MAY 31, 2022

Annual Report

USAA Cornerstone Moderately
Conservative Fund

Victory Capital means Victory Capital Management Inc., the investment adviser of the USAA Mutual Funds. USAA Mutual Funds are distributed by Victory Capital Services, Inc., member of FINRA, 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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USAA Mutual Funds Trust

TABLE OF CONTENTS

Shareholder Letter (Unaudited)					2
Manager's Commentary (Unaudited)					4
Investment Overview (Unaudited)					6
Investment Objective & Portfolio Holdings (Unaudited)					7
Schedule of Portfolio Investments					8
Financial Statements
Statement of Assets and Liabilities					14
Statement of Operations					15
Statements of Changes in Net Assets					16
Financial Highlights					18
Notes to Financial Statements					20
Report of Independent Registered Public Accounting Firm					32
Supplemental Information (Unaudited)					33
Trustee and Officer Information					33
Proxy Voting and Portfolio Holdings Information					39
Expense Example					39
Additional Federal Income Tax Information					40
Advisory Contract Renewal					41
Liquidity Risk Management Program					44
Privacy Policy (inside back cover)

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 Victory Capital Management Inc. 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, and form W-4P (OMB No. 1545-0074 withholding certificate for pension or annuity payments) will be electronically sent.

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.

• NOT FDIC INSURED • NO BANK GUARANTEE •  MAY LOSE VALUE

 

 

(Unaudited)

Dear Shareholder,

Looking back over our most recent annual reporting period offers us a stark reminder that markets go up and down, and that investor sentiment can shift quickly from risk-on to risk-off.

Although most of 2021 was constructive for financial markets, the script flipped as we entered the new calendar year. More recently, investors have been focused on a host of worries. Inflation data has been running hotter than expected; the U.S. Federal Reserve (the "Fed") has embarked on a new rate-hike cycle; and a terrible war is now taking place in Eastern Europe. All these issues, among other factors, have ratcheted up market volatility in both stock and bond markets. Many broad market stock indices have pulled back substantially during the first five months of 2022, while wide swaths of the bond market have struggled in the face of rising interest rates.

Throughout the ups and downs of the past annual reporting period, there have been interesting differences playing out within the broader market. In general, large-cap stocks outperformed smaller capitalization companies for the full annual reporting period. Meanwhile, growth-oriented styles led value-oriented investments during the earlier part of our annual reporting period, while the reverse was true during the latter segment of the reporting period (as measured by the Russell family of indices). Perhaps this reflects investors' realization and expectations for future higher interest rates and corresponding higher borrowing costs.

There were other notable subplots, too during the reporting period. During much of 2021 we watched crypto assets captivate investors, only to see them cycle up and down several times as the market sought to grasp the potential of their emerging blockchain technologies. More recently we've seen a spike in oil prices in 2022, which helped fuel gains across the energy landscape while many other sectors have lagged. Energy (and other commodities) has been one of the bright spots for many investor portfolios, and if anything, this exemplifies the benefits of diversification and investing across asset types, investment styles, and even geographies.

Looking at the numbers, we see that the S&P 500^® Index, the bell-weather proxy for our domestic stock market, had an annual total return of -0.30% for the 12-month period ended May 31, 2022. Over this same annual period, the yield on the 10-Year U.S. Treasury jumped 1.27%, thanks largely to the Fed's shift toward a less accommodative monetary policy and the first interest rate hike in three years. At the end of our reporting period, the yield on the 10-Year U.S. Treasury finished at 2.85%.

Given the market environment of the past few months, it's no surprise that investors have become more focused on risk management and downside protection. But remember, our experience managing portfolios through various economic cycles has taught us to remain calm in the face of market turmoil. It is our view that, a long-term perspective, a well-diversified portfolio across asset classes and investment types, and a clear understanding of individual risk tolerances are some of the key ingredients for staying the course and progressing on investment goals.

Of course, no one knows for certain what the future will bring. The Fed has already announced its intent to continue raising rates until the recent elevated inflation

 

 

readings decline. Labor shortages, continuing supply chain issues, elevated commodity prices, and the Russia-Ukraine war are among the headwinds investors continue to navigate. It is our view that, there will be other challenges ahead, with some yet to be identified.

Thus, we cannot tell you with any certainty what markets will do in the future, but we can assure you that the investment professionals at all our independent franchises continually monitor the environment and work hard to position portfolios opportunistically no matter what the markets bring.

On the following pages, you will find information relating to your USAA^® Mutual Funds, brought to you by Victory Capital. If you have any questions regarding the current market dynamics or your specific portfolio or investment plan, we encourage you to contact our representatives. Call (800) 235-8396 or visit our website at www.vcm.com.

From all of us here at Victory Capital, thank you for letting us help you work toward your investment goals.

Christopher K. Dyer, CFA

President,
USAA Mutual Funds Trust

 

 

USAA Cornerstone Moderately Conservative Fund

Managers' Commentary
(Unaudited)

•  What were the market conditions during the reporting period?

At the start of the reporting period, equity markets consolidated, and interest rates leveled off after large upswings during the second quarter of 2021. With strong first quarter gross domestic product and corporate earnings growth in the rearview mirror, investors seemed to be contemplating their next move. Equity markets rotated from value to growth leadership as U.S. Treasury bond yields retreated from the highs of March 2021. Inflation data increased as the economy reopened more quickly than expected. The U.S. Federal Reserve (the "Fed") maintained that inflationary pressure is transitory but could become more persistent. The inflationary environment would be a key metric moving into the second half of the year.

The financial markets produced broadly flat returns in the third quarter. Conditions were initially supportive in July and August, thanks to positive economic data and continued strength in corporate earnings. The picture changed in September, however, as investors began to focus on risk factors such as supply chain disruptions and rising inflation. In addition, the Fed indicated it may begin tapering its stimulative quantitative easing policy — a development investors took as an indication that the first interest-rate increases may be on the way in 2022. News flow from overseas also took a negative turn in September, with the emergence of energy shortages in Europe and worries that the debt problems of Chinese property developer Evergrande could have a broader, systemic effect on China's economy.

Despite a number of headwinds to sentiment, U.S. equities posted solid gains in the fourth quarter of 2021, as reflected in the 11.03% return for the bellwether S&P 500^® Index. The markets faced a shift in Fed policy as persistent inflation, driven by supply chain issues and rising commodity prices, led the central bank to announce, and subsequently accelerate, the tapering of its bond purchases that had helped keep longer-term borrowing costs low. In addition, the Fed began to signal the likelihood of two or more hikes in its benchmark overnight lending rate in 2022, representing a moving forward of the prior timetable. Prolonged negotiations over President Biden's Build Back Better spending bill put into question a source of anticipated fiscal stimulus. Finally, investors had to contend with the rapid emergence and spread of the Omicron variant of COVID-19, which threatened a new wave of lockdowns. Nonetheless, most major U.S. equity indices closed 2021 at or near all-time highs, supported by robust corporate profits and investor inflows given fixed income yields that remained unattractive.

The Russian invasion of Ukraine in February of 2022 added significant volatility to both equity and bond markets that were already concerned with elevated levels of inflation, a hawkish Fed, and rising interest rates. In the first quarter of 2022, the combination of widening credit spreads and rising interest rates led to the worst quarter for the Bloomberg US Aggregate Bond Index in 40 years. Equity markets did not fare any better, as the bellwether S&P 500 also posted a negative return during the quarter. With the Fed now embarking on a tightening cycle, the markets remained focused on the Fed and whether it can engineer a soft landing amidst the highest inflation readings in 40 years.

 

 

USAA Cornerstone Moderately Conservative Fund

Managers' Commentary (continued)

•  How did the USAA Cornerstone Moderately Conservative Fund (the "Fund") perform during the reporting period?

For the reporting period ended May 31, 2022, the Fund had a total return of -5.95%. This compares to returns of -8.41% for the Bloomberg U.S. Universal Index, and -7.02% for the Cornerstone Moderately Conservative Composite Index.

•  What strategies did you employ during the reporting period?

