
13,110 CoreCivic, Inc. 288
13,060 GEO Group, Inc. 304
31,300 Host Hotels & Resorts, Inc. 595
31,870 Kimco Realty Corp. 521
13,860 Ladder Capital Corp. 245
4,720 Lamar Advertising Co."A" 358
7,040 LTC Properties, Inc. 327
7,526 PotlatchDeltic Corp. 279
12,790 Prologis, Inc. 861
================================================================================
22 | USAA CORNERSTONE MODERATE FUND
================================================================================
----------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------------------------
13,280 Tanger Factory Outlet Centers, Inc. $ 314
10,270 Ventas, Inc. 652
40,870 Washington Prime Group, Inc. 255
16,600 Weyerhaeuser Co. 438
----------
6,147
----------
Total Financial 8,427
----------
Total Common Stocks (cost: $8,936) 8,427
----------
EXCHANGE-TRADED FUNDS (1.4%)
187,830 Vanguard Real Estate ETF (cost: $14,945) 15,398
----------
Total Global Real Estate Equity Securities (cost: $23,881) 23,825
----------
PRECIOUS METALS AND COMMODITY-RELATED SECURITIES (0.9%)
COMMON STOCKS (0.1%)
BASIC MATERIALS (0.1%)
----------------------
CHEMICALS (0.1%)
6,480 Eastman Chemical Co. 511
3,110 Linde plc 495
----------
1,006
----------
IRON/STEEL (0.0%)
5,820 Nucor Corp. 352
10,610 Steel Dynamics, Inc. 373
----------
725
----------
MINING (0.0%)
110,164 Hycroft Mining Corp.(e),(g),(h),(s) 1
----------
Total Basic Materials 1,732
----------
Total Common Stocks (cost: $5,944) 1,732
----------
EXCHANGE-TRADED FUNDS (0.8%)
39,300 First Trust Global Tactical Commodity Strategy Fund(n) 732
114,500 Invesco DB Commodity Index Tracking Fund(s) 1,751
58,300 United States Commodity Index Fund(s) 2,230
153,400 VanEck Vectors Gold Miners ETF 2,928
47,200 VanEck Vectors Junior Gold Miners ETF 1,255
----------
Total Exchange-Traded Funds (cost: $10,666) 8,896
----------
Total Precious Metals and Commodity-Related Securities (cost: $16,610) 10,628
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
----------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.0%)
COMMERCIAL PAPER (0.8%)
$ 2,000 CNH Industrial Capital, LLC(a) 3.25% 1/08/2019 $ 1,994
1,063 Enable Midstream Partners(a) 2.90 12/10/2018 1,062
2,140 Energy Transfer Partners(a) 2.85 12/03/2018 2,140
1,600 Newell Rubbermaid, Inc(a) 2.65 12/05/2018 1,600
1,866 ONEOK, Inc.(a) 2.85 12/03/2018 1,866
----------
Total Commercial Paper (cost: $8,662) 8,662
----------
----------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.2%)
2,102,448 State Street Institutional Treasury Money Market Fund Premier Class,
2.19%(k),(u) (cost: $2,102) 2,102
----------
Total Money Market Instruments (cost: $10,764) 10,764
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (4.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (4.2%)
5,790,894 HSBC U.S. Government Money Market Fund Class I, 2.13%(u) 5,791
31,310,048 Invesco Government & Agency Portfolio Institutional Class, 2.12%(u) 31,310
10,822,980 Western Asset Institutional Government Reserves Institutional Class, 2.10%(u) 10,823
----------
Total Short-Term Investments Purchased with Cash Collateral from Securities
Loaned (cost: $47,924) 47,924
----------
TOTAL INVESTMENTS (COST: $1,195,942) $1,181,450
==========
================================================================================
24 | USAA CORNERSTONE MODERATE FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
UNREALIZED
APPRECIATION/
NUMBER OF EXPIRATION NOTIONAL CONTRACT (DEPRECIATION)
CONTRACTS DESCRIPTION DATE AMOUNT (000) VALUE (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES (0.8%)
LONG FUTURES
EQUITY CONTRACTS
356 E-mini S&P 500 12/21/2018 USD 51,567 $ 49,097 $(2,470)
--------- -------
TOTAL LONG FUTURES $ 49,097 $(2,470)
--------- -------
SHORT FUTURES
EQUITY CONTRACTS
77 E-mini Russell 2000 12/21/2018 USD (5,703) $ (5,908) $ (205)
175 Swiss Market Future
Index 12/21/2018 CHF (18,228) (15,811) (203)
--------- -------
$ (21,719) $ (408)
--------- -------
INTEREST RATE CONTRACTS
257 U.S. Treasury Bond 3/20/2019 USD (35,801) $ (35,956) $ (155)
--------- -------
TOTAL SHORT FUTURES $ (57,675) $ (563)
--------- -------
TOTAL FUTURES $ (8,578) $(3,033)
========= =======
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
-------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------
Bonds:
Asset-Backed Securities $ - $ 19,312 $ - $ 19,312
Bank Loans - 2,100 - 2,100
Collateralized Mortgage Obligations - 2,186 - 2,186
Commercial Mortgage Securities - 12,434 - 12,434
Convertible Securities - 2,682 11 2,693
Corporate Obligations - 75,891 - 75,891
Eurodollar and Yankee Obligations - 16,056 - 16,056
Fixed-Income Exchange-Traded Funds 115,500 - - 115,500
U.S. Government Agency Issues - 132,230 - 132,230
U.S. Treasury Securities 196,636 106 - 196,742
International Equity Securities:
Common Stocks 1,435 - - 1,435
Exchange-Traded Funds 299,169 - - 299,169
Preferred Stocks - 3,804 - 3,804
U.S. Equity Securities:
Common Stocks 151,436 - - 151,436
Exchange-Traded Funds 44,319 - - 44,319
Preferred Stocks - 12,627 375 13,002
Global Real Estate Equity Securities:
Common Stocks 8,427 - - 8,427
Exchange-Traded Funds 15,398 - - 15,398
Precious Metals and Commodity-Related
Securities:
Common Stocks 1,731 - 1 1,732
Exchange-Traded Funds 8,896 - - 8,896
Money Market Instruments:
Commercial Paper - 8,662 - 8,662
Government & U.S. Treasury Money
Market Funds 2,102 - - 2,102
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 47,924 - - 47,924
-------------------------------------------------------------------------------------------------------
Total $892,973 $288,090 $387 $1,181,450
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------
Futures(1) $ (3,033) $ - $ - $ (3,033)
-------------------------------------------------------------------------------------------------------
Total $ (3,033) $ - $ - $ (3,033)
-------------------------------------------------------------------------------------------------------
(1) Futures are valued at the unrealized appreciation/(depreciation) on the
investment.
================================================================================
26 | USAA CORNERSTONE MODERATE FUND
================================================================================
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
For the period of June 1, 2018, through November 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
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 | 27
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 29.4% of net assets at November 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
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
================================================================================
28 | USAA CORNERSTONE MODERATE FUND
================================================================================
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be substantially
shorter than the stated final maturity as a result of scheduled principal
payments and unscheduled principal prepayments. Stated interest rates on
commercial mortgage-backed securities may change slightly over time as
underlying mortgages paydown.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying mortgages
is used to pay off each tranche separately. CMOs are designed to provide
investors with more predictable cash flows than regular mortgage securities,
but such cash flows can be difficult to predict because of the effect of
prepayments.
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.
COMMERCIAL PAPER - Consists of short-term unsecured promissory notes with
maturities ranging from one to 270 days, issued mainly by corporations.
Commercial paper is usually purchased at a discount and matures at par value;
however, it also may be interest-bearing. Rate represents an annualized
yield at time of purchase or coupon rate, if applicable.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
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.
STRIPS Separate trading of registered interest and principal of
securities
Zero Coupon Normally issued at a significant discount from face value and do
not provide for periodic interest payments. Income is earned
from the purchase date by accreting the purchase discount of the
security to par over the life of the security.
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
INS Principal and interest payments are insured by the name listed.
Although bond insurance reduces the risk of loss due to default
by an issuer, such bonds remain subject to the risk that value
may fluctuate for other reasons, and there is no assurance that
the insurance company will meet its obligations.
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
================================================================================
30 | USAA CORNERSTONE MODERATE FUND
================================================================================
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 November 30, 2018.
(c) Senior loans (loans) - are not registered under the Securities Act of
1933. The loans contain certain restrictions on resale and cannot be sold
publicly. The stated interest rates represent the all in interest rate of
all contracts within the loan facilities. The interest rates are adjusted
periodically, and the rates disclosed represent the current rate at
November 30, 2018. The weighted average life of the loans are likely to
be shorter than the stated final maturity date due to mandatory or
optional prepayments. The loans are 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.
(d) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(e) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(f) Security is interest only. 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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
================================================================================
prepayment risk. CMBS IOs are subject to default-related prepayments
that may have a negative impact on yield.
(g) Security was fair valued at November 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 $419,000, which represented less than 0.1% of the Fund's
net assets.
(h) Security was classified as Level 3.
(i) 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.
(j) All of the coupon is PIK.
(k) The security, or a portion thereof, is segregated to cover the value
of open futures contracts at November 30, 2018.
(l) Fixed to floating security that initially pays a fixed rate and
converts to a floating rate coupon at a specified date in the future. The
rate presented is a fixed rate.
(m) At November 30, 2018, the issuer was in default with respect to
interest and/or principal payments.
(n) The security, or a portion thereof, was out on loan as of November
30, 2018.
(o) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and certain
other U.S. government guaranteed securities are supported by the full
faith and credit of the U.S. government. Securities issued by other
GSEs, such as Federal Home Loan Mortgage Corporation (Freddie Mac or
FHLMC) and Federal National Mortgage Association (Fannie Mae or FNMA),
indicated with a "+", are supported only by the right of the GSE to
borrow from the U.S. Treasury, the discretionary authority of the U.S.
================================================================================
32 | USAA CORNERSTONE MODERATE FUND
================================================================================
government to purchase the GSEs' obligations, or only by the credit of
the issuing agency, instrumentality, or corporation, and are neither
issued nor guaranteed by the U.S. Treasury. In September of 2008, the
U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship and
appointed the Federal Housing Finance Agency (FHFA) to act as conservator
and oversee their daily operations. In addition, the U.S. Treasury
entered into purchase agreements with Fannie Mae and Freddie Mac to
provide them with capital in exchange for senior preferred stock. While
these arrangements are intended to ensure that Fannie Mae and Freddie Mac
can continue to meet their obligations, it is possible that actions by
the U.S. Treasury, FHFA, or others could adversely impact the value of
the Fund's investments in securities issued by Fannie Mae and Freddie
Mac.
(p) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(q) Securities with a value of $4,817,000 are segregated as collateral
for initial margin requirements on open futures contracts.
(r) Investment in affiliated exchange-traded fund.
(s) Non-income-producing security.
(t) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
(u) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in unaffiliated securities, at market value (including securities
on loan of $46,607) (cost of $1,193,306) $1,179,180
Investments in affiliated underlying funds, at market value
(cost of $2,636) 2,270
Cash denominated in foreign currencies (identified cost of $630) 618
Receivables:
Capital shares sold 1,039
USAA Asset Management Company (Note 6) 147
Dividends and interest 2,795
Securities sold 15,591
Other 79
----------
Total assets 1,201,719
----------
LIABILITIES
Payables:
Upon return of securities loaned 47,924
Securities purchased 7,878
Capital shares redeemed 624
Bank overdraft 5,327
Variation margin on futures contracts 3,031
Accrued management fees 550
Accrued transfer agent's fees 71
Other accrued expenses and payables 182
----------
Total liabilities 65,587
----------
Net assets applicable to capital shares outstanding $1,136,132
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,116,995
Distributable earnings 19,137
----------
Net assets applicable to capital shares outstanding $1,136,132
==========
Capital shares outstanding, no par value 79,485
==========
Net asset value, redemption price, and offering price per share $ 14.29
==========
See accompanying notes to financial statements.
================================================================================
34 | USAA CORNERSTONE MODERATE FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 6
Dividends 8,531
Interest 8,133
Securities lending (net) 175
--------
Total income 16,845
--------
EXPENSES
Management fees 3,464
Administration and servicing fees 881
Transfer agent's fees 1,323
Custody and accounting fees 134
Postage 65
Shareholder reporting fees 38
Trustees' fees 17
Registration fees 27
Professional fees 57
Other 11
--------
Total expenses 6,017
Expenses reimbursed (149)
--------
Net expenses 5,868
--------
NET INVESTMENT INCOME 10,977
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, AND FUTURES CONTRACTS
Net realized gain on:
Investments 10,219
Foreign currency transactions 4
Futures transactions 3,725
Change in net unrealized appreciation/(depreciation) of:
Unaffiliated investments (53,512)
Affiliated investments (Note 8) (273)
Foreign currency translations (4)
Futures contracts (3,756)
--------
Net realized and unrealized loss (43,597)
--------
Decrease in net assets resulting from operations $(32,620)
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended May 31,
2018
---------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 10,977 $ 20,170
Net realized gain on investments 10,219 49,970
Net realized gain on foreign currency transactions 4 482
Net realized gain on long-term capital gain
distributions from other investment companies - 23
Net realized gain on futures transactions 3,725 12,503
Change in net unrealized appreciation/(depreciation) of:
Investments (53,785) (19,375)
Foreign currency translations (4) (54)
Futures contracts (3,756) (3,135)
-------------------------
Increase (decrease) in net assets resulting from operations (32,620) 60,584
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS (10,381) (77,733)
-------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 59,328 154,614
Reinvested dividends 10,324 77,303
Cost of shares redeemed (74,551) (150,230)
-------------------------
Increase (decrease) in net assets from capital
share transactions (4,899) 81,687
-------------------------
Net increase (decrease) in net assets (47,900) 64,538
NET ASSETS
Beginning of period 1,184,032 1,119,494
-------------------------
End of period $1,136,132 $1,184,032
=========================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,040 10,216
Shares issued for dividends reinvested 701 5,165
Shares redeemed (5,076) (9,922)
-------------------------
Increase (decrease) in shares outstanding (335) 5,459
=========================
See accompanying notes to financial statements.
================================================================================
36 | USAA CORNERSTONE MODERATE FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds. The
USAA Cornerstone Moderate Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek a high
total return.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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, 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.
================================================================================
38 | USAA CORNERSTONE MODERATE FUND
================================================================================
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.
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,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
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.
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
================================================================================
40 | USAA CORNERSTONE MODERATE FUND
================================================================================
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold. Level 2
securities include debt securities that are valued using market inputs
and other observable factors deemed by the Manager to appropriately
reflect fair value.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not
necessarily an indication of the risks associated with investing in those
securities.
C. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
believes they offer an economical means of gaining exposure to a
particular asset class or securities market or to keep cash on hand to meet
shareholder redemptions or other needs while maintaining exposure to the
market. With exchange-listed futures contracts and options, counterparty
credit risk to the Fund is limited to the exchange's clearinghouse which,
as counterparty to all exchange-traded futures contracts and options,
guarantees the transactions against default from the actual counterparty to
the transaction. The Fund's derivative agreements held at November 30,
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.
================================================================================
42 | USAA CORNERSTONE MODERATE FUND
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2018*
(IN THOUSANDS)
LIABILITY DERIVATIVES
-----------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF
ACCOUNTED FOR AS ASSETS AND INTEREST FOREIGN
HEDGING LIABILITIES RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-----------------------------------------------------------------------------------------------
USAA Distributable $(155)** $(2,878)** $- $(3,033)
Cornerstone earnings
Moderate Fund
-----------------------------------------------------------------------------------------------
* For open derivative instruments as of November 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 NOVEMBER 30, 2018 (IN THOUSANDS)
NET REALIZED GAIN (LOSS)
-----------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF
ACCOUNTED FOR AS ASSETS AND INTEREST FOREIGN
HEDGING LIABILITIES RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-----------------------------------------------------------------------------------------------
USAA Net realized gain $1,211 $2,514 $- $3,725
Cornerstone on Futures
Moderate Fund transactions
-----------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
-----------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF
ACCOUNTED FOR AS ASSETS AND INTEREST FOREIGN
HEDGING LIABILITIES RATE EQUITY EXCHANGE
INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-----------------------------------------------------------------------------------------------
USAA Change in net $(230) $(3,526) $- $(3,756)
Cornerstone unrealized
Moderate Fund appreciations
/(depreciation) of
Futures contracts
-----------------------------------------------------------------------------------------------
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-
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield
method for long-term securities and the straight-line method for short-term
securities.
E. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
================================================================================
44 | USAA CORNERSTONE MODERATE FUND
================================================================================
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Separately, net realized foreign currency gains/losses may arise from
sales of foreign currency, currency gains/losses realized between the trade
and settlement dates on security transactions, and from the difference
between amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
received. At the end of the Fund's fiscal year, net realized foreign
currency gains/losses are reclassified from accumulated net realized
gains/losses to accumulated undistributed net investment income on the
Statement of Assets and Liabilities, as such amounts are treated as
ordinary income/loss for federal income tax purposes. Net unrealized
foreign currency exchange gains/losses arise from changes in the value of
assets and liabilities, other than investments in securities, resulting
from changes in the exchange rate.
G. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can
take place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than
the amount of its purchase commitments. The purchase of 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.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $5,000, which represents 1.4% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
================================================================================
46 | USAA CORNERSTONE MODERATE FUND
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
---------------------------------------------------------------------------------
USAA Cornerstone Moderate Fund $32,793,000 $(47,285,000) $(14,492,000)
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$487,783,000 and $460,809,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended November 30,
2018 were as follows:
PURCHASES SALES NET REALIZED GAIN
--------------------------------------------------------------------------------
$366,000 $- $-
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
(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 November 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
------------------------------------------------------------------------------------------------------------
$46,607,000(1) $- $47,924,000
(1) Includes $3,355,000 of securities on loan that were sold prior to
November 30, 2018.
(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,
================================================================================
48 | USAA CORNERSTONE MODERATE FUND
================================================================================
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the day-to-day investment of all or
a portion of the Fund's assets. For the six-month period ended November 30,
2018, the Fund had no subadviser(s).
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.59% of the Fund's average daily net assets. For the
six-month period ended November 30, 2018, the Fund incurred management fees,
paid or payable to the Manager, of $3,464,000.
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 November 30, 2018, the
Fund's management fee was reimbursed by the Manager in an amount of $3,000, of
which less than $500 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 the Fund's
average daily net assets for the fiscal year. For the six-month period ended
November 30, 2018, the Fund incurred administration and servicing fees, paid or
payable to the Manager, of $881,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 2018, the Fund reimbursed the Manager $14,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed, through September 30, 2019, to limit
the total annual operating expenses of the Fund to 1.00% of its average daily
net assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the Fund for all expenses in
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
excess of that amount. This expense limitation arrangement may not be changed or
terminated through September 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 November 30, 2018, the Fund incurred reimbursable
expenses of $149,000, of which $147,000 was receivable from the Manager, which
includes affiliated ETF(s) management fee reimbursement expenses and
receivables.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund based on an annual charge of $23 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. For the six-month period ended November 30, 2018, the
Fund incurred transfer agent's fees, paid or payable to SAS, of $1,323,000.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Fund's shares on a continuing best-efforts
basis and receives no fee or other compensation for these services.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Fund does not invest in the affiliated USAA Funds
for the purpose of exercising management or control; however, investments
by the Fund may represent a significant portion of the affiliated USAA
Funds' net assets. The affiliated funds' annual or semiannual reports may
be viewed on usaa.com. At November 30, 2018,
================================================================================
50 | USAA CORNERSTONE MODERATE FUND
================================================================================
the Fund owned the following percentages of the total outstanding shares
of each of USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
----------------------------------------------------------------------------------
MSCI Emerging Markets Value Momentum Blend Index ETF 1.4
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following table provides
details related to the Fund's investment in the underlying USAA Funds for
the six-month period ended November 30, 2018:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST PROCEEDS INCOME (LOSS) DISTRIBUTIONS (DEPRECIATION) 5/31/18 11/30/18
-------------------------------------------------------------------------------------------------------
MSCI
Emerging
Markets Value
Momentum
Blend Index
ETF $569 $- $6 $- $- $(273) $1,974 $2,270
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed
certain requirements related to liquidity classification, highly liquid
investment minimums, and board approval of the liquidity risk management
programs to June 1, 2019. The Manager continues to evaluate the impact of this
rule on the Fund's financial statements and various filings.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
(10) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
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 reporting
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 reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
52 | USAA CORNERSTONE MODERATE FUND
================================================================================
FINANCIAL HIGHLIGHTS
(UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 14.83 $ 15.05 $ 14.01 $ 15.43 $ 15.46 $ 14.49
----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .14 .26 .31 .39 .37 .38
Net realized and
unrealized gain (loss) (.55) .55 1.06 (1.15) .10 .98
----------------------------------------------------------------------------------
Total from investment
operations (.41) .81 1.37 (.76) .47 1.36
----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.13) (.26) (.33) (.38) (.38) (.39)
Realized capital gains - (.77) - (.28) (.12) -
----------------------------------------------------------------------------------
Total distributions (.13) (1.03) (.33) (.66) (.50) (.39)
----------------------------------------------------------------------------------
Net asset value at
end of period $ 14.29 $ 14.83 $ 15.05 $ 14.01 $ 15.43 $ 15.46
==================================================================================
Total return (%)* (2.79) 5.42 9.91 (4.89) 3.10 9.60
Net assets at end of
period (000) $1,136,132 $1,184,032 $1,119,494 $1,057,659 $1,150,798 $1,093,783
Ratios to average
daily net assets:**
Expenses (%)(a) 1.00(b) 1.00 1.00 1.00 1.00 1.00(c)
Expenses, excluding
reimbursements (%)(a) 1.03(b) 1.03 1.10 1.16 1.19 1.22(c)
Net investment income (%) 1.87(b) 1.73 2.14 2.72 2.46 2.60
Portfolio turnover (%) 40 51 66 70(d) 44 46
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $1,170,636,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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) Reflects increased trading activity due to changes in asset allocation
strategies.
================================================================================
FINANCIAL HIGHLIGHTS | 53
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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 values and
expenses may not be used to estimate the actual ending account
================================================================================
54 | USAA CORNERSTONE MODERATE FUND
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
---------------------------------------------------------------
Actual $1,000.00 $ 972.10 $4.94
Hypothetical
(5% return before expenses) 1,000.00 1,020.05 5.06
*Expenses are equal to the Fund's annualized expense ratio of 1.00%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (2.79)% for the six-month period of June 1,
2018, through November 30, 2018.
================================================================================
EXPENSE EXAMPLE | 55
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
27804-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA EMERGING MARKETS FUND]
================================================================================
SEMIANNUAL REPORT
USAA EMERGING MARKETS FUND
FUND SHARES (USEMX) o INSTITUTIONAL SHARES (UIEMX)
o ADVISER SHARES (UAEMX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
3
Portfolio of Investments
14
Notes to Portfolio of Investments
16
Financial Statements
20
Notes to Financial Statements
37
Financial Highlights
EXPENSE EXAMPLE 40
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 11/30/18 o
(% of Net Assets)
Banks .................................................................... 19.3%
Semiconductors ........................................................... 9.7%
Internet ................................................................. 8.5%
Oil & Gas ................................................................ 6.8%
Telecommunications ....................................................... 5.7%
Software ................................................................. 4.7%
Building Materials ....................................................... 4.0%
Commercial Services ...................................................... 2.5%
Insurance ................................................................ 2.3%
Electronics .............................................................. 2.0%
o TOP 10 EQUITY HOLDINGS - 11/30/18 o
(% of Net Assets)
Samsung Electronics Co. Ltd. .............................................. 3.6%
Baidu, Inc. ADR ........................................................... 2.6%
Sberbank of Russia PJSC ................................................... 2.3%
ICICI Bank Ltd. ADR ....................................................... 2.2%
China Construction Bank Corp. "H" ......................................... 2.0%
Axis Bank Ltd. GDR ........................................................ 1.9%
Ping An Insurance Group Co. of
China Ltd. "H" .......................................................... 1.9%
Taiwan Semiconductor Manufacturing
Co. Ltd. ADR ............................................................ 1.8%
NetEase, Inc. ADR ......................................................... 1.7%
Bank Rakyat Indonesia (Persero) Tbk PT .................................... 1.7%
Refer to the Portfolio of Investments for a complete list of securities.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o COUNTRY ALLOCATION - 11/30/18 o
(% of Net Assets)
[PIE CHART OF COUNTRY ALLOCATION]
CHINA 24.9%
SOUTH KOREA 13.3%
INDIA 11.1%
BRAZIL 9.6%
TAIWAN 8.1%
RUSSIA 6.7%
INDONESIA 4.2%
HONG KONG 3.3%
MEXICO 3.1%
OTHER* 17.1%
[END PIE CHART]
*Includes countries with less than 3.0% of portfolio, money market instruments
and short-term investments purchased with cash collateral from securities
loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA EMERGING MARKETS FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.7%)
COMMON STOCKS (96.9%)
BASIC MATERIALS (2.6%)
----------------------
CHEMICALS (0.6%)
509,900 Engro Corp. Ltd.(a) $ 1,180
639,228 Phillips Carbon Black Ltd.(a) 1,958
61,658 SKCKOLONPI, Inc.(a) 1,860
--------
4,998
--------
FOREST PRODUCTS & PAPER (0.2%)
1,851,000 Nine Dragons Paper Holdings Ltd.(a) 1,876
--------
IRON/STEEL (0.3%)
9,930 POSCO(a) 2,190
--------
MINING (1.5%)
1,029,924 First Quantum Minerals Ltd. 9,457
1,276,500 Grupo Mexico S.A.B. de C.V. "B" 2,631
85,306 NAC Kazatomprom JSC GDR(b),(c) 1,085
--------
13,173
--------
Total Basic Materials 22,237
--------
COMMUNICATIONS (14.6%)
----------------------
ADVERTISING (0.3%)
39,316 Innocean Worldwide, Inc.(a) 2,364
--------
INTERNET (8.5%)
85,155 Alibaba Group Holding Ltd. ADR(c) 13,698
85,000 Autohome, Inc. ADR(d) 6,999
118,161 Baidu, Inc. ADR(c) 22,247
25,820 Cafe24 Corp.(a),(c) 2,359
15,338 NCSoft Corp.(a) 7,010
300,800 Tencent Holdings Ltd.(a) 12,065
300,200 Yandex N.V. "A"(c) 8,856
--------
73,234
--------
MEDIA (0.2%)
2,844,679 Dish TV India Ltd.(a) 1,556
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (5.6%)
268,936 America Movil S.A.B. de C.V. ADR "L" $ 3,617
483,100 China Mobile Ltd.(a) 4,816
246,765 China Mobile Ltd. ADR 12,274
187,359 Empresa Nacional de Telecomunicaciones S.A. 1,547
97,638 Hellenic Telecommunications Organization S.A.(a) 1,154
1,291,000 HKBN Ltd.(a) 2,013
978,287 Magyar Telekom Telecommunications plc(a) 1,540
680,200 Mobile TeleSystems PJSC ADR 5,040
375,493 Mobile TeleSystems PJSC(b) 1,394
77,080 PLDT, Inc. ADR 1,663
222,932 Sistema PJSCFC GDR 571
371,064 Sterlite Technologies Ltd.(a) 1,880
57,300 Telefonica Brasil S.A. Preference Shares 682
231,400 Telekomunikasi Indonesia (Persero) Tbk PT ADR 5,993
12,634,962 XL Axiata Tbk PT(a),(c) 1,810
964,000 Yangtze Optical Fibre and Cable Joint Stock, Ltd. Co."H"(a) 2,614
--------
48,608
--------
Total Communications 125,762
--------
CONSUMER, CYCLICAL (6.1%)
-------------------------
APPAREL (0.6%)
318,426 Ashapura Intimates Fashion Ltd.(a) 138
180,000 Eclat Textile Co. Ltd.(a) 2,259
849,000 JNBY Design Ltd.(a) 1,481
471,500 Yue Yuen Industrial Holdings Ltd.(a) 1,371
--------
5,249
--------
AUTO MANUFACTURERS (0.6%)
2,712,000 Dongfeng Motor Group Co. Ltd."H"(a) 2,628
79,314 Kia Motors Corp.(a) 2,158
--------
4,786
--------
AUTO PARTS & EQUIPMENT (1.6%)
30,068 China Yuchai International Ltd. 422
52,253 Hyundai Mobis Co. Ltd.(a) 8,414
1,986,000 Nexteer Automotive Group Ltd.(a) 3,003
425,600 Tupy S.A. 2,172
--------
14,011
--------
HOME FURNISHINGS (0.3%)
41,624 Coway Co. Ltd.(a) 2,914
--------
LEISURE TIME (0.7%)
150,498 Bajaj Auto Ltd.(a) 5,925
--------
================================================================================
4 | USAA EMERGING MARKETS FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
LODGING (0.2%)
1,366,900 Genting Berhad(a) $ 2,053
--------
RETAIL (2.0%)
18,988,000 Ace Hardware Indonesia Tbk PT(a) 2,145
147,239 Bidvest Group Ltd.(a) 2,188
5,764,000 Bosideng International Holdings Ltd.(a) 1,009
205,646 Future Retail Ltd.(a),(c) 1,550
25,446 Hotel Shilla Co. Ltd.(a) 1,959
1,215,000 Li Ning Co. Ltd.(a),(c) 1,308
914,000 Lifestyle International Holdings Ltd.(a) 1,462
341,000 Luk Fook Holdings International Ltd.(a) 996
1,965,566 Pepkor Holdings Ltd.(a),(c),(e) 3,021
148,000 Poya International Co. Ltd.(a) 1,437
--------
17,075
--------
TEXTILES (0.1%)
1,769,000 Weiqiao Textile Co."H"(a) 566
--------
Total Consumer, Cyclical 52,579
--------
CONSUMER, NON-CYCLICAL (7.6%)
-----------------------------
AGRICULTURE (1.1%)
304,207 Adecoagro S.A.(c) 2,123
78,766 KT&G Corp.(a) 7,307
23,530 San Miguel Food and Beverage, Inc.(a) 37
--------
9,467
--------
BEVERAGES (0.7%)
1,023,400 Ambev S.A. ADR 4,370
1,155 Lotte Chilsung Beverage Co. Ltd.(a) 1,508
--------
5,878
--------
COMMERCIAL SERVICES (2.5%)
1,486,300 CCR S.A. 4,993
525,100 Cielo S.A. 1,293
1,572,965 Cielo S.A. ADR(d) 3,838
403,400 Estacio Participacoes S.A. 2,582
2,064,603 ITE Group plc(a) 1,666
558,900 Kroton Educacional S.A. 1,517
360,400 Mills Estruturas e Servicos de Engenharia S.A.(c) 308
265,541 NICE Information Service Co. Ltd.(a) 2,736
25,129 S-1 Corp.(a) 2,159
--------
21,092
--------
COSMETICS/PERSONAL CARE (0.3%)
22,244 Cosmax, Inc.(a) 2,713
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
FOOD (1.8%)
12,426 Binggrae Co. Ltd.(a) $ 819
1,233,600 Camil Alimentos S.A. 2,268
127,625 Cia Brasileira de Distribuicao Preference Shares 2,753
85,370 Dino Polska S.A.(a),(c),(e) 2,193
3,554,000 First Pacific Co. Ltd.(a) 1,373
1,074,836 Marfrig Global Foods S.A.(c) 1,723
60,939 X5 Retail Group N.V. GDR(a) 1,554
40,139 X5 Retail Group N.V. GDR 1,024
697,000 Yihai International Holding Ltd.(a),(d) 1,878
--------
15,585
--------
HEALTHCARE-SERVICES (0.3%)
2,806,500 Genertec Universal Medical Group Co. Ltd.(a) 2,267
--------
HOUSEHOLD PRODUCTS/WARES (0.4%)
2,543,000 Kimberly-Clark de Mexico S.A.B. de C.V. "A" 3,766
--------
PHARMACEUTICALS (0.5%)
1,673,000 China Animal Healthcare Ltd.(b),(c),(f),(g) 111
412,833 Suven Life Sciences Ltd.(a) 1,426
180,447 TCI Co. Ltd.(a) 2,926
--------
4,463
--------
Total Consumer, Non-cyclical 65,231
--------
DIVERSIFIED (0.7%)
------------------
HOLDING COMPANIES-DIVERSIFIED (0.7%)
388,580 KOC Holding A.S. ADR 5,619
--------
ENERGY (7.4%)
-------------
COAL (0.8%)
3,211,000 China Shenhua Energy Co. Ltd."H"(a) 7,157
--------
OIL & GAS (6.5%)
4,344,000 CNOOC Ltd.(a) 7,328
901,304 Gazprom PJSC ADR(a) 4,309
579,622 Gazprom PJSC ADR 2,791
69,954 Gazprom PJSC(b) 167
131,151 LUKOIL PJSC ADR 9,600
875,000 Petrobras Distribuidora S.A. 5,532
200,000 Petroleo Brasileiro S.A. Preference Shares 1,317
793,983 Reliance Industries Ltd.(a) 13,305
1,526,736 Vivo Energy plc(a) 2,221
627,770 YPF S.A. ADR(c) 9,398
--------
55,968
--------
================================================================================
6 | USAA EMERGING MARKETS FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PIPELINES (0.1%)
1,447,500 China Tian Lun Gas Holdings Ltd.(a) $ 1,151
--------
Total Energy 64,276
--------
FINANCIAL (25.5%)
-----------------
BANKS (19.3%)
211,009 Absa Group Ltd.(a) 2,346
829,107 Akbank T.A.S.(a) 1,212
376,963 Axis Bank Ltd. GDR(a),(c) 16,737
898,860 Banco Bradesco S.A. ADR 8,953
435,118 Banco del Bajio S.A. 811
919,595 Banco do Brasil S.A. 10,613
273,476 Bancolombia S.A. ADR 10,942
220,400 Bangkok Bank PCL NVDR(a) 1,397
17,267,890 Bank Mandiri (Persero) Tbk PT(a) 8,947
56,456,700 Bank Rakyat Indonesia (Persero) Tbk PT(a) 14,356
11,416,200 Bank Tabungan Pensiunan Nasional Syariah Tbk PT(a),(c) 1,369
20,326,000 China Construction Bank Corp."H"(a) 17,381
1,007,374 Commercial International Bank GDR(a) 4,275
247,218 Grupo Aval Acciones y Valores S.A. ADR 1,567
1,317,902 Grupo Aval Acciones y Valores S.A. Preference Shares 422
84,749 Grupo Financiero Galicia S.A. ADR 2,336
1,907,990 ICICI Bank Ltd. ADR 19,404
212,799 Nova Ljubljanska Banka dd GDR(b),(c),(e) 2,722
170,867 OTP Bank Nyrt(a) 6,840
285,440 RBL Bank Ltd.(a) 2,295
7,010,710 Sberbank of Russia PJSC(b) 20,183
470,300 Siam Commercial Bank PCL(b) 1,994
529,022 Standard Bank Group Ltd.(a) 6,703
126,227 TBC Bank Group plc(a) 2,408
244,968 Turkiye Garanti Bankasi A.S.(a) 386
--------
166,599
--------
DIVERSIFIED FINANCIAL SERVICES (1.9%)
913,920 Chailease Holding Co. Ltd.(a) 2,848
173,700 Pagseguro Digital Ltd."A"(c),(d) 4,169
197,850 Shinhan Financial Group Co. Ltd.(a) 7,290
680,300 Tisco Financial Group PCL NVDR(a) 1,660
--------
15,967
--------
INSURANCE (2.3%)
442,958 Hanwha Life Insurance Co. Ltd.(a) 1,759
114,000 Hapvida Participacoes e Investimentos S.A.(c) 834
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
156,352 Korean Reinsurance Co.(a) $ 1,243
1,680,500 Ping An Insurance Group Co. of China Ltd."H"(a) 16,307
--------
20,143
--------
PRIVATE EQUITY (0.2%)
119,626 PSG Group Ltd.(a) 2,030
--------
REAL ESTATE (0.9%)
4,836,847 Emlak Konut Gayrimenkul Yatirim Ortakligi A.S.(a) 1,500
2,912,000 Greentown Service Group Co. Ltd.(a) 2,504
1,491,000 LPS Brasil Consultoria de Imoveis S.A.(c) 1,685
28,584,000 Megaworld Corp.(a) 2,462
--------
8,151
--------
REITS (0.9%)
2,212,922 Fibra Uno Administracion S.A. de C.V. 2,229
2,806,815 Macquarie Mexico Real Estate Management S.A. de C.V.(c) 2,480
2,171,105 PLA Administradora Industria S de RL de C.V. 2,837
--------
7,546
--------
Total Financial 220,436
--------
GOVERNMENT (0.3%)
-----------------
MULTI-NATIONAL (0.3%)
157,541 Banco Latinoamericano de Comercio Exterior S.A."E" 2,757
--------
INDUSTRIAL (13.4%)
------------------
AEROSPACE/DEFENSE (0.6%)
228,507 Embraer S.A. ADR 5,130
--------
BUILDING MATERIALS (4.0%)
2,555,500 Anhui Conch Cement Co. Ltd."H"(a) 13,339
903,578 Cemex S.A.B. de C.V. ADR(c) 4,644
3,369,700 Duratex S.A. 10,666
7,353,500 Fauji Cement Co. Ltd.(a) 1,221
288,575 Grupo Cementos de Chihuahua S.A.B. de C.V.(d) 1,502
1,954,710 Star Cement Ltd.(a) 2,753
1,496,390 Urbi Desarrollos Urbanos S.A.B. de C.V.(c) 231
--------
34,356
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.2%)
373,887 Exide Industries Ltd.(a) 1,403
--------
ELECTRONICS (2.0%)
132,000 ASMedia Technology, Inc.(a) 2,132
1,827,860 Hangzhou Hikvision Digital Technology Co. Ltd. "A"(a) 7,270
================================================================================
8 | USAA EMERGING MARKETS FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
793,488 Hon Hai Precision Industry Co. Ltd. GDR(a) $ 3,741
25,390 Koh Young Technology, Inc.(a) 1,828
199,000 Yageo Corp.(a) 2,422
--------
17,393
--------
ENGINEERING & CONSTRUCTION (2.0%)
10,734,538 China State Construction International Holdings Ltd.(a) 9,356
239,451 Gayatri Projects Ltd.(a),(c) 600
1,044,544 HG Infra Engineering Ltd.(a) 3,262
6,061,100 Jasmine Broadband Internet Infrastructure Fund "F"(b) 1,880
199,502 Promotora y Operadora de Infraestructura S.A.B. de C.V. 1,763
--------
16,861
--------
HAND/MACHINE TOOLS (1.2%)
1,959,000 Techtronic Industries Co. Ltd.(a) 10,597
--------
MACHINERY-CONSTRUCTION & MINING (0.4%)
60,978 Doosan Bobcat, Inc.(a) 1,792
900,900 United Tractors Tbk PT(a) 1,734
--------
3,526
--------
MACHINERY-DIVERSIFIED (0.1%)
266,465 Sinmag Equipment Corp.(a) 1,045
--------
METAL FABRICATION/HARDWARE (0.7%)
745,000 Catcher Technology Co. Ltd.(a) 6,387
--------
MISCELLANEOUS MANUFACTURERS (1.0%)
2,014,000 China Railway Signal & Communication Corp. Ltd."H"(a) 1,424
69,406 Largan Precision Co. Ltd.(a) 7,658
--------
9,082
--------
TRANSPORTATION (1.2%)
190,900 Tegma Gestao Logistica S.A. 1,185
525,275 ZTO Express (Cayman), Inc. ADR 9,014
--------
10,199
--------
Total Industrial 115,979
--------
TECHNOLOGY (16.2%)
------------------
COMPUTERS (1.8%)
297,000 Asustek Computer, Inc.(a) 2,109
332,700 Infosys Ltd. ADR 3,281
343,020 Tata Consultancy Services Ltd.(a) 9,714
--------
15,104
--------
SEMICONDUCTORS (9.7%)
142,000 ASPEED Technology, Inc.(a) 2,618
189,000 Global Unichip Corp.(a) 1,239
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
960,000 Hua Hong Semiconductor Ltd.(a),(e) $ 2,053
765,000 MediaTek, Inc.(a) 5,909
829,943 Samsung Electronics Co. Ltd.(a) 31,159
47,234 Samwha Capacitor Co. Ltd.(a) 2,608
214,095 Silicon Motion Technology Corp. ADR 7,680
212,503 SK Hynix, Inc.(a) 13,292
401,800 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 15,104
539,000 Win Semiconductors Corp.(a) 2,210
--------
83,872
--------
SOFTWARE (4.7%)
3,878,000 Chinasoft International Ltd.(a),(c),(d) 2,290
79,259 Douzone Bizon Co. Ltd.(a) 3,547
229,825 HCL Technologies Ltd.(a) 3,348
660,189 Intellect Design Arena Ltd.(a),(c) 2,187
4,831,000 Kingsoft Corp. Ltd.(a) 8,127
466,000 Linx S.A. 3,374
281,477 Logo Yazilim Sanayi Ve Ticaret A.S.(a),(c) 1,752
64,715 NetEase, Inc. ADR 14,695
131,983 Tech Mahindra Ltd.(a) 1,342
--------
40,662
--------
Total Technology 139,638
--------
UTILITIES (2.5%)
----------------
ELECTRIC (0.8%)
607,000 AES Tiete Energia S.A. 1,617
14,936 Cia Paranaense de Energia ADR(d) 124
32,298 Cia Paranaense de Energia 263
224,700 Cia Paranaense de Energia Preference Shares 1,888
37,490 Pampa Energia S.A. ADR(c) 1,318
175,889 Reliance Infrastructure Ltd.(a) 832
59,304 Reliance Infrastructure Ltd. GDR 846
--------
6,888
--------
GAS (0.9%)
2,140,400 China Gas Holdings Ltd.(a) 7,370
--------
WATER (0.8%)
11,884,000 Beijing Enterprises Water Group Ltd.(a),(c) 6,880
--------
Total Utilities 21,138
--------
Total Common Stocks (cost: $763,618) 835,652
--------
================================================================================
10 | USAA EMERGING MARKETS FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (0.6%)
COMMUNICATIONS (0.1%)
---------------------
TELECOMMUNICATIONS (0.1%)
94,263 Telefonica Brasil S.A. ADR $ 1,117
--------
CONSUMER, CYCLICAL (0.2%)
-------------------------
AUTO MANUFACTURERS (0.2%)
33,855 Hyundai Motor Co.(a) 1,992
--------
ENERGY (0.3%)
-------------
OIL & GAS (0.3%)
4,440,849 Surgutneftegas PJSC(b) 2,474
--------
Total Preferred Stocks (cost: $6,445) 5,583
--------
WARRANTS (0.2%)
COMMUNICATIONS (0.2%)
---------------------
MEDIA (0.2%)
864,580 China South Publishing & Media Group Co. Ltd. Participatory
Note(b),(c),(e) (cost: $1,610) 1,430
--------
Total Equity Securities (cost: $771,673) 842,665
--------
MONEY MARKET INSTRUMENTS (2.0%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.0%)
17,655,741 State Street Institutional Treasury Money Market Fund
Premier Class 2.19%(h) (cost: $17,656) 17,656
--------
SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED (1.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.6%)
8,389,025 Invesco Government & Agency Portfolio Institutional Class, 2.12%(h) 8,389
5,501,719 Western Asset Institutional Government Reserves Institutional Class, 2.10%(h) 5,502
--------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $13,891) 13,891
--------
TOTAL INVESTMENTS (COST: $803,220) $874,212
========
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $321,048 $514,493 $111 $835,652
Preferred Stocks 1,117 4,466 - 5,583
Warrants - 1,430 - 1,430
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 17,656 - - 17,656
Short-Term Investments Purchased
with Cash Collateral from
Securities Loaned:
Government & U.S. Treasury
Money Market Funds 13,891 - - 13,891
------------------------------------------------------------------------------------------------------------------
Total $353,712 $520,389 $111 $874,212
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
The Portfolio of Investments uses the BICS, which may differ from the Fund's
compliance classification.
