ANNUAL REPORT USAA WORLD GROWTH FUND FUND SHARES INSTITUTIONAL SHARES ADVISER SHARES

Transcription

1 ANNUAL REPORT USAA WORLD GROWTH FUND FUND SHARES INSTITUTIONAL SHARES ADVISER SHARES MAY 31, 2017

2 PRESIDENT S MESSAGE When traveling and visiting with family and friends, it s easy to defer decisions on financial matters. An investment plan can help you stay on track. July 2017 Investors seemed to be in wait-and-see mode as the reporting period came to an end on May 31, The wave of confidence, which had swept the financial markets after the November 2016 U.S. presidential election, began to dissipate in March 2017 as the Trump administration s plans for health care and tax reform, reduced regulation, and increased infrastructure spending faced unexpected challenges. During the winter of 2016, U.S. stocks had hit record highs based on expectations that Republican initiatives could boost economic growth. Stronger economic growth also had the potential to increase inflation, which might lead the Federal Reserve (the Fed) to accelerate short-term interest rate increases. Legislative resistance and political obstacles during the spring of 2017 raised doubts about the timeline for these initiatives. As investors grew cautious, U.S. stocks posted fewer gains and remained relatively range-bound through the end of the reporting period. However, for the reporting period as a whole, U.S. stocks generated double-digit returns. Developed markets stocks produced similar results, while emerging markets stocks recorded even stronger gains. In the bond market, investors appeared somewhat skeptical about future economic growth, as evidenced by the flattening of the U.S. Treasury yield curve after the November 2016 U.S. presidential election. Although longer-term U.S. Treasury yields rose, they increased less than shorter-term U.S. Treasury yields. Some of the action on the short-end of the U.S. Treasury yield curve was in anticipation of Fed interest rate increases. (The Fed raised the target federal funds rate in December 2016 and again in March 2017.) We believe bond investors considered government policy-related expectations too optimistic that the anticipated economic growth might not fully materialize, creating less inflationary pressure and less reason for the Fed to raise interest rates quickly. As this view seemed validated by political events during the spring of 2017, longer-term interest rates dropped and the U.S. Treasury yield curve flattened further. Investors also sought to interpret conflicting economic data. Although the unemployment rate hit a new low near the end of the reporting period, hiring slowed. First-quarter 2017 corporate earnings were surprisingly strong, but

3 consumer spending grew at its slowest rate since First-quarter 2017, U.S. Gross Domestic Product (GDP) increased at a disappointing rate of 0.7%, and while the numbers were expected to improve for second quarter 2017, some recent forecasts showed a downward trend. U.S. stock valuations were near record highs at the end of the reporting period, and volatility was close to a quarter-century low in May At USAA Investments, we are concerned that high valuations could make U.S. stocks vulnerable to an event-driven volatility spike. Overall, at the end of the reporting period, we considered European stocks more attractive than U.S. stocks. We also favored emerging markets stocks, as their valuations appear attractive relative to developed markets stocks, their economic and company fundamentals are improving, and price momentum appears to be on their side. As for bonds, we do not envision an interest rate increase that would undercut bond prices. Although the Fed raised short-term interest rates at its June 2017 policy meeting, the market does not seem to anticipate another interest rate increase until December 2017 or January We believe interest rates are likely to stay relatively low for some time to come. If so, bond investments should be able to generate higher income without losing too much in terms of price. (Bond prices and interest rates move in opposite directions.) During this time, we know that many of you are celebrating graduation season and planning for summer vacations. Perhaps you should also review your investment plan. When traveling and visiting with family and friends, it s easy to defer decisions on financial matters. An investment plan one based on long-term objectives, risk tolerance, and personal time horizon can help you stay on track. If you have questions or would like to reassess your plan, please do not hesitate to call one of our financial advisors. Rest assured that while you enjoy your summer, our team of portfolio managers will continue working hard on your behalf. 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 Fund Objective 1 Managers Commentary 2 Investment Overview 6 Shareholder Voting Results 14 Financial Information Distributions to Shareholders 15 Report of Independent Registered Public Accounting Firm 16 Portfolio of Investments 17 Notes to Portfolio of Investments 24 Financial Statements 25 Notes to Financial Statements 29 Expense Example 48 Advisory Agreement(s) 50 Trustees and Officers Information 58 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. 2017, USAA. All rights reserved