The Fund had a negative one-year total return, as both equity and fixed income markets sold off, as inflation concerns, rising interest rates, the end of Quantitative Easing, and the Russian invasion of Ukraine created a concerning and volatile investment environment. Major equity and fixed income asset classes were negative over the past year, while real estate investment trusts and commodities were positive. The Fund outperformed the Cornerstone Moderately Conservative Composite Index.

Positive contributors to the relative performance included security selection within the U.S. large-cap, U.S. small-cap, and international portions of the portfolio. The Fund benefited from the rotation of growth stocks into value stocks around the beginning of the year. Over the period, the Fund maintained a large allocation to short term corporate bonds and an overall shorter duration, which contributed positively as rising interest rates weighed on traditional fixed income markets in early 2022.

These positive drivers were slightly offset by an overweight to emerging market stocks as more developed markets withstood macroeconomic shocks better in the past year. The Fund had a small allocation to derivatives during the period that did not have a material impact on performance.

Thank you for allowing us to assist you with your investment needs.

 

 

USAA Cornerstone Moderately Conservative Fund

Investment Overview
(Unaudited)

Average Annual Total Return

Year Ended May 31, 2022

				Fund Shares
INCEPTION DATE				6/8/12
				Net Asset Value				Bloomberg U.S. Universal Index1				Cornerstone Moderately Conservative Composite Index2
One Year					–5.95	%			–8.41	%			–7.02	%
Five Year					3.62	%			1.33	%			4.83	%
Since Inception					4.59	%			2.08	%			5.83	%

The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month's end, please visit www.vcm.com.

Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions, if any. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. Generally Accepted Accounting Principles or the deduction of taxes that a shareholder would pay on net investment income and realized capital gain distributions, including reinvested distributions, or redemptions of shares. The total return figures set forth above include all waivers of fees. Without such fee waivers, the total returns would have been lower.

USAA Cornerstone Moderately Conservative Fund — Growth of $10,000

*Inception Date for the USAA Cornerstone Moderately Conservative Fund is 6/8/12.

¹The unmanaged Bloomberg U.S. Universal Index is an index that represents the union of the U.S. Aggregate Index, U.S. Corporate High-Yield, Investment Grade 144A Index, Eurodollar Index, U.S. Emerging Markets Index, and the non-ERISA eligible portion of the CMBS Index. The index covers USD denominated, taxable bonds that are rated either investment-grade or below investment-grade. This index does not include the effect of sales charges, commissions, expenses or taxes, is not representative of the Fund, and it is not possible to invest directly in an index.

²The Cornerstone Moderately Conservative Composite Index is a combination of unmanaged indexes representing the Fund's model allocation, and consists of the MSCI USA Investable Market Index (IMI) Gross (23%), the MSCI ACWI ex USA IMI Net (15%), the Bloomberg U.S. Universal Index (58%), the Bloomberg Commodity Index Total Return (1%), the MSCI U.S. Real Estate Investment Trust (REIT) Index Gross (1%), and the Bloomberg U.S. Treasury—Bills (1-3M) (2%). This index does not include the effect of sales charges, commissions, expenses or taxes, is not representative of the Fund, and it is not possible to invest directly in an index.

The graph reflects investment of growth of a hypothetical $10,000 investment in the Fund.

The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of shares.

Past performance is not indicative of future results.

 

 

USAA Mutual Funds Trust USAA Cornerstone Moderately Conservative Fund

May 31, 2022

  (Unaudited)

Investment Objective and Portfolio Holdings:

The Fund seeks current income with a secondary focus on capital appreciation.

Asset Allocation*:

May 31, 2022

(% of Net Assets)

*  Does not include futures contracts, 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%.

 

 

USAA Mutual Funds Trust USAA Cornerstone Moderately Conservative Fund

Schedule of Portfolio Investments May 31, 2022

(Amounts in Thousands, Except for Shares)

Security Description				Shares or Principal Amount				Value
Asset-Backed Securities (0.3%)
Drive Auto Receivables Trust, Series 2018-4, Class D, 4.09%, 1/15/26, Callable 11/15/22 @ 100				$	63			$	64
Exeter Automobile Receivables Trust, Series 2017-3A, Class D, 5.28%, 10/15/24, Callable 6/15/22 @ 100 (a)					110				110
HPEFS Equipment Trust, Series 2019-1A, Class C, 2.49%, 9/20/29, Callable 8/20/22 @ 100 (a)					48				48
HPEFS Equipment Trust, Series 2020-1A, Class B, 1.89%, 2/20/30, Callable 2/20/23 @ 100 (a)					55				55
NP SPE II LLC, Series 2017-1A, Class A1, 3.37%, 10/21/47, Callable 6/20/22 @ 100 (a)					59				56
SCF Equipment Leasing LLC, Series 2020-1A, Class B, 2.02%, 3/20/28, Callable 3/20/25 @ 100 (a)					107				102
Westlake Automobile Receivables Trust, Series 2020-1A, Class B, 1.94%, 4/15/25, Callable 10/15/23 @ 100 (a)					120				120
Total Asset-Backed Securities (Cost $561)									555
Collateralized Mortgage Obligations (0.2%)
Banc of America Commercial Mortgage Trust, Series 2008-1, Class AJ, 6.57%, 2/10/51, Callable 6/10/22 @ 100 (b)					26				25
Credit Suisse Commercial Mortgage Trust, Series 2007-C1, Class AMFL, 1.08% (LIBOR01M+19bps), 2/15/40, Callable 6/15/22 @ 100 (c)					3				3
DBJPM Mortgage Trust, Series 2016-SFC, Class A, 2.83%, 8/10/36, Callable 8/10/26 @ 100 (a)					500				470
Total Collateralized Mortgage Obligations (Cost $537)									498
Common Stocks (16.1%)
Communication Services (1.3%):
AT&T, Inc.					33,800				720
Comcast Corp. Class A					7,526				333
Omnicom Group, Inc.					3,624				271
The Interpublic Group of Cos., Inc.					19,124				616
Verizon Communications, Inc.					11,698				600
									2,540
Consumer Discretionary (1.1%):
Best Buy Co., Inc.					2,392				196
eBay, Inc.					5,669				276
Garmin Ltd.					779				82
Lennar Corp. Class A					8,376				672
Target Corp. (d)					3,508				568
Whirlpool Corp.					1,858				343
									2,137
Consumer Staples (0.8%):
Altria Group, Inc.					14,663				793
Philip Morris International, Inc.					5,046				536
Walgreens Boots Alliance, Inc.					8,616				378
									1,707

See notes to financial statements.

 

 

USAA Mutual Funds Trust USAA Cornerstone Moderately Conservative Fund

Schedule of Portfolio Investments — continued May 31, 2022

(Amounts in Thousands, Except for Shares)

Security Description				Shares				Value
Energy (0.7%):
EOG Resources, Inc.					3,338			$	457
Exxon Mobil Corp.					9,274				890
ONEOK, Inc.					1,333				88
									1,435
Financials (1.9%):
Discover Financial Services					3,447				391
JPMorgan Chase & Co.					4,349				575
M&T Bank Corp.					473				85
Moody's Corp.					2,114				637
Regions Financial Corp.					3,807				84
Synchrony Financial					11,463				425
T. Rowe Price Group, Inc.					4,963				631
The Goldman Sachs Group, Inc.					807				264
The Hartford Financial Services Group, Inc.					6,007				436
									3,528
Health Care (3.0%):
Abbott Laboratories					5,342				628
AbbVie, Inc.					2,571				379
Agilent Technologies, Inc.					5,327				680
Amgen, Inc.					2,105				540
Bristol-Myers Squibb Co.					2,929				221
Cardinal Health, Inc.					10,200				574
Gilead Sciences, Inc. (d)					12,599				817
Medtronic PLC					4,550				456
Merck & Co., Inc.					3,810				351
Pfizer, Inc.					4,805				255
West Pharmaceutical Services, Inc.					1,657				514
Zoetis, Inc.					3,191				545
									5,960
Industrials (1.3%):
3M Co.					5,027				751
Cintas Corp.					299				119
Cummins, Inc.					326				68
Lockheed Martin Corp.					981				432
Masco Corp.					8,628				489
Robert Half International, Inc.					3,318				299
United Parcel Service, Inc. Class B					2,477				451
									2,609
Information Technology (5.2%):
Accenture PLC Class A					732				218
Apple, Inc.					16,033				2,386
Applied Materials, Inc.					2,891				339
Broadcom, Inc.					1,201				697
Cisco Systems, Inc.					9,138				412
Cognizant Technology Solutions Corp. Class A					749				56
HP, Inc.					7,634				296
Intel Corp.					6,861				305
International Business Machines Corp.					5,969				829
KLA Corp.					1,549				565

See notes to financial statements.

