ANNUAL REPORT USAA PRECIOUS METALS AND MINERALS FUND

Transcription

1 ANNUAL REPORT USAA PRECIOUS METALS AND MINERALS FUND FUND SHARES INSTITUTIONAL SHARES ADVISER SHARES MAY 31, 2018

2 PRESIDENT S MESSAGE while media coverage during the reporting period suggested that the markets were experiencing extreme turbulence, the volatility has actually been near historical norms. July 2018 When the reporting period began in June 2017, the world generally was experiencing synchronized economic growth. This global expansion, along with mild inflation and strong corporate earnings, helped propel stocks to record highs. In the bond market, prices were generally supported by historically low interest rates. (Bond prices and interest rates move in opposite directions.) Although the Federal Reserve (Fed) raised short-term interest rates at its June 2017 policy meeting, longer-term interest rates, which are determined by the market, fell during the summer 2017 after inflation dropped below the Fed s 2% target. Longer-term interest rates then moved up in the closing months of 2017 as the Fed stated it remained on track to raise short-term interest rates before year-end In December 2017, the Fed implemented another interest rate increase. Investor sentiment shifted in early Volatility, noticeably absent during 2017, returned to the markets in February 2018 as inflation fears surfaced. Stock prices fell, and longer-term interest rates rose. The turbulence continued into March 2018 and through the end of the reporting period. An increase in trade tensions between the U.S. and China further fueled the volatility. In March and April 2018, U.S. inflation rose above the Fed s target, suggesting the central bank might increase the pace of its interest rate increases. (The Fed raised short-term interest rates in March 2018.) The inflation data helped push the 10-year U.S. Treasury yield to 3% for the first time since At the same time, global economic synchronicity faded, with softening growth in Europe. In the U.S., the economic expansion continued, but given that it became the second longest in U.S. history at the beginning of May 2018, a number of observers began to question how much longer it could last. At USAA Investments, we see signs suggesting that the expansion may be in its late phase. An unemployment rate below 4%, wage pressures, higher inflation and rising interest rates we believe each of these factors has the potential to dampen future economic growth. The volatility that re-emerged during the winter seems to be here to stay. Indeed, the markets were negatively affected in the closing days of the reporting period by concerns that Italy s incoming government might try to weaken that country s role

3 in the European Union. Fears about the future of the European Union drove a flight to safety out of riskier asset classes, such as equities, and into bonds. Investors also appeared nervous about potential trade wars and uncertainty surrounding a potential U.S.-North Korea summit. However, while media coverage during the reporting period suggested that the markets were experiencing extreme turbulence, the volatility has actually been near historical norms. Shareholders should try to ignore media noise, which may provoke an emotional reaction, and focus instead on information that can provide the perspective they need to manage their investments. Long-term investors should never make hasty portfolio decisions based on market turmoil. They should make decisions based on their long-term objectives, time horizon, and risk tolerance. One way to avoid the temptation to time the market is dollarcost averaging, which is the strategy of investing a set amount on a regular basis. Diversification is another good investment strategy, one that can potentially protect a portfolio from market turbulence or shifts in performance leadership. The primary goal of diversification, after all, is long-term risk management. Investors who are overly concentrated in particular asset classes could be carrying more risk in their portfolios than they realize. This is true even for those who think they re diversified; U.S. stocks have outperformed for some time, so their weighting within a portfolio may have grown too large and need to be rebalanced. Please call one of our financial advisors who can help you review your portfolio and make sure it is appropriately aligned with your investment plan. Now that vacation time is here, why not make sure your financial house is in order before you leave on a summer getaway? And rest assured that while you are enjoying the summer, our team of portfolio managers will continue monitoring economic conditions, Fed policy, the direction of longer-term interest rates, political developments, and other issues that have the potential to affect your investments. From all of us at USAA Investments, thank you for the opportunity to help you with your investment needs. Sincerely, Brooks Englehardt President USAA Investments Investments provided by USAA Investment Management Company and USAA Financial Advisors, Inc., both registered broker-dealers, and affiliates. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.

