UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
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: CHRISTOPHER P. LAIA
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: MAY 31, 2010
ITEM 1. REPORT TO STOCKHOLDERS.
USAA TREASURY MONEY MARKET TRUST TRUST - ANNUAL REPORT FOR PERIOD ENDING
MAY 31, 2010
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TREASURY MONEY MARKET TRUST(R)]
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ANNUAL REPORT
USAA TREASURY MONEY MARKET TRUST(R)
MAY 31, 2010
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FUND OBJECTIVE
MAXIMUM CURRENT INCOME WHILE MAINTAINING THE HIGHEST DEGREE OF SAFETY AND
LIQUIDITY.
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TYPES OF INVESTMENTS
Invests principally in U.S. government securities with maturities of 397 days or
less; normally at least 80% of the Fund's investments will be in U.S. Treasury
bills, notes, and bonds, and repurchase agreements collateralized by these
instruments.
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 Investment 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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TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 2
MANAGER'S COMMENTARY 4
INVESTMENT OVERVIEW 6
FINANCIAL INFORMATION
Distributions to Shareholders 10
Report of Independent Registered Public Accounting Firm 11
Portfolio of Investments 12
Notes to Portfolio of Investments 14
Financial Statements 15
Notes to Financial Statements 18
EXPENSE EXAMPLE 26
ADVISORY AGREEMENT 28
TRUSTEES' AND OFFICERS' INFORMATION 33
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 INVESTMENT 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)2010, USAA. All rights reserved.
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PRESIDENT'S MESSAGE
"WHILE IT IS STILL TOO EARLY TO DECLARE THAT
A SELF-SUSTAINING RECOVERY IS UNDERWAY, WE [PHOTO OF DANIEL S. McNAMARA]
THINK MOST ECONOMIC INDICATORS ARE POINTED
IN THE RIGHT DIRECTION."
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JUNE 2010
As it turned out, the fiscal year ended May 31, 2010, was kind to patient,
long-term investors. With some zigs and zags along the way, the U.S. stock
market, as represented by the S&P 500 Index, was up nearly 21% for the period.
At the same time, high-quality bonds generated attractive returns (the U.S.
10-year Treasury returned 4.65% during the fiscal year) as investors continued
to search for income. Corporate and municipal bonds did even better.
However, investors suffered some setbacks in April and May of this year as
Greece's debt crisis unsettled the markets. As fears of contagion spread, many
of them abandoned stocks for the safety of Treasury securities and other liquid,
high-quality investments. The S&P 500 Index experienced its worst May since
1962.
Although the European Union (EU) crafted a rescue plan for Greece, a number of
troubling problems remain. Some European countries continue to live beyond their
means, threatening the EU's sustainability. What's more, no one knows how a
default or a debt restructuring by one of these countries would affect major
European banks, which are believed to be heavily invested in the debt securities
of the weaker nations. This uncertainty caused the euro to fall during the
fiscal year to a four-year low versus the U.S. dollar. At the time of this
writing, the dollar is once again the world's undisputed reserve currency.
Commodity prices, which had been rising for most of the fiscal year, dropped in
response to the turmoil in Europe and fears about its impact on the global
economy. The one exception -- gold, widely considered a safe haven.
Meanwhile, the U.S. economy seems to be improving. While it is still too early
to declare that a self-sustaining recovery is underway, we think most economic
indicators are pointed in the right direction. Corporate earnings, fueled by
surprisingly strong top-line revenue growth, have been better than expected. At
the same time, inflation has remained benign, giving the Federal Reserve Board
(the Fed) latitude to hold short-term rates in a range between zero and 0.25%.
There is no doubt that investor confidence was badly shaken by Greece's debt
problems, and at the time of this writing, market sentiment seems driven more by
headlines than by investment fundamentals. Perhaps as a result, many
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2 | USAA TREASURY MONEY MARKET TRUST
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people are keeping large amounts of money in low-yielding money market funds. We
see no relief from these low yields until at least the fourth quarter of 2010.
In fact, we think the debt crisis in Europe could extend the time the Fed can
maintain its "easy money" stance.
Under the circumstances, investors may want to review how much they have in
their money market accounts. Inflation may be muted but as of this writing, it
is higher than money market yields. That isn't to say that investors should take
risks with their immediate or emergency spending needs. In such cases, we
believe a money market fund, a savings account or short-term certificate of
deposit should be considered. However, if the money isn't required for two or
three years, it could be earning higher yields in short- and intermediate-term
bond funds. For longer-term, future needs such as retirement, a diversified
portfolio of stock and bond funds might be most appropriate.
If timing is a concern, we recommend making gradual changes. However, this is
based on your individual immediate needs. Our USAA service representatives would
be happy to assist. They are available -- free of charge -- to help you update
your financial plan and answer any questions you might have.
At USAA Investment Management Company, we are proud of the long-term performance
we have provided to shareholders. In the months ahead, we will continue working
hard on your behalf. From all of us here, thank you for the opportunity to help
you with your investment needs.
Sincerely,
/S/ DANIEL S. MCNAMARA
Daniel S. McNamara
President
USAA Investment Management Company
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND.
INVESTMENT/INSURANCE: NOT FDIC INSURED o NOT BANK ISSUED, GUARANTEED OR
UNDERWRITTEN o MAY LOSE VALUE
INVESTMENT AND INSURANCE PRODUCTS ARE NOT DEPOSITS, NOT INSURED BY FDIC OR ANY
GOVERNMENT AGENCY, NOT GUARANTEED BY THE BANK. INVESTMENTS AND CERTAIN INSURANCE
PRODUCTS MAY LOSE VALUE.
Diversification does not guarantee a profit or prevent a loss.
Gold is a volatile asset class and is subject to additional risks, such as
currency fluctuation, market liquidity, political instability and increased
price volatility. It may be more volatile than other asset classes that
diversify across many industries and companies.
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.
As interest rates rise, bond prices fall.
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PRESIDENT'S MESSAGE | 3
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MANAGER'S COMMENTARY ON THE FUND
TONY ERA [PHOTO OF TONY ERA]
USAA Investment Management Company
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o HOW DID THE USAA TREASURY MONEY MARKET TRUST (THE FUND) PERFORM?
For the twelve-month period ended May 31, 2010, the Fund had a total return
of 0.00%. This compares to an average return of 0.02% for similar Treasury
and repurchase agreement (repo) money market funds tracked by iMoneyNet,
Inc. As of May 31, 2010, the Fund's seven-day yield was 0.00%.
o WHY DID THE FUND AND ITS PEER GROUP PROVIDE NEAR-ZERO RETURNS FOR THE
REPORTING YEAR?
The Fund primarily invests in securities with maturities of 397 days or
less that are backed by the full faith and credit of the U.S. government,
as well as repurchase agreements collateralized by such securities.
The federal funds target rate remained unchanged at 0% to 0.25% over the
entire period. Investor appetite for the relative safety of U.S. government
securities persisted. Recent market concern surrounding eurozone sovereign
debt has also kept investor sentiment cautious despite potential signs of a
weak recovery in the United States.
Refer to page 7 for the iMoneyNet, Inc. definition.
Past performance is no guarantee of future results.
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4 | USAA TREASURY MONEY MARKET TRUST
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o HOW DID YOU INVEST IN THIS EXTRAORDINARY LOW-RATE ENVIRONMENT?
Low yields on U.S. Treasury securities provided little incentive to extend
the weighted-average maturity of the portfolio. As a result, the Fund
continued to invest in a combination of repurchase agreements and U.S.
Treasuries of various maturities.
o WHAT'S YOUR OUTLOOK?
