ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED NOVEMBER 30, 2013
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA GOVERNMENT SECURITIES FUND]
SEMIANNUAL REPORT
USAA GOVERNMENT SECURITIES FUND
FUND SHARES o ADVISER SHARES
NOVEMBER 30, 2013
PRESIDENT'S MESSAGE
"IT IS IMPORTANT TO OWN A VARIETY OF
INVESTMENTS THAT TEND TO PERFORM [PHOTO OF DANIEL S. McNAMARA]
DIFFERENTLY IN DIFFERENT ENVIRONMENTS."
DECEMBER 2013
As experienced investors know, major moves in an asset class can happen quickly.
This was the case during the reporting period for both stocks and bonds. For
stocks, it was essentially a tale of two markets. In the first half of the
period, global stocks retreated on hints from Federal Reserve (the Fed) Chairman
Ben Bernanke that the Fed might begin tapering (or reducing) its quantitative
easing (QE) asset purchases. (Through QE, the Fed was buying $85 billion in U.S.
Treasury securities and mortgage-backed securities every month in order to push
down long-term interest rates and stimulate economic growth and it recently
signaled that it will reduce this amount to $75 billion every month.) Overall,
for the period between May 31, 2013, and September 5, 2013, international stocks
(which exclude the United States and Europe) and European stocks gained about
3%, while U.S. stocks returned approximately 2%. Emerging market stocks
declined.
Global stocks reversed direction in the second half of the reporting period,
rallying strongly after the Fed delayed the inevitable taper. Between September
6, 2013, and November 29, 2013, European stocks gained more than 10%,
outperforming U.S. and international stocks -- both of which advanced nearly a
still-respectable 10% -- and emerging markets stocks, which recorded a return of
about 8%. Varied performance, such as this, is an important reminder of the
benefits of diversification: it is important to own a variety of investments
that tend to perform differently in different environments.
In the bond market, longer-term interest rates rose on expectations of a
reduction in the Fed's asset purchases. Bond prices, which move in the opposite
direction of interest rates, declined. The increase in rates was most pronounced
in the longer end of the yield curve -- in five-year, 10-year and 30-year
maturities. For fixed-income investors, it was a mixed blessing. Higher rates
meant a decrease in principal value. On the other hand, lower prices mean
investors have the opportunity to reinvest at higher rates and earn more on any
new investments. Meanwhile, short-term interest rates remained anchored near
zero. The Fed has said it will keep the targeted federal funds rate between 0%
and 0.25% as long as unemployment is above 6.5% and inflation remains below
2.5%.
Looking ahead, I expect the Fed to continue its asset purchases for the
foreseeable future. Janet Yellen, who has been nominated to succeed Bernanke,
said this past November that she supports the continuation of the Fed's
accommodative monetary policies. Yellen also told the Senate Banking Committee
that the Fed would eventually have to begin tapering (which it subsequently
stated it will do). However, I believe that the Fed will continue asset
purchases, as the U.S. economy remains fragile.
As the Fed starts to taper its asset purchases, longer-term interest rates will
probably increase. Though gradually rising rates can be a headwind for
investors, fixed-income investing is not an all-or-none scenario. I believe that
bonds continue to have a place in a diversified portfolio, in part because of
the income they provide. Furthermore, the bond market is not one market but is
actually a market of many different types of bonds, including U.S. Treasuries,
mortgage-backed securities, investment-grade bonds, high-yield bonds, municipal
securities, and more. Many of these fixed-income asset classes performed
differently (some better and some worse than U.S. Treasuries) during the
reporting period.
Meanwhile, equity valuations have risen faster than fundamentals. I believe
valuations will continue to rise if economic growth accelerates and profit
margins can maintain their current levels. If growth stalls or decelerates and
profit margins decrease, earnings may disappoint and stocks may trim their
gains.
Precious metals, like fixed-income securities, underperformed during the
reporting period. The underperformance, in my view, was driven by concern that
Fed tapering would be stronger than expected, which could lead to a rally in the
U.S. dollar and reduce the need for inflation protection. Precious metals are
typically used as a long-term inflation hedge. Exposure to gold and other
precious metals and minerals may enhance overall portfolio diversification.
In the months ahead, rest assured that we will continue to monitor the financial
markets as well as Congressional budget negotiations, Fed policy, economic
trends, corporate earnings, and other factors that potentially could affect the
performance of your investments. On behalf of everyone at USAA Asset Management
Company, thank for your continued investment in our family of no-load mutual
funds.
Sincerely,
/S/ DANIEL S. MCNAMARA
Daniel S. McNamara
President
USAA Investment Management Company
|
Past performance is no guarantee of future results. o As interest rates rise,
bond prices fall o Diversification is a technique to help reduce risk and does
not guarantee a profit or prevent a loss. o Emerging market countries are less
diverse and mature than other countries and tend to be politically less stable.
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.
TABLE OF CONTENTS
FUND OBJECTIVE 1
MANAGERS' COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolio of Investments 12
Notes to Portfolio of Investments 17
Financial Statements 19
Notes to Financial Statements 22
EXPENSE EXAMPLE 35
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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)2014, USAA. All rights reserved.
FUND OBJECTIVE
THE USAA GOVERNMENT SECURITIES FUND (THE FUND) PROVIDES INVESTORS A HIGH LEVEL
OF CURRENT INCOME CONSISTENT WITH PRESERVATION OF PRINCIPAL.
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.
FUND OBJECTIVE | 1
MANAGERS' COMMENTARY ON THE FUND
[PHOTO OF DONNA J. BAGGERLY] [PHOTO OF R. NEAL GRAVES]
DONNA J. BAGGERLY, CFA R. NEAL GRAVES, CFA
USAA Asset USAA Asset
Management Company Management Company
|
o HOW DID THE USAA GOVERNMENT SECURITIES FUND (THE FUND SHARES) PERFORM DURING
THE REPORTING PERIOD?
At the end of the reporting period, the Fund Shares had a total return of
0.00%. This compares to the returns of 0.01% for the Barclays U.S.
Aggregate Government Intermediate & Mortgage-Backed Securities Index, -0.83%
for the Lipper Intermediate U.S. Government Funds Index, and -0.55% for the
Lipper GNMA Funds category average.
o HOW WERE MARKET CONDITIONS DURING THE REPORTING PERIOD?