================================================================================
12 | USAA EMERGING MARKETS FUND
================================================================================
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of June 1, 2018, through November 30, 2018, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize transfers in and transfers out as of the beginning of the reporting
period in which the event or circumstance that caused the transfer occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
------------------------------------------------------------------------------------------------------------------
Common Stocks(I) $(475,352) $475,352 $ -
Common Stocks(II) 34,078 (34,078) -
Common Stocks(III) 1,063 - (1,063)
Preferred Stocks(I) (2,808) 2,808 -
------------------------------------------------------------------------------------------------------------------
Total $(443,019) $444,082 $(1,063)
------------------------------------------------------------------------------------------------------------------
(I) Transferred from Level 1 to Level 2 due to an assessment of events at the
end of the current reporting period, these securities had adjustments to
their foreign market closing prices to reflect changes in value that
occurred after the close of foreign markets and prior to the close of the
U.S. securities markets.
(II) Transferred from Level 2 to Level 1 due to an assessment of events at the
beginning of the reporting period, these securities had adjustments to
their foreign market closing prices to reflect changes in value that
occurred after the close of foreign markets and prior to the close of the
U.S. securities markets. Such adjustments were not made at the end of the
current reporting period.
(III) Transferred from Level 3 to Level 1 due to the availability of significant
observable valuation inputs once the securities began actively trading.
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 CATEGORIES AND DEFINITIONS
WARRANTS - Entitle the holder to buy a proportionate amount of common stock
at a specified price for a stated period.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
GDR Global depositary receipts are receipts issued by a U.S. or foreign
bank evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
NVDR Non-voting depositary receipts are receipts issued by Thai NVDR
Company Limited.
REITS Real estate investment trusts - Dividend distributions from REITS may
be recorded as income and later characterized
================================================================================
14 | USAA EMERGING MARKETS FUND
================================================================================
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) Securities with a value of $487,060,000, which represented 56.5% of
the Fund's net assets, were classified as Level 2 at November 30, 2018,
due to the prices being adjusted to take into account significant market
movements following the close of local trading.
(b) Security was fair valued at November 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 $33,440,000, which represented 3.9% of the Fund's net
assets.
(c) Non-income-producing security.
(d) The security, or a portion thereof, was out on loan as of
November 30, 2018.
(e) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management
Company under liquidity guidelines approved by USAA Mutual Funds Trust's
Board of Trustees, unless otherwise noted as illiquid.
(f) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(g) Security was classified as Level 3.
(h) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 15
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $15,629) (cost of $803,220) $874,212
Cash denominated in foreign currencies (identified cost of $2,195) 2,198
Receivables:
Capital shares sold 245
Dividends and interest 1,321
Securities sold 2,508
Other 5
Unrealized appreciation on foreign currency contracts held, at value 5
--------
Total assets 880,494
--------
LIABILITIES
Payables:
Upon return of securities loaned 13,891
Securities purchased 2,156
Capital shares redeemed 404
Bank overdraft 224
Accrued management fees 670
Accrued transfer agent's fees 31
Other accrued expenses and payables 340
--------
Total liabilities 17,716
--------
Net assets applicable to capital shares outstanding $862,778
========
NET ASSETS CONSIST OF:
Paid-in capital $939,572
Distributable earnings loss (76,794)
--------
Net assets applicable to capital shares outstanding $862,778
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $340,289/20,299 capital shares
outstanding, no par value) $ 16.76
========
Institutional Shares (net assets of $517,885/30,932
capital shares outstanding, no par value) $ 16.74
========
Adviser Shares (net assets of $4,604/276 capital shares
outstanding, no par value) $ 16.68
========
See accompanying notes to financial statements.
================================================================================
16 | USAA EMERGING MARKETS FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $1,429) $ 13,210
Interest 272
Securities lending (net) 40
--------
Total income 13,522
--------
EXPENSES
Management fees 4,402
Administration and servicing fees:
Fund Shares 273
Institutional Shares 275
Adviser Shares 4
Transfer agent's fees:
Fund Shares 473
Institutional Shares 275
Distribution and service fees (Note 7):
Adviser Shares 6
Custody and accounting fees:
Fund Shares 100
Institutional Shares 153
Adviser Shares 1
Postage:
Fund Shares 20
Institutional Shares 15
Shareholder reporting fees:
Fund Shares 14
Institutional Shares 4
Trustees' fees 18
Registration fees:
Fund Shares 23
Institutional Shares 13
Adviser Shares 7
Professional fees 77
Other 13
--------
Total expenses 6,166
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
NET INVESTMENT INCOME $ 7,356
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized loss on:
Investments (net of foreign taxes withheld of $50) (35,610)
Foreign currency transactions (770)
Change in net unrealized appreciation/(depreciation) of:
Investments (80,149)
Foreign capital gains tax 674
Foreign currency translations 82
---------
Net realized and unrealized loss (115,773)
---------
Decrease in net assets resulting from operations $(108,417)
=========
See accompanying notes to financial statements.
================================================================================
18 | USAA EMERGING MARKETS FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended
May 31, 2018
--------------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 7,356 $ 10,454
Net realized gain (loss) on investments (35,610) 115,322
Net realized loss on foreign currency transactions (770) (406)
Change in net unrealized appreciation/(depreciation) of:
Investments (80,149) (50,544)
Foreign capital gains tax 674 (380)
Foreign currency translations 82 (143)
---------------------------------
Increase (decrease) in net assets resulting from operations (108,417) 74,303
---------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares - (1,440)
Institutional Shares - (3,191)
Adviser Shares - (10)
---------------------------------
Distributions to shareholders - (4,641)
---------------------------------
NET DECREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares (18,771) 2,256
Institutional Shares (13,800) (32,591)
Adviser Shares (6) (17)
---------------------------------
Total net decrease in net assets from
capital share transactions (32,577) (30,352)
---------------------------------
Net increase (decrease) in net assets (140,994) 39,310
NET ASSETS
Beginning of period 1,003,772 964,462
---------------------------------
End of period $ 862,778 $1,003,772
=================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA Emerging Markets Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act. The Fund's investment objective is
to seek capital appreciation.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019.
The Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
The Fund consists of three classes of shares: Emerging Markets Fund Shares (Fund
Shares), Emerging Markets Fund Institutional Shares (Institutional Shares), and
Emerging Markets Fund Adviser Shares (Adviser Shares). Each
================================================================================
20 | USAA EMERGING MARKETS FUND
================================================================================
class of shares has equal rights to assets and earnings, except that each class
bears certain class-related expenses specific to the particular class. These
expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, distribution and service (12b-1) fees, and
certain registration and custodian fees. Expenses not attributable to a specific
class, income, and realized gains or losses on investments are allocated to each
class of shares based on each class' relative net assets. Each class has
exclusive voting rights on matters related solely to that class and separate
voting rights on matters that relate to all classes. The Institutional Shares
are available for investment through a USAA discretionary managed account
program and certain advisory programs sponsored by financial intermediaries,
such as brokerage firms, investment advisors, financial planners, third-party
administrators, and insurance companies. Institutional Shares also are available
to institutional investors, which include retirement plans, endowments,
foundations, and bank trusts, as well as other persons or legal entities that
the Fund may approve from time to time, or for purchase by a USAA fund
participating in a fund-of-funds investment strategy (USAA fund-of-funds). The
Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies, investment
advisers, plan sponsors, and financial professionals that provide various
administrative and distribution services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and the Manager, an affiliate of
the Fund. Among other things, these monthly meetings include a review and
analysis of backtesting reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), exchange-
traded notes (ETNs), and equity-linked structured notes, except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale or
official closing price is reported or available, the average of the bid
and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities
traded in inactive markets generally are categorized in Level 2 of the
fair value hierarchy.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price and
the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager and the Fund's subadviser(s)
================================================================================
22 | USAA EMERGING MARKETS FUND
================================================================================
will monitor for events that would materially affect the value of the
Fund's foreign securities. The Fund's subadviser(s) have agreed to
notify the Manager of significant events they identify that would
materially affect the value of the Fund's foreign securities. If the
Manager determines that a particular event would materially affect the
value of the Fund's foreign securities, then the Committee will consider
such available information that it deems relevant and will determine a
fair value for the affected foreign securities in accordance with
valuation procedures. In addition, information from an external vendor
or other sources may be used to adjust the foreign market closing prices
of foreign equity securities to reflect what the Committee believes to
be the fair value of the securities as of the close of the NYSE. Fair
valuation of affected foreign equity securities may occur frequently
based on an assessment that events which occur on a fairly regular basis
(such as U.S. market movements) are significant. Such securities are
categorized in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
5. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
6. Repurchase agreements are valued at cost.
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold. Level 2
securities include debt securities that are valued using market inputs
and other observable factors deemed by the Manager to appropriately
reflect fair value. Level 2 securities include equity securities that
are valued using market inputs and other observable factors deemed by
the Manager to appropriately reflect fair value.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
================================================================================
24 | USAA EMERGING MARKETS 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. 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.
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the
exchange rate obtained from an independent pricing service on the
respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that
the Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. Effective
================================================================================
26 | USAA EMERGING MARKETS FUND
================================================================================
September 30, 2018, the commission recapture program ended. For the
six-month period ended November 30, 2018, brokerage commission recapture
credits reduced the expenses of the Fund Shares, Institutional Shares, and
Adviser Shares each by less than $500.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
committed loan agreement, the assessed facility fee on the amount of the
additional commitment will be 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $4,000, which represents 1.1% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had net capital loss carryforwards of $109,781,000,
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 $ 62,927,000
Long-Term 46,854,000
------------
Total $109,781,000
============
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
--------------------------------------------------------------------------------------------
USAA Emerging Markets Fund $154,205,000 $(83,213,000) $70,992,000
================================================================================
28 | USAA EMERGING MARKETS FUND
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$308,126,000 and $312,747,000, 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 November 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
--------------------------------------------------------------------------------
$15,629,000 $2,364,000 $13,891,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
(6) CAPITAL SHARE TRANSACTIONS
At November 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
NOVEMBER 30, 2018 MAY 31, 2018
--------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------
FUND SHARES:
Shares sold 1,434 $ 25,047 4,265 $ 83,918
Shares issued from reinvested
dividends - - 73 1,422
Shares redeemed (2,498) (43,818) (4,233) (83,084)
------------------------------------------------------
Net increase (decrease) from
capital share transactions (1,064) $(18,771) 105 $ 2,256
======================================================
INSTITUTIONAL SHARES:
Shares sold 2,497 $ 43,689 6,010 $ 117,069
Shares issued from
reinvested dividends - - 156 3,034
Shares redeemed (3,294) (57,489) (7,789) (152,694)
------------------------------------------------------
Net decrease from
capital share transactions (797) $(13,800) (1,623) $ (32,591)
======================================================
ADVISER SHARES:
Shares sold -* $ 4 1 $ 28
Shares issued from
reinvested dividends - - -* -*
Shares redeemed (-)* (10) (2) (45)
------------------------------------------------------
Net decrease from
capital share transactions (-)* $ (6) (1) $ (17)
======================================================
*Represents less than 500 shares or $500.
================================================================================
30 | USAA EMERGING MARKETS FUND
================================================================================
(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 is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the day-to-day investment of all or
a portion of the Fund's assets.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether each
subadviser's agreement should be renewed, terminated, or modified. The Manager
is also responsible for determining the asset allocation for the subadviser(s).
The allocation for each subadviser could range from 0% to 100% of the Fund's
assets, and the Manager could change the allocations without shareholder
approval.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid monthly at
an annualized rate of 1.00% of the Fund's average daily net assets.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class' performance over the performance period
to that of the Lipper Emerging Markets Funds Index. The performance period for
each share class consists of the current month plus the previous 35 months. The
following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
------------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant
share class of the Fund and its relevant Lipper index, rounded to the nearest
basis point. Average daily net assets of the share class are calculated over
a rolling 36-month period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
Each class' annual performance adjustment rate is multiplied by the average
daily net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number of
days in the month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance), or
subtracted from (in the case of underperformance) the base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Emerging Markets Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the six-month period ended November 30, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $4,402,000, which included a
performance adjustment for the Fund Shares, Institutional Shares, and Adviser
Shares of $(75,000), $(119,000), and $(1,000), respectively. For the Fund
Shares, Institutional Shares, and Adviser Shares, the performance adjustments
were each (0.04)%.
SUBADVISORY ARRANGEMENT(S) - The Manager entered into Investment Subadvisory
Agreements with Brandes Investment Partners, L.P. (Brandes), Lazard Asset
Management LLC (Lazard), and Victory Capital Management Inc. (Victory Capital),
under which Brandes, Lazard, and Victory Capital each direct the investment and
reinvestment of a portion of the Fund's assets (as allocated from time to time
by the Manager). These arrangements provide for monthly fees that are paid by
the Manager.
The Manager (not the Fund) pays Brandes a subadvisory fee in the annual amount
of 0.65% for assets up to $500 million; and 0.60% for assets over $500 million
on the portion of the Fund's average daily net assets that Brandes manages. In
addition, Brandes will apply a 5 basis point Distribution Platform Discount to
the fee schedule. Prior to October 1, 2018, the Manager (not the Fund) paid
Brandes a subadvisory fee in the annual amount of 0.75% for assets up to $300
million; 0.70% for assets over $300 million up to $600 million; and 0.60% for
assets over $600 million on the portion of the Fund's average daily net assets
that Brandes managed. For the six-month period ended November 30, 2018, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable to
Brandes, of $494,000.
================================================================================
32 | USAA EMERGING MARKETS FUND
================================================================================
The Manager (not the Fund) pays Lazard a subadvisory fee in the annual amount of
0.65% for assets up to $200 million; 0.55% for assets up to $400 million; 0.50%
for assets up to $600 million; and 0.45% for assets over $600 million on the
portion of the Fund's average daily net assets that Lazard manages. Prior to
October 1, 2018, the Manager (not the Fund) paid Lazard a subadvisory fee in the
annual amount of 0.75% for assets up to $200 million; 0.70% for assets over $200
million up to $400 million; 0.65% for assets over $400 million up to $600
million; and 0.60% for assets over $600 million on the portion of the Fund's
average daily net assets that Lazard managed. For the six-month period ended
November 30, 2018, the Manager incurred subadvisory fees with respect to the
Fund, paid or payable to Lazard, of $2,037,000.
The Manager (not the Fund) pays Victory Capital a subadvisory fee in the annual
amount of 0.55% for all assets on the portion of the Fund's average daily net
assets that Victory Capital manages. Prior to October 1, 2018, the Manager (not
the Fund) paid Victory Capital a subadvisory fee in the annual amount of 0.85%
for assets up to $50 million; 0.75% for assets over $50 million up to $150
million; and 0.70% for assets over $150 million on the portion of the Fund's
average daily net assets that Victory Capital managed. For the six-month period
ended November 30, 2018, the Manager incurred subadvisory fees with respect to
the Fund, paid or payable to Victory Capital, of $554,000.
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
daily net assets of the Fund Shares and Adviser Shares, and 0.10% of average
daily net assets of the Institutional Shares. For the six-month period ended
November 30, 2018, the Fund Shares, Institutional Shares, and Adviser Shares,
incurred administration and servicing fees, paid or payable to the Manager, of
$273,000, $275,000, and $4,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 2018, the Fund reimbursed the Manager $12,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
EXPENSE LIMITATION - The Manager agreed, through September 30, 2019, to limit
the total annual operating expenses of the Adviser Shares to 1.75% of its
average daily net assets, excluding extraordinary expenses and before reductions
of any expenses paid indirectly, and to reimburse the Adviser Shares for all
expenses in excess of that amount. This expense limitation arrangement may not
be changed or terminated through September 30, 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 November 30, 2018, the Adviser Shares
incurred reimbursable expenses of less than $500, of which less than $500 was
receivable from the Manager.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund Shares and Adviser Shares based on an annual charge
of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion
of these fees to certain intermediaries for the administration and servicing of
accounts that are held with such intermediaries. Transfer agent's fees for
Institutional Shares are paid monthly based on a fee accrued daily at an
annualized rate of 0.10% of the Institutional Shares' average daily net assets,
plus out-of-pocket expenses. For the six-month period ended November 30, 2018,
the Fund Shares, Institutional Shares, and Adviser Shares incurred transfer
agent's fees, paid or payable to SAS, of $473,000, $275,000, 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 daily net assets. Adviser
Shares are offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended November 30,
2018, the Adviser Shares incurred distribution and service (12b-1) fees of
$6,000.
================================================================================
34 | USAA EMERGING MARKETS FUND
================================================================================
UNDERWRITING SERVICES - IMCO provides exclusive underwriting and distribution of
the Fund's shares on a continuing best-efforts basis and receives no fee or
other compensation for these services, but may receive 12b-1 fees as described
above, with respect to Adviser Shares.
(8) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 16 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, and the affiliated fund-of-funds'
annual or semiannual reports may be viewed on usaa.com. As of November 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 0.3
Cornerstone Equity 0.9
Target Retirement Income 0.2
Target Retirement 2020 0.3
Target Retirement 2030 0.9
Target Retirement 2040 1.3
Target Retirement 2050 0.8
Target Retirement 2060 0.1
The Manager is indirectly wholly owned by USAA a large, diversified financial
services institution. At November 30, 2018, USAA and its affiliates owned
271,000 Adviser Shares, which represents 98.3% of the Adviser Shares outstanding
and 0.5% of the Fund's total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10233, 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. The
requirements to implement a liquidity risk
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
management program and establish a 15% illiquid investment limit became
effective December 1, 2018. However, in February 2018, the SEC issued Release
No. IC-33010, INVESTMENT COMPANY LIQUIDITY RISK MANAGEMENT PROGRAMS; COMMISSION
GUIDANCE FOR IN-KIND ETFs, which delayed certain requirements related to
liquidity classification, highly liquid investment minimums, and board approval
of the liquidity risk management programs to June 1, 2019. The Manager continues
to evaluate the impact of this rule on the Fund's financial statements and
various filings.
(10) UPCOMING ACCOUNTING PRONOUNCEMENT
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
36 | USAA EMERGING MARKETS FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 18.84 $ 17.60 $ 14.24 $ 16.46 $ 18.14 $ 17.44
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .15 .16 .07 .11(a) .08 .14
Net realized and
unrealized gain (loss) (2.23) 1.15 3.43 (2.22)(a) (1.52) .65
----------------------------------------------------------------------------------------
Total from investment
operations (2.08) 1.31 3.50 (2.11)(a) (1.44) .79
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.07) (.14) (.11) (.24) (.09)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 16.76 $ 18.84 $ 17.60 $ 14.24 $ 16.46 $ 18.14
========================================================================================
Total return (%)* (11.04) 7.41 24.70 (12.77) (7.84) 4.56
Net assets at
end of period (000) $340,289 $402,401 $374,130 $302,012 $500,510 $503,052
Ratios to average
daily net assets:**
Expenses (%)(b),(c) 1.48(d) 1.46 1.51 1.58 1.50 1.50
Net investment income (%) 1.48(d) .86 .50 .73 .71 .83
Portfolio turnover (%) 35 59 45 47 46 48
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2018, average daily net
assets were $363,059,000.
(a) Calculated using average shares.
(b) Does not include acquired fund fees, if any.
(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) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
FINANCIAL HIGHLIGHTS | 37
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 18.79 $ 17.55 $ 14.21 $ 16.42 $ 18.10 $ 17.41
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .15 .20 .12(a) .18 .13 .18
Net realized and
unrealized gain (loss) (2.20) 1.14 3.40(a) (2.25) (1.53) .65
----------------------------------------------------------------------------------------
Total from investment
operations (2.05) 1.34 3.52(a) (2.07) (1.40) .83
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.10) (.18) (.14) (.28) (.14)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 16.74 $ 18.79 $ 17.55 $ 14.21 $ 16.42 $ 18.10
========================================================================================
Total return (%)* (10.91) 7.62 24.93 (12.53) (7.64) 4.82
Net assets at end
of period (000) $517,885 $596,185 $585,468 $603,981 $637,007 $730,863
Ratios to average
daily net assets:**
Expenses (%)(b),(c) 1.25(d) 1.28 1.29 1.30 1.27 1.29
Net investment income (%) 1.68(d) 1.09 .75 1.11 .93 1.03
Portfolio turnover (%) 35 59 45 47 46 48
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $548,842,000.
(a) Calculated using average shares.
(b) Does not include acquired fund fees, if any.
(c) Reflects total annual operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
38 | USAA EMERGING MARKETS FUND
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 18.76 $17.55 $14.20 $ 16.40 $18.08 $17.35
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .12 .05 .09 .05 .09
Net realized and
unrealized gain (loss) (2.18) 1.13 3.42 (2.21) (1.53) .66
----------------------------------------------------------------------------------------
Total from investment
operations (2.08) 1.25 3.47 (2.12) (1.48) .75
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.04) (.12) (.08) (.20) (.02)
----------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests - - - - .00(a) -
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 16.68 $18.76 $17.55 $ 14.20 $16.40 $18.08
========================================================================================
Total return (%)* (11.09) 7.09 24.53 (12.93) (8.09) 4.34
Net assets at end
of period (000) $ 4,604 $5,186 $4,864 $ 3,931 $4,560 $4,988
Ratios to average
daily net assets:**
Expenses (%)(b),(c) 1.75(d) 1.72(e) 1.66(f) 1.75 1.79(g) 1.77
Expenses, excluding(b),(c)
reimbursements (%) 1.77(d) 1.81 1.87 1.92 1.95 1.77
Net investment income (%) 1.19 .61 .35 .60 .41 .57
Portfolio turnover (%) 35 59 45 47 46 48
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $4,807,000.
(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 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) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Prior to October 1, 2017, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 1.65% of the Advisers Shares' average
daily net assets.
(f) Prior to October 1, 2016, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 1.75% of the Advisers Shares' average
daily net assets.
(g) Prior to October 1, 2014, the Manager voluntarily agreed to limit the annual
expenses of the Adviser Shares to 2.00% of the Advisers Shares' average
daily net assets.
================================================================================
FINANCIAL HIGHLIGHTS | 39
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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
================================================================================
40 | USAA EMERGING MARKETS FUND
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 889.60 $7.01
Hypothetical
(5% return before expenses) 1,000.00 1,017.65 7.49
INSTITUTIONAL SHARES
Actual 1,000.00 890.90 5.93
Hypothetical
(5% return before expenses) 1,000.00 1,018.80 6.33
ADVISER SHARES
Actual 1,000.00 889.10 8.29
Hypothetical
(5% return before expenses) 1,000.00 1,016.29 8.85
*Expenses are equal to the annualized expense ratio of 1.48% for Fund Shares,
1.25% for Institutional Shares, and 1.75% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 183 days/365 days (to reflect the
one-half-year period). The Fund's actual ending account values are based on its
actual total returns of (11.04)% for Fund Shares, (10.91)% for Institutional
Shares, and (11.09)% for Adviser Shares for the six-month period of
June 1, 2018, through November 30, 2018.
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
25559-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GOVERNMENT SECURITIES FUND]
================================================================================
SEMIANNUAL REPORT
USAA GOVERNMENT SECURITIES FUND
FUND SHARES (USGNX) o INSTITUTIONAL SHARES (UIGSX)
o ADVISER SHARES (UAGNX) o R6 SHARES (URGSX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 10
Financial Statements 13
Notes to Financial Statements 17
Financial Highlights 32
EXPENSE EXAMPLE 36
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 11/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
U.S. GOVERNMENT AGENCY ISSUES 68.2%
U.S. TREASURY SECURITIES 25.6%
MUNICIPAL OBLIGATIONS 3.3%
ASSET-BACKED SECURITIES 2.5%
MONEY MARKET INSTRUMENTS 1.1%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
BONDS (99.6%)
ASSET-BACKED SECURITIES (2.5%)
ASSET BACKED SECURITIES (2.5%)
------------------------------
STUDENT LOAN ABS (2.5%)
$ 3,185 Navient Student Loan Trust (1 mo. LIBOR + 0.51%) 2.83%(a) 6/25/2031 $ 3,193
1,910 Navient Student Loan Trust (1 mo. LIBOR + 1.05%)(b) 3.37(a) 6/25/2065 1,928
3,000 Navient Student Loan Trust (1 mo. LIBOR + 0.75%)(b) 3.07(a) 3/25/2066 3,026
3,730 Nelnet Student Loan Trust (3 mo. LIBOR + 0.25%) 2.62(a) 6/25/2041 3,511
4,091 SLM Student Loan Trust (1 mo. LIBOR + 0.65%) 2.97(a) 6/25/2055 4,118
592 SLM Student Loan Trust (3 mo. LIBOR + 0.11%) 2.60(a) 10/27/2025 591
3,254 PHEAA Student Loan Trust (3 mo. LIBOR + 1.10%)(b) 3.47(a) 6/25/2038 3,304
4,987 SLM Student Loan Trust (3 mo. LIBOR + 0.20%) 2.69(a) 1/25/2070 4,742
1,485 SunTrust Student Loan Trust (3 mo. LIBOR + 0.27%)(b) 2.78(a) 10/28/2037 1,341
----------
Total Asset Backed Securities 25,754
----------
Total Asset-Backed Securities (cost: $25,533) 25,754
----------
MUNICIPAL OBLIGATIONS (3.3%)
CONNECTICUT (0.5%)
------------------
5,000 State 2.92 8/01/2023 4,858
----------
KANSAS (0.3%)
-------------
3,000 Dev. Finance Auth. 3.94 4/15/2026 3,040
----------
NEW YORK (1.4%)
---------------
9,530 City of New York Transitional Finance
Auth. Future Tax Secured Revenue 2.85 8/01/2024 9,215
5,000 Port Authority of New York & New Jersey 2.53 10/15/2020 4,965
----------
14,180
----------
TEXAS (1.1%)
------------
1,530 City of Houston Combined Utility System Revenue 3.72 11/15/2028 1,537
3,000 City of Houston Combined Utility System Revenue 3.82 11/15/2029 3,015
3,000 State 2.83 10/01/2025 2,909
4,000 State 3.01 10/01/2026 3,884
----------
11,345
----------
Total Municipal Obligations (cost: $33,850) 33,423
----------
================================================================================
2 | USAA GOVERNMENT SECURITIES FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (68.2%)(c)
GOVERNMENT (1.6%)
-----------------
SOVEREIGN (1.6%)
$ 18,000 Fannie Mae(+) 2.13% 4/24/2026 $ 16,820
----------
MORTGAGE SECURITIES (66.6%)
---------------------------
AGENCY COLLATERAL PAC CMO (0.2%)
889 Freddie Mac(+) (1 mo. LIBOR + 0.30%) 2.61(a) 3/15/2036 891
1,452 Freddie Mac(+) (1 mo. LIBOR + 0.55%) 2.86(a) 10/15/2041 1,464
----------
2,355
----------
AGENCY COLLATERAL CMO (1.4%)
3,759 Fannie Mae(+) 1.50 7/25/2027 3,542
1,759 Fannie Mae(+) 1.38 9/25/2027 1,647
1,422 Fannie Mae(+) 1.50 9/25/2027 1,326
1,441 Fannie Mae(+) 1.50 9/25/2027 1,351
1,604 Fannie Mae(+) 1.50 10/25/2027 1,498
1,578 Fannie Mae(+) (1 mo. LIBOR + 0.30%) 2.62(a) 4/25/2035 1,578
1,110 Fannie Mae(+) (1 mo. LIBOR + 0.30%) 2.62(a) 8/25/2037 1,104
2,185 Freddie Mac(+) 2.00 9/15/2026 2,109
----------
14,155
----------
COMMERCIAL MBS (34.8%)
220 Fannie Mae(+) 1.65 9/25/2019 218
1,541 Fannie Mae(+) 3.32(d) 7/25/2023 1,547
5,000 Fannie Mae(+) 2.16 10/25/2023 4,797
2,356 Fannie Mae(+) 2.80(d) 6/25/2025 2,266
1,665 Fannie Mae(+) 2.50(d) 9/25/2026 1,623
4,000 Fannie Mae(+) 3.06(d) 5/25/2027 3,836
6,250 Fannie Mae(+) 3.18(d) 6/25/2027 6,014
2,842 Fannie Mae(+) 3.14(d) 3/25/2028 2,708
8,049 Fannie Mae(+) 3.50(d) 7/25/2028 7,933
2,971 Freddie Ma(+) 4.08(d) 11/25/2020 3,022
5,000 Freddie Ma(+) 2.86 1/25/2021 4,965
2,250 Freddie Ma(+) 2.27 3/25/2022 2,185
2,616 Freddie Ma(+) 1.69 4/25/2022 2,558
4,000 Freddie Mac(+) 2.72 6/25/2022 3,935
3,000 Freddie Mac(+) 2.36 7/25/2022 2,914
10,000 Freddie Mac(+) 2.31 8/25/2022 9,691
5,000 Freddie Mac(+) 2.51 11/25/2022 4,872
5,000 Freddie Mac(+) 2.64 1/25/2023 4,890
3,000 Freddie Mac(+) 3.32(d) 2/25/2023 3,010
3,000 Freddie Mac(+) 2.41 3/25/2023 2,909
5,000 Freddie Mac(+) 3.00 1/25/2024 4,940
10,030 Freddie Mac(+) 3.49 1/25/2024 10,123
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 3,000 Freddie Mac(+) 3.39% 3/25/2024 $ 3,014
20,000 Freddie Mac(+) 2.95 7/25/2024 19,646
3,422 Freddie Mac(+) 2.60 1/25/2025 3,351
3,000 Freddie Mac(+) 3.02 1/25/2025 2,947
5,000 Freddie Mac(+) 3.59 1/25/2025 5,048
10,000 Freddie Mac(+) 3.28(d) 6/25/2025 9,955
4,553 Freddie Mac(+) 2.20 7/25/2025 4,339
4,000 Freddie Mac(+) 3.01 7/25/2025 3,918
30,000 Freddie Mac(+) 3.37 7/25/2025 29,837
15,000 Freddie Mac(+) 3.75(d) 8/25/2025 15,269
20,000 Freddie Mac(+) 3.31 9/25/2025 19,932
7,709 Freddie Mac(+) 2.85 3/25/2026 7,431
5,000 Freddie Mac(+) 2.53 5/25/2026 4,703
17,000 Freddie Mac(+) 2.57 7/25/2026 16,002
5,000 Freddie Mac(+) 2.65 8/25/2026 4,719
2,378 Freddie Mac(+) 3.01 8/25/2026 2,340
4,500 Freddie Mac(+) 3.12(d) 9/25/2026 4,381
4,000 Freddie Mac(+) 3.35(d) 11/25/2026 3,954
3,000 Freddie Mac(+) 3.12 6/25/2027 2,903
9,274 Freddie Mac(+) 3.19 7/25/2027 9,015
2,879 Freddie Mac(+) 3.19(d) 9/25/2027 2,795
5,000 Freddie Mac(+) 3.29 11/25/2027 4,881
12,500 Freddie Mac(+) 3.85 6/25/2028 12,725
30,000 Freddie Mac(+) 3.93(d) 7/25/2028 30,714
13,000 Freddie Mac(+) 3.90(d) 8/25/2028 13,263
5,000 Freddie Mac(+) 3.92(d) 9/25/2028 5,109
10,000 Freddie Mac(+) 3.78(d) 10/25/2028 10,057
9,706 Freddie Mac(+)(e) 4.06(d) 10/25/2028 10,017
7,000 Freddie Mac(+) 3.90 6/25/2051 7,151
----------
360,372
----------
FGLMC COLLATERAL (12.3%)
57 Freddie Mac(+) 5.00 1/01/2021 59
6,162 Freddie Mac(+) 3.00 3/01/2032 6,070
8,421 Freddie Mac(+) 3.00 2/01/2033 8,294
7,707 Freddie Mac(+) 3.00 9/01/2033 7,591
10,806 Freddie Mac(+) 3.00 10/01/2033 10,644
24,828 Freddie Mac(+) 3.50 10/01/2033 24,907
14,678 Freddie Mac(+) 4.00 10/01/2033 14,966
569 Freddie Mac(+) 5.50 12/01/2035 615
1,512 Freddie Mac(+) 4.00 9/01/2040 1,536
5,732 Freddie Mac(+) 3.50 5/01/2042 5,673
4,714 Freddie Mac(+) 3.00 6/01/2042 4,536
19,514 Freddie Mac(+) 4.00 7/01/2048 19,643
9,852 Freddie Mac(+) 3.50 8/01/2048 9,668
================================================================================
4 | USAA GOVERNMENT SECURITIES FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 4,911 Freddie Mac(+) 4.00% 8/01/2048 $ 4,943
7,861 Freddie Mac(+) 4.50 9/01/2048 8,088
----------
127,233
----------
FNMA COLLATERAL (9.7%)
1,879 Fannie Mae(+) 2.05 7/01/2019 1,865
9,553 Fannie Mae(+) 1.58 1/01/2020 9,388
775 Fannie Mae(+) 3.50 5/01/2021 778
10,000 Fannie Mae(+) 2.63 9/01/2021 9,856
20,687 Fannie Mae(+) 2.42 11/01/2022 20,164
8,265 Fannie Mae(+) 2.50 4/01/2023 8,052
2,133 Fannie Mae(+) 2.54 5/01/2023 2,082
3,939 Fannie Mae(+) 3.00 2/01/2027 3,911
2,422 Fannie Mae(+) 3.00 2/01/2027 2,405
777 Fannie Mae(+) 5.00 12/01/2035 825
247 Fannie Mae(+) 5.50 11/01/2037 265
364 Fannie Mae(+) 6.00 5/01/2038 397
2,069 Fannie Mae(+) 4.00 8/01/2039 2,097
3,583 Fannie Mae(+) 3.50 1/01/2042 3,546
5,648 Fannie Mae(+) 3.50 5/01/2042 5,590
4,772 Fannie Mae(+) 3.00 1/01/2048 4,552
9,694 Fannie Mae(+) 3.50 2/01/2048 9,513
9,796 Fannie Mae(+) 4.00 5/01/2048 9,859
4,936 Fannie Mae(+) 3.00 8/01/2048 4,709
----------
99,854
----------
GNMA COLLATERAL (5.4%)
7 Government National Mortgage Assn. I 8.50 6/15/2021 7
3 Government National Mortgage Assn. I 9.00 7/15/2021 3
250 Government National Mortgage Assn. I 6.00 8/15/2022 255
26 Government National Mortgage Assn. I 8.00 6/15/2023 27
499 Government National Mortgage Assn. I 4.50 5/15/2024 522
527 Government National Mortgage Assn. I 4.50 9/15/2024 547
469 Government National Mortgage Assn. I 4.50 9/15/2024 487
594 Government National Mortgage Assn. I 4.50 10/15/2024 619
500 Government National Mortgage Assn. I 4.50 10/15/2024 523
45 Government National Mortgage Assn. I 7.00 4/15/2027 46
126 Government National Mortgage Assn. I 7.00 5/15/2027 140
108 Government National Mortgage Assn. I 8.00 5/15/2027 114
76 Government National Mortgage Assn. I 7.50 2/15/2028 83
250 Government National Mortgage Assn. I 6.00 4/15/2028 273
88 Government National Mortgage Assn. I 6.50 5/15/2028 96
23 Government National Mortgage Assn. I 6.50 5/15/2028 25
8 Government National Mortgage Assn. I 6.75 5/15/2028 9
52 Government National Mortgage Assn. I 6.50 7/15/2028 56
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 13 Government National Mortgage Assn. I 7.00% 7/15/2028 $ 13
1 Government National Mortgage Assn. I 7.00 8/15/2028 1
27 Government National Mortgage Assn. I 7.00 8/15/2028 30
46 Government National Mortgage Assn. I 6.50 9/15/2028 50
70 Government National Mortgage Assn. I 7.00 9/15/2028 74
31 Government National Mortgage Assn. I 6.00 11/15/2028 34
128 Government National Mortgage Assn. I 6.50 11/15/2028 139
7 Government National Mortgage Assn. I 6.50 1/15/2029 8
24 Government National Mortgage Assn. I 6.50 1/15/2029 26
141 Government National Mortgage Assn. I 6.00 2/15/2029 151
16 Government National Mortgage Assn. I 7.50 3/15/2029 18
36 Government National Mortgage Assn. I 7.50 4/15/2029 38
303 Government National Mortgage Assn. I 7.00 5/15/2029 327
340 Government National Mortgage Assn. I 7.00 6/15/2029 367
144 Government National Mortgage Assn. I 6.00 7/15/2029 157
89 Government National Mortgage Assn. I 7.50 10/15/2029 98
19 Government National Mortgage Assn. I 7.50 10/15/2029 19
70 Government National Mortgage Assn. I 8.00 7/15/2030 73
23 Government National Mortgage Assn. I 8.00 9/15/2030 25
13 Government National Mortgage Assn. I 7.50 12/15/2030 13
9 Government National Mortgage Assn. I 7.50 1/15/2031 10
113 Government National Mortgage Assn. I 6.50 3/15/2031 122
31 Government National Mortgage Assn. I 7.00 8/15/2031 31
67 Government National Mortgage Assn. I 7.00 9/15/2031 76
212 Government National Mortgage Assn. I 6.50 10/15/2031 230
45 Government National Mortgage Assn. I 7.00 10/15/2031 47
20 Government National Mortgage Assn. I 7.50 11/15/2031 21
156 Government National Mortgage Assn. I 6.50 1/15/2032 169
236 Government National Mortgage Assn. I 6.00 5/15/2032 254
19 Government National Mortgage Assn. I 7.00 6/15/2032 20
111 Government National Mortgage Assn. I 7.00 7/15/2032 122
210 Government National Mortgage Assn. I 6.50 8/15/2032 228
804 Government National Mortgage Assn. I 6.50 9/15/2032 910
782 Government National Mortgage Assn. I 6.00 1/15/2033 853
326 Government National Mortgage Assn. I 6.00 2/15/2033 355
270 Government National Mortgage Assn. I 6.00 7/15/2033 292
227 Government National Mortgage Assn. I 6.00 9/15/2033 247
2,085 Government National Mortgage Assn. I 5.50 10/15/2033 2,257
918 Government National Mortgage Assn. I 5.50 12/15/2033 994
494 Government National Mortgage Assn. I 5.50 7/15/2034 540
1,230 Government National Mortgage Assn. I 5.50 10/15/2035 1,340
257 Government National Mortgage Assn. I 6.00 3/15/2037 277
172 Government National Mortgage Assn. I 6.00 9/15/2037 185
496 Government National Mortgage Assn. I 5.50 3/15/2038 536
================================================================================
6 | USAA GOVERNMENT SECURITIES FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 1,216 Government National Mortgage Assn. I 5.50% 4/15/2038 $ 1,327
313 Government National Mortgage Assn. I 6.00 5/15/2038 339
490 Government National Mortgage Assn. I 6.00 5/15/2038 535
348 Government National Mortgage Assn. I 6.00 9/15/2038 374
405 Government National Mortgage Assn. I 6.00 10/15/2038 436
564 Government National Mortgage Assn. I 6.00 12/15/2038 607
389 Government National Mortgage Assn. I 5.00 2/15/2039 413
2,087 Government National Mortgage Assn. I 5.50 6/15/2039 2,235
3,386 Government National Mortgage Assn. I 4.50 9/15/2039 3,527
2,347 Government National Mortgage Assn. I 4.50 11/15/2039 2,447
3,593 Government National Mortgage Assn. I 4.50 12/15/2039 3,747
10,780 Government National Mortgage Assn. I 4.50 2/15/2040 11,227
2,392 Government National Mortgage Assn. I 4.50 3/15/2040 2,492
1,205 Government National Mortgage Assn. I 4.50 6/15/2040 1,256
777 Government National Mortgage Assn. I 4.00 7/15/2040 787
1,983 Government National Mortgage Assn. I 4.50 7/15/2040 2,059
1,105 Government National Mortgage Assn. I 4.00 8/15/2040 1,126
2,727 Government National Mortgage Assn. I 4.00 9/15/2040 2,762
2,202 Government National Mortgage Assn. I 4.50 1/15/2041 2,294
----------
55,599
----------
GNMA II COLLATERAL (2.8%)
8 Government National Mortgage Assn. II 8.00 12/20/2022 8
1,246 Government National Mortgage Assn. II 4.50 4/20/2024 1,297
232 Government National Mortgage Assn. II 8.00 8/20/2030 273
259 Government National Mortgage Assn. II 7.00 9/20/2030 296
132 Government National Mortgage Assn. II 6.00 3/20/2031 143
50 Government National Mortgage Assn. II 7.50 4/20/2031 59
83 Government National Mortgage Assn. II 6.50 5/20/2031 94
60 Government National Mortgage Assn. II 6.50 7/20/2031 67
158 Government National Mortgage Assn. II 6.50 8/20/2031 175
233 Government National Mortgage Assn. II 6.50 4/20/2032 264
235 Government National Mortgage Assn. II 6.50 6/20/2032 266
350 Government National Mortgage Assn. II 6.00 8/20/2032 378
307 Government National Mortgage Assn. II 6.00 9/20/2032 333
297 Government National Mortgage Assn. II 5.50 4/20/2033 319
993 Government National Mortgage Assn. II 5.00 5/20/2033 1,057
1,199 Government National Mortgage Assn. II 5.00 7/20/2033 1,277
318 Government National Mortgage Assn. II 6.00 10/20/2033 346
251 Government National Mortgage Assn. II 6.00 12/20/2033 261
1,028 Government National Mortgage Assn. II 6.00 2/20/2034 1,118
999 Government National Mortgage Assn. II 5.50 3/20/2034 1,073
936 Government National Mortgage Assn. II 6.00 3/20/2034 1,017
780 Government National Mortgage Assn. II 5.00 6/20/2034 838
712 Government National Mortgage Assn. II 6.50 8/20/2034 806
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------
$ 631 Government National Mortgage Assn. II 6.00% 9/20/2034 $ 695
1,756 Government National Mortgage Assn. II 6.00 10/20/2034 1,910
130 Government National Mortgage Assn. II 6.00 11/20/2034 137
3,496 Government National Mortgage Assn. II 5.50 2/20/2035 3,756
3,072 Government National Mortgage Assn. II 5.50 4/20/2035 3,299
1,471 Government National Mortgage Assn. II 5.50 7/20/2035 1,581
1,842 Government National Mortgage Assn. II 5.00 9/20/2035 1,961
598 Government National Mortgage Assn. II 6.00 5/20/2036 650
630 Government National Mortgage Assn. II 5.50 1/20/2037 675
408 Government National Mortgage Assn. II 5.00 2/20/2037 428
2,153 Government National Mortgage Assn. II 4.00 11/20/2040 2,200
----------
29,057
----------
Total Mortgage Securities 688,625
----------
Total U.S. Government Agency Issues (cost: $712,921) 705,445
----------
U.S. TREASURY SECURITIES (25.6%)
NOTES (25.6%)(f)
3,000 U.S. Treasury Note 1.00 3/15/2019 2,988
7,000 U.S. Treasury Note 1.38 5/31/2021 6,757
5,000 U.S. Treasury Note 1.38 6/30/2023 4,683
20,000 U.S. Treasury Note 1.50 8/15/2020 19,569
20,000 U.S. Treasury Note 1.63 8/31/2022 19,133
10,000 U.S. Treasury Note 1.88 7/31/2022 9,663
20,000 U.S. Treasury Note 1.88 8/31/2024 18,941
3,000 U.S. Treasury Note 2.00 2/15/2022 2,924
11,000 U.S. Treasury Note 2.00 11/30/2022 10,649
20,000 U.S. Treasury Note 2.00 6/30/2024 19,090
4,000 U.S. Treasury Note 2.00 2/15/2025 3,792
3,000 U.S. Treasury Note 2.13 6/30/2021 2,949
20,000 U.S. Treasury Note 2.13 6/30/2022 19,508
5,000 U.S. Treasury Note 2.13 11/30/2023 4,827
4,000 U.S. Treasury Note 2.13 11/30/2024 3,829
4,500 U.S. Treasury Note 2.13 5/15/2025 4,290
5,000 U.S. Treasury Note 2.25 11/15/2024 4,821
5,000 U.S. Treasury Note 2.63 8/31/2020 4,984
20,000 U.S. Treasury Note 2.63 6/15/2021 19,902
15,000 U.S. Treasury Note 2.63 7/15/2021 14,924
12,000 U.S. Treasury Note(g) 2.75 11/30/2020 11,986
10,000 U.S. Treasury Note 2.75 8/15/2021 9,979
35,000 U.S. Treasury Note 2.75 9/15/2021 34,927
10,000 U.S. Treasury Note 2.88 11/15/2021 10,013
----------
Total U.S. Treasury Securities (cost: $270,544) 265,128
----------
Total Bonds (cost: $1,042,848) 1,029,750
----------
================================================================================
8 | USAA GOVERNMENT SECURITIES FUND
================================================================================
-----------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
3,091 State Street Institutional U.S. Government Money Market Fund
Premier Class, 2.15%(h) (cost: $3) $ 3
----------
-----------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
-----------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (1.1%)
$11,635 Credit Agricole Corp., 2.27%, acquired 11/30/2018 and due on 12/03/2018
at $11,635 (collateralized by $11,053 of U.S. Treasury, 3.75%(f),
due 11/15/2043; market value $11,868) (cost: $11,635) $ 11,635
----------
Total Money Market Instruments (cost: $11,638) 11,638
----------
TOTAL INVESTMENTS (COST: $1,054,486) $1,041,388
==========
-----------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-----------------------------------------------------------------------------------------------------------------------
Bonds:
Asset-Backed Securities $ - $ 25,754 $- $ 25,754
Municipal Obligations - 33,423 - 33,423
U.S. Government Agency Issues - 705,445 - 705,445
U.S. Treasury Securities 265,128 - - 265,128
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 3 - - 3
Repurchase Agreements - 11,635 - 11,635
-----------------------------------------------------------------------------------------------------------------------
Total $265,131 $776,257 $- $1,041,388
-----------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
For the period of June 1, 2018, through November 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 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 CATEGORIES AND DEFINITIONS
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages paydown.