4 TABLE OF CONTENTS Managers Commentary 1 Investment Overview 5 Financial Information Report of Independent Registered Public Accounting Firm 13 Portfolio of Investments 14 Notes to Portfolio of Investments 17 Financial Statements 19 Notes to Financial Statements 22 Financial Highlights 38 Expense Example 41 Advisory Agreement(s) 43 Trustees and Officers Information 48 This report is for the information of the shareholders and others who have received a copy of the currently effective prospectus of the Fund, managed by USAA Asset Management Company. It may be used as sales literature only when preceded or accompanied by a current prospectus, which provides further details about the Fund. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state s tax rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. Any withholding election that you make will apply to any subsequent distribution unless and until you change or revoke the election. If you wish to make a withholding election or change or revoke a prior withholding election, call (800) 531-USAA (8722) or (210) 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. 2018, USAA. All rights reserved.

5 MANAGERS COMMENTARY ON THE FUND Dan Denbow, CFA USAA Asset Management Company John P. Toohey, CFA USAA Asset Management Company Please review the performance of gold and gold stocks over the reporting period. The price of gold finished the reporting period ended May 31, 2018 modestly higher, but experienced volatility along the way. Gold opened the reporting period at $1,269 per ounce and drifted as low as $1,213 on July 7, 2017, as investors focused on the potential for the Federal Reserve s (Fed) interest rate increases in an effort to boost the dollar. The price of the metal rebounded on geopolitical fears to approach the $1,350 level in early September Gold subsequently moved below $1,250 by early December 2017 as tensions around North Korea abated and investors returned their focus to Fed monetary tightening. Beginning in mid- December 2017, gold went on an upward run spurred by a softening in the dollar, peaking at $1,358 on January 24, From there, the metal essentially traded in a range above $1,300 into mid-may 2018, when strong U.S. economic data raised the likelihood of more aggressive Fed action on interest rate increases. Gold closed on May 31, 2018 at $1,299 per ounce, or approximately 2% higher for the trailing 12 months. Silver prices declined 5.3% over the same period, while platinum prices declined 4.5%. Shares of senior mining stocks finished the reporting period essentially flat, lagging their junior counterparts, which experienced modest share price increases in aggregate, driven largely by merger and acquisition activity. Managers Commentary on the Fund 1

6 How did the USAA Precious Metals and Minerals Fund (the Fund) perform during the reporting period? The Fund has three share classes: Fund Shares, Institutional Shares, and Adviser Shares. For the reporting period ended May 31, 2018, the Fund Shares, Institutional Shares, and Adviser Shares had a total return of -0.31%, 0.00%, and -0.47%, respectively. This compares to a total return of 14.37% for the S&P 500 Index, -0.22% for the NYSE Arca Gold Miners (GDM) Index, and -3.61% for the Lipper Precious Metals Equity Funds Index. USAA Asset Management Company (the Manager) is the Fund s investment adviser. The investment adviser provides day-to-day discretionary management for the Fund s assets. Please discuss the principal factors in the Fund s performance for the reporting period. At the end of May 2018, the Fund held 85.9% of its assets in gold stocks. In terms of specific company weightings, the leading contributor to performance was an underweight to Canadian-headquartered Barrick Gold Corp. (Barrick), the largest gold mining company in the world. Our negative stance on Barrick has been driven by concerns over the impact of the company s debt on its ability to make necessary investments in operations. The miner s shares suffered during the reporting period as a tax dispute between a majority-owned spin-off of Barrick s African operations and the Tanzanian government reached a crisis stage. Overweight positions in a pair of Australian miners, St Barbara Ltd. and Saracen Mineral Holdings Ltd., also added to performance. Both companies have displayed a sustainable operating advantage relative to most of their North American counterparts, while also benefiting, from a production cost perspective, from weakness in the Australian dollar. Exposure to Dundee Precious Metals, Inc. also aided the Fund s performance, as the miner has seen Refer to page 7 for benchmark definitions. Past performance is no guarantee of future results. 2 USAA Precious Metals and Minerals Fund