5 FUND OBJECTIVE The USAA World Growth Fund (the Fund) seeks capital appreciation. Types of Investments The Fund s principal investment strategy is to invest its assets primarily in equity securities of both foreign (including emerging markets) and domestic issuers. The equity securities in which the Fund principally invests are common stocks, depositary receipts, preferred stocks, securities convertible into common stocks, and securities that carry the right to buy common stocks. While the Fund may invest in companies of any size, it generally focuses on companies with large market capitalizations. The Fund may invest a large percentage of its assets in securities of issuers in a single country, a small number of countries, or a particular geographic region. Investments are selected primarily based on fundamental analysis of individual issuers and their potential in light of their financial condition, market, economic, political, and regulatory conditions. Factors considered may include analysis of an issuer s earnings, cash flows, competitive position, and management ability. Quantitative models that systematically evaluate an issuer s valuation, price and earnings momentum, earnings quality, and other factors also may be considered. 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. Fund Objective 1

6 MANAGERS COMMENTARY ON THE FUND MFS Investment Management David R. Mannheim Ryan P. McAllister Roger Morley n Please review market conditions over the reporting period. World equity markets posted strong positive results during the reporting period ended May 31, Returns for U.S. and overseas developed markets were more or less comparable, while emerging markets led performance for the reporting period, supported by a stabilization in commodity prices and signs of improved growth in Russia and China. While European equities wavered in the wake of the late-june 2016 United Kingdom (U.K.) vote to leave the European Union ( Brexit ), broad improvement in the region s economic figures and favorable political results after the Brexit referendum served to restore investor optimism. Developed markets rose sharply in the immediate wake of the U.S. presidential election, which raised the prospect of growth-friendly policies from the incoming Trump administration and Republican-held Congress. Emerging markets dipped briefly post-election, as investors anticipated a strengthening in the U.S. dollar. During March 2017, the market began giving back some of its gains, as the U.S. Federal Reserve caught the market offguard by signaling an interest rate increase at its next meeting. In addition, the Republicans failed efforts on health care reform raised questions about the party s ability to implement the remainder of its economic agenda. Equities ended the reporting period on a firm note, with investor sentiment strengthened by ongoing improvement in the global economy. 2 USAA World Growth Fund

7 For the reporting period ended May 31, 2017, U.S. stocks returned 17.46% as gauged by the S&P 500 Index. Returns for developed market international stocks lagged modestly as reflected in the 16.44% return for the MSCI EAFE Index, while the MSCI Emerging Markets Index experienced a return of 27.41% for the full reporting period. n How did the USAA World Growth 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, 2017, the Fund Shares, Institutional Shares, and Adviser Shares had a total return of 17.85%, 17.89%, and 17.50%, respectively. This compares to returns of 16.42% for the MSCI World Index (Index) and 18.44% for the Lipper Global Funds Index. USAA Asset Management Company (the Manager) is the Fund s investment adviser. As the investment adviser, USAA Asset Management Company employs dedicated resources to support the research, selection, and monitoring of the Fund s subadviser. MFS Investment Management (MFS) is the subadviser to the Fund. The subadviser provides day-to-day discretionary management for the Fund s assets. n What factors drove the Fund s performance relative to the Index? During the reporting period, positive contributions to the Fund s performance versus the Index were led by strong stock selection within both the health care and retailing sectors. Underweight positions in both the utilities & communications and energy sectors also aided Refer to page 7 for benchmark definitions. Past performance is no guarantee of future results. You will find a complete list of securities that the Fund owns on pages Managers Commentary on the Fund 3