================================================================================
10 | USAA GOVERNMENT SECURITIES FUND
================================================================================
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) - Collateralized mortgage
obligations are debt obligations of a legal entity that are fully
collateralized by a portfolio of mortgages or mortgage-related securities.
CMOs are issued in multiple classes (tranches), with specific adjustable or
fixed interest rates, varying maturities, and must be fully retired no later
than its final distribution date. The cash flow from the underlying
mortgages is used to pay off each tranche separately. CMOs are designed to
provide investors with more predictable cash flows than regular mortgage
securities, but such cash flows can be difficult to predict because of the
effect of prepayments.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
LIBOR London Interbank Offered Rate
o SPECIFIC NOTES
(a) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at November 30, 2018.
(b) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company under liquidity guidelines approved by USAA Mutual Funds
Trust's Board of Trustees, unless otherwise noted as illiquid.
(c) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and
certain other U.S. government guaranteed securities are supported by
the full faith and credit of the U.S. government. Securities issued by
other GSEs, such as Federal Home Loan Mortgage Corporation (Freddie Mac
or FHLMC) and Federal National Mortgage Association (Fannie Mae or
FNMA), indicated with a "+", are supported only by the right of the GSE
to borrow
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 11
================================================================================
from the U.S. Treasury, the discretionary authority of the U.S.
government to purchase the GSEs' obligations, or only by the credit of
the issuing agency, instrumentality, or corporation, and are neither
issued nor guaranteed by the U.S. Treasury. In September of 2008, the
U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship
and appointed the Federal Housing Finance Agency (FHFA) to act as
conservator and oversee their daily operations. In addition, the U.S.
Treasury entered into purchase agreements with Fannie Mae and Freddie
Mac to provide them with capital in exchange for senior preferred
stock. While these arrangements are intended to ensure that Fannie Mae
and Freddie Mac can continue to meet their obligations, it is possible
that actions by the U.S. Treasury, FHFA, or others could adversely
impact the value of the Fund's investments in securities issued by
Fannie Mae and Freddie Mac.
(d) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(e) Security or a portion of the security purchased on a delayed-delivery
and/or when-issued basis.
(f) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(g) At November 30, 2018, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(h) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
12 | USAA GOVERNMENT SECURITIES FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,054,486) $1,041,388
Receivables:
Capital shares sold 206
USAA Asset Management Company (Note 7) 2
Interest 3,772
----------
Total assets 1,045,368
----------
LIABILITIES
Payables:
Securities purchased 9,957
Capital shares redeemed 724
Dividends on capital shares 82
Accrued management fees 105
Accrued transfer agent's fees 9
Other accrued expenses and payables 116
----------
Total liabilities 10,993
----------
Net assets applicable to capital shares outstanding $1,034,375
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,049,277
Distributable earnings loss (14,902)
----------
Net assets applicable to capital shares outstanding $1,034,375
----------
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $316,916/33,456 capital shares
outstanding, no par value) $ 9.47
==========
Institutional Shares (net assets of $706,544/74,572 capital shares
outstanding, no par value) $ 9.47
==========
Adviser Shares (net assets of $4,769/504 capital shares
outstanding, no par value) $ 9.47
==========
R6 Shares (net assets of $6,146/649 capital shares
outstanding, no par value) $ 9.47
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $11,470
-------
EXPENSES
Management fees 491
Administration and servicing fees:
Fund Shares 243
Institutional Shares 236
Adviser Shares 4
R6 Shares 2
Transfer agent's fees:
Fund Shares 217
Institutional Shares 236
Distribution and service fees (Note 7):
Adviser Shares 6
Custody and accounting fees:
Fund Shares 34
Institutional Shares 39
R6 Shares 1
Postage:
Fund Shares 11
Shareholder reporting fees:
Fund Shares 15
Institutional Shares 1
Trustees' fees 18
Registration fees:
Fund Shares 13
Institutional Shares 10
Adviser Shares 8
R6 Shares 10
Professional fees 50
Other 10
-------
Total expenses 1,655
================================================================================
14 | USAA GOVERNMENT SECURITIES FUND
================================================================================
Expenses reimbursed:
Adviser Shares $ (3)
R6 Shares (6)
-------
Net expenses 1,646
-------
NET INVESTMENT INCOME 9,824
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Change in net unrealized appreciation/(depreciation) (5,507)
-------
Increase in net assets resulting from operations $ 4,317
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 15
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended
May 31, 2018
---------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
---------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 9,824 $ 12,550
Net realized loss on investments - (137)
Change in net unrealized appreciation/(depreciation)
of investments (5,507) (19,469)
---------------------------
Increase (decrease) in net assets resulting from operations 4,317 (7,056)
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares (3,806) (7,636)
Institutional Shares (5,917) (4,719)
Adviser Shares (49) (98)
R6 Shares (77) (131)
---------------------------
Distributions to shareholders (9,849) (12,584)
---------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares (13,827) (45,928)
Institutional Shares 457,968 125,461
Adviser Shares 4 (1,119)
R6 Shares (148) 1,516
---------------------------
Total net increase in net assets
from capital share transactions 443,997 79,930
---------------------------
Net increase in net assets 438,465 60,290
NET ASSETS
Beginning of period 595,910 535,620
---------------------------
End of period $1,034,375 $595,910
===========================
See accompanying notes to financial statements.
================================================================================
16 | USAA GOVERNMENT SECURITIES FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds. The
USAA Government Securities Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act. The Fund's investment objective is
to provide investors a high level of current income consistent with preservation
of principal.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
The Fund consists of four classes of shares: Government Securities Fund Shares
(Fund Shares), Government Securities Fund Institutional Shares (Institutional
Shares), Government Securities Fund Adviser Shares (Adviser Shares), and
Government Securities Fund R6 Shares (R6 Shares). Each class of shares has equal
rights to assets and earnings, except that each class bears
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agent fees, postage,
shareholder reporting fees, distribution and service (12b-1) fees, and certain
registration and custodian fees. Expenses not attributable to a specific class,
income, and realized gains or losses on investments are allocated to each class
of shares based on each class' relative net assets. Each class has exclusive
voting rights on matters related solely to that class and separate voting rights
on matters that relate to all classes. The Institutional Shares are available
for investment through a USAA discretionary managed account program and certain
advisory programs sponsored by financial intermediaries, such as brokerage
firms, investment advisors, financial planners, third-party administrators, and
insurance companies. Institutional Shares also are available to institutional
investors, which include retirement plans, endowments, foundations, and bank
trusts, as well as other persons or legal entities that the Fund may approve
from time to time, or for purchase by a USAA fund participating in a
fund-of-funds investment strategy (USAA fund-of-funds). The Adviser Shares
permit investors to purchase shares through financial intermediaries, including
banks, broker-dealers, insurance companies, investment advisers, plan sponsors,
and financial professionals that provide various administrative and distribution
services. 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.
================================================================================
18 | USAA GOVERNMENT SECURITIES FUND
================================================================================
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and the Manager, an affiliate of
the Fund. Among other things, these monthly meetings include a review and
analysis of backtesting reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of
securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions. Generally, debt securities are categorized in Level 2 of
the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in
Level 3.
2. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
3. Repurchase agreements are valued at cost.
4. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's net asset value (NAV) to be more reliable
than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
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. 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 GOVERNMENT SECURITIES FUND
================================================================================
basis. Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities.
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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. REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers pursuant to the terms of a
Master Repurchase Agreement. A repurchase agreement is an arrangement
wherein the Fund purchases securities and the seller agrees to repurchase
the securities at an agreed upon time and at an agreed upon price. The
purchased securities are marked-to-market daily to ensure their value is
equal to or in excess of the purchase price plus accrued interest and are
held by the Fund, either through its regular custodian or through a special
"tri-party" custodian that maintains separate accounts for both the Fund and
its counterparty, until maturity of the repurchase agreement. Master
Repurchase Agreements typically contain netting provisions, which provide
for the net settlement of all transactions and collateral with the Fund
through a single payment in the event of default or termination. Repurchase
agreements are subject to credit risk, and the Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into repurchase
agreements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
Investments in repurchase agreements as presented on the Portfolio of
Investments are not net settlement amounts but gross. At November 30, 2018,
the value of the related collateral exceeded the value of the repurchase
agreements, reducing the net settlement amount to zero. Details on the
collateral are included on the Portfolio of Investments.
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested.
G. 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
================================================================================
22 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended November 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 November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had net capital loss carryforwards of $1,804,000, for
federal income tax purposes as shown in the table below. It is unlikely
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
-------------------------------------------
TAX CHARACTER
-------------------------------------------
(NO EXPIRATION) BALANCE
--------------- ----------
Short-Term $1,533,000
Long-Term 271,000
----------
Total $1,804,000
==========
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
-----------------------------------------------------------------------------------------
USAA Government
Securities Fund $5,702,000 $(18,800,000) $(13,098,000)
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$482,432,000 and $9,500,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended November 30,
2018 were as follows:
PURCHASES SALES NET REALIZED GAIN
--------------------------------------------------------------------------------
$20,004,000 $- $-
================================================================================
24 | USAA GOVERNMENT SECURITIES 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 November 30,
2018, the Fund had no securities on loan.
(6) CAPITAL SHARE TRANSACTIONS
At November 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 | 25
================================================================================
persons or legal entities that the Fund may approve from time to time. Capital
share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
NOVEMBER 30, 2018 MAY 31, 2018
----------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
FUND SHARES:
Shares sold 1,428 $ 13,550 3,616 $ 35,139
Shares issued from reinvested dividends 368 3,491 720 6,989
Shares redeemed (3,254) (30,868) (9,079) (88,056)
--------------------------------------------------------------
Net decrease from capital
share transactions (1,458) $(13,827) (4,743) $(45,928)
==============================================================
INSTITUTIONAL SHARES:
Shares sold 48,256 $457,849 13,094 $128,756
Shares issued from reinvested dividends 624 5,914 488 4,719
Shares redeemed (614) (5,795) (829) (8,014)
--------------------------------------------------------------
Net increase from capital
share transactions 48,266 $457,968 12,753 $125,461
==============================================================
ADVISER SHARES:
Shares sold 1 $ 6 7 $ 69
Shares issued from reinvested dividends -** 1 1 11
Shares redeemed (-)** (3) (123)* (1,199)*
--------------------------------------------------------------
Net increase (decrease) from capital
share transactions 1 $ 4 (115) $ (1,119)
==============================================================
R6 SHARES
Shares sold 9 $ 88 458 $ 4,422
Shares issued from reinvested dividends 2 17 2 21
Shares redeemed (27) (253) (305) (2,927)
--------------------------------------------------------------
Net increase (decrease) from capital
share transactions (16) $ (148) 155 $ 1,516
==============================================================
* Net of redemption fees, if any.
** 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 is authorized to select
(with approval of the Board and without shareholder
================================================================================
26 | USAA GOVERNMENT SECURITIES FUND
================================================================================
approval) one or more subadvisers to manage the day-to-day investment of all or
a portion of the Fund's assets. For the six-month period ended November 30,
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 0.125% of the Fund's average daily net assets.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class' performance over the performance period
to that of the Lipper Intermediate U.S. Government Funds Index. The Lipper
Intermediate U.S. Government Funds Index measures the total return performance
of funds tracked by Lipper that invest 65% of fund assets in securities issued
or guaranteed by the U.S. government, its agency, or its instrumentalities, with
dollar-weighted average maturities of five to ten years. For the Fund Shares,
Institutional Shares, and Adviser Shares, the performance period 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 December
1, 2016. The following table is utilized to determine the extent of the
performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-----------------------------------------------------------------
+/- 20 TO 50 +/-4
+/- 51 to 100 +/-5
+/- 101 and greater +/-6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant Lipper index,
rounded to the nearest basis point. Average daily net assets of the
share class are calculated over a rolling 36-month period.
Each class' annual performance adjustment rate is multiplied by the average
daily 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 | 27
================================================================================
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Intermediate U.S. Government Funds Index over that
period, even if the class had overall negative returns during the performance
period.
For the six-month period ended November 30, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $491,000, which included a performance
adjustment for the Fund Shares, Institutional Shares, Adviser Shares, and R6
Shares of $(13,000), less than $(500), $(1,000), and less than $(500),
respectively. For the Fund Shares, Institutional Shares, Adviser Shares, and R6
Shares, the performance adjustments were (0.01)%, less than (0.01)%, (0.04)%,
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
daily net assets of the Fund Shares and Adviser Shares, 0.10% of average daily
net assets of the Institutional Shares, and 0.05% of average daily net assets of
the R6 Shares. For the six-month period ended November 30, 2018, the Fund
Shares, Institutional Shares, Adviser Shares, and R6 Shares incurred
administration and servicing fees, paid or payable to the Manager, of $243,000,
$236,000, $4,000, and $2,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 2018, the Fund reimbursed the Manager $43,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed, through September 30, 2019, to limit
the total annual operating expenses of the Adviser Shares and R6 Shares to 0.75%
and 0.35%, respectively, of their average daily net assets, excluding
extraordinary expenses and before reductions of any expenses paid indirectly,
and to reimburse the Adviser Shares and R6 Shares for all expenses in excess of
those amounts. This expense limitation arrangement
================================================================================
28 | USAA GOVERNMENT SECURITIES FUND
================================================================================
may not be changed or terminated through September 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 November 30, 2018, the Fund incurred
reimbursable expenses from the Manager for the Adviser Shares and R6 Shares of
$3,000 and $6,000, respectively, of which $2,000 was receivable from the
Manager.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund Shares and Adviser Shares based on an annual charge
of $25.50 per shareholder account plus out-of-pocket expenses. SAS pays a
portion of these fees to certain intermediaries for administration and servicing
of accounts that are held with such intermediaries. Transfer agent's fees for
Institutional Shares and R6 Shares are paid monthly based on a fee accrued daily
at an annualized rate of 0.10% of the Institutional Shares' and 0.01% of the R6
Shares' average daily net assets, plus out-of-pocket expenses. For the
six-month period ended November 30, 2018, the Fund Shares, Institutional Shares,
Adviser Shares, and R6 Shares incurred transfer agent's fees, paid or payable to
SAS, of $217,000, $236,000, less than $500, 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 daily net assets. Adviser
Shares are offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended November 30,
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 | 29
================================================================================
(8) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 16 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, and the affiliated fund-of-funds'
annual or semiannual reports may be viewed on usaa.com. As of November 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 3.6
Target Retirement Income 10.1
Target Retirement 2020 13.9
Target Retirement 2030 20.5
Target Retirement 2040 13.3
Target Retirement 2050 6.1
Target Retirement 2060 0.7
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution. At November 30, 2018, USAA and its affiliates owned
487,000 Adviser Shares and 510,000 R6 Shares, which represents 96.7% of the
Adviser Shares outstanding, 78.6% of the R6 Shares outstanding, and 0.9% of the
Fund's total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT
================================================================================
30 | USAA GOVERNMENT SECURITIES FUND
================================================================================
PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed certain
requirements related to liquidity classification, highly liquid investment
minimums, and board approval of the liquidity risk management programs to June
1, 2019. The Manager continues to evaluate the impact of this rule on the Fund's
financial statements and various filings.
(10) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
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 reporting
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 reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.55 $ 9.86 $ 10.00 $ 10.04 $ 10.02 $ 10.08
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .11 .20 .20 .22 .25 .28
Net realized and
unrealized gain (loss) (.08) (.31) (.14) (.04) .03 (.06)
----------------------------------------------------------------------------------------
Total from investment
operations .03 (.11) .06 .18 .28 .22
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.20) (.20) (.22) (.26) (.28)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.47 $ 9.55 $ 9.86 $ 10.00 $ 10.04 $ 10.02
========================================================================================
Total return (%)* .33 (1.09) .62 1.80 2.78 2.20
Net assets at end
of period (000) $316,916 $333,464 $390,897 $432,471 $435,421 $451,688
Ratios to average
daily net assets:**
Expenses (%)(a) .47(c) .48 .48 .51 .51 .47(b)
Net investment
income (%) 2.34(c) 2.09 2.02 2.17 2.52 2.78
Portfolio turnover (%) 1 15 18 14 15 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 November 30, 2018, average daily net assets
were $323,695,000.
(a) Does not include acquired fund fees, if any.
(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.
================================================================================
32 | USAA GOVERNMENT SECURITIES FUND
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH PERIOD
PERIOD ENDED ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
-----------------------------------------------------------
2018 2018 2017 2016***
-----------------------------------------------------------
Net asset value at beginning of period $ 9.55 $ 9.86 $ 10.00 $ 9.94
-----------------------------------------------------------
Income (loss) from investment operations:
Net investment income .12 .21 .21 .18
Net realized and unrealized gain (loss) (.08) (.31) (.14) .06
-----------------------------------------------------------
Total from investment operations .04 (.10) .07 .24
-----------------------------------------------------------
Less distributions from:
Net investment income (.12) (.21) (.21) (.18)
-----------------------------------------------------------
Net asset value at end of period $ 9.47 $ 9.55 $ 9.86 $ 10.00
===========================================================
Total return (%)* .38 (1.01) .71 2.39
Net assets at end of period (000) $706,544 $251,297 $133,607 $106,692
Ratios to average daily net assets:**
Expenses (%)(a) .36(b) .39 .40 .44(b)
Net investment income (%) 2.48(b) 2.18 2.12 2.16(b)
Portfolio turnover (%) 1 15 18 14
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $474,159,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
FINANCIAL HIGHLIGHTS | 33
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.54 $ 9.85 $10.00 $10.04 $10.01 $10.07
------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .18 .17 .19 .22 .24
Net realized and
unrealized gain (loss) (.07) (.31) (.15) (.04) .04 (.06)
------------------------------------------------------------------------
Total from investment
operations .03 (.13) .02 .15 .26 .18
------------------------------------------------------------------------
Less distributions from:
Net investment income (.10) (.18) (.17) (.19) (.23) (.24)
------------------------------------------------------------------------
Redemption fees added
to beneficial interests - .00(a) - - .00(a) -
------------------------------------------------------------------------
Net asset value at
end of period $ 9.47 $ 9.54 $ 9.85 $10.00 $10.04 $10.01
========================================================================
Total return (%)* .30 (1.36) .25 1.55 2.58 1.83
Net assets at
end of period (000) $4,769 $4,804 $6,089 $5,088 $5,116 $5,162
Ratios to average
daily net assets:**
Expenses (%)(b) .75(e) .75 .75 .75 .80(c) .84(d)
Expenses, excluding
reimbursements (%)(b) .88(e) .87 .93 .95 1.05 .84(d)
Net investment income (%) 2.05(e) 1.82 1.76 1.93 2.22 2.41
Portfolio turnover (%) 1 15 18 14 15 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 November 30, 2018, average daily net assets
were $4,772,000.
(a) Represents less than $0.01 per share.
(b) Does not include acquired fund fees, if any.
(c) Prior to October 1, 2014, the Manager voluntarily agreed to reimburse the
Adviser Shares for expenses in excess of 0.90% of their average daily net
assets.
(d) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratio by less than 0.01%.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
34 | USAA GOVERNMENT SECURITIES FUND
================================================================================
R6 SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH PERIOD
PERIOD ENDED ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
----------------------------------------------
2018 2018 2017***
----------------------------------------------
Net asset value at beginning of period $ 9.55 $ 9.85 $ 9.80
----------------------------------------------
Income (loss) from investment operations:
Net investment income .12 .22 .11
Net realized and unrealized gain (loss) (.08) (.30) .05
----------------------------------------------
Total from investment operations .04 (.08) .16
----------------------------------------------
Less distributions from:
Net investment income (.12) (.22) (.11)
----------------------------------------------
Net asset value at end of period $ 9.47 $ 9.55 $ 9.85
==============================================
Total return (%)* .39 (.87) 1.62
Net assets at end of period (000) $6,146 $6,345 $5,027
Ratios to average daily net assets:**
Expenses (%)(a) .35(b) .35 .35(b)
Expenses, excluding reimbursements (%)(a) .56(b) .64 1.12(b)
Net investment income (%) 2.45(b) 2.22 2.22(b)
Portfolio turnover 1 15 18
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from
the Lipper reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $6,203,000.
*** R6 Shares commenced operations on December 1, 2016.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
FINANCIAL HIGHLIGHTS | 35
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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 estimate the actual
ending account balance or expenses you paid for the
================================================================================
36 | USAA GOVERNMENT SECURITIES FUND
================================================================================
period. You may use this information to compare the ongoing costs of investing
in the Fund and other funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
-------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,003.30 $2.36
Hypothetical
(5% return before expenses) 1,000.00 1,022.71 2.38
INSTITUTIONAL SHARES
Actual 1,000.00 1,003.80 1.81
Hypothetical
(5% return before expenses) 1,000.00 1,023.26 1.83
ADVISER SHARES
Actual 1,000.00 1,003.00 3.77
Hypothetical
(5% return before expenses) 1,000.00 1,021.31 3.80
R6 SHARES
Actual 1,000.00 1,003.90 1.76
Hypothetical
(5% return before expenses) 1,000.00 1,023.31 1.78
*Expenses are equal to the annualized expense ratio of 0.47% for Fund Shares,
0.36% for Institutional Shares, 0.75% for Adviser Shares, and 0.35% for R6
Shares, which are net of any reimbursements and expenses paid indirectly,
multiplied by the average account value over the period, multiplied by 183
days/365 days for Fund Shares, Institutional Shares, Adviser Shares, and R6
Shares (to reflect the one-half-year period). The Fund's actual ending account
values are based on its actual total returns of 0.33% for Fund Shares, 0.38%
for Institutional Shares, 0.30% for Adviser Shares, and 0.39% for R6 Shares,
for the six-month period of June 1, 2018, through November 30, 2018.
================================================================================
EXPENSE EXAMPLE | 37
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
23414-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GROWTH AND TAX STRATEGY FUND]
================================================================================
SEMIANNUAL REPORT
USAA GROWTH AND TAX STRATEGY FUND (USBLX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 28
Financial Statements 31
Notes to Financial Statements 34
Financial Highlights 48
EXPENSE EXAMPLE 49
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 11/30/18 o
(% of Net Assets)
Internet ................................................................. 4.1%
Banks .................................................................... 3.4%
Software ................................................................. 3.3%
Pharmaceuticals .......................................................... 3.2%
Retail ................................................................... 2.6%
Computers ................................................................ 2.5%
Oil & Gas ................................................................ 2.2%
Insurance ................................................................ 2.0%
Diversified Financial Services ........................................... 1.8%
Healthcare-Products ...................................................... 1.8%
o TOP 5 TAX-EXEMPT BONDS - 11/30/18 o
(% of Net Assets)
Health Care Facilities Auth. .............................................. 1.1%
City of Lewisville ........................................................ 0.9%
El Centro Financing Auth. ................................................. 0.9%
Port of Port Arthur Navigation District ................................... 0.7%
Pollution Control Financing Auth. ......................................... 0.6%
o TOP 5 BLUE CHIP STOCKS - 11/30/18 o
(% of Net Assets)
Microsoft Corp. ........................................................... 1.7%
Apple, Inc. ............................................................... 1.7%
Amazon.com, Inc. .......................................................... 1.4%
Berkshire Hathaway, Inc. "B" .............................................. 0.9%
Johnson & Johnson ......................................................... 0.8%
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o ASSET ALLOCATION* - 11/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
MUNICIPAL OBLIGATIONS 52.3%
BLUE CHIP STOCKS 47.4%
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS 0.3%
U.S. TREASURY SECURITIES 0.1%
[END CHART]
*Does not include futures.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT SECURITIES (52.3%)
MUNICIPAL OBLIGATIONS (52.3%)
ALABAMA (0.2%)
$ 1,000 Lower Alabama Gas District 5.00% 9/01/2046 $ 1,145
----------
ARIZONA (0.9%)
1,300 City of Phoenix IDA 5.00 7/01/2046 1,334
1,000 IDA 5.00 7/01/2047 1,086
1,000 Pima County IDA(a) 5.00 6/15/2047 987
1,000 Student & Academic Services LLC (INS - Build
America Mutual Assurance Co.) 5.00 6/01/2044 1,080
----------
4,487
----------
CALIFORNIA (4.1%)
4,200 El Centro Financing Auth. (LIQ - Deutsche Bank A.G.)
(LOC - Deutsche Bank A.G.)(a),(b),(c) 2.04 7/01/2058 4,200
1,200 Jurupa Public Financing Auth. 5.00 9/01/2042 1,308
2,000 Monterey Peninsula Unified School District (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.50 8/01/2034 2,194
2,900 Pollution Control Financing Auth.
(LOC - Mizuho Corporate Bank Ltd.)(c) 2.06 11/01/2026 2,900
1,000 State 5.00 2/01/2043 1,080
1,000 State 5.00 8/01/2045 1,105
1,000 Statewide Communities Dev. Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 11/15/2049 1,093
1,000 Sutter Butte Flood Agency (INS - Build America
Mutual Assurance Co.) 5.00 10/01/2040 1,102
1,500 Twin Rivers Unified School District
(INS - Build America Mutual Assurance Co.) 5.00 8/01/2040 1,638
1,000 Val Verde Unified School District (INS - Build America
Mutual Assurance Co.) 5.00 8/01/2044 1,113
4,435 West Contra Costa Unified School District
(INS - National Public Finance
Guarantee Corp.)(Zero Coupon) 0.00 8/01/2034 2,437
----------
20,170
----------
COLORADO (2.4%)
1,000 Denver Convention Center Hotel Auth. 5.00 12/01/2040 1,052
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,900 Denver Health & Hospital Auth. 5.00% 12/01/2048 $ 2,028
1,000 Educational & Cultural Facilities Auth. 5.00 12/01/2038 1,099
710 Educational & Cultural Facilities Auth. 5.00 4/01/2048 767
1,000 Health Facilities Auth. 5.00 12/01/2042 1,034
1,000 Health Facilities Auth. 5.00 6/01/2045 1,046
250 Park Creek Metropolitan District 5.00 12/01/2041 270
1,000 Park Creek Metropolitan District 5.00 12/01/2045 1,074
1,000 Rampart Range Metropolitan District No. 1
(INS - Assured Guaranty Municipal Corp.) 5.00 12/01/2047 1,098
2,000 Regional Transportation District 5.38 6/01/2031 2,089
----------
11,557
----------
CONNECTICUT (0.3%)
4,717 Mashantucket (Western) Pequot Tribe(d),(e) 6.05(f) 7/01/2031 159
1,000 State 5.00 4/15/2037 1,085
----------
1,244
----------
DISTRICT OF COLUMBIA (0.2%)
1,100 District 5.00 7/01/2042 1,174
----------
FLORIDA (3.0%)
1,000 Atlantic Beach(g) 5.00 11/15/2048 1,045
1,000 City of Jacksonville 5.00 10/01/2029 1,088
1,875 Escambia County Housing Finance Auth. (PRE)
(INS - Assured Guaranty Municipal Corp.) 5.75 6/01/2031 1,911
1,000 Halifax Hospital Medical Center 5.00 6/01/2046 1,051
2,000 Lee County IDA 5.00 11/01/2025 2,110
645 Lee County IDA 5.50 10/01/2047 681
1,300 Miami-Dade County Water & Sewer System (PRE) 5.00 10/01/2034 1,371
1,000 Palm Beach County Health Facilities Auth. 5.00 11/15/2045 1,068
700 Sarasota County Health Facilities Auth. 5.00 5/15/2038 749
1,000 Southeast Overtown Park West Community
Redev. Agency(a) 5.00 3/01/2030 1,085
1,505 Tampa-Hillsborough County Expressway Auth. 5.00 7/01/2037 1,619
1,000 Volusia County Educational Facility Auth. 5.00 10/15/2045 1,096
----------
14,874
----------
GEORGIA (0.2%)
1,000 Glynn-Brunswick Memorial Hospital Auth. 5.00 8/01/2047 1,062
----------
GUAM (0.4%)
750 Antonio B Won Pat International Airport Auth.
(INS - Assured Guaranty Municipal Corp.) 5.50 10/01/2033 841
1,000 Waterworks Auth. 5.50 7/01/2043 1,058
----------
1,899
----------
================================================================================
4 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
ILLINOIS (4.8%)
$ 1,000 Bureau County Township HSD #502 (INS - Build
America Mutual Assurance Co.) 5.00% 12/01/2037 $ 1,107
1,000 Chicago Midway International Airport 5.00 1/01/2041 1,071
1,000 Chicago O'Hare International Airport (INS - Assured
Guaranty Municipal Corp.) 5.25 1/01/2033 1,093
1,000 Chicago O'Hare International Airport 5.00 1/01/2041 1,089
1,000 City of Chicago Wastewaster Transmission 5.00 1/01/2044 1,060
1,000 City of Chicago Wastewaster Transmission 5.00 1/01/2047 1,048
1,000 City of Chicago Waterworks 5.00 11/01/2044 1,064
1,000 Cook County 5.00 11/15/2038 1,098
1,000 Cook County CCD No. 508 (INS - Build America
Mutual Assurance Co.) 5.00 12/01/2047 1,059
1,000 Educational Facilities Auth. 4.00 11/01/2036 996
1,000 Finance Auth. 3.90 3/01/2030 1,023
2,000 Finance Auth. (PRE) 6.00 10/01/2032 2,175
1,000 Finance Auth. 5.00 5/15/2037 1,025
1,275 Finance Auth. 5.00 5/15/2040 1,301
1,000 Finance Auth. 4.00 10/01/2040 1,001
1,000 Finance Auth. 4.00 2/15/2041 988
1,000 Finance Auth. 5.00 8/15/2044 1,057
1,000 Finance Auth. 5.00 5/15/2045 1,027
1,000 Northern Illinois Municipal Power Agency 4.00 12/01/2041 983
1,235 Sangamon County Water Reclamation District 5.75 1/01/2053 1,368
700 State (LIQ - Deutsche Bank A.G.) (LOC - Deutsche
Bank A.G.)(a),(b),(c) 1.94 7/01/2031 700
----------
23,333
----------
INDIANA (1.1%)
500 Ball State University (PRE) 5.00 7/01/2030 524
1,000 Evansville Redev. Auth. (INS - Build America
Mutual Assurance Co.) 4.00 2/01/2039 1,018
1,000 Finance Auth. 5.00 2/01/2040 1,082
1,000 Finance Auth. 5.00 10/01/2044 1,036
1,500 Richmond Hospital Auth. 5.00 1/01/2039 1,608
----------
5,268
----------
KANSAS (1.3%)
1,000 City of Coffeyville Electric System (INS - National
Public Finance Guarantee Corp.)(a) 5.00 6/01/2042 1,079
1,500 City of Lawrence 5.00 7/01/2043 1,638
1,000 City of Wichita 4.63 9/01/2033 977
1,250 Wyandotte County & Kansas City Unified
Government Utility System 5.00 9/01/2044 1,361
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Wyandotte County & Kansas City Unified
Government Utility System 5.00% 9/01/2045 $ 1,098
----------
6,153
----------
KENTUCKY (0.6%)
1,000 City of Ashland 5.00 2/01/2040 1,026
1,000 Economic Dev. Finance Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 12/01/2045 1,079
1,000 Economic Dev. Finance Auth. 5.00 5/15/2046 1,019
----------
3,124
----------
LOUISIANA (2.9%)
1,000 City of Shreveport Water & Sewer (INS - Build
America Mutual Assurance Co.) 5.00 12/01/2039 1,099
1,000 City of Shreveport Water & Sewer 5.00 12/01/2040 1,103
1,000 Environmental Facilities & Community Dev. Auth.
(INS - Assured Guaranty Municipal Corp.) 5.00 10/01/2043 1,088
1,500 Gasoline & Fuels Tax 5.00 5/01/2045 1,674
1,000 Local Government Environmental Facilities &
Community Dev. Auth. (INS - Assured
Guaranty Municipal Corp.) 5.00 10/01/2039 1,102
1,000 Local Government Environmental Facilities &
Community Dev. Auth. (INS - Assured
Guaranty Municipal Corp.) 4.00 10/01/2046 996
2,000 Parish of St. James(c) 1.96 11/01/2040 2,000
1,000 Public Facilities Auth. 5.00 11/01/2045 1,059
1,000 Public Facilities Auth. (INS - Build America
Mutual Assurance Co.) 5.25 6/01/2051 1,085
1,000 Public Facilities Auth. 5.00 7/01/2052 1,060
1,000 Public Facilities Auth. 4.00 1/01/2056 990
1,000 Tobacco Settlement Financing Corp. 5.25 5/15/2035 1,058
----------
14,314
----------
MAINE (0.2%)
1,000 Health & Higher Education Facilities Auth. 4.00 7/01/2046 910
----------
MASSACHUSETTS (1.5%)
1,000 Dev. Finance Agency 5.00 4/15/2040 1,038
1,000 Dev. Finance Agency 5.25 11/15/2041 1,080
1,000 Dev. Finance Agency 5.75 7/15/2043 1,065
1,000 Dev. Finance Agency 5.00 7/01/2044 1,056
1,000 Dev. Finance Agency 5.50 7/01/2044 1,069
1,000 Dev. Finance Agency 5.00 7/01/2046 1,062
1,000 Dev. Finance Agency(a) 5.00 10/01/2057 1,006
----------
7,376
----------
================================================================================
6 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
MICHIGAN (1.8%)
$ 1,000 City of Wyandotte Electric System (INS - Build
America Mutual Assurance Co.) 5.00% 10/01/2044 $ 1,073
1,750 Downtown Detroit MI Dev. Auth. (INS - Assured
Guaranty Municipal Corp.)(g) 5.00 7/01/2043 1,842
1,000 Jackson Public Schools (NBGA - Michigan
School Bond Qualification and Loan Program) 5.00 5/01/2042 1,110
1,000 Karegnondi Water Auth. 5.00 11/01/2041 1,084
1,250 Lincoln Consolidated School District
(INS - Assured Guaranty Municipal Corp.) 5.00 5/01/2040 1,374
1,000 Livonia Public Schools School District
(INS - Assured Guaranty Municipal Corp.) 5.00 5/01/2045 1,087
1,000 Wayne County Airport Auth. 5.00 12/01/2044 1,098
----------
8,668
----------
MINNESOTA (0.5%)
1,000 City of St. Paul Housing & Redev. Auth. (PRE) 5.00 11/15/2044 1,162
1,000 City of St. Paul Housing & Redev. Auth. 5.00 11/15/2047 1,081
----------
2,243
----------
MISSOURI (0.5%)
1,270 Health & Educational Facilities Auth. 5.00 8/01/2045 1,316
1,000 St. Louis Municipal Finance Corp. (INS - Assured
Guaranty Municipal Corp.) 5.00 10/01/2038 1,111
----------
2,427
----------
NEBRASKA (0.2%)
1,000 Douglas County Hospital Auth. No. 3 5.00 11/01/2048 1,075
----------
NEVADA (0.9%)
1,000 Carson City 5.00 9/01/2042 1,073
1,555 Las Vegas Convention & Visitors Auth. 4.00 7/01/2041 1,563
1,500 Las Vegas Redev. Agency 5.00 6/15/2045 1,598
----------
4,234
----------
NEW JERSEY (2.8%)
1,000 EDA 5.00 6/15/2029 1,051
1,000 EDA 4.00 7/01/2034 964
500 EDA (INS - Assured Guaranty Municipal Corp.) 5.00 6/01/2037 544
2,000 EDA 5.00 6/15/2042 2,062
1,000 EDA 5.00 6/15/2043 1,034
1,000 EDA 5.00 6/15/2043 1,038
1,000 EDA 5.00 6/15/2047 1,031
1,000 Educational Facilities Auth. 5.00 9/01/2036 1,049
1,000 Health Care Facilities Financing Auth. 5.00 10/01/2037 1,046
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,250 South Jersey Transportation Auth. LLC 5.00% 11/01/2039 $ 1,328
500 Tobacco Settlement Financing Corp. 5.25 6/01/2046 531
1,000 Transportation Trust Fund Auth. 5.00 12/15/2035 1,064
1,000 Transportation Trust Fund Auth. 5.00 6/15/2044 1,036
----------
13,778
----------
NEW MEXICO (0.2%)
1,000 City of Farmington 5.90 6/01/2040 1,048
----------
NEW YORK (1.7%)
1,000 Dormitory Auth. (PRE) 5.50 5/01/2037 1,016
1,205 Dormitory Auth. (INS - AMBAC Assurance Corp.) 5.50 7/01/2040 1,520
1,000 MTA 5.00 11/15/2042 1,065
2,000 New York City Trust for Cultural Res. 5.00 12/01/2039 2,053
630 New York Liberty Dev. Corp. 5.25 10/01/2035 759
1,500 New York Liberty Dev. Corp. 5.50 10/01/2037 1,880
----------
8,293
----------
NORTH CAROLINA (0.2%)
1,000 Medical Care Commission 5.00 10/01/2035 1,051
----------
NORTH DAKOTA (0.2%)
1,000 Ward County 5.00 6/01/2048 1,033
----------
OHIO (0.2%)
750 Southeastern Ohio Port Auth. 5.00 12/01/2043 752
----------
OKLAHOMA (0.7%)
1,315 Comanche County Hospital Auth. 5.00 7/01/2032 1,348
1,000 Dev. Finance Auth. 5.50 8/15/2057 1,079
750 Tulsa County Industrial Auth. 5.25 11/15/2037 810
----------
3,237
----------
OREGON (0.3%)
1,250 Salem Hospital Facility Auth. 5.00 5/15/2043 1,330
----------
PENNSYLVANIA (4.6%)
1,000 Allegheny County Hospital Dev. Auth. 5.00 4/01/2047 1,070
1,000 Altoona Area School District (INS - Build
America Mutual Assurance Co.) 5.00 12/01/2048 1,078
350 Berks County IDA 5.00 5/15/2043 366
1,500 Berks County IDA 5.00 11/01/2050 1,607
1,125 Butler County Hospital Auth. 5.00 7/01/2039 1,205
1,000 Chester County IDA 5.00 10/01/2044 1,036
1,000 Commonwealth 5.00 7/01/2043 1,085
1,000 Commonwealth Financing Auth. 5.00 6/01/2035 1,103
1,625 Indiana County Hospital Auth. 6.00 6/01/2039 1,735
================================================================================
8 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Lancaster County Hospital Auth. 5.00% 11/01/2035 $ 1,072
1,000 Montgomery County IDA 5.25 1/15/2045 1,063
1,000 Northampton County General Purpose Auth. 4.00 8/15/2040 986
1,000 Northampton County General Purpose Auth. 5.00 8/15/2043 1,092
1,000 Pennsylvania Turnpike Commission 5.00 12/01/2039 1,105
1,000 Philadelphia School District 5.00 9/01/2037 1,086
1,000 Philadelphia School District 5.00 9/01/2038 1,094
1,500 Reading School District (INS - Assured
Guaranty Municipal Corp.) 5.00 3/01/2038 1,659
1,000 Turnpike Commission 5.25 12/01/2044 1,080
1,000 Turnpike Commission 5.00 12/01/2046 1,054
1,000 Turnpike Commission 5.00 12/01/2047 1,086
----------
22,662
----------
PUERTO RICO (0.2%)
1,000 Commonwealth (INS - Assured Guaranty
Municipal Corp.) 5.00 7/01/2035 1,056
----------
RHODE ISLAND (0.2%)
40 Housing & Mortgage Finance Corp. 6.85 10/01/2024 40
1,000 Rhode Island Turnpike & Bridge Auth. 5.00 10/01/2040 1,094
----------
1,134
----------
SOUTH CAROLINA (0.4%)
2,000 Piedmont Municipal Power Agency (INS - Assured
Guaranty Municipal Corp.) 5.75 1/01/2034 2,161
----------
TENNESSEE (0.8%)
1,500 Greeneville Health & Educational Facilities Board 5.00 7/01/2037 1,651
1,000 Metropolitan Government of Nashville & Davidson
County Health & Educational Facilities Board 5.00 10/01/2045 1,060
1,000 Metropolitan Government of Nashville & Davidson
County Health & Educational Facilities Board 5.00 7/01/2046 1,069
----------
3,780
----------
TEXAS (8.2%)
1,380 Austin Convention Enterprises, Inc. 5.00 1/01/2034 1,473
1,000 Bexar County Health Facilities Dev. Corp. 5.00 7/15/2037 1,043
1,000 Central Texas Regional Mobility Auth. 4.00 1/01/2041 981
1,000 Central Texas Regional Mobility Auth. 5.00 1/01/2045 1,066
1,000 Central Texas Turnpike System 5.00 8/15/2042 1,055
1,000 City of Arlington (INS - Assured Guaranty
Municipal Corp.) 5.00 2/15/2048 1,094
1,000 City of Houston 5.00 9/01/2039 1,084
1,000 City of Houston 5.00 9/01/2040 1,083
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 City of Laredo Waterworks & Sewer System 4.00% 3/01/2041 $ 1,007
4,420 City of Lewisville (INS - ACA Financial
Guaranty Corp.) 5.80 9/01/2025 4,528
1,000 Clifton Higher Education Finance Corp.