With the economy reflecting potential signs of a recovery, although perhaps
weak, we may begin to approach a period when the Federal Reserve Board (the
Fed) begins to reverse their accommodative interest rate policy. However,
concerns over the possibility of a double-dip recession and stubbornly high
unemployment may cause the Fed to continue their current course for a
longer period than anticipated. In addition, some believe that the eurozone
debt crisis has increased deflationary risk, taking pressure off the Fed to
act anytime soon. Until there is more clarity with regard to the direction
of policy, or higher rates on longer-term securities, the Fund intends to
maintain flexibility to respond to the potential for rising interest rates
by keeping the Fund's weighted-average maturity relatively short unless
economic signals indicate otherwise. The Fund's investment objective is
maximum current income while maintaining the highest degree of safety and
liquidity.
Thank you for your continued investment in the Fund.
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MANAGER'S COMMENTARY ON THE FUND | 5
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INVESTMENT OVERVIEW
USAA TREASURY MONEY MARKET TRUST (Ticker Symbol: UATXX)
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5/31/10 5/31/09
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Net Assets $171.8 Million $227.2 Million
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity 20 Days 3 Days
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AVERAGE ANNUAL TOTAL RETURNS AND 7-DAY YIELD AS OF 5/31/10
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1 Year 5 Years 10 Years 7-Day Yield
0.00% 2.43% 2.33% 0.00%
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. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND.
Total return equals income return and assumes 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
generally accepted accounting principles or the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
Yields and returns fluctuate. The seven-day yield quotation more closely
reflects current earnings of the Fund than the total return quotation.
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6 | USAA TREASURY MONEY MARKET TRUST
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o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
USAA TREASURY MONEY iMONEYNET
MARKET TRUST AVERAGE
5/26/2009 0.00% 0.03%
6/30/2009 0.00 0.02
7/28/2009 0.00 0.02
8/25/2009 0.00 0.02
9/29/2009 0.00 0.02
10/27/2009 0.00 0.02
11/24/2009 0.00 0.01
12/29/2009 0.00 0.01
1/26/2010 0.00 0.01
02/23/2010 0.00 0.01
03/30/2010 0.00 0.01
04/29/2010 0.00 0.01
05/27/2010 0.00 0.01
[END CHART]
Data represent the last Tuesday of each month. Ending date 5/25/10.
The graph tracks the Fund's seven-day yield against the iMoneyNet, Inc. Average
for all retail money market funds that hold U.S. Treasuries and repos backed by
the U.S. Treasury and all retail money funds that hold 100% in U.S. Treasuries.
iMoneyNet, Inc. is an organization that tracks the performance of money market
funds.
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INVESTMENT OVERVIEW | 7
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o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE]
USAA TREASURY MONEY
MARKET TRUST
05/31/00 $10,000.00
06/30/00 10,047.72
07/31/00 10,098.08
08/31/00 10,149.05
09/30/00 10,197.47
10/31/00 10,251.21
11/30/00 10,302.34
12/31/00 10,351.63
01/31/01 10,404.79
02/28/01 10,447.14
03/31/01 10,490.95
04/30/01 10,532.85
05/31/01 10,570.28
06/30/01 10,603.20
07/31/01 10,637.37
08/31/01 10,668.14
09/30/01 10,691.17
10/31/01 10,713.44
11/30/01 10,730.95
12/31/01 10,744.71
01/31/02 10,757.65
02/28/02 10,769.81
03/31/02 10,782.33
04/30/02 10,794.71
05/31/02 10,806.78
06/30/02 10,818.43
07/31/02 10,831.25
08/31/02 10,844.72
09/30/02 10,856.03
10/31/02 10,868.52
11/30/02 10,878.51
12/31/02 10,887.64
01/31/03 10,896.84
02/28/03 10,904.73
03/31/03 10,912.71
04/30/03 10,920.87
05/31/03 10,929.31
06/30/03 10,936.19
07/31/03 10,942.13
08/31/03 10,948.18
09/30/03 10,953.54
10/31/03 10,959.92
11/30/03 10,965.31
12/31/03 10,971.44
01/31/04 10,977.24
02/29/04 10,982.27
03/31/04 10,987.73
04/30/04 10,993.40
05/31/04 10,998.24
06/30/04 11,003.70
07/31/04 11,011.54
08/31/04 11,020.13
09/30/04 11,030.04
10/31/04 11,042.25
11/30/04 11,055.23
12/31/04 11,070.86
01/31/05 11,086.08
02/28/05 11,102.59
03/31/05 11,122.19
04/30/05 11,143.63
05/31/05 11,166.89
06/30/05 11,190.25
07/31/05 11,216.63
08/31/05 11,245.11
09/30/05 11,275.73
10/31/05 11,305.22
11/30/05 11,337.78
12/31/05 11,374.93
01/31/06 11,408.92
02/28/06 11,443.85
03/31/06 11,485.71
04/30/06 11,522.73
05/31/06 11,565.15
06/30/06 11,610.26
07/31/06 11,653.55
08/31/06 11,700.41
09/30/06 11,747.64
10/31/06 11,793.62
11/30/06 11,839.76
12/31/06 11,890.43
01/31/07 11,935.36
02/28/07 11,978.86
03/31/07 12,029.04
04/30/07 12,074.76
05/31/07 12,123.44
06/30/07 12,171.44
07/31/07 12,218.97
08/31/07 12,267.92
09/30/07 12,307.17
10/31/07 12,350.92
11/30/07 12,390.93
12/31/07 12,421.86
01/31/08 12,451.04
02/29/08 12,473.47
03/31/08 12,490.41
04/30/08 12,508.16
05/31/08 12,525.93
06/30/08 12,541.17
07/31/08 12,557.17
08/31/08 12,574.11
09/30/08 12,584.81
10/31/08 12,586.71
11/30/08 12,587.91
12/31/08 12,588.05
01/31/09 12,588.06
02/28/09 12,588.06
03/31/09 12,588.07
04/30/09 12,588.07
05/31/09 12,588.08
06/30/09 12,588.08
07/31/09 12,588.09
08/31/09 12,588.10
09/30/09 12,588.10
10/31/09 12,588.11
11/30/09 12,588.11
12/31/09 12,588.12
01/31/10 12,588.13
02/28/10 12,588.13
03/31/10 12,588.14
04/30/10 12,588.15
05/31/10 12,588.16
[END CHART]
Data from 5/31/00 through 5/31/10.
The graph illustrates the performance of a hypothetical $10,000 investment in
the USAA Treasury Money Market Trust.
Past performance is no guarantee of future results. The cumulative performance
quoted does not reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Income may be subject to
federal, state, or local taxes, or to the federal alternative minimum tax. For
seven-day yield information, please refer to the Fund's Investment Overview
page.
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8 | USAA TREASURY MONEY MARKET TRUST
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o ASSET ALLOCATION -- 5/31/2010 o
[PIE CHART OF ASSET ALLOCATION]
REPURCHASE AGREEMENTS 71.0%
U.S. TREASURY BILLS 29.1%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
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INVESTMENT OVERVIEW | 9
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DISTRIBUTIONS TO SHAREHOLDERS
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The following federal tax information related to the Fund's fiscal year ended
May 31, 2010, is provided for information purposes only and should not be used
for reporting to federal or state revenue agencies. Federal tax information for
the calendar year will be reported to you on Form 1099-DIV in January 2011.
For the fiscal year ended May 31, 2010, certain dividends paid by the Fund
qualify as interest-related dividends. The Fund designates $1,000 as qualifying
interest income.
