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: CHRISTOPHER K. DYER
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: 800-235-8396
Date of fiscal year end: JUNE 30
Date of reporting period: JUNE 30, 2019
ITEM 1. REPORTS TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - ANNUAL REPORTS FOR PERIOD ENDING JUNE 30, 2019
[LOGO OF USAA USAA(R)]
----------------------
MUTUAL FUNDS
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June 30, 2019
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SEMIANNUAL REPORT
USAA 500 INDEX FUND
(formerly known as USAA S&P 500 Index Fund)
MEMBER REWARD
SHARES SHARES
USSPX USPRX
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) 235-8396 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)
235-8396 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.
Victory Capital means Victory Capital Management Inc., the investment manager of
the USAA Mutual Funds. USAA Mutual Funds are distributed by Victory Capital
Advisers, Inc., a broker dealer registered with FINRA and an affiliate of
Victory Capital. Victory Capital and its affiliates are not affiliated with
United Services Automobile Association or its affiliates. USAA and the USAA
logos are registered trademarks and the USAA Mutual Funds and USAA Investments
logos are trademarks of United Services Automobile Association and are being
used by Victory Capital and its affiliates under license.
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TABLE OF CONTENTS
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INVESTMENT OVERVIEW 1
SHAREHOLDER VOTING RESULTS 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 20
Financial Statements 22
Notes to Financial Statements 26
Financial Highlights 43
EXPENSE EXAMPLE 45
ADVISORY AGREEMENT(S) 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) 235-8396.
If you do not have a withholding election in place by the date of distribution,
federal income tax will be withheld from the taxable portion of your
distribution at a rate of 10%. If you must pay estimated taxes, you may be
subject to estimated tax penalties if your estimated tax payments are not
sufficient and sufficient tax is not withheld from your distribution.
For more specific information, please consult your tax adviser.
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INVESTMENT OVERVIEW
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o TOP 10 EQUITY HOLDINGS - 6/30/19 o
(% of Net Assets)
Microsoft Corp. ........................................................... 4.1%
Apple, Inc. ............................................................... 3.5%
Amazon.com, Inc. .......................................................... 3.1%
Facebook, Inc. "A" ........................................................ 1.9%
Berkshire Hathaway, Inc. "B" .............................................. 1.7%
Johnson & Johnson ......................................................... 1.5%
JPMorgan Chase & Co. ...................................................... 1.5%
Alphabet, Inc. "C" ........................................................ 1.3%
Alphabet, Inc. "A" ........................................................ 1.3%
Exxon Mobil Corp. ......................................................... 1.3%
o SECTOR ALLOCATION* - 6/30/19 o
[PIE CHART OF SECTOR ALLOCATION]
CONSUMER, NON-CYCLICAL 21.6%
FINANCIAL 17.6%
TECHNOLOGY 16.4%
COMMUNICATIONS 14.8%
INDUSTRIAL 9.1%
CONSUMER, CYCLICAL 8.2%
ENERGY 5.0%
UTILITIES 3.2%
BASIC MATERIALS 2.2%
[END CHART]
*Does not include futures or money market instruments.
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 securites.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
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INVESTMENT OVERVIEW | 1
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SHAREHOLDER VOTING RESULTS
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On April 18, 2019, a special meeting of shareholders was held to vote on two
proposals relating to the series of the USAA Mutual Funds Trust (Trust).
Shareholders of record on February 8, 2019, were entitled to vote on each
proposal shown below. The proposals were approved by the shareholders.
The following proposals and voting results pertain to one or more series within
the Trust. Votes shown for Proposal 1 are for the Fund, a series of the Trust.
Votes shown for Proposal 2 are for all series of the Trust. The effective date
of the Proposals was July 1, 2019.
PROPOSAL 1
To approve a new Investment Advisory Agreement between the Trust, on behalf of
the Fund, and Victory Capital Management Inc. (Victory Capital), an independent
investment adviser. The new Investment Advisory Agreement became effective upon
the closing of the Transaction (as defined and discussed in Note 1 to the
Financial Statements) whereby USAA Asset Management Company (AMCO) was acquired
by Victory Capital Holdings Inc., the parent company of Victory Capital.
NUMBER OF SHARES VOTING
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
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89,525,465 13,706,277 7,567,789
PROPOSAL 2
Election of two new trustees to the Trust's Board of Trustees to serve upon the
closing of the Transaction: (1) David C. Brown, to serve as an "interested
trustee" as defined in the Investment Company Act of 1940, as amended (1940
Act); and (2) John C. Walters, to serve as a trustee who is not an "interested
person" as is defined under the 1940 Act (Independent Trustee).
NUMBER OF SHARES VOTING
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TRUSTEES FOR VOTES WITHHELD
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David C. Brown 8,299,565,565 820,887,736
John C. Walters 8,317,935,885 802,517,416
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2 | USAA 500 INDEX FUND
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PORTFOLIO OF INVESTMENTS
June 30, 2019 (unaudited)
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
COMMON STOCKS (98.1%)
BASIC MATERIALS (2.2%)
----------------------
CHEMICALS (1.9%)
68,100 Air Products & Chemicals, Inc. $ 15,416
32,495 Albemarle Corp. 2,288
38,963 Celanese Corp. 4,200
68,635 CF Industries Holdings, Inc. 3,206
231,454 Dow, Inc. 11,413
231,454 DuPont de Nemours, Inc. 17,375
43,058 Eastman Chemical Co. 3,351
78,469 Ecolab, Inc. 15,493
40,792 FMC Corp. 3,384
31,273 International Flavors & Fragrances, Inc. 4,537
167,860 Linde plc 33,706
93,723 LyondellBasell Industries N.V. "A" 8,072
109,554 Mosaic Co. 2,742
73,092 PPG Industries, Inc. 8,531
25,125 Sherwin-Williams Co. 11,515
----------
145,229
----------
FOREST PRODUCTS & PAPER (0.1%)
123,223 International Paper Co. 5,338
----------
IRON/STEEL (0.0%)
94,058 Nucor Corp. 5,183
----------
MINING (0.2%)
450,761 Freeport-McMoRan, Inc. 5,233
253,425 Newmont Mining Corp. 9,749
----------
14,982
----------
Total Basic Materials 170,732
----------
COMMUNICATIONS (14.8%)
----------------------
ADVERTISING (0.1%)
120,809 Interpublic Group of Companies, Inc. 2,729
68,139 Omnicom Group, Inc. 5,584
----------
8,313
----------
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PORTFOLIO OF INVESTMENTS | 3
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
INTERNET (9.1%)
92,598 Alphabet, Inc. "A"(a) $ 100,265
94,774 Alphabet, Inc. "C"(a) 102,442
127,893 Amazon.com, Inc.(a) 242,182
13,388 Booking Holdings, Inc.(a) 25,099
253,351 eBay, Inc. 10,007
36,592 Expedia Group, Inc. 4,868
18,301 F5 Networks, Inc.(a) 2,665
742,984 Facebook, Inc. "A"(a) 143,396
135,207 Netflix, Inc.(a) 49,664
191,185 Symantec Corp. 4,160
32,553 TripAdvisor, Inc.(a) 1,507
225,816 Twitter, Inc.(a) 7,881
32,429 VeriSign, Inc.(a) 6,783
----------
700,919
----------
MEDIA (2.4%)
108,979 CBS Corp. "B" 5,438
53,203 Charter Communications, Inc. "A"(a) 21,025
1,400,797 Comcast Corp. "A" 59,226
48,375 Discovery Communications, Inc. "A"(a) 1,485
111,021 Discovery Communications, Inc. "C"(a) 3,158
70,740 DISH Network Corp."A"(a) 2,717
50,004 Fox Corp. "A" 1,827
110,033 Fox Corp. "B" 4,032
118,610 News Corp. "A" 1,600
37,836 News Corp. "B" 528
108,926 Viacom, Inc. "B" 3,254
539,891 Walt Disney Co. 75,390
----------
179,680
----------
TELECOMMUNICATIONS (3.2%)
16,352 Arista Networks, Inc.(a) 4,245
2,256,965 AT&T, Inc.(b) 75,631
298,003 CenturyLink, Inc. 3,505
1,323,803 Cisco Systems, Inc. 72,452
242,303 Corning, Inc. 8,052
107,141 Juniper Networks, Inc. 2,853
50,959 Motorola Solutions, Inc. 8,496
1,278,967 Verizon Communications, Inc.(b) 73,067
----------
248,301
----------
Total Communications 1,137,213
----------
================================================================================
4 | USAA 500 INDEX FUND
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
CONSUMER, CYCLICAL (8.2%)
-------------------------
AIRLINES (0.4%)
38,056 Alaska Air Group, Inc. $ 2,432
123,069 American Airlines Group, Inc. 4,013
184,172 Delta Air Lines, Inc. 10,452
151,105 Southwest Airlines Co. 7,673
68,327 United Continental Holdings, Inc.(a) 5,982
----------
30,552
----------
APPAREL (0.7%)
46,987 Capri Holdings Ltd.(a) 1,629
111,546 Hanesbrands, Inc. 1,921
388,666 NIKE, Inc. "B" 32,629
23,303 PVH Corp. 2,205
16,234 Ralph Lauren Corp. 1,844
89,273 Tapestry, Inc. 2,833
58,072 Under Armour, Inc. "A"(a) 1,472
59,560 Under Armour, Inc. "C"(a) 1,322
100,750 V.F. Corp. 8,801
----------
54,656
----------
AUTO MANUFACTURERS (0.5%)
1,212,549 Ford Motor Co. 12,405
408,260 General Motors Co. 15,730
107,427 PACCAR, Inc. 7,698
----------
35,833
----------
AUTO PARTS & EQUIPMENT (0.1%)
79,428 Aptiv plc 6,420
64,061 BorgWarner, Inc. 2,690
----------
9,110
----------
DISTRIBUTION/WHOLESALE (0.2%)
62,534 Copart, Inc.(a) 4,674
176,276 Fastenal Co. 5,745
96,937 LKQ Corp.(a) 2,579
13,890 W.W. Grainger, Inc. 3,726
----------
16,724
----------
HOME BUILDERS (0.1%)
105,551 D.R. Horton, Inc. 4,553
88,076 Lennar Corp. "A" 4,268
78,537 PulteGroup, Inc. 2,483
----------
11,304
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
HOME FURNISHINGS (0.1%)
40,389 Leggett & Platt, Inc. $ 1,550
19,598 Whirlpool Corp. 2,790
----------
4,340
----------
HOUSEWARES (0.0%)
119,803 Newell Brands, Inc. 1,847
----------
LEISURE TIME (0.2%)
123,325 Carnival Corp. 5,741
48,940 Harley-Davidson, Inc. 1,754
67,042 Norwegian Cruise Line Holdings Ltd.(a) 3,595
53,241 Royal Caribbean Cruises Ltd. 6,453
----------
17,543
----------
LODGING (0.4%)
90,194 Hilton Worldwide Holdings, Inc. 8,816
85,488 Marriott International, Inc. "A" 11,993
157,102 MGM Resorts International 4,488
29,795 Wynn Resorts Ltd. 3,694
----------
28,991
----------
RETAIL (5.4%)
22,070 Advance Auto Parts, Inc. 3,402
7,586 AutoZone, Inc.(a) 8,341
72,103 Best Buy Co., Inc. 5,028
51,418 CarMax, Inc.(a) 4,465
7,550 Chipotle Mexican Grill, Inc.(a) 5,533
136,012 Costco Wholesale Corp. 35,943
38,070 Darden Restaurants, Inc. 4,634
79,927 Dollar General Corp. 10,803
73,282 Dollar Tree, Inc.(a) 7,870
34,762 Foot Locker, Inc. 1,457
65,551 Gap, Inc. 1,178
45,361 Genuine Parts Co. 4,698
340,287 Home Depot, Inc. 70,769
49,660 Kohl's Corp. 2,361
70,511 L Brands, Inc. 1,840
242,146 Lowe's Companies, Inc. 24,435
94,858 Macy's, Inc. 2,036
236,138 McDonald's Corp. 49,036
33,013 Nordstrom, Inc. 1,052
24,266 O'Reilly Automotive, Inc.(a) 8,962
113,648 Ross Stores, Inc. 11,265
374,569 Starbucks Corp. 31,400
================================================================================
6 | USAA 500 INDEX FUND
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
158,494 Target Corp. $ 13,727
33,462 Tiffany & Co. 3,133
375,107 TJX Companies, Inc. 19,836
37,344 Tractor Supply Co. 4,063
17,176 Ulta Beauty, Inc.(a) 5,958
240,408 Walgreens Boots Alliance, Inc. 13,143
432,593 Walmart, Inc.(b) 47,797
94,377 Yum! Brands, Inc. 10,445
----------
414,610
----------
TEXTILES (0.0%)
18,932 Mohawk Industries, Inc.(a) 2,792
----------
TOYS/GAMES/HOBBIES (0.1%)
35,683 Hasbro, Inc. 3,771
----------
Total Consumer, Cyclical 632,073
----------
CONSUMER, NON-CYCLICAL (21.6%)
------------------------------
AGRICULTURE (1.0%)
578,674 Altria Group, Inc. 27,400
173,669 Archer-Daniels-Midland Co. 7,086
481,203 Philip Morris International, Inc. 37,789
----------
72,275
----------
BEVERAGES (1.8%)
51,303 Brown-Forman Corp. "B" 2,844
1,187,430 Coca-Cola Co. 60,464
51,720 Constellation Brands, Inc. "A" 10,186
57,790 Molson Coors Brewing Co. "B" 3,236
121,236 Monster Beverage Corp.(a) 7,738
433,536 PepsiCo, Inc. 56,850
----------
141,318
----------
BIOTECHNOLOGY (2.0%)
69,317 Alexion Pharmaceuticals, Inc.(a) 9,079
188,599 Amgen, Inc. 34,755
59,955 Biogen, Inc.(a) 14,022
218,071 Celgene Corp.(a) 20,159
231,454 Corteva, Inc.(a) 6,844
393,537 Gilead Sciences, Inc.(b) 26,587
45,457 Illumina, Inc.(a) 16,735
55,306 Incyte Corp.(a) 4,699
24,311 Regeneron Pharmaceuticals, Inc.(a) 7,609
79,175 Vertex Pharmaceuticals, Inc.(a) 14,519
----------
155,008
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES (2.0%)
134,566 Automatic Data Processing, Inc. $ 22,248
26,301 Cintas Corp. 6,241
37,170 Equifax, Inc. 5,027
26,649 FleetCor Technologies, Inc.(a) 7,484
27,942 Gartner, Inc.(a) 4,497
48,281 Global Payments, Inc. 7,731
63,034 H&R Block, Inc. 1,847
112,776 IHS Markit Ltd.(a) 7,186
50,920 Moody's Corp. 9,945
109,457 Nielsen Holdings plc 2,474
363,318 PayPal Holdings, Inc.(a) 41,585
43,614 Quanta Services, Inc. 1,666
36,676 Robert Half International, Inc. 2,091
45,425 Rollins, Inc. 1,630
76,106 S&P Global, Inc. 17,336
50,518 Total System Services, Inc. 6,480
24,514 United Rentals, Inc.(a) 3,251
50,739 Verisk Analytics, Inc. 7,431
----------
156,150
----------
COSMETICS/PERSONAL CARE (1.5%)
265,410 Colgate-Palmolive Co. 19,022
92,543 Coty, Inc. "A" 1,240
67,805 Estee Lauder Companies, Inc. "A" 12,416
775,613 Procter & Gamble Co.(b) 85,046
----------
117,724
----------
FOOD (1.2%)
59,530 Campbell Soup Co. 2,385
149,523 Conagra Brands, Inc. 3,965
185,344 General Mills, Inc. 9,734
43,160 Hershey Co. 5,785
84,161 Hormel Foods Corp. 3,412
35,022 J.M. Smucker Co. 4,034
77,281 Kellogg Co. 4,140
193,136 Kraft Heinz Co. 5,995
249,580 Kroger Co. 5,418
45,098 Lamb Weston Holdings, Inc. 2,858
37,746 McCormick & Co., Inc. 5,851
444,917 Mondelez International, Inc. "A" 23,981
146,290 Sysco Corp. 10,346
90,913 Tyson Foods, Inc. "A" 7,340
----------
95,244
----------
================================================================================
8 | USAA 500 INDEX FUND
================================================================================
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
HEALTHCARE-PRODUCTS (4.0%)
545,501 Abbott Laboratories $ 45,877
13,886 Abiomed, Inc.(a) 3,617
22,588 Align Technology, Inc.(a) 6,182
146,792 Baxter International, Inc. 12,022
83,409 Becton, Dickinson & Co. 21,020
429,972 Boston Scientific Corp.(a) 18,480
15,349 Cooper Companies, Inc. 5,171
194,793 Danaher Corp. 27,840
72,055 Dentsply Sirona, Inc. 4,205
64,473 Edwards Lifesciences Corp.(a) 11,911
46,037 Henry Schein, Inc.(a) 3,218
82,381 Hologic, Inc.(a) 3,956
26,658 IDEXX Laboratories, Inc.(a) 7,340
35,701 Intuitive Surgical, Inc.(a) 18,727
414,585 Medtronic plc 40,376
44,551 ResMed, Inc. 5,437
95,751 Stryker Corp. 19,684
14,323 Teleflex, Inc. 4,743
123,669 Thermo Fisher Scientific, Inc. 36,319
28,030 Varian Medical Systems, Inc.(a) 3,816
63,382 Zimmer Biomet Holdings, Inc. 7,463
----------
307,404
----------
HEALTHCARE-SERVICES (2.0%)
79,558 Anthem, Inc. 22,452
128,144 Centene Corp.(a) 6,720
38,791 DaVita, Inc.(a) 2,182
82,617 HCA Healthcare, Inc. 11,167
41,748 Humana, Inc. 11,076
48,734 Iqvia Holdings, Inc.(a) 7,841
30,362 Laboratory Corp. of America Holdings(a) 5,249
41,341 Quest Diagnostics, Inc. 4,209
293,925 UnitedHealth Group, Inc. 71,721
25,721 Universal Health Services, Inc. "B" 3,354
15,571 WellCare Health Plans, Inc.(a) 4,439
----------
150,410
----------
HOUSEHOLD PRODUCTS/WARES (0.4%)
26,301 Avery Dennison Corp. 3,043
76,393 Church & Dwight Co., Inc. 5,581
39,476 Clorox Co. 6,044
106,447 Kimberly-Clark Corp. 14,187
----------
28,855
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
PHARMACEUTICALS (5.7%)
457,153 AbbVie, Inc. $ 33,244
95,301 Allergan plc 15,956
48,206 AmerisourceBergen Corp. 4,110
505,895 Bristol-Myers Squibb Co. 22,942
91,777 Cardinal Health, Inc. 4,323
117,383 Cigna Corp. 18,494
401,847 CVS Health Corp. 21,897
267,200 Eli Lilly & Co. 29,603
821,079 Johnson & Johnson 114,360
58,699 McKesson Corp. 7,889
796,194 Merck & Co., Inc. 66,761
158,792 Mylan N.V.(a) 3,023
53,617 Nektar Therapeutics(a) 1,908
38,495 Perrigo Co. plc 1,833
1,716,894 Pfizer, Inc.(b) 74,376
148,026 Zoetis, Inc. 16,799
----------
437,518
----------
Total Consumer, Non-Cyclical 1,661,906
----------
ENERGY (5.0%)
----------------
OIL & GAS (4.1%)
155,276 Anadarko Petroleum Corp. 10,956
115,527 Apache Corp. 3,347
130,383 Cabot Oil & Gas Corp. 2,994
589,070 Chevron Corp. 73,304
31,254 Cimarex Energy Co. 1,854
62,256 Concho Resources, Inc. 6,424
349,369 ConocoPhillips 21,312
127,881 Devon Energy Corp. 3,647
48,067 Diamondback Energy, Inc. 5,238
179,447 EOG Resources, Inc. 16,717
1,308,418 Exxon Mobil Corp. 100,264
33,697 Helmerich & Payne, Inc. 1,706
78,405 Hess Corp. 4,984
48,211 HollyFrontier Corp. 2,231
252,122 Marathon Oil Corp. 3,583
204,923 Marathon Petroleum Corp. 11,451
148,948 Noble Energy, Inc. 3,336
231,732 Occidental Petroleum Corp. 11,651
129,205 Phillips 66 12,086
52,191 Pioneer Natural Resources Co. 8,030
129,257 Valero Energy Corp. 11,066
----------
316,181
----------
================================================================================
10 | USAA 500 INDEX FUND
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
OIL & GAS SERVICES (0.5%)
158,111 Baker Hughes, a GE Co. $ 3,894
271,080 Halliburton Co. 6,164
120,515 National Oilwell Varco, Inc. 2,679
428,353 Schlumberger Ltd. 17,023
130,847 TechnipFMC plc 3,394
----------
33,154
----------
PIPELINES (0.4%)
601,992 Kinder Morgan, Inc. 12,570
127,614 ONEOK, Inc. 8,781
374,802 Williams Companies, Inc. 10,509
----------
31,860
----------
Total Energy 381,195
----------
FINANCIAL (17.6%)
-----------------
BANKS (6.2%)
2,734,624 Bank of America Corp.(b) 79,304
272,454 Bank of New York Mellon Corp. 12,029
236,939 BB&T Corp. 11,641
715,170 Citigroup, Inc. 50,083
141,793 Citizens Financial Group, Inc. 5,014
47,800 Comerica, Inc. 3,472
225,048 Fifth Third Bancorp 6,279
50,744 First Republic Bank 4,955
105,215 Goldman Sachs Group, Inc. 21,527
322,372 Huntington Bancshares, Inc. 4,455
1,003,190 JPMorgan Chase & Co.(b) 112,157
310,681 KeyCorp 5,515
42,268 M&T Bank Corp. 7,189
395,416 Morgan Stanley 17,323
67,263 Northern Trust Corp.(c) 6,054
139,699 PNC Financial Services Group, Inc. 19,178
313,449 Regions Financial Corp. 4,683
115,456 State Street Corp. 6,472
137,317 SunTrust Banks, Inc. 8,630
16,194 SVB Financial Group(a) 3,637
463,360 U.S. Bancorp 24,280
1,250,957 Wells Fargo & Co. 59,195
56,216 Zions Bancorp 2,585
----------
475,657
----------
DIVERSIFIED FINANCIAL SERVICES (4.3%)
16,050 Affiliated Managers Group, Inc. 1,479
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
14,036 Alliance Data Systems Corp. $ 1,967
211,724 American Express Co. 26,135
41,394 Ameriprise Financial, Inc. 6,009
36,793 BlackRock, Inc. 17,267
145,232 Capital One Financial Corp. 13,178
34,550 CBOE Holdings, Inc. 3,580
367,422 Charles Schwab Corp. 14,767
110,686 CME Group, Inc. 21,485
100,117 Discover Financial Services 7,768
75,853 E*trade Financial Corp. 3,383
90,889 Franklin Resources, Inc. 3,163
174,327 Intercontinental Exchange, Inc. 14,982
124,733 Invesco Ltd. 2,552
78,622 Jefferies Financial Group, Inc. 1,512
277,956 Mastercard, Inc. "A" 73,528
35,657 NASDAQ, Inc. 3,429
39,093 Raymond James Financial, Inc. 3,305
196,139 Synchrony Financial 6,800
73,231 T. Rowe Price Group, Inc. 8,034
537,737 Visa, Inc. "A" 93,324
134,214 Western Union Co. 2,670
----------
330,317
----------
INSURANCE (4.1%)
230,130 AFLAC, Inc. 12,613
103,016 Allstate Corp. 10,476
268,989 American International Group, Inc. 14,332
74,361 Aon plc 14,350
57,266 Arthur J. Gallagher & Co. 5,016
19,040 Assurant, Inc. 2,025
599,226 Berkshire Hathaway, Inc. "B"(a) 127,737
141,565 Chubb Ltd. 20,851
47,137 Cincinnati Financial Corp. 4,887
12,523 Everest Re Group Ltd. 3,095
111,831 Hartford Financial Services Group, Inc. 6,231
62,912 Lincoln National Corp. 4,055
82,964 Loews Corp. 4,536
158,117 Marsh & McLennan Companies, Inc. 15,772
293,767 MetLife, Inc. 14,591
79,707 Principal Financial Group, Inc. 4,617
180,569 Progressive Corp. 14,433
125,448 Prudential Financial, Inc. 12,670
31,350 Torchmark Corp. 2,805
81,123 Travelers Companies, Inc. 12,130
================================================================================
12 | USAA 500 INDEX FUND
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
66,090 Unum Group $ 2,217
40,053 Willis Towers Watson plc 7,672
----------
317,111
----------
REAL ESTATE (0.1%)
97,202 CBRE Group, Inc. "A"(a) 4,986
----------
REITS (2.9%)
35,054 Alexandria Real Estate Equities, Inc. 4,946
136,688 American Tower Corp. 27,946
46,297 Apartment Investment & Management Co. "A" 2,320
43,143 AvalonBay Communities, Inc. 8,766
47,959 Boston Properties, Inc. 6,187
128,584 Crown Castle International Corp. 16,761
64,433 Digital Realty Trust, Inc. 7,590
110,630 Duke Realty Corp. 3,497
26,000 Equinix, Inc. 13,112
114,680 Equity Residential 8,707
20,392 Essex Property Trust, Inc. 5,953
39,201 Extra Space Storage, Inc. 4,159
23,287 Federal Realty Investment Trust 2,998
147,132 HCP, Inc. 4,705
227,894 Host Hotels & Resorts, Inc. 4,152
88,194 Iron Mountain, Inc. 2,760
129,779 Kimco Realty Corp. 2,398
32,545 Macerich Co. 1,090
35,071 Mid-America Apartment Communities, Inc. 4,130
195,087 ProLogis, Inc. 15,626
46,431 Public Storage 11,058
97,396 Realty Income Corp. 6,717
51,584 Regency Centers Corp. 3,443
35,037 SBA Communications Corp.(a) 7,878
95,605 Simon Property Group, Inc. 15,274
26,365 SL Green Realty Corp. 2,119
87,348 UDR, Inc. 3,921
114,295 Ventas, Inc. 7,812
53,412 Vornado Realty Trust 3,424
125,238 Welltower, Inc. 10,211
229,914 Weyerhaeuser Co. 6,056
----------
225,716
----------
SAVINGS & LOANS (0.0%)
121,088 People's United Financial, Inc. 2,032
----------
Total Financial 1,355,819
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
INDUSTRIAL (9.1%)
-----------------
AEROSPACE/DEFENSE (2.5%)
124,183 Arconic, Inc. $ 3,206
161,813 Boeing Co. 58,901
83,941 General Dynamics Corp. 15,262
36,582 Harris Corp.(a) 6,919
24,623 L3 Technologies, Inc. 6,037
75,996 Lockheed Martin Corp. 27,628
52,496 Northrop Grumman Corp. 16,962
86,111 Raytheon Co. 14,973
15,117 TransDigm Group, Inc.(a) 7,314
250,786 United Technologies Corp. 32,652
----------
189,854
----------
BUILDING MATERIALS (0.3%)
43,128 Fortune Brands Home & Security, Inc. 2,464
246,133 Johnson Controls International plc 10,168
19,410 Martin Marietta Materials, Inc. 4,466
90,685 Masco Corp. 3,558
40,658 Vulcan Materials Co. 5,583
----------
26,239
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
70,539 AMETEK, Inc. 6,408
190,074 Emerson Electric Co. 12,682
----------
19,090
----------
ELECTRONICS (1.3%)
97,823 Agilent Technologies, Inc. 7,304
29,082 Allegion plc 3,215
92,373 Amphenol Corp. "A" 8,862
41,715 FLIR Systems, Inc. 2,257
91,332 Fortive Corp. 7,445
37,353 Garmin Ltd. 2,981
224,951 Honeywell International, Inc. 39,274
58,401 Keysight Technologies, Inc.(a) 5,245
7,639 Mettler-Toledo International, Inc.(a) 6,417
34,567 PerkinElmer, Inc. 3,330
104,353 TE Connectivity Ltd. 9,995
21,486 Waters Corp.(a) 4,625
----------
100,950
----------
ENGINEERING & CONSTRUCTION (0.0%)
35,454 Jacobs Engineering Group, Inc. 2,992
----------
================================================================================
14 | USAA 500 INDEX FUND
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
ENVIRONMENTAL CONTROL (0.3%)
48,334 Pentair plc $ 1,798
66,842 Republic Services, Inc. 5,791
120,739 Waste Management, Inc. 13,930
----------
21,519
----------
HAND/MACHINE TOOLS (0.1%)
17,125 Snap-on, Inc. 2,837
46,960 Stanley Black & Decker, Inc. 6,791
----------
9,628
----------
MACHINERY-CONSTRUCTION & MINING (0.3%)
176,825 Caterpillar, Inc. 24,100
----------
MACHINERY-DIVERSIFIED (0.7%)
44,882 Cummins, Inc. 7,690
98,084 Deere & Co. 16,253
45,144 Dover Corp. 4,523
40,342 Flowserve Corp. 2,126
36,481 Rockwell Automation, Inc. 5,977
32,076 Roper Technologies, Inc. 11,748
50,026 Wabtec Corp. 3,590
55,953 Xylem, Inc. 4,680
----------
56,587
----------
MISCELLANEOUS MANUFACTURERS (1.4%)
178,252 3M Co. 30,898
43,889 A.O. Smith Corp. 2,070
131,090 Eaton Corp. plc 10,917
2,696,891 General Electric Co. 28,318
92,619 Illinois Tool Works, Inc. 13,968
74,582 Ingersoll-Rand plc 9,447
39,546 Parker-Hannifin Corp. 6,723
72,277 Textron, Inc. 3,834
----------
106,175
----------
PACKAGING & CONTAINERS (0.3%)
499,846 Amcor plc(a) 5,743
103,684 Ball Corp. 7,257
29,124 Packaging Corp. of America 2,776
48,133 Sealed Air Corp. 2,059
80,010 WestRock Co. 2,918
----------
20,753
----------
SHIPBUILDING (0.0%)
12,790 Huntington Ingalls Industries, Inc. 2,874
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
TRANSPORTATION (1.6%)
42,076 C.H. Robinson Worldwide, Inc. $ 3,549
237,591 CSX Corp. 18,383
53,443 Expeditors International of Washington, Inc. 4,054
74,267 FedEx Corp. 12,194
26,708 J.B. Hunt Transport Services, Inc. 2,441
31,177 Kansas City Southern 3,798
82,370 Norfolk Southern Corp. 16,419
218,841 Union Pacific Corp. 37,008
215,688 United Parcel Service, Inc. "B" 22,274
120,120
----------
Total Industrial 700,881
----------
TECHNOLOGY (16.4%)
------------------
COMPUTERS (5.1%)
197,241 Accenture plc "A" 36,444
1,351,752 Apple, Inc.(b) 267,539
176,077 Cognizant Technology Solutions Corp. "A" 11,162
82,620 DXC Technology Co. 4,556
44,667 Fortinet, Inc.(a) 3,432
414,397 Hewlett Packard Enterprise Co. 6,195
466,035 HP, Inc. 9,689
274,042 International Business Machines Corp. 37,790
76,061 NetApp, Inc. 4,693
77,859 Seagate Technology plc 3,669
90,882 Western Digital Corp. 4,321
----------
389,490
----------
OFFICE/BUSINESS EQUIPMENT (0.0%)
60,121 Xerox Corp. 2,129
----------
SEMICONDUCTORS (3.7%)
274,250 Advanced Micro Devices, Inc.(a) 8,329
114,298 Analog Devices, Inc. 12,901
289,461 Applied Materials, Inc. 13,000
122,408 Broadcom, Inc. 35,236
1,384,891 Intel Corp. 66,295
10,929 IPG Photonics Corp.(a) 1,686
49,967 KLA-Tencor Corp. 5,906
46,356 Lam Research Corp. 8,708
84,190 Maxim Integrated Products, Inc. 5,036
73,573 Microchip Technology, Inc. 6,379
342,254 Micron Technology, Inc.(a) 13,208
188,333 NVIDIA Corp. 30,930
36,859 Qorvo, Inc.(a) 2,455
================================================================================
16 | USAA 500 INDEX FUND
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
375,949 QUALCOMM, Inc. $ 28,598
53,605 Skyworks Solutions, Inc. 4,142
290,100 Texas Instruments, Inc. 33,292
78,497 Xilinx, Inc. 9,256
----------
285,357
----------
SOFTWARE (7.6%)
236,892 Activision Blizzard, Inc. 11,181
150,875 Adobe Systems, Inc.(a) 44,455
50,905 Akamai Technologies, Inc.(a) 4,080
26,049 ANSYS, Inc.(a) 5,335
67,897 Autodesk, Inc.(a) 11,060
35,951 Broadridge Financial Solutions, Inc. 4,590
87,029 Cadence Design Systems, Inc.(a) 6,163
100,656 Cerner Corp. 7,378
38,532 Citrix Systems, Inc. 3,782
91,718 Electronic Arts, Inc.(a) 9,287
100,138 Fidelity National Information Services, Inc. 12,285
121,359 Fiserv, Inc.(a) 11,063
80,159 Intuit, Inc. 20,948
23,766 Jack Henry & Associates, Inc. 3,183
2,369,683 Microsoft Corp.(b) 317,443
26,192 MSCI, Inc. 6,254
750,343 Oracle Corp. 42,747
98,997 Paychex, Inc. 8,146
54,957 Red Hat, Inc.(a) 10,319
240,121 salesforce.com, Inc.(a) 36,434
46,490 Synopsys, Inc.(a) 5,983
34,906 Take-Two Interactive Software, Inc.(a) 3,963
----------
586,079
----------
Total Technology 1,263,055
----------
UTILITIES (3.2%)
----------------
ELECTRIC (3.0%)
203,963 AES Corp. 3,418
72,623 Alliant Energy Corp. 3,564
76,004 Ameren Corp. 5,709
152,544 American Electric Power Co., Inc. 13,425
156,043 CenterPoint Energy, Inc. 4,468
88,134 CMS Energy Corp. 5,104
101,139 Consolidated Edison, Inc. 8,868
248,091 Dominion Energy, Inc. 19,182
56,588 DTE Energy Co. 7,236
225,189 Duke Energy Corp. 19,871
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
101,168 Edison International $ 6,820
58,882 Entergy Corp. 6,061
75,535 Evergy, Inc. 4,543
99,254 Eversource Energy 7,519
300,268 Exelon Corp. 14,395
156,265 FirstEnergy Corp. 6,690
148,078 NextEra Energy, Inc. 30,335
82,820 NRG Energy, Inc. 2,909
34,531 Pinnacle West Capital Corp. 3,249
223,634 PPL Corp. 6,935
156,489 Public Service Enterprise Group, Inc. 9,205
84,848 Sempra Energy 11,661
321,905 Southern Co. 17,795
97,742 WEC Energy Group, Inc. 8,149
159,198 Xcel Energy, Inc. 9,471
----------
236,582
----------
GAS (0.1%)
35,996 Atmos Energy Corp. 3,800
114,726 NiSource, Inc. 3,304
----------
7,104
----------
WATER (0.1%)
55,658 American Water Works Co., Inc. 6,456
----------
Total Utilities 250,142
----------
Total Common Stocks (Cost: $3,245,643) 7,553,016
----------
MONEY MARKET INSTRUMENTS (2.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.9%)
143,488,400 Northern Institutional Funds - U.S. Government
Portfolio, 2.24%(d),(e) 143,489
----------
================================================================================
18 | USAA 500 INDEX FUND
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (0.2%)
BILLS
$ 12,955 U.S. Treasury Bills(f),(g) 2.47% 7/18/19 $ 12,941
----------
Total Money Market Instruments (Cost: $156,430) 156,430
----------
TOTAL INVESTMENTS (COST: $3,402,073) $7,709,446
==========
-------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DATE (000) (000) (000)
-------------------------------------------------------------------------------------------------------
FUTURES (2.1%)
LONG FUTURES
EQUITY CONTRACTS
1,107 E-mini S&P 500 Index
Futures 9/20/2019 160,135 USD $162,961 $2,826
-------- ======
TOTAL FUTURES $162,961 $2,826
======== ======
-------------------------------------------------------------------------------------------------------
($ in 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------
Equity Securities:
Common stocks $7,553,016 $ - $- $7,553,016
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 143,489 - - 143,489
U.S. Treasury Securities - 12,941 - 12,941
Futures(1) 2,826 - - 2,826
-------------------------------------------------------------------------------------------------------
Total $7,699,331 $12,941 $- $7,712,272
-------------------------------------------------------------------------------------------------------
(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.
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
REITS Real estate investment trusts - Dividend distributions from REITs may
be recorded as income and later characterized by the REIT at the end
of the fiscal year as capital gains or a return of capital. Thus, the
Fund will estimate the components of distributions from these
securities and revise when actual distributions are known.
o SPECIFIC NOTES
(a) Non-income-producing security.
(b) Security, or a portion thereof, is segregated to cover the value of open
futures contracts at June 30, 2019.
(c) Northern Trust Corp. is the parent to Northern Trust Investments, Inc.
(NTI), which is the subadviser of the Fund.
(d) Rate represents the money market fund annualized seven-day yield at
June 30, 2019.
================================================================================
20 | USAA 500 INDEX FUND
================================================================================
(e) NTI is both the subadviser of the Fund and the adviser of the Northern
Institutional Funds - U.S. Government Portfolio.
(f) Rate represents an annualized yield at time of purchase, not a coupon
rate.
(g) Security with a value of $12,941,000 is segregated as collateral for
initial margin requirements on open futures contracts.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value
(cost of $3,402,073) $7,709,446
Receivables:
Capital shares sold 2,177
USAA Asset Management Company (Note 7) 167
Dividends and interest 6,499
Other 20
Variation margin on futures contracts 734
----------
Total assets 7,719,043
----------
LIABILITIES
Payables:
Capital shares redeemed 20,341
Accrued management fees 631
Accrued transfer agent's fees 97
Other accrued expenses and payables 122
----------
Total liabilities 21,191
----------
Net assets applicable to capital shares outstanding $7,697,852
----------
NET ASSETS CONSIST OF:
Paid-in capital $3,342,501
Distributable earnings 4,355,351
----------
Net assets applicable to capital shares outstanding $7,697,852
==========
Net asset value, redemption price, and offering price per share:
Member Shares (net assets of $3,435,112/83,077 capital shares
outstanding, no par value) $ 41.35
==========
Reward Shares (net assets of $4,262,740/103,052 capital shares
outstanding, no par value) $ 41.37
==========
See accompanying notes to financial statements.
================================================================================
22 | USAA 500 INDEX FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 73,829
Interest 1,710
Other (Note 7) 3
Securities lending (net) 175
----------
Total income 75,717
----------
EXPENSES
Management fees 3,637
Administration and servicing fees:
Member Shares 981
Reward Shares 1,202
Transfer agent's fees:
Member Shares 1,395
Reward Shares 168
Custody and accounting fees:
Member Shares 22
Reward Shares 25
Postage:
Member Shares 77
Reward Shares 13
Shareholder reporting fees:
Member Shares 30
Reward Shares 6
Trustees' fees 18
Registration fees:
Member Shares 50
Reward Shares 44
Professional fees 106
Other 74
----------
Total expenses 7,848
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
Expenses reimbursed:
Member Shares $ (208)
Reward Shares (577)
----------
Net expenses 7,063
----------
NET INVESTMENT INCOME 68,654
----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FUTURES CONTRACTS
Net realized gain on:
Investments 15,556
Futures transactions 16,121
Change in net unrealized appreciation/(depreciation) of:
Investments 1,100,464
Futures contracts 8,027
----------
Net realized and unrealized gain 1,140,168
----------
Increase in net assets resulting from operations $1,208,822
==========
See accompanying notes to financial statements.
================================================================================
24 | USAA 500 INDEX FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited), and year ended December 31,
2018
-------------------------------------------------------------------------------------------------
6/30/2019 12/31/2018
-------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 68,654 $ 128,996
Net realized gain on investments 15,556 103,477
Net realized gain (loss) on futures transactions 16,121 (6,013)
Change in net unrealized appreciation/(depreciation) of:
Investments 1,100,464 (535,048)
Futures contracts 8,027 (5,837)
---------------------------
Increase (decrease) in net assets resulting from operations 1,208,822 (314,425)
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM DISTRIBUTABLE EARNINGS:
Member Shares (28,869) (88,990)
Reward Shares (37,413) (110,893)
---------------------------
Distributions to shareholders (66,282) (199,883)
---------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Member Shares (37,784) (106,262)
Reward Shares 28,356 263,209
---------------------------
Total net increase (decrease) in net assets from
capital share transactions (9,428) 156,947
---------------------------
Capital contribution from USAA Transfer Agency Company - 15
---------------------------
Net increase (decrease) in net assets 1,133,112 (357,346)
NET ASSETS
Beginning of period 6,564,740 6,922,086
---------------------------
End of period $7,697,852 $6,564,740
===========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2019 (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 S&P 500 Index Fund (the Fund) qualifies as a registered investment company
under Accounting Standards Codification Topic 946. The information presented in
this semiannual report pertains only to the Fund, which is classified as
diversified under the 1940 Act. The Fund seeks to match, before fees and
expenses, the performance of the stocks composing the S&P 500 Index. The S&P 500
Index emphasizes stocks of large U.S. companies. Prior to July 1, 2019, USAA
Asset Management Company (the Manager), an affiliate of the Fund, retained
Northern Trust Investments, Inc. (NTI) to serve as subadviser for the Fund. NTI
is responsible for investing the Fund's assets. Under normal market conditions,
NTI attempts to achieve the Fund's objective by investing at least 80% of the
Fund's assets in the common stocks of companies composing the S&P 500 Index.
The Fund consists of two classes of shares: Member Shares and Reward Shares.
Each class of shares has equal rights to assets and earnings, except that each
class bears certain class-related expenses specific to the particular class.
These expenses include administration and servicing fees, transfer agency fees,
postage, shareholder reporting fees, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class' relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to both classes. The Reward Shares are currently offered for sale to qualified
shareholders, USAA discretionary managed account program, and a USAA Fund
participating in a fund-of-funds investment strategy (USAA fund-of-funds).
================================================================================
26 | USAA 500 INDEX FUND
================================================================================
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or the 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 Holdings, a global investment management firm
headquartered in Cleveland, Ohio (the Transaction), on July 1, 2019.
A special shareholder meeting was held on April 18, 2019, at which shareholders
of the Fund approved a new investment advisory agreement between the Trust, on
behalf of the Fund, and Victory Capital, an independent investment management
company. In addition, shareholders of the Fund also elected the following two
new directors to the Board of the Trust to serve upon the closing of the
Transaction: (1) David C. Brown, to serve as an Interested Trustee; and (2) John
C. Walters, to serve as an Independent Trustee. PLEASE REFER TO THE SUBSEQUENT
EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
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.
The Fund utilizes 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 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
official closing price calculated according to local market convention,
available at the time the Fund is valued. If no last sale or official
closing price is reported or available, the average of the bid and ask
prices generally is used. Actively traded equity securities listed on a
domestic exchange generally are categorized in Level 1 of the fair value
hierarchy. Certain preferred and equity securities traded in inactive
markets generally are categorized in Level 2 of the fair value hierarchy.
2. Investments in open-end investment companies, commingled, or other funds,
other than ETFs, are valued at their net asset value (NAV) at the end of
each business day and are categorized in Level 1 of the fair value
hierarchy.
3. Futures are valued at the settlement price at the close of market on the
principal exchange on which they are traded or, in the absence of any
transactions that day, the settlement price on the prior trading date if
it is within the spread between the closing bid and ask price closest to
the last reported sale price.
4. Short-term debt securities with original or remaining maturities of 60
days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
5. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's judgment,
these prices are readily available and are representative of the
security's market value. For many securities, such prices are not readily
available. The Service generally prices those securities based on methods
which include consideration of yields or prices of securities of
comparable quality, coupon, maturity, and type; indications as to values
from dealers in securities; and general market conditions. Generally,
debt securities are categorized in Level 2 of the fair value hierarchy;
however, to the extent the valuations include significant unobservable
inputs, the securities would be categorized in Level 3.
6. Repurchase agreements are valued at cost.
================================================================================
28 | USAA 500 INDEX FUND
================================================================================
7. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event has
been recognized in relation to a security or class of securities, the
securities are valued in good faith by the Committee in accordance with
valuation procedures approved by the Board. The effect of fair value
pricing is that securities may not be priced on the basis of quotations
from the primary market in which they are traded and the actual price
realized from the sale of a security may differ materially from the fair
value price. Valuing these securities at fair value is intended to cause
the Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation systems.
General factors considered in determining the fair value of securities
include fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, evaluation of credit
quality, and an evaluation of the forces that influenced the market in
which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to,
futures contracts, options, and options on futures contracts, under
circumstances in which such instruments are expected by the portfolio
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative agreements held at June 30, 2019, did not
include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to cash flow and tracking error risk
in the normal course of pursuing its investment objectives. The Fund may use
stock index futures contracts in an attempt to reduce any performance
discrepancies between the Fund and the S&P 500 Index. A futures contract
represents a commitment for the future purchase or sale of an asset at a
specified price on a specified date. Upon entering into such contracts, the
Fund is required to deposit with the broker in either cash or securities an
initial margin in an amount equal to a certain percentage of the contract
amount. Subsequent payments (variation margin) are made or received by the
Fund each day, depending on the daily fluctuations in the value of the
contract, and are recorded for financial statement purposes as unrealized
gains or losses. When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed. Upon
entering into such contracts, the Fund bears the risk of interest or
exchange rates or securities prices
================================================================================
30 | USAA 500 INDEX FUND
================================================================================
moving unexpectedly in an unfavorable direction, in which case, the Fund may
not achieve the anticipated benefits of the futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 2019* (IN THOUSANDS)
ASSET DERIVATIVES
------------------------------------------------------------------------------------------------
STATEMENT OF
DERIVATIVES NOT ASSETS AND FOREIGN
ACCOUNTED FOR AS LIABILITIES INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
------------------------------------------------------------------------------------------------
USAA S&P 500 Distributable $- $2,826** $- $2,826**
Index Fund earnings
*For open derivative instruments as of June 30, 2019, see the Portfolio of
Investments.
**Includes cumulative appreciation/(depreciation) of futures as reported on
the Notes to Portfolio of Investments. Only the variation margin from the
last business day of the reporting period is reported within the Statement
of Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2019 (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 S&P 500 Net realized $- $16,121 $- $16,121
Fund gain on Futures
transactions
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 S&P 500 Change in $- $8,027 $- $8,027
Fund net unrealized
appreciation/
(depreciation)
of Futures
contracts
D. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended June 30, 2019, the Fund did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the Fund's tax basis to determine if
adjustments to this conclusion are necessary. The statute of limitations on
the Fund's tax return filings generally remain open for the three preceding
fiscal reporting year ends and remain subject to examination by the Internal
Revenue Service and state taxing authorities.
E. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as of
the date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
F. INDEMNIFICATIONS - Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates, along with other funds of the Trust and USAA ETF Trust
(together, the Trusts), in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an
================================================================================
32 | USAA 500 INDEX 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 June 30, 2019, the
Fund paid CAPCO facility fees of $31,000, which represents 8.9% of the total
fees paid to CAPCO by the funds of the Trusts. The Fund had no borrowings under
this agreement during the six-month period ended June 30, 2019. PLEASE REFER TO
THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT
FOR ADDITIONAL IMPORTANT INFORMATION.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined as of the Fund's tax year-end of December 31, 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 December 31, 2018, the Fund had no capital loss carryforwards, for federal
income tax purposes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
As of June 30, 2019, 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:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
--------------------------------------------------------------------------------
USAA S&P 500 Index Fund $4,459,755,000 $152,382,000 $4,307,373,000
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2019, were
$87,327,000 and $88,301,000, 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
================================================================================
34 | USAA 500 INDEX FUND
================================================================================
Investments and Financial Statements while non-cash collateral is not included.
At June 30, 2019, the Fund had no securities on loan.
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2019, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2019 DECEMBER 31, 2018
----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------
MEMBER SHARES:
Shares sold 6,510 $ 255,931 14,167 $ 551,000
Shares issued from
reinvested dividends 711 28,478 2,341 87,909
Shares redeemed (8,119) (322,193) (19,008) (745,171)
---------------------------------------------
Net decrease from capital
share transactions (898) $ (37,784) (2,500) $(106,262)
=============================================
REWARD SHARES:
Shares sold 5,295 $ 210,439 15,303 $ 600,865
Shares issued from
reinvested dividends 892 35,754 2,831 106,388
Shares redeemed (5,491) (217,837) (11,444) (444,044)
---------------------------------------------
Net increase from capital
share transactions 696 $ 28,356 6,690 $ 263,209
=============================================
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to a Management Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund. The Manager also
is authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage the day-to-day investment of all or
a portion of the Fund's assets.
The Manager monitors each subadviser's performance through quantitative and
qualitative analysis and periodically reports to the Board as to whether each
subadviser's agreement should be renewed, terminated, or modified.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 Fund's management fees are 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 June 30, 2019, the Fund incurred management fees, paid or payable to the
Manager, of $3,637,000. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
SUBADVISORY ARRANGEMENT(S) - The Manager has entered into an Investment
Subadvisory Agreement with NTI, under which NTI directs the investment and
reinvestment of the Fund's assets (as allocated from time to time by the
Manager). This arrangement provides for monthly fees that are paid by the
Manager.
The Manager (not the Fund) pays NTI a subadvisory fee in an annual amount of
0.02% of the Fund's average daily net assets on amounts up to $1.5 billion;
0.01% of the Fund's average daily net assets for the next $1.5 billion; and
0.005% of the Fund's average daily net assets that exceed $3 billion. For the
six-month period ended June 30, 2019, the Manager incurred subadvisory fees with
respect to the Fund, paid or payable to NTI, of $331,000.
NTI has agreed to remit to the Fund all subadvisory fees earned on Fund assets
invested in any of NTI's affiliated money market funds. For the six-month
period ended June 30, 2019, NTI remitted $3,000 to the Fund for the investments
in the Northern Institutional Funds Money Market Portfolios.
NTI is a subsidiary of The Northern Trust Company, the Fund's custodian and
accounting agent. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL
STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Fund. For such services, the Manager receives a
fee accrued daily and paid monthly at an annualized rate of 0.06% of the Fund's
average daily net assets for the fiscal year. For the six-month period
================================================================================
36 | USAA 500 INDEX FUND
================================================================================
ended June 30, 2019, the Member Shares and Reward Shares incurred administration
and servicing fees, paid or payable to the Manager, of $981,000 and $1,202,000,
respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended June 30, 2019, the Fund reimbursed the Manager $29,000 for these
compliance and legal services. These expenses are included in the professional
fees on the Fund's Statement of Operations. PLEASE REFER TO THE SUBSEQUENT
EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
EXPENSE LIMITATION - The Manager agreed through April 30, 2020, to limit the
total annual operating expenses of the Member Shares and the Reward Shares to
0.25% and 0.15%, respectively, of their average 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 those amounts. This
expense limitation arrangement may not be changed or terminated through April
30, 2020, without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. For the six-month period ended June 30,
2019, the Fund incurred reimbursable expenses from the Manager for the Member
Shares and the Reward Shares of $208,000 and $577,000, respectively, of which
$167,000 was receivable from the Manager.
In addition, NTI has contractually agreed to reimburse the Fund for all license
fees paid by the Fund to Standard & Poor's, in amounts not exceeding the annual
rate of 0.001% of the average daily net assets of the Fund. For the six-month
period ended June 30, 2019, the Fund incurred reimbursable expenses from NTI for
the Member Shares and the Reward Shares of $19,000 and $23,000, respectively.
TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund based on an annual charge of $20 per shareholder account
plus out-of-pocket expenses. SAS pays a portion of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
these fees to certain intermediaries for the administration and servicing of
accounts that are held with such intermediaries. For the six-month period ended
June 30, 2019, the Fund incurred transfer agent's fees, paid or payable to SAS
for the Member Shares and Reward Shares, of $1,395,000 and $168,000,
respectively. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL
STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
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. PLEASE REFER
TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL
REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
ACCOUNT MAINTENANCE FEE - SAS assesses a $10 annual account maintenance fee to
the Member Shares to allocate part of the fixed cost of maintaining shareholder
accounts. This fee is charged directly to the shareholders' accounts and does
not impact the Fund. The fee is waived on accounts with balances of $10,000 or
more.
(8) TRANSACTIONS WITH AFFILIATES
The Fund's Reward Shares is one of 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 at
usaa.com. As of June 30, 2019, the USAA fund-of-funds owned the following
percentages of the total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
------------------------------------------------------------------------------
Target Retirement Income 0.0*
Target Retirement 2020 0.1
Target Retirement 2030 0.5
Target Retirement 2040 0.6
Target Retirement 2050 0.4
Target Retirement 2060 0.0*
*Represents less than 0.1%
================================================================================
38 | USAA 500 INDEX FUND
================================================================================
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. PLEASE REFER TO THE SUBSEQUENT EVENT
NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
(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 has determined there is no significant
impact on the Fund's financial statements and various filings.
(10) RECENT ACCOUNTING PRONOUNCEMENTS
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.
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. ASU 2018-13 is effective for fiscal years beginning after December
15, 2019. Early adoption is permitted and can include the entire
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
standard or certain provisions that exclude or amend disclosures. Management has
elected to early adopt ASU 2018-13 effective with the current reporting period.
The adoption of ASU 2018-13 guidance is limited to changes in the Fund's notes
to financial statement disclosures regarding valuation method, fair value, and
transfers between levels of the fair value hierarchy.
(11) SUBSEQUENT EVENT NOTE
As previously announced, and as discussed in Note 1 to the Financial Statements,
effective July 1, 2019, AMCO, the prior investment adviser to the Fund, and SAS,
the prior transfer agent to the Fund, were acquired by Victory Holdings. PLEASE
SEE THE SUPPLEMENT DATED JULY 1, 2019 TO THE FUND'S PROSPECTUS FOR ADDITIONAL
IMPORTANT INFORMATION.
Effective July 1, 2019, Victory Capital's internal investment team, Victory
Solutions, began managing the Fund's assets. NTI no longer serves as a
sub-adviser to the Fund.
Effective July 1, 2019, the following changes were made to: (1) the Fund's name,
(2) the Fund's investment objective, (3) the index tracked by the Fund, and
(4) the Fund's principal investment strategy:
---------------------------------------------------------------------------------------
PRIOR TO JULY 1, 2019 EFFECTIVE JULY 1, 2019
---------------------------------------------------------------------------------------
FUND NAME USAA S&P 500 Index Fund USAA 500 Index Fund
---------------------------------------------------------------------------------------
INVESTMENT To match, before fees and expenses, To match, before fees and expenses,
OBJECTIVE the performance of the stocks the performance of the stocks
composing the S&P 500 Index. composing the Victory US Large
Cap 500 Index.
---------------------------------------------------------------------------------------
UNDERLYING S&P 500 Index Victory US Large Cap 500 Index
INDEX (custom index)
---------------------------------------------------------------------------------------
PRINCIPAL The Fund's principal investment The Fund's principal investment
INVESTMENT strategy is, under normal market strategy is, under normal market
STRATEGY conditions, to invest at least 80% conditions, to invest at least 80%
of the Fund's assets in the common of the Fund's assets in the common
stocks of companies composing stocks of companies composing
the S&P 500 Index. This strategy the Victory US Large Cap 500
may be changed upon 60 days' Index. This strategy may be changed
written notice to shareholders. upon 60 days' written notice to
shareholders.
---------------------------------------------------------------------------------------
================================================================================
40 | USAA 500 INDEX FUND
================================================================================
Effective July 1, 2019, Victory Capital is the new investment adviser and
administrator to the USAA Mutual Funds; SAS was renamed Victory Capital Transfer
Agency, Inc.; Victory Capital Advisers, Inc. is the new distributor to the USAA
Mutual Funds; Citi Fund Services of Ohio, Inc. serves as sub-administrator and
sub-fund accountant for the USAA Mutual Funds; and FIS Investor Services LLC
serve as sub-transfer agent and dividend disbursing agent for the USAA Mutual
Funds. Effective August 5, 2019, Citibank, N.A. is the new custodian for the
USAA Mutual Funds.
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2019 permitting the
use of a "manager-of-managers" structure for certain funds. Prior to that date,
the Trust relied on a similar exemptive order granted by the SEC to the Trust
and its affiliated persons. Under a manager of managers structure, the
investment adviser may select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the day-to-day
investment of a fund's assets.
Effective July 1, 2019, Victory Capital added new portfolio managers from one or
more investment teams employed by Victory Capital to serve as additional
portfolio managers, or replace current portfolio managers, to manage all or a
portion of the Fund according to each team's own investment process.
Effective July 1, 2019, under the investment advisory agreement with Victory
Capital, which took effect on July 1, 2019, no performance adjustments will be
made for periods beginning July 1, 2019, through June 30, 2020, and only
performance beginning as of July 1, 2020, and thereafter will be utilized in
calculating performance adjustments through June 30, 2020.
Effective July 1, 2019, the line of credit (as discussed in the Notes to the
Financial Statements in this semiannual report) among the Trust, with respect to
its Funds, and CAPCO terminated; the Trust, with respect to its Funds, along
with series of Victory Portfolios, Victory Portfolios II and Victory Variable
Insurance Funds, entered into a 364 day committed credit facility and a 364 day
uncommitted, demand credit facility with Citibank, N.A. (Citibank). Each such
credit facility may be renewed if so agreed by the parties. Under the agreement
with Citibank, the Funds may borrow up to $600 million, of which $300 million is
committed and $300 million is
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
uncommitted. Of this amount, $40 million of the line of credit is reserved for
use by the Victory Floating Rate Fund (a series of Victory Portfolios), with
that Fund paying the related commitment fees for that amount. The purpose of the
agreement is to meet temporary or emergency cash needs, including redemption
requests. Citibank receives an annual commitment fee of 0.15%. Each Fund pays a
pro-rata portion of this commitment fee plus any interest on amounts borrowed.
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2017 (the IFL
Order), permitting the establishment and operation of an Interfund Lending
Facility (the Facility). The Facility allows each Fund to directly lend and
borrow money to or from certain other affiliated Funds relying upon the IFL
Order at rates beneficial to both the borrowing and lending funds. Advances
under the Facility are allowed for temporary or emergency purposes, including
the meeting of redemption requests that are subject to each Fund's borrowing
restrictions. The interfund loan rate is determined, as specified in the IFL
Order, by averaging the current repurchase agreement rate and the current bank
loan rate.
Effective July 1, 2019, the Trust entered into an Agreement to Provide
Compliance ("Compliance Agreement") with the Adviser, pursuant to which the
Adviser furnishes its compliance personnel, including the services of the CCO,
and other resources reasonably necessary to provide the Trust with compliance
oversight services related to the design, administration, and oversight of a
compliance program for the Trust in accordance with Rule 38a-1 under the 1940
Act. The Funds in the Victory Funds complex, in the aggregate, compensate the
Adviser for these services. This agreement replaces an arrangement in place
with AMCO previously.
================================================================================
42 | USAA 500 INDEX FUND
================================================================================
FINANCIAL HIGHLIGHTS
MEMBER SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 35.22 $ 38.00 $ 31.81 $ 29.18 $ 29.41 $ 26.39
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .36 .68 .59 .58 .56 .49
Net realized and
unrealized gain (loss) 6.12 (2.40) 6.21 2.80 (.24) 3.01
--------------------------------------------------------------------------------
Total from investment
operations 6.48 (1.72) 6.80 3.38 .32 3.50
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.35) (.66) (.59) (.61) (.52) (.48)
Realized capital gains - (.40) (.02) (.14) (.03) -
--------------------------------------------------------------------------------
Total distributions (.35) (1.06) (.61) (.75) (.55) (.48)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 41.35 $ 35.22 $ 38.00 $ 31.81 $ 29.18 $ 29.41
================================================================================
Total return (%)* 18.42 (4.65) 21.53 11.70 1.13 13.38
Net assets at end of
period (000) $3,435,112 $2,957,995 $3,285,829 $2,962,450 $2,777,361 $2,761,616
Ratios to average daily
net assets:**
Expenses (%)(b) .25(a) .25 .25 .25 .25 .25
Expenses, excluding
reimbursements (%)(b) .26(a) .26 .27 .28 .28 .28
Net investment
income (%) 1.83(a) 1.75 1.71 1.95 1.88 1.76
Portfolio turnover (%) 1 4 3 4 4 3
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period; does not reflect $10 annual
account maintenance fee. Includes adjustments in accordance with U.S.
generally accepted accounting principles and could differ from the Lipper
reported return. Total returns for periods of less than one year are not
annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$3,303,996,000.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Does not include acquired fund fees, if any.
================================================================================
FINANCIAL HIGHLIGHTS | 43
================================================================================
REWARD SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 35.24 $ 38.01 $ 31.82 $ 29.19 $ 29.42 $ 26.39
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .38 .71 .61 .60 .59 .51
Net realized and
unrealized gain (loss) 6.11 (2.38) 6.22 2.81 (.24) 3.03
--------------------------------------------------------------------------------
Total from investment
operations 6.49 (1.67) 6.83 3.41 .35 3.54
--------------------------------------------------------------------------------
Less distributions from:
Net investment income (.36) (.70) (.62) (.64) (.55) (.51)
Realized capital gains - (.40) (.02) (.14) (.03) -
--------------------------------------------------------------------------------
Total distributions (.36) (1.10) (.64) (.78) (.58) (.51)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 41.37 $ 35.24 $ 38.01 $ 31.82 $ 29.19 $ 29.42
================================================================================
Total return (%)* 18.46 (4.53) 21.64 11.79 1.23 13.53
Net assets at end of
period (000) $4,262,740 $3,606,745 $3,636,257 $3,010,831 $2,613,832 $2,306,656
Ratios to average daily
net assets:**
Expenses (%)(a) .15(b) .15 .15 .15 .15 .15
Expenses, excluding
reimbursements (%)(a) .18(b) .18 .18 .18 .18 .18
Net investment
income (%) 1.93(b) 1.85 1.81 2.04 1.99 1.86
Portfolio turnover (%) 1 4 3 4 4 3
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$4,054,744,000.
(a) Does not include acquired fund fess, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
44 | USAA 500 INDEX FUND
================================================================================
EXPENSE EXAMPLE
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as account maintenance fees, wire fees, redemption fees, and low balance fees;
and indirect costs, including management fees, transfer agency fees, and other
Fund operating expenses. This example is intended to help you understand your
indirect costs, also referred to as "ongoing costs" (in dollars), of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2019, through June
30, 2019.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Actual expenses in the table on the next page do not reflect the effect of the
annual $10.00 account maintenance fee that is assessed on Member Share accounts
with balances of less than $10,000, at a rate of $2.50 per quarter. To include
the effect of this fee on the expenses that you paid, add $5.00 ($2.50 for two
quarters) to your calculated estimated expenses. If you are currently assessed
this fee, your ending account value reflects the quarterly deduction from your
account.
================================================================================
EXPENSE EXAMPLE | 45
================================================================================
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as account
maintenance fees, wire fees, redemption fees, or low balance fees. Therefore,
the line labeled "hypothetical" is useful in comparing ongoing costs only, and
will not help you determine the relative total costs of owning different funds.
In addition, if these direct costs were included, your costs would have been
higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2019 -
JANUARY 1, 2019 JUNE 30, 2019 JUNE 30, 2019
--------------------------------------------------------------
MEMBER SHARES
Actual $1,000.00 $1,184.20 $1.35
Hypothetical
(5% return before expenses) 1,000.00 1,023.55 1.25
REWARD SHARES
Actual 1,000.00 1,184.60 0.81
Hypothetical
(5% return before expenses) 1,000.00 1,024.05 0.75
*Expenses are equal to the Fund's annualized expense ratio of 0.25% for Member
Shares and 0.15% for Reward Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 181 days/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of 18.42% for Member Shares and 18.46% for Reward Shares for the six-month
period of January 1, 2019, through June 30, 2019.
================================================================================
46 | USAA 500 INDEX FUND
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND VICTORY CAPITAL MANAGEMENT INC.)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the (i) new investment
advisory agreement between the Trust and Victory Capital and (ii) new investment
subadvisory agreements between certain subadvisers and Victory Capital, which
became effective on July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO
THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting held on January 15, 2019, the USAA Mutual Funds Trust's
("Trust") Board of Trustees ("Board"), including those Trustees who are not
parties to any investment advisory or management agreement between USAA Asset
Management Company ("AMCO") and the Trust ("Existing Management Agreements") or
the new Investment Advisory Agreement between the Trust and Victory Capital
Management Inc. ("Victory Capital") (the "New Advisory Agreement") or
"interested persons" (as that term is defined in the Investment Company Act of
1940 Act, as amended ("1940 Act")) of such parties or the Trust (the
"Independent Trustees"), considered and unanimously approved the New Advisory
Agreement between the Trust, on behalf of each of its series (each a "Fund" and
together the "Funds"), and Victory Capital, and, as applicable, new Investment
Subadvisory Agreements between Victory Capital and each investment subadviser
("New Subadvisory Agreements," and together with the New Advisory Agreement, the
"New Agreements"), as listed below. The Board also determined to recommend that
shareholders of each Fund approve the New Advisory Agreement. Shareholder
approval is not required for the New Subadvisory Agreements. The Independent
Trustees reviewed the proposed approval of the New Agreements in private
sessions with their independent legal counsel at which no representatives of
Victory Capital or AMCO were present.
================================================================================
ADVISORY AGREEMENT(S) | 47
================================================================================
BACKGROUND FOR THE BOARD APPROVALS
At a telephonic meeting of the Board held on November 5, 2018, representatives
of USAA and AMCO informed the Board that USAA's subsidiary, USAA Investment
Corporation, would enter into a stock purchase agreement with Victory Capital
Holdings, Inc. ("Victory Holdings") pursuant to which Victory Holdings would
acquire all of the outstanding stock of AMCO and USAA Transfer Agency Company
d/b/a USAA Shareholder Account Services ("USAA Transfer Agent") (the
"Transaction"). The Independent Trustees were advised that the Transaction, if
completed, would constitute an "assignment" (as that term is defined in Section
2(a)(4) of the 1940 Act) and result in the automatic termination of the Existing
Management Agreements ("Change of Control Event"). The Independent Trustees also
were advised that it was proposed that Victory Capital, a subsidiary of Victory
Holdings, would serve as the investment adviser to each Fund after the closing
of the Transaction ("Post-Transaction") and that the Board would be asked to
consider approval of the terms and conditions of the New Advisory Agreement with
Victory Capital and thereafter to submit the New Advisory Agreement to each
Fund's shareholders for approval. Because the Change of Control Event also would
result in the termination of each existing subadvisory agreement between AMCO
and the subadvisers to the Funds ("Existing Subadvisory Agreements"), the
Independent Trustees were advised that the Board would also be asked to approve
the New Subadvisory Agreements.
In anticipation of the Transaction, the Trustees met at a series of subsequent
in-person meetings on November 27-28, 2018, January 7-8, 2019, and January
14-15, 2019, which included meetings of the full Board and separate meetings of
the Independent Trustees for the purposes of considering, among other things:
whether it would be in the best interests of each Fund and its respective
shareholders to approve the New Agreements; and the anticipated impacts of the
Transaction on the Funds and their shareholders (each, a "Meeting"). During each
of these Meetings, the Board sought additional and clarifying information as it
deemed necessary or appropriate. In this connection, the Independent Trustees
worked with their independent
================================================================================
48 | USAA 500 INDEX FUND
================================================================================
legal counsel to prepare formal due diligence requests (the "Diligence
Requests") that were submitted to Victory Capital, Victory Capital Advisers,
Inc. ("VCA"), and the subadvisers. The Diligence Requests sought information
relevant to the Board's consideration of the New Advisory Agreement, the New
Subadvisory Agreements, distribution arrangements, and other anticipated impacts
of the Transaction on the Funds and their shareholders. Victory Capital, VCA,
and the subadvisers provided documents and information in response to the
Diligence Requests (the "Response Materials"). Following their review of the
Response Materials, the Independent Trustees submitted a supplemental due
diligence request for additional and clarifying information (the "Supplemental
Diligence Request") to Victory Capital and VCA. Victory Capital and VCA provided
further information in response to the Supplemental Diligence Request, which the
Board reviewed. Senior management representatives of Victory Capital and/or AMCO
participated in a portion of each Meeting and addressed various questions raised
by the Board. Throughout the process, the Independent Trustees were assisted by
their independent legal counsel and counsel to the Funds, who advised them on,
among other things, their duties and obligations relating to their consideration
of the New Agreements.
The Board's evaluation of the New Agreements reflected the information provided
specifically in connection with its review of the New Agreements, as well as,
where relevant, information that was previously furnished to the Board in
connection with the most recent renewal of the Existing Management Agreements
and Existing Subadvisory Agreements at an in-person meeting of the Board on
April 18, 2018 (the "2018 15(c) Meeting") and at other subsequent Board meetings
in 2018. The Board's evaluation of the New Agreements also reflected the
knowledge gained as Board members of the Funds with respect to services provided
by AMCO, its affiliates, and each subadviser to the Funds.
The Board's approvals and recommendations were based on its determination,
within its business judgment, that it would be in the best interests of each
Fund and its respective shareholders, for Victory Capital and, as applicable,
the subadvisers, to provide investment advisory, investment subadvisory, and
related services to the Funds, following the closing of the Transaction.
================================================================================
ADVISORY AGREEMENT(S) | 49
================================================================================
FACTORS CONSIDERED IN APPROVING THE NEW ADVISORY AGREEMENT
In connection with the Board's consideration of the New Advisory Agreement,
Victory Capital and AMCO advised the Board about a variety of matters, including
the following:
o The nature, extent, and quality of the services to be provided to the
Funds by Victory Capital Post-Transaction are expected to be of at least
the same level as the services currently provided to the Funds by AMCO.
o Victory Capital's stated commitment to maintaining and enhancing the
USAA member/USAA Fund shareholder experience, including creating a
dedicated USAA Fund sales and client service call center that will
provide ongoing client service and advice to existing and new USAA
members.
o Victory Capital proposes to: (1) replace the underlying indexes for the
USAA Extended Market Index Fund and USAA S&P 500 Index Fund with indexes
designed to provide shareholders with comparable exposure and investment
outcomes; (2) change the USAA Extended Market Index Fund's and USAA S&P
500 Index Fund's investment objectives and strategies in light of the
changes to their underlying indexes; and (3) change the name of the USAA
S&P 500 Index Fund to the USAA 500 Index Fund.
o Victory Capital does not propose changes to the investment objective(s)
of any other Funds. Although the investment processes used by Victory
Capital's portfolio managers may differ from those used by AMCO's
portfolio managers or, if applicable, any subadviser's portfolio
managers, such differences are not currently expected to result in
changes to the principal investment strategies or principal investment
risks of the Funds.
o The New Advisory Agreement does not change any Fund's advisory fee rate
or the computation method for calculating such fees (except that Victory
Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment).
================================================================================
50 | USAA 500 INDEX FUND
================================================================================
For at least two years after the Transaction closes, Victory Capital has
agreed to waive fees and/or reimburse expenses so that each Fund's
annual expense ratio (excluding certain customary items) does not exceed
the levels reflected in each Fund's most recent audited financial
statements at the time the Transaction closes (or the levels of AMCO's
then-current expense caps, if applicable), excluding the impact of any
performance adjustment to the Fund's advisory fee.
o The portfolio managers at AMCO that manage the Fixed Income Funds(1) as
well as the USAA's Global Multi-Asset team servicing the Cornerstone
Funds(2), Target Retirement Funds(3), Global Managed Volatility Fund,
Managed Allocation Fund, and Target Managed Allocation Fund, are
expected to continue to do so Post-Transaction as employees of Victory
Capital, if they choose to become employees of Victory Capital.
Post-Transaction, the investment teams for the Funds, other than the
Fixed Income Funds, will be replaced or augmented.
o With the exception of the USAA S&P 500 Index Fund, USAA Extended Market
Index Fund, and USAA Nasdaq-100 Index Fund, which will be advised by
Victory Capital through its Victory Solutions platform, Victory Capital
proposes that the same subadvisers be retained Post-Transaction,
although Victory Capital may change the allocation to a particular
subadviser Post-Transaction. No changes are expected to the portfolio
managers of the subadvisers who will serve as subadvisers
Post-Transaction.
(1)The Fixed Income Funds include the following Funds: California Bond Fund,
Government Securities Fund, High Income Fund, Income Fund, Intermediate-Term
Bond Fund, Tax Exempt Intermediate-Term Fund, Tax Exempt Long-Term Fund, New
York Bond Fund, Short-Term Bond Fund, Tax Exempt Short-Term Fund, Ultra
Short-Term Bond Fund, Virginia Bond Fund, Money Market Fund, Tax Exempt Money
Market Fund and Treasury Money Market Trust.
(2)The Cornerstone Funds include the following Funds: Cornerstone Aggressive
Fund, Cornerstone Conservative Fund, Cornerstone Equity Fund, Cornerstone
Moderate Fund, Cornerstone Moderately Aggressive Fund, and Cornerstone
Moderately Conservative Fund.
(3)The Target Retirement Funds include the following Funds: Target Retirement
2020 Fund, Target Retirement 2030 Fund, Target Retirement 2040 Fund, Target
Retirement 2050 Fund, Target Retirement 2060 Fund, and Target Retirement
Income Fund.
================================================================================
ADVISORY AGREEMENT(S) | 51
================================================================================
o VCA's distribution capabilities, including its significant network of
intermediary relationships, which may provide additional opportunities
for the Funds to grow assets and lower fees and expenses through
increased economies of scale.
o The experience of Victory Capital in acquiring and integrating
investments in investment management companies and its plans to
transition and integrate AMCO's and USAA Transfer Agent's businesses to
Victory Capital. Victory Capital and USAA expect to enter into a
transition services agreement under which USAA will continue to provide
Victory Capital with certain services that are currently provided by
USAA to AMCO and the USAA Transfer Agent for a specified period of time
after the closing of the Transaction to assist Victory Capital in
transitioning the USAA member distribution channel and member support
services.
o Pursuant to a transitional trademark license agreement with USAA,
Victory Capital and the Funds will have a non-exclusive license, subject
to certain restrictions and limitations, to continue using certain
licensed marks including "USAA," "United Services Automobile
Association," and the USAA Logo in connection with their asset
management and transfer agency businesses for a period of three years
following the closing of the Transaction, which agreement may thereafter
be extended for an additional year.
o The support expressed by the current senior management team at AMCO for
the Transaction and AMCO's recommendation that the Board approve the New
Agreements.
o The commitments of Victory Capital and AMCO to bear all of the direct
expenses of the Transaction, including all legal costs and costs
associated with the proxy solicitation, regardless of whether the
Transaction is consummated.
In addition to the matters noted above, in their deliberations regarding
approval of the New Advisory Agreement, the Board considered the factors
discussed below, among others.
================================================================================
52 | USAA 500 INDEX FUND
================================================================================
THE NATURE, EXTENT, AND QUALITY OF SERVICES EXPECTED TO BE PROVIDED BY VICTORY
CAPITAL - The Board considered information provided by Victory Capital regarding
its investment philosophy, investment management capabilities, business and
operating structure, scale of operations, leadership and reputation,
distribution capabilities, and financial condition. The Board also considered
the capabilities, resources, and personnel of Victory Capital, including senior
and other personnel of AMCO who had been extended offers to join Victory
Capital, in order to determine whether Victory Capital is capable of providing
the same level of investment management services currently provided to each
Fund, and also considered the transition and integration plans to move
management of the Funds to Victory Capital. The Board recognized that the AMCO
personnel who had been extended offers may not accept such offers and personnel
changes may occur in the future in the ordinary course. The Board considered the
resources and infrastructure that Victory Capital intends to devote to its
compliance program to ensure compliance with applicable laws and regulations, as
well as Victory Capital's commitment to those programs. The Board also
considered the resources that Victory Capital has devoted to its risk management
program and cybersecurity program. The Board also reviewed information provided
by Victory Capital related to its business, legal, and regulatory affairs. This
review considered the resources available to Victory Capital to provide the
services specified under the New Advisory Agreement. The Board considered
Victory Capital's financial condition, including the financing of the
Transaction, and noted that Victory Capital is expected to be able to provide a
high level of service to the Funds and continuously invest and re-invest in its
business.
The Board considered that, while it was proposed that Victory Capital would
become the investment adviser to the Funds, the same portfolio managers at AMCO
that manage the Fixed Income Funds, as well as USAA's Global Multi-Asset team
servicing the Cornerstone Funds, Target Retirement Funds (including Target
Managed Allocation Fund), Global Managed Volatility Fund, and Managed Allocation
Fund, are expected to continue to do so after the Transaction as employees of
Victory Capital, if they choose to become employees of Victory Capital. The
Board determined that it had considered the qualifications of the portfolio
managers at AMCO and the subadvisers at its 2018 15(c) Meeting. The Board
considered the professional experience,
================================================================================
ADVISORY AGREEMENT(S) | 53
================================================================================
education, affiliations and/or other credentials or qualifications of the
anticipated portfolio managers at Victory Capital that would manage the Equity
Funds(4), Cornerstone Funds, and Target Retirement Funds. The Board noted that
the Equity Funds or portions of Equity Funds currently managed by AMCO would be
replaced with portfolio managers from Victory Capital.
The Board considered that certain Funds would continue to operate in a
manager-of-managers structure Post-Transaction. The Board considered that
Victory Capital's experience in allocating assets to, and overseeing the
advisory services of, its investment franchises and the Victory Solutions
platform, was similar to AMCO's role in allocating assets to and overseeing the
advisory services provided by the subadvisers.
The Board considered that the terms and conditions of the New Advisory Agreement
are substantially similar to the terms and conditions of the Existing Management
Agreements. The Board also considered that the New Subadvisory Agreements are
substantially similar to the terms and conditions of the Existing Subadvisory
Agreements and that no changes were proposed to the allocation of
responsibilities as between Victory Capital and any subadviser, except to the
extent that under the New Subadvisory Agreements each subadviser would be
responsible for voting proxies with respect to assets allocated to that
subadviser, while AMCO currently votes all Fund proxies. The Board considered
that Victory Capital also would provide certain administrative, fund accounting,
and shareholder servicing services under a separate administration agreement
with the Funds. In this connection, the Board considered information on Victory
Capital's use of third-party service providers to provide certain
sub-administration and sub-accounting services to the Funds.
After review of these and other considerations, the Board concluded that Victory
Capital will be capable of providing investment advisory services of the same
high quality as the investment advisory services provided to the Funds by AMCO,
and that these services are appropriate in nature and extent in light of the
Funds' operations and investor needs.
(4)The Equity Funds include the following Funds: Aggressive Growth Fund, Growth
& Income Fund, Income Stock Fund, Global Equity Income Fund, and Precious
Metals and Minerals Fund.
================================================================================
54 | USAA 500 INDEX FUND
================================================================================
PERFORMANCE OF THE FUNDS - With respect to the performance of the Funds, the
Board considered its review at the 2018 15(c) Meeting of peer group and
benchmark investment performance comparison data relating to each Fund and, if
applicable, each subadviser's performance record for similar accounts. The
Board considered that information reviewed at the 2018 15(c) Meeting may be more
relevant for those Funds that would retain their current portfolio managers or
subadvisers. With respect to the Funds whose portfolio managers would be
replaced, the Board considered the performance of funds sponsored and managed by
Victory Capital ("Victory Funds") with similar investment objectives and
strategies managed by the portfolio managers who would manage the Funds. Based
on information presented to the Board at the Meetings and its discussions with
Victory Capital, the Board concluded that Victory Capital is capable of
generating a level of long-term investment performance that is appropriate in
light of each Fund's investment objectives, strategies and restrictions.
FEES TO BE PAID TO VICTORY CAPITAL AND EXPENSES OF THE FUNDS - The Board
considered that it had reviewed each Fund's existing advisory fee rate and
computation method for calculating such fees at the 2018 15(c) Meeting. The
Board considered that the New Advisory Agreement does not change any Fund's
advisory fee rate or the computation method for calculating such fees, except
that Victory Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment and apply the
resulting performance adjustment across each other class of shares of the Fund.
The Board considered that the use of a single designated class to calculate the
performance adjustment for each other class of shares of the Fund could mean
that shareholders of a class other than the class used to measure the
performance adjustment may pay a performance adjustment that is higher or lower
than if the adjustment were calculated on a class by class basis, primarily due
to the impact of differences in the fees and expenses between share classes on
performance. The Board considered that the New Advisory Agreement stipulates
that the period for measuring performance for calculating a Fund's performance
adjustment begins on the date that Victory Capital begins managing the Fund;
therefore, no performance adjustments will be made for the first twelve months
of the New Advisory Agreement, consistent with applicable regulations. The Board
also considered Victory Capital's contractual commitment under the expense
limitation
================================================================================
ADVISORY AGREEMENT(S) | 55
================================================================================
agreement ("ELA") to waive fees and/or reimburse expenses for at least two years
after the closing of the Transaction, so that each Fund's annual expense ratio
(excluding acquired fund fees and expenses, any performance adjustment to a
Fund's advisory fee, interest, taxes, brokerage commissions, other expenditures
which are capitalized in accordance with generally accepted accounting
principles, and other extraordinary expenses not incurred in the ordinary course
of such Fund's business) does not exceed the levels reflected in each Fund's
most recent audited financial statements at the time the Transaction closes (or
the levels of AMCO's then-current expense caps, if applicable), excluding the
impact of any performance adjustment to a Fund's advisory fee. The Board
considered that the ELA permits Victory Capital to recoup advisory fees waived
and expenses reimbursed for up to three years after the fiscal year in which the
waiver or reimbursement took place, subject to the lesser of any operating
expense limitation in effect at the time of: (1) the original waiver or expense
reimbursement; or (2) recoupment. The Board also considered that Victory Capital
and AMCO had represented to the Board that they will use their best efforts to
ensure that they and their respective affiliates do not take any action that
imposes an "unfair burden" on the Funds as a result of the Transaction or as a
result of any express or implied terms, conditions or understandings applicable
to the Change of Control Event, for so long as the requirements of Section 15(f)
of the 1940 Act apply. The Board also considered a comparison of the proposed
advisory fees to be paid by each Fund to the advisory fees paid by funds and
other accounts managed by Victory Capital deemed to be comparable to the Fund in
terms of investment objectives and strategies. The Board considered that, with
few exceptions, mostly involving weighted average fees for separate accounts,
the advisory fees to be paid by the Funds were lower than the fees paid by these
other funds and accounts. The Board concluded that the retention of Victory
Capital was unlikely to impose an unfair burden on the Funds because, after the
Transaction, none of AMCO, Victory Capital, VCA, or any of their respective
affiliates, would be entitled to receive any compensation directly or indirectly
(i) from any person in connection with the purchase or sale of securities or
other property to, from, or on behalf of the Funds (other than ordinary fees for
bona fide principal underwriting services), or (ii) from the Funds or their
shareholders for other than bona fide investment advisory or other services.
Based on its review, the Board determined, with respect to each Fund, that
Victory Capital's advisory fee is fair and reasonable.
================================================================================
56 | USAA 500 INDEX FUND
================================================================================
THE EXTENT TO WHICH VICTORY CAPITAL MAY REALIZE ECONOMIES OF SCALE AS THE FUNDS
GROW LARGER AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE FOR THE
BENEFIT OF FUND SHAREHOLDERS - The Board considered potential or anticipated
economies of scale in relation to the services Victory Capital would provide to
each Fund. The Board considered that the New Advisory Agreement includes the
same advisory fee breakpoints for the same Funds as the Existing Advisory
Agreements. The Board also considered that Victory Capital has contractually
agreed to cap the Funds' annual operating expense ratios, pursuant to the ELA,
which will remain in effect for at least two years from the closing of the
Transaction, and may be extended. The Board also considered Victory Capital's
representation that the significant increase in its assets under management
Post-Transaction may reasonably be expected to enable the new combined firm to
reach greater economies of scale in a shorter time frame. The Board noted that
it will have the opportunity to periodically re-examine whether a Fund or the
Trust has achieved economies of scale, and the appropriateness of investment
advisory and administrative fees payable to Victory Capital, in the future.