Speculation about the Federal Reserve's (the Fed) stimulus measures drove
the performance of the government securities and mortgage-backed securities
(MBS) markets during the reporting period. As of the end of the the
reporting period, the Fed was buying $85 billion in U.S. Treasuries and MBS
every month as it sought to boost economic growth by increasing the prices
of financial assets (stocks and bonds) and fueling a housing recovery. In
June 2013, as economic conditions continued to improve, Fed Chairman Ben
Bernanke hinted that the U.S. central bank could start unwinding its
stimulus measures later in 2013. Yields surged in anticipation of reduced
Fed purchases. Bond prices, which move in the opposite direction of yields,
declined.
Refer to page 8 for benchmark definitions.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. o As interest rates
rise, existing bond prices fall.
2 | USAA GOVERNMENT SECURITIES FUND
Investments with the highest degree of interest-rate sensitivity, such as
longer-term U.S. Treasuries and MBS, were affected the most. In September
2013, the Fed surprised the markets by announcing it would continue the pace
of its bond purchases, and interest rates drifted downward. They edged up
again in October and November 2013 as investors sought to divine the Fed's
intentions and in response to the partial government shutdown and debt
ceiling debate. Ten-year U.S. Treasury yields ended the reporting period
higher than they began, climbing from 2.13% on May 31, 2013, to 2.75% on
November 30, 2013. Mortgage interest rates also increased. The interest
rate on a 15-year mortgage, which stood at 2.98% on May 31, 2013, closed the
reporting period at 3.30%. The interest rate on a 30-year mortgage increased
from 3.81% to 4.29% over the same time frame.
o HOW DID YOU MANAGE THE FUND DURING THE REPORTING PERIOD?
The Fund benefited from our efforts to reduce extension risk. Extension risk
is the risk that prepayments will decelerate, causing the average life of a
mortgage to lengthen (i.e. extend) and become more sensitive to upward
interest rate movement. For more than a year, we have concentrated the
Fund's purchases in intermediate-term maturities, such as 15-year
mortgage-backed securities, instead of longer-term 30-year mortgage-backed
securities. These investments added value during the reporting period as
interest rates increased and prepayments declined. In addition, we avoided
30-year new origination issues. Also contributing positively were purchases
of multi-family commercial mortgage-backed securities, which do not extend.
The Fund's underweight in short-term and intermediate-term U.S. Treasuries,
which outperformed MBS during the reporting period, dampened returns.
o WHAT IS YOUR VIEW AHEAD?
We expect the U.S. economy to continue growing slowly. The Fed's decision to
taper its asset purchase programs demonstrate that U.S. central bankers
believe the strength of the U.S. economy is growing -- yet still fragile.
Additionally, new job growth remains weak and many
MANAGERS' COMMENTARY ON THE FUND | 3
companies continue to delay business investment. Although the housing market
is healthy, home price appreciation has slowed as more houses are put on the
market, increasing supply. The lack of clarity on U.S. fiscal policy also
has clouded the outlook. (Shortly after the end of the reporting period, the
U.S. Congress approved a budget plan funding the government into 2015.)
Going forward, we will continue to maintain a diversified portfolio while
striving to enhance the income your Fund provides. We believe the
portfolio's long-term record shows that it has provided good returns with
relatively low volatility.
Thank you for your continued 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
12-16.
4 | USAA GOVERNMENT SECURITIES FUND
INVESTMENT OVERVIEW
USAA GOVERNMENT SECURITIES FUND SHARES (FUND SHARES) (Ticker Symbol: USGNX)
--------------------------------------------------------------------------------
11/30/13 5/31/13
--------------------------------------------------------------------------------
Net Assets $481.9 Million $553.5 Million
Net Asset Value Per Share $9.94 $10.08
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/13
--------------------------------------------------------------------------------
5/31/13-11/30/13* 1 Year 5 Years 10 Years
0.00% -1.20% 3.81% 4.19%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/13
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years
-1.70% 3.38% 4.07%
--------------------------------------------------------------------------------
30-DAY SEC YIELD** AS OF 11/30/13 EXPENSE RATIO AS OF 5/31/13***
--------------------------------------------------------------------------------
3.05% 0.41%
|
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,
2013, 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. 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 or the redemption of shares.
INVESTMENT OVERVIEW | 5
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS -- PERIODS
ENDED NOVEMBER 30, 2013
--------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
--------------------------------------------------------------------------------
10 Years 4.19% = 4.17% + 0.02%
5 Years 3.81% = 3.46% + 0.35%
1 Year -1.20% = 2.67% + -3.87%
|
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, 2013
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
-------------------------------------------------------------------------------
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
-------------------------------------------------------------------------------
11/30/2004 3.73% 4.84% -1.11%
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%
|
[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 equals dividend return plus share price change and assumes
reinvestment of all net investment income and realized capital gain
distributions. Dividend return is the net investment income dividends
received over the period, assuming reinvestment of all dividends. Share
price change is the change in net asset value over the period adjusted for
realized capital gain distributions. 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 or the redemption of shares.
6 | USAA GOVERNMENT SECURITIES FUND
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER INTERMEDIATE
USAA GOVERNMENT U.S. GOVERNMENT FUNDS
SECURITIES FUND SHARES INDEX AVERAGE
11/30/2004 4.81% 3.37%
11/30/2005 5.02 3.59
11/30/2006 4.81 3.96
11/30/2007 4.66 4.12
11/30/2008 4.53 3.88
11/30/2009 4.01 3.26
11/30/2010 3.68 2.58
11/30/2011 3.48 2.17
11/30/2012 2.96 1.82
11/30/2013 2.78 1.52
|
[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 11/30/04 to 11/30/13.
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.