7 strong results from its operations in Bulgaria and expects to see improved cash flow, having completed its investment in its Namibian smelter. The leading detractor from performance was the Fund s position in Eldorado Gold Corp. (Eldorado). The company s operations in Greece continued to face permitting delays and unfavorable political conditions. In addition, Eldorado has seen lower-than-anticipated recovery rates from its flagship mine in Turkey, which will force the company to make a major capital investment in a new mill. We are monitoring the company s progress on both fronts closely as we evaluate the position. Platinum Group Metals Ltd. was another leading detractor. The relatively new South African miner has experienced delays in reaching production targets and has had difficulty obtaining the capital necessary to complete the development of its main asset. We lost confidence in management over the reporting period and exited the position. An underweight to Newmont Mining Corp. (Newmont) also detracted from performance, as the miner s shares strongly outperformed over the reporting period. At roughly 10% of the NYSE Arca Gold Miners (GDM) Index, Newmont is the largest constituent of the benchmark. For risk management purposes, we will generally have a strategic underweight to Newmont even when we have a positive outlook for its shares. Finally, shares of OceanaGold Corp. (OceanaGold) underperformed as the company experienced challenges as it launched a new mine in South Carolina. In addition, OceanaGold s Philippines operations have been impacted by an uncertain regulatory backdrop. We maintain a positive long-term outlook for the stock. The Fund typically will have modest exposure to silver and platinum stocks. Over the reporting period, the Fund s silver position was increased from approximately 10.8% to 13.5%, as silver has been trading at historically cheap levels relative to gold. In addition, while the two metals are linked from a price perspective, silver generally is more sensitive to the economic cycle than gold. We have maintained only nominal exposure to platinum mining stocks for some time, as the challenging labor environment in South Africa has led to concerns about production costs for the metal. In addition, there has been a reduction in Managers Commentary on the Fund 3

8 demand for platinum driven by the growth in electric automobile production and a decline in diesel auto sales in Europe. At the end of the reporting period the Fund had no direct exposure to platinum miners. Gold prices continue to be impacted by expectations around the pace of the Fed s interest rate increases and episodes of geopolitical stress. To the extent a prolonged trade war ensues from the Trump administration s recent measures on tariffs, we believe the price of gold could be supported by a shortage of dollars held overseas as central banks and investors seek a stable and readily exchangeable store of value. As always, the primary purpose of maintaining exposure to gold should be to help diversify investor portfolios. Thank you for your continued confidence and investment in the Fund. The USAA Precious Metals and Minerals Fund may be subject to stock market risk and is nondiversified which means that it may invest a greater percentage of its assets in a single issuer. Individual stocks will fluctuate in response to the activities of individual companies, general market, and economic conditions domestically and abroad. When redeemed or sold, they may be worth more or less than the original cost. The USAA Precious Metals and Minerals Fund is subject to additional risks, such as currency fluctuation, market illiquidity, political instability, and increased price volatility. It may be more volatile than a fund that diversifies across many industries and companies. 4 USAA Precious Metals and Minerals Fund

9 INVESTMENT OVERVIEW USAA PRECIOUS METALS AND MINERALS FUND SHARES (FUND SHARES) (Ticker Symbol: USAGX) 5/31/18 5/31/17 Net Assets $541.0 Million $585.5 Million Net Asset Value Per Share $12.87 $12.91 AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/18 1 Year 5 Years 10 Years 0.31% 3.91% 5.51% EXPENSE RATIO AS OF 5/31/17* 1.22% The performance data quoted represents past performance and is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The return and principal value of an investment will fluctuate, so that an investor s shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month-end, visit usaa.com. *The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund s prospectus dated October 1, 2017, and is calculated as a percentage of average net assets. This expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. 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. Investment Overview 5

10 CUMULATIVE PERFORMANCE COMPARISON $30,000 $23,972 $20,000 $10,000 $7,363 $5,978 $5,673 $0 5/08 5/09 5/10 5/11 5/12 5/13 5/14 5/15 5/16 5/17 5/18 S&P 500 Index $23,972 NYSE Arca Gold Miners (GDM) Index $7,363 Lipper Precious Metals Equity Funds Index $5,978 USAA Precious Metals and Minerals Fund Shares $5,673 Data from 5/31/08 through 5/31/18. See next page for benchmark definitions. Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Precious Metals Equity Funds Index reflects the fees and expenses of the underlying funds included in the index. 6 USAA Precious Metals and Minerals Fund

11 The graph on page 6 illustrates the comparison of a $10,000 hypothetical investment in the USAA Precious Metals and Minerals Fund Shares to the following benchmarks: The unmanaged S&P 500 Index represents the weighted average performance of a group of 500 widely held, publicly traded stocks. The NYSE Arca Gold Miners (GDM) Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The unmanaged Lipper Precious Metals Equity Funds Index tracks the total return performance of the 10 largest funds within the Lipper Precious Metals Equity Funds category. Investment Overview 7