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10 | USAA TREASURY MONEY MARKET TRUST
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA TREASURY MONEY MARKET TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Treasury Money Market Trust (one of
the portfolios constituting USAA Mutual Funds Trust) (the "Fund") as of May 31,
2010, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of May 31, 2010, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA Treasury Money Market Trust at May 31, 2010, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
/S/ ERNST & YOUNG LLP
San Antonio, Texas
July 23, 2010
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 11
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PORTFOLIO OF INVESTMENTS
May 31, 2010
----------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) SECURITY (000)
----------------------------------------------------------------------------------------------------------------
U.S.TREASURY BILLS (29.1%)(c)
$15,000 0.10%, 6/17/2010 $ 14,999
15,000 0.14%, 7/15/2010 14,997
5,000 0.16%, 7/29/2010 4,999
5,000 0.20%, 9/02/2010 4,998
10,000 0.23%, 9/16/2010 9,993
--------
Total U.S. Treasury Bills (cost: $49,986) 49,986
--------
REPURCHASE AGREEMENTS (71.0%)
20,000 Bank of America Securities, 0.18%, acquired 5/28/2010 and due on 6/01/2010
at $20,000 (collateralized by $67,274 of U.S. Treasury STRIP, 4.50%(d),
due 8/15/2039; $1,708 of U.S. Treasury, 5.50%(a), due 8/15/2028; combined
market value $20,400) 20,000
15,000 Barclays Bank plc, 0.18%, acquired 5/28/2010 and due on 6/01/2010 at $15,000
(collateralized by $14,250 of U.S. Treasury, 2.50% - 3.63%(a), due
8/15/2019 - 01/15/2029; market value $15,300) 15,000
31,000 Credit Suisse First Boston, LLC, 0.20%, acquired 5/28/2010 and due 6/01/2010 at
$31,000 (collateralized by $29,231 of Government National Mortgage Assn. I(b),
5.50%, due 12/15/2039; market value $31,622) 31,000
22,000 Credit Suisse First Boston, LLC, 0.19%, acquired 5/28/2010 and due 6/01/2010 at
$22,000 (collateralized by $22,335 of U.S. Treasury, 0.88%(a), due 4/30/2011;
market value $22,441) 22,000
33,941 Deutsche Bank Securities, 0.19%, acquired 5/28/2010 and due 6/01/2010 at $33,941
(collateralized by $29,508 of U.S. Treasury, 2.88% - 7.63%(a), due
1/31/2013 - 11/15/2022; market value $34,620) 33,941
--------
Total Repurchase Agreements (cost: $121,941) 121,941
--------
TOTAL INVESTMENTS (COST: $171,927) $171,927
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12 | USAA TREASURY MONEY MARKET TRUST
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----------------------------------------------------------------------------------------------------
($ 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. Treasury Bills $-- $ 49,986 $-- $ 49,986
Repurchase Agreements -- 121,941 -- 121,941
----------------------------------------------------------------------------------------------------
Total $-- $171,927 $-- $171,927
----------------------------------------------------------------------------------------------------
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PORTFOLIO OF INVESTMENTS | 13
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NOTES TO PORTFOLIO OF INVESTMENTS
May 31, 2010
--------------------------------------------------------------------------------
o GENERAL NOTES
Values of securities are determined by procedures and practices discussed
in Note 1 to the financial statements.
The cost of securities at May 31, 2010, for federal income tax purposes,
was $171,927,000.
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) Rates for U.S. Treasury notes represent the stated coupon payment rate
at time of issuance.
(b) Mortgage-backed securities issued by Government National Mortgage
Association (GNMA) are supported by the full faith and credit of the
U.S. government.
(c) Securities offered at a discount to face value rather than at a stated
coupon rate. Rates represent the discount rates at purchase date.
(d) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
See accompanying notes to financial statements.
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14 | USAA TREASURY MONEY MARKET TRUST
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STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 2010
--------------------------------------------------------------------------------
ASSETS
Investments in securities (amortized cost approximates market value) $ 49,986
Investment in repurchase agreements (cost approximates market value) 121,941
Receivables:
Capital shares sold 126
USAA Investment Management Company (Note 4C) 5
Interest 2
--------
Total assets 172,060
--------
LIABILITIES
Payables:
Capital shares redeemed 243
Dividends on capital shares 1
Accrued management fees 18
Accrued transfer agent's fees 1
Other accrued expenses and payables 39
--------
Total liabilities 302
--------
Net assets applicable to capital shares outstanding $171,758
========
NET ASSETS CONSIST OF:
Paid-in capital $171,758
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 171,758
========
Net asset value, redemption price, and offering price per share $ 1.00
========
See accompanying notes to financial statements.
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FINANCIAL STATEMENTS | 15
<PAGE>
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STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended May 31, 2010
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 284
-----
EXPENSES
Management fees 252
Administration and servicing fees 202
Transfer agent's fees 267
Custody and accounting fees 37
Postage 12
Shareholder reporting fees 12
Trustees' fees 10
Registration fees 41
Professional fees 57
Other 7
-----
Total expenses 897
Transfer agent's fees reimbursed (Note 4D) (8)
Expenses reimbursed (606)
-----
Net expenses 283
-----
NET INVESTMENT INCOME $ 1
=====
See accompanying notes to financial statements.
================================================================================
16 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended May 31,
--------------------------------------------------------------------------------
2010 2009
---------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1 $ 1,134
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1) (1,134)
-------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 123,316 305,762
Reinvested dividends 1 1,097
Cost of shares redeemed (178,729) (299,156)
-------------------------
Increase (decrease) in net assets from capital share
transactions (55,412) 7,703
-------------------------
Net increase (decrease) in net assets (55,412) 7,703
NET ASSETS
Beginning of year 227,170 219,467
-------------------------
End of year $ 171,758 $ 227,170
=========================
CHANGE IN SHARES OUTSTANDING
Shares sold 123,316 305,762
Shares issued for dividends reinvested 1 1,097
Shares redeemed (178,729) (299,156)
-------------------------
Increase (decrease) in shares outstanding (55,412) 7,703
=========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
May 31, 2010
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940 (the 1940 Act), as amended, is an open-end management investment company
organized as a Delaware statutory trust consisting of 46 separate funds. The
information presented in this annual report pertains only to the USAA Treasury
Money Market Trust (the Fund), which is classified as diversified under the 1940
Act. The Fund's investment objective is to provide maximum current income while
maintaining the highest degree of safety and liquidity.
A. SECURITY VALUATION -- 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. Pursuant to Rule 2a-7 under the 1940 Act, securities in the Fund are
valued at amortized cost, which approximates market value. This
method values a security at its cost on the date of purchase and,
thereafter, assumes a constant amortization to maturity of any
premiums or discounts.
2. Repurchase agreements are valued at cost, which approximates market
value.
3. Securities for which amortized cost valuations are considered
unreliable or whose values have been materially affected by a
significant event are valued in good faith at fair value, using
methods determined by USAA Investment Management Company (the
Manager), an affiliate of the Fund, under valuation procedures and
procedures to stabilize net asset value (NAV) approved by the Trust's
Board of Trustees.
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18 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
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.
For example, money market securities are valued using amortized cost, in
accordance with rules under the 1940 Act. Generally, amortized cost
approximates the current fair value of a security, but since the value is
not obtained from a quoted price in an active market, such securities are
reflected as Level 2.
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 straight-line method.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
<PAGE>
================================================================================
E. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers. These agreements are
collateralized by underlying securities. The collateral obligations are
marked-to-market daily to ensure their value is equal to or in excess of
the repurchase agreement 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. 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.
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.
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 year ended May
31, 2010, these custodian and other bank credits reduced the Fund's
expenses by less than $500.
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 have not yet occurred. However, the Trust expects the risk of
loss to be remote.