INVESTMENT OVERVIEW | 7
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS U.S. AGGREGATE LIPPER
GOVERNMENT INTERMEDIATE INTERMEDIATE USAA GOVERNMENT
& MORTGAGE-BACKED U.S. GOVERNMENT SECURITIES
SECURITIES INDEX FUNDS INDEX FUND SHARES
11/30/03 $10,000.00 $10,000.00 $10,000.00
12/31/03 10,095.07 10,078.19 10,071.24
01/31/04 10,154.96 10,139.53 10,121.76
02/29/04 10,245.08 10,231.80 10,181.31
03/31/04 10,301.13 10,300.08 10,222.46
04/30/04 10,097.81 10,064.79 10,071.30
05/31/04 10,070.89 10,024.22 10,039.06
06/30/04 10,132.43 10,062.41 10,121.81
07/31/04 10,215.41 10,143.51 10,194.00
08/31/04 10,370.37 10,298.91 10,315.46
09/30/04 10,380.81 10,307.33 10,334.07
10/31/04 10,455.54 10,369.39 10,395.80
11/30/04 10,397.85 10,294.22 10,373.33
12/31/04 10,463.79 10,364.96 10,417.29
01/31/05 10,500.60 10,400.95 10,466.96
02/28/05 10,447.30 10,344.83 10,434.21
03/31/05 10,424.77 10,312.21 10,412.13
04/30/05 10,543.47 10,435.97 10,510.09
05/31/05 10,626.99 10,520.98 10,573.65
06/30/05 10,663.81 10,563.94 10,595.41
07/31/05 10,592.92 10,475.42 10,562.78
08/31/05 10,697.88 10,596.76 10,650.26
09/30/05 10,629.19 10,549.99 10,598.23
10/31/05 10,568.74 10,441.16 10,551.87
11/30/05 10,607.21 10,475.40 10,574.58
12/31/05 10,692.93 10,556.64 10,699.54
01/31/06 10,711.62 10,561.65 10,730.25
02/28/06 10,739.09 10,581.57 10,741.04
03/31/06 10,674.80 10,506.08 10,687.26
04/30/06 10,679.74 10,494.22 10,638.96
05/31/06 10,669.85 10,492.44 10,616.13
06/30/06 10,690.19 10,509.18 10,614.76
07/31/06 10,824.27 10,626.87 10,757.26
08/31/06 10,964.94 10,760.27 10,903.19
09/30/06 11,042.97 10,841.42 10,981.60
10/31/06 11,110.01 10,899.31 11,057.37
11/30/06 11,219.91 11,006.45 11,158.51
12/31/06 11,183.65 10,947.78 11,146.02
01/31/07 11,188.04 10,943.09 11,139.64
02/28/07 11,327.07 11,094.17 11,277.65
03/31/07 11,356.74 11,110.33 11,287.67
04/30/07 11,410.04 11,162.34 11,342.34
05/31/07 11,344.65 11,065.05 11,279.64
06/30/07 11,324.32 11,040.59 11,218.96
07/31/07 11,427.63 11,166.64 11,299.20
08/31/07 11,573.25 11,313.33 11,433.38
09/30/07 11,658.08 11,394.94 11,498.92
10/31/07 11,755.99 11,478.80 11,605.63
11/30/07 11,993.53 11,760.43 11,838.77
12/31/07 12,029.23 11,752.74 11,847.32
01/31/08 12,276.35 12,030.16 12,052.36
02/29/08 12,331.90 12,090.89 12,114.17
03/31/08 12,403.91 12,115.68 12,157.48
04/30/08 12,343.47 12,039.99 12,141.52
05/31/08 12,259.58 11,906.11 12,064.41
06/30/08 12,274.68 11,938.95 12,071.25
07/31/08 12,290.98 11,922.23 12,067.08
08/31/08 12,420.42 12,027.87 12,177.80
09/30/08 12,500.54 12,019.40 12,256.62
10/31/08 12,425.22 11,893.93 12,102.60
11/30/08 12,887.74 12,356.48 12,503.31
12/31/08 13,134.97 12,709.05 12,704.99
01/31/09 13,079.46 12,567.70 12,712.01
02/28/09 13,112.80 12,710.49 12,796.48
03/31/09 13,296.66 12,799.34 12,984.24
04/30/09 13,275.31 12,693.19 13,002.90
05/31/09 13,270.06 12,790.96 13,033.43
06/30/09 13,263.02 12,687.85 13,038.21
07/31/09 13,348.82 12,747.34 13,163.00
08/31/09 13,436.01 13,061.46 13,254.76
09/30/09 13,529.22 13,130.26 13,323.26
10/31/09 13,596.04 13,239.41 13,405.29
11/30/09 13,766.71 13,359.24 13,542.74
12/31/09 13,545.72 13,121.77 13,400.32
01/31/10 13,724.06 13,336.03 13,542.96
02/28/10 13,764.49 13,360.61 13,569.73
03/31/10 13,727.14 13,366.33 13,583.44
04/30/10 13,817.20 13,521.16 13,670.60
05/31/10 13,976.49 13,660.12 13,834.59
06/30/10 14,147.32 13,883.63 13,959.98
07/31/10 14,260.54 14,005.18 14,087.74
08/31/10 14,351.37 14,219.27 14,089.68
09/30/10 14,344.93 14,246.10 14,051.44
10/31/10 14,439.72 14,289.57 14,190.55
11/30/10 14,382.98 14,197.75 14,177.78
12/31/10 14,244.05 13,978.47 14,126.66
01/31/11 14,268.84 13,985.00 14,138.78
02/28/11 14,269.01 13,986.62 14,183.13
03/31/11 14,285.10 13,994.36 14,198.71
04/30/11 14,433.73 14,155.77 14,355.81
05/31/11 14,594.49 14,351.68 14,510.51
06/30/11 14,596.12 14,315.00 14,525.70
07/31/11 14,758.87 14,537.29 14,638.16
08/31/11 14,970.31 14,829.05 14,807.56
09/30/11 15,002.16 14,967.90 14,808.15
10/31/11 14,988.50 14,914.41 14,830.88
11/30/11 15,027.21 14,954.84 14,884.72
12/31/11 15,119.15 15,089.59 14,968.46
01/31/12 15,189.12 15,193.67 14,989.30
02/29/12 15,161.68 15,140.62 14,984.30
03/31/12 15,129.19 15,051.39 15,006.39
04/30/12 15,248.01 15,236.12 15,086.11
05/31/12 15,324.99 15,408.47 15,126.35
06/30/12 15,322.55 15,385.86 15,136.25
07/31/12 15,428.08 15,534.24 15,244.87
08/31/12 15,439.97 15,550.30 15,256.34
09/30/12 15,453.44 15,553.35 15,288.16
10/31/12 15,428.34 15,535.54 15,250.43
11/30/12 15,447.18 15,585.96 15,258.36
12/31/12 15,441.59 15,539.32 15,260.04
01/31/13 15,374.48 15,446.71 15,204.00
02/28/13 15,432.62 15,520.86 15,253.25
03/31/13 15,450.60 15,527.48 15,258.05
04/30/13 15,524.89 15,629.07 15,307.24
05/31/13 15,331.86 15,381.72 15,072.26
06/30/13 15,197.89 15,164.18 14,941.94
07/31/13 15,201.52 15,156.91 14,886.80
08/31/13 15,144.59 15,075.29 14,861.56
09/30/13 15,301.50 15,212.17 15,002.05
10/31/13 15,379.91 15,288.84 15,082.50
11/30/13 15,333.09 15,254.41 15,073.52
|
[END CHART]
Data from 11/30/03 to 11/30/13.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Government Securities Fund Shares to the following benchmarks:
o The Barclays U.S. Aggregate Government Intermediate & MBS Index consists of
securities backed by pools of mortgages issued by U.S. Government Agencies,
GNMA, Fannie Mae, or Freddie Mac.
o The unmanaged Lipper Intermediate U.S. Government Funds Index is considered
representative of intermediate U.S. government funds.