 

 

USAA Mutual Funds Trust USAA Cornerstone Moderately Conservative Fund

Schedule of Portfolio Investments — continued May 31, 2022

(Amounts in Thousands, Except for Shares)

Security Description				Shares or Principal Amount				Value
Lam Research Corp.					460			$	239
Mastercard, Inc. Class A					327				117
Microsoft Corp. (d)					9,012				2,450
Monolithic Power Systems, Inc.					808				364
Motorola Solutions, Inc.					706				155
NetApp, Inc.					1,920				138
QUALCOMM, Inc.					1,767				253
Seagate Technology Holdings PLC					2,223				188
Skyworks Solutions, Inc.					502				55
Teradyne, Inc.					618				68
Visa, Inc. Class A					461				98
									10,228
Materials (0.2%):
LyondellBasell Industries NV Class A					4,352				497
Real Estate (0.2%):
American Tower Corp.					635				163
Crown Castle International Corp.					933				177
Equinix, Inc.					45				31
Prologis, Inc.					336				43
Public Storage					86				28
									442
Utilities (0.6%):
Evergy, Inc. (d)					1,003				70
NRG Energy, Inc.					18,237				839
The Southern Co. (d)					3,512				266
									1,175
Total Common Stocks (Cost $31,133)									32,258
Corporate Bonds (0.2%)
Financials (0.2%):
Cullen/Frost Capital Trust II, 3.13% (LIBOR03M+155bps), 3/1/34, Callable 7/11/22 @ 100 (c)				$	500				450
Total Corporate Bonds (Cost $462)									450
U.S. Government Agency Mortgages (0.1%)
Federal National Mortgage Association
Series 2016-M2, Class AV2, 2.15%, 1/25/23					136				135
Total U.S. Government Agency Mortgages (Cost $136)									135
U.S. Treasury Obligations (1.9%)
U.S. Treasury Notes, 1.63%, 4/30/23					3,800				3,784
Total U.S. Treasury Obligations (Cost $3,793)									3,784
Exchange-Traded Funds (41.2%)
First Trust TCW Securitized Plus ETF					239,250				5,594
Invesco DB Commodity Index Tracking Fund (e)					22,900				660

See notes to financial statements.

 

 

USAA Mutual Funds Trust USAA Cornerstone Moderately Conservative Fund

Schedule of Portfolio Investments — continued May 31, 2022

(Amounts in Thousands, Except for Shares)

Security Description				Shares				Value
Invesco FTSE RAFI Developed Markets ex-US ETF					35,176			$	1,584
Invesco FTSE RAFI Emerging Markets ETF					86,305				1,710
iShares 7-10 Year Treasury Bond ETF					30,537				3,155
iShares Core MSCI Emerging Markets ETF					86,733				4,560
iShares Core S&P 500 ETF					4,196				1,741
iShares Core S&P Small-Cap ETF					34,499				3,494
iShares Core US Aggregate Bond ETF					76,799				7,946
iShares Core US REIT ETF (d)					2,685				156
iShares JP Morgan USD Emerging Markets Bond ETF					5,268				481
iShares MSCI Canada ETF (f)					67,168				2,541
iShares MSCI International Momentum Factor ETF					71,831				2,386
iShares MSCI International Quality Factor ETF					81,444				2,795
JPMorgan BetaBuilders Canada ETF					8,198				539
Schwab Fundamental Emerging Markets Large Co. Index ETF					170,705				4,766
Schwab Fundamental International Large Co. Index ETF					237,343				7,510
Schwab Fundamental International Small Co. Index ETF					50,100				1,692
SPDR Bloomberg High Yield Bond ETF (d)					5,106				504
SPDR Gold Shares (e)					9,286				1,589
SPDR S&P Emerging Markets SmallCap ETF					7,496				396
U.S. Oil Fund LP (e) (f)					7,312				625
VanEck Gold Miners ETF					13,586				431
Vanguard FTSE All-World ex-US ETF					39,958				2,187
Vanguard FTSE Developed Markets ETF					100,729				4,584
Vanguard Mortgage-Backed Securities ETF					56,777				2,759
Vanguard Real Estate ETF					15,719				1,557
Vanguard Short-Term Bond ETF					33,858				2,625
Vanguard Small-Cap Value ETF (d) (f)					11,516				1,933
Vanguard Total Bond Market ETF (f)					49,999				3,834
Vanguard Total Stock Market ETF (d)					16,013				3,304
Wisdom Tree Trust — WisdomTree Emerging Markets SmallCap Dividend Fund					5,259				263
Xtrackers USD High Yield Corporate Bond ETF (f)					69,791				2,547
Total Exchange-Traded Funds (Cost $78,077)									82,448
Affiliated Exchange-Traded Funds (38.8%)
Victoryshares ESG Core Plus Bond ETF (f)					672,115				15,102
VictoryShares USAA Core Intermediate-Term Bond ETF (f)					1,236,020				59,452
VictoryShares USAA Core Short-Term Bond ETF					54,683				2,712
VictoryShares USAA MSCI Emerging Markets Value Momentum ETF (d)					9,770				436
Total Affiliated Exchange-Traded Funds (Cost $85,605)									77,702
Collateral for Securities Loaned (6.5%)^
Goldman Sachs Financial Square Government Fund, Institutional Shares, 0.67% (g)					6,215,197				6,215
Invesco Government & Agency Portfolio, Institutional Shares, 0.67% (g)					6,877,430				6,878
Total Collateral for Securities Loaned (Cost $13,093)									13,093
Total Investments (Cost $213,397) — 105.3%									210,923
Liabilities in excess of other assets — (5.3)%									(10,579	)
NET ASSETS — 100.00%								$	200,344

See notes to financial statements.

 

 

USAA Mutual Funds Trust USAA Cornerstone Moderately Conservative Fund

Schedule of Portfolio Investments — continued May 31, 2022

At May 31, 2022, the Fund's investments in foreign securities were 18.6% of net assets.

^  Purchased with cash collateral from securities on loan.

(a)  Rule 144A security or other security that is restricted as to resale to institutional investors. The Fund's Adviser has deemed this security to be liquid (unless otherwise noted as illiquid) based upon procedures approved by the Board of Trustees. As of May 31, 2022, the fair value of these securities was $961 thousands and amounted to 0.5% of net assets.

(b)  The rate for certain asset-backed and mortgage-backed securities may vary based on factors relating to the pool of assets underlying the security. The rate disclosed is the rate in effect at May 31, 2022.

(c)  Variable or Floating-Rate Security. Rate disclosed is as of May 31, 2022.

(d)  All or a portion of this security has been segregated as collateral for derivative instruments.

(e)  Non-income producing security.

(f)  All or a portion of this security is on loan.

(g)  Rate disclosed is the daily yield on May 31, 2022.

bps — Basis points

ETF — Exchange-Traded Fund

LIBOR — London Interbank Offered Rate

LIBOR01M — 1 Month US Dollar LIBOR, rate disclosed as of May 31, 2022, based on the last reset date of the security

LIBOR03M — 3 Month US Dollar LIBOR, rate disclosed as of May 31, 2022, based on the last reset date of the security

LLC — Limited Liability Company

LP — Limited Partnership

PLC — Public Limited Company

REIT — Real Estate Investment Trust

Futures Contracts Purchased

(Amounts not in thousands)

				Number of Contracts				Expiration Date				Notional Amount				Value				Unrealized Appreciation/ (Depreciation)
FTSE 100 Index Futures					17			6/20/22				$	1,572,905			$	1,624,693			$	51,788
S&P/Toronto Stock Exchange 60 Index Futures					9			6/16/22					1,834,730				1,784,059				(50,671	)
																				$	1,117

See notes to financial statements.