(NBGA - Texas Permanent School Fund) 5.00 8/15/2039 1,095
1,000 Harris County Cultural Education Facilities
Finance Corp. 5.00 6/01/2038 1,039
1,000 Harris County Hospital District 4.00 2/15/2042 981
1,000 Karnes County Hospital District 5.00 2/01/2044 1,023
1,000 Matagorda County Navigation District No. 1 4.00 6/01/2030 1,025
1,000 Mesquite Health Facility Dev. Corp. 5.00 2/15/2035 1,007
225 New Hope Cultural Education Facilities Finance Corp.
(INS - Assured Guaranty Municipal Corp.) 5.00 7/01/2038 244
1,600 New Hope Cultural Education Facilities Finance Corp. 5.00 4/01/2047 1,645
1,000 New Hope Cultural Education Facilities Finance Corp. 5.00 7/01/2047 901
1,500 North Texas Tollway Auth. 5.00 1/01/2031 1,649
1,000 North Texas Tollway Auth. 5.00 1/01/2045 1,082
600 Port of Port Arthur Navigation District(c) 1.96 4/01/2040 600
2,600 Port of Port Arthur Navigation District(c) 1.96 4/01/2040 2,600
3,250 Port of Port Arthur Navigation District(c) 2.08 11/01/2040 3,250
400 Port of Port Arthur Navigation District(c) 2.08 11/01/2040 400
1,000 Princeton ISD (NBGA - Texas Permanent School Fund) 5.00 2/15/2043 1,126
1,000 Prosper ISD (NBGA - Texas Permanent School Fund) 5.00 2/15/2048 1,121
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2036 1,005
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2045 996
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2046 1,048
1,500 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 7/01/2048 1,611
----------
39,862
----------
VIRGINIA (0.2%)
1,000 Alexandria IDA 5.00 10/01/2050 1,030
----------
WASHINGTON (1.8%)
5,500 Health Care Facilities Auth.
(LIQ - J.P. Morgan Chase & Co.)(a),(c) 2.04 2/01/2019 5,500
1,000 Health Care Facilities Auth. 4.00 7/01/2042 993
1,000 Health Care Facilities Auth. 5.00 1/01/2047 1,077
1,000 Housing Finance Commission 5.00 1/01/2038 1,044
----------
8,614
----------
WEST VIRGINIA (0.3%)
1,500 West Virginia Hospital Finance Auth. 4.00 1/01/2038 1,458
----------
================================================================================
10 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
WISCONSIN (1.0%)
$ 1,000 Health & Educational Facilities Auth. (PRE) 5.25% 4/15/2035 $ 1,129
1,000 Health & Educational Facilities Auth. 5.00 9/15/2045 1,015
1,000 Public Finance Auth. 5.00 7/01/2038 1,106
1,500 Public Finance Auth.(g) 5.25 10/01/2048 1,568
----------
4,818
----------
WYOMING (0.3%)
1,250 Laramie County 5.00 5/01/2037 1,322
----------
Total Municipal Obligations (cost: $256,786) 255,156
----------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (47.4%)
BLUE CHIP STOCKS (47.4%)
BASIC MATERIALS (1.0%)
----------------------
CHEMICALS (0.8%)
2,512 Air Products & Chemicals, Inc. 404
1,243 Albemarle Corp. 120
2,675 CF Industries Holdings, Inc. 113
22,984 DowDuPont, Inc. 1,330
1,619 Eastman Chemical Co. 128
1,542 FMC Corp. 127
1,159 International Flavors & Fragrances, Inc. 164
2,795 Linde plc 444
3,321 LyondellBasell Industries N.V. "A" 310
4,063 Mosaic Co. 146
2,769 PPG Industries, Inc. 303
809 Sherwin-Williams Co. 343
----------
3,932
----------
FOREST PRODUCTS & PAPER (0.0%)
3,900 International Paper Co. 180
----------
IRON/STEEL (0.1%)
3,094 Nucor Corp. 187
----------
MINING (0.1%)
14,270 Freeport-McMoRan, Inc. 171
5,314 Newmont Mining Corp. 172
----------
343
----------
Total Basic Materials 4,642
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS (6.8%)
---------------------
ADVERTISING (0.1%)
3,603 Interpublic Group of Companies, Inc. $ 85
2,152 Omnicom Group, Inc. 165
----------
250
----------
INTERNET (4.1%)
3,069 Alphabet, Inc. "C"(h) 3,359
2,979 Alphabet, Inc. "A"(h) 3,306
4,083 Amazon.com, Inc.(h) 6,901
473 Booking Holdings, Inc.(h) 895
9,005 eBay, Inc.(h) 269
1,162 Expedia Group, Inc. 140
561 F5 Networks, Inc.(h) 96
24,031 Facebook, Inc."A"(h) 3,379
4,339 Netflix, Inc.(h) 1,242
6,191 Symantec Corp. 137
975 TripAdvisor, Inc.(h) 62
7,090 Twitter, Inc.(h) 223
1,070 VeriSign, Inc.(h) 167
----------
20,176
----------
MEDIA (1.1%)
3,467 CBS Corp. "B" 188
1,798 Charter Communications, Inc. "A"(h) 592
45,562 Comcast Corp. "A" 1,777
3,809 Discovery, Inc.(h) 106
1,428 Discovery, Inc."A"(h) 44
2,282 DISH Network Corp. "A"(h) 75
3,584 News Corp."A" 47
10,254 Twenty-First Century Fox, Inc. "A" 507
4,853 Twenty-First Century Fox, Inc. "B" 238
3,276 Viacom, Inc. "B" 101
14,815 Walt Disney Co. 1,711
----------
5,386
----------
TELECOMMUNICATIONS (1.5%)
509 Arista Networks, Inc.(h) 121
72,363 AT&T, Inc.(i) 2,261
9,976 CenturyLink, Inc. 187
45,824 Cisco Systems, Inc. 2,194
3,500 Juniper Networks, Inc. 100
1,577 Motorola Solutions, Inc. 207
================================================================================
12 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
41,173 Verizon Communications, Inc. $ 2,483
----------
7,553
----------
Total Communications 33,365
----------
CONSUMER, CYCLICAL (4.0%)
-------------------------
AIRLINES (0.2%)
1,149 Alaska Air Group, Inc. 84
3,997 American Airlines Group, Inc. 161
6,373 Delta Air Lines, Inc. 387
5,077 Southwest Airlines Co. 277
2,350 United Continental Holdings, Inc.(h) 227
----------
1,136
----------
APPAREL (0.3%)
3,343 Hanesbrands, Inc. 53
1,422 Michael Kors Holdings Ltd.(h) 62
12,617 NIKE, Inc. "B" 948
868 PVH Corp. 96
517 Ralph Lauren Corp. 57
1,669 Under Armour, Inc. "A"(h) 40
1,654 Under Armour, Inc. "C"(h) 37
3,185 VF Corp. 259
----------
1,552
----------
AUTO MANUFACTURERS (0.2%)
39,011 Ford Motor Co. 367
12,922 General Motors Co. 491
3,714 PACCAR, Inc. 231
----------
1,089
----------
AUTO PARTS & EQUIPMENT (0.1%)
2,637 Aptiv plc 189
2,393 BorgWarner, Inc. 95
1 Delphi Technologies plc -
2,283 Goodyear Tire & Rubber Co. 53
----------
337
----------
DISTRIBUTION/WHOLESALE (0.1%)
2,286 Copart, Inc.(h) 117
2,691 Fastenal Co. 160
2,886 LKQ Corp.(h) 80
478 WW Grainger, Inc. 150
----------
507
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
HOME BUILDERS (0.1%)
3,224 DR Horton, Inc. $ 120
3,303 Lennar Corp. "A" 141
1 Lennar Corp. "B" -
2,649 PulteGroup, Inc. 71
----------
332
----------
HOME FURNISHINGS (0.0%)
1,214 Leggett & Platt, Inc. 47
674 Whirlpool Corp. 85
----------
132
----------
HOUSEWARES (0.0%)
4,542 Newell Brands, Inc. 106
----------
LEISURE TIME (0.1%)
3,853 Carnival Corp. 232
1,559 Harley-Davidson, Inc. 66
2,244 Norwegian Cruise Line Holdings Ltd.(h) 115
1,606 Royal Caribbean Cruises Ltd. 182
----------
595
----------
LODGING (0.2%)
3,115 Hilton Worldwide Holdings, Inc. 235
2,836 Marriott International, Inc. "A" 326
5,546 MGM Resorts International 150
962 Wynn Resorts Ltd. 105
----------
816
----------
RETAIL (2.6%)
687 Advance Auto Parts, Inc. 122
255 AutoZone, Inc.(h) 206
2,415 Best Buy Co., Inc. 156
1,691 CarMax, Inc.(h) 112
280 Chipotle Mexican Grill, Inc.(h) 132
4,315 Costco Wholesale Corp. 998
1,204 Darden Restaurants, Inc. 133
2,615 Dollar General Corp. 290
2,313 Dollar Tree, Inc.(h) 201
1,129 Foot Locker, Inc. 64
2,024 Gap, Inc. 55
1,641 Genuine Parts Co. 170
11,347 Home Depot, Inc. 2,046
1,903 Kohl's Corp. 128
2,332 L Brands, Inc. 77
8,086 Lowe's Companies, Inc. 763
3,517 Macy's, Inc. 120
================================================================================
14 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
7,730 McDonald's Corp. $ 1,457
1,313 Nordstrom, Inc. 69
788 O'Reilly Automotive, Inc.(h) 273
3,683 Ross Stores, Inc. 323
13,440 Starbucks Corp. 897
3,100 Tapestry, Inc. 121
5,183 Target Corp. 368
1,072 Tiffany & Co. 98
12,486 TJX Companies, Inc. 610
1,196 Tractor Supply Co. 114
551 Ulta Salon Cosmetics & Fragrance, Inc.(h) 164
8,405 Walgreens Boots Alliance, Inc. 712
14,299 Walmart, Inc. 1,396
3,123 Yum! Brands, Inc. 288
----------
12,663
----------
TEXTILES (0.0%)
597 Mohawk Industries, Inc.(h) 77
----------
TOYS/GAMES/HOBBIES (0.1%)
1,322 Hasbro, Inc. 120
3,027 Mattel, Inc.(h) 42
----------
162
----------
Total Consumer, Cyclical 19,504
----------
CONSUMER, NON-CYCLICAL (11.0%)
------------------------------
AGRICULTURE (0.5%)
18,697 Altria Group, Inc. 1,025
5,283 Archer-Daniels-Midland Co. 243
15,490 Philip Morris International, Inc. 1,341
----------
2,609
----------
BEVERAGES (0.9%)
1,744 Brown-Forman Corp. "B" 83
38,140 Coca-Cola Co. 1,922
1,654 Constellation Brands, Inc. "A" 324
1,717 Molson Coors Brewing Co."B" 113
3,824 Monster Beverage Corp.(h) 228
14,088 PepsiCo, Inc. 1,718
----------
4,388
----------
BIOTECHNOLOGY (1.0%)
2,165 Alexion Pharmaceuticals, Inc.(h) 267
6,480 Amgen, Inc. 1,349
2,011 Biogen, Inc.(h) 671
7,007 Celgene Corp.(h) 506
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
12,790 Gilead Sciences, Inc. $ 920
1,430 Illumina, Inc.(h) 483
1,757 Incyte Corp.(h) 113
752 Regeneron Pharmaceuticals, Inc.(h) 275
2,546 Vertex Pharmaceuticals, Inc.(h) 460
----------
5,044
----------
COMMERCIAL SERVICES (0.9%)
4,365 Automatic Data Processing, Inc. 643
814 Cintas Corp. 153
2,532 Ecolab, Inc. 406
1,096 Equifax, Inc. 113
880 FleetCor Technologies, Inc.(h) 170
827 Gartner, Inc.(h) 127
1,504 Global Payments, Inc. 168
1,952 H&R Block, Inc. 53
3,349 IHS Markit Ltd.(h) 179
1,624 Moody's Corp. 258
4,034 Nielsen Holdings plc 110
11,657 PayPal Holdings, Inc.(h) 1,000
1,300 Robert Half International, Inc. 80
1,125 Rollins, Inc. 72
2,444 S&P Global, Inc. 447
1,923 Total System Services, Inc. 168
788 United Rentals, Inc.(h) 92
1,865 Verisk Analytics, Inc.(h) 230
4,287 Western Union Co. 80
----------
4,549
----------
COSMETICS/PERSONAL CARE (0.7%)
8,546 Colgate-Palmolive Co. 543
4,173 Coty, Inc. "A" 35
2,208 Estee Lauder Companies, Inc. "A" 315
24,735 Procter & Gamble Co. 2,337
----------
3,230
----------
FOOD (0.6%)
1,817 Campbell Soup Co. 71
3,859 Conagra Brands, Inc. 125
5,842 General Mills, Inc. 247
1,318 Hershey Co. 143
2,891 Hormel Foods Corp. 130
1,270 JM Smucker Co. 133
2,900 Kellogg Co. 185
6,123 Kraft Heinz Co. 313
7,907 Kroger Co. 235
================================================================================
16 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
1,389 McCormick & Co., Inc. $ 208
14,613 Mondelez International, Inc. "A" 657
4,663 Sysco Corp. 314
2,778 Tyson Foods, Inc. "A" 164
----------
2,925
----------
HEALTHCARE-PRODUCTS (1.8%)
17,475 Abbott Laboratories(i) 1,294
448 ABIOMED, Inc.(h) 149
702 Align Technology, Inc.(h) 161
4,950 Baxter International, Inc. 339
2,666 Becton, Dickinson & Co. 674
13,776 Boston Scientific Corp.(h) 519
549 Cooper Companies, Inc. 153
6,134 Danaher Corp. 672
2,170 Dentsply Sirona, Inc. 82
2,050 Edwards Lifesciences Corp.(h) 332
1,445 Henry Schein, Inc.(h) 129
2,574 Hologic, Inc.(h) 114
862 IDEXX Laboratories, Inc.(h) 176
1,115 Intuitive Surgical, Inc.(h) 592
13,322 Medtronic plc 1,299
1,635 ResMed, Inc. 183
3,126 Stryker Corp. 549
3,958 Thermo Fisher Scientific, Inc. 988
1,048 Varian Medical Systems, Inc.(h) 129
2,069 Zimmer Biomet Holdings, Inc. 242
----------
8,776
----------
HEALTHCARE-SERVICES (1.2%)
2,590 Anthem, Inc. 751
1,997 Centene Corp.(h) 284
2,425 Cigna Corp. 542
1,414 DaVita, Inc.(h) 94
2,781 HCA Healthcare, Inc. 401
1,372 Humana, Inc. 452
1,614 IQVIA Holdings, Inc.(h) 202
995 Laboratory Corp. of America Holdings(h) 145
1,547 Quest Diagnostics, Inc. 137
9,590 UnitedHealth Group, Inc. 2,698
812 Universal Health Services, Inc. "B" 112
492 WellCare Health Plans, Inc.(h) 125
----------
5,943
----------
HOUSEHOLD PRODUCTS/WARES (0.2%)
906 Avery Dennison Corp. 88
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
2,300 Church & Dwight Co., Inc. $ 152
1,468 Clorox Co. 243
3,398 Kimberly-Clark Corp. 392
----------
875
----------
PHARMACEUTICALS (3.2%)
15,090 AbbVie, Inc. 1,422
3,142 Allergan plc 492
1,496 AmerisourceBergen Corp. 133
16,079 Bristol-Myers Squibb Co. 860
2,930 Cardinal Health, Inc. 161
12,843 CVS Health Corp. 1,030
9,521 Eli Lilly & Co. 1,130
5,464 Express Scripts Holding Co.(h) 554
26,848 Johnson & Johnson(i) 3,944
1,932 McKesson Corp. 240
26,463 Merck & Co., Inc. 2,100
5,065 Mylan N.V.(h) 171
1,698 Nektar Therapeutics(h) 69
1,238 Perrigo Co. plc 77
58,413 Pfizer, Inc. 2,700
4,707 Zoetis, Inc. 442
----------
15,525
----------
Total Consumer, Non-cyclical 53,864
----------
ENERGY (2.6%)
-------------
OIL & GAS (2.2%)
5,169 Anadarko Petroleum Corp. 273
3,718 Apache Corp. 131
4,115 Cabot Oil & Gas Corp. 104
19,093 Chevron Corp. 2,271
890 Cimarex Energy Co. 73
1,973 Concho Resources, Inc.(h) 257
11,510 ConocoPhillips 762
4,664 Devon Energy Corp. 126
5,694 EOG Resources, Inc. 588
2,664 EQT Corp. 50
42,188 Exxon Mobil Corp.(i) 3,354
1,218 Helmerich & Payne, Inc. 74
2,552 Hess Corp. 137
1,596 HollyFrontier Corp. 100
8,300 Marathon Oil Corp. 138
6,728 Marathon Petroleum Corp. 438
1,805 Newfield Exploration Co.(h) 31
4,670 Noble Energy, Inc. 111
================================================================================
18 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
7,531 Occidental Petroleum Corp. $ 529
4,206 Phillips 66 393
1,705 Pioneer Natural Resources Co. 252
4,239 Valero Energy Corp. 339
----------
10,531
----------
OIL & GAS SERVICES (0.2%)
5,065 Baker Hughes a GE Co. 116
8,665 Halliburton Co. 272
3,716 National Oilwell Varco, Inc. 119
13,625 Schlumberger Ltd. 615
4,157 TechnipFMC plc 96
----------
1,218
----------
PIPELINES (0.2%)
2,131 Equitrans Midstream Corp.(h) 47
18,142 Kinder Morgan, Inc. 310
4,096 ONEOK, Inc. 252
11,910 Williams Companies, Inc. 301
----------
910
----------
Total Energy 12,659
----------
FINANCIAL (8.6%)
----------------
BANKS (3.4%)
92,561 Bank of America Corp. 2,629
9,561 Bank of New York Mellon Corp. 490
7,586 BB&T Corp. 388
4,733 Capital One Financial Corp. 424
25,076 Citigroup, Inc. 1,625
4,616 Citizens Financial Group, Inc. 168
1,613 Comerica, Inc. 128
6,711 Fifth Third Bancorp 187
3,554 Goldman Sachs Group, Inc. 678
11,994 Huntington Bancshares, Inc. 175
33,489 J.P. Morgan Chase & Co. 3,723
11,840 KeyCorp. 217
1,384 M&T Bank Corp. 234
12,903 Morgan Stanley 573
2,365 Northern Trust Corp.(j) 235
4,630 PNC Financial Services Group, Inc. 629
10,886 Regions Financial Corp. 179
3,779 State Street Corp. 276
4,522 SunTrust Banks, Inc. 283
576 SVB Financial Group(h) 147
15,254 U.S. Bancorp. 831
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
43,191 Wells Fargo & Co.(i) $ 2,344
2,072 Zions Bancorp. N.V. 101
----------
16,664
----------
DIVERSIFIED FINANCIAL SERVICES (1.8%)
518 Affiliated Managers Group, Inc. 58
525 Alliance Data Systems Corp. 105
6,948 American Express Co. 780
1,383 Ameriprise Financial, Inc. 179
1,231 BlackRock, Inc. 527
1,060 Cboe Global Markets, Inc. 114
11,811 Charles Schwab Corp. 529
3,525 CME Group, Inc. 670
3,369 Discover Financial Services 240
2,481 E*TRADE Financial Corp. 130
2,997 Franklin Resources, Inc. 102
5,711 Intercontinental Exchange, Inc. 467
4,430 Invesco Ltd. 90
3,392 Jefferies Financial Group, Inc. 74
9,019 Mastercard, Inc. "A" 1,813
1,159 Nasdaq, Inc. 106
1,452 Raymond James Financial, Inc. 116
6,818 Synchrony Financial 177
2,288 T. Rowe Price Group, Inc. 227
17,570 Visa, Inc. "A" 2,490
----------
8,994
----------
INSURANCE (2.0%)
8,799 Aflac, Inc. 402
3,329 Allstate Corp. 297
8,734 American International Group, Inc. 378
2,360 Aon plc 390
2,040 Arthur J. Gallagher & Co. 157
19,425 Berkshire Hathaway, Inc. "B"(h) 4,239
1,341 Brighthouse Financial, Inc.(h) 54
4,531 Chubb Ltd. 606
1,525 Cincinnati Financial Corp. 125
441 Everest Re Group Ltd. 98
4,006 Hartford Financial Services Group, Inc. 177
1,996 Lincoln National Corp. 126
2,558 Loews Corp. 123
5,030 Marsh & McLennan Companies, Inc. 446
9,889 MetLife, Inc. 441
2,507 Principal Financial Group, Inc. 124
5,810 Progressive Corp. 385
================================================================================
20 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
4,373 Prudential Financial, Inc. $ 410
995 Torchmark Corp. 86
2,954 Travelers Companies, Inc. 385
2,079 Unum Group 75
1,438 Willis Towers Watson plc 229
----------
9,753
----------
REAL ESTATE (0.0%)
2,808 CBRE Group, Inc. "A"(h) 122
----------
REITS (1.4%)
1,101 Alexandria Real Estate Equities, Inc. 137
4,297 American Tower Corp. 707
1,564 AvalonBay Communities, Inc. 298
1,478 Boston Properties, Inc. 194
4,036 Crown Castle International Corp. 464
2,334 Digital Realty Trust, Inc. 268
3,869 Duke Realty Corp. 110
773 Equinix, Inc. 298
4,165 Equity Residential 297
612 Essex Property Trust, Inc. 161
1,147 Extra Space Storage, Inc. 110
663 Federal Realty Investment Trust 88
5,381 HCP, Inc. 157
6,924 Host Hotels & Resorts, Inc. 132
2,608 Iron Mountain, Inc. 89
1,273 Mid-America Apartment Communities, Inc. 132
7,128 Prologis, Inc. 480
1,717 Public Storage 366
3,181 Realty Income Corp. 204
1,543 Regency Centers Corp. 98
1,109 SBA Communications Corp.(h) 189
3,080 Simon Property Group, Inc. 572
887 SL Green Realty Corp. 85
2,624 UDR, Inc. 112
4,036 Ventas, Inc. 256
1,602 Vornado Realty Trust 115
3,536 Welltower, Inc. 256
8,217 Weyerhaeuser Co. 217
----------
6,592
----------
Total Financial 42,125
----------
INDUSTRIAL (4.4%)
-----------------
AEROSPACE/DEFENSE (1.2%)
3,879 Arconic, Inc. 83
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
5,311 Boeing Co. $ 1,842
2,742 General Dynamics Corp. 507
1,100 Harris Corp. 157
887 L3 Technologies, Inc. 163
2,443 Lockheed Martin Corp. 734
1,696 Northrop Grumman Corp. 441
2,842 Raytheon Co. 498
482 TransDigm Group, Inc.(h) 175
8,095 United Technologies Corp. 986
----------
5,586
----------
BUILDING MATERIALS (0.2%)
1,427 Fortune Brands Home & Security, Inc. 63
9,010 Johnson Controls International plc 313
582 Martin Marietta Materials, Inc. 111
2,915 Masco Corp. 92
1,496 Vulcan Materials Co. 158
----------
737
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
2,658 AMETEK, Inc. 195
6,189 Emerson Electric Co. 418
----------
613
----------
ELECTRONICS (0.6%)
3,653 Agilent Technologies, Inc. 264
880 Allegion plc 81
2,992 Amphenol Corp. "A" 263
8,079 Corning, Inc. 260
1,385 FLIR Systems, Inc. 64
3,063 Fortive Corp. 233
1,028 Garmin Ltd. 69
7,399 Honeywell International, Inc. 1,086
1,866 Keysight Technologies, Inc.(h) 115
250 Mettler-Toledo International, Inc.(h) 159
1,114 PerkinElmer, Inc. 97
3,470 TE Connectivity Ltd. 267
742 Waters Corp.(h) 147
----------
3,105
----------
ENGINEERING & CONSTRUCTION (0.0%)
1,572 Fluor Corp. 64
1,348 Jacobs Engineering Group, Inc. 89
----------
153
----------
ENVIRONMENTAL CONTROL (0.1%)
1,502 Pentair plc 64
================================================================================
22 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
2,497 Republic Services, Inc. $ 193
3,869 Waste Management, Inc. 363
----------
620
----------
HAND/MACHINE TOOLS (0.1%)
528 Snap-on, Inc. 88
1,616 Stanley Black & Decker, Inc. 211
----------
299
----------
MACHINERY-CONSTRUCTION & MINING (0.2%)
5,882 Caterpillar, Inc. 798
----------
MACHINERY-DIVERSIFIED (0.3%)
1,457 Cummins, Inc. 220
3,155 Deere & Co. 489
1,435 Dover Corp. 122
1,210 Flowserve Corp. 59
1,199 Rockwell Automation, Inc. 209
1,119 Roper Technologies, Inc. 333
1,676 Xylem, Inc. 122
----------
1,554
----------
MISCELLANEOUS MANUFACTURERS (0.7%)
5,883 3M Co. 1,223
1,344 AO Smith Corp. 64
4,316 Eaton Corp. plc 332
86,602 General Electric Co.(i) 649
3,408 Illinois Tool Works, Inc. 474
2,810 Ingersoll-Rand plc 291
1,448 Parker-Hannifin Corp. 249
2,441 Textron, Inc. 137
----------
3,419
----------
PACKAGING & CONTAINERS (0.1%)
3,951 Ball Corp. 194
860 Packaging Corp. of America 84
1,672 Sealed Air Corp. 61
2,902 Westrock Co. 137
----------
476
----------
SHIPBUILDING (0.0%)
420 Huntington Ingalls Industries, Inc. 91
----------
TRANSPORTATION (0.8%)
1,279 CH Robinson Worldwide, Inc. 118
8,517 CSX Corp. 619
1,997 Expeditors International of Washington, Inc. 152
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
2,391 FedEx Corp. $ 547
957 JB Hunt Transport Services, Inc. 102
960 Kansas City Southern 99
2,789 Norfolk Southern Corp. 476
7,288 Union Pacific Corp. 1,121
6,909 United Parcel Service, Inc. "B" 796
----------
4,030
----------
Total Industrial 21,481
----------
TECHNOLOGY (7.5%)
-----------------
COMPUTERS (2.5%)
6,382 Accenture plc "A" 1,050
45,721 Apple, Inc.(i) 8,165
5,701 Cognizant Technology Solutions Corp. "A" 406
2,695 DXC Technology Co. 170
1,647 Fortinet, Inc.(h) 122
14,736 Hewlett Packard Enterprise Co. 221
15,968 HP, Inc. 367
8,989 International Business Machines Corp. 1,117
2,488 NetApp, Inc. 166
2,733 Seagate Technology plc 118
2,911 Western Digital Corp. 132
----------
12,034
----------
OFFICE/BUSINESS EQUIPMENT (0.0%)
1,978 Xerox Corp. 53
----------
SEMICONDUCTORS (1.7%)
8,448 Advanced Micro Devices, Inc.(h) 180
3,609 Analog Devices, Inc. 332
9,886 Applied Materials, Inc. 368
4,300 Broadcom, Inc. 1,021
45,946 Intel Corp. 2,266
412 IPG Photonics Corp.(h) 59
1,555 KLA-Tencor Corp. 153
1,595 Lam Research Corp. 250
2,357 Microchip Technology, Inc. 177
11,408 Micron Technology, Inc.(h) 440
6,058 NVIDIA Corp. 990
1,188 Qorvo, Inc.(h) 78
12,148 QUALCOMM, Inc. 708
1,701 Skyworks Solutions, Inc. 124
9,684 Texas Instruments, Inc. 967
2,790 Xilinx, Inc. 258
----------
8,371
----------
================================================================================
24 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SOFTWARE (3.3%)
7,488 Activision Blizzard, Inc. $ 373
4,880 Adobe, Inc.(h) 1,224
1,920 Akamai Technologies, Inc.(h) 132
796 ANSYS, Inc.(h) 129
2,132 Autodesk, Inc.(h) 308
1,316 Broadridge Financial Solutions, Inc. 139
2,583 Cadence Design Systems, Inc.(h) 116
3,241 Cerner Corp.(h) 188
1,327 Citrix Systems, Inc.(h) 145
2,985 Electronic Arts, Inc.(h) 251
3,275 Fidelity National Information Services, Inc. 354
3,938 Fiserv, Inc.(h) 312
2,547 Intuit, Inc. 546
769 Jack Henry & Associates, Inc. 107
76,410 Microsoft Corp.(i) 8,473
992 MSCI, Inc. 156
28,155 Oracle Corp. 1,373
3,617 Paychex, Inc. 256
1,728 Red Hat, Inc.(h) 309
7,452 salesforce.com, Inc.(h) 1,064
1,398 Synopsys, Inc.(h) 128
1,245 Take-Two Interactive Software, Inc.(h) 137
----------
16,220
----------
Total Technology 36,678
----------
UTILITIES (1.5%)
----------------
ELECTRIC (1.4%)
6,122 AES Corp. 95
2,301 Alliant Energy Corp. 105
2,468 Ameren Corp. 170
4,911 American Electric Power Co., Inc. 382
4,683 CenterPoint Energy, Inc. 131
3,064 CMS Energy Corp. 160
2,930 Consolidated Edison, Inc. 236
6,348 Dominion Energy, Inc. 473
2,031 DTE Energy Co. 243
7,096 Duke Energy Corp. 629
3,042 Edison International 168
1,967 Entergy Corp. 171
3,068 Evergy, Inc. 182
3,443 Eversource Energy 235
9,621 Exelon Corp. 446
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
5,569 FirstEnergy Corp. $ 211
4,644 NextEra Energy, Inc. 844
2,789 NRG Energy, Inc. 107
5,841 PG&E Corp.(h) 154
7,821 PPL Corp. 239
4,781 Public Service Enterprise Group, Inc. 267
1,549 SCANA Corp. 72
2,569 Sempra Energy 296
10,248 Southern Co. 485
2,943 WEC Energy Group, Inc. 213
5,211 Xcel Energy, Inc. 273
--------
6,987
--------
GAS (0.0%)
4,111 NiSource, Inc. 108
--------
WATER (0.1%)
1,992 American Water Works Co., Inc. 190
--------
Total Utilities 7,285
--------
Total Blue Chip Stocks (cost: $121,807) 231,603
--------
GOVERNMENT & U.S. TREASURY MONEY MARKET INSTRUMENTS (0.4%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.3%)
1,606,428 State Street Institutional Treasury Money Market Fund
Premier Class, 2.19%(k) (cost: $1,606) 1,606
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (0.1%)
BILLS (0.1%)(l)
$ 210 U.S. Treasury Bill(m) (cost: 210) 2.13% 1/10/2019 $ 210
--------
Total Government & U.S. Treasury Money
Market Instruments (cost: $1,816) 1,816
--------
TOTAL INVESTMENTS (COST: $380,409) $488,575
========
================================================================================
26 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE (000) (000) (000)
------------------------------------------------------------------------------------------------------------------
FUTURES (0.4%)
LONG FUTURES
EQUITY CONTRACTS
13 E-mini S&P 500 12/21/2018 USD 1,797 $1,793 $ (4)
------ --------
Total Long Futures $1,793 $ (4)
------ --------
TOTAL FUTURES $1,793 $ (4)
====== ========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Tax-Exempt Securities:
Municipal Obligations $ - $255,156 $- $255,156
Equity Securities:
Blue Chip Stocks 231,603 - - 231,603
Government & U.S. Treasury
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 1,606 - - 1,606
U.S. Treasury Securities 210 - - 210
------------------------------------------------------------------------------------------------------------------
Total $233,419 $255,156 $- $488,575
------------------------------------------------------------------------------------------------------------------
LIABILITIES LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Futures(1) $ (4) $ - $- $ (4)
------------------------------------------------------------------------------------------------------------------
Total $ (4) $ - $- $ (4)
------------------------------------------------------------------------------------------------------------------
(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.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
For the period of June 1, 2018, through November 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
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 | 27
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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
CCD Community College District
EDA Economic Development Authority
HSD High School District
IDA Industrial Development Authority/Agency
ISD Independent School District
MTA Metropolitan Transportation Authority
PRE Pre-refunded to a date prior to maturity
REITS Real estate investment trusts - Dividend distributions from REITS
may be recorded as income and later characterized by the REIT at
the end of the fiscal year as capital gains or a return of
capital. Thus, the Fund will estimate the components of
distributions from these securities and revise when actual
distributions are known.
Zero Coupon Normally issued at a significant discount from face value and do
not provide for periodic interest payments.
================================================================================
28 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
Income is earned from the purchase date by accreting the purchase
discount of the security to par over the life of the security.
CREDIT ENHANCEMENTS - Adds the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
INS Principal and interest payments are insured by the name listed. Although
bond insurance reduces the risk of loss due to default by an issuer,
such bonds remain subject to the risk that value may fluctuate for other
reasons, and there is no assurance that the insurance company will meet
its obligations.
LIQ Liquidity enhancement that may, under certain circumstances, provide for
repayment of principal and interest upon demand from the name listed.
LOC Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
NBGA Principal and interest payments or, under certain circumstances,
underlying mortgages, are guaranteed by a nonbank guarantee agreement
from the name listed.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Asset Management Company
under liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees, unless otherwise noted as illiquid.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 29
================================================================================
(b) At November 30, 2018, the security, or a portion thereof, was segregated
to cover delayed-delivery and/or when-issued purchases.
(c) 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.
(d) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(e) 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.
(f) Up to 6.05% of the coupon may be PIK.
(g) Security or a portion of the security purchased on a delayed-delivery
and/or when-issued basis.
(h) Non-income-producing security.
(i) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2018.
(j) Northern Trust Corp. is the parent of Northern Trust Investments, Inc.,
which is the subadviser of the Fund.
(k) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
(l) Rate represents an annualized yield at time of purchase, not coupon rate.
(m) Securities with a value of $210,000 are segregated as collateral for
initial margin requirements on open futures contracts.
See accompanying notes to financial statements.
================================================================================
30 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $380,409) $488,575
Cash 45
Receivables:
Capital shares sold 791
Dividends and interest 3,776
Securities sold 1
--------
Total assets 493,188
--------
LIABILITIES
Payables:
Securities purchased 4,429
Capital shares redeemed 375
Variation margin on futures contracts 4
Accrued management fees 119
Accrued transfer agent's fees 17
Other accrued expenses and payables 95
--------
Total liabilities 5,039
--------
Net assets applicable to capital shares outstanding $488,149
========
NET ASSETS CONSIST OF:
Paid-in capital $376,224
Distributable earnings 111,925
--------
Net assets applicable to capital shares outstanding $488,149
========
Capital shares outstanding, no par value 24,704
========
Net asset value, redemption price, and offering price per share $ 19.76
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 31
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 2,438
Interest 4,930
-------
Total income 7,368
-------
EXPENSES
Management fees 735
Administration and servicing fees 362
Transfer agent's fees 171
Custody and accounting fees 73
Postage 8
Shareholder reporting fees 12
Trustees' fees 18
Registration fees 31
Professional fees 50
Other 8
-------
Total expenses 1,468
-------
NET INVESTMENT INCOME 5,900
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS
Net realized gain on:
Investments 1,545
Futures transactions 58
Change in net unrealized appreciation/(depreciation) of:
Investments (2,536)
Futures contracts (11)
-------
Net realized and unrealized loss (944)
-------
Increase in net assets resulting from operations $ 4,956
=======
See accompanying notes to financial statements.
================================================================================
32 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended May 31,
2018
----------------------------------------------------------------------------------------
11/30/2018 5/31/2018
----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 5,900 $ 9,891
Net realized gain on investments 1,545 882
Net realized gain (loss) on futures transactions 58 (116)
Change in net unrealized appreciation/(depreciation) of:
Investments (2,536) 20,394
Futures contracts (11) -
--------------------
Increase in net assets resulting from operations 4,956 31,051
--------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS (5,609) (9,560)
--------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 63,336 102,700
Reinvested dividends 5,230 8,933
Cost of shares redeemed (39,446) (64,462)
--------------------
Increase in net assets from capital share transactions 29,120 47,171
--------------------
Net increase in net assets 28,467 68,662
NET ASSETS
Beginning of period 459,682 391,020
--------------------
End of period $488,149 $459,682
====================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,172 5,260
Shares issued for dividends reinvested 263 465
Shares redeemed (1,985) (3,312)
--------------------
Increase in shares outstanding 1,450 2,413
====================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA Growth and Tax Strategy Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek a
conservative balance for the investor between income, the majority of which is
exempt from federal income tax, and the potential for long-term growth of
capital to preserve purchasing power.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation and Liquidity Committee (the Committee),
================================================================================
34 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
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, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
and equity securities traded in inactive markets generally are categorized
in Level 2 of the fair value hierarchy.
2. Investments in open-end investment companies, commingled, or other funds,
other than ETFs, are valued at their net asset value (NAV) at the end of
each business day and are categorized in Level 1 of the fair value
hierarchy.
3. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized cost
represents the fair value of such securities.
4. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board. The
Service uses an evaluated mean between quoted bid and ask prices or the
last sales price to value a security when, in the Service's judgment,
these prices are readily available and are representative of the
security's market value. For many securities, such prices are not readily
available. The Service generally prices those securities based on methods
which include consideration of yields or prices of securities of
comparable quality, coupon, maturity, and type; indications as to values
from dealers in securities; and general market conditions. Generally, debt
securities are categorized in Level 2 of the fair value hierarchy;
however, to the extent the valuations include significant unobservable
inputs, the securities would be categorized in Level 3.
5. Repurchase agreements are valued at cost.
6. 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. 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
================================================================================
36 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
determined to most closely reflect market value of the options at the time
of computation of the Fund's NAV.
8. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the fair
value price. Valuing these securities at fair value is intended to cause
the Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation systems.
General factors considered in determining the fair value of securities
include fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, evaluation of credit
quality, and an evaluation of the forces that influenced the market in
which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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 November 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
================================================================================
38 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
Upon entering into such contracts, the Fund bears the risk of interest or
exchange rates or securities prices moving unexpectedly in an unfavorable
direction, in which case, the Fund may not achieve the anticipated benefits
of the futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF NOVEMBER 30, 2018*
(IN THOUSANDS)
LIABILITY DERIVATIVES
-------------------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF FOREIGN
ACCOUNTED FOR AS ASSETS AND INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LIABILITIES LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-------------------------------------------------------------------------------------------------------
USAA Growth and
Tax Strategy Fund Distributable earnings $- $(4)** $- $(4)
-------------------------------------------------------------------------------------------------------
* For open derivative instruments as of November 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 NOVEMBER 30, 2018 (IN THOUSANDS)
NET REALIZED GAIN (LOSS)
-------------------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF FOREIGN
ACCOUNTED FOR AS OPERATIONS INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-------------------------------------------------------------------------------------------------------
USAA Growth and Net realized gain
Tax Strategy Fund on Futures transactions $- $58 $- $58
-------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
-------------------------------------------------------------------------------------------------------
DERIVATIVES NOT STATEMENT OF FOREIGN
ACCOUNTED FOR AS OPERATIONS INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-------------------------------------------------------------------------------------------------------
USAA Growth and Change in net unrealized
Tax Strategy Fund appreciation/(depreciation)
of Futures contracts $- $(11) $- $(11)
-------------------------------------------------------------------------------------------------------
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
ex-dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straight-line method for short-term
securities.
E. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated investment
companies and to distribute substantially all of its taxable income and net
capital gains, if any, to its shareholders. Therefore, no federal income tax
provision is required.
For the six-month period ended November 30, 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.
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the extent
that the Fund makes such purchases while remaining substantially fully
invested.
G. 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
================================================================================
40 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $2,000, which represents 0.6% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of November 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. The net unrealized appreciation/
(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
---------------------------------------------------------------------------------------
USAA Growth and Tax Strategy Fund $117,664,000 $(9,498,000) $108,166,000
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$44,357,000 and $20,701,000, respectively.
In accordance with affiliated transaction procedures approved by the Board,
purchases and sales of security transactions were executed between the Fund and
affiliated USAA Funds at the then-current market price with no brokerage
commissions incurred. The affiliated transactions executed by the Fund,
including short-term securities, during the six-month period ended November 30,
2018 were as follows:
PURCHASES SALES NET REALIZED GAIN
---------------------------------------------------------------------------------------
$9,325,000 $11,010,000 $-
================================================================================
42 | USAA GROWTH AND TAX STRATEGY 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 November 30,
2018, the Fund had no securities on loan.
(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, 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.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
each subadviser's agreement should be renewed, terminated, or modified. The
Manager is also responsible for determining the asset allocation for the
subadviser(s). The allocation for each subadviser could range from 0% to 100% of
the Fund's assets, and the Manager could change the allocations without
shareholder approval.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid monthly at
an annualized rate of 0.30% of the Fund's average daily net assets.
The performance adjustment is calculated monthly by comparing the Fund's
performance over the performance period to the Composite Index which is
comprised of 51% of the Lipper General Municipal Bond Funds Index, which
measures the total return performance of the largest funds tracked by Lipper
that invest at least 65% of their assets in municipal debt issues in the top
four credit categories, and 49% of the Lipper Large-Cap Core Funds Index, which
measures the total return performance of the funds tracked by Lipper that by
portfolio practice invest at least 75% of their equity assets in companies with
market capitalizations of greater than 300% of the dollar-weighted median market
capitalization of the middle 1,000 securities of the S&P 1500 Index.