12 USAA PRECIOUS METALS AND MINERALS FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIPMX) 5/31/18 5/31/17 Net Assets $3.6 Million $2.9 Million Net Asset Value Per Share $13.06 $13.06 AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/18 1 Year 5 Years Since Inception 8/01/ % 3.61% 4.22% EXPENSE RATIO AS OF 5/31/17* 0.76% The performance data quoted represents past performance and is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The return and principal value of an investment will fluctuate, so that an investor s shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month-end, visit usaa.com. *The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund s prospectus dated October 1, 2017, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. 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 Institutional Shares are available for investment through a USAA discretionary managed account program, and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fund-of-funds). 8 USAA Precious Metals and Minerals Fund

13 CUMULATIVE PERFORMANCE COMPARISON $30,000 $25,000 $26,400 $20,000 $15,000 $10,000 $5,000 $7,805 $6,674 $6,542 $0 7/08 5/09 5/10 5/11 5/12 5/13 5/14 5/15 5/16 5/17 5/18 S&P 500 Index $26,400 NYSE Arca Gold Miners (GDM) Index $7,805 Lipper Precious Metals Equity Funds Index $6,674 USAA Precious Metals and Minerals Fund Institutional Shares $6,542 Data from 7/31/08 through 5/31/18.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Precious Metals and Minerals Fund Institutional Shares to the Fund s benchmarks listed above (see page 7 for benchmark definitions). Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Precious Metals Equity Funds Index reflects the fees and expenses of the underlying funds included in the index. *The performance of the S&P 500 Index, the Lipper Precious Metals Equity Funds Index, and the NYSE Arca Gold Miners (GDM) Index is calculated from the end of the month, July 31, 2008, while the inception date of the Institutional Shares is August 1, There may be a slight variation of performance numbers because of this difference. Investment Overview 9

14 USAA PRECIOUS METALS AND MINERALS FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: UPMMX) 5/31/18 5/31/17 Net Assets $16.9 Million $18.3 Million Net Asset Value Per Share $12.74 $12.80 AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/18 1 Year 5 Years Since Inception 8/01/ % 4.01% 9.31% EXPENSE RATIO AS OF 5/31/17* 1.30% The performance data quoted represents past performance and is no guarantee of future results. Current performance may be higher or lower than the performance data quoted. The return and principal value of an investment will fluctuate, so that an investor s shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent month-end, visit usaa.com. *The expense ratio represents the total annual operating expenses, before reductions of any expenses paid indirectly and including any acquired fund fees and expenses, as reported in the Fund s prospectus dated October 1, 2017, and is calculated as a percentage of average net assets. The expense ratio may differ from the expense ratio disclosed in the Financial Highlights, which excludes acquired fund fees and expenses. 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. 10 USAA Precious Metals and Minerals Fund

15 CUMULATIVE PERFORMANCE COMPARISON $35,000 $30,000 $28,975 $25,000 $20,000 $15,000 $10,000 $5,000 $6,950 $5,448 $4,653 $0 7/10 5/11 5/12 5/13 5/14 5/15 5/16 5/17 5/18 S&P 500 Index $28,975 NYSE Arca Gold Miners (GDM) Index $6,950 Lipper Precious Metals Equity Funds Index $5,448 USAA Precious Metals and Minerals Fund Adviser Shares $4,653 Data from 7/31/10 through 5/31/18.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA Precious Metals and Minerals Fund Adviser Shares to the Fund s benchmarks listed above (see page 7 for benchmark definitions). Past performance is no guarantee of future results, and the cumulative performance quoted does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of shares. Indexes are unmanaged and you cannot invest directly in an index. The return information for the indexes does not reflect the deduction of any fees, expenses, or taxes, except that the Lipper Precious Metals Equity Funds Index reflects the fees and expenses of the underlying funds included in the index. *The performance of the S&P 500 Index, the Lipper Precious Metals Equity Funds Index, and the NYSE Arca Gold Miners (GDM) Index is calculated from the end of the month, July 31, 2010, while the inception date of the Adviser Shares is August 1, There may be a slight variation of performance numbers because of this difference. Investment Overview 11