 

 

USAA Mutual Funds Trust USAA Cornerstone Moderately Conservative Fund

Schedule of Portfolio Investments — continued May 31, 2022

Futures Contracts Sold

(Amounts not in thousands)

				Number of Contracts				Expiration Date				Notional Amount				Value				Unrealized Appreciation/ (Depreciation)
ASX SPI 200 Index Futures					11			6/16/22				$	1,396,939			$	1,423,016			$	(26,077	)
Euro Stoxx 50 Futures					28			6/20/22					1,099,679				1,137,288				(37,609	)
Hang Seng Index Futures					7			6/29/22					912,096				954,237				(42,141	)
Tokyo Price Index Futures					8			6/9/22					1,121,886				1,186,451				(64,565	)
																				$	(170,392	)
Total unrealized appreciation																				$	51,788
Total unrealized depreciation																					(221,063	)
Total net unrealized appreciation (depreciation)																				$	(169,275	)

See notes to financial statements.

 

 

USAA Mutual Funds Trust

Statement of Assets and Liabilities May 31, 2022

(Amounts in Thousands, Except Per Share Amounts)  

				USAA Cornerstone Moderately Conservative Fund
Assets:
Affiliated investments, at value (Cost $85,605)				$	77,702
Unaffiliated investments, at value (Cost $127,792)					133,221	(a)
Cash					2,814
Deposit with broker for futures contracts					445
Receivables:
Interest and dividends					92
Capital shares issued					55
Variation margin on open futures contracts					7
From Adviser					33
Prepaid expenses					15
Total Assets					214,384
Liabilities:
Payables:
Collateral received on loaned securities					13,093
Collateral received from broker for futures contract					84
Investments purchased					596
Capital shares redeemed					43
Variation margin on open futures contracts					36
Accrued expenses and other payables:
Investment advisory fees					84
Administration fees					25
Custodian fees					3
Transfer agent fees					34
Compliance fees					—	(b)
Trustees' fees					1
Other accrued expenses					41
Total Liabilities					14,040
Net Assets:
Capital					192,995
Total accumulated earnings/(loss)					7,349
Net Assets				$	200,344
Shares (unlimited number of shares authorized with no par value):					17,847
Net asset value, offering and redemption price per share: (c)				$	11.23

(a)  Includes $12,748 thousand of securities on loan.

(b)  Rounds to less than $1 thousand.

(c)  Per share amount may not recalculate due to rounding of net assets and/or shares outstanding.

See notes to financial statements.

 

 

USAA Mutual Funds Trust

Statement of Operations For the Year Ended May 31, 2022

(Amounts in Thousands)  

				USAA Cornerstone Moderately Conservative Fund
Investment Income:
Income distributions from affiliated funds				$	1,004
Dividends from unaffiliated investments					2,721
Interest from unaffiliated investments					849
Securities lending (net of fees)					54
Foreign tax withholding					—	(a)
Total Income					4,628
Expenses:
Investment advisory fees					1,088
Administration fees					326
Sub-Administration fees					71
Custodian fees					20
Transfer agent fees					462
Trustees' fees					48
Compliance fees					2
Legal and audit fees					54
State registration and filing fees					23
Other expenses					55
Recoupment of prior expenses waived/reimbursed by Adviser					32
Total Expenses					2,181
Expenses waived/reimbursed by Adviser					(222	)
Net Expenses					1,959
Net Investment Income (Loss)					2,669
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains (losses) from unaffiliated investment securities and foreign currency transactions					13,887
Capital gain distributions received from affiliated funds					125
Net realized gains (losses) from futures contracts					291
Net change in unrealized appreciation/depreciation on affiliated investment securities					(7,625	)
Net change in unrealized appreciation/depreciation on unaffiliated investment securities and foreign currency translations					(22,136	)
Net change in unrealized appreciation/depreciation on futures contracts					(46	)
Net realized/unrealized gains (losses) on investments					(15,504	)
Change in net assets resulting from operations				$	(12,835	)

(a)  Rounds to less than $1 thousand.

See notes to financial statements.

 

 

USAA Mutual Funds Trust

Statements of Changes in Net Assets

(Amounts in Thousands)  

				USAA Cornerstone Moderately Conservative Fund
				Year Ended May 31, 2022				Year Ended May 31, 2021
From Investments:
Operations:
Net Investment Income (Loss)				$	2,669			$	3,052
Net realized gains (losses)					14,303				8,850
Net change in unrealized appreciation/depreciation					(29,807	)			22,233
Change in net assets resulting from operations					(12,835	)			34,135
Change in net assets resulting from distributions to shareholders					(14,110	)			(3,777	)
Change in net assets resulting from capital transactions					5,397				(29,253	)
Change in net assets					(21,548	)			1,105
Net Assets:
Beginning of period					221,892				220,787
End of period				$	200,344			$	221,892
Capital Transactions:
Proceeds from shares issued				$	24,022			$	24,253
Distributions reinvested					14,047				3,582
Cost of shares redeemed					(32,672	)			(57,088	)
Change in net assets resulting from capital transactions				$	5,397			$	(29,253	)
Share Transactions:
Issued					1,948				2,002
Reinvested					1,142				303
Redeemed					(2,665	)			(4,710	)
Change in Shares					425				(2,405	)

See notes to financial statements.

 

 

This page is intentionally left blank.

 

 

USAA Mutual Funds Trust

Financial Highlights

For a Share Outstanding Throughout Each Period

								Investment Activities												Distributions to Shareholders From
				Net Asset Value, Beginning of Period				Net Investment Income (Loss)				Net Realized and Unrealized Gains (Losses)				Total from Investment Activities				Net Investment Income				Net Realized Gains from Investments
USAA Cornerstone Moderately Conservative Fund
Year Ended May 31:
2022				$	12.74				0.15	(d)			(0.85	)			(0.70	)			(0.17	)			(0.64	)
2021				$	11.14				0.16	(d)			1.64				1.80				(0.17	)			(0.03	)
2020				$	10.94				0.23	(d)			0.22				0.45				(0.23	)			(0.02	)
2019				$	11.29				0.24				(0.14	)			0.10				(0.24	)			(0.21	)
2018				$	11.34				0.21				0.23				0.44				(0.21	)			(0.28	)

(a)  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.

(b)  The net expense ratio may not correlate to the applicable expense limits in place during the period since the current contractual expense limitation is applied for a period beginning July 1, 2019, and in effect through June 30, 2023, instead of coinciding with the Fund's fiscal year end. Details of the current contractual expense limitation in effect can be found in Note 4 of the accompanying Notes to Financial Statements.

(c)  Does not include acquired fund fees and expenses, if any.

(d)  Per share net investment income (loss) has been calculated using the average daily shares method.

(e)  Reflects increased usage of quantitative investment strategies.

See notes to financial statements.

 

 

USAA Mutual Funds Trust

Financial Highlights — continued

For a Share Outstanding Throughout Each Period

																Ratios to Average Net Assets												Supplemental Data
				Total Distributions				Net Asset Value, End of Period				Total Return(a)				Net Expenses(b)(c)				Net Investment Income (Loss)				Gross Expenses(c)				Net Assets, End of Period (000's)				Portfolio Turnover
USAA Cornerstone Moderately Conservative Fund
Year Ended May 31:
2022					(0.81	)		$	11.23				(5.95	)%			0.90	%			1.23	%			1.00	%		$	200,344				61	%
2021					(0.20	)		$	12.74				16.30	%			0.90	%			1.35	%			1.02	%		$	221,892				52	%
2020					(0.25	)		$	11.14				4.09	%			0.90	%			2.05	%			1.02	%		$	220,787				84	%
2019					(0.45	)		$	10.94				0.99	%			0.90	%			2.22	%			1.08	%		$	226,484				77	%(e)
2018					(0.49	)		$	11.29				3.89	%			0.90	%			1.84	%			1.07	%		$	221,721				45	%

See notes to financial statements.

