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 EMERGING MARKETS FUND]
===============================================
ANNUAL REPORT
USAA EMERGING MARKETS FUND
FUND SHARES o INSTITUTIONAL SHARES
MAY 31, 2010
===============================================
================================================================================
<PAGE>
================================================================================
FUND OBJECTIVE
CAPITAL APPRECIATION.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
Invests at least 80% of the Fund's assets in equity securities of emerging
market companies.
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.
================================================================================
<PAGE>
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
PRESIDENT'S MESSAGE 2
MANAGERS' COMMENTARY 4
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Distributions to Shareholders 15
Report of Independent Registered Public Accounting Firm 16
Portfolio of Investments 17
Notes to Portfolio of Investments 33
Financial Statements 36
Notes to Financial Statements 39
EXPENSE EXAMPLE 57
ADVISORY AGREEMENTS 59
TRUSTEES' AND OFFICERS' INFORMATION 67
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.
================================================================================
<PAGE>
================================================================================
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."
--------------------------------------------------------------------------------
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
================================================================================
2 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
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.
================================================================================
PRESIDENT'S MESSAGE | 3
<PAGE>
================================================================================
MANAGERS' COMMENTARY ON THE FUND
The Boston Company Asset Management, Batterymarch Financial Management, Inc.
LLC
DAVID LAZENBY, CFA
KIRK HENRY, CFA
CAROLYN KEDERSHA, CFA, CPA
WARREN SKILLMAN
--------------------------------------------------------------------------------
o HOW DID THE USAA EMERGING MARKETS FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the one-year period ended May 31, 2010, the Fund had a total return of
20.00%. This compares to a return of 22.30% for the Lipper Emerging Markets
Funds Index and 22.72% for the Morgan Stanley Capital International Emerging
Markets Index (the Index).
The Fund has two sub-advisers, each pursuing a distinct approach to emerging
markets investing; Batterymarch Financial Management, Inc. (Batterymarch)
and The Boston Company Asset Management, LLC (The Boston Company).
o PLEASE CHARACTERIZE THE PERFORMANCE OF EMERGING MARKETS RELATIVE TO
DEVELOPED MARKETS OVER THE PAST 12 MONTHS.
The MSCI Emerging Markets Index (22.72%) slightly outperformed U.S. stocks
as measured by the S&P 500 Index (20.99%), and
Refer to pages 9 and 12 for benchmark definitions.
Past performance is no guarantee of future results.
Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability.
================================================================================
4 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
significantly outperformed non-U.S. developed markets as measured by the
MSCI-EAFE Index (6.61%).
o HOW DID THE BATTERYMARCH PORTION OF THE FUND PERFORM?
We outperformed the Index, led by strong individual stock selection and, to
a lesser degree, by sector allocation. Our best stock selection by country
occurred in China, Thailand, Eastern Europe, Turkey, Brazil, Indonesia, and
Russia. South Korea was the only country where our stock selection was
meaningfully negative.
In terms of industry sectors our overweight to autos was the biggest
positive, led by holdings in Geely Automobile Holdings Ltd. in China as well
as PT Astra International Tbk in Indonesia. To put emerging markets car
sales in perspective, China's annualized pace of car sales is 17 million,
compared to about 11 to 12 million in the United States.
o WHAT'S BATTERYMARCH'S VIEW ON CHINA?
China's stock market as measured by the Shanghai A Share Index sold off by
25.4% from its high on August 4, 2009, through the end of the reporting
period, largely due to concerns about the government tightening policy to
control a property market bubble and create a soft landing for what some
perceive to be an overheated economy. Additionally, there has been pressure
on China to allow its currency to strengthen, which would reduce the
competitiveness of its exports. Our view is that the sell-off was overdone,
especially in light of the eurozone debt crisis, which has caused the
Chinese currency to rise along with the U.S. dollar. Also, Chinese exports
continue to grow at staggering levels, supporting global economic growth.
While we have been underweight China, we are actively seeking opportunities
there. China was trading at a huge valuation premium to global equity
markets before the sell-off, but at the end of the reporting year was
roughly in line with them.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
<PAGE>
================================================================================
o WHAT'S BATTERYMARCH'S OUTLOOK?
As in China, emerging markets overall have seen a contraction in their
price-to-earnings multiples. Earnings continue to show strength, but stock
prices have not gone up in tandem. In September 2009, the price-to-earnings
ratio of the Index was roughly 13; at the end of the reporting year it stood
at 10.5. Where emerging markets were trading roughly on par with developed
markets, they are now selling at a valuation discount. We don't think the
global economy will experience a double-dip recession, but we have added to
less economically sensitive holdings to create a more balanced portfolio.
o HOW DID THE BOSTON COMPANY'S PORTION OF THE PORTFOLIO PERFORM?
We performed roughly in line with the Index, with the best returns coming
from the technology sector, particularly in Taiwan, where holdings such as
Compal Electronics Inc., one of the world's largest notebook manufacturers,
did very well. We also had strong returns in South Korea for the full
reporting year, led by holdings in KB Financial Group, Inc., Korea's biggest
bank, and Lotte Shopping Co. Ltd., a major Korean retailer. However, our
overweight position in South Korea, which is focused on consumer-focused
stocks, proved detrimental at the end of the reporting period due to the
political tension between North and South Korea.
Other areas of strength included Thailand, where we invested in bank stocks
at extremely low valuations as others were fleeing the market due to
political instability. Brazil was also very good, with our defensive
positioning helping during the late-period sell-off. Casual footwear
manufacturer Grendene S.A., health care company Medial Saude S.A., and
chemical company Braskem S.A. "A" were our best-performing Brazilian
holdings relative to the Index.
Medial Saude S.A. was sold out of the Fund prior to May 31, 2010.
================================================================================
6 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
Stock selection was weak in China and India, markets where our strict
valuation parameters kept us from owning the fastest-rising stocks during
the late stage of the rally. Materials were another area of
underperformance, but as with China and India, our defensiveness was
rewarded at period's end when risk aversion returned to the markets.
o WHAT'S THE BOSTON COMPANY'S VIEW ON CHINA?
Our views are similar to Batterymarch's views. Relative to the Index, we've
gone from being significantly underweight in the Chinese market to almost
neutral by the end of the reporting year, and continue to actively seek
opportunities in stocks with newly attractive valuations. In the last major
sell-off in China in 2008, we pursued a similar strategy that paid off for
shareholders in the Fund.
o WHAT'S THE BOSTON COMPANY'S OUTLOOK FOR EMERGING MARKETS OVERALL?
After an exceptional rebound, emerging markets have become more volatile and
performance more selective. Europe's debt woes have interrupted the risk
trade, causing some investors to abandon emerging markets in favor of safer
havens. However, emerging markets should continue to outperform developed
markets in profitability and performance. Longer-term structural trends
remain in tact, fiscal and private debt is lower relative to developed
markets, and consumption should expand with rising disposable income. We
will continue to take advantage of opportunities to build positions in
high-quality companies with attractive valuations.
Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 7
<PAGE>
================================================================================
INVESTMENT OVERVIEW
USAA EMERGING MARKETS FUND SHARES (Ticker Symbol: USEMX)
--------------------------------------------------------------------------------
5/31/10 5/31/09
--------------------------------------------------------------------------------
Net Assets $557.6 Million $425.9 Million
Net Asset Value Per Share $17.20 $14.41
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/10
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years
20.00% 11.27% 9.21%
--------------------------------------------------------------------------------
EXPENSE RATIO*
--------------------------------------------------------------------------------
1.79%
High double digit returns are attributable, in part, to unusually favorable
market conditions and may not be repeated or consistently achieved in the
future.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
*THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AS REPORTED IN THE FUND SHARES' PROSPECTUS DATED OCTOBER 1, 2009,
AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. THE EXPENSE RATIO MAY
DIFFER FROM THE EXPENSE RATIO DISCLOSED IN THE FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
================================================================================
8 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI EMERGING LIPPER EMERGING USAA EMERGING
MARKETS INDEX MARKETS FUNDS INDEX MARKETS FUND SHARES
05/31/00 $10,000.00 $10,000.00 $10,000.00
06/30/00 10,352.25 10,495.86 10,534.52
07/31/00 9,819.84 10,067.62 10,053.95
08/31/00 9,868.12 10,171.65 10,187.70
09/30/00 9,006.48 9,199.54 9,284.85
10/31/00 8,353.48 8,512.72 8,727.54
11/30/00 7,623.04 7,743.24 7,846.98
12/31/00 7,807.15 8,022.74 8,225.96
01/31/01 8,882.19 8,952.25 8,995.05
02/28/01 8,186.71 8,258.08 8,225.96
03/31/01 7,382.61 7,470.31 7,490.30
04/30/01 7,747.40 7,852.00 7,835.84
05/31/01 7,839.88 8,067.92 7,980.74
06/30/01 7,678.95 7,927.18 7,869.28
07/31/01 7,193.71 7,435.58 7,456.86
08/31/01 7,122.75 7,338.63 7,189.35
09/30/01 6,020.30 6,291.42 6,286.50
10/31/01 6,393.91 6,621.68 6,598.60
11/30/01 7,061.46 7,277.60 7,122.48
12/31/01 7,621.96 7,742.10 7,749.34
01/31/02 7,880.25 8,047.36 8,129.53
02/28/02 8,009.72 8,227.37 8,386.73
03/31/02 8,492.33 8,677.98 8,945.84
04/30/02 8,546.63 8,783.99 8,957.03
05/31/02 8,410.45 8,703.20 8,867.57
06/30/02 7,779.48 8,067.08 8,207.81
07/31/02 7,187.80 7,464.16 7,514.51
08/31/02 7,298.56 7,525.39 7,603.97
09/30/02 6,511.11 6,770.75 6,787.66
10/31/02 6,933.60 7,093.67 7,033.67
11/30/02 7,410.86 7,570.88 7,525.69
12/31/02 7,164.63 7,383.78 7,357.96
01/31/03 7,133.44 7,341.01 7,268.50
02/28/03 6,940.91 7,167.85 7,067.22
03/31/03 6,744.10 6,936.72 6,865.93
04/30/03 7,344.81 7,605.08 7,525.69
05/31/03 7,871.96 8,151.95 8,084.81
06/30/03 8,320.62 8,562.31 8,476.19
07/31/03 8,841.72 8,954.26 8,945.84
08/31/03 9,435.17 9,552.50 9,404.32
09/30/03 9,504.34 9,764.37 9,616.78
10/31/03 10,313.13 10,524.96 10,343.63
11/30/03 10,439.87 10,681.12 10,533.73
12/31/03 11,196.72 11,588.66 11,260.58
01/31/04 11,594.37 11,920.01 11,607.23
02/29/04 12,129.22 12,455.06 12,110.43
03/31/04 12,285.07 12,622.11 12,188.71
04/30/04 11,280.68 11,627.29 11,439.50
05/31/04 11,131.13 11,400.40 11,249.40
06/30/04 11,109.02 11,458.94 11,394.77
07/31/04 10,912.58 11,290.76 11,227.03
08/31/04 11,369.39 11,729.50 11,562.50
09/30/04 12,026.05 12,417.30 12,110.43
10/31/04 12,314.15 12,796.24 12,412.36
11/30/04 13,454.75 13,848.58 13,541.77
12/31/04 14,102.49 14,566.21 14,210.19
01/31/05 14,147.12 14,618.00 14,075.29
02/28/05 15,389.36 15,836.86 15,143.30
03/31/05 14,375.50 14,760.07 14,086.53
04/30/05 13,992.34 14,398.87 13,805.47
05/31/05 14,484.99 14,844.35 14,153.98
06/30/05 14,985.00 15,337.10 14,682.37
07/31/05 16,045.31 16,395.83 15,604.23
08/31/05 16,189.74 16,650.76 15,671.68
09/30/05 17,699.38 18,107.00 16,919.57
10/31/05 16,542.98 17,015.16 15,739.14
11/30/05 17,912.69 18,290.48 16,840.88
12/31/05 18,973.80 19,322.48 17,839.88
01/31/06 21,104.55 21,546.49 19,458.60
02/28/06 21,084.45 21,420.40 19,469.92
03/31/06 21,273.45 21,711.06 19,866.11
04/30/06 22,791.43 23,249.04 21,190.52
05/31/06 20,408.69 20,692.82 19,039.77
06/30/06 20,365.45 20,590.32 18,926.58
07/31/06 20,670.03 21,032.90 19,039.77
08/31/06 21,207.01 21,605.70 19,435.96
09/30/06 21,385.26 21,766.48 19,775.56
10/31/06 22,401.84 22,903.29 20,669.81
11/30/06 24,070.61 24,408.27 22,141.38
12/31/06 25,156.69 25,519.11 23,077.85
01/31/07 24,896.08 25,396.86 22,951.99
02/28/07 24,751.87 25,158.58 22,665.95
03/31/07 25,747.03 26,117.62 23,455.42
04/30/07 26,942.67 27,354.91 24,382.20
05/31/07 28,284.13 28,827.02 25,938.26
06/30/07 29,621.97 29,830.95 26,887.92
07/31/07 31,200.26 30,912.39 27,997.76
08/31/07 30,547.43 30,242.32 27,517.21
09/30/07 33,923.27 33,176.14 29,816.99
10/31/07 37,709.06 36,716.02 32,791.82
11/30/07 35,038.33 34,459.97 30,617.91
12/31/07 35,163.50 34,770.53 30,833.64
01/31/08 30,785.60 30,930.49 28,076.36
02/29/08 33,069.16 32,280.50 29,222.08
03/31/08 31,322.15 30,776.58 28,051.18
04/30/08 33,869.11 33,104.54 30,279.66
05/31/08 34,507.25 33,714.34 30,808.46
06/30/08 31,071.24 30,245.93 27,837.15
07/31/08 29,923.80 29,188.47 27,069.14
08/31/08 27,543.42 26,970.75 25,042.10
09/30/08 22,726.20 22,548.00 20,975.44
10/31/08 16,509.84 15,999.94 15,070.59
11/30/08 15,268.20 14,630.78 13,736.01
12/31/08 16,463.23 15,730.56 14,908.74
01/31/09 15,406.76 14,372.97 13,680.31
02/28/09 14,540.21 13,563.44 13,010.25
03/31/09 16,631.76 15,311.80 14,629.55
04/30/09 19,401.99 17,841.81 17,030.59
05/31/09 22,728.46 21,073.98 20,115.64
06/30/09 22,426.81 20,824.80 19,766.65
07/31/09 24,964.69 23,233.61 22,028.09
08/31/09 24,882.03 23,327.56 22,097.89
09/30/09 27,144.64 25,410.49 24,205.77
10/31/09 27,180.72 25,101.86 23,940.54
11/30/09 28,349.66 26,477.71 25,182.93
12/31/09 29,472.71 27,409.98 26,063.49
01/31/10 27,833.74 25,876.92 24,645.17
02/28/10 27,937.54 26,095.78 24,813.68
03/31/10 30,195.23 28,255.35 26,793.72
04/30/10 30,567.81 28,456.98 26,892.02
05/31/10 27,603.91 25,773.20 24,139.63
[END CHART]
Data from 5/31/00 to 5/31/10.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Emerging Markets Fund Shares to the following benchmarks:
o The unmanaged Morgan Stanley Capital International (MSCI) Emerging Markets
Index is a free-float-adjusted market capitalization index that is designed
to measure equity market performance in the global emerging markets.
o The unmanaged Lipper Emerging Markets Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Emerging Markets Funds
category.
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.