16 TOP 10 EQUITY HOLDINGS* 5/31/18 (% of Net Assets) Agnico Eagle Mines Ltd % Randgold Resources Ltd. ADR % Wheaton Precious Metals Corp % Newmont Mining Corp % Pan American Silver Corp % Newcrest Mining Ltd % Alamos Gold, Inc. A % Kinross Gold Corp % Centerra Gold, Inc % St Barbara Ltd % * Does not include money market instruments and short-term investments purchased with cash collateral from securities loaned. ASSET ALLOCATION* 5/31/18 Gold 85.9% Diversified Metals & Mining 0.5% Silver 13.5% *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 complete list of securities. 12 USAA Precious Metals and Minerals Fund

17 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of USAA Precious Metals and Minerals Fund: Opinion on the Financial Statements We have audited the accompanying statement of assets and liabilities of USAA Precious Metals and Minerals Fund (the Fund ) (one of the portfolios constituting the USAA Mutual Funds Trust (the Trust )), including the portfolio of investments, as of May 31, 2018, 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 portfolios constituting the USAA Mutual Funds Trust) at May 31, 2018, 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, 2018, 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 USAA investment companies since San Antonio, Texas July 24, 2018 Report of Independent Registered Public Accounting Firm 13

18 PORTFOLIO OF INVESTMENTS May 31, 2018 Market Number Value of Shares Security (000) EQUITY SECURITIES (99.9%) COMMON STOCKS (99.9%) Diversified Metals & Mining (0.5%) 1,081,500 Ivanhoe Mines Ltd. A (a) $ 2,727 Gold (85.9%) African Gold Companies (4.3%) 770,000 Endeavour Mining Corp. (a),(b) 13,356 3,100,000 Gold Fields Ltd. ADR 11,067 8,566,400 Great Basin Gold Ltd. (a),(c),(d) 6,500,000 Great Basin Gold Ltd. (a),(c),(d),(e),(f) 24,423 Australian Gold Companies (18.3%) 13,200,000 Doray Minerals Ltd. (a),(b) 3,294 9,374,990 Gascoyne Resources Ltd. (a),(b) 4,077 7,063,636 Kingsgate Consolidated Ltd. (a) 1,549 1,200,000 Newcrest Mining Ltd. 18,840 3,100,000 Northern Star Resources Ltd. 14,699 6,200,000 OceanaGold Corp. 15, ,000 OceanaGold Corp. (b) 2,214 12,500,000 Perseus Mining Ltd. (a),(b) 3,953 10,450,000 Perseus Mining Ltd. (a) 3,304 13,500,000 Ramelius Resources Ltd. (a) 6,024 5,900,000 Saracen Mineral Holdings Ltd. (a) 9,638 4,300,000 St Barbara Ltd. 15,544 3,400,000 Westgold Resources Ltd. (a) 4, ,735 European Gold Companies (7.1%) 6,500,000 Centamin plc 10, ,000 Randgold Resources Ltd. ADR 29,025 40,003 North American Gold Companies (53.4%) 660,000 Agnico Eagle Mines Ltd. (b) 29,667 7,963,100 Alacer Gold Corp. (a) 14,617 3,105,200 Alamos Gold, Inc. A 17, USAA Precious Metals and Minerals Fund