8 relative returns. Stock selection within health care was highlighted by German pharmaceutical giant Bayer AG, while France-domiciled LVMH Moet Hennessy Louis Vuitton SE, the world s largest luxury goods company, led performance among the Fund s retail positions. Other leading positive contributors included media company Time Warner, Inc. within the leisure sector and South Korean semiconductor and electronics manufacturer Samsung Electronics Co. Ltd. within the technology sector. Conversely, an underweight allocation to the technology sector and a combination of negative stock selection and an overweight position in the consumer staples sector detracted from performance. The single largest detractor was a lack of exposure to consumer electronics icon Apple Inc. within the technology sector. Among the Fund s consumer staples holdings, the biggest laggards were cosmetics company Coty, Inc A. and British multinational consumer goods company Reckitt Benckiser Group plc. MFS continues to favor global consumer staples and luxury goods companies with strong brands and diverse geographical footprints. The Fund also has significant exposure to media companies which MFS views as attractively valued. Within the health care sector, the Funds holdings are primarily in medical technology and life sciences companies with growth opportunities driven by long-term demographic trends and distinctive product advantages. By contrast, the Fund is underweight in the financials due to concerns around regulatory risk, higher capital requirements and lower returns for the sector going forward. MFS is also underweight in both energy and metals & mining companies, given their sensitivity to commodity prices. The Fund does not own any telecommunication or electric power companies as MFS believes their potential returns and growth rates remain relatively low. Similarly, MFS has not found many companies in fast-changing technology industries that meet its sustainable growth and reasonable valuation criteria. 4 USAA World Growth Fund

9 MFS believes a degree of caution is warranted given the uncertainties around the implementation of the Republican agenda, historically high equity valuations and late-cycle dynamics in the United States. The Fund s portfolio managers will continue to focus on identifying reasonably valued companies that they believe can deliver above-average growth and returns through a full market cycle. Thank you for allowing us to help manage your investments. Investments in foreign securities are subject to additional and more diverse risks, including but not limited to currency fluctuations, market illiquidity, and political and economic instability. Foreign investing may result in more rapid and extreme changes in value than investments made exclusively in the securities of U.S. companies. There may be less publicly available information relating to foreign companies than those in the U.S. Foreign securities may also be subject to foreign taxes. Investments made in emerging market countries may be particularly volatile. Economies of emerging market countries are generally less diverse and mature than more developed countries and may have less stable political systems. Managers Commentary on the Fund 5

10 INVESTMENT OVERVIEW USAA WORLD GROWTH FUND SHARES (FUND SHARES) (Ticker Symbol: USAWX) 5/31/17 5/31/16 Net Assets $1.3 Billion $1.2 Billion Net Asset Value Per Share $31.17 $27.20 AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/17 1 Year 5 Years 10 Years 17.85% 13.68% 6.38% EXPENSE RATIO AS OF 5/31/16* 1.17% High double-digit returns are attributable, in part, to unusually favorable market conditions and may not be repeated or consistently achieved in the future. 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, 2016, 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. 6 USAA World Growth Fund

11 n CUMULATIVE PERFORMANCE COMPARISON n $20,000 $18,562 $15,000 $14,631 $14,586 $10,000 $5,000 $0 5/07 5/08 5/09 5/10 5/11 5/12 5/13 5/14 5/15 5/16 5/17 USAA World Growth Fund Shares $18,562 Lipper Global Funds Index $14,631 MSCI World Index $14,586 Data from 5/31/07 through 5/31/17. The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA World Growth Fund Shares to the following benchmarks: n The unmanaged Lipper Global Funds Index tracks the total return performance of funds within the Lipper Global Funds category. n The unmanaged MSCI World Index reflects the movements of world stock markets by representing a broad selection of domestically listed companies within each market. 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 Global Funds Index reflects the fees and expenses of the underlying funds included in the index. Investment Overview 7

12 USAA WORLD GROWTH FUND INSTITUTIONAL SHARES (INSTITUTIONAL SHARES) (Ticker Symbol: UIWGX) 5/31/17 5/31/16 Net Assets $6.9 Million $5.2 Million Net Asset Value Per Share $31.14 $27.14 AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/17 1 Year Since Inception 8/07/ % 7.74% EXPENSE RATIOS AS OF 5/31/16* Before Reimbursement 1.54% After Reimbursement 1.10% High double-digit returns are attributable, in part, to unusually favorable market conditions and may not be repeated or consistently achieved in the future. 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 ratios are reported in the Fund s prospectus dated October 1, 2016, and are based on estimated expenses for the current fiscal year. USAA Asset Management Company (the Manager) has agreed, through September 30, 2017, to make payments or waive management, administration, and other fees so that the total annual operating expenses of the Institutional Shares (exclusive of commission recapture, expense offset arrangements, acquired fund fees and expenses, and extraordinary expenses) do not exceed an annual rate of 1.10% of the Institutional Shares average net assets. If the total annual operating expense ratio of the Institutional Shares is lower than 1.10%, the Institutional Shares will operate at that lower expense ratio. This reimbursement arrangement may not be changed or terminated during this time period without approval of the Fund s Board of Trustees and may be changed or terminated by the Manager at any time after September 30, These estimated expense ratios may differ from the expense ratios 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 World Growth Fund

