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 PRECIOUS METALS AND MINERALS FUND - ANNUAL REPORT FOR PERIOD ENDING
MAY 31, 2010
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA PRECIOUS METALS AND MINERALS FUND]
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ANNUAL REPORT
USAA PRECIOUS METALS AND MINERALS FUND
FUND SHARES o INSTITUTIONAL SHARES
MAY 31, 2010
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FUND OBJECTIVE
LONG-TERM CAPITAL APPRECIATION AND TO PROTECT THE PURCHASING POWER OF
SHAREHOLDERS' CAPITAL AGAINST INFLATION.
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TYPES OF INVESTMENTS
Normally invests at least 80% of the Fund's assets in equity securities of
domestic and foreign companies principally engaged in the exploration, mining,
or processing of gold and other precious metals and minerals.
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
MANAGERS' COMMENTARY 4
FUND RECOGNITION 8
INVESTMENT OVERVIEW 11
FINANCIAL INFORMATION
Distributions to Shareholders 19
Report of Independent Registered
Public Accounting Firm 20
Portfolio of Investments 21
Notes to Portfolio of Investments 25
Financial Statements 27
Notes to Financial Statements 30
EXPENSE EXAMPLE 47
ADVISORY AGREEMENT 49
TRUSTEES' AND OFFICERS' INFORMATION 54
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, [PHOTO OF DANIEL S. McNAMARA]
WE 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 PRECIOUS METALS AND MINERALS FUND
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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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MANAGERS' COMMENTARY ON THE FUND
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[PHOTO OF MARK JOHNSON, CFA [PHOTO OF DAN DENBOW, CFA
MARK JOHNSON] USAA Investment DAN DENBOW] USAA Investment
Management Company Management Company
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o HOW DID THE USAA PRECIOUS METALS AND MINERALS FUND (THE FUND SHARES) PERFORM?
For the one-year period ended May 31, 2010, the Fund Shares had a total
return of 27.03%. This compares to returns of 25.84% for the Lipper Precious
Metals Funds Index, 20.99% for the S&P 500 Index, 23.78% for London Gold,
and 9.29% for the Philadelphia Gold & Silver Index.
o PLEASE DISCUSS THE PERFORMANCE OF GOLD OVER THE 12-MONTH PERIOD?
The general direction of prices was decidedly higher. Gold began the period
at $979.15 an ounce, reached a period low of $909.50 on July 8, 2009, peaked
at $1,238.93 on May 12, 2010, and ended the reporting period at $1,216.20.
o WHAT WERE THE PRINCIPAL DRIVERS OF GOLD PRICES?
As we have emerged from what we hope were the worst days of the financial
crisis and the Great Recession, all the major-currency
Refer to pages 13 and 16 for benchmark definitions.
Foreign and precious metals and minerals investing are subject to additional
risks, such as currency fluctuations, market illiquidity, and political
instability.
Past performance is no guarantee of future results.
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4 | USAA PRECIOUS METALS AND MINERALS FUND
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countries have issued unprecedented levels of debt. This has led to fears of
long-term inflation and debasement of these currencies. Additionally, gold
benefited from its status as a currency proxy and as a safe haven in times
of crisis.
For much of the reporting period, gold traded in reverse lock step with the
U.S. dollar, the world's leading reserve currency. While this correlation
did not break down with the dramatic fall in value of the euro, the curve
shifted in a gold-favorable manner. When the U.S. dollar was weak, gold was
very strong; when the U.S. dollar strengthened, gold experienced some
weakness, but not to the same degree.
o WHAT'S YOUR OUTLOOK FOR GOLD PRICES?
Because deflation risks have increased in 2010 as a result of the eurozone
debt crisis, probably causing one of the world's major economic regions to
adopt deflationary austerity programs, interest rates are likely to remain
low and U.S. monetary policy is likely to remain looser for longer. This is
positive for gold as is the likely continued deterioration of government
balance sheets over the next year with all that implies for further currency
weakness.
On the negative side, we are seeing early moves -- particularly in Australia
-- for mineral-producing countries to place new taxes on profits of mineral
extracting companies. This is depressing the stock prices of some mineral
producing companies in which the Fund invests.
Over the long term, our views haven't changed. We continue to expect all
major currencies, including the U.S. dollar, to weaken against gold because
of inflation. Although there is little evidence of inflation now, there are
three reasons to expect it coming out of the recession. First, the Federal
Reserve Board wants to avoid a double-dip recession, so they will be slow to
remove the stimulus, allowing inflation to get established. Second, of the
four major options for addressing
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MANAGERS' COMMENTARY ON THE FUND | 5
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structural budget deficits -- tax increases, spending cuts, reneging on
entitlements, and inflation -- we believe inflation is the most politically
attractive option. Third, it may actually be in the country's best interest
to allow some inflation as it transfers some of the cost to foreign
creditors. Structural deficits in Europe and Japan, with their aging
populations, are worse than in the United States.
o WHAT FACTORS LED THE FUND TO OUTPERFORM ITS LIPPER PEER GROUP?
We focus on stock selection, looking for companies with high-quality assets,
good management teams, financial strength, strong growth profiles, and
attractive valuations. Our big winner was Red Back Mining, Inc., which rose
167% as the company achieved significant exploration success at a mine in
Mauritania. Eldorado Gold Corp., one of our ten biggest holdings throughout
the year, rose 71% as their flagship mine in Turkey delivered stellar
results and the market looked favorably on their acquisition of another Fund
holding, Sino Gold. On the small-cap side, Allied Nevada Gold Corp. rose
147% on a smooth start-up and positive exploration results at its mine in
Nevada.
In general it was not a good period for the larger mining stocks. The less
established names had been hurt disproportionately in the huge 2008 selloff,
so they snapped back more when stock prices recovered. Some of our largest
holdings, including AngloGold Ashanti Ltd. ADR and Agnico-Eagle Mines Ltd.,
had essentially flat performance for the reporting year, but those
disappointments were more than offset by the Fund's small- and mid-cap
company holdings.
In terms of asset allocation, we ended the period with 81.4% of assets in
gold mining stocks, 5.9% in platinum, 7.2% in silver, and 5.0% in cash. We
held no base metals.
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6 | USAA PRECIOUS METALS AND MINERALS FUND
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In these extraordinary times, investors must understand that gold and other
precious metals and minerals are extremely volatile investments.
Diversification is the Fund's major benefit because its returns tend to be
uncorrelated over time with other USAA fund offerings. Also, gold has
historically been an effective hedge during periods of currency debasement,
inflation, and economic turmoil. Thank you for your continued investment in
the Fund.
Past performance is no guarantee of future results. o Foreign and precious
metals and minerals investing are subject to additional risks, such as
currency fluctuations, market illiquidity, and political instability. o
Diversification does not guarantee a profit or prevent a loss.
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MANAGERS' COMMENTARY ON THE FUND | 7
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FUND RECOGNITION
USAA PRECIOUS METALS AND MINERALS FUND SHARES
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OVERALL MORNINGSTAR RATING(TM)
out of 67 equity precious metals funds
for the period ended May 31, 2010:
OVERALL RATING
* * * *
3-YEAR
* * *
out of 67 funds
5-YEAR
* * * *
out of 60 funds
10-YEAR
* * * *
out of 37 funds
The Overall Morningstar Rating for a fund is derived from a weighted average of
the performance figures associated with its three-, five-, and 10-year (if
applicable) Morningstar Rating metrics. Ratings are based on risk-adjusted
returns.
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. For each fund with at least
a three-year history, Morningstar calculates a Morningstar Rating(TM) based on a
Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's
monthly performance (including the effects of sales charges, loads, and
redemption fees), placing more emphasis on downward variations and rewarding
consistent performance. The top 10% of the funds in each broad asset class
receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars,
the next 22.5% receive 2 stars, and the bottom 10% receive 1 star.
