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 MUTUAL FUNDS TRUST - ANNUAL REPORT FOR PERIOD ENDING MAY 31, 2010
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA MANAGED ALLOCATION FUND]
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ANNUAL REPORT
USAA MANAGED ALLOCATION FUND
MAY 31, 2010
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FUND OBJECTIVE
SEEK TO MAXIMIZE TOTAL RETURN, CONSISTING PRIMARILY OF CAPITAL APPRECIATION.
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TYPES OF INVESTMENTS
The Fund's principal strategy is to invest primarily in U.S. and/or foreign
equity securities and fixed-income securities through investments in shares of
other investment companies, including exchange-traded funds (ETFs), and real
estate securities, including real estate investment trusts (REITs). The Fund
may at times invest directly in U.S. and/or foreign equity securities and
fixed-income securities as well as futures contracts and hedge funds.*
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.
* The Fund is not offered for sale directly to the general public and is
available currently for investment through a USAA managed account program, or
other persons or legal entities that the Fund may approve from time to time.
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TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 2
MANAGERS' COMMENTARY 4
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Distributions to Shareholders 10
Report of Independent Registered Public Accounting Firm 11
Portfolio of Investments 12
Notes to Portfolio of Investments 13
Financial Statements 15
Notes to Financial Statements 18
EXPENSE EXAMPLE 28
ADVISORY AGREEMENT 30
TRUSTEES' AND OFFICERS' INFORMATION 34
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 MANAGED ALLOCATION 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
USAA Investment Management Company MARK W. JOHNSON, CFA
DAN DENBOW, CFA
JOHN P. TOOHEY, CFA Global Real Estate Securities and ETFs
WASIF A. LATIF
U.S. and International Stocks
(Exchange-Traded Funds (ETFs))
R. MATTHEW FREUND, CFA
ARNOLD J. ESPE, CFA
Bonds and Money Market Instruments
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o HOW DID THE USAA MANAGED ALLOCATION FUND (THE FUND) PERFORM?
The Fund began operations on February 1, 2010. From its inception date
through May 31, 2010, the Fund had a total return of 1.40%.
o WHY DID USAA INTRODUCE THE FUND?
Managed by USAA Investment Management Company (IMCO), the Fund's principal
investment strategy is to invest primarily in U.S. and/or foreign (to
include emerging markets) equity securities and fixed-income securities
through investments in shares of other investment companies, including
exchange-traded funds (ETFs), and real estate securities, including real
estate investment trusts. Consistent with its investment strategy, the Fund
may at times invest directly in U.S. and/or foreign equity securities and
fixed income securities as well as futures contracts and hedge funds.
Refer to page 8 for benchmark definitions.
Past performance is no guarantee of future results.
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4 | USAA MANAGED ALLOCATION FUND
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IMCO offers a variety of managed portfolios, each of which operates under a
strategic asset allocation based on investor risk tolerance and time horizon.
The strategic asset allocation is also known as the "model allocation."
Depending on our changing views on market opportunities and risks, we apply
tactical asset allocation, overweighting or underweighting the various asset
classes within each managed portfolio compared to its model or strategic
allocation.
In USAA's Strategic Fund Adviser (SFA), for example, there are six different
portfolios -- from conservative to aggressive -- each with its own strategic
asset allocation. The underlying assets are invested in actively managed
funds that are individually subadvised by managers who have specific
asset-class expertise.
The process of quickly applying changes in the tactical asset allocation can
potentially create dislocations for our subadvisers. For example, a manager
of an emerging markets or small-cap portfolio may be forced to buy or sell
into a volatile or illiquid market. Additionally, these shifts can cause
significant trading charges that reduce overall returns.
To avoid this disruption and higher fees, we created the Managed Allocation
Fund. For the reporting period, this Fund was used by the SFA portfolios. The
Fund primarily uses ETFs to implement the asset allocation views. ETFs are
highly-liquid vehicles that allow us to quickly and efficiently apply our
tactical asset allocation decisions.
o IN WHAT ASSET CLASSES DID THE FUND INVEST DURING THE REPORTING PERIOD?