The performance period for the Fund consists of the current month plus the
previous 35 months. The following table is utilized to determine the extent of
the performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-----------------------------------------------------------------
+/- 20 to 50 +/-4
+/- 51 to 100 +/-5
+/- 101 and greater +/-6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant Lipper index, rounded
to the nearest basis point. Average daily net assets of the share class
are calculated over a rolling 36-month period.
The annual performance adjustment rate is multiplied by the average daily 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
================================================================================
44 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
the denominator of which is 365 (366 in leap years). The resulting amount is
then added to (in the case of overperformance) or subtracted from (in the case
of underperformance) the base fee.
Under the performance fee arrangement, the Fund will pay a positive performance
fee adjustment for a performance period whenever the Fund outperforms the
composite index over that period, even if the Fund had overall negative returns
during the performance period.
For the six-month period ended November 30, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $735,000, which included a less than
0.01% performance adjustment of $12,000.
SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment Subadvisory
Agreement with Northern Trust Investments, Inc. (NTI), under which NTI directs
the investment and reinvestment of the portion of the Fund's assets invested in
blue chip stocks (as allocated from time to time by the Manager). 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 $100,000 or a fee at an annual amount of 0.25% on the first $40
million of assets and 0.10% on assets over $40 million of the portion of the
Fund's average daily net assets that NTI manages. For the six-month period ended
November 30, 2018, the Manager incurred subadvisory fees with respect to the
Fund, paid or payable to NTI, of $148,000.
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 daily net assets. For the six-month period ended November 30, 2018, the
Fund incurred administration and servicing fees, paid or payable to the Manager,
of $362,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 2018, the Fund reimbursed the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
Manager $5,000 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 - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund based on an annual charge of $23 per shareholder
account plus out-of-pocket expenses. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. For the six-month period ended November 30, 2018, the
Fund incurred transfer agent's fees, paid or payable to SAS, of $171,000.
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 USAA, a large, diversified financial
services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10233, 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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed
certain requirements related to liquidity classification, highly liquid
investment minimums, and board approval of the liquidity risk management
programs to June 1, 2019. The Manager continues to evaluate the impact of this
rule on the Fund's financial statements and various filings.
================================================================================
46 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
(9) UPCOMING ACCOUNTING PRONOUNCEMENTS
(ASU) 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-------------------------------------------------------------------------
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 reporting
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 reporting disclosures.
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(10) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The
amendments to Regulation S-X took effect on November 5, 2018, and the financial
statements have been modified accordingly, for the current and prior periods.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
FINANCIAL HIGHLIGHTS
(UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-----------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-----------------------------------------------------------------------------
Net asset value at
beginning of period $ 19.77 $ 18.76 $ 17.79 $ 17.48 $ 16.86 $ 15.59
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .24 .44 .42 .43 .44 .41
Net realized and
unrealized gain (loss) (.02) 1.01 .96 .35 .59 1.26
-----------------------------------------------------------------------------
Total from investment
operations .22 1.45 1.38 .78 1.03 1.67
-----------------------------------------------------------------------------
Less distributions from:
Net investment income (.23) (.44) (.41) (.47) (.41) (.40)
-----------------------------------------------------------------------------
Net asset value at
end of period $ 19.76 $ 19.77 $ 18.76 $ 17.79 $ 17.48 $ 16.86
=============================================================================
Total return (%)* 1.13 7.81 7.88 4.60 6.16 10.92
Net assets at end of
period (000) $488,149 $459,682 $391,020 $327,334 $283,181 $221,445
Ratios to average
daily net assets:**
Expenses (%)(a) .61(b) .68 .84 .87 .85 .92(c)
Net investment income (%) 2.45(b) 2.32 2.33 2.53 2.63 2.60
Portfolio turnover (%) 5 10 4 10 9 5
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $481,074,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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%.
================================================================================
48 | USAA GROWTH AND TAX STRATEGY FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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 values and
expenses may not be used to estimate the actual ending account
================================================================================
EXPENSE EXAMPLE | 49
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
---------------------------------------------------------------
Actual $1,000.00 $1,011.30 $3.08
Hypothetical
(5% return before expenses) 1,000.00 1,022.01 3.09
*Expenses are equal to the Fund's annualized expense ratio of 0.61%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of 1.13% for the six-month period of June 1,
2018, through November 30, 2018.
================================================================================
50 | USAA GROWTH AND TAX STRATEGY 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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
27801-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INTERNATIONAL FUND]
================================================================================
SEMIANNUAL REPORT
USAA INTERNATIONAL FUND
FUND SHARES (USIFX) o INSTITUTIONAL SHARES (UIIFX) o ADVISER SHARES (UAIFX)
o R6 SHARES (URITX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 24
Financial Statements 26
Notes to Financial Statements 30
Financial Highlights 47
EXPENSE EXAMPLE 51
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 11/30/18 o
(% of Net Assets)
Banks ................................................................... 9.3%
Pharmaceuticals ......................................................... 7.8%
Food .................................................................... 4.7%
Oil & Gas ............................................................... 4.4%
Commercial Services ..................................................... 4.3%
Chemicals ............................................................... 4.3%
Insurance ............................................................... 4.2%
Software ................................................................ 3.6%
Beverages ............................................................... 3.5%
Electronics ............................................................. 3.5%
o TOP 10 EQUITY HOLDINGS - 11/30/18 o
(% of Net Assets)
Nestle S.A. ............................................................. 2.5%
Roche Holding AG ........................................................ 2.0%
AIA Group Ltd. .......................................................... 1.8%
Hoya Corp. .............................................................. 1.7%
Air Liquide S.A. ........................................................ 1.6%
UBS Group AG ............................................................ 1.6%
Schneider Electric SE ................................................... 1.6%
SAP SE .................................................................. 1.5%
Canadian National Railway Co. ........................................... 1.4%
Bayer AG ................................................................ 1.4%
Refer to the Portfolio of Investments for a complete list of securities.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o COUNTRY ALLOCATION - 11/30/18 o
(% of Net Assets)
[PIE CHART OF COUNTRY ALLOCATION]
OTHER* 30.7%
JAPAN 20.1%
UNITED KINGDOM 15.5%
FRANCE 12.4%
SWITZERLAND 9.9%
GERMANY 7.0%
NETHERLANDS 4.0%
CANADA 3.0%
[END PIE CHART]
*Includes countries with less than 3.0% of portfolio, money market instruments
and short-term investments purchased with cash collateral from securities
loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA INTERNATIONAL FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.2%)
COMMON STOCKS (98.1%)
BASIC MATERIALS (7.2%)
----------------------
CHEMICALS (4.3%)
498,735 Air Liquide S.A.(a) $ 60,304
513,699 Akzo Nobel N.V.(a) 43,301
7,911,900 China BlueChemical Ltd. "H"(a) 2,536
128,200 Daicel Corp.(a) 1,434
63,100 Ishihara Sangyo Kaisha Ltd.(a),(b) 693
320,345 JSR Corp.(a) 5,158
150,764 Linde plc(b) 23,981
91,200 Nippon Carbide Industries Co., Inc.(a) 1,556
64,119 Nolato AB "B"(a) 2,795
40,468 Plastivaloire(a),(c) 392
128,700 Shin-Etsu Chemical Co. Ltd.(a) 11,491
200,900 Teijin Ltd.(a) 3,471
63,900 Tokuyama Corp.(a) 1,752
----------
158,864
----------
FOREST PRODUCTS & PAPER (0.3%)
447,564 Altri SGPS S.A.(a) 3,254
422,822 Ence Energia y Celulosa S.A.(a) 2,682
200,784 Papeles y Cartones de Europa S.A.(a) 3,819
53,851 Semapa-Sociedade de Investimento e Gestao(a) 853
----------
10,608
----------
IRON/STEEL (0.6%)
131,900 Chubu Steel Plate Co. Ltd.(a) 726
166,800 Daido Metal Co. Ltd.(a) 1,402
431,660 Hitachi Metals Ltd.(a) 4,864
88,665 Japan Steel Works Ltd.(a) 1,620
188,035 Kyoei Steel Ltd.(a) 3,644
288,590 Nakayama Steel Works Ltd.(a) 1,487
213,600 Nippon Yakin Kogyo Co. Ltd.(a) 531
57,150 Salzgitter AG(a) 1,834
266,841 SSAB AB "B"(a) 774
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
424,865 Tokyo Steel Manufacturing Co. Ltd.(a) $ 3,676
139,700 Yamato Kogyo Co. Ltd.(a) 3,656
----------
24,214
----------
MINING (2.0%)
1,119,880 Acacia Mining plc(a),(b) 2,642
113,189 Anglo American Platinum Ltd.(a) 3,640
306,153 Anglo American plc(a) 6,118
2,845,248 Aurelia Metals Ltd.(a),(b),(c) 1,487
343,928 Barrick Gold Corp. 4,382
199,909 Cameco Corp. 2,373
607,726 Centerra Gold, Inc.(b) 2,470
14,504,000 CST Group Ltd.(a),(b) 45
1,239,515 Eldorado Gold Corp.(b),(c) 703
1,143,366 Gold Fields Ltd.(a) 3,323
157,505 Iluka Resources Ltd.(a) 936
692,941 Impala Platinum Holdings Ltd.(a),(b) 1,656
113,067 KAZ Minerals plc(a) 795
638,545 Kinross Gold Corp.(b) 1,730
10,500 Nittetsu Mining Co. Ltd.(a) 514
149,565 Northern Dynasty Minerals Ltd.(b),(c) 113
919,028 NRW Holdings Ltd.(a) 1,232
73,385 Pacific Metals Co. Ltd.(a) 2,159
2,933,782 Petra Diamonds Ltd.(a),(b) 1,579
1,244,036 Ramelius Resources Ltd.(a),(b) 350
1,592,060 Resolute Mining Ltd.(a) 1,109
563,905 Rio Tinto plc(a) 25,599
2,524,343 Saracen Mineral Holdings Ltd.(a),(b) 4,570
225,664 St. Barbara Ltd.(a) 733
1,512,725 Western Areas Ltd.(a) 2,421
----------
72,679
----------
Total Basic Materials 266,365
----------
COMMUNICATIONS (4.8%)
--------------------
ADVERTISING (0.8%)
64,600 Gendai Agency, Inc.(a) 284
466,700 Taptica international Ltd.(a) 1,817
2,548,725 WPP plc(a) 28,186
----------
30,287
----------
INTERNET (1.4%)
44,700 Attunity Ltd.(b) 999
244,852 Auto Trader Group plc(a),(d) 1,371
110,219 Baidu, Inc. ADR(b) 20,752
================================================================================
4 | USAA INTERNATIONAL FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
14,900 Digital Garage, Inc.(a) $ 408
455,674 Gocompare.Com Group plc(a) 454
34,400 Internet Initiative Japan, Inc.(a) 850
131,289 Jumbo Interactive Ltd.(a) 788
1,429,792 Just Eat plc(a),(b) 10,625
17,585 Masmovil Ibercom S.A.(a),(b) 2,155
50,043 NHN Entertainment Corp.(a),(b) 2,583
47,145 Proto Corp.(a) 652
802,347 Qliro Group AB(a),(b),(c) 1,028
344,931 Rightmove plc(a) 1,925
2,340,330 Yahoo Japan Corp.(a) 6,700
----------
51,290
----------
MEDIA (0.9%)
139,305 Fuji Media Holdings, Inc.(a) 2,178
94,164 Future plc(a),(b) 694
52,256 Metropole Television S.A.(a) 928
397,390 Nippon Television Holdings, Inc.(a) 6,221
816,125 ProSiebenSat.1 Media SE(a) 16,559
379,047 Television Francaise 1(a) 3,647
89,875 TV Asahi Holdings Corp.(a) 1,810
----------
32,037
----------
TELECOMMUNICATIONS (1.7%)
1,940,230 BT Group plc(a) 6,480
756,595 China Mobile Ltd.(a) 7,542
12,878,450 China Telecom Corp. Ltd. "H"(a) 6,980
6,188,825 China Unicom Hong Kong Ltd.(a) 7,193
4,581,000 CITIC Telecom International Holdings Ltd.(a) 1,551
22,838 Freenet AG(a) 470
404,374 Hellenic Telecommunications Organization S.A.(a) 4,780
215,503 KT Corp.(a) 5,871
548,900 M1 Ltd.(a) 840
1,985,178 Magyar Telekom Telecommunications plc(a) 3,125
535,687 Nokia Oyj(a) 2,956
123,347 Orange Belgium S.A.(a) 2,305
1,440,435 Service Stream Ltd.(a) 1,882
944,000 SmarTone Telecommunications Holdings Ltd.(a) 1,175
973,700 StarHub Ltd.(a) 1,353
823,683 Telefonaktiebolaget LM Ericsson "B"(a) 6,886
244,300 Telefonica Brasil S.A. Preference Shares 2,907
49,100 Uniden Holdings Corp.(a) 1,092
----------
65,388
----------
Total Communications 179,002
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
CONSUMER, CYCLICAL (9.2%)
-------------------------
AIRLINES (0.4%)
622,416 Air France-KLM(a),(b) $ 7,198
648,925 Air New Zealand Ltd.(a) 1,376
197,762 Dart Group plc(a) 2,111
1,170,135 SAS AB(a),(b) 2,877
----------
13,562
----------
APPAREL (1.5%)
610,582 Geox S.p.A.(a),(c) 892
11,909 Hermes International(a) 6,470
160,064 LVMH Moet Hennessy Louis Vuitton SE(a),(c) 46,063
119,300 Sanyo Shokai Ltd.(a) 2,165
131,800 Shikibo Ltd.(a) 1,352
----------
56,942
----------
AUTO MANUFACTURERS (0.6%)
5,577,370 Dongfeng Motor Group Co. Ltd. "H"(a) 5,405
390,235 Honda Motor Co. Ltd.(a) 11,012
211,313 Kia Motors Corp.(a) 5,750
24,185 Renault S.A.(a) 1,700
----------
23,867
----------
AUTO PARTS & EQUIPMENT (1.6%)
169,860 Aisan Industry Co. Ltd.(a) 1,243
665,700 Denso Corp.(a) 30,771
99,840 Exedy Corp.(a) 2,563
24,700 F-Tech, Inc.(a) 242
1,232 Georg Fischer AG(a) 959
58,100 Imasen Electric Industrial(a) 543
226,790 Keihin Corp.(a) 3,924
122,500 Nihon Plast Co. Ltd.(a) 1,000
191,353 Nissin Kogyo Co. Ltd.(a) 2,535
390,545 Schaeffler AG Preference Shares(a) 3,361
216,860 Sumitomo Riko Co. Ltd.(a) 2,124
11,000 Tachi-S Co. Ltd.(a) 155
202,240 Tokai Rika Co. Ltd.(a) 3,715
192,060 Toyoda Gosei Co. Ltd.(a) 3,697
106,580 Unipres Corp.(a) 2,007
----------
58,839
----------
DISTRIBUTION/WHOLESALE (0.3%)
45,769 D'ieteren S.A.(a) 1,838
22,400 Elematec Corp.(a) 446
100,400 Happinet Corp.(a) 1,428
================================================================================
6 | USAA INTERNATIONAL FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
203,727 Inchcape plc(a) $ 1,516
103,300 Nagase & Co. Ltd.(a) 1,544
342,987 Rexel S.A.(a) 4,116
1,266,942 SIG plc(a) 1,735
----------
12,623
----------
ENTERTAINMENT (0.4%)
230,445 Avex, Inc.(a) 3,137
1,492,489 Cineworld Group plc(a) 5,248
508,147 Kindred Group plc(a) 4,963
22,310 Sankyo Co. Ltd.(a) 893
617,244 William Hill plc(a) 1,275
----------
15,516
----------
FOOD SERVICE (1.2%)
2,115,300 Compass Group plc(a) 45,264
----------
HOME BUILDERS (0.1%)
107,610 Bovis Homes Group plc(a) 1,180
183,659 Redrow plc(a) 1,100
----------
2,280
----------
HOME FURNISHINGS (0.3%)
61,400 Canon Electronics, Inc.(a) 1,159
393,291 Howden Joinery Group plc(a) 2,233
150,660 Maxell Holdings Ltd.(a) 2,121
2,557,350 Pioneer Corp.(a),(b) 2,073
15,400 SodaStream International Ltd.(b) 2,212
----------
9,798
----------
LEISURE TIME (0.2%)
344,598 Hollywood Bowl Group plc(a) 858
69,500 Mizuno Corp.(a) 1,581
185,121 Technogym S.p.A.(a) 2,064
243,800 Tokyo Dome Corp.(a) 2,232
----------
6,735
----------
LODGING (0.0%)
43,500 Fujita Kanko, Inc.(a) 1,216
----------
RETAIL (2.4%)
6,569,865 361 Degrees International Ltd.(a) 1,620
235,400 Best World International Ltd.(a) 404
119,300 Cawachi Ltd.(a) 2,322
444,045 CECONOMY AG(a) 2,070
18,707 Cewe Stiftung & Co. KGAA(a) 1,447
509,145 Citizen Watch Co. Ltd.(a) 2,691
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
17,200 cocokara fine, Inc.(a) $ 982
8,572,535 Daphne International Holdings Ltd.(a),(b) 309
193,500 Fairwood Holdings Ltd.(a) 673
13,385 Galenica AG(a),(b) 624
334,146 Grafton Group plc(a) 3,016
747,139 Halfords Group plc(a) 2,782
111,080 Honeys Holdings Co. Ltd.(a) 890
96,500 Isetan Mitsukoshi Holdings Ltd.(a) 1,116
1,916,000 IT Ltd.(a) 1,003
1,152,606 JD Sports Fashion plc(a) 5,827
1,357,633 Kingfisher plc(a) 4,334
97,500 Komeri Co. Ltd.(a) 2,336
175,200 Laox Co. Ltd.(a),(b) 525
916,000 Lifestyle International Holdings Ltd.(a) 1,465
1,092,747 Marks & Spencer Group plc(a) 4,077
155,475 Nishimatsuya Chain Co. Ltd.(a) 1,365
76,845 PAL GROUP Holdings Co. Ltd.(a) 2,086
44,910 Shimamura Co. Ltd.(a) 3,823
45,329 Takkt AG(a) 726
218,600 Transaction Co. Ltd.(a) 1,593
148,713 Unieuro S.p.A.(a),(b) 1,853
9,400 United Arrows Ltd.(a) 317
87,013 WH Smith plc(a) 2,115
189,800 Xebio Holdings Co. Ltd.(a) 2,463
71,200 Yamada Denki Co. Ltd.(a) 344
858,436 Yum China Holdings, Inc. 30,758
----------
87,956
----------
STORAGE/WAREHOUSING (0.1%)
112,800 Mitsui-Soko Holdings Co. Ltd.(a),(b) 2,002
----------
TOYS/GAMES/HOBBIES (0.1%)
126,301 Games Workshop Group plc(a) 4,888
----------
Total Consumer, Cyclical 341,488
----------
CONSUMER, NON-CYCLICAL (28.8%)
------------------------------
AGRICULTURE (1.0%)
658,500 Feed One Co. Ltd.(a) 1,224
125,282 ForFarmers N.V.(a) 1,231
95,100 Hokuto Corp.(a) 1,692
420,078 Inghams Group Ltd.(a),(c) 1,351
1,278,500 Japan Tobacco, Inc.(a) 31,801
1,953,300 Japfa Ltd.(a) 1,019
32,600 Yamatane Corp.(a) 563
----------
38,881
----------
================================================================================
8 | USAA INTERNATIONAL FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
BEVERAGES (3.5%)
3,385,334 Ambev S.A. ADR $ 14,456
153,754 Carlsberg A/S "B"(a) 17,030
1,224,011 Diageo plc(a) 44,098
301,221 Pernod Ricard S.A.(a),(c) 48,182
85,160 Royal Unibrew A/S(a) 6,168
----------
129,934
----------
BIOTECHNOLOGY (0.2%)
62,400 RaQualia Pharma, Inc.(a),(b) 656
166,291 Swedish Orphan Biovitrum AB(a),(b) 3,593
21,000 UNIMAT Retirement Community Co. Ltd.(a) 386
13,635 Vilmorin & Cie S.A.(a) 899
59,761 Vitrolife AB(a) 1,020
----------
6,554
----------
COMMERCIAL SERVICES (4.3%)
139,805 Adecco Group AG(a) 6,948
16,672 Amadeus Fire AG(a) 1,787
3,592,000 AMVIG Holdings Ltd.(a) 870
69,967 ASTM S.p.A.(a) 1,333
64,765 Benesse Holdings, Inc.(a) 1,923
270,302 Bravida Holding AB(a) 1,939
555,201 CTT-Correios de Portugal S.A.(a),(c) 2,257
204,138 De La Rue plc(a) 1,219
137,600 Duskin Co. Ltd.(a) 3,172
695,104 Emeco Holdings Ltd.(a),(b) 1,321
1,011,417 Equiniti Group plc(a),(d) 2,924
1,867,420 Experian plc(a) 45,542
74,733 Hamburger Hafen und Logistik AG(a) 1,636
1,159,309 Hays plc(a) 2,327
176,700 Kosaido Co. Ltd.(a) 666
33,254 Loomis AB "B"(a) 1,121
51,923 Openjobmetis S.p.A agenzia per il lavoro(a),(b) 443
419,861 Pagegroup plc(a) 2,664
368,975 Ramirent Oyj(a) 2,344
594,788 Randstad N.V.(a) 28,964
739,779 Redde plc(a) 1,643
643,599 RELX plc(a) 13,424
1,366,209 RELX plc(a) 28,509
386,100 Riso Kyoiku Co. Ltd.(a) 1,326
91,900 Shin Nippon Biomedical Laboratories Ltd.(a),(b) 576
10,914 Sixt SE Preference Shares(a) 742
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
304,376 SThree plc(a) $ 1,111
267,265 Toppan Forms Co. Ltd.(a) 2,451
----------
161,182
----------
COSMETICS/PERSONAL CARE (2.7%)
473,567 Beiersdorf AG(a) 50,651
770,716 Essity AB "B"(a) 19,793
17,400 Fancl Corp.(a) 454
12,100 Kao Corp.(a) 892
121,051 L'Oreal S.A. (a) 28,615
27,722 Oriflame Holding AG(a) 699
----------
101,104
----------
FOOD (4.7%)
99,100 Arcs Co. Ltd.(a) 2,483
105,740 Austevoll Seafood ASA(a) 1,460
470,693 Danone S.A.(a) 35,227
1,417,369 J Sainsbury plc(a) 5,510
38,200 Kyokuyo Co. Ltd.(a) 1,085
532,597 Metcash Ltd.(a) 1,083
260,721 METRO AG(a) 4,001
55,800 Mitsubishi Shokuhin Co. Ltd.(a) 1,507
1,096,603 Nestle S.A.(a) 93,639
88,000 NH Foods Ltd.(a) 3,265
28,300 Nisshin Oillio Group Ltd.(a) 878
35,161 Salmar ASA(a) 1,988
1,673,198 Sonae SGPS S.A.(a) 1,592
268,362 SSP Group plc(a) 2,143
293,811 Tate & Lyle plc(a) 2,689
5,944,363 Tesco plc(a) 14,992
----------
173,542
----------
HEALTHCARE-PRODUCTS (3.4%)
52,857 Ambu A/S "B"(a) 1,062
164,405 Biotage AB(a) 2,095
23,302 DiaSorin S.p.A.(a) 1,982
208,835 Elekta AB "B"(a) 2,524
177,940 EssilorLuxottica S.A.(a) 22,602
12,972 Lifco AB "B"(a) 489
928,700 Olympus Corp.(a) 26,159
495,225 QIAGEN N.V.(a),(b) 17,470
859,100 Terumo Corp.(a) 50,593
----------
124,976
----------
================================================================================
10 | USAA INTERNATIONAL FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
HEALTHCARE-SERVICES (0.1%)
65,580 CMIC Holdings Co. Ltd.(a) $ 1,258
9,731 Hansa Medical AB(a),(b),(c) 324
59,085 Korian S.A.(a) 2,287
1,086,345 Oceania Healthcare Ltd.(a) 851
132,968 Summerset Group Holdings Ltd.(a) 602
----------
5,322
----------
HOUSEHOLD PRODUCTS/WARES (1.1%)
487,244 Reckitt Benckiser Group plc(a) 40,538
----------
PHARMACEUTICALS (7.8%)
125,700 Alfresa Holdings Corp.(a) 3,360
124,901 AstraZeneca plc(a) 9,763
704,299 Bayer AG(a) 51,439
44,300 Daito Pharmaceutical Co. Ltd.(a) 1,335
52,115 Eisai Co. Ltd.(a) 4,798
11,213 Galapagos N.V.(a),(b) 1,141
92,976 Hikma Pharmaceuticals plc(a) 2,118
765,469 Karo Pharma AB(a) 3,159
253,834 Merck KGaA(a) 27,991
12,469 Mithra Pharmaceuticals S.A.(a),(b),(c) 366
549,753 Novartis AG(a) 50,185
904,579 Novo Nordisk A/S "B"(a) 42,162
105,650 Orexo AB(a),(b),(c) 728
45,104 Recipharm AB "B"(a),(b) 673
282,420 Roche Holding AG(a) 73,282
28,000 Suzuken Co. Ltd.(a) 1,508
194,815 Takeda Pharmaceutical Co. Ltd.(a) 7,351
41,900 Toho Holdings Co. Ltd.(a) 1,113
26,600 Towa Pharmaceutical Co. Ltd.(a) 1,984
63,600 Tsumura & Co.(a) 1,976
223,500 Vital KSK Holdings, Inc.(a) 2,386
----------
288,818
----------
Total Consumer, Non-cyclical 1,070,851
----------
DIVERSIFIED (0.1%)
------------------
HOLDING COMPANIES-DIVERSIFIED (0.1%)
185,355 Industrivarden AB "C"(a) 3,814
----------
ENERGY (4.9%)
-------------
COAL (0.1%)
4,644,700 Geo Energy Resources Ltd.(a),(c) 596
271,254 Whitehaven Coal Ltd.(a) 850
----------
1,446
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
ENERGY-ALTERNATE SOURCES (0.1%)
128,990 ERG S.p.A.(a) $ 2,351
673,489 Falck Renewables S.p.A.(a) 1,845
----------
4,196
----------
OIL & GAS (4.4%)
566,379 Advantage Oil & Gas Ltd.(b) 1,015
180,120 ARC Resources Ltd. 1,234
920,667 Beach Energy Ltd.(a) 1,025
2,194,497 BP plc(a) 14,552
70,600 Cosmo Energy Holdings Co. Ltd.(a) 1,649
2,181,625 Eni S.p.A.(a) 35,195
1,279,515 Faroe Petroleum plc(a),(b) 2,623
1,288,676 Gazprom PJSC ADR 6,205
516,930 Inpex Corp.(a) 5,496
15,336 Israel Corp. Ltd(a) 4,492
172,870 Japan Petroleum Exploration Co. Ltd.(a) 3,591
74,167 LUKOIL PJSC ADR 5,429
676,311 Painted Pony Energy Ltd.(b),(c) 891
80,777 Petroleo Brasileiro S.A. ADR 1,176
1,864,453 Premier Oil plc(a),(b) 1,680
477,050 Royal Dutch Shell plc "B"(a) 14,591
1,207,733 Suncor Energy, Inc. 38,941
700,600 Surgutneftegas PJSC ADR(a) 2,786
318,825 Surgutneftegas PJSC ADR 1,262
27,147 Tethys Oil AB(a) 241
275,601 TOTAL S.A.(a),(c) 15,342
120,246 Tourmaline Oil Corp. 1,665
182,010 YPF S.A. ADR(b) 2,725
230,285 Z Energy Ltd.(a) 910
----------
164,716
----------
OIL & GAS SERVICES (0.3%)
184,830 Fugro N.V.(a),(b),(c) 2,248
380,028 Maire Tecnimont S.p.A.(a) 1,485
286,837 Petrofac Ltd.(a) 1,863
981,996 Saipem S.p.A.(a),(b) 4,300
905,159 Trican Well Service Ltd.(b) 831
----------
10,727
----------
Total Energy 181,085
----------
FINANCIAL (17.9%)
-----------------
BANKS (9.3%)
138,000 77 Bank Ltd.(a) 2,763
14,400 Aichi Bank Ltd.(a) 557
================================================================================
12 | USAA INTERNATIONAL FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
981,647 Allahabad Bank(a),(b) $ 680
597,013 Bank of Ireland Group plc(a) 3,780
9,280,868 Barclays plc(a) 19,345
167,880 BNP Paribas S.A.(a) 8,455
749,568 BPER Banca(a) 3,055
1,366,246 CaixaBank S.A.(a) 5,645
757,170 Canara Bank(a),(b) 2,787
225,900 Chiba Kogyo Bank Ltd.(a) 886
965,871 Corp. Bank(a),(b) 369
257,465 Dah Sing Financial Holdings Ltd.(a) 1,425
2,100,500 DBS Group Holdings Ltd.(a) 37,521
45,870 Deutsche Pfandbriefbank AG(a),(d) 546
420,000 FIDEA Holdings Co. Ltd.(a) 573
51,000 Hokuhoku Financial Group, Inc.(a) 667
1,675,885 HSBC Holdings plc(a) 14,199
44,400 Hyakujushi Bank Ltd.(a) 1,128
3,975,413 ING Groep N.V.(a) 48,395
10,704,404 Intesa Sanpaolo S.p.A.(a) 24,836
2,359,444 Israel Discount Bank Ltd. "A"(a) 8,171
39,600 Juroku Bank Ltd(a) 941
511,645 KBC Group N.V.(a) 36,822
1,695,795 Mitsubishi UFJ Financial Group, Inc.(a) 9,253
5,313,970 Mizuho Financial Group, Inc.(a) 8,819
24,600 Nanto Bank Ltd.(a) 558
189,400 Sberbank of Russia PJSC ADR 2,244
180,152 Societe Generale S.A.(a) 6,634
215,218 SpareBank 1 SMN(a) 2,196
92,597 SpareBank 1 SR-Bank ASA(a) 999
808,153 Standard Chartered plc(a) 6,281
266,700 Sumitomo Mitsui Financial Group, Inc.(a) 9,793
160,085 Sumitomo Mitsui Trust Holdings, Inc.(a) 6,423
79,800 TOMONY Holdings, Inc.(a) 333
343,600 Tsukuba Bank Ltd.(a) 733
4,288,166 UBS Group AG(a),(b) 58,185
1,944,250 Unicaja Banco S.A.(a),(d) 2,354
545,446 UniCredit S.p.A.(a) 7,037
11,150 VP Bank AG(a) 1,746
----------
347,134
----------
DIVERSIFIED FINANCIAL SERVICES (2.5%)
118,000 Aizawa Securities Co. Ltd.(a) 795
240,284 BinckBank N.V.(a) 1,198
646,173 Charter Court Financial Services Group plc(a) 1,939
60,765 Close Brothers Group plc(a) 1,165
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
833,099 FlexiGroup Ltd.(a) $ 916
63,642 Flow Traders(a) 1,974
354,612 GAM Holding AG(a),(b) 1,866
64,681,025 G-Resources Group Ltd.(a),(b) 440
825,071 Housing Development Finance Corp. Ltd.(a) 23,639
189,505 Ichiyoshi Securities Co. Ltd.(a) 1,599
29,795 Intertrust N.V.(a) 480
59,400 IwaiCosmo Holdings, Inc.(a) 739
516,600 Japan Securities Finance Co. Ltd.(a) 3,006
593,929 Julius Baer Group Ltd.(a),(b) 24,055
113,766 KB Financial Group, Inc.(a) 4,785
1,073,583 Link Administration Holdings Ltd.(a) 5,487
390,369 Magellan Financial Group Ltd.(a) 7,467
102,646 Plus500 Ltd.(a) 1,980
22,900 Ricoh Leasing Co. Ltd.(a) 745
123,294 Shinhan Financial Group Co. Ltd.(a) 4,543
18,787 Swissquote Group Holding S.A.(a) 901
403,615 Tochigi Bank Ltd.(a) 1,049
78,520 Wuestenrot & Wuerttembergische AG(a) 1,553
----------
92,321
----------
INSURANCE (4.2%)
117,489 Ageas(a) 5,674
8,306,000 AIA Group Ltd.(a) 68,127
22,361 ASR Nederland N.V.(a) 968
429,683 Assicurazioni Generali S.p.A.(a) 7,263
304,932 Coface S.A.(a),(b) 2,835
322,450 Dai-ichi Life Holdings, Inc.(a) 5,624
2,196,797 Just Group plc(a) 2,448
724,676 Prudential plc(a) 14,238
7,137,628 Shin Kong Financial Holding Co. Ltd.(a) 2,419
288,884 Societa Cattolica di Assicurazioni(a) 2,382
505,440 T&D Holdings, Inc.(a) 7,189
360,645 Tongyang Life Insurance Co. Ltd.(a) 1,781
324,150 Unipol Gruppo S.p.A.(a) 1,345
113,763 Zurich Insurance Group AG(a) 35,719
----------
158,012
----------
INVESTMENT COMPANIES (0.1%)
16,311 Corp. Financiera Alba S.A.(a) 739
482,100 Uranium Participation Corp.(b) 1,749
----------
2,488
----------
================================================================================
14 | USAA INTERNATIONAL FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
REAL ESTATE (1.0%)
81,853 ADO Properties S.A.(a) $ 4,458
104,049 CA Immobilien Anlagen AG(a) 3,350
51,100 Cosmos Initia Co. Ltd.(a) 297
53,379 DIC Asset AG(a) 583
65,300 FJ Next Co. Ltd.(a) 543
97,637 Hemfosa Fastigheter AB(a) 772
1,282,422 Klovern AB "B"(a) 1,473
78,860 Kungsleden AB(a) 547
85,200 Meiwa Estate Co. Ltd.(a) 471
84,100 Mugen Estate Co. Ltd.(a) 512
147,506 Nexity S.A.(a) 7,249
97,637 Nyfosa AB(b) 457
1,840,521 Propertylink Group(a) 1,589
93,400 Raysum Co. Ltd.(a) 1,010
321,725 Sagax AB "D"(a) 1,160
104,988 Selvaag Bolig ASA(a) 479
1,185,117 Sirius Real Estate Ltd.(a) 905
157,671 TAG Immobilien AG(a) 3,774
162,800 Unizo Holdings Co. Ltd.(a) 3,316
395,371 Watkin Jones plc(a),(c) 993
95,000 Wheelock Properties Singapore Ltd.(e) 145
271,199 Wihlborgs Fastigheter AB(a) 3,093
----------
37,176
----------
REITS (0.8%)
239,477 Abacus Property Group(a) 556
2,757 Altarea SCA REIT(a) 572
26,922 Befimmo S.A.(a) 1,576
825,686 Beni Stabili S.p.A. SIIQ(a) 679
592,890 GDI Property Group(a) 549
137,251 Great Portland Estates plc(a) 1,216
363,809 Immobiliare Grande Distribuzione SIIQ S.p.A.(a) 2,465
57,760 Invesco Office J-Reit, Inc.(a) 8,391
655,731 Irish Residential Properties REIT plc(a) 1,064
5,084 Japan Excellent, Inc.(a) 6,969
112 Kenedix Office Investment Corp.(a) 735
136,447 Mercialys S.A.(a) 1,974
18,443 NSI N.V.(a) 750
1,308,909 Regional REIT Ltd.(a),(d) 1,650
----------
29,146
----------
Total Financial 666,277
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
INDUSTRIAL (16.0%)
------------------
AEROSPACE/DEFENSE (1.1%)
70,336 Avon Rubber plc(a) $ 1,176
445,117 Meggitt plc(a) 2,941
67,876 MTU Aero Engines AG(a) 14,121
2,224,038 Rolls-Royce Holdings plc(a),(b) 24,182
----------
42,420
----------
BUILDING MATERIALS (1.7%)
219,898 Cie de Saint-Gobain(a) 8,153
319,800 Daikin Industries Ltd.(a) 35,561
63,100 Endo Lighting Corp.(a) 444
137,636 LafargeHolcim Ltd.(a),(b) 6,180
245,400 Nippon Sheet Glass Co. Ltd.(a) 2,093
226,959 Polypipe Group plc(a) 990
30,417 Sika AG(a) 3,768
73,800 Taiheiyo Cement Corp.(a) 2,496
45,364 Vicat S.A.(a) 2,178
----------
61,863
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.5%)
302,540 Funai Electric Co. Ltd.(a),(b) 1,991
631,000 Johnson Electric Holdings Ltd.(a) 1,411
133,000 Kyosan Electric Manufacturing Co. Ltd.(a) 592
403,339 Legrand S.A.(a) 24,709
29,900 Nippon Seisen Co. Ltd.(a) 924
795,451 Schneider Electric SE(a) 57,924
168,900 SWCC Showa Holdings Co. Ltd.(a) 1,037
273,255 Ushio, Inc.(a) 3,065
219,199 Zumtobel Group AG(a),(b),(c) 2,161
----------
93,814
----------
ELECTRONICS (3.5%)
157,352 AT&S Austria Technologie & Systemtechnik AG(a) 3,173
7,824 Dr Hoenle AG(a) 484
217,354 Electrocomponents plc(a) 1,426
149,500 Furuno Electric Co. Ltd.(a) 1,714
140,590 Hosiden Corp.(a) 1,090
1,051,500 Hoya Corp.(a) 64,547
224,270 Ibiden Co., Ltd.(a) 3,122
11,264 Isra Vision AG(a) 438
32,300 Ituran Location and Control Ltd. 1,070
606,500 Kyocera Corp.(a) 32,753
20,000 Kyokuto Boeki Kaisha Ltd.(a) 311
511 LEM Holding S.A.(a) 538
166,995 Mycronic AB(a),(c) 2,064
================================================================================
16 | USAA INTERNATIONAL FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
308,005 Nichicon Corp.(a) $ 2,458
285,435 NOK Corp.(a) 4,327
1,160,000 PC Partner Group Ltd.(a) 431
17,100 Sanshin Electronics Co. Ltd.(a) 304
45,300 Shibaura Mechatronics Corp.(a) 1,631
514,300 Simplo Technology Co. Ltd.(a) 3,145
125,600 Star Micronics Co. Ltd.(a) 1,874
91,145 Tokyo Seimitsu Co. Ltd.(a) 2,714
----------
129,614
----------
ENGINEERING & CONSTRUCTION (0.9%)
146,887 AF AB "B"(a) 2,949
4,177 Alten S.A.(a) 380
4,281,265 China Machinery Engineering Corp. "H"(a) 2,134
288,180 Chiyoda Corp.(a) 817
38,700 Daiho Corp.(a) 1,287
117,186 Downer EDI Ltd.(a) 539
22,500 Fudo Tetra Corp.(a) 387
353,114 Galliford Try plc(a) 3,244
32,236 Gaztransport Et Technigaz S.A.(a) 2,410
223,105 JGC Corp.(a) 3,261
354,900 Maeda Corp.(a) 3,729
113,600 Matsui Construction Co. Ltd.(a) 854
152,200 Meisei Industrial Co. Ltd.(a) 1,133
78,200 Miyaji Engineering Group, Inc.(a) 1,484
57,768 Morgan Sindall Group plc(a) 904
47,700 Nishimatsu Construction Co. Ltd.(a) 1,101
967,534 Raubex Group Ltd.(a) 1,448
82,300 Sanki Engineering Co. Ltd.(a) 886
69,900 Toa Corp.(a) 970
37,900 Tokyu Construction Co. Ltd.(a) 382
596,200 Toyo Construction Co. Ltd.(a) 2,223
216,195 Toyo Engineering Corp.(a),(b) 1,670
----------
34,192
----------
ENVIRONMENTAL CONTROL (0.0%)
77,600 Oyo Corp.(a) 914
922,774 Renewi plc(a) 476
----------
1,390
----------
HAND/MACHINE TOOLS (0.0%)
54,500 DMG Mori Co. Ltd.(a) 763
99,400 Punch Industry Co. Ltd.(a) 548
90,161 Tornos Holding AG(a),(b) 609
----------
1,920
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
MACHINERY-CONSTRUCTION & MINING (0.3%)
48,500 Kato Works Co. Ltd.(a) $ 1,303
198,925 Mitsubishi Heavy Industries Ltd.(a) 7,565
21,200 Sakai Heavy Industries Ltd.(a) 504
----------
9,372
----------
MACHINERY-DIVERSIFIED (1.5%)
98,100 FANUC Corp.(a) 16,909
141,700 Hisaka Works Ltd.(a) 1,190
1,937,700 Kubota Corp.(a) 33,092
11,000 OKUMA Corp.(a) 548
84,351 Toshiba Machine Co. Ltd.(a) 1,474
9,300 Tsubakimoto Chain Co.(a) 348
88,400 Tsugami Corp.(a) 663
----------
54,224
----------
METAL FABRICATION/HARDWARE (0.3%)
220,800 Ahresty Corp.(a) 1,420
15,294 AMG Advanced Metallurgical Group N.V.(a) 678
345,670 Bodycote plc(a) 3,247
63,237 Lindab International AB(a) 472
16,900 Mory Industries, Inc.(a) 405
138,180 Neturen Co. Ltd.(a) 1,247
20,100 Onoken Co. Ltd.(a) 297
63,200 Shinsho Corp.(a) 1,539
32,600 Toho Zinc Co. Ltd.(a) 1,100
----------
10,405
----------
MISCELLANEOUS MANUFACTURERS (1.1%)
610,439 AGFA-Gevaert N.V.(a),(b) 2,628
101,965 Alstom S.A.(a) 4,476
130,061 Ansell Ltd.(a) 2,169
611,400 China Sunsine Chemical Holdings Ltd.(a) 579
57,780 Enplas Corp.(a) 1,597
163,080 Nikon Corp.(a) 2,560
390,375 Orica Ltd.(a) 5,017
911,873 Smiths Group plc(a) 16,198
102,000 Tamron Co. Ltd.(a) 1,642
58,300 Toyobo Co. Ltd.(a) 844
224,664 Vesuvius plc(a) 1,513
----------
39,223
----------
================================================================================
18 | USAA INTERNATIONAL FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
PACKAGING & CONTAINERS (0.4%)
1,097,998 Amcor Ltd.(a) $ 10,798
3,065,939 Nampak Ltd.(a),(b) 3,165
7,777 Vidrala S.A.(a) 669
----------
14,632
----------
SHIPBUILDING (0.1%)
1,670,238 Fincantieri S.p.A.(a),(b) 1,968
3,650,500 Yangzijiang Shipbuilding Holdings Ltd.(a) 3,317
----------
5,285
----------
TRANSPORTATION (2.5%)
3,835 AP Moller - Maersk A/S "B"(a) 5,459
300,762 BW Offshore Ltd.(a),(b) 1,299
612,191 Canadian National Railway Co. 52,538
62,368 Cia de Distribucion Integral Logista Holdings S.A.(a) 1,558
177,359 D/S Norden A/S(a),(b),(c) 2,644
1,400,930 Firstgroup plc(a),(b) 1,595
176,869 Go-Ahead Group plc(a) 3,887
109,300 Kamigumi Co. Ltd.(a) 2,456
70,436 Kuehne & Nagel International AG(a) 9,924
64,300 Nankai Electric Railway Co. Ltd.(a) 1,719
591,425 National Express Group plc(a) 3,050
13,526,145 Pacific Basin Shipping Ltd.(a) 3,037
1,295,043 PostNL N.V.(a) 3,826
----------
92,992
----------
TRUCKING & LEASING (0.1%)
171,800 Fly Leasing Ltd. ADR(b) 2,089
----------
Total Industrial 593,435
----------
TECHNOLOGY (7.5%)
----------------
COMPUTERS (2.5%)
4,956,745 Acer, Inc.(a),(b) 3,225
7,510 Bechtle AG(a) 601
78,700 Bell System24 Holdings, Inc.(a) 1,046
514,000 Camsing International Holding Ltd.(a) 505
225,527 Check Point Software Technologies Ltd.(b) 25,216
1,506,434 Compal Electronics, Inc. GDR(e) 4,304
52,341 FDM Group Holdings plc(a) 569
104,784 Fujitsu Ltd.(a) 6,449
204,200 Ines Corp.(a) 2,283
31,205 Melco Holdings, Inc.(a) 1,069
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
13,000 Roland DG Corp.(a) $ 282
1,281,530 Serco Group plc(a),(b) 1,460
134,251 Softcat plc(a) 1,033
6,187 Sopra Steria Group(a) 633
1,530,856 Tata Consultancy Services Ltd.(a) 43,354
----------
92,029
----------
OFFICE/BUSINESS EQUIPMENT (0.2%)
162,040 Canon, Inc.(a) 4,595
130,029 Neopost S.A.(a) 3,612
21,000 Toshiba TEC Corp.(a) 567
----------
8,774
----------
SEMICONDUCTORS (1.2%)
276,540 MediaTek, Inc.(a) 2,136
66,200 Miraial Co. Ltd.(a) 567
6,800 NuFlare Technology, Inc.(a) 368
152,700 Shinkawa Ltd.(a),(b) 696
139,460 Shinko Electric Industries Co. Ltd.(a) 988
50,375 Siltronic AG(a) 4,537
885,709 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 33,294
16,200 V Technology Co. Ltd.(a) 2,292
----------
44,878
----------
SOFTWARE (3.6%)
132,100 Advanced Media, Inc.(a),(b) 2,102
13,000 Alpha Systems, Inc.(a) 305
627,222 Amadeus IT Group S.A.(a) 45,057
914,132 Bravura Solutions Ltd.(a) 2,486
165,000 Capcom Co. Ltd.(a) 3,246
102,412 Dassault Systemes SE(a) 12,341
160,295 DeNA Co. Ltd.(a) 2,975
173,261 EMIS Group plc(a) 2,050
174,400 Focus Systems Corp.(a) 1,713
695,920 Gree, Inc.(a) 3,043
690,612 Learning Technologies Group plc(a) 850
2,265,000 Leyou Technologies Holdings Ltd.(a),(b),(c) 612
291,264 NetEnt AB(a),(b) 1,239
34,200 NSD Co. Ltd.(a) 723
543,109 SAP SE(a) 55,864
----------
134,606
----------
Total Technology 280,287
----------
================================================================================
20 | USAA INTERNATIONAL FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
UTILITIES (1.7%)
----------------
ELECTRIC (1.5%)
31,327 Albioma S.A.(a) $ 594
550,900 Cia Paranaense de Energia Preference Shares 4,630
482,808 E.ON SE(a) 4,929
13,010 Elia System Operator S.A.(a) 868
2,250,856 Engie S.A.(a) 31,749
59,616 EVN AG(a) 953
815,197 Hera S.p.A.(a) 2,240
412,800 Hokkaido Electric Power Co., Inc.(a) 2,837
176,093 Iren S.p.A.(a) 382
1,355,636 NTPC Ltd.(a) 2,699
133,902 REN - Redes Energeticas Nacionais SGPS S.A.(a) 366
177,124 RWE AG(a) 3,829
----------
56,076
----------
GAS (0.2%)
2,904,947 Centrica plc(a) 5,145
----------
Total Utilities 61,221
----------
Total Common Stocks (cost: $2,981,393) 3,643,825
----------
EXCHANGE-TRADED FUNDS (0.1%)
64,041 iShares Core MSCI EAFE ETF (cost: $3,802) 3,777
----------
INVESTMENT COMPANIES (0.0%)
9,754 HBM Healthcare Investments AG "A"(a),(b) (cost: $1,132) 1,591
----------
PREFERRED STOCKS (0.0%)
INDUSTRIAL (0.0%)
-----------------
BUILDING MATERIALS (0.0%)
25,059 Buzzi Unicem S.p.A.(a) (cost: $250) 282
----------
RIGHTS (0.0%)
INDUSTRIAL (0.0%)
-----------------
AEROSPACE/DEFENSE (0.0%)
104,471,520 Rolls Royce Holdings plc(b),(e) (cost: $135) 133
----------
Total Equity Securities (cost: $2,986,712) 3,649,608
----------
MONEY MARKET INSTRUMENTS (1.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.3%)
49,170,939 State Street Institutional Treasury Money Market Fund Premier Class,
2.19%(f) (cost: $49,171) 49,171
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (3.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.1%)
57,737,118 HSBC U.S. Government Money Market Fund Class I, 2.13%(f) $ 57,737
44,615,794 Invesco Government & Agency Portfolio Institutional Class, 2.12%(f) 44,616
11,751,200 Western Asset Institutional Government Reserves Institutional Class, 2.10%(f) 11,751
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $114,104) 114,104
----------
TOTAL INVESTMENTS (COST: $3,149,987) $3,812,883
==========
----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $292,497 $3,351,328 $- $3,643,825
Exchange-Traded Funds 3,777 - - 3,777
Investment Companies - 1,591 - 1,591
Preferred Stocks - 282 - 282
Rights - 133 - 133
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 49,171 - - 49,171
Short-Term Investments Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 114,104 - - 114,104
----------------------------------------------------------------------------------------------------------
Total $459,549 $3,353,334 $- $3,812,883
----------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
The Portfolio of Investments uses the BICS, which may differ from the Fund's
compliance classification.