 

 

USAA Mutual Funds Trust

Notes to Financial Statements May 31, 2022

1. Organization:

USAA Mutual Funds Trust (the "Trust") is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end investment company. The Trust is comprised of 45 funds and is authorized to issue an unlimited number of shares, which are units of beneficial interest with no par value.

The accompanying financial statements are those of the USAA Cornerstone Moderately Conservative Fund (the "Fund"). The Fund is classified as diversified under the 1940 Act.

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 Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects that risk of loss to be remote.

2. Significant Accounting Policies:

The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with U.S. Generally Accepted Accounting Principles ("GAAP"). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. The Fund follows the specialized accounting and reporting requirements under GAAP that are applicable to investment companies under Accounting Standards Codification Topic 946.

Investment Valuation:

The Fund records investments at fair value. 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 valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund's investments are summarized in the three broad levels listed below:

• Level 1 — quoted prices in active markets for identical securities

• Level 2 — other significant observable inputs (including quoted prices for similar securities or interest rates applicable to those securities, etc.)

• Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The inputs or methodologies used for valuation techniques are not necessarily an indication of the risks associated with entering into those investments.

Victory Capital Management Inc. ("VCM" or the "Adviser") has established the Pricing and Liquidity Committee (the "Committee"), and subject to the Trust's Board of Trustees' (the "Board") oversight, the Committee administers and oversees the Fund's valuation policies and procedures, which are approved by the Board.

Portfolio securities listed or traded on securities exchanges, including Exchange-Traded Funds ("ETFs"), and American Depositary Receipts ("ADRs"), are valued at the closing price on the exchange or system where the security is principally traded, if available, or at the Nasdaq Official Closing Price. If there have been no sales for that day on the exchange or system, then a security is valued at the last available bid quotation on the exchange or system where the security is principally traded. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

Investments in open-end investment companies, including underlying funds, are valued at their net asset value ("NAV"). These valuations are typically categorized as Level 1 in the fair value hierarchy.

Debt securities are valued each business day by a pricing service approved by the Board. The approved pricing service uses the evaluated bid or the last sale price to value securities. Debt obligations maturing within 60 days may be valued at amortized cost, provided that the amortized cost represents the fair value of such securities. These valuations are typically categorized as Level 2 in the fair value hierarchy.

Futures contracts are valued at the settlement price established each day by the board of trade or an exchange on which they are traded. These valuations are typically categorized as Level 1 in the fair value hierarchy.

In the event that price quotations or valuations are not readily available, investments are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Board. These valuations are typically categorized as Level 2 or Level 3 in the fair value hierarchy, based on the observability of inputs used to determine the fair value. 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.

A summary of the valuations as of May 31, 2022, based upon the three levels defined above, is included in the table below while the breakdown, by category, of investments is disclosed on the Schedule of Portfolio Investments (amounts in thousands):

				Level 1				Level 2				Level 3				Total
Asset-Backed Securities				$	—			$	555			$	—			$	555
Collateralized Mortgage Obligations					—				498				—				498
Common Stocks					32,258				—				—				32,258
Corporate Bonds					—				450				—				450
U.S. Government Agency Mortgages					—				135				—				135
U.S. Treasury Obligations					—				3,784				—				3,784
Exchange-Traded Funds					82,448				—				—				82,448
Affiliated Exchange-Traded Funds					77,702				—				—				77,702
Collateral for Securities Loaned					13,093				—				—				13,093
Total				$	205,501			$	5,422			$	—			$	210,923
Other Financial Investments*
Assets:
Futures Contracts				$	52			$	—			$	—			$	52
Liabilities:
Futures Contracts				$	(221	)		$	—			$	—			$	(221	)
Total				$	(169	)		$	—			$	—			$	(169	)

*  Futures contracts are valued at the unrealized appreciation (depreciation) on the investment.

For the year ended May 31, 2022, there were no transfers in or out of Level 3 in the fair value hierarchy.

Real Estate Investment Trusts ("REITs"):

The Fund may invest in REITs, which report information on the source of their distributions annually. REITs are pooled investment vehicles that invest primarily in income producing real estate or real estate related loans or interests (such as mortgages). Certain distributions received from REITs during the year are recorded as realized gains or return of capital as estimated by the Fund or when such information becomes known.

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

Investment Companies:

Exchange-Traded Funds:

The Fund may invest in ETFs, the shares of which are bought and sold on a securities exchange. An ETF trades like common stock and represents a fixed portfolio of securities often designed to track the performance and dividend yield of a particular domestic or foreign market index. The Fund may purchase shares of an ETF to temporarily gain exposure to a portion of the U.S. or a foreign market while awaiting purchase of underlying securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although the lack of liquidity of an ETF could result in it being more volatile. Additionally, ETFs have fees and expenses that reduce their value.

Open-End Funds:

The Fund may invest in portfolios of open-end investment companies. These investment companies value securities in their portfolios for which market quotations are readily available at their market values (generally the last reported sale price) and all other securities and assets at their fair value by the methods established by the board of directors of the underlying funds.

Mortgage- and Asset-Backed Securities:

The values of some mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose the Fund to a lower rate of return upon reinvestment of principal. The values of mortgage- and asset-backed securities depend in part on the credit quality and adequacy of the underlying assets or collateral and may fluctuate in response to the market's perception of these factors as well as current and future repayment rates. Some mortgage-backed securities are backed by the full faith and credit of the U.S. government (e.g., mortgage-backed securities issued by the Government National Mortgage Association, commonly known as "Ginnie Mae"), while other mortgage-backed securities (e.g., mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, commonly known as "Fannie Mae" and "Freddie Mac," respectively), are backed only by the credit of the government entity issuing them. In addition, some mortgage-backed securities are issued by private entities and, as such, are not guaranteed by the U.S. government or any agency or instrumentality of the U.S. government.

Derivative Instruments:

Futures Contracts:

The Fund may enter into contracts for the future delivery of securities or foreign currencies and futures contracts based on a specific security, class of securities, foreign currency or an index, and purchase or sell options on any such futures contracts. A futures contract on a securities index is an agreement obligating either party to pay, and entitling the other party to receive, while the contract is outstanding, cash payments based on the level of a specified securities index. No physical delivery of the underlying asset is made. The Fund may enter into futures contracts in an effort to hedge against market risks. The acquisition of put and call options on futures contracts will give the Fund the right (but not the obligation), for a specified price, to sell or to purchase the underlying futures contract, upon exercise of the option, at any time during the option period. Futures transactions involve brokerage costs and require the Fund to segregate assets to cover contracts that would require it to purchase securities or currencies. A good faith margin deposit, known as initial margin, of cash or government securities with a broker or custodian is required to initiate and maintain open positions in futures contracts. Subsequent payments, known as variation margin, are made or received by the Fund based on the change in the market value of the position and are recorded as unrealized appreciation or depreciation until the contract is closed out, at which time the gain or loss is realized. The Fund may lose the expected benefit of futures transactions if interest rates, exchange rates or securities prices change in an unanticipated manner. Such unanticipated changes may also result in lower overall performance than if the Fund had not entered into any futures transactions. In addition, the value of the Fund's futures positions may not prove to be perfectly or even highly correlated with the value of its portfolio securities or

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

foreign currencies, limiting the Fund's ability to hedge effectively against interest rate, exchange rate and/or market risk and giving rise to additional risks. There is no assurance of liquidity in the secondary market for purposes of closing out futures positions.

The collateral held by the Fund is reflected on the Statement of Assets and Liabilities under Deposit with broker for futures contracts and Collateral received from broker for futures contracts.

Management has determined that no offsetting requirements exist as a result of their conclusion that the Fund is not subject to master netting agreements for futures contracts. During the year ended May 31, 2022, the Fund entered into futures contracts primarily for the strategy of gaining exposure to a particular asset class or securities market.