Reflecting the significant asset class shifts IMCO made during the period,
the Fund at different times owned shares of ETFs representing exposure to
emerging markets (the MSCI Emerging Markets Index),
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MANAGERS' COMMENTARY ON THE FUND | 5
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U.S. small-cap stocks (the Russell 2000 Index), U.S. large-cap stocks (the
S&P 500 Index), non-U.S. developed market stocks (the MSCI-EAFE Index) and
U.S. investment-grade bonds (the Barclays Capital US Aggregate Bond Index).
Each of these ETFs is highly liquid and has a proven track record of closely
matching the relevant index.
o IS USAA MOVING AWAY FROM ACTIVE MANAGEMENT AT THE ASSET CLASS LEVEL?
No. Manager selection at the asset class level remains a core competency,
along with strategic and tactical asset allocation and risk management. In
these volatile times, which we expect to persist, our goal is to put our full
range of expertise into each managed portfolio we offer. The Fund is an
important step forward in giving us needed flexibility to serve members to
the best of our ability.
Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks.
Investment returns may fluctuate and are subject to market volatility, so
that an investor's shares, when redeemed or sold, may be worth more or less
than their original cost.
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6 | USAA MANAGED ALLOCATION FUND
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INVESTMENT OVERVIEW
USAA MANAGED ALLOCATION FUND (Ticker Symbol: UMAFX)
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5/31/10
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Net Assets $281.8 Million
Net Asset Value Per Share $10.14
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AVERAGE ANNUAL TOTAL RETURN AS OF 5/31/10
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SINCE INCEPTION 2/1/10*
1.40%
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EXPENSE RATIO**
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1.27%
*Total returns for periods of less than one year are not annualized. This return
is cumulative.
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 ESTIMATED TOTAL ANNUAL OPERATING EXPENSES,
BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED
FUND FEES AND EXPENSES, AS REPORTED IN THE FUND'S PROSPECTUS DATED FEBRUARY 1,
2010, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. THE ESTIMATED
EXPENSE RATIO MAY DIFFER FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE FOUR-MONTH
PERIOD ENDED MAY 31, 2010, WHICH WAS 0.83%, AS DISCLOSED IN THE FINANCIAL
HIGHLIGHTS, BEFORE ANY EXPENSES PAID INDIRECTLY AND ACQUIRED FUND FEES AND
EXPENSED.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
return quoted does 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 | 7
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL U.S. USAA MANAGED
S&P 500 INDEX AGGREGATE BOND INDEX ALLOCATION FUND
01/31/10 $10,000.00 $10,000.00 $10,000.00
02/28/10 10,309.77 10,037.34 10,200.00
03/31/10 10,931.91 10,025.00 10,420.00
04/30/10 11,104.50 10,129.36 10,490.00
05/31/10 10,217.80 10,214.60 10,140.00
[END CHART]
Data from 1/31/10 to 5/31/10.*
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Global Opportunities Fund to the following benchmarks:
o The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index of the
Government/Corporate Index, the Mortgage-Backed Securities Index, and the
Asset-Backed Securities Index. It once was known as the Lehman Brothers U.S.
Aggregate Bond Index.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
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 the Barclay's Capital U.S. Aggregate Bond Index and the S&P
500 Index is calculated from the end of the month, January 31, 2010, while the
Fund's inception date is February 1, 2010. There may be a slight variation of
performance numbers because of this difference.
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8 | USAA MANAGED ALLOCATION FUND
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o ASSET ALLOCATION -- 5/31/2010* o
[PIE CHART OF ASSET ALLOCATION]
EQUITY EXCHANGE-TRADED FUNDS 61.3%
FIXED INCOME EXCHANGE-TRADED FUNDS 38.2%
MONEY MARKET INSTRUMENTS 0.8%
[END CHART]
* Pursuant to a Securities and Exchange Commission (SEC) exemptive order, the
Fund may invest in an amount that exceeds the Fund's limitations as set forth
in the Investment Company Act of 1940 that would otherwise be applicable.