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.
8 | USAA GOVERNMENT SECURITIES FUND
USAA GOVERNMENT SECURITIES FUND ADVISER SHARES
(ADVISER SHARES) (Ticker Symbol: UAGNX)
--------------------------------------------------------------------------------
11/30/13 5/31/13
--------------------------------------------------------------------------------
Net Assets (in Millions) $5.2 Million $5.1 Million
Net Asset Value Per Share $9.94 $10.07
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/13
--------------------------------------------------------------------------------
5/31/13-11/30/13* 1 Year Since Inception 8/01/10
-0.13% -1.57% 1.59%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/13
--------------------------------------------------------------------------------
1 Year Since Inception 8/01/10
-2.25% 1.37%
--------------------------------------------------------------------------------
30-DAY SEC YIELD AS OF 11/30/13**
--------------------------------------------------------------------------------
Unsubsidized 2.46% Subsidized 2.62%
--------------------------------------------------------------------------------
EXPENSE RATIOS AS OF 5/31/13***
--------------------------------------------------------------------------------
Before Reimbursement 1.06% After Reimbursement 0.90%
|
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, 2013, and
are calculated as a percentage of average net assets. USAA Asset Management
Company (the Manager) has agreed, through October 1, 2014, to make payments or
waive management, administration, and other fees so that the total 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 0.90% of the Adviser Shares' average net assets.
This reimbursement arrangement may not be changed or terminated during this time
period without approval of the Trust's Board of Trustees and may be changed or
terminated by the Manager at any time after October 1, 2014. These expense
ratios may differ from the expense ratios disclosed in the Financial Highlights.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. 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 or the
redemption of shares.
INVESTMENT OVERVIEW | 9
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER INTERMEDIATE BARCLAYS U.S. AGGREGATE USAA GOVERNMENT
U.S. GOVERNMENT GOVERNMENT INTERMEDIATE SECURITIES FUND
FUNDS INDEX & MBS INDEX ADVISER 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 10,715.99
01/31/13 11,029.28 10,781.13 10,671.58
02/28/13 11,082.23 10,821.91 10,702.23
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
|
[END CHART]
Data from 7/31/10 to 11/30/13.*
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 performance of the above indexes is calculated from the end of the month,
July 31, 2010, while the Adviser Shares' inception date is August 1, 2010. There
may be a slight variation of performance numbers because of this difference.
10 | USAA GOVERNMENT SECURITIES FUND
o ASSET ALLOCATION -- 11/30/2013 o
[PIE CHART OF ASSET ALLOCATION]
30-YEAR FIXED-RATE SINGLE-FAMILY MORTGAGES* 68.5%
COMMERCIAL MORTGAGE-BACKED SECURITIES 12.5%
COLLATERIZED MORTGAGE OBLIGATION 11.2%
15-YEAR FIXED-RATE SINGLE-FAMILY MORTGAGES* 4.5%
MONEY MARKET INSTRUMENTS 2.5%
U.S. TREASURY SECURITIES-NOTES 0.6%
|
[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 12-16.
INVESTMENT OVERVIEW | 11
PORTFOLIO OF INVESTMENTS
November 30, 2013 (unaudited)
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY ISSUES (96.7%)(a)
MORTGAGE-BACKED PASS-THROUGH SECURITIES,
SINGLE-FAMILY (73.0%)
$ 11,045 Fannie Mae (+) 3.00% 2/01/2027 $ 11,417
6,465 Fannie Mae (+) 3.00 2/01/2027 6,682
5,798 Fannie Mae (+) 3.50 5/01/2021 6,129
7,138 Fannie Mae (+) 3.50 1/01/2042 7,216
11,407 Fannie Mae (+) 3.50 5/01/2042 11,531
4,823 Fannie Mae (+) 4.00 8/01/2039 5,040
2,298 Fannie Mae (+) 5.00 12/01/2035 2,500
1,049 Fannie Mae (+) 5.50 11/01/2037 1,149
126 Fannie Mae (+) 6.00 2/01/2017 132
1,881 Fannie Mae (+) 6.00 5/01/2038 2,072
72 Fannie Mae (+) 6.50 10/01/2016 76
179 Fannie Mae (+) 6.50 12/01/2016 188
8,252 Freddie Mac (+) 3.00 6/01/2042 7,954
11,048 Freddie Mac (+) 3.50 5/01/2042 11,149
4,432 Freddie Mac (+) 4.00 9/01/2040 4,617
446 Freddie Mac (+) 5.00 1/01/2021 476
1,867 Freddie Mac (+) 5.50 12/01/2035 2,028
3,499 Government National Mortgage Assn.I 4.00 7/15/2040 3,706
3,302 Government National Mortgage Assn.I 4.00 8/15/2040 3,494
8,351 Government National Mortgage Assn.I 4.00 9/15/2040 8,843
2,007 Government National Mortgage Assn.I 4.50 5/15/2024 2,149
3,323 Government National Mortgage Assn.I 4.50 9/15/2024 3,557
2,171 Government National Mortgage Assn.I 4.50 9/15/2024 2,324
2,134 Government National Mortgage Assn.I 4.50 10/15/2024 2,284
2,187 Government National Mortgage Assn.I 4.50 10/15/2024 2,340
11,517 Government National Mortgage Assn.I 4.50 9/15/2039 12,479
6,503 Government National Mortgage Assn.I 4.50 11/15/2039 7,066
9,321 Government National Mortgage Assn.I 4.50 12/15/2039 10,129
31,132 Government National Mortgage Assn.I 4.50 2/15/2040 33,831
6,659 Government National Mortgage Assn.I 4.50 3/15/2040 7,180
6,503 Government National Mortgage Assn.I 4.50 6/15/2040 7,011
8,226 Government National Mortgage Assn.I 4.50 7/15/2040 8,880
7,459 Government National Mortgage Assn.I 4.50 1/15/2041 8,061
1,715 Government National Mortgage Assn.I 5.00 2/15/2039 1,869
1,030 Government National Mortgage Assn.I 5.50 12/15/2018 1,105
|
12 | USAA GOVERNMENT SECURITIES FUND
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 6,108 Government National Mortgage Assn.I 5.50% 10/15/2033 $ 6,756
2,656 Government National Mortgage Assn.I 5.50 12/15/2033 2,938