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8 | USAA PRECIOUS METALS AND MINERALS FUND
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[LOGO OF LIPPER [LOGO OF LIPPER [LOGO OF LIPPER [LOGO OF LIPPER
FUND AWARDS] FUND AWARDS] FUND AWARDS] FUND AWARDS]
US 2010 US 2009 US 2008 US 2007
[LOGO OF LIPPER [LOGO OF LIPPER
FUND AWARDS] FUND AWARDS]
US 2006 US 2005
FOR THE SIXTH YEAR IN A ROW, LIPPER INC. HAS RECOGNIZED THE USAA PRECIOUS
METALS AND MINERALS FUND AS BEST IN ITS CATEGORY FOR CONSISTENT RETURN:
LIPPER FUND AWARDS 2005-2010
Lipper named the Fund "Best Fund Over 10 Years" for the Gold Oriented Funds
category for the 10-year periods ended December 31, 2009, 2008, 2007, 2006,
2005, and 2004. The Precious Metals and Minerals Fund was chosen among 29 Gold
Oriented Funds for the 10-year period ended December 31, 2009, among 28 Gold
Oriented Funds for the 10-year period ended December 31, 2008, among 24 Gold
Oriented Funds for the 10-year period ended December 31, 2007, among 23 Gold
Oriented Funds for the 10-year period ended December 31, 2006, among 21 Gold
Oriented Funds for the 10-year period ended 2005, and among 19 Gold Oriented
Funds for the 10-year period ended 2004.
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For the three- and five-year periods ended December 31, 2009, the Fund was
ranked 4 of 59 and 1 of 51 Gold Oriented funds, respectively. For the three- and
five-year periods ended December 31, 2008, the Fund was ranked 3 of 52 and 1 of
48 Gold Oriented funds, respectively. For the three- and five-year periods ended
December 31, 2007, the Fund was ranked 6 of 50 and 2 of 44 Gold Oriented funds,
respectively. For the three- and five-year periods ended December 31, 2006, the
Fund was ranked 3 of 49 and 4 of 38 Gold Oriented funds, respectively. For the
three- and five-year periods ended December 31, 2005, the Fund was ranked 2 of
46 and 1 of 34 Gold Oriented funds, respectively. For the three- and five-year
periods ended December 31, 2004, the Fund was ranked 8 of 39 and 2 of 30 Gold
Oriented funds, respectively. The Lipper Fund Awards program highlights funds
that have excelled in delivering consistently strong risk-adjusted performance,
relative to peers. The Lipper Fund Awards are awarded to funds in 21 countries
in Asia, Europe, and the Americas. Lipper designates award-winning funds in most
individual classifications for the three-, five-, and ten-year periods. In
addition, the Lipper Fund Awards program spotlights fund families with high
average scores for all funds within a particular asset class or overall. Past
performance is no guarantee of future results.
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FUND RECOGNITION | 9
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LIPPER LEADER (OVERALL)
[5]
TOTAL RETURN
The Precious Metals and Minerals Fund Shares are listed as a Lipper Leader for
Total Return among 63 funds within the Lipper Precious Metals Funds category for
the overall period ended May 31, 2010. The Fund received a Lipper Leader rating
for Total Return among 63, 52, and 31 funds for the three-, five-, and 10-year
periods, respectively. Lipper ratings for Total Return reflect funds' historical
total return performance relative to peers as of May 31, 2010.
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Ratings are subject to change every month and are based on an equal-weighted
average of percentile ranks for the Total Return metrics over three-, five-, and
10-year periods (if applicable). The highest 20% of funds in each peer group are
named Lipper Leaders, the next 20% receive a score of 4, the middle 20% are
scored 3, the next 20% are scored 2, and the lowest 20% are scored 1. Lipper
ratings are not intended to predict future results, and Lipper does not
guarantee the accuracy of this information. More information is available at
WWW.LIPPERLEADERS.COM. Lipper Leader Copyright 2010, Reuters, All Rights
Reserved.
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10 | USAA PRECIOUS METALS AND MINERALS FUND
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INVESTMENT OVERVIEW
USAA PRECIOUS METALS AND MINERALS FUND SHARES (Ticker Symbol: USAGX)
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5/31/10 5/31/09
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Net Assets $1,767.2 Million $1,261.0 Million
Net Asset Value Per Share $36.87 $29.49
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AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/10
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1 Year 5 Years 10 Years
27.03% 30.69% 28.06%
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EXPENSE RATIO*
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1.31%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AS REPORTED IN THE FUND SHARES' PROSPECTUS DATED OCTOBER 1, 2009,
AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. THIS EXPENSE RATIO MAY
DIFFER FROM THE EXPENSE RATIO DISCLOSED IN THE FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
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INVESTMENT OVERVIEW | 11
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA PRECIOUS
METALS AND LIPPER PRECIOUS PHILADELPHIA
MINERALS FUND METALS FUNDS GOLD & SILVER
SHARES INDEX LONDON GOLD INDEX (XAU) S&P 500 INDEX
05/31/00 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
06/30/00 10,759.75 10,559.18 10,584.02 10,274.19 10,246.53
07/31/00 9,979.47 9,826.42 10,165.29 9,037.28 10,086.34
08/31/00 10,698.15 10,475.13 10,174.47 9,365.74 10,712.84
09/30/00 9,917.86 9,764.62 10,051.42 8,934.71 10,147.28
10/31/00 8,973.31 8,896.53 9,715.34 7,851.91 10,104.38
11/30/00 9,507.19 9,282.41 9,884.30 8,462.14 9,307.75
12/31/00 10,440.23 10,147.33 10,080.81 9,242.43 9,353.31
01/31/01 10,295.80 10,134.31 9,715.34 8,784.00 9,685.16
02/28/01 10,749.72 10,550.25 9,796.14 9,494.27 8,802.05
03/31/01 9,862.51 9,587.37 9,465.56 8,603.80 8,244.43
04/30/01 11,471.88 11,006.96 9,665.75 9,971.15 8,885.11
05/31/01 12,049.60 11,513.90 9,825.53 10,354.04 8,944.64
06/30/01 12,462.25 11,589.73 9,939.39 9,653.13 8,726.94
07/31/01 11,760.74 10,972.96 9,766.76 9,618.69 8,641.03
08/31/01 12,544.78 11,597.18 10,027.55 10,296.51 8,100.09