19 Market Number Value of Shares Security (000) 40,000 AXMIN, Inc. (e),(f) $ 4 200,000 AXMIN, Inc. (e) 18 4,400,000 B2Gold Corp. (a) 12, ,000 Barrick Gold Corp. 3,297 3,000,000 Centerra Gold, Inc. (a) 15,757 1,750,000 Continental Gold, Inc. (a),(b) 4, ,000 Detour Gold Corp. (a) 6,403 5,300,000 Dundee Precious Metals, Inc. (a) 13,898 7,000,000 Eldorado Gold Corp. (a),(b) 7, ,000 Goldcorp, Inc. 12,172 9,600,000 Golden Star Resources Ltd. (a),(b) 6,749 1,975,000 Guyana Goldfields, Inc. (a) 7,449 1,800,000 IAMGOLD Corp. (a) 11,232 4,400,000 Kinross Gold Corp. (a) 15, ,414 Kirkland Lake Gold Ltd. 14,772 5,757,622 Nautilus Minerals, Inc. (a),(e),(f) ,598 New Gold, Inc. (a) ,000 Newmont Mining Corp. 28, ,000 Northern Star Mining Ltd. (c),(d),(e) 535,700 Osisko Gold Royalties Ltd. (b) 5,483 1,200,000 Pretium Resources, Inc. (a),(b) 8,664 3,000,000 Roxgold, Inc. (a) 2, ,000 Royal Gold, Inc. 15,242 4,700,000 SEMAFO, Inc. (a) 12,796 2,400,000 Tahoe Resources, Inc. (b) 12, ,000 Torex Gold Resources, Inc. (a) 7,811 3,700,000 Yamana Gold, Inc. 10, ,666 South American Gold Companies (2.8%) 1,000,000 Compania de Minas Buenaventura S.A. ADR 15,470 Total Gold 482,297 Silver (13.5%) 550,000 Fresnillo plc 9, ,000 MAG Silver Corp. (a),(b) 8,740 1,600,000 Pan American Silver Corp. (b) 28,304 1,320,000 Wheaton Precious Metals Corp. 28,855 Total Silver 75,613 Total Common Stocks (cost: $708,042) 560,637 Portfolio of Investments 15

20 Market Number Value of Shares Security (000) WARRANTS (0.0%) Gold (0.0%) Australian Gold Companies (0.0%) 779,738 Westgold Resources Ltd. (a),(b) (cost: $0) $ 97 Total Equity Securities (cost: $708,042) 560,734 SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED (3.2%) GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (3.2%) 563,629 Federated Government Obligations Fund Institutional Class, 1.61% (g) ,821 Fidelity Government Portfolio Class I, 1.64% (g) ,099,048 Goldman Sachs Financial Square Government Fund Institutional Class, 1.65% (g) 10,099 7,327,925 Morgan Stanley Institutional Liquidity Funds Government Portfolio Institutional Class, 1.66% (g) 7,328 Total Short-Term Investments Purchased with Cash Collateral from Securities Loaned (cost: $18,307) 18,307 Total Investments (cost: $726,349) $579,041 ($ in 000s) VALUATION HIERARCHY Assets LEVEL 1 LEVEL 2 LEVEL 3 Total Equity Securities: Common Stocks $560,637 $ $ $560,637 Warrants Short-Term Investments Purchased with Cash Collateral from Securities Loaned: Government & U.S. Treasury Money Market Funds 18,307 18,307 Total $579,041 $ $ $579,041 Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of June 1, 2017, through May 31, 2018, there were no transfers of securities between levels. The Fund s policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. 16 USAA Precious Metals and Minerals Fund

21 NOTES TO PORTFOLIO OF INVESTMENTS May 31, 2018 GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 86.0% of net assets at May 31, CATEGORIES AND DEFINITIONS Warrants Entitle the holder to buy a proportionate amount of common stock at a specified price for a stated period. 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. SPECIFIC NOTES (a) Non-income-producing security. (b) The security, or a portion thereof, was out on loan as of May 31, (c) Security was fair valued at May 31, 2018, by USAA Asset Management Company in accordance with valuation procedures approved by USAA Mutual Funds Trust s Board of Trustees. Notes to Portfolio of Investments 17

22 (d) Security was classified at Level 3. (e) Security deemed illiquid by USAA Asset Management Company, under liquidity guidelines approved by USAA Mutual Funds Trust s Board of Trustees. The aggregate market value of these securities at May 31, 2018, was $955,000, which represented 0.2% of the Fund s net assets. (f) Restricted security that is not registered under the Securities Act of (g) Rate represents the money market fund annualized seven-day yield at May 31, See accompanying notes to financial statements. 18 USAA Precious Metals and Minerals Fund