================================================================================
INVESTMENT OVERVIEW | 9
<PAGE>
================================================================================
USAA EMERGING MARKETS FUND INSTITUTIONAL SHARES*
--------------------------------------------------------------------------------
5/31/10 5/31/09
--------------------------------------------------------------------------------
Net Assets $77.4 Million $23.3 Million
Net Asset Value Per Share $17.22 $14.41
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 5/31/10
--------------------------------------------------------------------------------
1 Year Since Inception 8/01/08
20.65% -4.99%
--------------------------------------------------------------------------------
EXPENSE RATIO**
--------------------------------------------------------------------------------
Before Reimbursement 1.28% After Reimbursement 1.13%
*The USAA Emerging Markets Fund Institutional Shares (Institutional Shares)
commenced operations on August 1, 2008, and are not offered for sale directly to
the general public. The Institutional Shares are available only to the USAA
Target Retirement Funds.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
**THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE
NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL
OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
EXCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, AFTER REIMBURSEMENT FROM USAA
INVESTMENT MANAGEMENT COMPANY (IMCO). BEFORE AND AFTER REIMBURSEMENT EXPENSE
RATIOS ARE REPORTED IN THE INSTITUTIONAL SHARES' PROSPECTUS DATED OCTOBER 1,
2009. FOR THE FIRST TWO FISCAL YEARS, IMCO HAS VOLUNTARILY AGREED TO LIMIT THE
INSTITUTIONAL SHARES' TOTAL ANNUAL OPERATING EXPENSES TO 1.13%, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AND TO REIMBURSE THE INSTITUTIONAL SHARES FOR EXPENSES IN EXCESS
OF THIS AMOUNT. IMCO CAN MODIFY OR TERMINATE THIS ARRANGEMENT AT ANY TIME. THESE
EXPENSE RATIOS MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL
HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
================================================================================
10 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI EMERGING USAA EMERGING MARKETS LIPPER EMERGING
MARKETS INDEX FUND INSTITUTIONAL SHARES MARKETS FUNDS INDEX
07/31/08 $10,000.00 $10,000.00 $10,000.00
08/31/08 9,204.52 9,355.60 9,240.21
09/30/08 7,594.69 7,836.31 7,724.97
10/31/08 5,517.29 5,630.29 5,481.60
11/30/08 5,102.36 5,131.70 5,012.52
12/31/08 5,501.72 5,573.05 5,389.31
01/31/09 5,148.66 5,117.78 4,924.20
02/28/09 4,859.08 4,871.84 4,646.85
03/31/09 5,558.04 5,484.09 5,245.84
04/30/09 6,483.80 6,384.15 6,112.62
05/31/09 7,595.45 7,545.85 7,219.97
06/30/09 7,494.64 7,415.03 7,134.60
07/31/09 8,342.75 8,273.23 7,959.86
08/31/09 8,315.13 8,299.39 7,992.05
09/30/09 9,071.25 9,094.79 8,705.66
10/31/09 9,083.31 9,000.60 8,599.92
11/30/09 9,473.95 9,471.56 9,071.29
12/31/09 9,849.25 9,807.63 9,390.69
01/31/10 9,301.54 9,273.63 8,865.46
02/28/10 9,336.23 9,342.36 8,940.44
03/31/10 10,090.71 10,093.13 9,680.31
04/30/10 10,215.22 10,130.14 9,749.39
05/31/10 9,224.74 9,104.44 8,829.92
[END CHART]
*Data from 7/31/08 to 5/31/10.
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
*The performance of the MSCI Emerging Markets Index and the Lipper Emerging
Markets Funds Index is calculated from the end of the month, July 31, 2008,
while the Institutional Shares' inception date is August 1, 2008. There may be a
slight variation of performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 11
<PAGE>
================================================================================
The graph on page 11 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Emerging Markets Fund Institutional Shares to the
following benchmarks:
o The unmanaged Morgan Stanley Capital International (MSCI) Emerging Markets
Index is a free-float-adjusted market capitalization index that is designed
to measure equity market performance in the global emerging markets.
o The unmanaged Lipper Emerging Markets Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Emerging Markets Funds
category.
================================================================================
12 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
TOP 10 INDUSTRIES
AS OF 5/31/10
(% of Net Assets)
Diversified Banks ..................................... 17.6%
Integrated Oil & Gas .................................. 8.8%
Steel ................................................. 6.7%
Wireless Telecommunication Services ................... 6.5%
Semiconductors ........................................ 5.5%
Integrated Telecommunication Services ................. 2.8%
Construction & Engineering ............................ 2.4%
Diversified Metals & Mining ........................... 2.1%
Automobile Manufacturers .............................. 2.0%
Money Market Funds .................................... 1.6%
TOP 10 EQUITY HOLDINGS
AS OF 5/31/10
(% of Net Assets)
Samsung Electronics Co. Ltd. .......................... 2.7%
Petroleo Brasileiro S.A. ADR .......................... 2.3%
OAO Gazprom ADR ....................................... 1.8%
China Mobile Ltd. ..................................... 1.5%
America Movil S.A.B. de C.V. ADR "L" .................. 1.4%
Itau Unibanco Banco Multiplo S.A. GDR ................. 1.3%
Vale S.A. ............................................. 1.3%
Vale S.A. ADR ......................................... 1.1%
China Construction Bank Corp. "H" ..................... 1.1%
Reliance Industries Ltd. GDR .......................... 1.0%
You will find a complete list of securities that the Fund owns on pages 17-32.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
o ASSET ALLOCATION -- 5/31/2010* o
[PIE CHART OF ASSET ALLOCATION]
CHINA 12.6%
BRAZIL 12.1%
SOUTH KOREA 11.9%
TAIWAN 9.4%
SOUTH AFRICA 9.0%
MEXICO 6.0%
RUSSIA 5.3%
INDIA 4.9%
GERMANY 3.7%
HONG KONG 3.4%
OTHER** 20.4%
[END CHART]
* Excludes short-term investments purchased with cash collateral from
securities loaned.
** Includes countries with less than 3% of portfolio and money market
instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
14 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------------------------------------------------
The following federal tax information related to the Fund's fiscal year ended
May 31, 2010, is provided for information purposes only and should not be used
for reporting to federal or state revenue agencies. Federal tax information for
the calendar year will be reported to you on Form 1099-DIV in January 2011.
The Fund has elected under Section 853 of the Internal Revenue Code to pass
through the credit for taxes paid in foreign countries. The gross income derived
from foreign sources and foreign taxes paid during the fiscal year ended May 31,
2010, by the Fund are $12,048,000 and $1,027,000, respectively.
For the fiscal year ended May 31, 2010, certain dividends paid by the Fund
qualify as interest-related dividends. The Fund designates $10,000 as qualifying
interest income.
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS | 15
<PAGE>
================================================================================
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA EMERGING MARKETS FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Emerging Markets Fund (one of the