Summary of Derivative Instruments:

The following table summarizes the fair values of derivative instruments on the Statement of Assets and Liabilities, categorized by risk exposure, as of May 31, 2022 (amounts in thousands):

				Assets				Liabilities
				Variation Margin Receivable on Open Futures Contracts*				Variation Margin Payable on Open Futures Contracts*
Equity Risk Exposure				$	52			$	221

*  Includes cumulative unrealized appreciation (depreciation) of futures contracts as reported on the Schedule of Portfolio Investments. Only current day's variation margin for futures contracts is reported within the Statement of Assets and Liabilities.

The following table presents the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended May 31, 2022 (amounts in thousands):

				Net Realized Gains (Losses) on Derivatives Recognized as a Result of Operations				Net Change in Unrealized Appreciation/Depreciation on Derivatives Recognized as a Result of Operations
				Net Realized Gains (Losses) from Futures Contracts				Net Change in Unrealized Appreciation/Depreciation on Futures Contracts
Equity Risk Exposure				$	291			$	(46	)

All open derivative positions at year end are reflected on the Fund's Schedule of Portfolio Investments. The underlying face value of open derivative positions relative to the Fund's net assets at year end is generally representative of the notional amount of open positions to net assets throughout the year.

Investment Transactions and Related Income:

Changes in holdings of investments are accounted for no later than one business day following the trade date. For financial reporting purposes, however, investment transactions are accounted for on trade date or the last business day of the reporting period. Interest income is determined on the basis of coupon interest accrued using the effective interest method which adjusts, where applicable, the amortization of premiums or accretion of discounts. Dividend income is recorded on the ex-dividend date. Gains or losses realized on sales of securities are recorded on the identified cost basis. Paydown gains or losses on applicable securities, if any, are recorded as components of Interest income on the Statement of Operations.

Withholding taxes on interest, dividends, and gains as a result of certain investments in ADRs by the Fund have been provided for in accordance with each investment's applicable country's tax rules and rates.

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

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 and banks, to earn additional income, net of income retained by Citibank. Borrowers are required to initially secure their loans for collateral in the amount of at least 102% of the value of U.S. securities loaned or at least 105% of the value of non-U.S. securities loaned, marked-to-market daily. Any collateral shortfalls associated with increases in the valuation of the securities loaned are generally cured the next business day. The collateral can be received in the form of cash collateral and/or non-cash collateral. Non-cash collateral can include U.S. Government Securities and other securities as permitted by Securities and Exchange Commission ("SEC") guidelines. The cash collateral is invested in short-term instruments or cash equivalents, primarily open-end investment companies, as noted on the Fund's Schedule of Portfolio Investments. The Fund effectively does not have control of the non-cash collateral and therefore it is not disclosed on the Fund's Schedule of Portfolio 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. During the time portfolio securities are on loan, the borrower will pay the Fund any dividends or interest paid on such securities plus any fee negotiated between the parties to the lending agreement. The Fund also earns a return from the collateral. The Fund pays Citibank various fees in connection with the investment of cash collateral and fees based on the investment income received from securities lending activities. Securities lending income (net of these fees) is disclosed on the Statement of Operations. 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. Although risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them. In addition, there is a risk 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 repledged, except to satisfy borrower default.

The following table (amounts in thousands) is a summary of the Fund's securities lending transactions as of May 31, 2022.

Value of Securities on Loan				Non-Cash Collateral				Cash Collateral
$	12,748			$	—			$	13,093

Foreign Currency Translations:

The accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities of the Fund denominated in a foreign currency are translated into U.S. dollars at current exchange rates. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rates on the date of the transactions. The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are disclosed as Net change in unrealized appreciation/depreciation on investment securities and foreign currency translations on the Statement of Operations. Any realized gains or losses from these fluctuations are disclosed as Net realized gains (losses) from investment securities and foreign currency transactions on the Statement of Operations.

Foreign Taxes:

The Fund may be subject to foreign taxes related to foreign income received (a portion of which may be reclaimable), capital gains on the sale of securities, and certain foreign currency transactions. All foreign taxes are recorded in accordance with the applicable regulations and rates that exist in the foreign jurisdictions in which the Fund invests.

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

Federal Income Taxes:

The Fund intends to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes is required in the financial statements. The Fund has a tax year end of May 31.

For the year ended May 31, 2022, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain tax positions.

Management of the Fund has reviewed tax positions taken in tax years that remain subject to examination by all major tax jurisdictions, including federal (i.e., the last four tax years, which includes the current fiscal tax year end). Management believes that there is no tax liability resulting from unrecognized tax benefits related to uncertain tax positions taken.

Allocations:

Expenses directly attributable to the Fund are charged to the Fund, while expenses that are attributable to more than one fund in the Trust, or jointly with an affiliated trust, are allocated among the respective funds in the Trust and/or an affiliated trust based upon net assets or another appropriate basis.

Cross-Trade Transactions:

Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in cross-trades, which are securities transactions with affiliated investment companies and advisory accounts managed by the Adviser and any applicable sub-adviser. Any such purchase or sale transaction must be effected without brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security's last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. For the year ended May 31, 2022, the Fund engaged in the following securities transactions with affiliated funds, which resulted in the following net realized gains (losses) (amounts in thousands):

Purchases				Sales				Net Realized Gains (Losses)
$	—			$	7,210			$	127

3. Purchases and Sales:

Purchases and sales of securities (excluding securities maturing less than one year from acquisition) for the year ended May 31, 2022, were as follows for the Fund (amounts in thousands):

Excluding U.S. Government Securities								U.S. Government Securities
Purchases				Sales				Purchases				Sales
$	131,098			$	111,597			$	—			$	25,463

4. Fees and Transactions with Affiliates and Related Parties:

Investment Advisory Fees:

Investment advisory services are provided to the Fund by the Adviser, which is a New York corporation registered as an investment adviser with the SEC. The Adviser is an indirect wholly owned subsidiary of Victory Capital Holdings, Inc., a publicly traded Delaware corporation, and a wholly owned direct subsidiary of Victory Capital Operating, LLC.

Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive fees accrued daily and paid monthly at an annualized rate of 0.50% of the Fund's average daily net assets. Amounts

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

incurred and paid to VCM for the year ended May 31, 2022, are reflected on the Statement of Operations as Investment advisory fees.

The Trust relies on an exemptive order granted to VCM and its affiliated funds by the SEC in March 2019 permitting the use of a "manager-of-managers" structure for certain funds. 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. For the year ended May 31, 2022, the Fund had no subadvisers.

Administration and Servicing Fees:

VCM also serves as the Fund's administrator and fund accountant. Under the Fund Administration, Servicing and Accounting Agreement, VCM is paid an administration and servicing fee that is accrued daily and paid monthly at an annualized rate of 0.15%, which is based on the Fund's average daily net assets. Amounts incurred for the year ended May 31, 2022, are reflected on the Statement of Operations as Administration fees.

Citi Fund Services Ohio, Inc. ("Citi"), an affiliate of Citibank, acts as sub-administrator and sub-fund accountant to the Fund pursuant to a Sub-Administration and Sub-Fund Accounting Services Agreement between VCM and Citi. VCM pays Citi a fee for providing these services. The Fund reimburses VCM and Citi for out-of-pocket expenses incurred in providing these services and certain other expenses specifically allocated to the Fund. Amounts incurred for the year ended May 31, 2022, are reflected on the Statement of Operations as Sub-Administration fees.

The Fund (as part of the Trust) has entered into an agreement with the Adviser to provide compliance services, pursuant to which the Adviser furnishes its compliance personnel, including the services of the Chief Compliance Officer ("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 CCO is an employee of the Adviser, which pays the compensation of the CCO and support staff. The funds in the Trust, Victory Variable Insurance Funds, Victory Portfolios, and Victory Portfolios II (collectively, the "Victory Funds Complex") in the aggregate, compensate the Adviser for these services. Amounts incurred for the year ended May 31, 2022, are reflected on the Statement of Operations as Compliance fees.