THE PROFITS TO BE REALIZED BY VICTORY CAPITAL AND ITS AFFILIATES FROM THEIR
RELATIONSHIP WITH THE TRUST - The Board considered the benefits Victory Capital
and its affiliates may derive from their relationship with the Funds, including
compensation to be paid to Victory Capital for the provision of certain
administrative, fund accounting and shareholder services to the Funds and
compensation to be paid to USAA Transfer Agent for the provision of transfer
agency services to the Funds. The Board considered the significant investments
Victory Capital expected to make to support and grow the USAA member channel and
the costs to integrate the USAA Fund business into Victory Capital. The Board
also considered Victory Capital's profitability report presented to the board of
trustees of the Victory Funds in connection with their most recent 15(c)
process. The Board considered Victory Capital's representation that the fully
integrated USAA Fund business, including investments to support ongoing growth,
was expected to have an overall marginally positive impact on Victory Capital's
overall financial profitability. The Board noted the difficulty of accurately
projecting profitability under the current circumstance and noted that it would
have the opportunity to give further consideration to Victory Capital's
profitability with respect to the Funds at the end of the initial two-year term
of the New Advisory Agreement.
================================================================================
ADVISORY AGREEMENT(S) | 57
================================================================================
FALL-OUT AND OTHER BENEFITS TO VICTORY CAPITAL AND ITS AFFILIATES - The Board
considered the possible fall-out benefits and other types of benefits that may
accrue to Victory Capital and its affiliates. The Board noted that the
Transaction provides Victory Capital and its affiliates the opportunity to
deliver investment products and services to USAA's direct member-based channel.
The Board also considered that Victory Capital may derive reputational and other
benefits from its ability to use "USAA" and related names in connection with
operating and marketing the Funds. The Board considered that the Transaction, if
completed, would significantly increase Victory Capital's assets under
management and expand Victory Capital's investment capabilities. This increased
size and diversification could facilitate Victory Capital's continued investment
in its business and products, which Victory Capital would be able to leverage
across a broader base of assets. Victory Capital also would be able to use
trading commission credits from the Funds' transactions in securities to
"purchase" third party research and execution services to support its investment
process. Based on its review, the Board determined that any "fall-out" benefits
and other types of benefits that may accrue to Victory Capital are fair and
reasonable.
CONCLUSIONS - Based on the foregoing and other relevant considerations, at the
Meeting of the Board held on January 15, 2019, the Board, including a majority
of the Independent Trustees, acting within its business judgment, (1) concluded
that the terms of the New Advisory Agreement are fair and reasonable and that
approval of the New Advisory Agreement is in the best interests of each Fund and
its respective shareholders, (2) voted to approve the New Advisory Agreement,
and (3) voted to recommend approval of the New Advisory Agreement by
shareholders of the Funds. The Board evaluated all information available to it
on a Fund-by-Fund basis and its determinations were made separately in respect
of each Fund. The Board noted some factors may have been more or less important
with respect to any particular Fund and that no one factor was determinative of
its decisions which, instead, were premised upon the totality of factors
considered. In this connection, the Board also noted that different Board
members likely placed emphasis on different factors in reaching their individual
conclusions to vote in favor of the New Advisory Agreement and to recommend
approval of the New Advisory Agreement by shareholders of the Funds.
================================================================================
58 | USAA 500 INDEX FUND
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND THE MANAGER)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the continuation of the (i)
investment advisory agreement between the Trust and AMCO and (ii) investment
subadvisory agreements between certain subadvisers and AMCO, which were
effective until July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting of the Board of Trustees (the Board) held on April 17,
2019, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Management Agreement between the Trust and the Manager with respect to
the Fund and the Subadvisory Agreement between the Manager and Northern Trust
Investments, Inc. (the Subadviser) with respect to the Fund.(1)
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Management Agreement and Subadvisory Agreement and
the Manager and the Subadviser, and were given the opportunity to ask questions
and request additional information from management. The information provided to
the Board included, among other
(1)At an in-person meeting held on January 15, 2019, the Board, including
the Independent Trustees, approved a new investment advisory agreement
between the Trust, on behalf of the Fund, and Victory Capital Management
Inc. ("Victory Capital"). Effective July 1, 2019, upon the closing of the
transaction whereby the Manager acquired by Victory Capital Holdings, Inc.,
the parent company of Victory Capital, the Advisory Agreement between the
Trust and the Manager and the Sub-advisory Agreement with the Subadviser
terminated and the new investment advisory agreement between the Trust and
Victory Capital went into effect. The factors the Board considered in
approving the new investment advisory agreement with Victory Capital are
discussed above. Effective June 30, 2019, the Subadviser no longer manages
any portion of the Fund.
================================================================================
ADVISORY AGREEMENT(S) | 59
================================================================================
things: (i) a separate report prepared by an independent third party, which
provided a statistical analysis comparing the Fund's investment performance,
expenses, and fees to comparable investment companies; (ii) information
concerning the services rendered to the Fund, as well as information regarding
the Manager's revenues and costs of providing services to the Fund and
compensation paid to affiliates of the Manager; and (iii) information about the
Manager's and Subadviser's operations and personnel. Prior to voting, the
Independent Trustees reviewed the proposed continuance of the Management
Agreement and the Subadvisory Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuation of the Management Agreement and the
Subadvisory Agreement with respect to the Fund. The Independent Trustees also
reviewed the proposed continuation of the Management Agreement and the
Subadvisory Agreement with respect to the Fund in private sessions with
Independent Counsel at which no representatives of management were present. The
Board considered the Advisory Agreement and the Subadvisory Agreement separately
in the course of its review. In doing so, the Board noted the respective roles
of the Manager and the Subadviser in providing services to the Fund.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager and by the Subadviser.
At the meeting at which the renewal of the Management Agreement and Subadvisory
Agreement is considered, particular focus is given to information concerning
Fund performance, fees and total expenses as compared to comparable investment
companies, and the Manager's profitability with respect to the Fund. However,
the Board noted that the evaluation process with respect to the Manager and the
Subadviser is an ongoing one. In this regard, the Board's and its committees'
consideration of the Management Agreement and Subadvisory Agreement included
certain information previously received at such meetings.
MANAGEMENT AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Management Agreement. In
================================================================================
60 | USAA 500 INDEX FUND
================================================================================
approving the Management Agreement, the Trustees did not identify any single
factor as controlling, and each Trustee may have attributed different weights to
various factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Management Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Management Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, shareholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust. The Board
also considered the significant risks assumed by the Manager in connection with
the services provided to the Fund, including investment, operational,
enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Management Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of senior personnel and investment personnel, as well as current
staffing levels. The Board discussed the Manager's effectiveness in monitoring
the performance of the Subadviser and its timeliness in responding to
performance issues. The allocation of the Fund's brokerage, including the
Manager's process for monitoring "best execution," also was considered. The
Manager's role in coordinating the activities of the Fund's other service
providers also was considered. The Board also considered the Manager's risk
management processes. The Board considered the Manager's financial condition and
that it had the financial wherewithal to
================================================================================
ADVISORY AGREEMENT(S) | 61
================================================================================
continue to provide the same scope and high quality of services under the
Management Agreement. In reviewing the Management Agreement, the Board focused
on the experience, resources, and strengths of the Manager and its affiliates in
managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as trustees of the
Trust, also focused on the quality of the Manager's compliance and
administrative staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the
Management Agreement, the Board evaluated the advisory fees and total expense
ratios of each of the Member Shares and Reward Shares classes of the Fund as
compared to other open-end investment companies deemed to be comparable to each
class of the Fund as determined by the independent third party in its report.
The expenses of each class of the Fund were compared to (i) a group of
investment companies chosen by the independent third party to be comparable to
the class of the Fund based upon certain factors, including fund type,
comparability of investment objective and classification, sales load type (in
this case, retail investment companies with front-end loads and no sales loads),
asset size, and expense components (the "expense group") and (ii) a larger group
of investment companies that includes all front-end load and no-load retail
open-end investment companies with the same investment classification/objective
as the Fund regardless of asset size, excluding outliers (the "expense
universe"). Among other data, the Board noted that the Fund's management fee
rate - which includes advisory and administrative services as well as any fee
waivers or reimbursements - was above the median of its expense group and below
the median of its expense universe for the Member Shares and Reward Shares. The
data indicated that the Fund's total expenses, after reimbursements, were below
the median of its expense group and its expense universe for the Member Shares
and for the Reward Shares. The Trustees also took into account the Manager's
current undertakings to maintain expense limitations for the Fund. The Board
took into account the various services provided to the Fund by the Manager and
its affiliates, including the high quality of services received by the Fund from
the Manager.
================================================================================
62 | USAA 500 INDEX FUND
================================================================================
The Board also noted the high level of correlation between the S&P 500 Index and
the Fund and the relatively low tracking error between the Fund and the S&P 500
Index, and noted that it reviews such information on a quarterly basis. The
Board also noted the level and method of computing the management fee. The
Trustees also took into account that the subadvisory fees under the Subadvisory
Agreement are paid by the Manager. The Board also considered and discussed
information about the Subadviser's fees, including the amount of management fees
retained by the Manager after payment of the subadvisory fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Management Agreement,
including, among other information, a comparison of the average annual total
returns of each class of the Fund with its Lipper index and with that of other
mutual funds deemed to be in its peer group by the independent third party in
its report (the "performance universe"). The performance universe of each class
of the Fund consisted of the Fund and all retail and institutional open-end
investment companies with the same classification/objective as the Fund
regardless of asset size or primary channel of distribution. This comparison
indicated that, among other data, the performance of the Fund's Member Shares
and Reward Shares was above the average of its performance universe and its
Lipper index for the one-, three-, five- and ten-year periods ended December 31,
2018. The Board also noted that the percentile performance ranking of the Fund's
Member Shares was in the top 50% of its performance universe for the one- and
three-year periods ended December 31, 2018, and was in the top 40% of its
performance universe for the five- and ten-year periods December 31, 2018. The
Board also noted that the percentile performance ranking for the Fund's Reward
Shares was in the top 30% of its performance universe for the one-year period
ended December 31, 2018, was in the top 25% of its performance universe for the
three-year period ended December 31, 2018, was in the top 20% of its performance
universe for the five-year period ended December 31, 2018, and was in the top
15% of its performance universe for the ten-year period ended December 31, 2018,
and was in the top 20% of its performance universe for the ten-year period ended
December 31, 2018.
================================================================================
ADVISORY AGREEMENT(S) | 63
================================================================================
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the Fund's management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the level of management revenues from the Fund. This information
included a review of the methodology used in the allocation of certain costs to
the Fund. In considering the profitability data with respect to the Fund, the
Trustees noted that the Manager reimbursed a portion of its management fees to
the Fund and also pays the Fund's subadvisory fees. The Trustees reviewed the
profitability of the Manager's relationship with the Fund before tax expenses.
The Board was also provided with an Investment Management Profitability Analysis
prepared by an independent information service. In reviewing the overall
profitability of the management fee to the Manager, the Board also considered
the fact that affiliates provide shareholder servicing and administrative
services to the Fund for which they receive compensation. The Board also
considered the possible direct and indirect benefits to the Manager from its
relationship with the Trust, including that the Manager may derive reputational
and other benefits from its association with the Fund. The Trustees recognized
that the Manager should be able to earn a reasonable level of profits in
exchange for the level of services it provides to the Fund and the
entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the Fund's current advisory fee structure. The Board also considered the fee
waivers and expense reimbursements arrangements by the Manager and noted the
fact that the Manager pays the subadvisory fee. The Board also considered the
effects of each class's growth and size on the class's performance and fees,
noting that if the Fund's assets increase over time, the Fund may realize other
economies of scale if assets increase proportionally more than some expenses.
The Board determined that the current investment management fee structure was
reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Management Agreement with the Manager, among others: (i) the
================================================================================
64 | USAA 500 INDEX FUND
================================================================================
Manager has demonstrated that it possesses the capability and resources to
perform the duties required of it under the Management Agreement; (ii) the
Manager maintains an appropriate compliance program; (iii) the performance of
the Fund is reasonable in relation to the performance of funds with similar
investment objectives and to relevant indices; (iv) the Fund's advisory expenses
are reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability, if any, from its relationship with the Fund is reasonable in
light of the nature and high quality of services provided by the Manager and the
type of fund. Based on its conclusions, the Board determined that continuation
of the Management Agreement would be in the best interests of the Fund and its
shareholders.
SUBADVISORY AGREEMENT
In approving the Fund's Subadvisory Agreement, the Board considered various
factors, among them: (i) the nature, extent, and quality of services provided to
the Fund, including the personnel providing services; (ii) the Subadviser's
compensation and any other benefits derived from the subadvisory relationship;
(iii) comparisons, to the extent applicable, of subadvisory fees and performance
to comparable investment companies; and (iii) the terms of the Subadvisory
Agreement. The Board's analysis of these factors is set forth below. After full
consideration of a variety of factors, the Board, including the Independent
Trustees, voted to approve the Subadvisory Agreement. In approving the
Subadvisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL - The
Trustees considered information provided to them regarding the services provided
by the Subadviser, including information presented periodically throughout the
previous year. The Board noted that the Subadviser and its affiliates also
provide accounting and custody services to the Fund at no additional charge. The
Board considered the Subadviser's level of knowledge and investment style. The
Board reviewed the experience and credentials of the investment personnel who
are responsible for managing the investment of
================================================================================
ADVISORY AGREEMENT(S) | 65
================================================================================
portfolio securities with respect to the Fund and the Subadviser's level of
staffing. The Trustees considered, based on the materials provided to them,
whether the method of compensating portfolio managers is reasonable and includes
mechanisms to prevent a manager with underperformance from taking undue risks.
The Trustees also noted the Subadviser's brokerage practices. The Board also
considered the Subadviser's regulatory and compliance history. The Board also
took into account the Subadviser's risk management processes. The Board noted
that the Manager's monitoring processes of the Subadviser include, among others:
(i) regular telephonic meetings to discuss, among other matters, investment
strategies and to review portfolio performance; (ii) monthly portfolio
compliance checklists and quarterly compliance certifications to the Board; and
(iii) due diligence visits to the Subadviser.
SUBADVISER COMPENSATION - The Board also took into consideration the financial
condition of the Subadviser. In considering the cost of services to be provided
by the Subadviser and the profitability to the Subadviser of its relationship
with the Fund, the Trustees noted the undertakings of the Manager to maintain
expense limitations for the Fund and also noted that the fees under the
Subadvisory Agreement were paid by the Manager and that the Subadviser had
agreed to reimburse the Fund for license fees paid to Standard & Poor's. The
Trustees also relied on the ability of the Manager to negotiate the Subadvisory
Agreement and the fees thereunder at arm's length. For the above reasons, the
Board determined that the profitability of the Subadviser from its relationship
with the Fund was not a material factor in its deliberations with respect to the
consideration of the approval of the Subadvisory Agreement. For similar reasons,
the Board concluded that the potential for economies of scale in the
Subadviser's management of the Fund was not a material factor in considering the
Subadvisory Agreement, although the Board noted that the Subadvisory Agreement
contains breakpoints in its fee schedule.
SUBADVISORY FEES AND FUND PERFORMANCE - The Board compared the subadvisory fees
for the Fund with the fees that the Subadviser charges to comparable clients, as
applicable. The Board considered that the Fund pays a management fee to the
Manager and that, in turn, the Manager pays a subadvisory fee to the Subadviser.
As noted above, the Board considered,
================================================================================
66 | USAA 500 INDEX FUND
================================================================================
among other data, the Fund's performance with respect to each class during the
one-, three-, five-, and ten-year periods ended December 31, 2018, as compared
to the Fund's peer group and noted that the Board reviews at its regularly
scheduled meetings information about the Fund's performance results. The Board
noted the Manager's experience and resources in monitoring the performance,
investment style, and risk-adjusted performance of the Subadviser. The Board
also noted certain anticipated changes to the Fund's subadvisory arrangements.
CONCLUSIONS - The Board reached the following conclusions regarding the
Subadvisory Agreement, among others: (i) the Subadviser is qualified to manage
the Fund's assets in accordance with its investment objectives and policies;
(ii) the Subadviser maintains an appropriate compliance program; (iii) the
performance of the Fund is reasonable in relation to the performance of funds
with similar investment objectives and to relevant indices; and (iv) the Fund's
advisory expenses are reasonable in relation to those of similar funds and to
the services to be provided by the Manager and the Subadviser. Based on its
conclusions, the Board determined that approval of the Subadvisory Agreement
with respect to the Fund would be in the best interests of the Fund and its
shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 67
================================================================================
AS OF JULY 1, 2019
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
David C. Brown
John C. Walters
--------------------------------------------------------------------------------
ADMINISTRATOR AND Victory Capital Management Inc.
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND Victory Capital Advisers, Inc.
DISTRIBUTOR 4900 Tiedeman Road
Brooklyn, Ohio 44144
--------------------------------------------------------------------------------
TRANSFER AGENT Victory Capital Transfer Agency, Inc.
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 USAA AMCO'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) 235-8396; (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 monthly portfolio holdings with the SEC
for the first and third quarters of each fiscal year as an exhibit to its
reports on Form N-PORT (beginning with filings after March 31, 2019).
Previously, the Fund made its complete schedule of portfolio holdings available
after the first and third fiscal quarters in regulatory filings on Form N-Q. The
Fund's Forms N-CSR, N-PORT, and N-Q are available at no charge (i) by calling
(800) 235-8396; (ii) at usaa.com; and (iii) on the SEC's website at
http://www.sec.gov.
===============================================================================
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----------------------
MUTUAL FUNDS
--------------------------------------------------------------------------------
June 30, 2019
--------------------------------------------------------------------------------
SEMIANNUAL REPORT
USAA Extended Market Index Fund
FUND
SHARES
USMIX
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) 235-8396 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)
235-8396 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.
Victory Capital means Victory Capital Management Inc., the investment manager of
the USAA Mutual Funds. USAA Mutual Funds are distributed by Victory Capital
Advisers, Inc., a broker dealer registered with FINRA and an affiliate of
Victory Capital. Victory Capital and its affiliates are not affiliated with
United Services Automobile Association or its affiliates. USAA and the USAA
logos are registered trademarks and the USAA Mutual Funds and USAA Investments
logos are trademarks of United Services Automobile Association and are being
used by Victory Capital and its affiliates under license.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
SHAREHOLDER VOTING RESULTS 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 50
Financial Statements 52
Notes to Financial Statements 55
Financial Highlights 73
EXPENSE EXAMPLE 75
ADVISORY AGREEMENT(S) 77
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) 235-8396
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.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 6/30/19 o
(% of Net Assets)
ServiceNow, Inc. ................................................... 1.0%
Worldpay, Inc. "A" ................................................. 0.8%
Workday, Inc. "A" .................................................. 0.7%
Tesla, Inc. ........................................................ 0.6%
T-Mobile US, Inc. .................................................. 0.5%
Square, Inc. "A" ................................................... 0.5%
Las Vegas Sands Corp. .............................................. 0.4%
Veeva Systems, Inc. "A" ............................................ 0.4%
CoStar Group, Inc. ................................................. 0.4%
Palo Alto Networks, Inc. ........................................... 0.4%
o SECTOR ALLOCATION* - 6/30/19 o
(% of Net Assets)
[PIE CHART OF SECTOR ALLOCATION]
FINANCIAL 24.4%
CONSUMER, NON-CYCLICAL 19.6%
INDUSTRIAL 13.0%
TECHNOLOGY 12.8%
CONSUMER, CYCLICAL 11.9%
COMMUNICATIONS 8.7%
ENERGY 3.3%
BASIC MATERIALS 3.1%
UTILITIES 2.5%
[END CHART]
*Does not include Futures, money market instruments and short term investments
purchased with cash collateral from securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
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
================================================================================
SHAREHOLDER VOTING RESULTS
--------------------------------------------------------------------------------
On April 18, 2019, a special meeting of shareholders was held to vote on two
proposals relating to the series of the USAA Mutual Funds Trust (Trust).
Shareholders of record on February 8, 2019, were entitled to vote on each
proposal shown below. The proposals were approved by the shareholders.
The following proposals and voting results pertain to one or more series within
the Trust. Votes shown for Proposal 1 are for the Fund, a series of the Trust.
Votes shown for Proposal 2 are for all series of the Trust. The effective date
of the Proposals was July 1, 2019.
PROPOSAL 1
To approve a new Investment Advisory Agreement between the Trust, on behalf of
the Fund, and Victory Capital Management Inc. (Victory Capital), an independent
investment adviser. The new Investment Advisory Agreement became effective upon
the closing of the Transaction (as defined and discussed in Note 1 to the
Financial Statements) whereby USAA Asset Management Company (AMCO) was acquired
by Victory Capital Holdings Inc., the parent company of Victory Capital.
NUMBER OF SHARES VOTING
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------------------------------
19,513,363 3,128,004 1,245,538
PROPOSAL 2
Election of two new trustees to the Trust's Board of Trustees to serve upon the
closing of the Transaction: (1) David C. Brown, to serve as an "interested
trustee" as defined in the Investment Company Act of 1940, as amended (1940
Act); and (2) John C. Walters, to serve as a trustee who is not an "interested
person" as is defined under the 1940 Act (Independent Trustee).
NUMBER OF SHARES VOTING
--------------------------------------------------------------------------------
TRUSTEES FOR VOTES WITHHELD
--------------------------------------------------------------------------------
David C. Brown 8,299,565,565 820,887,736
John C. Walters 8,317,935,885 802,517,416
================================================================================
2 | USAA EXTENDED MARKET INDEX FUND
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (99.3%)
COMMON STOCKS (99.3%)
BASIC MATERIALS (3.1%)
---------------------
CHEMICALS (2.0%)
4,402 A Schulman, Inc.(a),(b),(c) $ -
4,587 AdvanSix, Inc.(d) 112
3,270 AgroFresh Solutions, Inc.(d) 5
3,882 American Vanguard Corp. 60
4,745 Amyris, Inc.(d),(e) 17
9,543 Ashland Global Holdings, Inc. 763
31,879 Axalta Coating Systems Ltd.(d) 949
4,848 Balchem Corp. 485
8,931 Cabot Corp. 426
25,035 Chemours Co. 601
6,641 Codexis, Inc.(d) 122
34,848 Element Solutions, Inc.(d) 360
13,135 Ferro Corp.(d) 208
10,983 GCP Applied Technologies, Inc.(d) 249
1,620 Hawkins, Inc. 70
7,981 HB Fuller Co. 370
32,571 Huntsman Corp. 666
6,232 Ingevity Corp.(d) 655
3,017 Innophos Holdings, Inc. 88
3,741 Innospec, Inc. 341
18,112 Intrepid Potash, Inc.(d) 61
3,456 Koppers Holdings, Inc.(d) 101
4,717 Kraton Corp.(d) 147
3,366 Kronos Worldwide, Inc. 52
4,881 Landec Corp.(d) 46
3,097 Materion Corp. 210
5,478 Minerals Technologies, Inc. 293
1,296 NewMarket Corp. 520
699 Northern Technologies International Corp. 17
1,129 Oil-Dri Corp. of America 38
24,497 Olin Corp. 537
6,506 OMNOVA Solutions, Inc.(d) 40
11,426 PolyOne Corp. 359
6,072 PQ Group Holdings, Inc.(d) 96
2,000 Quaker Chemical Corp. 406
7,822 Rayonier Advanced Materials, Inc.(e) 51
2,822 Rogers Corp.(d) 487
20,016 RPM International, Inc. 1,223
6,268 Sensient Technologies Corp. 461
3,111 Stepan Co. 286
13,474 Tronox Holdings plc "A"(d) 172
20,329 Univar, Inc.(d) 448
6,929 Valhi, Inc. 21
29,281 Valvoline, Inc. 572
7,386 Venator Materials plc(d) 39
16,680 Versum Materials, Inc. 860
5,649 Westlake Chemical Corp. 392
10,306 WR Grace & Co. 784
--------
15,266
--------
FOREST PRODUCTS & PAPER (0.1%)
2,534 Clearwater Paper Corp.(d) 47
9,442 Domtar Corp. 421
6,229 Mercer International, Inc. 96
2,503 Neenah, Inc. 169
6,319 PH Glatfelter Co. 107
12,838 Resolute Forest Products, Inc. 92
4,407 Schweitzer-Mauduit International, Inc. 146
5,490 Verso Corp. "A"(d) 105
--------
1,183
--------
IRON/STEEL (0.6%)
48,143 AK Steel Holding Corp.(d) 114
19,439 Allegheny Technologies, Inc.(d) 490
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
7,069 Carpenter Technology Corp. $ 339
43,199 Cleveland-Cliffs, Inc.(e) 461
17,547 Commercial Metals Co. 313
2,787 Friedman Industries, Inc. 20
10,377 Reliance Steel & Aluminum Co. 982
4,015 Schnitzer Steel Industries, Inc. "A" 105
1,503 Shiloh Industries, Inc.(d) 7
33,953 Steel Dynamics, Inc. 1,025
25,392 United States Steel Corp. 389
1,302 Universal Stainless & Alloy Products, Inc.(d) 21
--------
4,266
--------
MINING (0.4%)
28,332 Alcoa Corp.(d) 663
7,937 Century Aluminum Co.(d) 55
28,493 Coeur Mining, Inc.(d) 124
5,446 Compass Minerals International, Inc. 299
455 Contura Energy, Inc.(d) 24
4,745 Covia Holdings Corp.(d) 9
21,436 General Moly, Inc.(d) 8
8,706 Gold Resource Corp. 29
9,302 Golden Minerals Co.(d) 3
69,254 Hecla Mining Co. 125
2,556 Kaiser Aluminum Corp. 249
22,400 Livent Corp.(d) 155
36,703 McEwen Mining, Inc.(e) 64
187 PDS Biotechnology Corp.(d) 1
10,083 Royal Gold, Inc. 1,033
15,315 Solitario Zinc Corp.(d) 5
311 United States Lime & Minerals, Inc. 25
19,733 Uranium Energy Corp.(d),(e) 27
--------
2,898
--------
Total Basic Materials 23,613
--------
COMMUNICATIONS (8.7%)
--------------------
ADVERTISING (0.2%)
1,956 Apex Global Brands, Inc.(d) 1
1,148 Boston Omaha Corp. "A"(d) 27
5,624 Clear Channel Outdoor Holdings, Inc.(d) 26
4,661 Fluent, Inc.(d) 25
674 Harte-Hanks, Inc.(d) 1
5,246 Marchex, Inc. "B"(d) 25
9,730 National CineMedia, Inc. 64
11,904 Quotient Technology, Inc.(d) 128
3,359 Telaria, Inc.(d) 25
5,567 Trade Desk, Inc. "A"(d) 1,268
--------
1,590
--------
INTERNET (4.1%)
3,725 1-800-Flowers.com, Inc. "A"(d) 70
14,330 8x8, Inc.(d) 345
2,400 Anaplan, Inc.(d) 121
8,054 ANGI Homeservices, Inc. "A"(d) 105
2,014 AutoWeb, Inc.(d) 7
6,907 Boingo Wireless, Inc.(d) 124
2,500 Cardlytics, Inc.(d) 65
5,206 Cargurus, Inc.(d) 188
9,876 Cars.com, Inc.(d) 195
22,296 CDW Corp. 2,475
4,783 ChannelAdvisor Corp.(d) 42
167 Chewy, Inc. "A"(d) 6
6,376 Cogent Communications Holdings, Inc. 378
5,921 comScore, Inc.(d) 31
8,680 DHI Group, Inc.(d) 31
12,628 Endurance International Group Holdings, Inc.(d) 61
2,204 ePlus, Inc.(d) 152
18,350 Etsy, Inc.(d) 1,126
1,200 Eventbrite, Inc. "A"(d) 19
65 EverQuote, Inc. "A"(d) 1
7,906 EVINE Live, Inc.(d) 3
31,316 FireEye, Inc.(d) 464
300 Frontline Capital Group(a),(b),(c),(d) -
26,743 GoDaddy, Inc. "A"(d) 1,876
60,701 Groupon, Inc.(d) 217
14,006 GrubHub, Inc.(d) 1,092
3,976 HealthStream, Inc.(d) 103
11,928 IAC/InterActiveCorp.(d) 2,595
================================================================================
4 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
2,303 Internap Corp.(d),(e) $ 7
2,026 Lands' End, Inc.(d) 25
4,096 Leaf Group Ltd.(d) 30
8,378 Liberty Expedia Holdings, Inc. "A"(d) 400
18,696 Limelight Networks, Inc.(d) 50
4,477 Liquidity Services, Inc.(d) 27
4,488 Lyft, Inc. "A"(d),(e) 295
8,004 Match Group, Inc. 538
13,832 Meet Group, Inc.(d) 48
9,733 New Media Investment Group, Inc. 92
9,602 NIC, Inc. 154
15,823 Okta, Inc.(d) 1,954
1,440 OptimizeRx Corp.(d) 23
2,766 Overstock.com, Inc.(d),(e) 38
14,641 Palo Alto Networks, Inc.(d) 2,983
4,538 PC-Tel, Inc.(d) 20
4,891 Perficient, Inc.(d) 168
11,763 Pinterest, Inc. "A"(d),(e) 320
8,417 Proofpoint, Inc.(d) 1,012
7,067 Q2 Holdings, Inc.(d) 540
6,001 QuinStreet, Inc.(d) 95
5,145 RealNetworks, Inc.(d) 10
36 RealReal, Inc.(d) 1
4,264 Remark Holdings, Inc.(d) 4
165 Revolve Group, Inc.(d) 6
10,598 RingCentral, Inc. "A"(d) 1,218
11,954 Roku, Inc.(d) 1,083
6,574 Rubicon Project, Inc.(d) 42
5,172 Shutterfly, Inc.(d) 261
2,987 Shutterstock, Inc. 117
114,150 Snap, Inc. "A"(d) 1,632
2,538 Stamps.com, Inc.(d) 115
3,610 Stitch Fix, Inc. "A"(d),(e) 116
5,782 Support.com, Inc.(d) 9
2,802 TechTarget, Inc.(d) 60
1,658 TheStreet, Inc. 10
2,100 Travelzoo(d) 32
11,249 TrueCar, Inc.(d) 61
3,527 U.S. Auto Parts Network, Inc.(d) 4
30,125 Uber Technologies, Inc.(d) 1,397
9,366 Upwork, Inc.(d) 151
6,877 VirnetX Holding Corp.(d),(e) 43
9,416 Wayfair, Inc. "A"(d) 1,375
10,862 Yelp, Inc.(d) 371
16,709 Zendesk, Inc.(d) 1,488
7,314 Zillow Group, Inc. "A"(d) 335
17,623 Zillow Group, Inc. "C"(d) 818
10,588 Zix Corp.(d) 96
2,226 Zscaler, Inc.(d) 171
--------
31,737
--------
MEDIA (2.5%)
3,599 AH Belo Corp. "A" 13
18,031 Altice USA, Inc. "A"(d) 439
6,974 AMC Networks, Inc. "A"(d) 380
2,692 Beasley Broadcast Group, Inc. "A" 9
747 Cable One, Inc. 875
16,001 Central European Media Enterprises Ltd. "A"(d) 70
2,653 Emmis Communications Corp. "A"(d) 13
21,239 Entercom Communications Corp. "A" 123
10,513 Entravision Communications Corp. "A" 33
8,572 EW Scripps Co. "A" 131
5,877 FactSet Research Systems, Inc. 1,684
17,822 Gannett Co., Inc. 145
7,875 Global Eagle Entertainment, Inc.(d) 5
11,894 Gray Television, Inc.(d) 195
2,349 Hemisphere Media Group, Inc.(d) 30
15,421 Houghton Mifflin Harcourt Co.(d) 89
7,025 John Wiley & Sons, Inc. "A" 322
8,464 Lee Enterprises, Inc.(d) 19
3,888 Liberty Broadband Corp. "A"(d) 400
23,296 Liberty Broadband Corp. "C"(d) 2,428
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
30,735 Liberty Global plc "A"(d) $ 830
78,642 Liberty Global plc "C"(d) 2,086
6,706 Liberty Latin America Ltd. "A"(d) 116
18,394 Liberty Latin America Ltd. "C"(d) 316
1,620 Liberty Media Corp-Liberty Braves "A"(d) 45
4,323 Liberty Media Corp-Liberty Braves "C"(d) 121
3,415 Liberty Media Corp-Liberty Formula One "A"(d) 122
30,493 Liberty Media Corp-Liberty Formula One "C"(d) 1,141
12,342 Liberty Media Corp-Liberty SiriusXM "A"(d) 467
23,831 Liberty Media Corp-Liberty SiriusXM "C"(d) 905
1,090 McClatchy Co. "A"(d) 3
5,876 Meredith Corp. 324
9,903 MSG Networks, Inc. "A"(d) 205
21,696 New York Times Co. "A" 708
6,884 Nexstar Media Group, Inc. "A" 695
1,046 Saga Communications, Inc. "A" 33
4,495 Scholastic Corp. 149
9,929 Sinclair Broadcast Group, Inc. "A" 532
246,348 Sirius XM Holdings, Inc.(e) 1,375
33,291 TEGNA, Inc. 504
12,078 Tribune Media Co. "A" 558
3,616 Tribune Publishing Co. 29
906 Value Line, Inc. 25
2,718 WideOpenWest, Inc.(d) 20
6,514 World Wrestling Entertainment, Inc. "A" 470
--------
19,182
--------
TELECOMMUNICATIONS (1.9%)
6,913 A10 Networks, Inc.(d) 47
4,165 Acacia Communications, Inc.(d) 196
7,492 ADTRAN, Inc. 114
3,106 Aerohive Networks, Inc.(d) 14
992 Airgain, Inc.(d) 14
1,577 ATN International, Inc. 91
5,908 CalAmp Corp.(d) 69
7,426 Calix, Inc.(d) 49
4,292 Casa Systems, Inc.(d) 28
21,461 Ciena Corp.(d) 883
7,646 Cincinnati Bell, Inc.(d) 38
2,370 Clearfield, Inc.(d) 31
29,803 CommScope Holding Co., Inc.(d) 469
9,996 Consolidated Communications Holdings, Inc. 49
4,719 Digi International, Inc.(d) 60
7,340 EchoStar Corp. "A"(d) 325
18,940 Extreme Networks, Inc.(d) 123
17,636 Finisar Corp.(d) 403
12,098 Frontier Communications Corp.(d),(e) 21
14,665 GCI Liberty, Inc. "A"(d) 901
62,873 Globalstar, Inc.(d) 30
8,869 Gogo, Inc.(d),(e) 35
5,160 GTT Communications, Inc.(d),(e) 91
12,042 Harmonic, Inc.(d) 67
4,461 HC2 Holdings, Inc.(d),(e) 11
3,541 ID Systems, Inc.(d) 21
2,972 IDT Corp. "B"(d) 28
22,378 Infinera Corp.(d) 65
14,946 Inseego Corp.(d),(e) 72
4,864 InterDigital, Inc. 313
14,263 Iridium Communications, Inc.(d) 332
2,945 KVH Industries, Inc.(d) 32
9,095 Lantronix, Inc.(d) 30
6,052 LightPath Technologies, Inc. "A"(d) 6
7,509 LogMeIn, Inc. 553
1,784 Loral Space & Communications, Inc.(d) 62
1,290 Neonode, Inc.(d) 3
4,903 NeoPhotonics Corp.(d) 21
================================================================================
6 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
5,225 NETGEAR, Inc.(d) $ 132
14,857 NII Holdings, Inc.(d) 25
2,194 Ooma, Inc.(d) 23
1,750 Optical Cable Corp.(d) 7
12,823 ORBCOMM, Inc.(d) 93
1,323 Pagerduty, Inc.(d),(e) 62
1,170 pdvWireless, Inc.(d) 55
5,004 Plantronics, Inc. 185
368 Preformed Line Products Co. 20
8,411 Ribbon Communications, Inc.(d) 41
2,435 RigNet, Inc.(d) 25
6,751 Shenandoah Telecommunications Co. 260
3,740 Spok Holdings, Inc. 56
87,955 Sprint Corp.(d) 578
7,692 Switch, Inc. "A" 101
14,139 Telephone & Data Systems, Inc. 430
779 TESSCO Technologies, Inc. 14
47,825 T-Mobile US, Inc.(d) 3,546
2,911 Ubiquiti Networks, Inc.(e) 383
2,316 United States Cellular Corp.(d) 103
8,405 ViaSat, Inc.(d) 679
33,875 Viavi Solutions, Inc.(d) 450
33,009 Vonage Holdings Corp.(d) 374
30,781 Zayo Group Holdings, Inc.(d) 1,013
--------
14,352
--------
Total Communications 66,861
--------
CONSUMER, CYCLICAL (11.9%)
-------------------------
AIRLINES (0.3%)
1,928 Allegiant Travel Co. 277
7,486 Hawaiian Holdings, Inc. 205
45,961 JetBlue Airways Corp.(d) 850
1,617 Mesa Air Group, Inc.(d) 15
7,987 SkyWest, Inc. 485
10,544 Spirit Airlines, Inc.(d) 503
--------
2,335
--------
APPAREL (0.5%)
6,902 Carter's, Inc. 673
4,496 Columbia Sportswear Co. 450
9,445 Crocs, Inc.(d) 187
4,450 Deckers Outdoor Corp.(d) 783
699 Delta Apparel, Inc.(d) 16
954 Iconix Brand Group, Inc.(d) 1
6,137 Kontoor Brands, Inc.(d) 172
2,101 Lakeland Industries, Inc.(d) 24
4,727 Levi Strauss & Co. "A"(d) 99
2,562 Oxford Industries, Inc. 194
1,306 Rocky Brands, Inc. 36
7,426 Sequential Brands Group, Inc.(d) 4
20,773 Skechers U.S.A., Inc. "A"(d) 654
11,933 Steven Madden Ltd. 405
1,222 Superior Group of Companies, Inc. 21
2,485 Unifi, Inc.(d) 45
298 Vince Holding Corp.(d) 4
1,357 Weyco Group, Inc. 36
13,047 Wolverine World Wide, Inc. 359
--------
4,163
--------
AUTO MANUFACTURERS (0.7%)
2,021 Blue Bird Corp.(d) 40
9,906 Navistar International Corp.(d) 341
4,260 REV Group, Inc. 61
20,887 Tesla, Inc.(d),(e) 4,668
8,229 Wabash National Corp. 134
7,224 Workhorse Group, Inc.(d) 21
--------
5,265
--------
AUTO PARTS & EQUIPMENT (1.1%)
13,361 Adient plc 324
18,482 Allison Transmission Holdings, Inc. 857
15,871 American Axle & Manufacturing Holdings, Inc.(d) 202
13,050 Autoliv, Inc. 920
5,294 Commercial Vehicle Group, Inc.(d) 42
8,072 Cooper Tire & Rubber Co. 255
2,562 Cooper-Standard Holdings, Inc.(d) 117
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
21,805 Dana, Inc. $ 435
13,755 Delphi Technologies plc 275
4,428 Dorman Products, Inc.(d) 386
3,445 Douglas Dynamics, Inc. 137
11,406 Garrett Motion, Inc.(d) 175
5,458 Gentherm, Inc.(d) 228
34,094 Goodyear Tire & Rubber Co. 522
3,297 Horizon Global Corp.(d) 12
4,507 Jason Industries, Inc.(d) 3
9,503 Lear Corp. 1,323
12,876 Meritor, Inc.(d) 312
5,654 Methode Electronics, Inc. 161
2,019 Miller Industries, Inc. 62
7,896 Modine Manufacturing Co.(d) 113
2,943 Motorcar Parts of America, Inc.(d) 63
5,545 Spartan Motors, Inc. 61
2,952 Standard Motor Products, Inc. 134
3,414 Superior Industries International, Inc. 12
7,895 Tenneco, Inc. "A" 88
6,931 Titan International, Inc. 34
3,363 Tower International, Inc. 66
13,503 Veoneer, Inc.(d) 234
4,477 Visteon Corp.(d) 262
7,690 WABCO Holdings, Inc.(d) 1,020
--------
8,835
--------
DISTRIBUTION/WHOLESALE (0.9%)
4,284 Anixter International, Inc.(d) 256
1,431 BlueLinx Holdings, Inc.(d) 28
7,129 Core-Mark Holding Co., Inc. 283
1,704 EVI Industries, Inc.(e) 65
6,527 Fossil Group, Inc.(d) 75
6,412 G-III Apparel Group Ltd.(d) 189
4,783 H&E Equipment Services, Inc. 139
26,084 HD Supply Holdings, Inc.(d) 1,051
3,110 Houston Wire & Cable Co.(d) 16
5,638 Hudson Technologies, Inc.(d) 5
20,348 IAA, Inc.(d) 789
20,348 KAR Auction Services, Inc. 509
2,717 Manitex International, Inc.(d) 17
6,071 Pool Corp. 1,160
3,608 ScanSource, Inc.(d) 117
6,301 SiteOne Landscape Supply, Inc.(d),(e) 437
1,844 Systemax, Inc. 41
2,671 Titan Machinery, Inc.(d) 55
8,181 Triton International Ltd. 268
2,308 Veritiv Corp.(d) 45
4,931 Watsco, Inc. 806
6,579 WESCO International, Inc.(d) 333
--------
6,684
--------
ENTERTAINMENT (1.1%)
9,009 AMC Entertainment Holdings, Inc. "A" 84
5,397 Churchill Downs, Inc. 621
15,866 Cinemark Holdings, Inc. 573
1,592 Dover Motorsports, Inc. 3
9,671 Eldorado Resorts, Inc.(d),(e) 446
827 Empire Resorts, Inc.(d) 8
10,402 Everi Holdings, Inc.(d) 124
4,602 Golden Entertainment, Inc.(d) 64
3,864 International Speedway Corp. "A" 173
8,480 Lions Gate Entertainment Corp. "A" 104
17,152 Lions Gate Entertainment Corp. "B" 199
21,329 Live Nation Entertainment, Inc.(d) 1,413
2,679 Madison Square Garden Co. "A"(d) 750
5,957 Marriott Vacations Worldwide Corp. 574
2,088 Monarch Casino & Resort, Inc.(d) 89
16,556 Penn National Gaming, Inc.(d) 319
1,637 RCI Hospitality Holdings, Inc. 29
================================================================================
8 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
2,601 Reading International, Inc. "A"(d) $ 34
10,925 Red Rock Resorts, Inc. "A" 235
8,615 Scientific Games Corp. "A"(d) 171
9,937 SeaWorld Entertainment, Inc.(d) 308
10,995 Six Flags Entertainment Corp. 546
1,762 Speedway Motorsports, Inc. 33
2,997 Twin River Worldwide Holdings, Inc.(d) 89
6,166 Vail Resorts, Inc. 1,376
--------
8,365
--------
FOOD SERVICE (0.2%)
37,074 Aramark 1,337
--------
HOME BUILDERS (0.8%)
5,712 Beazer Homes USA, Inc.(d) 55
1,393 Cavco Industries, Inc.(d) 219
3,342 Century Communities, Inc.(d) 89
1,729 Comstock Holding Companies, Inc.(d) 5
3,198 Green Brick Partners, Inc.(d) 27
854 Hovnanian Enterprises, Inc. "A"(d) 6
3,192 Installed Building Products, Inc.(d) 189
13,368 KB Home 344
3,780 LCI Industries 340
2,808 LGI Homes, Inc.(d) 201
4,013 M/I Homes, Inc.(d) 115
6,923 MDC Holdings, Inc. 227
5,844 Meritage Homes Corp.(d) 300
2,131 New Home Co., Inc.(d) 8
515 NVR, Inc.(d) 1,736
7,577 Skyline Champion Corp.(d) 207
15,719 Taylor Morrison Home Corp.(d) 329
7,641 Thor Industries, Inc. 447
20,210 Toll Brothers, Inc. 740
21,741 TRI Pointe Group, Inc.(d) 260
4,835 William Lyon Homes "A"(d) 88
4,162 Winnebago Industries, Inc. 161
--------
6,093
--------
HOME FURNISHINGS (0.3%)
6,043 Daktronics, Inc. 37
9,577 Dolby Laboratories, Inc. "A" 618
3,943 Ethan Allen Interiors, Inc. 83
1,215 Flexsteel Industries, Inc. 21
1,598 Hamilton Beach Brands Holding Co. "A" 30
1,876 Hooker Furniture Corp. 39
4,266 iRobot Corp.(d),(e) 391
4,729 Sleep Number Corp.(d) 191
1,231 Sonos, Inc.(d) 14
7,002 Tempur Sealy International, Inc.(d) 514
2,235 Universal Electronics, Inc.(d) 92
4,073 VOXX International Corp.(d) 17
--------
2,047
--------
HOUSEWARES (0.2%)
3,627 Libbey, Inc.(d) 7
2,050 Lifetime Brands, Inc. 19
5,841 Scotts Miracle-Gro Co. 575
16,110 Toro Co. 1,078
7,915 Tupperware Brands Corp. 151
--------
1,830
--------
LEISURE TIME (0.5%)
5,197 Acushnet Holdings Corp. 136
12,975 Brunswick Corp. 595
13,645 Callaway Golf Co. 234
4,597 Camping World Holdings, Inc. "A"(e) 57
4,738 Clarus Corp. 68
11,272 Drive Shack, Inc.(d) 53
2,070 Escalade, Inc. 24
5,830 Fox Factory Holding Corp.(d) 481
710 Johnson Outdoors, Inc. "A" 53
10,940 Liberty TripAdvisor Holdings, Inc. "A"(d) 136
3,668 Lindblad Expeditions Holdings, Inc.(d) 66
3,193 Malibu Boats, Inc. "A"(d) 124
1,493 Marine Products Corp. 23
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
2,500 MasterCraft Boat Holdings, Inc.(d) $ 49
4,821 Nautilus, Inc.(d) 11
2,516 OneSpaWorld Holdings Ltd.(d) 39
12,741 Planet Fitness, Inc. "A"(d) 923
8,768 Polaris Industries, Inc. 800
5,154 Town Sports International Holdings, Inc.(d) 11
9,083 Vista Outdoor, Inc.(d) 81
2,350 YETI Holdings, Inc.(d),(e) 68
--------
4,032
--------
LODGING (1.1%)
10,905 BBX Capital Corp. 54
12,688 Boyd Gaming Corp. 342
89,373 Caesars Entertainment Corp.(d) 1,057
6,355 Century Casinos, Inc.(d) 62
5,184 Choice Hotels International, Inc. 451
28,777 Extended Stay America, Inc. 486
8,160 Full House Resorts, Inc.(d) 15
13,576 Hilton Grand Vacations, Inc.(d) 432
5,649 Hyatt Hotels Corp. "A" 430
54,936 Las Vegas Sands Corp. 3,246
3,067 Marcus Corp. 101
8,176 Playa Hotels & Resorts N.V.(d) 63
5,052 Red Lion Hotels Corp.(d) 36
9,220 St Joe Co.(d) 159
13,945 Wyndham Destinations, Inc. 612
14,858 Wyndham Hotels & Resorts, Inc. 828
--------
8,374
--------
OFFICE FURNISHINGS (0.2%)
1,034 CompX International, Inc. 18
8,959 Herman Miller, Inc. 400
6,656 HNI Corp. 236
9,610 Interface, Inc. 147
5,240 Kimball International, Inc. "B" 91
7,374 Knoll, Inc. 169
12,921 Steelcase, Inc. "A" 221
5,315 Virco Manufacturing Corp. 25
--------
1,307
--------
RETAIL (3.8%)
10,514 Abercrombie & Fitch Co. "A" 169
25,423 American Eagle Outfitters, Inc. 430
1,386 America's Car-Mart, Inc.(d) 119
3,061 Asbury Automotive Group, Inc.(d) 258
25,130 Ascena Retail Group, Inc.(d) 15
4,048 At Home Group, Inc.(d),(e) 27
8,722 AutoNation, Inc.(d) 366
6,163 Barnes & Noble Education, Inc.(d) 21
8,898 Barnes & Noble, Inc. 60
1,739 Bassett Furniture Industries, Inc. 27
10,402 Beacon Roofing Supply, Inc.(d) 382
19,067 Bed Bath & Beyond, Inc.(e) 222
2,684 Big 5 Sporting Goods Corp. 5
5,664 Big Lots, Inc. 162
18 Biglari Holdings, Inc. "A"(d) 10
187 Biglari Holdings, Inc. "B"(d) 19
3,131 BJ's Restaurants, Inc. 138
14,831 BJ's Wholesale Club Holdings, Inc.(d) 392
14,015 Bloomin'Brands, Inc. 265
10,782 BMC Stock Holdings, Inc.(d) 229
4,341 Boot Barn Holdings, Inc.(d) 155
5,733 Brinker International, Inc. 226
3,973 Buckle, Inc.(e) 69
2,727 Build-A-Bear Workshop, Inc.(d) 15
================================================================================
10 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
10,139 Burlington Stores, Inc.(d) $ 1,725
6,897 Caleres, Inc. 137
10,622 Cannae Holdings, Inc.(d) 308
6,109 Carrols Restaurant Group, Inc.(d) 55
4,962 Carvana Co.(d) 311
5,613 Casey's General Stores, Inc. 876
3,894 Cato Corp. "A" 48
6,609 Cheesecake Factory, Inc. 289
19,485 Chico's FAS, Inc. 66
2,520 Children's Place, Inc. 240
2,773 Chuy's Holdings, Inc.(d) 64
2,593 Citi Trends, Inc. 38
3,781 Conn's, Inc.(d) 67
2,847 Container Store Group, Inc.(d) 21
3,681 Cracker Barrel Old Country Store, Inc.(e) 628
5,243 Dave & Buster's Entertainment, Inc. 212
4,306 Del Frisco's Restaurant Group, Inc.(d),(e) 34
6,237 Del Taco Restaurants, Inc.(d) 80
9,228 Denny's Corp.(d) 189
8,337 Designer Brands, Inc. "A" 160
2,770 Destination Maternity Corp.(d) 4
8,559 Destination XL Group, Inc.(d) 15
10,334 Dick's Sporting Goods, Inc. 358
2,897 Dillard's, Inc. "A"(e) 180
2,576 Dine Brands Global, Inc. 246
6,274 Domino's Pizza, Inc. 1,746
1,333 Duluth Holdings, Inc. "B"(d) 18
12,619 Dunkin'Brands Group, Inc. 1,005
3,382 El Pollo Loco Holdings, Inc.(d) 36
12,371 Express, Inc.(d) 34
8,094 EZCORP, Inc. "A"(d) 77
1,894 Famous Dave's of America, Inc.(d) 8
4,111 Fiesta Restaurant Group, Inc.(d) 54
6,587 FirstCash, Inc. 659
8,539 Five Below, Inc.(d) 1,025
8,840 Floor & Decor Holdings, Inc. "A"(d) 370
998 Foundation Building Materials, Inc.(d) 18
6,453 Francesca's Holdings Corp.(d),(e) 3
4,994 Fred's, Inc. "A"(d),(e) 2
4,427 Freshpet, Inc.(d) 202
1,794 Gaia, Inc.(d),(e) 14
15,760 GameStop Corp. "A" 86
2,377 Genesco, Inc.(d) 101
4,803 GMS, Inc.(d) 106
10,229 GNC Holdings, Inc. "A"(d),(e) 15
2,692 Group 1 Automotive, Inc. 220
7,687 Guess?, Inc. 124
2,486 Habit Restaurants, Inc. "A"(d) 26
3,228 Haverty Furniture Companies, Inc. 55
3,484 Hibbett Sports, Inc.(d) 63
4,126 J Alexander's Holdings, Inc.(d) 46
1,051 J. Jill, Inc. 2
3,944 Jack in the Box, Inc. 321
46,484 JC Penney Co., Inc.(d),(e) 53
2,707 Kirkland's, Inc.(d) 6
7,437 La-Z-Boy, Inc. 228
3,346 Lithia Motors, Inc. "A" 397
5,639 Luby's, Inc.(d) 6
15,978 Lululemon Athletica, Inc.(d) 2,879
4,057 Lumber Liquidators Holdings, Inc.(d),(e) 47
4,129 MarineMax, Inc.(d) 68
13,809 Michaels Companies, Inc.(d) 120
2,476 Movado Group, Inc. 67
6,871 MSC Industrial Direct Co., Inc. "A" 510
10,093 National Vision Holdings, Inc.(d) 310
8,584 Noodles & Co.(d) 68
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
8,511 Nu Skin Enterprises, Inc. "A" $ 420
84,454 Office Depot, Inc. 174
7,993 Ollie's Bargain Outlet Holdings, Inc.(d) 696
2,864 Papa John's International, Inc.(e) 128
7,972 Party City Holdco, Inc.(d) 58
1,900 PC Connection, Inc. 66
1,516 PCM, Inc.(d) 53
5,762 Penske Automotive Group, Inc. 273
3,075 PetIQ, Inc.(d) 101
3,455 PetMed Express, Inc.(e) 54
645 Pier 1 Imports, Inc.(d),(e) 5
4,799 Potbelly Corp.(d) 24
3,440 PriceSmart, Inc. 176
61,125 Qurate Retail, Inc.(d) 757
1,864 Red Robin Gourmet Burgers, Inc.(d) 57
4,526 Regis Corp.(d) 75
2,478 RH(d) 286
8,463 Rite Aid Corp.(d),(e) 68
4,324 Rush Enterprises, Inc. "A" 158
684 Rush Enterprises, Inc. "B" 25
4,841 Ruth's Hospitality Group, Inc. 110
18,459 Sally Beauty Holdings, Inc.(d) 246
3,736 Shake Shack, Inc. "A"(d) 270
2,381 Shoe Carnival, Inc.(e) 66
8,020 Signet Jewelers Ltd. 143
4,134 Sonic Automotive, Inc. "A" 97
4,298 Sportsman's Warehouse Holdings, Inc.(d) 16
4,672 Stage Stores, Inc. 4
4,383 Stein Mart, Inc.(d) 4
7,130 Tailored Brands, Inc. 41
10,098 Texas Roadhouse, Inc. 542
5,605 Tile Shop Holdings, Inc. 22
2,102 Tilly's, Inc. "A" 16
6,404 Tuesday Morning Corp.(d) 11
10,489 Urban Outfitters, Inc.(d) 239
3,075 Vera Bradley, Inc.(d) 37
3,693 Vitamin Shoppe, Inc.(d) 15
8,978 Waitr Holdings, Inc.(d),(e) 56
28,430 Wendy's Co. 557
12,189 Williams-Sonoma, Inc. 792
4,245 Wingstop, Inc. 402
437 Winmark Corp. 76
10,630 World Fuel Services Corp. 382
2,839 Zumiez, Inc.(d) 74
--------
29,199
--------
STORAGE/WAREHOUSING (0.0%)
6,455 Mobile Mini, Inc. 196
--------
TEXTILES (0.1%)
2,014 Culp, Inc. 38
2,900 Dixie Group, Inc.(d) 2
2,823 Forward Industries, Inc.(d) 3
2,344 UniFirst Corp. 442
--------
485
--------
TOYS/GAMES/HOBBIES (0.1%)
2,816 Funko, Inc. "A"(d),(e) 68
49,730 Mattel, Inc.(d),(e) 558
--------
626
--------
Total Consumer, Cyclical 91,173
--------
CONSUMER, NON-CYCLICAL (19.6%)
-----------------------------
AGRICULTURE (0.3%)
10,809 22nd Century Group, Inc.(d),(e) 23
610 Alico, Inc. 18
3,787 Andersons, Inc. 103
21,275 Bunge Ltd. 1,185
4,834 Cadiz, Inc.(d),(e) 54
25,160 Darling Ingredients, Inc.(d) 500
2,404 Limoneira Co. 48
1,357 Pyxus International, Inc.(d),(e) 21
3,190 Tejon Ranch Co.(d) 53
1,323 Turning Point Brands, Inc. 65
3,820 Universal Corp. 232
18,008 Vector Group Ltd. 176
--------
2,478
--------
================================================================================
12 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
BEVERAGES (0.3%)
1,326 Boston Beer Co., Inc. "A"(d) $ 501
720 Coca-Cola Consolidated, Inc. 216
1,760 Craft Brew Alliance, Inc.(d) 25
1,660 Farmer Brothers Co.(d) 27
27,732 Keurig Dr Pepper, Inc. 801
1,817 MGP Ingredients, Inc.(e) 121
1,810 National Beverage Corp.(e) 81
10,996 New Age Beverages Corp.(d),(e) 51
4,659 Primo Water Corp.(d) 57
2,312 Willamette Valley Vineyards, Inc.(d) 16
--------
1,896
--------
BIOTECHNOLOGY (4.0%)
379 Advaxis, Inc.(d) 1
4,376 Abeona Therapeutics, Inc.(d) 21
17,343 ACADIA Pharmaceuticals, Inc.(d) 464
6,646 Acceleron Pharma, Inc.(d) 273
18,775 Achillion Pharmaceuticals, Inc.(d) 50
6,967 Acorda Therapeutics, Inc.(d) 53
8,447 Actinium Pharmaceuticals, Inc.(d) 2
11,101 ADMA Biologics, Inc.(d),(e) 43
4,726 Aduro Biotech, Inc.(d) 7
8,035 Adverum Biotechnologies, Inc.(d) 96
7,157 Aevi Genomic Medicine, Inc.(d) 1
11,520 Agenus, Inc.(d) 35
2,541 AgeX Therapeutics, Inc.(d),(e) 9
72 Akero Therapeutics, Inc.(d) 1
1,295 Albireo Pharma, Inc.(d) 42
10,702 Alder Biopharmaceuticals, Inc.(d) 126
2,978 Aldeyra Therapeutics, Inc.(d) 18
1,098 Allakos, Inc.(d),(e) 48
2,927 Allogene Therapeutics, Inc.(d),(e) 79
14,694 Alnylam Pharmaceuticals, Inc.(d) 1,066
5,495 AMAG Pharmaceuticals, Inc.(d) 55
37,300 Amicus Therapeutics, Inc.(d) 465
3,717 AnaptysBio, Inc.(d) 210
8,408 Anavex Life Sciences Corp.(d),(e) 28
1,215 ANI Pharmaceuticals, Inc.(d) 100
6,534 Apellis Pharmaceuticals, Inc.(d) 166
2,151 Applied Genetic Technologies Corp.(d) 8
1,613 Applied Therapeutics, Inc.(d) 13
2,249 Aptevo Therapeutics, Inc.(d) 2
323 Aptinyx, Inc.(d) 1
4,787 Aratana Therapeutics, Inc.(d) 25
561 Aravive, Inc.(d) 3
3,200 Arcus Biosciences, Inc.(d) 25
3,216 Ardelyx, Inc.(d) 9
7,961 Arena Pharmaceuticals, Inc.(d) 467
14,883 ArQule, Inc.(d) 164
14,329 Arrowhead Pharmaceuticals, Inc.(d) 380
2,704 Assembly Biosciences, Inc.(d) 36
7,504 Atara Biotherapeutics, Inc.(d) 151
16,987 Athersys, Inc.(d),(e) 29
5,548 Audentes Therapeutics, Inc.(d) 210
13,305 AVEO Pharmaceuticals, Inc.(d),(e) 9
5,102 Avid Bioservices, Inc.(d) 29
877 Avrobio, Inc.(d) 14
14,777 BioCryst Pharmaceuticals, Inc.(d) 56
5,414 Biohaven Pharmaceutical Holding Co. Ltd.(d) 237
27,536 BioMarin Pharmaceutical, Inc.(d) 2,358
3,072 Bio-Rad Laboratories, Inc. "A"(d) 960
25,411 BioTime, Inc.(d),(e) 28
8,458 Bluebird Bio, Inc.(d),(e) 1,076
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
7,770 Blueprint Medicines Corp.(d) $ 733
3,854 BrainStorm Cell Therapeutics, Inc.(d) 15
72 Bridgebio Pharma, Inc.(d) 2
5,271 Calithera Biosciences, Inc.(d) 21
1,028 Calyxt, Inc.(d) 13
5,109 Cambrex Corp.(d) 239
166 Capricor Therapeutics, Inc.(d) 1
4,726 Cara Therapeutics, Inc.(d),(e) 102
7,740 CASI Pharmaceuticals, Inc.(d) 25
969 Celldex Therapeutics, Inc.(d) 3
3,637 CEL-SCI Corp.(d) 30
8,318 ChemoCentryx, Inc.(d) 77
3,640 ChromaDex Corp.(d) 17
4,842 Clearside Biomedical, Inc.(d),(e) 5
2,800 Cleveland BioLabs, Inc.(d) 4
6,587 Cohbar, Inc.(d),(e) 11
15,199 ContraFect Corp.(d) 8
32 ContraVir Pharmaceuticals, Inc.(d) -
71 Cortexyme, Inc.(d) 3
1,475 Crinetics Pharmaceuticals, Inc.(d) 37
10,286 CTI BioPharma Corp.(d),(e) 9
1,500 Cue Biopharma, Inc.(d) 13
3,831 Curis, Inc.(d) 7
9,939 Cymabay Therapeutics, Inc.(d) 71
7,638 CytomX Therapeutics, Inc.(d) 86
7,637 CytRx Corp.(d) 3
2,449 Deciphera Pharmaceuticals, Inc.(d) 55
10,651 Denali Therapeutics, Inc.(d) 221
7,676 Dicerna Pharmaceuticals, Inc.(d) 121
2,229 Dyadic International, Inc.(d) 14
8,647 Dynavax Technologies Corp.(d),(e) 34
6,869 Editas Medicine, Inc.(d) 170
832 Eidos Therapeutics, Inc.(d) 26
2,673 Eiger BioPharmaceuticals, Inc.(d) 28
7,086 Emergent BioSolutions, Inc.(d) 342
8,028 Enzo Biochem, Inc.(d) 27
10,662 Epizyme, Inc.(d) 134
751 Equillium, Inc.(d),(e) 4
3,928 Esperion Therapeutics, Inc.(d) 183
741 Evelo Biosciences, Inc.(d),(e) 7
1,481 Evolus, Inc.(d),(e) 22
19,672 Exact Sciences Corp.(d) 2,322
46,380 Exelixis, Inc.(d) 991
6,822 EyePoint Pharmaceuticals, Inc.(d) 11
9,491 Fate Therapeutics, Inc.(d) 193
11,522 FibroGen, Inc.(d) 521
4,356 Five Prime Therapeutics, Inc.(d) 26
2,196 Flex Pharma, Inc.(d) 1
745 Forty Seven, Inc.(d) 8
489 Genocea Biosciences, Inc.(d) 2
25,126 Geron Corp.(d),(e) 35
5,466 GlycoMimetics, Inc.(d) 65
2,509 Gossamer Bio, Inc.(d) 56
5,434 Guardant Health, Inc.(d) 469
19,318 Halozyme Therapeutics, Inc.(d) 332
6,840 Harvard Bioscience, Inc.(d) 14
4,000 Helius Medical Technologies, Inc.(d),(e) 9
5,356 Homology Medicines, Inc.(d) 105
2,101 iBio, Inc.(d) 1
3,299 Idera Pharmaceuticals, Inc.(d) 9
94 Immunic, Inc.(d) 1
22,945 ImmunoGen, Inc.(d) 50
25,792 Immunomedics, Inc.(d),(e) 358
================================================================================
14 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
7,013 Infinity Pharmaceuticals, Inc.(d) $ 13
10,270 Innoviva, Inc.(d) 150
15,084 Inovio Pharmaceuticals, Inc.(d),(e) 44
13,161 Insmed, Inc.(d) 337
3,589 Intercept Pharmaceuticals, Inc.(d) 286
9,391 Intrexon Corp.(d) 72
21,353 Ionis Pharmaceuticals, Inc.(d) 1,372
18,390 Iovance Biotherapeutics, Inc.(d) 451
4,442 IVERIC bio, Inc.(d) 6
66 Kaleido Biosciences, Inc.(d) 1
36 Karuna Therapeutics, Inc.(d) 1
8,479 Karyopharm Therapeutics, Inc.(d) 51
4,202 KemPharm, Inc.(d) 7
1,492 Kezar Life Sciences, Inc.(d) 11
5,720 Kindred Biosciences, Inc.(d) 48
1,431 Kiniksa Pharmaceuticals Ltd. "A"(d) 19
1,539 Krystal Biotech, Inc.(d) 62
6,848 Lexicon Pharmaceuticals, Inc.(d) 43
3,237 Ligand Pharmaceuticals, Inc.(d) 369
1,158 Liquidia Technologies, Inc.(d) 9
1,137 LogicBio Therapeutics, Inc.(d) 15
6,400 MacroGenics, Inc.(d) 109
2,207 Magenta Therapeutics, Inc.(d) 33
4,900 Marker Therapeutics, Inc.(d),(e) 39
11,213 Matinas BioPharma Holdings, Inc.(d),(e) 10
10,769 Medicines Co.(d),(e) 393
8,459 MEI Pharma, Inc.(d) 21
900 Menlo Therapeutics, Inc.(d) 5
2,006 Merrimack Pharmaceuticals, Inc.(d) 12
4,466 Mersana Therapeutics, Inc.(d) 18
996 Molecular Templates, Inc.(d) 8
2,155 Mustang Bio, Inc.(d) 8
12,166 Myriad Genetics, Inc.(d) 338
4,139 NantKwest, Inc.(d),(e) 4
15,477 NeoGenomics, Inc.(d) 340
324 Neon Therapeutics, Inc.(d) 2
1,335 Neuralstem, Inc.(d) -
3,137 NewLink Genetics Corp.(d) 5
70 NextCure, Inc.(d) 1
69 NGM Biopharmaceuticals, Inc.(d),(e) 1
2,839 Novavax, Inc.(d),(e) 17
164 Novus Therapeutics, Inc.(d) -
6,534 Omeros Corp.(d),(e) 102
478 Oncocyte Corp.(d) 1
3,414 OncoMed Pharmaceuticals, Inc.(a),(b),(c),(d) -
254 Oncternal Therapeutics, Inc.(a),(b),(c),(d) -
254 Oncternal Therapeutics, Inc.(d) 2
1,993 Organogenesis Holdings, Inc.(d) 15
12,913 Organovo Holdings, Inc.(d),(e) 7
1,055 Osmotica Pharmaceuticals plc(d) 4
4,226 Otonomy, Inc.(d) 12
21,655 Pacific Biosciences of California, Inc.(d) 131
23,498 Palatin Technologies, Inc.(d),(e) 27
23,556 PDL BioPharma, Inc.(d) 74
3,872 Pfenex, Inc.(d) 26
3,141 PolarityTE, Inc.(d) 18
338 Precision BioSciences, Inc.(d) 4
6,403 Prothena Corp. plc(d) 68
2,105 Provention Bio, Inc.(d) 25
8,165 PTC Therapeutics, Inc.(d) 367
4,673 Puma Biotechnology, Inc.(d) 59
6,378 Radius Health, Inc.(d) 155
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
4,515 REGENXBIO, Inc.(d) $ 232
769 Replimune Group, Inc.(d),(e) 11
1,918 resTORbio, Inc.(d) 20
6,278 Retrophin, Inc.(d) 126
373 Rexahn Pharmaceuticals, Inc.(d) 2
23,395 Rigel Pharmaceuticals, Inc.(d) 61
6,922 Rocket Pharmaceuticals, Inc.(d) 104
2,908 Rubius Therapeutics, Inc.(d),(e) 46
7,728 Sage Therapeutics, Inc.(d) 1,415
16,243 Sangamo Therapeutics, Inc.(d) 175
5,254 Savara, Inc.(d) 12
1,608 Scholar Rock Holding Corp.(d) 25
16,297 Seattle Genetics, Inc.(d) 1,128
41 Seelos Therapeutics, Inc.(d) -
41 Seelos Therapeutics, Inc.(a),(c),(d) -
5,322 Selecta Biosciences, Inc.(d) 9
2,502 Sienna Biopharmaceuticals, Inc.(d),(e) 2
1,977 Solid Biosciences, Inc.(d) 11
10,396 Sorrento Therapeutics, Inc.(d),(e) 28
5,056 Spark Therapeutics, Inc.(d) 518
5,320 Stemline Therapeutics, Inc.(d) 81
167 Stoke Therapeutics, Inc.(d) 5
2,343 Sunesis Pharmaceuticals, Inc.(d) 2
2,311 Syndax Pharmaceuticals, Inc.(d) 21
4,000 Synlogic, Inc.(d) 36
385 Synthetic Biologics, Inc.(d) -
1,629 Synthorx, Inc.(d) 22
94 Tenax Therapeutics, Inc.(d) -
6,417 Theravance Biopharma, Inc.(d),(e) 105
2,707 Tocagen, Inc.(d) 18
4,165 Translate Bio, Inc.(d) 53
761 TransMedics Group, Inc.(d),(e) 22
76 Trovagene, Inc.(d) -
3,314 Twist Bioscience Corp.(d) 96
15,655 Tyme Technologies, Inc.(d) 19
8,065 Ultragenyx Pharmaceutical, Inc.(d) 512
6,749 United Therapeutics Corp.(d) 527
148 UNITY Biotechnology, Inc.(d) 1
3,680 Vaccinex, Inc.(d) 20
834 Vaxart, Inc.(d) 1
25,460 VBI Vaccines, Inc.(d) 30
4,395 Veracyte, Inc.(d) 125
11,945 Verastem, Inc.(d),(e) 18
7,335 Vericel Corp.(d) 139
2,976 Vical, Inc.(d) 3
7,153 Viking Therapeutics, Inc.(d),(e) 59
6,405 VolitionRX Ltd.(d) 20
2,712 WaVe Life Sciences Ltd.(d) 71
1,262 X4 Pharmaceuticals, Inc.(d) 19
3,229 XBiotech, Inc.(d) 24
1,214 XOMA Corp.(d),(e) 18
233 Yield10 Bioscience, Inc.(d) -
767 Y-mAbs Therapeutics, Inc.(d) 18
22,182 ZIOPHARM Oncology, Inc.(d),(e) 129
--------
30,218
--------
COMMERCIAL SERVICES (5.7%)
8,757 2U, Inc.(d) 330
10,367 Aaron's, Inc. 637
10,139 ABM Industries, Inc. 406
8,239 Acacia Research Corp.(d) 24
8,645 Adtalem Global Education, Inc.(d) 389
1,139 AMERCO 431
2,731 American Public Education, Inc.(d) 81
6,833 AMN Healthcare Services, Inc.(d) 371
================================================================================
16 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
6,901 ARC Document Solutions, Inc.(d) $ 14
10,347 Arlo Technologies, Inc.(d) 41
2,129 Ascent Capital Group, Inc. "A"(d) 2
8,174 ASGN, Inc.(d) 495
6,733 Avalara, Inc.(d) 486
9,347 Avis Budget Group, Inc.(d) 329
1,189 Barrett Business Services, Inc. 98
2,295 BG Staffing, Inc. 43
21,196 Booz Allen Hamilton Holding Corp. 1,403
8,979 Bright Horizons Family Solutions, Inc.(d) 1,355
7,429 Brink's Co. 603
2,930 CAI International, Inc.(d) 73
5,924 Cardtronics plc "A"(d) 162
3,961 Care.com, Inc.(d) 43
10,687 Career Education Corp.(d) 204
2,462 Carriage Services, Inc. 47
1,734 Cass Information Systems, Inc. 84
9,058 CBIZ, Inc.(d) 177
15,317 Chegg, Inc.(d) 591
1,741 Collectors Universe, Inc. 37
245 Computer Task Group, Inc.(d) 1
12,426 CoreLogic, Inc.(d) 520
1,388 CorVel Corp.(d) 121
5,526 CoStar Group, Inc.(d) 3,062
1,412 CRA International, Inc. 54
5,168 Cross Country Healthcare, Inc.(d) 48
4,083 Emerald Expositions Events, Inc. 46
3,906 Ennis, Inc. 80
7,906 Euronet Worldwide, Inc.(d) 1,330
9,459 EVERTEC, Inc. 309
4,220 Evo Payments, Inc. "A"(d) 133
1,630 Forrester Research, Inc. 77
2,677 Franklin Covey Co.(d) 91
5,635 FTI Consulting, Inc.(d) 472
2,813 GP Strategies Corp.(d) 42
657 Graham Holdings Co. "B" 453
7,366 Grand Canyon Education, Inc.(d) 862
7,093 Green Dot Corp. "A"(d) 347
6,680 GreenSky, Inc. "A"(d),(e) 82
4,211 Hackett Group, Inc. 71
11,862 Harsco Corp.(d) 326
11,747 Healthcare Services Group, Inc. 356
8,298 HealthEquity, Inc.(d) 543
2,753 Heidrick & Struggles International, Inc. 83
3,771 Herc Holdings, Inc.(d) 173
12,047 Hertz Global Holdings, Inc.(d),(e) 192
5,778 Hill International, Inc.(d) 16
13,041 HMS Holdings Corp.(d) 422
749 Hudson Global, Inc.(d) 9
3,240 Huron Consulting Group, Inc.(d) 163
2,071 I3 Verticals, Inc. "A"(d) 61
3,065 ICF International, Inc. 223
3,470 Information Services Group, Inc.(d) 11
5,760 Insperity, Inc. 704
5,181 International Money Express, Inc.(d) 73
5,636 K12, Inc.(d) 171
4,059 Kelly Services, Inc. "A" 106
3,147 Kforce, Inc. 110
8,860 Korn Ferry 355
11,546 Laureate Education, Inc. "A"(d) 181
10,562 LiveRamp Holdings, Inc.(d) 512
6,424 LSC Communications, Inc. 24
12,103 Macquarie Infrastructure Corp. 491
9,132 ManpowerGroup, Inc. 882
4,866 Matthews International Corp. "A" 170
1,774 Medifast, Inc. 228
5,436 MoneyGram International, Inc.(d) 13
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
5,194 Monro, Inc. $ 443
2,851 Morningstar, Inc. 412
1,716 National Research Corp. 99
6,030 Navigant Consulting, Inc. 140
2,444 Odyssey Marine Exploration, Inc.(d) 14
4,728 Paylocity Holding Corp.(d) 444
4,111 PFSweb, Inc.(d) 17
6,115 PRGX Global, Inc.(d) 41
4,359 Quad/Graphics, Inc. 34
6,867 Rent-A-Center, Inc.(d) 183
4,605 Resources Connection, Inc. 74
3,678 Rosetta Stone, Inc.(d) 84
10,646 RR Donnelley & Sons Co. 21
41,283 Sabre Corp. 916
2,543 SEACOR Marine Holdings, Inc.(d) 38
27,645 Service Corp. International 1,293
20,424 ServiceMaster Global Holdings, Inc.(d) 1,064
10,518 ServiceSource International, Inc.(d) 10
894 ShotSpotter, Inc.(d),(e) 40
4,639 Sotheby's(d) 270
2,950 SP Plus Corp.(d) 94
3,165 SPAR Group, Inc.(d) 2
48,180 Square, Inc. "A"(d) 3,495
3,221 Strategic Education, Inc. 573
4,703 Team, Inc.(d) 72
28,269 TransUnion 2,078
6,633 TriNet Group, Inc.(d) 450
6,460 TrueBlue, Inc.(d) 143
3,377 Universal Technical Institute, Inc.(d) 12
1,852 Vectrus, Inc.(d) 75
3,107 Viad Corp. 206
5,913 Weight Watchers International, Inc.(d) 113
6,546 WEX, Inc.(d) 1,362
1,423 Willdan Group, Inc.(d) 53
47,204 Worldpay, Inc. "A"(d) 5,785
--------
43,905
--------
COSMETICS/PERSONAL CARE (0.1%)
65,408 Avon Products, Inc.(d) 254
8,298 Edgewell Personal Care Co.(d) 223
3,912 elf Beauty, Inc.(d) 55
2,513 Inter Parfums, Inc. 167
1,899 Revlon, Inc. "A"(d),(e) 37
--------
736
--------
FOOD (1.2%)
136 AquaBounty Technologies, Inc.(d) -
10,478 B&G Foods, Inc.(e) 218
1,325 Beyond Meat, Inc.(d),(e) 213
733 Blue Apron Holdings, Inc. "A"(d) 5
2,423 Calavo Growers, Inc. 234
4,515 Cal-Maine Foods, Inc. 188
3,358 Chefs' Warehouse, Inc.(d) 118
13,709 Dean Foods Co. 13
28,126 Flowers Foods, Inc. 655
4,163 Fresh Del Monte Produce, Inc. 112
13,796 Hain Celestial Group, Inc.(d) 302
17,115 Hostess Brands, Inc.(d) 247
4,100 HQ Sustainable Maritime Industries, Inc.(a),(b),(c),(d) -
2,303 Ingles Markets, Inc. "A" 72
10,308 Ingredion, Inc. 850
2,381 J&J Snack Foods Corp. 383
1,422 John B Sanfilippo & Son, Inc. 113
2,973 Lancaster Colony Corp. 442
1,804 Lifeway Foods, Inc.(d) 7
408 Nathan's Famous, Inc. 32
16,065 Performance Food Group Co.(d) 643
8,014 Pilgrim's Pride Corp.(d) 203
10,214 Post Holdings, Inc.(d) 1,062
2,724 Rocky Mountain Chocolate Factory, Inc. 23
2,996 Sanderson Farms, Inc. 409
38 Seaboard Corp. 157
1,343 Seneca Foods Corp. "A"(d) 37
================================================================================
18 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
7,497 Simply Good Foods Co.(d) $ 181
5,521 SpartanNash Co. 64
18,031 Sprouts Farmers Market, Inc.(d) 341
2,947 Tootsie Roll Industries, Inc.(e) 109
8,575 TreeHouse Foods, Inc.(d) 464
32,633 U.S. Foods Holding Corp.(d) 1,167
7,684 United Natural Foods, Inc.(d) 69
1,095 Village Super Market, Inc. "A" 29
2,324 Weis Markets, Inc. 85
--------
9,247
--------
HEALTHCARE PRODUCTS (3.1%)
4,620 Accelerate Diagnostics, Inc.(d),(e) 106
12,884 Accuray, Inc.(d) 50
72 Adaptive Biotechnologies Corp.(d) 4
1,899 Alphatec Holdings, Inc.(d) 9
6,101 AngioDynamics, Inc.(d) 120
4,719 Apyx Medical Corp.(d) 32
5,376 AtriCure, Inc.(d) 160
224 Atrion Corp. 191
7,046 Avanos Medical, Inc. (d) 307
33,441 Avantor, Inc.(d) 638
151 Avedro, Inc.(d) 3
4,935 AxoGen, Inc.(d) 98