23 STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) May 31, 2018 ASSETS Investments in securities, at market value (including securities on loan of $20,220) (cost of $726,349) $ 579,041 Cash denominated in foreign currencies (identified cost of $3,947) 3,891 Receivables: Capital shares sold 52 Dividends and interest 413 Securities sold 5,108 Other 19 Unrealized appreciation on foreign currency contracts held, at value 8 Total assets 588,532 LIABILITIES Payables: Upon return of securities loaned 18,307 Securities purchased 4,666 Capital shares redeemed 243 Bank overdraft 2,371 Accrued management fees 343 Accrued transfer agent s fees 45 Other accrued expenses and payables 1,092 Total liabilities 27,067 Net assets applicable to capital shares outstanding $ 561,465 NET ASSETS CONSIST OF: Paid-in capital $1,414,760 Accumulated undistributed net investment loss (35,228) Accumulated net realized loss on investments (669,733) Net unrealized depreciation of investments (147,308) Net unrealized depreciation of foreign capital gains tax (961) Net unrealized depreciation of foreign currency translations (65) Net assets applicable to capital shares outstanding $ 561,465 Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $540,952/42,048 capital shares outstanding, no par value) $ Institutional Shares (net assets of $3,632/278 capital shares outstanding, no par value) $ Adviser Shares (net assets of $16,881/1,325 capital shares outstanding, no par value) $ See accompanying notes to financial statements. Financial Statements 19

24 STATEMENT OF OPERATIONS (IN THOUSANDS) Year ended May 31, 2018 INVESTMENT INCOME Dividends (net of foreign taxes withheld of $273) $ 4,610 Interest 140 Securities lending (net) 347 Total income 5,097 EXPENSES Management fees 4,132 Administration and servicing fees: Fund Shares 847 Institutional Shares 5 Adviser Shares 25 Transfer agent s fees: Fund Shares 1,695 Institutional Shares 5 Adviser Shares 4 Distribution and service fees (Note 7): Adviser Shares 42 Custody and accounting fees: Fund Shares 128 Institutional Shares 1 Adviser Shares 4 Postage: Fund Shares 71 Adviser Shares 4 Shareholder reporting fees: Fund Shares 44 Trustees fees 34 Registration fees: Fund Shares 25 Institutional Shares 15 Adviser Shares 15 Professional fees 103 Other 19 Total expenses 7,218 NET INVESTMENT LOSS (2,121) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY Net realized gain (loss) on: Investments (45,754) Foreign currency transactions 35 Change in net unrealized appreciation/(depreciation) of: Investments 45,231 Foreign capital gains tax 330 Foreign currency translations (78) Net realized and unrealized loss (236) Decrease in net assets resulting from operations $ (2,357) See accompanying notes to financial statements. 20 USAA Precious Metals and Minerals Fund

25 STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Years ended May 31, FROM OPERATIONS Net investment income (loss) $ (2,121) $ 179 Net realized loss on investments (45,754) (69,821) Net realized gain (loss) on foreign currency transactions 35 (56) Change in net unrealized appreciation/(depreciation) of: Investments 45,231 56,878 Foreign capital gains tax 330 (398) Foreign currency translations (78) 52 Decrease in net assets resulting from operations (2,357) (13,166) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (22,606) Institutional Shares (382) Adviser Shares (718) Distributions to shareholders (23,706) NET DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 6) Fund Shares (42,328) (26,942) Institutional Shares 794 (11,312) Adviser Shares (1,361) 3,767 Total net decrease in net assets from capital share transactions (42,895) (34,487) Capital contribution from USAA Transfer Agency Company Institutional Shares 13 Net decrease in net assets (45,252) (71,346) NET ASSETS Beginning of year 606, ,063 End of year $561,465 $606,717 Accumulated undistributed (overdistribution of) net investment loss (income): End of year $ (35,228) $ (41,563) See accompanying notes to financial statements. Financial Statements 21

26 NOTES TO FINANCIAL STATEMENTS May 31, 2018 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940, as amended (the 1940 Act), is an open-end management investment company organized as a Delaware statutory trust consisting of 51 separate funds. The USAA Precious Metals and Minerals Fund (the Fund) qualifies as a registered investment company under Accounting Standards Codification Topic 946. The information presented in this annual report pertains only to the Fund, which is classified as nondiversified under the 1940 Act. The Fund s investment objective is to seek long-term capital appreciation and to protect the purchasing power of shareholders capital against inflation. The Fund concentrates its investments in equity securities of domestic and foreign companies engaged in the exploration, mining, or processing of gold and other precious metals and minerals, such as platinum, silver, and diamonds. As such, the Fund may be exposed to more risk than portfolios with a broader industry diversification. As a nondiversified fund, the Fund may invest a greater percentage of its assets in a single issuer. Because a relatively high percentage of the Fund s total assets may be invested in the securities of a single issuer or a limited number of issuers, the securities of the Fund may be more sensitive to changes in the market value of a single issuer, a limited number of issuers, or large companies generally. Such a focused investment strategy may increase the volatility of the Fund s investment results because this Fund may be more susceptible to risk associated with a single economic, political, or regulatory event than a diversified fund. The Fund consists of three classes of shares: Precious Metals and Minerals Fund Shares (Fund Shares), Precious Metals and Minerals Fund Institutional Shares (Institutional Shares), and Precious Metals and Minerals Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and 22 USAA Precious Metals and Minerals Fund

