UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: DANIEL J. MAVICO
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MAY 31
Date of reporting period: NOVEMBER 30, 2014
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED NOVEMBER 30, 2014
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GOVERNMENT SECURITIES FUND]
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SEMIANNUAL REPORT
USAA GOVERNMENT SECURITIES FUND
FUND SHARES o ADVISER SHARES
NOVEMBER 30, 2014
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PRESIDENT'S MESSAGE
"...[A] KEY DETERMINANT OF INVESTMENT
SUCCESS IS THE ABILITY TO DEAL WITH OUR [PHOTO OF BROOKS ENGLEHARDT]
EMOTIONAL REACTIONS."
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JANUARY 2015
The reporting period was perilous for those who believe they can gauge - and
trade - the direction of the financial markets. When the period began in June of
last year, many observers believed that longer-term interest rates could not get
any lower. In fact, they continued to trend down as the Federal Reserve (the
Fed) gradually tapered (or reduced), and eventually, ended its quantitative
easing (QE) bond-buying program. The yield on a 10-year U.S. Treasury, which
began the period at 2.48%, ended it at 2.17%. As yields fell, bond prices rose
(bond prices and yields move in opposite directions), with longer-term and
intermediate-term U.S. Treasuries generating the highest bond-market returns for
the reporting period overall. U.S. large-cap stocks performed even better than
U.S. Treasuries. After dipping sharply in the first two weeks of October,
large-cap stocks rallied and finished the period with a solid gain.
The performance of other asset classes was quite different. During the reporting
period, investors generally sold off European stocks, which ended the period in
negative territory. Japanese equities notched a gain, but they underperformed
versus the broad U.S. stock market. U.S. small-cap stocks declined for most of
the period, rebounding during the final weeks to eke out a small positive
return. Within fixed-income securities, high-yield spreads (or yield
differentials versus risk-free U.S. Treasuries of comparable maturity) widened,
suggesting investors were growing concerned about corporate fundamentals amid
weaker global economic growth.
Indeed, while the U.S. economy continued to strengthen during the reporting
period, other economies did not fare well. Europe's economic growth slowed,
Japan struggled to jumpstart its declining economy, and the former engine of
global growth - China - weakened. The monetary policies of global central banks
reflected the divergence between those economies and our own. As the Fed was
ending its QE program, other central banks were easing monetary policy further,
pushing down interest rates around the world. At the same time, inflation
pressures eased as oil prices fell by nearly a third during the reporting period
and natural gas,
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copper, and agricultural commodity prices also declined. Gold prices, however,
held up relatively well in comparison, falling only modestly.
Few could have foreseen this investment landscape when the reporting period
started. Despite what some experts say, no one can be sure exactly what will
happen in the financial markets. I suspect those who tried to time the markets
were surprised by the performance of certain asset classes. Under the
circumstances, if you decided to adhere to your long-term investment plan, you
have every reason to congratulate yourself. This is all the more true when you
consider the dramatic headlines that dominated the period, including Russia's
involvement in the Ukraine, the Ebola crisis, and the uncertainty in the Middle
East. In my opinion, a key determinant of investment success is the ability to
deal with our emotional reactions. We believe investors should strive to ignore
media noise and focus instead on relevant information, such as the direction of
interest rates and the condition of the U.S. economy, which can provide them
with the perspective they need to manage their investments. In this respect, a
long-term plan can be extremely useful.
That said, as we look ahead to 2015, it may be a good time to review your
investment plan and make sure it still suits your goals, risk tolerance, and
time horizon. You also may want to rebalance your portfolio. Regular rebalancing
can potentially help you protect your gains and prepare for what happens next.
If you would like some help, please call one of our financial advisors. They
would be happy to assist you.
At USAA Investments, we remain committed to providing you with our best advice,
top-notch service and a wide variety of investment choices. Rest assured we will
continue monitoring global economic trends, central bank monetary policy, and
other factors that potentially could affect your investments. From all of us
here, I would like to thank you for the opportunity to serve your investment
needs.
Sincerely,
/S/ BROOKS ENGLEHARDT
Brooks Englehardt
President
USAA Investments
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o As interest rates rise,
bond prices generally fall; given the historically low interest rate
environment, risks associated with rising interest rates may be heightened.
o Emerging market countries are less diverse and mature than other countries
and tend to be politically less stable. o Precious metals and minerals is a
volatile asset class and is subject to additional risks, such as currency
fluctuation, market illiquidity, political instability, and increased price
volatility. It may be more volatile than other asset classes that diversify
across many industries and companies. o Investments provided by USAA Investment
Management Company and USAA Financial Advisors Inc., both registered broker
dealers. o Financial advice provided by USAA Financial Planning Services
Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California,
License # 0E36312), and USAA Financial Advisors, Inc., a registered broker
dealer.
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TABLE OF CONTENTS
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FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 19
Financial Statements 21
Notes to Financial Statements 24
EXPENSE EXAMPLE 38
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.
(C)2015, USAA. All rights reserved.
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FUND OBJECTIVE
THE USAA GOVERNMENT SECURITIES FUND (THE FUND) PROVIDES INVESTORS A HIGH LEVEL
OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF PRINCIPAL.
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TYPES OF INVESTMENTS
The Fund normally invests at least 80% of its assets in government securities,
including, but not limited to U.S. Treasury bills, notes, and bonds; Treasury
Inflation Protected Securities (TIPS); Mortgage-Backed Securities (MBS) backed
by the Government National Mortgage Association (Ginnie Mae, also known as
GNMA), Fannie Mae, and Freddie Mac; U.S. government agency collateralized
mortgage obligations; and securities issued by U.S. government agencies and
instrumentalities, supported by the credit of the issuing agency,
instrumentality or corporation (which are neither issued nor guaranteed by the
U.S. Treasury), including but not limited to Fannie Mae, Freddie Mac, Federal
Housing Administration, Department of Housing and Urban Development,
Export-Import Bank, Farmer's Home Administration, General Services
Administration, Maritime Administration, Small Business Administration, and
repurchase agreements collateralized by such investments. This 80% policy may be
changed upon at least 60 days' written notice to shareholders.
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 set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Asset Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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FUND OBJECTIVE | 1
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MANAGERS' COMMENTARY ON THE FUND
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[PHOTO OF DONNA J. BAGGERLY] [PHOTO OF R. NEAL GRAVES]
DONNA J. BAGGERLY, CFA R. NEAL GRAVES, CFA, CPA
USAA Asset USAA Asset
Management Company Management Company
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o WHAT WERE THE MARKET CONDITIONS DURING THE REPORTING PERIOD?
When the reporting period began, longer-term U.S. Treasury interest rates
declined, continuing the downward trend that started in January 2014 when
the Federal Reserve (the Fed) began reducing its quantitative easing asset
purchases once economic data indicated a strengthening of the U.S. economy.
The Fed continued to taper, or reduce, its asset purchases throughout the
reporting period and ended its quantitative easing program this past
October.
Longer-term U.S. Treasury interest rates ended the reporting period lower
than where they began. In September of 2014, they surged on news of
improving U.S. economic data, but they fell back later in the month. In
early October, as global economic weakness and geopolitical tensions drove a
flight to quality assets, longer-term rates fell and continued to decline
through the end of the period. Intermediate-term interest rates also fell,
with the yield on a 10-year U.S. Treasury dropping from 2.48% on May 31,
2014 to 2.17% on November 28, 2014. As interest rates declined, bond prices
(which move in the opposite direction of rates) increased.
Mortgage rates were virtually flat for the reporting period. The interest
rate on a 15-year mortgage, which was 3.21% at the beginning of the period,
reached a high of 3.37% in mid-September 2014 and dropped again to end
reporting period at 3.17%. The interest rate on a 30-year
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2 | USAA GOVERNMENT SECURITIES FUND
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mortgage increased from 4.12% at the beginning of the period to a high of
4.23% in mid- September and closed the reporting period at 3.97%. Because
mortgage interest rates remained relatively stable, homeowners continued to
find it less advantageous to refinance their mortgages, increasing extension
risk. Extension risk is the risk that mortgage prepayments will decelerate,
causing the average life of a mortgage to lengthen - or, extend - and become
more sensitive to upward interest rate movement.