Percentages are of the net assets of the Fund and may not equal 100%.
You will find a complete list of securities that the Fund owns on page 12.
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INVESTMENT OVERVIEW | 9
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DISTRIBUTIONS TO SHAREHOLDERS
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The following federal tax information related to the Fund's fiscal period ended
May 31, 2010, is provided for information purposes only and should not be used
for reporting to federal or state revenue agencies. Federal tax information for
the calendar year will be reported to you on Form 1099-DIV in January 2011.
For the fiscal period ended May 31, 2010, the Fund hereby designates 100%, or
the maximum amount allowable, of its net taxable income as dividends taxed at
individual net capital gains rates.
For the fiscal period ended May 31, 2010, certain dividends paid by the Fund
qualify as interest-related dividends. The Fund designates $2,000 as qualifying
interest income.
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10 | USAA MANAGED ALLOCATION FUND
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA MANAGED ALLOCATION FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Managed Allocation Fund (one of the
portfolios constituting USAA Mutual Funds Trust) (the "Fund") as of May 31,
2010, and the related statement of operations, the statements of changes in net
assets, and the financial highlights for 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. 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 Managed Allocation Fund at May 31, 2010, and the results of its operations,
the changes in its net assets, and the financial highlights for the period then
ended, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
San Antonio, Texas
July 23, 2010
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 11
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PORTFOLIO OF INVESTMENTS
May 31, 2010
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
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EQUITY EXCHANGE-TRADED FUNDS (61.3%)
818,010 iShares MSCI EAFE Index Fund $ 39,526
271,907 iShares Russell 2000 Index Fund 18,014
774,897 SPDR Trust Series 1 84,805
799,000 Vanguard Emerging Market 30,522
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Total Equity Exchange-Traded Funds (cost: $180,116) 172,867
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FIXED INCOME EXCHANGE-TRADED FUNDS (38.2%)
1,017,731 iShares Barclays Aggregate Bond Fund (cost: $106,157) 107,584
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MONEY MARKET INSTRUMENTS (0.8%)
MONEY MARKET FUNDS (0.8%)
2,257,375 State Street Institutional Liquid Reserve Fund, 0.18%(a)
(cost: $2,257) 2,257
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TOTAL INVESTMENTS (COST: $288,530) $282,708
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($ IN 000s) VALUATION HIERARCHY
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(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS IDENTICAL ASSETS INPUTS INPUTS TOTAL
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Equity Exchange-Traded Funds $172,867 $- $- $172,867
Fixed Income Exchange-Traded
Funds 107,584 - - 107,584
Money Market Instruments:
Money Market Funds 2,257 - - 2,257
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Total $282,708 $- $- $282,708
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NOTES TO PORTFOLIO OF INVESTMENTS
May 31, 2010
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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 24.9% of net assets at May 31, 2010.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940 that would otherwise be applicable.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
iShares Exchange-traded funds, managed by BlackRock, Inc., that represent a
portfolio of stocks designed to closely track a specific market
index. iShares are traded on securities exchanges.
SPDR Exchange-traded funds, managed by State Street Global Advisers,
that represent a portfolio of stocks designed to closely track a
specific market index. SPDR is an acronym
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NOTES TO PORTFOLIO OF INVESTMENTS | 13
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for the first member of the fund family, Standard & Poor's
Depositary Receipt, which tracks the S&P 500 Index. SPDRs are
traded on securities exchanges.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at May
31, 2010.
See accompanying notes to financial statements.