Transfer Agency Fees:

Victory Capital Transfer Agency, Inc. ("VCTA"), an affiliate of the Adviser, provides transfer agency services to the Fund. VCTA provides transfer agent services to the Fund based on an annual charge of $23 per shareholder account plus out-of-pocket expenses. VCTA pays a portion of these fees to certain intermediaries for the administration and servicing of accounts that are held with such intermediaries. Amounts incurred and paid to VCTA for the year ended May 31, 2022, are reflected on the Statement of Operations as Transfer agent fees.

FIS Investor Services LLC serves as sub-transfer agent and dividend disbursing agent for the Fund pursuant to a Sub-Transfer Agent Agreement between VCTA and FIS Investor Services LLC. VCTA provides FIS Investor Services LLC a fee for providing these services.

Distributor/Underwriting Services:

Victory Capital Services, Inc. (the "Distributor"), an affiliate of the Adviser, serves as Distributor for the continuous offering of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Trust, and receives no fee or other compensation for these services.

Other Fees:

Citibank serves as the Fund's custodian. The Fund pays Citibank a fee for providing these services. Amounts incurred for the year ended May 31, 2022, are reflected on the Statement of Operations as Custodian fees.

K&L Gates LLP provides legal services to the Trust.

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

The Adviser has entered into an expense limitation agreement with the Fund until at least June 30, 2023. Under the terms of the agreement, the Adviser has agreed to waive fees or reimburse certain expenses to the extent that ordinary operating expenses incurred in any fiscal year exceed the expense limits for the Fund. Such excess amounts will be the liability of the Adviser. Acquired fund fees and expenses, interest, taxes, brokerage commissions, other expenditures, which are capitalized in accordance with GAAP, and other extraordinary expenses not incurred in the ordinary course of the Fund's business are excluded from the expense limits. As of May 31, 2022, the expense limit (excluding voluntary waivers) was 0.90%.

In addition, the Fund invests in affiliated VCM exchange-traded fund(s) ("affiliated ETFs"). The Fund's advisory fee is reimbursed by VCM that to the extent of the indirect advisory fee incurred through the Fund's proportional investment in the affiliated ETFs. These affiliated ETF advisory fee reimbursements are not available for recoupment. For the year ended May 31, 2022, the Fund incurred reimbursable expenses of $222 thousand, of which $175 thousand consisted of affiliated ETF Adviser fee reimbursements. The Fund has a receivable related to these reimbursable expenses from the Adviser for $33 thousand, pursuant to the Fund's expense limitation agreement.

Under the terms of the expense limitation agreement, as amended May 1, 2021, the Fund has agreed to repay fees and expenses that were waived or reimbursed by the Adviser for a period of up to three years (thirty-six (36) months) after the waiver or reimbursement took place, subject to the lesser of any operating expense limits in effect at the time of: (a) the original waiver or expense reimbursement; or (b) the recoupment, after giving effect to the recoupment amount. Prior to May 1, 2021, the Adviser was permitted to recoup 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 limitations above. This change did not have any effect on the amounts previously reported for recoupment.

As of May 31, 2022, the following amounts are available to be repaid to the Adviser (amounts in thousands). The Fund has not recorded any amounts available to be repaid as a liability due to an assessment that such repayments are not probable at May 31, 2022.

Expires 2023				Expires 2024				Expires 2025				Total
$	219			$	246			$	47			$	512

The Adviser may voluntarily waive or reimburse additional fees to assist the Fund in maintaining competitive expense ratios. Voluntary waivers and reimbursements applicable to the Fund are not available to be recouped at a future time. There were no voluntary waivers or reimbursements for the year ended May 31, 2022.

Certain officers and/or interested trustees of the Fund are also officers and/or employees of the Adviser, administrator, fund accountant, sub-administrator, sub-fund accountant, custodian, and Distributor.

5. Risks:

The Fund may be subject to other risks in addition to these identified risks.

Tactical Allocation Risk — The Fund has a targeted risk tolerance and a corresponding asset allocation target; however, mere asset allocation and volatility are not the sole determination of risk. The Fund's managers will tactically allocate away from the target allocation as market conditions and the perceived risks warrant. The Fund bears the risk that the managers' tactical allocation will not be successful.

Affiliated Funds Risk — The risks of the Fund directly correspond to the risks of the underlying affiliated funds in which the Fund invests. By investing in the underlying affiliated funds, the Fund has exposure to the risk of many different areas of the market. The degree to which the risks described below apply to the Fund varies according to the Fund's asset allocation. For instance, the more the Fund is allocated to stock funds, the greater the risk associated with equity securities. The Fund also is subject to asset allocation risk (i.e., the risk that allocations will not produce the intended results) and to management risk (i.e., the risk that the selection of underlying affiliated funds will not produce the intended results).

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

Conflict of Interest Risk — In managing a Fund that invests in underlying affiliated funds, the Adviser may have conflicts of interest in allocating the Fund's assets among the various underlying affiliated funds. This is because the fees payable by some of the underlying affiliated funds to the Adviser and/or its affiliates are higher than the fees payable by other underlying affiliated funds, and because the Adviser also manages and administers the underlying affiliated funds.

ETF Risk — ETFs, which generally are registered investment companies, incur their own management and other fees and expenses, such as trustees' fees, operating expenses, registration fees, and marketing expenses, a proportionate share of which will be borne indirectly by the Fund as a shareholder in an ETF. As a result, the Fund's investment in an ETF will cause the Fund to indirectly bear the fees and expenses of the ETF and, in turn, the Fund's performance may be lower than if the Fund were to invest directly in the underlying securities held by the ETF. For investments in affiliated ETFs, the Fund's management fee is reimbursed by the Adviser to the extent of the indirect management fee incurred through the Fund's investment in the affiliated ETFs. The Adviser may have conflicts of interest in allocating assets among affiliated and unaffiliated ETFs, because the Adviser also manages and administers the affiliated ETFs, and the Adviser and its affiliates receive other fees from the affiliated ETFs. In addition, the Fund also will be subject to the risks associated with the securities or other investments held by the ETFs.

LIBOR Discontinuation Risk — The London Interbank Offered Rate ("LIBOR") discontinuation may adversely affect the financial markets generally and the Fund's operations, finances and investments specifically. LIBOR has been the principal floating-rate benchmark in the financial markets, and a large portion of the Fund's assets are tied to LIBOR. However, LIBOR has been or will be discontinued as a floating rate benchmark. The date of discontinuation depends on the LIBOR currency and tenor. With limited exceptions, no new LIBOR obligations will be entered into after December 31, 2021. Existing LIBOR obligations have transitioned or will transition to another benchmark, depending on the LIBOR currency and tenor. For some existing LIBOR-based obligations, the contractual consequences of the discontinuation of LIBOR may not be clear.

Non-LIBOR floating-rate obligations, including Secured Overnight Financing Rate ("SOFR")-based obligations, may have returns and values that fluctuate more than those of floating-rate debt obligations that are based on LIBOR or other rates. Also, because SOFR and some alternative floating rates are relatively new market indexes, markets for certain non-LIBOR obligations may never develop or may not be liquid. Market terms for non-LIBOR floating rate obligations, such as the spread over the index reflected in interest-rate provisions, may evolve over time, and prices of non-LIBOR floating rate obligations may be different depending on when they are issued and changing views about correct spread levels.

Various SOFR-based rates, including SOFR-based term rates, and various non-SOFR-based rates are expected to develop in response to the discontinuation of U.S. dollar LIBOR, which may create various risks for the Fund and the financial markets more generally. There are non-LIBOR forward-looking floating rates that are not based on SOFR and that may be considered by participants in the financial markets as LIBOR alternatives. Such rates include AMERIBOR (American Interbank Offered Rate), BSBY (Bloomberg Short-Term Bank Yield Index) and BYI (Bank Yield Index). Unlike forward-looking SOFR-based term rates, such rates are intended to reflect a bank credit spread component.

It is not clear how replacement rates for LIBOR — including SOFR-based rates and non-SOFR-based rates — will develop and to what extent they will be used. There is no assurance that these replacement rates will be suitable substitutes for LIBOR, and thus the substitution of such rates for LIBOR could have an adverse effect on the Fund and the financial markets more generally. Concerns about market depth and stability could affect the development of non-SOFR-based term rates, and such rates may create various risks, which may or may not be similar to the risks relating to SOFR.