O HOW DID THE USAA GOVERNMENT SECURITIES FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
The Fund has two share classes: Fund Shares and Adviser Shares. For the
six-month reporting period ended November 30, 2014, the Fund Shares and
Adviser Shares had total returns of 1.54% and 1.36%, respectively. This
compares to total returns of 1.55% for the Barclays U.S. Aggregate
Government Intermediate & Mortgage-Backed Securities Index and 1.39% for the
Lipper Intermediate U.S. Government Funds Index.
USAA Asset Management Company is the Fund's investment adviser. The
investment adviser provides day-to-day discretionary management for the
Fund's assets.
o HOW DID YOU MANAGE THE FUND DURING THE REPORTING PERIOD?
Because interest rates fell unexpectedly during 2014 and because of
uncertainty about when rates might rise, we continued to reduce the Fund's
exposure to prepayment risk and extension risk. To this end, we purchased
some shorter-term taxable municipal bonds that are non-callable (meaning the
bonds cannot be repaid before the stated maturity date), providing the Fund
with a measure of stability if rates fall further. In
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o As interest rates
rise, existing bond prices generally fall; given the historically low
interest rate environment, risks associated with rising interest rates may
be heightened.
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MANAGERS' COMMENTARY ON THE FUND | 3
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addition, we bought an asset-backed security (ABS), which is collateralized
by student loans guaranteed by the federal government under the Federal
Family Education Loan Program. Because the interest rate paid by the student
loan ABS adjusts periodically, we expect the investment to perform well when
short-term interest rates begin to rise.
During the reporting period, the Fund continued to benefit from its
investments in agency multi-family commercial mortgage-backed securities,
which do not extend. In addition, the Fund also benefited from the interest
payments generated by its holdings of 30-year seasoned Ginnie Mae mortgages
with higher coupon interest rates, which had been purchased by the Fund many
years ago. The Fund's significant underweight in U.S. Treasury bonds also
added value.
Thank you for your investment in the Fund.
While the value of the USAA Government Securities Fund Shares and Adviser
Shares are not guaranteed by the U.S. government, the Fund endeavors to
maintain low-to-moderate fluctuation of share price.
Fund and Adviser Shares of the USAA Government Securities Fund are not
individually backed by the full faith and credit of the U.S. government.
o Mortgage-backed securities have prepayment, credit, interest rate, and
extension risks. Generally, when interest rates decline, prepayments
accelerate beyond the initial pricing assumptions and may cause the average
life of the securities to shorten. Also the market value may decline when
interest rates rise because prepayments decrease beyond the initial pricing
assumptions and may cause the average life of the securities to extend.
You will find a complete list of securities that the Fund owns on pages
13-18.
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4 | USAA GOVERNMENT SECURITIES FUND
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INVESTMENT OVERVIEW
USAA GOVERNMENT SECURITIES FUND SHARES (FUND SHARES) (Ticker Symbol: USGNX)
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11/30/14 5/31/14
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Net Assets $445.2 Million $451.7 Million
Net Asset Value Per Share $10.04 $10.02
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AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/14
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5/31/14 - 11/30/14* 1 YEAR 5 YEARS 10 YEARS
1.54% 3.77% 2.92% 4.19%
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AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/14
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1 YEAR 5 YEARS 10 YEARS
4.17% 3.13% 4.14%
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30-DAY SEC YIELD** AS OF 11/30/14 EXPENSE RATIO AS OF 5/31/14***
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2.69% 0.47%
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.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***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, 2014, 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 distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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INVESTMENT OVERVIEW | 5
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AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS - PERIODS ENDED
NOVEMBER 30, 2014
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TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
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10 YEARS 4.19% = 3.96% + 0.23%
5 YEARS 2.92% = 3.16% + -0.24%
1 YEAR 3.77% = 2.76% + 1.01%
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.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE 10-YEAR PERIOD
ENDED NOVEMBER 30, 2014
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
11/30/2005 1.94% 4.90% -2.96%
11/30/2006 5.55% 5.02% 0.53%
11/30/2007 6.10% 4.95% 1.15%
11/30/2008 5.64% 4.71% 0.93%
11/30/2009 8.31% 4.32% 3.99%
11/30/2010 4.69% 3.80% 0.89%
11/30/2011 4.99% 3.62% 1.37%
11/30/2012 2.49% 2.97% -0.48%
11/30/2013 -1.20% 2.67% -3.87%
11/30/2014 3.77% 2.76% 1.01%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE A
RELATIVELY STABLE COMPONENT OF TOTAL RETURNS.
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 distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
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6 | USAA GOVERNMENT SECURITIES FUND
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o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA GOVERNMENT LIPPER INTERMEDIATE
SECURITIES FUND U.S. GOVERNMENT FUNDS
SHARES INDEX AVERAGE
11/30/05 5.02% 3.59%
11/30/06 4.81 3.96
11/30/07 4.66 4.12
11/30/08 4.53 3.88
11/30/09 4.01 3.26
11/30/10 3.68 2.58
11/30/11 3.48 2.17
11/30/12 2.96 1.82
11/30/13 2.78 1.52
11/30/14 2.69 1.71
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data for
periods ending 11/30/05 to 11/30/14.
The Lipper Intermediate U.S. Government Funds Index Average is an average
performance level of all intermediate U.S. government funds, reported by Lipper
Inc., an independent organization that monitors the performance of mutual funds.
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INVESTMENT OVERVIEW | 7
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S. AGGREGATE
LIPPER INTERMEDIATE GOVERNMENT INTERMEDIATE USAA GOVERNMENT
U.S. GOVERNMENT & MORTGAGE-BACKED SECURITIES FUND
FUNDS INDEX SECURITIES INDEX SHARES
11/30/04 $10,000.00 $10,000.00 $10,000.00
12/31/04 10,068.72 10,063.42 10,042.38
01/31/05 10,103.68 10,098.83 10,090.26
02/28/05 10,049.16 10,047.56 10,058.69
03/31/05 10,017.47 10,025.90 10,037.41
04/30/05 10,137.70 10,140.05 10,131.84
05/31/05 10,220.28 10,220.38 10,193.11
06/30/05 10,262.01 10,255.79 10,214.09
07/31/05 10,176.02 10,187.61 10,182.63
08/31/05 10,293.89 10,288.55 10,266.96
09/30/05 10,248.45 10,222.49 10,216.81
10/31/05 10,142.74 10,164.36 10,172.12
11/30/05 10,176.00 10,201.35 10,194.01
12/31/05 10,254.92 10,283.80 10,314.48
01/31/06 10,259.79 10,301.77 10,344.07
02/28/06 10,279.14 10,328.19 10,354.48
03/31/06 10,205.80 10,266.36 10,302.64
04/30/06 10,194.28 10,271.11 10,256.07
05/31/06 10,192.55 10,261.60 10,234.07
06/30/06 10,208.82 10,281.15 10,232.75
07/31/06 10,323.14 10,410.10 10,370.11