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14 | USAA MANAGED ALLOCATION FUND
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STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
May 31, 2010
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ASSETS
Investments in securities, at market value (cost of $288,530) $282,708
Receivables:
Capital shares sold 455
Securities sold 13,000
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Total assets 296,163
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LIABILITIES
Payables:
Securities purchased 14,000
Capital shares redeemed 153
Accrued management fees 150
Accrued administration and servicing fees 1
Accrued transfer agent's fees 1
Other accrued expenses and payables 65
--------
Total liabilities 14,370
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Net assets applicable to capital shares outstanding $281,793
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NET ASSETS CONSIST OF:
Paid-in capital $286,881
Accumulated undistributed net investment income 834
Accumulated net realized loss on investments (100)
Net unrealized depreciation of investments (5,822)
--------
Net assets applicable to capital shares outstanding $281,793
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Capital shares outstanding, unlimited number of shares
authorized, no par value 27,790
========
Net asset value, redemption price, and offering price per share $ 10.14
========
See accompanying notes to financial statements.
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FINANCIAL STATEMENTS | 15
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STATEMENT OF OPERATIONS
(IN THOUSANDS)
Period ended May 31, 2010*
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INVESTMENT INCOME
Dividends $ 1,359
Interest 4
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Total inome 1,363
-------
EXPENSES
Management fees 381
Administration and servicing fees 32
Transfer agent's fees 32
Custody and accounting fees 12
Postage 5
Shareholder reporting fees 8
Trustees' fees 4
Registration fees 21
Professional fees 33
Other 1
-------
Total expenses 529
-------
NET INVESTMENT INCOME 834
-------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss (100)
Change in net unrealized appreciation/depreciation (5,822)
-------
Net realized and unrealized loss (5,922)
-------
Decrease in net assets resulting from operations $(5,088)
=======
*Fund commenced operations on February 1, 2010.
See accompanying notes to financial statements.
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16 | USAA MANAGED ALLOCATION FUND
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STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Period ended May 31, 2010*
--------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 834
Net realized loss on investments (100)
Change in net unrealized appreciation/depreciation of investments (5,822)
--------
Decrease in net assets resulting from operations (5,088)
--------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 296,458
Cost of shares redeemed (9,577)
--------
Increase in net assets from capital share transactions 286,881
--------
Net increase in net assets 281,793
NET ASSETS
End of period $281,793
========
Accumulated undistributed net investment income:
End of period $ 834
========
CHANGE IN SHARES OUTSTANDING
Shares sold 28,715
Shares redeemed (925)
--------
Increase in shares outstanding 27,790
========
*Fund commenced operations on February 1, 2010.
See accompanying notes to financial statements.
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FINANCIAL STATEMENTS | 17
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NOTES TO FINANCIAL STATEMENTS
May 31, 2010
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(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 Managed
Allocation Fund (the Fund), which is classified as nondiversified under the 1940
Act. The Fund's investment objective is to seek to maximize total return,
consisting primarily of capital appreciation. The Fund is not offered for sale
directly to the general public and is available currently for investment through
a USAA managed account program or other persons or legal entities that the Fund
may approve from time to time.
As a nondiversified fund, the Fund may invest a greater percentage of its assets
in a single issuer, such as a single stock-based or bond-based exchange-traded
fund (ETF), stock, corporate bond, or a single money market instrument. 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.
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18 | USAA MANAGED ALLOCATION FUND
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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 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 will not be reflected in the value of the Fund's foreign
securities. However, USAA Investment Management Company (the Manager)
will monitor for events that would materially affect the value of the
Fund's foreign securities and, if necessary, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 19
<PAGE>
================================================================================
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. 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.
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
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20 | USAA MANAGED ALLOCATION FUND
<PAGE>
================================================================================
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. 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.
D. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore,
no federal income tax provision is required.
E. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date).
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
<PAGE>
================================================================================
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 are amortized over the life of the respective securities, using the
effective yield method for long-term securities and the straight-line method
for short-term securities.
F. 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 period ended May 31, 2010, custodian
and other bank credits reduced the Fund's expenses by less than $500. For
the period ended May 31, 2010, the Fund did not incur any brokerage
commission recapture credits.