1,251 Axonics Modulation Technologies, Inc.(d) 51
2,225 Biolase, Inc.(d) 3
1,585 BioLife Solutions, Inc.(d) 27
5,848 Bio-Techne Corp. 1,219
5,151 BioTelemetry, Inc.(d) 248
15,403 Bruker Corp. 769
5,588 Cantel Medical Corp. 451
5,198 Cardiovascular Systems, Inc.(d) 223
5,864 CareDx, Inc.(d) 211
859 Celcuity, Inc.(d) 22
22,365 Cerus Corp.(d) 126
2,529 Chembio Diagnostics, Inc.(d) 15
9,504 Conformis, Inc.(d) 41
4,165 CONMED Corp. 356
20,807 Corindus Vascular Robotics, Inc.(d) 62
4,639 CryoLife, Inc.(d) 139
2,275 Cutera, Inc.(d) 47
259 Cytori Therapeutics, Inc.(d) -
4,303 CytoSorbents Corp.(d) 28
1,288 Endologix, Inc.(d) 9
1,417 FONAR Corp.(d) 31
7,790 GenMark Diagnostics, Inc.(d) 51
3,465 Genomic Health, Inc.(d) 202
4,900 Glaukos Corp.(d) 369
11,083 Globus Medical, Inc. "A"(d) 469
7,922 Haemonetics Corp.(d) 953
4,668 Hanger, Inc.(d) 89
10,357 Hill-Rom Holdings, Inc. 1,084
2,498 ICU Medical, Inc.(d) 629
2,775 Inogen, Inc.(d) 185
1,393 Inspire Medical Systems, Inc.(d) 85
9,111 Insulet Corp.(d) 1,088
4,501 Integer Holdings Corp.(d) 378
10,908 Integra LifeSciences Holdings Corp.(d) 609
4,481 Intersect ENT, Inc.(d) 102
4,891 Invacare Corp. 25
230 InVivo Therapeutics Holdings Corp.(d) -
3,444 iRhythm Technologies, Inc.(d) 272
15,938 IsoRay, Inc.(d) 7
5,944 Lantheus Holdings, Inc.(d) 168
2,222 LeMaitre Vascular, Inc. 62
7,380 LivaNova plc(d) 531
6,445 Luminex Corp. 133
7,354 Masimo Corp.(d) 1,094
6,734 Meridian Bioscience, Inc. 80
================================================================================
PORTFOLIO OF INVESTMENTS | 19
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
8,401 Merit Medical Systems, Inc.(d) $ 500
16 Microbot Medical, Inc.(d) -
914 Misonix, Inc.(d) 23
4,833 NanoString Technologies, Inc.(d) 147
5,169 Natus Medical, Inc.(d) 133
4,286 Nevro Corp.(d) 278
7,914 NuVasive, Inc.(d) 463
4,331 Nuvectra Corp.(d) 15
59,668 OPKO Health, Inc.(d),(e) 146
9,831 OraSure Technologies, Inc.(d) 91
2,789 Orthofix Medical, Inc.(d) 148
1,149 OrthoPediatrics Corp.(d) 45
13,000 Patterson Companies, Inc. 298
4,848 Penumbra, Inc.(d) 776
522 Pulse Biosciences, Inc.(d) 7
3,557 Quanterix Corp.(d) 120
5,240 Quidel Corp.(d) 311
6,366 Repligen Corp.(d) 547
4,605 Retractable Technologies, Inc.(d) 3
7,565 Rockwell Medical, Inc.(d),(e) 23
10,112 RTI Surgical Holdings, Inc.(d) 43
1,779 SeaSpine Holdings Corp.(d) 24
34 Shockwave Medical, Inc.(d) 2
4,449 Sientra, Inc.(d) 27
69 Silk Road Medical, Inc.(d) 3
4,334 STAAR Surgical Co.(d) 127
12,951 STERIS plc(d) 1,928
2,327 Surmodics, Inc.(d) 100
4,053 T2 Biosystems, Inc.(d),(e) 7
2,732 Tactile Systems Technology, Inc.(d) 156
8,784 Tandem Diabetes Care, Inc.(d) 567
26,908 TransEnterix, Inc.(d),(e) 37
662 Utah Medical Products, Inc. 63
5,658 Varex Imaging Corp.(d) 173
7,494 ViewRay, Inc.(d) 66
1,837 Viveve Medical, Inc.(d) 1
11,217 West Pharmaceutical Services, Inc. 1,404
17,910 Wright Medical Group N.V.(d) 534
--------
23,797
--------
HEALTHCARE-SERVICES (1.6%)
2,226 AAC Holdings, Inc.(d) 2
13,547 Acadia Healthcare Co., Inc.(d) 473
1,286 Addus HomeCare Corp.(d) 96
4,454 Amedisys, Inc.(d) 541
4,619 American Renal Associates Holdings, Inc.(d) 34
3,346 Apollo Medical Holdings, Inc.(d) 56
28,172 Brookdale Senior Living, Inc.(d) 203
4,670 Capital Senior Living Corp.(d) 24
22,205 Catalent, Inc.(d) 1,204
803 Catasys, Inc.(d) 15
1,597 Cellular Biomedicine Group, Inc.(d) 26
7,392 Charles River Laboratories International, Inc.(d) 1,049
2,486 Chemed Corp. 897
17,321 Community Health Systems, Inc.(d) 46
15,180 Encompass Health Corp. 962
7,613 Ensign Group, Inc. 433
16,250 Five Star Senior Living, Inc.(d) 8
5,313 Genesis Healthcare, Inc.(d) 7
13,493 Invitae Corp.(d) 317
1,163 Joint Corp(d) 21
4,473 LHC Group, Inc.(d) 535
3,731 Magellan Health, Inc.(d) 277
13,235 MEDNAX, Inc.(d) 334
3,998 Medpace Holdings, Inc.(d) 262
5,343 Miragen Therapeutics, Inc.(d) 11
================================================================================
20 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
9,558 Molina Healthcare, Inc.(d) $ 1,368
8,775 Natera, Inc.(d) 242
1,472 National HealthCare Corp. 119
1,066 Neuronetics, Inc.(d) 13
1,483 Providence Service Corp.(d) 85
1,320 Psychemedics Corp. 13
4,330 Quorum Health Corp.(d) 6
14,948 R1 RCM, Inc.(d) 188
5,911 RadNet, Inc.(d) 82
16,098 Select Medical Holdings Corp.(d) 255
1,254 SI-BONE, Inc.(d) 26
3,215 Surgery Partners, Inc.(d) 26
9,327 Syneos Health, Inc.(d) 477
10,667 Teladoc Health, Inc.(d) 708
12,189 Tenet Healthcare Corp.(d) 252
7,954 Tivity Health, Inc.(d) 131
3,526 Triple-S Management Corp. "B"(d) 84
1,955 U.S. Physical Therapy, Inc. 240
643 Vapotherm, Inc.(d) 15
--------
12,163
--------
HOUSEHOLD PRODUCTS/WARES (0.2%)
16,442 ACCO Brands Corp. 129
1,690 Central Garden & Pet Co.(d) 46
5,827 Central Garden & Pet Co. "A"(d) 144
1,461 CSS Industries, Inc. 7
3,822 Helen of Troy Ltd.(d) 499
5,075 Quanex Building Products Corp. 96
6,272 Spectrum Brands Holdings, Inc. 337
2,068 WD-40 Co. 329
--------
1,587
--------
PHARMACEUTICALS (3.1%)
6,998 AcelRx Pharmaceuticals, Inc.(d),(e) 18
3,985 Aclaris Therapeutics, Inc.(d) 9
4,307 Adamas Pharmaceuticals, Inc.(d) 27
4,970 Adamis Pharmaceuticals Corp.(d) 6
4,587 Aeglea BioTherapeutics, Inc.(d) 31
5,982 Aerie Pharmaceuticals, Inc.(d) 177
8,050 Agios Pharmaceuticals, Inc.(d) 402
5,551 Aimmune Therapeutics, Inc.(d) 116
2,216 Akcea Therapeutics, Inc.(d),(e) 52
15,341 Akebia Therapeutics, Inc.(d) 74
14,236 Akorn, Inc.(d) 73
1,272 Alector, Inc.(d) 24
7,469 Alimera Sciences, Inc.(d) 7
24,167 Alkermes plc(d) 545
48 Altimmune, Inc.(d) -
10,889 Amneal Pharmaceuticals, Inc.(d) 78
5,565 Amphastar Pharmaceuticals, Inc.(d) 117
8,902 Ampio Pharmaceuticals, Inc.(d),(e) 3
2,272 Anika Therapeutics, Inc.(d) 92
26,095 Antares Pharma, Inc.(d) 86
4,402 Aquinox Pharmaceuticals, Inc.(d) 10
33,612 Array BioPharma, Inc.(d) 1,557
964 Arvinas Holding Co., LLC(d) 21
9,157 Assertio Therapeutics, Inc.(d) 32
7,902 Athenex, Inc.(d) 156
702 Axcella Health, Inc.(d) 7
5,451 Axsome Therapeutics, Inc.(d),(e) 140
9,560 Bellicum Pharmaceuticals, Inc.(d) 16
8,009 BioDelivery Sciences International, Inc.(d) 37
83 Bio-Path Holdings, Inc.(d) 1
================================================================================
PORTFOLIO OF INVESTMENTS | 21
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
20,256 BioScrip, Inc.(d) $ 53
943 BioSpecifics Technologies Corp.(d) 56
1,248 Cassava Sciences, Inc.(d) 2
1,426 Catalyst Biosciences, Inc.(d) 11
12,442 Catalyst Pharmaceuticals, Inc.(d) 48
3,310 Chiasma, Inc.(d) 25
6,230 Chimerix, Inc.(d) 27
8,681 Clovis Oncology, Inc.(d) 129
7,514 Coherus Biosciences, Inc.(d) 166
3,841 Collegium Pharmaceutical, Inc.(d) 50
4,930 Conatus Pharmaceuticals, Inc.(d) 1
2,663 Concert Pharmaceuticals, Inc.(d) 32
6,152 Corbus Pharmaceuticals Holdings, Inc.(d),(e) 43
17,686 Corcept Therapeutics, Inc.(d) 197
1,517 CorMedix, Inc.(d) 14
3,721 Corvus Pharmaceuticals, Inc.(d) 14
4,500 Cumberland Pharmaceuticals, Inc.(d) 29
2,249 Cyclerion Therapeutics, Inc.(d) 26
8,453 Cytokinetics, Inc.(d) 95
5,933 Dermira, Inc.(d) 57
13,950 DexCom, Inc.(d) 2,090
8,127 Diplomat Pharmacy, Inc.(d) 49
1,914 Dova Pharmaceuticals, Inc.(d),(e) 27
19,556 Durect Corp.(d) 13
2,098 Eagle Pharmaceuticals, Inc.(d) 117
55,688 Elanco Animal Health, Inc.(d) 1,882
2,953 Eloxx Pharmaceuticals, Inc.(d) 29
2,510 Enanta Pharmaceuticals, Inc.(d) 212
30,244 Endo International plc(d) 125
3,740 Evofem Biosciences, Inc.(d) 25
305 Fibrocell Science, Inc.(d) 1
5,440 Flexion Therapeutics, Inc.(d),(e) 67
6,807 Fortress Biotech, Inc.(d) 10
4,551 G1 Therapeutics, Inc.(d) 140
8,143 Galectin Therapeutics, Inc.(d),(e) 34
8,542 Global Blood Therapeutics, Inc.(d) 449
6,465 Gritstone Oncology, Inc.(d) 72
151 Harpoon Therapeutics, Inc.(d) 2
2,567 Harrow Health, Inc.(d) 22
299 Heat Biologics, Inc.(d) -
130 Hemispherx Biopharma, Inc.(d) 1
15,468 Herbalife Nutrition Ltd.(d) 661
10,514 Heron Therapeutics, Inc.(d),(e) 195
963 Heska Corp.(d) 82
1,354 Histogenics Corp.(d) -
175 Hookipa Pharma, Inc.(d) 1
28,229 Horizon Therapeutics plc(d) 679
4,458 Intellia Therapeutics, Inc.(d) 73
8,486 Intra-Cellular Therapies, Inc.(d) 110
22,499 Ironwood Pharmaceuticals, Inc.(d) 246
9,315 Jazz Pharmaceuticals plc(d) 1,328
875 Jounce Therapeutics, Inc.(d) 4
21,253 Kadmon Holdings, Inc.(d) 44
7,313 Kala Pharmaceuticals, Inc.(d) 47
3,279 KalVista Pharmaceuticals, Inc.(d) 73
================================================================================
22 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
2,306 Kodiak Sciences, Inc.(d) $ 27
6,101 Kura Oncology, Inc.(d) 120
3,299 La Jolla Pharmaceutical Co.(d),(e) 31
4,569 Lannett Co., Inc.(d),(e) 28
3,491 Lifevantage Corp.(d) 45
5,425 Lipocine, Inc.(d) 11
1,287 Madrigal Pharmaceuticals, Inc.(d) 135
12,778 Mallinckrodt plc(d) 117
644 Mannatech, Inc. 11
17,465 MannKind Corp.(d),(e) 20
4,047 Marinus Pharmaceuticals, Inc.(d) 17
4,864 MediciNova, Inc.(d),(e) 47
1,950 Melinta Therapeutics, Inc.(d),(e) 13
376 Millendo Therapeutics, Inc.(d) 4
7,034 Minerva Neurosciences, Inc.(d) 40
5,272 Mirati Therapeutics, Inc.(d) 543
15,264 Momenta Pharmaceuticals, Inc.(d) 190
6,347 MyoKardia, Inc.(d) 318
2,089 Natural Grocers by Vitamin Cottage, Inc.(d) 21
1,354 Natural Health Trends Corp.(e) 11
1,314 Navidea Biopharmaceuticals, Inc.(d) 1
8,099 Neogen Corp.(d) 503
2,984 Neos Therapeutics, Inc.(d) 4
13,929 Neurocrine Biosciences, Inc.(d) 1,176
3,033 Ocular Therapeutix, Inc.(d) 13
1,488 Odonate Therapeutics, Inc.(d) 55
464 Ohr Pharmaceutical, Inc.(d) 2
1,169 Optinose, Inc.(d),(e) 8
9,148 Owens & Minor, Inc. 29
6,722 Pacira BioSciences, Inc.(d) 292
3,569 Paratek Pharmaceuticals, Inc.(d),(e) 14
1,873 PhaseBio Pharmaceuticals, Inc.(d) 25
2,839 Phibro Animal Health Corp. "A" 90
10,050 Portola Pharmaceuticals, Inc.(d) 273
8,881 PRA Health Sciences, Inc.(d) 881
7,938 Premier, Inc. "A"(d) 310
7,958 Prestige Consumer Healthcare, Inc.(d) 252
1,302 Principia Biopharma, Inc.(d) 43
10,933 Progenics Pharmaceuticals, Inc.(d) 67
1,296 Protagonist Therapeutics, Inc.(d) 16
1,374 Proteon Therapeutics, Inc.(d) 1
3,485 Proteostasis Therapeutics, Inc.(d) 3
4,317 Ra Pharmaceuticals, Inc.(d) 130
2,381 Reata Pharmaceuticals, Inc. "A"(d) 225
2,418 Recro Pharma, Inc.(d) 25
2,771 Regulus Therapeutics, Inc.(d) 3
59 Reliv International, Inc.(d) -
4,980 Revance Therapeutics, Inc.(d) 65
3,434 Rhythm Pharmaceuticals, Inc.(d) 76
10,608 Sarepta Therapeutics, Inc.(d) 1,612
46 SELLAS Life Sciences Group, Inc.(d) -
14,773 Senseonics Holdings, Inc.(d),(e) 30
3,552 Seres Therapeutics, Inc.(d),(e) 11
5,985 SIGA Technologies, Inc.(d) 34
15,778 Spectrum Pharmaceuticals, Inc.(d) 136
1,951 Spring Bank Pharmaceuticals, Inc.(d) 7
================================================================================
PORTFOLIO OF INVESTMENTS | 23
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
8,403 Supernus Pharmaceuticals, Inc.(d) $ 278
882 Sutro Biopharma, Inc.(d) 10
3,718 Syros Pharmaceuticals, Inc.(d) 34
6,994 Teligent, Inc.(d),(e) 4
9,610 Tetraphase Pharmaceuticals, Inc.(d) 5
10,091 TG Therapeutics, Inc.(d),(e) 87
30,858 TherapeuticsMD, Inc.(d),(e) 80
612 Titan Pharmaceuticals, Inc.(d) 1
15 Tonix Pharmaceuticals Holding Corp.(d) -
1,428 Tracon Pharmaceuticals, Inc.(d) 1
7,025 Trevena, Inc.(d),(e) 7
3,989 Tricida, Inc.(d) 157
1,384 Turning Point Therapeutics, Inc.(d) 56
2,297 USANA Health Sciences, Inc.(d) 182
9,363 Vanda Pharmaceuticals, Inc.(d) 132
739 Verrica Pharmaceuticals, Inc.(d) 9
1,750 VIVUS, Inc.(d) 7
3,638 Voyager Therapeutics, Inc.(d) 99
7,331 Xencor, Inc.(d) 300
3,416 Xeris Pharmaceuticals, Inc.(d) 39
2,989 Zafgen, Inc.(d) 4
6,376 Zogenix, Inc.(d) 305
2,555 Zynerba Pharmaceuticals, Inc.(d),(e) 35
--------
23,892
--------
Total Consumer, Non-cyclical 149,919
--------
DIVERSIFIED (0.0%)
-----------------
HOLDING COMPANIES-DIVERSIFIED (0.0%)
4,646 GTY Technology Holdings, Inc.(d) 32
--------
ENERGY (3.3%)
------------
COAL (0.1%)
2,935 Advanced Emissions Solutions, Inc. 37
2,741 Arch Coal, Inc. "A" 258
4,032 CONSOL Energy, Inc.(d) 107
1,809 Hallador Energy Co. 10
799 NACCO Industries, Inc. "A" 42
11,154 Peabody Energy Corp. 269
9,743 SunCoke Energy, Inc.(d) 87
6,981 Warrior Met Coal, Inc. 182
--------
992
--------
ENERGY-ALTERNATE SOURCES (0.4%)
3,787 Aemetis, Inc.(d) 3
15,034 Clean Energy Fuels Corp.(d) 40
10,066 Enphase Energy, Inc.(d) 183
11,589 First Solar, Inc.(d) 761
519 FuelCell Energy, Inc.(d) --
3,639 FutureFuel Corp. 43
5,207 Green Plains, Inc. 56
57 Ocean Power Technologies, Inc.(d) -
6,461 Pacific Ethanol, Inc.(d) 5
13,384 Pattern Energy Group, Inc. "A" 309
38,979 Plug Power, Inc.(d),(e) 88
5,292 Renewable Energy Group, Inc.(d) 84
921 REX American Resources Corp.(d) 67
6,962 SolarEdge Technologies, Inc.(d) 435
11,094 Sunrun, Inc.(d) 208
4,851 Sunworks, Inc.(d),(e) 3
1 Taronis Technologies, Inc.(d) -
11,381 TerraForm Power, Inc. "A" 163
3,092 TPI Composites, Inc.(d) 76
7,224 Vivint Solar, Inc.(d) 53
--------
2,577
--------
OIL & GAS (1.5%)
26,599 Abraxas Petroleum Corp.(d) 27
460 Adams Resources & Energy, Inc. 16
================================================================================
24 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
14,400 Alta Mesa Resources, Inc. "A"(d),(e) $ 2
35,800 Antero Resources Corp.(d) 198
5,719 Approach Resources, Inc.(d),(e) 2
4,904 Barnwell Industries, Inc.(d) 6
2,487 Berry Petroleum Corp. 26
2,943 Bonanza Creek Energy, Inc.(d) 61
351 Brigham Minerals, Inc. "A"(d) 8
6,858 California Resources Corp.(d),(e) 135
36,839 Callon Petroleum Co.(d) 243
13,124 Carrizo Oil & Gas, Inc.(d) 132
28,543 Centennial Resource Development, Inc. "A"(d) 217
4,274 Chaparral Energy, Inc. "A"(d) 20
164,547 Chesapeake Energy Corp.(d),(e) 321
28,109 CNX Resources Corp.(d) 205
2,950 Comstock Resources, Inc.(d),(e) 16
4,568 Contango Oil & Gas Co.(d) 8
13,216 Continental Resources, Inc.(d) 556
4,506 CVR Energy, Inc. 225
10,805 Delek U.S. Holdings, Inc. 438
68,813 Denbury Resources, Inc.(d) 85
9,726 Diamond Offshore Drilling, Inc.(d),(e) 86
5,174 Earthstone Energy, Inc. "A"(d) 32
29,611 Ensco Rowan plc "A"(e) 253
39,309 EQT Corp. 621
4,825 Evolution Petroleum Corp. 35
17,844 Extraction Oil & Gas, Inc.(d),(e) 77
5,326 Falcon Minerals Corp.(d) 45
1,316 Goodrich Petroleum Corp.(d) 17
19,640 Gulfport Energy Corp.(d) 96
22,003 Halcon Resources Corp.(d),(e) 4
537 Harvest Natural Resources, Inc.(a),(b),(c),(d) -
16,900 HighPoint Resources Corp.(d) 31
5,104 Houston American Energy Corp.(d) 1
299 Isramco, Inc.(d) 35
8,756 Jagged Peak Energy, Inc.(d) 72
36,215 Kosmos Energy Ltd. 227
21,343 Laredo Petroleum, Inc.(d) 62
9,585 Lilis Energy, Inc.(d) 6
5,226 Lonestar Resources U.S., Inc. "A"(d) 12
14,735 Magnolia Oil & Gas Corp. "A"(d) 171
1,425 Mammoth Energy Services, Inc. 10
15,618 Matador Resources Co.(d) 310
3,505 Midstates Petroleum Co., Inc.(d) 21
914 Montage Resources Corp.(d),(e) 6
24,316 Murphy Oil Corp. 599
4,595 Murphy USA, Inc.(d) 386
52,329 Nabors Industries Ltd. 152
36,851 Noble Corp. plc(d) 69
26,973 Northern Oil and Gas, Inc.(d) 52
40,499 Oasis Petroleum, Inc.(d) 230
3,182 Panhandle Oil and Gas, Inc. "A" 41
4,280 Par Pacific Holdings, Inc.(d) 88
40,727 Parsley Energy, Inc. "A"(d) 774
18,364 PBF Energy, Inc. "A" 575
10,482 PDC Energy, Inc.(d) 378
2,039 Penn Virginia Corp.(d) 63
36,814 QEP Resources, Inc.(d) 266
================================================================================
PORTFOLIO OF INVESTMENTS | 25
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
31,918 Range Resources Corp. $ 223
8,085 Ring Energy, Inc.(d) 26
3,394 Roan Resources, Inc.(d) 6
5,487 SandRidge Energy, Inc.(d) 38
1,592 SilverBow Resources, Inc.(d) 22
15,834 SM Energy Co. 198
87,220 Southwestern Energy Co.(d) 276
36,861 SRC Energy, Inc.(d) 183
2,765 Talos Energy, Inc.(d) 66
16,575 Tellurian, Inc.(d),(e) 130
15,877 Torchlight Energy Resources, Inc.(d),(e) 23
74,641 Transocean Ltd.(d) 478
4,189 Trecora Resources(d) 40
30,594 Ultra Petroleum Corp.(d),(e) 6
8,312 Unit Corp.(d) 74
10,701 VAALCO Energy, Inc.(d) 18
16,320 W&T Offshore, Inc.(d) 81
13,888 Whiting Petroleum Corp.(d) 259
60,467 WPX Energy, Inc.(d) 696
9,032 Zion Oil & Gas, Inc.(d),(e) 3
--------
11,696
--------
OIL & GAS SERVICES (0.7%)
11,713 Apergy Corp.(d) 393
21,300 Archrock, Inc. 226
3,146 Basic Energy Services, Inc.(d) 6
10,271 C&J Energy Services, Inc.(d) 121
2,969 CARBO Ceramics, Inc.(d) 4
6,788 Core Laboratories N.V. 355
5,573 Dawson Geophysical Co.(d) 14
1,874 DMC Global, Inc. 119
5,539 Dril-Quip, Inc.(d) 266
2,473 Era Group, Inc.(d) 21
5,172 Exterran Corp.(d) 73
8,081 Flotek Industries, Inc.(d),(e) 27
11,673 Forum Energy Technologies, Inc.(d) 40
9,047 Frank's International N.V.(d) 49
5,613 FTS International, Inc.(d) 31
2,032 Geospace Technologies Corp.(d) 31
2,513 Gulf Island Fabrication, Inc.(d) 18
22,690 Helix Energy Solutions Group, Inc.(d) 196
6,135 Independence Contract Drilling, Inc.(d) 10
1,418 ION Geophysical Corp.(d) 11
7,874 Keane Group, Inc.(d) 53
2,315 Key Energy Services, Inc.(d),(e) 5
3,157 KLX Energy Services Holdings, Inc.(d) 64
5,119 Liberty Oilfield Services, Inc. "A"(e) 83
4,118 Matrix Service Co.(d) 83
28,929 McDermott International, Inc.(d),(e) 279
4,047 Mitcham Industries, Inc.(d) 16
12,712 MRC Global, Inc.(d) 218
2,187 Natural Gas Services Group, Inc.(d) 36
2,191 NCS Multistage Holdings, Inc.(d) 8
13,319 Newpark Resources, Inc.(d) 99
2,240 Nine Energy Service, Inc.(d) 39
16,086 NOW, Inc.(d) 237
14,799 Oceaneering International, Inc.(d) 302
9,156 Oil States International, Inc.(d) 168
31,860 Patterson-UTI Energy, Inc. 367
================================================================================
26 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
13,617 Pioneer Energy Services Corp.(d) $ 3
11,362 ProPetro Holding Corp.(d) 235
9,161 RPC, Inc. 66
7,949 Select Energy Services, Inc. "A"(d) 92
2,218 Smart Sand, Inc.(d) 5
4,522 Solaris Oilfield Infrastructure, Inc. "A" 68
22,991 Superior Energy Services, Inc.(d) 30
23,714 TETRA Technologies, Inc.(d) 39
5,345 Thermon Group Holdings, Inc.(d) 137
12,423 U.S. Silica Holdings, Inc. 159
9,414 U.S. Well Services, Inc.(d) 45
--------
4,947
--------
PIPELINES (0.6%)
31,540 Antero Midstream Corp.(e) 361
33,787 Cheniere Energy, Inc.(d) 2,313
31,612 Equitrans Midstream Corp.(d) 623
10,186 SemGroup Corp. "A" 122
34,606 Targa Resources Corp. 1,359
--------
4,778
--------
Total Energy 24,990
--------
FINANCIAL (24.4%)
----------------
BANKS (5.9%)
772 1st Constitution Bancorp 14
2,766 1st Source Corp. 128
841 ACNB Corp. 33
2,075 Allegiance Bancshares, Inc.(d) 69
2,285 Amalgamated Bank "A" 40
1,447 American National Bankshares, Inc. 56
6,026 Ameris Bancorp 236
2,125 Ames National Corp. 58
1,807 Arrow Financial Corp. 63
25,035 Associated Banc-Corp 529
4,653 Atlantic Capital Bancshares, Inc.(d) 80
11,052 Atlantic Union Bancshares Corp. 390
240 Auburn National Bancorp, Inc. 8
2,708 BancFirst Corp. 151
2,345 Bancorp of New Jersey, Inc.(d) 33
9,211 Bancorp, Inc.(d) 82
14,078 BancorpSouth Bank 409
2,129 Bank of Commerce Holdings 23
6,261 Bank of Hawaii Corp. 519
1,852 Bank of Marin Bancorp 76
794 Bank of Princeton 24
18,890 Bank OZK 568
520 Bank7 Corp.(d) 10
15,334 BankUnited, Inc. 517
866 Bankwell Financial Group, Inc. 25
4,783 Banner Corp. 259
2,588 Bar Harbor Bankshares 69
3,436 BCB Bancorp, Inc. 48
4,857 BOK Financial Corp. 367
3,096 Bridge Bancorp, Inc. 91
2,983 Bryn Mawr Bank Corp. 111
1,702 Business First Bancshares, Inc. 43
2,432 Byline Bancorp, Inc.(d) 47
452 C&F Financial Corp. 25
18,314 Cadence BanCorp 381
506 Cambridge Bancorp 41
2,080 Camden National Corp. 95
356 Capital Bancorp, Inc.(d) 4
2,343 Capital City Bank Group, Inc. 58
1,129 Capstar Financial Holdings, Inc. 17
2,748 Carolina Financial Corp. 96
3,223 Carter Bank & Trust(d) 64
12,024 Cathay General Bancorp 432
599 CB Financial Services, Inc. 14
14,959 CenterState Bank Corp. 345
================================================================================
PORTFOLIO OF INVESTMENTS | 27
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
3,947 Central Pacific Financial Corp. $ 118
1,418 Central Valley Community Bancorp 30
547 Century Bancorp, Inc. "A" 48
10,846 Chemical Financial Corp. 446
529 Chemung Financial Corp. 26
14,721 CIT Group, Inc. 773
2,833 Citizens & Northern Corp. 75
2,469 City Holding Co. 188
1,968 Civista Bancshares, Inc. 44
2,894 CNB Financial Corp. 82
1,298 Codorus Valley Bancorp, Inc. 30
463 Colony Bankcorp, Inc. 8
11,464 Columbia Banking System, Inc. 415
14,731 Commerce Bancshares, Inc. 879
7,777 Community Bank System, Inc. 512
629 Community Financial Corp. 21
2,821 Community Trust Bancorp, Inc. 119
4,852 ConnectOne Bancorp, Inc. 110
771 County Bancorp, Inc. 13
9,735 Cullen/Frost Bankers, Inc. 912
4,665 Customers Bancorp, Inc.(d) 98
15,723 CVB Financial Corp. 331
464 DNB Financial Corp. 21
4,741 Eagle Bancorp, Inc. 257
21,834 East West Bancorp, Inc. 1,021
1,672 Enterprise Bancorp, Inc. 53
3,316 Enterprise Financial Services Corp. 138
2,038 Equity Bancshares, Inc. "A"(d) 54
750 Esquire Financial Holdings, Inc.(d) 19
666 Evans Bancorp, Inc. 25
1,226 Farmers & Merchants Bancorp, Inc. 36
3,624 Farmers National Banc Corp. 54
2,142 FB Financial Corp. 78
441 Fidelity D&D Bancorp, Inc. 30
3,025 Fidelity Southern Corp. 94
2,741 Financial Institutions, Inc. 80
4,500 First Bancorp 164
34,222 First BanCorp 378
2,552 First Bancorp, Inc. 69
2,436 First Bancshares, Inc. 74
1,775 First Bank 21
6,358 First Busey Corp. 168
1,147 First Business Financial Services, Inc. 27
1,983 First Choice Bancorp 45
1,281 First Citizens BancShares, Inc. "A" 577
14,063 First Commonwealth Financial Corp. 189
3,087 First Community Bankshares, Inc. 104
1,590 First Community Corp. 29
15,366 First Financial Bancorp 372
20,480 First Financial Bankshares, Inc. 631
2,125 First Financial Corp. 85
5,061 First Foundation, Inc. 68
484 First Guaranty Bancshares, Inc. 10
13,884 First Hawaiian, Inc. 359
48,163 First Horizon National Corp. 719
1,101 First Internet Bancorp 24
5,887 First Interstate BancSystem, Inc. "A" 233
7,376 First Merchants Corp. 280
1,269 First Mid Bancshares, Inc. 44
15,829 First Midwest Bancorp, Inc. 324
1,641 First Northwest Bancorp 27
4,315 First of Long Island Corp. 87
1,412 First United Corp. 28
4,408 Flagstar Bancorp, Inc. 146
49,170 FNB Corp. 579
2,038 FNCB Bancorp, Inc. 16
2,306 Franklin Financial Network, Inc. 64
572 Franklin Financial Services Corp. 22
================================================================================
28 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
25,783 Fulton Financial Corp. $ 422
294 FVCBankcorp, Inc.(d) 6
3,628 German American Bancorp, Inc. 109
12,854 Glacier Bancorp, Inc. 521
2,007 Great Southern Bancorp, Inc. 120
9,153 Great Western Bancorp, Inc. 327
1,322 Guaranty Bancshares, Inc. 41
13,077 Hancock Whitney Corp. 524
5,135 Hanmi Financial Corp. 114
6,258 HarborOne Bancorp, Inc.(d) 117
718 Hawthorn Bancshares, Inc. 19
4,509 Heartland Financial USA, Inc. 202
5,501 Heritage Commerce Corp. 67
4,642 Heritage Financial Corp. 137
11,065 Hilltop Holdings, Inc. 235
23,614 Home BancShares, Inc. 455
4,131 HomeStreet, Inc.(d) 122
18,391 Hope Bancorp, Inc. 253
5,895 Horizon Bancorp, Inc. 96
2,886 Howard Bancorp, Inc.(d) 44
8,310 IBERIABANK Corp. 630
5,366 Independent Bank Corp. 409
4,221 Independent Bank Corp. 92
5,337 Independent Bank Group, Inc. 293
8,325 International Bancshares Corp. 314
1,219 Investar Holding Corp. 29
14,002 Kearny Financial Corp. 186
6,993 Lakeland Bancorp, Inc. 113
4,198 Lakeland Financial Corp. 197
1,228 LCNB Corp. 23
6,540 LegacyTexas Financial Group, Inc. 266
1,229 Limestone Bancorp, Inc.(d) 19
4,074 Live Oak Bancshares, Inc. 70
1,900 Luther Burbank Corp. 21
4,051 Macatawa Bank Corp. 42
2,452 Mackinac Financial Corp. 39
934 MainStreet Bancshares, Inc.(d) 21
3,026 MBT Financial Corp. 30
3,191 Mercantile Bank Corp. 104
2,367 Merchants Bancorp 40
886 Metropolitan Bank Holding Corp.(d) 39
1,274 Mid Penn Bancorp, Inc. 32
463 Middlefield Banc Corp. 19
2,571 Midland States Bancorp, Inc. 69
2,061 MidSouth Bancorp, Inc. 24
1,932 MidWestOne Financial Group, Inc. 54
2,050 MVB Financial Corp. 35
4,215 National Bank Holdings Corp. "A" 153
1,007 National Bankshares, Inc. 39
6,847 NBT Bancorp, Inc. 257
1,114 Nicolet Bankshares, Inc.(d) 69
1,140 Northeast Bank(d) 31
1,757 Northrim BanCorp, Inc. 63
1,137 Norwood Financial Corp. 40
501 Oak Valley Bancorp 10
7,031 OFG Bancorp 167
1,099 Ohio Valley Banc Corp. 42
2,329 Old Line Bancshares, Inc. 62
22,847 Old National Bancorp 379
4,887 Old Second Bancorp, Inc. 62
3,144 Opus Bank 66
61 Origin Bancorp, Inc. 2
2,093 Orrstown Financial Services, Inc. 46
1,763 Pacific Mercantile Bancorp(d) 15
18,146 PacWest Bancorp 705
2,061 Park National Corp. 205
1,216 Parke Bancorp, Inc. 29
3,534 PCSB Financial Corp. 72
2,519 Peapack Gladstone Financial Corp. 71
1,023 Penns Woods Bancorp, Inc. 46
1,646 Peoples Bancorp of North Carolina, Inc. 49
================================================================================
PORTFOLIO OF INVESTMENTS | 29
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
3,210 Peoples Bancorp, Inc. $ 104
947 Peoples Financial Services Corp. 43
2,781 People's Utah Bancorp 82
11,049 Pinnacle Financial Partners, Inc. 635
2,411 Ponce de Leon Federal Bank(d) 34
14,771 Popular, Inc. 801
2,333 Preferred Bank 110
1,118 Premier Financial Bancorp, Inc. 17
10,183 Prosperity Bancshares, Inc. 673
1,344 Provident Bancorp, Inc.(d) 38
2,381 QCR Holdings, Inc. 83
1,574 RBB Bancorp 30
1,600 Reliant Bancorp, Inc. 38
7,257 Renasant Corp. 261
1,667 Republic Bancorp, Inc. "A" 83
9,649 Republic First Bancorp, Inc.(d) 47
5,620 S&T Bancorp, Inc. 211
5,313 Sandy Spring Bancorp, Inc. 185
807 SB One Bancorp 18
7,343 Seacoast Banking Corp. of Florida(d) 187
4,017 Select Bancorp, Inc.(d) 46
7,126 ServisFirst Bancshares, Inc. 244
2,306 Shore Bancshares, Inc. 38
2,508 Sierra Bancorp 68
8,414 Signature Bank 1,017
13,788 Simmons First National Corp. "A" 321
1,070 SmartFinancial, Inc.(d) 23
5,405 South State Corp. 398
932 Southern First Bancshares, Inc.(d) 36
3,026 Southern National Bancorp of Virginia, Inc. 46
5,304 Southside Bancshares, Inc. 172
1,435 Spirit of Texas Bancshares, Inc.(d) 32
524 Standard AVB Financial Corp. 14
2,100 Sterling Bancorp, Inc. 21
2,963 Stock Yards Bancorp, Inc. 107
2,289 Summit Financial Group, Inc. 61
23,570 Synovus Financial Corp. 825
25,707 TCF Financial Corp. 534
7,746 Texas Capital Bancshares, Inc.(d) 475
2,027 Tompkins Financial Corp. 165
9,809 Towne Bank 268
4,037 TriCo Bancshares 153
3,072 TriState Capital Holdings, Inc.(d) 66
4,276 Triumph Bancorp, Inc.(d) 124
14,741 TrustCo Bank Corp. 117
10,227 Trustmark Corp. 340
1,279 Two River Bancorp 18
6,940 UMB Financial Corp. 457
32,776 Umpqua Holdings Corp. 544
503 Union Bankshares, Inc. 19
1,255 United Bancorp, Inc. 14
15,601 United Bankshares, Inc. 579
12,079 United Community Banks, Inc. 345
4,213 United Security Bancshares 48
1,064 Unity Bancorp, Inc. 24
4,547 Univest Financial Corp 119
50,672 Valley National Bancorp 546
7,193 Veritex Holdings, Inc. 187
4,301 Walker & Dunlop, Inc. 229
2,472 Washington Trust Bancorp, Inc. 129
14,117 Webster Financial Corp. 674
8,387 WesBanco, Inc. 323
3,190 West Bancorporation, Inc. 68
4,025 Westamerica Bancorporation 248
14,326 Western Alliance Bancorp(d) 641
================================================================================
30 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
4,939 Western New England Bancorp, Inc. $ 46
8,746 Wintrust Financial Corp. 640
--------
45,059
--------
DIVERSIFIED FINANCIAL SERVICES (2.8%)
15,874 Air Lease Corp. 656
8,419 Aircastle Ltd. 179
60,634 Ally Financial, Inc.(f) 1,879
1,818 Altisource Portfolio Solutions S.A.(d) 36
9,973 Ares Management Corp. "A" 261
8,027 Artisan Partners Asset Management, Inc. "A" 221
394 Ashford, Inc.(d) 13
402 Associated Capital Group, Inc. "A" 15
1,501 Asta Funding, Inc.(d) 11
251 Atlanticus Holdings Corp.(d) 1
3,079 B. Riley Financial, Inc. 64
40,061 BGC Partners, Inc. "A" 210
7,750 Blucora, Inc.(d) 235
12,591 Boston Private Financial Holdings, Inc. 152
2,427 CBTX, Inc. 68
3,036 Cohen & Steers, Inc. 156
6,987 Columbia Financial, Inc.(d) 105
5,716 Consumer Portfolio Services, Inc.(d) 22
4,324 Cowen, Inc. "A"(d) 74
1,847 Credit Acceptance Corp.(d) 894
1,905 Curo Group Holdings Corp.(d) 21
6,671 Deluxe Corp. 271
522 Diamond Hill Investment Group, Inc. 74
17,419 Eaton Vance Corp. 751
3,609 Elevate Credit, Inc.(d) 15
3,846 Encore Capital Group, Inc.(d) 130
4,701 Enova International, Inc.(d) 108
6,350 Evercore, Inc. "A" 562
1,321 Federal Agricultural Mortgage Corp. "C" 96
14,961 Federated Investors, Inc. "B" 486
2,420 Focus Financial Partners, Inc. "A"(d) 66
3,488 GAIN Capital Holdings, Inc. 14
1,570 GAMCO Investors, Inc. "A" 30
4,587 Great Elm Capital Group, Inc.(d) 20
2,762 Greenhill & Co., Inc. 38
2,610 Hamilton Lane, Inc. "A" 149
8,464 Hannon Armstrong Sustainable Infrastructure Capital, Inc. 238
5,248 Houlihan Lokey, Inc. 234
1,830 Impac Mortgage Holdings, Inc.(d) 6
11,521 Interactive Brokers Group, Inc. "A" 624
2,537 INTL. FCStone, Inc.(d) 100
25,865 Janus Henderson Group plc 553
20,288 Ladenburg Thalmann Financial Services, Inc. 70
20,140 Lazard Ltd. "A" 693
13,239 Legg Mason, Inc. 507
70,999 LendingClub Corp.(d) 233
1,141 LendingTree, Inc.(d) 479
12,746 LPL Financial Holdings, Inc. 1,040
1,640 Marlin Business Services Corp. 41
4,452 Meta Financial Group, Inc. 125
582 MMA Capital Holdings, Inc.(d) 19
7,330 Moelis & Co. "A" 256
4,610 Mr Cooper Group, Inc.(d) 37
32,696 Navient Corp. 446
3,474 Nelnet, Inc. "A" 206
16,212 Ocwen Financial Corp.(d) 34
6,601 On Deck Capital, Inc.(d) 27
11,075 OneMain Holdings, Inc. 374
1,705 Oppenheimer Holdings, Inc. "A" 46
================================================================================
PORTFOLIO OF INVESTMENTS | 31
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
4,145 Paysign, Inc.(d) $ 55
9,348 PennyMac Financial Services, Inc. 207
2,366 Piper Jaffray Companies 176
2,864 PJT Partners, Inc. "A" 116
7,260 PRA Group, Inc.(d) 204
3,173 Pzena Investment Management, Inc. "A" 27
1,727 Regional Management Corp.(d) 46
17,383 Santander Consumer USA Holdings, Inc. 416
19,568 SEI Investments Co. 1,098
67,458 SLM Corp. 656
11,050 Stifel Financial Corp. 653
40,544 TD Ameritrade Holding Corp. 2,024
6,134 Tradeweb Markets, Inc. "A" 269
4,302 U.S. Global Investors, Inc. "A" 8
9,943 Virtu Financial, Inc. "A" 217
1,153 Virtus Investment Partners, Inc. 124
12,521 Waddell & Reed Financial, Inc. "A" 209
5,921 WageWorks, Inc.(d) 301
1,466 Westwood Holdings Group, Inc. 52
17,278 WisdomTree Investments, Inc. 107
1,064 World Acceptance Corp.(d) 175
--------
21,611
--------
INSURANCE (4.6%)
2,213 Alleghany Corp.(d) 1,507
6,380 Ambac Financial Group, Inc.(d) 108
13,679 American Equity Investment Life Holding Co. 372
10,644 American Financial Group, Inc. 1,091
1,402 American National Insurance Co. 163
3,104 AMERISAFE, Inc. 198
61,519 Arch Capital Group Ltd.(d) 2,281
5,252 Argo Group International Holdings Ltd. 389
15,520 Assured Guaranty Ltd. 653
19,011 Athene Holding Ltd. "A"(d) 819
2,927 Atlantic American Corp. 7
36,836 AXA Equitable Holdings, Inc. 770
12,768 Axis Capital Holdings Ltd. 762
17,005 Brighthouse Financial, Inc.(d) 624
35,892 Brown & Brown, Inc. 1,202
8,213 Citizens, Inc.(d),(e) 60
4,047 CNA Financial Corp. 190
25,239 CNO Financial Group, Inc. 421
2,145 Crawford & Co. "A" 23
3,693 Crawford & Co. "B" 34
2,337 Donegal Group, Inc. "A" 36
2,920 eHealth, Inc.(d) 251
1,652 EMC Insurance Group, Inc. 60
5,205 Employers Holdings, Inc. 220
2,224 Enstar Group Ltd.(d) 388
3,061 Erie Indemnity Co. "A" 778
15,024 Essent Group Ltd.(d) 706
1,316 FBL Financial Group, Inc. "A" 84
2,537 FedNat Holding Co. 36
28,600 FGL Holdings 240
41,438 Fidelity National Financial, Inc. 1,670
16,810 First American Financial Corp. 903
81,462 Genworth Financial, Inc. "A"(d) 302
1,701 Global Indemnity Ltd. 53
1,663 Goosehead Insurance, Inc. "A" 79
5,039 Greenlight Capital Re Ltd. "A"(d) 43
1,470 Hallmark Financial Services, Inc.(d) 21
================================================================================
32 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
6,160 Hanover Insurance Group, Inc. $ 790
1,768 HCI Group, Inc. 72
2,459 Health Insurance Innovations, Inc. "A"(d),(e) 64
4,282 Heritage Insurance Holdings, Inc. 66
6,108 Horace Mann Educators Corp. 246
1,003 Independence Holding Co. 39
214 Investors Title Co. 36
4,613 James River Group Holdings Ltd. 216
9,575 Kemper Corp. 826
1,272 Kingstone Companies, Inc. 11
2,771 Kinsale Capital Group, Inc. 253
11,098 Maiden Holdings Ltd. 7
2,090 Markel Corp.(d) 2,277
12,453 MBIA, Inc.(d) 116
4,216 Mercury General Corp. 263
53,186 MGIC Investment Corp.(d) 699
9,620 National General Holdings Corp. 221
376 National Western Life Group, Inc. "A" 97
1,366 NI Holdings, Inc.(d) 24
9,420 NMI Holdings, Inc. "A"(d) 267
42,724 Old Republic International Corp. 956
6,332 Primerica, Inc. 760
7,994 ProAssurance Corp. 289
2,261 Protective Insurance Corp. "B" 39
31,783 Radian Group, Inc. 726
9,550 Reinsurance Group of America, Inc. 1,490
6,505 RenaissanceRe Holdings Ltd. 1,158
5,988 RLI Corp. 513
2,336 Safety Insurance Group, Inc. 222
9,043 Selective Insurance Group, Inc. 677
2,450 State Auto Financial Corp. 86
3,587 Stewart Information Services Corp. 145
12,602 Third Point Reinsurance Ltd.(d) 130
2,551 Tiptree, Inc. 16
3,225 Trupanion, Inc.(d),(e) 117
3,306 United Fire Group, Inc. 160
3,080 United Insurance Holdings Corp. 44
4,997 Universal Insurance Holdings, Inc. 139
22,019 Voya Financial, Inc. 1,218
486 White Mountains Insurance Group Ltd. 496
22,141 WR Berkley Corp. 1,460
--------
34,975
--------
INVESTMENT COMPANIES (0.0%)
13,387 Altus Midstream Co. "A"(d) 50
3,697 Ellington Financial, Inc. 66
1,535 Entasis Therapeutics Holdings, Inc.(d) 10
1,486 Rafael Holdings, Inc. "B"(d) 43
--------
169
--------
PRIVATE EQUITY (0.4%)
18,952 Kennedy-Wilson Holdings, Inc. 390
81,834 KKR & Co., Inc. "A" 2,068
3,248 NexPoint Residential Trust, Inc. 135
4,085 Safeguard Scientifics, Inc.(d) 49
1,800 Victory Capital Holdings, Inc. "A"(d) 31
--------
2,673
--------
REAL ESTATE (0.5%)
10,584 Alexander & Baldwin, Inc. 245
1,631 American Realty Investors, Inc.(d) 22
1,011 Consolidated-Tomoka Land Co. 60
================================================================================
PORTFOLIO OF INVESTMENTS | 33
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
4,711 eXp World Holdings, Inc.(d),(e) $ 53
1,509 Forestar Group, Inc.(d) 30
1,209 FRP Holdings, Inc.(d) 67
1,073 Griffin Industrial Realty, Inc. 38
5,858 HFF, Inc. "A" 266
5,994 Howard Hughes Corp.(d) 742
7,034 Jones Lang LaSalle, Inc. 990
3,803 Marcus & Millichap, Inc.(d) 117
2,281 Maui Land & Pineapple Co., Inc.(d) 24
3,639 McGrath RentCorp 226
23,316 Newmark Group, Inc. "A" 209
2,929 RE/MAX Holdings, Inc. "A" 90
19,073 Realogy Holdings Corp.(e) 138
10,403 Redfin Corp.(d) 187
1,340 RMR Group, Inc. "A" 63
1,418 Safehold, Inc. 43
1,020 Stratus Properties, Inc.(d) 33
1,093 Trinity Place Holdings, Inc.(d) 4
--------
3,647
--------
REITS (9.4%)
12,259 Acadia Realty Trust 336
4,544 AG Mortgage Investment Trust, Inc. 72
82,692 AGNC Investment Corp. 1,391
5,661 Agree Realty Corp. 363
553 Alexander's, Inc. 205
5,835 American Assets Trust, Inc. 275
20,953 American Campus Communities, Inc. 967
6,924 American Finance Trust, Inc. 75
39,402 American Homes 4 Rent "A" 958
27,245 Americold Realty Trust 883
215,962 Annaly Capital Management, Inc. 1,972
16,369 Anworth Mortgage Asset Corp. 62
17,452 Apollo Commercial Real Estate Finance, Inc. 321
32,853 Apple Hospitality REIT, Inc. 521
9,679 Arbor Realty Trust, Inc. 117
4,921 Ares Commercial Real Estate Corp. 73
4,113 Arlington Asset Investment Corp. "A" 28
7,680 Armada Hoffler Properties, Inc. 127
8,901 ARMOUR Residential REIT, Inc. 166
13,385 Ashford Hospitality Trust, Inc. 40
18,813 Blackstone Mortgage Trust, Inc. "A" 669
4,733 Bluerock Residential Growth REIT, Inc. 56
5,078 Braemar Hotels & Resorts, Inc. 50
27,407 Brandywine Realty Trust 392
45,505 Brixmor Property Group, Inc. 814
3,601 BRT Apartments Corp. 51
14,891 Camden Property Trust 1,554
13,401 Capstead Mortgage Corp. 112
13,641 CareTrust REIT, Inc. 324
7,387 CatchMark Timber Trust, Inc. "A" 77
25,400 CBL & Associates Properties, Inc.(e) 26
12,109 Cedar Realty Trust, Inc. 32
6,442 Chatham Lodging Trust 122
1,626 Cherry Hill Mortgage Investment Corp. 26
8,980 Chesapeake Lodging Trust 255
28,744 Chimera Investment Corp. 542
391 CIM Commercial Trust Corp. 8
5,743 City Office REIT, Inc. 69
3,981 Clipper Realty, Inc. 45
75,156 Colony Capital, Inc. 376
12,756 Colony Credit Real Estate, Inc. 198
18,064 Columbia Property Trust, Inc. 375
================================================================================
34 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
2,796 Community Healthcare Trust, Inc. $ 110
151 Condor Hospitality Trust, Inc. 1
17,915 CoreCivic, Inc. 372
2,295 CorEnergy Infrastructure Trust, Inc.(e) 91
6,237 CorePoint Lodging, Inc. 77
5,628 CoreSite Realty Corp. 648
17,640 Corporate Office Properties Trust 465
22,192 Cousins Properties, Inc. 803
27,793 CubeSmart 929
16,415 CyrusOne, Inc. 948
31,613 DiamondRock Hospitality Co. 327
24,612 Douglas Emmett, Inc. 981
3,145 Dynex Capital, Inc. 53
9,266 Easterly Government Properties, Inc. 168
5,483 EastGroup Properties, Inc. 636
21,744 Empire State Realty Trust, Inc. "A" 322
11,544 EPR Properties 861
18,620 Equity Commonwealth 606
13,647 Equity LifeStyle Properties, Inc. 1,656
4,638 Essential Properties Realty Trust, Inc. 93
5,570 Exantas Capital Corp. 63
5,867 Farmland Partners, Inc. 41
19,315 First Industrial Realty Trust, Inc. 710
10,273 Four Corners Property Trust, Inc. 281
15,738 Franklin Street Properties Corp. 116
7,473 Front Yard Residential Corp. 91
31,105 Gaming and Leisure Properties, Inc. 1,213
18,701 GEO Group, Inc. 393
5,204 Getty Realty Corp. 160
5,033 Gladstone Commercial Corp. 107
1,785 Gladstone Land Corp. 21
2,946 Global Medical REIT, Inc. 31
11,174 Global Net Lease, Inc. 219
6,535 Granite Point Mortgage Trust, Inc. 125
2,174 Great Ajax Corp. 30
19,124 Healthcare Realty Trust, Inc. 599
31,565 Healthcare Trust of America, Inc. "A" 866
6,587 Hersha Hospitality Trust 109
15,935 Highwoods Properties, Inc. 658
25,197 Hospitality Properties Trust 630
23,986 Hudson Pacific Properties, Inc. 798
13,622 Independence Realty Trust, Inc. 158
10,166 Industrial Logistics Properties Trust 212
1,468 Innovative Industrial Properties, Inc.(e) 181
19,574 Invesco Mortgage Capital, Inc. 316
1,980 Investors Real Estate Trust 116
57,073 Invitation Homes, Inc. 1,526
9,913 iStar, Inc. 123
17,269 JBG SMITH Properties 679
3,667 Jernigan Capital, Inc. 75
15,568 Kilroy Realty Corp. 1,149
12,411 Kite Realty Group Trust 188
2,907 KKR Real Estate Finance Trust, Inc. 58
11,983 Ladder Capital Corp. 199
12,881 Lamar Advertising Co. "A" 1,040
31,494 Lexington Realty Trust 296
22,648 Liberty Property Trust 1,133
7,129 Life Storage, Inc. 678
6,172 LTC Properties, Inc. 282
13,234 Mack-Cali Realty Corp. 308
58,688 Medical Properties Trust, Inc. 1,024
================================================================================
PORTFOLIO OF INVESTMENTS | 35
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
68,818 MFA Financial, Inc. $ 494
15,212 Monmouth Real Estate Investment Corp. 206
6,782 National Health Investors, Inc. 529
24,915 National Retail Properties, Inc. 1,321
8,526 National Storage Affiliates Trust 247
63,073 New Residential Investment Corp. 971
14,071 New Senior Investment Group, Inc. 95
26,476 New York Mortgage Trust, Inc. 164
5,966 NorthStar Realty Europe Corp. 98
7,589 Office Properties Income Trust 199
31,954 Omega Healthcare Investors, Inc. 1,174
2,978 One Liberty Properties, Inc. 86
7,148 Orchid Island Capital, Inc. 45
22,277 Outfront Media, Inc. 575
30,815 Paramount Group, Inc. 432
31,428 Park Hotels & Resorts, Inc. 866
20,541 Pebblebrook Hotel Trust 579
10,348 Pennsylvania Real Estate Investment Trust(e) 67
10,450 PennyMac Mortgage Investment Trust 228
27,835 Physicians Realty Trust 485
19,792 Piedmont Office Realty Trust, Inc. "A" 394
10,058 PotlatchDeltic Corp. 392
6,566 Preferred Apartment Communities, Inc. "A" 98
3,004 PS Business Parks, Inc. 506
8,452 QTS Realty Trust, Inc. "A" 390
19,841 Rayonier, Inc. 601
4,422 Ready Capital Corp. 66
14,789 Redwood Trust, Inc. 244
610 Regional Health Properties, Inc.(d) 1
18,131 Retail Opportunity Investments Corp. 311
32,927 Retail Properties of America, Inc. "A" 387
2,499 Retail Value, Inc. 87
15,883 Rexford Industrial Realty, Inc. 641
27,386 RLJ Lodging Trust 486
12,330 RPT Realty 149
7,868 Ryman Hospitality Properties, Inc. 638
27,219 Sabra Health Care REIT, Inc. 536
1,841 Saul Centers, Inc. 103
36,130 Senior Housing Properties Trust 299
4,194 Seritage Growth Properties REIT "A" 180
22,410 SITE Centers Corp. 297
6,802 Spirit MTA REIT 57
13,605 Spirit Realty Capital, Inc. 580
17,308 STAG Industrial, Inc. 523
41,657 Starwood Property Trust, Inc. 946
30,363 STORE Capital Corp. 1,008
16,267 Summit Hotel Properties, Inc. 187
13,468 Sun Communities, Inc. 1,726
34,433 Sunstone Hotel Investors, Inc. 472
15,295 Tanger Factory Outlet Centers, Inc.(e) 248
9,740 Taubman Centers, Inc. 398
9,534 Terreno Realty Corp. 468
5,678 TPG RE Finance Trust, Inc. 110
37,702 Two Harbors Investment Corp. 478
5,693 UMH Properties, Inc. 71
26,939 Uniti Group, Inc. 256
1,936 Universal Health Realty Income Trust 164
16,094 Urban Edge Properties 279
================================================================================
36 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
4,981 Urstadt Biddle Properties, Inc. "A" $ 105
148,152 VEREIT, Inc. 1,335
55,005 VICI Properties, Inc. 1,212
30,002 Washington Prime Group, Inc.(e) 115
11,952 Washington Real Estate Investment Trust 320
18,323 Weingarten Realty Investors 502
7,954 Western Asset Mortgage Capital Corp. 79
7,047 Whitestone REIT 89
26,009 WP Carey, Inc. 2,111
17,434 Xenia Hotels & Resorts, Inc. 364
--------
72,144
--------
SAVINGS & LOANS (0.8%)
8,243 Axos Financial, Inc.(d) 225
5,667 Banc of California, Inc. 79
3,939 BankFinancial Corp. 55
6,532 Berkshire Hills Bancorp, Inc. 205
11,463 Brookline Bancorp, Inc. 176
21,111 Capitol Federal Financial, Inc. 291
3,073 Community Bankers Trust Corp. 26
5,246 Dime Community Bancshares, Inc. 100
954 Entegra Financial Corp.(d) 29
3,300 ESSA Bancorp, Inc. 50
152 First Capital, Inc. 8
3,366 First Defiance Financial Corp. 96
2,323 First Financial Northwest, Inc. 33
181 First Savings Financial Group, Inc. 11
4,602 Flushing Financial Corp. 102
435 FS Bancorp, Inc. 22
211 Hingham Institution for Savings 42
1,907 HMN Financial, Inc.(d) 40
1,217 Home Bancorp, Inc. 47
3,223 HomeTrust Bancshares, Inc. 81
34,925 Investors Bancorp, Inc. 389
914 Malvern Bancorp, Inc.(d) 20
8,210 Meridian Bancorp, Inc. 147
1,697 MutualFirst Financial, Inc. 58
72,242 New York Community Bancorp, Inc. 721
7,214 Northfield Bancorp, Inc. 113
16,275 Northwest Bancshares, Inc. 287
6,742 OceanFirst Financial Corp. 167
5,107 Oritani Financial Corp. 91
6,901 Pacific Premier Bancorp, Inc. 213
898 Provident Financial Holdings, Inc. 19
9,234 Provident Financial Services, Inc. 224
841 Prudential Bancorp, Inc. 16
5,394 Riverview Bancorp, Inc. 46
983 Southern Missouri Bancorp, Inc. 34
31,254 Sterling Bancorp 665
2,198 Territorial Bancorp, Inc. 68
8,236 TFS Financial Corp. 149
852 Timberland Bancorp, Inc. 25
9,075 United Community Financial Corp. 87
8,517 United Financial Bancorp, Inc. 121
11,866 Washington Federal, Inc. 414
4,794 Waterstone Financial, Inc. 82
8,244 WSFS Financial Corp. 340
--------
6,214
--------
Total Financial 186,492
--------
INDUSTRIAL (13.0%)
------------------
AEROSPACE/DEFENSE (1.0%)
4,851 AAR Corp. 179
11,222 Aerojet Rocketdyne Holdings, Inc.(d) 502
3,384 Aerovironment, Inc.(d) 192
================================================================================
PORTFOLIO OF INVESTMENTS | 37
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
3,433 Astronics Corp.(d) $ 138
7,221 Barnes Group, Inc. 407
2,281 CPI Aerostructures, Inc.(d) 19
1,874 Ducommun, Inc.(d) 85
6,200 HEICO Corp. 830
10,883 HEICO Corp. "A" 1,125
4,600 Innovative Solutions & Support, Inc.(d) 23
4,270 Kaman Corp. 272
12,478 Kratos Defense & Security Solutions, Inc.(d) 286
4,945 Moog, Inc. "A" 463
790 National Presto Industries, Inc.(e) 74
15,797 Spirit AeroSystems Holdings, Inc. "A" 1,285
5,495 Teledyne Technologies, Inc.(d) 1,505
7,487 Triumph Group, Inc. 171
8,960 Wesco Aircraft Holdings, Inc.(d) 99
--------
7,655
--------
BUILDING MATERIALS (1.3%)
5,934 AAON, Inc. 298
2,187 American Woodmark Corp.(d) 185
4,074 Apogee Enterprises, Inc. 177
4,145 Armstrong Flooring, Inc.(d) 41
7,510 Armstrong World Industries, Inc. 730
5,862 Boise Cascade Co. 165
4,880 Broadwind Energy, Inc.(d) 11
18,770 Builders FirstSource, Inc.(d) 316
5,319 Continental Building Products, Inc.(d) 141
6,628 Cornerstone Building Brands, Inc.(d) 39
6,744 Eagle Materials, Inc. 625
4,423 Energy Focus, Inc.(d) 2
2,885 Forterra, Inc.(d) 14
5,276 Gibraltar Industries, Inc.(d) 213
4,996 Griffon Corp. 85
10,473 JELD-WEN Holding, Inc.(d) 222
5,389 Lennox International, Inc. 1,482
18,553 Louisiana-Pacific Corp. 486
4,195 LSI Industries, Inc. 15
3,652 Masonite International Corp.(d) 192
30,233 MDU Resources Group, Inc. 780
16,580 Owens Corning 965
3,589 Patrick Industries, Inc.(d) 177
8,137 PGT Innovations, Inc.(d) 136
5,552 Research Frontiers, Inc.(d) 18
5,926 Simpson Manufacturing Co., Inc. 394
6,490 SPX Corp.(d) 214
17,224 Summit Materials, Inc. "A"(d) 332
2,196 Tecnoglass, Inc. 14
1,236 Tecogen, Inc.(d) 5
9,004 Trex Co., Inc.(d) 646
2,627 U.S. Concrete, Inc.(d) 131
9,376 Universal Forest Products, Inc. 357
--------
9,608
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.9%)
6,093 Acuity Brands, Inc. 840
4,720 American Superconductor Corp.(d) 44
6,029 Belden, Inc. 359
3,678 Capstone Turbine Corp.(d) 3
2,960 Encore Wire Corp. 173
9,781 Energizer Holdings, Inc. 378
2,400 Energous Corp.(d),(e) 11
6,551 EnerSys 449
9,504 Generac Holdings, Inc.(d) 660
1,902 Graham Corp. 38
================================================================================
38 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
8,183 Hubbell, Inc. $ 1,067
2,808 Insteel Industries, Inc. 59
3,818 Littelfuse, Inc. 676
1,369 nLight, Inc.(d) 26
5,098 Novanta, Inc.(d) 481
7,855 Orion Energy Systems, Inc.(d) 23
1,398 Powell Industries, Inc. 53
9,200 SunPower Corp.(d) 98
4,545 Ultralife Corp.(d) 36
6,485 Universal Display Corp. 1,220
2,235 Vicor Corp.(d) 69
--------
6,763
--------
ELECTRONICS (2.2%)
16,547 ADT, Inc.(e) 101
5,842 Advanced Energy Industries, Inc.(d) 329
1,429 Akoustis Technologies, Inc.(d) 9
5,772 Alarm.com Holdings, Inc.(d) 309
1,620 Allied Motion Technologies, Inc. 61
6,764 Applied DNA Sciences, Inc.(d) 3
3,123 Applied Optoelectronics, Inc.(d),(e) 32
12,936 Arrow Electronics, Inc.(d) 922
7,452 Atkore International Group, Inc.(d) 193
16,231 Avnet, Inc. 735
4,645 Badger Meter, Inc. 277
2,157 Bel Fuse, Inc. "B" 37
6,305 Benchmark Electronics, Inc. 158
7,405 Brady Corp. "A" 365
3,725 Coherent, Inc.(d) 508
3,715 Comtech Telecommunications Corp. 104
3,929 Control4 Corp.(d) 93
1,663 CyberOptics Corp.(d) 27
1,894 Digimarc Corp.(d) 84
2,690 FARO Technologies, Inc.(d) 141
27,916 Fitbit, Inc. "A"(d) 123
7,584 Fluidigm Corp.(d) 93
39,043 Gentex Corp. 961
15,121 GoPro, Inc. "A"(d) 83
3,365 Identiv, Inc.(d) 17
9,195 II-VI, Inc.(d) 336
1,361 IntriCon Corp.(d) 32
5,094 Itron, Inc.(d) 319
20,742 Jabil, Inc. 655
9,165 KEMET Corp. 172
5,162 Kimball Electronics, Inc.(d) 84
12,987 Knowles Corp.(d) 238
8,678 LRAD Corp.(d) 29
562 Mesa Laboratories, Inc. 137
10,983 MicroVision, Inc.(d) 9
2,478 Napco Security Technologies, Inc.(d) 74
17,117 National Instruments Corp. 719
974 NVE Corp. 68
24,270 nVent Electric plc 602
2,573 OSI Systems, Inc.(d) 290
3,206 Park Electrochemical Corp. 54
4,604 Plexus Corp.(d) 269
19,365 Resideo Technologies, Inc.(d) 425
10,440 Sanmina Corp.(d) 316
24,297 Sensata Technologies Holding plc(d) 1,191
1,985 SMART Global Holdings, Inc.(d) 46
4,259 Stoneridge, Inc.(d) 134
6,222 SYNNEX Corp. 612
5,425 Tech Data Corp.(d) 567
1,050 Transcat, Inc.(d) 27
37,930 Trimble, Inc.(d) 1,711
13,962 TTM Technologies, Inc.(d) 142
1,515 Turtle Beach Corp.(d),(e) 18
20,274 Vishay Intertechnology, Inc. 335
2,569 Vishay Precision Group, Inc.(d) 104
4,230 Watts Water Technologies, Inc. "A" 394
8,507 Woodward, Inc. 963
4,990 ZAGG, Inc.(d) 35
--------
16,872
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 39
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
ENGINEERING & CONSTRUCTION (0.9%)
24,023 AECOM(d) $ 909
5,610 Aegion Corp.(d) 103
7,543 Arcosa, Inc. 284
1,952 Argan, Inc. 79
2,695 BrightView Holdings, Inc.(d) 50
5,684 Comfort Systems USA, Inc. 290
3,650 Concrete Pumping Holdings, Inc.(d) 19
3,145 Construction Partners, Inc. "A"(d) 47
4,818 Dycom Industries, Inc.(d) 284
8,566 EMCOR Group, Inc. 755
7,770 Exponent, Inc. 455
20,177 Fluor Corp. 680
12,923 frontdoor, Inc.(d) 563
3,448 Goldfield Corp.(d) 8
7,056 Granite Construction, Inc. 340
9,666 Great Lakes Dredge & Dock Corp.(d) 107
1,636 IES Holdings, Inc.(d) 31
4,248 Iteris, Inc.(d) 22
21,005 KBR, Inc. 524
9,530 MasTec, Inc.(d) 491
2,701 Mistras Group, Inc.(d) 39
2,843 MYR Group, Inc.(d) 106
1,219 NV5 Global, Inc.(d) 99
5,034 Orion Group Holdings, Inc.(d) 14
1,937 Perma-Pipe International Holdings, Inc.(d) 18
5,751 Primoris Services Corp. 120
5,074 Sterling Construction Co., Inc.(d) 68
5,260 TopBuild Corp.(d) 435
6,087 Tutor Perini Corp.(d) 84
1,288 VSE Corp. 37
4,800 Willscot Corp.(d) 72
--------
7,133
--------
ENVIRONMENTAL CONTROL (0.5%)
11,337 Advanced Disposal Services, Inc.(d) 362
1,767 Aqua Metals, Inc.(d) 3
1,801 AquaVenture Holdings Ltd.(d) 36
6,369 Casella Waste Systems, Inc. "A"(d) 252
4,277 CECO Environmental Corp.(d) 41
7,830 Clean Harbors, Inc.(d) 557
17,930 Covanta Holding Corp. 321
5,232 Energy Recovery, Inc.(d) 55
8,762 Evoqua Water Technologies Corp.(d) 125
3,545 Heritage-Crystal Clean, Inc.(d) 93
4,810 Perma-Fix Environmental Services(d) 19
2,539 Pure Cycle Corp.(d) 27
2,241 Quest Resource Holding Corp.(d) 6
3,499 Sharps Compliance Corp.(d) 12
13,135 Stericycle, Inc.(d) 627
8,488 Tetra Tech, Inc. 667
3,348 U.S. Ecology, Inc. 199
--------
3,402
--------
HAND/MACHINE TOOLS (0.4%)
14,768 Colfax Corp.(d) 414
5,838 Franklin Electric Co., Inc. 277
12,554 Kennametal, Inc. 464
9,388 Lincoln Electric Holdings, Inc. 773
10,452 Milacron Holdings Corp.(d) 144
5,371 MSA Safety, Inc. 566
6,542 Regal Beloit Corp. 535
--------
3,173
--------
MACHINERY-CONSTRUCTION & MINING (0.3%)
3,451 Astec Industries, Inc. 112
30,920 Babcock & Wilcox Enterprises, Inc.(d) 11
2,931 Bloom Energy Corp. "A"(d),(e) 36
14,539 BWX Technologies, Inc. 757
================================================================================
40 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,727 Hyster-Yale Materials Handling, Inc. $ 95
10,679 Oshkosh Corp. 892
9,967 Terex Corp. 313
--------
2,216
--------
MACHINERY-DIVERSIFIED (1.8%)
9,852 AGCO Corp. 764
1,607 Alamo Group, Inc. 161
4,299 Albany International Corp. "A" 356
10,104 Altra Industrial Motion Corp. 362
5,943 Applied Industrial Technologies, Inc. 366
6,373 Briggs & Stratton Corp. 65
6,500 Cactus, Inc. "A"(d) 215
4,840 Chart Industries, Inc.(d) 372
26,348 Cognex Corp. 1,264
2,933 Columbus McKinnon Corp. 123
7,763 Crane Co. 648
2,112 CSW Industrials, Inc. 144
6,614 Curtiss-Wright Corp. 841
2,735 DXP Enterprises, Inc.(d) 104
6,100 Eastman Kodak Co.(d),(e) 15
19,740 Gardner Denver Holdings, Inc.(d) 683
6,000 Gates Industrial Corp. plc(d) 68
2,838 Gorman-Rupp Co. 93
25,050 Graco, Inc. 1,257
8,482 GrafTech International Ltd. 98
1,373 Hurco Companies, Inc. 49
5,097 Ichor Holdings Ltd.(d) 120
11,423 IDEX Corp. 1,966
5,485 Intevac, Inc.(d) 27
1,829 Kadant, Inc. 166
1,495 Lindsay Corp. 123
5,858 Manitowoc Co., Inc.(d) 104
8,362 Middleby Corp.(d) 1,135
24,820 Mueller Water Products, Inc. "A" 244
8,820 NN, Inc. 86
7,843 Nordson Corp. 1,108
6,381 SPX FLOW, Inc.(d) 267
2,625 Tennant Co. 161
1,831 Twin Disc, Inc.(d) 28
19,183 Welbilt, Inc.(d) 320
--------
13,903
--------
METAL FABRICATION/HARDWARE (0.5%)
5,721 Advanced Drainage Systems, Inc. 188
1,955 Ampco-Pittsburgh Corp.(d) 8
3,998 AZZ, Inc. 184
494 Chicago Rivet & Machine Co. 14
2,547 CIRCOR International, Inc.(d) 117
871 Eastern Co. 24
3,673 Global Brass & Copper Holdings, Inc. 161
4,381 Helios Technologies, Inc. 203
1,032 Lawson Products, Inc.(d) 38
1,479 LB Foster Co. "A"(d) 40
2,925 Mayville Engineering Co., Inc.(d) 40
9,270 Mueller Industries, Inc. 271
2,132 Northwest Pipe Co.(d) 55
1,597 Olympic Steel, Inc. 22
581 Omega Flex, Inc. 45
3,788 RBC Bearings, Inc.(d) 632
15,645 Rexnord Corp.(d) 473
2,400 Ryerson Holding Corp.(d) 20
573 Strattec Security Corp. 14
10,466 Timken Co. 537
5,808 TimkenSteel Corp.(d) 47
3,711 Tredegar Corp. 62
6,652 TriMas Corp.(d) 206
3,438 Valmont Industries, Inc. 436
6,215 Worthington Industries, Inc. 250
--------
4,087
--------
MISCELLANEOUS MANUFACTURERS (1.3%)
9,588 Actuant Corp. "A" 238
8,805 American Outdoor Brands Corp.(d) 79
================================================================================
PORTFOLIO OF INVESTMENTS | 41
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
9,688 AptarGroup, Inc. $ 1,205
8,819 Axon Enterprise, Inc.(d) 566
8,710 Carlisle Companies, Inc. 1,223
1,110 Chase Corp. 119
19,470 Donaldson Co., Inc. 990
2,972 EnPro Industries, Inc. 190
3,900 ESCO Technologies, Inc. 322
5,348 Fabrinet(d) 266
9,098 Federal Signal Corp. 243
2,656 FreightCar America, Inc.(d) 16
2,039 Haynes International, Inc. 65
12,962 Hexcel Corp. 1,048
9,213 Hillenbrand, Inc. 365
13,150 ITT, Inc. 861
4,869 John Bean Technologies Corp. 590
1,700 Loop Industries, Inc.(d),(e) 17
2,939 LSB Industries, Inc.(d) 11
2,799 Lydall, Inc.(d) 57
5,323 Myers Industries, Inc. 103
4,076 Proto Labs, Inc.(d) 473
5,522 Raven Industries, Inc. 198
2,053 Standex International Corp. 150
2,841 Sturm Ruger & Co., Inc. 155
2,147 Synalloy Corp. 33
19,148 Trinity Industries, Inc. 397
6,539 Trinseo S.A. 277
--------
10,257
--------
PACKAGING & CONTAINERS (0.7%)
20,191 Berry Global Group, Inc.(d) 1,062
20,705 Crown Holdings, Inc.(d) 1,265
45,106 Graphic Packaging Holding Co. 631
4,371 Greif, Inc. "A" 142
1,017 Greif, Inc. "B" 44
2,155 Multi-Color Corp. 108
23,762 Owens-Illinois, Inc. 410
12,070 Silgan Holdings, Inc. 369
15,359 Sonoco Products Co. 1,004
1,471 UFP Technologies, Inc.(d) 61
--------
5,096
--------
TRANSPORTATION (1.1%)
8,818 Air Transport Services Group, Inc.(d) 215
3,519 ArcBest Corp. 99
3,769 Atlas Air Worldwide Holdings, Inc.(d) 168
2,275 Covenant Transportation Group, Inc. "A"(d) 33
4,188 CryoPort, Inc.(d) 77
7,115 Daseke, Inc.(d) 26
4,352 Dorian LPG Ltd.(d) 39
10,677 Eagle Bulk Shipping, Inc.(d) 56
4,536 Echo Global Logistics, Inc.(d) 95
4,502 Forward Air Corp. 266
2,047 Genco Shipping & Trading Ltd.(d) 17
8,703 Genesee & Wyoming, Inc. "A"(d) 870
6,722 Heartland Express, Inc. 122
5,026 Hornbeck Offshore Services, Inc.(d) 6
5,287 Hub Group, Inc. "A"(d) 222
4,889 International Seaways, Inc.(d) 93
8,260 Kirby Corp.(d) 653
19,034 Knight-Swift Transportation Holdings, Inc. 625
5,987 Landstar System, Inc. 647
5,945 Marten Transport Ltd. 108
6,329 Matson, Inc. 246
9,885 Old Dominion Freight Line, Inc. 1,475
5,813 Overseas Shipholding Group, Inc. "A"(d) 11
277 PAM Transportation Services, Inc.(d) 17
1,321 Park-Ohio Holdings Corp. 43
627 Patriot Transportation Holding, Inc.(d) 11
3,916 Radiant Logistics, Inc.(d) 24
4,543 Roadrunner Transportation Systems, Inc.(d) 43
================================================================================
42 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
8,059 Ryder System, Inc. $ 470
4,133 Saia, Inc.(d) 267
4,361 Schneider National, Inc. "B" 80
2,530 SEACOR Holdings, Inc.(d) 120
9,568 Steel Connect, Inc.(d) 17
5,404 Tidewater, Inc.(d) 127
2,711 U.S. Xpress Enterprises, Inc. "A"(d) 14
1,233 Universal Logistics Holdings, Inc. 28
1,622 USA Truck, Inc.(d) 16
6,869 Werner Enterprises, Inc. 214
14,019 XPO Logistics, Inc.(d) 810
4,920 YRC Worldwide, Inc.(d) 20
--------
8,490
--------
TRUCKING & LEASING (0.1%)
5,534 GATX Corp. 439
3,943 General Finance Corp.(d) 33
5,303 Greenbrier Companies, Inc. 161
1,351 Willis Lease Finance Corp.(d) 79
--------
712
--------
Total Industrial 99,367
--------
TECHNOLOGY (12.8%)
------------------
COMPUTERS (2.1%)
17,506 3D Systems Corp.(d),(e) 159
3,119 Agilysys, Inc.(d) 67
3,797 CACI International, Inc. "A"(d) 777
6,872 Carbon Black, Inc.(d) 115
5,027 Carbonite, Inc.(d) 131
28,206 Conduent, Inc.(d) 271
6,048 Cray, Inc.(d) 211
4,385 Cubic Corp. 283
22,725 Dell Technologies, Inc. "C"(d) 1,154
12,634 Diebold Nixdorf, Inc.(d) 116
956 Elastic N.V.(d) 71
7,109 Electronics For Imaging, Inc.(d) 262
7,974 EPAM Systems, Inc.(d) 1,380
5,268 ExlService Holdings, Inc.(d) 348
1,784 ExOne Co.(d) 17
5,800 ForeScout Technologies, Inc.(d) 196
23,298 Genpact Ltd. 887
5,507 Insight Enterprises, Inc.(d) 321
1,911 Inspired Entertainment, Inc.(d) 16
21,840 Leidos Holdings, Inc. 1,744
11,298 Lumentum Holdings, Inc.(d) 603
2,040 Mastech Digital, Inc.(d) 10
9,844 MAXIMUS, Inc. 714
7,626 Mercury Systems, Inc.(d) 537
6,170 Mitek Systems, Inc.(d) 61
2,593 MTS Systems Corp. 152
18,598 NCR Corp.(d) 578
11,151 NetScout Systems, Inc.(d) 283
12,018 Nutanix, Inc. "A"(d) 312
4,683 OneSpan, Inc.(d) 66
2,204 PAR Technology Corp.(d),(e) 62
1,792 Parsons Corp.(d) 66
22,151 Perspecta, Inc. 519
2,718 PlayAGS, Inc.(d) 53
6,916 Presidio, Inc. 95
28,156 Pure Storage, Inc. "A"(d) 430
5,068 Qualys, Inc.(d) 441
2,149 Qumu Corp.(d) 9
6,407 Rapid7, Inc.(d) 371
7,878 Science Applications International Corp. 682
3,340 StarTek, Inc.(d) 27
5,857 Sykes Enterprises, Inc.(d) 161
1,629 Tenable Holdings, Inc.(d) 47
2,692 TransAct Technologies, Inc. 30
2,549 TTEC Holdings, Inc. 119
7,423 Unisys Corp.(d) 72
7,417 USA Technologies, Inc.(d),(e) 55
4,555 Varonis Systems, Inc.(d) 282
================================================================================
PORTFOLIO OF INVESTMENTS | 43
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
4,107 Virtusa Corp.(d) $ 182
4,197 Vocera Communications, Inc.(d) 134
3,153 Vuzix Corp.(d),(e) 13
--------
15,692
--------
OFFICE/BUSINESS EQUIPMENT (0.2%)
791 AstroNova, Inc. 20
28,398 Pitney Bowes, Inc. 122
8,135 Zebra Technologies Corp. "A"(d) 1,704
--------
1,846
--------
SEMICONDUCTORS (2.0%)
800 ACM Research, Inc. "A"(d) 12
3,388 Adesto Technologies Corp.(d) 28
2,913 Alpha & Omega Semiconductor Ltd.(d) 27
18,642 Amkor Technology, Inc.(d) 139
2,148 Amtech Systems, Inc.(d) 12
3,862 Aquantia Corp.(d) 50
6,239 AVX Corp. 104
4,811 Axcelis Technologies, Inc.(d) 72
6,341 AXT, Inc.(d) 25
10,683 Brooks Automation, Inc. 414
4,419 Cabot Microelectronics Corp. 486
3,467 CEVA, Inc.(d) 84
8,882 Cirrus Logic, Inc.(d) 388
6,077 Cohu, Inc. 94
16,195 Cree, Inc.(d) 910
5,283 CTS Corp. 146
55,377 Cypress Semiconductor Corp. 1,232
5,690 Diodes, Inc.(d) 207
3,046 DSP Group, Inc.(d) 44
6,297 eMagin Corp.(d) 3
4,624 EMCORE Corp.(d) 15
20,490 Entegris, Inc. 765
11,782 FormFactor, Inc.(d) 185
4,254 GSI Technology, Inc.(d) 36
2,838 Impinj, Inc.(d) 81
6,551 Inphi Corp.(d) 328
11,813 Kopin Corp.(d) 13
10,388 Kulicke & Soffa Industries, Inc. 234
19,222 Lattice Semiconductor Corp.(d) 280
6,324 MACOM Technology Solutions Holdings, Inc.(d) 96
90,158 Marvell Technology Group Ltd. 2,152
9,324 MaxLinear, Inc.(d) 219
8,101 MKS Instruments, Inc. 631
5,933 Monolithic Power Systems, Inc. 806
1,465 MoSys, Inc.(d) -
3,289 Nanometrics, Inc.(d) 114
63,325 ON Semiconductor Corp.(d) 1,280
10,897 Photronics, Inc.(d) 89
5,286 Pixelworks, Inc.(d) 16
4,398 Power Integrations, Inc. 353
9,826 QuickLogic Corp.(d) 6
16,362 Rambus, Inc.(d) 197
529 Rubicon Technology, Inc.(d) 4
4,256 Rudolph Technologies, Inc.(d) 118
9,996 Semtech Corp.(d) 480
6,618 Silicon Laboratories, Inc.(d) 684
5,229 Synaptics, Inc.(d) 152
26,167 Teradyne, Inc. 1,254
74 U.S. Gold Corp.(d) -
5,086 Ultra Clean Holdings, Inc.(d) 71
8,156 Veeco Instruments, Inc.(d) 100
7,141 Xperi Corp. 147
--------
15,383
--------
SOFTWARE (8.5%)
16,888 ACI Worldwide, Inc.(d) 580
25,453 Allscripts Healthcare Solutions, Inc.(d) 296
4,129 Altair Engineering, Inc. "A"(d) 167
7,065 Alteryx, Inc. "A"(d) 771
4,539 Amber Road, Inc.(d) 59
================================================================================
44 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
5,062 American Software, Inc. "A" $ 67
1,791 Appfolio, Inc. "A"(d) 183
4,994 Appian Corp.(d) 180
10,436 Aspen Technology, Inc.(d) 1,297
3,050 Asure Software, Inc.(d),(e) 25
16,500 Avaya Holdings Corp.(d) 196
5,767 Avid Technology, Inc.(d) 53
1,147 Bandwidth, Inc. "A"(d) 86
3,803 Benefitfocus, Inc.(d) 103
21,736 Black Knight, Inc.(d) 1,307
7,425 Blackbaud, Inc. 620
7,109 Blackline, Inc.(d) 380
5,773 Bottomline Technologies de, Inc.(d) 255
22,146 Box, Inc. "A"(d) 390
5,883 Brightcove, Inc.(d) 61
9,141 Castlight Health, Inc. "B"(d) 30
18,384 CDK Global, Inc. 909
10,243 Ceridian HCM Holding, Inc.(d) 514
72 Change Healthcare, Inc.(d) 1
12,128 Cision Ltd.(d) 142
33,865 Cloudera, Inc.(d) 178
5,901 CommVault Systems, Inc.(d) 293
1,686 Computer Programs & Systems, Inc. 47
8,212 Cornerstone OnDemand, Inc.(d) 476
8,299 Coupa Software, Inc.(d) 1,051
14,716 Covetrus, Inc.(d) 360
4,927 CSG Systems International, Inc. 241
137 Daily Journal Corp.(d) 33
8,312 Digital Turbine, Inc.(d) 42
3,630 DocuSign, Inc.(d) 180
1,538 Domo, Inc. "B"(d) 42
5,132 Donnelley Financial Solutions, Inc.(d) 68
29,982 Dropbox, Inc. "A"(d) 751
3,364 Ebix, Inc. 169
3,549 eGain Corp.(d) 29
7,316 Envestnet, Inc.(d) 500
4,408 Everbridge, Inc.(d) 394
11,233 Evolent Health, Inc. "A"(d) 89
2,275 Evolving Systems, Inc.(d) 2
6,437 Exela Technologies, Inc.(d) 14
4,463 Fair Isaac Corp.(d) 1,401
1,518 Fastly, Inc. "A"(d) 31
87,715 First Data Corp. "A"(d) 2,374
8,986 Five9, Inc.(d) 461
17,785 Glu Mobile, Inc.(d) 128
5,963 GSE Systems, Inc.(d) 14
12,310 Guidewire Software, Inc.(d) 1,248
5,900 HubSpot, Inc.(d) 1,006
5,072 Immersion Corp.(d) 39
7,279 InnerWorkings, Inc.(d) 28
6,741 Innodata, Inc.(d) 6
10,521 Inovalon Holdings, Inc. "A"(d) 153
4,930 Instructure, Inc.(d) 210
648 Intelligent Systems Corp.(d) 19
7,173 j2 Global, Inc. 638
8,970 LivePerson, Inc.(d) 251
10,091 Manhattan Associates, Inc.(d) 700
3,813 ManTech International Corp. "A" 251
9,444 Medidata Solutions, Inc.(d) 855
1,280 MicroStrategy, Inc. "A"(d) 183
10,974 MobileIron, Inc.(d) 68
4,111 Model N, Inc.(d) 80
4,969 MongoDB, Inc.(d) 756
6,127 Monotype Imaging Holdings, Inc. 103
7,043 New Relic, Inc.(d) 609
6,990 NextGen Healthcare, Inc.(d) 139
44,576 Nuance Communications, Inc.(d) 712
6,335 Omnicell, Inc.(d) 545
14,999 Pareteum Corp.(d),(e) 39
3,280 Park City Group, Inc.(d),(e) 18
7,530 Paycom Software, Inc.(d) 1,707
4,645 PDF Solutions, Inc.(d) 61
================================================================================
PORTFOLIO OF INVESTMENTS | 45
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
5,608 Pegasystems, Inc. $ 399
11,547 Pivotal Software, Inc. "A"(d) 122
8,460 Pluralsight, Inc. "A"(d) 256
6,799 Progress Software Corp. 297
5,348 PROS Holdings, Inc.(d) 338
15,672 PTC, Inc.(d) 1,407
1,451 QAD, Inc. "A" 58
311 QAD, Inc. "B" 9
11,162 RealPage, Inc.(d) 657
621 Red Violet, Inc.(d) 8
9,980 SailPoint Technologies Holding, Inc.(d) 200
3,082 Sciplay Corp. "A"(d) 42
7,106 Seachange International, Inc.(d) 10
3,863 SecureWorks Corp. "A"(d) 51
28,020 ServiceNow, Inc.(d) 7,693
1,541 Simulations Plus, Inc. 44
12,477 Smartsheet, Inc. "A"(d) 604
3,086 Smith Micro Software, Inc.(d) 9
22,800 Splunk, Inc.(d) 2,867
2,618 SPS Commerce, Inc.(d) 268
33,281 SS&C Technologies Holdings, Inc. 1,917
2,158 SVMK, Inc.(d) 36
11,700 Synchronoss Technologies, Inc.(d) 93
10,965 Tableau Software, Inc. "A"(d) 1,820
2,507 Tabula Rasa HealthCare, Inc.(d) 125
5,854 Telenav, Inc.(d) 47
18,265 Teradata Corp.(d) 655
18,079 TiVo Corp. 133
17,836 Twilio, Inc. "A"(d) 2,432
5,919 Tyler Technologies, Inc.(d) 1,279
3,166 Upland Software, Inc.(d) 144
19,285 Veeva Systems, Inc. "A"(d) 3,126
9,967 Verint Systems, Inc.(d) 536
2,349 Veritone, Inc.(d) 20
17,357 Verra Mobility Corp.(d) 227
11,550 VMware, Inc. "A" 1,931
24,653 Workday, Inc. "A"(d) 5,068
3,938 Workiva, Inc.(d) 229
13,245 Yext, Inc.(d) 266
4,053 Zedge, Inc. "B"(d) 7
3,121 Zoom Video Communications, Inc. "A"(d) 277
2,758 Zovio, Inc.(d) 10
1,543 Zuora, Inc. "A"(d) 24
130,331 Zynga, Inc. "A"(d) 799
--------
65,004
--------
Total Technology 97,925
--------
UTILITIES (2.5%)
----------------
ELECTRIC (1.3%)
7,872 ALLETE, Inc. 655
3,372 Ameresco, Inc. "A"(d) 50
8,369 Avangrid, Inc. 423
10,331 Avista Corp. 461
8,064 Black Hills Corp. 630
6,065 Clearway Energy, Inc. "A" 98
10,858 Clearway Energy, Inc. "C" 183
6,206 El Paso Electric Co. 406
3,673 Genie Energy Ltd. "B" 39
16,633 Hawaiian Electric Industries, Inc. 724
7,724 IDACORP, Inc. 776
5,101 MGE Energy, Inc. 373
7,806 NorthWestern Corp. 563
30,591 OGE Energy Corp. 1,302
7,753 Ormat Technologies, Inc. 491
5,878 Otter Tail Corp. 310
11,944 PNM Resources, Inc. 608
13,614 Portland General Electric Co. 738
2,263 Spark Energy, Inc. "A"(e) 25
7,207 Synthesis Energy Systems, Inc.(d) 2
2,079 Unitil Corp. 125
57,508 Vistra Energy Corp. 1,302
--------
10,284
--------
GAS (0.8%)
2,612 Chesapeake Utilities Corp. 248
13,176 National Fuel Gas Co. 695
13,782 New Jersey Resources Corp. 686
4,404 Northwest Natural Holding Co. 306
8,052 ONE Gas, Inc. 727
================================================================================
46 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
1,321 RGC Resources, Inc. $ 40
14,200 South Jersey Industries, Inc. 479
8,156 Southwest Gas Holdings, Inc. 731
7,623 Spire, Inc. 640
26,226 UGI Corp. 1,401
--------
5,953
--------
WATER (0.4%)
5,470 American States Water Co. 412
31,458 Aqua America, Inc. 1,301
1,250 Artesian Resources Corp. "A" 46
7,033 California Water Service Group 356
1,633 Connecticut Water Service, Inc. 114
2,592 Middlesex Water Co. 154
4,035 PICO Holdings, Inc.(d) 47
3,608 SJW Group 219
2,157 York Water Co. 77
--------
2,726
--------
Total Utilities 18,963
--------
Total Common Stocks (cost: $511,447) 759,335
--------
RIGHTS (0.0%)
CONSUMER, NON-CYCLICAL (0.0%)
-----------------------------
COMMERCIAL SERVICES (0.0%)
8,612 Hertz Global Holdings, Inc.(d),(e) 17
--------
INDUSTRIAL (0.0%)
-----------------
ELECTRICAL COMPONENTS & EQUIPMENT (0.0%)
30,920 Babcock & Wilcox Enterprises, Inc.(d) -
--------
Total Rights (cost: $51) 17
--------
WARRANTS (0.0%)
CONSUMER, NON-CYCLICAL (0.0%)
-----------------------------
PHARMACEUTICALS (0.0%)
7,552 Galectin Therapeutics, Inc.(a),(b),(c),(d),(e) (cost: $0) -
--------
Total Equity Securities (cost: $511,498) 759,352
--------
MONEY MARKET INSTRUMENTS (0.5%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.5%)
3,497,102 State Street Institutional Treasury Money Market Fund Premier
Class, 2.17%(g)(f) (cost: $3,497) 3,497
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 47
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (0.0%)
BILLS (0.0%)(h)
$ 160 U.S. Treasury Bills (f),(i) 2.07% 9/12/2019 $ 159
90 U.S. Treasury Bills (f),(i) 2.29 9/12/2019 90
--------
Total U.S. Treasury Securities (cost: $249) 249
--------
Total Money Market Instruments (cost: $3,746) 3,746
--------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (2.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.2%)
17,356,019 HSBC U.S. Government Money Market Fund Class I, 2.27%(g) (cost: $17,356) 17,356
--------
TOTAL INVESTMENTS (COST: $532,600) $780,454
========
--------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE (000) (000) (000)
--------------------------------------------------------------------------------------------------------
FUTURES (0.8%)
LONG FUTURES
EQUITY CONTRACTS
37 Russell 2000 E-Mini Index 9/20/2019 USD 2,855 $2,899 $44
15 S&P MidCap 400 E-mini Index 9/20/2019 USD 2,886 $2,925 $39
------ ---
TOTAL LONG FUTURES $5,824 $83
------ ---
TOTAL FUTURES $5,824 $83
====== ===
================================================================================
48 | USAA EXTENDED MARKET INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $759,335 $- $- $759,335
Rights 17 - - 17
Warrants - - - -
Money Market Instruments:
Government & U.S. Treasury Money Market Funds 3,497 - - 3,497
U.S. Treasury Securities 249 - - 249
Short-Term Investment Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury Money Market Funds 17,356 - - 17,356
Futures(1) 83 - - 83
--------------------------------------------------------------------------------------------------------
Total $780,537 $- $- $780,537
--------------------------------------------------------------------------------------------------------
(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.