08/31/06 10,452.72 10,545.40 10,510.79
09/30/06 10,531.56 10,620.44 10,586.38
10/31/06 10,587.79 10,684.92 10,659.42
11/30/06 10,691.86 10,790.61 10,756.93
12/31/06 10,634.87 10,755.73 10,744.89
01/31/07 10,630.32 10,759.96 10,738.73
02/28/07 10,777.08 10,893.67 10,871.78
03/31/07 10,792.78 10,922.21 10,881.44
04/30/07 10,843.30 10,973.47 10,934.14
05/31/07 10,748.79 10,910.58 10,873.69
06/30/07 10,725.03 10,891.03 10,815.20
07/31/07 10,847.48 10,990.38 10,892.55
08/31/07 10,989.98 11,130.43 11,021.90
09/30/07 11,069.25 11,212.01 11,085.08
10/31/07 11,150.72 11,306.17 11,187.95
11/30/07 11,424.30 11,534.63 11,412.70
12/31/07 11,416.82 11,568.96 11,420.95
01/31/08 11,686.32 11,806.63 11,618.61
02/29/08 11,745.31 11,860.06 11,678.19
03/31/08 11,769.40 11,929.31 11,719.94
04/30/08 11,695.86 11,871.18 11,704.56
05/31/08 11,565.81 11,790.50 11,630.22
06/30/08 11,597.71 11,805.02 11,636.82
07/31/08 11,581.48 11,820.70 11,632.80
08/31/08 11,684.09 11,945.18 11,739.53
09/30/08 11,675.87 12,022.24 11,815.51
10/31/08 11,553.98 11,949.80 11,667.03
11/30/08 12,003.31 12,394.63 12,053.33
12/31/08 12,345.81 12,632.40 12,247.74
01/31/09 12,208.49 12,579.01 12,254.51
02/28/09 12,347.20 12,611.08 12,335.95
03/31/09 12,433.52 12,787.90 12,516.95
04/30/09 12,330.40 12,767.36 12,534.93
05/31/09 12,425.37 12,762.31 12,564.36
06/30/09 12,325.21 12,755.55 12,568.97
07/31/09 12,383.00 12,838.06 12,689.27
08/31/09 12,688.14 12,921.92 12,777.73
09/30/09 12,754.98 13,011.56 12,843.77
10/31/09 12,861.00 13,075.82 12,922.84
11/30/09 12,977.41 13,239.96 13,055.35
12/31/09 12,746.73 13,027.43 12,918.05
01/31/10 12,954.86 13,198.94 13,055.56
02/28/10 12,978.75 13,237.83 13,081.36
03/31/10 12,984.30 13,201.90 13,094.59
04/30/10 13,134.71 13,288.52 13,178.61
05/31/10 13,269.70 13,441.72 13,336.70
06/30/10 13,486.82 13,606.01 13,457.57
07/31/10 13,604.89 13,714.90 13,580.73
08/31/10 13,812.86 13,802.25 13,582.60
09/30/10 13,838.93 13,796.05 13,545.74
10/31/10 13,881.15 13,887.22 13,679.85
11/30/10 13,791.96 13,832.65 13,667.54
12/31/10 13,578.95 13,699.04 13,618.25
01/31/11 13,585.29 13,722.88 13,629.94
02/28/11 13,586.87 13,723.05 13,672.69
03/31/11 13,594.38 13,738.52 13,687.71
04/30/11 13,751.18 13,881.46 13,839.15
05/31/11 13,941.48 14,036.07 13,988.29
06/30/11 13,905.86 14,037.64 14,002.93
07/31/11 14,121.80 14,194.16 14,111.34
08/31/11 14,405.22 14,397.51 14,274.65
09/30/11 14,540.09 14,428.14 14,275.22
10/31/11 14,488.13 14,415.00 14,297.13
11/30/11 14,527.40 14,452.23 14,349.03
12/31/11 14,658.31 14,540.65 14,429.75
01/31/12 14,759.41 14,607.95 14,449.84
02/29/12 14,707.88 14,581.56 14,445.02
03/31/12 14,621.20 14,550.31 14,466.32
04/30/12 14,800.65 14,664.58 14,543.18
05/31/12 14,968.07 14,738.62 14,581.96
06/30/12 14,946.10 14,736.27 14,591.51
07/31/12 15,090.25 14,837.77 14,696.22
08/31/12 15,105.85 14,849.20 14,707.27
09/30/12 15,108.81 14,862.16 14,737.95
10/31/12 15,091.51 14,838.02 14,701.58
11/30/12 15,140.49 14,856.13 14,709.23
12/31/12 15,095.18 14,850.76 14,710.84
01/31/13 15,005.22 14,786.22 14,656.82
02/28/13 15,077.25 14,842.13 14,704.29
03/31/13 15,083.68 14,859.42 14,708.93
04/30/13 15,182.37 14,930.87 14,756.35
05/31/13 14,942.08 14,745.22 14,529.83
06/30/13 14,730.77 14,616.38 14,404.19
07/31/13 14,723.70 14,619.88 14,351.04
08/31/13 14,644.41 14,565.12 14,326.70
09/30/13 14,777.38 14,716.03 14,462.13
10/31/13 14,851.86 14,791.44 14,539.69
11/30/13 14,818.42 14,746.41 14,531.03
12/31/13 14,701.17 14,654.53 14,462.37
01/31/14 14,894.98 14,824.56 14,641.83
02/28/14 14,935.79 14,864.61 14,705.47
03/31/14 14,893.09 14,811.15 14,650.83
04/30/14 14,978.34 14,902.84 14,742.90
05/31/14 15,092.57 15,038.44 14,850.19
06/30/14 15,094.01 15,046.25 14,868.12
07/31/14 15,058.86 14,984.92 14,811.34
08/31/14 15,160.79 15,099.01 14,932.59
09/30/14 15,110.97 15,060.03 14,905.87
10/31/14 15,209.28 15,184.07 14,999.20
11/30/14 15,302.63 15,271.09 15,075.84
[END CHART]
Data from 11/30/04 TO 11/30/14.
The Graph Illustrates The comparison of a $10,000 hypothetical investment in the
USAA Government Securities Fund Shares to the following benchmarks:
o The unmanaged Lipper Intermediate U.S. Government Funds Index is considered
representative of intermediate U.S. government funds.
o The unmanaged Barclays U.S. Aggregate Government Intermediate &
Mortgage-Backed Securities Index consists of intermediate U.S. Treasury and
Agency unsecured notes and securities backed by pools of mortgages issued by
U.S. Government Agencies, GNMA, Fannie Mae, or Freddie Mac.
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.
================================================================================
8 | USAA GOVERNMENT SECURITIES FUND
================================================================================
USAA GOVERNMENT SECURITIES FUND ADVISER SHARES (ADVISER SHARES) (Ticker Symbol:
UAGNX)
--------------------------------------------------------------------------------
11/30/14 5/31/14
--------------------------------------------------------------------------------
Net Assets (in Millions) $5.0 Million $5.2 Million
Net Asset Value Per Share $10.03 $10.01
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/14
--------------------------------------------------------------------------------
5/31/14 - 11/30/14* 1 YEAR SINCE INCEPTION 8/01/10
1.36% 3.35% 2.00%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/14
--------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION 8/01/10
3.86% 1.93%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 11/30/14
--------------------------------------------------------------------------------
UNSUBSIDIZED 2.38% SUBSIDIZED 2.47%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/14***
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.84% AFTER REIMBURSEMENT 0.75%
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.
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
***The expense ratios represent 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, 2014, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2015, to make payments or
waive management, administration, and other fees so that the total annual
operating expenses of the Adviser Shares (exclusive of commission recapture,
expense offset arrangements, acquired fund fees and expenses, and extraordinary
expenses) do not exceed an annual rate of 0.75% of the Adviser Shares' average
net assets. 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 October 1, 2015. These
expense ratios may differ from the expense ratios disclosed in the Financial
Highlights, which excludes acquired fund fees and expenses. Prior to October 1,
2014, the Adviser Shares' expense limitation was 0.90% of average net assets.
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 distributions (including
capital gains distributions), redemption of shares, or reinvested net investment
income.
================================================================================
INVESTMENT OVERVIEW | 9
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON* o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON*]
USAA GOVERNMENT LIPPER INTERMEDIATE
SECURITIES FUND U.S. GOVERNMENT FUNDS
ADVISER CLASS INDEX AVERAGE
11/30/11 3.00% 2.17%
11/30/12 2.49 1.82
11/30/13 2.30 1.52
11/30/14 2.38 1.71
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data for
periods ending 11/30/11 to 11/30/14.
The Lipper Intermediate U.S. Government Funds Index Average is an average
performance level of all intermediate U.S. government funds, reported by Lipper
Inc., an independent organization that monitors the performance of mutual funds.
*Adviser Shares were initiated on August 1, 2010.