13 n CUMULATIVE PERFORMANCE COMPARISON n $12,000 $11,500 $11,000 $11,445 $11,323 $11,245 $10,500 $10,000 $9,500 $9,000 $8,500 7/15 9/15 11/15 1/16 3/16 5/16 7/16 9/16 11/16 1/17 3/17 USAA World Growth Fund Institutional Shares $11,445 Lipper Global Funds Index $11,323 MSCI World Index $11,245 Data from 7/31/15 through 5/31/17.* 5/17 The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA World Growth 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 Global Funds Index reflects the fees and expenses of the underlying funds included in the index. *The performance of the MSCI World Index and the Lipper Global Funds Index is calculated from the end of the month, July 31, 2015, while the Institutional Shares inception date is August 7, There may be a slight variation of performance numbers because of this difference. Investment Overview 9

14 USAA WORLD GROWTH FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol: USWGX) 5/31/17 5/31/16 Net Assets $19.7 Million $16.6 Million Net Asset Value Per Share $31.07 $27.13 AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/17 1 Year 5 Years Since Inception 8/01/ % 13.39% 11.29% EXPENSE RATIO AS OF 5/31/16* 1.42% High double-digit returns are attributable, in part, to unusually favorable market conditions and may not be repeated or consistently achieved in the future. 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, 2016, 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. 10 USAA World Growth Fund

15 n CUMULATIVE PERFORMANCE COMPARISON n $22,000 $20,000 $18,000 $20,758 $19,591 $18,602 $16,000 $14,000 $12,000 $10,000 $8,000 7/10 5/11 5/12 5/13 5/14 5/15 5/16 5/17 USAA World Growth Fund Adviser Shares $20,758 MSCI World Index $19,591 Lipper Global Funds Index $18,602 Data from 7/31/10 through 5/31/17.* The graph illustrates the comparison of a $10,000 hypothetical investment in the USAA World Growth 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 Global Funds Index reflects the fees and expenses of the underlying funds included in the index. *The performance of the MSCI World Index and Lipper Global Funds Index is calculated from the end of the month of 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 n TOP 10 INDUSTRIES 5/31/17 n (% of Net Assets) Health Care Equipment % Pharmaceuticals % Household Products % Packaged Foods & Meat % Asset Management & Custody Banks % Industrial Conglomerates % Movies & Entertainment % Life Sciences Tools & Services % Distillers & Vintners % Apparel, Accessories & Luxury Goods % n TOP 10 EQUITY HOLDINGS 5/31/17 n (% of Net Assets) Thermo Fisher Scientific, Inc % Bayer AG % Nestle S.A % Honeywell International, Inc % Medtronic plc % Reckitt Benckiser Group plc % Visa, Inc. A % Svenska Cellulosa AB B % Accenture plc A % Stryker Corp % You will find a complete list of securities that the Fund owns on pages USAA World Growth Fund

17 n COUNTRY ALLOCATION 5/31/17 n United Kingdom 9.8% Switzerland 9.0% United States 53.4% France 8.4% Other* 12.7% Germany 6.7% *Includes countries with less than 3% of portfolio and money market instruments. Percentages are of the net assets of the Fund and may not equal 100%. Investment Overview 13

18 SHAREHOLDER VOTING RESULTS On March 22, 2017, a meeting of shareholders was held to vote on a proposal relating to the USAA mutual funds. Shareholders of record on January 12, 2017, were entitled to vote on the proposal shown below. The proposal was approved by the shareholders. PROPOSAL Election of new members to the Funds Board of Trustees including the re-election of Daniel S. McNamara, Robert L. Mason, Ph.D., Paul L. McNamara, Barbara B. Ostdiek, Ph.D., and Michael F. Reimherr. Number of shares voting Trustees For Votes Withheld Daniel S. McNamara 9,689,863, ,756,871 Robert L. Mason, Ph.D. 9,714,117, ,502,522 Jefferson C. Boyce 9,717,710, ,909,798 Dawn M. Hawley 9,714,577, ,042,095 Paul L. McNamara 9,668,206, ,413,838 Richard Y. Newton III 9,665,513, ,106,382 Barbara B. Ostdiek, Ph.D. 9,715,801, ,818,472 Michael F. Reimherr 9,711,558, ,061, USAA World Growth Fund