================================================================================
20 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
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 $750 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 a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.13% annually of the amount of the committed loan
agreement). Prior to September 25, 2009, the maximum annual facility fee was
0.07% 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 year ended May 31, 2010, the Fund paid CAPCO facility fees of $1,000,
which represents 0.5% of the total fees paid to CAPCO by the USAA funds. The
Fund had no borrowings under this agreement during the year ended May 31, 2010.
(3) DISTRIBUTIONS
The character of any distributions made during the year from net investment
income or net realized gains is determined in accordance with federal tax
regulations and may differ from those determined in accordance with U.S.
generally accepted accounting principles. Also, due to the timing of
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gains were recorded by the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
<PAGE>
================================================================================
The tax character of distributions paid during the years ended May 31, 2010, and
2009, was as follows:
2010 2009
--------------------------
Ordinary income* $1,000 $1,134,000
*Includes distribution of short-term realized capital gains, if any, which are
taxable as ordinary income.
As of May 31, 2010, the components of net assets representing distributable
earnings on a tax basis were as follows:
Undistributed ordinary income $1,000
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.
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties would be recognized by
the Fund as tax expense in the statement of operations if the tax positions were
deemed to not meet the more-likely-than-not threshold. For the year ended May
31, 2010, the Fund did not incur any income tax, interest, or penalties. As of
May 31, 2010, the Manager has reviewed all open tax years and concluded that
there was no impact to the Fund's net assets or results of operations. Tax year
ended May 31, 2010, and each of the three preceding fiscal years, remain subject
to examination by the Internal Revenue Service and state taxing authorities. On
an ongoing basis, the Manager will monitor its tax positions to determine if
adjustments to this conclusion are necessary.
(4) 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
Fund's management fees are accrued daily and paid
================================================================================
22 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
monthly at an annualized rate of 0.125% of the Fund's average net assets
for the fiscal year. For the year ended May 31, 2010, the Fund incurred
management fees, paid or payable to the Manager, of $252,000.
B. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid monthly at an
annualized rate of 0.10% of the Fund's average net assets. For the year
ended May 31, 2010, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $202,000.
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 Trust's Board of Trustees
has approved the reimbursement of a portion of these expenses incurred by
the Manager. For the year ended May 31, 2010, the Fund reimbursed the
Manager $9,000 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 voluntarily agreed, on a temporary
basis, to reimburse management, administrative, or other fees to limit the
Fund's expenses and attempt to prevent a negative yield. The Manager can
modify or terminate this arrangement at any time. For the year ended May
31, 2010, the Fund incurred reimbursable expenses of $606,000, of which
$5,000 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 based on an annual charge of $25.50 per
shareholder account plus out-of-pocket expenses. The Fund also pays SAS
fees that are related to the administration and servicing of accounts that
are traded on an omnibus basis. For the year ended May 31, 2010, the Fund
incurred transfer agent's fees, paid or payable to SAS, of $267,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
<PAGE>
================================================================================
During the year ended May 31, 2010, SAS reimbursed the Fund $8,000 for
corrections in fees paid for the administration and servicing of certain
accounts.
E. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
(5) TRANSACTIONS WITH AFFILIATES
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.
(6) NEW ACCOUNTING PRONOUNCEMENTS
FAIR VALUE MEASUREMENTS -- In January 2010, the Financial Accounting
Standards Board issued amended guidance for improving disclosures about
fair value measurements that adds new disclosure requirements about
significant transfers between Level 1, Level 2, and Level 3, and separate
disclosures about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements using significant unobservable
inputs (Level 3). It also clarifies existing disclosure requirements
relating to the levels of disaggregation for fair value measurement and
inputs and valuation techniques used to measure fair value. The amended
guidance is effective for financial statements for fiscal years and interim
periods beginning after December 15, 2009, except for disclosures about
purchases, sales, issuances and settlements in the rollforward of activity
in Level 3 fair value measurements, which are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those
fiscal years. The Manager is in the process of evaluating the impact of
this guidance on the Fund's financial statement disclosures.
================================================================================
24 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
(7) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED MAY 31,
----------------------------------------------------------------------
2010 2009 2008 2007 2006
----------------------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-----------------------------------------------------------------------
Income from investment
operations:
Net investment income .00(c) .01 .03 .05 .04
Less distributions from:
Net investment income .00(c) (.01) (.03) (.05) (.04)
----------------------------------------------------------------------
Net asset value at end
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================================================================
Total return (%)* .00(a),(d),(e) .50(a) 3.32 4.83 3.57
Net assets at end
of period (000) $171,758 $227,170 $219,467 $190,172 $185,561
Ratios to average
net assets:**
Expenses (%)(b) .14(a),(e) .31(a) .43 .48 .46
Expenses, excluding
reimbursements (%)(b) .45(a),(e) .44(a) .43 .48 .46
Net investment income (%) .00(d) .46 3.21 4.72 3.52
* 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 iMoneyNet reported return.
** For the year ended May 31, 2010, average net assets were $201,512,000.
(a) Effective December 1, 2008, the Manager has voluntarily agreed, on a
temporary basis, to reimburse management, administrative, or other fees to
limit the Fund's expenses and attempt to prevent a negative yield.
(b) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(c) Represents less than $0.01 per share.
(d) Represents less than 0.01%.
(e) During the year ended May 31, 2010, SAS reimbursed the Fund $8,000 for
corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund's total return was
less than 0.01%. The reimbursement decreased the Fund's expense ratios by
less than 0.01%. This decrease is excluded from the expense ratios above.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
<PAGE>
================================================================================
EXPENSE EXAMPLE
May 31, 2010 (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, 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 December 1, 2009, through May
31, 2010.
ACTUAL EXPENSES
The first line of 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 in the first 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 second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio 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
estimate the actual ending account balance or expenses you paid for the period.
You may use this
================================================================================
26 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
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 second line of the table 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 DECEMBER 1, 2009 -
DECEMBER 1, 2009 MAY 31, 2010 MAY 31, 2010
-------------------------------------------------------
Actual $1,000.00 $1,000.00 $0.65
Hypothetical
(5% return before expenses) 1,000.00 1,024.28 0.66
* Expenses are equal to the Fund's annualized expense ratio of 0.13%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 182 days/365 days (to
reflect the one-half-year period). The Fund's ending account value on the
first line in the table is based on its actual total return of less than
0.01% for the six-month period of December 1, 2009, through May 31, 2010.
================================================================================
EXPENSE EXAMPLE | 27
<PAGE>
================================================================================
ADVISORY AGREEMENT
May 31, 2010
--------------------------------------------------------------------------------
At a meeting of the Board of Trustees (the Board) held on April 9, 2010, the
Board, including the Trustees who are not "interested persons" of the Trust (the
"Independent Trustees"), approved the continuance of the Advisory Agreement
between the Trust and the Manager with respect to the Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager, and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Fund's investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Fund, as well as information regarding the Manager's
revenues and costs of providing services to the Fund and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement with management and with experienced
independent counsel and received materials from such counsel discussing the
legal standards for their consideration of the proposed continuation of the
Advisory Agreement with respect to the Fund. The Independent Trustees also
reviewed the proposed continuation of the Advisory Agreement with respect to the
Fund in private sessions with their counsel at which no representatives of
management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Fund's
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Fund performance, comparability of fees and
total expenses, and profitability.
================================================================================
28 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
However, the Board noted that the evaluation process with respect to the Manager
is an ongoing one. In this regard, the Board's and its committees' consideration
of the Advisory Agreement included certain information previously received at
such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES -- In considering the nature, extent,
and quality of the services provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its familiarity
with the Manager's management through Board meetings, discussions, and reports
during the preceding year. The Board considered the fees paid to the Manager and
the services provided to the Fund by the Manager under the Advisory Agreement,
as well as other services provided by the Manager and its affiliates under other
agreements, and the personnel who provide these services. In addition to the
investment advisory services provided to the Fund, the Manager and its
affiliates provide administrative services, stockholder services, oversight of
Fund accounting, marketing services, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Fund and the
Trust.