================================================================================
10 | USAA GOVERNMENT SECURITIES FUND
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S. AGGREGATE
LIPPER INTERMEDIATE GOVERNMENT INTERMEDIATE USAA GOVERNMENT
U.S. GOVERNMENT & MORTGAGE-BACKED SECURITIES ADVISER
FUNDS INDEX SECURITIES INDEX FUND SHARES
07/31/10 $10,000.00 $10,000.00 $10,000.00
08/31/10 10,152.86 10,063.69 10,006.39
09/30/10 10,172.02 10,059.17 9,975.26
10/31/10 10,203.06 10,125.65 10,060.12
11/30/10 10,137.50 10,085.86 10,056.88
12/31/10 9,980.93 9,988.44 10,006.51
01/31/11 9,985.59 10,005.82 10,011.35
02/28/11 9,986.75 10,005.94 10,049.04
03/31/11 9,992.27 10,017.22 10,056.04
04/30/11 10,107.52 10,121.45 10,153.21
05/31/11 10,247.41 10,234.18 10,258.35
06/30/11 10,221.22 10,235.32 10,274.98
07/31/11 10,379.94 10,349.44 10,350.32
08/31/11 10,588.26 10,497.72 10,465.83
09/30/11 10,687.40 10,520.05 10,451.75
10/31/11 10,649.21 10,510.47 10,473.71
11/30/11 10,678.07 10,537.62 10,507.48
12/31/11 10,774.29 10,602.09 10,561.89
01/31/12 10,848.61 10,651.16 10,562.30
02/29/12 10,810.73 10,631.91 10,564.77
03/31/12 10,747.02 10,609.13 10,575.77
04/30/12 10,878.91 10,692.45 10,627.78
05/31/12 11,001.98 10,746.43 10,652.08
06/30/12 10,985.83 10,744.72 10,644.34
07/31/12 11,091.78 10,818.72 10,716.39
08/31/12 11,103.25 10,827.06 10,729.75
09/30/12 11,105.42 10,836.50 10,748.14
10/31/12 11,092.71 10,818.90 10,706.73
11/30/12 11,128.71 10,832.11 10,707.96
12/31/12 11,095.41 10,828.19 10,715.26
01/31/13 11,029.28 10,781.13 10,671.59
02/28/13 11,082.23 10,821.91 10,702.24
03/31/13 11,086.95 10,834.51 10,690.88
04/30/13 11,159.49 10,886.60 10,721.07
05/31/13 10,982.88 10,751.25 10,551.70
06/30/13 10,827.55 10,657.30 10,466.68
07/31/13 10,822.36 10,659.85 10,423.85
08/31/13 10,764.08 10,619.93 10,402.02
09/30/13 10,861.81 10,729.96 10,496.66
10/31/13 10,916.56 10,784.94 10,549.12
11/30/13 10,891.98 10,752.11 10,539.03
12/31/13 10,805.79 10,685.12 10,474.85
01/31/14 10,948.25 10,809.09 10,611.95
02/28/14 10,978.25 10,838.30 10,656.61
03/31/14 10,946.86 10,799.32 10,605.06
04/30/14 11,009.52 10,866.17 10,670.78
05/31/14 11,093.49 10,965.04 10,745.36
06/30/14 11,094.55 10,970.74 10,754.16
07/31/14 11,068.71 10,926.02 10,720.20
08/31/14 11,143.63 11,009.21 10,793.59
09/30/14 11,107.01 10,980.78 10,781.59
10/31/14 11,179.27 11,071.22 10,847.04
11/30/14 11,247.89 11,134.67 10,889.61
[END CHART]
Data from 7/31/10 to 11/30/14.*
See page 8 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.
*The performance of the Lipper Intermediate U.S. Government Funds Index and
Barclays U.S. Aggregate Government Intermediate & Mortgage-Backed Securities
Index is calculated from the end of the month, July 31, 2010, while the
inception date of the Adviser Shares is August 1, 2010. There may be a slight
variation of performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 11
================================================================================
o ASSET ALLOCATION - 11/30/14 o
[PIE CHART OF ASSET ALLOCATION]
30-YEAR FIXED-RATE SINGLE-FAMILY MORTGAGES* 58.6%
COMMERCIAL MORTGAGE-BACKED SECURITIES 13.8%
COLLATERALIZED MORTGAGE OBLIGATIONS 9.9%
15-YEAR FIXED-RATE SINGLE-FAMILY MORTGAGES* 7.0%
U.S. TREASURY SECURITIES-NOTES 6.9%
MUNICIPAL BONDS 2.3%
ASSET-BACKED SECURITIES 1.2%
MONEY MARKET INSTRUMENTS 0.1%
[END CHART]
* Combined in the portfolio of investments under mortgage-backed pass-through
securities, single-family.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on pages 13-18.
================================================================================
12 | USAA GOVERNMENT SECURITIES FUND
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2014 (unaudited)
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (1.2%)
ASSET-BACKED FINANCING (1.2%)
$ 5,847 Nelnet Student Loan Trust (cost: $5,365) 0.48%(a) 6/25/2041 $ 5,336
--------
U.S. GOVERNMENT AGENCY ISSUES (89.3%)(b)
MORTGAGE-BACKED PASS-THROUGH SECURITIES, SINGLE-FAMILY (65.6%)
33 Fannie Mae (+) 6.50 10/01/2016 34
111 Fannie Mae (+) 6.50 12/01/2016 114
70 Fannie Mae (+) 6.00 2/01/2017 73
4,356 Fannie Mae (+) 3.50 5/01/2021 4,621
5,561 Fannie Mae (+) 3.00 2/01/2027 5,804
9,413 Fannie Mae (+) 3.00 2/01/2027 9,823
1,813 Fannie Mae (+) 5.00 12/01/2035 2,015
686 Fannie Mae (+) 5.50 11/01/2037 767
1,075 Fannie Mae (+) 6.00 5/01/2038 1,221
4,317 Fannie Mae (+) 4.00 8/01/2039 4,616
6,469 Fannie Mae (+) 3.50 1/01/2042 6,761
10,556 Fannie Mae (+) 3.50 5/01/2042 11,030
315 Freddie Mac (+) 5.00 1/01/2021 337
1,221 Freddie Mac (+) 5.50 12/01/2035 1,363
3,818 Freddie Mac (+) 4.00 9/01/2040 4,077
10,177 Freddie Mac (+) 3.50 5/01/2042 10,612
7,738 Freddie Mac (+) 3.00 6/01/2042 7,840
383 Government National Mortgage Assn. I 6.00 12/15/2016 395
693 Government National Mortgage Assn. I 5.50 12/15/2018 736
17 Government National Mortgage Assn. I 8.50 6/15/2021 18
23 Government National Mortgage Assn. I 9.00 7/15/2021 26
9 Government National Mortgage Assn. I 8.00 1/15/2022 9
8 Government National Mortgage Assn. I 8.50 7/15/2022 8
820 Government National Mortgage Assn. I 6.00 8/15/2022 894
66 Government National Mortgage Assn. I 8.00 6/15/2023 74
1,488 Government National Mortgage Assn. I 4.50 5/15/2024 1,579
1,637 Government National Mortgage Assn. I 4.50 9/15/2024 1,770
2,271 Government National Mortgage Assn. I 4.50 9/15/2024 2,410
1,745 Government National Mortgage Assn. I 4.50 10/15/2024 1,851
1,693 Government National Mortgage Assn. I 4.50 10/15/2024 1,796
61 Government National Mortgage Assn. I 7.00 4/15/2027 63
================================================================================
PORTFOLIO OF INVESTMENTS | 13
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 275 Government National Mortgage Assn. I 7.00% 5/15/2027 $ 319
139 Government National Mortgage Assn. I 8.00 5/15/2027 152
134 Government National Mortgage Assn. I 7.50 2/15/2028 160
586 Government National Mortgage Assn. I 6.00 4/15/2028 678
146 Government National Mortgage Assn. I 6.50 5/15/2028 167
89 Government National Mortgage Assn. I 6.50 5/15/2028 102
21 Government National Mortgage Assn. I 6.75 5/15/2028 24
52 Government National Mortgage Assn. I 7.00 6/15/2028 54
154 Government National Mortgage Assn. I 6.50 7/15/2028 181
26 Government National Mortgage Assn. I 7.00 7/15/2028 29
98 Government National Mortgage Assn. I 7.00 8/15/2028 111
54 Government National Mortgage Assn. I 7.00 8/15/2028 63
58 Government National Mortgage Assn. I 6.50 9/15/2028 66
102 Government National Mortgage Assn. I 7.00 9/15/2028 112
121 Government National Mortgage Assn. I 6.00 11/15/2028 137
322 Government National Mortgage Assn. I 6.50 11/15/2028 367
19 Government National Mortgage Assn. I 6.50 1/15/2029 22
37 Government National Mortgage Assn. I 6.50 1/15/2029 42
208 Government National Mortgage Assn. I 6.00 2/15/2029 235
31 Government National Mortgage Assn. I 7.50 3/15/2029 38
52 Government National Mortgage Assn. I 7.50 4/15/2029 56
498 Government National Mortgage Assn. I 7.00 5/15/2029 578
586 Government National Mortgage Assn. I 7.00 6/15/2029 681
324 Government National Mortgage Assn. I 6.00 7/15/2029 377
1 Government National Mortgage Assn. I 7.50 7/15/2029 1
136 Government National Mortgage Assn. I 7.50 10/15/2029 159
64 Government National Mortgage Assn. I 7.50 10/15/2029 70
86 Government National Mortgage Assn. I 8.00 7/15/2030 93
37 Government National Mortgage Assn. I 8.00 9/15/2030 43
24 Government National Mortgage Assn. I 7.50 12/15/2030 28
37 Government National Mortgage Assn. I 7.50 1/15/2031 43
461 Government National Mortgage Assn. I 6.50 3/15/2031 533
119 Government National Mortgage Assn. I 7.00 8/15/2031 128
129 Government National Mortgage Assn. I 7.00 9/15/2031 154
429 Government National Mortgage Assn. I 6.50 10/15/2031 497
140 Government National Mortgage Assn. I 7.00 10/15/2031 160
52 Government National Mortgage Assn. I 7.50 11/15/2031 58
293 Government National Mortgage Assn. I 6.50 1/15/2032 342
398 Government National Mortgage Assn. I 6.00 5/15/2032 458