09/30/01 13,101.87 11,976.23 10,765.84 10,522.76 7,445.98
10/31/01 12,833.64 11,726.11 10,238.75 9,931.77 7,587.97
11/30/01 12,936.81 11,729.94 10,119.38 9,597.25 8,170.02
12/31/01 13,673.40 12,302.77 10,156.11 9,940.78 8,241.59
01/31/02 15,481.28 13,694.61 10,369.15 11,200.95 8,121.32
02/28/02 17,226.82 15,077.74 10,903.58 11,942.68 7,964.70
03/31/02 18,993.14 16,535.47 11,070.71 13,000.21 8,264.24
04/30/02 20,136.05 17,527.99 11,320.48 13,563.21 7,763.20
05/31/02 24,333.66 20,776.89 11,996.33 15,488.39 7,706.01
06/30/02 21,029.60 18,235.47 11,698.81 13,144.07 7,157.11
07/31/02 17,455.40 15,117.02 11,190.08 11,135.52 6,599.18
08/31/02 20,530.87 17,555.79 11,489.44 12,873.04 6,642.51
09/30/02 20,572.44 17,697.97 11,889.81 12,926.55 5,920.60
10/31/02 18,889.24 16,223.27 11,640.04 11,758.82 6,441.71
11/30/02 18,972.36 16,250.83 11,719.01 11,747.70 6,820.87
12/31/02 22,917.90 19,775.06 12,752.98 14,250.03 6,420.16
01/31/03 23,543.72 19,965.78 13,498.62 14,294.59 6,251.97
02/28/03 21,709.42 18,752.66 12,762.17 13,450.91 6,158.17
03/31/03 20,522.53 17,372.06 12,299.36 12,514.35 6,217.96
04/30/03 20,587.27 17,321.55 12,369.15 12,216.43 6,730.13
05/31/03 23,090.54 19,304.56 13,274.56 13,761.34 7,084.72
06/30/03 24,018.48 19,877.38 12,708.91 14,738.19 7,175.10
07/31/03 25,766.45 20,982.13 13,030.30 15,204.79 7,301.61
08/31/03 29,737.16 23,988.62 13,796.14 17,117.11 7,444.01
09/30/03 31,161.44 24,842.97 14,251.61 17,149.82 7,364.96
10/31/03 35,542.17 27,800.86 14,187.33 18,465.81 7,781.59
11/30/03 40,419.23 30,141.31 14,631.77 20,661.71 7,850.06
12/31/03 39,287.77 30,525.19 15,289.26 20,513.65 8,261.75
01/31/04 35,302.38 27,669.26 14,683.20 18,030.27 8,413.39
02/29/04 35,777.91 28,207.41 14,539.94 18,861.79 8,530.34
03/31/04 38,200.84 29,894.98 15,562.90 19,851.33 8,401.65
04/30/04 30,388.58 23,664.97 14,269.97 15,508.66 8,269.75
05/31/04 32,879.45 25,447.09 14,444.44 17,022.64 8,383.24
06/30/04 31,860.46 24,661.00 14,538.11 16,356.21 8,546.25
07/31/04 30,773.53 24,214.71 14,376.49 16,494.99 8,263.39
08/31/04 32,675.65 25,797.34 14,958.68 18,008.29 8,296.82
09/30/04 34,962.72 28,195.99 15,267.22 19,381.74 8,386.68
10/31/04 35,755.27 28,754.50 15,630.85 19,672.95 8,514.80
11/30/04 37,272.43 30,308.55 16,653.81 20,333.77 8,859.33
12/31/04 35,063.84 28,644.77 16,000.00 18,935.39 9,160.80
01/31/05 33,142.53 27,144.66 15,505.97 17,432.04 8,937.50
02/28/05 35,406.93 29,257.68 15,994.49 18,902.92 9,125.59
03/31/05 33,805.84 27,721.43 15,702.48 17,940.85 8,963.99
04/30/05 30,649.41 25,077.49 16,003.67 15,996.07 8,793.98
05/31/05 31,106.86 25,431.01 15,223.14 16,550.30 9,073.79
06/30/05 34,286.17 27,558.83 16,055.10 17,844.00 9,086.67
07/31/05 33,965.95 27,567.98 15,757.58 17,424.04 9,424.59
08/31/05 36,047.36 28,845.00 15,913.68 18,415.40 9,338.60
09/30/05 41,513.94 33,435.79 17,382.92 21,745.90 9,414.24
10/31/05 38,723.47 31,269.57 17,291.09 20,498.08 9,257.30
11/30/05 42,886.30 34,447.82 18,205.69 22,109.47 9,607.43
12/31/05 48,827.34 38,219.91 18,842.98 24,720.45 9,610.77
01/31/06 56,734.69 45,405.18 20,890.73 29,786.18 9,865.24
02/28/06 54,037.43 42,425.10 20,422.41 25,769.52 9,892.01
03/31/06 60,169.67 46,623.77 21,377.41 27,406.09 10,015.14
04/30/06 67,662.06 52,258.23 23,654.73 30,611.75 10,149.62
05/31/06 61,714.25 47,745.96 23,985.31 27,630.90 9,857.50
06/30/06 62,336.70 47,461.38 22,534.44 27,861.29 9,870.87
07/31/06 62,475.02 47,483.56 23,232.32 27,542.05 9,931.76
08/31/06 65,633.35 49,086.07 22,901.74 28,525.17 10,168.06
09/30/06 59,362.79 44,650.66 22,011.02 25,010.01 10,430.10
10/31/06 63,973.50 47,982.63 22,176.31 26,756.43 10,769.97
11/30/06 71,419.78 52,701.58 23,753.90 29,111.70 10,974.77
12/31/06 69,917.96 51,570.74 23,213.96 27,816.34 11,128.72
01/31/07 70,496.84 51,246.36 23,893.48 27,373.76 11,297.03
02/28/07 71,931.44 52,250.70 24,396.69 27,347.01 11,076.07
03/31/07 72,157.96 52,755.00 24,306.70 26,859.41 11,199.95
04/30/07 72,183.12 53,726.71 24,866.85 26,893.50 11,696.06
05/31/07 72,636.16 54,000.00 24,209.37 27,449.66 12,104.19
06/30/07 71,453.24 53,269.20 23,893.48 26,712.47 11,903.10
07/31/07 72,686.49 54,625.11 24,444.44 29,243.93 11,534.05
08/31/07 69,968.30 51,501.27 24,683.20 27,706.60 11,706.95
09/30/07 84,641.51 62,367.06 27,291.09 33,224.76 12,144.77
10/31/07 96,571.36 70,144.66 28,999.08 37,059.13 12,337.95
11/30/07 86,478.81 63,307.39 28,778.70 33,730.11 11,822.15
12/31/07 89,269.56 64,201.45 30,624.43 34,184.96 11,740.13
01/31/08 97,147.90 68,618.81 33,911.85 36,777.79 11,035.94
02/29/08 105,602.70 74,493.38 35,684.11 38,814.21 10,677.43
03/31/08 96,873.39 67,808.77 34,288.34 34,918.82 10,631.32
04/30/08 90,669.54 64,023.52 31,992.65 33,860.85 11,149.10
05/31/08 97,504.76 68,344.41 32,534.44 35,923.38 11,293.51
06/30/08 101,100.79 69,549.81 34,168.96 38,671.16 10,341.43
07/31/08 90,038.17 61,219.95 33,719.01 33,469.89 10,254.49
08/31/08 79,771.63 54,125.87 30,596.88 29,610.81 10,402.83
09/30/08 70,410.95 47,448.79 32,488.52 26,052.77 9,475.86
10/31/08 41,725.01 29,397.10 26,841.14 16,132.66 7,884.41
11/30/08 51,524.89 34,587.88 29,917.36 20,256.14 7,318.66
12/31/08 67,330.96 43,278.34 31,946.74 24,706.06 7,396.53
01/31/09 66,634.55 43,375.72 33,774.10 24,739.89 6,773.11
02/28/09 67,046.07 43,251.53 34,967.86 23,771.37 6,051.92
03/31/09 76,067.85 48,502.49 33,663.91 26,862.24 6,582.04
04/30/09 70,813.06 45,707.41 32,442.61 23,975.36 7,212.01
05/31/09 93,351.68 59,373.80 35,831.04 32,025.13 7,615.40
06/30/09 81,101.05 52,709.17 34,325.07 27,809.66 7,630.50
07/31/09 87,178.88 56,351.06 34,490.36 29,731.89 8,207.65
08/31/09 87,811.99 56,853.89 35,096.42 29,434.40 8,503.98
09/30/09 98,986.33 63,913.78 36,574.84 33,133.65 8,821.31
10/31/09 95,567.55 61,836.84 38,200.18 31,378.70 8,657.44
11/30/09 113,927.66 73,286.05 43,186.41 36,841.16 9,176.74
12/31/09 109,351.55 69,203.60 39,944.90 33,752.21 9,353.99
01/31/10 98,448.56 62,643.53 39,614.33 29,688.11 9,017.50
02/28/10 105,331.27 67,018.84 40,707.07 32,401.40 9,296.83
03/31/10 108,258.03 69,798.57 40,973.37 33,209.36 9,857.85
04/30/10 121,830.49 77,329.76 43,314.97 35,994.66 10,013.48
05/31/10 118,582.10 74,718.26 44,352.62 35,004.66 9,213.90
[END CHART]
Data from 5/31/00 to 5/31/10.