The Board considered the Manager's management style and the performance of its
duties under the Advisory Agreement. The Board considered the level and depth of
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," was also considered. The Manager's role
in coordinating the activities of the Fund's other service providers also was
considered. The Board
================================================================================
ADVISORY AGREEMENT | 29
<PAGE>
================================================================================
considered the Manager's financial condition and that it had the financial
wherewithal to continue to provide the same scope and high quality of services
under the Advisory Agreement. In reviewing the Advisory Agreement, the Board
focused on the experience, resources, and strengths of the Manager and its
affiliates in managing investment companies, including the Fund.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager, including oversight of the Fund's day-to-day operations
and oversight of Fund accounting. The Manager and its affiliates provide
compliance and administrative services to the Fund. The Trustees, guided also by
information obtained from their experiences as directors/trustees of the Fund
and other investment companies managed by the Manager, also focused on the
quality of the Manager's compliance and administrative staff.
EXPENSES AND PERFORMANCE -- In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objective and classification,
sales load type (in this case, investment companies with no sales loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes all no-load retail open-end investment
companies in the same investment classification/ objective as the Fund
regardless of asset size, excluding outliers (the "expense universe"). Among
other data, the Board noted that the Fund's management fee rate -- which
includes advisory and administrative services and the effects of any fee waivers
or reimbursements -- was below the median of its expense group and its expense
universe. The data indicated that the Fund's total expenses, after
reimbursements, were below the median of its expense group and its expense
universe. The Board took into account the various services provided to the Fund
by the Manager and its affiliates. The Board also noted the level and method of
computing the management fee.
================================================================================
30 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with the same
classification/objective as the Fund regardless of asset size or primary channel
of distribution. This comparison indicated that, among other data, the Fund's
performance was below the average of its performance universe and Lipper index
for the one-year period ended December 31, 2009, and above the average of its
performance universe and its Lipper index for the three-, five-, and ten-year
periods ended December 31, 2009. The Board also noted that the Fund's percentile
performance ranking was in the bottom 50% of its performance universe for the
one-period ended December 31, 2009, and in the top 10% of its performance
universe for the three-, five-, and ten-year periods ended December 31, 2009.
The Board took into account management's discussion of the Fund's performance,
including the factors that contributed to the Fund's underperformance for the
one-year period relative to its peer group, as well as its more recent
improvement. The Board also noted the Fund's consistently strong performance
relative to its peer group over the longer term. The Board also noted the
relative small range among the performance returns among the peer group.
COMPENSATION AND PROFITABILITY -- The Board took into consideration the level
and method of computing the management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the management revenues from the Fund. This consideration included a
broad review of the methodology used in the allocation of certain costs to the
Fund. The Trustees reviewed the profitability of the Manager's relationship with
the Fund before tax expenses, noting that the Manager has reimbursed a portion
of its management fee for the Fund. In reviewing the overall profitability of
the
================================================================================
ADVISORY AGREEMENT | 31
<PAGE>
================================================================================
management fee to the Manager, the Board also considered the fact that
affiliates provide shareholder servicing and administrative services to the Fund
for which they receive compensation. The Board also considered the possible
direct and indirect benefits to the Manager from its relationship with the
Trust, including that the Manager may derive reputational and other benefits
from its association with the Fund. The Trustees recognized that the Manager
should be entitled to earn a reasonable level of profits in exchange for the
level of services it provides to the Fund and the entrepreneurial risk that it
assumes as Manager. The Trustees also noted the relatively low management fee
and total expenses of the Fund as compared to its peer group and peer universe.
ECONOMIES OF SCALE -- The Board considered whether there should be changes in
the management fee rate or structure in order to enable the Fund to participate
in any economies of scale. The Board also took into account management's
discussions of the current advisory fee structure. The Board also considered
the effect of the Fund's growth and size on its performance and fees, noting
that if the Fund's assets increase over time, the Fund may realize other
economies of scale if assets increase proportionally more than some expenses.
The Board also considered the fee waivers and expense reimbursement arrangements
by the Manager. The Board determined that the current investment management fee
structure was reasonable.
CONCLUSIONS -- The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the overall performance of the Fund is
reasonable in relation to the performance of funds with a similar investment
objective and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager and its affiliates' level of
profitability from their relationship with the Fund is reasonable. Based on its
conclusions, the Board determined that continuation of the Advisory Agreement
would be in the best interests of the Fund and its shareholders.
================================================================================
32 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION
TRUSTEES AND OFFICERS OF THE TRUST
--------------------------------------------------------------------------------
The Board of Trustees of the Trust consists of six Trustees. These Trustees and
the Trust's Officers supervise the business affairs of the USAA family of funds.
The Board of Trustees is responsible for the general oversight of the funds'
business and for assuring that the funds are managed in the best interests of
each fund's respective shareholders. The Board of Trustees periodically reviews
the funds' investment performance as well as the quality of other services
provided to the funds and their shareholders by each of the fund's service
providers, including USAA Investment Management Company (IMCO) and its
affiliates. The term of office for each Trustee shall be 20 years or until the
Trustee reaches age 70. All members of the Board of Trustees shall be presented
to shareholders for election or re-election, as the case may be, at least once
every five years. Vacancies on the Board of Trustees can be filled by the action
of a majority of the Trustees, provided that at least two-thirds of the Trustees
have been elected by the shareholders.
Set forth below are the Trustees and Officers of the Trust, their respective
offices and principal occupations during the last five years, length of time
served, and information relating to any other directorships held. Each serves on
the Board of Trustees of the USAA family of funds consisting of one registered
investment company offering 46 individual funds as of May 31, 2010. Unless
otherwise indicated, the business address of each is 9800 Fredericksburg Road,
San Antonio, TX 78288.
If you would like more information about the funds' Trustees, you may call (800)
531-USAA (8722) to request a free copy of the funds' statement of additional
information (SAI).
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 33
<PAGE>
================================================================================
INTERESTED TRUSTEE(1)
--------------------------------------------------------------------------------
CHRISTOPHER W. CLAUS(2, 4)
Trustee, President, and Vice Chair of the Board of Trustees
Born: December 1960
Year of Election or Appointment: 2001
Chair of the Board of Directors, IMCO (11/04-present); President, IMCO
(2/08-10/09); Chief Investment Officer, IMCO (2/07-2/08); President and Chief
Executive Officer, IMCO (2/01-2/07); Chair of the Board of Directors, USAA
Financial Advisors, Inc. (FAI) (1/07-present); President, FAI (12/07-10/09);
President, Financial Advice and Solutions Group (FASG) USAA (9/09-present);
President, Financial Services Group, USAA (1/07-9/09). Mr. Claus serves as Chair
of the Board of Directors of USAA Shareholder Account Services (SAS), USAA
Financial Planning Services Insurance Agency, Inc. (FPS), and FAI. He also
serves as Vice Chair for USAA Life Insurance Company (USAA Life).
NON-INTERESTED (INDEPENDENT) TRUSTEES
--------------------------------------------------------------------------------
BARBARA B. DREEBEN(3, 4, 5, 6)
Trustee
Born: June 1945
Year of Election or Appointment: 1994
President, Postal Addvantage (7/92-present), a postal mail list management
service. Mrs. Dreeben holds no other directorships of any publicly held
corporations or other investment companies outside the USAA family of funds.