19 DISTRIBUTIONS TO SHAREHOLDERS The following federal tax information related to the Fund s fiscal year ended May 31, 2017, is provided for information purposes only and should not be used for reporting to federal or state revenue agencies. Federal tax information for the calendar year will be reported to you on Form 1099-DIV in January With respect to distributions paid, the Fund designates the following amounts (or, if subsequently determined to be different, the maximum amount allowable) for the fiscal year ended May 31, 2017: Dividend Received Long-Term Foreign Foreign Qualified Deduction (corporate Capital Gain Taxes Source Interest shareholders) (1) Distributions (2) Paid (3) Income Income 90.48% $23,962,000 $903,000 $14,594,000 $14,000 (1) Presented as a percentage of net investment income and short-term capital gain distributions paid, if any. (2) Pursuant to Section 852 of the Internal Revenue Code. (3) The Fund has elected under Section 853 of the Internal Revenue Code to pass through the credit for taxes paid in foreign countries. For the fiscal year ended May 31, 2017, the Fund hereby designates the maximum amount allowable of its net taxable income as qualified dividends taxed at individual net capital gain rates. Distributions to Shareholders 15

20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Shareholders and Board of Trustees of USAA World Growth Fund: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the USAA World Growth Fund (one of the portfolios constituting USAA Mutual Funds Trust) (the Fund ) as of May 31, 2017, 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, and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the USAA World Growth Fund at May 31, 2017, 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 the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles. San Antonio, Texas July 21, USAA World Growth Fund

21 PORTFOLIO OF INVESTMENTS May 31, 2017 Market Number Value of Shares Security (000) EQUITY SECURITIES (99.2%) COMMON STOCKS (99.2%) Consumer Discretionary (17.1%) Advertising (2.5%) 104,720 Omnicom Group, Inc. $ 8,767 1,137,175 WPP plc 25,553 34,320 Apparel Retail (0.3%) 205,006 Urban Outfitters, Inc.* 3,868 Apparel, Accessories & Luxury Goods (3.8%) 374,651 Burberry Group plc 8, ,355 Compagnie Financiere Richemont S.A. 13,461 5,767 Hermes International 2, ,076 LVMH Moet Hennessy Louis Vuitton SE 26,047 51,119 Auto Parts & Equipment (0.7%) 102,565 Delphi Automotive plc 9,023 Automotive Retail (0.5%) 11,624 AutoZone, Inc.* 7,043 Cable & Satellite (1.8%) 26,938 Charter Communications, Inc. A * 9, ,271 Comcast Corp. A 6, ,202 Sky plc 7,779 24,019 Casinos & Gaming (0.4%) 575,200 Sands China Ltd. 2,654 23,407 Wynn Resorts Ltd. 3,012 5,666 Hotels, Resorts & Cruise Lines (0.4%) 51,668 Marriott International, Inc. A 5,562 Motorcycle Manufacturers (0.5%) 114,320 Harley-Davidson, Inc. 6,060 Portfolio of Investments 17

22 Market Number Value of Shares Security (000) Movies & Entertainment (4.0%) 264,455 Time Warner, Inc. $ 26, ,988 Walt Disney Co. 27,739 54,050 Restaurants (1.8%) 737,313 Compass Group plc 15, ,051 Whitbread plc 8,517 24,382 Specialty Stores (0.4%) 277,669 Sally Beauty Holdings, Inc.* 5,004 Total Consumer Discretionary 230,116 Consumer Staples (18.9%) Brewers (2.4%) 1,248,029 Ambev S.A. 7, ,630 Carlsberg A/S B 12, ,178 Heineken N.V. 13,510 32,772 Distillers & Vintners (3.9%) 885,734 Diageo plc 26, ,893 Pernod Ricard S.A. 26,198 52,754 Household Products (5.6%) 218,249 Colgate-Palmolive Co. 16, ,464 Reckitt Benckiser Group plc 30, ,230 Svenska Cellulosa AB B 28,732 75,617 Packaged Foods & Meat (5.5%) 317,847 DANONE S.A. 23, ,791 Kellogg Co. 14, ,848 Nestle S.A. 35,571 74,115 Personal Products (1.5%) 1,026,212 Coty, Inc. A 19,436 Total Consumer Staples 254,694 Energy (1.0%) Oil & Gas Equipment & Services (1.0%) 109,433 National Oilwell Varco, Inc. 3, ,022 Schlumberger Ltd. 10,301 13,876 Total Energy 13, USAA World Growth Fund