portfolios constituting USAA Mutual Funds Trust) (the "Fund") as of May 31,
2010, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of May 31, 2010, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA Emerging Markets Fund at May 31, 2010, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
/S/ ERNST & YOUNG LLP
San Antonio, Texas
July 23, 2010
================================================================================
16 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
May 31, 2010
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
EQUITY SECURITIES (97.1%)
COMMON STOCKS (92.0%)
CONSUMER DISCRETIONARY (9.0%)
-----------------------------
APPAREL & ACCESSORIES & LUXURY GOODS (0.2%)
1,314,000 Bosideng International Holdings Ltd.(a) $ 306
86,620 Fuqi International, Inc.*(b) 801
--------
1,107
--------
APPAREL RETAIL (0.5%)
56,000 Foschini Ltd.(a) 485
273,700 Mr. Price Group Ltd.(a) 1,626
115,400 Truworths International Ltd.(a) 824
--------
2,935
--------
AUTO PARTS & EQUIPMENT (0.5%)
42,600 Halla Climate Control Corp.(a) 556
9,400 Hyundai Mobis Co. Ltd.(a) 1,541
962,000 Minth Group Ltd.(a) 1,251
--------
3,348
--------
AUTOMOBILE MANUFACTURERS (2.0%)
7,193,800 Denway Motors Ltd.(a) 2,859
896,000 Dongfeng Motor Group Co. Ltd.(a) 1,041
72,100 Ford Otomotiv Sanayi A.S.(a) 460
3,650,000 Geely Automobile Holdings Ltd.(a) 1,205
494,500 Great Wall Motor Co. Ltd.(a) 814
61,560 Kia Motors Corp.(a) 1,588
228,200 Mahindra & Mahindra Ltd. GDR 2,624
454,000 PT Astra International Tbk(a) 2,043
--------
12,634
--------
BROADCASTING (0.1%)
49,700 Grupo Televisa S.A. de C.V. ADR 924
--------
CABLE & SATELLITE (0.3%)
45,400 ednNaspers Ltd.(a) 1,784
21,300 Net Servicos de Comunicacao S.A.* 217
--------
2,001
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
CASINOS & GAMING (0.9%)
174,620 Kangwon Land, Inc.(a) $ 2,457
4,138,820 Resorts World Berhad(a) 3,340
--------
5,797
--------
CONSUMER ELECTRONICS (0.8%)
25,918 LG Electronics, Inc.(a) 2,196
470,000 Skyworth Digital Technology Co. Ltd.(a) 365
10,943,000 Tatung Co. Ltd.*(a) 1,983
810,400 TCL Multimedia Technology(a) 542
--------
5,086
--------
DEPARTMENT STORES (0.4%)
85,000 Golden Eagle Retail Group Ltd.(a) 165
7,000 Hyundai Department Store Co. Ltd.(a) 595
3,678 Lotte Shopping Co. Ltd.(a) 967
272,500 Woolworths Holdings Ltd.(a) 828
--------
2,555
--------
DISTRIBUTORS (0.4%)
179,300 Imperial Holdings Ltd.(a) 2,270
--------
FOOTWEAR (0.4%)
310,380 Grendene S.A., acquired 2/03/2005 - 9/23/2009; cost $1,001(c) 1,257
1,312,000 Prime Success International Group Ltd.(a) 1,269
--------
2,526
--------
GENERAL MERCHANDISE STORES (0.3%)
445,400 Clicks Group Ltd.(a) 1,915
30,200 Lojas Americanas S.A. 204
--------
2,119
--------
HOME IMPROVEMENT RETAIL (0.5%)
557,090 JD Group Ltd.(a) 2,990
--------
HOMEBUILDING (1.1%)
122,000 Brascan Residential Properties S.A. 502
1,606,400 Consorcio ARA S.A. de C.V. 988
505,000 Corporacion GEO, S.A. de C.V. "B"* 1,394
88,400 Cyrela Brazil Realty S.A. 958
92,150 Desarrolladora Homex S.A. de C.V. ADR*(b) 2,429
57,900 Gafisa S.A. ADR(b) 689
40,400 PDG Realty S.A. Empreedimentos 347
18,600 Urbi Desarrollo Urbanos S.A. de C.V.* 36
--------
7,343
--------
HOUSEWARES & SPECIALTIES (0.2%)
889,585 Turk Sise ve Cam Fabrikalari A.S.*(a) 1,024
--------
================================================================================
18 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
RESTAURANTS (0.1%)
523,000 Ajisen (China) Holdings Ltd.(a) $ 535
--------
TEXTILES (0.3%)
2,703,000 Weiqiao Textile Co. Ltd. "H"(a) 1,662
--------
Total Consumer Discretionary 56,856
--------
CONSUMER STAPLES (4.9%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
6,606,500 Global Bio-chem Technology Group Co. Ltd.*(a) 1,272
--------
BREWERS (0.3%)
26,430 Anadolu Efes Biracilik ve Malt Sanayii A.S.(a) 298
31,600 Compania Cervecerias Unidas S.A. ADR 1,292
56,500 Grupo Modelo S.A. de C.V. "C" 309
--------
1,899
--------
DISTILLERS & VINTNERS (0.1%)
30,830 Jinro Ltd.(a) 812
--------
FOOD DISTRIBUTORS (0.2%)
116,800 Spar Group Ltd.(a) 1,194
--------
FOOD RETAIL (0.7%)
137,400 Shoprite Holdings Ltd.(a) 1,425
90,200 X5 Retail Group NV*(a) 2,913
--------
4,338
--------
HYPERMARKETS & SUPER CENTERS (0.4%)
115,400 Grupo Comercial Chedraui S.A.* 308
2,896 Shinsegae Co. Ltd.(a) 1,134
596,200 Wal-Mart de Mexico 1,331
--------
2,773
--------
PACKAGED FOODS & MEAT (1.5%)
5,044,500 Charoen Pokphand Foods Public Co. Ltd.(a) 2,689
591,000 China Yurun Food Group Ltd.(a) 1,561
5,473 CJ Cheiljedang Corp.(a) 971
492,900 JBS S.A. 1,951
9,763 Nong Shim Co. Ltd.(a) 1,840
430,700 Thai Union Frozen Products Public Co. Ltd.(a) 539
--------
9,551
--------
PERSONAL PRODUCTS (0.0%)
17,200 Hypermarcas S.A* 234
--------
SOFT DRINKS (1.0%)
11,100 Coca Cola Femsa S.A. de C.V. ADR 738
721,400 Embotelladoras Arca S.A. 2,476
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
23,500 Fomento Economico Mexicano ADR $ 991
651,900 Grupo Continental S.A., acquired 7/02/2002 - 3/27/2009;
cost $1,079(c) 1,665
453 Lotte Chilsung Beverage Co. Ltd.(a) 298
--------
6,168
--------
TOBACCO (0.5%)
52,683 KT&G Corp.(a) 2,547
182,000 PT Gudang Garam Tbk(a) 659
--------
3,206
--------
Total Consumer Staples 31,447
--------
ENERGY (10.3%)
--------------
COAL & CONSUMABLE FUELS (0.9%)
8,700 Banpu Public Co. Ltd.(a) 152
21,500 Banpu Public Co. Ltd. NVDR(a) 377
397,500 China Shenhua Energy Co. Ltd. "H"(a) 1,580
328,400 PT Bumi Resources Tbk(a) 72
47,600 PT Indo Tambangraya Megah(a) 176
1,164,000 Yanzhou Coal Mining Co. Ltd. "H"(a) 2,717
26,900 Yanzhou Coal Mining Co. Ltd. ADR "H" 630
--------
5,704
--------
INTEGRATED OIL & GAS (6.5%)
1,158,000 China Petroleum and Chemical Corp. "H"(a) 912
16,450 China Petroleum and Chemical Corp. ADR "H"(b) 1,294
115,860 LUKoil Holdings ADR 5,608
12,620 MOL Hungarian Oil and Gas plc*(a) 995
554,730 OAO Gazprom ADR(a) 11,317
138,500 OJSC OC Rosneft 1,018
5,284,000 PetroChina Co. Ltd. "H"(a) 5,680
23,980 PetroChina Co. Ltd. ADR 2,573
173,040 Petroleo Brasileiro S.A. ADR 6,164
235,800 PTT Public Co. Ltd.(a) 1,761
84,610 Sasol Ltd.(a) 3,060
17,180 Sasol Ltd. ADR 618
--------
41,000
--------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
226,282 Maridive & Oil Services Co.(a) 792
--------
OIL & GAS EXPLORATION & PRODUCTION (1.2%)
1,872,000 CNOOC Ltd.(a) 2,935
237,750 JKX Oil & Gas plc(a) 803
3,760,000 Medco Energi Internasional(a) 1,095
2,800 Osx Brasil S.A.* 755
================================================================================
20 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
101,000 Pacific Rubiales Energy Corp.* $ 2,102
10,800 Petrominerales Ltd.* 260
--------
7,950
--------
OIL & GAS REFINING & MARKETING (1.6%)
37,200 Reliance Industries Ltd. GDR(a),(d) 1,661
147,672 Reliance Industries Ltd. GDR(a),(b),(d) 6,594
42,320 S-Oil Corp.(a) 1,801
--------
10,056
--------
Total Energy 65,502
--------
FINANCIALS (22.6%)
------------------
CONSUMER FINANCE (0.0%)
277,100 Kiatnakin Bank Public Co. Ltd.(a) 217
--------
DIVERSIFIED BANKS (17.0%)
89,200 ABSA Group Ltd.(a) 1,518
247,900 Asya Katilim Bankasi A.S.(a) 535
239,140 Banco Bradesco S.A. ADR 3,908
833,900 Banco De Oro(a) 780
43,600 Banco do Brasil S.A. 622
2,000 Banco do Estado do Rio Grande do Sul S.A. 14
377,200 Banco Santander Brasil S.A. ADR 3,930
759,640 Bangkok Bank Public Co. Ltd.(a) 2,685
49,300 Bangkok Bank Public Co. Ltd. NVDR(a) 171
40,510 Bank Hapoalim Ltd.*(a) 154
5,102,000 Bank of China Ltd. "H"(a) 2,537