================================================================================
34 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
ROBERT L. MASON, PH.D.(3, 4, 5, 6)
Trustee
Born: June 1946
Year of Election or Appointment: 1997
Institute Analyst, Southwest Research Institute (3/02-present), which focuses in
the fields of technological research. Dr. Mason holds no other directorships of
any publicly held corporations or other investment companies outside the USAA
family of funds.
BARBARA B. OSTDIEK, PH.D.(3, 4, 5, 6, 7)
Trustee
Born: March 1964
Year of Election or Appointment: 2007
Academic Director of the El Paso Corporation Finance Center at Jesse H. Jones
Graduate School of Business at Rice University (7/02-present); Associate
Professor of Finance at Jesse H. Jones Graduate School of Management at Rice
University (7/01-present). Dr. Ostdiek holds no other directorships of any
publicly held corporations or other investment companies outside the USAA family
of funds.
MICHAEL F. REIMHERR(3, 4, 5, 6)
Trustee
Born: August 1945
Year of Election or Appointment: 2000
President of Reimherr Business Consulting (5/95-present), an organization that
performs business valuations of large companies to include the development of
annual business plans, budgets, and internal financial reporting. Mr. Reimherr
holds no other directorships of any publicly held corporations or other
investment companies outside the USAA family of funds.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 35
<PAGE>
================================================================================
RICHARD A. ZUCKER(2, 3, 4, 5, 6)
Trustee and Chair of the Board of Trustees
Born: July 1943
Year of Election or Appointment: 1992(+)
Vice President, Beldon Roofing Company (7/85-present). Mr. Zucker holds no other
directorships of any publicly held corporations or other investment companies
outside the USAA family of funds.
(1) Indicates the Trustee is an employee of IMCO or affiliated companies and
is considered an "interested person" under the Investment Company Act of
1940.
(2) Member of Executive Committee
(3) Member of Audit Committee
(4) Member of Pricing and Investment Committee
(5) Member of Corporate Governance Committee
(6) The address for all non-interested trustees is that of the USAA Funds,
P.O. Box 659430, San Antonio, TX 78265-9430.
(7) Dr. Ostdiek was appointed the Audit Committee Financial Expert for the
Funds' Board in November 2008.
(+) Mr. Zucker was elected as Chair of the Board in 2005.
================================================================================
36 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
INTERESTED OFFICERS(1)
--------------------------------------------------------------------------------
DANIEL S. McNAMARA
Vice President
Born: June 1966
Year of Appointment: 2009
President and Director, IMCO, FAI, FPS, and SAS (10/09-present); President, Banc
of America Investment Advisors (9/07-9/09); Managing Director, Planning and
Financial Products Group, Bank of America (9/01-9/09).
R. MATTHEW FREUND
Vice President
Born: July 1963
Year of Appointment: 2010
Senior Vice President, Investment Portfolio Management, IMCO (3/10-present);
Vice President, Fixed Income Investments, IMCO (2/04-3/10). Mr. Freund also
serves as a Director for SAS.
JOHN P. TOOHEY
Vice President
Born: March 1968
Year of Appointment: 2009
Vice President, Equity Investments, IMCO (2/09-present); Managing Director, AIG
Investments (12/00-1/09).
CHRISTOPHER P. LAIA
Secretary
Born: January 1960
Year of Appointment: 2010
Vice President, Financial Advice & Solutions Group General Counsel, USAA
(10/08-present); Vice President, Securities Counsel, USAA (6/07-10/08);
Assistant Secretary, USAA family of funds (11/08-4/10); General Counsel,
Secretary, and Partner, Brown Advisory (6/02-6/07). Mr. Laia also holds the
Officer positions of Vice President and Secretary of IMCO and SAS and Vice
President and Assistant Secretary of FAI and FPS.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 37
<PAGE>
================================================================================
JAMES G. WHETZEL
Assistant Secretary
Born: February 1978
Year of Appointment: 2010
Executive Attorney, Financial Advice & Solutions Group General Counsel, USAA
(11/08-present); Reed Smith, LLP, Associate (08/05-11/08).
ROBERTO GALINDO, JR.
Treasurer
Born: November 1960
Year of Appointment: 2008
Assistant Vice President, Portfolio Accounting/Financial Administration, USAA
(12/02-present); Assistant Treasurer, USAA family of funds (7/00-2/08).
WILLIAM A. SMITH
Assistant Treasurer
Born: June 1948
Year of Appointment: 2009
Vice President, Senior Financial Officer, and Treasurer, IMCO, FAI, FPS, SAS and
USAA Life (2/09-present); Vice President, Senior Financial Officer, USAA
(2/07-present); consultant, Robert Half/Accounttemps (8/06-1/07); Chief
Financial Officer, California State Automobile Association (8/04-12/05).
JEFFREY D. HILL
Chief Compliance Officer
Born: December 1967
Year of Appointment: 2004
Assistant Vice President, Mutual Funds Compliance, USAA (9/04-present).
(1) Indicates those Officers who are employees of IMCO or affiliated companies
and are considered "interested persons" under the Investment Company
Act of 1940.
================================================================================
38 | USAA TREASURY MONEY MARKET TRUST
<PAGE>
================================================================================
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
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 "Products & Services"
SELF-SERVICE 24/7 click "Investments," then
AT USAA.COM "Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA "Investments." View account balances,
(8722) or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
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 Web site 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.
================================================================================
<PAGE>
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
At USAA.COM click: MY DOCUMENTS
Set preferences to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
23415-0710 (C)2010, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
On September 24, 2009, the Board of Trustees of USAA Mutual Funds Trust approved
a Code of Ethics (Sarbanes Code) applicable solely to its senior financial
officers, including its principal executive officer (President), as defined
under the Sarbanes-Oxley Act of 2002 and implementing regulations of the
Securities and Exchange Commission. A copy of the Sarbanes Code is attached as
an Exhibit to this Form N-CSR.
No waivers (explicit or implicit) have been granted from a provision of the
Sarbanes Code.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
On November 18, 2008, the Board of Trustees of USAA Mutual Funds Trust
designated Dr. Barbara B. Ostdiek, Ph.D. as the Board's audit committee
financial expert. Dr. Ostdiek has served as an Associate Professor of Management
at Rice University since 2001. Dr. Ostdiek also has served as an Academic
Director at El Paso Corporation Finance Center since 2002. Dr. Ostdiek is an
independent trustee who serves as a member of the Audit Committee, Pricing and
Investment Committee and the Corporate Governance Committee of the Board of
Trustees of USAA Mutual Funds Trust.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The Registrant, USAA Mutual Funds Trust, consists of 46 funds in
all. Only 10 funds of the Registrant have a fiscal year-end of May 31 and are
included within this report (the Funds). The aggregate fees accrued or billed by
the Registrant's independent auditor, Ernst & Young LLP, for professional
services rendered for the audit of the Registrant's annual financial statements
and services provided in connection with statutory and regulatory filings by the
Registrant for the Funds for fiscal years ended May 31, 2010 and 2009 were
$280,916 and $288,764, respectively.
(b) AUDIT RELATED FEE. The aggregate fees accrued or paid to Ernst & Young, LLP
by USAA Shareholder Account Services (SAS) for professional services rendered
for audit related services related to the annual study of internal controls of
the transfer agent for fiscal years ended May 31, 2010 and 2009 were $61,513 and
$63,500, respectively. All services were preapproved by the Audit Committee.
(c) TAX FEES. No such fees were billed by Ernst & Young LLP for the review of
federal, state and city income and tax returns and excise tax calculations for
fiscal years ended May 31, 2010 and 2009.