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
PORTFOLIO OF INVESTMENTS | 49
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o CATEGORIES AND DEFINITIONS
RIGHTS - Enable the holder to buy a specified number of shares of new issues
of a common stock before it is offered to the public.
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
MTA Metropolitan Transportation Authority
REITS Real estate investment trusts - Dividend distributions from REITS
may be recorded as income and later characterized by the REIT at
the end of the fiscal year as capital gains or a return of capital.
Thus, the Fund will estimate the components of distributions from
these securities and revise when actual distributions are known.
================================================================================
50 | USAA EXTENDED MARKET INDEX FUND
================================================================================
o SPECIFIC NOTES
(a) Security was fair valued at June 30, 2019, by USAA Asset Management
Company in accordance with valuation procedures approved by USAA Mutual
Funds Trust's Board of Trustees.
(b) Security deemed illiquid by USAA Asset Management Company, under
liquidity guidelines approved by USAA Mutual Funds Trust's Board of
Trustees.
(c) Security was classified as Level 3, of which all are valued at zero.
(d) Non-income-producing security.
(e) The security, or a portion thereof, was out on loan as of June 30, 2019.
(f) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at June 30, 2019.
(g) Rate represents the money market fund annualized seven-day yield at
June 30, 2019.
(h) Rate represents an annualized yield at time of purchase, not coupon
rate.
(i) Securities with a value of $249,000 are segregated as collateral for
initial margin requirements on open futures contracts.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 51
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $19,048) (cost of $532,600) $780,454
Cash 4
Receivables:
Capital shares sold 99
Dividends and interest 882
Securities sold 1,849
Other 30
Variation margin on futures contracts 83
--------
Total assets 783,401
--------
LIABILITIES
Payables:
Upon return of securities loaned 17,356
Securities purchased 490
Capital shares redeemed 277
Payable to broker 36
Accrued management fees 62
Accrued transfer agent's fees 22
Other accrued expenses and payables 140
--------
Total liabilities 18,383
--------
Net assets applicable to capital shares outstanding $765,018
========
NET ASSETS CONSIST OF:
Paid-in capital $494,854
Distributable earnings 270,164
--------
Net assets applicable to capital shares outstanding $765,018
========
Capital shares outstanding, no par value 39,748
========
Net asset value, redemption price, and offering price per share $ 19.25
========
See accompanying notes to financial statements.
================================================================================
52 | USAA EXTENDED MARKET INDEX FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $3) $ 5,581
Interest 68
Securities lending (net) 177
--------
Total income 5,826
--------
FUND EXPENSES
Management fees 369
Administration and servicing fees 554
Transfer agent's fees 335
Custody and accounting fees 89
Postage 21
Shareholder reporting fees 21
Trustees' fees 18
Registration fees 17
Professional fees 47
Other 86
--------
Total Fund expenses 1,557
--------
NET INVESTMENT INCOME 4,269
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FUTURES CONTRACTS
Net realized gain on:
Investment 7,213
Futures transactions 532
Change in net unrealized appreciation/(depreciation) of:
Investments 113,322
Futures contracts 76
--------
Net realized and unrealized gain 121,143
--------
Increase in net assets resulting from operations $125,412
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 53
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited), and year ended
December 31, 2018
------------------------------------------------------------------------------------------------
6/30/2019 12/31/2018*
------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 4,269 $ 6,926
Net realized gain on investments 7,213 45,050
Net realized gain (loss) on futures transactions 532 (656)
Change in net unrealized appreciation/(depreciation) of:
Investments 113,322 (117,712)
Futures contracts 76 (71)
------------------------
Increase (decrease) in net assets resulting from operations 125,412 (66,463)
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM DISTRIBUTABLE EARNINGS: - (40,796)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 27,516 55,792
Reinvested dividends - 39,931
Cost of shares redeemed (44,316) (97,269)
------------------------
Decrease in net assets from capital share transactions (16,800) (1,546)
------------------------
Net increase (decrease) in net assets 108,612 (108,805)
NET ASSETS
Beginning of period 656,406 765,211
------------------------
End of period $765,018 $ 656,406
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 1,481 3,039
Shares issued for dividends reinvested - 2,344
Shares redeemed (2,397) (5,029)
------------------------
Increase (decrease) in shares outstanding (916) 354
========================
*USAA Extended Market Index Fund converted from a feeder fund in a master-feeder
structure investing in Master Extended Market Index Series to a stand-alone fund
on February 23, 2018.
See accompanying notes to financial statements.
================================================================================
54 | USAA EXTENDED MARKET INDEX FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2019 (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 Extended Market Index Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as diversified under the 1940 Act and is authorized to issue an
unlimited number of shares. Prior to July 1, 2019, the Fund's investment
objective was to seek to match, before fees and expenses, the performance of all
small- and mid-cap stocks as measured by the Dow Jones U.S. Completion Total
Stock Market Index(SM) (the Index).
Prior to February 24, 2018, the Fund operated as a feeder fund in a master-
feeder structure and invested all of its investable assets in the Extended
Market Portfolio, which is a separate fund advised by BlackRock Advisors, LLC
(BlackRock). On February 23, 2018, the Fund received an inkind distribution of
securities from the feeder in a non-taxable transaction equal to the Fund's
investment in the feeder as of that date.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or the 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 Holdings, a global investment management firm
headquartered in Cleveland, Ohio (the Transaction), on July 1, 2019.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
A special shareholder meeting was held on April 18, 2019, at which shareholders
of the Fund approved a new investment advisory agreement between the Trust, on
behalf of the Fund, and Victory Capital, an independent investment management
company. In addition, shareholders of the Fund also elected the following two
new directors to the Board of the Trust to serve upon the closing of the
Transaction: (1) David C. Brown, to serve as an Interested Trustee; and (2) John
C. Walters, to serve as an Independent Trustee. PLEASE REFER TO THE SUBSEQUENT
EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
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.
The Fund 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 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.
================================================================================
56 | USAA EXTENDED MARKET INDEX 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 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. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
Board. The Service uses an evaluated mean between quoted bid and ask
prices or the last sales price to value a security when, in the
Service's judgment, these prices are readily available and are
representative of the security's market value. For many securities, such
prices are not readily available. The Service generally prices those
securities based on methods which include consideration of yields or
prices of securities of comparable quality, coupon, maturity, and type;
indications as to values from dealers in securities; and general market
conditions. Generally, debt securities are categorized in Level 2 of the
fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in
Level 3.
6. Repurchase agreements are valued at cost.
7. Futures are valued at the settlement price at the close of market on the
principal exchange on which they are traded or, in the absence of any
transactions that day, the settlement price on the prior trading date if
it is within the spread between the closing bid and ask price closest to
the last reported sale price.
8. Options are valued by a pricing service at the National Best Bid/Offer
(NBBO) composite price, which is derived from the best available bid and
ask price in all participating options exchanges determined to most
closely reflect market value of the options at the time of computation
of the Fund's NAV.
9. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
================================================================================
58 | USAA EXTENDED MARKET INDEX FUND
================================================================================
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold. Level 2
securities include 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
manager to aid in achieving the Fund's investment objective. The Fund also
may use derivatives in circumstances where the portfolio manager believes
they offer an economical means of gaining exposure to a particular asset
class or securities market or to keep cash on hand to meet shareholder
redemptions or other needs while maintaining exposure to the market. With
exchange-listed futures contracts and options, counterparty credit risk to
the Fund is limited to the exchange's clearinghouse which, as counterparty
to all exchange-traded futures contracts and options, guarantees the
transactions against default from the actual counterparty to the
transaction. The Fund's derivative agreements held at June 30, 2019, 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.
================================================================================
60 | USAA EXTENDED MARKET INDEX FUND
================================================================================
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 2019* (IN THOUSANDS)
ASSET DERIVATIVES
---------------------------------------------------------------------------------------
STATEMENT OF
DERIVATIVES NOT ASSETS AND FOREIGN
ACCOUNTED FOR AS LIABILITIES INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
---------------------------------------------------------------------------------------
USAA Extended Distributable
Market Index Fund earnings $- $83 $- $83
* For open derivative instruments as of June 30, 2019, 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
THE SIX-MONTH PERIOD ENDED JUNE 30, 2019 (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 Extended Net realized gain
Market Index on Futures
Fund transactions $- $532 $- $532
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 Extended Change in net
Market Index unrealized
Fund appreciation/
(depreciation)
of Futures $- $76 $- $76
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
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 June 30, 2019, 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
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.
================================================================================
62 | USAA EXTENDED MARKET INDEX FUND
================================================================================
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency gains/
losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
H. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
================================================================================
(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 June 30, 2019, the Fund paid CAPCO facility fees
of $3,000, which represents 0.9% of the total fees paid to CAPCO by the funds of
the Trusts. The Fund had no borrowings under this agreement during the six-month
period ended June 30, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
(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 December 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.
================================================================================
64 | USAA EXTENDED MARKET INDEX FUND
================================================================================
At December 31, 2018, the Fund had no capital loss carryforwards, for federal
income tax purposes. Net capital losses incurred after October 31, and within
the taxable year are deemed to arise on the first business day of the Fund's
next taxable year. For the year ended December 31, 2018, the Fund deferred to
January 1, 2019, post October capital losses of $48,000.
As of June 30, 2019, 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 Extended
Market Index
Fund $321,626,000 $73,772,000 $247,854,000
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2019, were
$23,488,000 and $35,244,000, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
================================================================================
days. Risks relating to securities-lending transactions include that the
borrower may not provide additional collateral when required or return the
securities when due, and that the value of the short-term investments will be
less than the amount of cash collateral required to be returned to the borrower.
The Fund's agreement with Citibank does not include master netting provisions.
Non-cash collateral received by the Fund may not be sold or re-pledged except to
satisfy borrower default. Cash collateral is listed in the Fund's Portfolio of
Investments and Financial Statements while non-cash collateral is not included.
At June 30, 2019, 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
--------------------------------------------------------------------------------
$19,048,000 $2,497,000 $17,356,000
(6) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, 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 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.
Effective February 24, 2018, the Fund's management fees are accrued daily and
paid monthly at an annualized rate of 0.10% of the Fund's average daily net
assets. For the six-month period ended June 30, 2019, the Fund incurred
================================================================================
66 | USAA EXTENDED MARKET INDEX FUND
================================================================================
management fees, paid or payable to the Manager, of $369,000. PLEASE REFER TO
THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT
FOR ADDITIONAL IMPORTANT INFORMATION.
Under the Management Agreement, the Manager was responsible for monitoring the
services provided to the Extended Market Portfolio by BlackRock. The Manager
received no fee from the Fund for providing those monitoring services performed
on its behalf.
SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment Subadvisory
Agreement with BNY Mellon Asset Management North America Corporation (BNYM
AMNA), under which BNYM AMNA directs the investment and reinvestment of the
Fund's assets (as allocated from time to time by the Manager). This arrangement
provides for monthly fees that are paid by the Manager.
The Manager (not the Fund) pays BNYM AMNA a subadvisory fee in the amount of
0.02% of the Fund's average daily net assets for the first $500 million; 0.015%
of net assets for amounts over $500 million and up to $1 billion; and 0.01% of
net assets for amounts over $1 billion. For the six-month period ended June 30,
2019, the Manager incurred subadvisory fees with respect to the Fund, paid or
payable to BNYM AMNA, of $68,000. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO
THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
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 June 30, 2019, the Fund
incurred administration and servicing fees, paid or payable to the Manager, of
$554,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended June 30, 2019, the Fund reimbursed the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 67
================================================================================
Manager $3,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's Statement of Operations. PLEASE
REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS
SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
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 June 30, 2019, the Fund
incurred transfer agent's fees, paid or payable to SAS, of $335,000. PLEASE
REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS
SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
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. PLEASE REFER
TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL
REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
(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. PLEASE REFER TO THE SUBSEQUENT EVENT
NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
(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
================================================================================
68 | USAA EXTENDED MARKET INDEX FUND
================================================================================
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 has
determined there is no significant impact on the Fund's financial statements and
various filings.
(9) RECENT ACCOUNTING PRONOUNCEMENTS
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.
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. ASU 2018-13 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. Management has elected to
early adopt ASU 2018-13 effective with the current reporting period. The
adoption of ASU 2018-13 guidance is limited to changes in the Fund's notes to
financial statement disclosures regarding valuation method, fair value, and
transfers between levels of the fair value hierarchy.
(10) SUBSEQUENT EVENT NOTE
As previously announced, and as discussed in Note 1 to the Financial Statements,
effective July 1, 2019, AMCO, the prior investment adviser to the Fund, and SAS,
the prior transfer agent to the Fund, were acquired by Victory Holdings. PLEASE
SEE THE SUPPLEMENT DATED JULY 1, 2019 TO THE FUND'S PROSPECTUS FOR ADDITIONAL
IMPORTANT INFORMATION.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 69
================================================================================
Effective July 1, 2019, Victory Capital's internal investment team, Victory
Solutions, began managing the Fund's assets. BNYM AMNA no longer serves as a
sub-adviser to the Fund.
Effective July 1, 2019, the following changes were made to: (1) the Fund's
investment objective, (2) the index tracked by the Fund, and (3) the Fund's
principal investment strategy:
--------------------------------------------------------------------------------------------
PRIOR TO JULY 1, 2019 EFFECTIVE JULY 1, 2019
--------------------------------------------------------------------------------------------
INVESTMENT To match, before fees and expenses, To match, before fees and expenses,
OBJECTIVE the performance of all small- and the performance of all small- and
mid-cap stocks as measured by the mid-cap stocks as measured by the
Dow Jones U.S. Completion Total Wilshire 4500 Completion Index.
Stock Market Index.
--------------------------------------------------------------------------------------------
UNDERLYING Dow Jones U.S. Completion Wilshire 4500 Completion Index
INDEX Total Stock Market Index (existing Wilshire proprietary index)
--------------------------------------------------------------------------------------------
PRINCIPAL The Fund's principal investment The Fund's principal investment
INVESTMENT strategy is, under normal market strategy is, under normal market
STRATEGY conditions, to invest at least 80% conditions, to invest at least 80% of
of its assets in securities or other its assets in securities or other
financial instruments of companies financial instruments of companies
that are components of, or have that are components of, or have
economic characteristics similar to, economic characteristics similar to,
the securities included in the Dow the securities included in the
Jones U.S. Completion Total Stock Wilshire 4500 Completion Index.
Market Index. This strategy may be This strategy may be changed upon
changed upon 60 days' written 60 days' written notice to
notice to shareholders. shareholders.
--------------------------------------------------------------------------------------------
Effective July 1, 2019, Victory Capital is the new investment adviser and
administrator to the USAA Mutual Funds; SAS was renamed Victory Capital Transfer
Agency, Inc.; Victory Capital Advisers, Inc. is the new distributor to the USAA
Mutual Funds; Citi Fund Services of Ohio, Inc. serves as sub-administrator and
sub-fund accountant for the USAA Mutual Funds; and FIS Investor Services LLC
serve as sub-transfer agent and dividend disbursing agent for the USAA Mutual
Funds. Effective August 5, 2019, Citibank, N.A. is the new custodian for the
USAA Mutual Funds.
================================================================================
70 | USAA EXTENDED MARKET INDEX FUND
================================================================================
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2019 permitting the
use of a "manager-of-managers" structure for certain funds. Prior to that date,
the Trust relied on a similar exemptive order granted by the SEC to the Trust
and its affiliated persons. Under a manager of managers structure, the
investment adviser may select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the day-to-day
investment of a fund's assets.
Effective July 1, 2019, Victory Capital added new portfolio managers from one or
more investment teams employed by Victory Capital to serve as additional
portfolio managers, or replace current portfolio managers, to manage all or a
portion of the Fund according to each team's own investment process.
Effective July 1, 2019, under the investment advisory agreement with Victory
Capital, which took effect on July 1, 2019, no performance adjustments will be
made for periods beginning July 1, 2019, through June 30, 2020, and only
performance beginning as of July 1, 2020, and thereafter will be utilized in
calculating performance adjustments through June 30, 2020.
Effective July 1, 2019, the line of credit (as discussed in the Notes to the
Financial Statements in this semiannual report) among the Trust, with respect to
its Funds, and CAPCO terminated; the Trust, with respect to its Funds, along
with series of Victory Portfolios, Victory Portfolios II and Victory Variable
Insurance Funds, entered into a 364 day committed credit facility and a 364 day
uncommitted, demand credit facility with Citibank, N.A. (Citibank). Each such
credit facility may be renewed if so agreed by the parties. Under the agreement
with Citibank, the Funds may borrow up to $600 million, of which $300 million is
committed and $300 million is uncommitted. Of this amount, $40 million of the
line of credit is reserved for use by the Victory Floating Rate Fund (a series
of Victory Portfolios), with that Fund paying the related commitment fees for
that amount. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests. Citibank receives an annual commitment fee
of 0.15%. Each Fund pays a pro-rata portion of this commitment fee plus any
interest on amounts borrowed.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 71
================================================================================
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2017 (the IFL
Order), permitting the establishment and operation of an Interfund Lending
Facility (the Facility). The Facility allows each Fund to directly lend and
borrow money to or from certain other affiliated Funds relying upon the IFL
Order at rates beneficial to both the borrowing and lending funds. Advances
under the Facility are allowed for temporary or emergency purposes, including
the meeting of redemption requests that are subject to each Fund's borrowing
restrictions. The interfund loan rate is determined, as specified in the IFL
Order, by averaging the current repurchase agreement rate and the current bank
loan rate.
Effective July 1, 2019, the Trust entered into an Agreement to Provide
Compliance ("Compliance Agreement") with the Adviser, pursuant to which the
Adviser furnishes its compliance personnel, including the services of the CCO,
and other resources reasonably necessary to provide the Trust with compliance
oversight services related to the design, administration, and oversight of a
compliance program for the Trust in accordance with Rule 38a-1 under the 1940
Act. The Funds in the Victory Funds complex, in the aggregate, compensate the
Adviser for these services. This agreement replaces an arrangement in place
with AMCO previously.
================================================================================
72 | USAA EXTENDED MARKET INDEX FUND
================================================================================
FINANCIAL HIGHLIGHTS
(unaudited)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
----------------------------------------------------------------------------
Net asset value at
beginning of period $ 16.14 $ 18.98 $ 17.34 $ 16.06 $ 18.02 $ 17.63
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .13 .17 .18 .18 .14 .16
Net realized and
unrealized gain (loss) 2.98 (1.96) 2.88 2.33 (.81) 1.09
----------------------------------------------------------------------------
Total from investment
operations 3.11 (1.79) 3.06 2.51 (.67) 1.25
----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.17) (.18) (.18) (.15) (.16)
Realized capital gains - (.88) (1.24) (1.05) (1.14) (.70)
----------------------------------------------------------------------------
Total distributions - (1.05) (1.42) (1.23) (1.29) (.86)
----------------------------------------------------------------------------
Net asset value at
end of period $ 19.25 $ 16.14 $ 18.98 $ 17.34 $ 16.06 $ 18.02
============================================================================
Total return (%)* 19.27 (9.70) 17.72 15.48 (3.76) 7.18
Net assets at
end of period (000) $765,018 $656,406 $765,211 $671,703 $619,624 $660,930
Ratios to average
daily net assets:**
Expenses (%)(a) .42(b) .43(c) .44 .48 .48(d) .48
Expenses, excluding
reimbursements (%)(a) .42(b) .43(c) .44 .48 .48 .48
Net investment income (%) 1.15(b) .90 .93 1.14 .86 .94
Portfolio turnover (%) 3 12(e) 11(f) 13(f) 14(f) 10(f)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$745,633,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
FINANCIAL HIGHLIGHTS | 73
================================================================================
(c) Prior to February 24, 2018, the Fund was a feeder fund in a master-feeder
structure investing in Master Extended Market Index Series (the Series) to a
stand-alone fund. Expenses include expenses allocated to the Fund by the
Series prior to the conversion.
(d) Prior to May 1, 2015, the Manager had voluntarily agreed to limit the annual
expenses of the Fund to 0.50% of the Fund's average daily net assets.
(e) Reflects the period February 24, 2018 to December 31, 2018, after the Fund
converted to a stand-alone fund.
(f) Represents the portfolio turnover of the Series.
================================================================================
74 | USAA EXTENDED MARKET INDEX FUND
================================================================================
EXPENSE EXAMPLE
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including administration fees, transfer agency fees, expenses allocated to the
Fund by the Master Extended Market Index Series (the Series), and other Fund
operating expenses. This example is intended to help you understand your
indirect costs, also referred to as "ongoing costs" (in dollars), of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2019, through June
30, 2019.
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 | 75
================================================================================
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2019-
JANUARY 1, 2019 JUNE 30, 2019 JUNE 30, 2019
-----------------------------------------------------
Actual $1,000.00 $1,192.70 $2.28
Hypothetical
(5% return before expenses) 1,000.00 1,022.71 2.11
*Expenses are equal to the Fund's annualized expense ratio of 0.42%, which are
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 181 days/365 days (to
reflect the one-half-year period). The Fund's actual ending account value is
based on its actual total return of 19.27% for the six-month period of January
1, 2019, through June 30, 2019.
================================================================================
76 | USAA EXTENDED MARKET INDEX FUND
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND VICTORY CAPITAL MANAGEMENT INC.)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the (i) new investment
advisory agreement between the Trust and Victory Capital and (ii) new investment
subadvisory agreements between certain subadvisers and Victory Capital, which
became effective on July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO
THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting held on January 15, 2019, the USAA Mutual Funds Trust's
("Trust") Board of Trustees ("Board"), including those Trustees who are not
parties to any investment advisory or management agreement between USAA Asset
Management Company ("AMCO") and the Trust ("Existing Management Agreements") or
the new Investment Advisory Agreement between the Trust and Victory Capital
Management Inc. ("Victory Capital") (the "New Advisory Agreement") or
"interested persons" (as that term is defined in the Investment Company Act of
1940 Act, as amended ("1940 Act")) of such parties or the Trust (the
"Independent Trustees"), considered and unanimously approved the New Advisory
Agreement between the Trust, on behalf of each of its series (each a "Fund" and
together the "Funds"), and Victory Capital, and, as applicable, new Investment
Subadvisory Agreements between Victory Capital and each investment subadviser
("New Subadvisory Agreements," and together with the New Advisory Agreement, the
"New Agreements"), as listed below. The Board also determined to recommend that
shareholders of each Fund approve the New Advisory Agreement. Shareholder
approval is not required for the New Subadvisory Agreements. The Independent
Trustees reviewed the proposed approval of the New Agreements in private
sessions with their independent legal counsel at which no representatives of
Victory Capital or AMCO were present.
================================================================================
ADVISORY AGREEMENT(S) | 77
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BACKGROUND FOR THE BOARD APPROVALS
At a telephonic meeting of the Board held on November 5, 2018, representatives
of USAA and AMCO informed the Board that USAA's subsidiary, USAA Investment
Corporation, would enter into a stock purchase agreement with Victory Capital
Holdings, Inc. ("Victory Holdings") pursuant to which Victory Holdings would
acquire all of the outstanding stock of AMCO and USAA Transfer Agency Company
d/b/a USAA Shareholder Account Services ("USAA Transfer Agent") (the
"Transaction"). The Independent Trustees were advised that the Transaction, if
completed, would constitute an "assignment" (as that term is defined in Section
2(a)(4) of the 1940 Act) and result in the automatic termination of the Existing
Management Agreements ("Change of Control Event"). The Independent Trustees also
were advised that it was proposed that Victory Capital, a subsidiary of Victory
Holdings, would serve as the investment adviser to each Fund after the closing
of the Transaction ("Post-Transaction") and that the Board would be asked to
consider approval of the terms and conditions of the New Advisory Agreement with
Victory Capital and thereafter to submit the New Advisory Agreement to each
Fund's shareholders for approval. Because the Change of Control Event also would
result in the termination of each existing subadvisory agreement between AMCO
and the subadvisers to the Funds ("Existing Subadvisory Agreements"), the
Independent Trustees were advised that the Board would also be asked to approve
the New Subadvisory Agreements.
In anticipation of the Transaction, the Trustees met at a series of subsequent
in-person meetings on November 27-28, 2018, January 7-8, 2019, and January
14-15, 2019, which included meetings of the full Board and separate meetings of
the Independent Trustees for the purposes of considering, among other things:
whether it would be in the best interests of each Fund and its respective
shareholders to approve the New Agreements; and the anticipated impacts of the
Transaction on the Funds and their shareholders (each, a "Meeting"). During each
of these Meetings, the Board sought additional and clarifying information as it
deemed necessary or appropriate. In this connection, the Independent Trustees
worked with their independent
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legal counsel to prepare formal due diligence requests (the "Diligence
Requests") that were submitted to Victory Capital, Victory Capital Advisers,
Inc. ("VCA"), and the subadvisers. The Diligence Requests sought information
relevant to the Board's consideration of the New Advisory Agreement, the New
Subadvisory Agreements, distribution arrangements, and other anticipated impacts
of the Transaction on the Funds and their shareholders. Victory Capital, VCA,
and the subadvisers provided documents and information in response to the
Diligence Requests (the "Response Materials"). Following their review of the
Response Materials, the Independent Trustees submitted a supplemental due
diligence request for additional and clarifying information (the "Supplemental
Diligence Request") to Victory Capital and VCA. Victory Capital and VCA provided
further information in response to the Supplemental Diligence Request, which the
Board reviewed. Senior management representatives of Victory Capital and/or AMCO
participated in a portion of each Meeting and addressed various questions raised
by the Board. Throughout the process, the Independent Trustees were assisted by
their independent legal counsel and counsel to the Funds, who advised them on,
among other things, their duties and obligations relating to their consideration
of the New Agreements.
The Board's evaluation of the New Agreements reflected the information provided
specifically in connection with its review of the New Agreements, as well as,
where relevant, information that was previously furnished to the Board in
connection with the most recent renewal of the Existing Management Agreements
and Existing Subadvisory Agreements at an in-person meeting of the Board on
April 18, 2018 (the "2018 15(c) Meeting") and at other subsequent Board meetings
in 2018. The Board's evaluation of the New Agreements also reflected the
knowledge gained as Board members of the Funds with respect to services provided
by AMCO, its affiliates, and each subadviser to the Funds.
The Board's approvals and recommendations were based on its determination,
within its business judgment, that it would be in the best interests of each
Fund and its respective shareholders, for Victory Capital and, as applicable,
the subadvisers, to provide investment advisory, investment subadvisory, and
related services to the Funds, following the closing of the Transaction.
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ADVISORY AGREEMENT(S) | 79
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FACTORS CONSIDERED IN APPROVING THE NEW ADVISORY AGREEMENT
In connection with the Board's consideration of the New Advisory Agreement,
Victory Capital and AMCO advised the Board about a variety of matters, including
the following:
o The nature, extent, and quality of the services to be provided to the
Funds by Victory Capital Post-Transaction are expected to be of at least
the same level as the services currently provided to the Funds by AMCO.
o Victory Capital's stated commitment to maintaining and enhancing the
USAA member/USAA Fund shareholder experience, including creating a
dedicated USAA Fund sales and client service call center that will
provide ongoing client service and advice to existing and new USAA
members.
o Victory Capital proposes to: (1) replace the underlying indexes for the
USAA Extended Market Index Fund and USAA S&P 500 Index Fund with indexes
designed to provide shareholders with comparable exposure and investment
outcomes; (2) change the USAA Extended Market Index Fund's and USAA S&P
500 Index Fund's investment objectives and strategies in light of the
changes to their underlying indexes; and (3) change the name of the USAA
S&P 500 Index Fund to the USAA 500 Index Fund.
o Victory Capital does not propose changes to the investment objective(s)
of any other Funds. Although the investment processes used by Victory
Capital's portfolio managers may differ from those used by AMCO's
portfolio managers or, if applicable, any subadviser's portfolio
managers, such differences are not currently expected to result in
changes to the principal investment strategies or principal investment
risks of the Funds.
o The New Advisory Agreement does not change any Fund's advisory fee rate
or the computation method for calculating such fees (except that Victory
Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment).
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For at least two years after the Transaction closes, Victory Capital has
agreed to waive fees and/or reimburse expenses so that each Fund's
annual expense ratio (excluding certain customary items) does not exceed
the levels reflected in each Fund's most recent audited financial
statements at the time the Transaction closes (or the levels of AMCO's
then-current expense caps, if applicable), excluding the impact of any
performance adjustment to the Fund's advisory fee.
o The portfolio managers at AMCO that manage the Fixed Income Funds(1) as
well as the USAA's Global Multi-Asset team servicing the Cornerstone
Funds(2), Target Retirement Funds(3), Global Managed Volatility Fund,
Managed Allocation Fund, and Target Managed Allocation Fund, are
expected to continue to do so Post-Transaction as employees of Victory
Capital, if they choose to become employees of Victory Capital.
Post-Transaction, the investment teams for the Funds, other than the
Fixed Income Funds, will be replaced or augmented.
o With the exception of the USAA S&P 500 Index Fund, USAA Extended Market
Index Fund, and USAA Nasdaq-100 Index Fund, which will be advised by
Victory Capital through its Victory Solutions platform, Victory Capital
proposes that the same subadvisers be retained Post-Transaction,
although Victory Capital may change the allocation to a particular
subadviser Post-Transaction. No changes are expected to the portfolio
managers of the subadvisers who will serve as subadvisers
Post-Transaction.
(1)The Fixed Income Funds include the following Funds: California Bond Fund,
Government Securities Fund, High Income Fund, Income Fund, Intermediate-Term
Bond Fund, Tax Exempt Intermediate-Term Fund, Tax Exempt Long-Term Fund, New
York Bond Fund, Short-Term Bond Fund, Tax Exempt Short-Term Fund, Ultra
Short-Term Bond Fund, Virginia Bond Fund, Money Market Fund, Tax Exempt Money
Market Fund and Treasury Money Market Trust.
(2)The Cornerstone Funds include the following Funds: Cornerstone Aggressive
Fund, Cornerstone Conservative Fund, Cornerstone Equity Fund, Cornerstone
Moderate Fund, Cornerstone Moderately Aggressive Fund, and Cornerstone
Moderately Conservative Fund.
(3)The Target Retirement Funds include the following Funds: Target Retirement
2020 Fund, Target Retirement 2030 Fund, Target Retirement 2040 Fund, Target
Retirement 2050 Fund, Target Retirement 2060 Fund, and Target Retirement
Income Fund.
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ADVISORY AGREEMENT(S) | 81
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o VCA's distribution capabilities, including its significant network of
intermediary relationships, which may provide additional opportunities
for the Funds to grow assets and lower fees and expenses through
increased economies of scale.
o The experience of Victory Capital in acquiring and integrating
investments in investment management companies and its plans to
transition and integrate AMCO's and USAA Transfer Agent's businesses to
Victory Capital. Victory Capital and USAA expect to enter into a
transition services agreement under which USAA will continue to provide
Victory Capital with certain services that are currently provided by
USAA to AMCO and the USAA Transfer Agent for a specified period of time
after the closing of the Transaction to assist Victory Capital in
transitioning the USAA member distribution channel and member support
services.
o Pursuant to a transitional trademark license agreement with USAA,
Victory Capital and the Funds will have a non-exclusive license, subject
to certain restrictions and limitations, to continue using certain
licensed marks including "USAA," "United Services Automobile
Association," and the USAA Logo in connection with their asset
management and transfer agency businesses for a period of three years
following the closing of the Transaction, which agreement may thereafter
be extended for an additional year.
o The support expressed by the current senior management team at AMCO for
the Transaction and AMCO's recommendation that the Board approve the New
Agreements.
o The commitments of Victory Capital and AMCO to bear all of the direct
expenses of the Transaction, including all legal costs and costs
associated with the proxy solicitation, regardless of whether the
Transaction is consummated.
In addition to the matters noted above, in their deliberations regarding
approval of the New Advisory Agreement, the Board considered the factors
discussed below, among others.
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THE NATURE, EXTENT, AND QUALITY OF SERVICES EXPECTED TO BE PROVIDED BY VICTORY
CAPITAL - The Board considered information provided by Victory Capital regarding
its investment philosophy, investment management capabilities, business and
operating structure, scale of operations, leadership and reputation,
distribution capabilities, and financial condition. The Board also considered
the capabilities, resources, and personnel of Victory Capital, including senior
and other personnel of AMCO who had been extended offers to join Victory
Capital, in order to determine whether Victory Capital is capable of providing
the same level of investment management services currently provided to each
Fund, and also considered the transition and integration plans to move
management of the Funds to Victory Capital. The Board recognized that the AMCO
personnel who had been extended offers may not accept such offers and personnel
changes may occur in the future in the ordinary course. The Board considered the
resources and infrastructure that Victory Capital intends to devote to its
compliance program to ensure compliance with applicable laws and regulations, as
well as Victory Capital's commitment to those programs. The Board also
considered the resources that Victory Capital has devoted to its risk management
program and cybersecurity program. The Board also reviewed information provided
by Victory Capital related to its business, legal, and regulatory affairs. This
review considered the resources available to Victory Capital to provide the
services specified under the New Advisory Agreement. The Board considered
Victory Capital's financial condition, including the financing of the
Transaction, and noted that Victory Capital is expected to be able to provide a
high level of service to the Funds and continuously invest and re-invest in its
business.
The Board considered that, while it was proposed that Victory Capital would
become the investment adviser to the Funds, the same portfolio managers at AMCO
that manage the Fixed Income Funds, as well as USAA's Global Multi-Asset team
servicing the Cornerstone Funds, Target Retirement Funds (including Target
Managed Allocation Fund), Global Managed Volatility Fund, and Managed Allocation
Fund, are expected to continue to do so after the Transaction as employees of
Victory Capital, if they choose to become employees of Victory Capital. The
Board determined that it had considered the qualifications of the portfolio
managers at AMCO and the subadvisers at its 2018 15(c) Meeting. The Board
considered the professional experience,
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ADVISORY AGREEMENT(S) | 83
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education, affiliations and/or other credentials or qualifications of the
anticipated portfolio managers at Victory Capital that would manage the Equity
Funds(4), Cornerstone Funds, and Target Retirement Funds. The Board noted that
the Equity Funds or portions of Equity Funds currently managed by AMCO would be
replaced with portfolio managers from Victory Capital.
The Board considered that certain Funds would continue to operate in a
manager-of-managers structure Post-Transaction. The Board considered that
Victory Capital's experience in allocating assets to, and overseeing the
advisory services of, its investment franchises and the Victory Solutions
platform, was similar to AMCO's role in allocating assets to and overseeing the
advisory services provided by the subadvisers.
The Board considered that the terms and conditions of the New Advisory Agreement
are substantially similar to the terms and conditions of the Existing Management
Agreements. The Board also considered that the New Subadvisory Agreements are
substantially similar to the terms and conditions of the Existing Subadvisory
Agreements and that no changes were proposed to the allocation of
responsibilities as between Victory Capital and any subadviser, except to the
extent that under the New Subadvisory Agreements each subadviser would be
responsible for voting proxies with respect to assets allocated to that
subadviser, while AMCO currently votes all Fund proxies. The Board considered
that Victory Capital also would provide certain administrative, fund accounting,
and shareholder servicing services under a separate administration agreement
with the Funds. In this connection, the Board considered information on Victory
Capital's use of third-party service providers to provide certain
sub-administration and sub-accounting services to the Funds.
After review of these and other considerations, the Board concluded that Victory
Capital will be capable of providing investment advisory services of the same
high quality as the investment advisory services provided to the Funds by AMCO,
and that these services are appropriate in nature and extent in light of the
Funds' operations and investor needs.
(4)The Equity Funds include the following Funds: Aggressive Growth Fund, Growth
& Income Fund, Income Stock Fund, Global Equity Income Fund, and Precious
Metals and Minerals Fund.
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84 | USAA EXTENDED MARKET INDEX FUND
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PERFORMANCE OF THE FUNDS - With respect to the performance of the Funds, the
Board considered its review at the 2018 15(c) Meeting of peer group and
benchmark investment performance comparison data relating to each Fund and, if
applicable, each subadviser's performance record for similar accounts. The
Board considered that information reviewed at the 2018 15(c) Meeting may be more
relevant for those Funds that would retain their current portfolio managers or
subadvisers. With respect to the Funds whose portfolio managers would be
replaced, the Board considered the performance of funds sponsored and managed by
Victory Capital ("Victory Funds") with similar investment objectives and
strategies managed by the portfolio managers who would manage the Funds. Based
on information presented to the Board at the Meetings and its discussions with
Victory Capital, the Board concluded that Victory Capital is capable of
generating a level of long-term investment performance that is appropriate in
light of each Fund's investment objectives, strategies and restrictions.
FEES TO BE PAID TO VICTORY CAPITAL AND EXPENSES OF THE FUNDS - The Board
considered that it had reviewed each Fund's existing advisory fee rate and
computation method for calculating such fees at the 2018 15(c) Meeting. The
Board considered that the New Advisory Agreement does not change any Fund's
advisory fee rate or the computation method for calculating such fees, except
that Victory Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment and apply the
resulting performance adjustment across each other class of shares of the Fund.
The Board considered that the use of a single designated class to calculate the
performance adjustment for each other class of shares of the Fund could mean
that shareholders of a class other than the class used to measure the
performance adjustment may pay a performance adjustment that is higher or lower
than if the adjustment were calculated on a class by class basis, primarily due
to the impact of differences in the fees and expenses between share classes on
performance. The Board considered that the New Advisory Agreement stipulates
that the period for measuring performance for calculating a Fund's performance
adjustment begins on the date that Victory Capital begins managing the Fund;
therefore, no performance adjustments will be made for the first twelve months
of the New Advisory Agreement, consistent with applicable regulations. The Board
also considered Victory Capital's contractual commitment under the expense
limitation
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ADVISORY AGREEMENT(S) | 85
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agreement ("ELA") to waive fees and/or reimburse expenses for at least two years
after the closing of the Transaction, so that each Fund's annual expense ratio
(excluding acquired fund fees and expenses, any performance adjustment to a
Fund's advisory fee, interest, taxes, brokerage commissions, other expenditures
which are capitalized in accordance with generally accepted accounting
principles, and other extraordinary expenses not incurred in the ordinary course
of such Fund's business) does not exceed the levels reflected in each Fund's
most recent audited financial statements at the time the Transaction closes (or
the levels of AMCO's then-current expense caps, if applicable), excluding the
impact of any performance adjustment to a Fund's advisory fee. The Board
considered that the ELA permits Victory Capital to recoup advisory fees waived
and expenses reimbursed for up to three years after the fiscal year in which the
waiver or reimbursement took place, subject to the lesser of any operating
expense limitation in effect at the time of: (1) the original waiver or expense
reimbursement; or (2) recoupment. The Board also considered that Victory Capital
and AMCO had represented to the Board that they will use their best efforts to
ensure that they and their respective affiliates do not take any action that
imposes an "unfair burden" on the Funds as a result of the Transaction or as a
result of any express or implied terms, conditions or understandings applicable
to the Change of Control Event, for so long as the requirements of Section 15(f)
of the 1940 Act apply. The Board also considered a comparison of the proposed
advisory fees to be paid by each Fund to the advisory fees paid by funds and
other accounts managed by Victory Capital deemed to be comparable to the Fund in
terms of investment objectives and strategies. The Board considered that, with
few exceptions, mostly involving weighted average fees for separate accounts,
the advisory fees to be paid by the Funds were lower than the fees paid by these
other funds and accounts. The Board concluded that the retention of Victory
Capital was unlikely to impose an unfair burden on the Funds because, after the
Transaction, none of AMCO, Victory Capital, VCA, or any of their respective
affiliates, would be entitled to receive any compensation directly or indirectly
(i) from any person in connection with the purchase or sale of securities or
other property to, from, or on behalf of the Funds (other than ordinary fees for
bona fide principal underwriting services), or (ii) from the Funds or their
shareholders for other than bona fide investment advisory or other services.
Based on its review, the Board determined, with respect to each Fund, that
Victory Capital's advisory fee is fair and reasonable.
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86 | USAA EXTENDED MARKET INDEX FUND
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THE EXTENT TO WHICH VICTORY CAPITAL MAY REALIZE ECONOMIES OF SCALE AS THE FUNDS
GROW LARGER AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE FOR THE
BENEFIT OF FUND SHAREHOLDERS - The Board considered potential or anticipated
economies of scale in relation to the services Victory Capital would provide to
each Fund. The Board considered that the New Advisory Agreement includes the
same advisory fee breakpoints for the same Funds as the Existing Advisory
Agreements. The Board also considered that Victory Capital has contractually
agreed to cap the Funds' annual operating expense ratios, pursuant to the ELA,
which will remain in effect for at least two years from the closing of the
Transaction, and may be extended. The Board also considered Victory Capital's
representation that the significant increase in its assets under management
Post-Transaction may reasonably be expected to enable the new combined firm to
reach greater economies of scale in a shorter time frame. The Board noted that
it will have the opportunity to periodically re-examine whether a Fund or the
Trust has achieved economies of scale, and the appropriateness of investment
advisory and administrative fees payable to Victory Capital, in the future.
THE PROFITS TO BE REALIZED BY VICTORY CAPITAL AND ITS AFFILIATES FROM THEIR
RELATIONSHIP WITH THE TRUST - The Board considered the benefits Victory Capital
and its affiliates may derive from their relationship with the Funds, including
compensation to be paid to Victory Capital for the provision of certain
administrative, fund accounting and shareholder services to the Funds and
compensation to be paid to USAA Transfer Agent for the provision of transfer
agency services to the Funds. The Board considered the significant investments
Victory Capital expected to make to support and grow the USAA member channel and
the costs to integrate the USAA Fund business into Victory Capital. The Board
also considered Victory Capital's profitability report presented to the board of
trustees of the Victory Funds in connection with their most recent 15(c)
process. The Board considered Victory Capital's representation that the fully
integrated USAA Fund business, including investments to support ongoing growth,
was expected to have an overall marginally positive impact on Victory Capital's
overall financial profitability. The Board noted the difficulty of accurately
projecting profitability under the current circumstance and noted that it would
have the opportunity to give further consideration to Victory Capital's
profitability with respect to the Funds at the end of the initial two-year term
of the New Advisory Agreement.
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ADVISORY AGREEMENT(S) | 87
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FALL-OUT AND OTHER BENEFITS TO VICTORY CAPITAL AND ITS AFFILIATES - The Board
considered the possible fall-out benefits and other types of benefits that may
accrue to Victory Capital and its affiliates. The Board noted that the
Transaction provides Victory Capital and its affiliates the opportunity to
deliver investment products and services to USAA's direct member-based channel.
The Board also considered that Victory Capital may derive reputational and other
benefits from its ability to use "USAA" and related names in connection with
operating and marketing the Funds. The Board considered that the Transaction, if
completed, would significantly increase Victory Capital's assets under
management and expand Victory Capital's investment capabilities. This increased
size and diversification could facilitate Victory Capital's continued investment
in its business and products, which Victory Capital would be able to leverage
across a broader base of assets. Victory Capital also would be able to use
trading commission credits from the Funds' transactions in securities to
"purchase" third party research and execution services to support its investment
process. Based on its review, the Board determined that any "fall-out" benefits
and other types of benefits that may accrue to Victory Capital are fair and
reasonable.
CONCLUSIONS - Based on the foregoing and other relevant considerations, at the
Meeting of the Board held on January 15, 2019, the Board, including a majority
of the Independent Trustees, acting within its business judgment, (1) concluded
that the terms of the New Advisory Agreement are fair and reasonable and that
approval of the New Advisory Agreement is in the best interests of each Fund and
its respective shareholders, (2) voted to approve the New Advisory Agreement,
and (3) voted to recommend approval of the New Advisory Agreement by
shareholders of the Funds. The Board evaluated all information available to it
on a Fund-by-Fund basis and its determinations were made separately in respect
of each Fund. The Board noted some factors may have been more or less important
with respect to any particular Fund and that no one factor was determinative of
its decisions which, instead, were premised upon the totality of factors
considered. In this connection, the Board also noted that different Board
members likely placed emphasis on different factors in reaching their individual
conclusions to vote in favor of the New Advisory Agreement and to recommend
approval of the New Advisory Agreement by shareholders of the Funds.
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ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND THE MANAGER)
June 30, 2019 (unaudited)
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The following disclosure relates to the approval of the continuation of the
(i) investment advisory agreement between the Trust and AMCO and (ii) investment
subadvisory agreements between certain subadvisers and AMCO, which were
effective until July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting of the Board of Trustees (the Board) held on April 17,
2019, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Management Agreement between the Trust and the Manager.(1) The Board
noted that the Fund's subadvisory agreement was not being considered for renewal
at this meeting since it was approved for an initial two-year period at the
Board's September 22, 2017 meeting in connection with the approval of the
conversion of the Fund from a master-feeder structure to a subadvised
structure. The Board noted management's plans to terminate the Fund's
subadvisory agreement prior to the expiration of its initial two-year term.
(1)At an in-person meeting held on January 15, 2019, the Board, including the
Independent Trustees, approved a new investment advisory agreement between
the Trust, on behalf of the Fund, and Victory Capital Management Inc.
("Victory Capital"). Effective July 1, 2019, upon the closing of the
transaction whereby the Manager acquired by Victory Capital Holdings, Inc.,
the parent company of Victory Capital, the Advisory Agreement between the
Trust and the Manager and the Sub-advisory Agreement with the Subadviser
terminated and the new investment advisory agreement between the Trust and
Victory Capital went into effect. The factors the Board considered in
approving the new investment advisory agreement with Victory Capital are
discussed above. Effective June 30, 2019, the Subadviser no longer manages
any portion of the Fund.
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ADVISORY AGREEMENT(S) | 89
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In advance of the meeting, the Trustees received and considered a variety of
information relating to the Management Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Management Agreement with management and with experienced
counsel retained by the Independent Trustees (Independent Counsel) and received
materials from such Independent Counsel discussing the legal standards for their
consideration of the proposed continuation of the Management Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Management Agreement with respect to the Fund in private
sessions with Independent Counsel at which no representatives of management were
present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager and by the subadviser.
At the meeting at which the renewal of the Management Agreement is considered,
particular focus is given to information concerning Fund performance, fees and
total expenses as compared to comparable investment companies, and the Manager's
profitability with respect to the Fund. However, the Board noted that the
evaluation process with respect to the Manager is an ongoing one. In this
regard, the Board's and its committees' consideration of the Management
Agreement included certain information previously received at such meetings.
MANAGEMENT AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Management Agreement. In approving
the Management Agreement, the Trustees did not identify any
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90 | USAA EXTENDED MARKET INDEX FUND
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single factor as controlling, and each Trustee may have attributed different
weights to various factors. Throughout their deliberations, the Independent
Trustees were represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Management Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Management Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, shareholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust. The Board
also considered the significant risks assumed by the Manager in connection with
the services provided to the Fund, including investment, operational,
enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Management Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of senior personnel and investment personnel, as well as current
staffing levels. The Board considered the Manager's process for monitoring the
performance of the Subadviser and its timeliness in responding to performance
issues. The allocation of the Fund's brokerage, including the Manager's process
for monitoring "best execution," also was considered. The Manager's role in
coordinating the activities of the Fund's other service providers also was
considered. The Board also considered the Manager's risk management processes.
The Board considered the Manager's financial condition and that it had the
financial wherewithal to continue to provide the same scope and high quality of
services under the Management
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ADVISORY AGREEMENT(S) | 91
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Agreement. In reviewing the Management Agreement, the Board focused on the
experience, resources, and strengths of the Manager and its affiliates in
managing the Fund, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager, including the Manager's and its affiliates' oversight
of the Fund's day-to-day operations and Fund accounting. The Trustees, guided
also by information obtained from their experiences as trustees of the Trust,
also focused on the quality of the Manager's compliance and administrative
staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the
Management Agreement, the Board evaluated the advisory fees and total expense
ratio of the Fund as compared to other open-end investment companies deemed to
be comparable to each class of the Fund as determined by the independent third
party in its report. The Fund was compared to (i) a group of investment
companies chosen by the independent third party to be comparable to the class of
the Fund based upon certain factors, including fund type, comparability of
investment objective and classification, sales load type (in this case, retail
investment companies with front-end loads and no sales loads), asset size, and
expense components (the "expense group") and (ii) a larger group of investment
companies that includes all front-end load and no-load retail open-end
investment companies with the same investment classification/objective as the
Fund regardless of asset size, excluding outliers (the "expense universe").
Among other data, the Board noted that the Fund's management fee rate - which
includes advisory and administrative services - was equal to the median of its
expense group and below the median of its expense universe. The data indicated
that the Fund's total expenses were equal to the median of its expense group and
below the median of its expense universe. The Board took into account the
various services provided to the Fund by the Manager and its affiliates,
including the high quality of services received by the Fund from the Manager.
The Board also noted the level and method of computing the management fee. The
Trustees also took into account that the subadvisory fees under the Subadvisory
Agreement are paid by the Manager. The Board also considered and discussed
information about the subadviser's fees including the amount of the management
fee retained by the Manager after payment of the subadvisory fee.
================================================================================
92 | USAA EXTENDED MARKET INDEX FUND
================================================================================
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Management Agreement,
including, among other information, a comparison of the average annual total
returns of the Fund with its Lipper index and with that of other mutual funds
deemed to be in its peer group by the independent third party in its report (the
"performance universe"). The performance universe of the Fund consisted of the
Fund and all retail and institutional open-end investment companies with the
same classification/objective as the Fund regardless of asset size or primary
channel of distribution. This comparison indicated that, among other data, the
Fund's performance was above the average of its performance universe for the
one-, three-, five- and ten-year periods ended December 31, 2018, and the Fund's
performance was above its Lipper index for the one-, five- and ten-year periods
ended December 31, 2018, and was below its Lipper index for the three-year
period ended December 31, 2018. The Board also noted that the Fund's percentile
performance ranking was in the top 25% of its performance universe for the
one-year period ended December 31, 2018, was in the top 35% of its performance
universe for the three-year period ended December 31, 2018, was in the top 25%
of its performance universe for the five-year period ended December 31, 2018,
and was in the top 20% of its performance universe for the ten-year period ended
December 31, 2018. The Board took into account management's discussion of the
Fund's performance, including the Fund's high level of correlation between the
Fund's performance and its corresponding index.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the Fund's management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the level of management revenues from the Fund. This information
included a review of the methodology used in the allocation of certain costs to
the Fund. In considering the profitability data with respect to the Fund, the
Trustees noted that the Manager pays the Fund's subadvisory fees. The Trustees
reviewed the profitability of the Manager's
================================================================================
ADVISORY AGREEMENT(S) | 93
================================================================================
relationship with the Fund before tax expenses. The Board was also provided with
an Investment Management Profitability Analysis prepared by an independent
information service. In reviewing the overall profitability of the management
fee to the Manager, the Board also considered the fact that affiliates provide
shareholder servicing and administrative services to the Fund for which they
receive compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Trustees recognized that the Manager should be able to earn a
reasonable level of profits in exchange for the level of services it provides to
the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the Fund's current advisory fee structure. The Board also considered that the
Manager pays the subadvisory fee. The Board also considered the effects of the
Fund's growth and size on the Fund's performance and fees, noting that if the
Fund's assets increase over time, the Fund may realize other economies of scale
if assets increase proportionally more than some expenses. The Board determined
that the current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Management Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Management Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability, if any, from its relationship with the Fund is reasonable in
light of the nature and high quality of services provided by the Manager and the
type of fund. Based on its conclusions, the Board determined that continuation
of the Management Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
94 | USAA EXTENDED MARKET INDEX FUND
================================================================================
AS OF JULY 1, 2019
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
David C. Brown
John C. Walters
--------------------------------------------------------------------------------
ADMINISTRATOR AND Victory Capital Management Inc.
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND Victory Capital Advisers, Inc.
DISTRIBUTOR 4900 Tiedeman Road
Brooklyn, Ohio 44144
--------------------------------------------------------------------------------
TRANSFER AGENT Victory Capital Transfer Agency, Inc.
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 USAA AMCO'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) 235-8396; (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 monthly portfolio holdings with the SEC
for the first and third quarters of each fiscal year as an exhibit to its
reports on Form N-PORT (beginning with filings after March 31, 2019).
Previously, the Fund made its complete schedule of portfolio holdings available
after the first and third fiscal quarters in regulatory filings on Form N-Q. The
Fund's Forms N-CSR, N-PORT, and N-Q are available at no charge (i) by calling
(800) 235-8396; (ii) at usaa.com; and (iii) on the SEC's website at
http://www.sec.gov.
================================================================================
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37757-0819
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----------------------
MUTUAL FUNDS
--------------------------------------------------------------------------------
June 30, 2019
--------------------------------------------------------------------------------
SEMIANNUAL REPORT
USAA Nasdaq-100 Index Fund
FUND R6
SHARES SHARES
USNQX URNQX
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) 235-8396 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)
235-8396 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.
Victory Capital means Victory Capital Management Inc., the investment manager of
the USAA Mutual Funds. USAA Mutual Funds are distributed by Victory Capital
Advisers, Inc., a broker dealer registered with FINRA and an affiliate of
Victory Capital. Victory Capital and its affiliates are not affiliated with
United Services Automobile Association or its affiliates. USAA and the USAA
logos are registered trademarks and the USAA Mutual Funds and USAA Investments
logos are trademarks of United Services Automobile Association and are being
used by Victory Capital and its affiliates under license.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
SHAREHOLDER VOTING RESULTS 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 9
Financial Statements 10
Notes to Financial Statements 14
Financial Highlights 31
EXPENSE EXAMPLE 33
ADVISORY AGREEMENT(S) 35
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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) 235-8396.
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.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 6/30/19 o
(% of Net Assets)
Microsoft Corp. .................................................. 10.9%
Amazon.com, Inc. ................................................. 9.9%
Apple, Inc. ...................................................... 9.7%
Facebook, Inc. "A" ............................................... 5.0%
Alphabet, Inc., "C" .............................................. 4.0%
Alphabet, Inc., "A" .............................................. 3.5%
Cisco Systems, Inc. .............................................. 2.8%
Intel Corp. ...................................................... 2.5%
Comcast Corp. "A" ................................................ 2.2%
PepsiCo, Inc. .................................................... 2.2%
o SECTOR ALLOCATION* - 6/30/19 o
(% of Net Assets)
TECHNOLOGY 39.0%
COMMUNICATIONS 35.2%
CONSUMER, NON-CYCLICAL 14.4%
CONSUMER, CYCLICAL 7.0%
INDUSTRIALS 0.9%
UTILITIES 0.4%
FINANCIAL 0.3%
*Does not include Futures, money market instruments, or short-term investments
purchased with cash collateral from securities loaned.
Percentages are of the net assets of the Fund, and may not equal 100%.
Refer to the Portfolio of Investments for a complete list of securities.
The Portfolio of Investments uses the Bloomberg Industry Classification System
(BICS), which may differ from the Fund's compliance classification.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
SHAREHOLDER VOTING RESULTS
--------------------------------------------------------------------------------
On April 18, 2019, a special meeting of shareholders was held to vote on two
proposals relating to the series of the USAA Mutual Funds Trust (Trust).
Shareholders of record on February 8, 2019, were entitled to vote on each
proposal shown below. The proposals were approved by the shareholders.
The following proposals and voting results pertain to one or more series within
the Trust. Votes shown for Proposal 1 are for the Fund, a series of the Trust.
Votes shown for Proposal 2 are for all series of the Trust. The effective date
of the Proposals was July 1, 2019.
PROPOSAL 1
To approve a new Investment Advisory Agreement between the Trust, on behalf of
the Fund, and Victory Capital Management Inc. (Victory Capital), an independent
investment adviser. The new Investment Advisory Agreement became effective upon
the closing of the Transaction (as defined and discussed in Note 1 to the
Financial Statements) whereby USAA Asset Management Company (AMCO) was acquired
by Victory Capital Holdings Inc., the parent company of Victory Capital.
NUMBER OF SHARES VOTING
-------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
-------------------------------------------------------------------------------
38,355,995 5,293,562 3,848,705
PROPOSAL 2
Election of two new trustees to the Trust's Board of Trustees to serve upon the
closing of the Transaction: (1) David C. Brown, to serve as an "interested
trustee" as defined in the Investment Company Act of 1940, as amended (1940
Act); and (2) John C. Walters, to serve as a trustee who is not an "interested
person" as is defined under the 1940 Act (Independent Trustee).
NUMBER OF SHARES VOTING
--------------------------------------------------------------------------------
TRUSTEES FOR VOTES WITHHELD
--------------------------------------------------------------------------------
David C. Brown 8,299,565,565 820,887,736
John C. Walters 8,317,935,885 802,517,416
================================================================================
2 | USAA NASDAQ-100 INDEX FUND
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (97.2%)
COMMON STOCKS (97.2%)
COMMUNICATIONS (35.2%)
----------------------
INTERNET (27.6%)
70,410 Alphabet, Inc. "A"(a),(b) $ 76,240
80,277 Alphabet, Inc. "C"(a) 86,772
112,649 Amazon.com, Inc.(a),(b) 213,316
70,748 Baidu, Inc. ADR(a) 8,303
10,991 Booking Holdings, Inc.(a) 20,605
123,634 Ctrip.com International Ltd. ADR(a) 4,563
221,264 eBay, Inc. 8,740
34,530 Expedia Group, Inc. 4,594
554,811 Facebook, Inc. "A"(a) 107,078
234,899 JD.com, Inc. ADR(a) 7,115
12,521 MercadoLibre, Inc.(a) 7,660
111,002 Netflix, Inc.(a) 40,773
156,948 Symantec Corp. 3,415
30,257 VeriSign, Inc.(a) 6,329
----------
595,503
----------
MEDIA (4.1%)
56,719 Charter Communications, Inc. "A"(a) 22,414
1,149,914 Comcast Corp. "A" 48,618
87,604 Fox Corp. "A"(a) 3,210
66,648 Fox Corp. "B"(a) 2,435
52,103 Liberty Global plc "A"(a) 1,406
132,255 Liberty Global plc "C"(a) 3,509
1,169,703 Sirius XM Holdings, Inc. 6,527
----------
88,119
----------
TELECOMMUNICATIONS (3.5%)
1,086,795 Cisco Systems, Inc. 59,480
216,891 T-Mobile US, Inc.(a) 16,080
----------
75,560
----------
Total Communications 759,182
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSUMER, CYCLICAL (7.0%)
-------------------------
AIRLINES (0.4%)
112,935 American Airlines Group, Inc. $ 3,683
66,803 United Airlines Holdings, Inc.(a) 5,848
----------
9,531
----------
AUTO MANUFACTURERS (0.8%)
87,955 PACCAR, Inc. 6,303
45,006 Tesla, Inc.(a) 10,057
----------
16,360
----------
DISTRIBUTION/WHOLESALE (0.2%)
145,380 Fastenal Co. 4,738
----------
LODGING (0.7%)
84,540 Marriott International, Inc. "A" 11,860
27,333 Wynn Resorts Ltd. 3,389
----------
15,249
----------
RETAIL (4.7%)
111,677 Costco Wholesale Corp. 29,512
60,317 Dollar Tree, Inc.(a) 6,477
31,199 Lululemon Athletica, Inc.(a) 5,622
19,873 O'Reilly Automotive, Inc.(a) 7,340
93,286 Ross Stores, Inc. 9,247
307,500 Starbucks Corp. 25,778
14,841 Ulta Salon Cosmetics & Fragrance, Inc.(a) 5,148
232,123 Walgreens Boots Alliance, Inc. 12,690
----------
101,814
----------
TOYS/GAMES/HOBBIES (0.2%)
31,952 Hasbro, Inc. 3,377
----------
Total Consumer, Cyclical 151,069
----------
CONSUMER, NON-CYCLICAL (14.4%)
------------------------------
BEVERAGES (2.6%)
138,004 Monster Beverage Corp.(a) 8,809
355,895 PepsiCo, Inc. 46,668
----------
55,477
----------
BIOTECHNOLOGY (6.0%)
56,930 Alexion Pharmaceuticals, Inc.(a) 7,457
154,851 Amgen, Inc. 28,536
49,226 Biogen, Inc.(a) 11,512
45,463 BioMarin Pharmaceutical, Inc.(a) 3,894
179,052 Celgene Corp.(a) 16,552
================================================================================
4 | USAA NASDAQ-100 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
322,823 Gilead Sciences, Inc. $ 21,810
37,320 Illumina, Inc.(a) 13,739
54,442 Incyte Corp.(a) 4,625
27,350 Regeneron Pharmaceuticals, Inc.(a) 8,561
65,024 Vertex Pharmaceuticals, Inc.(a) 11,924
----------
128,610
----------
COMMERCIAL SERVICES (3.0%)
110,496 Automatic Data Processing, Inc. 18,268
26,549 Cintas Corp. 6,300
298,293 PayPal Holdings, Inc.(a) 34,142
41,552 Verisk Analytics, Inc. 6,086
----------
64,796
----------
FOOD (1.3%)
309,591 Kraft Heinz Co. 9,610
365,699 Mondelez International, Inc. "A" 19,711
----------
29,321
----------
HEALTHCARE PRODUCTS (1.4%)
20,312 Align Technology, Inc.(a) 5,559
37,847 Henry Schein, Inc.(a) 2,645
21,835 IDEXX Laboratories, Inc.(a) 6,012
29,310 Intuitive Surgical, Inc.(a) 15,375
----------
29,591
----------
PHARMACEUTICALS (0.1%)
130,863 Mylan N.V.(a) 2,492
----------
Total Consumer, Non-cyclical 310,287
----------
FINANCIAL (0.3%)
----------------
INSURANCE (0.3%)
32,811 Willis Towers Watson plc 6,285
----------
INDUSTRIAL (0.9%)
-----------------
TRANSPORTATION (0.9%)
205,431 CSX Corp. 15,894
27,607 JB Hunt Transport Services, Inc. 2,524
----------
Total Industrial 18,418
----------
TECHNOLOGY (39.0%)
------------------
COMPUTERS (10.7%)
1,052,594 Apple, Inc.(b) 208,329
38,651 Check Point Software Technologies Ltd.(a) 4,469
144,530 Cognizant Technology Solutions Corp. "A" 9,162
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
62,702 NetApp, Inc. $ 3,869
74,387 Western Digital Corp. 3,537
----------
229,366
----------
SEMICONDUCTORS (11.3%)
274,598 Advanced Micro Devices, Inc.(a) 8,340
93,876 Analog Devices, Inc. 10,596
237,659 Applied Materials, Inc. 10,673
18,580 ASML Holding N.V. 3,863
100,498 Broadcom, Inc. 28,929
1,136,624 Intel Corp. 54,410
41,033 KLA-Tencor Corp. 4,850
38,064 Lam Research Corp. 7,150
69,157 Maxim Integrated Products, Inc. 4,137
60,405 Microchip Technology, Inc. 5,237
280,967 Micron Technology, Inc.(a) 10,843
154,613 NVIDIA Corp. 25,392
83,452 NXP Semiconductors N.V. 8,146
308,643 QUALCOMM, Inc.(b) 23,478
43,844 Skyworks Solutions, Inc. 3,388
238,193 Texas Instruments, Inc. 27,335
64,466 Xilinx, Inc. 7,602
----------
244,369
----------
SOFTWARE (17.0%)
194,475 Activision Blizzard, Inc. 9,179
123,881 Adobe, Inc.(a) 36,501
55,896 Autodesk, Inc.(a) 9,105
71,349 Cadence Design Systems, Inc.(a) 5,052
82,618 Cerner Corp. 6,056
33,424 Citrix Systems, Inc. 3,280
75,469 Electronic Arts, Inc.(a) 7,642
99,633 Fiserv, Inc.(a) 9,083
65,817 Intuit, Inc. 17,200
1,752,984 Microsoft Corp.(b) 234,830
18,519 NetEase, Inc. ADR 4,737
91,243 Paychex, Inc. 7,508
38,057 Synopsys, Inc.(a) 4,898
28,572 Take-Two Interactive Software, Inc.(a) 3,244
41,129 Workday, Inc. "A"(a) 8,455
----------
366,770
----------
Total Technology 840,505
----------
================================================================================
6 | USAA NASDAQ-100 INDEX FUND
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
UTILITIES (0.4%)
----------------
ELECTRIC (0.4%)
130,666 Xcel Energy, Inc. $ 7,773
----------
Total Common Stocks (cost: $1,039,049) 2,093,519
----------
Total Equity Securities (cost: $1,039,049) 2,093,519
----------
MONEY MARKET INSTRUMENTS (2.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (2.6%)
56,552,803 State Street Institutional Treasury Money Market Fund
Premier Class, 2.17%(c) (cost: $56,553) 56,553
----------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
--------------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES (0.2%)
BILLS (0.2%)(d)
$ 3,860 U.S. Treasury Bill(e) (cost: $3,856) 2.32% 7/18/2019 3,856
----------
Total Money Market Instruments (cost: $60,409) 60,409
----------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.5%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.5%)
2,825,051 Goldman Sachs Financial Square Government Fund Institutional Class, 2.27%(c) 2,825
9,414,195 HSBC U.S. Government Money Market Fund Class I, 2.27%(c) 9,414
----------
Total Government & U.S. Treasury Money Market Funds (cost: $12,239) 12,239
----------
TOTAL INVESTMENTS (COST: $1,111,697) $2,166,167
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
--------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL CONTRACT APPRECIATION/
NUMBER OF EXPIRATION AMOUNT VALUE (DEPRECIATION)
CONTRACTS DESCRIPTION DATE (000) (000) (000)
--------------------------------------------------------------------------------------------------------
FUTURES (2.8%)
LONG FUTURES
EQUITY CONTRACTS
396 Nasdaq 100 E-Mini 9/20/2019 USD 59,643 $60,935 $1,292
------- ------
TOTAL LONG FUTURES $60,935 $1,292
------- ------
TOTAL FUTURES $60,935 $1,292
======= ======
--------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
--------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
--------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $2,093,519 $ - $- $2,093,519
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 56,553 - - 56,553
U.S. Treasury Securities - 3,856 - 3,856
Short-Term Investments
Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 12,239 - - 12,239
Futures(1) 1,292 - - 1,292
--------------------------------------------------------------------------------------------------------
Total $2,163,603 $3,856 $- $2,167,459
--------------------------------------------------------------------------------------------------------
(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.
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
8 | USAA NASDAQ-100 INDEX FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
o SPECIFIC NOTES
(a) Non-income-producing security.
(b) The security, or a portion thereof, is segregated to cover the value of
open futures contracts at June 30, 2019.
(c) Rate represents the money market fund annualized seven-day yield at
June 30, 2019.
(d) Rate represents an annualized yield at time of purchase, not coupon
rate.
(e) Securities with a value of $3,856,000 are segregated as collateral for
initial margin requirements on open futures contracts.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 9
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities on
loan of $15,292) (cost of $1,111,697) $2,166,167
Receivables:
Capital shares sold 1,041
Dividends and interest 739
Other 3
Variation margin on futures contracts 1,293
----------
Total assets 2,169,243
----------
LIABILITIES
Payables:
Upon return of securities loaned 12,239
Capital shares redeemed 884
Payable to broker 1,266
Accrued management fees 346
Accrued transfer agent's fees 91
Other accrued expenses and payables 23
----------
Total liabilities 14,849
----------
Net assets applicable to capital shares outstanding $2,154,394
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,085,785
Distributable earnings 1,068,609
----------
Net assets applicable to capital shares outstanding $2,154,394
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $2,139,435/99,481 capital shares
outstanding, no par value) $ 21.51
==========
R6 Shares (net assets of $14,959/696 capital shares
outstanding, no par value) $ 21.51
==========
See accompanying notes to financial statements.
================================================================================
10 | USAA NASDAQ-100 INDEX FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $13) $ 10,886
Interest 545
Securities lending (net) 70
--------
Total income 11,501
--------
EXPENSES
Management fees 2,016
Administration and servicing fees:
Fund Shares 1,501
R6 Shares 4
Transfer agent's fees:
Fund Shares 893
R6 Shares 1
Custody and accounting fees:
Fund Shares 117
R6 Shares 1
Postage:
Fund Shares 46
Shareholder reporting fees:
Fund Shares 18
Trustees' fees 18
Registration fees:
Fund Shares 40
R6 Shares 9
Professional fees 52
Other 115
--------
Total expenses 4,831
--------
Expenses reimbursed:
R6 Shares (2)
--------
Net expenses 4,829
--------
NET INVESTMENT INCOME 6,672
--------
================================================================================
FINANCIAL STATEMENTS | 11
================================================================================
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FUTURES CONTRACTS
Net realized gain on:
Investments $ 12,485
Futures transactions 4,970
Change in net unrealized appreciation/(depreciation) of:
Investments 356,093
Futures contracts 2,312
--------
Net realized and unrealized gain 375,860
--------
Increase in net assets resulting from operations $382,532
========
See accompanying notes to financial statements.
================================================================================
12 | USAA NASDAQ-100 INDEX FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited), and year ended
December 31, 2018
--------------------------------------------------------------------------------------------
6/30/2019 12/31/2018
--------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 6,672 $ 12,045
Net realized gain (loss) on investments 12,485 (9,650)
Net realized gain on futures transactions 4,970 491
Change in net unrealized appreciation/(depreciation) of:
Investments 356,093 (30,155)
Futures contracts 2,312 (1,275)
-----------------------
Increase (decrease) in net assets resulting from operations 382,532 (28,544)
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares - (11,919)
R6 Shares - (102)
-----------------------
Distributions to shareholders - (12,021)
-----------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares 9,066 166,958
R6 Shares (545) 7,507
-----------------------
Total net increase in net assets from capital
share transactions 8,521 174,465
-----------------------
Capital contribution from USAA Transfer Agency Company - 2
-----------------------
Net increase in net assets 391,053 133,902
-----------------------
NET ASSETS
Beginning of period 1,763,341 1,629,439
-----------------------
End of period $2,154,394 $1,763,341
=======================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 13
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2019 (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 Nasdaq-100 Index Fund (the Fund) qualifies as a registered investment
company under Accounting Standards Codification Topic 946. The information
presented in this semiannual report pertains only to the Fund, which is
classified as nondiversified under the 1940 Act. The Fund seeks to match, before
fees and expenses, the performance of the stocks composing the Nasdaq-100 Index.
The Nasdaq-100 Index represents 100 of the largest nonfinancial stocks traded on
The Nasdaq Stock Market. Prior to July 1, 2019, USAA Asset Management Company
(the Manager), an affiliate of the Fund, has retained Northern Trust
Investments, Inc. (NTI) to serve as subadviser for the Fund. NTI is responsible
for investing the Fund's assets. Under normal market conditions, NTI attempts to
achieve the Fund's objective by investing at least 80% of the Fund's assets in
the common stocks of companies composing the Nasdaq-100 Index.
As a nondiversified fund, the Fund may invest a greater percentage of its assets
in a single issuer. Because a relatively high percentage of the Fund's total
assets may be invested in the securities of a single issuer or a limited number
of issuers, the securities of the Fund may be more sensitive to changes in the
market value of a single issuer, a limited number of issuers, or large companies
generally. Such a focused investment strategy may increase the volatility of the
Fund's investment results because this Fund may be more susceptible to risk
associated with a single economic, political, or regulatory event than a
diversified fund.
The Fund consists of two classes of shares: Nasdaq-100 Index Fund Shares (Fund
Shares) and Nasdaq-100 Index R6 Shares (R6 Shares). Each class of
================================================================================
14 | USAA NASDAQ-100 INDEX FUND
================================================================================
shares has equal rights to assets and earnings, except that each class bears
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agent fees, postage,
shareholder reporting fees, and certain registration and custodian fees.
Expenses not attributable to a specific class, income, and realized gains or
losses on investments are allocated to each class of shares based on each class'
relative net assets. Each class has exclusive voting rights on matters related
solely to that class and separate voting rights on matters that relate to both
classes. The R6 Shares are available for investment by participants in
employer-sponsored retirement plans where a financial intermediary provides
retirement recordkeeping services to plan participants and to endowment funds
and foundations.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or the 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 Holdings, a global investment management firm
headquartered in Cleveland, Ohio (the Transaction), on July 1, 2019.
A special shareholder meeting was held on April 18, 2019, at which shareholders
of the Fund approved a new investment advisory agreement between the Trust, on
behalf of the Fund, and Victory Capital, an independent investment management
company. In addition, shareholders of the Fund also elected the following two
new directors to the Board of the Trust to serve upon the closing of the
Transaction: (1) David C. Brown, to serve as an Interested Trustee; and (2) John
C. Walters, to serve as an Independent Trustee. PLEASE REFER TO THE SUBSEQUENT
EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
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.
The Fund utilizes 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 15
================================================================================
The value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as
set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except
as otherwise noted, traded primarily on a domestic securities exchange
or the over-the-counter markets, are valued at the last sales price or
official closing price on the exchange or primary market on which they
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the average of the
bid and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities
traded in inactive markets generally are categorized in Level 2 of the
fair value hierarchy.
2. Equity securities trading in various foreign markets may take place
on days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for events that
would materially affect the value of the Fund's foreign securities and
the Committee will consider such available information that it deems
relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or 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
================================================================================
16 | USAA NASDAQ-100 INDEX FUND
================================================================================
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. 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. 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.
6. Repurchase agreements are valued at cost.
7. Futures are valued at the settlement price at the close of market
on the principal exchange on which they are traded or, in the absence
of any transactions that day, the settlement price on the prior trading
date if it is within the spread between the closing bid and ask price
closest to the last reported sale price.
8. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
================================================================================
NOTES TO FINANCIAL STATEMENTS | 17
================================================================================
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.
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.
================================================================================
18 | USAA NASDAQ-100 INDEX 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 June 30, 2019, did
not include master netting provisions.
FUTURES CONTRACTS - The Fund is subject to cash flow and tracking error
risk in the normal course of pursuing its investment objectives. The Fund
may use stock index futures contracts in an attempt to reduce any
performance discrepancies between the Fund and the Nasdaq-100 Index. A
futures contract represents a commitment for the future purchase or sale of
an asset at a specified price on a specified date. Upon entering into such
contracts, the Fund is required to deposit with the broker in either cash
or securities an initial margin in an amount equal to a certain percentage
of the contract amount. Subsequent payments (variation margin) are made or
received by the Fund each day, depending on the daily fluctuations in the
value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
Upon entering into such contracts, the Fund bears the risk of interest or
exchange rates or securities prices
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
================================================================================
moving unexpectedly in an unfavorable direction, in which case, the Fund
may not achieve the anticipated benefits of the futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 2019*
(IN THOUSANDS)
ASSET DERIVATIVES
----------------------------------------------------------------------------------------------------
STATEMENT OF
DERIVATIVES NOT ASSETS AND INTEREST FOREIGN
ACCOUNTED FOR AS LIABILITIES RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
-----------------------------------------------------------------------------------------------------
USAA Nasdaq-100 Distributable
Index Fund earnings $- $1,292 ** $- $1,292
*For open derivative instruments as of June 30, 2019, 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 THE
SIX-MONTH PERIOD ENDED JUNE 30, 2019 (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 Nasdaq-100 Net realized $- $4,970 $- $4,970
Index Fund gain on
Futures
transactions
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 Nasdaq-100 Change in net $- $2,312 $- $2,312
Index Fund unrealized
appreciation/
(depreciation)
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
================================================================================
20 | USAA NASDAQ-100 INDEX FUND
================================================================================
ex-dividend date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
E. FEDERAL TAXES - The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended June 30, 2019, 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. 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 | 21
================================================================================
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 June 30, 2019, the Fund paid CAPCO facility fees
of $8,000, which represents 2.5% of the total fees paid to CAPCO by the funds of
the Trusts. The Fund had no borrowings under this agreement during the six-month
period ended June 30, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
(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 December 31, 2019, in
accordance with applicable federal tax law.
================================================================================
22 | USAA NASDAQ-100 INDEX FUND
================================================================================
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At June 30, 2019, the Fund had no capital loss carryforwards, for federal income
tax purposes.
As of June 30, 2019, 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:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
----------------------------------------------------------------------------------
USAA Nasdaq-100
Index Fund $1,089,534,000 $35,064,000 $1,054,470,000
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2019, were
$17,724,000 and $36,015,000, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
================================================================================
when due, and that the value of the short-term investments will be less than the
amount of cash collateral required to be returned to the borrower. The Fund's
agreement with Citibank does not include master netting provisions. Non-cash
collateral received by the Fund may not be sold or re-pledged except to satisfy
borrower default. Cash collateral is listed in the Fund's Portfolio of
Investments and Financial Statements while non-cash collateral is not included.
At June 30, 2019, 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
--------------------------------------------------------------------------------
$15,292,000 $3,402,000 $12,239,000
--------------------------------------------------------------------------------
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2019, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2019 DECEMBER 31, 2018
------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 10,885 $ 220,054 28,715 $ 561,585
Shares issued from
reinvested dividends - - 665 11,729
Shares redeemed (10,372) (210,988) (21,155) (406,356)
---------------------------------------------------
Net increase from capital
share transactions 513 $ 9,066 8,225 $ 166,958
===================================================
R6 SHARES:
Shares sold 109 $ 2,177 494 $ 9,596
Shares issued from
reinvested dividends - - 3 55
Shares redeemed (129) (2,722) (109) (2,144)
---------------------------------------------------
Net increase (decrease) from
capital share transactions (20) $ (545) 388 $ 7,507
===================================================
================================================================================
24 | USAA NASDAQ-100 INDEX 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 Fund's management fee is accrued daily and paid monthly at an annualized
rate of 0.20% of the Fund's average daily net assets. For the six-month period
ended June 30, 2019, the Fund incurred management fees, paid or payable to the
Manager, of $2,016,000. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
SUBADVISORY ARRANGEMENT(S) - The Manager entered into an Investment Subadvisory
Agreement with NTI under which NTI directs the investment and reinvestment of
the Fund's assets (as allocated from time to time by the Manager).