G. INDEMNIFICATIONS -- Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
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22 | USAA MANAGED ALLOCATION FUND
<PAGE>
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(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 period ended May 31, 2010, the Fund paid CAPCO facility fees of less
than $500, which represents 0.1% of the total fees paid to CAPCO by the USAA
funds. The Fund had no borrowings under this agreement during the period ended
May 31, 2010.
(3) DISTRIBUTIONS
The character of any distributions made during the year from net investment
income or net realized gains is determined in accordance with federal tax
regulations and may differ from those determined in accordance with U.S.
generally accepted accounting principles. Also, due to the timing of
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gains were recorded by the Fund.
The Fund did not pay any distributions during the period ended May 31, 2010.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
<PAGE>
================================================================================
As of May 31, 2010, the components of net assets representing distributable
earnings on a tax basis were as follows:
Undistributed ordinary income $ 1,480,000
Unrealized depreciation of investments (6,567,000)
The difference between book-basis and tax-basis unrealized depreciation of
investments is attributable to the tax deferral of losses on wash sales.
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 period ended May
31, 2010, the Fund did not incur any income tax, interest, or penalties. The
Manager has reviewed the open tax period ended May 31, 2010 and concluded that
there was no impact to the Fund's net assets or results of operations. Tax
period ended May 31, 2010 remains 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 period ended May 31, 2010, were $395,203,000 and
$108,830,000, respectively.
As of May 31, 2010, the cost of securities, including short-term securities, for
federal income tax purposes, was $289,275,000.
Gross unrealized appreciation and depreciation of investments as of May 31,
2010, for federal income tax purposes, were $1,640,000 and $8,207,000,
respectively, resulting in net unrealized depreciation of $6,567,000.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this
================================================================================
24 | USAA MANAGED ALLOCATION FUND
<PAGE>
================================================================================
agreement, the Manager is responsible for managing the business and affairs
of the Fund and for directly managing the day-to-day investment of the
Fund's assets, subject to the authority of and supervision by the Trust's
Board of Trustees. The Manager also is authorized to select (with approval
of the Trust's Board of Trustees and without shareholder approval) one or
more subadvisers to manage the actual day-to-day investment of a portion of
the Fund's assets. For the period ended May 31, 2010, there are no
subadvisers. The Fund's management fees are accrued daily and paid monthly
at an annualized rate of 0.60% of the Fund's average net assets for the
fiscal year. For the period ended May 31, 2010, the Fund incurred total
management fees, paid or payable to the Manager, of $381,000.
B. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid monthly at an
annualized rate of 0.05% of the Fund's average net assets for the fiscal
year. For the period ended May 31, 2010, the Fund incurred administration
and servicing fees, paid or payable to the Manager, of $32,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Trust's Board of Trustees
has approved the reimbursement of a portion of these expenses incurred by
the Manager. For the period ended May 31, 2010, the Fund reimbursed the
Manager $2,000 for these compliance and legal services. These expenses are
included in the professional fees on the Fund's statement of operations.
C. 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. The Fund's transfer agent's fees are
accrued daily and paid monthly at an annualized rate of 0.05% of the Fund's
average net assets for the fiscal year. For the period ended May 31, 2010,
the Fund incurred transfer agent's fees, paid or payable to SAS, of $32,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
<PAGE>
================================================================================
D. 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.
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(7) NEW ACCOUNTING PRONOUNCEMENT
FAIR VALUE MEASUREMENTS -- In January 2010, the Financial Accounting
Standards Board issued amended guidance for improving disclosure about fair
value measurements that adds new disclosure requirements about transfers
into and out of Levels 1 and 2 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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26 | USAA MANAGED ALLOCATION FUND
<PAGE>
================================================================================
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout the period is
as follows:
PERIOD ENDED
MAY 31, 2010***
---------------
Net asset value at beginning of period $ 10.00
-------
Income from investment operations:
Net investment income(a) .05
Net realized and unrealized gain(a)(c) .09
-------
Total from investment operations(a) .14
-------
Net asset value at end of period $ 10.14
=======
Total return (%)* 1.40
Net assets at end of period (000) $281,793
Ratios to average net assets:**
Expenses (%)(b) .83
Net investment income (%)(b) 1.32
Portfolio turnover (%) 52
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return.