(d) ALL OTHER FEES. No such fees were billed by Ernst & Young LLP for fiscal
years ended May 31, 2010 and 2009.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY. All audit and non-audit services to
be performed for the Registrant by Ernst & Young LLP must be pre-approved by the
Audit Committee. The Audit Committee Charter also permits the Chair of the Audit
Committee to pre-approve any permissible non-audit service that must be
commenced prior to a scheduled meeting of the Audit Committee. All non-audit
services were pre-approved by the Audit Committee or its Chair, consistent with
the Audit Committee's preapproval procedures.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate non-audit fees billed by Ernst & Young LLP for services
rendered to the Registrant and the Registrant's investment adviser, IMCO, and
the Funds' transfer agent, SAS, for May 31, 2010 and 2009 were $104,896 and
$108,000, respectively.
(h) Ernst & Young LLP provided non-audit services to IMCO in 2010 and 2009 that
were not required to be pre-approved by the Registrant's Audit Committee because
the services were not directly related to the operations of the Registrant's
Funds. The Board of Trustees will consider Ernst & Young LLP's independence and
will consider whether the provision of these non-audit services to IMCO is
compatible with maintaining Ernst & Young LLP's independence.
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 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
considering by the Trust's Board in approving the Trust's advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). Code of Ethics pursuant to Item 2 of Form N-CSR is filed hereto exactly
as set forth below:
CODE OF ETHICS
FOR PRINCIPAL EXECUTIVE OFFICER
AND SENIOR FINANCIAL OFFICERS
USAA MUTUAL FUNDS TRUST
I. PURPOSE OF THE CODE OF ETHICS
USAA Mutual Funds Trust (the Trust or the Funds) has adopted this code
of ethics (the Code) to comply with Section 406 of the Sarbanes-Oxley Act of
2002 (the Act) and implementing regulations of the Securities and Exchange
Commission (SEC). The Code applies to the Trust's Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer (each a Covered
Officer), as detailed in Appendix A.
The purpose of the Code is to promote:
- honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between the Covered
Officers' personal and professional relationships;
- full, fair, accurate, timely and understandable disclosure in
reports and documents that the Trust files with, or submits
to, the SEC and in other public communications made by the
Trust;
- compliance with applicable laws and governmental rules and
regulations;
- prompt internal reporting of violations of the Code to the
Chief Legal Officer of the Trust, the President of the Trust
(if the violation concerns the Treasurer), the CEO of USAA,
and if deemed material to the Funds' financial condition or
reputation, the Chair of the Trust's Board of Trustees; and
- accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to actual and apparent conflicts of interest.
II. CONFLICTS OF INTEREST
A. DEFINITION OF A CONFLICT OF INTEREST.
A conflict of interest exists when a Covered Officer's private interest
influences, or reasonably appears to influence, the Covered Officer's judgment
or ability to act in the best interests of the Funds and their shareholders. For
example, a conflict of interest could arise if a Covered Officer, or an
immediate family member, receives personal benefits as a result of his or her
position with the Funds.
Certain conflicts of interest arise out of relationships between
Covered Officers and the Funds and are already subject to conflict of interest
provisions in the Investment Company Act of 1940 (the 1940 Act) and the
Investment Advisers Act of 1940 (the Advisers Act). For example, Covered
Officers may not individually engage in certain transactions with the Funds
because of their status as "affiliated persons" of the Funds. The USAA Funds'
and USAA Investment Management Company's (IMCO) compliance programs and
procedures are designed to prevent, or identify and correct, violations of these
provisions. This Code does not, and is not intended to, repeat or replace these
programs and procedures, and such conflicts fall outside of the parameters of
this Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts could arise from, or as a result of, the contractual
relationships between the Funds and IMCO of which the Covered Officers are also
officers or employees. As a result, this Code recognizes that the Covered
Officers will, in the normal course of their duties (whether formally for the
Funds or for IMCO, or for both), be involved in establishing policies and
implementing decisions that will have different effects on IMCO and the Funds.
The participation of Covered Officers in such activities is inherent in the
contractual relationship between the Funds and IMCO and is consistent with the
performance by the Covered Officers of their duties as officers of the Funds.
Thus, if performed in compliance with the provisions of the 1940 Act and the
Advisers Act, such activities will be deemed to have been handled ethically.
B. GENERAL RULE. Covered Officers Should Avoid Actual and Apparent
Conflicts of Interest.
Conflicts of interest, other than the conflicts described in the two
preceding paragraphs, are covered by the Code. The following list provides
examples of conflicts of interest under the Code, but Covered Officers should
keep in mind that these examples are not exhaustive. The overarching principle
is that the personal interest of a Covered Officer should not be placed
improperly before the interest of the Funds and their shareholders.
Each Covered Officer must not engage in conduct that constitutes an
actual conflict of interest between the Covered Officer's personal interest and
the interests of the Funds and their shareholders. Examples of actual conflicts
of interest are listed below but are not exclusive. Each Covered Officer must
not:
- use his personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Funds
whereby the Covered Officer would benefit personally to the
detriment of the Funds and their shareholders;
- cause the Funds to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the
benefit of the Funds and their shareholders.
- accept gifts, gratuities, entertainment or any other benefit from
any person or entity that does business or is seeking to do
business with the Funds DURING CONTRACT NEGOTIATIONS.
- accept gifts, gratuities, entertainment or any other benefit with
a market value over $100 per person, per year, from or on behalf
of any person or entity that does, or seeks to do, business with
or on behalf of the Funds.
- EXCEPTION. Business-related entertainment such as meals,
and tickets to sporting or theatrical events, which are
infrequent and not lavish are excepted from this
prohibition. Such entertainment must be appropriate as to
time and place, reasonable and customary in nature, modest
in cost and value, incidental to the business, and not so
frequent as to raise any question of impropriety
(Customary Business Entertainment).
Certain situations that could present the appearance of a conflict of
interest should be discussed with, and approved by, or reported to, an
appropriate person. Examples of these include:
- service as a director on the board or an officer of any public or
private company, other than a USAA company or the Trust, must be
approved by the USAA Funds' and Investment Code of Ethics
Committee and reported to the Trust.
- the receipt of any non-nominal (I.E., valued over $25) gifts from
any person or entity with which a Trust has current or prospective
business dealings must be reported to the Chief Legal Officer. For
purposes of this Code, the individual holding the title of
Secretary of the Trust shall be considered the Chief Legal Officer
of the Trust.
- the receipt of any business-related entertainment from any person
or entity with which the Funds have current or prospective
business dealings must be approved in advance by the Chief Legal
Officer unless such entertainment qualifies as Customary Business
Entertainment.
- any ownership interest in, or any consulting or employment
relationship with, any of the Trust's service providers, other
than IMCO or any other USAA company, must be approved by the CEO
of USAA and reported to the Trust's Board.
- any material direct or indirect financial interest in commissions,
transaction charges or spreads paid by the Funds for effecting
portfolio transactions or for selling or redeeming shares other
than an interest arising from the Covered Officer's employment,
such as compensation or equity ownership should be approved by the
CEO of USAA and reported to the Trust's Board.
III. DISCLOSURE AND COMPLIANCE REQUIREMENTS
- Each Covered Officer should familiarize himself with the
disclosure requirements applicable to the Funds, and the
procedures and policies implemented to promote full, fair,
accurate, timely and understandable disclosure by the Trust.
- Each Covered Officer should not knowingly misrepresent, or
cause others to misrepresent, facts about the Funds to others,
whether within or outside the Funds, including to the Funds'
Trustees and auditors, and to government regulators and
self-regulatory organizations.