The Manager (not the Fund) pays NTI a subadvisory fee equal to the greater of a
minimum annual fee of $50,000 or a fee at an annual rate equal to 0.06% of the
Fund's average daily net assets on amounts up to $100 million; 0.04% of net
assets for amounts over $100 million and up to $250 million; and 0.03% of the
Fund's net assets for amounts over $250 million. For the six-month period ended
June 30, 2019, the Manager incurred subadvisory fees with respect to the Fund,
paid or payable to NTI, of $325,000. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE
TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
================================================================================
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 0.05% of average daily net assets of the
R6 Shares. For the six-month period ended June 30, 2019, the Fund Shares and R6
Shares incurred administration and servicing fees, paid or payable to the
Manager, of $1,501,000 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 June 30, 2019, the Fund reimbursed the Manager $8,000 for these compliance
and legal services. These expenses are included in the professional fees on the
Fund's Statement of Operations. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO
THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
EXPENSE LIMITATION - The Manager agreed, through April 30, 2020, to limit the
total annual operating expenses of the R6 Shares to 0.40% of its average annual
net assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and to reimburse the R6 Shares for all expenses in
excess of that amount. This expense limitation arrangement may not be changed or
terminated through April 30, 2020, without approval of the Board, and may be
changed or terminated by the Manager at any time after that date. For the
six-month period ended June 30, 2019, the R6 Shares incurred reimbursable
expenses of $2,000.
TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d.b.a. USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund Shares based on an annual charge of $23 per shareholder
account plus out of pocket expenses. SAS pays a portion of these fees to certain
intermediaries for the administration and servicing of accounts that are held
with such intermediaries. Transfer agent's fees for R6 Shares are paid monthly
based on a fee accrued daily at an annualized rate of 0.01% of the R6 Shares'
average daily net assets, plus out-of-pocket expenses. For the six-month period
ended June 30, 2019, the Fund Shares and R6 Shares
================================================================================
26 | USAA NASDAQ-100 INDEX FUND
================================================================================
incurred transfer agent's fees, paid or payable to SAS, of $893,000 and $1,000,
respectively. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL
STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
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. PLEASE REFER
TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL
REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
(8) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At June 30, 2019,
USAA and its affiliates owned 327,000 R6 Shares, which represents 46.9% 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. PLEASE REFER TO THE SUBSEQUENT EVENT
NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
(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 has determined there is no significant
impact on the Fund's financial statements and various filings.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
(10) RECENT ACCOUNTING PRONOUNCEMENTS
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.
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. ASU 2018-13 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. Management has elected to
early adopt ASU 2018-13 effective with the current reporting period. The
adoption of ASU 2018-13 guidance is limited to changes in the Fund's notes to
financial statement disclosures regarding valuation method, fair value, and
transfers between levels of the fair value hierarchy.
(11) SUBSEQUENT EVENT NOTE
As previously announced, and as discussed in Note 1 to the Financial Statements,
effective July 1, 2019, AMCO, the prior investment adviser to the Fund, and SAS,
the prior transfer agent to the Fund, were acquired by Victory Holdings. PLEASE
SEE THE SUPPLEMENT DATED JULY 1, 2019 TO THE FUND'S PROSPECTUS FOR ADDITIONAL
IMPORTANT INFORMATION.
Effective July 1, 2019, Victory Capital's internal investment team, Victory
Solutions, began managing the Fund's assets. NTI no longer serves as a
sub-adviser to the Fund.
Effective July 1, 2019, Victory Capital is the new investment adviser and
administrator to the USAA Mutual Funds; SAS was renamed Victory Capital Transfer
Agency, Inc.; Victory Capital Advisers, Inc. is the new distributor to the USAA
Mutual Funds; Citi Fund Services of Ohio, Inc. serves as sub-administrator and
sub-fund accountant for the USAA Mutual Funds; and FIS Investor Services LLC
serve as sub-transfer agent and dividend
================================================================================
28 | USAA NASDAQ-100 INDEX FUND
================================================================================
disbursing agent for the USAA Mutual Funds. Effective August 5, 2019, Citibank,
N.A. is the new custodian for the USAA Mutual Funds.
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2019 permitting the
use of a "manager-of-managers" structure for certain funds. Prior to that date,
the Trust relied on a similar exemptive order granted by the SEC to the Trust
and its affiliated persons. Under a manager of managers structure, the
investment adviser may select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the day-to-day
investment of a fund's assets.
Effective July 1, 2019, Victory Capital added new portfolio managers from one or
more investment teams employed by Victory Capital to serve as additional
portfolio managers, or replace current portfolio managers, to manage all or a
portion of the Fund according to each team's own investment process.
Effective July 1, 2019, under the investment advisory agreement with Victory
Capital, which took effect on July 1, 2019, no performance adjustments will be
made for periods beginning July 1, 2019, through June 30, 2020, and only
performance beginning as of July 1, 2020, and thereafter will be utilized in
calculating performance adjustments through June 30, 2020.
Effective July 1, 2019, the line of credit (as discussed in the Notes to the
Financial Statements in this semiannual report) among the Trust, with respect to
its Funds, and CAPCO terminated; the Trust, with respect to its Funds, along
with series of Victory Portfolios, Victory Portfolios II and Victory Variable
Insurance Funds, entered into a 364 day committed credit facility and a 364 day
uncommitted, demand credit facility with Citibank, N.A. (Citibank). Each such
credit facility may be renewed if so agreed by the parties. Under the agreement
with Citibank, the Funds may borrow up to $600 million, of which $300 million is
committed and $300 million is uncommitted. Of this amount, $40 million of the
line of credit is reserved for use by the Victory Floating Rate Fund (a series
of Victory Portfolios), with that Fund paying the related commitment fees for
that amount. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests. Citibank receives an annual
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
commitment fee of 0.15%. Each Fund pays a pro-rata portion of this commitment
fee plus any interest on amounts borrowed.
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2017 (the IFL
Order), permitting the establishment and operation of an Interfund Lending
Facility (the Facility). The Facility allows each Fund to directly lend and
borrow money to or from certain other affiliated Funds relying upon the IFL
Order at rates beneficial to both the borrowing and lending funds. Advances
under the Facility are allowed for temporary or emergency purposes, including
the meeting of redemption requests that are subject to each Fund's borrowing
restrictions. The interfund loan rate is determined, as specified in the IFL
Order, by averaging the current repurchase agreement rate and the current bank
loan rate.
Effective July 1, 2019, the Trust entered into an Agreement to Provide
Compliance ("Compliance Agreement") with the Adviser, pursuant to which the
Adviser furnishes its compliance personnel, including the services of the CCO,
and other resources reasonably necessary to provide the Trust with compliance
oversight services related to the design, administration, and oversight of a
compliance program for the Trust in accordance with Rule 38a-1 under the 1940
Act. The Funds in the Victory Funds complex, in the aggregate, compensate the
Adviser for these services. This agreement replaces an arrangement in place
with AMCO previously.
================================================================================
30 | USAA NASDAQ-100 INDEX FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30 YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
----------------------------------------------------------------------------
Net asset value at
beginning of period $ 17.69 $ 17.89 $ 13.79 $ 12.99 $ 12.23 $ 10.32
----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .07 .11 .07 .09 .08(a) .09
Net realized and
unrealized gain (loss) 3.75 (.18) 4.38 .78 1.04(a) 1.85
----------------------------------------------------------------------------
Total from investment
operations 3.82 (.07) 4.45 .87 1.12(a) 1.94
----------------------------------------------------------------------------
Less distributions from:
Net investment income - (.12) (.08) (.07) (.08) (.03)
Realized capital gains - (.01) (.27) - (.28) -
----------------------------------------------------------------------------
Total distributions - (.13) (.35) (.07) (.36) (.03)
----------------------------------------------------------------------------
Net asset value at
end of period $ 21.51 $ 17.69 $ 17.89 $ 13.79 $ 12.99 $ 12.23
============================================================================
Total return (%)* 21.59 (.44) 32.29 6.68 9.09 18.75
Net assets at
end of period (000) $2,139,435 $1,750,674 $1,623,579 $1,078,319 $935,004 $706,604
Ratios to average daily
net assets:**
Expenses (%)(b) .48(c) .48 .51 .53 .57 .59
Net investment income (%) .66(c) .64 .60 .77 .62 1.04
Portfolio turnover (%) 1 5 5 4 10 6
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$2,022,159,000.
(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.
================================================================================
FINANCIAL HIGHLIGHTS | 31
================================================================================
R6 SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
----------------------------------------------------
2019 2018 2017***
-------------------------------------------------
Net asset value at beginning of period $ 17.68 $ 17.89 $15.31
-------------------------------------------------
Income (loss) from investment operations:
Net investment income .08 .12 08
Net realized and unrealized gain (loss) 3.75 (.18) 2.87
-------------------------------------------------
Total from investment operations 3.83 (.06) 2.95
-------------------------------------------------
Less distributions from:
Net investment income - (.14) (.10)
Realized capital gains - (.01) (.27)
-------------------------------------------------
Total distributions - (.15) (.37)
-------------------------------------------------
Net asset value at end of period $ 21.51 $ 17.68 $17.89
=================================================
Total return (%)* 21.66 (.38) 19.27
Net assets at end of period (000) $14,959 $12,667 $5,860
Ratios to average daily net assets:**
Expenses (%)(a) .40(b) .40 .40(b)
Expenses, excluding
reimbursements (%)(a) .43(b) .45 1.01(b)
.73(b) .72 .66(b)
Net investment income (%)
Portfolio turnover (%) 1 5 5
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$14,619,000.
*** R6 Shares commenced operations on March 1, 2017.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
32 | USAA NASDAQ-100 INDEX FUND
================================================================================
EXPENSE EXAMPLE
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2019, through June
30, 2019.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual
================================================================================
EXPENSE EXAMPLE | 33
================================================================================
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2019 -
JANUARY 1, 2019 JUNE 30, 2019 JUNE 30, 2019
------------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,215.90 $2.64
Hypothetical
(5% return before expenses) 1,000.00 1,022.41 2.41
R6 SHARES
Actual 1,000.00 1,216.60 2.20
Hypothetical
(5% return before expenses) 1,000.00 1,022.81 2.01
*Expenses are equal to the annualized expense ratio of 0.48% for Fund Shares
and 0.40% for R6 Shares, which are net of any reimbursements and expenses
paid indirectly, multiplied by the average account value over the period,
multiplied by 181 days/365 days (to reflect the one-half-year period). The
Fund's actual ending account values are based on its actual total returns of
21.59% for Fund Shares and 21.66% for R6 Shares for the six-month period of
January 1, 2019 through June 30, 2019.
================================================================================
34 | USAA NASDAQ-100 INDEX FUND
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND VICTORY CAPITAL MANAGEMENT INC.)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the (i) new investment
advisory agreement between the Trust and Victory Capital and (ii) new investment
subadvisory agreements between certain subadvisers and Victory Capital, which
became effective on July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO
THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting held on January 15, 2019, the USAA Mutual Funds Trust's
("Trust") Board of Trustees ("Board"), including those Trustees who are not
parties to any investment advisory or management agreement between USAA Asset
Management Company ("AMCO") and the Trust ("Existing Management Agreements") or
the new Investment Advisory Agreement between the Trust and Victory Capital
Management Inc. ("Victory Capital") (the "New Advisory Agreement") or
"interested persons" (as that term is defined in the Investment Company Act of
1940 Act, as amended ("1940 Act")) of such parties or the Trust (the
"Independent Trustees"), considered and unanimously approved the New Advisory
Agreement between the Trust, on behalf of each of its series (each a "Fund" and
together the "Funds"), and Victory Capital, and, as applicable, new Investment
Subadvisory Agreements between Victory Capital and each investment subadviser
("New Subadvisory Agreements," and together with the New Advisory Agreement, the
"New Agreements"), as listed below. The Board also determined to recommend that
shareholders of each Fund approve the New Advisory Agreement. Shareholder
approval is not required for the New Subadvisory Agreements. The Independent
Trustees reviewed the proposed approval of the New Agreements in private
sessions with their independent legal counsel at which no representatives of
Victory Capital or AMCO were present.
================================================================================
ADVISORY AGREEMENT(S) | 35
================================================================================
BACKGROUND FOR THE BOARD APPROVALS
At a telephonic meeting of the Board held on November 5, 2018, representatives
of USAA and AMCO informed the Board that USAA's subsidiary, USAA Investment
Corporation, would enter into a stock purchase agreement with Victory Capital
Holdings, Inc. ("Victory Holdings") pursuant to which Victory Holdings would
acquire all of the outstanding stock of AMCO and USAA Transfer Agency Company
d/b/a USAA Shareholder Account Services ("USAA Transfer Agent") (the
"Transaction"). The Independent Trustees were advised that the Transaction, if
completed, would constitute an "assignment" (as that term is defined in Section
2(a)(4) of the 1940 Act) and result in the automatic termination of the Existing
Management Agreements ("Change of Control Event"). The Independent Trustees also
were advised that it was proposed that Victory Capital, a subsidiary of Victory
Holdings, would serve as the investment adviser to each Fund after the closing
of the Transaction ("Post-Transaction") and that the Board would be asked to
consider approval of the terms and conditions of the New Advisory Agreement with
Victory Capital and thereafter to submit the New Advisory Agreement to each
Fund's shareholders for approval. Because the Change of Control Event also would
result in the termination of each existing subadvisory agreement between AMCO
and the subadvisers to the Funds ("Existing Subadvisory Agreements"), the
Independent Trustees were advised that the Board would also be asked to approve
the New Subadvisory Agreements.
In anticipation of the Transaction, the Trustees met at a series of subsequent
in-person meetings on November 27-28, 2018, January 7-8, 2019, and January
14-15, 2019, which included meetings of the full Board and separate meetings of
the Independent Trustees for the purposes of considering, among other things:
whether it would be in the best interests of each Fund and its respective
shareholders to approve the New Agreements; and the anticipated impacts of the
Transaction on the Funds and their shareholders (each, a "Meeting"). During each
of these Meetings, the Board sought additional and clarifying information as it
deemed necessary or appropriate. In this connection, the Independent Trustees
worked with their independent
================================================================================
36 | USAA NASDAQ-100 INDEX FUND
================================================================================
legal counsel to prepare formal due diligence requests (the "Diligence
Requests") that were submitted to Victory Capital, Victory Capital Advisers,
Inc. ("VCA"), and the subadvisers. The Diligence Requests sought information
relevant to the Board's consideration of the New Advisory Agreement, the New
Subadvisory Agreements, distribution arrangements, and other anticipated impacts
of the Transaction on the Funds and their shareholders. Victory Capital, VCA,
and the subadvisers provided documents and information in response to the
Diligence Requests (the "Response Materials"). Following their review of the
Response Materials, the Independent Trustees submitted a supplemental due
diligence request for additional and clarifying information (the "Supplemental
Diligence Request") to Victory Capital and VCA. Victory Capital and VCA provided
further information in response to the Supplemental Diligence Request, which the
Board reviewed. Senior management representatives of Victory Capital and/or AMCO
participated in a portion of each Meeting and addressed various questions raised
by the Board. Throughout the process, the Independent Trustees were assisted by
their independent legal counsel and counsel to the Funds, who advised them on,
among other things, their duties and obligations relating to their consideration
of the New Agreements.
The Board's evaluation of the New Agreements reflected the information provided
specifically in connection with its review of the New Agreements, as well as,
where relevant, information that was previously furnished to the Board in
connection with the most recent renewal of the Existing Management Agreements
and Existing Subadvisory Agreements at an in-person meeting of the Board on
April 18, 2018 (the "2018 15(c) Meeting") and at other subsequent Board meetings
in 2018. The Board's evaluation of the New Agreements also reflected the
knowledge gained as Board members of the Funds with respect to services provided
by AMCO, its affiliates, and each subadviser to the Funds.
The Board's approvals and recommendations were based on its determination,
within its business judgment, that it would be in the best interests of each
Fund and its respective shareholders, for Victory Capital and, as applicable,
the subadvisers, to provide investment advisory, investment subadvisory, and
related services to the Funds, following the closing of the Transaction.
================================================================================
ADVISORY AGREEMENT(S) | 37
================================================================================
FACTORS CONSIDERED IN APPROVING THE NEW ADVISORY AGREEMENT
In connection with the Board's consideration of the New Advisory Agreement,
Victory Capital and AMCO advised the Board about a variety of matters, including
the following:
o The nature, extent, and quality of the services to be provided to the
Funds by Victory Capital Post-Transaction are expected to be of at least
the same level as the services currently provided to the Funds by AMCO.
o Victory Capital's stated commitment to maintaining and enhancing the
USAA member/USAA Fund shareholder experience, including creating a
dedicated USAA Fund sales and client service call center that will
provide ongoing client service and advice to existing and new USAA
members.
o Victory Capital proposes to: (1) replace the underlying indexes for the
USAA Extended Market Index Fund and USAA S&P 500 Index Fund with indexes
designed to provide shareholders with comparable exposure and investment
outcomes; (2) change the USAA Extended Market Index Fund's and USAA S&P
500 Index Fund's investment objectives and strategies in light of the
changes to their underlying indexes; and (3) change the name of the USAA
S&P 500 Index Fund to the USAA 500 Index Fund.
o Victory Capital does not propose changes to the investment
objective(s) of any other Funds. Although the investment processes used
by Victory Capital's portfolio managers may differ from those used by
AMCO's portfolio managers or, if applicable, any subadviser's portfolio
managers, such differences are not currently expected to result in
changes to the principal investment strategies or principal investment
risks of the Funds.
o The New Advisory Agreement does not change any Fund's advisory fee rate
or the computation method for calculating such fees (except that Victory
Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment).
================================================================================
38 | USAA NASDAQ-100 INDEX FUND
================================================================================
For at least two years after the Transaction closes, Victory Capital has
agreed to waive fees and/or reimburse expenses so that each Fund's annual
expense ratio (excluding certain customary items) does not exceed the
levels reflected in each Fund's most recent audited financial statements
at the time the Transaction closes (or the levels of AMCO's then-current
expense caps, if applicable), excluding the impact of any performance
adjustment to the Fund's advisory fee.
o The portfolio managers at AMCO that manage the Fixed Income Funds(1) as
well as the USAA's Global Multi-Asset team servicing the Cornerstone
Funds(2), Target Retirement Funds(3), Global Managed Volatility Fund,
Managed Allocation Fund, and Target Managed Allocation Fund, are
expected to continue to do so Post-Transaction as employees of Victory
Capital, if they choose to become employees of Victory Capital.
Post-Transaction, the investment teams for the Funds, other than the
Fixed Income Funds, will be replaced or augmented.
o With the exception of the USAA S&P 500 Index Fund, USAA Extended Market
Index Fund, and USAA Nasdaq-100 Index Fund, which will be advised by
Victory Capital through its Victory Solutions platform, Victory Capital
proposes that the same subadvisers be retained Post-Transaction, although
Victory Capital may change the allocation to a particular subadviser
Post-Transaction. No changes are expected to the portfolio managers of
the subadvisers who will serve as subadvisers Post-Transaction.
(1)The Fixed Income Funds include the following Funds: California Bond Fund,
Government Securities Fund, High Income Fund, Income Fund, Intermediate-Term
Bond Fund, Tax Exempt Intermediate-Term Fund, Tax Exempt Long-Term Fund, New
York Bond Fund, Short-Term Bond Fund, Tax Exempt Short-Term Fund, Ultra
Short-Term Bond Fund, Virginia Bond Fund, Money Market Fund, Tax Exempt Money
Market Fund and Treasury Money Market Trust.
(2)The Cornerstone Funds include the following Funds: Cornerstone Aggressive
Fund, Cornerstone Conservative Fund, Cornerstone Equity Fund, Cornerstone
Moderate Fund, Cornerstone Moderately Aggressive Fund, and Cornerstone
Moderately Conservative Fund.
(3)The Target Retirement Funds include the following Funds: Target Retirement
2020 Fund, Target Retirement 2030 Fund, Target Retirement 2040 Fund, Target
Retirement 2050 Fund, Target Retirement 2060 Fund, and Target Retirement
Income Fund.
================================================================================
ADVISORY AGREEMENT(S) | 39
================================================================================
o VCA's distribution capabilities, including its significant network of
intermediary relationships, which may provide additional opportunities
for the Funds to grow assets and lower fees and expenses through
increased economies of scale.
o The experience of Victory Capital in acquiring and integrating
investments in investment management companies and its plans to
transition and integrate AMCO's and USAA Transfer Agent's businesses to
Victory Capital. Victory Capital and USAA expect to enter into a
transition services agreement under which USAA will continue to provide
Victory Capital with certain services that are currently provided by
USAA to AMCO and the USAA Transfer Agent for a specified period of time
after the closing of the Transaction to assist Victory Capital in
transitioning the USAA member distribution channel and member support
services.
o Pursuant to a transitional trademark license agreement with USAA, Victory
Capital and the Funds will have a non-exclusive license, subject to
certain restrictions and limitations, to continue using certain licensed
marks including "USAA," "United Services Automobile Association," and the
USAA Logo in connection with their asset management and transfer agency
businesses for a period of three years following the closing of the
Transaction, which agreement may thereafter be extended for an additional
year.
o The support expressed by the current senior management team at AMCO
for the Transaction and AMCO's recommendation that the Board approve
the New Agreements.
o The commitments of Victory Capital and AMCO to bear all of the direct
expenses of the Transaction, including all legal costs and costs
associated with the proxy solicitation, regardless of whether the
Transaction is consummated.
In addition to the matters noted above, in their deliberations regarding
approval of the New Advisory Agreement, the Board considered the factors
discussed below, among others.
================================================================================
40 | USAA NASDAQ-100 INDEX FUND
================================================================================
THE NATURE, EXTENT, AND QUALITY OF SERVICES EXPECTED TO BE PROVIDED BY VICTORY
CAPITAL - The Board considered information provided by Victory Capital regarding
its investment philosophy, investment management capabilities, business and
operating structure, scale of operations, leadership and reputation,
distribution capabilities, and financial condition. The Board also considered
the capabilities, resources, and personnel of Victory Capital, including senior
and other personnel of AMCO who had been extended offers to join Victory
Capital, in order to determine whether Victory Capital is capable of providing
the same level of investment management services currently provided to each
Fund, and also considered the transition and integration plans to move
management of the Funds to Victory Capital. The Board recognized that the AMCO
personnel who had been extended offers may not accept such offers and personnel
changes may occur in the future in the ordinary course. The Board considered the
resources and infrastructure that Victory Capital intends to devote to its
compliance program to ensure compliance with applicable laws and regulations, as
well as Victory Capital's commitment to those programs. The Board also
considered the resources that Victory Capital has devoted to its risk management
program and cybersecurity program. The Board also reviewed information provided
by Victory Capital related to its business, legal, and regulatory affairs. This
review considered the resources available to Victory Capital to provide the
services specified under the New Advisory Agreement. The Board considered
Victory Capital's financial condition, including the financing of the
Transaction, and noted that Victory Capital is expected to be able to provide a
high level of service to the Funds and continuously invest and re-invest in its
business.
The Board considered that, while it was proposed that Victory Capital would
become the investment adviser to the Funds, the same portfolio managers at AMCO
that manage the Fixed Income Funds, as well as USAA's Global Multi-Asset team
servicing the Cornerstone Funds, Target Retirement Funds (including Target
Managed Allocation Fund), Global Managed Volatility Fund, and Managed Allocation
Fund, are expected to continue to do so after the Transaction as employees of
Victory Capital, if they choose to become employees of Victory Capital. The
Board determined that it had considered the qualifications of the portfolio
managers at AMCO and the subadvisers at its 2018 15(c) Meeting. The Board
considered the professional experience,
================================================================================
ADVISORY AGREEMENT(S) | 41
================================================================================
education, affiliations and/or other credentials or qualifications of the
anticipated portfolio managers at Victory Capital that would manage the Equity
Funds(4), Cornerstone Funds, and Target Retirement Funds. The Board noted that
the Equity Funds or portions of Equity Funds currently managed by AMCO would be
replaced with portfolio managers from Victory Capital.
The Board considered that certain Funds would continue to operate in a
manager-of-managers structure Post-Transaction. The Board considered that
Victory Capital's experience in allocating assets to, and overseeing the
advisory services of, its investment franchises and the Victory Solutions
platform, was similar to AMCO's role in allocating assets to and overseeing the
advisory services provided by the subadvisers.
The Board considered that the terms and conditions of the New Advisory Agreement
are substantially similar to the terms and conditions of the Existing Management
Agreements. The Board also considered that the New Subadvisory Agreements are
substantially similar to the terms and conditions of the Existing Subadvisory
Agreements and that no changes were proposed to the allocation of
responsibilities as between Victory Capital and any subadviser, except to the
extent that under the New Subadvisory Agreements each subadviser would be
responsible for voting proxies with respect to assets allocated to that
subadviser, while AMCO currently votes all Fund proxies. The Board considered
that Victory Capital also would provide certain administrative, fund accounting,
and shareholder servicing services under a separate administration agreement
with the Funds. In this connection, the Board considered information on Victory
Capital's use of third-party service providers to provide certain
sub-administration and sub-accounting services to the Funds.
After review of these and other considerations, the Board concluded that Victory
Capital will be capable of providing investment advisory services of the same
high quality as the investment advisory services provided to the Funds by AMCO,
and that these services are appropriate in nature and extent in light of the
Funds' operations and investor needs.
(4)The Equity Funds include the following Funds: Aggressive Growth Fund, Growth
& Income Fund, Income Stock Fund, Global Equity Income Fund, and Precious
Metals and Minerals Fund.
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42 | USAA NASDAQ-100 INDEX FUND
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PERFORMANCE OF THE FUNDS - With respect to the performance of the Funds, the
Board considered its review at the 2018 15(c) Meeting of peer group and
benchmark investment performance comparison data relating to each Fund and, if
applicable, each subadviser's performance record for similar accounts. The
Board considered that information reviewed at the 2018 15(c) Meeting may be more
relevant for those Funds that would retain their current portfolio managers or
subadvisers. With respect to the Funds whose portfolio managers would be
replaced, the Board considered the performance of funds sponsored and managed by
Victory Capital ("Victory Funds") with similar investment objectives and
strategies managed by the portfolio managers who would manage the Funds. Based
on information presented to the Board at the Meetings and its discussions with
Victory Capital, the Board concluded that Victory Capital is capable of
generating a level of long-term investment performance that is appropriate in
light of each Fund's investment objectives, strategies and restrictions.
FEES TO BE PAID TO VICTORY CAPITAL AND EXPENSES OF THE FUNDS - The Board
considered that it had reviewed each Fund's existing advisory fee rate and
computation method for calculating such fees at the 2018 15(c) Meeting. The
Board considered that the New Advisory Agreement does not change any Fund's
advisory fee rate or the computation method for calculating such fees, except
that Victory Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment and apply the
resulting performance adjustment across each other class of shares of the Fund.
The Board considered that the use of a single designated class to calculate the
performance adjustment for each other class of shares of the Fund could mean
that shareholders of a class other than the class used to measure the
performance adjustment may pay a performance adjustment that is higher or lower
than if the adjustment were calculated on a class by class basis, primarily due
to the impact of differences in the fees and expenses between share classes on
performance. The Board considered that the New Advisory Agreement stipulates
that the period for measuring performance for calculating a Fund's performance
adjustment begins on the date that Victory Capital begins managing the Fund;
therefore, no performance adjustments will be made for the first twelve months
of the New Advisory Agreement, consistent with applicable regulations. The Board
also considered Victory Capital's contractual commitment under the expense
limitation
================================================================================
ADVISORY AGREEMENT(S) | 43
================================================================================
agreement ("ELA") to waive fees and/or reimburse expenses for at least two years
after the closing of the Transaction, so that each Fund's annual expense ratio
(excluding acquired fund fees and expenses, any performance adjustment to a
Fund's advisory fee, interest, taxes, brokerage commissions, other expenditures
which are capitalized in accordance with generally accepted accounting
principles, and other extraordinary expenses not incurred in the ordinary course
of such Fund's business) does not exceed the levels reflected in each Fund's
most recent audited financial statements at the time the Transaction closes (or
the levels of AMCO's then-current expense caps, if applicable), excluding the
impact of any performance adjustment to a Fund's advisory fee. The Board
considered that the ELA permits Victory Capital to recoup advisory fees waived
and expenses reimbursed for up to three years after the fiscal year in which the
waiver or reimbursement took place, subject to the lesser of any operating
expense limitation in effect at the time of: (1) the original waiver or expense
reimbursement; or (2) recoupment. The Board also considered that Victory Capital
and AMCO had represented to the Board that they will use their best efforts to
ensure that they and their respective affiliates do not take any action that
imposes an "unfair burden" on the Funds as a result of the Transaction or as a
result of any express or implied terms, conditions or understandings applicable
to the Change of Control Event, for so long as the requirements of Section 15(f)
of the 1940 Act apply. The Board also considered a comparison of the proposed
advisory fees to be paid by each Fund to the advisory fees paid by funds and
other accounts managed by Victory Capital deemed to be comparable to the Fund in
terms of investment objectives and strategies. The Board considered that, with
few exceptions, mostly involving weighted average fees for separate accounts,
the advisory fees to be paid by the Funds were lower than the fees paid by these
other funds and accounts. The Board concluded that the retention of Victory
Capital was unlikely to impose an unfair burden on the Funds because, after the
Transaction, none of AMCO, Victory Capital, VCA, or any of their respective
affiliates, would be entitled to receive any compensation directly or indirectly
(i) from any person in connection with the purchase or sale of securities or
other property to, from, or on behalf of the Funds (other than ordinary fees for
bona fide principal underwriting services), or (ii) from the Funds or their
shareholders for other than bona fide investment advisory or other services.
Based on its review, the Board determined, with respect to each Fund, that
Victory Capital's advisory fee is fair and reasonable.
================================================================================
44 | USAA NASDAQ-100 INDEX FUND
================================================================================
THE EXTENT TO WHICH VICTORY CAPITAL MAY REALIZE ECONOMIES OF SCALE AS THE FUNDS
GROW LARGER AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE FOR THE
BENEFIT OF FUND SHAREHOLDERS - The Board considered potential or anticipated
economies of scale in relation to the services Victory Capital would provide to
each Fund. The Board considered that the New Advisory Agreement includes the
same advisory fee breakpoints for the same Funds as the Existing Advisory
Agreements. The Board also considered that Victory Capital has contractually
agreed to cap the Funds' annual operating expense ratios, pursuant to the ELA,
which will remain in effect for at least two years from the closing of the
Transaction, and may be extended. The Board also considered Victory Capital's
representation that the significant increase in its assets under management
Post-Transaction may reasonably be expected to enable the new combined firm to
reach greater economies of scale in a shorter time frame. The Board noted that
it will have the opportunity to periodically re-examine whether a Fund or the
Trust has achieved economies of scale, and the appropriateness of investment
advisory and administrative fees payable to Victory Capital, in the future.
THE PROFITS TO BE REALIZED BY VICTORY CAPITAL AND ITS AFFILIATES FROM THEIR
RELATIONSHIP WITH THE TRUST - The Board considered the benefits Victory Capital
and its affiliates may derive from their relationship with the Funds, including
compensation to be paid to Victory Capital for the provision of certain
administrative, fund accounting and shareholder services to the Funds and
compensation to be paid to USAA Transfer Agent for the provision of transfer
agency services to the Funds. The Board considered the significant investments
Victory Capital expected to make to support and grow the USAA member channel and
the costs to integrate the USAA Fund business into Victory Capital. The Board
also considered Victory Capital's profitability report presented to the board of
trustees of the Victory Funds in connection with their most recent 15(c)
process. The Board considered Victory Capital's representation that the fully
integrated USAA Fund business, including investments to support ongoing growth,
was expected to have an overall marginally positive impact on Victory Capital's
overall financial profitability. The Board noted the difficulty of accurately
projecting profitability under the current circumstance and noted that it would
have the opportunity to give further consideration to Victory Capital's
profitability with respect to the Funds at the end of the initial two-year term
of the New Advisory Agreement.
================================================================================
ADVISORY AGREEMENT(S) | 45
================================================================================
FALL-OUT AND OTHER BENEFITS TO VICTORY CAPITAL AND ITS AFFILIATES - The Board
considered the possible fall-out benefits and other types of benefits that may
accrue to Victory Capital and its affiliates. The Board noted that the
Transaction provides Victory Capital and its affiliates the opportunity to
deliver investment products and services to USAA's direct member-based channel.
The Board also considered that Victory Capital may derive reputational and other
benefits from its ability to use "USAA" and related names in connection with
operating and marketing the Funds. The Board considered that the Transaction, if
completed, would significantly increase Victory Capital's assets under
management and expand Victory Capital's investment capabilities. This increased
size and diversification could facilitate Victory Capital's continued investment
in its business and products, which Victory Capital would be able to leverage
across a broader base of assets. Victory Capital also would be able to use
trading commission credits from the Funds' transactions in securities to
"purchase" third party research and execution services to support its investment
process. Based on its review, the Board determined that any "fall-out" benefits
and other types of benefits that may accrue to Victory Capital are fair and
reasonable.
CONCLUSIONS - Based on the foregoing and other relevant considerations, at the
Meeting of the Board held on January 15, 2019, the Board, including a majority
of the Independent Trustees, acting within its business judgment, (1) concluded
that the terms of the New Advisory Agreement are fair and reasonable and that
approval of the New Advisory Agreement is in the best interests of each Fund and
its respective shareholders, (2) voted to approve the New Advisory Agreement,
and (3) voted to recommend approval of the New Advisory Agreement by
shareholders of the Funds. The Board evaluated all information available to it
on a Fund-by-Fund basis and its determinations were made separately in respect
of each Fund. The Board noted some factors may have been more or less important
with respect to any particular Fund and that no one factor was determinative of
its decisions which, instead, were premised upon the totality of factors
considered. In this connection, the Board also noted that different Board
members likely placed emphasis on different factors in reaching their individual
conclusions to vote in favor of the New Advisory Agreement and to recommend
approval of the New Advisory Agreement by shareholders of the Funds.
================================================================================
46 | USAA NASDAQ-100 INDEX FUND
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND THE MANAGER)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the continuation of the
(i) investment advisory agreement between the Trust and AMCO and (ii) investment
subadvisory agreements between certain subadvisers and AMCO, which were
effective until July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting of the Board of Trustees (the Board) held on April 17,
2019, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund and the Subadvisory Agreement between the Manager and Northern Trust
Investments, Inc. (the Subadviser) with respect to the Fund.(1)
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and Subadvisory Agreement and the
Manager and the Subadviser, and were given the opportunity to ask questions and
request additional information from management. The information provided to the
Board included, among other things: (i) a separate
(1)At an in-person meeting held on January 15, 2019, the Board, including the
Independent Trustees, approved a new investment advisory agreement between
the Trust, on behalf of the Fund, and Victory Capital Management Inc.
("Victory Capital"). Effective July 1, 2019, upon the closing of the
transaction whereby the Manager acquired by Victory Capital Holdings, Inc.,
the parent company of Victory Capital, the Advisory Agreement between the
Trust and the Manager and the Sub-advisory Agreement with the Subadviser
terminated and the new investment advisory agreement between the Trust and
Victory Capital went into effect. The factors the Board considered in
approving the new investment advisory agreement with Victory Capital are
discussed above. Effective June 30, 2019, the Subadviser no longer manages
any portion of the Fund.
================================================================================
ADVISORY AGREEMENT(S) | 47
================================================================================
report prepared by an independent third party, which provided a statistical
analysis comparing the Fund's investment performance, expenses, and fees to
comparable investment companies; (ii) information concerning the services
rendered to the Fund, as well as information regarding the Manager's revenues
and costs of providing services to the Fund and compensation paid to affiliates
of the Manager; and (iii) information about the Manager's and Subadviser's
operations and personnel. Prior to voting, the Independent Trustees reviewed the
proposed continuance of the Advisory Agreement and the Subadvisory Agreement
with management and with experienced counsel retained by the Independent
Trustees (Independent Counsel) and received materials from such Independent
Counsel discussing the legal standards for their consideration of the proposed
continuation of the Advisory Agreement and the Subadvisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement and the Subadvisory Agreement with
respect to the Fund in private sessions with Independent Counsel at which no
representatives of management were present.
The Board considered the Advisory Agreement and the Subadvisory Agreement
separately in the course of its review. In doing so, the Board noted the
respective roles of the Manager and the Subadviser in providing services to the
Fund.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager and by the Subadviser.
At the meeting at which the renewal of the Advisory Agreement and Subadvisory
Agreement is considered, particular focus is given to information concerning
Fund performance, fees and total expenses as compared to comparable investment
companies, and the Manager's profitability with respect to the Fund. However,
the Board noted that the evaluation process with respect to the Manager and the
Subadviser is an ongoing one. In this regard, the Board's and its committees'
consideration of the Advisory Agreement and Subadvisory Agreement included
certain information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving
================================================================================
48 | USAA NASDAQ-100 INDEX FUND
================================================================================
the Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the fees paid to the Manager and the services provided to the
Fund by the Manager under the Advisory Agreement, as well as other services
provided by the Manager and its affiliates under other agreements, and the
personnel who provide these services. In addition to the investment advisory
services provided to the Fund, the Manager and its affiliates provide
administrative services, shareholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements, and
other services necessary for the operation of the Fund and the Trust.
The Board also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of senior personnel, as well as current staffing levels. The
Board discussed the Manager's effectiveness in monitoring the performance of the
Subadviser and its timeliness in responding to performance issues. The
allocation of the Fund's brokerage, including the Manager's process for
monitoring "best execution," was also considered. The Manager's role in
coordinating the activities of the Fund's other service providers also was
considered. The Board also considered the Manager's risk management processes.
The Board considered the Manager's financial condition and that it had the
financial wherewithal to continue to provide the same scope and high quality of
services under the Advisory Agreement. In reviewing the
================================================================================
ADVISORY AGREEMENT(S) | 49
================================================================================
Advisory Agreement, the Board focused on the experience, resources, and
strengths of the Manager and its affiliates in managing the Fund, as well as the
other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as trustees of the
Trust, also focused on the quality of the Manager's compliance and
administrative staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objectives and classifications,
sales load type (in this case, retail investment companies with front-end loads
and no sales loads), asset size, and expense components (the "expense group")
and (ii) a larger group of investment companies that includes all front-end and
no-load retail open-end investment companies with similar investment
classifications/objectives as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
Fund's management fee rate - which includes advisory and administrative services
- was below the median of its expense group and its expense universe. The data
indicated that the Fund's total expenses were below the median of its expense
group and its expense universe. The Board took into account the various services
provided to the Fund by the Manager and its affiliates, including the nature and
high quality of the services provided by the Manager. The Board also considered
the level of correlation between the Nasdaq-100 Index and the Fund and the
relatively low tracking error between the Fund and the index and noted that it
reviews such information on a quarterly basis. The Board also noted the level
and method of computing the management fee. The Trustees also took into account
that the subadvisory fees under the Subadvisory Agreement are paid by the
Manager. The Board also considered and discussed information
================================================================================
50 | USAA NASDAQ-100 INDEX FUND
================================================================================
about the Subadviser's fees, including the amount of management fees retained by
the Manager after payment of the subadvisory fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with similar
classifications/objectives as the Fund regardless of asset size or primary
channel of distribution. This comparison indicated that, among other data, the
Fund's performance was above the average of its performance universe and its
Lipper index for the one-, three-, five-, and ten- year periods ended December
31, 2018. The Board also noted that the Fund's percentile performance ranking
was in the top 50% of its performance universe for the one-year period ended
December 31, 2018, was in the top 10% of its performance universe for the
three-year period ended December 31, 2018, and was in the top 5% of its
performance universe for the five-, and ten-year periods ended December 31,
2018.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the management fee. The information considered by the Board
included operating profit margin information for the Manager's business as a
whole. The Board also received and considered profitability information related
to the management revenues from the Fund. This information included a review of
the methodology used in the allocation of certain costs to the Fund. In
considering the profitability data with respect to the Fund, the Trustees noted
that the Manager pays the Fund's subadvisory fees. The Trustees reviewed the
profitability of the Manager's relationship with the Fund before tax expenses.
The Board was also provided with an Investment Management Profitability Analysis
prepared by an independent information service. In reviewing the overall
profitability of the management fee to the Manager, the Board also considered
the fact that affiliates provide shareholder servicing and administrative
services to the Fund for which they receive
================================================================================
ADVISORY AGREEMENT(S) | 51
================================================================================
compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Trustees recognized that the Manager should be able to earn a
reasonable level of profits in exchange for the level of services it provides to
the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussion of
the Fund's current advisory fee structure. The Board also noted that if the
Fund's assets increase over time, the Fund may realize other economies of scale
if assets increase proportionally more than some expenses. The Board also
considered the fact that the Manager pays the Fund's subadvisory fees. The Board
determined that the current investment management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from its relationship with the Fund, if any, is reasonable in
light of the nature and high quality of services provided by the Manager and the
type of fund. Based on its conclusions, the Board determined that continuation
of the Advisory Agreement would be in the best interests of the Fund and its
shareholders.
SUBADVISORY AGREEMENT
In approving the Fund's Subadvisory Agreement, the Board considered various
factors, among them: (i) the nature, extent, and quality of services provided to
the Fund, including the personnel providing services; (ii) the
================================================================================
52 | USAA NASDAQ-100 INDEX FUND
================================================================================
Subadviser's compensation and any other benefits derived from the subadvisory
relationship; (iii) comparisons, to the extent applicable, of subadvisory fees
and performance to comparable investment companies; and (iv) the terms of the
Subadvisory Agreement. The Board's analysis of these factors is set forth below.
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Subadvisory Agreement. In approving
the Subadvisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL - The
Trustees considered information provided to them regarding the services provided
by the Subadviser, including information presented periodically throughout the
previous year. The Board considered the Subadviser's level of knowledge and
investment style. The Board reviewed the experience and credentials of the
investment personnel who are responsible for managing the investment of
portfolio securities with respect to the Fund and the Subadviser's level of
staffing. The Trustees considered, based on the materials provided to them by
the Subadviser, whether the method of compensating portfolio managers is
reasonable and includes mechanisms to prevent a manager with underperformance
from taking undue risks. The Trustees also noted the Subadviser's brokerage
practices. The Board also considered the Subadviser's regulatory and compliance
history. The Board also took into account the Subadviser's risk management
processes. The Board noted that the Manager's monitoring processes of the
Subadviser include, among others: (i) regular telephonic meetings to discuss,
among other matters, investment strategies and to review portfolio performance;
(ii) monthly portfolio compliance checklists and quarterly compliance
certifications to the Board; and (iii) due diligence visits to the Subadviser.
SUBADVISER COMPENSATION - The Board also took into consideration the financial
condition of the Subadviser. In considering the cost of services to be provided
by the Subadviser and the profitability to the Subadviser of its relationship
with the Fund, the Trustees noted that the fees under the Subadvisory Agreement
were paid by the Manager. The Trustees also relied on the ability of the Manager
to negotiate the Subadvisory Agreement and
================================================================================
ADVISORY AGREEMENT(S) | 53
================================================================================
the fees thereunder at arm's length. For the above reasons, the Board determined
that the profitability of the Subadviser from its relationship with the Fund was
not a material factor in its deliberations with respect to the consideration of
the approval of the Subadvisory Agreement. For similar reasons, the Board
concluded that the potential for economies of scale in the Subadviser's
management of the Fund was not a material factor in considering the Subadvisory
Agreement, although the Board noted that the Subadvisory Agreement contains
breakpoints in its fee schedule.
SUBADVISORY FEES AND FUND PERFORMANCE - The Board compared the subadvisory fees
for the Fund with the fees that the Subadviser charges to comparable clients, as
applicable. The Board considered that the Fund pays a management fee to the
Manager and that, in turn, the Manager pays a subadvisory fee to the Subadviser.
As noted above, the Board considered, among other data, the Fund's performance
during the one-, three-, five-, and ten-year periods ended December 31, 2018, as
compared to the Fund's respective peer group and noted that the Board reviews at
its regularly scheduled meetings information about the Fund's performance
results. The Board noted the Manager's experience and resources in monitoring
the performance, investment style, and risk-adjusted performance of the
Subadviser. The Board also noted certain anticipated changes to the Fund's
subadvisory arrangements.
CONCLUSIONS - The Board reached the following conclusions regarding the
Subadvisory Agreement, among others: (i) the Subadviser is qualified to manage
the Fund's assets in accordance with its investment objectives and policies;
(ii) the Subadviser maintains an appropriate compliance program; (iii) the
performance of the Fund is reasonable in relation to the performance of funds
with similar investment objectives and to relevant indices; and (iv) the Fund's
advisory expenses are reasonable in relation to those of similar funds and to
the services to be provided by the Manager and the Subadviser. Based on its
conclusions, the Board determined that approval of the Subadvisory Agreement
with respect to the Fund would be in the best interests of the Fund and its
shareholders.
================================================================================
54 | USAA NASDAQ-100 INDEX FUND
================================================================================
AS OF JULY 1, 2019
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
David C. Brown
John C. Walters
--------------------------------------------------------------------------------
ADMINISTRATOR AND Victory Capital Management Inc.
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND Victory Capital Advisers, Inc.
DISTRIBUTOR 4900 Tiedeman Road
Brooklyn, Ohio 44144
--------------------------------------------------------------------------------
TRANSFER AGENT Victory Capital Transfer Agency, Inc.
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 USAA AMCO'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) 235-8396; (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 monthly portfolio holdings with the SEC
for the first and third quarters of each fiscal year as an exhibit to its
reports on Form N-PORT (beginning with filings after March 31, 2019).
Previously, the Fund made its complete schedule of portfolio holdings available
after the first and third fiscal quarters in regulatory filings on Form N-Q. The
Fund's Forms N-CSR, N-PORT, and N-Q are available at no charge (i) by calling
(800) 235-8396; (ii) at usaa.com; and (iii) on the SEC's website at
http://www.sec.gov.
===============================================================================
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MUTUAL FUNDS
--------------------------------------------------------------------------------
June 30, 2019
--------------------------------------------------------------------------------
SEMIANNUAL REPORT
USAA Global Managed Volatility Fund
FUND INSTITUTIONAL
SHARES SHARES
UGMVX UGOFX
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) 235-8396 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)
235-8396 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.
Victory Capital means Victory Capital Management Inc., the investment manager of
the USAA Mutual Funds. USAA Mutual Funds are distributed by Victory Capital
Advisers, Inc., a broker dealer registered with FINRA and an affiliate of
Victory Capital. Victory Capital and its affiliates are not affiliated with
United Services Automobile Association or its affiliates. USAA and the USAA
logos are registered trademarks and the USAA Mutual Funds and USAA Investments
logos are trademarks of United Services Automobile Association and are being
used by Victory Capital and its affiliates under license.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
SHAREHOLDER VOTING RESULTS 2
FINANCIAL INFORMATION
Portfolio of Investments 3
Notes to Portfolio of Investments 15
Financial Statements 17
Notes to Financial Statements 21
Financial Highlights 42
EXPENSE EXAMPLE 44
ADVISORY AGREEMENT(S) 46
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's tax rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. Any
withholding election that you make will apply to any subsequent distribution
unless and until you change or revoke the election. If you wish to make a
withholding election, or change or revoke a prior withholding election, call
(800) 235-8396.
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.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TOP 10 HOLDINGS* - 6/30/19 o
(% of Net Assets)
iShares Edge MSCI Min Vol EAFE ETF ...................................... 13.7%
iShares Edge MSCI Min Vol USA ETF ....................................... 6.8%
Vanguard FTSE Developed Markets ETF ..................................... 5.8%
iShares Core S&P 500 ETF ................................................ 5.3%
iShares Edge MSCI Min Vol Emerging Markets ETF .......................... 4.3%
Schwab Fundamental International Large Company Index ETF ................ 4.1%
Invesco FTSE RAFI Developed Markets ex-US ETF ........................... 3.4%
iShares Core MSCI EAFE ETF .............................................. 3.4%
iShares Edge MSCI USA Quality Factor ETF ................................ 3.0%
Schwab Fundamental Emerging Markets Large Company Index ETF ............. 2.8%
o ASSET ALLOCATION* - 6/30/19 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
INTERNATIONAL EXCHANGE-TRADED FUNDS 44.3%
COMMON STOCKS 29.6%
EXCHANGE-TRADED FUNDS 24.2%
MONEY MARKET INSTRUMENTS 1.8%
[END CHART]
*Does not include purchased options, written options 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%.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 1
================================================================================
SHAREHOLDER VOTING RESULTS
--------------------------------------------------------------------------------
On April 18, 2019, a special meeting of shareholders was held to vote on two
proposals relating to the series of the USAA Mutual Funds Trust (Trust).
Shareholders of record on February 8, 2019, were entitled to vote on each
proposal shown below. The proposals were approved by the shareholders.
The following proposals and voting results pertain to one or more series within
the Trust. Votes shown for Proposal 1 are for the Fund, a series of the Trust.
Votes shown for Proposal 2 are for all series of the Trust. The effective date
of the Proposals was July 1, 2019.
PROPOSAL 1
To approve a new Investment Advisory Agreement between the Trust, on behalf of
the Fund, and Victory Capital Management Inc. (Victory Capital), an independent
investment adviser. The new Investment Advisory Agreement became effective upon
the closing of the Transaction (as defined and discussed in Note 1 to the
Financial Statements) whereby USAA Asset Management Company (AMCO) was acquired
by Victory Capital Holdings Inc., the parent company of Victory Capital.
NUMBER OF SHARES VOTING
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--------------------------------------------------------------------------------
97,759,041 44,103 26,546
PROPOSAL 2
Election of two new trustees to the Trust's Board of Trustees to serve upon the
closing of the Transaction: (1) David C. Brown, to serve as an "interested
trustee" as defined in the Investment Company Act of 1940, as amended (1940
Act); and (2) John C. Walters, to serve as a trustee who is not an "interested
person" as is defined under the 1940 Act (Independent Trustee).
NUMBER OF SHARES VOTING
--------------------------------------------------------------------------------
TRUSTEES FOR VOTES WITHHELD
--------------------------------------------------------------------------------
David C. Brown 8,299,565,565 820,887,736
John C. Walters 8,317,935,885 802,517,416
================================================================================
2 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2019 (unaudited)
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (98.1%)
COMMON STOCKS (29.6%)
BASIC MATERIALS (0.8%)
----------------------
CHEMICALS (0.6%)
12,990 Air Products & Chemicals, Inc. $ 2,941
5,070 Celanese Corp. 546
4,250 Ecolab, Inc. 839
4,920 LyondellBasell Industries N.V. "A" 424
13,140 PPG Industries, Inc. 1,534
----------
6,284
----------
FOREST PRODUCTS & PAPER (0.0%)
17,180 International Paper Co. 744
----------
IRON/STEEL (0.2%)
28,750 Nucor Corp. 1,584
9,360 Steel Dynamics, Inc. 283
----------
1,867
----------
Total Basic Materials 8,895
----------
COMMUNICATIONS (3.1%)
---------------------
ADVERTISING (0.4%)
49,697 Interpublic Group of Companies, Inc. 1,123
33,910 Omnicom Group, Inc. 2,779
----------
3,902
----------
INTERNET (0.2%)
340 Alphabet, Inc. "A"(a) 368
2,900 CDW Corp. 322
10,050 eBay, Inc. 397
6,170 F5 Networks, Inc.(a) 898
2,130 Facebook, Inc. "A"(a) 411
1,750 IAC/InterActiveCorp.(a) 381
----------
2,777
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 3
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
MEDIA (0.9%)
39,470 Altice USA, Inc. "A"(a) $ 961
32,680 CBS Corp. "B" 1,631
44,550 Comcast Corp. "A" 1,883
13,450 Discovery, Inc. "A"(a) 413
20,690 DISH Network Corp. "A"(a) 795
57,390 Sirius XM Holdings, Inc. 320
28,690 Viacom, Inc. "B" 857
17,060 Walt Disney Co. 2,382
----------
9,242
----------
TELECOMMUNICATIONS (1.6%)
35,238 AT&T, Inc. 1,181
76,130 Cisco Systems, Inc. 4,167
32,680 Corning, Inc. 1,086
62,920 Juniper Networks, Inc. 1,675
27,690 T-Mobile US, Inc.(a) 2,053
118,100 Verizon Communications, Inc. 6,747
----------
16,909
----------
Total Communications 32,830
----------
CONSUMER, CYCLICAL (3.5%)
-------------------------
AIRLINES (0.2%)
18,510 Delta Air Lines, Inc. 1,050
13,160 Southwest Airlines Co. 668
4,440 United Airlines Holdings, Inc.(a) 389
----------
2,107
----------
APPAREL (0.2%)
18,950 Hanesbrands, Inc. 326
8,360 NIKE, Inc. "B" 702
5,250 Ralph Lauren Corp. 597
----------
1,625
----------
AUTO MANUFACTURERS (0.1%)
20,830 General Motors Co. 803
5,490 PACCAR, Inc. 393
----------
1,196
----------
AUTO PARTS & EQUIPMENT (0.1%)
5,160 Autoliv, Inc. 364
8,630 BorgWarner, Inc. 362
================================================================================
4 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
2,820 Lear Corp. $ 393
2,800 WABCO Holdings, Inc.(a) 371
----------
1,490
----------
DISTRIBUTION/WHOLESALE (0.1%)
18,480 Fastenal Co. 602
11,870 HD Supply Holdings, Inc.(a) 478
1,030 WW Grainger, Inc. 277
----------
1,357
----------
ENTERTAINMENT (0.1%)
11,240 Live Nation Entertainment, Inc.(a) 745
----------
HOME BUILDERS (0.2%)
19,7070 DR Horton, Inc. 853
250 NVR, Inc.(a) 842
7,650 PulteGroup, Inc. 242
----------
1,937
----------
HOME FURNISHINGS (0.1%)
25,220 Leggett & Platt, Inc. 968
----------
LEISURE TIME (0.2%)
15,320 Carnival Corp. 713
13,610 Harley-Davidson, Inc. 488
14,960 Norwegian Cruise Line Holdings Ltd.(a) 802
----------
2,003
----------
LODGING (0.2%)
7,980 Hilton Worldwide Holdings, Inc. 780
5,940 Las Vegas Sands Corp. 351
8,820 Marriott International, Inc. "A" 1,237
----------
2,368
----------
RETAIL (1.9%)
12,829 Best Buy Co., Inc. 895
6,714 Darden Restaurants, Inc. 817
16,380 Dollar General Corp. 2,214
19,880 Gap, Inc. 357
24,900 Genuine Parts Co. 2,579
3,070 Home Depot, Inc. 639
16,560 Kohl's Corp. 787
9,480 Lowe's Companies, Inc. 957
1,920 Lululemon Athletica, Inc.(a) 346
15,760 Macy's, Inc. 338
2,520 McDonald's Corp. 523
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
20,930 Nordstrom, Inc.(b) $ 667
1,300 O'Reilly Automotive, Inc.(a) 480
31,830 Qurate Retail, Inc.(a) 394
14,010 Ross Stores, Inc. 1,389
9,720 Starbucks Corp. 815
8,957 Target Corp. 776
41,450 TJX Companies, Inc. 2,192
9,750 Tractor Supply Co. 1,061
1,410 Ulta Salon Cosmetics & Fragrance, Inc.(a) 489
12,080 Walgreens Boots Alliance, Inc. 660
9,630 Walmart, Inc. 1,064
----------
20,439
----------
TEXTILES (0.1%)
3,610 Mohawk Industries, Inc.(a) 532
----------
Total Consumer, Cyclical 36,767
----------
CONSUMER, NON-CYCLICAL (6.9%)
-----------------------------
AGRICULTURE (0.2%)
42,330 Altria Group, Inc. 2,004
----------
BEVERAGES (1.0%)
90,100 Coca-Cola Co. 4,588
12,440 Molson Coors Brewing Co. "B" 697
36,050 PepsiCo, Inc. 4,727
----------
10,012
----------
BIOTECHNOLOGY (0.5%)
9,442 Amgen, Inc. 1,740
3,220 Biogen, Inc.(a) 753
7,010 Celgene Corp.(a) 648
17,475 Gilead Sciences, Inc. 1,180
9,040 United Therapeutics Corp.(a) 706
----------
5,027
----------
COMMERCIAL SERVICES (0.8%)
14,970 Automatic Data Processing, Inc. 2,475
14,780 H&R Block, Inc. 433
3,970 Moody's Corp. 775
5,620 PayPal Holdings, Inc.(a) 643
5,620 Robert Half International, Inc. 321
5,220 S&P Global, Inc. 1,189
19,918 Total System Services, Inc. 2,555
3,510 United Rentals, Inc.(a) 466
----------
8,857
----------
================================================================================
6 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
COSMETICS/PERSONAL CARE (0.5%)
3,100 Estee Lauder Companies, Inc. "A" $ 568
45,288 Procter & Gamble Co. 4,966
----------
5,534
----------
FOOD (0.9%)
9,900 Campbell Soup Co. 397
19,200 General Mills, Inc. 1,008
20,600 Hershey Co. 2,761
4,460 Ingredion, Inc. 368
10,900 JM Smucker Co. 1,256
26,490 Kroger Co. 575
20,360 Sysco Corp. 1,440
22,399 Tyson Foods, Inc. "A" 1,808
----------
9,613
----------
HEALTHCARE PRODUCTS (0.5%)
22,540 Baxter International, Inc. 1,846
5,490 Danaher Corp. 785
1,560 Edwards Lifesciences Corp.(a) 288
5,530 Henry Schein, Inc.(a) 386
1,950 IDEXX Laboratories, Inc.(a) 537
9,200 Medtronic plc 896
2,510 Thermo Fisher Scientific, Inc. 737
----------
5,475
----------
HEALTHCARE-SERVICES (0.6%)
1,422 Anthem, Inc. 401
11,320 DaVita, Inc.(a) 637
9,046 HCA Healthcare, Inc. 1,223
2,591 Laboratory Corp. of America Holdings(a) 448
5,130 Quest Diagnostics, Inc. 522
6,840 UnitedHealth Group, Inc. 1,669
12,640 Universal Health Services, Inc. "B" 1,648
----------
6,548
----------
HOUSEHOLD PRODUCTS/WARES (0.3%)
3,900 Avery Dennison Corp. 451
17,730 Church & Dwight Co., Inc. 1,296
9,020 Clorox Co. 1,381
----------
3,128
----------
PHARMACEUTICALS (1.6%)
12,600 AmerisourceBergen Corp. 1,074
6,560 Bristol-Myers Squibb Co. 297
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
11,240 Cardinal Health, Inc. $ 529
2,377 Cigna Corp.(a) 375
8,390 CVS Health Corp. 457
14,590 Eli Lilly & Co. 1,616
2,650 Jazz Pharmaceuticals plc(a) 378
22,470 Johnson & Johnson 3,130
4,220 McKesson Corp. 567
51,470 Merck & Co., Inc. 4,316
58,700 Pfizer, Inc. 2,543
17,840 Zoetis, Inc. 2,025
----------
17,307
----------
Total Consumer, Non-cyclical 73,505
----------
ENERGY (1.5%)
-------------
OIL & GAS (1.2%)
17,214 Chevron Corp. 2,142
44,450 ConocoPhillips 2,712
33,400 Exxon Mobil Corp. 2,559
12,180 HollyFrontier Corp. 564
16,130 Marathon Petroleum Corp. 901
22,350 Occidental Petroleum Corp. 1,124
13,920 Phillips 66 1,302
14,950 Valero Energy Corp. 1,280
----------
12,584
----------
PIPELINES (0.3%)
33,810 Kinder Morgan, Inc. 706
17,880 ONEOK, Inc. 1,230
40,720 Plains GP Holdings, LP "A"(a) 1,017
----------
2,953
----------
Total Energy 15,537
----------
FINANCIAL (6.4%)
----------------
BANKS (1.5%)
38,880 Bank of America Corp. 1,127
22,450 Bank of New York Mellon Corp. 991
42,700 BB&T Corp. 2,098
9,570 CIT Group, Inc. 503
27,120 Citigroup, Inc. 1,899
44,690 Fifth Third Bancorp 1,247
121,480 Huntington Bancshares, Inc. 1,679
18,930 J.P. Morgan Chase & Co. 2,116
20,440 KeyCorp. 363
================================================================================
8 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
3,930 Northern Trust Corp. $ 354
13,110 PNC Financial Services Group, Inc. 1,800
43,850 Regions Financial Corp. 655
11,840 U.S. Bancorp. 620
17,330 Zions Bancorp 797
----------
16,249
----------
DIVERSIFIED FINANCIAL SERVICES (1.2%)
4,120 Alliance Data Systems Corp. 577
38,390 Ally Financial, Inc. 1,190
12,020 American Express Co. 1,484
5,450 Capital One Financial Corp. 494
4,840 Discover Financial Services 376
11,670 Franklin Resources, Inc. 406
4,870 Mastercard, Inc. "A" 1,288
18,750 SEI Investments Co. 1,052
40,000 Synchrony Financial 1,387
11,130 Visa, Inc. "A" 1,932
124,410 Western Union Co. 2,474
----------
12,660
----------
INSURANCE (1.9%)
51,372 Aflac, Inc. 2,816
18,357 Allstate Corp. 1,867
3,560 Aon plc 687
72,420 Arch Capital Group Ltd.(a) 2,685
1,550 Berkshire Hathaway, Inc. "B"(a) 330
29,300 Fidelity National Financial, Inc. 1,181
48,289 Loews Corp. 2,640
8,680 MetLife, Inc. 431
7,360 Principal Financial Group, Inc. 426
25,280 Progressive Corp. 2,021
3,820 Prudential Financial, Inc. 386
7,854 Reinsurance Group of America, Inc. 1,225
27,620 Torchmark Corp. 2,471
6,617 Travelers Companies, Inc. 989
----------
20,155
----------
REAL ESTATE (0.1%)
18,500 CBRE Group, Inc. "A"(a) 949
3,360 Jones Lang LaSalle, Inc. 473
----------
1,422
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
REITS (1.7%)
8,060 American Tower Corp. $ 1,648
12,360 AvalonBay Communities, Inc. 2,511
5,180 Boston Properties, Inc. 668
26,460 Equity Residential 2,009
5,860 Extra Space Storage, Inc. 622
16,800 HCP, Inc. 537
28,090 Kimco Realty Corp. 519
31,783 Liberty Property Trust 1,591
5,710 Public Storage 1,360
7,910 Simon Property Group, Inc. 1,264
54,070 UDR, Inc. 2,427
12,450 Ventas, Inc. 851
162,050 VEREIT, Inc. 1,460
4,700 Welltower, Inc. 383
----------
17,850
----------
Total Financial 68,336
----------
INDUSTRIAL (1.8%)
-----------------
AEROSPACE/DEFENSE (0.4%)
1,610 Boeing Co. 586
7,310 Lockheed Martin Corp. 2,657
11,940 Spirit AeroSystems Holdings, Inc. "A" 972
----------
4,215
----------
BUILDING MATERIALS (0.1%)
10,340 Owens Corning 602
----------
ELECTRONICS (0.6%)
8,640 Allegion plc 955
12,020 Amphenol Corp. "A" 1,153
6,670 Arrow Electronics, Inc.(a) 475
11,570 Garmin Ltd. 923
5,430 Honeywell International, Inc. 948
710 Mettler-Toledo International, Inc.(a) 597
8,640 TE Connectivity Ltd. 828
1,980 Waters Corp.(a) 426
----------
6,305
----------
ENVIRONMENTAL CONTROL (0.1%)
12,627 Waste Management, Inc. 1,457
----------
MACHINERY-CONSTRUCTION & MINING (0.0%)
4,310 Caterpillar, Inc. 587
----------
================================================================================
10 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURERS (0.2%)
4,080 3M Co. $ 707
4,220 Illinois Tool Works, Inc. 637
3,090 Ingersoll-Rand plc 391
----------
1,735
----------
SHIPBUILDING (0.1%)
3,902 Huntington Ingalls Industries, Inc. 877
----------
TRANSPORTATION (0.3%)
3,920 CH Robinson Worldwide, Inc. 331
6,450 CSX Corp. 499
5,110 Expeditors International of Washington, Inc. 388
2,820 Norfolk Southern Corp. 562
3,190 Union Pacific Corp. 539
6,910 United Parcel Service, Inc. "B" 714
----------
3,033
----------
Total Industrial 18,811
----------
TECHNOLOGY (3.8%)
-----------------
COMPUTERS (1.0%)
13,720 Accenture plc "A" 2,535
9,290 Apple, Inc. 1,839
21,370 Cognizant Technology Solutions Corp. "A" 1,355
46,700 Hewlett Packard Enterprise Co. 698
11,120 International Business Machines Corp. 1,533
11,620 Leidos Holdings, Inc. 928
5,610 NetApp, Inc. 346
18,910 Seagate Technology plc 891
12,810 Western Digital Corp. 609
----------
10,734
----------
OFFICE/BUSINESS EQUIPMENT (0.1%)
17,190 Xerox Corp. 609
----------
SEMICONDUCTORS (0.7%)
8,390 Applied Materials, Inc. 377
25,400 Intel Corp. 1,216
3,400 KLA-Tencor Corp. 402
2,730 Lam Research Corp. 513
7,220 Maxim Integrated Products, Inc. 432
22,170 Micron Technology, Inc.(a) 855
3,050 NVIDIA Corp. 501
7,440 QUALCOMM, Inc. 566
4,250 Skyworks Solutions, Inc. 328
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
14,720 Texas Instruments, Inc. $ 1,689
5,520 Xilinx, Inc. 651
----------
7,530
----------
SOFTWARE (2.0%)
1,680 Adobe, Inc.(a) 495
15,520 Cadence Design Systems, Inc.(a) 1,099
5,450 Cerner Corp. 399
1,492 Covetrus, Inc.(a) 37
5,230 Electronic Arts, Inc.(a) 530
20,200 Fiserv, Inc.(a) 1,841
7,910 Intuit, Inc. 2,067
14,920 Jack Henry & Associates, Inc. 1,998
34,310 Microsoft Corp. 4,596
2,490 MSCI, Inc. 595
7,050 Oracle Corp. 402
38,100 Paychex, Inc. 3,135
13,800 Red Hat, Inc.(a) 2,591
4,610 Veeva Systems, Inc. "A"(a) 747
5,060 VMware, Inc. "A" 846
----------
21,378
----------
Total Technology 40,251
----------
UTILITIES (1.8%)
----------------
ELECTRIC (1.8%)
46,730 AES Corp. 783
33,550 Ameren Corp. 2,520
11,750 American Electric Power Co., Inc. 1,034
37,880 CMS Energy Corp. 2,194
2,730 Dominion Energy, Inc. 211
17,970 DTE Energy Co. 2,298
17,920 Duke Energy Corp. 1,581
42,320 Exelon Corp. 2,029
2,690 NextEra Energy, Inc. 551
19,845 Pinnacle West Capital Corp. 1,867
13,760 PPL Corp. 427
32,260 Southern Co. 1,783
19,280 WEC Energy Group, Inc. 1,608
----------
Total Utilities 18,886
----------
Total Common Stocks (cost: $286,982) 313,818
----------
EXCHANGE-TRADED FUNDS (24.2%)
75,000 Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF 4,408
67,410 Invesco FTSE RAFI U.S. 1000 ETF 7,863
================================================================================
12 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
-------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------------
189,230 iShares Core S&P 500 ETF $ 55,776
1,163,700 iShares Edge MSCI Min Vol USA ETF(b) 71,835
185,450 iShares Edge MSCI USA Momentum Factor ETF 21,994
349,830 iShares Edge MSCI USA Quality Factor ETF 31,999
325,000 iShares Edge MSCI USA Size Factor ETF 29,575
115,100 iShares Edge MSCI USA Value Factor ETF 9,345
586,430 Schwab Fundamental U.S. Large Co. Index ETF(b) 22,935
----------
Total Exchange-Traded Funds (cost: $220,434) 255,730
----------
INTERNATIONAL EXCHANGE-TRADED FUNDS (44.3%)
72,200 Goldman Sachs ActiveBeta Emerging Markets Equity ETF 2,373
120,000 Goldman Sachs ActiveBeta International Equity ETF 3,442
883,218 Invesco FTSE RAFI Developed Markets ex-US ETF(b) 35,885
1,017,200 Invesco FTSE RAFI Emerging Markets ETF 21,972
580,100 iShares Core MSCI EAFE ETF 35,618
274,800 iShares Core MSCI Emerging Markets ETF 14,136
1,996,200 iShares Edge MSCI Min Vol EAFE ETF 145,004
769,300 iShares Edge MSCI Min Vol Emerging Markets ETF 45,281
60,700 JPMorgan Diversified Return Emerging Markets Equity ETF 3,376
1,045,700 Schwab Fundamental Emerging Markets Large Company Index ETF 30,053
1,572,900 Schwab Fundamental International Large Company Index ETF(b) 43,821
638,100 Schwab Fundamental International Small Company Index ETF 19,922
54,300 USAA MSCI Emerging Markets Value Momentum Blend Index ETF(c) 2,428
53,100 USAA MSCI International Value Momentum Blend Index ETF(c) 2,402
1,466,010 Vanguard FTSE Developed Markets ETF 61,147
48,000 Vanguard FTSE Emerging Markets ETF 2,041
----------
Total International Exchange-Traded Funds (cost: $442,002) 468,901
----------
Total Equity Securities (cost: $949,418) 1,038,449
----------
MONEY MARKET INSTRUMENTS (1.8%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.8%)
18,586,748 State Street Institutional Treasury Money Market Fund
Premier Class, 2.17%(d) (cost: $18,587) 18,587
----------
SHORT-TERM INVESTMENT PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (0.3%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.3%)
3,699,150 HSBC U.S. Government Money Market Fund Class I, 2.27%(d)
(cost: $3,699) 3,699
----------
TOTAL INVESTMENTS (COST: $971,704) $1,060,735
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-------------------------------------------------------------------------------------------------------------
NOTIONAL MARKET
NUMBER OF EXERCISE EXPIRATION AMOUNT VALUE
CONTRACTS DESCRIPTION PRICE DATE (000) (000)
-------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS (0.1%)
34 Put - S&P 500 Index $2,600 9/20/2019 USD 10,002 $ 50
54 Put - S&P 500 Index 2,600 12/20/2019 USD 15,885 203
100 Put - S&P 500 Index 2,550 12/20/2019 USD 29,418 318
90 Put - S&P 500 Index 2,575 1/17/2020 USD 26,476 362
----
TOTAL PURCHASED OPTIONS (COST: $1,505) $933
====
-------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $ 313,818 $- $- $ 313,818
Exchange-Traded Funds 255,730 - - 255,730
International Exchange-Traded Funds 468,901 - - 468,901
Money Market Instruments:
Government & U.S. Treasury Money
Market Funds 18,587 - - 18,587
Short-Term Investment Purchased with
Cash Collateral from Securities Loaned:
Government & U.S. Treasury Money
Market Funds 3,699 - - 3,699
Options:
Put Options Purchased 933 - - 933
-------------------------------------------------------------------------------------------------------------
Total $1,061,668 $- $- $1,061,668
-------------------------------------------------------------------------------------------------------------
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.
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
14 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1A to the financial statements.
The Portfolio of Investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 44.4% of net assets at June 30, 2019.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
REITS Real estate investment trusts - Dividend distributions from REITS
may be recorded as income and later characterized by the REIT at
the end of the fiscal year as capital gains or a return of capital.
Thus, the Fund will estimate the components of distributions from
these securities and revise when actual distributions are known.
o SPECIFIC NOTES
(a) Non-income-producing security.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 15
================================================================================
(b) The security, or a portion thereof, was out on loan as of June 30, 2019.
(c) Investment in affiliated exchange-traded fund.
(d) Rate represents the money market fund annualized seven-day yield at
June 30, 2019.
See accompanying notes to financial statements.
================================================================================
16 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities
on loan of $3,618) (cost of $966,041) $1,055,905
Investments in affiliated underlying funds, at market value (cost of $5,663) 4,830
Purchased options, at market value (cost of $1,505) 933
Cash 4
Cash denominated in foreign currencies (identified cost of $7) 7
Receivables:
Capital shares sold 11
USAA Asset Management Company (Note 7) 80
Dividends and interest 1,273
Other 5
----------
Total assets 1,063,048
----------
LIABILITIES
Payables:
Upon return of securities loaned 3,699
Accrued management fees 513
Accrued transfer agent's fees 1
Other accrued expenses and payables 80
----------
Total liabilities 4,293
----------
Net assets applicable to capital shares outstanding $1,058,755
==========
NET ASSETS CONSIST OF:
Paid-in capital $ 958,044
Distributable earnings 100,711
----------
Net assets applicable to capital shares outstanding $1,058,755
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $11,410/1,067 capital shares outstanding,
no par value) $ 10.69
==========
Institutional Shares (net assets of $1,047,345/96,797 capital shares
outstanding, no par value) $ 10.82
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from affiliated investments $ 44
Dividends from unaffiliated investments 12,445
Interest 520
Securities lending (net) 156
--------
Total income 13,165
--------
EXPENSES
Management fees 3,033
Administration and servicing fees:
Fund Shares 8
Institutional Shares 250
Transfer agent's fees:
Fund Shares 8
Institutional Shares 250
Custody and accounting fees:
Fund Shares 2
Institutional Shares 104
Postage:
Fund Shares 1
Shareholder reporting fees:
Fund Shares 3
Institutional Shares 1
Trustees' fees 17
Registration fees:
Fund Shares 20
Institutional Shares 20
Professional fees 57
Other 10
--------
Total expenses 3,784
Expenses reimbursed:
Fund Shares (27)
Institutional Shares (213)
--------
Net expenses 3,544
--------
NET INVESTMENT INCOME 9,621
--------
================================================================================
18 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCY, OPTIONS, AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments $ 762
Foreign currency transactions (6)
Options (1,514)
Futures transactions 3,821
Change in net unrealized appreciation/(depreciation) of:
Unaffiliated investments 116,807
Affiliated investments (Note 9) 319
Foreign currency translations 3
Options (1,704)
Futures contracts 2,236
--------
Net realized and unrealized gain 120,724
--------
Increase in net assets resulting from operations $130,345
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited), and year ended December 31,
2018
-------------------------------------------------------------------------------------------------------------
6/30/2019 12/31/2018
-------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 9,621 $ 16,607
Net realized gain on investments 762 17,240
Net realized gain (loss) on foreign currency transactions (6) 140
Net realized loss on options (1,514) (422)
Net realized gain (loss) on futures transactions 3,821 (6,512)
Change in net unrealized appreciation/(depreciation) of:
Investments 117,126 (116,766)
Options (1,704) 1,533
Foreign currency translations 3 (11)
Futures contracts 2,236 (2,199)
----------------------------
Increase (decrease) in net assets resulting from operations 130,345 (90,390)
----------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares - (443)
Institutional Shares - (39,886)
----------------------------
Distributions to shareholders - (40,329)
----------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Fund Shares (227) 424
Institutional Shares (3,802) 227,261
----------------------------
Total net increase (decrease) in net assets from capital
share transactions (4,029) 227,685
----------------------------
Net increase in net assets 126,316 96,966
NET ASSETS
Beginning of period 932,439 835,473
----------------------------
End of period $1,058,755 $ 932,439
============================
See accompanying notes to financial statements.
================================================================================
20 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2019 (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 Global Managed Volatility Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek to attain long-term capital appreciation while attempting to reduce
volatility during unfavorable market conditions.
The Fund consists of two classes of shares: Global Managed Volatility Fund
Shares (Fund Shares) and Global Managed Volatility Fund Institutional Shares
(Institutional Shares). Each class of shares has equal rights to assets and
earnings, except that each class bears certain class-related expenses specific
to the particular class. These expenses include administration and servicing
fees, transfer agent fees, postage, shareholder reporting fees, and certain
registration and custodian fees. Expenses not attributable to a specific class,
income, and realized gains or losses on investments are allocated to each class
of shares based on each class' relative net assets. Each class has exclusive
voting rights on matters related solely to that class and separate voting rights
on matters that relate to all classes. The Institutional Shares are available
for investment through a USAA discretionary managed account program, and certain
advisory programs sponsored by financial intermediaries, such as brokerage
firms, investment advisors, financial planners, third-party administrators, and
insurance companies. Institutional Shares also are available to institutional
investors, which include retirement plans, endowments, foundations, and bank
trusts, as well as other persons or legal entities that the Fund may approve
from
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
================================================================================
time to time, or for purchase by a USAA fund participating in a fund-of-funds
investment strategy (USAA fund-of-funds).
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or the 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 Holdings, a global investment management firm
headquartered in Cleveland, Ohio (the Transaction), on July 1, 2019.
A special shareholder meeting was held on April 18, 2019, at which shareholders
of the Fund approved a new investment advisory agreement between the Trust, on
behalf of the Fund, and Victory Capital, an independent investment management
company. In addition, shareholders of the Fund also elected the following two
new directors to the Board of the Trust to serve upon the closing of the
Transaction: (1) David C. Brown, to serve as an Interested Trustee; and (2) John
C. Walters, to serve as an Independent Trustee. PLEASE REFER TO THE SUBSEQUENT
EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
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.
The Fund utilizes 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 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
================================================================================
22 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
trade. Securities traded primarily on foreign securities exchanges or
markets are valued at the last quoted sale price, or the most recently
determined official closing price calculated according to local market
convention, available at the time the Fund is valued. If no last sale
or official closing price is reported or available, the average of the
bid and ask prices generally is used. Actively traded equity securities
listed on a domestic exchange generally are categorized in Level 1 of
the fair value hierarchy. Certain preferred and equity securities
traded in inactive markets generally are categorized in Level 2 of the
fair value hierarchy.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In many
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sale or official closing price
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not need to be reflected in the value of the Fund's
foreign securities. However, the Manager will monitor for events that
would materially affect the value of the Fund's foreign securities and
the Committee will consider such available information that it deems
relevant and will determine a fair value for the affected foreign
securities in accordance with valuation procedures. In addition,
information from an external vendor or 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 | 23
================================================================================
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. 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
================================================================================
24 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and duration
of any restrictions on disposition of the securities, evaluation of
credit quality, and an evaluation of the forces that influenced the
market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the Portfolio of Investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indexes.
Level 3 - inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - The Fund may buy, sell, and
enter into certain types of derivatives, including, but not limited to,
futures
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
contracts, options, and options on futures contracts, under circumstances in
which such instruments are expected by the portfolio manager to aid in
achieving the Fund's investment objective. The Fund also may use derivatives
in circumstances where the portfolio manager believes they offer an
economical means of gaining exposure to a particular asset class or
securities market or to keep cash on hand to meet shareholder redemptions or
other needs while maintaining exposure to the market. With exchange-listed
futures contracts and options, counterparty credit risk to the Fund is
limited to the exchange's clearinghouse which, as counterparty to all
exchange-traded futures contracts and options, guarantees the transactions
against default from the actual counterparty to the transaction. The Fund's
derivative agreements held at June 30, 2019, did not include master netting
provisions.
FUTURES CONTRACTS - The Fund is subject to equity price risk, interest rate
risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is required
to deposit with the broker in either cash or securities an initial margin in
an amount equal to a certain percentage of the contract amount. Subsequent
payments (variation margin) are made or received by the Fund each day,
depending on the daily fluctuations in the value of the contract, and are
recorded for financial statement purposes as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Upon entering into such
contracts, the Fund bears the risk of interest or exchange rates or
securities prices moving unexpectedly in an unfavorable direction, in which
case, the Fund may not achieve the anticipated benefits of the futures
contracts.
OPTIONS TRANSACTIONS - The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
options on underlying instruments, namely, equity securities, ETFs, and
================================================================================
26 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified price
during a specified period. The purchaser of the option pays a premium to the
writer of the option.
Premiums paid for purchased options are included in the Fund's Statement of
Assets and Liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased
put option on a security is exercised, the realized gain or loss on the
security sold is determined from the exercise price, the original cost of
the security, and the premium paid. The risk associated with purchasing a
call or put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's Statement
of Assets and Liabilities as a liability. If a written option expires
unexercised, the premium received is recognized as a realized gain. If a
written call option on a security is exercised, the realized gain or loss on
the security sold is determined from the exercise price, the original cost
of the security, and the premium received. If a written put option on a
security is exercised, the cost of the security acquired is the exercise
price paid less the premium received. The Fund, as a writer of an option,
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
In an attempt to reduce the Fund's volatility over time, the Fund may
implement a strategy that involves purchasing and selling options on indexes
or ETFs that represent the Fund's exposure against a highly correlated stock
portfolio. The combination of the diversified stock portfolio with index or
ETF options is designed to provide the Fund with consistent returns over a
wide range of equity market environments. This strategy may not fully
protect the Fund against declines in the portfolio's
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
value, and the Fund could experience a loss. Options on ETFs are similar to
options on individual securities in that the holder of the ETF call (or put)
has the right to receive (or sell) shares of the underlying ETF at the
strike price on or before exercise date. Options on securities indexes are
different from options on individual securities in that the holder of the
index option has the right to receive an amount of cash equal to the
difference between the exercise price and the settlement value of the
underlying index as defined by the exchange. If an index option is
exercised, the realized gain or loss is determined by the exercise price,
the settlement value, and the premium amount paid or received.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 2019* (IN THOUSANDS)
ASSET DERIVATIVES
---------------------------------------------------------------------------------------------------
STATEMENT OF
DERIVATIVES NOT ASSETS AND FOREIGN
ACCOUNTED FOR AS LIABILITIES INTEREST RATE EQUITY EXCHANGE
HEDGING INSTRUMENTS LOCATION CONTRACTS CONTRACTS CONTRACTS TOTAL
---------------------------------------------------------------------------------------------------
USAA Global Purchased $- $933** $- $933
Managed Volatility options,
Fund at market value
---------------------------------------------------------------------------------------------------
*For open derivative instruments as of June 30, 2019, see the Portfolio of
Investments.
**Includes cumulative appreciation/(depreciation) of futures as reported on
the Portfolio of Investments. Only the variation margin from the last
business day of the reporting period is reported within the Statement of
Assets and Liabilities.
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR
THE SIX-MONTH PERIOD ENDED JUNE 30, 2019 (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 Global Net realized gain $- $2,307 $- $2,307
Managed Volatility (loss) on Options
Fund and Futures
transactions
---------------------------------------------------------------------------------------------------
================================================================================
28 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
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 Global Change in net $- $532 $- $532
Managed Volatility unrealized
Fund appreciation/
(depreciation)
of Options and
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-
dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Premiums and discounts on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
E. FEDERAL TAXES - The Fund's policy is to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended June 30, 2019, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
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
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, net realized foreign currency
gains/losses are reclassified from accumulated net realized gains/losses to
accumulated undistributed net investment income on the Statement of Assets
and Liabilities, as such amounts are treated as ordinary income/loss for
federal income tax purposes. Net unrealized foreign currency exchange
gains/losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the exchange
rate.
H. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
================================================================================
30 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases and commitments while remaining
substantially fully invested.
I. 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
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 June 30, 2019, the Fund paid CAPCO facility fees
of $4,000, which represents 1.2% 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 June 30, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
(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 December 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 December 31, 2018, the Fund had no capital loss carryforwards, for federal
income tax purposes. Net capital losses incurred after October 31, and within
the taxable year are deemed to arise on the first business day of the Fund's
next taxable year. For the year ended December 31, 2018, the Fund deferred to
January 1, 2019, post October capital losses of $1,697,000.
As of June 30, 2019, 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:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
--------------------------------------------------------------------------------
USAA Global Managed
Volatility Fund $98,345,000 $9,314,000 $89,031,000
================================================================================
32 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2019, were
$207,962,000 and $195,298,000, respectively.
(5) SECURITIES LENDING
The Fund, through a securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income, net of income retained by
Citibank. The borrowers are required to secure their loans continuously with
collateral in an amount at least equal to 102% of the fair value of domestic
securities and foreign government securities loaned and 105% of the fair value
of foreign securities and all other securities loaned. Collateral may be cash,
U.S. government securities, or other securities as permitted by SEC guidelines.
Cash collateral may be invested in high-quality short-term investments.
Collateral requirements are determined daily based on the value of the Fund's
securities on loan as of the end of the prior business day. Loans are terminable
upon demand and the borrower must return the loaned securities within the lesser
of one standard settlement period or five business days. Risks relating to
securities-lending transactions include that the borrower may not provide
additional collateral when required or return the securities when due, and that
the value of the short-term investments will be less than the amount of cash
collateral required to be returned to the borrower. The Fund's agreement with
Citibank does not include master netting provisions. Non-cash collateral
received by the Fund may not be sold or re-pledged except to satisfy borrower
default. Cash collateral is listed in the Fund's Portfolio of Investments and
Financial Statements while non-cash collateral is not included.