================================================================================
22 | USAA INTERNATIONAL FUND
================================================================================
--------------------------------------------------------------------------------
FAIR VALUE LEVEL TRANSFERS
--------------------------------------------------------------------------------
For the period of June 1, 2018, through November 30, 2018, the table below shows
the transfers between Level 1, Level 2, and Level 3. The Fund's policy is to
recognize transfers in and transfers out as event or circumstance that caused
the transfer occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
----------------------------------------------------------------------------------------------------------
Common Stocks(I) $(3,477,208) $3,477,208 $-
Common Stocks(II) 5,350 (5,350) -
Investment Companies(I) (2,113) 2,113 -
Preferred Stocks(I) (697) 697 -
----------------------------------------------------------------------------------------------------------
Total $(3,474,668) $3,474,668 $-
----------------------------------------------------------------------------------------------------------
(I) Transferred from Level 1 to Level 2 due to an assessment of events at the
end of the current reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets.
(II) Transferred from Level 2 to Level 1 due to an assessment of events at the
beginning of the reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets. Such adjustments were not made at the end of the current reporting
period.
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
GDR Global depositary receipts are receipts issued by a U.S. or foreign
bank evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
================================================================================
24 | USAA INTERNATIONAL FUND
================================================================================
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) Securities with a value of $3,348,752,000, which represented 90.1%
of the Fund's net assets, were classified as Level 2 at November 30,
2018, due to the prices being adjusted to take into account significant
market movements following the close of local trading.
(b) Non-income-producing security.
(c) The security, or a portion thereof, was out on loan as of November
30, 2018.
(d) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company under liquidity guidelines approved by USAA Mutual Funds
Trust's Board of Trustees, unless otherwise noted as illiquid.
(e) Security was fair valued at November 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 $4,582,000, which represented 0.1% of the Fund's
net assets.
(f) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 25
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $109,033) (cost of $3,149,987) $3,812,883
Cash denominated in foreign currencies (identified cost of $871) 866
Receivables:
Capital shares sold 5,726
USAA Asset Management Company (Note 7) 4
Dividends and interest 11,912
Securities sold 18,396
Other 88
Unrealized appreciation on foreign currency contracts held, at value 25
----------
Total assets 3,849,900
----------
LIABILITIES
Payables:
Upon return of securities loaned 114,104
Securities purchased 11,519
Capital shares redeemed 1,624
Accrued management fees 2,298
Accrued transfer agent's fees 70
Other accrued expenses and payables 4,900
----------
Total liabilities 134,515
----------
Net assets applicable to capital shares outstanding $3,715,385
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,796,707
Distributable earnings 918,678
----------
Net assets applicable to capital shares outstanding $3,715,385
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,693,381/56,297 capital shares
outstanding, no par value) $ 30.08
==========
Institutional Shares (net assets of $2,009,845/66,988 capital shares
outstanding, no par value) $ 30.00
==========
Adviser Shares (net assets of $7,457/249 capital shares
outstanding, no par value) $ 29.90
==========
R6 Shares (net assets of $4,702/156 capital shares
outstanding, no par value) $ 30.10
==========
See accompanying notes to financial statements.
================================================================================
26 | USAA INTERNATIONAL FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $3,262) $ 36,037
Interest 463
Securities lending (net) 588
---------
Total income 37,088
---------
EXPENSES
Management fees 15,383
Administration and servicing fees:
Fund Shares 1,361
Institutional Shares 1,129
Adviser Shares 6
R6 Shares* 1
Transfer agent's fees:
Fund Shares 1,103
Institutional Shares 1,129
Distribution and service fees (Note 7):
Adviser Shares 10
Custody and accounting fees:
Fund Shares 231
Institutional Shares 302
Adviser Shares 1
Postage:
Fund Shares 50
Institutional Shares 34
Shareholder reporting fees:
Fund Shares 30
Institutional Shares 5
Trustees' fees 18
Registration fees:
Fund Shares 29
Institutional Shares 20
Adviser Shares 9
R6 Shares* 36
Professional fees 99
Other 37
---------
Total expenses 21,023
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
Expenses reimbursed:
Adviser Shares $ (3)
R6 Shares* (36)
---------
Net expenses 20,984
---------
NET INVESTMENT INCOME 16,104
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments 62,005
Foreign currency transactions (471)
Change in net unrealized appreciation/(depreciation) of:
Investments (424,393)
Foreign capital gains tax (350)
Foreign currency translations 45
---------
Net realized and unrealized loss (363,164)
---------
Decrease in net assets resulting from operations $(347,060)
=========
*R6 Shares commenced operations on August 17, 2018.
See accompanying notes to financial statements.
================================================================================
28 | USAA INTERNATIONAL FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended
May 31, 2018
-----------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
-----------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 16,104 $ 68,402
Net realized gain on investments 62,005 254,122
Net realized loss on foreign currency transactions (471) (278)
Change in net unrealized appreciation/(depreciation) of:
Investments (424,393) 29,496
Foreign capital gains tax (350) (3,453)
Foreign currency translations 45 (337)
--------------------------
Increase (decrease) in net assets resulting from operations (347,060) 347,952
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares - (56,643)
Institutional Shares - (76,632)
Adviser Shares - (230)
R6 Shares* - -
--------------------------
Distributions to shareholders - (133,505)
--------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares (27,443) 90,583
Institutional Shares (148,559) (84,177)
Adviser Shares 45 167
R6 Shares* 5,000 -
--------------------------
Total net increase (decrease) in net assets from
capital share transactions (170,957) 6,573
--------------------------
Net increase (decrease) in net assets (518,017) 221,020
NET ASSETS
Beginning of period 4,233,402 4,012,382
--------------------------
End of period $3,715,385 $4,233,402
==========================
*R6 Shares commenced operations on August 17, 2018.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA International Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act. The Fund's investment objective is
to seek capital appreciation.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
The Fund consists of four classes of shares: International Fund Shares (Fund
Shares), International Fund Institutional Shares (Institutional Shares),
International Fund Adviser Shares (Adviser Shares), and effective August 17,
2018, a new share class designated International Fund R6 Shares (R6 Shares).
================================================================================
30 | USAA INTERNATIONAL 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, distribution and service (12b-1) fees, and
certain registration and custodian fees. Expenses not attributable to a specific
class, income, and realized gains or losses on investments are allocated to each
class of shares based on each class' relative net assets. Each class has
exclusive voting rights on matters related solely to that class and separate
voting rights on matters that relate to all classes. The Institutional Shares
are available for investment through a USAA discretionary managed account
program and certain advisory programs sponsored by financial intermediaries,
such as brokerage firms, investment advisors, financial planners, third-party
administrators, and insurance companies. Institutional Shares also are available
to institutional investors, which include retirement plans, endowments,
foundations, and bank trusts, as well as other persons or legal entities that
the Fund may approve from time to time, or for purchase by a USAA fund
participating in a fund-of-funds investment strategy (USAA fund-of-funds). The
Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies, investment
advisers, plan sponsors, and financial professionals that provide various
administrative and distribution services. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
used by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures
during the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings
to review prior actions taken by the Committee and the Manager, an
affiliate of the Fund. Among other things, these monthly meetings include a
review and analysis of backtesting reports, pricing service quotation
comparisons, illiquid securities and fair value determinations, pricing
movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as
set forth below:
1. 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
================================================================================
32 | USAA INTERNATIONAL FUND
================================================================================
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager and the Fund's subadviser(s)
will monitor for events that would materially affect the value of the
Fund's foreign securities. The Fund's subadviser(s) have agreed to
notify the Manager of significant events they identify that would
materially affect the value of the Fund's foreign securities. If the
Manager determines that a particular event would materially affect the
value of the Fund's foreign securities, then the Committee will
consider such available information that it deems relevant and will
determine a fair value for the affected foreign securities in
accordance with valuation procedures. In addition, information from an
external vendor or other sources may be used to adjust the foreign
market closing prices of foreign equity securities to reflect what the
Committee believes to be the fair value of the securities as of the
close of the NYSE. Fair valuation of affected foreign equity securities
may occur frequently based on an assessment that events which occur on
a fairly regular basis (such as U.S. market movements) are significant.
Such securities are categorized in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that
amortized cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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 debt securities that are valued using market inputs
and other observable factors deemed by the Manager to appropriately
reflect fair value. Level 2 securities include equity securities that
are valued using market inputs and other observable factors deemed by
the Manager to appropriately reflect fair value.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
================================================================================
34 | USAA INTERNATIONAL FUND
================================================================================
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. 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.
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in
the securities of foreign issuers and may be traded in foreign currency.
Since the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the
exchange rate obtained from an independent pricing service on the
respective dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Separately, net realized foreign currency gains/losses may arise from
sales of foreign currency, currency gains/losses realized between the
trade and settlement dates on security transactions, and from the
difference between amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts received. At the end of the Fund's fiscal
year, net realized foreign currency gains/losses are reclassified from
accumulated net realized gains/losses to accumulated undistributed net
investment income on the Statement of Assets and Liabilities, as such
amounts are treated as ordinary income/loss for federal income tax
purposes. Net unrealized foreign currency exchange gains/losses arise
from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rate.
G. EXPENSES PAID INDIRECTLY - A portion of the brokerage commissions that
the Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. Effective September
30, 2018, the commission recapture program ended. For the
================================================================================
36 | USAA INTERNATIONAL FUND
================================================================================
six-month period ended November 30, 2018, (and for the period from August
17, 2018, to November 30, 2018, for the R6 Shares), brokerage commission
recapture credits reduced the expenses of the Fund Shares, Institutional
Shares, Adviser Shares, and R6 Shares each by less than $500.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires
management 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily net assets for the period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $16,000, which represents 5.0% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
----------------------------------------------------------------------------------
USAA International Fund $913,084,000 $(250,188,000) $662,896,000
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$652,981,000 and $798,214,000, respectively.
================================================================================
38 | USAA INTERNATIONAL 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 November 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
------------------------------------------------------------------------------------
$109,033,000(1) $3,185,000 $114,104,000
(1)Includes $4,306,000 of securities on loan that were sold prior to November
30, 2018.
(6) CAPITAL SHARE TRANSACTIONS
At November 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 | 39
================================================================================
persons or legal entities that the Fund may approve from time to time. Capital
share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
NOVEMBER 30, 2018 MAY 31, 2018
------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------
FUND SHARES:
Shares sold 3,405 $ 109,054 8,359 $ 276,668
Shares issued from reinvested dividends - - 1,684 55,642
Shares redeemed (4,274) (136,497) (7,313) (241,727)
----------------------------------------------------
Net increase (decrease) from capital
share transactions (869) $ (27,443) 2,730 $ 90,583
====================================================
INSTITUTIONAL SHARES:
Shares sold 3,897 $ 123,361 7,053 $ 231,611
Shares issued from reinvested dividends - - 2,325 76,603
Shares redeemed (8,703) (271,920) (11,873) (392,391)
----------------------------------------------------
Net decrease from capital
share transactions (4,806) $(148,559) (2,495) $ (84,177)
====================================================
ADVISER SHARES:
Shares sold 4 $ 148 5 $ 175
Shares issued from reinvested dividends - - - 2
Shares redeemed (3) (103) - (10)
----------------------------------------------------
Net increase from capital
share transactions 1 $ 45 5 $ 167
====================================================
R6 SHARES*:
Shares sold 156 $ 5,000 - $ -
Shares issued from reinvested dividends - - - -
Shares redeemed - - - -
----------------------------------------------------
Net increase from capital
share transactions 156 $ 5,000 - $ -
====================================================
* R6 Shares commenced operations on August 17, 2018.
(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 is
authorized to select (with approval of the Board and
================================================================================
40 | USAA INTERNATIONAL FUND
================================================================================
without shareholder approval) one or more subadvisers to manage the day-to-day
investment of all or a portion of the Fund's assets.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether each
subadviser's agreement should be renewed, terminated, or modified. The Manager
is also responsible for determining the asset allocation for the subadviser(s).
The allocation for each subadviser could range from 0% to 100% of the Fund's
assets, and the Manager could change the allocations without shareholder
approval.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid monthly at
an annualized rate of 0.75% of the Fund's average daily net assets.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class' performance over the performance period
to that of the Lipper International Funds Index. The Lipper International Funds
Index tracks the total return performance of funds within the Lipper
International Funds category.
The performance period for each share class consists of the current month plus
the previous 35 months. The performance period for the R6 Shares commenced on
August 17, 2018, and includes the performance of the Fund Shares for periods
prior to August 17, 2018. The following table is utilized to determine the
extent of the performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
-----------------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the relevant
share class of the Fund and its relevant Lipper index, rounded to the nearest
basis point. Average daily net assets of the share class are calculated over
a rolling 36-month period.
Each class' annual performance adjustment rate is multiplied by the average
daily net assets of each respective class over the entire performance period,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
which is then multiplied by a fraction, the numerator of which is the number of
days in the month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance), or
subtracted from (in the case of underperformance) the base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper International Funds Index over that period, even if the
class had overall negative returns during the performance period.
For the six-month period ended November 30, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $15,383,000, which included a 0.01%
performance adjustment for the Institutional Shares of $68,000. For the
six-month period ended November 30, 2018, (and for the period from August 17,
2018, to November 30, 2018, for the R6 Shares) the Fund Shares, Adviser Shares
and R6 Shares did not incur any performance adjustment.
SUBADVISORY ARRANGEMENT(s) - The Manager entered into Investment Subadvisory
Agreements with Lazard Asset Management LLC (Lazard), MFS Investment Management
(MFS), and Wellington Management Company LLP (Wellington Management) under which
Lazard, MFS, and Wellington Management each direct the investment and
reinvestment of a portion of the Fund's assets (as allocated from time to time
by the Manager). These arrangements provide for monthly fees that are paid by
the Manager.
The Manager (not the Fund) pays Lazard a subadvisory fee in the annual amount of
0.48% for assets up to $100 million, 0.45% for assets over $100 million up to
$250 million, 0.37% for assets over $250 million up to $600 million, and 0.34%
for assets over $600 million on the portion of the Fund's average daily net
assets that Lazard manages. Prior to October 1, 2018, the Manager (not the Fund)
paid Lazard a subadvisory fee in the annual amount of 0.50% for assets up to
$100 million, 0.45% for assets over $100 million up to $250 million, 0.40% for
assets over $250 million up to $600 million, and 0.375% for assets over $600
million on the portion of the Fund's average daily net assets that Lazard
managed. For the six-month period ended November 30, 2018, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to Lazard, of
$1,328,000.
================================================================================
42 | USAA INTERNATIONAL FUND
================================================================================
The Manager (not the Fund) pays MFS a subadvisory fee based on the aggregate
average daily net assets in the USAA International Fund and the USAA World
Growth Fund combined, in an annual amount of 0.33% on the first $2 billion of
assets, 0.30% of assets over $2 billion and up to $3 billion, 0.25% on assets
over $3 billion and up to $4 billion, and 0.225% on assets over $4 billion on
the portion of the Fund's average daily net assets that MFS manages. Prior to
October 1, 2018, the Manager (not the Fund) paid MFS a subadvisory fee based on
the aggregate average daily net assets in the USAA International Fund and the
USAA World Growth Fund combined, in an annual amount of 0.33% on the first $2
billion of assets, 0.30% on assets over $2 billion up to $3 billion, and 0.25%
on assets over $3 billion on the portion of the Fund's average daily net assets
that MFS managed. For the six-month period ended November 30, 2018, the Manager
incurred subadvisory fees with respect to the Fund, paid or payable to MFS, of
$4,017,000.
The Manager (not the Fund) pays Wellington Management a subadvisory fee in the
annual amount of 0.45% on the first $700 million and 0.425% on assets over $700
million of the portion of the Fund's average daily net assets that Wellington
Management manages. For the six-month period ended November 30, 2018, the
Manager incurred subadvisory fees with respect to the Fund, paid or payable to
Wellington Management, of $1,771,000.
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
daily net assets of the Fund Shares and Adviser Shares, 0.10% of average daily
net assets of the Institutional Shares, and 0.05% of average daily net assets of
the R6 Shares. For the six-month period ended November 30, 2018, (and for the
period from August 17, 2018, to November 30, 2018, for the R6 Shares) the Fund
Shares, Institutional Shares, Adviser Shares, and R6 Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$1,361,000, $1,129,000, $6,000, 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 November 30, 2018, the Fund reimbursed the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
Manager $50,000 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 September 30, 2019, to limit
the total annual operating expenses of the Adviser Shares and R6 Shares to 1.35%
and 0.85%, respectively, of its average daily net assets, excluding
extraordinary expenses and before reductions of any expenses paid indirectly,
and to reimburse the Adviser Shares and R6 Shares for all expenses in excess of
that amount. This expense limitation arrangement may not be changed or
terminated through September 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 November 30, 2018, (and for the period from August 17,
2018, to November 30, 2018, for the R6 Shares), the Fund incurred reimbursable
expenses from the Manager for the Adviser Shares and R6 Shares of $3,000 and
$36,000, respectively, of which $4,000 was receivable from the Manager.
TRANSFER AGENT's FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund Shares and Adviser Shares based on an annual charge
of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion
of these fees to certain intermediaries for the administration and servicing of
accounts that are held with such intermediaries. Transfer agent's fees for
Institutional Shares 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 daily net assets, plus out-of-pocket expenses. For the
six-month period ended November 30, 2018, (and for the period from August 17,
2018, to November 30, 2018, for the R6 Shares), the Fund Shares, Institutional
Shares, Adviser Shares, and R6 Shares incurred transfer agent's fees, paid or
payable to SAS, of $1,103,000, $1,129,000, less than $500, 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'
================================================================================
44 | USAA INTERNATIONAL FUND
================================================================================
average daily net assets. Adviser Shares are offered and sold without imposition
of an initial sales charge or a contingent deferred sales charge. For the
six-month period ended November 30, 2018, the Adviser Shares incurred
distribution and service (12b-1) fees of $10,000.
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.
(8) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 16 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, and the affiliated fund-of-funds'
annual or semiannual reports may be viewed on usaa.com. As of November 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 0.3
Cornerstone Equity 1.0
Target Retirement 2020 0.9
Target Retirement 2030 2.7
Target Retirement 2040 3.6
Target Retirement 2050 2.2
Target Retirement 2060 0.2
Target Retirement Income 0.4
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution. At November 30, 2018, USAA and its affiliates owned
240,000 Adviser Shares and 156,000 R6 Shares, which represents 96.2% of the
Adviser Shares outstanding, 100.0% 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed
certain requirements related to liquidity classification, highly liquid
investment minimums, and board approval of the liquidity risk management
programs to June 1, 2019. The Manager continues to evaluate the impact of this
rule on the Fund's financial statements and various filings.
(10) UPCOMING ACCOUNTING PRONOUNCEMENT
(ASU) 2018-13, FAIR VALUE MEASUREMENT
--------------------------------------
In August 2018, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
46 | USAA INTERNATIONAL FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 32.82 $ 31.16 $ 26.40 $ 30.90 $ 31.25 $ 27.29
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .13 .60 .42 .35(a) .38 .34(a)
Net realized and
unrealized gain (loss) (2.87) 2.08 4.76 (3.34)(a) .16 3.86(a)
----------------------------------------------------------------------------------------
Total from investment
operations (2.74) 2.68 5.18 (2.99)(a) .54 4.20(a)
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.63) (.42) (.37) (.50) (.24)
Realized capital gains - (.39) - (1.14) (.39) -
----------------------------------------------------------------------------------------
Total distributions - (1.02) (.42) (1.51) (.89) (.24)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 30.08 $ 32.82 $ 31.16 $ 26.40 $ 30.90 $ 31.25
========================================================================================
Total return (%)* (8.35) 8.61 19.87 (9.75) 1.97 15.44
Net assets at end
of period (000) $1,693,381 $1,876,020 $1,696,372 $1,430,667 $1,958,773 $1,836,335
Ratios to average
daily net assets:**
Expenses (%)(b) 1.07(c),(d) 1.08(d) 1.11(d) 1.13(d) 1.12 1.16(d)
Net investment
income (%) .75(c) 1.58 1.33 1.27 1.42 1.16
Portfolio turnover (%) 16 36 40 62(e) 17 14
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $1,808,923,000.
(a) Calculated using average shares.
(b) Does not include acquired fund fees, if any.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratio by less than 0.01%.
(e) Reflects increased trading activity due to changes in subadviser(s).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 32.72 $ 31.07 $ 26.34 $ 30.82 $ 31.17 $ 27.23
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .15 .64 .45 .47(a) .46 .38
Net realized and
unrealized gain (loss) (2.87) 2.06 4.74 (3.42)(a) .12 3.85
----------------------------------------------------------------------------------------
Total from investment
operations (2.72) 2.70 5.19 (2.95)(a) .58 4.23
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.66) (.46) (.39) (.54) (.29)
Realized capital gains - (.39) - (1.14) (.39) -
----------------------------------------------------------------------------------------
Total distributions - (1.05) (.46) (1.53) (.93) (.29)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 30.00 $ 32.72 $ 31.07 $ 26.34 $ 30.82 $ 31.17
========================================================================================
Total return (%)* (8.31) 8.68 19.97 (9.61) 2.11 15.60
Net assets at end of
period (000) $2,009,845 $2,349,281 $2,308,470 $1,996,349 $1,735,756 $1,720,967
Ratios to average
daily net assets:**
Expenses (%)(b) 1.00(c),(d) 1.00(d) 1.00(d) 1.00(d) .99 1.01(d)
Net investment
income (%) .82(c) 1.62 1.43 1.74 1.53 1.33
Portfolio turnover (%) 16 36 40 62(e) 17 14
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $2,251,183,000.
(a) Calculated using average shares.
(b) Does not include acquired fund fees, if any.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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 ratios by less than 0.01%.
(e) Reflects increased trading activity due to changes in subadviser(s).
================================================================================
48 | USAA INTERNATIONAL FUND
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
------------------------------------------------------------------------------------
Net asset value at
beginning of period $32.67 $31.04 $26.31 $30.77 $31.13 $27.17
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .53 .35 .31 .32 .25
Net realized and
unrealized gain (loss) (2.84) 2.04 4.74 (3.35) .12 3.84
------------------------------------------------------------------------------------
Total from investment
operations (2.77) 2.57 5.09 (3.04) .44 4.09
------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.55) (.36) (.28) (.41) (.13)
Realized capital gains - (.39) - (1.14) (.39) -
------------------------------------------------------------------------------------
Total distributions - (.94) (.36) (1.42) (.80) (.13)
------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests - - - .00(a) - -
------------------------------------------------------------------------------------
Net asset value at
end of period $29.90 $32.67 $31.04 $26.31 $30.77 $31.13
====================================================================================
Total return (%)* (8.48) 8.29 19.58 (9.94) 1.62 15.10
Net assets at end of
period (000) $7,457 $8,101 $7,540 $6,362 $7,481 $7,698
Ratios to average
daily net assets:**
Expenses (%)(b) 1.35(c),(d) 1.35(d) 1.35(d) 1.37(d),(e) 1.44(f) 1.46(d)
Expenses, excluding
reimbursements (%)(b) 1.43(c),(d) 1.42(d) 1.51(d) 1.46(d) 1.51 1.46(d)
Net investment income (%) .46(c) 1.29 1.08 1.14 1.07 .85
Portfolio turnover (%) 16 36 40 62(g) 17 14
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $7,884,000.
(a) Represents less than $0.01 per share.
(b) Does not include acquired fund fees, if any.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratio by less than 0.01%.
(e) Prior to October 1, 2015, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.40% of the Adviser Shares'
average daily net assets.
(f) Prior to October 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.55% of the Adviser Shares'
average daily net assets.
(g) Reflects increased trading activity due to changes in subadviser(s).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
R6 SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout the
period is as follows:
PERIOD ENDED
NOVEMBER 30,
------------
2018***
------------
Net asset value at beginning of period $32.01
------
Income (loss) from investment operations:
Net investment income .06
Net realized and unrealized loss (1.97)
------
Total from investment operations (1.91)
------
Less distributions from:
Net investment income -
Realized capital gains -
------
Total distributions -
------
Net asset value at end of period $30.10
======
Total return (%)* (5.97)
Net assets at end of period (000) $4,702
Ratios to average daily net assets:**
Expenses (%)(a) .85(b),(c)
Expenses, excluding reimbursements (%)(a) 3.49(b),(c)
Net investment income (%) .73(b)
Portfolio turnover (%) 16
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the period ended November 30, 2018, average daily net assets
were $4,887,000.
*** R6 Shares commenced operations on August 17, 2018.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects total annual operating expenses of the R6 Shares before reductions
of any expenses paid indirectly. The R6 Shares' expenses paid indirectly
decreased the expense ratios by 0.01%.
================================================================================
50 | USAA INTERNATIONAL FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 30, 2018, for Fund Shares, Institutional Shares, and Adviser Shares and
the period of August 17, 2018, through November 30, 2018, for R6 Shares.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may
================================================================================
EXPENSE EXAMPLE | 51
================================================================================
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 916.50 $5.14
Hypothetical
(5% return before expenses) 1,000.00 1,019.70 5.42
INSTITUTIONAL SHARES
Actual 1,000.00 916.90 4.81
Hypothetical
(5% return before expenses) 1,000.00 1,020.05 5.06
ADVISER SHARES
Actual 1,000.00 915.20 6.48
Hypothetical
(5% return before expenses) 1,000.00 1,018.30 6.83
R6 SHARES**
Actual 1,000.00 940.30 2.33
Hypothetical
(5% return before expenses) 1,000.00 1,011.71 2.41
* Expenses are equal to the annualized expense ratio of 1.07% for Fund
Shares, 1.00% for Institutional Shares, 1.35% for Adviser Shares, and 0.85%
for R6 Shares, which are net of any reimbursements and expenses paid
indirectly, multiplied by the average account value over the period,
multiplied by 183 days/365 days (to reflect the one-half-year period) or 103
days/365 days for R6 Shares (to reflect the current period beginning with
the R6 Shares' inception date). The Fund's actual ending account values are
based on its actual total returns of (8.35)% for Fund Shares, (8.31)% for
Institutional Shares, and (8.48)% for Adviser Shares for the six-month
period of June 1, 2018, through November 30, 2018, and (5.97)% for R6
Shares, for the period of August 17, 2018, through November 30, 2018.
** R6 Shares commenced operations on August 17, 2018.
================================================================================
52 | USAA INTERNATIONAL FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
23410-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA MANAGED ALLOCATION FUND]
================================================================================
SEMIANNUAL REPORT
USAA MANAGED ALLOCATION FUND (UMAFX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 3
Financial Statements 4
Notes to Financial Statements 7
Financial Highlights 17
EXPENSE EXAMPLE 18
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 11/30/18 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
DOMESTIC EXCHANGE-TRADED FUNDS 49.4%
FIXED-INCOME EXCHANGE-TRADED FUNDS 26.0%
INTERNATIONAL EXCHANGE-TRADED FUNDS 24.7%
[END PIE CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (100.1%)
EXCHANGE-TRADED FUNDS (100.1%)
DOMESTIC EXCHANGE-TRADED FUNDS (49.4%)
690,780 iShares Core S&P 500 ETF $192,037
1,188,670 iShares Russell 2000 ETF 181,415
--------
373,452
--------
FIXED-INCOME EXCHANGE-TRADED FUNDS (26.0%)
6,552,960 SPDR Portfolio Short Term Corporate Bond ETF 197,113
--------
INTERNATIONAL EXCHANGE-TRADED FUNDS (24.7%)
3,167,740 iShares Core MSCI EAFE ETF 186,833
--------
Total Exchange-Traded Funds (cost: $786,113) 757,398
--------
Total Equity Securities (cost: $786,113) 757,398
--------
TOTAL INVESTMENTS (COST: $786,113) $757,398
========
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Equity Securities:
Exchange-Traded Funds $757,398 $- $- $757,398
-------------------------------------------------------------------------------------------------------------
Total $757,398 $- $- $757,398
-------------------------------------------------------------------------------------------------------------
For the period of June 1, 2018, through November 30, 2018, there were no
transfers of securities between levels. The Fund's policy is to recognize
transfers in and transfers out as of the beginning of the reporting period in
which the event or circumstance that caused the transfer occurred.
================================================================================
2 | USAA MANAGED ALLOCATION FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 24.7% of net assets at
November 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.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 3
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $786,113) $757,398
Receivables:
Capital shares sold 136
Interest 3
Securities sold 150
--------
Total assets 757,687
--------
LIABILITIES
Payables:
Capital shares redeemed 440
Bank overdraft 16
Accrued management fees 373
Other accrued expenses and payables 97
--------
Total liabilities 926
--------
Net assets applicable to capital shares outstanding $756,761
========
NET ASSETS CONSIST OF:
Paid-in capital $777,319
Distributable earnings loss (20,558)
--------
Net assets applicable to capital shares outstanding $756,761
========
Capital shares outstanding, no par value 66,709
========
Net asset value, redemption price, and offering price per share $ 11.34
========
See accompanying notes to financial statements.
================================================================================
4 | USAA MANAGED ALLOCATION FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 7,125
Interest 27
Securities lending (net) 68
--------
Total income 7,220
--------
EXPENSES
Management fees 2,387
Administration and servicing fees 199
Transfer agent's fees 199
Custody and accounting fees 51
Postage 36
Shareholder reporting fees 6
Trustees' fees 18
Registration fees 18
Professional fees 39
Other 7
--------
Total expenses 2,960
--------
NET INVESTMENT INCOME 4,260
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 5,958
Change in net unrealized appreciation/(depreciation) (55,240)
--------
Net realized and unrealized loss (49,282)
--------
Decrease in net assets resulting from operations $(45,022)
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 5
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended May 31,
2018
-----------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
-----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 4,260 $ 14,905
Net realized gain on investments 5,958 55,445
Change in net unrealized
appreciation/(depreciation) of investments (55,240) (24,697)
---------------------
Increase (decrease) in net assets resulting from operations (45,022) 45,653
---------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS: - (19,156)
---------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 42,826 87,769
Reinvested dividends - 19,156
Cost of shares redeemed (49,552) (90,792)
---------------------
Increase (decrease) in net assets from capital
share transactions (6,726) 16,133
---------------------
Net increase (decrease) in net assets (51,748) 42,630
NET ASSETS
Beginning of period 808,509 765,879
---------------------
End of period $756,761 $808,509
=====================
CHANGE IN SHARES OUTSTANDING
Shares sold 3,621 7,181
Shares issued for dividends reinvested - 1,570
Shares redeemed (4,214) (7,429)
---------------------
Increase (decrease) in shares outstanding (593) 1,322
=====================
See accompanying notes to financial statements.
================================================================================
6 | USAA MANAGED ALLOCATION FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds. The
USAA Managed Allocation Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund's investment objective is to seek to
maximize total return, consisting primarily of capital appreciation. The Fund is
not offered for sale directly to the general public and is currently available
for investment through a USAA discretionary managed account program or other
persons or legal entities that the Fund may approve from time to time.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 7
================================================================================
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, 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
================================================================================
8 | USAA MANAGED ALLOCATION FUND
================================================================================
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 9
================================================================================
5. Repurchase agreements are valued at cost.
6. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold. Level 2
securities include debt securities that are valued using market inputs
and other observable factors deemed by the Manager to appropriately
reflect fair value.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
================================================================================
10 | USAA MANAGED ALLOCATION FUND
================================================================================
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not
necessarily an indication of the risks associated with investing in those
securities.
C. 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.
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
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 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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $3,000, which represents 1.0% of the total fees paid to
================================================================================
12 | USAA MANAGED ALLOCATION FUND
================================================================================
CAPCO by the funds of the Trusts. The Fund had no borrowings under this
agreement during the six-month period ended November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had net capital loss carryforwards of $898,000 for
federal income tax purposes, as shown in the table below. It is unlikely that
the Board will authorize a distribution of capital gains realized in the future
until the capital loss carryforwards have been used. Late year losses incurred
after October 31, and within the taxable year are deemed to arise on the first
day of the Fund's next taxable year. For the year ended May 31, 2018, the Fund
deferred to June 1, 2018, late year losses of $1,163,000.
CAPITAL LOSS CARRYFORWARDS
--------------------------------------
TAX CHARACTER
--------------------------------------
(NO EXPIRATION) BALANCE
--------------- --------
Short-Term $ -
Long-Term 898,000
--------
Total $898,000
========
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
---------------------------------------------------------------------------------------------
USAA Managed Allocation Fund $2,429,000 $(31,144,000) $(28,715,000)
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$618,182,000 and $619,898,000, 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 November 30,
2018, the Fund had no securities on loan.
(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, 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
================================================================================
14 | USAA MANAGED ALLOCATION FUND
================================================================================
all or a portion of the Fund's assets. For the six-month period ended November
30, 2018, the Fund had no subadviser(s).
The Fund's management fee is accrued daily and paid monthly at an annualized
rate of 0.60% of the Fund's average daily net assets. For the six-month period
ended November 30, 2018, the Fund incurred management fees, paid or payable to
the Manager, of $2,387,000.
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 0.05% of the Fund's
average daily net assets for the fiscal year. For the six-month period ended
November 30, 2018, the Fund incurred administration and servicing fees, paid or
payable to the Manager, of $199,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 2018, the Fund reimbursed the Manager $10,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund. The Fund's transfer agent's fees are accrued daily
and paid monthly at an annualized rate of 0.05% of the Fund's average daily net
assets for the fiscal year. For the six-month period ended November 30, 2018,
the Fund incurred transfer agent's fees, paid or payable to SAS, of $199,000.
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 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 | 15
================================================================================
(8) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed
certain requirements related to liquidity classification, highly liquid
investment minimums, and board approval of the liquidity risk management
programs to June 1, 2019. The Manager continues to evaluate the impact of this
rule on the Fund's financial statements and various filings.
(9) UPCOMING ACCOUNTING PRONOUNCEMENT
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(10) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
16 | USAA MANAGED ALLOCATION FUND
================================================================================
FINANCIAL HIGHLIGHTS
(UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
---------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.01 $ 11.61 $ 10.90 $ 11.99 $ 11.99 $ 11.32
---------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .23 .24 .24(a) .23 .20
Net realized and
unrealized gain (loss) (.73) .46 .72 (.97)(a) .00(b) .66
---------------------------------------------------------------------------------------
Total from investment
operations (.67) .69 .96 (.73)(a) .23 .86
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.29) (.25) (.21) (.23) (.18)
Realized capital gains - - - (.15) - (.01)
---------------------------------------------------------------------------------------
Total distributions - (.29) (.25) (.36) (.23) (.19)
---------------------------------------------------------------------------------------
Net asset value at
end of period $ 11.34 $ 12.01 $ 11.61 $ 10.90 $ 11.99 $ 11.99
=======================================================================================
Total return (%)* (5.58) 5.91 8.94 (6.13) 1.98 7.65
Net assets at
end of period (000) $756,761 $808,509 $765,879 $708,592 $1,398,614 $1,219,192
Ratios to average
daily net assets:**
Expenses (%)(c) .74(d) .74 .76 .75 .74 .73(e)
Net investment income(%) 1.07(d) 1.83 2.13 2.09 2.04 1.80
Portfolio turnover(%) 78 97(f) 194(i) 90(g) 35(h) 65
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $793,119,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Does not include acquired fund fees, if any.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects total annual operating expenses of the Fund before reductions of
any expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratio by 0.01%.
(f) Reflects a return to normal trading levels after a prior year transition or
allocation shift.
(g) Reflects increased trading activity due to large shareholder redemptions.
(h) Reflects overall decrease in purchases and sales of securities.
(i) Reflects an increase in trading activity due to asset allocation shifts.
================================================================================
FINANCIAL HIGHLIGHTS | 17
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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 values and
expenses may not be used to estimate the actual ending account
================================================================================
18 | USAA MANAGED ALLOCATION FUND
================================================================================
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
-------------------------------------------------------------
Actual $1,000.00 $ 944.20 $3.61
Hypothetical
(5% return before expenses) 1,000.00 1,021.36 3.75
*Expenses are equal to the Fund's annualized expense ratio of 0.74%, which
is net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of (5.58)% for the six-month period of June
1, 2018, through November 30, 2018.