23 Market Number Value of Shares Security (000) Financials (10.3%) Asset Management & Custody Banks (4.8%) 444,081 Bank of New York Mellon Corp. $ 20, ,284 Franklin Resources, Inc. 11, ,868 Julius Baer Group Ltd.* 7, ,742 State Street Corp. 24,417 64,765 Consumer Finance (1.3%) 223,182 American Express Co. 17,172 Diversified Banks (1.1%) 145,816 Erste Group Bank AG* 5, ,658 Grupo Financiero Banorte S.A. O 4, ,600 Kasikornbank Public Co. Ltd. 2,836 48,282 Komercni Banka A/S 1,924 14,353 Diversified Capital Markets (1.3%) 1,126,769 UBS Group AG* 17,916 Financial Exchanges & Data (0.6%) 71,938 Deutsche Boerse AG 7,473 Investment Banking & Brokerage (0.9%) 60,357 Goldman Sachs Group, Inc. 12,751 Reinsurance (0.3%) 47,893 Swiss Re AG 4,366 Total Financials 138,796 Health Care (20.2%) Health Care Equipment (8.1%) 317,436 Abbott Laboratories 14, ,305 Medtronic plc 31,547 48,887 Sonova Holding AG 8, ,743 Stryker Corp. 28, ,001 Zimmer Biomet Holdings, Inc. 26, ,252 Health Care Supplies (2.2%) 69,910 Cooper Companies, Inc. 15,293 84,138 DENTSPLY SIRONA, Inc. 5, ,900 Hoya Corp. 8,268 28,906 Portfolio of Investments 19

24 Market Number Value of Shares Security (000) Life Sciences Tools & Services (3.9%) 230,846 Thermo Fisher Scientific, Inc. $ 39,888 71,804 Waters Corp.* 12,897 52,785 Pharmaceuticals (6.0%) 294,396 Bayer AG 39,057 43,569 Johnson & Johnson 5,588 98,595 Merck KGaA 11,901 87,893 Roche Holding AG 24,120 80,666 Total Health Care 271,609 Industrials (15.2%) Aerospace & Defense (1.8%) 70,447 MTU Aero Engines AG 9, ,819 United Technologies Corp. 14,774 24,714 Agricultural & Farm Machinery (0.6%) 538,000 Kubota Corp. 8,511 Air Freight & Logistics (1.5%) 191,428 United Parcel Service, Inc. B 20,286 Airport Services (0.8%) 53,849 Aena S.A. 10,870 Electrical Components & Equipment (2.0%) 166,101 Legrand S.A. 11, ,688 Schneider Electric SE* 15,610 26,998 Human Resource & Employment Services (0.8%) 134,067 Adecco Group AG 9,994 Industrial Conglomerates (4.2%) 113,545 3M Co. 23, ,928 Honeywell International, Inc. 32,972 56,188 Railroads (2.7%) 299,509 Canadian National Railway Co. 23, ,875 Kansas City Southern 13,411 36, USAA World Growth Fund

25 Market Number Value of Shares Security (000) Trading Companies & Distributors (0.8%) 75,550 Brenntag AG $ 4,371 63,986 NOW, Inc.* 1,056 26,509 W.W. Grainger, Inc. 4,567 9,994 Total Industrials 204,157 Information Technology (11.7%) Communications Equipment (0.7%) 276,889 Cisco Systems, Inc. 8,730 Data Processing & Outsourced Services (2.8%) 150,843 PayPal Holdings, Inc.* 7, ,030 Visa, Inc. A 29,334 37,209 Electronic Components (0.6%) 114,607 Amphenol Corp. A 8,550 Internet Software & Services (0.8%) 329,740 ebay, Inc.* 11,310 IT Consulting & Other Services (2.8%) 230,477 Accenture plc A 28, ,644 Cognizant Technology Solutions Corp. A 9,411 38,098 Semiconductors (0.5%) 88,436 Microchip Technology, Inc. 7,367 Systems Software (2.6%) 125,481 Check Point Software Technologies Ltd.* 14, ,881 Oracle Corp. 20,556 34,616 Technology Hardware, Storage, & Peripherals (0.9%) 5,977 Samsung Electronics Co. Ltd. 11,932 Total Information Technology 157,812 Materials (4.8%) Fertilizers & Agricultural Chemicals (1.1%) 125,916 Monsanto Co. 14,785 Industrial Gases (2.5%) 59,388 Air Liquide S.A. 7,238 92,126 Linde AG 17,588 71,296 Praxair, Inc. 9,432 34,258 Portfolio of Investments 21