68 Government National Mortgage Assn. I 7.00 6/15/2032 78
260 Government National Mortgage Assn. I 7.00 7/15/2032 310
596 Government National Mortgage Assn. I 6.50 8/15/2032 712
1,671 Government National Mortgage Assn. I 6.50 9/15/2032 1,961
================================================================================
14 | USAA GOVERNMENT SECURITIES FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 1,580 Government National Mortgage Assn. I 6.00% 1/15/2033 $ 1,834
507 Government National Mortgage Assn. I 6.00 2/15/2033 589
424 Government National Mortgage Assn. I 6.00 7/15/2033 485
452 Government National Mortgage Assn. I 6.00 9/15/2033 525
4,956 Government National Mortgage Assn. I 5.50 10/15/2033 5,577
2,085 Government National Mortgage Assn. I 5.50 12/15/2033 2,346
1,200 Government National Mortgage Assn. I 5.50 7/15/2034 1,356
2,795 Government National Mortgage Assn. I 5.50 10/15/2035 3,178
685 Government National Mortgage Assn. I 6.00 3/15/2037 794
774 Government National Mortgage Assn. I 6.00 9/15/2037 875
1,743 Government National Mortgage Assn. I 5.50 3/15/2038 1,946
2,586 Government National Mortgage Assn. I 5.50 4/15/2038 2,912
1,489 Government National Mortgage Assn. I 6.00 5/15/2038 1,683
1,072 Government National Mortgage Assn. I 6.00 5/15/2038 1,221
730 Government National Mortgage Assn. I 6.00 9/15/2038 825
989 Government National Mortgage Assn. I 6.00 10/15/2038 1,118
1,428 Government National Mortgage Assn. I 6.00 12/15/2038 1,614
1,475 Government National Mortgage Assn. I 5.00 2/15/2039 1,631
6,933 Government National Mortgage Assn. I 5.50 6/15/2039 7,744
9,335 Government National Mortgage Assn. I 4.50 9/15/2039 10,291
5,637 Government National Mortgage Assn. I 4.50 11/15/2039 6,238
8,058 Government National Mortgage Assn. I 4.50 12/15/2039 8,917
26,088 Government National Mortgage Assn. I 4.50 2/15/2040 28,873
5,473 Government National Mortgage Assn. I 4.50 3/15/2040 6,007
5,320 Government National Mortgage Assn. I 4.50 6/15/2040 5,839
2,803 Government National Mortgage Assn. I 4.00 7/15/2040 3,012
6,897 Government National Mortgage Assn. I 4.50 7/15/2040 7,569
2,879 Government National Mortgage Assn. I 4.00 8/15/2040 3,114
6,852 Government National Mortgage Assn. I 4.00 9/15/2040 7,363
6,270 Government National Mortgage Assn. I 4.50 1/15/2041 6,881
19 Government National Mortgage Assn. II 8.00 12/20/2022 21
3,732 Government National Mortgage Assn. II 4.50 4/20/2024 3,952
443 Government National Mortgage Assn. II 8.00 8/20/2030 562
417 Government National Mortgage Assn. II 7.00 9/20/2030 480
303 Government National Mortgage Assn. II 6.00 3/20/2031 350
85 Government National Mortgage Assn. II 7.50 4/20/2031 106
148 Government National Mortgage Assn. II 6.50 5/20/2031 175
121 Government National Mortgage Assn. II 6.50 7/20/2031 142
310 Government National Mortgage Assn. II 6.50 8/20/2031 366
485 Government National Mortgage Assn. II 6.50 4/20/2032 568
460 Government National Mortgage Assn. II 6.50 6/20/2032 539
721 Government National Mortgage Assn. II 6.00 8/20/2032 833
646 Government National Mortgage Assn. II 6.00 9/20/2032 746
================================================================================
PORTFOLIO OF INVESTMENTS | 15
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 621 Government National Mortgage Assn. II 5.50% 4/20/2033 $ 705
2,298 Government National Mortgage Assn. II 5.00 5/20/2033 2,562
2,860 Government National Mortgage Assn. II 5.00 7/20/2033 3,188
653 Government National Mortgage Assn. II 6.00 10/20/2033 754
485 Government National Mortgage Assn. II 6.00 12/20/2033 547
2,094 Government National Mortgage Assn. II 6.00 2/20/2034 2,418
2,102 Government National Mortgage Assn. II 5.50 3/20/2034 2,385
2,017 Government National Mortgage Assn. II 6.00 3/20/2034 2,329
1,757 Government National Mortgage Assn. II 5.00 6/20/2034 1,959
1,396 Government National Mortgage Assn. II 6.50 8/20/2034 1,641
1,313 Government National Mortgage Assn. II 6.00 9/20/2034 1,517
3,667 Government National Mortgage Assn. II 6.00 10/20/2034 4,228
486 Government National Mortgage Assn. II 6.00 11/20/2034 550
7,796 Government National Mortgage Assn. II 5.50 2/20/2035 8,845
6,701 Government National Mortgage Assn. II 5.50 4/20/2035 7,604
3,350 Government National Mortgage Assn. II 5.50 7/20/2035 3,802
4,483 Government National Mortgage Assn. II 5.00 9/20/2035 4,986
1,413 Government National Mortgage Assn. II 6.00 5/20/2036 1,598
1,749 Government National Mortgage Assn. II 5.50 1/20/2037 1,983
1,391 Government National Mortgage Assn. II 5.00 2/20/2037 1,532
5,463 Government National Mortgage Assn. II 4.00 11/20/2040 5,882
-------
295,528
-------
COLLATERALIZED MORTGAGE OBLIGATIONS (9.9%)
9,168 Fannie Mae (+) 1.50 7/25/2027 8,888
3,834 Fannie Mae (+) 1.38 9/25/2027 3,732
3,583 Fannie Mae (+) 1.50 9/25/2027 3,458
3,670 Fannie Mae (+) 1.50 9/25/2027 3,561
3,720 Fannie Mae (+) 1.50 10/25/2027 3,578
1,451 Fannie Mae (+) 5.00 11/25/2032 1,502
3,008 Fannie Mae (+) 0.46(a) 4/25/2035 3,016
3,997 Fannie Mae (+) 0.46(a) 8/25/2037 4,010
6,133 Freddie Mac (+) 2.00 9/15/2026 6,213
2,550 Freddie Mac (+) 0.45(a) 3/15/2036 2,553
3,993 Freddie Mac (+) 0.70(a) 10/15/2041 4,033
-------
44,544
-------
COMMERCIAL MORTGAGE-BACKED SECURITIES (13.8%)
8,795 Fannie Mae (+) 2.01 7/01/2019 8,915
2,134 Fannie Mae (+) 2.05 7/01/2019 2,167
22,630 Fannie Mae (+) 2.42 11/01/2022 22,621
8,500 Freddie Mac (+) 2.22 12/25/2018 8,691
4,770 Freddie Mac (+) 1.69 4/25/2022 4,753
================================================================================
16 | USAA GOVERNMENT SECURITIES FUND
================================================================================
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$10,000 Freddie Mac (+) 2.31% 8/25/2022 $ 9,885
5,000 Freddie Mac (+) 2.51 11/25/2022 5,003
--------
62,035
--------
Total U.S. Government Agency Issues (cost: $381,036) 402,107
--------
U.S. TREASURY SECURITIES (6.9%)
NOTES (6.9%)
12,000 0.50%, 6/30/2016 12,037
8,000 0.88%, 1/31/2017 8,052
8,000 0.88%, 1/31/2018 7,972
3,000 2.00%, 2/15/2022 3,016
--------
31,077
--------
Total U.S. Treasury Securities (cost: $30,948) 31,077
--------
MUNICIPAL BONDS (2.3%)
AIRPORT/PORT (1.1%)
5,000 Port Auth. of New York & New Jersey 2.53 10/15/2020 4,993
--------
GENERAL OBLIGATION (1.2%)
5,000 State of California 1.75 11/01/2017 5,097
--------
Total Municipal Bonds (cost: $10,051) 10,090
--------
MONEY MARKET INSTRUMENTS (0.1%)
REPURCHASE AGREEMENTS (0.1%)
595 Credit Suisse First Boston, LLC, 0.11%, acquired on
11/28/2014 and due on 12/01/2014 at $595
(collateralized by $684 of Government National Mortgage
Assn. I(b), 2.50% - 4.50%, due 7/15/2027 - 8/15/2041; $245
Government National Mortgage Assn. II(b), 6.00%,
due 9/20/2038; combined market value $607) (cost: $595) 595
--------
TOTAL INVESTMENTS (COST: $427,995) $449,205
========
================================================================================
PORTFOLIO OF INVESTMENTS | 17
================================================================================
-----------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
-----------------------------------------------------------------------------------------------------
Asset-Backed Securities $ - $ 5,336 $- $ 5,336
U.S. Government Agency Issues - 402,107 - 402,107
U.S. Treasury Securities 31,077 - - 31,077
Municipal Bonds - 10,090 - 10,090
Money Market Instruments:
Repurchase Agreements - 595 - 595
-----------------------------------------------------------------------------------------------------
Total $31,077 $418,128 $- $449,205
-----------------------------------------------------------------------------------------------------
For the period of June 1, 2014, through November 30, 2014, there were no
transfers of securities between levels. The Fund's policy is to recognize any
transfers into and out of the levels as of the beginning of the period in which
the event or circumstance that caused the transfer occurred.