918,277 Bank of the Philippine Islands(a) 879
8,430 Bank Polska Kasa Opieki S.A.(a) 418
20,600 Bank Zachodni WBK(a) 1,255
12,300 BRE Bank S.A.*(a) 932
3,750 BRE Bank S.A. Allotment Shares 287
4,487,000 Chang Hwa Bank(a) 1,774
8,548,620 China Construction Bank Corp. "H"(a) 6,843
223,000 China Merchants Bank Co. Ltd. "H"(a) 532
452,900 China Minsheng Bank "H"*(a) 456
4,305,884 Chinatrust Financial Holding Co. Ltd.(a) 2,186
132,438 Commercial International Bank(a) 1,662
8,700 Credicorp Ltd. 768
6,002,448 First Financial Holding Co. Ltd.(a) 3,071
161,400 Grupo Financiero Banorte S.A. 621
33,500 Hana Financial Group, Inc.(a) 842
12,000 HDFC Bank Ltd. ADR 1,668
32,200 ICICI Bank Ltd. ADR 1,185
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
8,673,300 Industrial and Commercial Bank of China Ltd. "H"(a) $ 6,380
185,500 Industrial Bank of Korea(a) 2,052
459,679 Itau Unibanco Banco Multiplo S.A. GDR 8,463
49,760 Itau Unibanco Holdings S.A. ADS(a) 916
542,800 JSC VTB Bank GDR(a) 2,568
1,239,100 Kasikornbank Public Co. Ltd.(a) 3,257
95,913 KB Financial Group, Inc.(a) 3,922
1,755 KB Financial Group, Inc. ADR 70
4,236,600 Krung Thai Bank Public Co. Ltd.(a) 1,439
2,099,270 Malayan Banking Berhad(a) 4,555
971,000 Mega Financial Holding Co. Ltd.(a) 508
772,000 Metropolitan Bank & Trust Co.(a) 946
124,587 Nedcor Ltd.(a) 2,205
95,600 OTP Bank*(a) 2,424
163,200 PKO Bank Polski S.A.(a) 1,992
591,800 PT Bank Danamon Indonesia Tbk(a) 317
4,856,500 PT Bank Mandiri Tbk(a) 2,677
2,950,000 PT Bank Negara Indonesia Tbk(a) 774
60,579 Shinhan Financial Group Co. Ltd.(a) 2,137
7,390,639 SinoPac Financials Holdings Co. Ltd.*(a) 2,192
302,711 Standard Bank Group Ltd.(a) 4,245
65,820 State Bank of India Ltd. GDR(a) 6,235
178,700 Turkiye Garanti Bankasi A.S.(a) 771
611,818 Turkiye Is Bankasi(a) 1,885
186,900 Turkiye Vakiflar Bankasi T.A.O.(a) 401
437,500 Union Bank of the Philippines(a) 377
159,000 Woori Finance Holdings Co. Ltd.(a) 2,038
--------
107,979
--------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.2%)
376,000 Huaku Development Co. Ltd.(a) 972
50,500 MRV Engenharia e Participacoes S.A. 327
--------
1,299
--------
LIFE & HEALTH INSURANCE (1.3%)
598,000 Cathay Financial Holding Co. Ltd.*(a) 873
2,092,802 China Life Insurance Co. Ltd.*(a) 1,607
731,000 China Life Insurance Co. Ltd. "H"(a) 3,181
106,800 Discovery Holdings Ltd.(a) 491
230,920 Tong Yang Life Insurance Co. Ltd.(a) 2,343
--------
8,495
--------
MULTI-LINE INSURANCE (0.5%)
239,200 Porto Seguro S.A. 2,439
3,560 Powszechny Zaklad Ubezpiecze S.A.* 375
--------
2,814
--------
================================================================================
22 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
MULTI-SECTOR HOLDINGS (0.3%)
436,300 Haci Omer Sabanci Holdings A.S.(a) $ 1,806
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.6%)
339,800 African Bank Investments Ltd.(a) 1,418
927,320 FirstRand Ltd.(a) 2,384
--------
3,802
--------
PROPERTY & CASUALTY INSURANCE (0.6%)
41,100 Dongbu Insurance Co. Ltd.(a) 1,141
24,490 LIG Non-Life Insurance Co. Ltd.(a) 468
15,069 Samsung Fire & Marine Insurance Co. Ltd.(a) 2,245
--------
3,854
--------
REAL ESTATE DEVELOPMENT (0.9%)
203,040 China Overseas Land & Investment Ltd.(a) 398
270,000 Hopson Development Holdings Ltd.(a) 324
5,501,300 L.P.N. Development Public Co. Ltd.(a) 1,115
320,000 Sino-Ocean Land Holdings Ltd.(a),(d) 237
2,909,000 SOHO China Ltd.(a) 1,525
2,831,000 Supali Public Co. Ltd.(a) 642
1,173,100 Talaat Moustafa Group Holding*(a) 1,619
--------
5,860
--------
REAL ESTATE OPERATING COMPANIES (0.4%)
27,300 Iguatemi Empresa de Shopping Centers S.A. 447
10,850,000 Renhe Commercial Holdings Co. Ltd.(a) 2,345
--------
2,792
--------
REAL ESTATE SERVICES (0.1%)
28,900 E-House (China) Holdings Ltd.(b) 421
--------
REGIONAL BANKS (0.2%)
31,880 Busan Bank(a) 278
97,320 Daegu Bank(a) 1,115
--------
1,393
--------
REINSURANCE (0.3%)
242,803 Korean Reinsurance Co. Ltd.(a) 1,799
--------
SPECIALIZED FINANCE (0.2%)
134,200 BM&F Bovespa S.A. 899
--------
Total Financials 143,430
--------
HEALTH CARE (0.9%)
------------------
PHARMACEUTICALS (0.9%)
111,100 Aspen Pharmacare Holdings Ltd.*(a) 1,166
7,300 Genomma Lab Internacional S.A. "B"* 23
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
3,861,500 PT Kalbe Farma Tbk(a) $ 757
20,210 Teva Pharmaceutical Industries Ltd. ADR 1,108
19,660 Yuhan Corp.(a) 2,366
--------
Total Health Care 5,420
--------
INDUSTRIALS (7.8%)
------------------
AEROSPACE & DEFENSE (0.5%)
134,374 Embraer Empresa Brasileira de Aeronautica S.A. ADR 2,927
--------
AIR FREIGHT & LOGISTICS (0.4%)
126,800 Julio Simoes Logistica S.A.* 517
8,216,200 Sinotrans Ltd. "H"(a) 1,832
--------
2,349
--------
AIRLINES (0.7%)
2,126,000 Air China Ltd. "H"*(a) 2,121
1,426,000 China Eastern Airlines Corp. Ltd. "H"*(a) 589
3,006,000 China Southern Airlines Co. Ltd. "H"*(a) 1,294
60,500 Gol - Linhas Aereas Inteligentes S.A. ADR(b) 685
--------
4,689
--------
AIRPORT SERVICES (0.3%)
2,496,000 Beijing Capital International Airport Co. Ltd. "H"(a) 1,354
182,900 TAV Havalimanlari Holding A.S.*(a) 641
--------
1,995
--------
CONSTRUCTION & ENGINEERING (2.4%)
238,100 Aveng Ltd.(a) 1,131
3,099,500 China Railway Construction Corp.(a) 3,549
19,400 Daelim Industrial Co. Ltd.(a) 902
2,449,000 Gamuda Berhad(a) 2,059
92,980 Hyundai Development Co.(a) 1,791
599,220 Murray & Roberts Holdings Ltd.(a) 3,246
25,000 Orascom Construction Industries(a) 1,048
519,000 Tekfen Holding Co., Inc.(a) 1,560
--------
15,286
--------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.8%)
1,107,500 PT United Tractors Tbk(a) 2,119
100,800 Tata Motors Ltd. ADR(b) 1,682
214,000 Weichai Power Co. Ltd. "H"(a) 1,550
--------
5,351
--------
HEAVY ELECTRICAL EQUIPMENT (0.2%)
1,798,000 Harbin Power Equipment Co. Ltd.(a) 1,306
--------
================================================================================
24 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (1.7%)
241,810 Barloworld Ltd.(a) $ 1,451
64,800 Bidvest Group Ltd.(a) 1,112
221,955 Enka Insaat ve Sanayi A.S.(a) 738
685,500 Koc Holding AS(a) 2,360
45,570 LG Corp.(a) 2,536
1,307,147 NWS Holdings Ltd.(a) 2,287
666,000 Tianjin Development Holdings Ltd.(a) 362
--------
10,846
--------
INDUSTRIAL MACHINERY (0.2%)
127,900 Metalfrio Solutions S.A., acquired 4/12/2007 - 6/20/2007;
cost $1,253(c) 655
39,100 NEPES Corp.(a) 650
--------
1,305
--------
MARINE (0.1%)
16,900 Korea Line Corp.*(a) 706
--------
MARINE PORTS & SERVICES (0.4%)
1,841,709 Cosco Pacific Ltd.(a) 2,232
--------
TRUCKING (0.1%)
66,700 Localiza Rent a Car S.A. 696
--------
Total Industrials 49,688
--------
INFORMATION TECHNOLOGY (12.0%)
------------------------------
COMMUNICATIONS EQUIPMENT (0.4%)
213,500 BYD Electronic International Co. Ltd.(a) 131
1,304,600 Comba Telecom Systems Holdings Ltd.(a) 1,540
238,200 ZTE Corp.(a) 781
--------
2,452
--------
COMPUTER HARDWARE (1.4%)
1,203,990 Compal Electronics, Inc.(a) 1,458
2,911,300 Quanta Computer, Inc.(a) 5,219
1,301,972 Wistron Corp.(a) 2,130
--------
8,807
--------
COMPUTER STORAGE & PERIPHERALS (0.9%)
1,062,654 Asustek Computer, Inc.(a) 1,676
867,000 Catcher Technology Co. Ltd.(a) 2,096
498,000 Giga-Byte Technology Co. Ltd.(a) 505
713,195 Lite-On Technology Corp.(a) 806
1,063,530 TPV Technology Ltd.(a) 635
--------
5,718
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.6%)
169,600 Cielo S.A. $ 1,437
138,900 Redecard S.A. 2,061
--------
3,498
--------
ELECTRONIC COMPONENTS (0.6%)