27 earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agent fees, postage, shareholder reporting fees, distribution and service (12b-1) fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to all classes. The Institutional Shares are available for investment through a USAA discretionary managed account program and certain advisory programs sponsored by financial intermediaries, such as brokerage firms, investment advisors, financial planners, third-party administrators, and insurance companies. Institutional Shares also are available to institutional investors, which include retirement plans, endowments, foundations, and bank trusts, as well as other persons or legal entities that the Fund may approve from time to time, or for purchase by a USAA fund participating in a fund-of-funds investment strategy (USAA fundof-funds). The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. Security valuation The Trust s Board of Trustees (the Board) has established the Valuation and Liquidity Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund s valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly Notes to Financial Statements 23

28 meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of backtesting reports, pricing service quotation comparisons, illiquid securities and fair value determinations, pricing movements, and daily stale price monitoring. The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sale price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and ask prices generally is used. Actively traded equity securities listed on a domestic exchange generally are categorized in Level 1 of the fair value hierarchy. Certain preferred and equity securities traded in inactive markets generally are categorized in Level 2 of the fair value hierarchy. 2. Equity securities trading in various foreign markets may take place on days when the NYSE is closed. Further, when the NYSE is open, the foreign markets may be closed. Therefore, the calculation of the Fund s net asset value (NAV) may not take place at the same time the prices of certain foreign securities held by the Fund are determined. In many cases, events affecting the values of foreign securities that occur between the time of their last quoted sale or official closing price and the close of normal trading on the NYSE on a day the Fund s NAV is calculated will not need to be reflected in the value of the Fund s foreign securities. However, the Manager will monitor for events that would materially affect the value of the Fund s foreign securities and the Committee will consider such available information that it deems relevant and will determine a fair value for the affected foreign 24 USAA Precious Metals and Minerals Fund

29 securities in accordance with valuation procedures. In addition, information from an external vendor or other sources may be used to adjust the foreign market closing prices of foreign equity securities to reflect what the Committee believes to be the fair value of the securities as of the close of the NYSE. Fair valuation of affected foreign equity securities may occur frequently based on an assessment that events which occur on a fairly regular basis (such as U.S. market movements) are significant. Such securities are categorized in Level 2 of the fair value hierarchy. 3. Investments in open-end investment companies, commingled, or other funds, other than ETFs, are valued at their NAV at the end of each business day and are categorized in Level 1 of the fair value hierarchy. 4. Short-term debt securities with original or remaining maturities of 60 days or less may be valued at amortized cost, provided that amortized cost represents the fair value of such securities. 5. Repurchase agreements are valued at cost. 6. In the event that price quotations or valuations are not readily available, are not reflective of market value, or a significant event has been recognized in relation to a security or class of securities, the securities are valued in good faith by the Committee in accordance with valuation procedures approved by the Board. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund s NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, other pricing services, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, evaluation of credit quality, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. Notes to Financial Statements 25

30 B. Fair value measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the Portfolio of Investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indexes. Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager s own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. Federal taxes The Fund s policy is to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and net capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. For the year ended May 31, 2018, the Fund did not incur any income tax, interest, or penalties, and has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions. On an ongoing basis, the Manager will monitor the Fund s tax basis to determine if adjustments to this conclusion are necessary. The statute of limitations on the Fund s tax return filings generally remain open for the three preceding fiscal reporting year ends and remain subject to examination by the Internal Revenue Service and state taxing authorities. D. Foreign taxation Foreign income and capital gains on some foreign securities may be subject to foreign taxes, which are reflected as a reduction to such income and realized gains. The Fund records a liability 26 USAA Precious Metals and Minerals Fund