================================================================================
18 | USAA GOVERNMENT SECURITIES FUND
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2014 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o SPECIFIC NOTES
(a) Variable-rate or floating-rate security - interest rate is adjusted
periodically. The interest rate disclosed represents the rate at November
30, 2014.
(b) U.S. government agency issues - Mortgage-backed securities issued by
certain U.S. Government Sponsored Enterprises (GSEs) such as the
Government National Mortgage Association (GNMA or Ginnie Mae) and certain
other U.S. government guaranteed securities are supported by the full
faith and credit of the U.S. government. Securities issued by other
GSEs, such as Freddie Mac (Federal Home Loan Mortgage Corporation or
FHLMC) and Fannie Mae (Federal National Mortgage Association or FNMA),
indicated with a "+", are supported only by the right of the GSE to
borrow from the U.S. Treasury, the discretionary authority of the U.S.
government to purchase the GSEs' obligations, or only by the credit of
the issuing agency, instrumentality, or corporation, and are neither
issued nor guaranteed by the U.S. Treasury. In September of 2008, the
U.S.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 19
================================================================================
Treasury placed Fannie Mae and Freddie Mac under conservatorship and
appointed the Federal Housing Finance Agency (FHFA) to act as conservator
and oversee their daily operations. In addition, the U.S. Treasury
entered into purchase agreements with Fannie Mae and Freddie Mac to
provide them with capital in exchange for senior preferred stock. While
these arrangements are intended to ensure that Fannie Mae and Freddie Mac
can continue to meet their obligations, it is possible that actions by
the U.S. Treasury, FHFA, or others could adversely impact the value of
the Fund's investments in securities issued by Fannie Mae and Freddie
Mac.
See accompanying notes to financial statements.
================================================================================
20 | USAA GOVERNMENT SECURITIES FUND
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
November 30, 2014 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $427,995) $449,205
Cash 1
Receivables:
Capital shares sold 175
USAA Asset Management Company (Note 6C) 1
Interest 1,328
--------
Total assets 450,710
--------
LIABILITIES
Payables:
Capital shares redeemed 249
Dividends on capital shares 105
Accrued management fees 63
Accrued administration and servicing fees 2
Accrued transfer agent's fees 10
Other accrued expenses and payables 46
--------
Total liabilities 475
--------
Net assets applicable to capital shares outstanding $450,235
========
NET ASSETS CONSIST OF:
Paid-in capital $431,345
Overdistribution of net investment income (3)
Accumulated net realized loss on investments (2,317)
Net unrealized appreciation of investments 21,210
--------
Net assets applicable to capital shares outstanding $450,235
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $445,186/44,355 shares outstanding) $ 10.04
========
Adviser Shares (net assets of $5,049/503 shares outstanding) $ 10.03
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended November 30, 2014 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 6,926
-------
EXPENSES
Management fees 356
Administration and servicing fees:
Fund Shares 334
Adviser Shares 4
Transfer agent's fees:
Fund Shares 305
Distribution and service fees (Note 6E):
Adviser Shares 6
Custody and accounting fees:
Fund Shares 54
Adviser Shares 1
Postage:
Fund Shares 14
Shareholder reporting fees:
Fund Shares 13
Trustees' fees 11
Registration fees:
Fund Shares 14
Adviser Shares 11
Professional fees 39
Other 8
-------
Total expenses 1,170
Expenses reimbursed:
Adviser Shares (4)
-------
Net expenses 1,166
-------
NET INVESTMENT INCOME 5,760
-------
NET UNREALIZED GAIN ON INVESTMENTS
Change in net unrealized appreciation/depreciation 1,015
-------
Increase in net assets resulting from operations $ 6,775
=======
See accompanying notes to financial statements.
================================================================================
22 | USAA GOVERNMENT SECURITIES FUND
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended November 30, 2014 (unaudited), and year ended May 31,
2014
----------------------------------------------------------------------------------------------
11/30/2014 5/31/2014
----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 5,760 $ 13,588
Net realized loss on investments - (673)
Change in net unrealized appreciation/depreciation
of investments 1,015 (3,527)
------------------------------
Increase in net assets resulting
from operations 6,775 9,388
------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (5,824) (13,465)
Adviser Shares (58) (123)
------------------------------
Distributions to shareholders (5,882) (13,588)
------------------------------
NET DECREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (7,385) (97,639)
Adviser Shares (123) 44
------------------------------
Total net decrease in net assets from capital
share transactions (7,508) (97,595)
------------------------------
Net decrease in net assets (6,615) (101,795)
NET ASSETS
Beginning of period 456,850 558,645
------------------------------
End of period $ 450,235 $ 456,850
==============================
Undistributed (overdistribution of) net investment income:
End of period $ (3) $ 119
==============================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 30, 2014 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940, as amended (the 1940 Act), is an open-end management investment
company organized as a Delaware statutory trust consisting of 52 separate funds.
The information presented in this semiannual report pertains only to the USAA
Government Securities Fund (the Fund), which is classified as diversified under
the 1940 Act. The Fund's investment objective is to provide investors a high
level of current income consistent with preservation of principal.
The Fund consists of two classes of shares: Government Securities Fund Shares
(Fund Shares) and Government Securities 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's relative net assets. Each class has
exclusive voting rights on matters related solely to that class and separate
voting rights on matters that relate to both classes. The 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.
================================================================================
24 | USAA GOVERNMENT SECURITIES FUND
================================================================================
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). 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. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Board.
The Service uses an evaluated mean between quoted bid and asked prices
or the last sales price to price securities when, in the Service's
judgment, these prices are readily available and are representative of
the securities' market values. For many securities, such prices are not
readily available. The Service generally prices these securities based
on methods that include consideration of yields or prices of securities
of comparable quality, coupon, maturity, and type; indications as to
values from dealers in securities; and general market conditions.
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
================================================================================
3. Repurchase agreements are valued at cost, which approximates market
value.
4. Securities for which market quotations are not readily available or
are considered unreliable, or whose values have been materially affected
by events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager, an affiliate of the Fund, under
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 net asset value (NAV) to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, 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, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS - Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 - inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
================================================================================
26 | USAA GOVERNMENT SECURITIES FUND
================================================================================
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices. Level 2 securities
include Asset-Backed Securities, U.S. Government Agency Issues, and
Municipal Bonds valued based on methods discussed in Note 1A1, and
repurchase agreements valued at cost, which approximates fair value.