** For the period ended May 31, 2010, average net assets were $192,922,000.
*** Fund commenced operations on February 1, 2010.
(a) Calculated using average shares for the period ended May 31, 2010, average
net shares were 16,240,000.
(b) Annualized. The ration is not necessarily indicative of 12 months of
operation.
(c) Reflects a net realized and unrealized gain per share, whereas the
statement of operations reflects a net realized and unrealized loss for the
period. The difference in realized and unrealized gains and losses is due
to the timing of sales and repurchases for the Fund's shares in relation to
fluctuating market values for the portfolio.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
<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, the Funds' inception date of February 1, 2010, and held for the entire
period ended May 31, 2010.
ACTUAL EXPENSES
The first line of the table on the next page provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending
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28 | USAA MANAGED ALLOCATION FUND
<PAGE>
================================================================================
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the 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 FEBRUARY 1, 2010 -
FEBRUARY 1, 2010 MAY 31, 2010 MAY 31, 2010
---------------------------------------------------------------
Actual $1,000.00 $1,014.00 $4.17
Hypothetical
(5% return before expenses) 1,000.00 1,020.79 4.18
* Expenses are equal to the Fund's annualized expense ratio of 0.83%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 120 days/365 days (to reflect the current
period beginning with the Funds' inception date). The Fund's ending account
value on the first line in the table is based on its actual total return of
1.40% for the period of February 1, 2010, through May 31, 2010.
================================================================================
EXPENSE EXAMPLE | 29
<PAGE>
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ADVISORY AGREEMENT
May 31, 2010
--------------------------------------------------------------------------------
At a meeting of the Board of Trustees (the Board) held on December 1, 2009,
the Board, including the Trustees who are not "interested persons" of the
Trust (the Independent Trustees), considered and initially approved 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) materials describing the investment objective and investment
strategies of the Fund; (ii) information concerning the Fund's proposed
advisory fee and anticipated expense ratio; (iii) information concerning the
services to be 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 (iv) information about
the Manager's operations and personnel. The Board also met with management,
including the Fund's portfolio management team, and considered additional
information regarding the Fund at previous meetings held on September 24,
2009 and November 2, 2009. Prior to voting, the Independent Trustees reviewed
the proposed approval 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
approval of the Advisory Agreement with respect to the Fund. The Independent
Trustees also reviewed the proposed approval 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 each
fund's performance and related services provided by the Manager.
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30 | USAA MANAGED ALLOCATION FUND
<PAGE>
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At the meeting at which the renewal of the Advisory Agreement is considered,
particular focus is given to information concerning fund performance,
comparability of fees and total expenses, and profitability. However, the
Board noted that the evaluation process with respect to the Manager is an
ongoing one.
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 to be provided by the Manager under the proposed
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 in connection with the
other funds in the Trust. The Board considered the fees proposed to be paid
to the Manager and the services to be provided to the Fund by the Manager
under the Advisory Agreement, as well as other services to be provided by the
Manager and its affiliates under other agreements, and the personnel who
would be responsible for providing these services. In addition to the
investment advisory services to be provided to the Fund, the Manager and its
affiliates will provide administrative services, stockholder services,
oversight of Fund accounting, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Fund and
the Trust.
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 expected
allocation of the Fund's brokerage, including the Manager's process for
monitoring "best execution," was also considered. The Manager's role in
================================================================================
ADVISORY AGREEMENT | 31
<PAGE>
================================================================================
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 provide a 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 other investment companies.
The Board also reviewed the compliance and administrative services to be
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 will provide compliance and administrative services to the Fund.