1,420 Government National Mortgage Assn.I 5.50 7/15/2034 1,573
3,335 Government National Mortgage Assn.I 5.50 10/15/2035 3,727
2,446 Government National Mortgage Assn.I 5.50 3/15/2038 2,687
3,280 Government National Mortgage Assn.I 5.50 4/15/2038 3,614
9,458 Government National Mortgage Assn.I 5.50 6/15/2039 10,387
684 Government National Mortgage Assn.I 6.00 12/15/2016 708
1,349 Government National Mortgage Assn.I 6.00 8/15/2022 1,511
738 Government National Mortgage Assn.I 6.00 4/15/2028 822
268 Government National Mortgage Assn.I 6.00 11/15/2028 299
222 Government National Mortgage Assn.I 6.00 2/15/2029 249
408 Government National Mortgage Assn.I 6.00 7/15/2029 456
581 Government National Mortgage Assn.I 6.00 5/15/2032 646
2,021 Government National Mortgage Assn.I 6.00 1/15/2033 2,275
630 Government National Mortgage Assn.I 6.00 2/15/2033 709
597 Government National Mortgage Assn.I 6.00 7/15/2033 670
469 Government National Mortgage Assn.I 6.00 9/15/2033 528
819 Government National Mortgage Assn.I 6.00 3/15/2037 912
1,462 Government National Mortgage Assn.I 6.00 9/15/2037 1,624
2,850 Government National Mortgage Assn.I 6.00 5/15/2038 3,176
1,364 Government National Mortgage Assn.I 6.00 5/15/2038 1,513
1,046 Government National Mortgage Assn.I 6.00 9/15/2038 1,163
1,255 Government National Mortgage Assn.I 6.00 10/15/2038 1,396
1,859 Government National Mortgage Assn.I 6.00 12/15/2038 2,066
207 Government National Mortgage Assn.I 6.50 5/15/2028 231
118 Government National Mortgage Assn.I 6.50 5/15/2028 132
175 Government National Mortgage Assn.I 6.50 7/15/2028 200
61 Government National Mortgage Assn.I 6.50 9/15/2028 68
427 Government National Mortgage Assn.I 6.50 11/15/2028 476
24 Government National Mortgage Assn.I 6.50 1/15/2029 26
40 Government National Mortgage Assn.I 6.50 1/15/2029 45
530 Government National Mortgage Assn.I 6.50 3/15/2031 592
492 Government National Mortgage Assn.I 6.50 10/15/2031 549
328 Government National Mortgage Assn.I 6.50 1/15/2032 367
616 Government National Mortgage Assn.I 6.50 8/15/2032 707
2,030 Government National Mortgage Assn.I 6.50 9/15/2032 2,341
36 Government National Mortgage Assn.I 6.75 5/15/2028 40
64 Government National Mortgage Assn.I 7.00 4/15/2027 67
335 Government National Mortgage Assn.I 7.00 5/15/2027 395
54 Government National Mortgage Assn.I 7.00 6/15/2028 56
28 Government National Mortgage Assn.I 7.00 7/15/2028 32
105 Government National Mortgage Assn.I 7.00 8/15/2028 118
|
PORTFOLIO OF INVESTMENTS | 13
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 62 Government National Mortgage Assn.I 7.00% 8/15/2028 $ 75
136 Government National Mortgage Assn.I 7.00 9/15/2028 153
552 Government National Mortgage Assn.I 7.00 5/15/2029 630
650 Government National Mortgage Assn.I 7.00 6/15/2029 744
125 Government National Mortgage Assn.I 7.00 8/15/2031 136
154 Government National Mortgage Assn.I 7.00 9/15/2031 184
215 Government National Mortgage Assn.I 7.00 10/15/2031 247
84 Government National Mortgage Assn.I 7.00 6/15/2032 96
270 Government National Mortgage Assn.I 7.00 7/15/2032 311
156 Government National Mortgage Assn.I 7.50 2/15/2028 187
36 Government National Mortgage Assn.I 7.50 3/15/2029 43
97 Government National Mortgage Assn.I 7.50 4/15/2029 111
5 Government National Mortgage Assn.I 7.50 7/15/2029 5
159 Government National Mortgage Assn.I 7.50 10/15/2029 184
67 Government National Mortgage Assn.I 7.50 10/15/2029 73
28 Government National Mortgage Assn.I 7.50 12/15/2030 32
38 Government National Mortgage Assn.I 7.50 1/15/2031 44
72 Government National Mortgage Assn.I 7.50 11/15/2031 83
10 Government National Mortgage Assn.I 8.00 1/15/2022 10
95 Government National Mortgage Assn.I 8.00 6/15/2023 108
145 Government National Mortgage Assn.I 8.00 5/15/2027 162
89 Government National Mortgage Assn.I 8.00 7/15/2030 97
38 Government National Mortgage Assn.I 8.00 9/15/2030 44
19 Government National Mortgage Assn.I 8.50 6/15/2021 20
9 Government National Mortgage Assn.I 8.50 7/15/2022 9
43 Government National Mortgage Assn.I 9.00 7/15/2021 50
6,423 Government National Mortgage Assn.II 4.00 11/20/2040 6,792
4,814 Government National Mortgage Assn.II 4.50 4/20/2024 5,167
2,855 Government National Mortgage Assn.II 5.00 5/20/2033 3,137
3,547 Government National Mortgage Assn.II 5.00 7/20/2033 3,883
2,158 Government National Mortgage Assn.II 5.00 6/20/2034 2,364
5,830 Government National Mortgage Assn.II 5.00 9/20/2035 6,384
2,026 Government National Mortgage Assn.II 5.00 2/20/2037 2,214
759 Government National Mortgage Assn.II 5.50 4/20/2033 841
2,643 Government National Mortgage Assn.II 5.50 3/20/2034 2,933
9,618 Government National Mortgage Assn.II 5.50 2/20/2035 10,672
8,139 Government National Mortgage Assn.II 5.50 4/20/2035 9,091
4,232 Government National Mortgage Assn.II 5.50 7/20/2035 4,696
2,449 Government National Mortgage Assn.II 5.50 1/20/2037 2,700
368 Government National Mortgage Assn.II 6.00 3/20/2031 411
905 Government National Mortgage Assn.II 6.00 8/20/2032 1,012
776 Government National Mortgage Assn.II 6.00 9/20/2032 867
811 Government National Mortgage Assn.II 6.00 10/20/2033 936
|
14 | USAA GOVERNMENT SECURITIES FUND
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------
$ 724 Government National Mortgage Assn.II 6.00% 12/20/2033 $ 803
2,557 Government National Mortgage Assn.II 6.00 2/20/2034 2,953
2,415 Government National Mortgage Assn.II 6.00 3/20/2034 2,696
1,684 Government National Mortgage Assn.II 6.00 9/20/2034 1,878
4,608 Government National Mortgage Assn.II 6.00 10/20/2034 5,138
766 Government National Mortgage Assn.II 6.00 11/20/2034 850