At June 30, 2019, 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
--------------------------------------------------------------------------------
$3,618,000 $- $3,699,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2019, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated USAA fund-of-funds as well as other persons or legal
entities that the Fund may approve from time to time. Capital share transactions
for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2019 DECEMBER 31, 2018
----------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------
FUND SHARES:
Shares sold 94 $ 968 329 $ 3,541
Shares issued from reinvested
dividends - - 46 443
Shares redeemed (116) (1,195) (338) (3,560)
-------------------------------------------------
Net increase (decrease) from capital
share transactions (22) $ (227) 37 $ 424
=================================================
INSTITUTIONAL SHARES:
Shares sold 400 $ 4,019 18,307 $200,895
Shares issued from reinvested
dividends - - 4,082 39,886
Shares redeemed (737) (7,821) (1,295) (13,520)
-------------------------------------------------
Net increase (decrease) from capital
share transactions (337) $(3,802) 21,094 $227,261
=================================================
(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 approval) one or more
subadvisers to manage the day-to-day investment of all or a portion of
================================================================================
34 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
the Fund's assets. For the six-month period ended June 30, 2019, 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 June 30, 2019, the Fund incurred management fees, paid or payable to the
Manager, of $3,033,000.
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 June 30, 2019, the Fund's
management fee was reimbursed by the Manager in an amount of $5,000, of which
$1,000 was receivable from the Manager. PLEASE REFER TO THE SUBSEQUENT EVENT
NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
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 0.05% of average daily net assets of
the Institutional Shares. For the six-month period ended June 30, 2019, the Fund
Shares and Institutional Shares incurred administration and servicing fees, paid
or payable to the Manager, of $8,000 and $250,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and legal
services for the benefit of the Fund. The Board has approved the reimbursement
of a portion of these expenses incurred by the Manager. For the six-month period
ended June 30, 2019, 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. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
EXPENSE LIMITATION - The Manager agreed, through April 30, 2020, to limit the
total annual operating expenses of the Fund Shares and Institutional Shares to
0.90%, and 0.70%, respectively, of their average daily net assets, excluding
extraordinary expenses and before reductions of any expenses paid indirectly,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
and to reimburse the Fund Shares and Institutional Shares for all expenses in
excess of those amounts. This expense limitation arrangement may not be changed
or terminated through April 30, 2020, without approval of the Board, and may be
changed or terminated by the Manager at any time after that date. For the
six-month period ended June 30, 2019, the Fund incurred reimbursable expenses
from the Manager for the Fund Shares and the Institutional Shares of $27,000 and
$213,000, respectively, of which $80,000 was receivable from the Manager, which
includes affiliated ETF(s) management expenses and receivable.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund Shares based on an annual charge of $23 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of these
fees to certain intermediaries for the administration and servicing of accounts
that are held with such intermediaries. Transfer agent's fees for Institutional
Shares are paid monthly based on a fee accrued daily at an annualized rate of
0.05% of the Institutional Shares' average daily net assets plus out-of-pocket
expenses. For the six-month period ended June 30, 2019, the Fund Shares and
Institutional Shares incurred transfer agent's fees, paid or payable to SAS, of
$8,000 and $250,000, respectively. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO
THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
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. PLEASE
REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS
SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
(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 at usaa.com. As of
================================================================================
36 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
June 30, 2019, the USAA fund-of-funds owned the following percentages of the
total outstanding shares of the Fund:
AFFILIATED USAA FUND OWNERSHIP %
--------------------------------------------------------------------------------
Target Retirement Income 3.1
Target Retirement 2020 8.4
Target Retirement 2030 26.7
Target Retirement 2040 36.0
Target Retirement 2050 21.9
Target Retirement 2060 2.8
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. PLEASE REFER TO THE SUBSEQUENT EVENT
NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
(9) 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 at
usaa.com. At June 30, 2019, the Fund owned the following percentages of the
total outstanding shares of each of USAA Funds:
AFFILIATED USAA FUND OWNERSHIP %
----------------------------------------------------------------------------
MSCI Emerging Markets Value Momentum Blend Index ETF 1.3
MSCI International Value Momentum Blend Index ETF 0.7
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
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 June 30, 2019:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/18 6/30/19
----------------------------------------------------------------------------------------------------------------------------
MSCI
Emerging
Markets
Value
Momentum
Blend
Index ETF $502 $- $ 6 $- $- $119 $1,807 $2,428
MSCI
International
Value
Momentum
Blend
Index ETF - - 38 - - 200 2,202 2,402
----------------------------------------------------------------------------------------------------------------------------
TOTAL $502 $- $44 $- $- $319 $4,009 $4,830
----------------------------------------------------------------------------------------------------------------------------
(a)Includes reinvestment of distributions from dividend income and realized
gains.
(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 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 has determined there is no significant
impact on the Fund's financial statements and various filings.
================================================================================
38 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
(11) RECENT ACCOUNTING PRONOUNCEMENTS
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.
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. ASU 2018-13 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. Management has elected to
early adopt ASU 2018-13 effective with the current reporting period. The
adoption of ASU 2018-13 guidance is limited to changes in the Fund's notes to
financial statement disclosures regarding valuation method, fair value, and
transfers between levels of the fair value hierarchy.
(12) SUBSEQUENT EVENT NOTE
As previously announced, and as discussed in Note 1 to the Financial Statements,
effective July 1, 2019, AMCO, the prior investment adviser to the Fund, and SAS,
the prior transfer agent to the Fund, were acquired by Victory Holdings. PLEASE
SEE THE SUPPLEMENT DATED JULY 1, 2019 TO THE FUND'S PROSPECTUS FOR ADDITIONAL
IMPORTANT INFORMATION.
Effective July 1, 2019, Victory Capital is the new investment adviser and
administrator to the USAA Mutual Funds; SAS was renamed Victory Capital Transfer
Agency, Inc.; Victory Capital Advisers, Inc. is the new distributor to the USAA
Mutual Funds; Citi Fund Services of Ohio, Inc. serves as sub-administrator and
sub-fund accountant for the USAA Mutual Funds; and FIS Investor Services LLC
serve as sub-transfer agent and dividend disbursing agent for the USAA Mutual
Funds. Effective August 5, 2019, Citibank, N.A. is the new custodian for the
USAA Mutual Funds.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2019 permitting the
use of a "manager-of-managers" structure for certain funds. Prior to that date,
the Trust relied on a similar exemptive order granted by the SEC to the Trust
and its affiliated persons. Under a manager of managers structure, the
investment adviser may select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the day-to-day
investment of a fund's assets.
Effective July 1, 2019, Victory Capital added new portfolio managers from one or
more investment teams employed by Victory Capital to serve as additional
portfolio managers, or replace current portfolio managers, to manage all or a
portion of the Fund according to each team's own investment process.
Effective July 1, 2019, under the investment advisory agreement with Victory
Capital, which took effect on July 1, 2019, no performance adjustments will be
made for periods beginning July 1, 2019, through June 30, 2020, and only
performance beginning as of July 1, 2020, and thereafter will be utilized in
calculating performance adjustments through June 30, 2020.
Effective July 1, 2019, the line of credit (as discussed in the Notes to the
Financial Statements in this semiannual report) among the Trust, with respect to
its Funds, and CAPCO terminated; the Trust, with respect to its Funds, along
with series of Victory Portfolios, Victory Portfolios II and Victory Variable
Insurance Funds, entered into a 364 day committed credit facility and a 364 day
uncommitted, demand credit facility with Citibank, N.A. (Citibank). Each such
credit facility may be renewed if so agreed by the parties. Under the agreement
with Citibank, the Funds may borrow up to $600 million, of which $300 million is
committed and $300 million is uncommitted. Of this amount, $40 million of the
line of credit is reserved for use by the Victory Floating Rate Fund (a series
of Victory Portfolios), with that Fund paying the related commitment fees for
that amount. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests. Citibank receives an annual commitment fee
of 0.15%. Each Fund pays a pro-rata portion of this commitment fee plus any
interest on amounts borrowed.
================================================================================
40 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2017 (the IFL
Order), permitting the establishment and operation of an Interfund Lending
Facility (the Facility). The Facility allows each Fund to directly lend and
borrow money to or from certain other affiliated Funds relying upon the IFL
Order at rates beneficial to both the borrowing and lending funds. Advances
under the Facility are allowed for temporary or emergency purposes, including
the meeting of redemption requests that are subject to each Fund's borrowing
restrictions. The interfund loan rate is determined, as specified in the IFL
Order, by averaging the current repurchase agreement rate and the current bank
loan rate.
Effective July 1, 2019, the Trust entered into an Agreement to Provide
Compliance ("Compliance Agreement") with the Adviser, pursuant to which the
Adviser furnishes its compliance personnel, including the services of the CCO,
and other resources reasonably necessary to provide the Trust with compliance
oversight services related to the design, administration, and oversight of a
compliance program for the Trust in accordance with Rule 38a-1 under the 1940
Act. The Funds in the Victory Funds complex, in the aggregate, compensate the
Adviser for these services. This agreement replaces an arrangement in place
with AMCO previously.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.39 $ 10.73 $ 9.03 $ 8.59 $ 8.97 $ 11.14
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income. .04 .25 .13(a) .13(a) .10(a) .17(a)
Net realized and
unrealized gain (loss) 1.26 (1.18) 1.76(a) .42(a) (.40)(a) (.37)(a)
------------------------------------------------------------------------------
Total from investment
operations 1.30 (.93) 1.89(a) .55(a) (.30)(a) (.20)(a)
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.15) (.14) (.11) (.08) (.84)
Realized capital gains - (.26) (.05) - - (1.13)
------------------------------------------------------------------------------
Total distributions - (.41) (.19) (.11) (.08) (1.97)
------------------------------------------------------------------------------
Net asset value at
end of period $ 10.69 $ 9.39 $ 10.73 $ 9.03 $ 8.59 $ 8.97
==============================================================================
Total return (%)* 13.84 (8.78) 20.95 6.39 (3.28) (2.02)
Net assets at end
of period (000) $11,410 $10,229 $11,284 $13,964 $15,911 $23,300
Ratios to average daily
net assets:**
Expenses (%)(b) .90(c) .90 .90 .89 .90(d) 1.07(e)
Expenses, excluding
reimbursements (%)(b) 1.39(c) 1.18 1.09 1.13 1.15 1.25
Net investment income (%) 1.71(c) 1.57 1.30 1.48 1.14 1.60
Portfolio turnover (%) 20 35 48(f) 9 16(g) 147(h)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$11,007,000.
(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) Prior to May 1, 2015, the Manager had voluntarily agreed to limit the annual
expenses of the Fund Shares to 0.90% of the Fund Shares' average daily net
assets.
(e) Effective November 24, 2014, the Manager had voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.10% of the Fund Shares' average
daily net assets.
(f) Reflects increase trading activity due to large shareholder inflows.
(g) Reflects a return to normal trading levels after a prior year transition.
(h) Reflects increased trading activity due to large shareholder redemptions.
================================================================================
42 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
--------------------------------------------------------------------------------
Net asset value at
beginning of period. $ 9.49 $ 10.84 $ 9.12 $ 8.69 $ 9.08 $ 11.16
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .10 .16 .18(a) .16(a) .14(a) .20(a)
Net realized and
unrealized gain (loss) 1.23 (1.08) 1.76(a) .40(a) (.44)(a) (.33)(a)
--------------------------------------------------------------------------------
Total from investment
operations 1.33 (.92) 1.94(a) .56(a) (.30)(a) (.13)(a)
--------------------------------------------------------------------------------
Less distributions from:
Net investment income. - (.17) (.17) (.13) (.09) (.82)
Realized capital gains - (.26) (.05) - - (1.13)
--------------------------------------------------------------------------------
Total distributions - (.43) (.22) (.13) (.09) (1.95)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 10.82 $ 9.49 $ 10.84 $ 9.12 $ 8.69 $ 9.08
================================================================================
Total return (%)* 14.01 (8.61) 21.24 6.46 (3.27) (1.39)
Net assets at
end of period (000) $1,047,345 $922,210 $824,189 $295,644 $189,078 $57,938
Ratios to average daily
net assets:**
Expenses (%)(b) .70(c) .70 .72(d) .78 .80 .87(e)
Expenses, excluding
reimbursements (%)(b) .74(c) .74 .76 .81 .88 .87
Net investment income (%) 1.90(c) 1.87 1.79 1.85 1.61 1.76
Portfolio turnover (%) 20 35 48(f) 9 16(g) 147(h)
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$1,009,963,000.
(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) Prior to May 1, 2017, the Manager has voluntarily agreed to limit the annual
expenses of the Institutional Shares to 0.70% of the Institutional Shares'
average daily net assets. Reflects a return to normal trading levels after a
prior year transition.
(e) Effective November 24, 2014, the Manager voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.80% of the Institutional
Shares' average daily net assets.
(f) Reflects increase trading activity due to large shareholder inflows.
(g) Reflects a return to normal trading levels after a prior year transition.
(h) Reflects increased trading activity due to large shareholder redemptions.
================================================================================
FINANCIAL HIGHLIGHTS | 43
================================================================================
EXPENSE EXAMPLE
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2019, through June
30, 2019.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of
================================================================================
44 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2019 -
JANUARY 1, 2019 JUNE 30, 2019 JUNE 30, 2019
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,138.40 $4.77
Hypothetical
(5% return before expenses) 1,000.00 1,020.33 4.51
INSTITUTIONAL SHARES
Actual 1,000.00 1,140.10 3.71
Hypothetical
(5% return before expenses) 1,000.00 1,021.32 3.51
*Expenses are equal to the annualized expense ratio of 0.90% for Fund Shares and
0.70% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 181 days/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of 13.84% for Fund Shares and 14.01% Institutional Shares for the six-month
period of January 1, 2019, through June 30, 2019.
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EXPENSE EXAMPLE | 45
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ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND VICTORY CAPITAL MANAGEMENT INC.)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the (i) new investment
advisory agreement between the Trust and Victory Capital and (ii) new investment
subadvisory agreements between certain subadvisers and Victory Capital, which
became effective on July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO
THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting held on January 15, 2019, the USAA Mutual Funds Trust's
("Trust") Board of Trustees ("Board"), including those Trustees who are not
parties to any investment advisory or management agreement between USAA Asset
Management Company ("AMCO") and the Trust ("Existing Management Agreements") or
the new Investment Advisory Agreement between the Trust and Victory Capital
Management Inc. ("Victory Capital") (the "New Advisory Agreement") or
"interested persons" (as that term is defined in the Investment Company Act of
1940 Act, as amended ("1940 Act")) of such parties or the Trust (the
"Independent Trustees"), considered and unanimously approved the New Advisory
Agreement between the Trust, on behalf of each of its series (each a "Fund" and
together the "Funds"), and Victory Capital, and, as applicable, new Investment
Subadvisory Agreements between Victory Capital and each investment subadviser
("New Subadvisory Agreements," and together with the New Advisory Agreement, the
"New Agreements"), as listed below. The Board also determined to recommend that
shareholders of each Fund approve the New Advisory Agreement. Shareholder
approval is not required for the New Subadvisory Agreements. The Independent
Trustees reviewed the proposed approval of the New Agreements in private
sessions with their independent legal counsel at which no representatives of
Victory Capital or AMCO were present.
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46 | USAA GLOBAL MANAGED VOLATILITY FUND
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BACKGROUND FOR THE BOARD APPROVALS
At a telephonic meeting of the Board held on November 5, 2018, representatives
of USAA and AMCO informed the Board that USAA's subsidiary, USAA Investment
Corporation, would enter into a stock purchase agreement with Victory Capital
Holdings, Inc. ("Victory Holdings") pursuant to which Victory Holdings would
acquire all of the outstanding stock of AMCO and USAA Transfer Agency Company
d/b/a USAA Shareholder Account Services ("USAA Transfer Agent") (the
"Transaction"). The Independent Trustees were advised that the Transaction, if
completed, would constitute an "assignment" (as that term is defined in Section
2(a)(4) of the 1940 Act) and result in the automatic termination of the Existing
Management Agreements ("Change of Control Event"). The Independent Trustees also
were advised that it was proposed that Victory Capital, a subsidiary of Victory
Holdings, would serve as the investment adviser to each Fund after the closing
of the Transaction ("Post-Transaction") and that the Board would be asked to
consider approval of the terms and conditions of the New Advisory Agreement with
Victory Capital and thereafter to submit the New Advisory Agreement to each
Fund's shareholders for approval. Because the Change of Control Event also would
result in the termination of each existing subadvisory agreement between AMCO
and the subadvisers to the Funds ("Existing Subadvisory Agreements"), the
Independent Trustees were advised that the Board would also be asked to approve
the New Subadvisory Agreements.
In anticipation of the Transaction, the Trustees met at a series of subsequent
in-person meetings on November 27-28, 2018, January 7-8, 2019, and January
14-15, 2019, which included meetings of the full Board and separate meetings of
the Independent Trustees for the purposes of considering, among other things:
whether it would be in the best interests of each Fund and its respective
shareholders to approve the New Agreements; and the anticipated impacts of the
Transaction on the Funds and their shareholders (each, a "Meeting"). During each
of these Meetings, the Board sought additional and clarifying information as it
deemed necessary or appropriate. In this connection, the Independent Trustees
worked with their independent
================================================================================
ADVISORY AGREEMENT(S) | 47
================================================================================
legal counsel to prepare formal due diligence requests (the "Diligence
Requests") that were submitted to Victory Capital, Victory Capital Advisers,
Inc. ("VCA"), and the subadvisers. The Diligence Requests sought information
relevant to the Board's consideration of the New Advisory Agreement, the New
Subadvisory Agreements, distribution arrangements, and other anticipated impacts
of the Transaction on the Funds and their shareholders. Victory Capital, VCA,
and the subadvisers provided documents and information in response to the
Diligence Requests (the "Response Materials"). Following their review of the
Response Materials, the Independent Trustees submitted a supplemental due
diligence request for additional and clarifying information (the "Supplemental
Diligence Request") to Victory Capital and VCA. Victory Capital and VCA provided
further information in response to the Supplemental Diligence Request, which the
Board reviewed. Senior management representatives of Victory Capital and/or AMCO
participated in a portion of each Meeting and addressed various questions raised
by the Board. Throughout the process, the Independent Trustees were assisted by
their independent legal counsel and counsel to the Funds, who advised them on,
among other things, their duties and obligations relating to their consideration
of the New Agreements.
The Board's evaluation of the New Agreements reflected the information provided
specifically in connection with its review of the New Agreements, as well as,
where relevant, information that was previously furnished to the Board in
connection with the most recent renewal of the Existing Management Agreements
and Existing Subadvisory Agreements at an in-person meeting of the Board on
April 18, 2018 (the "2018 15(c) Meeting") and at other subsequent Board meetings
in 2018. The Board's evaluation of the New Agreements also reflected the
knowledge gained as Board members of the Funds with respect to services provided
by AMCO, its affiliates, and each subadviser to the Funds.
The Board's approvals and recommendations were based on its determination,
within its business judgment, that it would be in the best interests of each
Fund and its respective shareholders, for Victory Capital and, as applicable,
the subadvisers, to provide investment advisory, investment subadvisory, and
related services to the Funds, following the closing of the Transaction.
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48 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
FACTORS CONSIDERED IN APPROVING THE NEW ADVISORY AGREEMENT
In connection with the Board's consideration of the New Advisory Agreement,
Victory Capital and AMCO advised the Board about a variety of matters, including
the following:
o The nature, extent, and quality of the services to be provided to the
Funds by Victory Capital Post-Transaction are expected to be of at least
the same level as the services currently provided to the Funds by AMCO.
o Victory Capital's stated commitment to maintaining and enhancing the USAA
member/USAA Fund shareholder experience, including creating a dedicated
USAA Fund sales and client service call center that will provide ongoing
client service and advice to existing and new USAA members.
o Victory Capital proposes to: (1) replace the underlying indexes for the
USAA Extended Market Index Fund and USAA S&P 500 Index Fund with indexes
designed to provide shareholders with comparable exposure and investment
outcomes; (2) change the USAA Extended Market Index Fund's and USAA S&P
500 Index Fund's investment objectives and strategies in light of the
changes to their underlying indexes; and (3) change the name of the USAA
S&P 500 Index Fund to the USAA 500 Index Fund.
o Victory Capital does not propose changes to the investment objective(s)
of any other Funds. Although the investment processes used by Victory
Capital's portfolio managers may differ from those used by AMCO's
portfolio managers or, if applicable, any subadviser's portfolio
managers, such differences are not currently expected to result in
changes to the principal investment strategies or principal investment
risks of the Funds.
o The New Advisory Agreement does not change any Fund's advisory fee rate
or the computation method for calculating such fees (except that Victory
Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment).
================================================================================
ADVISORY AGREEMENT(S) | 49
================================================================================
For at least two years after the Transaction closes, Victory Capital has
agreed to waive fees and/or reimburse expenses so that each Fund's annual
expense ratio (excluding certain customary items) does not exceed the
levels reflected in each Fund's most recent audited financial statements
at the time the Transaction closes (or the levels of AMCO's then-current
expense caps, if applicable), excluding the impact of any performance
adjustment to the Fund's advisory fee.
o The portfolio managers at AMCO that manage the Fixed Income Funds(1) as
well as the USAA's Global Multi-Asset team servicing the Cornerstone
Funds(2), Target Retirement Funds(3), Global Managed Volatility Fund,
Managed Allocation Fund, and Target Managed Allocation Fund, are expected
to continue to do so Post-Transaction as employees of Victory Capital, if
they choose to become employees of Victory Capital. Post-Transaction, the
investment teams for the Funds, other than the Fixed Income Funds, will
be replaced or augmented.
o With the exception of the USAA S&P 500 Index Fund, USAA Extended Market
Index Fund, and USAA Nasdaq-100 Index Fund, which will be advised by
Victory Capital through its Victory Solutions platform, Victory Capital
proposes that the same subadvisers be retained Post-Transaction, although
Victory Capital may change the allocation to a particular subadviser
Post-Transaction. No changes are expected to the portfolio managers of
the subadvisers who will serve as subadvisers Post-Transaction.
(1)The Fixed Income Funds include the following Funds: California Bond Fund,
Government Securities Fund, High Income Fund, Income Fund, Intermediate-Term
Bond Fund, Tax Exempt Intermediate-Term Fund, Tax Exempt Long-Term Fund, New
York Bond Fund, Short-Term Bond Fund, Tax Exempt Short-Term Fund, Ultra
Short-Term Bond Fund, Virginia Bond Fund, Money Market Fund, Tax Exempt Money
Market Fund and Treasury Money Market Trust.
(2)The Cornerstone Funds include the following Funds: Cornerstone Aggressive
Fund, Cornerstone Conservative Fund, Cornerstone Equity Fund, Cornerstone
Moderate Fund, Cornerstone Moderately Aggressive Fund, and Cornerstone
Moderately Conservative Fund.
(3)The Target Retirement Funds include the following Funds: Target Retirement
2020 Fund, Target Retirement 2030 Fund, Target Retirement 2040 Fund, Target
Retirement 2050 Fund, Target Retirement 2060 Fund, and Target Retirement
Income Fund.
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50 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
o VCA's distribution capabilities, including its significant network of
intermediary relationships, which may provide additional opportunities
for the Funds to grow assets and lower fees and expenses through
increased economies of scale.
o The experience of Victory Capital in acquiring and integrating
investments in investment management companies and its plans to
transition and integrate AMCO's and USAA Transfer Agent's businesses to
Victory Capital. Victory Capital and USAA expect to enter into a
transition services agreement under which USAA will continue to provide
Victory Capital with certain services that are currently provided by USAA
to AMCO and the USAA Transfer Agent for a specified period of time after
the closing of the Transaction to assist Victory Capital in transitioning
the USAA member distribution channel and member support services.
o Pursuant to a transitional trademark license agreement with USAA, Victory
Capital and the Funds will have a non-exclusive license, subject to
certain restrictions and limitations, to continue using certain licensed
marks including "USAA," "United Services Automobile Association," and the
USAA Logo in connection with their asset management and transfer agency
businesses for a period of three years following the closing of the
Transaction, which agreement may thereafter be extended for an additional
year.
o The support expressed by the current senior management team at AMCO for
the Transaction and AMCO's recommendation that the Board approve the New
Agreements.
o The commitments of Victory Capital and AMCO to bear all of the direct
expenses of the Transaction, including all legal costs and costs
associated with the proxy solicitation, regardless of whether the
Transaction is consummated.
In addition to the matters noted above, in their deliberations regarding
approval of the New Advisory Agreement, the Board considered the factors
discussed below, among others.
================================================================================
ADVISORY AGREEMENT(S) | 51
================================================================================
THE NATURE, EXTENT, AND QUALITY OF SERVICES EXPECTED TO BE PROVIDED BY VICTORY
CAPITAL - The Board considered information provided by Victory Capital regarding
its investment philosophy, investment management capabilities, business and
operating structure, scale of operations, leadership and reputation,
distribution capabilities, and financial condition. The Board also considered
the capabilities, resources, and personnel of Victory Capital, including senior
and other personnel of AMCO who had been extended offers to join Victory
Capital, in order to determine whether Victory Capital is capable of providing
the same level of investment management services currently provided to each
Fund, and also considered the transition and integration plans to move
management of the Funds to Victory Capital. The Board recognized that the AMCO
personnel who had been extended offers may not accept such offers and personnel
changes may occur in the future in the ordinary course. The Board considered the
resources and infrastructure that Victory Capital intends to devote to its
compliance program to ensure compliance with applicable laws and regulations, as
well as Victory Capital's commitment to those programs. The Board also
considered the resources that Victory Capital has devoted to its risk management
program and cybersecurity program. The Board also reviewed information provided
by Victory Capital related to its business, legal, and regulatory affairs. This
review considered the resources available to Victory Capital to provide the
services specified under the New Advisory Agreement. The Board considered
Victory Capital's financial condition, including the financing of the
Transaction, and noted that Victory Capital is expected to be able to provide a
high level of service to the Funds and continuously invest and re-invest in its
business.
The Board considered that, while it was proposed that Victory Capital would
become the investment adviser to the Funds, the same portfolio managers at AMCO
that manage the Fixed Income Funds, as well as USAA's Global Multi-Asset team
servicing the Cornerstone Funds, Target Retirement Funds (including Target
Managed Allocation Fund), Global Managed Volatility Fund, and Managed Allocation
Fund, are expected to continue to do so after the Transaction as employees of
Victory Capital, if they choose to become employees of Victory Capital. The
Board determined that it had considered the qualifications of the portfolio
managers at AMCO and the subadvisers at its 2018 15(c) Meeting. The Board
considered the professional experience,
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52 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
education, affiliations and/or other credentials or qualifications of the
anticipated portfolio managers at Victory Capital that would manage the Equity
Funds(4), Cornerstone Funds, and Target Retirement Funds. The Board noted that
the Equity Funds or portions of Equity Funds currently managed by AMCO would be
replaced with portfolio managers from Victory Capital.
The Board considered that certain Funds would continue to operate in a
manager-of-managers structure Post-Transaction. The Board considered that
Victory Capital's experience in allocating assets to, and overseeing the
advisory services of, its investment franchises and the Victory Solutions
platform, was similar to AMCO's role in allocating assets to and overseeing the
advisory services provided by the subadvisers.
The Board considered that the terms and conditions of the New Advisory
Agreement are substantially similar to the terms and conditions of the Existing
Management Agreements. The Board also considered that the New Subadvisory
Agreements are substantially similar to the terms and conditions of the
Existing Subadvisory Agreements and that no changes were proposed to the
allocation of responsibilities as between Victory Capital and any subadviser,
except to the extent that under the New Subadvisory Agreements each subadviser
would be responsible for voting proxies with respect to assets allocated to
that subadviser, while AMCO currently votes all Fund proxies. The Board
considered that Victory Capital also would provide certain administrative, fund
accounting, and shareholder servicing services under a separate administration
agreement with the Funds. In this connection, the Board considered information
on Victory Capital's use of third-party service providers to provide certain
sub-administration and sub-accounting services to the Funds.
After review of these and other considerations, the Board concluded that Victory
Capital will be capable of providing investment advisory services of the same
high quality as the investment advisory services provided to the Funds by AMCO,
and that these services are appropriate in nature and extent in light of the
Funds' operations and investor needs.
(4)The Equity Funds include the following Funds: Aggressive Growth Fund,
Growth & Income Fund, Income Stock Fund, Global Equity Income Fund, and
Precious Metals and Minerals Fund.
================================================================================
ADVISORY AGREEMENT(S) | 53
================================================================================
PERFORMANCE OF THE FUNDS - With respect to the performance of the Funds, the
Board considered its review at the 2018 15(c) Meeting of peer group and
benchmark investment performance comparison data relating to each Fund and, if
applicable, each subadviser's performance record for similar accounts. The
Board considered that information reviewed at the 2018 15(c) Meeting may be more
relevant for those Funds that would retain their current portfolio managers or
subadvisers. With respect to the Funds whose portfolio managers would be
replaced, the Board considered the performance of funds sponsored and managed by
Victory Capital ("Victory Funds") with similar investment objectives and
strategies managed by the portfolio managers who would manage the Funds. Based
on information presented to the Board at the Meetings and its discussions with
Victory Capital, the Board concluded that Victory Capital is capable of
generating a level of long-term investment performance that is appropriate in
light of each Fund's investment objectives, strategies and restrictions.
FEES TO BE PAID TO VICTORY CAPITAL AND EXPENSES OF THE FUNDS - The Board
considered that it had reviewed each Fund's existing advisory fee rate and
computation method for calculating such fees at the 2018 15(c) Meeting. The
Board considered that the New Advisory Agreement does not change any Fund's
advisory fee rate or the computation method for calculating such fees, except
that Victory Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment and apply the
resulting performance adjustment across each other class of shares of the Fund.
The Board considered that the use of a single designated class to calculate the
performance adjustment for each other class of shares of the Fund could mean
that shareholders of a class other than the class used to measure the
performance adjustment may pay a performance adjustment that is higher or lower
than if the adjustment were calculated on a class by class basis, primarily due
to the impact of differences in the fees and expenses between share classes on
performance. The Board considered that the New Advisory Agreement stipulates
that the period for measuring performance for calculating a Fund's performance
adjustment begins on the date that Victory Capital begins managing the Fund;
therefore, no performance adjustments will be made for the first twelve months
of the New Advisory Agreement, consistent with applicable regulations. The Board
also considered Victory Capital's contractual commitment under the expense
limitation
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54 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
agreement ("ELA") to waive fees and/or reimburse expenses for at least two years
after the closing of the Transaction, so that each Fund's annual expense ratio
(excluding acquired fund fees and expenses, any performance adjustment to a
Fund's advisory fee, interest, taxes, brokerage commissions, other expenditures
which are capitalized in accordance with generally accepted accounting
principles, and other extraordinary expenses not incurred in the ordinary course
of such Fund's business) does not exceed the levels reflected in each Fund's
most recent audited financial statements at the time the Transaction closes (or
the levels of AMCO's then-current expense caps, if applicable), excluding the
impact of any performance adjustment to a Fund's advisory fee. The Board
considered that the ELA permits Victory Capital to recoup advisory fees waived
and expenses reimbursed for up to three years after the fiscal year in which the
waiver or reimbursement took place, subject to the lesser of any operating
expense limitation in effect at the time of: (1) the original waiver or expense
reimbursement; or (2) recoupment. The Board also considered that Victory Capital
and AMCO had represented to the Board that they will use their best efforts to
ensure that they and their respective affiliates do not take any action that
imposes an "unfair burden" on the Funds as a result of the Transaction or as a
result of any express or implied terms, conditions or understandings applicable
to the Change of Control Event, for so long as the requirements of Section 15(f)
of the 1940 Act apply. The Board also considered a comparison of the proposed
advisory fees to be paid by each Fund to the advisory fees paid by funds and
other accounts managed by Victory Capital deemed to be comparable to the Fund in
terms of investment objectives and strategies. The Board considered that, with
few exceptions, mostly involving weighted average fees for separate accounts,
the advisory fees to be paid by the Funds were lower than the fees paid by these
other funds and accounts. The Board concluded that the retention of Victory
Capital was unlikely to impose an unfair burden on the Funds because, after the
Transaction, none of AMCO, Victory Capital, VCA, or any of their respective
affiliates, would be entitled to receive any compensation directly or indirectly
(i) from any person in connection with the purchase or sale of securities or
other property to, from, or on behalf of the Funds (other than ordinary fees for
bona fide principal underwriting services), or (ii) from the Funds or their
shareholders for other than bona fide investment advisory or other services.
Based on its review, the Board determined, with respect to each Fund, that
Victory Capital's advisory fee is fair and reasonable.
================================================================================
ADVISORY AGREEMENT(S) | 55
================================================================================
THE EXTENT TO WHICH VICTORY CAPITAL MAY REALIZE ECONOMIES OF SCALE AS THE FUNDS
GROW LARGER AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE FOR THE
BENEFIT OF FUND SHAREHOLDERS - The Board considered potential or anticipated
economies of scale in relation to the services Victory Capital would provide to
each Fund. The Board considered that the New Advisory Agreement includes the
same advisory fee breakpoints for the same Funds as the Existing Advisory
Agreements. The Board also considered that Victory Capital has contractually
agreed to cap the Funds' annual operating expense ratios, pursuant to the ELA,
which will remain in effect for at least two years from the closing of the
Transaction, and may be extended. The Board also considered Victory Capital's
representation that the significant increase in its assets under management
Post-Transaction may reasonably be expected to enable the new combined firm to
reach greater economies of scale in a shorter time frame. The Board noted that
it will have the opportunity to periodically re-examine whether a Fund or the
Trust has achieved economies of scale, and the appropriateness of investment
advisory and administrative fees payable to Victory Capital, in the future.
THE PROFITS TO BE REALIZED BY VICTORY CAPITAL AND ITS AFFILIATES FROM THEIR
RELATIONSHIP WITH THE TRUST - The Board considered the benefits Victory Capital
and its affiliates may derive from their relationship with the Funds, including
compensation to be paid to Victory Capital for the provision of certain
administrative, fund accounting and shareholder services to the Funds and
compensation to be paid to USAA Transfer Agent for the provision of transfer
agency services to the Funds. The Board considered the significant investments
Victory Capital expected to make to support and grow the USAA member channel and
the costs to integrate the USAA Fund business into Victory Capital. The Board
also considered Victory Capital's profitability report presented to the board of
trustees of the Victory Funds in connection with their most recent 15(c)
process. The Board considered Victory Capital's representation that the fully
integrated USAA Fund business, including investments to support ongoing growth,
was expected to have an overall marginally positive impact on Victory Capital's
overall financial profitability. The Board noted the difficulty of accurately
projecting profitability under the current circumstance and noted that it would
have the opportunity to give further consideration to Victory Capital's
profitability with respect to the Funds at the end of the initial two-year term
of the New Advisory Agreement.
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56 | USAA GLOBAL MANAGED VOLATILITY FUND
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FALL-OUT AND OTHER BENEFITS TO VICTORY CAPITAL AND ITS AFFILIATES - The Board
considered the possible fall-out benefits and other types of benefits that may
accrue to Victory Capital and its affiliates. The Board noted that the
Transaction provides Victory Capital and its affiliates the opportunity to
deliver investment products and services to USAA's direct member-based channel.
The Board also considered that Victory Capital may derive reputational and other
benefits from its ability to use "USAA" and related names in connection with
operating and marketing the Funds. The Board considered that the Transaction, if
completed, would significantly increase Victory Capital's assets under
management and expand Victory Capital's investment capabilities. This increased
size and diversification could facilitate Victory Capital's continued investment
in its business and products, which Victory Capital would be able to leverage
across a broader base of assets. Victory Capital also would be able to use
trading commission credits from the Funds' transactions in securities to
"purchase" third party research and execution services to support its investment
process. Based on its review, the Board determined that any "fall-out" benefits
and other types of benefits that may accrue to Victory Capital are fair and
reasonable.
CONCLUSIONS - Based on the foregoing and other relevant considerations, at the
Meeting of the Board held on January 15, 2019, the Board, including a majority
of the Independent Trustees, acting within its business judgment, (1) concluded
that the terms of the New Advisory Agreement are fair and reasonable and that
approval of the New Advisory Agreement is in the best interests of each Fund and
its respective shareholders, (2) voted to approve the New Advisory Agreement,
and (3) voted to recommend approval of the New Advisory Agreement by
shareholders of the Funds. The Board evaluated all information available to it
on a Fund-by-Fund basis and its determinations were made separately in respect
of each Fund. The Board noted some factors may have been more or less important
with respect to any particular Fund and that no one factor was determinative of
its decisions which, instead, were premised upon the totality of factors
considered. In this connection, the Board also noted that different Board
members likely placed emphasis on different factors in reaching their individual
conclusions to vote in favor of the New Advisory Agreement and to recommend
approval of the New Advisory Agreement by shareholders of the Funds.
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ADVISORY AGREEMENT(S) | 57
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND THE MANAGER)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the continuation of the
(i) investment advisory agreement between the Trust and AMCO and (ii) investment
subadvisory agreements between certain subadvisers and AMCO, which were
effective until July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting of the Board of Trustees (the Board) held on April 17,
2019, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.(1)
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager, and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding
(1)At an in-person meeting held on January 15, 2019, the Board, including
the Independent Trustees, approved a new investment advisory agreement
between the Trust, on behalf of the Fund, and Victory Capital Management Inc.
("Victory Capital"). Effective July 1, 2019, upon the closing of the
transaction whereby the Manager acquired by Victory Capital Holdings, Inc.,
the parent company of Victory Capital, the Advisory Agreement between the
Trust and the Manager and the Sub-advisory Agreement with the Subadviser
terminated and the new investment advisory agreement between the Trust and
Victory Capital went into effect. The factors the Board considered in
approving the new investment advisory agreement with Victory Capital are
discussed above. Effective June 30, 2019, the Subadviser no longer manages
any portion of the Fund.
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58 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
the Manager's revenues and costs of providing services to the Fund and
compensation paid to affiliates of the Manager; and (iii) information about the
Manager's operations and personnel. Prior to voting, the Independent Trustees
reviewed the proposed continuance of the Advisory Agreement with management and
with experienced counsel retained by the Independent Trustees (Independent
Counsel) and received materials from such Independent Counsel discussing the
legal standards for their consideration of the proposed continuation of the
Advisory Agreement with respect to the Fund. The Independent Trustees also
reviewed the proposed continuation of the Advisory Agreement with respect to the
Fund in private sessions with Independent Counsel at which no representatives of
management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund performance, fees and total expenses as
compared to comparable investment companies, and the Manager's profitability
with respect to the Fund. However, the Board noted that the evaluation process
with respect to the Manager is an ongoing one. In this regard, the Board's and
its committees' consideration of the Advisory Agreement included information
previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the
================================================================================
ADVISORY AGREEMENT(S) | 59
================================================================================
Manager's duties through Board meetings, discussions, and reports during the
preceding year. The Board considered the fees paid to the Manager and the
services provided to the Fund by the Manager under the Advisory Agreement, as
well as other services provided by the Manager and its affiliates under other
agreements, and the personnel who provide these services. In addition to the
investment advisory services provided to the Fund, the Manager and its
affiliates provide administrative services, shareholder services, oversight of
Fund accounting, marketing services, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Fund and the
Trust.
The Board also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," also was considered. The Manager's
role in coordinating the activities of the Fund's other service providers was
also considered. The Board also considered the Manager's risk management
processes. The Board considered the Manager's financial condition and that it
had the financial wherewithal to continue to provide the same scope and high
quality of services under the Advisory Agreement. In reviewing the Advisory
Agreement, the Board focused on the experience, resources, and strengths of the
Manager and its affiliates in managing the Fund, as well as the other funds in
the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as trustees of the
Trust, also focused on the quality of the Manager's compliance and
administrative staff.
================================================================================
60 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type (in this case, other funds-of-funds that invest in
unaffiliated exchange traded funds with front-end loads and no sales loads),
comparability of investment objective and classification, sales load type, asset
size, and expense components (the expense group) and (ii) a larger group of
investment companies that includes all funds-of-funds with front-end loads and
no-loads that invest in unaffiliated exchange traded funds with the same
investment classification/objective as the Fund regardless of asset size,
excluding outliers (the expense universe). Among other data, the Board noted
that the Fund's management fee rate - which includes advisory and administrative
services as well as any fee waivers and reimbursements - was below the median of
its expense group and its expense universe. The data indicated that the Fund's
total expenses, including underlying expenses and after any reimbursements, were
below the median of its expense group and its expense universe. The Board took
into account the various services provided to the Fund by the Manager and its
affiliates, including the high quality of services received by the Fund from the
Manager. The Board also noted the level and method of computing the management
fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total returns with its Lipper index and with that of other mutual funds deemed
to be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison
================================================================================
ADVISORY AGREEMENT(S) | 61
================================================================================
indicated that, among other data, the Fund's performance was below the average
of its performance universe and its Lipper index for the one-year period ended
December 31, 2018, was above the average of its performance universe and its
Lipper index for the three-year period ended December 31, 2018, and was above
the average of its performance universe and below its Lipper index for the
five-year period ended December 31, 2018. The Board also noted that the Fund's
percentile performance ranking was in the bottom 50% of its performance universe
for the one- and five-year periods ended December 31, 2018, and was in the top
20% of its performance universe for the three-year period ended December 31,
2018.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the management fee. The information considered by the Board
included operating profit margin information for the Manager's business as a
whole. The Board also received and considered profitability information related
to the management revenues from the Fund. This information included a review of
the methodology used in the allocation of certain costs to the Fund. In
considering the profitability data with respect to the Fund, the Trustees noted
that the Manager reimbursed a portion of its management fees to the Fund. The
Trustees reviewed the profitability of the Manager's relationship with the Fund
before tax expenses. The Board was also provided with an Investment Management
Profitability Analysis prepared by an independent information service. In
reviewing the overall profitability of the management fee to the Manager, the
Board also considered the fact that the Manager and its affiliates provide
shareholder servicing and administrative services to the Fund for which they
receive compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Trustees recognized that the Manager should be entitled to earn a
reasonable level of profits in exchange for the level of services it provides to
the Fund and the entrepreneurial and other risks that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board also considered the fee waiver and expense
reimbursement arrangements by the Manager. The Board took
================================================================================
62 | USAA GLOBAL MANAGED VOLATILITY FUND
================================================================================
into account management's discussion of the Fund's current advisory fee
structure. The Board also considered the effect of the Fund's growth and size on
its performance and fees, noting that if the Fund's assets increase over time,
the Fund may realize other economies of scale if assets increase proportionally
more than some expenses. The Board determined that the current investment
management fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the overall performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's and its affiliates' level of
profitability from their relationship with the Fund is reasonable in light of
the nature and high quality of services provided by the Manager and the type of
fund. Based on its conclusions, the Board determined that continuation of the
Advisory Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 63
================================================================================
AS OF JULY 1, 2019
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
David C. Brown
John C. Walters
--------------------------------------------------------------------------------
ADMINISTRATOR AND Victory Capital Management Inc.
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND Victory Capital Advisers, Inc.
DISTRIBUTOR 4900 Tiedeman Road
Brooklyn, Ohio 44144
--------------------------------------------------------------------------------
TRANSFER AGENT Victory Capital Transfer Agency, Inc.
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 USAA AMCO'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) 235-8396; (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 monthly portfolio holdings with the SEC
for the first and third quarters of each fiscal year as an exhibit to its
reports on Form N-PORT (beginning with filings after March 31, 2019).
Previously, the Fund made its complete schedule of portfolio holdings available
after the first and third fiscal quarters in regulatory filings on Form N-Q. The
Fund's Forms N-CSR, N-PORT, and N-Q are available at no charge (i) by calling
(800) 235-8396; (ii) at usaa.com; and (iii) on the SEC's website at
http://www.sec.gov.
===============================================================================
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88395-0819
[LOGO OF USAA USAA(R)]
----------------------
MUTUAL FUNDS
--------------------------------------------------------------------------------
June 30, 2019
--------------------------------------------------------------------------------
SEMIANNUAL REPORT
USAA Ultra Short-Term Bond Fund
FUND INSTITUTIONAL R6
SHARES SHARES SHARES
UUSTX UUSIX URUSX
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) 235-8396 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)
235-8396 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.
Victory Capital means Victory Capital Management Inc., the investment manager of
the USAA Mutual Funds. USAA Mutual Funds are distributed by Victory Capital
Advisers, Inc., a broker dealer registered with FINRA and an affiliate of
Victory Capital. Victory Capital and its affiliates are not affiliated with
United Services Automobile Association or its affiliates. USAA and the USAA
logos are registered trademarks and the USAA Mutual Funds and USAA Investments
logos are trademarks of United Services Automobile Association and are being
used by Victory Capital and its affiliates under license.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
SHAREHOLDER VOTING RESULTS 3
FINANCIAL INFORMATION
Portfolio of Investments 4
Notes to Portfolio of Investments 16
Financial Statements 20
Notes to Financial Statements 24
Financial Highlights 39
EXPENSE EXAMPLE 42
ADVISORY AGREEMENT(S) 44
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA ASSET MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
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) 235-8396.
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.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o ASSET ALLOCATION - 6/30/19 o
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
CORPORATE OBLIGATIONS 41.3%
EURODOLLAR AND YANKEE OBLIGATIONS 28.5%
ASSET-BACKED SECURITIES 13.2%
BANK LOANS 5.7%
COLLATERALIZED LOAN OBLIGATIONS 4.7%
COMMERCIAL MORTGAGE SECURITIES 4.6%
U.S. TREASURY SECURITIES 0.9%
MONEY MARKET INSTRUMENTS 0.7%
MUNICIPAL OBLIGATIONS 0.5%
PREFERRED STOCKS 0.4%
[END 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
================================================================================
o PORTFOLIO RATINGS MIX - 6/30/19 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 18.2%
AA 16.6%
A 23.3%
BBB 39.4%
BELOW INVESTMENT-GRADE 2.2%
NON-RATED 0.3%
[END CHART]
This chart reflects the highest long-term rating from a Nationally Recognized
Statistical Rating Organization (NRSRO), with the four highest long-term credit
ratings labeled, in descending order of credit quality, AAA, AA, A, and BBB.
These categories represent investment-grade quality. NRSRO ratings are shown
because they provide independent analysis of the credit quality of the Fund's
investments. USAA Asset Management Company (the Manager) also performs its own
fundamental credit analysis of each security. As part of its fundamental credit
analysis, the Manager considers various criteria, including industry specific
actions, peer comparisons, payment ranking, and structure specific
characteristics. Any of the Fund's securities that are not rated by an NRSRO
appear in the chart above as "Unrated," but these securities are analyzed and
monitored by the Manager on an ongoing basis. Government securities that are
issued or guaranteed as to principal and interest by the U.S. government and
pre-refunded and escrowed-to-maturity municipal bonds that are not rated are
treated as AAA for credit quality purposes.
Percentages are of the total market value of the Fund's investments.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
2 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
SHAREHOLDER VOTING RESULTS
--------------------------------------------------------------------------------
On April 18, 2019, a special meeting of shareholders was held to vote on two
proposals relating to the series of the USAA Mutual Funds Trust (Trust).
Shareholders of record on February 8, 2019, were entitled to vote on each
proposal shown below. The proposals were approved by the shareholders.
The following proposals and voting results pertain to one or more series within
the Trust. Votes shown for Proposal 1 are for the Fund, a series of the Trust.
Votes shown for Proposal 2 are for all series of the Trust. The effective date
of the Proposals was July 1, 2019.
PROPOSAL 1
To approve a new Investment Advisory Agreement between the Trust, on behalf of
the Fund, and Victory Capital Management Inc. (Victory Capital), an independent
investment adviser. The new Investment Advisory Agreement became effective upon
the closing of the Transaction (as defined and discussed in Note 1 to the
Financial Statements) whereby USAA Asset Management Company (AMCO) was acquired
by Victory Capital Holdings Inc., the parent company of Victory Capital.
NUMBER OF SHARES VOTING
-------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
-------------------------------------------------------------------------------
11,968,536 1,940,259 879,326
PROPOSAL 2
Election of two new trustees to the Trust's Board of Trustees to serve upon
the closing of the Transaction: (1) David C. Brown, to serve as an "interested
trustee" as defined in the Investment Company Act of 1940, as amended
(1940 Act); and (2) John C. Walters, to serve as a trustee who is not an
"interested person" as is defined under the 1940 Act (Independent Trustee).
NUMBER OF SHARES VOTING
--------------------------------------------------------------------------------
TRUSTEES FOR VOTES WITHHELD
--------------------------------------------------------------------------------
David C. Brown 8,299,565,565 820,887,736
John C. Walters 8,317,935,885 802,517,416
================================================================================
SHAREHOLDER VOTING RESULTS | 3
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2019 (unaudited)
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (99.3%)
ASSET-BACKED SECURITIES (13.2%)
ASSET BACKED SECURITIES (12.6%)
-------------------------------
AUTOMOBILE ABS (8.0%)
$ 340 ARI Fleet Lease Trust(a) 1.91% 4/15/2026 $ 339
1,000 ARI Fleet Lease Trust(a) 2.28 4/15/2026 1,000
167 Avis Budget Rental Car Funding AESOP, LLC(a) 3.75 7/20/2020 167
676 Avis Budget Rental Car Funding AESOP, LLC(a) 2.50 2/20/2021 676
2,000 Avis Budget Rental Car Funding AESOP, LLC(a) 4.94 6/20/2022 2,054
1,000 Bank of The West Auto Trust(a) 2.40 10/17/2022 1,001
1,000 Bank of The West Auto Trust(a) 2.43 4/15/2024 1,003
1,407 Canadian Pacer Auto Receivables Trust(a) 2.05 3/19/2021 1,405
464 Credit Acceptance Auto Loan Trust(a) 4.29 11/15/2024 465
1,000 Credit Acceptance Auto Loan Trust(a) 2.65 6/15/2026 1,002
2,000 Enterprise Fleet Financing, LLC(a) 2.04 2/22/2022 1,995
2,000 Exeter Automobile Receivables Trust(a) 5.83 12/15/2021 2,011
652 Exeter Automobile Receivables Trust(a) 2.90 1/18/2022 652
476 Exeter Automobile Receivables Trust(a) 3.46 10/17/2022 480
1,000 Hyundai Auto Receivables Trust 3.14 6/17/2024 1,025
1,320 OSCAR U.S. Funding Trust IX, LLC(a) 3.15 8/10/2021 1,324
1,500 OSCAR U.S. Funding Trust VIII, LLC(a) 3.23 5/10/2022 1,517
977 Prestige Auto Receivables Trust(a) 3.05 4/15/2021 978
958 Santander Drive Auto Receivables Trust 3.52 12/15/2022 966
2,000 Santander Retail Auto Lease Trust(a) 2.22 1/20/2021 1,999
194 Securitized Term Auto Receivables Trust(a) 1.89 8/25/2020 194
284 TCF Auto Receivables Owner Trust(a) 2.55 4/15/2021 284
1,307 Wheels SPV, LLC(a) 1.87 5/20/2025 1,304
--------
23,841
--------
CREDIT CARD ABS (1.3%)
2,000 Master Credit Card Trust "A"(a) 2.26 7/21/2021 1,999
2,000 Synchrony Credit Card Master Note Trust "C" 2.56 6/15/2023 1,998
--------
3,997
--------
OTHER ABS (3.1%)
1,950 BCC Funding XIII, LLC(a) 4.78 8/20/2022 1,984
367 Great America Leasing Receivables Funding, LLC(a) 2.06 6/22/2020 367
================================================================================
4 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,000 Great America Leasing Receivables Funding, LLC(a) 2.36% 1/20/2023 $ 1,000
1,500 NP Ferrum LLC(a) 3.59 2/19/2045 1,520
248 NP SPE II, LLC(a) 3.37 10/21/2047 254
1,315 SCF Equipment Leasing , LLC(a) 3.04 3/20/2023 1,321
1,134 SCF Equipment Leasing, LLC(a) 3.41 12/20/2023 1,146
1,000 SCF Equipment Leasing, LLC(a) 3.49 1/20/2026 1,023
612 Volvo Financial Equipment, LLC(a) 1.92 3/15/2021 611
--------
9,226
--------
STUDENT LOAN ABS (0.2%)
705 SLM Private Education Loan Trust(a) 2.50 3/15/2047 704
--------
Total Asset Backed Securities 37,768
--------
MORTGAGE SECURITIES (0.6%)
--------------------------
WHOLE LOAN COLLATERAL CMO (0.6%)
1,771 Holmes Master Issuer plc (3 mo. LIBOR + 0.36%)(a) 2.96(b) 10/15/2054 1,770
--------
Total Asset-Backed Securities (cost: $39,371) 39,538
--------
BANK LOANS (5.7%)(c)
CONSUMER, CYCLICAL (0.3%)
-------------------------
LODGING (0.3%)
750 Boyd Gaming Corp.(d) 0.00 9/15/2021 749
--------
CONSUMER, NON-CYCLICAL (0.8%)
-----------------------------
HEALTHCARE-SERVICES (0.8%)
2,248 HCA, Inc. (3 mo. LIBOR + 1.50%) 3.83 6/10/2020 2,246
--------
FINANCIAL (2.0%)
----------------
REITS (2.0%)
3,000 GLP Capital, LP (1 mo. LIBOR + 1.50%) 3.90 4/28/2021 2,987
3,000 Sabra Health Care Ltd. (1 mo. LIBOR + 1.45%) 3.85 8/17/2020 2,985
--------
Total Financial 5,972
--------
INDUSTRIAL (0.3%)
-----------------
HAND/MACHINE TOOLS (0.3%)
1,000 Colfax Corp. (1 mo. LIBOR + 1.75%) 4.15 12/17/2020 1,000
--------
TECHNOLOGY (1.6%)
-----------------
COMPUTERS (0.3%)
1,094 Dell International, LLC (1 mo. LIBOR + 1.75%) 4.16 9/07/2021 1,094
--------
SEMICONDUCTORS (1.0%)
995 Micron Technology, Inc. (1 mo. LIBOR + 1.75%) 4.16 4/26/2022 995
2,000 ON Semiconductor Corp.(d) 0.00 3/31/2023 1,977
--------
2,972
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 5
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
SOFTWARE (0.3%)
$ 818 First Data Corp. (1 mo. LIBOR + 2.00%) 4.40% 7/08/2022 $ 818
--------
Total Technology 4,884
--------
UTILITIES (0.7%)
----------------
ELECTRIC (0.7%)
2,107 AES Corp. (3 mo. LIBOR + 1.75%) 4.27 5/31/2022 2,107
--------
Total Bank Loans (cost: $16,971) 16,958
--------
COLLATERALIZED LOAN OBLIGATIONS (4.7%)
ASSET BACKED SECURITIES (4.7%)
------------------------------
OTHER ABS (4.7%)
2,000 CIFC Funding Ltd. (3 mo. LIBOR + 0.86%)(a) 3.44(b) 10/25/2027 1,990
1,000 CIFC Funding Ltd. (3 mo. LIBOR + 0.80%)(a) 3.39(b) 1/20/2028 998
2,000 Madison Park Funding XI Ltd.
(3 mo. LIBOR + 1.16%)(a) 3.75(b) 7/23/2029 2,000
1,500 Magnetite XXI Ltd. (3 mo. LIBOR + 1.28%)(a) 3.91(b) 4/20/2030 1,507
1,500 Octagon Investment Partners 25 Ltd.
(3 mo. LIBOR + 0.80%)(a) 3.39(b) 10/20/2026 1,500
1,177 Palmer Square Loan Funding 2018-2 Ltd.
(3 mo. LIBOR + 0.65%)(a) 3.25(b) 7/15/2026 1,174
500 Palmer Square Loan Funding 2018-2 Ltd.
(3 mo. LIBOR + 1.05%)(a) 3.65(b) 7/15/2026 499
949 Palmer Square Loan Funding 2018-5 Ltd.
(3 mo. LIBOR + 0.85%)(a) 3.44(b) 1/20/2027 949
1,500 Sound Point VIII-R Ltd. (3 mo. LIBOR + 1.36%)(a) 3.96(b) 4/15/2030 1,501
2,000 Sound Point X Ltd. (3 mo. LIBOR + 0.89%)(a) 3.48(b) 1/20/2028 1,998
--------
Total Asset Backed Securities 14,116
--------
Total Collateralized Loan Obligations (cost: $14,119) 14,116
--------
COMMERCIAL MORTGAGE SECURITIES (4.6%)
MORTGAGE SECURITIES (4.6%)
--------------------------
COMMERCIAL MBS (4.6%)
24,830 GS Mortgage Securities Trust(a),(e),(f) 0.82(g) 3/10/2044 238
2,000 Caesars Palace Las Vegas Trust 2017-VICI(a) 3.83 10/15/2034 2,081
1,500 COMM 2019-521F Mortgage Trust
(1 mo. LIBOR + 1.10%)(a) 3.58(b) 6/15/2034 1,505
489 Commercial Mortgage Trust 5.83(g) 7/10/2038 492
2,800 FREMF Mortgage Trust(a) 5.55(g) 12/25/2046 2,834
1,575 FREMF Mortgage Trust(a) 3.16(g) 10/25/2047 1,572
1,500 HPLY Trust 2019-HIT (1 mo. LIBOR + 1.35%)(a) 3.74(b) 11/15/2036 1,505
================================================================================
6 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 6,166 JPMBB Commercial Mortgage Securities Trust(e),(f) 0.95%(g) 4/15/2047 $ 144
1,000 KNDL 2019-KNSQ Mortgage Trust
(1 mo. LIBOR + 0.95%)(a) 3.34(b) 5/15/2036 1,002
391 LSTAR Commercial Mortgage Trust(a) 2.42 3/10/2050 392
2,000 Morgan Stanley Capital Trust "A"
(1 mo. LIBOR + 0.70%)(a) 3.09(b) 11/15/2034 2,000
--------
Total Mortgage Securities 13,765
--------
Total Commercial Mortgage Securities (cost: $13,350) 13,765
--------
CORPORATE OBLIGATIONS (41.3%)
BASIC MATERIALS (2.6%)
----------------------
CHEMICALS (1.7%)
2,145 INVISTA Finance, LLC(a) 4.25 10/15/2019 2,168
857 NewMarket Corp. 4.10 12/15/2022 889
2,000 Sherwin-Williams Co. 2.25 5/15/2020 1,997
--------
5,054
--------
IRON/STEEL (0.5%)
1,500 Carpenter Technology Corp. 5.20 7/15/2021 1,541
--------
MINING (0.4%)
1,000 Freeport-McMoRan, Inc. 3.88 3/15/2023 1,002
--------
Total Basic Materials 7,597
--------
COMMUNICATIONS (0.9%)
---------------------
MEDIA (0.9%)
2,000 Charter Communications Operating, LLC / Charter
Communications Operating Capital
(3 mo. LIBOR + 1.65%) 4.23(b) 2/01/2024 2,009
740 Discovery Communications, LLC 2.20 9/20/2019 739
--------
Total Communications 2,748
--------
CONSUMER, CYCLICAL (3.4%)
-------------------------
AIRLINES (0.3%)
843 Continental Airlines, Inc. Pass-Through Trust "B" 6.25 10/11/2021 860
--------
AUTO MANUFACTURERS (2.8%)
2,000 Ford Motor Credit Co., LLC (3 mo. LIBOR + 0.43%) 3.01(b) 11/02/2020 1,981
930 Ford Motor Credit Co., LLC (3 mo. LIBOR + 0.88%) 3.48(b) 10/12/2021 916
2,000 General Motors Co. (3 mo. LIBOR + 0.80%) 3.37(b) 8/07/2020 2,003
2,000 Hyundai Capital America(a) 2.75 9/18/2020 2,002
500 Nissan Motor Acceptance Corp.(a) 2.15 9/28/2020 497
1,000 Nissan Motor Acceptance Corp.(a) 2.55 3/08/2021 997
--------
8,396
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 7
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
RETAIL (0.3%)
$ 1,000 AutoZone, Inc. 4.00% 11/15/2020 $ 1,019
--------
Total Consumer, Cyclical 10,275
--------
CONSUMER, NON-CYCLICAL (2.9%)
-----------------------------
BIOTECHNOLOGY (0.7%)
2,000 Amgen, Inc. 3.45 10/01/2020 2,028
--------
FOOD (0.9%)
1,000 Kraft Heinz Foods Co. (3 mo. LIBOR + 0.57%) 3.12(b) 2/10/2021 998
1,815 Smithfield Foods, Inc.(a) 2.65 10/03/2021 1,790
--------
2,788
--------
HEALTHCARE-PRODUCTS (0.6%)
1,700 Becton Dickinson & Co. 2.40 6/05/2020 1,699
--------
PHARMACEUTICALS (0.7%)
2,000 Shire Acquisitions Investments Ireland
Designated Activity Co. 1.90 9/23/2019 1,997
--------
Total Consumer, Non-cyclical 8,512
--------
ENERGY (6.4%)
-------------
OIL & GAS (1.5%)
2,000 Antero Resources Corp. 5.13 12/01/2022 1,927
2,604 Murphy Oil Corp. 4.00 6/01/2022 2,624
--------
4,551
--------
PIPELINES (4.9%)
1,500 Andeavor Logistics, LP/Tesoro Logistics Finance Corp. 5.50 10/15/2019 1,507
2,000 Buckeye Partners, LP 4.15 7/01/2023 1,944
780 Columbia Pipeline Group, Inc. 3.30 6/01/2020 785
1,899 DCP Midstream Operating, LP(a) 5.35 3/15/2020 1,930
2,000 Enable Oklahoma Intrastate Transmission, LLC(a) 6.25 3/15/2020 2,045
1,285 Energy Transfer Operating, LP 7.50 10/15/2020 1,364
1,000 Midwest Connector Capital Co., LLC(a) 3.63 4/01/2022 1,025
2,000 NuStar Logistics, LP 4.80 9/01/2020 2,040
2,000 Rockies Express Pipeline, LLC(a) 5.63 4/15/2020 2,043
--------
14,683
--------
Total Energy 19,234
--------
FINANCIAL (19.8%)
-----------------
BANKS (11.8%)
2,000 Bank of America Corp. (3 mo. LIBOR + 0.79%) 3.27(b) 3/05/2024 2,003
2,000 BB&T Corp. 5.25 11/01/2019 2,018
2,800 Capital One, N.A. (3 mo. LIBOR + 0.82%) 3.38(b) 8/08/2022 2,811
1,500 Citibank, N.A. (3 mo. LIBOR + 0.6%)(h) 3.12(b) 5/20/2022 1,503
================================================================================
8 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 1,885 Citigroup, Inc. (3 mo. LIBOR + 0.69%) 3.27%(b) 10/27/2022 $ 1,888
2,000 Citizens Bank, N.A. 2.20 5/26/2020 1,997
2,470 Compass Bank 2.75 9/29/2019 2,470
825 Compass Bank (3 mo. LIBOR + 0.73%) 3.18(b) 6/11/2021 825
1,000 Goldman Sachs Group, Inc. (3 mo. LIBOR + 0.78%) 3.36(b) 10/31/2022 1,001
2,740 Huntington National Bank 2.40 4/01/2020 2,738
2,000 J.P. Morgan Chase & Co. (3 mo. LIBOR + 0.68%) 3.20(b) 6/01/2021 2,007
2,075 KeyCorp 2.90 9/15/2020 2,089
3,000 Manufacturers & Traders Trust Co.
(3 mo. LIBOR + 0.64%) 3.16(b) 12/01/2021 2,993
2,000 Morgan Stanley (3 mo. LIBOR + 0.55%) 3.10(b) 2/10/2021 2,003
1,240 Regions Bank (3 mo. LIBOR + 0.38%) 2.70(b) 4/01/2021 1,237
2,000 SunTrust Bank (3 mo. LIBOR + 0.59%) 3.12(b) 5/17/2022 2,004
700 Synchrony Bank (3 mo. LIBOR + 0.63%) 2.95(b) 3/30/2020 701
3,000 Wells Fargo & Co. 2.55 12/07/2020 3,009
--------
35,297
--------
DIVERSIFIED FINANCIAL SERVICES (1.7%)
2,000 Aircastle Ltd. 4.40 9/25/2023 2,079
2,000 Ally Financial, Inc. 4.13 3/30/2020 2,024
1,000 Cantor Fitzgerald, LP(a) 4.88 5/01/2024 1,032
--------
5,135
--------
INSURANCE (2.3%)
3,000 Assurant, Inc. (3 mo. LIBOR + 1.25%) 3.58(b) 3/26/2021 3,000
1,350 Jackson National Life Global Funding(a) 2.60 12/09/2020 1,357
1,000 Metropolitan Life Global Funding I(a) 3.45 10/09/2021 1,024
535 Protective Life Global Funding(a) 2.70 11/25/2020 538
1,000 Protective Life Global Funding
(3 mo. LIBOR + 0.52%)(a) 2.85(b) 6/28/2021 1,004
--------
6,923
--------
INVESTMENT COMPANIES (0.8%)
2,500 FS KKR Capital Corp. 4.00 7/15/2019 2,501
--------
REAL ESTATE (1.2%)
3,500 MOBR-04, LLC (LOC - Compass Bank)(i) 3.50 9/01/2024 3,500
--------
REITS (2.0%)
2,000 Office Properties Income Trust 3.60 2/01/2020 2,007
1,169 Office Properties Income Trust 4.15 2/01/2022 1,187
500 Senior Housing Properties Trust 6.75 4/15/2020 505
1,333 SL Green Operating Partnership, LP 3.25 10/15/2022 1,351
765 Ventas Realty, LP / Ventas Capital Corp. 2.70 4/01/2020 766
--------
5,816
--------
Total Financial 59,172
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
INDUSTRIAL (3.4%)
-----------------
AEROSPACE/DEFENSE (0.3%)
$ 1,000 Arconic, Inc. 5.40% 4/15/2021 $ 1,037
--------
BUILDING MATERIALS (1.0%)
2,000 Vulcan Materials Co. (3 mo. LIBOR + 0.60%) 3.01(b) 6/15/2020 2,000
1,000 Vulcan Materials Co. (3 mo. LIBOR + 0.65%) 3.17(b) 3/01/2021 1,001
--------
3,001
--------
ELECTRONICS (0.3%)
1,000 FLIR Systems, Inc. 3.13 6/15/2021 1,010
--------
MACHINERY-DIVERSIFIED (0.9%)
500 CNH Industrial Capital, LLC 3.38 7/15/2019 500
2,083 Wabtec Corp. (3 mo. LIBOR + 1.03%) 3.71(b) 9/15/2021 2,078
--------
2,578
--------
TRANSPORTATION (0.7%)
2,000 Ryder System, Inc. 2.50 5/11/2020 2,000
--------
TRUCKING & LEASING (0.2%)
640 Penske Truck Leasing Co., LP / PTL Finance Corp.(a) 3.20 7/15/2020 643
--------
Total Industrial 10,269
--------
TECHNOLOGY (0.7%)
-----------------
SEMICONDUCTORS (0.7%)
2,000 Broadcom, Inc.(a) 3.13 4/15/2021 2,014
--------
UTILITIES (1.2%)
----------------
ELECTRIC (1.2%)
1,000 Dominion Energy, Inc. 2.96 7/01/2019 1,000
1,167 Mississippi Power Co. (3 mo. LIBOR + 0.65%) 2.96(b) 3/27/2020 1,167
1,444 SCANA Corp. 4.13 2/01/2022 1,476
--------
Total Utilities 3,643
--------
Total Corporate Obligations (cost: $123,051) 123,464
--------
EURODOLLAR AND YANKEE OBLIGATIONS (28.5%)
BASIC MATERIALS (2.7%)
----------------------
CHEMICALS (1.4%)
1,000 Braskem Finance Ltd.(a) 5.75 4/15/2021 1,050
1,000 Braskem Netherlands Finance B.V.(a) 3.50 1/10/2023 1,007
2,000 Syngenta Finance N.V.(a) 3.70 4/24/2020 2,015
--------
4,072
--------
================================================================================
10 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
IRON/STEEL (0.5%)
$ 500 ArcelorMittal 5.13% 6/01/2020 $ 512
1,000 Vale Overseas Ltd. 5.88 6/10/2021 1,052
--------
1,564
--------
MINING (0.8%)
1,000 Glencore Funding, LLC(a) 4.13 3/12/2024 1,039
1,424 Teck Resources Ltd. 4.50 1/15/2021 1,450
--------
2,489
--------
Total Basic Materials 8,125
--------
CONSUMER, CYCLICAL (1.3%)
-------------------------
AIRLINES (0.8%)
1,704 Air Canada Pass-Through Trust(a) 5.38 11/15/2022 1,760
646 Virgin Australia Pass-Through Trust(a) 5.00 4/23/2025 665
--------
2,425
--------
AUTO MANUFACTURERS (0.5%)
1,390 Daimler Finance, N.A., LLC
(3 mo. LIBOR + 0.45%)(a) 2.97(b) 2/22/2021 1,390
--------
Total Consumer, Cyclical 3,815
--------
CONSUMER, NON-CYCLICAL (0.7%)
-----------------------------
HOUSEHOLD PRODUCTS/WARES (0.4%)
1,000 Reckitt Benckiser Treasury Services plc
(3 mo. LIBOR + 0.56%)(a) 2.90(b) 6/24/2022 997
--------
PHARMACEUTICALS (0.3%)
1,000 Bayer U.S. Finance II, LLC
(3 mo. LIBOR + 0.63%)(a) 2.98(b) 6/25/2021 993
--------
Total Consumer, Non-cyclical 1,990
--------
DIVERSIFIED (1.0%)
------------------
HOLDING COMPANIES-DIVERSIFIED (1.0%)
2,000 CK Hutchison International II Ltd.(a) 2.25 9/29/2020 1,996
1,000 Hutchison Whampoa International Ltd.(a) 4.63 1/13/2022 1,051
--------
Total Diversified 3,047
--------
ENERGY (1.3%)
-------------
OIL & GAS (0.7%)
2,000 Petroleos Mexicanos 6.38 2/04/2021 2,057
--------
OIL & GAS SERVICES (0.6%)
2,000 Schlumberger Finance Canada Ltd.(a) 2.20 11/20/2020 1,999
--------
Total Energy 4,056
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
FINANCIAL (20.1%)
-----------------
BANKS (18.7%)
$ 2,000 ABN AMRO Bank N.V. (3 mo. LIBOR + 0.41%)(a) 3.00%(b) 1/19/2021 $ 2,004
800 ANZ New Zealand International Ltd.
(3 mo. LIBOR + 1.01%)(a) 3.59(b) 7/28/2021 810
1,000 Australia & New Zealand Banking Group Ltd.
(3 mo. LIBOR + 0.40%) 2.92(b) 12/03/2019 1,001
1,250 Australia & New Zealand Banking Group Ltd.
(3 mo. LIBOR + 0.46%) 2.99(b) 5/17/2021 1,254
1,000 Banco Santander S.A. (3 mo. LIBOR + 1.12%) 3.72(b) 4/12/2023 996
1,000 BBVA Bancomer S.A.(a) 7.25 4/22/2020 1,034
1,000 BBVA Bancomer S.A.(a) 6.50 3/10/2021 1,054
1,000 Canadian Imperial Bank of Commerce
(3 mo. LIBOR + 3.15%) 2.89(b) 2/02/2021 1,002
3,000 Commonwealth Bank of Australia
(3 mo. LIBOR + 0.83%)(a) 3.30(b) 9/06/2021 3,032
2,500 Cooperatieve Rabobank U.A. (3 mo. LIBOR + 0.48%) 3.06(b) 1/10/2023 2,490
2,000 Credit Agricole S.A. (3 mo. LIBOR + 1.02%)(a) 3.60(b) 4/24/2023 1,996
1,000 Credit Suisse Group Funding Guernsey Ltd. 2.75 3/26/2020 1,002
700 Credit Suisse Group Funding Guernsey Ltd.
(3 mo. LIBOR + 2.29%) 4.89(b) 4/16/2021 722
3,000 Deutsche Bank AG (3 mo. LIBOR + 0.97%) 3.57(b) 7/13/2020 2,981
2,000 HSBC Holdings plc (3 mo. LIBOR + 0.60%) 3.12(b) 5/18/2021 2,002
2,000 ING Bank N.V. (3 mo. LIBOR + 0.88%)(a) 3.40(b) 8/15/2021 2,020
1,000 Mitsubishi UFJ Financial Group, Inc.
(3 mo. LIBOR + 0.65%) 3.24(b) 7/26/2021 1,004
1,000 National Australia Bank Ltd.
(3 mo. LIBOR + 0.71%)(a) 3.28(b) 11/04/2021 1,007
1,000 National Australia Bank Ltd.
(3 mo. LIBOR + 0.60%)(a) 3.20(b) 4/12/2023 1,000
1,000 NatWest Markets plc(a) 3.63 9/29/2022 1,022
1,000 Nordea Bank Abp (3 mo. LIBOR + 0.94%)(a) 3.46(b) 8/30/2023 987
3,000 Royal Bank of Canada 1.88 2/05/2020 2,993
2,000 Royal Bank of Scotland Group plc 6.13 12/15/2022 2,159
2,000 Santander UK plc (3 mo. LIBOR + 0.62%) 3.14(b) 6/01/2021 2,005
2,000 Skandinaviska Enskilda Banken AB
(3 mo. LIBOR + 0.43%)(a) 2.96(b) 5/17/2021 2,006
2,000 Stadshypotek AB 1.88 10/02/2019 1,997
1,000 Standard Chartered plc(a) 3.05 1/15/2021 1,009
2,000 Standard Chartered plc (3 mo. LIBOR + 1.15%)(a) 3.74(b) 1/20/2023 2,000
2,000 Suncorp-Metway Ltd.(a) 2.38 11/09/2020 2,001
1,500 Svenska Handelsbanken AB
(3 mo. LIBOR + 1.15%) 3.47(b) 3/30/2021 1,524
500 Swedbank AB (3 mo. LIBOR + 0.70%)(a) 3.13(b) 3/14/2022 496
================================================================================
12 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
------------------------------------------------------------------------------------------------------------------
$ 2,000 Toronto-Dominion Bank(a) 2.25% 3/15/2021 $ 2,007
1,425 UBS Group Funding Switzerland AG(a) 3.00 4/15/2021 1,439
2,000 UBS Group Funding Switzerland AG
(3 mo. LIBOR + 0.95%)(a) 3.47(b) 8/15/2023 2,005
2,000 Westpac Banking Corp. (3 mo. LIBOR + 0.85%) 3.37(b) 8/19/2021 2,025
--------
56,086
--------
DIVERSIFIED FINANCIAL SERVICES (0.7%)
1,000 AerCap Ireland Capital DAC / AerCap
Global Aviation Trust 5.00 10/01/2021 1,049
1,000 AerCap Ireland Capital DAC / AerCap
Global Aviation Trust 4.45 12/16/2021 1,039
--------
2,088
--------
REITS (0.7%)
1,000 Scentre Group Trust(a) 2.38 11/05/2019 999
1,000 Scentre Group Trust(a) 2.38 4/28/2021 997
--------
1,996
--------
Total Financial 60,170
--------
INDUSTRIAL (1.4%)
-----------------
AEROSPACE/DEFENSE (0.3%)
1,000 BAE Systems Holdings, Inc.(a) 2.85 12/15/2020 1,004
--------
TRUCKING & LEASING (1.1%)
1,000 Avolon Holdings Funding Ltd.(a) 5.50 1/15/2023 1,069
2,000 Park Aerospace Holdings Ltd.(a) 5.25 8/15/2022 2,116
--------
3,185
--------
Total Industrial 4,189
--------
Total Eurodollar and Yankee Obligations (cost: $84,871) 85,392
--------
MUNICIPAL OBLIGATIONS (0.5%)
NEW JERSEY (0.2%)
500 EDA 3.80 6/15/2020 505
--------
WISCONSIN (0.3%)
1,000 Public Finance Auth. (LOC - Citizens Financial Group) 2.75 6/01/2020 997
--------
Total Municipal Obligations (cost: $1,500) 1,502
--------
U.S. TREASURY SECURITIES (0.8%)
NOTES (0.8%)
1,500 U.S. Treasury Note(h) 1.50 11/30/2019 1,496
1,000 U.S. Treasury Note(h) 1.63 8/31/2019 999
--------
Total U.S. Treasury Securities (cost: $2,493) 2,495
--------
Total Bonds (cost: $295,726) 297,230
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (0.4%)
PREFERRED STOCKS (0.4%)
COMMUNICATIONS (0.4%)
---------------------
TELECOMMUNICATIONS (0.4%)
1,000 Centaur Funding Corp., 9.08%(a) (cost: $1,065) $ 1,055
--------
Total Equity Securities (cost: $1,065) 1,055
--------
------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.7%)
COMMERCIAL PAPER (0.7%)
$ 2,150 Energy Transfer Partners(a) (cost: $2,150) 2.95% 7/01/2019 2,150
--------
------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------------------------
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
29,907 State Street Institutional Treasury Money Market Fund
Premier Class, 2.17%(j) (cost: $30) 30
--------
Total Money Market Instruments (cost: $2,180) 2,180
--------
TOTAL INVESTMENTS (COST: $298,971) $300,465
========
================================================================================
14 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Bonds:
Asset-Backed Securities $ - $ 39,538 $- $ 39,538
Bank Loans - 16,958 - 16,958
Collateralized Loan Obligations - 14,116 - 14,116
Commercial Mortgage Securities - 13,765 - 13,765
Corporate Obligations - 123,464 - 123,464
Eurodollar and Yankee Obligations - 85,392 - 85,392
Municipal Obligations - 1,502 - 1,502
U.S. Treasury Securities 2,495 - - 2,495
Equity Securities:
Preferred Stocks - 1,055 - 1,055
Money Market Instruments:
Commercial Paper - 2,150 - 2,150
Government & U.S. Treasury
Money Market Funds 30 - - 30
------------------------------------------------------------------------------------------------------------------
Total $2,525 $297,940 $- $300,465
------------------------------------------------------------------------------------------------------------------
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.
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2019 (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 36.5% of net assets at June
30, 2019.
o CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS - Eurodollar obligations are U.S.
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee
obligations are dollar-denominated instruments that are issued by foreign
issuers in the U.S. capital markets.
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES - Asset-backed
securities represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. These securities represent
ownership in a pool of loans and are divided into pieces (tranches) with
varying maturities. The stated final maturity of such securities represents
the date the final principal payment will be made for the last outstanding
loans in the pool. The weighted average life is the average time for
================================================================================
16 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
principal to be repaid, which is calculated by assuming prepayment rates of
the underlying loans. The weighted average life is likely to be
substantially shorter than the stated final maturity as a result of
scheduled principal payments and unscheduled principal prepayments. Stated
interest rates on commercial mortgage-backed securities may change slightly
over time as underlying mortgages paydown.
COLLATERALIZED LOAN OBLIGATIONS (CLOs) - Collateralized loan obligations
are securities issued by entities that are collateralized by a pool of
loans. CLOs are issued in multiple classes (tranches), and can be equity
or debt with specific adjustable or fixed interest rates, and varying
maturities. The cash flow from the underlying loans is used to pay off
each tranche separately within the debt, or senior tranches. Equity, or
subordinated tranches, typically are not paid a cash flow but do offer
ownership in the CLO itself in the event of a sale.
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
EDA Economic Development Authority
LIBOR London Interbank Offered Rate
REITS Real estate investment trusts - Dividend distributions from REITS may
be recorded as income and later characterized by the REIT at the end
of the fiscal year as capital gains or a return of capital. Thus, the
Fund will estimate the components of distributions from these
securities and revise when actual distributions are known.
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
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 17
================================================================================
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
LOC Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act
of 1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by
Rule 144A, and as such has been deemed liquid by USAA Asset Management
Company under liquidity guidelines approved by USAA Mutual Funds
Trust's Board of Trustees, unless otherwise noted as illiquid.
(b) Variable-rate security - interest rate is adjusted periodically. The
interest rate disclosed represents the rate at June 30, 2019.
(c) Bank 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 June 30, 2019. 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) Security or a portion of the security purchased on a delayed-delivery
and/or when-issued basis.
(e) Securities issued by government-sponsored enterprises are supported
only by the right of the government-sponsored enterprise to borrow from
the U.S. Treasury, the discretionary authority of the
================================================================================
18 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
U.S. government to purchase the government-sponsored enterprises'
obligations, or by the credit of the issuing agency, instrumentality,
or corporation, and are neither issued nor guaranteed by the U.S.
Treasury.
(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) Stated interest rates may change slightly over time as underlying
mortgages paydown.
(h) At June 30, 2019, the security, or a portion thereof, was
segregated to cover delayed-delivery and/or when-issued purchases.
(i) 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.
(j) Rate represents the money market fund annualized seven-day yield at
June 30, 2019.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $298,971) $300,465
Cash 30
Receivables:
Capital shares sold 165
USAA Asset Management Company (Note 7) 6
Interest 1,773
Securities sold 45
--------
Total assets 302,484
--------
LIABILITIES
Payables:
Securities purchased 2,736
Capital shares redeemed 259
Dividends on capital shares 24
Accrued management fees 70
Accrued transfer agent's fees 11
Other accrued expenses and payables 75
--------
Total liabilities 3,175
--------
Net assets applicable to capital shares outstanding $299,309
========
NET ASSETS CONSIST OF:
Paid-in capital $301,316
Accumulated loss (2,007)
--------
Net assets applicable to capital shares outstanding $299,309
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $279,854/27,919
capital shares outstanding, no par value) $ 10.02
========
Institutional Shares (net assets of $14,420/1,438
capital shares outstanding, no par value) $ 10.03
========
R6 Shares (net assets of $5,035/503
capital shares outstanding, no par value) $ 10.02
========
See accompanying notes to financial statements.
================================================================================
20 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $3) $ 42
Interest 4,882
------
Total income 4,924
------
EXPENSES
Management fees 414
Administration and servicing fees:
Fund Shares 211
Institutional Shares 6
R6 Shares 1
Transfer agent's fees:
Fund Shares 139
Institutional Shares 6
Custody and accounting fees:
Fund Shares 61
Institutional Shares 3
R6 Shares 1
Postage:
Fund Shares 10
Shareholder reporting fees:
Fund Shares 10
Trustees' fees 18
Registration fees:
Fund Shares 12
Institutional Shares 12
R6 Shares 10
Professional fees 41
Other 9
------
Total expenses 964
------
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
Expenses reimbursed:
Institutional Shares $ (13)
R6 Shares (11)
------
Net expenses 940
------
NET INVESTMENT INCOME 3,984
------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 293
Change in net unrealized appreciation/(depreciation) 3,792
------
Net realized and unrealized gain 4,085
------
Increase in net assets resulting from operations $8,069
======
See accompanying notes to financial statements.
================================================================================
22 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited), and year ended
December 31, 2018
--------------------------------------------------------------------------------------------
6/30/2019 12/31/2018
--------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,984 $ 6,839
Net realized gain on investments 293 72
Change in net unrealized appreciation/(depreciation)
of investments 3,792 (2,666)
----------------------
Increase in net assets resulting from operations 8,069 4,245
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS:
Fund Shares (3,756) (6,578)
Institutional Shares (167) (141)
R6 Shares (73) (120)
----------------------
Distributions to shareholders (3,996) (6,839)
----------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares (7,766) (44,176)
Institutional Shares 5,833 1,374
R6 Shares (13) (70)
----------------------
Total net decrease in net assets from
capital share transactions (1,946) (42,872)
----------------------
Net increase (decrease) in net assets 2,127 (45,466)
----------------------
NET ASSETS
Beginning of period 297,182 342,648
----------------------
End of period $299,309 $297,182
======================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2019 (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 Ultra Short-Term Bond Fund (the Fund) qualifies as a registered
investment company under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Fund, which
is classified as diversified under the 1940 Act. The Fund's investment objective
is to seek high current income consistent with preservation of principal.