- Each Covered Officer should, to the extent appropriate within
his area of responsibility, consult with other officers and
employees of the Funds and IMCO with the goal of promoting
full, fair, accurate, timely and understandable disclosure in
the reports and documents filed by the Trust with, or
submitted to, the SEC, and in other public communications made
by the Funds.
- Each Covered Officer is responsible for promoting compliance
with the standards and restrictions imposed by applicable
laws, rules and regulations, and promoting compliance with the
USAA Funds' and IMCO's operating policies and procedures.
- A Covered Officer should not retaliate against any person
who reports a potential violation of this Code in good faith.
- A Covered Officer should notify the Chief Legal Officer
promptly if he knows of any violation of the Code. Failure
to do so itself is a violation of this Code.
IV. REPORTING AND ACCOUNTABILITY
A. INTERPRETATION OF THE CODE. The Chief Legal Officer of the Trust
is responsible for applying this Code to specific situations in
which questions are presented under it and has the authority to
interpret the Code in any particular situation. The Chief Legal
Officer should consult, if appropriate, the USAA Funds' outside
counsel or counsel for the Independent Trustees. However, any
approvals or waivers sought by a Covered Officer will be
reported initially to the CEO of USAA and will be considered by
the Trust's Board of Trustees.
B. REQUIRED REPORTS
- EACH COVERED OFFICER MUST:
- Upon adoption of the Code, affirm in writing to the
Board that he has received, read and understands the
Code.
- Annually thereafter affirm to the Chief Legal Officer
that he has complied with the requirements of the Code.
- THE CHIEF LEGAL OFFICER MUST:
- report to the Board about any matter or situation
submitted by a Covered Officer for interpretation under
the Code, and the advice given by the Chief Legal
Officer;
- report annually to the Board and the Corporate
Governance Committee describing any issues that arose
under the Code, or informing the Board and Corporate
Governance Committee that no reportable issues occurred
during the year.
C. INVESTIGATION PROCEDURES
The Funds will follow these procedures in investigating and enforcing
this Code:
- INITIAL COMPLAINT. All complaints or other inquiries
concerning potential violations of the Code must be reported
to the Chief Legal Officer. The Chief Legal Officer shall be
responsible for documenting any complaint. The Chief Legal
Officer also will report immediately to the President of the
Trust (if the complaint involves the Treasurer), the CEO of
USAA and the Chair of the Trust's Audit Committee (if the
complaint involves the President) any material potential
violations that could have a material effect on the Funds'
financial condition or reputation. For all other complaints,
the Chief Legal Officer will report quarterly to the Board.
- INVESTIGATIONS. The Chief Legal Officer will take all
appropriate action to investigate any potential violation
unless the CEO of USAA directs another person to undertake
such investigation. The Chief Legal Officer may utilize USAA's
Office of Ethics to do a unified investigation under this Code
and USAA's Code of Conduct. The Chief Legal Officer may direct
the Trust's outside counsel or the counsel to the Independent
Trustees (if any) to participate in any investigation under
this Code.
- STATUS REPORTS. The Chief Legal Officer will provide monthly
status reports to the Board about any alleged violation of the
Code that could have a material effect on the Funds' financial
condition or reputation, and quarterly updates regarding all
other alleged violations of the Code.
- VIOLATIONS OF THE CODE. If after investigation, the Chief
Legal Officer, or other investigating person, believes that a
violation of the Code has occurred, he will report immediately
to the CEO of USAA the nature of the violation, and his
recommendation regarding the materiality of the violation. If,
in the opinion of the investigating person, the violation
could materially affect the Funds' financial condition or
reputation, the Chief Legal Officer also will notify the Chair
of the Trust's Audit Committee. The Chief Legal Officer will
inform, and make a recommendation to, the Board, which will
consider what further action is appropriate. Appropriate
action could include: (1) review of, and modifications to, the
Code or other applicable policies or procedures;
(2) notifications to appropriate personnel of IMCO or USAA;
(3) dismissal of the Covered Officer; and/or (4) other
disciplinary actions including reprimands or fines.
- The Board of Trustees understands that Covered
Officers also are subject to USAA's Code of Business
Conduct. If a violation of this Code also violates
USAA's Code of Business Conduct, these procedures do
not limit or restrict USAA's ability to discipline
such Covered Officer under USAA's Code of Business
Conduct. In that event, the Chairman of the Board of
Trustees will report to the Board the action taken by
USAA with respect to a Covered Officer.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Act and the implementing regulations adopted by
the SEC applicable to registered investment companies. If other policies and
procedures of the Trust, IMCO, or other service providers govern or purport to
govern the behavior or activities of Covered Officers, they are superseded by
this Code to the extent that they overlap, conflict with, or are more lenient
than the provisions of this Code. The Investment Code of Ethics (designated to
address 1940 Act and Advisers Act requirements) and IMCO's more detailed
compliance policies and procedures (including its Insider Trading Policy) are
separate requirements applying to Covered Officers and other IMCO employees, and
are not part of this Code. Also, USAA's Code of Conduct imposes separate
requirements on Covered Officers and all employees of USAA, and also is not part
of this Code.
VI. AMENDMENTS
Any amendment to this Code, other than amendments to Appendix A, must
be approved or ratified by majority vote of the Board of Trustees.
VII. CONFIDENTIALITY AND DOCUMENT RETENTION
The Chief Legal Officer shall retain material investigation documents
and reports required to be prepared under the Code for six years from the date
of the resolution of any such complaint. All reports and records prepared or
maintained pursuant to this Code will be considered confidential and shall be
maintained and protected accordingly. Except as otherwise required by law or
this Code, such matters shall not be disclosed to anyone other than the Trust's
Board of Trustees and counsel for the Independent Trustees (if any), the Trust
and its counsel, IMCO, and other personnel of USAA as determined by the Trust's
Chief Legal Officer or the Chair of the Trust's Board of Trustees.
Approved and adopted by IMCO's Code of Ethics Committee: June 12, 2003.
Approved and adopted by the Boards of Directors/Trustees of USAA Mutual Fund,
Inc., USAA Tax-Exempt Fund, Inc., USAA Investment Trust & USAA State Tax-Free
Trust: June 25, 2003.
Approved and adopted by the Board of Trustees of USAA Life Investment Trust:
August 20, 2003.
Approved and adopted as amended by IMCO's Code of Ethics Committee: August 15,
2005.
Approved and adopted as amended by the Boards of Directors/Trustees of USAA
Mutual Fund, Inc., USAA Tax-Exempt Fund, Inc., USAA Investment Trust & USAA
State Tax-Free Trust: September 14, 2005.
Approved and adopted as amended by the Board of Trustees of USAA Life Investment
Trust: December 8, 2005.
Approved and adopted as amended by IMCO's Code of Ethics Committee: August 16,
2006.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 13, 2006.
Approved and adopted by IMCO's Code of Ethics Committee: August 28, 2007.
Approved and adopted by the Investment Code of Ethics Committee: August 29,
2008.
Approved and adopted as amended by the Board of Trustees of USAA Mutual Funds
Trust: September 19, 2008.
Approved and adopted by the Investment Code of Ethics Committee: August 17,
2009.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 24, 2009.
<PAGE>
APPENDIX A
COVERED OFFICERS
PRESIDENT
TREASURER
<PAGE>
(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 May 31, 2010
By:* /s/ CHRISTOPHER P. LAIA
--------------------------------------------------------------
Signature and Title: Christopher P. Laia, Secretary
Date: August 6, 2010
------------------------------
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/ CHRISTOPHER W. CLAUS
-----------------------------------------------------
Signature and Title: Christopher W. Claus, President
Date: August 6, 2010
------------------------------
By:* /s/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: August 6, 2010
------------------------------
*Print the name and title of each signing officer under his or her signature.
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