230,000 AU Optronics Corp.(a) 223
150,800 AU Optronics Corp. ADR 1,466
11,400 LG Philips LCD Co. Ltd.(a) 412
292,384 Nan Ya Printed Circuit Board Corp.(a) 1,224
338,000 Unimicron Technology Corp.(a) 475
--------
3,800
--------
ELECTRONIC MANUFACTURING SERVICES (0.9%)
1,403,989 Hon Hai Precision Industry Corp. Ltd.*(a) 5,536
--------
INTERNET SOFTWARE & SERVICES (0.7%)
21,140 Sohu.com, Inc.* 934
197,400 Tencent Holdings Ltd.(a) 3,758
--------
4,692
--------
IT CONSULTING & OTHER SERVICES (0.6%)
21,700 Infosys Technologies Ltd. ADR 1,248
748,220 Rolta India Ltd.*(d) 2,636
--------
3,884
--------
SEMICONDUCTORS (5.5%)
516,287 King Yuan Electronics Co. Ltd.(a) 218
115,270 Media Tek, Inc.(a) 1,845
230,320 Radiant Opto-Electronics Corp.(a) 309
41,000 Richtek Technology Corp.(a) 377
26,620 Samsung Electronics Co. Ltd.(a) 17,207
97,195 Siliconware Precision Industries Co. ADR 529
3,534,378 Taiwan Semiconductor Manufacturing Co. Ltd.(a) 6,455
226,993 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 2,213
372,500 Transcend Information, Inc.(a) 972
7,731,286 United Microelectronics Corp.*(a) 3,444
475,280 United Microelectronics Corp. ADR* 1,573
--------
35,142
--------
SYSTEMS SOFTWARE (0.3%)
104,590 Asseco Poland S.A.(a) 1,808
500 Asseco Poland S.A. Allotment Shares* 8
--------
1,816
--------
================================================================================
26 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS (0.1%)
301,000 WPG Holdings Ltd.(a) $ 576
--------
Total Information Technology 75,921
--------
MATERIALS (13.4%)
-----------------
ALUMINUM (0.2%)
1,310,500 United Co. RUSAL*(a) 1,226
--------
COMMODITY CHEMICALS (0.4%)
27,833 Huchems Fine Chemical Corp.(a) 556
6,690 LG Chem Ltd.(a) 1,499
186,902 Mexichem S.A. de C.V. 498
--------
2,553
--------
CONSTRUCTION MATERIALS (1.6%)
3,212,000 Asia Cement (China) Holdings Corp.(a) 1,486
1,794,000 Asia Cement Corp.(a) 1,535
89,892 Cemex S.A. de C.V. ADR* 973
879,840 India Cements Ltd. GDR(a),(d) 4,205
496,500 PT Indocement Tunggal Prakarsa Tbk(a) 794
1,672,500 PT Semen Gresik (Perssero) Tbk(a) 1,503
--------
10,496
--------
DIVERSIFIED CHEMICALS (0.3%)
10,062 OCI Co. Ltd.(a) 1,641
--------
DIVERSIFIED METALS & MINING (2.1%)
89,900 Exxaro Resources Ltd.(a) 1,297
1,075,768 Grupo Mexico S.A.B. de C.V. "B" 2,554
64,800 KGHM Polska Miedz S.A.(a) 1,880
9,560 Korea Zinc Co. Ltd.(a) 1,548
128,100 Mining and Metallurgical Co. Norilsk Nickel ADR(a) 2,084
77,244 Mining and Metallurgical Co. Norilsk Nickel ADR 1,257
2,674,500 PT International Nickel Indonesia Tbk(a) 1,119
92,600 Sterlite Industries India Ltd. ADR(b) 1,321
--------
13,060
--------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%)
353,510 Makhteshim-Agan Industries Ltd.(a) 1,263
--------
GOLD (0.6%)
178,250 African Barrick Gold Ltd.* 1,603
38,196 AngloGold Ashanti Ltd. ADR 1,601
40,920 Gold Fields Ltd. ADR 563
--------
3,767
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
METAL & GLASS CONTAINERS (0.3%)
879,244 Nampak Ltd.(a) $ 2,097
--------
PAPER PRODUCTS (0.7%)
773,000 Lee & Man Paper Manufacturing Ltd.(a) 578
1,855,000 Nine Dragons Paper Holdings Ltd.(a) 2,746
382,061 Sappi Ltd.*(a) 1,446
--------
4,770
--------
PRECIOUS METALS & MINERALS (0.2%)
10,372 Anglo Platinum Ltd.*(a) 1,049
--------
SPECIALTY CHEMICALS (0.2%)
4,878,000 Lumena Resources Corp.*(a) 1,222
--------
STEEL (6.6%)
144,585 ArcelorMittal South Africa Ltd.*(a) 1,516
1,114,082 China Steel Corp.(a) 1,052
76,000 Companhia Siderurgica Nacional S.A. ADR 1,146
100,794 Confab Industrial S.A. 233
514,927 El Ezz Steel Rebars S.A.E.*(a) 1,743
27,500 Evraz Group S.A. GDR* 745
65,900 Gerdau S.A. ADR 887
70,000 Grupo Simec S.A. "B"* 173
47,700 Hyundai Hysco(a) 693
13,200 Hyundai Steel Co.(a) 963
163,700 Industrias CH, S.A. de C.V "B"* 584
74,000 Kumba Iron Ore Ltd.(a) 3,155
4,550,000 Maanshan Iron & Steel Co. Ltd.(a) 2,199
71,200 Magnitogorsk Iron & Steel Works GDR* 749
6,400 Mechel OAO ADR 139
59,500 Metalurgica Gerdau S.A. 1,007
43,800 Novolipetsk Steel GDR* 1,268
8,859 POSCO(a) 3,455
27,980 POSCO ADR 2,696
201,000 Severstal Joint Stock Co. 2,177
18,925 Usinas Siderurgicas de Minas Gerais S.A. 457
304,600 Vale S.A. 8,282
299,800 Vale S.A. ADR 6,910
--------
42,229
--------
Total Materials 85,373
--------
TELECOMMUNICATION SERVICES (8.7%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (2.4%)
3,120,000 China Communications Services Corp. Ltd. "H"(a) 1,371
844,406 China Unicom Hong Kong Ltd.(a) 1,015
================================================================================
28 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
17,571 Chunghwa Telecom Co. Ltd. $ 335
177,400 KT Corp. ADR 3,302
857,420 Mahanagar Telephone Nigam Ltd. ADR(b) 2,049
1,761,700 PT Telekomunikasi Indonesia Tbk(a) 1,449
14,500 Tele Norte Leste Participacoes S.A. 272
47,500 Telefonos de Mexico S.A. de C.V. ADR "L" 668
333,860 Telekomunikacja Polska S.A.(a) 1,558
176,420 Telkom S.A. Ltd.(a) 860
167,000 Vimpelcom Ltd.* 2,597
--------
15,476
--------
WIRELESS TELECOMMUNICATION SERVICES (6.3%)
192,720 America Movil S.A.B. de C.V. ADR "L" 9,123
997,000 China Mobile Ltd.(a) 9,298
67,870 China Mobile Ltd. ADR 3,161
166,000 Mobile TeleSystems ADR* 3,192
311,111 MTN Group Ltd.(a) 4,349
9,300 Philippine Long Distance Telephone Co.(a) 482
2,176,500 PT Indonesian Satellite Corp. Tbk(a) 1,198
84,800 Sistema JSFC GDR(a) 2,200
4,664 SK Telecom Co. Ltd.(a) 621
170,120 SK Telecom Co. Ltd. ADR 2,645
170,340 Turkcell Iletisim Hizmetleri A.S.(a) 924
106,390 Turkcell Iletisim Hizmetleri A.S. ADR 1,434
37,000 Vivo Participacoes S.A. 1,011
--------
39,638
--------
Total Telecommunication Services 55,114
--------
UTILITIES (2.4%)
----------------
ELECTRIC UTILITIES (0.9%)
51,013 Centrais Electricas Brasileiras S.A. 635
96,008 Companhia Energetica de Minas Gerais ADR(b) 1,380
48,900 Enersis S.A. ADR 922
17,000 First Philippine Holdings Corp. 21
67,100 Korea Electric Power Corp.*(a) 1,823
23,580 Korea Electric Power Corp. ADR* 318
233,950 Tenaga Nasional Berhad(a) 584
--------
5,683
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (1.0%)
8,701,000 China Power International Development Ltd.(a) 1,882
123,700 Companhia Energetica de Sao Paulo 1,476
12,200 Empresa Nacional De Electricidad S.A. ADR 545
2,561,800 Huaneng Power International, Inc. "H"(a) 1,437
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
21,670 Huaneng Power International, Inc. ADR "H" $ 476
67,070 Tractebel Energia S.A. 752
--------
6,568
--------
WATER UTILITIES (0.5%)
39,804 Companhia de Saneamento Basico do Estado de Sao Paulo 748
6,580 Companhia de Saneamento Basico do Estado de Sao Paulo ADR(b) 249
159,900 Companhia de Saneamento de Minas Gerais 2,071
--------
3,068
--------
Total Utilities 15,319
--------
Total Common Stocks (cost: $534,437) 584,070
--------
PREFERRED SECURITIES (4.7%)
CONSUMER DISCRETIONARY (0.1%)
-----------------------------
TEXTILES (0.1%)
287,688 Companhia de Tecidos Norte de Minas,
acquired 5/29/2003 - 4/20/2009; cost $1,011(c) 698
--------
Total Consumer Discretionary 698
--------
ENERGY (2.3%)
-------------
INTEGRATED OIL & GAS (2.3%)
469,450 Petroleo Brasileiro S.A. ADR 14,539
--------
Total Energy 14,539
--------
FINANCIALS (0.3%)
-----------------
DIVERSIFIED BANKS (0.2%)
18,800 Banco Itau Holding Financeira S.A. 348
61,400 Bradespar S.A. 1,230
--------
1,578
--------
REGIONAL BANKS (0.1%)
102,100 Banco Panamericano S.A. 490
--------
Total Financials 2,068