The Fund consists of three classes of shares: Ultra Short-Term Bond Fund Shares
(Fund Shares), Ultra Short-Term Bond Fund Institutional Shares (Institutional
Shares), and Ultra Short-Term Bond Fund R6 Shares (R6 Shares). Each class of
shares has equal rights to assets and earnings, except that each class bears
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agent fees, postage,
shareholder reporting fees, and certain registration and custodian fees.
Expenses not attributable to a specific class, income, and realized gains or
losses on investments are allocated to each class of shares based on each class'
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
================================================================================
24 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
trusts, as well as other persons or legal entities that the Fund may approve
from time to time, or for purchase by a USAA fund participating in a fund-
of-funds investment strategy (USAA fund-of-funds). The R6 Shares are available
for investment by participants in employer-sponsored retirement plans where a
financial intermediary provides retirement recordkeeping services to plan
participants and to endowment funds and foundations.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or the 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 Holdings, a global investment management firm
headquartered in Cleveland, Ohio (the Transaction), on July 1, 2019.
A special shareholder meeting was held on April 18, 2019, at which shareholders
of the Fund approved a new investment advisory agreement between the Trust, on
behalf of the Fund, and Victory Capital, an independent investment management
company. In addition, shareholders of the Fund also elected the following two
new directors to the Board of the Trust to serve upon the closing of the
Transaction: (1) David C. Brown, to serve as an Interested Trustee; and (2) John
C. Walters, to serve as an Independent Trustee. PLEASE REFER TO THE SUBSEQUENT
EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
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.
The Fund utilizes 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 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
The Service uses an evaluated mean between quoted bid and ask prices or
the last sales price to value a security when, in the Service's
judgment, these prices are readily available and are representative of
the security's market value. For many securities, such prices are not
readily available. The Service generally prices those securities based
on methods which include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
Generally, debt securities are categorized in Level 2 of the fair value
hierarchy; however, to the extent the valuations include significant
unobservable inputs, the securities would be categorized in Level 3.
2. Investments in open-end investment companies, commingled, or other
funds, other than exchange-traded funds (ETFs), are valued at their net
asset value (NAV) at the end of each business day and are categorized in
Level 1 of the fair value hierarchy.
3. Short-term debt securities with original or remaining maturities of
60 days or less may be valued at amortized cost, provided that amortized
cost represents the fair value of such securities.
4. In the event that price quotations or valuations are not readily
available, are not reflective of market value, or a significant event
has been recognized in relation to a security or class of securities,
the securities are valued in good faith by the Committee in accordance
with valuation procedures approved by the Board. The effect of fair
value pricing is that securities may not be priced on the basis of
quotations from the primary market in which they are traded and the
actual price realized from the sale of a security may differ materially
from the fair value price. Valuing these securities at fair value is
intended to cause the Fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, other pricing services, or widely used quotation
systems. General factors considered in determining the fair value of
securities include fundamental analytical data, the nature and
================================================================================
26 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
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. INVESTMENTS IN SECURITIES - Securities transactions are accounted for as
of the date the securities are purchased or sold (trade date). Gains or
losses from sales of investment securities are computed on the identified
cost basis. Interest income is recorded daily on the accrual basis.
Premiums and discounts are amortized over the life of the respective
securities, using the effective yield method for long-term securities and
the straight-line method for short-term securities.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended June 30, 2019, 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. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis or for delayed draws on loans can take
place a month or more after the trade date. During the period prior to
settlement, these securities do not earn interest, are subject to market
fluctuation, and may increase or decrease in value prior to their delivery.
The Fund receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a
delayed-delivery or when-issued basis and delayed-draw loan commitments may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases and commitments while remaining substantially fully invested.
F. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
G. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management
================================================================================
28 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
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 June 30, 2019, the Fund paid CAPCO facility fees
of $1,000, which represents 0.4% of the total fees paid to CAPCO by the funds of
the Trusts. The Fund had no borrowings under this agreement during the six-month
period ended June 30, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
(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 December 31, 2019, in
accordance with applicable federal tax law.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
At December 31, 2018, the Fund had net capital loss carryforwards of $3,782,000,
for federal income tax purposes as shown in the table below. It is unlikely that
the Board will authorize a distribution of capital gains realized in the future
until the capital loss carryforwards have been used.
CAPITAL LOSS CARRYFORWARDS
--------------------------------
TAX CHARACTER
--------------------------------
(NO EXPIRATION) BALANCE
--------------- ----------
Short-Term $2,713,000
Long-Term 1,069,000
----------
Total $3,782,000
==========
As of June 30, 2019, 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:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND APPRECIATION DEPRECIATION (DEPRECIATION)
---------------------------------------------------------------------------------------
USAA Ultra Short-Term
Bond Fund $1,857,000 $363,000 $1,494,000
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2019, were
$75,702,000 and $72,317,000, 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
================================================================================
30 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
Fund, including short-term securities, during the six-month period ended
June 30, 2019 were as follows:
PURCHASES SALES NET REALIZED GAIN (LOSS)
--------------------------------------------------------------------------------------
$1,004,000 $- $-
(5) SECURITIES LENDING
The Fund, through a securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income, net of income retained by
Citibank. The borrowers are required to secure their loans continuously with
collateral in an amount at least equal to 102% of the fair value of domestic
securities and foreign government securities loaned and 105% of the fair value
of foreign securities and all other securities loaned. Collateral may be cash,
U.S. government securities, or other securities as permitted by SEC guidelines.
Cash collateral may be invested in high-quality short-term investments.
Collateral requirements are determined daily based on the value of the Fund's
securities on loan as of the end of the prior business day. Loans are terminable
upon demand and the borrower must return the loaned securities within the lesser
of one standard settlement period or five business days. Risks relating to
securities-lending transactions include that the borrower may not provide
additional collateral when required or return the securities when due, and that
the value of the short-term investments will be less than the amount of cash
collateral required to be returned to the borrower. The Fund's agreement with
Citibank does not include master netting provisions. Non-cash collateral
received by the Fund may not be sold or re-pledged except to satisfy borrower
default. Cash collateral is listed in the Fund's Portfolio of Investments and
Financial Statements while non-cash collateral is not included. At June 30,
2019, the Fund had no securities on loan.
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2019, 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 | 31
================================================================================
persons or legal entities that the Fund may approve from time to time. Capital
share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 2019 DECEMBER 31, 2018
---------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 4,544 $ 45,288 10,484 $ 104,043
Shares issued from reinvested
dividends 364 3,633 644 6,397
Shares redeemed (5,686) (56,687) (15,577) (154,616)
---------------------------------------------------
Net decrease from capital
share transactions (778) $ (7,766) (4,449) $ (44,176)
===================================================
INSTITUTIONAL SHARES:
Shares sold 1,063 $ 10,602 1,055 $ 10,468
Shares issued from reinvested
dividends 17 165 14 129
Shares redeemed (495) (4,934) (929) (9,223)
---------------------------------------------------
Net increase from capital
share transactions 585 $ 5,833 140 $ 1,374
===================================================
R6 SHARES:
Shares sold -* $ -* 1 $ 13
Shares issued from reinvested
dividends -* -* -* 1
Shares redeemed (1) (13) (8) (84)
---------------------------------------------------
Net decrease from capital
share transactions (1) $ (13) (7) $ (70)
===================================================
*Represents less than 500 shares or $500.
(7) TRANSACTIONS WITH MANAGER
MANAGEMENT FEES - The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, and for directly
managing the day-to-day investment of the Fund's assets, subject to the
authority of and supervision by the Board. For the six-month period ended
June 30, 2019, the Fund had no subadviser(s).
================================================================================
32 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid monthly at
an annualized rate of 0.24% of the Fund's average 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 Ultra Short Obligations Funds Index. The Lipper Ultra
Short Obligations Funds Index, which measures the performance of funds tracked
by Lipper that invest at least 65% of their assets in investment-grade debt
issues, or better, and maintain a portfolio dollar-weighted average maturity
between 91 days and 365 days.
The performance period for each class consists of the current month plus the
previous 35 months. The performance period for the R6 Shares commenced on March
1, 2017, and includes the performance of the Fund Shares for periods prior to
March 1, 2017. The following table is utilized to determine the extent of the
performance adjustment:
OVER/UNDER PERFORMANCE
RELATIVE TO INDEX ANNUAL ADJUSTMENT RATE
(IN BASIS POINTS)(1) (IN BASIS POINTS)(1)
--------------------------------------------------------------------
+/- 20 to 50 +/-4
+/- 51 to 100 +/-5
+/- 101 and greater +/-6
(1)Based on the difference between average annual performance of the
relevant share class of the Fund and its relevant 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.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Ultra Short Obligations Funds Index over that period,
even if the class had overall negative returns during the performance period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
For the six-month period ended June 30, 2019, the Fund incurred management fees,
paid or payable to the Manager, of $414,000, which included a performance
adjustment for the Fund Shares, Institutional Shares, and R6 Shares of $55,000,
$1,000, and $1,000, respectively. For the Fund Shares, Institutional Shares, and
R6 Shares, the performance adjustments were 0.04%, 0.01%, and 0.02%,
respectively. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL
STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
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, 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 June 30, 2019, the Fund Shares, Institutional
Shares, and R6 Shares incurred administration and servicing fees, paid or
payable to the Manager, of $211,000, $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 June 30, 2019, the Fund reimbursed the Manager $1,000 for these compliance
and legal services. These expenses are included in the professional fees on the
Fund's Statement of Operations. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
EXPENSE LIMITATION - The Manager agreed, through April 30, 2020, to limit the
total annual operating expenses of the Institutional Shares and R6 Shares to
0.55% and 0.39%, respectively, of their average daily net assets, excluding
extraordinary expenses and before reductions of any expenses paid indirectly,
and will reimburse the Institutional Shares and R6 Shares for all expenses in
excess of those amounts. This expense limitation arrangement may not be changed
or terminated through April 30, 2020, without approval of the Board, and may be
changed or terminated by the Manager at any time after that date. For the
six-month period ended June 30, 2019, the Fund incurred reimbursable expenses
from the Manager for the Institutional Shares and
================================================================================
34 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
R6 Shares of $13,000 and $11,000, respectively, of which $6,000 was receivable
from the Manager.
TRANSFER AGENT'S FEES - SAS, an affiliate of the Manager, provides transfer
agent services to the Fund Shares based on an annual charge of $25.50 per
shareholder account plus out-of-pocket expenses. SAS pays a portion of these
fees to certain intermediaries for the administration and servicing of accounts
that are held with such intermediaries. Transfer agent's fees for Institutional
Shares and R6 Shares are paid monthly based on a fee accrued daily at an
annualized rate of 0.10% of the Institutional Shares' and 0.01% of the R6
Shares' average daily net assets, plus out-of-pocket expenses. For the six-month
period ended June 30, 2019, the Fund Shares, Institutional Shares, and R6 Shares
incurred transfer agent's fees, paid or payable to SAS, of $139,000, $6,000, and
less than $500, respectively. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION.
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. PLEASE
REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS
SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
(8) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution. At June 30, 2019, USAA and its affiliates owned 501,000 R6
Shares, which represents 99.7% of the R6 Shares outstanding, and 1.7% of the
Fund's total outstanding shares.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund. PLEASE REFER TO THE SUBSEQUENT EVENT
NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
(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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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 has determined
there is no significant impact on the Fund's financial statements and various
filings.
(10) RECENT ACCOUNTING PRONOUNCEMENTS
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.
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. ASU 2018-13 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. Management has elected to
early adopt ASU 2018-13 effective with the current reporting period. The
adoption of ASU 2018-13 guidance is limited to changes in the Fund's notes to
financial statement disclosures regarding valuation method, fair value, and
transfers between levels of the fair value hierarchy.
ASU 2017-08, PREMIUM AMORTIZATION OF PURCHASED CALLABLE DEBT SECURITIES
-----------------------------------------------------------------------
In March 2017, the FASB issued 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. ASU 2017-08 became effective for
funds with fiscal years beginning after December 15, 2018. The Manager
================================================================================
36 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
has determined the adoption of this standard will have no significant impact on
the financial statements and reporting disclosures of the Fund.
(11) SUBSEQUENT EVENT NOTE
As previously announced, and as discussed in Note 1 to the Financial Statements,
effective July 1, 2019, AMCO, the prior investment adviser to the Fund, and SAS,
the prior transfer agent to the Fund, were acquired by Victory Holdings. PLEASE
SEE THE SUPPLEMENT DATED JULY 1, 2019 TO THE FUND'S PROSPECTUS FOR ADDITIONAL
IMPORTANT INFORMATION.
Effective July 1, 2019, Victory Capital is the new investment adviser and
administrator to the USAA Mutual Funds; SAS was renamed Victory Capital Transfer
Agency, Inc.; Victory Capital Advisers, Inc. is the new distributor to the USAA
Mutual Funds; Citi Fund Services of Ohio, Inc. serves as sub-administrator and
sub-fund accountant for the USAA Mutual Funds; and FIS Investor Services LLC
serve as sub-transfer agent and dividend disbursing agent for the USAA Mutual
Funds. Effective August 5, 2019, Citibank, N.A. is the new custodian for the
USAA Mutual Funds.
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2019 permitting the
use of a "manager-of-managers" structure for certain funds. Prior to that date,
the Trust relied on a similar exemptive order granted by the SEC to the Trust
and its affiliated persons. Under a manager of managers structure, the
investment adviser may select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the day-to-day
investment of a fund's assets.
Effective July 1, 2019, Victory Capital added new portfolio managers from one or
more investment teams employed by Victory Capital to serve as additional
portfolio managers, or replace current portfolio managers, to manage all or a
portion of the Fund according to each team's own investment process.
Effective July 1, 2019, under the investment advisory agreement with Victory
Capital, which took effect on July 1, 2019, no performance adjustments will be
made for periods beginning July 1, 2019, through June 30, 2020, and only
performance beginning as of July 1, 2020, and thereafter will be utilized in
calculating performance adjustments through June 30, 2020.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
Effective July 1, 2019, the line of credit (as discussed in the Notes to the
Financial Statements in this semiannual report) among the Trust, with respect to
its Funds, and CAPCO terminated; the Trust, with respect to its Funds, along
with series of Victory Portfolios, Victory Portfolios II and Victory Variable
Insurance Funds, entered into a 364 day committed credit facility and a 364 day
uncommitted, demand credit facility with Citibank, N.A. (Citibank). Each such
credit facility may be renewed if so agreed by the parties. Under the agreement
with Citibank, the Funds may borrow up to $600 million, of which $300 million is
committed and $300 million is uncommitted. Of this amount, $40 million of the
line of credit is reserved for use by the Victory Floating Rate Fund (a series
of Victory Portfolios), with that Fund paying the related commitment fees for
that amount. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests. Citibank receives an annual commitment fee
of 0.15%. Each Fund pays a pro-rata portion of this commitment fee plus any
interest on amounts borrowed.
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2017 (the IFL
Order), permitting the establishment and operation of an Interfund Lending
Facility (the Facility). The Facility allows each Fund to directly lend and
borrow money to or from certain other affiliated Funds relying upon the IFL
Order at rates beneficial to both the borrowing and lending funds. Advances
under the Facility are allowed for temporary or emergency purposes, including
the meeting of redemption requests that are subject to each Fund's borrowing
restrictions. The interfund loan rate is determined, as specified in the IFL
Order, by averaging the current repurchase agreement rate and the current bank
loan rate.
Effective July 1, 2019, the Trust entered into an Agreement to Provide
Compliance ("Compliance Agreement") with the Adviser, pursuant to which the
Adviser furnishes its compliance personnel, including the services of the CCO,
and other resources reasonably necessary to provide the Trust with compliance
oversight services related to the design, administration, and oversight of a
compliance program for the Trust in accordance with Rule 38a-1 under the 1940
Act. The Funds in the Victory Funds complex, in the aggregate, compensate the
Adviser for these services. This agreement replaces an arrangement in place
with AMCO previously.
================================================================================
38 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
FINANCIAL HIGHLIGHTS
FUND SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30 YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
-------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.89 $ 9.97 $ 9.98 $ 9.94 $ 10.07 $ 10.10
-------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .13 .22 .16 .13 .13 .13
Net realized and
unrealized gain (loss) .13 (.08) (.01) .04 (.13) (.02)
-------------------------------------------------------------------------
Total from investment
operations .26 .14 .15 .17 (.00)(a) .11
-------------------------------------------------------------------------
Less distributions from:
Net investment income (.13) (.22) (.16) (.13) (.13) (.13)
Realized capital gains - - - (.00)(a) (.00)(a) (.01)
-------------------------------------------------------------------------
Total distributions (.13) (.22) (.16) (.13) (.13) (.14)
-------------------------------------------------------------------------
Net asset value at
end of period $ 10.02 $ 9.89 $ 9.97 $ 9.98 $ 9.94 $ 10.07
=========================================================================
Total return (%)* 2.66 1.40 1.51 1.73 .01 1.05
Net assets at end
of period (000) $279,854 $283,769 $330,442 $372,155 $426,994 $470,933
Ratios to average daily
net assets:**
Expenses (%)(b) .64(c) .60 .58 .61 .59 .58
Net investment income (%) 2.67(c) 2.19 1.60 1.30 1.28 1.27
Portfolio turnover (%) 25 48 58(d) 28 20 31
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$283,124,000.
(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 increased trading activity due to large shareholder outflows.
================================================================================
FINANCIAL HIGHLIGHTS | 39
================================================================================
INSTITUTIONAL SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30 YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
-------------------------------------------------------------------------
Net asset value at
beginning of period $ 9.89 $ 9.97 $ 9.98 $ 9.94 $ 10.07 $ 10.10
-------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .14 .22 .15 .13 .13 .13
Net realized and
unrealized gain (loss) .14 (.08) (.01) .04 (.13) (.02)
-------------------------------------------------------------------------
Total from investment
operations .28 .14 .14 .17 .00(a) .11
-------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.22) (.15) (.13) (.13) (.13)
Realized capital gains - - - (.00)(a) (.00)(a) (.01)
-------------------------------------------------------------------------
Total distributions (.14) (.22) (.15) (.13) (.13) (.14)
-------------------------------------------------------------------------
Net asset value at
end of period $ 10.03 $ 9.89 $ 9.97 $ 9.98 $ 9.94 $ 10.07
=========================================================================
Total return (%)* 2.81 1.45 1.44 1.69 .04 1.10
Net assets at end of
period (000) $14,420 $8,433 $7,115 $18,710 $22,454 $69,297
Ratios to average daily
net assets:**
Expenses (%)(b) .55(c) .55 .64(d) .66 .57 .53
Expenses, excluding
reimbursements (%)(b) .76(c) .77 .75 .66 .57 .53
Net investment income (%) 2.76(c) 2.25 1.51 1.25 1.32 1.33
Portfolio turnover (%) 25 48 58(e) 28 20 31
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$12,217,000.
(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) Effective May, 1, 2017, the Manager has voluntarily agreed to limit the
annual expenses of the Institutional Shares to 0.55% of the Institutional
Shares' average daily net assets.
(e) Reflects increased trading activity due to large shareholder outflows.
================================================================================
40 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
R6 SHARES (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
----------------------------------------------------
2019 2018 2017***
----------------------------------------------------
Net asset value at beginning of period $ 9.88 $ 9.97 $ 9.98
----------------------------------------------
Income (loss) from investment operations:
Net investment income .14 .24 .15
Net realized and unrealized gain (loss) .14 (.09) (.01)
----------------------------------------------
Total from investment operations .28 .15 .14
----------------------------------------------
Less distributions from:
Net investment income (.14) (.24) (.15)
----------------------------------------------
Net asset value at end of period $10.02 $ 9.88 $ 9.97
==============================================
Total return (%)* 2.89 1.51 1.42
Net assets at end of period (000) $5,035 $4,980 $5,091
Ratios to average daily net assets:**
Expenses (%)(a) .39(b) .39 .39(b)
Expenses, excluding reimbursements (%)(a) .84(b) .69 1.05(b)
Net investment income (%) 2.92(b) 2.41 1.81(b)
Portfolio turnover (%) 25 48 58
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$5,013,000.
*** R6 Shares commenced operations on March 1, 2017.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
FINANCIAL HIGHLIGHTS | 41
================================================================================
EXPENSE EXAMPLE
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2019, through June
30, 2019.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund and other
================================================================================
42 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2019 -
JANUARY 1, 2019 JUNE 30, 2019 JUNE 30, 2019
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,026.60 $3.22
Hypothetical
(5% return before expenses) 1,000.00 1,021.62 3.21
INSTITUTIONAL SHARES
Actual 1,000.00 1,028.10 2.77
Hypothetical
(5% return before expenses) 1,000.00 1,022.07 2.76
R6 SHARES
Actual 1,000.00 1,028.90 1.96
Hypothetical
(5% return before expenses) 1,000.00 1,022.86 1.96
*Expenses are equal to the annualized expense ratio of 0.64% for Fund Shares,
0.55% for Institutional Shares, and 0.39% for R6 Shares, which are net of any
reimbursements and expenses paid indirectly, multiplied by the average account
value over the period, multiplied by 181 days/365 days (to reflect the
one-half-year period). The Fund's actual ending account values are based on its
actual total returns of 2.66% for Fund Shares, 2.81% for Institutional Shares,
and 2.89% for R6 Shares for the six-month period of January 1, 2019, through
June 30, 2019.
================================================================================
EXPENSE EXAMPLE | 43
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND VICTORY CAPITAL MANAGEMENT INC.)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the (i) new investment
advisory agreement between the Trust and Victory Capital and (ii) new investment
subadvisory agreements between certain subadvisers and Victory Capital, which
became effective on July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO
THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting held on January 15, 2019, the USAA Mutual Funds Trust's
("Trust") Board of Trustees ("Board"), including those Trustees who are not
parties to any investment advisory or management agreement between USAA Asset
Management Company ("AMCO") and the Trust ("Existing Management Agreements") or
the new Investment Advisory Agreement between the Trust and Victory Capital
Management Inc. ("Victory Capital") (the "New Advisory Agreement") or
"interested persons" (as that term is defined in the Investment Company Act of
1940 Act, as amended ("1940 Act")) of such parties or the Trust (the
"Independent Trustees"), considered and unanimously approved the New Advisory
Agreement between the Trust, on behalf of each of its series (each a "Fund" and
together the "Funds"), and Victory Capital, and, as applicable, new Investment
Subadvisory Agreements between Victory Capital and each investment subadviser
("New Subadvisory Agreements," and together with the New Advisory Agreement, the
"New Agreements"), as listed below. The Board also determined to recommend that
shareholders of each Fund approve the New Advisory Agreement. Shareholder
approval is not required for the New Subadvisory Agreements. The Independent
Trustees reviewed the proposed approval of the New Agreements in private
sessions with their independent legal counsel at which no representatives of
Victory Capital or AMCO were present.
================================================================================
44 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
BACKGROUND FOR THE BOARD APPROVALS
At a telephonic meeting of the Board held on November 5, 2018, representatives
of USAA and AMCO informed the Board that USAA's subsidiary, USAA Investment
Corporation, would enter into a stock purchase agreement with Victory Capital
Holdings, Inc. ("Victory Holdings") pursuant to which Victory Holdings would
acquire all of the outstanding stock of AMCO and USAA Transfer Agency Company
d/b/a USAA Shareholder Account Services ("USAA Transfer Agent") (the
"Transaction"). The Independent Trustees were advised that the Transaction, if
completed, would constitute an "assignment" (as that term is defined in Section
2(a)(4) of the 1940 Act) and result in the automatic termination of the Existing
Management Agreements ("Change of Control Event"). The Independent Trustees also
were advised that it was proposed that Victory Capital, a subsidiary of Victory
Holdings, would serve as the investment adviser to each Fund after the closing
of the Transaction ("Post-Transaction") and that the Board would be asked to
consider approval of the terms and conditions of the New Advisory Agreement with
Victory Capital and thereafter to submit the New Advisory Agreement to each
Fund's shareholders for approval. Because the Change of Control Event also would
result in the termination of each existing subadvisory agreement between AMCO
and the subadvisers to the Funds ("Existing Subadvisory Agreements"), the
Independent Trustees were advised that the Board would also be asked to approve
the New Subadvisory Agreements.
In anticipation of the Transaction, the Trustees met at a series of subsequent
in-person meetings on November 27-28, 2018, January 7-8, 2019, and January
14-15, 2019, which included meetings of the full Board and separate meetings of
the Independent Trustees for the purposes of considering, among other things:
whether it would be in the best interests of each Fund and its respective
shareholders to approve the New Agreements; and the anticipated impacts of the
Transaction on the Funds and their shareholders (each, a "Meeting"). During each
of these Meetings, the Board sought additional and clarifying information as it
deemed necessary or appropriate. In this connection, the Independent Trustees
worked with their independent
================================================================================
ADVISORY AGREEMENT(S) | 45
================================================================================
legal counsel to prepare formal due diligence requests (the "Diligence
Requests") that were submitted to Victory Capital, Victory Capital Advisers,
Inc. ("VCA"), and the subadvisers. The Diligence Requests sought information
relevant to the Board's consideration of the New Advisory Agreement, the New
Subadvisory Agreements, distribution arrangements, and other anticipated impacts
of the Transaction on the Funds and their shareholders. Victory Capital, VCA,
and the subadvisers provided documents and information in response to the
Diligence Requests (the "Response Materials"). Following their review of the
Response Materials, the Independent Trustees submitted a supplemental due
diligence request for additional and clarifying information (the "Supplemental
Diligence Request") to Victory Capital and VCA. Victory Capital and VCA provided
further information in response to the Supplemental Diligence Request, which the
Board reviewed. Senior management representatives of Victory Capital and/or AMCO
participated in a portion of each Meeting and addressed various questions raised
by the Board. Throughout the process, the Independent Trustees were assisted by
their independent legal counsel and counsel to the Funds, who advised them on,
among other things, their duties and obligations relating to their consideration
of the New Agreements.
The Board's evaluation of the New Agreements reflected the information provided
specifically in connection with its review of the New Agreements, as well as,
where relevant, information that was previously furnished to the Board in
connection with the most recent renewal of the Existing Management Agreements
and Existing Subadvisory Agreements at an in-person meeting of the Board on
April 18, 2018 (the "2018 15(c) Meeting") and at other subsequent Board meetings
in 2018. The Board's evaluation of the New Agreements also reflected the
knowledge gained as Board members of the Funds with respect to services provided
by AMCO, its affiliates, and each subadviser to the Funds.
The Board's approvals and recommendations were based on its determination,
within its business judgment, that it would be in the best interests of each
Fund and its respective shareholders, for Victory Capital and, as applicable,
the subadvisers, to provide investment advisory, investment subadvisory, and
related services to the Funds, following the closing of the Transaction.
================================================================================
46 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
FACTORS CONSIDERED IN APPROVING THE NEW ADVISORY AGREEMENT
In connection with the Board's consideration of the New Advisory Agreement,
Victory Capital and AMCO advised the Board about a variety of matters, including
the following:
o The nature, extent, and quality of the services to be provided to the
Funds by Victory Capital Post-Transaction are expected to be of at least
the same level as the services currently provided to the Funds by AMCO.
o Victory Capital's stated commitment to maintaining and enhancing the
USAA member/USAA Fund shareholder experience, including creating a
dedicated USAA Fund sales and client service call center that will
provide ongoing client service and advice to existing and new USAA
members.
o Victory Capital proposes to: (1) replace the underlying indexes for
the USAA Extended Market Index Fund and USAA S&P 500 Index Fund with
indexes designed to provide shareholders with comparable exposure and
investment outcomes; (2) change the USAA Extended Market Index Fund's
and USAA S&P 500 Index Fund's investment objectives and strategies in
light of the changes to their underlying indexes; and (3) change the
name of the USAA S&P 500 Index Fund to the USAA 500 Index Fund.
o Victory Capital does not propose changes to the investment
objective(s) of any other Funds. Although the investment processes used
by Victory Capital's portfolio managers may differ from those used by
AMCO's portfolio managers or, if applicable, any subadviser's portfolio
managers, such differences are not currently expected to result in
changes to the principal investment strategies or principal investment
risks of the Funds.
o The New Advisory Agreement does not change any Fund's advisory fee
rate or the computation method for calculating such fees (except that
Victory Capital, subject to Board approval, may in the future use a
single designated share class to calculate the performance adjustment).
================================================================================
ADVISORY AGREEMENT(S) | 47
================================================================================
For at least two years after the Transaction closes, Victory Capital has
agreed to waive fees and/or reimburse expenses so that each Fund's
annual expense ratio (excluding certain customary items) does not exceed
the levels reflected in each Fund's most recent audited financial
statements at the time the Transaction closes (or the levels of AMCO's
then-current expense caps, if applicable), excluding the impact of any
performance adjustment to the Fund's advisory fee.
o The portfolio managers at AMCO that manage the Fixed Income Funds(1) as
well as the USAA's Global Multi-Asset team servicing the Cornerstone
Funds(2), Target Retirement Funds(3), Global Managed Volatility Fund,
Managed Allocation Fund, and Target Managed Allocation Fund, are
expected to continue to do so Post-Transaction as employees of Victory
Capital, if they choose to become employees of Victory Capital.
Post-Transaction, the investment teams for the Funds, other than the
Fixed Income Funds, will be replaced or augmented.
o With the exception of the USAA S&P 500 Index Fund, USAA Extended
Market Index Fund, and USAA Nasdaq-100 Index Fund, which will be advised
by Victory Capital through its Victory Solutions platform, Victory
Capital proposes that the same subadvisers be retained Post-Transaction,
although Victory Capital may change the allocation to a particular
subadviser Post-Transaction. No changes are expected to the portfolio
managers of the subadvisers who will serve as subadvisers
Post-Transaction.
(1) The Fixed Income Funds include the following Funds: California Bond Fund,
Government Securities Fund, High Income Fund, Income Fund, Intermediate-Term
Bond Fund, Tax Exempt Intermediate-Term Fund, Tax Exempt Long-Term Fund, New
York Bond Fund, Short-Term Bond Fund, Tax Exempt Short-Term Fund, Ultra
Short-Term Bond Fund, Virginia Bond Fund, Money Market Fund, Tax Exempt
Money Market Fund and Treasury Money Market Trust.
(2) The Cornerstone Funds include the following Funds: Cornerstone Aggressive
Fund, Cornerstone Conservative Fund, Cornerstone Equity Fund, Cornerstone
Moderate Fund, Cornerstone Moderately Aggressive Fund, and Cornerstone
Moderately Conservative Fund.
(3) The Target Retirement Funds include the following Funds: Target Retirement
2020 Fund, Target Retirement 2030 Fund, Target Retirement 2040 Fund, Target
Retirement 2050 Fund, Target Retirement 2060 Fund, and Target Retirement
Income Fund.
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48 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
o VCA's distribution capabilities, including its significant network of
intermediary relationships, which may provide additional opportunities
for the Funds to grow assets and lower fees and expenses through
increased economies of scale.
o The experience of Victory Capital in acquiring and integrating
investments in investment management companies and its plans to
transition and integrate AMCO's and USAA Transfer Agent's businesses to
Victory Capital. Victory Capital and USAA expect to enter into a
transition services agreement under which USAA will continue to provide
Victory Capital with certain services that are currently provided by
USAA to AMCO and the USAA Transfer Agent for a specified period of time
after the closing of the Transaction to assist Victory Capital in
transitioning the USAA member distribution channel and member support
services.
o Pursuant to a transitional trademark license agreement with USAA,
Victory Capital and the Funds will have a non-exclusive license, subject
to certain restrictions and limitations, to continue using certain
licensed marks including "USAA," "United Services Automobile
Association," and the USAA Logo in connection with their asset
management and transfer agency businesses for a period of three years
following the closing of the Transaction, which agreement may thereafter
be extended for an additional year.
o The support expressed by the current senior management team at AMCO
for the Transaction and AMCO's recommendation that the Board approve the
New Agreements.
o The commitments of Victory Capital and AMCO to bear all of the direct
expenses of the Transaction, including all legal costs and costs
associated with the proxy solicitation, regardless of whether the
Transaction is consummated.
In addition to the matters noted above, in their deliberations regarding
approval of the New Advisory Agreement, the Board considered the factors
discussed below, among others.
================================================================================
ADVISORY AGREEMENT(S) | 49
================================================================================
THE NATURE, EXTENT, AND QUALITY OF SERVICES EXPECTED TO BE PROVIDED BY VICTORY
CAPITAL - The Board considered information provided by Victory Capital regarding
its investment philosophy, investment management capabilities, business and
operating structure, scale of operations, leadership and reputation,
distribution capabilities, and financial condition. The Board also considered
the capabilities, resources, and personnel of Victory Capital, including senior
and other personnel of AMCO who had been extended offers to join Victory
Capital, in order to determine whether Victory Capital is capable of providing
the same level of investment management services currently provided to each
Fund, and also considered the transition and integration plans to move
management of the Funds to Victory Capital. The Board recognized that the AMCO
personnel who had been extended offers may not accept such offers and personnel
changes may occur in the future in the ordinary course. The Board considered the
resources and infrastructure that Victory Capital intends to devote to its
compliance program to ensure compliance with applicable laws and regulations, as
well as Victory Capital's commitment to those programs. The Board also
considered the resources that Victory Capital has devoted to its risk management
program and cybersecurity program. The Board also reviewed information provided
by Victory Capital related to its business, legal, and regulatory affairs. This
review considered the resources available to Victory Capital to provide the
services specified under the New Advisory Agreement. The Board considered
Victory Capital's financial condition, including the financing of the
Transaction, and noted that Victory Capital is expected to be able to provide a
high level of service to the Funds and continuously invest and re-invest in its
business.
The Board considered that, while it was proposed that Victory Capital would
become the investment adviser to the Funds, the same portfolio managers at AMCO
that manage the Fixed Income Funds, as well as USAA's Global Multi-Asset team
servicing the Cornerstone Funds, Target Retirement Funds (including Target
Managed Allocation Fund), Global Managed Volatility Fund, and Managed Allocation
Fund, are expected to continue to do so after the Transaction as employees of
Victory Capital, if they choose to become employees of Victory Capital. The
Board determined that it had considered the qualifications of the portfolio
managers at AMCO and the subadvisers at its 2018 15(c) Meeting. The Board
considered the professional experience,
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50 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
education, affiliations and/or other credentials or qualifications of the
anticipated portfolio managers at Victory Capital that would manage the Equity
Funds(4), Cornerstone Funds, and Target Retirement Funds. The Board noted that
the Equity Funds or portions of Equity Funds currently managed by AMCO would be
replaced with portfolio managers from Victory Capital.
The Board considered that certain Funds would continue to operate in a
manager-of-managers structure Post-Transaction. The Board considered that
Victory Capital's experience in allocating assets to, and overseeing the
advisory services of, its investment franchises and the Victory Solutions
platform, was similar to AMCO's role in allocating assets to and overseeing the
advisory services provided by the subadvisers.
The Board considered that the terms and conditions of the New Advisory Agreement
are substantially similar to the terms and conditions of the Existing Management
Agreements. The Board also considered that the New Subadvisory Agreements are
substantially similar to the terms and conditions of the Existing Subadvisory
Agreements and that no changes were proposed to the allocation of
responsibilities as between Victory Capital and any subadviser, except to the
extent that under the New Subadvisory Agreements each subadviser would be
responsible for voting proxies with respect to assets allocated to that
subadviser, while AMCO currently votes all Fund proxies. The Board considered
that Victory Capital also would provide certain administrative, fund accounting,
and shareholder servicing services under a separate administration agreement
with the Funds. In this connection, the Board considered information on Victory
Capital's use of third-party service providers to provide certain
sub-administration and sub-accounting services to the Funds.
After review of these and other considerations, the Board concluded that Victory
Capital will be capable of providing investment advisory services of the same
high quality as the investment advisory services provided to the Funds by AMCO,
and that these services are appropriate in nature and extent in light of the
Funds' operations and investor needs.
(4) The Equity Funds include the following Funds: Aggressive Growth Fund, Growth
& Income Fund, Income Stock Fund, Global Equity Income Fund, and Precious
Metals and Minerals Fund.
================================================================================
ADVISORY AGREEMENT(S) | 51
================================================================================
PERFORMANCE OF THE FUNDS - With respect to the performance of the Funds, the
Board considered its review at the 2018 15(c) Meeting of peer group and
benchmark investment performance comparison data relating to each Fund and, if
applicable, each subadviser's performance record for similar accounts. The
Board considered that information reviewed at the 2018 15(c) Meeting may be more
relevant for those Funds that would retain their current portfolio managers or
subadvisers. With respect to the Funds whose portfolio managers would be
replaced, the Board considered the performance of funds sponsored and managed by
Victory Capital ("Victory Funds") with similar investment objectives and
strategies managed by the portfolio managers who would manage the Funds. Based
on information presented to the Board at the Meetings and its discussions with
Victory Capital, the Board concluded that Victory Capital is capable of
generating a level of long-term investment performance that is appropriate in
light of each Fund's investment objectives, strategies and restrictions.
FEES TO BE PAID TO VICTORY CAPITAL AND EXPENSES OF THE FUNDS - The Board
considered that it had reviewed each Fund's existing advisory fee rate and
computation method for calculating such fees at the 2018 15(c) Meeting. The
Board considered that the New Advisory Agreement does not change any Fund's
advisory fee rate or the computation method for calculating such fees, except
that Victory Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment and apply the
resulting performance adjustment across each other class of shares of the Fund.
The Board considered that the use of a single designated class to calculate the
performance adjustment for each other class of shares of the Fund could mean
that shareholders of a class other than the class used to measure the
performance adjustment may pay a performance adjustment that is higher or lower
than if the adjustment were calculated on a class by class basis, primarily due
to the impact of differences in the fees and expenses between share classes on
performance. The Board considered that the New Advisory Agreement stipulates
that the period for measuring performance for calculating a Fund's performance
adjustment begins on the date that Victory Capital begins managing the Fund;
therefore, no performance adjustments will be made for the first twelve months
of the New Advisory Agreement, consistent with applicable regulations. The Board
also considered Victory Capital's contractual commitment under the expense
limitation
================================================================================
52 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
agreement ("ELA") to waive fees and/or reimburse expenses for at least two years
after the closing of the Transaction, so that each Fund's annual expense ratio
(excluding acquired fund fees and expenses, any performance adjustment to a
Fund's advisory fee, interest, taxes, brokerage commissions, other expenditures
which are capitalized in accordance with generally accepted accounting
principles, and other extraordinary expenses not incurred in the ordinary course
of such Fund's business) does not exceed the levels reflected in each Fund's
most recent audited financial statements at the time the Transaction closes (or
the levels of AMCO's then-current expense caps, if applicable), excluding the
impact of any performance adjustment to a Fund's advisory fee. The Board
considered that the ELA permits Victory Capital to recoup advisory fees waived
and expenses reimbursed for up to three years after the fiscal year in which the
waiver or reimbursement took place, subject to the lesser of any operating
expense limitation in effect at the time of: (1) the original waiver or expense
reimbursement; or (2) recoupment. The Board also considered that Victory Capital
and AMCO had represented to the Board that they will use their best efforts to
ensure that they and their respective affiliates do not take any action that
imposes an "unfair burden" on the Funds as a result of the Transaction or as a
result of any express or implied terms, conditions or understandings applicable
to the Change of Control Event, for so long as the requirements of Section 15(f)
of the 1940 Act apply. The Board also considered a comparison of the proposed
advisory fees to be paid by each Fund to the advisory fees paid by funds and
other accounts managed by Victory Capital deemed to be comparable to the Fund in
terms of investment objectives and strategies. The Board considered that, with
few exceptions, mostly involving weighted average fees for separate accounts,
the advisory fees to be paid by the Funds were lower than the fees paid by these
other funds and accounts. The Board concluded that the retention of Victory
Capital was unlikely to impose an unfair burden on the Funds because, after the
Transaction, none of AMCO, Victory Capital, VCA, or any of their respective
affiliates, would be entitled to receive any compensation directly or indirectly
(i) from any person in connection with the purchase or sale of securities or
other property to, from, or on behalf of the Funds (other than ordinary fees for
bona fide principal underwriting services), or (ii) from the Funds or their
shareholders for other than bona fide investment advisory or other services.
Based on its review, the Board determined, with respect to each Fund, that
Victory Capital's advisory fee is fair and reasonable.
================================================================================
ADVISORY AGREEMENT(S) | 53
================================================================================
THE EXTENT TO WHICH VICTORY CAPITAL MAY REALIZE ECONOMIES OF SCALE AS THE FUNDS
GROW LARGER AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE FOR THE
BENEFIT OF FUND SHAREHOLDERS - The Board considered potential or anticipated
economies of scale in relation to the services Victory Capital would provide to
each Fund. The Board considered that the New Advisory Agreement includes the
same advisory fee breakpoints for the same Funds as the Existing Advisory
Agreements. The Board also considered that Victory Capital has contractually
agreed to cap the Funds' annual operating expense ratios, pursuant to the ELA,
which will remain in effect for at least two years from the closing of the
Transaction, and may be extended. The Board also considered Victory Capital's
representation that the significant increase in its assets under management
Post-Transaction may reasonably be expected to enable the new combined firm to
reach greater economies of scale in a shorter time frame. The Board noted that
it will have the opportunity to periodically re-examine whether a Fund or the
Trust has achieved economies of scale, and the appropriateness of investment
advisory and administrative fees payable to Victory Capital, in the future.
THE PROFITS TO BE REALIZED BY VICTORY CAPITAL AND ITS AFFILIATES FROM THEIR
RELATIONSHIP WITH THE TRUST - The Board considered the benefits Victory Capital
and its affiliates may derive from their relationship with the Funds, including
compensation to be paid to Victory Capital for the provision of certain
administrative, fund accounting and shareholder services to the Funds and
compensation to be paid to USAA Transfer Agent for the provision of transfer
agency services to the Funds. The Board considered the significant investments
Victory Capital expected to make to support and grow the USAA member channel and
the costs to integrate the USAA Fund business into Victory Capital. The Board
also considered Victory Capital's profitability report presented to the board of
trustees of the Victory Funds in connection with their most recent 15(c)
process. The Board considered Victory Capital's representation that the fully
integrated USAA Fund business, including investments to support ongoing growth,
was expected to have an overall marginally positive impact on Victory Capital's
overall financial profitability. The Board noted the difficulty of accurately
projecting profitability under the current circumstance and noted that it would
have the opportunity to give further consideration to Victory Capital's
profitability with respect to the Funds at the end of the initial two-year term
of the New Advisory Agreement.
================================================================================
54 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
FALL-OUT AND OTHER BENEFITS TO VICTORY CAPITAL AND ITS AFFILIATES - The Board
considered the possible fall-out benefits and other types of benefits that may
accrue to Victory Capital and its affiliates. The Board noted that the
Transaction provides Victory Capital and its affiliates the opportunity to
deliver investment products and services to USAA's direct member-based channel.
The Board also considered that Victory Capital may derive reputational and other
benefits from its ability to use "USAA" and related names in connection with
operating and marketing the Funds. The Board considered that the Transaction, if
completed, would significantly increase Victory Capital's assets under
management and expand Victory Capital's investment capabilities. This increased
size and diversification could facilitate Victory Capital's continued investment
in its business and products, which Victory Capital would be able to leverage
across a broader base of assets. Victory Capital also would be able to use
trading commission credits from the Funds' transactions in securities to
"purchase" third party research and execution services to support its investment
process. Based on its review, the Board determined that any "fall-out" benefits
and other types of benefits that may accrue to Victory Capital are fair and
reasonable.
CONCLUSIONS - Based on the foregoing and other relevant considerations, at the
Meeting of the Board held on January 15, 2019, the Board, including a majority
of the Independent Trustees, acting within its business judgment, (1) concluded
that the terms of the New Advisory Agreement are fair and reasonable and that
approval of the New Advisory Agreement is in the best interests of each Fund and
its respective shareholders, (2) voted to approve the New Advisory Agreement,
and (3) voted to recommend approval of the New Advisory Agreement by
shareholders of the Funds. The Board evaluated all information available to it
on a Fund-by-Fund basis and its determinations were made separately in respect
of each Fund. The Board noted some factors may have been more or less important
with respect to any particular Fund and that no one factor was determinative of
its decisions which, instead, were premised upon the totality of factors
considered. In this connection, the Board also noted that different Board
members likely placed emphasis on different factors in reaching their individual
conclusions to vote in favor of the New Advisory Agreement and to recommend
approval of the New Advisory Agreement by shareholders of the Funds.
================================================================================
ADVISORY AGREEMENT(S) | 55
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND THE MANAGER)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the continuation of the
(i) investment advisory agreement between the Trust and AMCO and (ii) investment
subadvisory agreements between certain subadvisers and AMCO, which were
effective until July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting of the Board of Trustees (the Board) held on April 17,
2019, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to the
Fund.(1)
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager, and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies;
(1)At an in-person meeting held on January 15, 2019, the Board, including the
Independent Trustees, approved a new investment advisory agreement between
the Trust, on behalf of the Fund, and Victory Capital Management Inc.
("Victory Capital"). Effective July 1, 2019, upon the closing of the
transaction whereby the Manager acquired by Victory Capital Holdings, Inc.,
the parent company of Victory Capital, the Advisory Agreement between the
Trust and the Manager and the Sub-advisory Agreement with the Subadviser
terminated and the new investment advisory agreement between the Trust and
Victory Capital went into effect. The factors the Board considered in
approving the new investment advisory agreement with Victory Capital are
discussed above. Effective June 30, 2019, the Subadviser no longer manages
any portion of the Fund.
================================================================================
56 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
(ii) information concerning the services rendered to the Fund, as well as
information regarding the Manager's revenues and costs of providing services to
the Fund and compensation paid to affiliates of the Manager; and
(iii) information about the Manager's operations and personnel. Prior to voting,
the Independent Trustees reviewed the proposed continuance of the Advisory
Agreement with management and with experienced counsel retained by the
Independent Trustees (Independent Counsel) and received materials from such
Independent Counsel discussing the legal standards for their consideration of
the proposed continuance of the Advisory Agreement with respect to the Fund. The
Independent Trustees also reviewed the proposed continuance of the Advisory
Agreement with respect to the Fund in private sessions with Independent Counsel
at which no representatives of management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund performance, fees and total expenses as
compared to comparable investment companies, and the Manager's profitability
with respect to the Fund. However, the Board noted that the evaluation process
with respect to the Manager is an ongoing one. In this regard, the Board and its
committees' consideration of the Advisory Agreement included certain information
previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager
================================================================================
ADVISORY AGREEMENT(S) | 57
================================================================================
relating to its operations and personnel. The Board also took into account its
knowledge of the Manager's management and the quality of the performance of the
Manager's duties through Board meetings, discussions, and reports during the
preceding year. The Board considered the fees paid to the Manager and the
services provided to the Fund by the Manager under the Advisory Agreement, as
well as other services provided by the Manager and its affiliates under other
agreements, and the personnel who provide these services. In addition to the
investment advisory services provided to the Fund, the Manager and its
affiliates provide administrative services, shareholder services, oversight of
Fund accounting, marketing services, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Fund and the
Trust.
The Board also considered the significant risks assumed by the Manager in
connection with the services provided to the Fund, including investment,
operational, enterprise, litigation, regulatory and compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," was also considered. The Manager's
role in coordinating the activities of the Fund's other service providers also
was considered. The Board also considered the Manager's risk management
processes. The Board considered the Manager's financial condition and that it
had the financial wherewithal to continue to provide the same scope and high
quality of services under the Advisory Agreement. In reviewing the Advisory
Agreement, the Board focused on the experience, resources, and strengths of the
Manager and its affiliates in managing the Fund, as well as the other funds in
the Trust.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including oversight of the Fund's
day-to-day operations and oversight of Fund accounting. The Trustees, guided
also by information obtained from their experiences as trustees of the Trust,
also focused on the quality of the Manager's compliance and administrative
staff.
================================================================================
58 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objective and classification,
sales load type (in this case, retail investment companies with front-end loads
and no sales loads), asset size, and expense components (the "expense group")
and (ii) a larger group of investment companies that includes all front-end load
and no-load retail open-end investment companies with the same investment
classification/objective as the Fund regardless of asset size, excluding
outliers (the "expense universe"). Among other data, the Board noted that the
Fund's management fee rate - which includes advisory and administrative services
and the effects of any performance adjustment - was above the median of its
expense group and its expense universe. The data indicated that the Fund's total
expenses were above the median of its expense group and its expense universe.
The Board took into account management's discussion of the Fund's expenses. The
Board took into account the various services provided to the Fund by the Manager
and its affiliates, including the high quality of services received by the Fund
from the Manager. The Board also noted the level and method of computing the
management fee, including any performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison
================================================================================
ADVISORY AGREEMENT(S) | 59
================================================================================
indicated that, among other data, the Fund's performance was above the average
of its performance universe and below its Lipper index for the one-year period
ended December 31, 2018, and was above the average of its performance universe
and its Lipper index for the three- and five-year periods ended December 31,
2018. The Board also noted that the Fund's percentile performance ranking was in
the bottom 50% of its performance universe for the one-year period ended
December 31, 2018, was in the top 40% of its performance universe for the
three-year period ended December 31, 2018, and was in the top 30% of its
performance universe for the five-year period ended December 31, 2018. The Board
took into account management's discussion of the Fund's performance, including
the impact of market conditions on the Fund's recent performance.
COMPENSATION AND PROFITABILITY - The Board took into consideration the level and
method of computing the Fund's management fee. The information considered by the
Board included operating profit margin for the Manager's business as a whole.
The Board also considered profitability information related to the management
revenues from the Fund. This information included a review of the methodology
used in the allocation of certain costs to the Fund. The Trustees reviewed the
profitability of the Manager's relationship with the Fund before tax expenses.
The Board was also provided with an Investment Management Profitability Analysis
prepared by an independent information service. In reviewing the overall
profitability of the management fee to the Manager, the Board also considered
the fact that affiliates provide shareholder servicing and administrative
services to the Fund for which they receive compensation. The Board also
considered the possible direct and indirect benefits to the Manager from its
relationship with the Trust, including that the Manager may derive reputational
and other benefits from its association with the Fund. The Trustees recognized
that the Manager should be entitled to earn a reasonable level of profits in
exchange for the level of services it provides to the Fund and the
entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE - The Board considered whether there should be changes in the
management fee rate or structure in order to enable the Fund to participate in
any economies of scale. The Board took into account management's discussions of
the Fund's current advisory fee structure.
================================================================================
60 | USAA ULTRA SHORT-TERM BOND FUND
================================================================================
The Board also considered the effect of the Fund's growth and size on its
performance and fees, noting that if the Fund's assets increase over time, the
Fund may realize other economies of scale if assets increase proportionally more
than some expenses. The Board determined that the current investment management
fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Fund's
current Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with a similar investment
strategy and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to the services to be provided by the Manager; and (v)
the Manager and its affiliates' level of profitability from their relationship
with the Fund is reasonable in light of the nature and high quality of services
provided by the Manager and the type of fund. Based on its conclusions, the
Board determined that the continuation of the Advisory Agreement would be in the
best interests of the Fund and its shareholders.
================================================================================
ADVISORY AGREEMENT(S) | 61
================================================================================
AS OF JULY 1, 2019
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
David C. Brown
John C. Walters
--------------------------------------------------------------------------------
ADMINISTRATOR AND Victory Capital Management Inc.
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND Victory Capital Advisers, Inc.
DISTRIBUTOR 4900 Tiedeman Road
Brooklyn, Ohio 44144
--------------------------------------------------------------------------------
TRANSFER AGENT Victory Capital Transfer Agency, Inc.
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 USAA AMCO'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) 235-8396; (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 monthly portfolio holdings with the SEC
for the first and third quarters of each fiscal year as an exhibit to its
reports on Form N-PORT (beginning with filings after March 31, 2019).
Previously, the Fund made its complete schedule of portfolio holdings available
after the first and third fiscal quarters in regulatory filings on Form N-Q. The
Fund's Forms N-CSR, N-PORT, and N-Q are available at no charge (i) by calling
(800) 235-8396; (ii) at usaa.com; and (iii) on the SEC's website at
http://www.sec.gov.
===============================================================================
9800 Fredericksburg Road --------------
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94422-0819
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----------------------
MUTUAL FUNDS
--------------------------------------------------------------------------------
June 30, 2019
--------------------------------------------------------------------------------
SEMIANNUAL REPORT
USAA Target Retirement Funds
INCOME 2020 2030 2040 2050 2060
FUND FUND FUND FUND FUND FUND
URINX URTNX URTRX URFRX URFFX URSIX
Beginning on January 1, 2021, as permitted by regulations adopted by the
Securities and Exchange Commission, paper copies of the Funds' 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) 235-8396 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)
235-8396 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.
Victory Capital means Victory Capital Management Inc., the investment manager of
the USAA Mutual Funds. USAA Mutual Funds are distributed by Victory Capital
Advisers, Inc., a broker dealer registered with FINRA and an affiliate of
Victory Capital. Victory Capital and its affiliates are not affiliated with
United Services Automobile Association or its affiliates. USAA and the USAA
logos are registered trademarks and the USAA Mutual Funds and USAA Investments
logos are trademarks of United Services Automobile Association and are being
used by Victory Capital and its affiliates under license.
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW 1
SHAREHOLDER VOTING RESULTS 7
FINANCIAL INFORMATION
Portfolio of Investments 9
Notes to Portfolio of Investments 21
Financial Statements 24
Notes to Financial Statements 32
Financial Highlights 63
EXPENSE EXAMPLE 69
ADVISORY AGREEMENT(S) 72
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) 235-8396.
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.
================================================================================
================================================================================
INVESTMENT OVERVIEW
--------------------------------------------------------------------------------
o TARGET RETIREMENT INCOME FUND o
ASSET ALLOCATION - 6/30/19
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
FIXED-INCOME FUNDS 68.6%
EQUITY & ALTERNATIVE 30.3%
MONEY MARKET INSTRUMENTS 1.1%
[END 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
================================================================================
o TARGET RETIREMENT 2020 FUND o
ASSET ALLOCATION* - 6/30/19
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
FIXED-INCOME FUNDS 52.0%
EQUITY & ALTERNATIVE 47.5%
MONEY MARKET INSTRUMENTS 0.5%
[END CHART]
*Does not include short-term investments purchased with cash collateral from
securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
2 | USAA TARGET RETIREMENT FUNDS
================================================================================
o TARGET RETIREMENT 2030 FUND o
ASSET ALLOCATION* - 6/30/19
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 67.3%
FIXED-INCOME FUNDS 32.1%
MONEY MARKET INSTRUMENTS 0.6%
[END CHART]
*Does not include short-term investments purchased with cash collateral from
securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 3
================================================================================
o TARGET RETIREMENT 2040 FUND o
ASSET ALLOCATION - 6/30/19
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 81.3%
FIXED-INCOME FUNDS 18.2%
MONEY MARKET INSTRUMENTS 0.5%
[END 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.
================================================================================
4 | USAA TARGET RETIREMENT FUNDS
================================================================================
o TARGET RETIREMENT 2050 FUND o
ASSET ALLOCATION* - 6/30/19
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 86.1%
FIXED-INCOME FUNDS 13.3%
MONEY MARKET INSTRUMENTS 0.6%
[END CHART]
*Does not include short-term investments purchased with cash collateral from
securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
Refer to the Portfolio of Investments for a complete list of securities.
================================================================================
INVESTMENT OVERVIEW | 5
================================================================================
o TARGET RETIREMENT 2060 FUND o
ASSET ALLOCATION - 6/30/19
(% of Net Assets)
[PIE CHART OF ASSET ALLOCATION]
EQUITY & ALTERNATIVE 85.8%
FIXED-INCOME FUNDS 12.9%
MONEY MARKET INSTRUMENTS 1.2%
[END 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.
================================================================================
6 | USAA TARGET RETIREMENT FUNDS
================================================================================
SHAREHOLDER VOTING RESULTS
--------------------------------------------------------------------------------
On April 18, 2019, and on May 8, 2019, a special meeting of shareholders was
held to vote on two proposals relating to the series of the USAA Mutual Funds
Trust (Trust). Shareholders of record on February 8, 2019, were entitled to vote
on each proposal shown below. The proposals were approved by the shareholders.
The following proposals and voting results pertain to one or more series within
the Trust. Votes shown for Proposal 1 are for the Funds, a series of the Trust.
Votes shown for Proposal 2 are for all series of the Trust. The effective date
of the Proposals was July 1, 2019.
PROPOSAL 1
To approve a new Investment Advisory Agreement between the Trust, on behalf of
the Funds, and Victory Capital Management Inc. (Victory Capital), an independent
investment adviser. The new Investment Advisory Agreement became effective upon
the closing of the Transaction (as defined and discussed in Note 1 to the
Financial Statements) whereby USAA Asset Management Company (AMCO) was acquired
by Victory Capital Holdings Inc., the parent company of Victory Capital.
NUMBER OF SHARES VOTING
---------------------------------------------------------------------------------------
FUND NAME FOR AGAINST ABSTAIN
---------------------------------------------------------------------------------------
Target Retirement Income 17,438,238 1,610,625 781,679
Target Retirement 2020 29,093,624 3,209,007 2,371,261
Target Retirement 2030 60,167,182 5,864,190 6,257,073
Target Retirement 2040 65,226,160 8,518,075 8,335,929
Target Retirement 2050 33,888,727 4,720,533 5,356,771
Target Retirement 2060 3,129,993 248,613 710,524
================================================================================
SHAREHOLDER VOTING RESULTS | 7
================================================================================
PROPOSAL 2
Election of two new trustees to the Trust's Board of Trustees to serve upon the
closing of the Transaction: (1) David C. Brown, to serve as an "interested
trustee" as defined in the Investment Company Act of 1940, as amended (1940
Act); and (2) John C. Walters, to serve as a trustee who is not an "interested
person" as is defined under the 1940 Act (Independent Trustee).
NUMBER OF SHARES VOTING
------------------------------------------------------------------------------------------
TRUSTEES FOR VOTES WITHHELD
------------------------------------------------------------------------------------------
David C. Brown 8,299,565,565 820,887,736
John C. Walters 8,317,935,885 802,517,416
================================================================================
8 | USAA TARGET RETIREMENT FUNDS
================================================================================
PORTFOLIOS OF INVESTMENTS
USAA TARGET RETIREMENT INCOME FUND
June 30, 2019 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (68.6%)
FIXED-INCOME FUNDS (68.6%)
10,583,519 USAA Government Securities Fund Institutional Shares $104,883
1,007,406 USAA High Income Fund Institutional Shares 7,979
5,073,671 USAA Income Fund Institutional Shares 67,327
5,465,261 USAA Short-Term Bond Fund Institutional Shares 50,390
--------
Total Fixed-Income Funds (cost: $223,549) 230,579
--------
Total Bonds (cost: $223,549) 230,579
--------
EQUITY SECURITIES (30.3%)
EQUITY & ALTERNATIVE (30.3%)
263,079 USAA Capital Growth Fund Institutional Shares 2,986
81,359 USAA Emerging Markets Fund Institutional Shares 1,477
3,013,123 USAA Global Managed Volatility Fund Institutional Shares 32,602
188,653 USAA Growth Fund Institutional Shares 5,929
205,112 USAA Income Stock Fund Institutional Shares 4,031
404,398 USAA International Fund Institutional Shares 12,294
87,345 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 3,906
133,978 USAA MSCI International Value Momentum Blend Index ETF 6,060
18,285 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 933
149,900 USAA MSCI USA Value Momentum Blend Index ETF 7,683
62,924 USAA Precious Metals and Minerals Fund Institutional Shares(a) 918
82,596 USAA S&P 500 Index Fund Reward Shares 3,417
112,058 USAA Small Cap Stock Fund Institutional Shares 1,880
1,551,631 USAA Target Managed Allocation Fund 16,416
73,147 USAA Value Fund Institutional Shares 1,413
--------
Total Equity & Alternative (cost: $86,416) 101,945
--------
Total Equity Securities (cost: $86,416) 101,945
--------
MONEY MARKET INSTRUMENTS (1.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.1%)
3,786,052 State Street Institutional Treasury Money Market Fund Premier Class, 2.17%(b)
(cost: $3,786) 3,786
--------
TOTAL INVESTMENTS (COST: $313,751) $336,310
========
================================================================================
PORTFOLIOS OF INVESTMENTS | 9
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Bonds:
Fixed-Income Funds $230,579 $- $- $230,579
Equity Securities:
Equity & Alternative 101,945 - - 101,945
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 3,786 - - 3,786
------------------------------------------------------------------------------------------------------------------
Total $336,310 $- $- $336,310
------------------------------------------------------------------------------------------------------------------
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
10 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2020 FUND
June 30, 2019 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
BONDS (52.0%)
FIXED-INCOME FUNDS (52.0%)
31,835 USAA Core Intermediate-Term Bond ETF(c) $ 1,631
14,806,719 USAA Government Securities Fund Institutional Shares 146,735
1,771,718 USAA High Income Fund Institutional Shares 14,032
6,843,892 USAA Income Fund Institutional Shares 90,818
10,530 USAA Intermediate-Term Bond Fund Institutional Shares 114
5,554,366 USAA Short-Term Bond Fund Institutional Shares 51,211
--------
Total Fixed-Income Funds (cost: $289,984) 304,541
--------
Total Bonds (cost: $289,984) 304,541
--------
EQUITY SECURITIES (47.5%)
EQUITY & ALTERNATIVE (47.5%)
721,752 USAA Capital Growth Fund Institutional Shares 8,192
143,260 USAA Emerging Markets Fund Institutional Shares 2,600
8,259,174 USAA Global Managed Volatility Fund Institutional Shares 89,364
614,243 USAA Growth Fund Institutional Shares 19,306
682,307 USAA Income Stock Fund Institutional Shares 13,407
1,056,958 USAA International Fund Institutional Shares 32,132
146,361 USAA MSCI Emerging Markets Value Momentum Blend Index ETF(c) 6,545
334,621 USAA MSCI International Value Momentum Blend Index ETF 15,136
53,393 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 2,723
410,383 USAA MSCI USA Value Momentum Blend Index ETF 21,035
110,440 USAA Precious Metals and Minerals Fund Institutional Shares(a) 1,611
263,408 USAA S&P 500 Index Fund Reward Shares 10,897
313,325 USAA Small Cap Stock Fund Institutional Shares 5,258
4,127,778 USAA Target Managed Allocation Fund 43,672
347,469 USAA Value Fund Institutional Shares 6,713
--------
Total Equity & Alternative (cost: $229,148) 278,591
--------
Total Equity Securities (cost: $229,148) 278,591
--------
MONEY MARKET INSTRUMENTS (0.5%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.5%)
2,759,363 State Street Institutional Treasury Money Market Fund Premier Class, 2.17%(b)
(cost: $2,759) 2,759
--------
================================================================================
PORTFOLIOS OF INVESTMENTS | 11
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.0%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.0%)
219,900 Goldman Sachs Financial Square Government Fund Institutional Class, 2.27%(b)
(cost: $220) $ 220
--------
TOTAL INVESTMENTS (COST: $522,111) $586,111
========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Bonds:
Fixed-Income Funds $304,541 $- $- $304,541
Equity Securities:
Equity & Alternative 278,591 - - 278,591
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 2,759 - - 2,759
Short-Term Investment Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 220 - - 220
------------------------------------------------------------------------------------------------------------------
Total $586,111 $- $- $586,111
------------------------------------------------------------------------------------------------------------------
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
12 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2030 FUND
June 30, 2019 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (67.3%)
EQUITY & ALTERNATIVE (67.3%)
2,254,381 USAA Capital Growth Fund Institutional Shares $ 25,587
419,167 USAA Emerging Markets Fund Institutional Shares 7,608
26,116,351 USAA Global Managed Volatility Fund Institutional Shares 282,579
2,090,806 USAA Growth Fund Institutional Shares 65,714
2,237,731 USAA Income Stock Fund Institutional Shares 43,971
3,208,921 USAA International Fund Institutional Shares 97,551
432,058 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 19,322
978,123 USAA MSCI International Value Momentum Blend Index ETF 44,242
197,114 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 10,053
1,249,544 USAA MSCI USA Value Momentum Blend Index ETF(c) 64,047
249,586 USAA Precious Metals and Minerals Fund Institutional Shares(a) 3,642
866,606 USAA S&P 500 Index Fund Reward Shares 35,852
1,021,649 USAA Small Cap Stock Fund Institutional Shares 17,143
12,954,616 USAA Target Managed Allocation Fund 137,060
1,767,713 USAA Value Fund Institutional Shares 34,152
----------
Total Equity & Alternative (cost: $747,635) 888,523
----------
Total Equity Securities (cost: $747,635) 888,523
----------
BONDS (32.1%)
FIXED-INCOME FUNDS (32.1%)
98,632 USAA Core Intermediate-Term Bond ETF(c) 5,054
21,800,314 USAA Government Securities Fund Institutional Shares 216,041
3,487,535 USAA High Income Fund Institutional Shares 27,621
9,050,727 USAA Income Fund Institutional Shares 120,103
22,634 USAA Intermediate-Term Bond Fund Institutional Shares 244
5,837,565 USAA Short-Term Bond Fund Institutional Shares 53,823
----------
Total Fixed-Income Funds (cost: $400,886) 422,886
----------
Total Bonds (cost: $400,886) 422,886
----------
MONEY MARKET INSTRUMENTS (0.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.6%)
7,495,713 State Street Institutional Treasury Money Market Fund Premier Class, 2.17%(b)
(cost: $7,496) 7,496
----------
================================================================================
PORTFOLIOS OF INVESTMENTS | 13
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
1,590,250 HSBC U.S. Government Money Market Fund Class I, 2.27%(b)
(cost: $1,590) $ 1,590
----------
TOTAL INVESTMENTS (COST: $1,157,607) $1,320,495
==========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $ 888,523 $- $- $ 888,523
Bonds:
Fixed-Income Funds 422,886 - - 422,886
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 7,496 - - 7,496
Short-Term Investment Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 1,590 - - 1,590
------------------------------------------------------------------------------------------------------------------
Total $1,320,495 $- $- $1,320,495
------------------------------------------------------------------------------------------------------------------
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
14 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2040 FUND
June 30, 2019 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (81.3%)
EQUITY & ALTERNATIVE (81.3%)
3,036,970 USAA Capital Growth Fund Institutional Shares $ 34,470
585,794 USAA Emerging Markets Fund Institutional Shares 10,632
35,203,362 USAA Global Managed Volatility Fund Institutional Shares 380,900
2,814,710 USAA Growth Fund Institutional Shares 88,466
2,977,278 USAA Income Stock Fund Institutional Shares 58,503
4,444,629 USAA International Fund Institutional Shares 135,117
578,083 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 25,852
1,312,882 USAA MSCI International Value Momentum Blend Index ETF 59,384
253,894 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 12,949
1,742,691 USAA MSCI USA Value Momentum Blend Index ETF 89,324
277,582 USAA Precious Metals and Minerals Fund Institutional Shares(a) 4,050
1,162,419 USAA S&P 500 Index Fund Reward Shares 48,089
1,430,206 USAA Small Cap Stock Fund Institutional Shares 23,999
17,446,156 USAA Target Managed Allocation Fund 184,580
2,393,505 USAA Value Fund Institutional Shares 46,243
----------
Total Equity & Alternative (cost: $1,005,609) 1,202,558
----------
Total Equity Securities (cost: $1,005,609) 1,202,558
----------
BONDS (18.2%)
FIXED-INCOME FUNDS (18.2%)
76,293 USAA Core Intermediate-Term Bond ETF 3,909
14,561,891 USAA Government Securities Fund Institutional Shares 144,308
2,897,973 USAA High Income Fund Institutional Shares 22,952
5,624,782 USAA Income Fund Institutional Shares 74,641
16,315 USAA Intermediate-Term Bond Fund Institutional Shares 176
2,614,150 USAA Short-Term Bond Fund Institutional Shares 24,103
----------
Total Fixed-Income Funds (cost: $255,347) 270,089
----------
Total Bonds (cost: $255,347) 270,089
----------
MONEY MARKET INSTRUMENTS (0.5%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.5%)
7,438,687 State Street Institutional Treasury Money Market Fund Premier Class, 2.17%(b)
(cost: $7,439) 7,439
----------
TOTAL INVESTMENTS (COST: $1,268,395) $1,480,086
==========
================================================================================
PORTFOLIOS OF INVESTMENTS | 15
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $1,202,558 $- $- $1,202,558
Bonds:
Fixed-Income Funds 270,089 - - 270,089
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 7,439 - - 7,439
------------------------------------------------------------------------------------------------------------------
Total $1,480,086 $- $- $1,480,086
------------------------------------------------------------------------------------------------------------------
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
16 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2050 FUND
June 30, 2019 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (86.1%)
EQUITY & ALTERNATIVE (86.1%)
1,836,535 USAA Capital Growth Fund Institutional Shares $ 20,845
420,712 USAA Emerging Markets Fund Institutional Shares 7,636
21,459,532 USAA Global Managed Volatility Fund Institutional Shares 232,192
1,717,216 USAA Growth Fund Institutional Shares 53,972
1,783,187 USAA Income Stock Fund Institutional Shares 35,040
2,724,392 USAA International Fund Institutional Shares 82,821
357,400 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 15,983
798,656 USAA MSCI International Value Momentum Blend Index ETF 36,125
170,557 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 8,698
1,038,466 USAA MSCI USA Value Momentum Blend Index ETF(c) 53,228
155,949 USAA Precious Metals and Minerals Fund Institutional Shares(a) 2,275
694,175 USAA S&P 500 Index Fund Reward Shares 28,718
890,936 USAA Small Cap Stock Fund Institutional Shares 14,950
10,548,026 USAA Target Managed Allocation Fund 111,598
1,423,425 USAA Value Fund Institutional Shares 27,501
--------
Total Equity & Alternative (cost: $615,986) 731,582
--------
Total Equity Securities (cost: $615,986) 731,582
--------
BONDS (13.3%)
FIXED-INCOME FUNDS (13.3%)
19,425 USAA Core Intermediate-Term Bond ETF 995
6,920,376 USAA Government Securities Fund Institutional Shares 68,581
265,043 USAA High Income Fund Institutional Shares 2,099
2,478,127 USAA Income Fund Institutional Shares 32,885
12,471 USAA Intermediate-Term Bond Fund Institutional Shares 135
947,507 USAA Short-Term Bond Fund Institutional Shares 8,736
--------
Total Fixed-Income Funds (cost: $109,109) 113,431
--------
Total Bonds (cost: $109,109) 113,431
--------
MONEY MARKET INSTRUMENTS (0.6%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.6%)
5,343,116 State Street Institutional Treasury Money Market Fund Premier Class, 2.17%(b)
(cost: $5,343) 5,343
--------
================================================================================
PORTFOLIOS OF INVESTMENTS | 17
================================================================================
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.1%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%)
622,400 Goldman Sachs Financial Square Government Fund Institutional Class, 2.27%(b) $ 622
90,000 HSBC U.S. Government Money Market Fund Class I, 2.27%(b) 90
--------
Total Government & U.S. Treasury Money Market Funds (cost: $712) 712
--------
Total Short-Term Investments Purchased with Cash Collateral from Securities
Loaned (cost: $712) 712
--------
TOTAL INVESTMENTS (COST: $731,150) $851,068
========
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $731,582 $- $- $731,582
Bonds:
Fixed-Income Funds 113,431 - - 113,431
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 5,343 - - 5,343
Short-Term Investments Purchased with Cash
Collateral from Securities Loaned:
Government & U.S. Treasury
Money Market Funds 712 - - 712
------------------------------------------------------------------------------------------------------------------
Total $851,068 $- $- $851,068
------------------------------------------------------------------------------------------------------------------
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
18 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT 2060 FUND
June 30, 2019 (unaudited)
------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (85.8%)
EQUITY & ALTERNATIVE (85.8%)
222,895 USAA Capital Growth Fund Institutional Shares $ 2,530
55,164 USAA Emerging Markets Fund Institutional Shares 1,001
2,744,983 USAA Global Managed Volatility Fund Institutional Shares 29,701
210,876 USAA Growth Fund Institutional Shares 6,628
224,233 USAA Income Stock Fund Institutional Shares 4,406
331,256 USAA International Fund Institutional Shares 10,070
44,420 USAA MSCI Emerging Markets Value Momentum Blend Index ETF 1,986
113,568 USAA MSCI International Value Momentum Blend Index ETF 5,137
22,395 USAA MSCI USA Small Cap Value Momentum Blend Index ETF 1,142
131,761 USAA MSCI USA Value Momentum Blend Index ETF 6,754
19,382 USAA Precious Metals and Minerals Fund Institutional Shares(a) 283
87,004 USAA S&P 500 Index Fund Reward Shares 3,599
120,083 USAA Small Cap Stock Fund Institutional Shares 2,015
1,352,744 USAA Target Managed Allocation Fund 14,312
186,263 USAA Value Fund Institutional Shares 3,599
---------
Total Equity & Alternative (cost: $87,137) 93,163
---------
Total Equity Securities (cost: $87,137) 93,163
---------
BONDS (12.9%)
FIXED-INCOME FUNDS (12.9%)
870,139 USAA Government Securities Fund Institutional Shares 8,623
25,312 USAA High Income Fund Institutional Shares 200
304,212 USAA Income Fund Institutional Shares 4,037
816 USAA Intermediate-Term Bond Fund Institutional Shares 9
120,035 USAA Short-Term Bond Fund Institutional Shares 1,107
---------
Total Fixed-Income Funds (cost: $13,458) 13,976
---------
Total Bonds (cost: $13,458) 13,976
---------
MONEY MARKET INSTRUMENTS (1.2%)
GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (1.2%)
1,370,283 State Street Institutional Treasury Money Market Fund Premier Class, 2.17%(b)
(cost: $1,370) 1,370
--------
TOTAL INVESTMENTS (COST: $101,965) $108,509
========
================================================================================
PORTFOLIOS OF INVESTMENTS | 19
================================================================================
------------------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------------------------
ASSETS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------------------------------------------------------------------------------------------------------------
Equity Securities:
Equity & Alternative $ 93,163 $- $- $ 93,163
Bonds:
Fixed-Income Funds 13,976 - - 13,976
Money Market Instruments:
Government & U.S. Treasury
Money Market Funds 1,370 - - 1,370
------------------------------------------------------------------------------------------------------------------
Total $108,509 $- $- $108,509
------------------------------------------------------------------------------------------------------------------
At June 30, 2019, the Fund did not have any transfers into/out of Level 3.
================================================================================
20 | USAA TARGET RETIREMENT FUNDS
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
June 30, 2019 (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, in total, may not equal 100%.
A category percentage of 0.0% represents less than 0.1% of net assets.
At June 30, 2019, the Funds' investments in foreign securities were as
listed below:
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
--------------------------------------------------------------------------------------------
Investments in
foreign securities 7.1% 9.6% 12.8% 15.6% 16.8% 16.8%
The underlying USAA Funds in which the Funds invest are managed by USAA
Asset Management Company, an affiliate of the Funds. The Funds invest in the
Reward Shares of the USAA S&P 500 Index Fund, the Institutional Shares of
the other USAA Mutual Funds Trust and the series of the USAA ETF Trust.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940, as amended, that would
otherwise be applicable.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 21
================================================================================
o SPECIFIC NOTES
(a) Non-income-producing security.
(b) Rate represents the money market fund annualized seven-day yield at
June 30, 2019.
(c) The security, or a portion thereof, was out on loan as of June 30,
2019.
See accompanying notes to financial statements.
================================================================================
22 | USAA TARGET RETIREMENT FUNDS
================================================================================
This Page Intentionally Left Blank
================================================================================
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2019 (unaudited)
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------------------------------
INCOME FUND
--------------------------------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at market value
(cost of $309,965, $519,132, $1,148,521, $1,260,956, $725,095,
and $100,595, respectively) $332,524
Investments in unaffiliated securities, at market value (including securities
on loan $0, $214, $1,558, $0, $702, and $0, respectively) (cost of
$3,786, $2,979, $9,086, $7,439, $6,055, and $1,370, respectively) 3,786
Receivables:
Capital shares sold 33
USAA Asset Management Company (Note 6) -
Dividends from affiliated underlying funds 314
Interest 7
Other -
--------
Total assets 336,664
--------
LIABILITIES
Payables:
Upon return of securities loaned -
Securities purchased 314
Capital shares redeemed 48
Other accrued expenses and payables 37
--------
Total liabilities 399
--------
Net assets applicable to capital shares outstanding $336,265
========
NET ASSETS CONSIST OF:
Paid-in capital $309,956
Distributable earnings 26,309
--------
Net assets applicable to capital shares outstanding $336,265
========
Capital shares outstanding, no par value 29,402
========
Net asset value, redemption price, and offering price per share $ 11.44
========
See accompanying notes to financial statements.
================================================================================
24 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------------------------------
2020 FUND 2030 FUND 2040 FUND 2050 FUND 2060 FUND
--------------------------------------------------------------------------------------------------------
$583,132 $1,311,409 $1,472,647 $845,013 $107,139
2,979 9,086 7,439 6,055 1,370
76 564 174 208 103
- - - - 34
399 548 334 153 19
3 8 16 10 2
- - - 1 -
--------------------------------------------------------------------------------------------------------
586,589 1,321,615 1,480,610 851,440 108,667
--------------------------------------------------------------------------------------------------------
220 1,590 - 712 -
399 548 334 153 19
80 215 421 514 25
36 57 56 57 35
--------------------------------------------------------------------------------------------------------
735 2,410 811 1,436 79
--------------------------------------------------------------------------------------------------------
$585,854 $1,319,205 $1,479,799 $850,004 $108,588
========================================================================================================
$500,543 $1,104,798 $1,201,897 $693,523 $ 98,747
85,311 214,407 277,902 156,481 9,841
--------------------------------------------------------------------------------------------------------
$585,854 $1,319,205 $1,479,799 $850,004 $108,588
========================================================================================================
47,308 99,634 110,370 62,768 8,682
========================================================================================================
$ 12.38 $ 13.24 $ 13.41 $ 13.54 $ 12.51
========================================================================================================
================================================================================
FINANCIAL STATEMENTS | 25
================================================================================
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited)
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------------------------------
INCOME FUND
--------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 3,567
Interest 21
Securities lending (net) 1
-------
Total income 3,589
-------
EXPENSES
Custody and accounting fees 32
Postage 10
Shareholder reporting fees 4
Trustees' fees 18
Registration fees 27
Professional fees 32
Other 9
-------
Total expenses 132
-------
Expenses reimbursed -
-------
Net expenses 132
-------
NET INVESTMENT INCOME 3,457
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Sales of affiliated underlying funds 801
Change in net unrealized appreciation/(depreciation) of affiliated
underlying funds 20,871
-------
Net realized and unrealized gain 21,672
-------
Increase in net assets resulting from operations $25,129
=======
See accompanying notes to financial statements.
================================================================================
26 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------------------------------
2020 FUND 2030 FUND 2040 FUND 2050 FUND 2060 FUND
--------------------------------------------------------------------------------------------------------
$ 5,144 $ 8,354 $ 6,881 $ 3,279 $ 410
18 68 82 60 11
- 1 5 1 -
--------------------------------------------------------------------------------------------------------
5,162 8,423 6,968 3,340 421
--------------------------------------------------------------------------------------------------------
33 38 36 33 29
12 30 35 26 7
7 17 20 14 2
18 18 18 18 18
27 36 36 31 31
32 37 37 37 32
10 11 11 10 9
--------------------------------------------------------------------------------------------------------
139 187 193 169 128
--------------------------------------------------------------------------------------------------------
- - - - (78)
--------------------------------------------------------------------------------------------------------
139 187 193 169 50
--------------------------------------------------------------------------------------------------------
5,023 8,236 6,775 3,171 371
--------------------------------------------------------------------------------------------------------
4,634 6,344 7,121 3,511 (141)
43,948 122,652 155,637 92,554 11,793
--------------------------------------------------------------------------------------------------------
48,582 128,996 162,758 96,065 11,652
--------------------------------------------------------------------------------------------------------
$53,605 $137,232 $169,533 $99,236 $12,023
========================================================================================================
================================================================================
FINANCIAL STATEMENTS | 27
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2019 (unaudited), and year ended
December 31, 2018
USAA TARGET RETIREMENT
------------------------
INCOME FUND
------------------------
6/30/2019 12/31/2018
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,457 $ 8,623
Net realized gain (loss) on sales of affiliated underlying funds 801 9,297
Net realized gain on capital gain distributions from affiliated
underlying funds - 3,935
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds 20,871 (31,905)
------------------------
Increase (decrease) in net assets resulting from operations 25,129 (10,050)
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS (3,157) (19,060)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 23,548 52,125
Reinvested dividends 3,120 18,863
Cost of shares redeemed (31,171) (72,948)
------------------------
Increase (decrease) in net assets from capital share
transactions (4,503) (1,960)
------------------------
Net increase (decrease) in net assets 17,469 (31,070)
------------------------
NET ASSETS
Beginning of period 318,796 349,866
------------------------
End of period $ 336,265 $318,796
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 2,103 4,525
Shares issued for dividends reinvested 276 1,719
Shares redeemed (2,799) (6,359)
------------------------
Increase (decrease) in shares outstanding (420) (115)
========================
See accompanying notes to financial statements.
================================================================================
28 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------------------
2020 FUND 2030 FUND
--------------------------------------------------------------------------------------------
6/30/2019 12/31/2018 6/30/2019 12/31/2018
--------------------------------------------------------------------------------------------
$ 5,023 $ 14,446 $ 8,236 $ 28,747
4,634 27,861 6,344 51,913
- 11,330 - 34,688
43,948 (82,699) 122,652 (205,485)
--------------------------------------------------------------------------------------------
53,605 (29,062) 137,232 (90,137)
--------------------------------------------------------------------------------------------
- (44,523) - (95,056)
--------------------------------------------------------------------------------------------
24,534 60,443 69,257 139,251
- 44,322 1 94,862
(46,439) (94,609) (70,849) (151,749)
--------------------------------------------------------------------------------------------
(21,905) 10,156 (1,591) 82,364
--------------------------------------------------------------------------------------------
31,700 (63,429) 135,641 (102,829)
--------------------------------------------------------------------------------------------
554,154 617,583 1,183,564 1,286,393
--------------------------------------------------------------------------------------------
$585,854 $554,154 $1,319,205 $1,183,564
============================================================================================
2,050 4,732 5,433 10,136
- 3,837 - 7,770
(3,887) (7,434) (5,549) (11,104)
--------------------------------------------------------------------------------------------
(1,837) 1,135 (116) 6,802
============================================================================================
================================================================================
FINANCIAL STATEMENTS | 29
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS) (CONTINUED)
Six-month period ended June 30, 2019 (unaudited), and year ended
December 31, 2018
USAA TARGET RETIREMENT
-------------------------
2040 FUND
-------------------------
6/30/2019 12/31/2018
--------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 6,775 $ 29,609
Net realized gain (loss) on sales of affiliated underlying funds 7,121 70,540
Net realized gain on capital gain distributions from affiliated
underlying funds - 46,563
Change in net unrealized appreciation/(depreciation) of
affiliated underlying funds 155,637 (268,528)
-------------------------
Increase (decrease) in net assets resulting from operations 169,533 (121,816)
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
DISTRIBUTABLE EARNINGS - (121,300)
-------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 76,613 149,298
Reinvested dividends - 121,220
Cost of shares redeemed (76,675) (141,142)
-------------------------
Increase (decrease) in net assets from capital share
transactions (62) 129,376
-------------------------
Net increase (decrease) in net assets 169,471 (113,740)
-------------------------
NET ASSETS
Beginning of period 1,310,328 1,424,068
-------------------------
End of period $1,479,799 $1,310,328
=========================
CHANGE IN SHARES OUTSTANDING
Shares sold 5,953 10,559
Shares issued for dividends reinvested - 9,864
Shares redeemed (5,947) (10,010)
-------------------------
Increase (decrease) in shares outstanding 6 10,413
=========================
See accompanying notes to financial statements.