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
================================================================================
12 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
The graph on page 12 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Precious Metals and Minerals Fund Shares to the following
benchmarks:
o The unmanaged Lipper Precious Metals Funds Index tracks the total return
performance of the 10 largest funds within the Lipper Gold Oriented Funds
category.
o London Gold represents the performance of gold bullion by tracking the price
of gold set in London.
o The Philadelphia Gold & Silver Index, typically referred to as the XAU, is
an unmanaged capitalization-weighted index composed of 16 companies in the
gold and silver mining industry.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
USAA PRECIOUS METALS AND MINERALS FUND INSTITUTIONAL SHARES*
--------------------------------------------------------------------------------
5/31/10 5/31/09
--------------------------------------------------------------------------------
Net Assets $40.2 Million $10.0 Million
Net Asset Value Per Share $36.95 $29.54
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 5/31/10
--------------------------------------------------------------------------------
1 Year Since Inception 8/01/08
27.43% 18.83%
--------------------------------------------------------------------------------
EXPENSE RATIO**
--------------------------------------------------------------------------------
0.90%
*The USAA Precious Metals and Minerals Fund Institutional Shares (Institutional
Shares) commenced operations on August 1, 2008, and are not offered for sale
directly to the general public. The Institutional Shares are available only to
the USAA Target Retirement Funds.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
**THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AS REPORTED IN THE INSTITUTIONAL SHARES' PROSPECTUS DATED OCTOBER
1, 2009, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. FOR THE FIRST
TWO FISCAL YEARS, IMCO HAS VOLUNTARILY AGREED TO LIMIT THE INSTITUTIONAL SHARES'
TOTAL ANNUAL OPERATING EXPENSES TO 0.94%, BEFORE REDUCTIONS OF ANY EXPENSES PAID
INDIRECTLY AND EXCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, AND TO REIMBURSE
THE INSTITUTIONAL SHARES FOR EXPENSES IN EXCESS OF THIS AMOUNT. IMCO CAN MODIFY
OR TERMINATE THIS ARRANGEMENT AT ANY TIME. IF THE INSTITUTIONAL SHARES' TOTAL
ANNUAL OPERATING EXPENSE RATIO IS LOWER THAN 0.94%, THE INSTITUTIONAL SHARES
WILL OPERATE AT THE LOWER EXPENSE RATIO. THIS EXPENSE RATIO MAY DIFFER FROM THE
EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
================================================================================
14 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA PRECIOUS METALS
AND MINERALS FUND LIPPER PRECIOUS PHILADELPHIA GOLD &
INSTITUTIONAL SHARES LONDON GOLD METALS FUNDS INDEX SILVER INDEX (XAU) S&P 500 INDEX
07/31/08 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
08/31/08 9,184.58 9,074.07 8,841.22 8,847.00 10,144.65
09/30/08 8,106.83 9,635.08 7,750.54 7,783.94 9,240.68
10/31/08 4,804.05 7,960.24 4,801.88 4,820.05 7,688.73
11/30/08 5,932.36 8,872.55 5,649.77 6,052.05 7,137.03
12/31/08 7,755.85 9,474.40 7,069.32 7,381.58 7,212.97
01/31/09 7,675.67 10,016.34 7,085.23 7,391.68 6,605.01
02/28/09 7,726.70 10,370.37 7,064.94 7,102.32 5,901.73
03/31/09 8,769.07 9,983.66 7,922.66 8,025.79 6,418.69
04/30/09 8,167.70 9,621.46 7,466.10 7,163.26 7,033.02
05/31/09 10,766.35 10,626.36 9,698.44 9,568.34 7,426.40
06/30/09 9,359.51 10,179.74 8,609.80 8,308.86 7,441.13
07/31/09 10,062.93 10,228.76 9,204.69 8,883.18 8,003.96
08/31/09 10,135.82 10,408.50 9,286.83 8,794.29 8,292.93
09/30/09 11,429.68 10,846.95 10,440.02 9,899.54 8,602.38
10/31/09 11,036.06 11,328.98 10,100.77 9,375.20 8,442.58
11/30/09 13,160.90 12,807.73 11,970.94 11,007.26 8,948.99
12/31/09 12,631.29 11,846.41 11,304.09 10,084.35 9,121.85
01/31/10 11,376.33 11,748.37 10,232.54 8,870.10 8,793.70
02/28/10 12,174.60 12,072.44 10,947.22 9,680.76 9,066.11
03/31/10 12,516.19 12,151.42 11,401.28 9,922.16 9,613.20
04/30/10 14,090.46 12,845.86 12,631.46 10,754.34 9,764.97
05/31/10 13,719.16 13,153.59 12,204.89 10,458.55 8,985.23
[END CHART]
*Data from 7/31/08 to 5/31/10.
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
*The performance of London Gold, the S&P 500 Index, the Philadelphia Gold &
Silver Index, and the Lipper Gold Funds Index is calculated from the end of the
month, July 31, 2008, while the Institutional Shares' inception date is August
1, 2008. There may be a slight variation of performance numbers because of this
difference.
================================================================================
INVESTMENT OVERVIEW | 15
<PAGE>
================================================================================
The graph on page 15 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Precious Metals and Minerals Fund Institutional Shares to
the following benchmarks:
o London Gold represents the performance of gold bullion by tracking the price
of gold set in London.
o The unmanaged Lipper Precious Metals Funds Index tracks the total return
performance of the 10 largest funds within the Lipper Gold Oriented Funds
category.
o The Philadelphia Gold & Silver Index, typically referred to as the XAU, is
an unmanaged capitalization-weighted index composed of 16 companies in the
gold and silver mining industry.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
================================================================================
16 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
TOP 10 EQUITY HOLDINGS
AS OF 5/31/10
(% of Net Assets)
Eldorado Gold Corp. .............................................. 5.7%
Silver Wheaton Corp. ............................................. 5.0%
Red Back Mining, Inc. ........................................... 4.9%
Randgold Resources Ltd. ADR ...................................... 4.8%
Agnico-Eagle Mines Ltd. ......................................... 4.4%
AngloGold Ashanti Ltd. ADR ....................................... 4.2%
Impala Platinum Holdings Ltd. .................................... 4.2%
Royal Gold, Inc. ................................................. 3.9%
Newmont Mining Corp. ............................................. 3.9%
Newcrest Mining Ltd. ............................................. 3.8%
You will find a complete list of securities that the Fund owns on pages 21-24.
================================================================================
INVESTMENT OVERVIEW | 17
<PAGE>
================================================================================
o ASSET ALLOCATION -- 5/31/2010 o
[PIE CHART OF ASSET ALLOCATION]
GOLD 81.4%
SILVER 7.2%
PLATINUM GROUP METALS 5.9%
MONEY MARKET INSTRUMENTS* 5.0%
[END CHART]
* Excludes short-term investments purchased with cash collateral from securities
loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
18 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
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.
5.04% of ordinary income distributions qualify for the dividends-received
deductions eligible to corporations.
The Fund has elected under Section 853 of the Internal Revenue Code to pass
through the credit for taxes paid in foreign countries. The gross income derived
from foreign sources and foreign taxes paid during the fiscal year ended May 31,
2010, by the Fund are $2,205,000 and $337,000, respectively.