--------
INDUSTRIALS (0.4%)
------------------
TRADING COMPANIES & DISTRIBUTORS (0.4%)
428,542 Itausa - Investimentos Itau S.A. 2,549
--------
Total Industrials 2,549
--------
MATERIALS (0.6%)
----------------
COMMODITY CHEMICALS (0.4%)
374,900 Braskem S.A. "A"* 2,199
--------
================================================================================
30 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------
PAPER PRODUCTS (0.1%)
93,125 Suzano Papel e Celulose S.A. $ 811
--------
STEEL (0.1%)
21,275 Usinas Siderurgicas de Minas Gerais S.A. 531
--------
Total Materials 3,541
--------
TELECOMMUNICATION SERVICES (0.6%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.4%)
157,350 Tele Norte Leste Participacoes S.A. ADR 2,431
--------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
59,900 Tim Participacoes S.A. ADR 1,615
--------
Total Telecommunication Services 4,046
--------
UTILITIES (0.4%)
----------------
ELECTRIC UTILITIES (0.4%)
186,371 Companhia Energetica de Minas Gerais (CEMIG) 2,640
--------
Total Utilities 2,640
--------
Total Preferred Securities (cost: $27,565) 30,081
--------
EXCHANGE-TRADED NOTES (0.4%)
45,451 iPath MSCI India Index*(b) (cost: $1,764) 2,764
--------
RIGHTS (0.0%)
INDUSTRIALS (0.0%)
------------------
TRADING COMPANIES & DISTRIBUTORS (0.0%)
2,760 Itausa - Investimentos Itau S.A.*(a) (cost: $0) 2
--------
Total Equity Securities (cost: $563,766) 616,917
--------
MONEY MARKET INSTRUMENTS (1.6%)
MONEY MARKET FUNDS (1.6%)
9,852,236 State Street Institutional Liquid Reserve Fund, 0.18%(e)
(cost: $9,852) 9,852
--------
SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED (1.8%)
MONEY MARKET FUNDS (1.2%)
33,437 AIM Short-Term Investment Co. Liquid Assets Portfolio, 0.18%(e) 34
28,003 BlackRock Liquidity Funds TempFund Portfolio, 0.16%(e) 28
7,126,221 Fidelity Institutional Money Market Portfolio, 0.23%(e) 7,126
--------
Total Money Market Funds 7,188
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
<PAGE>
================================================================================
--------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
--------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (0.6%)
$2,000 Credit Suisse First Boston LLC, 0.20%, acquired on 5/28/2010
and due 6/01/2010 at $2,000 (collateralized by $2,045 of
Freddie Mac(g), 0.16%(f), due 7/06/2010; market value $2,045) $ 2,000
2,000 Deutsche Bank Securities, Inc., 0.20%, acquired on 5/28/2010
and due 6/01/2010 at $2,000 (collateralized by $1,999 of
Federal Farm Credit Bank(g), 3.63%, due 11/16/2016;
market value $2,041) 2,000
--------
Total Repurchase Agreements 4,000
--------
Total Short-Term Investments Purchased With Cash Collateral
From Securities Loaned (cost: $11,188) 11,188
--------
TOTAL INVESTMENTS (COST: $584,806) $637,957
========
----------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
----------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $169,598 $414,472 $- $584,070
Preferred Securities 30,081 - - 30,081
Exchange-Traded Notes 2,764 - - 2,764
Rights - 2 - 2
Money Market Instruments:
Money Market Funds 9,852 - - 9,852
Short-Term Investments
Purchased With Cash
Collateral From Securities
Loaned:
Money Market Funds 7,188 - - 7,188
Repurchase Agreements - 4,000 - 4,000
----------------------------------------------------------------------------------------------------
Total $219,483 $418,474 $- $637,957
----------------------------------------------------------------------------------------------------
================================================================================
32 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
May 31, 2010
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
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 CATEGORIES AND DEFINITIONS
RIGHTS -- enable the holder to buy a specified number of shares of new
issues of a common stock before it is offered to the public.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
GDR Global depositary receipts are receipts issued by a U.S. or foreign
bank evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
<PAGE>
================================================================================
iPath iPath - Exchange traded notes (ETNs) that are senior, unsecured,
unsubordinated debt securities issued by Barclays Bank, PLC. ETNs
are traded on securities exchanges and are linked to the return of a
benchmark index.
NVDR Non-voting depositary receipts are receipts issued by Thai NVDR
Company Limited.
o SPECIFIC NOTES
(a) Security was fair valued at May 31, 2010, by USAA Investment Management
Company (the Manager) in accordance with valuation procedures approved
by the Board of Trustees.
(b) The security or a portion thereof was out on loan as of May 31, 2010.
(c) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board of Trustees. The aggregate market value of these
securities at May 31, 2010, was $6,751,000, which represented 1.1% of
the Fund's net assets.
(d) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board of Trustees, unless otherwise noted as
illiquid.
(e) Rate represents the money market fund annualized seven-day yield at May
31, 2010.
(f) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(g) Securities issued by government-sponsored enterprises are supported only
by the right of the government-sponsored enterprise to borrow from the
U.S. Treasury, the discretionary
================================================================================
34 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
authority of the U.S. government to purchase the government-sponsored
enterprises' obligations, or by the credit of the issuing agency,
instrumentality, or corporation, and are neither issued nor guaranteed
by the U.S. Treasury.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 35
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
May 31, 2010
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities
on loan of $10,666) (cost of $584,806) $637,957
Cash denominated in foreign currencies (identified cost of $6,795) 6,797
Receivables:
Capital shares sold:
Affiliated transactions (Note 8) 83
Nonaffiliated transactions 371
USAA Investment Management Company (Note 7D) 53
USAA Transfer Agency Company (Note 7E) 3
Dividends and interest 3,005
Securities sold 3,248
Other 17
--------
Total assets 651,534
--------
LIABILITIES
Payables:
Upon return of securities loaned 11,188
Securities purchased 2,657
Capital shares redeemed:
Affiliated transactions (Note 8) 1
Nonaffiliated transactions 340
Bank overdraft 727
Unrealized depreciation on foreign currency contracts held, at value 8
Accrued management fees 574
Accrued transfer agent's fees 69
Other accrued expenses and payables 921
--------
Total liabilities 16,485
--------
Net assets applicable to capital shares outstanding $635,049
========
NET ASSETS CONSIST OF:
Paid-in capital $647,170
Accumulated undistributed net investment income 3,992
Accumulated net realized loss on investments (68,491)
Net unrealized appreciation of investments 53,151
Net unrealized depreciation of foreign currency translations (773)
--------
Net assets applicable to capital shares outstanding $635,049
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $557,639/32,429 shares outstanding) $ 17.20
========
Institutional Shares (net assets of $77,410/4,496 shares outstanding) $ 17.22
========
See accompanying notes to financial statements.