================================================================================
30 | USAA TARGET RETIREMENT FUNDS
================================================================================
USAA TARGET RETIREMENT
--------------------------------------------------------------------------------------------
2050 FUND 2060 FUND
--------------------------------------------------------------------------------------------
6/30/2019 12/31/2018 6/30/2019 12/31/2018
--------------------------------------------------------------------------------------------
$ 3,171 $ 15,866 $ 371 $ 1,784
3,511 39,416 (141) 989
- 28,250 - 3,276
92,554 (157,012) 11,793 (14,926)
--------------------------------------------------------------------------------------------
99,236 (73,480) 12,023 (8,877)
--------------------------------------------------------------------------------------------
- (69,927) - (4,012)
--------------------------------------------------------------------------------------------
54,898 104,037 17,562 32,589
- 69,884 - 4,009
(45,579) (93,986) (8,400) (13,905)
--------------------------------------------------------------------------------------------
9,319 79,935 9,162 22,693
--------------------------------------------------------------------------------------------
108,555 (63,472) 21,185 9,804
--------------------------------------------------------------------------------------------
741,449 804,921 87,403 77,599
--------------------------------------------------------------------------------------------
$850,004 $741,449 $108,588 $ 87,403
============================================================================================
4,233 7,252 1,466 2,567
- 5,641 - 355
(3,504) (6,553) (697) (1,101)
--------------------------------------------------------------------------------------------
729 6,340 769 1,821
============================================================================================
================================================================================
FINANCIAL STATEMENTS | 31
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2019 (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 Target Retirement Income Fund (Target Income), the USAA Target
Retirement 2020 Fund (Target 2020), the USAA Target Retirement 2030 Fund (Target
2030), the USAA Target Retirement 2040 Fund (Target 2040), the USAA Target
Retirement 2050 Fund (Target 2050), and the USAA Target Retirement 2060 Fund
(Target 2060) (each, a Fund and collectively, the Funds) qualify as registered
investment companies under Accounting Standards Codification Topic 946. The
information presented in this semiannual report pertains only to the Funds,
which are classified as diversified under the 1940 Act and are authorized to
issue an unlimited number of shares. Each Fund's investment objective is to
provide capital appreciation and current income consistent with its current
investment allocation.
Each Fund is a "fund of funds" in that it invests in a portfolio of underlying
USAA equity and alternative, fixed-income, and ultra-short mutual funds
(underlying USAA Funds) managed by USAA Asset Management Company (the Manager),
an affiliate of the Funds, according to an asset allocation strategy designed
for investors planning to start withdrawing funds for retirement in or within a
few years of each Fund's specific year (target date) included in its name.
On November 6, 2018, United Services Automobile Association (USAA), the parent
company of USAA Asset Management Company (AMCO or the Manager), the investment
adviser to the Funds, and USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), the transfer
================================================================================
32 | USAA TARGET RETIREMENT FUNDS
================================================================================
agent to the Funds, announced that AMCO and SAS would be acquired by Victory
Holdings, a global investment management firm headquartered in Cleveland, Ohio
(the Transaction), on July 1, 2019.
A special shareholder meeting was held on April 18, 2019, at which shareholders
of the Funds approved a new investment advisory agreement between the Trust, on
behalf of the Funds, and Victory Capital, an independent investment management
company. In addition, shareholders of the Funds also elected the following two
new directors to the Board of the Trust to serve upon the closing of the
Transaction: (1) David C. Brown, to serve as an Interested Trustee; and (2) John
C. Walters, to serve as an Independent Trustee. PLEASE REFER TO THE SUBSEQUENT
EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
A. SECURITY VALUATION - The Trust's Board of Trustees (the Board) has
established the Valuation and Liquidity Committee (the Committee), and
subject to Board oversight, the Committee administers and oversees the
Funds' valuation policies and procedures, which are approved by the Board.
The Funds 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 value of each security is determined (as of the close of trading on the
New York Stock Exchange (NYSE) on each business day the NYSE is open) as set
forth below:
1. Investments in the underlying USAA Funds and other open-end investment
companies, other than exchange-traded funds (ETFs) are valued at their
net asset value (NAV) at the end of each business day and are
categorized in Level 1 of the fair value hierarchy.
2. Equity securities, including ETFs, except as otherwise noted, traded
primarily on a domestic securities exchange or the over-the-counter
markets, are valued at the last sales price or official closing price on
the exchange or primary market on which they trade. Securities traded
primarily on foreign securities exchanges or markets are
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
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
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.
================================================================================
34 | USAA TARGET RETIREMENT FUNDS
================================================================================
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 are amortized
over the life of the respective securities, using the effective yield method
for long-term securities and the straightline method for short-term
securities.
D. FEDERAL TAXES - The Funds' policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its taxable
income and net capital gains, if any, to its shareholders. Therefore, no
federal income tax provision is required.
For the six-month period ended June 30, 2019, the Funds did not incur any
income tax, interest, or penalties, and has recorded no liability for net
unrecognized tax benefits relating to uncertain income tax positions. On an
ongoing basis, the Manager will monitor the 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
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.
================================================================================
36 | USAA TARGET RETIREMENT FUNDS
================================================================================
For the six-month period ended June 30, 2019, the facility fees paid (in
thousands) to CAPCO by the Funds and the related percent of those fees to the
total fees paid to CAPCO by the funds of the Trusts are as follows:
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
-----------------------------------------------------------------------------------------------
Fees paid $1 $2 $5 $6 $3 $0
% of total fees 0.4% 0.7% 1.5% 1.7% 1.0% 0.1%
The Funds had no borrowings under this agreement during the six-month period
ended June 30, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL
STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined as of the Funds' tax year-end of December 31, 2019, in
accordance with applicable federal tax law.
Distributions of net investment income are made quarterly by Target Income and
annually by each of the other Funds or as otherwise required to avoid the
payment of federal taxes. Distributions of realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
At December 31, 2018, the Fund had no capital loss carryforwards, for federal
income tax purposes. Net capital losses incurred after October 31, and within
the taxable year are deemed to arise on the first business day of the Funds'
next taxable year. For the year ended December 31, 2018, the post October
capital losses deferred to January 1, 2019 were as follows:
FUND CAPITAL LOSSES
--------------------------------------------------------------------------------------
Target Income $ (54,000)
Target 2030 (322,000)
Target 2040 (329,000)
Target 2050 (75,000)
As of June 30, 2019, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as the cost reported
in the financial statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
Gross unrealized appreciation and depreciation of investments as of June 30,
2019, and resulting net unrealized appreciation were as follows (in thousands):
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
---------------------------------------------------------------------------------------------------------
Unrealized
appreciation $23,643 $67,204 $172,861 $225,161 $128,108 $7,543
Unrealized
depreciation 1,084 3,204 9,973 13,470 8,190 999
---------------------------------------------------------------------------------------------------------
Net $22,559 $64,000 $162,888 $211,691 $119,918 $6,544
---------------------------------------------------------------------------------------------------------
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2019, were as
follows (in thousands):
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
---------------------------------------------------------------------------------------------------------
Cost of purchases $ 7,479 $16,330 $46,367 $52,788 $39,711 $11,445
Proceeds from
sales/maturities 14,267 34,582 44,910 49,215 28,289 2,190
(5) SECURITIES LENDING
The Funds, through a securities lending agreement with Citibank, N.A.
(Citibank), may lend its securities to qualified financial institutions, such as
certain broker-dealers, to earn additional income, net of income retained by
Citibank. The borrowers are required to secure their loans continuously with
collateral in an amount at least equal to 102% of the fair value of domestic
securities and foreign government securities loaned and 105% of the fair value
of foreign securities and all other securities loaned. Collateral may be cash,
U.S. government securities, or other securities as permitted by SEC guidelines.
Cash collateral may be invested in high-quality short-term investments.
Collateral requirements are determined daily based on the value of each of the
Funds' securities on loan as of the end of the prior business day. Loans are
terminable upon demand and the borrower must return the loaned securities within
the lesser of one standard settlement period or five business days. Risks
relating to
================================================================================
38 | USAA TARGET RETIREMENT FUNDS
================================================================================
securities-lending transactions include that the borrower may not provide
additional collateral when required or return the securities when due, and that
the value of the short-term investments will be less than the amount of cash
collateral required to be returned to the borrower. The Funds' agreement with
Citibank does not include master netting provisions. Non-cash collateral
received by the Funds may not be sold or re-pledged except to satisfy borrower
default. Cash collateral is listed in the Funds' Portfolio of Investments and
Financial Statements while non-cash collateral is not included.
At June 30, 2019, the Fund's value of outstanding securities on loan and the
value of collateral are as follows:
VALUE OF SECURITIES NON CASH COLLATERAL CASH COLLATERAL
FUND ON LOAN RECEIVED RECEIVED
------------------------------------------------------------------------------------------------
Target 2020 $ 214,000 $- $ 220,000
Target 2030 1,558,000 - 1,590,000
Target 2050 702,000 - 712,000
(6) AGREEMENTS WITH MANAGER
ADVISORY AGREEMENT - The Manager carries out the Funds' investment policies and
manages the Funds' portfolios pursuant to an Advisory Agreement. The Manager
does not receive any management fees from the Funds for these services. PLEASE
REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS
SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
ADMINISTRATION AND SERVICING FEES - The Manager provides certain administration
and servicing functions for the Funds. The Manager does not receive any fees
from the Funds for these services.
In addition to the services provided under its Administration and Servicing
Agreement with the Funds, the Manager also provides certain compliance and legal
services for the benefit of the Funds. The Board has approved the billing of
these expenses to the Funds. These expenses are included in the professional
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
================================================================================
fees on the Funds' Statements of Operations and, for the six-month period ended
June 30, 2019, were as follows (in thousands):
TARGET TARGET TARGET TARGET TARGET TARGET
INCOME 2020 2030 2040 2050 2060
---------------------------------------------------------------------------------------------------------
Compliance and
legal services $1 $2 $5 $6 $3 $3
PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS
SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
EXPENSE LIMITATION - The Manager agreed, through April 30, 2020, to limit the
total annual operating expenses of Target 2060 to 0.10% of its average daily net
assets, excluding extraordinary expenses and before reductions of any expenses
paid indirectly, and to reimburse Target 2060 for all expenses in excess of that
amount. This expense limitation arrangement may not be changed or terminated
through April 30, 2020, without approval of the Board, and may be changed or
terminated by the Manager at any time after that date. For the six-month period
ended June 30, 2019, Target 2060 incurred reimbursable expenses of $78,000, of
which $34,000 was receivable from the Manager.
TRANSFER AGENCY AGREEMENT - SAS, an affiliate of the Manager, provides transfer
agent services to the Funds. SAS does not receive any fees from the Funds for
these services. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL
STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
UNDERWRITING SERVICES - USAA Investment Management Company provides exclusive
underwriting and distribution of the Funds' shares on a continuing best-efforts
basis and receives no fee or other compensation for these services. PLEASE REFER
TO THE SUBSEQUENT EVENT NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL
REPORT FOR ADDITIONAL IMPORTANT INFORMATION.
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by USAA, a large, diversified financial
services institution.
Certain trustees and officers of the Funds are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Funds officers
================================================================================
40 | USAA TARGET RETIREMENT FUNDS
================================================================================
received any compensation from the Funds. PLEASE REFER TO THE SUBSEQUENT EVENT
NOTE TO THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL
IMPORTANT INFORMATION.
(8) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP - The Funds do not invest in the affiliated underlying
USAA Funds for the purpose of exercising management or control; however,
investments by the Funds may represent a significant portion of the
affiliated underlying USAA Funds' net assets. The affiliated underlying
funds' annual or semiannual reports may be viewed at usaa.com. At June 30,
2019, the Funds owned the following percentages of the total outstanding
shares of each of the underlying USAA Funds:
TARGET TARGET TARGET TARGET TARGET TARGET
AFFILIATED USAA FUND INCOME 2020 2030 2040 2050 2060
-----------------------------------------------------------------------------------------------------------
Capital Growth
Fund Institutional
Shares 0.3% 0.9% 2.7% 3.7% 2.2% 0.3%
Core Intermediate-
Term Bond ETF - 0.6 1.9 1.4 0.4 -
Emerging Markets
Fund Institutional
Shares 0.2 0.3 0.9 1.3 1 0.1
Global Managed
Volatility Fund
Institutional Shares 3.1 8.4 26.7 36 21.9 2.8
Government Securities
Fund Institutional
Shares 9.6 13.5 19.8 13.2 6.3 0.8
Growth Fund
Institutional Shares 0.2 0.7 2.3 3.1 1.9 0.2
High Income Fund
Institutional Shares 0.4 0.7 1.3 1.1 0.1 -*
Income Fund
Institutional Shares 0.8 1.1 1.4 0.9 0.4 -*
Income Stock Fund
Institutional Shares 0.1 0.5 1.5 2 1.2 0.2
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
================================================================================
TARGET TARGET TARGET TARGET TARGET TARGET
AFFILIATED USAA FUND INCOME 2020 2030 2040 2050 2060
-----------------------------------------------------------------------------------------------------------
Intermediate-Term
Bond Fund
Institutional Shares -% -%* -%* -%* -%* -%*
International Fund
Institutional Shares 0.3 0.8 2.5 3.5 2.1 0.3
MSCI Emerging
Markets Value
Momentum Blend
Index ETF 2.2 3.6 10.7 14.3 8.8 1.1
MSCI International
Value Momentum
Blend Index ETF 1.9 4.7 13.7 18.4 11.2 1.6
MSCI USA Small Cap
Value Momentum
Blend Index ETF 0.9 2.5 9.4 12.1 8.1 1.1
MSCI USA Value
Momentum Blend
Index ETF 1.7 4.6 14 19.5 11.6 1.5
Precious Metals and
Minerals Fund
Institutional Shares 0.2 0.3 0.6 0.7 0.4 -*
S&P 500 Index
Fund Reward Shares -* 0.1 0.5 0.6 0.4 -*
Short-Term Bond
Fund Institutional
Shares 1.6 1.7 1.8 0.8 0.3 -*
Small Cap Stock
Fund Institutional
Shares 0.1 0.3 1.1 1.5 0.9 0.1
Target Managed
Allocation Fund
Institutional Shares 3.1 8.3 26.1 35.1 21.2 2.7
Value Fund
Institutional Shares -* -* -* -* -* -*
*Represents less than 0.1%.
================================================================================
42 | USAA TARGET RETIREMENT FUNDS
================================================================================
B. TRANSACTIONS WITH AFFILIATED FUNDS - The following tables provide details
related to each Fund's investment in the underlying USAA funds as of June
30, 2019 (in thousands):
TARGET INCOME:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Capital
Growth Fund
Institutional
Shares $ 2,909 $ - $ - $ - $- $ 77 $ - $ 2,986
Emerging
Markets Fund
Institutional
Shares - 322 - (49) - 265 1,583 1,477
Global Managed
Volatility Fund - 2,668 - (112) - 4,382 31,000 32,602
Government
Securities Fund
Institutional
Shares 1,303 1,510 1,303 (55) - 3,323 101,822 104,883
Growth Fund
Institutional
Shares - 1,097 - 355 - 812 5,859 5,929
High Income
Fund
Institutional
Shares 229 445 229 (5) - 513 7,687 7,979
Income Fund
Institutional
Shares 1,083 2,100 1,083 (73) - 3,943 64,474 67,327
Income Stock
Fund
Institutional
Shares 134 - 47 - - 471 3,426 4,031
International
Fund
Institutional
Shares - 2,637 - (257) - 2,055 13,133 12,294
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
MSCI Emerging
Markets Value
Momentum
Blend Index
ETF $ - $ - $ 10 $ - $- $ 261 $ 3,645 $ 3,906
MSCI
International
Value Momentum
Blend Index ETF - - 95 - - 505 5,555 6,060
MSCI USA Small
Cap Value
Momentum
Blend Index
ETF - - 5 - - 103 830 933
MSCI USA
Value Momentum
Blend Index ETF - - 59 - - 928 6,755 7,683
Precious Metals
and Minerals
Fund
Institutional
Shares 822 - - - - 96 - 918
S&P 500 Index
Fund Reward
Shares 30 - 30 - - 503 2,884 3,417
Short-Term Bond
Fund Institutional
Shares 707 162 707 (1) - 924 48,922 50,390
Small Cap
Stock Fund
Institutional
Shares 262 - - - - 260 1,358 1,880
Target Managed
Allocation Fund - 825 - (85) - 2,113 15,213 16,416
Value Fund
Institutional
Shares - 2,501 - 1,083 - (663) 3,494 1,413
-------------------------------------------------------------------------------------------------------------------------
TOTAL $7,479 $14,267 $3,568 $ 801 $- $20,871 $317,640 $332,524
-------------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
================================================================================
44 | USAA TARGET RETIREMENT FUNDS
================================================================================
TARGET 2020:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(A) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Capital
Growth
Fund
Institutional
Shares $ 8,001 $ - $ - $ - $- $ 191 $ - $ 8,192
Core
Intermediate-
Term Bond
ETF - - 24 - - 100 1,531 1,631
Emerging
Markets
Fund
Institutional
Shares - 572 - (20) - 409 2,783 2,600
Global
Managed
Volatility Fund - 5,153 - (159) - 11,709 82,967 89,364
Government
Securities Fund
Institutional
Shares 1,825 1,142 1,825 (20) - 4,608 141,464 146,735
Growth Fund
Institutional
Shares - 4,379 - 1,210 - 2,754 19,721 19,306
High Income
Fund
Institutional
Shares 416 949 416 26 - 879 13,660 14,032
Income Fund
Institutional
Shares 1,473 3,044 1,472 (47) - 5,328 87,108 90,818
Income Stock
Fund
Institutional
Shares 1,896 817 158 (33) - 1,669 10,692 13,407
Intermediate-
Term Bond Fund
Institutional
Shares 2 - 2 - - 7 105 114
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
International
Fund
Institutional
Shares $ - $ 6,609 $ - $ 647 $- $ 4,101 $ 33,993 $ 32,132
MSCI Emerging
Markets Value
Momentum
Blend Index
ETF - - 17 - - 437 6,108 6,545
MSCI
International
Value
Momentum
Blend Index
ETF - - 237 - - 1,263 13,873 15,136
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF - - 15 - - 299 2,424 2,723
MSCI USA
Value
Momentum
Blend Index
ETF - - 162 - - 2,543 18,492 21,035
Precious Metals
and Minerals
Fund
Institutional
Shares 1,443 - - - - 168 - 1,611
S&P 500 Index
Fund Reward
Shares 98 583 98 13 - 1,668 9,701 10,897
Short-Term
Bond Fund
Institutional
Shares 718 - 718 - - 936 49,557 51,211
================================================================================
46 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Small Cap Stock
Fund
Institutional
Shares $ 458 $ 578 $ - $ 55 $- $ 804 $ 4,519 $ 5,258
Target Managed
Allocation Fund - 2,142 - (220) - 5,610 40,424 43,672
Value Fund
Institutional Shares - 8,614 - 3,182 - (1,535) 13,680 6,713
-------------------------------------------------------------------------------------------------------------------------
TOTAL $16,330 $34,582 $5,144 $4,634 $- $43,948 $552,802 $583,132
-------------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
================================================================================
TARGET 2030:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Capital
Growth
Fund
Institutional
Shares $25,002 $ - $ - $ - $- $ 585 $ - $ 25,587
Core
Intermediate-
Term Bond
ETF - - 74 - - 311 4,743 5,054
Emerging
Markets
Fund
Institutional
Shares - 628 - 78 - 950 7,208 7,608
Global
Managed
Volatility
Fund - - - - - 34,735 247,844 282,579
Government
Securities Fund
Institutional
Shares 4,027 5,246 2,724 (38) - 6,896 210,402 216,041
Growth Fund
Institutional
Shares - 9,436 - 382 - 12,384 62,384 65,714
High Income
Fund
Institutional
Shares 773 - 773 - - 1,669 25,179 27,621
Income Fund
Institutional
Shares 1,907 - 1,907 - - 6,819 111,377 120,103
Income Stock
Fund
Institutional
Shares 9,366 - 513 - - 5,010 29,595 43,971
================================================================================
48 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Intermediate-
Term Bond
Fund
Institutional
Shares $ 4 $ - $ 4 $ - $- $ 14 $ 226 $ 244
International
Fund
Institutional
Shares - 12,510 - 1,029 - 13,065 95,967 97,551
MSCI Emerging
Markets Value
Momentum
Blend Index
ETF - - 50 - - 1,292 18,030 19,322
MSCI
International
Value
Momentum
Blend Index
ETF - - 691 - - 3,689 40,553 44,242
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF - - 55 - - 1,106 8,947 10,053
MSCI USA
Value
Momentum
Blend
Index ETF - - 494 - - 7,743 56,304 64,047
Precious Metals
and Minerals
Fund
Institutional
Shares 3,193 - - - - 387 62 3,642
S&P 500 Index
Fund Reward
Shares 314 - 314 - - 5,275 30,263 35,852
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Short-Term
Bond Fund
Institutional
Shares $ 755 $ - $ 755 $ - $- $ 984 $ 52,084 $ 53,823
Small Cap
Stock Fund
Institutional
Shares 1,026 462 - 44 - 2,604 13,931 17,143
Target Managed
Allocation Fund - - - - - 16,193 120,867 137,060
Value Fund
Institutional
Shares - 16,628 - 4,849 - 941 44,990 34,152
-------------------------------------------------------------------------------------------------------------------------
TOTAL $46,367 $44,910 $8,354 $6,344 $- $122,652 $1,180,956 $1,311,409
-------------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
================================================================================
50 | USAA TARGET RETIREMENT FUNDS
================================================================================
TARGET 2040:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Capital
Growth
Fund
Institutional
Shares $33,575 $ - $ - $ - $- $ 895 $ - $ 34,470
Core
Intermediate-
Term Bond
ETF - - 57 - - 241 3,668 3,909
Emerging
Markets Fund
Institutional
Shares - 1,503 - 255 - 1,269 10,611 10,632
Global Managed
Volatility Fund - - - - - 46,820 334,080 380,900
Government
Securities Fund
Institutional
Shares 1,784 - 1,784 - - 4,487 138,037 144,308
Growth Fund
Institutional
Shares - 12,272 - 706 - 16,449 83,583 88,466
High Income
Fund
Institutional
Shares 642 - 642 - - 1,387 20,923 22,952
Income Fund
Institutional
Shares 1,200 1,782 1,200 -* - 4,295 70,928 74,641
Income Stock
Fund
Institutional
Shares 10,116 - 682 - - 6,729 41,658 58,503
Intermediate-
Term Bond
Fund
Institutional
Shares 3 - 3 - - 10 163 176
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
International
Fund
Institutional
Shares $ - $13,985 $ - $ 714 $- $ 18,522 $ 129,866 $ 135,117
MSCI Emerging
Markets Value
Momentum
Blend Index
ETF - - 66 - - 1,729 24,123 25,852
MSCI
International
Value
Momentum
Blend Index
ETF - - 928 - - 4,952 54,432 59,384
MSCI USA
Small Cap Value
Momentum
Blend Index
ETF - - 71 - - 1,425 11,524 12,949
MSCI USA
Value Momentum
Blend Index
ETF - - 689 - - 10,798 78,526 89,324
Precious Metals
and Minerals
Fund
Institutional
Shares 3,564 - - - - 428 58 4,050
S&P 500 Index
Fund Reward
Shares 420 - 421 - - 7,075 40,594 48,089
Short-Term
Bond Fund
Institutional
Shares 338 - 338 - - 441 23,324 24,103
Small Cap
Stock Fund
Institutional
Shares 1,146 - - - - 3,651 19,202 23,999
================================================================================
52 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Target Managed
Allocation
Fund $ - $ - $ - $ - $- $ 21,807 $ 162,773 $ 184,580
Value Fund
Institutional
Shares - 19,673 - 5,446 - 2,227 58,243 46,243
-------------------------------------------------------------------------------------------------------------------------
TOTAL $52,788 $49,215 $6,881 $7,121 $- $155,637 $1,306,316 $1,472,647
-------------------------------------------------------------------------------------------------------------------------
*Represents less than $500.
(a)Includes reinvestment of distributions from dividend income and realized
gains.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
================================================================================
TARGET 2050:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Capital
Growth
Fund
Institutional
Shares $20,297 $ - $ - $ - $- $ 548 $ - $ 20,845
Core
Intermediate-
Term Bond
ETF - - 14 - - 61 934 995
Emerging
Markets
Fund
Institutional
Shares - 397 - 44 - 959 7,030 7,636
Global
Managed
Volatility
Fund 1,537 - - - - 28,487 202,168 232,192
Government
Securities
Fund
Institutional
Shares 2,425 - 835 - - 2,116 64,040 68,581
Growth Fund
Institutional
Shares - 6,447 - 296 - 10,034 50,089 53,972
High Income
Fund
Institutional
Shares 59 - 59 - - 127 1,913 2,099
Income Fund
Institutional
Shares 522 - 522 - - 1,867 30,496 32,885
Income Stock
Fund
Institutional
Shares 7,749 - 408 - - 3,984 23,307 35,040
================================================================================
54 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Intermediate-
Term Bond
Fund
Institutional
Shares $ 2 $ - $ 2 $ - $- $ 9 $ 124 $ 135
International
Fund
Institutional
Shares 1,675 8,276 - 571 - 11,000 77,851 82,821
MSCI
Emerging
Markets Value
Momentum
Blend Index
ETF - - 41 - - 1,069 14,914 15,983
MSCI
International
Value
Momentum
Blend Index
ETF - - 565 - - 3,013 33,112 36,125
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF - - 48 - - 956 7,742 8,698
MSCI USA
Value
Momentum
Blend Index
ETF 2,377 - 411 - - 6,221 44,630 53,228
Precious
Metals and
Minerals Fund
Institutional
Shares 2,038 - - - - 237 - 2,275
S&P 500
Index Fund
Reward Shares 251 - 251 - - 4,225 24,242 28,718
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Short-Term
Bond Fund
Institutional
Shares $ 122 $ - $ 123 $ 1 $- $ 159 $ 8,454 $ 8,736
Small Cap Stock
Fund
Institutional
Shares 657 - - - - 2,282 12,011 14,950
Target Managed
Allocation Fund - - - - - 13,185 98,413 111,598
Value Fund
Institutional
Shares - 13,169 - 2,599 - 2,015 36,056 27,501
-------------------------------------------------------------------------------------------------------------------------
TOTAL $39,711 $28,289 $3,279 $3,511 $- $92,554 $737,526 $845,013
-------------------------------------------------------------------------------------------------------------------------
================================================================================
56 | USAA TARGET RETIREMENT FUNDS
================================================================================
TARGET 2060:
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Capital
Growth
Fund
Institutional
Shares $2,464 $ - $ - $ - $- $ 66 $ - $ 2,530
Emerging
Markets
Fund
Institutional
Shares - - - - - 127 874 1,001
Global
Managed
Volatility
Fund 2,483 - - - - 3,472 23,746 29,701
Government
Securities
Fund
Institutional
Shares 1,154 - 101 - - 262 7,207 8,623
Growth Fund
Institutional
Shares - 407 - 14 - 1,221 5,800 6,628
High Income
Fund
Institutional
Shares 52 - 6 - - 10 138 200
Income Fund
Institutional
Shares 158 - 64 - - 228 3,651 4,037
Income Stock
Fund
Institutional
Shares 1,405 - 51 - - 483 2,518 4,406
Intermediate-
Term Bond
Fund
Institutional
Shares -* - -* - - 1 8 9
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
International
Fund
Institutional
Shares $ 679 $ 494 $ - $ (16) $- $ 1,333 $ 8,568 $ 10,070
MSCI Emerging
Markets Value
Momentum
Blend Index
ETF - - 5 - - 132 1,854 1,986
MSCI
International
Value
Momentum
Blend Index
ETF 92 - 80 - - 424 4,621 5,137
MSCI USA
Small Cap
Value
Momentum
Blend Index
ETF 92 - 6 - - 119 931 1,142
MSCI USA
Value
Momentum
Blend Index
ETF 832 - 51 - - 746 5,176 6,754
Precious
Metals and
Minerals
Fund
Institutional
Shares 254 - - - - 29 - 283
S&P 500 Index
Fund Reward
Shares 212 - 32 - - 510 2,877 3,599
Short-Term
Bond Fund
Institutional
Shares 172 - 14 - - 19 916 1,107
================================================================================
58 | USAA TARGET RETIREMENT FUNDS
================================================================================
CHANGE
IN NET
($ IN 000s) REALIZED CAPITAL UNREALIZED
AFFILIATED PURCHASE SALES DIVIDEND GAIN GAIN APPRECIATION/ MARKET VALUE
USAA FUND COST(a) PROCEEDS INCOME (LOSS) DISTRIBUTIONS DEPRECIATION 12/31/2018 06/30/2019
-------------------------------------------------------------------------------------------------------------------------
Small Cap Stock
Fund
Institutional
Shares $ 245 $ - $ - $ - $- $ 290 $ 1,480 $ 2,015
Target
Managed
Allocation
Fund 1,152 - - - - 1,609 11,551 14,312
Value Fund
Institutional
Shares - 1,289 - (139) - 712 4,315 3,599
-------------------------------------------------------------------------------------------------------------------------
TOTAL $11,446 $2,190 $410 $(141) $- $11,793 $86,231 $107,139
-------------------------------------------------------------------------------------------------------------------------
(a) Includes reinvestment of distributions from dividend income and realized
gains.
*Represents less than $500.
(9) UPCOMING REGULATORY MATTERS
In October 2016, the U.S. Securities and Exchange Commission (SEC) issued Final
Rule Release No. 33-10233, 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 has determined there is no significant
impact on the Fund's financial statements and various filings.
(10) RECENT ACCOUNTING PRONOUNCEMENTS
In August 2018, the SEC adopted amendments to Regulation S-X for investment
companies governing the form and content of financial
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
================================================================================
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.
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. ASU 2018-13 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. Management has elected to
early adopt ASU 2018-13 effective with the current reporting period. The
adoption of ASU 2018-13 guidance is limited to changes in the Funds' notes to
financial statement disclosures regarding valuation method, fair value, and
transfers between levels of the fair value hierarchy.
(11) SUBSEQUENT EVENT NOTE
As previously announced, and as discussed in Note 1 to the Financial Statements,
effective July 1, 2019, AMCO, the prior investment adviser to the Fund, and SAS,
the prior transfer agent to the Fund, were acquired by Victory Holdings. PLEASE
SEE THE SUPPLEMENT DATED JULY 1, 2019 TO THE FUND'S PROSPECTUS FOR ADDITIONAL
IMPORTANT INFORMATION.
Effective July 1, 2019, Victory Capital is the new investment adviser and
administrator to the USAA Mutual Funds; SAS was renamed Victory Capital Transfer
Agency, Inc.; Victory Capital Advisers, Inc. is the new distributor to the USAA
Mutual Funds; Citi Fund Services of Ohio, Inc. serves as sub-administrator and
sub-fund accountant for the USAA Mutual Funds; and FIS Investor Services LLC
serve as sub-transfer agent and dividend disbursing agent for the USAA Mutual
Funds. Effective August 5, 2019, Citibank, N.A. is the new custodian for the
USAA Mutual Funds.
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2019 permitting the
use of a "manager-of-managers" structure for certain funds. Prior to that date,
the Trust relied on a similar exemptive order granted by the SEC to the
================================================================================
60 | USAA TARGET RETIREMENT FUNDS
================================================================================
Trust and its affiliated persons. Under a manager of managers structure, the
investment adviser may select (with approval of the Board and without
shareholder approval) one or more subadvisers to manage the day-to-day
investment of a fund's assets.
Effective July 1, 2019, Victory Capital added new portfolio managers from one or
more investment teams employed by Victory Capital to serve as additional
portfolio managers, or replace current portfolio managers, to manage all or a
portion of the Fund according to each team's own investment process.
Effective July 1, 2019, under the investment advisory agreement with Victory
Capital, which took effect on July 1, 2019, no performance adjustments will be
made for periods beginning July 1, 2019, through June 30, 2020, and only
performance beginning as of July 1, 2020, and thereafter will be utilized in
calculating performance adjustments through June 30, 2020.
Effective July 1, 2019, the line of credit (as discussed in the Notes to the
Financial Statements in this semiannual report) among the Trust, with respect to
its Funds, and CAPCO terminated; the Trust, with respect to its Funds, along
with series of Victory Portfolios, Victory Portfolios II and Victory Variable
Insurance Funds, entered into a 364 day committed credit facility and a 364 day
uncommitted, demand credit facility with Citibank, N.A. (Citibank). Each such
credit facility may be renewed if so agreed by the parties. Under the agreement
with Citibank, the Funds may borrow up to $600 million, of which $300 million is
committed and $300 million is uncommitted. Of this amount, $40 million of the
line of credit is reserved for use by the Victory Floating Rate Fund (a series
of Victory Portfolios), with that Fund paying the related commitment fees for
that amount. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests. Citibank receives an annual commitment fee
of 0.15%. Each Fund pays a pro-rata portion of this commitment fee plus any
interest on amounts borrowed.
Effective July 1, 2019, the Trust will rely on an exemptive order granted to
Victory Capital and its affiliated funds by the SEC in March 2017 (the IFL
Order), permitting the establishment and operation of an Interfund Lending
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
================================================================================
Facility (the Facility). The Facility allows each Fund to directly lend and
borrow money to or from certain other affiliated Funds relying upon the IFL
Order at rates beneficial to both the borrowing and lending funds. Advances
under the Facility are allowed for temporary or emergency purposes, including
the meeting of redemption requests that are subject to each Fund's borrowing
restrictions. The interfund loan rate is determined, as specified in the IFL
Order, by averaging the current repurchase agreement rate and the current bank
loan rate.
Effective July 1, 2019, the Trust entered into an Agreement to Provide
Compliance ("Compliance Agreement") with the Adviser, pursuant to which the
Adviser furnishes its compliance personnel, including the services of the CCO,
and other resources reasonably necessary to provide the Trust with compliance
oversight services related to the design, administration, and oversight of a
compliance program for the Trust in accordance with Rule 38a-1 under the 1940
Act. The Funds in the Victory Funds complex, in the aggregate, compensate the
Adviser for these services. This agreement replaces an arrangement in place
with AMCO previously.
================================================================================
62 | USAA TARGET RETIREMENT FUNDS
================================================================================
FINANCIAL HIGHLIGHTS
TARGET INCOME (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.69 $ 11.69 $ 11.41 $ 11.09 $ 11.82 $ 11.84
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .12 .29 .28 .28 .28 .34
Net realized and
unrealized gain (loss) .74 (.64) .70 .42 (.50) .05
------------------------------------------------------------------------------
Total from investment
operations .86 (.35) .98 .70 (.22) .39
------------------------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.29) (.28) (.28) (.28) (.40)
Realized capital gains - (.36) (.42) (.10) (.23) (.01)
------------------------------------------------------------------------------
Total distributions (.11) (.65) (.70) (.38) (.51) (.41)
------------------------------------------------------------------------------
Net asset value at
end of period $ 11.44 $ 10.69 $ 11.69 $ 11.41 $ 11.09 $ 11.82
==============================================================================
Total return (%)* 8.04 (3.01) 8.66 6.36 (1.95) 3.36
Net assets at end of
period (000) $336,265 $318,796 $349,866 $317,856 $330,809 $367,307
Ratios to average
daily net assets:**
Expenses (%)(a) .08(b) .07 .07 .07 .06 .05
Net investment
income (%) 2.13(b) 2.53 2.44 2.41 2.36 2.80
Portfolio turnover (%) 2 29 41(c) 14 35 11
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$327,418,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Overall increase in purchases and sales of securities.
================================================================================
FINANCIAL HIGHLIGHTS | 63
================================================================================
TARGET 2020 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.28 $ 12.86 $ 12.28 $ 11.85 $ 12.56 $ 12.63
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .11 .30 .30 .30 .30 .37
Net realized and
unrealized gain (loss) .99 (.92) 1.25 .60 (.60) .07
------------------------------------------------------------------------------
Total from investment
operations 1.10 (.62) 1.55 .90 (.30) .44
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.30) (.30) (.38) (.21) (.37)
Realized capital gains - (.66) (.67) (.09) (.20) (.14)
------------------------------------------------------------------------------
Total distributions - (.96) (.97) (.47) (.41) (.51)
------------------------------------------------------------------------------
Net asset value at
end of period $ 12.38 $ 11.28 $ 12.86 $ 12.28 $ 11.85 $ 12.56
------------------------------------------------------------------------------
Total return (%)* 9.75 (4.85) 12.71 7.57 (2.40) 3.45
Net assets at end of
period (000) $585,854 $554,154 $617,583 $570,796 $583,926 $650,362
Ratios to average
daily net assets:**
Expenses (%)(a) .05(b) .04 .04 .04 .04 .03
Net investment
income (%) 1.76(b) 2.41 2.33 2.33 2.31 2.82
Portfolio turnover (%) 3 34 39(c) 11 30 15
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$575,727,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Overall increase in purchases and sales of securities.
================================================================================
64 | USAA TARGET RETIREMENT FUNDS
================================================================================
TARGET 2030 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
--------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.87 $ 13.84 $ 12.89 $ 12.34 $ 13.05 $ 13.13
--------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .08 .30 .30 .30 .27 .35
Net realized and
unrealized gain (loss) 1.29 (1.25) 1.77 .77 (.63) .11
--------------------------------------------------------------------------------
Total from investment
operations 1.37 (.95) 2.07 1.07 (.36) .46
--------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.30) (.32) (.48) (.08) (.35)
Realized capital gains - (.72) (.80) (.04) (.27) (.19)
--------------------------------------------------------------------------------
Total distributions - (1.02) (1.12) (.52) (.35) (.54)
--------------------------------------------------------------------------------
Net asset value at
end of period $ 13.24 $ 11.87 $ 13.84 $ 12.89 $ 12.34 $ 13.05
================================================================================
Total return (%)* 11.54 (6.99) 16.12 8.70 (2.81) 3.43
Net assets at end of
period (000) $1,319,205 $1,183,564 $1,286,393 $1,098,440 $1,060,971 $1,135,347
Ratios to average
daily net assets:**
Expenses (%)(a) .03(b) .03 .03 .03 .03 .03
Net investment
income (%) 1.30(b) 2.25 2.29 2.22 2.08 2.63
Portfolio turnover (%) 4 36 32 8 32 15
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return. Total returns for periods of less than one year are
not annualized.
** For the six-month period ended June 30, 2019, average daily net assets were
$1,274,037,000.
(a) Does not include acquired fund fees, if any.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
FINANCIAL HIGHLIGHTS | 65
================================================================================
TARGET 2040 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
---------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.87 $ 14.25 $ 12.82 $ 12.23 $ 12.89 $ 12.99
---------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .06 .27 .29 .26 .23 .30
Net realized and
unrealized gain (loss) 1.48 (1.46) 2.07 .83 (.58) .11
---------------------------------------------------------------------------------
Total from investment
operations 1.54 (1.19) 2.36 1.09 (.35) .41
---------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.28) (.29) (.48) (.00)(a) (.30)
Realized capital gains - (.91) (.64) (.02) (.31) (.21)
---------------------------------------------------------------------------------
Total distributions - (1.19) (.93) (.50) (.31) (.51)
---------------------------------------------------------------------------------
Net asset value at
end of period $ 13.41 $ 11.87 $ 14.25 $ 12.82 $ 12.23 $ 12.89
=================================================================================
Total return (%)* 12.97 (8.53) 18.46 8.97 (2.71) 3.15
Net assets at end of
period (000) $1,479,799 $1,310,328 $1,424,068 $1,195,926 $1,128,269 $1,173,210
Ratios to average
daily net assets:**
Expenses (%)(b) .03(c) .02 .03 .03 .03 .03
Net investment
income (%) .96(c) 2.08 2.15 1.99 1.78 2.33
Portfolio turnover (%) 3 35 32 9(d) 35 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 six-month period ended June 30, 2019, average daily net assets were
$1,425,230,000.
(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) Overall decrease in purchases and sales of securities.
================================================================================
66 | USAA TARGET RETIREMENT FUNDS
================================================================================
TARGET 2050 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.95 $ 14.45 $ 12.78 $ 12.18 $ 12.81 $ 12.86
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .05 .26 .27 .23 .20 .26
Net realized and
unrealized gain (loss) 1.54 (1.54) 2.20 .87 (.52) .13
------------------------------------------------------------------------------
Total from investment
operations 1.59 (1.28) 2.47 1.10 (.32) .39
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.26) (.28) (.42) (.00)(a) (.26)
Realized capital gains - (.96) (.52) (.08) (.31) (.18)
------------------------------------------------------------------------------
Total distributions - (1.22) (.80) (.50) (.31) (.44)
------------------------------------------------------------------------------
Net asset value at
end of period $ 13.54 $ 11.95 $ 14.45 $ 12.78 $ 12.18 $ 12.81
==============================================================================
Total return (%)* 13.31 (9.02) 19.39 9.02 (2.48) 3.02
Net assets at end of
period (000) $850,004 $741,449 $804,921 $659,642 $603,281 $607,896
Ratios to average
daily net assets:**
Expenses (%)(b) .04(c) .04 .04 .05 .04 .04
Net investment
income (%) .78(c) 1.96 2.00 1.87 1.58 2.09
Portfolio turnover (%) 4 36 30 6(d) 39 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 six-month period ended June 30, 2019, average daily net assets were
$814,714,000.
(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) Overall decrease in purchases and sales of securities.
================================================================================
FINANCIAL HIGHLIGHTS | 67
================================================================================
TARGET 2060 (UNAUDITED)
--------------------------------------------------------------------------------
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2019 2018 2017 2016 2015 2014
------------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.05 $ 12.74 $ 11.07 $ 10.48 $ 10.93 $ 10.85
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .04 .23 .22 .15 .18(a) .25(a)
Net realized and
unrealized gain (loss) 1.42 (1.39) 1.93 .77 (.45)(a) .07(a)
------------------------------------------------------------------------------
Total from investment
operations 1.46 (1.16) 2.15 .92 (.27)(a) .32(a)
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.23) (.22) (.30) (.01) (.18)
Realized capital gains - (.30) (.26) (.03) (.17) (.06)
------------------------------------------------------------------------------
Total distributions - (.53) (.48) (.33) (.18) (.24)
------------------------------------------------------------------------------
Net asset value at
end of period $ 12.51 $ 11.05 $ 12.74 $ 11.07 $ 10.48 $ 10.93
==============================================================================
Total return (%)* 13.21 (9.18) 19.51 8.80 (2.47) 2.91
Net assets at end of
period (000) $108,588 $87,403 $77,599 $53,142 $37,963 $25,808
Ratios to average
daily net assets:**
Expenses (%)(b) .10(c) .10 .10 .10 .10 .10
Expenses, excluding
reimbursements (%)(b) .26(c) .23 .29 .41 .51 .78
Net investment
income (%) .74(c) 2.00 1.95 1.85 1.64 2.25
Portfolio turnover (%) 2 36 37(d) 4(e) 35 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 six-month period ended June 30, 2019, average daily net assets were
$101,179,000.
(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) Overall increase in purchases and sales of securities.
(e) Overall decrease in purchases and sales of securities.
================================================================================
68 | USAA TARGET RETIREMENT FUNDS
================================================================================
EXPENSE EXAMPLE
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Funds, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including Fund operating expenses. This example is intended to help you
understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Funds and to compare these costs with the ongoing
costs of investing in other mutual funds. Each Fund also indirectly bears its
pro-rata share of the expenses of the underlying USAA funds in which it invests
(acquired funds). These acquired fund fees and expenses are not included in the
Funds' annualized expense ratios used to calculate the expense estimates in the
table on the next page.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2019, through June
30, 2019.
ACTUAL EXPENSES
The line labeled "actual" in the table provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested at the beginning of the period, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the "actual" line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period. The actual expenses of each Fund, net of reimbursements, are
zero.
================================================================================
EXPENSE EXAMPLE | 69
================================================================================
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" in the table provides information about
hypothetical account values and hypothetical expenses based on the Funds' actual
expense ratios and an assumed rate of return of 5% per year before expenses,
which is not the Funds' actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Funds and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. If these direct costs were
included, your costs would have been higher. Acquired fund fees and expenses
================================================================================
70 | USAA TARGET RETIREMENT FUNDS
================================================================================
are not included in the Funds' annualized expense ratio used to calculate the
expenses paid in the table below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2019 -
JANUARY 1, 2019 JUNE 30, 2019 JUNE 30, 2019
--------------------------------------------------------------
TARGET INCOME
Actual $1,000.00 $1,080.40 $0.41
Hypothetical
(5% return before expenses) 1,000.00 1,024.40 0.40
TARGET 2020
Actual 1,000.00 1,097.50 0.26
Hypothetical
(5% return before expenses) 1,000.00 1,024.55 0.25
TARGET 2030
Actual 1,000.00 1,115.40 0.16
Hypothetical
(5% return before expenses) 1,000.00 1,024.65 0.15
TARGET 2040
Actual 1,000.00 1,129.70 0.16
Hypothetical
(5% return before expenses) 1,000.00 1,024.65 0.15
TARGET 2050
Actual 1,000.00 1,133.10 0.21
Hypothetical
(5% return before expenses) 1,000.00 1,024.60 0.20
TARGET 2060
Actual 1,000.00 1,132.10 0.53
Hypothetical
(5% return before expenses) 1,000.00 1,024.30 0.50
*Expenses equal each Fund's annualized expense ratio of 0.08% for Target Income,
0.05% for Target 2020, 0.03% for Target 2030, 0.03% for Target 2040, 0.04% for
Target 2050, and 0.10% for Target 2060, which are net of any reimbursements and
expenses paid indirectly and excludes expenses of the acquired funds,
multiplied by the average account value over the period, multiplied by 181
days/365 days (to reflect the one-half year period). Each Funds' actual ending
account value is based on its actual total return for the current period of
January 1, 2019, through June 30, 2019. These total returns equaled 8.04%,
9.75%, 11.54%, 12.97%, 13.31%, and 13.21% for the Target Income, Target 2020,
Target 2030, Target 2040, Target 2050, and Target 2060 Funds, respectively.
================================================================================
EXPENSE EXAMPLE | 71
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND VICTORY CAPITAL MANAGEMENT INC.)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the (i) new investment
advisory agreement between the Trust and Victory Capital and (ii) new investment
subadvisory agreements between certain subadvisers and Victory Capital, which
became effective on July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO
THE FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting held on January 15, 2019, the USAA Mutual Funds Trust's
("Trust") Board of Trustees ("Board"), including those Trustees who are not
parties to any investment advisory or management agreement between USAA Asset
Management Company ("AMCO") and the Trust ("Existing Management Agreements") or
the new Investment Advisory Agreement between the Trust and Victory Capital
Management Inc. ("Victory Capital") (the "New Advisory Agreement") or
"interested persons" (as that term is defined in the Investment Company Act of
1940 Act, as amended ("1940 Act")) of such parties or the Trust (the
"Independent Trustees"), considered and unanimously approved the New Advisory
Agreement between the Trust, on behalf of each of its series (each a "Fund" and
together the "Funds"), and Victory Capital, and, as applicable, new Investment
Subadvisory Agreements between Victory Capital and each investment subadviser
("New Subadvisory Agreements," and together with the New Advisory Agreement, the
"New Agreements"), as listed below. The Board also determined to recommend that
shareholders of each Fund approve the New Advisory Agreement. Shareholder
approval is not required for the New Subadvisory Agreements. The Independent
Trustees reviewed the proposed approval of the New Agreements in private
sessions with their independent legal counsel at which no representatives of
Victory Capital or AMCO were present.
================================================================================
72 | USAA TARGET RETIREMENT FUNDS
================================================================================
BACKGROUND FOR THE BOARD APPROVALS
At a telephonic meeting of the Board held on November 5, 2018, representatives
of USAA and AMCO informed the Board that USAA's subsidiary, USAA Investment
Corporation, would enter into a stock purchase agreement with Victory Capital
Holdings, Inc. ("Victory Holdings") pursuant to which Victory Holdings would
acquire all of the outstanding stock of AMCO and USAA Transfer Agency Company
d/b/a USAA Shareholder Account Services ("USAA Transfer Agent") (the
"Transaction"). The Independent Trustees were advised that the Transaction, if
completed, would constitute an "assignment" (as that term is defined in Section
2(a)(4) of the 1940 Act) and result in the automatic termination of the Existing
Management Agreements ("Change of Control Event"). The Independent Trustees also
were advised that it was proposed that Victory Capital, a subsidiary of Victory
Holdings, would serve as the investment adviser to each Fund after the closing
of the Transaction ("Post-Transaction") and that the Board would be asked to
consider approval of the terms and conditions of the New Advisory Agreement with
Victory Capital and thereafter to submit the New Advisory Agreement to each
Fund's shareholders for approval. Because the Change of Control Event also would
result in the termination of each existing subadvisory agreement between AMCO
and the subadvisers to the Funds ("Existing Subadvisory Agreements"), the
Independent Trustees were advised that the Board would also be asked to approve
the New Subadvisory Agreements.
In anticipation of the Transaction, the Trustees met at a series of subsequent
in-person meetings on November 27-28, 2018, January 7-8, 2019, and January
14-15, 2019, which included meetings of the full Board and separate meetings of
the Independent Trustees for the purposes of considering, among other things:
whether it would be in the best interests of each Fund and its respective
shareholders to approve the New Agreements; and the anticipated impacts of the
Transaction on the Funds and their shareholders (each, a "Meeting"). During each
of these Meetings, the Board sought additional and clarifying information as it
deemed necessary or appropriate. In this connection, the Independent Trustees
worked with their independent
================================================================================
ADVISORY AGREEMENT(S) | 73
================================================================================
legal counsel to prepare formal due diligence requests (the "Diligence
Requests") that were submitted to Victory Capital, Victory Capital Advisers,
Inc. ("VCA"), and the subadvisers. The Diligence Requests sought information
relevant to the Board's consideration of the New Advisory Agreement, the New
Subadvisory Agreements, distribution arrangements, and other anticipated impacts
of the Transaction on the Funds and their shareholders. Victory Capital, VCA,
and the subadvisers provided documents and information in response to the
Diligence Requests (the "Response Materials"). Following their review of the
Response Materials, the Independent Trustees submitted a supplemental due
diligence request for additional and clarifying information (the "Supplemental
Diligence Request") to Victory Capital and VCA. Victory Capital and VCA provided
further information in response to the Supplemental Diligence Request, which the
Board reviewed. Senior management representatives of Victory Capital and/or AMCO
participated in a portion of each Meeting and addressed various questions raised
by the Board. Throughout the process, the Independent Trustees were assisted by
their independent legal counsel and counsel to the Funds, who advised them on,
among other things, their duties and obligations relating to their consideration
of the New Agreements.
The Board's evaluation of the New Agreements reflected the information provided
specifically in connection with its review of the New Agreements, as well as,
where relevant, information that was previously furnished to the Board in
connection with the most recent renewal of the Existing Management Agreements
and Existing Subadvisory Agreements at an in-person meeting of the Board on
April 18, 2018 (the "2018 15(c) Meeting") and at other subsequent Board meetings
in 2018. The Board's evaluation of the New Agreements also reflected the
knowledge gained as Board members of the Funds with respect to services provided
by AMCO, its affiliates, and each subadviser to the Funds.
The Board's approvals and recommendations were based on its determination,
within its business judgment, that it would be in the best interests of each
Fund and its respective shareholders, for Victory Capital and, as applicable,
the subadvisers, to provide investment advisory, investment subadvisory, and
related services to the Funds, following the closing of the Transaction.
================================================================================
74 | USAA TARGET RETIREMENT FUNDS
================================================================================
FACTORS CONSIDERED IN APPROVING THE NEW ADVISORY AGREEMENT
In connection with the Board's consideration of the New Advisory Agreement,
Victory Capital and AMCO advised the Board about a variety of matters, including
the following:
o The nature, extent, and quality of the services to be provided to the
Funds by Victory Capital Post-Transaction are expected to be of at least
the same level as the services currently provided to the Funds by AMCO.
o Victory Capital's stated commitment to maintaining and enhancing the USAA
member/USAA Fund shareholder experience, including creating a dedicated
USAA Fund sales and client service call center that will provide ongoing
client service and advice to existing and new USAA members.
o Victory Capital proposes to: (1) replace the underlying indexes for the
USAA Extended Market Index Fund and USAA S&P 500 Index Fund with indexes
designed to provide shareholders with comparable exposure and investment
outcomes; (2) change the USAA Extended Market Index Fund's and USAA S&P
500 Index Fund's investment objectives and strategies in light of the
changes to their underlying indexes; and (3) change the name of the USAA
S&P 500 Index Fund to the USAA 500 Index Fund.
o Victory Capital does not propose changes to the investment objective(s)
of any other Funds. Although the investment processes used by Victory
Capital's portfolio managers may differ from those used by AMCO's
portfolio managers or, if applicable, any subadviser's portfolio
managers, such differences are not currently expected to result in
changes to the principal investment strategies or principal investment
risks of the Funds.
o The New Advisory Agreement does not change any Fund's advisory fee rate
or the computation method for calculating such fees (except that Victory
Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment).
================================================================================
ADVISORY AGREEMENT(S) | 75
================================================================================
For at least two years after the Transaction closes, Victory Capital has
agreed to waive fees and/or reimburse expenses so that each Fund's annual
expense ratio (excluding certain customary items) does not exceed the
levels reflected in each Fund's most recent audited financial statements
at the time the Transaction closes (or the levels of AMCO's then-current
expense caps, if applicable), excluding the impact of any performance
adjustment to the Fund's advisory fee.
o The portfolio managers at AMCO that manage the Fixed Income Funds(1) as
well as the USAA's Global Multi-Asset team servicing the Cornerstone
Funds(2), Target Retirement Funds(3), Global Managed Volatility Fund,
Managed Allocation Fund, and Target Managed Allocation Fund, are expected
to continue to do so Post-Transaction as employees of Victory Capital, if
they choose to become employees of Victory Capital. Post-Transaction, the
investment teams for the Funds, other than the Fixed Income Funds, will
be replaced or augmented.
o With the exception of the USAA S&P 500 Index Fund, USAA Extended Market
Index Fund, and USAA Nasdaq-100 Index Fund, which will be advised by
Victory Capital through its Victory Solutions platform, Victory Capital
proposes that the same subadvisers be retained Post-Transaction, although
Victory Capital may change the allocation to a particular subadviser
Post-Transaction. No changes are expected to the portfolio managers of
the subadvisers who will serve as subadvisers Post-Transaction.
(1)The Fixed Income Funds include the following Funds: California Bond Fund,
Government Securities Fund, High Income Fund, Income Fund, Intermediate-Term
Bond Fund, Tax Exempt Intermediate-Term Fund, Tax Exempt Long-Term Fund, New
York Bond Fund, Short-Term Bond Fund, Tax Exempt Short-Term Fund, Ultra
Short-Term Bond Fund, Virginia Bond Fund, Money Market Fund, Tax Exempt Money
Market Fund and Treasury Money Market Trust.
(2)The Cornerstone Funds include the following Funds: Cornerstone Aggressive
Fund, Cornerstone Conservative Fund, Cornerstone Equity Fund, Cornerstone
Moderate Fund, Cornerstone Moderately Aggressive Fund, and Cornerstone
Moderately Conservative Fund.
(3)The Target Retirement Funds include the following Funds: Target Retirement
2020 Fund, Target Retirement 2030 Fund, Target Retirement 2040 Fund, Target
Retirement 2050 Fund, Target Retirement 2060 Fund, and Target Retirement
Income Fund.
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76 | USAA TARGET RETIREMENT FUNDS
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o VCA's distribution capabilities, including its significant network of
intermediary relationships, which may provide additional opportunities for
the Funds to grow assets and lower fees and expenses through increased
economies of scale.
o The experience of Victory Capital in acquiring and integrating investments
in investment management companies and its plans to transition and
integrate AMCO's and USAA Transfer Agent's businesses to Victory Capital.
Victory Capital and USAA expect to enter into a transition services
agreement under which USAA will continue to provide Victory Capital with
certain services that are currently provided by USAA to AMCO and the USAA
Transfer Agent for a specified period of time after the closing of the
Transaction to assist Victory Capital in transitioning the USAA member
distribution channel and member support services.
o Pursuant to a transitional trademark license agreement with USAA, Victory
Capital and the Funds will have a non-exclusive license, subject to
certain restrictions and limitations, to continue using certain licensed
marks including "USAA," "United Services Automobile Association," and the
USAA Logo in connection with their asset management and transfer agency
businesses for a period of three years following the closing of the
Transaction, which agreement may thereafter be extended for an additional
year.
o The support expressed by the current senior management team at AMCO for
the Transaction and AMCO's recommendation that the Board approve the New
Agreements.
o The commitments of Victory Capital and AMCO to bear all of the direct
expenses of the Transaction, including all legal costs and costs
associated with the proxy solicitation, regardless of whether the
Transaction is consummated.
In addition to the matters noted above, in their deliberations regarding
approval of the New Advisory Agreement, the Board considered the factors
discussed below, among others.
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ADVISORY AGREEMENT(S) | 77
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THE NATURE, EXTENT, AND QUALITY OF SERVICES EXPECTED TO BE PROVIDED BY VICTORY
CAPITAL - The Board considered information provided by Victory Capital regarding
its investment philosophy, investment management capabilities, business and
operating structure, scale of operations, leadership and reputation,
distribution capabilities, and financial condition. The Board also considered
the capabilities, resources, and personnel of Victory Capital, including senior
and other personnel of AMCO who had been extended offers to join Victory
Capital, in order to determine whether Victory Capital is capable of providing
the same level of investment management services currently provided to each
Fund, and also considered the transition and integration plans to move
management of the Funds to Victory Capital. The Board recognized that the AMCO
personnel who had been extended offers may not accept such offers and personnel
changes may occur in the future in the ordinary course. The Board considered the
resources and infrastructure that Victory Capital intends to devote to its
compliance program to ensure compliance with applicable laws and regulations, as
well as Victory Capital's commitment to those programs. The Board also
considered the resources that Victory Capital has devoted to its risk management
program and cybersecurity program. The Board also reviewed information provided
by Victory Capital related to its business, legal, and regulatory affairs. This
review considered the resources available to Victory Capital to provide the
services specified under the New Advisory Agreement. The Board considered
Victory Capital's financial condition, including the financing of the
Transaction, and noted that Victory Capital is expected to be able to provide a
high level of service to the Funds and continuously invest and re-invest in its
business.
The Board considered that, while it was proposed that Victory Capital would
become the investment adviser to the Funds, the same portfolio managers at AMCO
that manage the Fixed Income Funds, as well as USAA's Global Multi-Asset team
servicing the Cornerstone Funds, Target Retirement Funds (including Target
Managed Allocation Fund), Global Managed Volatility Fund, and Managed Allocation
Fund, are expected to continue to do so after the Transaction as employees of
Victory Capital, if they choose to become employees of Victory Capital. The
Board determined that it had considered the qualifications of the portfolio
managers at AMCO and the subadvisers at its 2018 15(c) Meeting. The Board
considered the professional experience,
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78 | USAA TARGET RETIREMENT FUNDS
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education, affiliations and/or other credentials or qualifications of the
anticipated portfolio managers at Victory Capital that would manage the Equity
Funds(4), Cornerstone Funds, and Target Retirement Funds. The Board noted that
the Equity Funds or portions of Equity Funds currently managed by AMCO would be
replaced with portfolio managers from Victory Capital.
The Board considered that certain Funds would continue to operate in a
manager-of-managers structure Post-Transaction. The Board considered that
Victory Capital's experience in allocating assets to, and overseeing the
advisory services of, its investment franchises and the Victory Solutions
platform, was similar to AMCO's role in allocating assets to and overseeing the
advisory services provided by the subadvisers.
The Board considered that the terms and conditions of the New Advisory Agreement
are substantially similar to the terms and conditions of the Existing Management
Agreements. The Board also considered that the New Subadvisory Agreements are
substantially similar to the terms and conditions of the Existing Subadvisory
Agreements and that no changes were proposed to the allocation of
responsibilities as between Victory Capital and any subadviser, except to the
extent that under the New Subadvisory Agreements each subadviser would be
responsible for voting proxies with respect to assets allocated to that
subadviser, while AMCO currently votes all Fund proxies. The Board considered
that Victory Capital also would provide certain administrative, fund accounting,
and shareholder servicing services under a separate administration agreement
with the Funds. In this connection, the Board considered information on Victory
Capital's use of third-party service providers to provide certain
sub-administration and sub-accounting services to the Funds.
After review of these and other considerations, the Board concluded that Victory
Capital will be capable of providing investment advisory services of the same
high quality as the investment advisory services provided to the Funds by AMCO,
and that these services are appropriate in nature and extent in light of the
Funds' operations and investor needs.
(4)The Equity Funds include the following Funds: Aggressive Growth Fund, Growth
& Income Fund, Income Stock Fund, Global Equity Income Fund, and Precious
Metals and Minerals Fund.
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ADVISORY AGREEMENT(S) | 79
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PERFORMANCE OF THE FUNDS - With respect to the performance of the Funds, the
Board considered its review at the 2018 15(c) Meeting of peer group and
benchmark investment performance comparison data relating to each Fund and, if
applicable, each subadviser's performance record for similar accounts. The
Board considered that information reviewed at the 2018 15(c) Meeting may be more
relevant for those Funds that would retain their current portfolio managers or
subadvisers. With respect to the Funds whose portfolio managers would be
replaced, the Board considered the performance of funds sponsored and managed by
Victory Capital ("Victory Funds") with similar investment objectives and
strategies managed by the portfolio managers who would manage the Funds. Based
on information presented to the Board at the Meetings and its discussions with
Victory Capital, the Board concluded that Victory Capital is capable of
generating a level of long-term investment performance that is appropriate in
light of each Fund's investment objectives, strategies and restrictions.
FEES TO BE PAID TO VICTORY CAPITAL AND EXPENSES OF THE FUNDS - The Board
considered that it had reviewed each Fund's existing advisory fee rate and
computation method for calculating such fees at the 2018 15(c) Meeting. The
Board considered that the New Advisory Agreement does not change any Fund's
advisory fee rate or the computation method for calculating such fees, except
that Victory Capital, subject to Board approval, may in the future use a single
designated share class to calculate the performance adjustment and apply the
resulting performance adjustment across each other class of shares of the Fund.
The Board considered that the use of a single designated class to calculate the
performance adjustment for each other class of shares of the Fund could mean
that shareholders of a class other than the class used to measure the
performance adjustment may pay a performance adjustment that is higher or lower
than if the adjustment were calculated on a class by class basis, primarily due
to the impact of differences in the fees and expenses between share classes on
performance. The Board considered that the New Advisory Agreement stipulates
that the period for measuring performance for calculating a Fund's performance
adjustment begins on the date that Victory Capital begins managing the Fund;
therefore, no performance adjustments will be made for the first twelve months
of the New Advisory Agreement, consistent with applicable regulations. The Board
also considered Victory Capital's contractual commitment under the expense
limitation
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80 | USAA TARGET RETIREMENT FUNDS
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agreement ("ELA") to waive fees and/or reimburse expenses for at least two years
after the closing of the Transaction, so that each Fund's annual expense ratio
(excluding acquired fund fees and expenses, any performance adjustment to a
Fund's advisory fee, interest, taxes, brokerage commissions, other expenditures
which are capitalized in accordance with generally accepted accounting
principles, and other extraordinary expenses not incurred in the ordinary course
of such Fund's business) does not exceed the levels reflected in each Fund's
most recent audited financial statements at the time the Transaction closes (or
the levels of AMCO's then-current expense caps, if applicable), excluding the
impact of any performance adjustment to a Fund's advisory fee. The Board
considered that the ELA permits Victory Capital to recoup advisory fees waived
and expenses reimbursed for up to three years after the fiscal year in which the
waiver or reimbursement took place, subject to the lesser of any operating
expense limitation in effect at the time of: (1) the original waiver or expense
reimbursement; or (2) recoupment. The Board also considered that Victory Capital
and AMCO had represented to the Board that they will use their best efforts to
ensure that they and their respective affiliates do not take any action that
imposes an "unfair burden" on the Funds as a result of the Transaction or as a
result of any express or implied terms, conditions or understandings applicable
to the Change of Control Event, for so long as the requirements of Section 15(f)
of the 1940 Act apply. The Board also considered a comparison of the proposed
advisory fees to be paid by each Fund to the advisory fees paid by funds and
other accounts managed by Victory Capital deemed to be comparable to the Fund in
terms of investment objectives and strategies. The Board considered that, with
few exceptions, mostly involving weighted average fees for separate accounts,
the advisory fees to be paid by the Funds were lower than the fees paid by these
other funds and accounts. The Board concluded that the retention of Victory
Capital was unlikely to impose an unfair burden on the Funds because, after the
Transaction, none of AMCO, Victory Capital, VCA, or any of their respective
affiliates, would be entitled to receive any compensation directly or indirectly
(i) from any person in connection with the purchase or sale of securities or
other property to, from, or on behalf of the Funds (other than ordinary fees for
bona fide principal underwriting services), or (ii) from the Funds or their
shareholders for other than bona fide investment advisory or other services.
Based on its review, the Board determined, with respect to each Fund, that
Victory Capital's advisory fee is fair and reasonable.
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ADVISORY AGREEMENT(S) | 81
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THE EXTENT TO WHICH VICTORY CAPITAL MAY REALIZE ECONOMIES OF SCALE AS THE FUNDS
GROW LARGER AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE FOR THE
BENEFIT OF FUND SHAREHOLDERS - The Board considered potential or anticipated
economies of scale in relation to the services Victory Capital would provide to
each Fund. The Board considered that the New Advisory Agreement includes the
same advisory fee breakpoints for the same Funds as the Existing Advisory
Agreements. The Board also considered that Victory Capital has contractually
agreed to cap the Funds' annual operating expense ratios, pursuant to the ELA,
which will remain in effect for at least two years from the closing of the
Transaction, and may be extended. The Board also considered Victory Capital's
representation that the significant increase in its assets under management
Post-Transaction may reasonably be expected to enable the new combined firm to
reach greater economies of scale in a shorter time frame. The Board noted that
it will have the opportunity to periodically re-examine whether a Fund or the
Trust has achieved economies of scale, and the appropriateness of investment
advisory and administrative fees payable to Victory Capital, in the future.
THE PROFITS TO BE REALIZED BY VICTORY CAPITAL AND ITS AFFILIATES FROM THEIR
RELATIONSHIP WITH THE TRUST - The Board considered the benefits Victory Capital
and its affiliates may derive from their relationship with the Funds, including
compensation to be paid to Victory Capital for the provision of certain
administrative, fund accounting and shareholder services to the Funds and
compensation to be paid to USAA Transfer Agent for the provision of transfer
agency services to the Funds. The Board considered the significant investments
Victory Capital expected to make to support and grow the USAA member channel and
the costs to integrate the USAA Fund business into Victory Capital. The Board
also considered Victory Capital's profitability report presented to the board of
trustees of the Victory Funds in connection with their most recent 15(c)
process. The Board considered Victory Capital's representation that the fully
integrated USAA Fund business, including investments to support ongoing growth,
was expected to have an overall marginally positive impact on Victory Capital's
overall financial profitability. The Board noted the difficulty of accurately
projecting profitability under the current circumstance and noted that it would
have the opportunity to give further consideration to Victory Capital's
profitability with respect to the Funds at the end of the initial two-year term
of the New Advisory Agreement.
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82 | USAA TARGET RETIREMENT FUNDS
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FALL-OUT AND OTHER BENEFITS TO VICTORY CAPITAL AND ITS AFFILIATES - The Board
considered the possible fall-out benefits and other types of benefits that may
accrue to Victory Capital and its affiliates. The Board noted that the
Transaction provides Victory Capital and its affiliates the opportunity to
deliver investment products and services to USAA's direct member-based channel.
The Board also considered that Victory Capital may derive reputational and other
benefits from its ability to use "USAA" and related names in connection with
operating and marketing the Funds. The Board considered that the Transaction, if
completed, would significantly increase Victory Capital's assets under
management and expand Victory Capital's investment capabilities. This increased
size and diversification could facilitate Victory Capital's continued investment
in its business and products, which Victory Capital would be able to leverage
across a broader base of assets. Victory Capital also would be able to use
trading commission credits from the Funds' transactions in securities to
"purchase" third party research and execution services to support its investment
process. Based on its review, the Board determined that any "fall-out" benefits
and other types of benefits that may accrue to Victory Capital are fair and
reasonable.
CONCLUSIONS - Based on the foregoing and other relevant considerations, at the
Meeting of the Board held on January 15, 2019, the Board, including a majority
of the Independent Trustees, acting within its business judgment, (1) concluded
that the terms of the New Advisory Agreement are fair and reasonable and that
approval of the New Advisory Agreement is in the best interests of each Fund and
its respective shareholders, (2) voted to approve the New Advisory Agreement,
and (3) voted to recommend approval of the New Advisory Agreement by
shareholders of the Funds. The Board evaluated all information available to it
on a Fund-by-Fund basis and its determinations were made separately in respect
of each Fund. The Board noted some factors may have been more or less important
with respect to any particular Fund and that no one factor was determinative of
its decisions which, instead, were premised upon the totality of factors
considered. In this connection, the Board also noted that different Board
members likely placed emphasis on different factors in reaching their individual
conclusions to vote in favor of the New Advisory Agreement and to recommend
approval of the New Advisory Agreement by shareholders of the Funds.
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ADVISORY AGREEMENT(S) | 83
================================================================================
ADVISORY AGREEMENT(S)
(BETWEEN THE TRUST AND THE MANAGER)
June 30, 2019 (unaudited)
--------------------------------------------------------------------------------
The following disclosure relates to the approval of the continuation of the (i)
investment advisory agreement between the Trust and AMCO and (ii) investment
subadvisory agreements between certain subadvisers and AMCO, which were
effective until July 1, 2019. PLEASE REFER TO THE SUBSEQUENT EVENT NOTE TO THE
FINANCIAL STATEMENTS IN THIS SEMIANNUAL REPORT FOR ADDITIONAL IMPORTANT
INFORMATION ABOUT A RECENT CHANGE OF CONTROL OF AMCO AND OTHER CHANGES IMPACTING
THE FUND.
At an in-person meeting of the Board of Trustees (the Board) held on April 17,
2019, the Board, including the Trustees who are not "interested persons" (as
that term is defined in the Investment Company Act of 1940, as amended) of the
Trust (the Independent Trustees), approved for an annual period the continuance
of the Advisory Agreement between the Trust and the Manager with respect to each
of Target Retirement Income Fund, Target Retirement 2020 Fund, Target Retirement
2030 Fund, Target Retirement 2040 Fund, Target Retirement 2050 Fund, and Target
Retirement 2060 Fund (together, the Funds).(1)
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among
(1)At an in-person meeting held on January 15, 2019, the Board, including the
Independent Trustees, approved a new investment advisory agreement between
the Trust, on behalf of the Fund, and Victory Capital Management Inc.
("Victory Capital"). Effective July 1, 2019, upon the closing of the
transaction whereby the Manager acquired by Victory Capital Holdings, Inc.,
the parent company of Victory Capital, the Advisory Agreement between the
Trust and the Manager and the Sub-advisory Agreement with the Subadviser
terminated and the new investment advisory agreement between the Trust and
Victory Capital went into effect. The factors the Board considered in
approving the new investment advisory agreement with Victory Capital are
discussed above. Effective June 30, 2019, the Subadviser no longer manages
any portion of the Fund.
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84 | USAA TARGET RETIREMENT FUNDS
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other things: (i) a separate report prepared by an independent third party,
which provided a statistical analysis comparing the Funds' investment
performance, expenses, and fees to comparable investment companies; (ii)
information concerning the services rendered to the Funds, as well as
information regarding the Manager's revenues and costs of providing services to
the Funds and compensation paid to affiliates of the Manager; and (iii)
information about the Manager's operations and personnel. Prior to voting, the
Independent Trustees reviewed the proposed continuance of the Advisory Agreement
with management and with experienced counsel retained by the Independent
Trustees (Independent Counsel) and received materials from such Independent
Counsel discussing the legal standards for their consideration of the proposed
continuance of the Advisory Agreement with respect to the Funds. The Independent
Trustees also reviewed the proposed continuation of the Advisory Agreement with
respect to the Funds in private sessions with their counsel at which no
representatives of management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Funds'
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund performance, fees and total expenses as
compared to comparable investment companies, and the Manager's profitability
with respect to the Funds. However, the Board noted that the evaluation process
with respect to the Manager is an ongoing one. In this regard, the Board's and
its committees' consideration of the Advisory Agreement included certain
information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by Independent Counsel.
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ADVISORY AGREEMENT(S) | 85
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NATURE, EXTENT, AND QUALITY OF SERVICES - In considering the nature, extent, and
quality of the services provided by the Manager under the Advisory Agreement,
the Board reviewed information provided by the Manager relating to its
operations and personnel. The Board also took into account its knowledge of the
Manager's management and the quality of the performance of the Manager's duties
through Board meetings, discussions, and reports during the preceding year. The
Board considered the services provided to the Funds by the Manager under the
Advisory Agreement, as well as other services provided by the Manager and its
affiliates under other agreements, and the personnel who provide these services.
In addition to the investment advisory services provided to the Funds, the
Manager and its affiliates provide administrative services, shareholder
services, oversight of the Funds' accounting, marketing services, assistance in
meeting legal and regulatory requirements, and other services necessary for the
operation of the Funds and the Trust. The Board also considered the significant
risks assumed by the Manager in connection with the services provided to the
Funds, including investment, operational, enterprise, litigation, regulatory and
compliance risks.
The Board considered the Manager's management style and the performance of the
Manager's duties under the Advisory Agreement. The Board considered the level
and depth of knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The Manager's role in coordinating the activities of the Funds'
other service providers also was considered. The Board also considered the
Manager's risk management processes. The Board considered the Manager's
financial condition and that it had the financial wherewithal to continue to
provide the same scope and high quality of services under the Advisory
Agreement. In reviewing the Advisory Agreement, the Board focused on the
experience, resources, and strengths of the Manager and its affiliates in
managing the Funds, as well as the other funds in the Trust.
The Board also reviewed the compliance and administrative services provided to
the Funds by the Manager and its affiliates, including the Manager's oversight
of the Funds' day-to-day operations and oversight of
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86 | USAA TARGET RETIREMENT FUNDS
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Fund accounting. The Trustees, guided also by information obtained from their
experiences as trustees of the Trust, also focused on the quality of the
Manager's compliance and administrative staff.
EXPENSES AND PERFORMANCE - In connection with its consideration of the Advisory
Agreement, the Board evaluated the Funds' advisory fees and total expense ratios
as compared to other open-end investment companies deemed to be comparable to
the Funds as determined by the independent third party in its report. The Funds'
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Funds based upon certain
factors, including fund type (in this case, other funds-of-funds that invest in
affiliated funds of the investing fund with front-end loads and no sales loads),
comparability of investment objective and classification, sales load type, asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes all front-end load and no-load affiliated
retail open end investment companies with the same investment
classifications/objectives as the Funds regardless of asset size, excluding
outliers (the "expense universe"). The Board noted that the Manager does not
receive a management fee from the Funds. The data indicated that the total
expense ratio for each Fund, which included underlying fund expenses and any
reimbursements, was below the median of its respective expense group and its
respective expense universe. The Board took into account the various services
provided to the Funds by the Manager and its affiliates. The Board also took
into account the high quality of services provided by the Manager.
In considering the Funds' performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Funds' performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Funds' average annual
total returns with their Lipper indexes and with that of other mutual funds
deemed to be in their peer group by the independent third party in its report
(the "performance universe"). Each Fund's performance universe consisted of the
Fund and all retail and institutional open-end investment companies with the
same classification/objective as the
================================================================================
ADVISORY AGREEMENT(S) | 87
================================================================================
Fund regardless of asset size or primary channel of distribution. This
comparison indicated that, among other data, the performance of the Target
Retirement Income Fund was above the average of its performance universe and its
Lipper index for the one-, three- and ten-year periods ended December 31, 2018,
and was above the average of its performance universe and below its Lipper index
for the five-year period ended December 31, 2018; the performance of the Target
Retirement 2020 Fund was above the average of its performance universe and its
Lipper index for the three-year period ended December 31, 2018, and was below
the average of its performance universe and its Lipper index for the one-, five-
and ten-year periods ended December 31, 2018; the performance of the Target
Retirement 2030 Fund was below the average of its performance universe and its
Lipper index for the one-, five- and ten-year periods ended December 31, 2018,
and was above the average of its performance universe and below its Lipper index
for the three-year period ended December 31, 2018; the performance of each of
the Target Retirement 2040 Fund and Target Retirement 2050 Fund was below the
average of its respective performance universe and its Lipper index for the
one-, three-and five- and ten-year periods ended December 31, 2018; and the
performance of the Target Retirement 2060 Fund was below the average of its
performance universe and its Lipper index for the one-, three- and five- periods
ended December 31, 2018. The Board also noted that the Target Retirement Income
Fund's percentile performance ranking was in the top 35% of its performance
universe for the one-year period ended December 31, 2018, was in the top 25% of
its performance universe for the three-year period ended December 31, 2018, was
in the top 50% of its performance universe for the five-year period ended
December 31, 2018, and was in the top 20% of its performance universe for the
ten-year period ended December 31, 2018; the Target Retirement 2020 Fund's
percentile performance was in the top 35% of its performance universe for the
three-year period ended December 31, 2018, and was in the bottom 50% of its
performance universe for the one-, five- and ten-year periods ended December 31,
2018; the Target Retirement 2030 Fund's percentile performance information was
in the top 50% of its performance universe for the three-year period ended
December 31, 2018, and was in the bottom 50% of its performance universe for the
one-, five- and ten-year periods ended
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88 | USAA TARGET RETIREMENT FUNDS
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December 31 2018; the Target Retirement 2040 Fund's and Target Retirement 2050
Fund's percentile performance information was each in the bottom 50% of its
performance universe for the one-, three-, five- and ten-year periods ended
December 31, 2018; and the Target Retirement 2060 Fund's percentile performance
information was in the bottom 50% of its performance universe for the one-,
three- and five-year periods ended December 31, 2018, and the Board took into
account management's discussion of the Funds' performance, including the Funds'
investment approaches and the impact of market conditions on the Funds'
performance relative to their peers.
COMPENSATION AND PROFITABILITY - The Board took into consideration that the
Manager does not collect a management fee from the Funds. The information
considered by the Board included operating profit margin information for the
Manager's business as a whole. This information included a review of the
methodology used in the allocation of certain costs to the Funds. The Trustees
reviewed the profitability of the Manager's relationship with the Funds before
tax expenses. The Board was also provided with an Investment Management
Profitability Analysis prepared by an independent information service. The Board
also considered the fact that affiliates provide shareholder servicing and
administrative services to the Funds for which they receive no compensation. The
Board also took into account the Manager's receipt of fees from the underlying
funds. The Board also noted that the manager reimburses certain expenses for
each Fund. The Board also considered the possible direct and indirect benefits
to the Manager from its relationship with the Trust, including that the Manager
may derive reputational and other benefits from its association with the Funds.
The Board also took into account the high quality of services received by the
Funds from the Manager. The Trustees recognized that the Manager should be
entitled to earn a reasonable level of profits in exchange for the level of
services it provides to the Funds and the entrepreneurial risk that it assumes
as Manager.
ECONOMIES OF SCALE - With respect to the consideration of any economies of scale
to be realized by the Funds, the Board took into account that the Manager does
not receive any advisory fees under the Advisory Agreement. The Board took into
account management's discussion of the Fund's current
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ADVISORY AGREEMENT(S) | 89
================================================================================
advisory fee structure. The Board also considered the effects of the Funds'
growth and size on the Funds' performance and fees, noting that if the Funds'
assets increase over time, the Funds may realize other economies of scale if
assets increase proportionally more than some expenses. The Board determined
that the current fee structure was reasonable.
CONCLUSIONS - The Board reached the following conclusions regarding the Advisory
Agreement with the Manager with respect to each Fund, among others: (i) the
Manager has demonstrated that it possesses the capability and resources to
perform the duties required of it under the Advisory Agreement; (ii) the Manager
maintains an appropriate compliance program; (iii) the performance of each of
the Funds is reasonable in relation to the performance of funds with similar
investment objectives and to relevant indices in view of the Fund's investment
approach and management is appropriately monitoring the Fund's performance; (iv)
each Fund's advisory expenses are reasonable in relation to those of similar
funds and to the services to be provided by the Manager; and (v) the Manager's
and its affiliates level of profitability from their relationship with each
Fund, if any, is reasonable in light of the nature and high quality of services
provided by the Manager and the type of Funds. Based on its conclusions, the
Board determined that the continuation of the Advisory Agreement would be in the
best interests of the Funds and its shareholders.
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90 | USAA TARGET RETIREMENT FUNDS
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AS OF JULY 1, 2019
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
David C. Brown
John C. Walters
--------------------------------------------------------------------------------
ADMINISTRATOR AND Victory Capital Management Inc.
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND Victory Capital Advisers, Inc.
DISTRIBUTOR 4900 Tiedeman Road
Brooklyn, Ohio 44144
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TRANSFER AGENT Victory Capital Transfer Agency, Inc.
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 USAA AMCO'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) 235-8396; (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 monthly portfolio holdings with the SEC
for the first and third quarters of each fiscal year as an exhibit to its
reports on Form N-PORT (beginning with filings after March 31, 2019).
Previously, the Fund made its complete schedule of portfolio holdings available
after the first and third fiscal quarters in regulatory filings on Form N-Q. The
Fund's Forms N-CSR, N-PORT, and N-Q are available at no charge (i) by calling
(800) 235-8396; (ii) at usaa.com; and (iii) on the SEC's website at
http://www.sec.gov.
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88219-0819
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item is only required in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item is only required annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item is only required in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
NOT APPLICABLE.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included as part of the Report to Stockholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable to open-end management investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable to open-end management investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable to open-end management investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent trustees. The Corporate Governance
Committee has adopted procedures to consider Board candidates suggested by
shareholders. The procedures are initiated by the receipt of nominations
submitted by a fund shareholder sent to Board member(s) at the address specified
in fund disclosure documents or as received by AMCO or a fund officer. Any
recommendations for a nomination by a shareholder, to be considered by the
Board, must include at least the following information: name; date of birth;
contact information; education; business profession and other expertise;
affiliations; experience relating to serving on the Board; and references. The
Corporate Governance Committee gives shareholder recommendations the same
consideration as any other candidate.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no changes in the Trust's internal controls over financial
reporting (as defined in rule 30a-3(d)under the 1940 Act) that occurred
during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, the Trust's internal control
over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable to open-end management investment companies.
ITEM 13. EXHIBITS.
(a)(1). NOT APPLICABLE. This item is only required in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(a)(4). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b)) is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended June 30, 2019
By:* /s/ Christopher K. Dyer
--------------------------------------------------------------
Signature and Title: Christopher K. Dyer, President
Date:
8/22/19
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/ Christopher K. Dyer
-----------------------------------------------------
Signature and Title: Christopher K. Dyer, President
Date:
8/22/19
By:* /s/ James K. De Vries
-----------------------------------------------------
Signature and Title: James K. De Vries, Treasurer
Date:
8/22/19
*Print the name and title of each signing officer under his or her signature.