1,879 Government National Mortgage Assn.II 6.00 5/20/2036 2,113
182 Government National Mortgage Assn.II 6.50 5/20/2031 213
148 Government National Mortgage Assn.II 6.50 7/20/2031 171
374 Government National Mortgage Assn.II 6.50 8/20/2031 437
599 Government National Mortgage Assn.II 6.50 4/20/2032 690
549 Government National Mortgage Assn.II 6.50 6/20/2032 634
1,719 Government National Mortgage Assn.II 6.50 8/20/2034 1,957
528 Government National Mortgage Assn.II 7.00 9/20/2030 642
97 Government National Mortgage Assn.II 7.50 4/20/2031 117
22 Government National Mortgage Assn.II 8.00 12/20/2022 25
518 Government National Mortgage Assn.II 8.00 8/20/2030 640
--------
355,406
--------
COLLATERALIZED MORTGAGE OBLIGATIONS (11.2%)
3,612 Fannie Mae (+) 0.47(b) 4/25/2035 3,612
5,918 Fannie Mae (+) 0.47(b) 8/25/2037 5,915
4,346 Fannie Mae (+) 1.38 9/25/2027 4,179
10,959 Fannie Mae (+) 1.50 7/25/2027 10,593
4,226 Fannie Mae (+) 1.50 9/25/2027 4,073
4,347 Fannie Mae (+) 1.50 9/25/2027 4,214
4,330 Fannie Mae (+) 1.50 10/25/2027 4,167
2,453 Fannie Mae (+) 5.00 11/25/2032 2,558
3,317 Freddie Mac (+) 0.47(b) 3/15/2036 3,316
4,628 Freddie Mac (+) 0.72(b) 10/15/2041 4,643
7,596 Freddie Mac (+) 2.00 9/15/2026 7,520
--------
54,790
--------
COMMERCIAL MORTGAGE-BACKED SECURITIES (12.5%)
8,850 Fannie Mae (+) 2.01 7/01/2019 8,894
2,192 Fannie Mae (+) 2.05 7/01/2019 2,210
23,073 Fannie Mae (+) 2.42 11/01/2022 22,135
4,935 Freddie Mac (+) 1.69 4/25/2022 4,847
8,500 Freddie Mac (+) 2.22 12/25/2018 8,661
10,000 Freddie Mac (+) 2.31 8/25/2022 9,396
5,000 Freddie Mac (+) 2.51 11/25/2022 4,770
--------
60,913
--------
Total U.S. Government Agency Issues (cost: $454,193) 471,109
--------
|
PORTFOLIO OF INVESTMENTS | 15
-----------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
-----------------------------------------------------------------------------------------------------
U.S.TREASURY SECURITIES (0.6%)
NOTES (0.6%)
$ 3,000 2.00%, 2/15/2022 (cost: $2,997) $ 2,910
--------
MONEY MARKET INSTRUMENTS (2.5%)
REPURCHASE AGREEMENTS (2.5%)
12,044 Deutsche Bank Securities, Inc., 0.09%, acquired on
11/29/2013 and due 12/02/2013 at $12,044
(collateralized by $2,023 of Fannie Mae(+),(a),
0.50 - 0.88%, due 8/28/2014 - 5/27/2015;
$6,527 of Freddie Mac(+),(a), 0.15 - 3.71%(c),
due 11/17/2014 - 1/4/2025; $2,430 of Federal
Home Loan Bank(+),(a), 0.11 - 0.77%,
due 11/25/2014 - 6/27/2017; and $3,267 of
U.S. Treasury, 0.25%, due 11/30/2014; combined
market value $12,285) (cost: $12,044) 12,044
--------
TOTAL INVESTMENTS (COST: $469,234) $486,063
========
|
------------------------------------------------------------------------------------------------------
($ 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
------------------------------------------------------------------------------------------------------
U.S. Government Agency Issues $ - $471,109 $- $471,109
U.S. Treasury Securities 2,910 - - 2,910
Money Market Instruments:
Repurchase Agreements - 12,044 - 12,044
------------------------------------------------------------------------------------------------------
Total $2,910 $483,153 $- $486,063
------------------------------------------------------------------------------------------------------
|
For the period of June 1, 2013, through November 30, 2013, 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.
16 | USAA GOVERNMENT SECURITIES FUND
NOTES TO PORTFOLIO OF INVESTMENTS
November 30, 2013 (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) U.S. government agency issues -- mortgage-backed securities issued by
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
government-sponsored enterprises, 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 government-sponsored enterprise to borrow from the
U.S. Treasury, the discretionary authority of the U.S. government to
purchase the government-sponsored enterprises' obligations, or by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury. In September of
2008, the U.S. Treasury placed Fannie Mae and Freddie Mac under
conservatorship and appointed the Federal
NOTES TO PORTFOLIO OF INVESTMENTS | 17
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 capital in
exchange for senior preferred stock.
(b) Variable-rate or floating-rate security -- interest rate is adjusted
periodically. The interest rate disclosed represents the current rate
at November 30, 2013.
(c) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
See accompanying notes to financial statements.
18 | USAA GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
November 30, 2013 (unaudited)
ASSETS
Investments in securities, at market value (cost of $469,234) $486,063
Cash 1
Receivables:
Capital shares sold 153
USAA Asset Management Company (Note 6C) 1
Interest 1,490
--------
Total assets 487,708
--------
LIABILITIES
Payables:
Capital shares redeemed 289
Dividends on capital shares 205
Accrued management fees 41
Accrued transfer agent's fees 12
Other accrued expenses and payables 55
--------
Total liabilities 602
--------
Net assets applicable to capital shares outstanding $487,106
========
NET ASSETS CONSIST OF:
Paid-in capital $476,360
Accumulated undistributed net investment income 1
Accumulated net realized loss on investments (6,084)
Net unrealized appreciation of investments 16,829
--------
Net assets applicable to capital shares outstanding $487,106
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $481,937/48,477 shares outstanding) $ 9.94
========
Adviser Shares (net assets of $5,169/520 shares outstanding) $ 9.94
========
|
See accompanying notes to financial statements.