26 Market Number Value of Shares Security (000) Specialty Chemicals (1.2%) 188,170 Akzo Nobel N.V. $ 15,750 Total Materials 64,793 Total Common Stocks 1,335,853 Total Equity Securities (cost: $807,947) 1,335,853 Principal Amount Coupon (000) Rate Maturity MONEY MARKET INSTRUMENTS (0.8%) DISCOUNT NOTES (0.7%) U.S. Government (0.7%) $ 9,126 Federal Home Loan Bank 0.68% 6/01/2017 9,126 Number of Shares GOVERNMENT & U.S. TREASURY MONEY MARKET FUNDS (0.1%) 1,101,056 State Street Institutional Treasury Money Market Fund Premier Class, 0.69% (a) 1,101 Total Money Market Instruments (cost: $10,227) 10,227 Total Investments (cost: $818,174) $1,346, USAA World Growth Fund

27 ($ in 000s) VALUATION HIERARCHY Assets LEVEL 1 LEVEL 2 LEVEL 3 Total Equity Securities: Common Stocks $1,335,853 $ $ $1,335,853 Money Market Instruments: Discount Notes 9,126 9,126 Government & U.S. Treasury Money Market Funds 1,101 1,101 Total $1,336,954 $9,126 $ $1,346,080 Refer to the Portfolio of Investments for additional industry, country, or geographic region classifications. For the period of June 1, 2016, through May 31, 2017, there were no transfers of securities between levels. The Fund s policy is to recognize any transfers in and transfers out as of the beginning of the reporting period in which the event or circumstance that caused the transfer occurred. Portfolio of Investments 23

28 NOTES TO PORTFOLIO OF INVESTMENTS May 31, 2017 n GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1A to the financial statements. The Portfolio of Investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. Investments in foreign securities were 46.6% of net assets at May 31, n SPECIFIC NOTES (a) Rate represents the money market fund annualized seven-day yield at May 31, * Non-income-producing security. See accompanying notes to financial statements. 24 USAA World Growth Fund

29 STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) May 31, 2017 ASSETS Investments in securities, at market value (cost of $818,174) $1,346,080 Cash denominated in foreign currencies (identified cost of $227) 227 Receivables: Capital shares sold 417 USAA Asset Management Company (Note 7D) 5 Dividends and interest 3,400 Securities sold 206 Other 44 Unrealized appreciation on foreign currency contracts held, at value 3 Total assets 1,350,382 LIABILITIES Payables: Securities purchased 2,787 Capital shares redeemed 546 Accrued management fees 844 Accrued transfer agent s fees 59 Other accrued expenses and payables 190 Total liabilities 4,426 Net assets applicable to capital shares outstanding $1,345,956 NET ASSETS CONSIST OF: Paid-in capital $ 790,381 Accumulated undistributed net investment income 5,883 Accumulated net realized gain on investments 21,800 Net unrealized appreciation of investments 527,906 Net unrealized depreciation of foreign currency translations (14) Net assets applicable to capital shares outstanding $1,345,956 Net asset value, redemption price, and offering price per share: Fund Shares (net assets of $1,319,357/42,337 capital shares outstanding, no par value) $ Institutional Shares (net assets of $6,877/221 capital shares outstanding, no par value) $ Adviser Shares (net assets of $19,722/635 capital shares outstanding, no par value) $ See accompanying notes to financial statements. Financial Statements 25