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 income to
its shareholders. Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES - Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities.
E. REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements
with commercial banks or recognized security dealers pursuant to the terms
of a Master Repurchase Agreement. A repurchase agreement is an arrangement
wherein the Fund purchases securities and the seller agrees to repurchase
the securities at an agreed upon time and at an agreed upon price. The
purchased securities are marked-to-market daily to ensure their value is
equal to or in excess of the purchase price plus accrued interest and are
held by the Fund, either through its regular custodian or through a special
"tri-party" custodian that maintains separate accounts for both the Fund and
its counterparty, until maturity of the repurchase agreement. Master
Repurchase Agreements typically contain netting
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
================================================================================
provisions, which provide for the net settlement of all transactions and
collateral with the Fund through a single payment in the event of default or
termination. Repurchase agreements are subject to credit risk, and the
Fund's Manager monitors the creditworthiness of sellers with which the Fund
may enter into repurchase agreements.
Investments in repurchase agreements as presented on the Portfolio of
Investments are not net settlement amounts but gross. At November 30, 2014,
the value of the related collateral exceeded the value of the repurchase
agreements, reducing the net settlement amount to zero. Details on the
collateral are included on the Portfolio of Investments.
F. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS - Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the
extent that the Fund makes such purchases while remaining substantially
fully invested.
G. EXPENSES PAID INDIRECTLY - Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month period
ended November 30, 2014, there were no custodian and other bank credits.
H. INDEMNIFICATIONS - Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business, the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that
================================================================================
28 | USAA GOVERNMENT SECURITIES FUND
================================================================================
have not yet occurred. However, the Trust expects the risk of loss to be
remote.
I. USE OF ESTIMATES - The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $500 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at an interest rate based on
the London Interbank Offered Rate (LIBOR).
The USAA Funds that are party to the loan agreement are assessed facility fees
by CAPCO in the amount of 7.0 basis points of the amount of the committed loan
agreement. The facility fees are allocated among the Funds based on their
respective average net assets for the period.
For the six-month period ended November 30, 2014, the Fund paid CAPCO facility
fees of $1,000, which represents 0.7% of the total fees paid to CAPCO by the
USAA Funds. The Fund had no borrowings under this agreement during the six-month
period ended November 30, 2014.
(3) DISTRIBUTIONS
The tax basis of distributions and any accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2015, in
accordance with applicable tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
================================================================================
The Fund is permitted to carry forward post-enactment capital losses
indefinitely. Additionally, such capital losses that are carried forward will
retain their character as short-term and/or long-term capital losses.
Post-enactment capital loss carryforwards must be used before pre-enactment
capital loss carryforwards. As a result, pre-enactment capital loss
carryforwards may be more likely to expire unused.
At May 31, 2014, the Fund had both pre-enactment capital loss carryforwards and
post-enactment capital loss carryforwards for federal income tax purposes as
shown in the table below. It is unlikely that the Board will authorize a
distribution of capital gains realized in the future until the capital loss
carryforwards have been used or expire.
CAPITAL LOSS CARRYFORWARDS
----------------------------------------------------
EXPIRES SHORT-TERM LONG-TERM
---------- ----------- ----------
2015 $1,524,000 $ -
No Expiration 574,000 219,000
---------- --------
Total $2,098,000 $219,000
========== ========
For the six-month period ended November 30, 2014, 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 its tax positions 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.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended November 30, 2014, were
$43,350,000 and $36,571,000, respectively.
As of November 30, 2014, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as that
reported in the financial statements.
================================================================================
30 | USAA GOVERNMENT SECURITIES FUND
================================================================================
Gross unrealized appreciation and depreciation of investments as of November 30,
2014, were $23,033,000 and $1,823,000, respectively, resulting in net unrealized
appreciation of $21,210,000.
(5) CAPITAL SHARE TRANSACTIONS
At November 30, 2014, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for all classes were as follows, in thousands:
SIX-MONTH PERIOD ENDED YEAR ENDED
NOVEMBER 30, 2014 MAY 31, 2014
---------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------
FUND SHARES:
Shares sold 2,871 $28,689 4,914 $ 48,890
Shares issued from reinvested
dividends 523 5,229 1,200 11,931
Shares redeemed (4,134) (41,303) (15,943) (158,460)
--------------------------------------------------------
Net decrease from capital
share transactions (740) $(7,385) (9,829) $(97,639)
========================================================
ADVISER SHARES:
Shares sold 1 $ 10 18 $ 178
Shares issued from reinvested
dividends -* 2 1 7
Shares redeemed (14) (135) (14) (141)
--------------------------------------------------------
Net increase (decrease) from capital
share transactions (13) $ (123) 5 $ 44
========================================================
*Less than 500 shares
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES - The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
and for directly managing the day-to-day investment of the Fund's assets,
subject to the authority of and supervision by the Board. The Manager is
authorized to select (with approval of the Board and without shareholder
approval) one or more subadvisers to manage
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
================================================================================
the actual day-to-day investment of a portion of the Fund's assets. For the
six-month period ended November 30, 2014, there were no subadvisers.
The investment management fee for the Fund is comprised of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.125% of its average net assets for the
fiscal year.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance to that of the Lipper
index over the performance period. Prior to January 31, 2012 the performance
adjustment was based on the performance of the Fund's share classes relative
to the performance of the Lipper GNMA Funds Index, which tracks the total
return performance of the 10 largest funds in the Lipper GNMA Funds
category. Effective February 1, 2012, the performance adjustment for each
class is calculated monthly by comparing the Fund's performance to that of
the Lipper Intermediate U.S. Government Funds Index, which tracks the total
return performance of the 10 largest funds in the Lipper Intermediate U.S.
Government Funds category. The performance period consists of the current
month plus the previous 35 months.
The following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX (IN BASIS POINTS AS A% OF
(IN BASIS POINTS)(1) THE FUND'S AVERAGE NET ASSETS)(1)
------------------------------------------------------------------------------
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
(1)Based on the difference between average annual performance of the Fund and
its relevant index, rounded to the nearest basis point. Average net assets
are calculated over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365
================================================================================
32 | USAA GOVERNMENT SECURITIES FUND
================================================================================
(366 in leap years). The resulting amount is then added to (in the case of
overperformance), or subtracted from (in the case of underperformance) the
base fee.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Index over that period, even if the class had overall
negative returns during the performance period.
For the six-month period ended November 30, 2014, the Fund incurred total
management fees, paid or payable to the Manager, of $356,000, which included
a performance adjustment for the Fund Shares and Adviser Shares of $74,000
and less than ($500), respectively. For the Fund Shares and Adviser Shares,
the performance adjustments were 0.03% and (0.02)%, respectively.
B. ADMINISTRATION AND SERVICING FEES - The Manager provides certain
administration and servicing functions for the Fund. For such services, the
Manager receives a fee accrued daily and paid monthly at an annualized rate
of 0.15% of average net assets for both the Fund Shares and Adviser Shares.
For the six-month period ended November 30, 2014, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $334,000 and $4,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Board has approved the
reimbursement of a portion of these expenses incurred by the Manager. For
the six-month period ended November 30, 2014, the Fund reimbursed the
Manager $7,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's statement of operations.
C. EXPENSE LIMITATION - The Manager agreed, through October 1, 2015, to
limit the total annual operating expenses of the Adviser Shares to 0.75% of
its average net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and will reimburse the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
================================================================================
Adviser Shares for all expenses in excess of that amount. This expense
limitation arrangement may not be changed or terminated through October 1,
2015, without approval of the Board, and may be changed or terminated by the
Manager at any time after that date. Prior to October 1, 2014, the Adviser
Shares' expense limitation was 0.90% of average net assets. For the
six-month period ended November 30, 2014, the Adviser Shares incurred
reimbursable expenses of $4,000, of which $1,000 was receivable from the
Manager.
D. TRANSFER AGENT'S FEES - USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. Transfer agent's fees for both the Fund
Shares and Adviser Shares are paid monthly based on an annual charge of
$25.50 per shareholder account plus out-of-pocket expenses. SAS pays a
portion of these fees to certain intermediaries for the administration and
servicing of accounts that are held with such intermediaries. For the
six-month period ended November 30, 2014, the Fund Shares and Adviser Shares
incurred transfer agent's fees, paid or payable to SAS, of $305,000 and less
than $500, respectively.