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS | 19
<PAGE>
================================================================================
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA PRECIOUS METALS AND MINERALS
FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Precious Metals and Minerals Fund (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 Precious Metals and Minerals Fund 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
================================================================================
20 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
May 31, 2010
------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------
EQUITY SECURITIES (94.5%)
COMMON STOCKS (94.2%)
--------------------
GOLD (81.1%)
AFRICAN GOLD COMPANIES (7.6%)
1,825,000 AngloGold Ashanti Ltd. ADR $ 76,504
4,400,000 Gold Fields Ltd. ADR 60,500
----------
137,004
----------
AUSTRALIAN GOLD COMPANIES (7.6%)
3,250,000 Kingsgate Consolidated Ltd. 23,296
13,600,000 Lihir Gold Ltd. 45,517
2,500,000 Newcrest Mining Ltd. 67,869
----------
136,682
----------
EUROPEAN GOLD COMPANIES (4.8%)
1,000,000 Randgold Resources Ltd. ADR 87,450
----------
NORTH AMERICAN GOLD COMPANIES (57.5%)
1,300,000 Agnico-Eagle Mines Ltd. 76,154
121,100 Alamos Gold, Inc. 1,746
2,600,000 Allied Nevada Gold Corp.* 49,764
750,000 American Bonanza Gold Corp., acquired 10/07/2003; cost $632*(a) 110
7,000,000 Aurizon Mines Ltd.* 33,922
2,400,000 Axmin, Inc., acquired 12/06/2006-06/03/2008; cost $1,806*(a) 228
1,100,000 Barrick Gold Corp.(b) 46,288
16,000,000 Centamin Egypt Ltd.*(b) 34,968
884,700 Centerra Gold, Inc.* 10,659
6,100,000 Eldorado Gold Corp. 103,395
4,700,000 Gammon Gold, Inc.* 34,498
1,300,000 Goldcorp, Inc. 56,017
12,400,000 Great Basin Gold Ltd.*(b) 20,577
2,800,000 IAMGOLD Corp. 48,468
3,900,000 Kinross Gold Corp. 67,119
3,000,000 Minefinders Corp. Ltd.*(b) 26,490
1,872,100 Nautilus Minerals, Inc., acquired 2/02/2007-3/11/2009; cost $3,817*(a) 2,740
5,900,000 New Gold, Inc.* 35,936
1,300,000 Newmont Mining Corp. 69,966
375,000 Northern Star Mining Corp., acquired 5/05/2006; cost $373*(a) 84
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
------------------------------------------------------------------------------------------------
11,000,000 Northgate Minerals Corp.* $ 32,450
2,035,700 Oceanagold Corp.* 6,132
4,000,000 Osisko Mining Corp.* 40,137
3,500,000 Red Back Mining, Inc.* 89,296
1,400,000 Royal Gold, Inc. 70,196
6,800,000 San Gold Corp.* 28,753
5,000,000 Yamana Gold, Inc. 53,800
-----------
1,039,893
-----------
SOUTH AMERICAN GOLD COMPANIES (3.6%)
1,800,000 Compania de Minas Buenaventura S.A. ADR 64,800
-----------
Total Gold (cost: $835,671) 1,465,829
-----------
PLATINUM GROUP METALS (5.9%)
3,000,000 Impala Platinum Holdings Ltd. 76,056
1,300,000 Lonmin plc* 31,659
-----------
Total Platinum Group Metals (cost: $66,690) 107,715
-----------
SILVER (7.2%)
300,000 Fresnillo plc 3,922
1,400,000 Pan American Silver Corp. 34,972
4,800,000 Silver Wheaton Corp.* 90,672
-----------
Total Silver (cost: $86,515) 129,566
-----------
Total Common Stocks (cost: $988,876) 1,703,110
-----------
WARRANTS (0.3%)
--------------
GOLD (0.3%)
NORTH AMERICAN GOLD COMPANIES (0.3%)
150,000 Agnico-Eagle Mines Ltd.* 3,623
200,000 Axmin, Inc., acquired 6/12/2008; cost $0*(a),(c) -
93,000 Gold Wheaton Gold Corp., acquired 6/19/2008; cost $128*(a) 19
2,500,000 Great Basin Gold Ltd.* 641
930,000 New Gold, Inc.* 27
-----------
Total Gold (cost: $362) 4,310
-----------
SILVER (0.0%)
150,000 Mines Management, Inc.* 48
91,530 Pan American Silver Corp., acquired 12/23/2009; cost $553*(a),(c) 503
-----------
Total Silver (cost: $553) 551
-----------
Total Warrants (cost: $915) 4,861
-----------
Total Equity Securities (cost: $989,791) 1,707,971
-----------
================================================================================
22 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (5.0%)
COMMERCIAL PAPER (2.5%)
$14,459 Florida Power & Light Co., 0.29%, 6/07/2010 $ 14,458
10,000 Toyota Credit de Puerto Rico Corp., 0.30%, 6/02/2010 10,000
20,000 UBS Finance (Delaware), LLC., 0.22%, 6/03/2010 19,999
----------
Total Commercial Paper (cost: $44,458) 44,457
----------
------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (2.5%)
44,602,772 State Street Institutional Liquid Reserve Fund, 0.18%(e) 44,603
----------
Total Money Market Instruments (cost: $89,061) 89,060
----------
------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED (1.4%)
REPURCHASE AGREEMENTS (0.3%)
$1,300 Credit Suisse First Boston LLC, 0.20%, acquired on 5/28/2010 and
due 6/01/2010 at $1,300 (collateralized by $1,330 of
Freddie Mac(f), 0.16%(d), due 7/06/2010; market value $1,330) 1,300
4,800 Deutsche Bank Securities, Inc., 0.20%, acquired on 5/28/2010 and
due 6/01/2010 at $4,800 (collateralized by $4,834 of Federal Home
Loan(f), 1.63%, due 12/24/2012; market value $4,896) 4,800
----------
Total Repurchase Agreements 6,100
----------
------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (1.1%)
137,382 BlackRock Liquidity Funds TempFund Portfolio, 0.16%(e) 138
19,541,363 Fidelity Institutional Money Market Portfolio, 0.23%(e) 19,541
----------
Total Money Market Funds 19,679
----------
Total Short-Term Investments Purchased With
Cash Collateral From Securities Loaned (cost: $25,779) 25,779
----------
TOTAL INVESTMENTS (COST: $1,104,631) $1,822,810
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
($ 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
---------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $1,595,395 $107,715 $- $1,703,110
Warrants 4,358 503 - 4,861
Money Market Instruments:
Commercial Paper - 44,457 - 44,457
Money Market Funds 44,603 - - 44,603
Short-Term Investments
Purchased With Cash
Collateral From Securities
Loaned:
Repurchase Agreements - 6,100 - 6,100
Money Market Funds 19,679 - - 19,679
---------------------------------------------------------------------------------------------------
Total $1,664,035 $158,775 $- $1,822,810
---------------------------------------------------------------------------------------------------
================================================================================
24 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
May 31, 2010
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
Investments in foreign securities were 84.0% of net assets at May 31, 2010.
o CATEGORIES AND DEFINITIONS
WARRANTS -- entitle the holder to buy a proportionate amount of common stock
at a specified price for a stated period.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
o SPECIFIC NOTES
(a) Security deemed illiquid by the USAA Investment Management Company (the
Manager), under liquidity guidelines approved by the Board of Trustees.
The aggregate market value of these securities at May 31, 2010, was
$3,684,000, which represented 0.2% of the Fund's net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
(b) The security or a portion thereof was out on loan as of May 31, 2010.
(c) Security was fair valued at May 31, 2010, by the Manager in accordance
with valuation procedures approved by the Board of Trustees.
(d) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
(e) Rate represents the money market fund annualized seven-day yield at
May 31, 2010.
(f) Securities issued by government-sponsored enterprises are supported
only by the right of the government-sponsored enterprise to borrow
from the U.S. Treasury, the discretionary authority of the U.S.
government to purchase the government-sponsored enterprises'
obligations, or by the credit of the issuing agency, instrumentality,
or corporation, and are neither issued nor guaranteed by the U.S.