FINANCIAL STATEMENTS | 19
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended November 30, 2013 (unaudited)
INVESTMENT INCOME
Interest income $ 8,305
-------
EXPENSES
Management fees 239
Administration and servicing fees:
Fund Shares 381
Adviser Shares 4
Transfer agent's fees:
Fund Shares 368
Distribution and service fees (Note 6E):
Adviser Shares 6
Custody and accounting fees:
Fund Shares 54
Adviser Shares 1
Postage:
Fund Shares 13
Shareholder reporting fees:
Fund Shares 11
Trustees' fees 7
Registration fees:
Fund Shares 16
Adviser Shares 14
Professional fees 41
Other 8
-------
Total expenses 1,163
Expenses reimbursed:
Adviser Shares (5)
-------
Net expenses 1,158
-------
NET INVESTMENT INCOME 7,147
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (673)
Change in net unrealized appreciation/depreciation (6,893)
-------
Net realized and unrealized loss (7,566)
-------
Decrease in net assets resulting from operations $ (419)
=======
|
See accompanying notes to financial statements.
20 | USAA GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended November 30, 2013 (unaudited), and year ended
May 31, 2013
11/30/2013 5/31/2013
------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 7,147 $ 17,296
Net realized gain (loss) on investments (673) 341
Change in net unrealized appreciation/depreciation
of investments (6,893) (19,237)
---------------------------
Decrease in net assets resulting from operations (419) (1,600)
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (7,087) (17,175)
Adviser Shares (59) (121)
---------------------------
Distributions to shareholders (7,146) (17,296)
---------------------------
NET DECEASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares (64,063) (69,505)
Adviser Shares 89 217
---------------------------
Total net decrease in net assets
from capital share transactions (63,974) (69,288)
---------------------------
Net decrease in net assets (71,539) (88,184)
NET ASSETS
Beginning of period 558,645 646,829
---------------------------
End of period $487,106 $558,645
===========================
Accumulated undistributed net investment income:
End of period $ 1 $ -
===========================
|
See accompanying notes to financial statements.
FINANCIAL STATEMENTS | 21
NOTES TO FINANCIAL STATEMENTS
November 30, 2013 (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 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, banks,
broker-dealers, insurance companies, investment advisers, plan sponsors, and
financial professionals that provide various administrative and distribution
services.
22 | USAA GOVERNMENT SECURITIES FUND
A. SECURITY VALUATION -- The Trust's Board of Trustees (the Board) has
established the Valuation Committee (the Committee), and subject to Board
oversight, the Committee administers and oversees the Fund's valuation
policies and procedures, which are approved by the Board. Among other
things, these policies and procedures allow the Fund to utilize independent
pricing services, quotations from securities dealers, and a wide variety of
sources and information to establish and adjust the fair value of securities
as events occur and circumstances warrant.
The Committee reports to the Board on a quarterly basis and makes
recommendations to the Board as to pricing methodologies and services used
by the Fund and presents additional information to the Board regarding
application of the pricing and fair valuation policies and procedures during
the preceding quarter.
The Committee meets as often as necessary to make pricing and fair value
determinations. In addition, the Committee holds regular monthly meetings to
review prior actions taken by the Committee and USAA Asset Management
Company (the Manager). 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.
NOTES TO FINANCIAL STATEMENTS | 23
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
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.
24 | USAA GOVERNMENT SECURITIES FUND
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices. Level 2 securities
include all U.S. Government Agency Issues 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 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"
NOTES TO FINANCIAL STATEMENTS | 25
custodian that maintains separate accounts for both the Fund and its
counterparty, until maturity of the repurchase agreement. Master Repurchase
Agreements typically contain netting 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. For the six-month
period ended November 30, 2013 the value of the related collateral exceeded
the value of the repurchase agreements, reducing the net settlement to zero.
Details on the collateral are included on the Portfolio of Investments.
F. 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, 2013, there were no custodian and other bank credits.
G. INDEMNIFICATIONS -- Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business, the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
26 | USAA GOVERNMENT SECURITIES FUND
(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 fee rate remains unchanged from September 30, 2012, to
September 30, 2013. 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, 2013, the Fund paid CAPCO facility
fees of $1,000, which represents 0.9% 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, 2013.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of May 31, 2014, 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.
Under the Regulated Investment Company Modernization Act of 2010 (the Act), a
fund is permitted to carry forward net 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
NOTES TO FINANCIAL STATEMENTS | 27
loss carryforwards. As a result, pre-enactment capital loss carryforwards may be
more likely to expire unused.
At May 31, 2013, the Fund had pre-enactment capital loss carryforwards of
$5,411,000 and no post-enactment capital loss carryforwards, for federal income
tax purposes. If not offset by subsequent capital gains, the pre-enactment
capital loss carryforwards will expire between 2014 and 2015, as shown 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.
PRE-ENACTMENT CAPITAL LOSS CARRYFORWARDS
----------------------------------------
EXPIRES BALANCE
------- ----------
2014 $3,887,000
2015 1,524,000
----------
Total $5,411,000
==========
|
For the six-month period ended November 30, 2013, 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
Proceeds from sales/maturities of securities, excluding short-term securities,
for the six-month period ended November 30, 2013, were $70,299,000. There were
no purchases of securities for the six-month period ended November 30, 2013.
As of November 30, 2013, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as that
reported in the financial statements.
28 | USAA GOVERNMENT SECURITIES FUND
Gross unrealized appreciation and depreciation of investments as of November 30,
2013, were $21,979,000 and $5,150,000, respectively, resulting in net unrealized
appreciation of $16,829,000.
(5) CAPITAL SHARE TRANSACTIONS
At November 30, 2013, 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, 2013 MAY 31, 2013
----------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------
FUND SHARES:
Shares sold 2,403 $ 23,901 10,023 $ 103,566
Shares issued from reinvested
dividends 629 6,247 1,493 15,410
Shares redeemed (9,479) (94,211) (18,302) (188,481)
-----------------------------------------------
Net decrease from capital
share transactions (6,447) $(64,063) (6,786) $ (69,505)
===============================================
ADVISER SHARES:
Shares sold 10 $ 101 61 $ 626
Shares issued from reinvested
dividends -* 3 1 6
Shares redeemed (1) (15) (41) (415)
-----------------------------------------------
Net increase from capital
share transactions 9 $ 89 21 $ 217
===============================================
|
*Less than 500 shares
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager carries out the Fund's investment policies
and manages the Fund's portfolio pursuant to an Advisory Agreement. 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
NOTES TO FINANCIAL STATEMENTS | 29
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 performance adjustment for the
Adviser Shares includes the performance of the Fund Shares for periods prior
to August 1, 2010.