E. DISTRIBUTION AND SERVICE (12b-1) FEES - The Fund has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Adviser
Shares. Under the plan, the Adviser Shares pay fees to USAA Investment
Management Company, the distributor, for distribution and shareholder
services. USAA Investment Management Company pays all or a portion of such
fees to intermediaries that make the Adviser Shares available for investment
by their customers. The fee is accrued daily and paid monthly at an annual
rate of 0.25% of the Adviser Shares' average net assets. Adviser Shares are
offered and sold without imposition of an initial sales charge or a
contingent deferred sales charge. For the six-month period ended November
30, 2014, the Adviser Shares incurred distribution and service (12b-1) fees
of $6,000.
F. UNDERWRITING SERVICES - USAA Investment Management Company provides
exclusive underwriting and distribution of the Fund's shares on a continuing
best-efforts basis and receives no commissions or fees for this service.
================================================================================
34 | USAA GOVERNMENT SECURITIES FUND
================================================================================
(7) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At November 30,
2014, USAA and its affiliates owned 487,000 shares, which represent 96.8% of the
Adviser Shares and 1.1% of the Fund.
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
================================================================================
(8) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
-------------------------------------------------------------------------------------
2014 2014 2013 2012 2011 2010
--------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.02 $ 10.08 $ 10.40 $ 10.30 $ 10.19 $ 9.97
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .13 .28 .29 .33 .38 .38
Net realized and
unrealized gain (loss) .02 (.06) (.32) .10 .11 .22
--------------------------------------------------------------------------------------
Total from investment
operations .15 .22 (.03) .43 .49 .60
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.13) (.28) (.29) (.33) (.38) (.38)
--------------------------------------------------------------------------------------
Net asset value at end
of period $ 10.04 $ 10.02 $ 10.08 $ 10.40 $ 10.30 $ 10.19
======================================================================================
Total return (%)* 1.52 2.20 (.36) 4.24 4.89 6.15(b)
Net assets at
end of period (000) $ 445,186 $ 451,688 $ 553,495 $ 641,730 $ 604,893 $ 609,919
Ratios to average
net assets:**
Expenses (%)(a) .51(c) .47 .41 .41 .42 .43(b)
Net investment
income (%) 2.56(c) 2.78 2.77 3.19 3.71 3.79
Portfolio turnover (%) 8 0 24 20 19 27
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2014, average net assets were
$444,319,000.
(a) Reflects total annual operating expenses of the Fund Shares before
reductions of any expenses paid indirectly. The Fund Shares' expenses paid
indirectly decreased the expense ratios as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(b) During the year ended May 31, 2010, SAS reimbursed the Fund Shares
$31,000 for corrections in fees paid for the administration and servicing of
certain accounts. The effect of this reimbursement on the Fund Shares' total
return was less than 0.01%. The reimbursement decreased the Fund Shares'
expense ratios by less than 0.01%. This decrease is excluded from the
expense ratios in the Financial Highlights table.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
36 | USAA GOVERNMENT SECURITIES FUND
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) - ADVISER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MAY 31, MAY 31,
---------------------------------------------------------------------
2014 2014 2013 2012 2011***
---------------------------------------------------------------------
Net asset value at
beginning of period $10.01 $10.07 $10.40 $10.29 $10.30
--------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .11 .24 .24 .28 .27
Net realized and
unrealized gain (loss) .02 (.06) (.33) .11 (.01)
--------------------------------------------------------------
Total from investment
operations .13 .18 (.09) .39 .26
--------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.24) (.24) (.28) (.27)
--------------------------------------------------------------
Net asset value at end
of period $10.03 $10.01 $10.07 $10.40 $10.29
==============================================================
Total return (%)* 1.35 1.83 (.94) 3.84 2.58
Net assets at end
of period (000) $5,049 $5,162 $5,150 $5,099 $5,047
Ratios to average
net assets:**
Expenses (%)(b) .85(a),(c) .84 .90 .90 .90(a)
Expenses, excluding
reimbursements (%)(b) 1.03(a) .84 1.06 1.15 1.39(a)
Net investment income (%) 2.22(a) 2.41 2.28 2.71 3.21(a)
Portfolio turnover (%) 8 0 24 20 19
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
** For the six-month period ended November 30, 2014, average net assets were
$5,062,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Reflects total annual operating expenses of the Adviser Shares before
reductions of any expenses paid indirectly. The Adviser Shares' expenses
paid indirectly decreased the expense ratios as follows:
- (.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+)
(+) Represents less than 0.01% of average net assets.
(c) Effective October 1, 2014, the Manager voluntarily agreed to reimburse
the Adviser Shares for expenses in excess of 0.75% of their annual average
net assets. Prior to October 1, 2014, the Manager voluntarily agreed to
reimburse the Adviser Shares for expenses in excess of 0.90% of their annual
average net assets.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
================================================================================
EXPENSE EXAMPLE
November 30, 2014 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, distribution and service
(12b-1) fees, and other Fund operating expenses. This example is intended to
help you understand your indirect costs, also referred to as "ongoing costs" (in
dollars), of investing in the Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of June 1, 2014, through
November 30, 2014.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested at the beginning
of the period, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to
================================================================================
38 | USAA GOVERNMENT SECURITIES FUND
================================================================================
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
================================================================================
EXPENSE EXAMPLE | 39
================================================================================
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2014 -
JUNE 1, 2014 NOVEMBER 30, 2014 NOVEMBER 30, 2014
--------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,015.20 $2.58
Hypothetical
(5% return before expenses) 1,000.00 1,022.51 2.59
ADVISER SHARES
Actual 1,000.00 1,013.50** 4.29**
Hypothetical
(5% return before expenses) 1,000.00 1,020.81** 4.31**
* Expenses are equal to the Fund's annualized expense ratio of 0.51% for
Fund Shares and 0.85% for Adviser Shares, which are net of any expenses paid
indirectly, multiplied by the average account value over the period,
multiplied by 183 days/365 days (to reflect the one-half-year period). The
Fund's actual ending account values are based on its actual total returns of
1.52% for Fund Shares and 1.35% for Adviser Shares for the six-month period
of June 1, 2014, through November 30, 2014.
**The Funds' annualized expense ratio of 0.85% for Adviser Shares above
reflects a change effective October 1, 2014. The Manager's expense
limitation ratio for the Adviser Shares changed from 0.90% to 0.75% of the
Adviser Shares' average net assets. The effect of the expense limitation
change on the Adviser Shares' total return was 0.01%. Had the expense
limitation ratio of 0.75% been in effect for the entire six-month period of
June 1, 2014, through November 30, 2014, the values in the table above would
be as shown below.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2014 -
JUNE 1, 2014 NOVEMBER 30, 2014 NOVEMBER 30, 2014
---------------------------------------------------------------
ADVISER SHARES
Actual $1,000.00 $1,013.50 $3.79
Hypothetical
(5% return before expenses) 1,000.00 1,021.31 3.80
================================================================================
40 | USAA GOVERNMENT SECURITIES FUND
================================================================================
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Jefferson C. Boyce
Dawn M. Hawley
Paul L. McNamara
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
--------------------------------------------------------------------------------
ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
UNDERWRITER AND USAA INVESTMENT MANAGEMENT COMPANY
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND STATE STREET BANK AND TRUST COMPANY
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select your mutual fund
AT USAA.COM account and either click the link or
select 'I want to...' and select
OR CALL the desired action.
(800) 531-USAA
(8722)
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) in summary within the Statement of Additional Information on the SEC's
website at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 is available without charge (i) at USAA.COM; and (ii) on the SEC's
website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
200986-0115
================================================================================
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA We know what it means to serve.(R)
=============================================================================
23414-0115 (C)2015, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended November 30, 2014
By:* /S/ DANIEL J. MAVICO
-----------------------------------------------------------
Signature and Title: Daniel J. Mavico, Assistant Secretary
Date: 01/26/2015
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /S/ DANIEL S. MCNAMARA
-----------------------------------------------------
Signature and Title: Daniel S. McNamara, President
Date: 01/27/2015
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 01/27/2015
------------------------------
*Print the name and title of each signing officer under his or her signature.