Treasury.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
26 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 2010
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $23,063) (cost of $1,104,631) $1,822,810
Cash denominated in foreign currencies (identified cost of $5,899) 6,025
Receivables:
Capital shares sold:
Affiliated transactions (Note 8) 42
Nonaffiliated transactions 2,145
Dividends and interest 208
Securities sold 5,912
Other 35
----------
Total assets 1,837,177
----------
LIABILITIES
Payables:
Upon return of securities loaned 25,779
Securities purchased 599
Capital shares redeemed 1,903
Bank overdraft 2
Unrealized depreciation on foreign currency contracts held, at value 2
Accrued management fees 1,196
Accrued transfer agent's fees 118
Other accrued expenses and payables 169
----------
Total liabilities 29,768
----------
Net assets applicable to capital shares outstanding $1,807,409
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,078,385
Overdistribution of net investment income (57,152)
Accumulated net realized gain on investments 67,871
Net unrealized appreciation of investments 718,179
Net unrealized appreciation of foreign currency translations 126
----------
Net assets applicable to capital shares outstanding $1,807,409
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,767,212/47,927 shares outstanding) $ 36.87
==========
Institutional Shares (net assets of $40,197/1,088 shares outstanding) $ 36.95
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 27
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended May 31, 2010
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $337) $ 5,839
Interest 169
Securities lending (net) 478
--------
Total income 6,486
--------
EXPENSES
Management fees 11,466
Administration and servicing fees:
Fund Shares 2,163
Institutional Shares 10
Transfer agent's fees:
Fund Shares 3,095
Institutional Shares 10
Custody and accounting fees:
Fund Shares 316
Institutional Shares 4
Postage:
Fund Shares 139
Shareholder reporting fees:
Fund Shares 62
Trustees' fees 10
Registration fees:
Fund Shares 70
Institutional Shares 2
Professional fees 143
Other 28
--------
Total expenses 17,518
Transfer agent's fees reimbursed (Note 7D) (188)
--------
Net expenses 17,330
--------
NET INVESTMENT LOSS (10,844)
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain on:
Investments 99,055
Foreign currency transactions 136
Change in net unrealized appreciation/depreciation of:
Investments 273,793
Foreign currency translations (194)
--------
Net realized and unrealized gain 372,790
--------
Increase in net assets resulting from operations $361,946
========
See accompanying notes to financial statements.
================================================================================
28 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended May 31,
--------------------------------------------------------------------------------
2010 2009
-------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss $ (10,844) $ (2,885)
Net realized gain on investments 99,055 30,051
Net realized gain (loss) on foreign currency transactions 136 (328)
Change in net unrealized appreciation/depreciation of:
Investments 273,793 (62,413)
Foreign currency translations (194) 259
---------------------------
Increase (decrease) in net assets resulting from
operations 361,946 (35,316)
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (23,315) (515)
Institutional Shares* (301) (3)
---------------------------
Total distributions of net investment income (23,616) (518)
---------------------------
Net realized gains:
Fund Shares - (93,518)
Institutional Shares* - (573)
---------------------------
Total distributions of net realized gains - (94,091)
---------------------------
Distributions to shareholders (23,616) (94,609)
---------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares 173,929 180,374
Institutional Shares* 24,071 6,452
---------------------------
Total net increase in net assets from capital
share transactions 198,000 186,826
---------------------------
Capital contribution from USAA Transfer Agency Company:
Fund Shares - 142
Institutional Shares* - 4
---------------------------
Net increase in net assets 536,330 57,047
NET ASSETS
Beginning of year 1,271,079 1,214,032
---------------------------
End of year $1,807,409 $1,271,079
===========================
Overdistribution of net investment income:
End of year $ (57,152) $ (35,638)
===========================
* Institutional shares were initiated on August 1, 2008
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 29
<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 Precious
Metals and Minerals Fund (the Fund), which is classified as nondiversified under
the 1940 Act. The Fund's investment objective is to seek long-term capital
appreciation and to protect the purchasing power of shareholders' capital
against inflation.
The Fund concentrates its investments in equity securities of domestic and
foreign companies engaged in the exploration, mining, or processing of gold and
other precious metals and minerals, such as platinum, silver, and diamonds. As
such, the Fund may be exposed to more risk than portfolios with a broader
industry diversification. As a nondiversified fund, the Fund may invest a
greater percentage of its assets in a single issuer. Because a relatively high
percentage of the Fund's total assets may be invested in the securities of a
single issuer or a limited number of issuers, the securities of the Fund may be
more sensitive to changes in the market value of a single issuer, a limited
number of issuers, or large companies generally. Such a focused investment
strategy may increase the volatility of the Fund's investment results because
this Fund may be more susceptible to risk associated with a single economic,
political, or regulatory event than a diversified fund.
The Fund has two classes of shares: Precious Metals and Minerals Fund Shares
(Fund Shares) and Precious Metals and Minerals Fund Institutional Shares
(Institutional Shares). Each class of shares has equal rights to assets and
earnings, except that each class bears certain class-related
================================================================================
30 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
expenses specific to the particular class. These expenses include administration
and servicing fees, transfer agent fees, postage, shareholder reporting fees,
and certain registration and custodian fees. Expenses not attributable to a
specific class, income, and realized gains or losses on investments are
allocated to each class of shares based on each class's relative net assets.
Each class has exclusive voting rights on matters related solely to that class
and separate voting rights on matters that relate to both classes. The
Institutional Shares are currently offered for sale only to the USAA Target
Retirement Funds (Target Funds) and not to the general public. The Target Funds
are managed by USAA Investment Management Company (the Manager), an affiliate of
the Fund.
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. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the Nasdaq over-the-counter markets, are valued at the last sales price
or official closing price on the exchange or primary market on which
they trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If no
last sale or official closing price is reported or available, the
average of the bid and asked prices is generally used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In most
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sales or official closing prices
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
<PAGE>
================================================================================
will not be reflected in the value of the Fund's foreign securities.
However, the Manager, will monitor for events that would materially
affect the value of the Fund's foreign securities and, if necessary, the
Manager will value the foreign securities in good faith, considering
such available information that the Manager deems relevant, under
valuation procedures approved by the Trust's Board of Trustees. In
addition, the Fund may use information from an external vendor or other
sources to adjust the foreign market closing prices of foreign equity
securities to reflect what the Fund believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events that occur on a fairly regular basis (such as U.S. market
movements) are significant.
3. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their NAV at the end of each business day.
4. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
5. Repurchase agreements are valued at cost, which approximates market
value.
6. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before the
pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager under valuation procedures approved by
the Trust's Board of Trustees. The effect of fair value pricing is that
securities may not be priced on the basis of quotations from the primary
market in which they are traded and the actual price realized from the
sale of a security may differ materially from the fair value price.
================================================================================
32 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
Valuing these securities at fair value is intended to cause the Fund's
NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions
on disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
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.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
<PAGE>
================================================================================
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. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed, certain dividends from
foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums on short-term
securities are amortized on a straight-line basis over the life of the
respective securities.
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. FOREIGN CURRENCY TRANSLATIONS -- The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
================================================================================
34 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Separately, net realized foreign currency gains/losses may arise from
sales of foreign currency, currency gains/losses realized between the
trade and settlement dates on security transactions, and from the
difference between amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts received. At the end of the Fund's fiscal
year, these net realized foreign currency gains/losses are reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income on the statement of assets and liabilities as such
amounts are treated as ordinary income/loss for tax purposes. Net
unrealized foreign currency exchange gains/losses arise from changes in
the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. EXPENSES PAID INDIRECTLY -- A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition,
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, custodian and
other bank credits reduced expenses of the Fund Shares and Institutional
Shares by less than $500. For the year ended May 31, 2010, the Fund Shares
and Institutional Shares did not incur any brokerage commission recapture
credits.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business the Trust enters into contracts that
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
<PAGE>
================================================================================
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.
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 $6,000,
which represents 3.3% 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
================================================================================
36 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
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.
During the current fiscal year, permanent differences between book-basis and
tax-basis accounting resulted in reclassifications to the statement of assets
and liabilities to decrease overdistribution of net investment income and
decrease accumulated net realized gain on investments by $12,946,000. This
includes differences in the accounting of foreign currency gains and losses and
passive foreign investment corporations gains and losses. These
reclassifications had no effect on net assets.