================================================================================
EXPENSE EXAMPLE | 19
================================================================================
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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
93924-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA PRECIOUS METALS AND MINERALS FUND]
================================================================================
SEMIANNUAL REPORT
USAA PRECIOUS METALS AND MINERALS FUND
FUND SHARES (USAGX) o INSTITUTIONAL SHARES (UIPMX)
o ADVISER SHARES (UPMMX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 6
Financial Statements 8
Notes to Financial Statements 12
Financial Highlights 28
EXPENSE EXAMPLE 31
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 EQUITY HOLDINGS - 11/30/18 o
(% of Net Assets)
Randgold Resources Ltd. ADR .............................................. 6.5%
Newmont Mining Corp. ..................................................... 5.4%
Agnico Eagle Mines Ltd. .................................................. 5.2%
Pan American Silver Corp. ................................................ 4.4%
Wheaton Precious Metals Corp. ............................................ 4.4%
OceanaGold Corp. ......................................................... 4.1%
Northern Star Resources Ltd. ............................................. 3.7%
Kirkland Lake Gold Ltd. .................................................. 3.3%
Newcrest Mining Ltd. ..................................................... 3.3%
Cia de Minas Buenaventura S.A. ADR ...................................... 2.9%
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o PORTFOLIO COMPOSITION* - 11/30/18 o
(% of Net Assets)
[PIE CHART OF PORTFOLIO COMPOSITION]
GOLD 87.0%
SILVER 11.3%
DIVERSIFIED METALS & MINING 0.5%
[END PIE CHART]
*Does not include money market instruments and short-term investments purchased
with cash collateral from securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.8%)
COMMON STOCKS (98.8%)
BASIC MATERIALS (98.8%)
-----------------------
MINING (98.8%)
650,000 Agnico Eagle Mines Ltd. $ 22,828
7,500,000 Alacer Gold Corp.(a) 11,685
3,105,200 Alamos Gold, Inc. "A" 9,979
40,000 AXMIN, Inc., acquired 6/03/2008; cost $159(b),(c) 8
200,000 AXMIN, Inc.(b) 40
4,600,000 B2Gold Corp.(a) 11,321
250,000 Barrick Gold Corp.(d) 3,188
6,500,000 Centamin plc 8,610
2,650,000 Centerra Gold, Inc.(a) 10,770
900,000 Cia de Minas Buenaventura S.A. ADR 12,726
1,750,000 Continental Gold, Inc.(a) 2,766
2,350,000 Dacian Gold Ltd.(a),(d) 3,573
810,000 Detour Gold Corp.(a) 6,017
13,200,000 Doray Minerals Ltd.(a) 2,991
4,800,000 Dundee Precious Metals, Inc.(a),(d) 12,355
7,000,000 Eldorado Gold Corp.(a),(d) 3,973
800,000 Endeavour Mining Corp.(a),(d) 9,971
100,000 Franco-Nevada Corp. 6,891
600,000 Fresnillo plc 5,760
9,374,990 Gascoyne Resources Ltd.(a),(d) 624
2,700,000 Gold Fields Ltd. ADR 7,911
850,000 Goldcorp, Inc. 7,888
1,920,000 Golden Star Resources Ltd.(a),(d) 5,664
8,566,400 Great Basin Gold Ltd.(a),(e),(f) -
6,500,000 Great Basin Gold Ltd., acquired 3/30/2012; cost $4,455(a),(b),(c),(e),(f) -
1,700,000 Guyana Goldfields, Inc.(a),(d) 1,727
1,800,000 IAMGOLD Corp.(a) 5,490
1,081,500 Ivanhoe Mines Ltd. "A"(a),(d) 2,157
7,063,636 Kingsgate Consolidated Ltd.(a) 878
3,900,000 Kinross Gold Corp.(a) 10,569
700,000 Kirkland Lake Gold Ltd. 14,509
750,000 MAG Silver Corp.(a),(d) 5,069
5,757,622 Nautilus Minerals, Inc., acquired 2/02/2007-4/06/2016; cost $4,261(a),(b),(c),(d) 217
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
950,000 Newcrest Mining Ltd. $ 14,408
730,000 Newmont Mining Corp. 23,608
375,000 Northern Star Mining Ltd.(b),(e),(f) -
2,800,000 Northern Star Resources Ltd. 16,331
6,200,000 OceanaGold Corp. 18,059
535,700 Osisko Gold Royalties Ltd.(d) 4,020
1,510,000 Pan American Silver Corp. 19,479
11,800,000 Perseus Mining Ltd.(a) 3,020
10,450,000 Perseus Mining Ltd.(a) 2,674
600,000 Pretium Resources, Inc.(a),(d) 4,266
12,500,000 Ramelius Resources Ltd.(a) 3,517
360,000 Randgold Resources Ltd. ADR 28,861
3,500,000 Roxgold, Inc.(a) 2,107
85,000 Royal Gold, Inc. 6,218
4,900,000 Saracen Mineral Holdings Ltd.(a) 8,846
4,300,000 SEMAFO, Inc.(a),(d) 7,767
700,000 SSR Mining, Inc.(a) 7,448
3,800,000 St. Barbara Ltd. 12,332
2,400,000 Tahoe Resources, Inc.(a),(d) 8,490
800,000 Torex Gold Resources, Inc.(a) 6,280
3,400,000 Westgold Resources Ltd.(a) 2,473
1,240,000 Wheaton Precious Metals Corp. 19,394
3,700,000 Yamana Gold, Inc. 7,696
--------
Total Basic Materials 435,449
--------
Total Common Stocks (cost: $676,695) 435,449
--------
WARRANTS (0.0%)
BASIC MATERIALS (0.0%)
----------------------
MINING (0.0%)
779,738 Westgold Resources Ltd.(a),(d) (cost: $0) 13
--------
Total Equity Securities (cost: $676,695) 435,462
--------
----------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
----------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.3%)
COMMERCIAL PAPER (1.3%)
$ 4,017 CABOT Corp.(g) 2.45% 12/03/2018 4,017
1,785 CSLB Holdings, Inc.(g) 2.60 12/03/2018 1,785
--------
Total Commercial Paper (cost: $5,802) 5,802
--------
================================================================================
4 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
----------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
----------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
764 State Street Institutional Treasury Money Market Fund Premier Class, 2.19%(h)
(cost: $1) $ 1
--------
Total Money Market Instruments (cost: $5,803) 5,803
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (3.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.3%)
809,350 HSBC U.S. Government Money Market Fund Class I, 2.13%(h) 809
4,094,106 Invesco Government & Agency Portfolio Institutional Class, 2.12%(h) 4,094
9,373,447 Western Asset Institutional Government Reserves Institutional Class, 2.10%(h) 9,374
--------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $14,277) 14,277
--------
TOTAL INVESTMENTS (COST: $696,775) $455,542
========
----------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $410,754 $24,695 $- $435,449
Warrants 13 - - 13
Money Market Instruments:
Commercial Paper - 5,802 - 5,802
Government & U.S. Treasury
Money Market Funds 1 - - 1
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 14,277 - - 14,277
----------------------------------------------------------------------------------------------------------
Total $425,045 $30,497 $- $455,542
----------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 86.2% of net assets at November 30,
2018.
o CATEGORIES AND DEFINITIONS
COMMERCIAL PAPER - Consists of short-term unsecured promissory notes with
maturities ranging from one to 270 days, issued mainly by corporations.
Commercial paper is usually purchased at a discount and matures at par
value; however, it also may be interest-bearing. Rate represents an
annualized yield at time of purchase or coupon rate, if applicable.
WARRANTS - Entitle the holder to buy a proportionate amount of common stock
at a specified price for a stated period.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
================================================================================
6 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
o SPECIFIC NOTES
(a) Non-income-producing security.
(b) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(c) Restricted security that is not registered under the Securities Act of
1933. The aggregate market value of these securities at November 30,
2018, was $225,000, which represented less than 0.1% of the Fund's net
assets.
(d) The security, or a portion thereof, was out on loan as of November 30,
2018.
(e) Security was fair valued at November 30, 2018, by USAA Asset Management
Company in accordance with valuation procedures approved by USAA Mutual
Funds Trust's Board of Trustees.
(f) Security was classified as Level 3.
(g) 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.
(h) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 7
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $20,953) (cost of $696,775) $ 455,542
Cash denominated in foreign currencies (identified cost of $120) 119
Receivables:
Capital shares sold 187
USAA Asset Management Company (Note 7) 2
Dividends and interest 237
Other 29
----------
Total assets 456,116
----------
LIABILITIES
Payables:
Upon return of securities loaned 14,277
Capital shares redeemed 97
Accrued management fees 279
Accrued transfer agent's fees 45
Other accrued expenses and payables 770
----------
Total liabilities 15,468
----------
Net assets applicable to capital shares outstanding $ 440,648
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,400,650
Distributable earnings loss (960,002)
----------
Net assets applicable to capital shares outstanding $ 440,648
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $414,751/39,996 capital shares
outstanding, no par value) $ 10.37
==========
Institutional Shares (net assets of $11,133/1,054 capital shares
outstanding, no par value) $ 10.56
==========
Adviser Shares (net assets of $14,764/1,438 capital shares
outstanding, no par value) $ 10.27
==========
See accompanying notes to financial statements.
================================================================================
8 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $126) $ 1,681
Interest 56
Securities lending (net) 169
----------
Total income 1,906
----------
EXPENSES
Management fees 1,878
Administration and servicing fees:
Fund Shares 352
Institutional Shares 5
Adviser Shares 12
Transfer agent's fees:
Fund Shares 774
Institutional Shares 5
Adviser Shares 2
Distribution and service fees (Note 7):
Adviser Shares 19
Custody and accounting fees:
Fund Shares 68
Institutional Shares 2
Adviser Shares 2
Postage:
Fund Shares 36
Adviser Shares 2
Shareholder reporting fees:
Fund Shares 21
Trustees' fees 18
Registration fees:
Fund Shares 13
Institutional Shares 15
Adviser Shares 8
Professional fees 51
Other 10
----------
Total expenses 3,293
================================================================================
FINANCIAL STATEMENTS | 9
================================================================================
Expenses reimbursed:
Institutional Shares $ (16)
---------
Net expenses 3,277
---------
NET INVESTMENT LOSS (1,371)
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized (loss) on:
Investments (11,699)
Foreign currency transactions (84)
Change in net unrealized appreciation/(depreciation) of:
Investments (93,925)
Foreign capital gains tax 307
Foreign currency translations 65
---------
Net realized and unrealized loss (105,336)
---------
Decrease in net assets resulting from operations $(106,707)
=========
See accompanying notes to financial statements.
================================================================================
10 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended May 31,
2018
----------------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
----------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss $ (1,371) $ (2,121)
Net realized loss on investments (11,699) (45,754)
Net realized gain (loss) on foreign currency transactions (84) 35
Change in net unrealized appreciation/(depreciation) of:
Investments (93,925) 45,231
Foreign capital gains tax 307 330
Foreign currency translations 65 (78)
-----------------------------
Decrease in net assets resulting from operations (106,707) (2,357)
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares - -
Institutional Shares - -
Adviser Shares - -
-----------------------------
Distributions to shareholders - -
-----------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS (NOTE 6)
Fund Shares (25,342) (42,328)
Institutional Shares 10,144 794
Adviser Shares 1,088 (1,361)
-----------------------------
Total net decrease in net assets from capital
share transactions (14,110) (42,895)
-----------------------------
Net decrease in net assets (120,817) (45,252)
NET ASSETS
Beginning of period 561,465 606,717
-----------------------------
End of period $ 440,648 $561,465
=============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA Precious Metals and Minerals Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as nondiversified under the 1940 Act. The Fund's investment
objective is to seek long-term capital appreciation and to protect the
purchasing power of shareholders' capital against inflation.
The Fund concentrates its investments in equity securities of domestic and
foreign companies engaged in the exploration, mining, or processing of gold and
other precious metals and minerals, such as platinum, silver, and diamonds. As
such, the Fund may be exposed to more risk than portfolios with a broader
industry diversification. As a nondiversified fund, the Fund may invest a
greater percentage of its assets in a single issuer. Because a relatively high
percentage of the Fund's total assets may be invested in the securities of a
single issuer or a limited number of issuers, the securities of the Fund may be
more sensitive to changes in the market value of a single issuer, a limited
number of issuers, or large companies generally. Such a focused investment
strategy may increase the volatility of the Fund's investment results because
this Fund may be more susceptible to risk associated with a single economic,
political, or regulatory event than a diversified fund.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency
================================================================================
12 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
Company, d/b/a USAA Shareholder Account Services (SAS), the transfer agent to
the Fund, announced that AMCO and SAS would be acquired by Victory Capital
Holdings, Inc. (Victory), a global investment management firm headquartered in
Cleveland, Ohio (the Transaction). The closing of the Transaction is expected to
be completed during the second quarter of 2019, pending satisfaction of certain
closing conditions and approvals, including certain approvals of the Fund's
Board of Trustees and of the Fund's shareholders at a special shareholder
meeting to be held in 2019. The Transaction is not expected to result in any
material changes to the Fund's investment objectives and principal investment
strategies.
The Fund consists of three classes of shares: Precious Metals and Minerals Fund
Shares (Fund Shares), Precious Metals and Minerals Fund Institutional Shares
(Institutional Shares), and Precious Metals and Minerals Fund Adviser Shares
(Adviser Shares). Each class of shares has equal rights to assets and earnings,
except that each class bears certain class-related expenses specific to the
particular class. These expenses include administration and servicing fees,
transfer agent fees, postage, shareholder reporting fees, distribution and
service (12b-1) fees, and certain registration and custodian fees. Expenses not
attributable to a specific class, income, and realized gains or losses on
investments are allocated to each class of shares based on each class' relative
net assets. Each class has exclusive voting rights on matters related solely to
that class and separate voting rights on matters that relate to all classes. The
Institutional Shares are available for investment through a USAA discretionary
managed account program and certain advisory programs sponsored by financial
intermediaries, such as brokerage firms, investment advisors, financial
planners, third-party administrators, and insurance companies. Institutional
Shares also are available to institutional investors, which include retirement
plans, endowments, foundations, and bank trusts, as well as other persons or
legal entities that the Fund may approve from time to time, or for purchase by a
USAA fund participating in a fund-of-funds investment strategy (USAA
fund-of-funds). The Adviser Shares permit investors to purchase shares through
financial intermediaries, including banks, broker-dealers, insurance companies,
investment advisers, plan sponsors, and financial professionals that provide
various administrative and distribution services.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
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, an affiliate of
the Fund. Among other things, these monthly meetings include a review and
analysis of backtesting reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the average of the
bid and ask prices generally is used. Actively traded
================================================================================
14 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
equity securities listed on a domestic exchange generally are
categorized in Level 1 of the fair value hierarchy. Certain preferred
and equity securities traded in inactive markets generally are
categorized in Level 2 of the fair value hierarchy.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price and
the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for events that
would materially affect the value of the Fund's foreign securities and
the Committee will consider such available information that it deems
relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or other sources may be used to
adjust the foreign market closing prices of foreign equity securities to
reflect what the Committee believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events which occur on a fairly regular basis (such as U.S. market
movements) are significant. Such securities are categorized in Level 2
of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
6. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold. Level 2
securities include debt securities that are valued using market inputs
and other observable factors deemed by the Manager to appropriately
reflect fair value.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
================================================================================
16 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. 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.
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
reduction to such income and realized gains. The Fund records a liability
based on unrealized gains to provide for potential foreign taxes payable
upon the sale of these securities. Foreign taxes have been provided for in
accordance with the Fund's understanding of the applicable countries'
prevailing tax rules and rates.
F. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
================================================================================
18 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $2,000, which represents 0.6% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had net capital loss carryforwards of $669,724,000,
for federal income tax purposes as shown in the table below. It is unlikely
that the Board will authorize a distribution of capital gains realized in the
future until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------
TAX CHARACTER
--------------------------------
(NO EXPIRATION) BALANCE
--------------- ------------
Short-Term $ 15,268,000
Long-Term 654,456,000
------------
Total $669,724,000
============
As of November 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. The net unrealized
appreciation/(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
-----------------------------------------------------------------------------------------------
USAA Precious Metals And
Minerals Fund $84,973,000 $(326,206,000) $(241,233,000)
================================================================================
20 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$21,790,000 and $41,272,000, 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 November 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
----------------------------------------------------------------------------------
$20,953,000 $9,254,000 $14,277,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
(6) CAPITAL SHARE TRANSACTIONS
At November 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
NOVEMBER 30, 2018 MAY 31, 2018
-----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 2,249 $ 25,360 4,942 $ 63,796
Shares issued from
reinvested dividends - - - -
Shares redeemed (4,301) (50,702) (8,177) (106,124)
---------------------------------------------------
Net decrease from capital
share transactions (2,052) $(25,342) (3,235) $ (42,328)
===================================================
INSTITUTIONAL SHARES:
Shares sold 1,640 $ 19,742 540 $ 7,202
Shares issued from
reinvested dividends - - - -
Shares redeemed (864) (9,598) (483) (6,408)
---------------------------------------------------
Net increase from
capital share transactions 776 $ 10,144 57 $ 794
===================================================
ADVISER SHARES:
Shares sold 274 $ 2,989 397 $ 5,038
Shares issued from
reinvested dividends - - - -
Shares redeemed* (161) (1,901) (501) (6,399)
---------------------------------------------------
Net increase (decrease) from
capital share transactions 113 $ 1,088 (104) $ (1,361)
===================================================
* Net of redemption fees, if any.
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the
================================================================================
22 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
Manager is responsible for managing the business and affairs of the Fund, and
for directly managing the day-to-day investment of the Fund's assets, subject to
the authority of and supervision by the Board. The Manager is authorized to
select (with approval of the Board and without shareholder approval) one or more
subadvisers to manage the day-to-day investment of all or a portion of the
Fund's assets. For the six-month period ended November 30, 2018, the Fund had no
subadviser(s).
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid monthly at
an annualized rate of 0.75% of the Fund's average daily net assets.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class' performance over the performance period
to that of the Lipper Precious Metals Equity Funds Index.
The performance period for each share class consists of the current month plus
the previous 35 months. The following table is utilized to determine the extent
of the performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
----------------------------------------------------------
+/- 100 to 400 +/-4
+/- 401 to 700 +/-5
+/- 701 and greater +/-6
(1)Based on the difference between average annual performance of the relevant
share class of the Fund and its relevant Lipper index, rounded to the nearest
basis point. Average daily net assets of the share class are calculated over
a rolling 36-month period.
Each class' annual performance adjustment rate is multiplied by the average
daily 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 | 23
================================================================================
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Precious Metals Equity Funds Index over that period, even
if the class had overall negative returns during the performance period.
For the six-month period ended November 30, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $1,878,000, which included a
performance adjustment for the Fund Shares and Institutional Shares of $20,000
and $1,000, respectively. For the Fund Shares and Institutional Shares, the
performance adjustments were 0.01% and 0.02% respectively. The Adviser Shares
did not incur any performance adjustment.
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
daily net assets of the Fund Shares and Adviser Shares, and 0.10% of average net
assets of the Institutional Shares. For the six-month period ended November 30,
2018, the Fund Shares, Institutional Shares, and Adviser Shares incurred
administration and servicing fees, paid or payable to the Manager, of $352,000,
$5,000, and $12,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 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 - Effective June 6, 2018, the Manager agreed, through
September 30, 2019, to limit the total annual operating expenses of the
Institutional Shares to 1.00% of its average daily net assets, excluding
extraordinary expenses, and before reductions of any expenses paid indirectly,
and to reimburse the Institutional Shares for all expenses in excess of that
amount. This expense limitation arrangement may not be changed or terminated
through September 30, 2019 without approval of the Board, and may be changed or
terminated by the Manager at any time after that date.
================================================================================
24 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
For the six-month period ended November 30, 2018, the Institutional Shares
incurred reimbursable expenses of $16,000 of which $2,000 was receivable from
the Manager.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund Shares and Adviser Shares based on an annual charge
of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion
of these fees to certain intermediaries for the administration and servicing of
accounts that are held with such intermediaries. Transfer agent's fees for
Institutional Shares are paid monthly based on a fee accrued daily at an
annualized rate of 0.10% of the Institutional Shares' average daily net assets,
plus out-of-pocket expenses. For the six-month period ended November 30, 2018,
the Fund Shares, Institutional Shares, and Adviser Shares incurred transfer
agent's fees, paid or payable to SAS, of $774,000, $5,000, and $2,000,
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 daily net assets. Adviser
Shares are offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended November 30,
2018, the Adviser Shares incurred distribution and service (12b-1) fees of
$19,000.
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.
(8) TRANSACTIONS WITH AFFILIATES
The Fund offers its Institutional Shares for investment by other USAA Funds and
is one of 16 USAA mutual funds in which the affiliated USAA fund-of-funds
invest. The USAA fund-of-funds do not invest in the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
underlying funds for the purpose of exercising management or control, and the
affiliated fund-of-funds' annual or semiannual reports may be viewed on
usaa.com. As of November 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 0.3
Target Retirement 2030 0.0*
Target Retirement 2040 0.0*
*Represents less than 0.1%
The Manager is indirectly wholly owned by USAA a large, diversified financial
services institution. At November 30, 2018, USAA and its affiliates owned
130,000 Adviser Shares, which represents 9.0% of the Adviser Shares outstanding
and 0.3% of the Fund's total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10233, 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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed
certain requirements related to liquidity classification, highly liquid
investment minimums, and board approval of the liquidity risk management
programs to June 1, 2019. The Manager continues to evaluate the impact of this
rule on the Fund's financial statements and various filings.
================================================================================
26 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
(10) UPCOMING ACCOUNTING PRONOUNCEMENT
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
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
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.87 $ 12.93 $ 13.90 $ 12.29 $ 14.12 $ 16.69
------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.03)(a) (.05)(a) .14 .08 (.06)(a) (.02)(a)
Net realized and
unrealized gain (loss) (2.47)(a) (.01)(a) (.60) 1.53(b) (1.61)(a) (2.53)(a)
------------------------------------------------------------------------------------------
Total from investment
operations (2.50)(a) (.06)(a) (.46) 1.61 (1.67)(a) (2.55)(a)
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - (.51) - (.16) (.02)
------------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.37 $ 12.87 $ 12.93 $ 13.90 $ 12.29 $ 14.12
==========================================================================================
Total return (%)* (19.43) (.46) (2.68) 13.10(b) (11.77) (15.26)
Net assets at end
of period (000) $414,751 $540,952 $585,515 $647,140 $573,456 $710,487
Ratios to average
daily net assets:**
Expenses (%)(c) 1.33(e) 1.23 1.22 1.33 1.25 1.24(d)
Net investment
income(loss) (%) (.56)(e) (.36) .02 (.31) (.46) (.13)
Portfolio turnover (%) 4 13 14 17 8 10
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2018, average daily net
assets were $467,814,000.
(a) Calculated using average shares. For the six-month period ended November
30, 2018, average shares were 40,649,000.
(b) During the year ended May 31, 2016, the Manager reimbursed the Fund
Shares $50,000 for a loss incurred from the sale of a security that exceeded
the amount allowed to be held of that type of security under the Fund's
investment restrictions. The effect of this reimbursement on the Fund
Shares' net realized loss and total return was less than $0.01/0.01% per
share.
(c) Does not include acquired fund fees, if any.
(d) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratio by less than 0.01%.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
28 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 13.06 $13.07 $13.98 $ 12.34 $ 14.17 $ 16.77
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss)(f) (.03) (.01) .07 .01 (.03) .02
Net realized and
unrealized gain (loss)(f) (2.47) 0.00(a) (.47) 1.63(b) (1.60) (2.56)
----------------------------------------------------------------------------------------
Total from investment
operations(f) (2.50) (.01) (.40) 1.64 (1.63) (2.54)
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - (.51) - (.20) (.06)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.56 $13.06 $13.07 $ 13.98 $ 12.34 $ 14.17
========================================================================================
Total return (%)* (19.14) (.08) (2.23) 13.29(b) (11.46) (15.11)
Net assets at end
of period (000) $11,133 $3,632 $2,893 $14,050 $161,591 $183,768
Ratios to average
daily net assets:**
Expenses (%)(c) 1.00(e),(g) .89 .76 .99 .99 1.00(d)
Expenses, excluding
reimbursements (%)(c) 1.32(e) - - - - -
Net investment
income(loss) (%) (.45)(e) (.07) .46 .13 (.20) .11
Portfolio turnover (%) 4 13 14 17 8 10
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2018, average daily net
assets were $10,299,000.
(a) Represents less than $0.01 per share.
(b) During the year ended May 31, 2016, the Manager reimbursed the
Institutional Shares $1,000 for a loss incurred from the sale of a security
that exceeded the amount allowed to be held of that type of security under
the Fund's investment restrictions. The effect of this reimbursement on the
Institutional Shares' net realized loss and total return was less than
$0.01/0.01% per share.
(c) 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 ratios by less than 0.01%.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(f) Calculated using average shares. For the six-month period ended
November, 30, 2018, average shares were 832,000.
(g) Effective June 6, 2018, the Manager has voluntarily agreed to limit the
annual expenses of the Institutional Shares to 1.00% of the Institutional
Shares' average daily net assets.
================================================================================
FINANCIAL HIGHLIGHTS | 29
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each
period is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-----------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.74 $ 12.82 $ 13.79 $ 12.20 $ 14.01 $ 16.57
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (.03)(a) .16 .04 (.04)(a) (.08)(a) (.05)(a)
Net realized and
unrealized gain (loss) (2.44)(a) (.24) (.50) 1.63(a),(b) (1.58)(a) (2.51)(a)
-----------------------------------------------------------------------------------------
Total from investment
operations (2.47) (.08) (.46) 1.59(a) (1.66)(a) (2.56)(a)
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - (.51) - (.15) .00(c)
-----------------------------------------------------------------------------------------
Redemption fees added to
beneficial interests - .00(c) .00(c) .00(c) .00(c) .00(c)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.27 $ 12.74 $ 12.82 $ 13.79 $ 12.20 $ 14.01
=========================================================================================
Total return (%)* (19.39) (.62) (2.68) 13.03(b) (11.83) (15.45)
Net assets at end of
period (000) $14,764 $16,881 $18,309 $16,873 $12,357 $15,727
Ratios to average
daily net assets:**
Expenses (%)(d) 1.36(g) 1.30 1.30 1.37 1.39(e) 1.40(f)
Expenses, excluding
reimbursements (%)(d) 1.36(g) 1.30 1.30 1.37 1.39 1.40(f)
Net investment loss (%) (.58)(g) (.43) (.04) (.36) (.60) (.31)
Portfolio turnover (%) 4 13 14 17 8 10
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2018, average daily net
assets were $15,428,000.
(a) Calculated using average shares. For the six-month period ended November
30, 2018, average shares were 1,362,000.
(b) During the year ended May 31, 2016, the Manager reimbursed the Adviser
Shares $1,000 for a loss incurred from the sale of a security that exceeded
the amount allowed to be held of that type of security under the Fund's
investment restrictions. The effect of this reimbursement on the Adviser
Shares' net realized loss and total return was less than $0.01/0.01% per
share.
(c) Represents less than $0.01 per share.
(d) Does not include acquired fund fees, if any.
(e) Prior to October 1, 2014, the Manager voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.45% of the Adviser Shares'
average daily net assets.
(f) 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%.
(g) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
30 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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
================================================================================
EXPENSE EXAMPLE | 31
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 805.70 $6.02
Hypothetical
(5% return before expenses) 1,000.00 1,018.40 6.73
INSTITUTIONAL SHARES
Actual 1,000.00 808.60 4.53
Hypothetical
(5% return before expenses) 1,000.00 1,020.05 5.06
ADVISER SHARES
Actual 1,000.00 806.10 6.16
Hypothetical
(5% return before expenses) 1,000.00 1,018.25 6.88
*Expenses are equal to the annualized expense ratio of 1.32% for Fund Shares,
1.00% for Institutional Shares, and 1.14% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
account value over the period, multiplied by 183 days/365 days (to reflect the
one-half-year period). The Fund's actual ending account values are based on its
actual total returns of (19.43)% for Fund Shares, (19.14)% for Institutional
Shares, and (19.39)% for Adviser Shares for the six-month period of June 1,
2018, through November 30, 2018.
================================================================================
32 | USAA PRECIOUS METALS AND MINERALS FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
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, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
23408-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TREASURY MONEY MARKET TRUST]
================================================================================
SEMIANNUAL REPORT
USAA TREASURY MONEY MARKET TRUST(R) (UATXX)
NOVEMBER 30, 2018
================================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 2
Notes to Portfolio of Investments 7
Financial Statements 8
Notes to Financial Statements 11
Financial Highlights 20
EXPENSE EXAMPLE 21
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o PORTFOLIO MIX - 11/30/18 o
(% of Net Assets)
[PIE CHART OF PORTFOLIO MIX]
U.S. TREASURY BILLS 57.4%
U.S. TREASURY NOTES 23.9%
REPURCHASE AGREEMENTS 18.3%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (81.3%)
BILLS (57.4%)(a)
$ 26,000 U.S. Treasury Bill 1.99% 12/06/2018 $ 25,993
11,000 U.S. Treasury Bill 2.00 1/03/2019 10,980
19,000 U.S. Treasury Bill 2.02 12/06/2018 18,995
50,000 U.S. Treasury Bill 2.02 12/06/2018 49,986
30,000 U.S. Treasury Bill 2.02 12/13/2018 29,980
25,000 U.S. Treasury Bill 2.02 12/13/2018 24,983
40,000 U.S. Treasury Bill 2.02 12/13/2018 39,973
8,000 U.S. Treasury Bill 2.02 12/20/2018 7,991
35,000 U.S. Treasury Bill 2.03 12/06/2018 34,990
10,000 U.S. Treasury Bill 2.03 12/06/2018 9,997
3,000 U.S. Treasury Bill 2.03 12/06/2018 2,999
6,000 U.S. Treasury Bill 2.03 12/13/2018 5,996
50,000 U.S. Treasury Bill 2.03 12/13/2018 49,966
12,000 U.S. Treasury Bill 2.03 12/13/2018 11,992
2,000 U.S. Treasury Bill 2.03 12/20/2018 1,998
15,500 U.S. Treasury Bill 2.03 12/27/2018 15,477
15,000 U.S. Treasury Bill 2.04 12/20/2018 14,984
9,000 U.S. Treasury Bill 2.04 12/20/2018 8,990
26,000 U.S. Treasury Bill 2.04 12/20/2018 25,972
21,000 U.S. Treasury Bill 2.04 12/20/2018 20,977
22,000 U.S. Treasury Bill 2.08 1/03/2019 21,958
10,000 U.S. Treasury Bill 2.09 12/27/2018 9,985
4,000 U.S. Treasury Bill 2.09 12/27/2018 3,994
30,000 U.S. Treasury Bill 2.09 1/10/2019 29,930
3,000 U.S. Treasury Bill 2.09 1/17/2019 2,992
25,000 U.S. Treasury Bill 2.10 12/20/2018 24,972
12,200 U.S. Treasury Bill 2.10 12/27/2018 12,182
14,600 U.S. Treasury Bill 2.10 1/03/2019 14,572
30,000 U.S. Treasury Bill 2.10 1/10/2019 29,930
15,000 U.S. Treasury Bill 2.11 12/06/2018 14,996
10,000 U.S. Treasury Bill 2.11 1/10/2019 9,977
50,000 U.S. Treasury Bill 2.12 12/20/2018 49,944
7,400 U.S. Treasury Bill 2.12 12/27/2018 7,389
30,000 U.S. Treasury Bill 2.12 1/10/2019 29,929
================================================================================
2 | USAA TREASURY MONEY MARKET TRUST
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 9,500 U.S. Treasury Bill 2.12% 1/17/2019 $ 9,474
8,900 U.S. Treasury Bill 2.13 12/20/2018 8,890
15,000 U.S. Treasury Bill 2.15 1/17/2019 14,958
5,900 U.S. Treasury Bill 2.16 1/03/2019 5,888
50,000 U.S. Treasury Bill 2.16 1/17/2019 49,859
13,500 U.S. Treasury Bill 2.16 2/14/2019 13,439
25,000 U.S. Treasury Bill 2.17 1/10/2019 24,940
30,000 U.S. Treasury Bill 2.18 12/27/2018 29,953
8,600 U.S. Treasury Bill 2.18 12/27/2018 8,586
50,000 U.S. Treasury Bill 2.18 1/03/2019 49,900
14,500 U.S. Treasury Bill 2.18 1/24/2019 14,453
3,600 U.S. Treasury Bill 2.18 1/24/2019 3,588
50,000 U.S. Treasury Bill 2.19 12/27/2018 49,921
30,000 U.S. Treasury Bill 2.19 1/17/2019 29,914
12,500 U.S. Treasury Bill 2.19 1/24/2019 12,459
9,200 U.S. Treasury Bill 2.20 12/27/2018 9,185
12,500 U.S. Treasury Bill 2.20 1/03/2019 12,475
6,600 U.S. Treasury Bill 2.20 1/17/2019 6,581
24,000 U.S. Treasury Bill 2.20 2/14/2019 23,890
10,000 U.S. Treasury Bill 2.21 1/17/2019 9,971
50,000 U.S. Treasury Bill 2.21 2/07/2019 49,791
9,000 U.S. Treasury Bill 2.21 2/21/2019 8,955
20,000 U.S. Treasury Bill 2.22 1/10/2019 19,951
50,000 U.S. Treasury Bill 2.23 1/03/2019 49,898
20,000 U.S. Treasury Bill 2.23 1/17/2019 19,942
25,000 U.S. Treasury Bill 2.23 1/24/2019 24,917
30,000 U.S. Treasury Bill 2.23 1/24/2019 29,900
20,000 U.S. Treasury Bill 2.23 2/14/2019 19,907
10,400 U.S. Treasury Bill 2.23 2/21/2019 10,347
33,000 U.S. Treasury Bill 2.24 1/24/2019 32,889
30,000 U.S. Treasury Bill 2.24 2/07/2019 29,873
4,000 U.S. Treasury Bill 2.24 2/28/2019 3,978
25,000 U.S. Treasury Bill 2.24 2/28/2019 24,861
25,000 U.S. Treasury Bill 2.25 1/17/2019 24,927
50,000 U.S. Treasury Bill 2.25 1/24/2019 49,831
4,800 U.S. Treasury Bill 2.25 2/07/2019 4,780
30,000 U.S. Treasury Bill 2.25 2/07/2019 29,872
20,000 U.S. Treasury Bill 2.25 2/14/2019 19,906
25,000 U.S. Treasury Bill 2.26 2/14/2019 24,882
6,000 U.S. Treasury Bill 2.26 2/21/2019 5,969
7,000 U.S. Treasury Bill 2.26 3/07/2019 6,958
11,000 U.S. Treasury Bill 2.27 2/14/2019 10,948
20,000 U.S. Treasury Bill 2.27 2/14/2019 19,905
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 14,200 U.S. Treasury Bill 2.28% 2/07/2019 $ 14,139
25,000 U.S. Treasury Bill 2.28 2/14/2019 24,881
20,000 U.S. Treasury Bill 2.28 2/21/2019 19,896
20,000 U.S. Treasury Bill 2.28 2/28/2019 19,887
11,800 U.S. Treasury Bill 2.28 2/28/2019 11,734
40,000 U.S. Treasury Bill 2.29 2/07/2019 39,827
25,000 U.S. Treasury Bill 2.29 2/14/2019 24,881
13,000 U.S. Treasury Bill 2.29 3/07/2019 12,921
25,000 U.S. Treasury Bill 2.30 3/14/2019 24,835
25,000 U.S. Treasury Bill 2.30 3/21/2019 24,825
25,000 U.S. Treasury Bill 2.31 2/21/2019 24,868
5,800 U.S. Treasury Bill 2.31 2/21/2019 5,769
50,000 U.S. Treasury Bill 2.32 2/21/2019 49,736
5,300 U.S. Treasury Bill 2.32 3/28/2019 5,260
30,000 U.S. Treasury Bill 2.33 3/21/2019 29,786
2,000 U.S. Treasury Bill 2.33 3/28/2019 1,985
8,400 U.S. Treasury Bill 2.33 3/28/2019 8,336
42,400 U.S. Treasury Bill 2.35 3/28/2019 42,076
25,000 U.S. Treasury Bill 2.36 3/28/2019 24,809
3,300 U.S. Treasury Bill 2.36 4/04/2019 3,273
15,300 U.S. Treasury Bill 2.36 4/04/2019 15,176
15,400 U.S. Treasury Bill 2.37 4/04/2019 15,274
1,900 U.S. Treasury Bill 2.37 4/04/2019 1,885
35,000 U.S. Treasury Bill 2.37 4/04/2019 34,714
11,000 U.S. Treasury Bill 2.37 4/04/2019 10,910
9,600 U.S. Treasury Bill 2.37 4/25/2019 9,508
6,600 U.S. Treasury Bill 2.38 4/04/2019 6,546
35,000 U.S. Treasury Bill 2.38 4/04/2019 34,713
8,400 U.S. Treasury Bill 2.38 4/04/2019 8,331
12,500 U.S. Treasury Bill 2.38 4/11/2019 12,392
8,900 U.S. Treasury Bill 2.38 4/18/2019 8,819
12,600 U.S. Treasury Bill 2.38 4/25/2019 12,479
5,300 U.S. Treasury Bill 2.39 4/11/2019 5,254
10,750 U.S. Treasury Bill 2.39 4/11/2019 10,657
90,000 U.S. Treasury Bill 2.39 4/11/2019 89,217
25,000 U.S. Treasury Bill 2.39 4/18/2019 24,771
8,500 U.S. Treasury Bill 2.39 4/25/2019 8,418
6,100 U.S. Treasury Bill 2.40 4/11/2019 6,047
4,700 U.S. Treasury Bill 2.40 4/11/2019 4,659
5,700 U.S. Treasury Bill 2.40 4/18/2019 5,648
15,000 U.S. Treasury Bill 2.40 4/18/2019 14,862
8,200 U.S. Treasury Bill 2.40 4/25/2019 8,121
4,100 U.S. Treasury Bill 2.40 4/25/2019 4,060
50,000 U.S. Treasury Bill 2.41 4/18/2019 49,537
================================================================================
4 | USAA TREASURY MONEY MARKET TRUST
================================================================================
------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------
$ 5,000 U.S. Treasury Bill 2.41% 4/25/2019 $ 4,952
10,000 U.S. Treasury Bill 2.41 5/02/2019 9,898
7,700 U.S. Treasury Bill 2.42 5/02/2019 7,621
4,700 U.S. Treasury Bill 2.42 5/02/2019 4,652
5,100 U.S. Treasury Bill 2.43 5/02/2019 5,048
8,900 U.S. Treasury Bill 2.44 5/09/2019 8,804
5,400 U.S. Treasury Bill 2.44 5/09/2019 5,342
11,500 U.S. Treasury Bill 2.44 5/09/2019 11,376
22,800 U.S. Treasury Bill 2.46 5/23/2019 22,531
7,400 U.S. Treasury Bill 2.46 5/23/2019 7,312
----------
2,490,738
----------
NOTES (23.9%)(b)
35,300 U.S. Treasury Note 1.13 1/15/2019 35,250
50,000 U.S. Treasury Note 1.25 12/15/2018 49,984
175,000 U.S. Treasury Note (3 mo. USTMMR + 0.48%)(c) 2.43 10/31/2019 175,144
212,000 U.S. Treasury Note (3 mo. USTMMR + 0.06%)(c) 2.44 7/31/2019 212,153
252,000 U.S. Treasury Note (3 mo. USTMMR + 0.07%)(c) 2.45 4/30/2019 252,146
270,000 U.S. Treasury Note (3 mo. USTMMR + 0.14%)(c) 2.52 1/31/2019 270,093
40,000 U.S. Treasury Note 2.75 2/15/2019 40,028
----------
1,034,798
----------
Total U.S. Treasury Securities (cost: $3,525,536) 3,525,536
----------
REPURCHASE AGREEMENTS (18.3%)
225,000 Fixed Income Clearing Corp., 2.26%, acquired 11/30/2018 and due on
12/03/2018 at $225,000 (collateralized by $225,000 of U.S. Treasury,
2.13%(b), due 11/30/2023; market value $229,501) 225,000
107,000 Bank of America Corp., 2.27%, acquired 11/30/2018 and due on
12/03/2018 at $107,000 (collateralized by $109,554 of U.S. Treasury,
1.50% - 2.88%(b), due 12/31/2020 - 1/31/2022; market value $109,140) 107,000
200,000 Credit Agricole Corp., 2.27%, acquired 11/30/2018 and due on
12/03/2018 at $200,000 (collateralized by $204,970 of U.S. Treasury,
2.88%(b), due 11/30/2025; market value $204,000) 200,000
225,000 Natixis Securities Americas, LLC, 2.27%, acquired 11/30/2018 and due on
12/03/2018 at $225,000 (collateralized by $14,286 of U.S. Treasury,
0.38% - 2.00%(d), due 1/15/2026 - 2/15/2042; $2 of U.S. Treasury,
2.30% - 2.69%(a), due 1/10/2019 - 11/07/2019; $217,818 of U.S. Treasury,
2.00% - 5.38%(b), due 10/31/2021 - 5/15/2046; combined market value $229,543) 225,000
36,000 TD Securities USA, LLC, 2.26%, acquired 11/30/2018 and due on
12/03/2018 at $36,000 (collateralized by $38,518 of U.S. Treasury,
1.63% - 2.00%(b), due 7/31/2020 - 5/15/2026; market value $36,727) 36,000
----------
Total Repurchase Agreements (cost: $793,000) 793,000
----------
TOTAL INVESTMENTS (COST: $4,318,536) $4,318,536
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------
U.S. Treasury Securities:
Bills $- $2,490,738 $- $2,490,738
Notes - 1,034,798 - 1,034,798
Repurchase Agreements - 793,000 - 793,000
--------------------------------------------------------------------------------
Total $- $4,318,536 $- $4,318,536
--------------------------------------------------------------------------------
================================================================================
6 | USAA TREASURY MONEY MARKET TRUST
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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
USTMMR Quarterly US Treasury Money Market Rate
o SPECIFIC NOTES
(a) Rate represents an annualized yield at time of purchase, not coupon
rate.
(b) Rates for U.S. Treasury notes or bonds represent the stated coupon
payment rate at time of issuance.
(c) Rates for U.S. Treasury floating-rate notes rise and fall based on
discount rates in auctions of 13-week Treasury bills, and are paid
quarterly.
(d) 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.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 7
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $3,525,536
Investments in repurchase agreements (cost approximates market value) 793,000
Cash 346
Receivables:
Capital shares sold 51,469
Interest 2,714
----------
Total assets 4,373,065
----------
LIABILITIES
Payables:
Capital shares redeemed 37,050
Dividends on capital shares 5
Accrued management fees 435
Other accrued expenses and payables 287
----------
Total liabilities 37,777
----------
Net assets applicable to capital shares outstanding $4,335,288
==========
NET ASSETS CONSIST OF:
Paid-in capital $4,335,288
==========
Capital shares outstanding, no par value 4,335,288
==========
Net asset value, redemption price, and offering price per share $ 1.00
==========
See accompanying notes to financial statements.
================================================================================
8 | USAA TREASURY MONEY MARKET TRUST
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $41,214
-------
EXPENSES
Management fees 2,529
Administration and servicing fees 2,023
Transfer agent's fees 2,023
Custody and accounting fees 140
Postage 164
Shareholder reporting fees 20
Trustees' fees 17
Registration fees 50
Professional fees 73
Other 31
-------
Total expenses 7,070
-------
NET INVESTMENT INCOME $34,144
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 9
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended
May 31, 2018
------------------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 34,144 $ 29,773
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS: (34,144) (29,773)
----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 6,455,672 12,083,156
Reinvested dividends 34,116 29,749
Cost of shares redeemed (5,886,859) (11,006,596)
----------------------------
Increase in net assets from capital
share transactions 602,929 1,106,309
----------------------------
Net increase in net assets 602,929 1,106,309
NET ASSETS
Beginning of period 3,732,359 2,626,050
----------------------------
End of period $ 4,335,288 $ 3,732,359
============================
CHANGE IN SHARES OUTSTANDING
Shares sold 6,455,672 12,083,156
Shares issued for dividends reinvested 34,116 29,749
Shares redeemed (5,886,859) (11,006,596)
----------------------------
Increase in shares outstanding 602,929 1,106,309
============================
See accompanying notes to financial statements.