The Trustees, guided also by information obtained from their experiences as
directors/trustees of 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 reviewed the Fund's proposed advisory fees and
anticipated total expense ratio. The Board took into account the various
services to be provided to the Fund by the Manager and its affiliates. The
Board also noted the level and method of computing the management fee. The
Board also took into account that the Fund would be priced similarly to other
institutional products offered by the Manager. The Board considered that
while the Fund is a new product offering from the Manager, the Manager has
performed a similar investment process with other accounts and funds in the
USAA complex. The Board also took into account the performance of the
Manager and the Fund's portfolio managers with respect to other accounts,
including other funds in the Trust. The Board also took into account the
nature and purpose of the Fund, noting that the Fund will be an institutional
fund to be used solely as an asset allocation option within the Manager's
discretionary managed account product offerings.
COMPENSATION AND PROFITABILITY -- The Board took into consideration the level
and method of computing the management fee. The Board also considered
profitability information related to the anticipated management revenues from
the Fund. In reviewing the overall anticipated
================================================================================
32 | USAA MANAGED ALLOCATION FUND
<PAGE>
================================================================================
profitability of the management fee to the Manager, the Board also considered
the fact that affiliates will 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 also took into account management's
discussions of the advisory fee structure. The Board also considered the
effect of the Fund's growth and size on its performance and fees, noting that
if the Fund's assets increase over time, the Fund may realize other economies
of scale if assets increase proportionally more than some expenses. The Board
also considered the fee waivers and expense reimbursement arrangements by the
Manager. The Board determined that the proposed investment management fee
structure was reasonable.
CONCLUSIONS -- The Board reached the following conclusions regarding the
Fund's proposed 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 Fund's
proposed advisory expenses are reasonable in relation to the services to be
provided by the Manager; and (iv) the Manager and its affiliates' anticipated
level of profitability from their relationship with the Fund is reasonable.
Based on its conclusions, the Board determined that the approval of the
Advisory Agreement would be in the best interests of the Fund and its
shareholders.
================================================================================
ADVISORY AGREEMENT | 33
<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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34 | USAA MANAGED ALLOCATION FUND
<PAGE>
================================================================================
INTERESTED TRUSTEE(1)
--------------------------------------------------------------------------------
CHRISTOPHER W. CLAUS(2,4)
Trustee, President, and Vice Chair of the Board of Trustees
Born: December 1960
Year of Election or Appointment: 2001
Chair of the Board of Directors, IMCO (11/04-present); President, IMCO
(2/08-10/09); Chief Investment Officer, IMCO (2/07-2/08); President and Chief
Executive Officer, IMCO (2/01-2/07); Chair of the Board of Directors, USAA
Financial Advisors, Inc. (FAI) (1/07-present); President, FAI (12/07-10/09);
President, Financial Advice and Solutions Group (FASG) USAA (9/09-present);
President, Financial Services Group, USAA (1/07-9/09). Mr. Claus serves as
Chair of the Board of Directors of USAA Shareholder Account Services (SAS),
USAA Financial Planning Services Insurance Agency, Inc. (FPS), and FAI. He
also serves as Vice Chair for USAA Life Insurance Company (USAA Life).
NON-INTERESTED (INDEPENDENT) TRUSTEES
--------------------------------------------------------------------------------
BARBARA B. DREEBEN(3,4,5,6)
Trustee
Born: June 1945
Year of Election or Appointment: 1994
President, Postal Addvantage (7/92-present), a postal mail list management
service. Mrs. Dreeben holds no other directorships of any publicly held
corporations or other investment companies outside the USAA family of funds.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 35
<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.
================================================================================
36 | USAA MANAGED ALLOCATION 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 | 37
<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.
================================================================================
38 | USAA MANAGED ALLOCATION 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 | 39
<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 website at HTTP://WWW.SEC.GOV. Information regarding how
the Fund voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available without charge (i) at USAA.COM; and
(ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
<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)
=============================================================================
93923-0710 (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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