30 STATEMENT OF OPERATIONS (IN THOUSANDS) Year ended May 31, 2017 INVESTMENT INCOME Dividends (net of foreign taxes withheld of $1,263) $ 22,502 Interest 33 Securities lending (net) 44 Total income 22,579 EXPENSES Management fees 9,217 Administration and servicing fees: Fund Shares 1,794 Institutional Shares 6 Adviser Shares 26 Transfer agent s fees: Fund Shares 2,119 Institutional Shares 6 Adviser Shares 19 Distribution and service fees (Note 7F): Adviser Shares 43 Custody and accounting fees: Fund Shares 144 Institutional Shares 1 Adviser Shares 1 Postage: Fund Shares 147 Adviser Shares 2 Shareholder reporting fees: Fund Shares 51 Trustees fees 31 Registration fees: Fund Shares 37 Institutional Shares 22 Adviser Shares 19 Professional fees 158 Other 30 Total expenses 13, USAA World Growth Fund

31 Expenses reimbursed: Institutional Shares $ (16) Net expenses 13,857 NET INVESTMENT INCOME 8,722 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY Net realized gain (loss) on: Investments (net of foreign taxes withheld of $1) 30,993 Foreign currency transactions (112) Change in net unrealized appreciation/(depreciation) of: Investments 165,425 Foreign currency translations 47 Net realized and unrealized gain 196,353 Increase in net assets resulting from operations $205,075 See accompanying notes to financial statements. Financial Statements 27

32 STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Years ended May 31, FROM OPERATIONS Net investment income $ 8,722 $ 9,289 Net realized gain on investments 30,993 23,121 Net realized loss on foreign currency transactions (112) (120) Change in net unrealized appreciation/(depreciation) of: Investments 165,425 (64,830) Foreign currency translations Increase (decrease) in net assets resulting from operations 205,075 (32,485) DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Fund Shares (8,757) (8,171) Institutional Shares* (40) (45) Adviser Shares (84) (42) Total distributions of net investment income (8,881) (8,258) Net realized gains: Fund Shares (23,893) (23,403) Institutional Shares* (125) (97) Adviser Shares (344) (353) Total distributions of net realized gains (24,362) (23,853) Distributions to shareholders (33,243) (32,111) NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 6) Fund Shares (6,270) 11,202 Institutional Shares* 781 5,505 Adviser Shares 657 (8,861) Total net increase (decrease) in net assets from capital share transactions (4,832) 7,846 Net increase (decrease) in net assets 167,000 (56,750) NET ASSETS Beginning of year 1,178,956 1,235,706 End of year $1,345,956 $1,178,956 Accumulated undistributed net investment income: End of year $ 5,883 $ 6,409 *Institutional Shares commenced operations on August 7, See accompanying notes to financial statements. 28 USAA World Growth Fund

33 NOTES TO FINANCIAL STATEMENTS May 31, 2017 (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 54 separate funds. Additionally, the USAA World Growth 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 diversified under the 1940 Act. The Fund s investment objective is to seek capital appreciation. The Fund consists of three classes of shares: World Growth Fund Shares (Fund Shares), World Growth Fund Institutional Shares (Institutional Shares), and World Growth Fund Adviser Shares (Adviser Shares). Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These 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 Notes to Financial Statements 29

34 participating in a fund-of-funds investment strategy (USAA fund-of-funds). The Adviser Shares permit investors to purchase shares through financial intermediaries, including banks, broker-dealers, insurance companies, investment advisers, plan sponsors, and financial professionals that provide various administrative and distribution services. A. Security valuation The Trust s Board of Trustees (the Board) has established the Valuation Committee (the Committee), and subject to Board oversight, the Committee administers and oversees the Fund s valuation policies and procedures, which are approved by the Board. Among other things, these policies and procedures allow the Fund to utilize independent pricing services, quotations from securities dealers, and a wide variety of sources and information to establish and adjust the fair value of securities as events occur and circumstances warrant. The Committee reports to the Board on a quarterly basis and makes recommendations to the Board as to pricing methodologies and services used by the Fund and presents additional information to the Board regarding application of the pricing and fair valuation policies and procedures during the preceding quarter. The Committee meets as often as necessary to make pricing and fair value determinations. In addition, the Committee holds regular monthly meetings to review prior actions taken by the Committee and USAA Asset Management Company (the Manager), an affiliate of the Fund. Among other things, these monthly meetings include a review and analysis of back testing 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 30 USAA World Growth Fund