The following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
--------------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
|
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest 0.01%. 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 (366 in leap
years). The resulting amount is the performance adjustment; a positive
adjustment in the case of overperformance, or a negative adjustment in the
case of underperformance.
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.
30 | USAA GOVERNMENT SECURITIES FUND
For the six-month period ended November 30, 2013, the Fund incurred total
management fees, paid or payable to the Manager, of $239,000, which included
a performance adjustment for the Fund Shares and Adviser Shares of $(80,000)
and $(1,000), respectively. For the Fund Shares and Adviser Shares, the
performance adjustments were (0.03)% and (0.05)%, 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, 2013, the Fund Shares and
Adviser Shares incurred administration and servicing fees, paid or payable
to the Manager, of $381,000 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, 2013, 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 has agreed, through October 1, 2014, to
limit the annual expenses of the Adviser Shares to 0.90% of its average net
assets, excluding extraordinary expenses and before reductions of any
expenses paid indirectly, and will reimburse the Adviser Shares for all
expenses in excess of that amount. This expense limitation arrangement may
not be changed or terminated through October 1, 2014, without approval of
the Board, and may be changed or terminated by the Manager at any time after
that date. For the six-month period ended November 30, 2013, the Adviser
Shares incurred reimbursable expenses of $5,000, of which $1,000 was
receivable from the Manager.
NOTES TO FINANCIAL STATEMENTS | 31
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 administration and
servicing of accounts held with such intermediaries. For the six-month
period ended November 30, 2013, the Fund Shares and Adviser Shares incurred
transfer agent's fees, paid or payable to SAS, of $368,000 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, 2013, 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.
(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,
2013, USAA and its affiliates owned 487,000 shares, which represent 93.6% of the
Adviser Shares and 1.0% 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.
32 | USAA GOVERNMENT SECURITIES FUND
(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,
-----------------------------------------------------------------------------------
2013 2013 2012 2011 2010 2009
-----------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.08 $ 10.40 $ 10.30 $ 10.19 $ 9.97 $ 9.64
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .14 .29 .33 .38 .38 .43
Net realized and
unrealized gain (loss) (.14) (.32) .10 .11 .22 .33
-----------------------------------------------------------------------------------
Total from investment
operations - (.03) .43 .49 .60 .76
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.29) (.33) (.38) (.38) (.43)
-----------------------------------------------------------------------------------
Net asset value at
end of period $ 9.94 $ 10.08 $ 10.40 $ 10.30 $ 10.19 $ 9.97
===================================================================================
Total return (%)* .00(d) (.36) 4.24 4.89 6.15(b) 8.05
Net assets at
end of period (000) $481,937 $553,495 $641,730 $604,893 $609,919 $564,253
Ratios to average
net assets:**
Expenses (%)(a) .45(c) .41 .41 .42 .43(b) .55
Net investment income (%) 2.79(c) 2.77 3.19 3.71 3.79 4.38
Portfolio turnover (%) 0 24 20 19 27 20
|
* 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, 2013, average net assets were
$506,422,000.
(a) Reflects total operating expenses of the Fund Shares before reductions of
any expenses paid indirectly. The Fund Shares' expenses paid indirectly
decreased the expense ratios by less than 0.01%.
(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.
(d) Represents less than 0.01%.
NOTES TO FINANCIAL STATEMENTS | 33
(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
NOVEMBER 30, YEAR ENDED MAY 31, MAY 31,***
--------------------------------------------------------
2013 2013 2012 2011
--------------------------------------------------------
Net asset value at beginning of period $10.07 $10.40 $10.29 $10.30
--------------------------------------------------
Income (loss) from investment operations:
Net investment income .12 .24 .28 .27
Net realized and unrealized gain (loss) (.13) (.33) .11 (.01)
--------------------------------------------------
Total from investment operations (.01) (.09) .39 .26
--------------------------------------------------
Less distributions from:
Net investment income (.12) (.24) (.28) (.27)
--------------------------------------------------
Net asset value at end of period $ 9.94 $10.07 $10.40 $10.29
==================================================
Total return (%)* (.13) (.94) 3.84 2.58
Net assets at end of period (000) $5,169 $5,150 $5,099 $5,047
Ratios to average net assets:**
Expenses (%)(b) .90(a) .90 .90 .90(a)
Expenses, excluding reimbursements (%)(b) 1.08(a) 1.06 1.15 1.39(a)
Net investment income (%) 2.34(a) 2.28 2.71 3.21(a)
Portfolio turnover (%) 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, 2013, average net assets were
$5,076,000.
*** Adviser Shares were initiated on August 1, 2010.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Reflects total operating expenses of the Adviser Shares before reductions of
any expenses paid indirectly. The Adviser Shares' expenses paid indirectly
decreased the expense ratios by less than 0.01%.
34 | USAA GOVERNMENT SECURITIES FUND
EXPENSE EXAMPLE
November 30, 2013 (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, 2013, through
November 30, 2013.
ACTUAL EXPENSES
The line labeled "actual" under each share class in the table on the next page
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
EXPENSE EXAMPLE | 35
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the line labeled "hypothetical"
is useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2013 -
JUNE 1, 2013 NOVEMBER 30, 2013 NOVEMBER 30, 2013
-----------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,000.00 $2.26
Hypothetical
(5% return before expenses) 1,000.00 1,022.81 2.28
ADVISER SHARES
Actual 1,000.00 998.70 4.51
Hypothetical
(5% return before expenses) 1,000.00 1,020.56 4.56
|
* Expenses are equal to the Fund's annualized expense ratio of 0.45% for Fund
Shares and 0.90% 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
less than 0.01% for Fund Shares and (0.13)% for Adviser Shares for the
six-month period of June 1, 2013, through November 30, 2013.
36 | USAA GOVERNMENT SECURITIES FUND
TRUSTEES Daniel S. McNamara
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Paul L. McNamara
Jefferson C. Boyce
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ADMINISTRATOR AND USAA Asset Management Company
INVESTMENT ADVISER P.O. Box 659453
San Antonio, Texas 78265-9825
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UNDERWRITER AND USAA Investment Management Company
DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
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TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
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CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
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INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
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MUTUAL FUND Under "My Accounts" on
SELF-SERVICE 24/7 usaa.com select "Investments,"
AT USAA.COM then "Mutual Funds"
OR CALL Under "Investments" view
(800) 531-USAA account balances, or click
(8722) "I want to...," and select
the desired action.
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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.
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
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>> SAVE PAPER AND FUND COSTS
Under MY PROFILE on USAA.COM select MANAGE PREFERENCES
Set your DOCUMENT PREFERENCES to USAA DOCUMENTS ONLINE.
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