================================================================================
10 | USAA TREASURY MONEY MARKET TRUST
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA Treasury Money Market Trust (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. The Fund seeks to provide investors maximum current
income while maintaining the highest degree of safety and liquidity.
The Fund operates as a government money market fund in compliance with the
requirements of Rule 2a-7 under the 1940 Act; and as a government money market
fund, shares of the Fund are available for sale only to accounts that are
beneficially owned by natural persons.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
================================================================================
NOTES TO FINANCIAL STATEMENTS | 11
================================================================================
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
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, an affiliate of
the Fund. Among other things, these monthly meetings include a review and
analysis of backtesting reports, pricing service quotation comparisons,
illiquid securities and fair value determinations, pricing movements, and
daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. All securities held in the Fund are short-term debt securities, which
are valued pursuant to Rule 2a-7 under the 1940 Act. This method values
a security at its purchase price, and thereafter, assumes a constant
amortization to maturity of any premiums or discounts.
2. Repurchase agreements are valued at cost.
================================================================================
12 | USAA TREASURY MONEY MARKET TRUST
================================================================================
3. Securities for which amortized cost valuations are considered unreliable
or whose values have been materially affected by a significant event are
valued in good faith at fair value, using methods determined by the
Committee, under procedures to stabilize net assets and valuation
procedures approved by the Board.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For example, money market securities are valued using amortized cost, in
accordance with rules under the 1940 Act. Generally, amortized cost
approximates the current fair value of a security, but since the value is
not obtained from a quoted price in an active market, such securities are
reflected as Level 2.
C. 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
straight-line method.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 13
================================================================================
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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. REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers pursuant to the terms of a
Master Repurchase Agreement. A repurchase agreement is an arrangement
wherein the Fund purchases securities and the seller agrees to repurchase
the securities at an agreed upon time and at an agreed upon price. The
purchased securities are marked-to-market daily to ensure their value is
equal to or in excess of the purchase price plus accrued interest and are
held by the Fund, either through its regular custodian or through a special
"tri-party" custodian that maintains separate accounts for both the Fund and
its counterparty, until maturity of the repurchase agreement. Master
Repurchase Agreements typically contain netting provisions, which provide
for the net settlement of all transactions and collateral with the Fund
through a single payment in the event of default or termination. Repurchase
agreements are subject to credit risk, and the Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into repurchase
agreements.
Investments in repurchase agreements as presented on the Portfolio of
Investments are not net settlement amounts but gross. At November 30, 2018,
the value of the related collateral exceeded the value of the repurchase
agreements, reducing the net settlement amount to zero. Details on the
collateral are included on the Portfolio of Investments.
================================================================================
14 | USAA TREASURY MONEY MARKET TRUST
================================================================================
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments.
G. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
The Trusts are also assessed facility fees by CAPCO in the amount of 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $15,000, which represents 4.8% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had no capital loss carryforwards, for federal income
tax purposes.
(4) 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.
================================================================================
16 | USAA TREASURY MONEY MARKET TRUST
================================================================================
The Fund's investment management fee is accrued daily and paid monthly at an
annualized rate of 0.125% of the Fund's average daily net assets. For the
six-month period ended November 30, 2018, the Fund incurred management fees,
paid or payable to the Manager, of $2,529,000.
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 0.10% of the Fund's
average daily net assets. For the six-month period ended November 30, 2018, the
Fund incurred administration and servicing fees, paid or payable to the Manager,
of $2,023,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended November 30, 2018, the Fund reimbursed the Manager $36,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund. The Fund's transfer agent's fees are accrued daily
and paid monthly at an annualized rate of 0.10% of the Fund's average daily net
assets for the fiscal year. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. For the six-month period ended November 30, 2018, the
Fund incurred transfer agent's fees, paid or payable to SAS, of $2,023,000.
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
(5) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(6) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10233, 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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed
certain requirements related to liquidity classification, highly liquid
investment minimums, and board approval of the liquidity risk management
programs to June 1, 2019. The Manager continues to evaluate the impact of this
rule on the Fund's financial statements and various filings.
(7) UPCOMING ACCOUNTING PRONOUNCEMENT
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
================================================================================
18 | USAA TREASURY MONEY MARKET TRUST
================================================================================
(8) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The amendments
to Regulation S-X took effect on November 5, 2018, and the financial statements
have been modified accordingly, for the current and prior periods.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
FINANCIAL HIGHLIGHTS
(UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-------------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------------------------------------------------------------
Income from
investment operations:
Net investment income .01 .01 .00(a) .00(a) .00(a) .00(a)
Less distributions from:
Net investment income (.01) (.01) (.00)(a) (.00)(a) (.00)(a) (.00)(a)
-------------------------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================================
Total return (%)* .85 .89(b) .08 .00(c) .00(c) .00(c)
Net assets at
end of period (000) $4,335,288 $3,732,359 $2,626,050 $188,863 $119,654 $128,416
Ratios to average
daily net assets:**
Expenses (%)(d) .35(e) .35(b) .35 .17 .06 .04(f)
Expenses, excluding
reimbursements (%)(d) .35(e) .35 .39 .49 .52 .48(f)
Net investment income (%) 1.69(e) .91 .12 .00(c) .00(c) .00(c)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
iMoneyNet reported return. Total returns for periods of less than one year
are not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $4,038,442,000.
(a) Represents less than $0.01 per share.
(b) Prior to August 1, 2017, the Manager voluntarily agreed, on a temporary
basis, to reimburse management, administrative, or other fees to limit the
Fund's expenses and attempt to prevent a negative yield.
(c) Represents 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) 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%.
================================================================================
20 | USAA TREASURY MONEY MARKET TRUST
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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 values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to
================================================================================
EXPENSE EXAMPLE | 21
================================================================================
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
-------------------------------------------------------
Actual $1,000.00 $1,008.50 $1.76
Hypothetical
(5% return before expenses) 1,000.00 1,023.31 1.78
*Expenses are equal to the Fund's annualized expense ratio of 0.35%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of 0.85% for the six-month period of June 1,
2018, through November 30, 2018.
================================================================================
22 | USAA TREASURY MONEY MARKET TRUST
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
>> Secure
>> Saves Time
>> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
23416-0119 (C)2019, USAA. All rights reserved.
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA WORLD GROWTH FUND]
===============================================================================
SEMIANNUAL REPORT
USAA WORLD GROWTH FUND
FUND SHARES (USAWX) o INSTITUTIONAL SHARES (UIWGX)
o ADVISER SHARES (USWGX)
NOVEMBER 30, 2018
===============================================================================
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Fund's shareholder
reports like this one will no longer be sent by mail, unless you specifically
request paper copies of the reports from the Fund or from your financial
intermediary, such as a broker-dealer or bank. Instead, the reports will be made
available on usaa.com, and you will be notified by mail each time a report is
posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from the Fund or your
financial intermediary electronically by notifying your financial intermediary
directly, or if you are a direct investor, by calling (800) 531-USAA (8722) or
logging on to usaa.com.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue
receiving paper copies of your shareholder reports by notifying your financial
intermediary directly, or if you are a direct investor, by calling (800)
531-USAA (8722) or logging on to usaa.com. Your election to receive reports in
paper will apply to all funds held with the USAA family of funds or your
financial intermediary.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 9
Financial Statements 10
Notes to Financial Statements 14
Financial Highlights 29
EXPENSE EXAMPLE 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)2019, USAA. All rights reserved.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 INDUSTRIES - 11/30/18 o
(% of Net Assets)
Healthcare Products ...................................................... 13.8%
Banks .................................................................... 6.1%
Chemicals ................................................................ 5.9%
Beverages ................................................................ 5.9%
Diversified Financial Services ........................................... 5.8%
Transportation ........................................................... 5.5%
Food ..................................................................... 5.4%
Media .................................................................... 5.1%
Computers ................................................................ 5.1%
Pharmaceuticals .......................................................... 5.0%
o TOP 10 EQUITY HOLDINGS - 11/30/18 o
(% of Net Assets)
Thermo Fisher Scientific, Inc. ........................................... 3.2%
Visa, Inc. "A" ........................................................... 3.1%
Medtronic plc ............................................................ 3.1%
Comcast Corp. "A" ........................................................ 3.0%
Accenture plc "A" ........................................................ 2.6%
Nestle S.A. .............................................................. 2.6%
Honeywell International, Inc. ............................................ 2.4%
Reckitt Benckiser Group plc ............................................. 2.3%
Essity AB "B" ............................................................ 2.2%
Diageo plc ............................................................... 2.1%
Refer to the Portfolio of Investments for a complete list of securities.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
o COUNTRY ALLOCATION - 11/30/18 o
(% of Net Assets)
[PIE CHART OF COUNTRY ALLOCATION]
UNITED STATES 54.0%
FRANCE 9.8%
UNITED KINGDOM 9.6%
SWITZERLAND 7.5%
GERMANY 4.4%
OTHER* 18.8%
[END OF CHART]
*Includes countries with less than 3.0% of portfolio, money market instruments
and short-term investments purchased with cash collateral from securities
loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
2 | USAA WORLD GROWTH FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2018 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.6%)
COMMON STOCKS (99.6%)
BASIC MATERIALS (5.9%)
----------------------
CHEMICALS (5.9%)
106,834 Air Liquide S.A.(a) $ 12,918
214,959 Akzo Nobel N.V.(a) 18,119
127,268 Brenntag AG(a) 5,884
35,867 Linde plc 5,705
122,459 Linde plc(b) 19,478
137,906 PPG Industries, Inc. 15,077
----------
Total Basic Materials 77,181
----------
COMMUNICATIONS (8.4%)
---------------------
ADVERTISING (1.6%)
96,377 Omnicom Group, Inc. 7,418
1,208,399 WPP plc(a) 13,364
----------
20,782
----------
INTERNET (0.8%)
328,153 eBay, Inc.(b) 9,795
----------
MEDIA (5.1%)
1,010,951 Comcast Corp. "A" 39,437
236,515 Walt Disney Co. 27,315
----------
66,752
----------
TELECOMMUNICATIONS (0.9%)
254,830 Cisco Systems, Inc. 12,199
----------
Total Communications 109,528
----------
CONSUMER, CYCLICAL (7.3%)
-------------------------
APPAREL (2.7%)
298,900 Burberry Group plc(a) 6,772
4,694 Hermes International(a) 2,550
91,757 LVMH Moet Hennessy Louis Vuitton SE(a),(c) 26,406
----------
35,728
----------
AUTO PARTS & EQUIPMENT (0.5%)
85,904 Aptiv plc 6,177
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
FOOD SERVICE (1.1%)
652,476 Compass Group plc(a) $ 13,962
----------
LEISURE TIME (0.4%)
115,189 Harley-Davidson, Inc. 4,871
----------
LODGING (1.0%)
529,600 Sands China Ltd.(a) 2,304
141,779 Whitbread plc(a) 8,312
21,544 Wynn Resorts Ltd. 2,357
----------
12,973
----------
RETAIL (1.6%)
6,993 AutoZone, Inc.(b) 5,658
176,849 Cie Financiere Richemont S.A.(a) 11,513
209,642 Sally Beauty Holdings, Inc.(b) 4,425
----------
21,596
----------
Total Consumer, Cyclical 95,307
----------
CONSUMER, NON-CYCLICAL (37.4%)
------------------------------
BEVERAGES (5.9%)
1,034,329 Ambev S.A. 4,526
77,196 Carlsberg A/S "B"(a) 8,550
769,296 Diageo plc(a) 27,716
126,250 Heineken N.V.(a) 11,556
155,058 Pernod Ricard S.A.(a),(c) 24,802
----------
77,150
----------
COMMERCIAL SERVICES (1.1%)
123,388 Adecco Group AG(a) 6,132
95,323 PayPal Holdings, Inc.(b) 8,180
----------
14,312
----------
COSMETICS/PERSONAL CARE (3.9%)
232,310 Colgate-Palmolive Co. 14,756
785,089 Coty, Inc. "A" 6,548
1,112,702 Essity AB "B"(a) 28,575
----------
49,879
----------
FOOD (5.4%)
308,596 Danone S.A.(a) 23,096
195,741 Kellogg Co. 12,459
399,473 Nestle S.A.(a) 34,111
----------
69,666
----------
HEALTHCARE-PRODUCTS (13.8%)
274,074 Abbott Laboratories 20,295
59,916 Cooper Companies, Inc. 16,706
================================================================================
4 | USAA WORLD GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
406,100 Medtronic plc $ 39,607
303,400 Olympus Corp.(a) 8,546
24,682 Sonova Holding AG(a) 4,003
138,749 Stryker Corp. 24,345
165,843 Thermo Fisher Scientific, Inc. 41,386
210,524 Zimmer Biomet Holdings, Inc. 24,636
----------
179,524
----------
HOUSEHOLD PRODUCTS/WARES (2.3%)
358,806 Reckitt Benckiser Group plc(a) 29,852
----------
PHARMACEUTICALS (5.0%)
359,582 Bayer AG(a) 26,263
40,099 Johnson & Johnson 5,891
97,849 Merck KGaA(a) 10,790
86,355 Roche Holding AG(a) 22,407
----------
65,351
----------
Total Consumer, Non-cyclical 485,734
----------
ENERGY (0.8%)
-------------
OIL & GAS SERVICES (0.8%)
100,715 National Oilwell Varco, Inc. 3,234
58,888 NOW, Inc.(b) 795
145,571 Schlumberger Ltd. 6,565
----------
Total Energy 10,594
----------
FINANCIAL (13.1%)
-----------------
BANKS (6.1%)
419,888 Bank of New York Mellon Corp. 21,544
134,200 Erste Group Bank AG(a),(b) 5,297
58,755 Goldman Sachs Group, Inc. 11,204
689,016 Grupo Financiero Banorte S.A.B. de C.V. 3,158
475,400 Kasikornbank PCL(a) 2,805
299,363 State Street Corp. 21,860
1,037,005 UBS Group AG(a),(b) 14,071
----------
79,939
----------
DIVERSIFIED FINANCIAL SERVICES (5.8%)
176,894 American Express Co. 19,860
42,911 Deutsche Boerse AG(a) 5,485
146,941 Franklin Resources, Inc. 4,980
133,328 Julius Baer Group Ltd.(a),(b) 5,400
280,160 Visa, Inc. "A"(c) 39,701
----------
75,426
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
INSURANCE (1.2%)
91,337 Aon plc $ 15,080
----------
Total Financial 170,445
----------
INDUSTRIAL (18.8%)
------------------
AEROSPACE/DEFENSE (1.8%)
43,288 MTU Aero Engines AG(a) 9,005
112,114 United Technologies Corp. 13,660
----------
22,665
----------
ELECTRICAL COMPONENTS & EQUIPMENT (2.9%)
177,241 Legrand S.A.(a) 10,858
361,884 Schneider Electric SE(a) 26,352
----------
37,210
----------
ELECTRONICS (4.6%)
81,561 Amphenol Corp. "A" 7,173
211,999 Honeywell International, Inc. 31,111
142,500 Hoya Corp.(a) 8,747
36,138 Resideo Technologies, Inc.(b) 746
58,064 Waters Corp.(b) 11,530
----------
59,307
----------
ENGINEERING & CONSTRUCTION (1.1%)
93,083 Aena SME S.A.(a) 14,805
----------
MACHINERY-DIVERSIFIED (1.2%)
935,500 Kubota Corp.(a) 15,976
----------
MISCELLANEOUS MANUFACTURERS (1.7%)
108,594 3M Co. 22,579
----------
TRANSPORTATION (5.5%)
297,721 Canadian National Railway Co. 25,550
224,514 Kansas City Southern 23,136
202,739 United Parcel Service, Inc. "B" 23,374
----------
72,060
----------
Total Industrial 244,602
----------
TECHNOLOGY (7.9%)
-----------------
COMPUTERS (5.1%)
207,654 Accenture plc "A" 34,163
155,223 Check Point Software Technologies Ltd.(b) 17,356
213,049 Cognizant Technology Solutions Corp. "A" 15,175
----------
66,694
----------
================================================================================
6 | USAA WORLD GROWTH FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (1.2%)
67,260 Microchip Technology, Inc.(c) $ 5,045
275,049 Samsung Electronics Co. Ltd.(a) 10,326
----------
15,371
----------
SOFTWARE (1.6%)
422,610 Oracle Corp. 20,607
---------
Total Technology 102,672
----------
Total Common Stocks (cost: $804,010) 1,296,063
----------
Total Equity Securities (cost: $804,010) 1,296,063
----------
MONEY MARKET INSTRUMENTS (0.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.2%)
2,160,020 State Street Institutional Treasury Money Market Fund
Premier Class, 2.19%(d) (cost: $2,160) 2,160
----------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (4.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (4.3%)
24,080,340 HSBC U.S. Government Money Market Fund Class I, 2.13%(d) 24,080
642,524 Invesco Government & Agency Portfolio Institutional Class, 2.12%(d) 643
31,349,067 Western Asset Institutional Government Reserves Institutional Class, 2.10%(d) 31,349
----------
Total Short-Term Investments Purchased with Cash Collateral from
Securities Loaned (cost: $56,072) 56,072
----------
TOTAL INVESTMENTS (COST: $862,242) $1,354,295
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $778,433 $517,630 $- $1,296,063
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 2,160 - - 2,160
Short-Term Investments Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 56,072 - - 56,072
------------------------------------------------------------------------------------------------------------------
Total $836,665 $517,630 $- $1,354,295
------------------------------------------------------------------------------------------------------------------
Refer to the Portfolio of Investments for additional industry, country, or
geographic region classifications.
The Portfolio of Investments uses the BICS, which may differ from the Fund's
compliance classification.
FAIR VALUE LEVEL TRANSFERS
--------------------------
For the period of June 1, 2018, through November 30, 2018, the table
below shows the transfers between Level 1, Level 2, and Level 3. The
Fund's policy is to recognize transfers in and transfers out as of
the beginning of the reporting period in which the event or
circumstance that caused the transfer occurred.
TRANSFERS INTO TRANSFERS INTO TRANSFERS INTO
(OUT OF) (OUT OF) (OUT OF)
ASSETS ($ IN 000s) LEVEL 1 LEVEL 2 LEVEL 3
-----------------------------------------------------------------------------------------------------------
Common Stocks(I) $(550,234) $550,234 $-
Common Stocks(II) 5,786 (5,786) -
-----------------------------------------------------------------------------------------------------------
Total $(544,448) $544,448 $-
-----------------------------------------------------------------------------------------------------------
(I) Transferred from Level 1 to Level 2 due to an assessment of events at the
end of the current reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets.
(II) Transferred from Level 2 to Level 1 due to an assessment of events at the
beginning of the reporting period, these securities had adjustments to their
foreign market closing prices to reflect changes in value that occurred after
the close of foreign markets and prior to the close of the U.S. securities
markets. Such adjustments were not made at the end of the current reporting
period.
================================================================================
8 | USAA WORLD GROWTH FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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 45.6% of net assets at November 30,
2018.
o SPECIFIC NOTES
(a) Securities with a value of $517,630,000, which represented 39.6% of the
Fund's net assets, were classified as Level 2 at November 30, 2018, due
to the prices being adjusted to take into account significant market
movements following the close of local trading.
(b) Non-income-producing security.
(c) The security, or a portion thereof, was out on loan as of November
30, 2018.
(d) Rate represents the money market fund annualized seven-day yield at
November 30, 2018.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 9
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $64,191) (cost of $862,242) $1,354,295
Cash denominated in foreign currencies (identified cost of $54) 53
Receivables:
Capital shares sold 457
USAA Asset Management Company (Note 7) 5
Dividends and interest 2,774
Securities sold 2,403
Other 13
----------
Total assets 1,360,000
----------
LIABILITIES
Payables:
Upon return of securities loaned 56,072
Securities purchased 1,070
Capital shares redeemed 691
Accrued management fees 795
Accrued transfer agent's fees 59
Other accrued expenses and payables 246
----------
Total liabilities 58,933
----------
Net assets applicable to capital shares outstanding $1,301,067
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 733,350
Distributable earnings 567,717
----------
Net assets applicable to capital shares outstanding $1,301,067
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,279,844/40,749 capital shares
outstanding, no par value) $ 31.41
==========
Institutional Shares (net assets of $11,623/371 capital shares
outstanding, no par value) $ 31.34
==========
Adviser Shares (net assets of $9,600/306 capital shares
outstanding, no par value) $ 31.41
==========
See accompanying notes to financial statements.
================================================================================
10 | USAA WORLD GROWTH FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $285) $ 9,824
Interest 69
Securities lending (net) 64
--------
Total income 9,957
--------
EXPENSES
Management fees 5,120
Administration and servicing fees:
Fund Shares 1,005
Institutional Shares 8
Adviser Shares 7
Transfer agent's fees:
Fund Shares 964
Institutional Shares 8
Adviser Shares 5
Distribution and service fees (Note 7):
Adviser Shares 13
Custody and accounting fees:
Fund Shares 124
Institutional Shares 2
Adviser Shares 1
Postage:
Fund Shares 42
Shareholder reporting fees:
Fund Shares 31
Trustees' fees 18
Registration fees:
Fund Shares 15
Institutional Shares 10
Adviser Shares 9
Professional fees 55
Other 14
--------
Total expenses 7,451
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
Expenses reimbursed:
Institutional Shares $ (4)
Adviser Shares (6)
--------
Net expenses 7,441
--------
NET INVESTMENT INCOME 2,516
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain (loss) on:
Investments (net of foreign taxes withheld of $5) 34,802
Foreign currency transactions (71)
Change in net unrealized appreciation/(depreciation) of:
Investments (53,802)
Foreign capital gains tax 8
Foreign currency translations (11)
--------
Net realized and unrealized loss (19,074)
--------
Decrease in net assets resulting from operations $(16,558)
========
See accompanying notes to financial statements.
================================================================================
12 | USAA WORLD GROWTH FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2018 (unaudited), and year ended
May 31, 2018
------------------------------------------------------------------------------------------------------------------
11/30/2018 5/31/2018
------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,516 $ 13,749
Net realized gain on investments 34,802 58,464
Net realized loss on foreign currency transactions (71) (23)
Change in net unrealized appreciation/(depreciation) of:
Investments (53,802) 17,949
Foreign capital gains tax 8 (21)
Foreign currency translations (11) (43)
-----------------------------------
Increase (decrease) in net assets resulting from
operations (16,558) 90,075
-----------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares - (59,788)
Institutional Shares - (1,215)
Adviser Shares - (372)
-----------------------------------
Distributions to shareholders - (61,375)
-----------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares (57,879) 6,339
Institutional Shares (18,243) 23,424
Adviser Shares (374) (10,300)
-----------------------------------
Total net increase (decrease) in net assets from
capital share transactions (76,496) 19,463
-----------------------------------
Capital contribution from USAA Transfer Agency Company - 2
-----------------------------------
Net increase (decrease) in net assets (93,054) 48,165
-----------------------------------
NET ASSETS
Beginning of period 1,394,121 1,345,956
-----------------------------------
End of period $1,301,067 $1,394,121
===================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 47 separate funds.
The USAA World Growth Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act. The Fund's investment objective is
to seek capital appreciation.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or Manager), the investment
adviser to the Fund, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer agent to the Fund, announced that AMCO and
SAS would be acquired by Victory Capital Holdings, Inc. (Victory), a global
investment management firm headquartered in Cleveland, Ohio (the Transaction).
The closing of the Transaction is expected to be completed during the second
quarter of 2019, pending satisfaction of certain closing conditions and
approvals, including certain approvals of the Fund's Board of Trustees and of
the Fund's shareholders at a special shareholder meeting to be held in 2019. The
Transaction is not expected to result in any material changes to the Fund's
investment objectives and principal investment strategies.
The Fund consists of three classes of shares: World Growth Fund Shares (Fund
Shares), World Growth Fund Institutional Shares (Institutional Shares), and
World Growth Fund Adviser Shares (Adviser Shares). Each class of shares has
equal rights to assets and earnings, except that each class bears certain
class-related expenses specific to the particular class. These
================================================================================
14 | USAA WORLD GROWTH FUND
================================================================================
expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, distribution and service (12b-1) fees, and
certain registration and custodian fees. Expenses not attributable to a specific
class, income, and realized gains or losses on investments are allocated to each
class of shares based on each class' relative net assets. Each class has
exclusive voting rights on matters related solely to that class and separate
voting rights on matters that relate to all classes. The Institutional Shares
are available for investment through a USAA discretionary managed account
program and certain advisory programs sponsored by financial intermediaries,
such as brokerage firms, investment advisors, financial planners, third-party
administrators, and insurance companies. Institutional Shares also are available
to institutional investors, which include retirement plans, endowments,
foundations, and bank trusts, as well as other persons or legal entities that
the Fund may approve from time to time, or for purchase by a USAA fund
participating in a fund-of-funds investment strategy (USAA fund-of-funds). The
Adviser Shares permit investors to purchase shares through financial
intermediaries, including banks, broker-dealers, insurance companies, investment
advisers, plan sponsors, and financial professionals that provide various
administrative and distribution services.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
meetings to review prior actions taken by the Committee and the Manager, an
affiliate of the Fund. Among other things, these monthly meetings include a
review and analysis of backtesting reports, pricing service quotation
comparisons, illiquid securities and fair value determinations, pricing
movements, and daily stale price monitoring.
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. 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 and the Fund's subadviser(s)
will monitor for events that would materially affect the value of the
Fund's foreign securities. The Fund's subadviser(s) have agreed to
notify the Manager of significant events they identify that
================================================================================
16 | USAA WORLD GROWTH FUND
================================================================================
would materially affect the value of the Fund's foreign securities. If
the Manager determines that a particular event would materially affect
the value of the Fund's foreign securities, then the Committee will
consider such available information that it deems relevant and will
determine a fair value for the affected foreign securities in accordance
with valuation procedures. In addition, information from an external
vendor or other sources may be used to adjust the foreign market closing
prices of foreign equity securities to reflect what the Committee
believes to be the fair value of the securities as of the close of the
NYSE. Fair valuation of affected foreign equity securities may occur
frequently based on an assessment that events which occur on a fairly
regular basis (such as U.S. market movements) are significant. Such
securities are categorized in Level 2 of the fair value hierarchy.
3. Investments in open-end investment companies, commingled, or other
funds, other than ETFs, are valued at their NAV at the end of each
business day and are categorized in Level 1 of the fair value hierarchy.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Repurchase agreements are valued at cost.
6. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. 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
================================================================================
18 | USAA WORLD GROWTH FUND
================================================================================
securities are amortized on a straight-line basis over the life of the
respective securities.
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended November 30, 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. FOREIGN CURRENCY TRANSLATIONS - The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
G. 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
================================================================================
20 | USAA WORLD GROWTH FUND
================================================================================
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 14.0 basis
points of the amount of the committed loan agreement. Prior to September 30,
2018, the maximum annual facility fee was 13.0 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 daily 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 15.0 basis points.
For the six-month period ended November 30, 2018, the Fund paid CAPCO facility
fees of $5,000, which represents 1.7% of the total fees paid to CAPCO by the
funds of the Trusts. The Fund had no borrowings under this agreement during the
six-month period ended November 30, 2018.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of May 31, 2019, 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 May 31, 2018, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of November 30, 2018, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
the cost reported in the financial statements. The net unrealized appreciation/
(depreciation) on investments are disclosed below:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
--------------------------------------------------------------------------------
USAA World Growth Fund $527,319,000 $(35,266,000) $492,053,000
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2018, were
$72,376,000 and $133,131,000, 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.
================================================================================
22 | USAA WORLD GROWTH FUND
================================================================================
At November 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
--------------------------------------------------------------------------------
$64,191,000 $11,403,000 $56,072,000
--------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
At November 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
NOVEMBER 30, 2018 MAY 31, 2018
---------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 982 $ 31,551 3,664 $ 118,239
Shares issued from reinvested dividends - - 1,846 59,037
Shares redeemed (2,780) (89,430) (5,300) (170,937)
---------------------------------------------------
Net increase (decrease) from capital
share transactions (1,798) $(57,879) 210 $ 6,339
===================================================
INSTITUTIONAL SHARES:
Shares sold 19 $ 617 739 $ 23,785
Shares issued from reinvested dividends - - 30 958
Shares redeemed (597) (18,860) (41) (1,319)
---------------------------------------------------
Net increase (decrease) from capital
share transactions (578) $(18,243) 728 $ 23,424
===================================================
ADVISER SHARES:
Shares sold 8 $ 261 45 $ 1,434
Shares issued from reinvested dividends - - 3 109
Shares redeemed (19) (635) (366)* (11,843)*
---------------------------------------------------
Net decrease from capital share transactions (11) $ (374) (318) $ (10,300)
===================================================
* Net of redemption fees, if any.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
(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 is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the day- to-day investment of all or
a portion of the Fund's assets.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether each
subadviser's agreement should be renewed, terminated, or modified. The Manager
is also responsible for determining the asset allocation for the subadviser(s).
The allocation for each subadviser could range from 0% to 100% of the Fund's
assets, and the Manager could change the allocations without shareholder
approval.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid monthly at
an annualized rate of 0.75% of the Fund's average daily net assets.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class' performance over the performance period
to that of the Lipper Global Funds Index.
For the Fund Shares and Adviser Shares, the performance period consists of the
current month plus the previous 35 months. The following table is utilized to
determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
----------------------------------------------------------
+/- 100 to 400 +/- 4
+/- 401 to 700 +/- 5
+/- 701 and greater +/- 6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant Lipper index, rounded
to the nearest basis point. Average daily net assets of the share class
are calculated over a rolling 36-month period.
================================================================================
24 | USAA WORLD GROWTH FUND
================================================================================
Each class' annual performance adjustment rate is multiplied by the average
daily net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number of
days in the month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance), or
subtracted from (in the case of underperformance) the base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Global Funds Index over that period, even if the class
had overall negative returns during the performance period.
For the six-month period ended November 30, 2018, the Fund incurred management
fees, paid or payable to the Manager, of $5,120,000, which included a
performance adjustment for the Institutional Shares of less than $500. For the
Institutional Shares, the performance adjustments was less than 0.01%. For the
six-month period ended November 30, 2018, the Fund Shares and Adviser Shares did
not incur any performance adjustment.
SUBADVISORY ARRANGEMENT(s) - The Manager entered into an Investment Subadvisory
Agreement with MFS Investment Management (MFS), under which MFS directs the
investment and reinvestment of the Fund's assets (as allocated from time to time
by the Manager). This arrangement provides for monthly fees that are paid by the
Manager.
The Manager (not the Fund) pays MFS a subadvisory fee based on the aggregate
average daily net assets in the USAA World Growth Fund and the USAA
International Fund combined, in an annual amount of 0.33% on the first $2
billion of assets, 0.30% on assets over $2 billion and up to $3 billion, 0.25%
on assets over $3 billion and up to $4 billion, and 0.225% on assets over $4
billion that MFS manages. Prior to October 1, 2018, the Manager (not the Fund)
paid MFS a subadvisory fee based on the aggregate average daily net assets in
the USAA World Growth Fund and the USAA International Fund combined, in an
annual amount of 0.33% on the first $2 billion of assets, 0.30% on assets over
$2 billion and up to $3 billion, and 0.25% on assets over $3 billion that MFS
managed. For the six-month period ended November 30, 2018, the Manager incurred
subadvisory fees with respect to the Fund, paid or payable to MFS, of
$2,064,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
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
daily net assets of the Fund Shares and Adviser Shares, and 0.10% of average
daily net assets of the Institutional Shares. For the six-month period ended
November 30, 2018, the Fund Shares, Institutional Shares, and Adviser Shares,
incurred administration and servicing fees, paid or payable to the Manager, of
$1,005,000, $8,000, 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 November 30, 2018, the Fund reimbursed the Manager $17,000 for
these compliance and legal services. These expenses are included in the
professional fees on the Fund's Statement of Operations.
EXPENSE LIMITATION - The Manager agreed, through September 30, 2019, to limit
the total annual operating expenses of the Institutional Shares and Adviser
Shares to 1.00% and 1.35%, respectively, of their average daily net assets,
excluding extraordinary expenses and before reductions of any expenses paid
indirectly, and to reimburse the Institutional Shares and the Adviser Shares for
all expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through September 30, 2019, without approval of the
Board, and may be changed or terminated by the Manager at any time after that
date. Prior to October 1, 2018, the Institutional Shares expense limitation was
1.10% of average daily net assets. For the six-month period ended November 30,
2018, the Institutional Shares and Adviser Shares incurred reimbursable expenses
of $4,000 and $6,000, respectively, of which $5,000 was receivable from the
Manager.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund Shares and Adviser Shares based on an annual charge
of $23 per shareholder account plus out-of-pocket expenses. SAS pays a portion
of these fees to certain intermediaries for the administration
================================================================================
26 | USAA WORLD GROWTH FUND
================================================================================
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 daily
net assets, plus out-of-pocket expenses. For the six-month period ended November
30, 2018, the Fund Shares, Institutional Shares, and Adviser Shares incurred
transfer agent's fees, paid or payable to SAS, of $964,000, $8,000, and $5,000,
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 daily net assets. Adviser
Shares are offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended November 30,
2018, the Adviser Shares incurred distribution and service (12b-1) fees of
$13,000.
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.
(8) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution. At November 30, 2018, USAA and its affiliates owned
173,000 Institutional Shares and 162,000 Adviser Shares, which represents 46.8%
of the Institutional Shares outstanding, 53.0% of the Adviser Shares
outstanding, and 0.8% of the Fund's total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (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. The
requirements to implement a liquidity risk management program and establish a
15% illiquid investment limit became effective December 1, 2018. However, in
February 2018, the SEC issued Release No. IC-33010, INVESTMENT COMPANY LIQUIDITY
RISK MANAGEMENT PROGRAMS; COMMISSION GUIDANCE FOR IN-KIND ETFs, which delayed
certain requirements related to liquidity classification, highly liquid
investment minimums, and board approval of the liquidity risk management
programs to June 1, 2019. The Manager continues to evaluate the impact of this
rule on the Fund's financial statements and various filings.
(10) UPCOMING ACCOUNTING PRONOUNCEMENT
(ASU) 2018-13, FAIR VALUE MEASUREMENT
-------------------------------------
In August 2018, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2018-13, Fair Value Measurement (Topic 820).
The amendments in the ASU impact disclosure requirements for fair value
measurement. It is anticipated that this change will enhance the effectiveness
of disclosures in the notes to the financial statements. This ASU is effective
for fiscal years beginning after December 15, 2019. Early adoption is permitted
and can include the entire standard or certain provisions that exclude or amend
disclosures. The adoption of this ASU guidance is not expected to have a
material impact on the financial statements and other disclosures.
(11) RECENTLY ADOPTED ACCOUNTING STANDARD
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial statements. The
amendments to Regulation S-X took effect on November 5, 2018, and the financial
statements have been modified accordingly, for the current and prior periods.
================================================================================
28 | USAA WORLD GROWTH FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 31.82 $ 31.16 $ 27.20 $ 28.69 $ 28.00 $ 24.24
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .30 .19 .21 .24 .20
Net realized and
unrealized gain (loss) (.48) 1.78 4.55 (.95) 1.16 4.19
-------------------------------------------------------------------------------------
Total from investment
operations (.41) 2.08 4.74 (.74) 1.40 4.39
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.23) (.21) (.19) (.28) (.19)
Realized capital gains - (1.19) (.57) (.56) (.43) (.44)
-------------------------------------------------------------------------------------
Total distributions - (1.42) (.78) (.75) (.71) (.63)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 31.41 $ 31.82 $ 31.16 $ 27.20 $ 28.69 $ 28.00
=====================================================================================
Total return (%)* (1.29) 6.68 17.81 (2.49) 5.10 18.24
Net assets at end
of period (000) $1,279,844 $1,353,880 $1,319,357 $1,157,148 $1,208,909 $1,128,586
Ratios to average
daily net assets:**
Expenses (%)(a) 1.09(b) 1.10 1.13 1.17 1.17 1.19(c)
Net investment
income (%) 37(b) .98 .72 .81 .91 .75
Portfolio turnover (%) 5 10 12 10 9 9
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $1,336,388,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(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%.
================================================================================
FINANCIAL HIGHLIGHTS | 29
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH PERIOD
PERIOD ENDED ENDED
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,
-----------------------------------------------------
2018 2018 2017 2016***
-----------------------------------------------------
Net asset value at beginning of period $ 31.75 $ 31.14 $27.14 $28.83
-----------------------------------------------------
Income (loss) from investment operations:
Net investment income .08(c) .29 .20 .24
Net realized and unrealized gain (loss) (.49)(c) 1.80 4.55 (1.11)
-----------------------------------------------------
Total from investment operations (.41)(c) 2.09 4.75 (.87)
-----------------------------------------------------
Less distributions from:
Net investment income - (.29) (.18) (.26)
Realized capital gains - (1.19) (.57) (.56)
-----------------------------------------------------
Total distributions - (1.48) (.75) (.82)
-----------------------------------------------------
Net asset value at end of period $ 31.34 $ 31.75 $31.14 $27.14
=====================================================
Total return (%)* (1.29) 6.70 17.89 (2.92)
Net assets at end of period (000) $11,623 $30,127 $6,877 $5,228
Ratios to average daily net assets:**
Expenses (%)(a) 1.08(b),(c),(d) 1.10 1.09 1.10(b)
Expenses, excluding reimbursements (%)(a) 1.14(b) 1.10 1.37 1.54(b)
Net investment income (%) .48(b) 1.19 .78 1.11(b)
Portfolio turnover (%) 5 10 12 10
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $15,159,000.
*** Institutional Shares commenced operations on August 7, 2015.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Calculated using average shares. For the six-month period ended November
30, 2018, average shares were 473,000.
(d) Effective October 1, 2018, the Manager had voluntarily agreed to limit the
annual expenses of the Institutional Shares to 1.00% of the Institutional
Shares' average daily net assets.
================================================================================
30 | USAA WORLD GROWTH FUND
================================================================================
ADVISER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
------------------------------------------------------------------------------------
2018 2018 2017 2016 2015 2014
------------------------------------------------------------------------------------
Net asset value at
beginning of period $31.86 $ 31.07 $ 27.13 $ 28.55 $ 27.90 $ 24.17
------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .03 .18(a) .12 .14 .19 .18
Net realized and
unrealized gain (loss) (.48) 1.80(a) 4.53 (.93) 1.13 4.16
------------------------------------------------------------------------------------
Total from investment
operations (.45) 1.98(a) 4.65 (.79) 1.32 4.34
------------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.00)(b) (.14) (.07) (.24) (.17)
Realized capital gains - (1.19) (.57) (.56) (.43) (.44)
------------------------------------------------------------------------------------
Total distributions - (1.19) (.71) (.63) (.67) (.61)
------------------------------------------------------------------------------------
Redemption fees added
to beneficial interests - .00(b) .00(b) .00(b) .00(b) -
------------------------------------------------------------------------------------
Net asset value at
end of period $31.41 $ 31.86 $ 31.07 $ 27.13 $ 28.55 $ 27.90
====================================================================================
Total return (%)* (1.41) 6.36 17.50 (2.72) 4.84 18.08
Net assets at
end of period (000) $9,600 $10,114 $19,722 $16,580 $26,797 $21,583
Ratios to average
daily net assets:**
Expenses (%)(c) 1.35(d) 1.39(g) 1.42 1.42 1.38(e) 1.35(f)
Expenses, excluding
reimbursements (%)(c) 1.46(d) 1.43 1.42 1.42 1.38 1.35(f)
Net investment income (%) .11(d) .57 .45 .49 .72 .64
Portfolio turnover (%) 5 10 12 10 9 9
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended November 30, 2018, average daily net assets
were $10,041,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) Does not include acquired fund fees, if any.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Prior to October 1, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.60% of the Adviser Shares'
average daily net assets.
(f) 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%.
(g) Effective October 1, 2017, the Manager had voluntarily agreed to limit the
annual expenses of the Adviser Shares to 1.35% of the Adviser Shares'
average daily net assets.
================================================================================
FINANCIAL HIGHLIGHTS | 31
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2018, through
November 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 WORLD GROWTH FUND
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 987.10 $5.43
Hypothetical
(5% return before expenses) 1,000.00 1,019.60 5.52
INSTITUTIONAL SHARES
Actual 1,000.00 987.10** 5.38**
Hypothetical
(5% return before expenses) 1,000.00 1,019.65** 5.47**
ADVISER SHARES
Actual 1,000.00 985.90 6.72
Hypothetical
(5% return before expenses) 1,000.00 1,018.30 6.83
*Expenses are equal to the annualized expense ratio of 1.09% for Fund Shares,
1.08% for Institutional Shares, and 1.35% for Adviser Shares, which are net of
any reimbursements and expenses paid indirectly, multiplied by the average
daily account value over the period, multiplied by 183 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account values are
based on its actual total returns of (1.29)% for Fund Shares, (1.29)% for
Institutional Shares, and (1.41)% for Adviser Shares for the six-month period
of June 1, 2018, through November 30, 2018.
**The Fund's annualized expense ratio of 1.08% for the Institutional Shares
above reflects a change effective October 1, 2018, in the rate of the
Manager's expense limitation from 1.10% to 1.00% of average annual net assets.
Had the expense limitation of 1.00%, which is net of any reimbursements and
================================================================================
EXPENSE EXAMPLE | 33
================================================================================
expenses paid indirectly, been in effect for the entire six-month period of
June 1, 2018, through November 30, 2018, the values in the table above would
be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2018 -
JUNE 1, 2018 NOVEMBER 30, 2018 NOVEMBER 30, 2018
----------------------------------------------------------------
INSTITUTIONAL SHARES
Actual $1,000.00 $ 987.10 $4.98
Hypothetical
(5% return before expenses) 1,000.00 1,020.05 5.06
================================================================================
34 | USAA WORLD GROWTH FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Richard Y. Newton III
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN, State Street Bank and Trust Company
ACCOUNTING AGENT, AND P.O. Box 1713
SUB-ADMINISTRATOR 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
--------------
RECEIVE ALL YOUR DOCUMENTS ONLINE
> Secure
> Saves Time
> Good for the Environment
Sign up today for online document delivery at USAA.COM/UDO
[LOGO OF USAA]
USAA We know what it means to serve.(R)
================================================================================
23412-0119 (C)2019, 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 November 30, 2018
By:* /S/ KRISTEN MILLAN
-----------------------------------------------------------
Signature and Title: Kristen Millan, Secretary
Date: 01/19/19
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 01/21/19
------------------------------
By:* /S/ JAMES K. DE VRIES
-----------------------------------------------------
Signature and Title: James K. De Vries, Treasurer
Date: 01/19/19
------------------------------
*Print the name and title of each signing officer under his or her signature.