Market Risk — Overall market risks may affect the value of the Fund. Domestic and international factors such as political events, war, terrorism, trade disputes, inflation rates, interest rate levels and other fiscal and monetary policy changes, cybersecurity incidents, pandemics and other public health crises, sanctions against a particular foreign country, its nationals, businesses or industries and related geopolitical events, as well as environmental disasters such as earthquakes, fires, and floods or other catastrophes, may add to instability in global economies and markets generally, and may lead to

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

increased market volatility. Global economies and financial markets are highly interconnected, which increases the possibility that conditions in one country or region might adversely affect issuers in another country or region. The impact of these and other factors may be short-term or may last for extended periods.

6. Borrowing and Interfund Lending:

Line of Credit:

The Victory Funds Complex participates in a short-term demand note "Line of Credit" agreement with Citibank. The Line of Credit agreement with Citibank was renewed on June 28, 2021, with a termination date of June 27, 2022. Under the agreement with Citibank, the Victory Funds Complex may borrow up to $600 million, of which $300 million is committed and $300 million is uncommitted. $40 million of the Line of Credit is reserved for use by the Victory Floating Rate Fund, another series of the Victory Funds Complex, with Victory Floating Rate Fund paying the related commitment fees for that amount. The purpose of the Line of Credit is to meet temporary or emergency cash needs. For the year ended May 31, 2022, Citibank received an annual commitment fee of 0.15% on $300 million for providing the Line of Credit. Each fund in the Victory Funds Complex pays a pro-rata portion of the commitment fees plus any interest (one-month LIBOR plus one percent, with LIBOR to be replaced by a different benchmark rate in accordance with the terms of the agreement) on amounts borrowed. Prior to June 28, 2021, the Victory Funds Complex paid an annual commitment fee of 0.15% and an upfront fee of 0.10%. Each fund in the Victory Funds Complex paid a pro-rata portion of the upfront fee. Effective with the June 27, 2022, agreement renewal, the interest rate formal on amounts borrowed based on the published 1-month LIBOR rate plus one percent was changed to an interest rate based on the published 1-month SOFR plus 1.10 percent. Interest charged to each fund during the period, if applicable, is reflected on the Statements of Operations under Line of credit fees.

The Fund had no borrowings under the Line of Credit agreement during the year ended May 31, 2022.

Interfund Lending:

The Trust and the Adviser rely on an exemptive order granted by the SEC in March 2017 (the "Order"), permitting the establishment and operation of an Interfund Lending Facility (the "Facility"). The Facility allows the Fund to directly lend and borrow money to or from any other fund in the Victory Funds Complex that is permitted to participate in the Facility, relying upon the 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 otherwise might require the untimely disposition of securities, and are subject to each Fund's borrowing restrictions. The interfund loan rate is determined, as specified in the Order, by averaging the current repurchase agreement rate and the current bank loan rate. As a Borrower, interest charged to the Fund, if any, during the period, is reflected on the Statement of Operations under Interfund lending fees. As a Lender, interest earned by the Fund, if any, during the period, is reflected on the Statement of Operations under Interfund lending.

The Fund did not utilize or participate in the Facility during the year ended May 31, 2022.

7. Federal Income Tax Information:

The Fund intends to distribute any net investment income quarterly. Distributable net realized gains, if any, are declared and paid at least annually.

The amounts of dividends from net investment income and distributions from net realized gains (collectively, distributions to shareholders) are determined in accordance with federal income tax regulations, which may differ from GAAP. To the extent these "book/tax" differences are permanent in nature (e.g., net operating loss and distribution reclassification), such amounts are reclassified within the components of net assets based on their federal tax-basis treatment; temporary differences (e.g., wash sales) do not require reclassification. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital.

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

Net investment losses incurred by the Fund may be reclassified as an offset to capital on the accompanying Statement of Assets and Liabilities.

As of May 31, 2022, on the Statements of Assets and Liabilities, as a result of permanent book-to-tax differences, reclassification adjustments were as follows (amounts in thousands):

Total Accumulated Earnings/(Loss)				Capital
$	(395	)		$	395

The tax character of distributions paid during the tax years ended, as noted below, were as follows (total distributions paid may differ from the Statements of Changes in Net Assets because, for tax purposes, dividends are recognized when actually paid) (amounts in thousands):

Year Ended May 31, 2022												Year Ended May 31, 2021
Distributions Paid From												Distributions Paid From
Ordinary Income				Net Long-Term Capital Gains				Total Distributions Paid				Ordinary Income				Net Long-Term Capital Gains				Total Distributions Paid
$	6,440			$	7,670			$	14,110			$	3,243			$	534			$	3,777

As of May 31, 2022, the components of accumulated earnings (loss) on a tax basis were as follows (amounts in thousands):

Undistributed Ordinary Income				Undistributed Long-Term Capital Gains				Other Earnings (Loss)				Accumulated Earnings				Unrealized Appreciation (Depreciation)*				Total Accumulated Earnings (Loss)
$	935			$	9,720			$	(1	)		$	10,654			$	(3,305	)		$	7,349

*  The difference between the book-basis and tax-basis of unrealized appreciation (depreciation) is attributable to the tax deferral of losses on wash sales, futures, trust preferred and grantor trust securities accruals, partnership, and REITs/return of capital.

As of May 31, 2022, the Fund had no capital loss carryforwards for federal income tax purposes.

As of May 31, 2022, the cost basis for federal income tax purposes, gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation (depreciation) for investments were as follows (amounts in thousands):

Cost of Investments for Federal Tax Purposes				Gross Unrealized Appreciation				Gross Unrealized Depreciation				Net Unrealized Appreciation (Depreciation)
$	214,045			$	9,749			$	(13,054	)		$	(3,305	)

8. Affiliated Securities:

An affiliated security is a security in which the Fund has ownership of at least 5% of the security's outstanding voting shares, an investment company managed by VCM, or an issuer under common control with a Fund or VCM. The Fund does not invest in affiliated securities for the purpose of exercising management or control. These securities are noted as affiliated on the Fund's Schedule of Portfolio Investments. The financial statements of the underlying funds can be found in shareholder reports filed with the SEC by each such underlying fund semi-annually on Form N-CSR and are available for

 

 

USAA Mutual Funds Trust

Notes to Financial Statements — continued May 31, 2022

download from both the SEC's as well as each respective underlying fund's website. Transactions in affiliated securities during the year ended May 31, 2022, were as follows (amounts in thousands):

				Fair Value 5/31/2021				Purchases at Cost				Proceeds from Sales				Realized Gains (Losses)				Capital Gain Distribution				Net Change in Unrealized Appreciation/ Depreciation				Fair Value 5/31/2022				Dividend Income
VictoryShares ESG Core Plus Bond ETF				$	—			$	33,279			$	(16,640	)		$	—			$	—			$	(1,537	)		$	15,102			$	142
VictoryShares USAA Core Intermediate-Term Bond ETF					24,121				82,451				(41,225	)			—				119				(5,895	)			59,452				792
VictoryShares USAA Core Short-Term Bond ETF					2,838				—				—				—				6				(126	)			2,712				49
VictoryShares USAA MSCI Emerging Markets Value Momentum ETF					503				—				—				—				—				(67	)			436				21
				$	27,462			$	115,730			$	(57,865	)		$	—			$	125			$	(7,625	)		$	77,702			$	1,004

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Trustees of USAA Cornerstone Moderately Conservative Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of USAA Cornerstone Moderately Conservative Fund (the "Fund") (one of the funds constituting USAA Mutual Funds Trust (the "Trust")), including the schedule of portfolio investments, as of May 31, 2022, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting USAA Mutual Funds Trust) at May 31, 2022, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust's internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 2022, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

  

We have served as the auditor of one or more Victory Capital investment companies since 1995.

San Antonio, Texas
July 29, 2022

 

 

USAA Mutual Funds Trust

Supplemental Information May 31, 2022

  (Unaudited)