The tax character of distributions paid during the years ended May 31, 2010, and
2009, was as follows:
2010 2009
---------------------------------------
Ordinary income* $23,616,000 $ 2,221,000
Long-term realized capital gains - 92,388,000
*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 $ 12,412,000
Undistributed long-term capital gains 69,872,000
Accumulated capital and other losses (315,000)
Unrealized appreciation of investments 648,867,000
Unrealized appreciation on foreign currency translations 126,000
The difference between book-basis and tax-basis unrealized appreciation of
investments is attributable to the tax deferral of losses on wash sales and
mark-to-market adjustments.
Distributions of net investment income and 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
<PAGE>
================================================================================
federal taxes. At May 31, 2010, the Fund had a current post-October currency
loss of $315,000 for federal income tax purposes, which will be recognized on
the first day of the following fiscal year.
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) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the year ended May 31, 2010, were $446,417,000 and
$309,533,000, respectively.
As of May 31, 2010, the cost of securities, including short-term securities, for
federal income tax purposes, was $1,173,943,000.
Gross unrealized appreciation and depreciation of investments as of May 31,
2010, for federal income tax purposes, were $664,365,000 and $15,498,000,
respectively, resulting in net unrealized appreciation of $648,867,000.
(5) LENDING OF PORTFOLIO SECURITIES
The Fund, through its third-party securities-lending agent, Wachovia Global
Securities Lending (Wachovia), may lend its securities to qualified financial
================================================================================
38 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
institutions, such as certain broker-dealers, to earn additional income. The
borrowers are required to secure their loans continuously with cash collateral
in an amount at least equal to the fair value of the securities loaned,
initially in an amount at least equal to 102% of the fair value of domestic
securities loaned and 105% of the fair value of international securities loaned.
Cash collateral is invested in high-quality short-term investments. Cash
collateral requirements are determined daily based on the prior business day's
ending value of securities loaned. Imbalances in cash collateral may occur on
days where market volatility causes security prices to change significantly, and
are adjusted the next business day. The Fund and Wachovia retain 80% and 20%,
respectively, of the income earned from the investment of cash received as
collateral, net of any expenses associated with the lending transaction.
Wachovia receives no other fees from the Fund for its services as
securities-lending agent. Risks to the Fund in securities-lending transactions
are that the borrower may not provide additional collateral when required or
return the securities when due, and that the value of the short-term investments
will be less than the amount of cash collateral required to be returned to the
borrower. Wachovia Bank, N.A., parent company of Wachovia, has agreed to
indemnify the Fund against any losses due to counterparty default in
securities-lending transactions. For the year ended May 31, 2010, the Fund
received securities-lending income of $478,000, which is net of the 20% income
retained by Wachovia. As of May 31, 2010, the Fund loaned securities having a
fair market value of approximately $23,063,000. The Fund received cash
collateral of $25,779,000 for the loans. Of this amount, $25,779,000 was
invested in short-term investments, as noted in the Fund's portfolio of
investments, and less than $500 remained in cash.
(6) CAPITAL SHARE TRANSACTIONS
At May 31, 2010, there were an unlimited number of shares of capital stock at no
par value authorized for the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
<PAGE>
================================================================================
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated Target Funds. Capital share transactions were as
follows, in thousands:
YEAR ENDED YEAR ENDED
5/31/2010 5/31/2009
----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------
FUND SHARES:
Shares sold 18,337 $ 606,297 16,207 $ 391,513
Shares issued from reinvested
dividends 682 22,442 5,348 90,649
Shares redeemed (13,858) (454,810) (12,968) (301,788)
-------------------------------------------
Net increase from capital
share transactions 5,161 $ 173,929 8,587 $ 180,374
===========================================
INSTITUTIONAL SHARES
(INITIATED ON AUGUST 1, 2008):
Shares sold 1,015 $ 33,163 465 $ 9,620
Shares issued from reinvested
dividends 9 301 34 576
Shares redeemed (276) (9,393) (159) (3,744)
-------------------------------------------
Net increase from capital
share transactions 748 $ 24,071 340 $ 6,452
===========================================
(7) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager carries out the Fund's investment policies
and manages the Fund's portfolio pursuant to an Advisory Agreement. The
investment management fee for the Fund is composed of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.75% of the Fund's average net assets for
the fiscal year.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance to that of the Lipper
Precious Metals Funds Index over the performance period. The Lipper Precious
Metals Funds Index tracks the total return performance of the 10 largest
funds in the Lipper Gold Oriented Funds category. The performance period for
each class
================================================================================
40 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
consists of the current month plus the previous 35 months. The performance
adjustment for the Institutional Shares includes the performance of the Fund
Shares for periods prior to August 1, 2008. The following table is utilized
to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
-----------------------------------------------------------------------------
+/- 1.00% to 4.00% +/- 0.04%
+/- 4.01% to 7.00% +/- 0.05%
+/- 7.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest 0.01%. Average net assets
are calculated over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is the performance adjustment; a positive
adjustment in the case of overperformance, or a negative adjustment in the
case of underperformance.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Precious Metals Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the year ended May 31, 2010, the Fund incurred total management fees,
paid or payable to the Manager, of $11,466,000, which included a performance
adjustment for the Fund Shares and Institutional Shares of $498,000 and
$2,000, respectively. For the Fund Shares and Institutional Shares, the
performance adjustments were 0.04% and 0.01%, respectively.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
<PAGE>
================================================================================
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 0.15% and 0.05% of average net assets of the Fund Shares
and Institutional Shares, respectively. For the year ended May 31, 2010, the
Fund Shares and Institutional Shares incurred administration and servicing
fees, paid or payable to the Manager, of $2,163,000 and $10,000,
respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The 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 $59,000 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 to limit the annual
expenses of the Institutional Shares for its first two fiscal years to 0.94%
of its average annual net assets, excluding extraordinary expenses and
before reductions of any expenses paid indirectly, and will reimburse the
Institutional Shares for all expenses in excess of that amount. The Manager
may modify or terminate this voluntary agreement at any time. For the year
ended May 31, 2010, the Institutional Shares did not incur any reimbursable
expenses.
D. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. Transfer agent's fees for Fund Shares
are paid monthly based on an annual charge of $23 per shareholder account
plus out-of-pocket expenses. The Fund Shares also pay SAS fees that are
related to the administration and servicing of accounts that are traded on
an omnibus basis. Transfer agent's fees for Institutional Shares are paid
monthly based on a fee accrued daily at an annualized rate of 0.05% of the
Institutional Shares' average net assets, plus out-of-pocket
================================================================================
42 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
expenses. For the year ended May 31, 2010, the Fund Shares and Institutional
Shares incurred transfer agent's fees, paid or payable to SAS, of $3,095,000
and $10,000, respectively. During the year ended May 31, 2010, SAS
reimbursed the Fund Shares $188,000 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.
(8) TRANSACTIONS WITH AFFILIATES
The Fund is one of 13 USAA mutual funds in which the affiliated Target Funds may
invest. The Target Funds do not invest in the Fund for the purpose of exercising
management or control. As of May 31, 2010, the Fund recorded a receivable for
capital shares sold of $42,000, and a payable for capital shares redeemed of
less than $500 for the Target Funds' purchases of Institutional Shares. As of
May 31, 2010, the Target Funds owned the following percent of the total
outstanding shares of the Fund:
OWNERSHIP %
-------------------------------------------------------------------
USAA Target Retirement Income Fund 0.1%
USAA Target Retirement 2020 Fund 0.3
USAA Target Retirement 2030 Fund 0.6
USAA Target Retirement 2040 Fund 0.8
USAA Target Retirement 2050 Fund 0.4
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.
(9) SUBSEQUENT EVENTS
Events or transactions that occur after the balance sheet date, but before the
financial statements are issued are categorized as recognized or
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
<PAGE>
================================================================================
non-recognized for financial statement purposes. The Manager has evaluated
subsequent events through the date the financial statements were issued, and has
determined there were no events that require recognition or disclosure in the
Fund's financial statements. The following subsequent event will affect the
Fund's future financial statements.
Effective August 1, 2010, the Fund will offer a new class of shares, Adviser
Shares, which are intended for persons purchasing shares through financial
intermediaries, banks, broker-dealers, insurance companies, investment advisers,
plan sponsors, and financial professionals that provide various administrative
and distribution services.
(10) 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.
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44 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
(11) FINANCIAL HIGHLIGHTS -- FUND SHARES
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 $ 29.49 $ 35.52 $ 28.86 $ 26.77 $ 13.60
-----------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income (loss)(a) (.24) (.07) (.08) .07 .07
Net realized and unrealized
gain (loss)(a) 8.15 (3.37) 9.59 4.56 13.26
-----------------------------------------------------------------------
Total from investment
operations(a) 7.91 (3.44) 9.51 4.63 13.33
-----------------------------------------------------------------------
Less distributions from:
Net investment income (.53) (.01) (.59) (.76) -
Realized capital gains - (2.58) (2.26) (1.78) (.16)
-----------------------------------------------------------------------
Total distributions (.53) (2.59) (2.85) (2.54) (.16)
-----------------------------------------------------------------------
Net asset value at end of period $ 36.87 $ 29.49 $ 35.52 $ 28.86 $ 26.77
=======================================================================
Total return (%)* 27.03(d) (4.26) 34.24 17.70(b) 98.39
Net assets at end
of period (000) $1,767,212 $1,261,041 $1,214,032 $816,468 $580,539
Ratios to average net assets:**
Expenses (%)(c) 1.20(d) 1.31 1.19 1.21(b) 1.21
Net investment income (loss) (%) (.75) (.31) (.24) .27 .33
Portfolio turnover (%) 23 28 28 12 29
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any,
during the period. Includes adjustments in accordance with U.S. generally accepted accounting
principles and could differ from the Lipper reported return.
** For the year ended May 31, 2010, average net assets were $1,442,917,000.
(a) Calculated using average shares. For the year ended May 31, 2010, average shares were 44,664,000.
(b) For the year ended May 31, 2007, SAS voluntarily reimbursed the Fund Shares for a portion of
the transfer agent's fees incurred. The reimbursement had no effect on the Fund Shares' total
return or ratio of expenses to average net assets.
(c) Reflects total operating expenses of the Fund Shares before reductions of any expenses paid
indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.01%) (.01%) (.00%)(+) (.01%)
(+) Represents less than 0.01% of average net assets.
(d) During the year ended May 31, 2010, SAS reimbursed the Fund $188,000 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 0.01%. This decrease is excluded from the expense ratios above.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
<PAGE>
================================================================================
(11) FINANCIAL HIGHLIGHTS (CONTINUED) -- INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
PERIOD ENDED MAY 31,
--------------------
2010 2009
--------------------
Net asset value at beginning of period $ 29.54 $ 31.64
--------------------
Income (loss) from investment operations:
Net investment loss(a) (.13) (.05)
Net realized and unrealized gain(a) 8.16 .54(d)
--------------------
Total from investment operations(a) 8.03 .49
--------------------
Less distributions from:
Net investment income (.62) (.01)
Realized capital gains - (2.58)
--------------------
Total distributions (.62) (2.59)
--------------------
Net asset value at end of period $ 36.95 $ 29.54
====================
Total return (%)* 27.43 7.66
Net assets at end of period (000) $40,197 $10,039
Ratios to average net assets:**
Expenses (%)(b) .90 .90(c)
Expenses, excluding reimbursements (%)(b) .90 .90(c)
Net investment loss (%) (.42) (.28)(c)
Portfolio turnover (%) 23 28
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return.
** For the year ended May 31, 2010, average net assets were $20,389,000.
*** Institutional Shares were initiated on August 1, 2008.
(a) Calculated using average shares. For the year ended May 31, 2010, average
shares were 636,000.
(b) Reflects total operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(d) Reflected a net realized and unrealized gain per share, whereas the
statement of operations reflected a net realized and unrealized loss for
the period for the Fund in total. The difference in realized and unrealized
gains and losses for the Fund versus the Institutional Shares is due to the
timing of sales and repurchases of the Institutional Shares in relation to
fluctuating market values for the portfolio.
================================================================================
46 | USAA PRECIOUS METALS AND MINERALS FUND
<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 line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or
================================================================================
EXPENSE EXAMPLE | 47
<PAGE>
================================================================================
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the 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
---------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,040.90 $5.90
Hypothetical
(5% return before expenses) 1,000.00 1,019.15 5.84
INSTITUTIONAL SHARES
Actual 1,000.00 1,042.40 4.53
Hypothetical
(5% return before expenses) 1,000.00 1,020.49 4.48
* Expenses are equal to the annualized expense ratio of 1.16% for Fund Shares
and 0.89% for Institutional Shares, which are 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 actual ending account values are based on its actual
total returns of 4.09% for Fund Shares and 4.24% for Institutional Shares
for the six-month period of December 1, 2009, through May 31, 2010.
================================================================================
48 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
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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 Shares class' 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
================================================================================
ADVISORY AGREEMENT | 49
<PAGE>
================================================================================
given to information concerning Fund performance, comparability of fees and
total expenses, and profitability.
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
================================================================================
50 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
brokerage, including the Manager's process for monitoring "best execution," also
was considered. The Manager's role in coordinating the activities of the Fund's
other service providers also was considered. The Board 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 advisory fees and total expense ratio of the
Fund Shares class as compared to other open-end investment companies deemed to
be comparable to the Fund Shares class as determined by the independent third
party in its report. The expenses of the Fund Shares class were compared to (i)
a group of investment companies chosen by the independent third party to be
comparable to the Fund Shares class 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 and front-end loads),
asset size, and expense components (the "expense group") and (ii) a larger group
of investment companies that includes all no-load and front-end load retail
open-end investment companies in the same investment classification/objective as
the Fund Shares class regardless of asset size, excluding outliers (the "expense
universe"). Among other data, the Board noted that the Fund Shares class'
management fee rate -- which includes advisory and administrative services and
the effects of
================================================================================
ADVISORY AGREEMENT | 51
<PAGE>
================================================================================
any performance adjustment -- was above the median of its expense group and its
expense universe. The data indicated that the Fund Shares class' total expenses
were above the median of its expense group and was the median of 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, including the performance adjustment to such fee.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund Share class' 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 Share class'
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 Shares class' performance universe
consisted of the Fund Shares class and all retail and institutional open-end
investment companies with the same classification/objective as the Fund Shares
class regardless of asset size or primary channel of distribution. This
comparison indicated that, among other data, the Fund Shares class' performance
was above the average of its performance universe and its Lipper index for the
one-, three-, and five-year periods ended December 31, 2009. The Board also
noted that the Fund Shares class' percentile performance ranking was in the top
30% of its performance universe for the one-year period ended December 31, 2009,
and in the top 10% of its performance universe for the three-, and five-year
periods ended December 31, 2009.
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
================================================================================
52 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
================================================================================
Trustees reviewed the profitability of the Manager's relationship with the Fund
before tax expenses. In reviewing the overall profitability of the 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.
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 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 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 performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives 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.
================================================================================
ADVISORY AGREEMENT | 53
<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).
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54 | USAA PRECIOUS METALS AND MINERALS FUND
<PAGE>
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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.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 55
<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.
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56 | USAA PRECIOUS METALS AND MINERALS FUND
<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.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 57
<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.
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58 | USAA PRECIOUS METALS AND MINERALS FUND
<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.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 59
<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.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. Information regarding how
the Fund voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available (i) at USAA.COM; and (ii) on the
SEC's Web site at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's 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)
=============================================================================
23407-0710 (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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