================================================================================
36 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Year ended May 31, 2010
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $1,493) $13,379
Interest 31
Securities lending (net) 139
-------
Total income 13,549
-------
EXPENSES
Management fees 6,194
Administration and servicing fees:
Fund Shares 832
Institutional Shares 23
Transfer agent's fees:
Fund Shares 1,738
Institutional Shares 23
Custody and accounting fees:
Fund Shares 651
Institutional Shares 53
Postage:
Fund Shares 70
Shareholder reporting fees:
Fund Shares 46
Trustees' fees 10
Registration fees:
Fund Shares 50
Institutional Shares 3
Professional fees 92
Other 14
-------
Total expenses 9,799
Transfer agent's fees reimbursed (Note7E):
Fund Shares (102)
Expenses reimbursed:
Institutional Shares (53)
-------
Net expenses 9,644
-------
NET INVESTMENT INCOME 3,905
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, AND
FOREIGN CURRENCY
Net realized gain (loss) on:
Investments (net of foreign taxes withheld of $620) 49,246
Foreign currency transactions (177)
Change in net unrealized appreciation/depreciation of:
Investments 36,133
Foreign currency translations (739)
-------
Net realized and unrealized gain 84,463
-------
Increase in net assets resulting from operations $88,368
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Years ended May 31,
--------------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,905 $ 7,668
Net realized gain (loss) on investments 49,246 (115,156)
Net realized loss on foreign currency transactions (177) (1,159)
Change in net unrealized appreciation/depreciation of:
Investments 36,133 (90,726)
Foreign currency translations (739) 236
---------------------------
Increase (decrease) in net assets resulting from operations 88,368 (199,137)
---------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (3,451) (5,291)
Institutional Shares* (549) (220)
---------------------------
Total distributions of net investment income (4,000) (5,511)
---------------------------
Net realized gains:
Fund Shares - (22,676)
Institutional Shares* - (771)
---------------------------
Total distributions of net realized gains - (23,447)
---------------------------
Distributions to shareholders (4,000) (28,958)
---------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares 50,071 35,555
Institutional Shares* 51,418 19,264
---------------------------
Total net increase in net assets from
capital share transactions 101,489 54,819
---------------------------
Capital contribution from USAA Transfer
Agency Company (Note 7E):
Fund Shares 3 19
Institutional Shares* - 10
---------------------------
Net increase (decrease) in net assets 185,860 (173,247)
NET ASSETS
Beginning of year 449,189 622,436
---------------------------
End of year $635,049 $ 449,189
===========================
Accumulated undistributed net investment income:
End of year $ 3,992 $ 3,389
===========================
*Institutional Shares were initiated on August 1, 2008
See accompanying notes to financial statements.
================================================================================
38 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
May 31, 2010
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940 (the 1940 Act), as amended, is an open-end management investment company
organized as a Delaware statutory trust consisting of 46 separate funds. The
information presented in this annual report pertains only to the USAA Emerging
Markets Fund (the Fund), which is classified as diversified under the 1940 Act.
The Fund's investment objective is capital appreciation. The Fund concentrates
its investments in securities of companies in emerging market countries, which
may have limited or developing capital markets. Such investments may involve
greater risks than investments in developed markets, and political, social, or
economic changes in these markets may cause the prices of such investments to be
volatile.
The Fund has two classes of shares: Emerging Markets Fund Shares (Fund Shares)
and Emerging Markets Fund Institutional Shares (Institutional Shares). Each
class of shares has equal rights to assets and earnings, except that each class
bears certain class-related expenses specific to the particular class. These
expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class's relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to both classes. The Institutional Shares are currently offered for sale only to
the USAA Target Retirement Funds (Target Funds) and not to the general public.
The Target Funds are managed by USAA Investment Management Company (the
Manager), an affiliate of the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
<PAGE>
================================================================================
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. Securities, including exchange-traded funds (ETFs), exchange-traded
notes (ETNs), and equity-linked structured notes, 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. 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. 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, the Manager and the Fund's subadvisers, if
applicable, will monitor for events that would materially affect the
value of the Fund's foreign securities. The Fund's subadvisers have
agreed to notify the Manager of significant events they identify that
would materially affect the value of the Fund's foreign securities. If
the Manager determines that a particular event would materially affect
the value of the Fund's foreign securities, then the Manager, under
valuation procedures approved by the Trust's Board of Trustees, will
consider such available information that it deems relevant
================================================================================
40 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
to determine a fair value for the affected foreign securities. In
addition, the Fund may use information from an external vendor or other
sources to adjust the foreign market closing prices of foreign equity
securities to reflect what the Fund believes to be the fair value of
the securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events that occur on a fairly regular basis (such as U.S. market
movements) are significant.
3. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their NAV at the end of each business
day.
4. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
5. Repurchase agreements are valued at cost, which approximates market
value.
6. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager in consultation with the Fund's
subadvisers, if applicable, 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
<PAGE>
================================================================================
include fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, and an evaluation of the
forces that influenced the market in which the securities are purchased
and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its income to its shareholders.
Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed,
================================================================================
42 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
certain dividends from foreign securities are recorded upon notification.
Interest income is recorded daily on the accrual basis. Discounts and
premiums on short-term securities are amortized on a straight-line basis
over the life of the respective securities.
E. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers. These agreements are
collateralized by underlying securities. The collateral obligations are
marked-to-market daily to ensure their value is equal to or in excess of
the repurchase agreement price plus accrued interest and are held by the
Fund, either through its regular custodian or through a special "tri-party"
custodian that maintains separate accounts for both the Fund and its
counterparty, until maturity of the repurchase agreement. Repurchase
agreements are subject to credit risk, and the Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into repurchase
agreements.
F. FOREIGN CURRENCY TRANSLATIONS -- The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
<PAGE>
================================================================================
the trade and settlement dates on security transactions, and from the
difference between amounts of dividends, interest, and foreign withholding
taxes recorded on the Fund's books and the U.S. dollar equivalent of the
amounts received. At the end of the Fund's fiscal year, these net realized
foreign currency gains/losses are reclassified from accumulated net
realized gain/loss to accumulated undistributed net investment income on
the statement of assets and liabilities as such amounts are treated as
ordinary income/loss for tax purposes. Net unrealized foreign currency
exchange gains/losses arise from changes in the value of assets and
liabilities, other than investments in securities, resulting from changes
in the exchange rate.
G. EXPENSES PAID INDIRECTLY -- A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition,
through arrangements with the Fund's custodian and other banks utilized by
the Fund for cash management purposes, realized credits, if any, generated
from cash balances in the Fund's bank accounts may be used to directly
reduce the Fund's expenses. For the year ended May 31, 2010, custodian and
other bank credits reduced the Fund's expenses by less than $500. For the
year May 31, 2010, the Fund did not incur any brokerage commission
recapture credits.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
================================================================================
44 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.13% annually of the amount of the committed loan
agreement). Prior to September 25, 2009, the maximum annual facility fee was
0.07% of the amount of the committed loan agreement. The facility fees are
allocated among the funds based on their respective average net assets for the
period.
For the year ended May 31, 2010, the Fund paid CAPCO facility fees of $3,000,
which represents 1.3% of the total fees paid to CAPCO by the USAA funds. The
Fund had no borrowings under this agreement during the year ended May 31, 2010.
(3) DISTRIBUTIONS
The character of any distributions made during the year from net investment
income or net realized gains is determined in accordance with federal tax
regulations and may differ from those determined in accordance with U.S.
generally accepted accounting principles. Also, due to the timing of
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gains were recorded by the Fund.
During the current fiscal year, permanent differences between book-basis and
tax-basis accounting for foreign currency gains and losses resulted
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
<PAGE>
================================================================================
in reclassifications to the statement of assets and liabilities to increase
accumulated undistributed net investment income and increase accumulated net
realized loss on investments by $698,000. This includes differences in the
accounting for distributions, passive foreign investment companies, foreign
currency gains and losses. These reclassifications had no effect on net assets.
The tax character of distributions paid during the years ended May 31, 2010, and
2009, was as follows:
2010 2009
------------------------------------
Ordinary income* $4,000,000 $11,492,000
Long-term realized capital gains -- 17,466,000
*Includes distribution of short-term realized capital gains, if any, which are
taxable as ordinary income.
As of May 31, 2010, the components of net assets representing distributable
earnings on a tax basis were as follows:
Undistributed ordinary income $ 4,829,000
Accumulated capital and other losses (59,613,000)
Unrealized appreciation 43,440,000
Unrealized depreciation on foreign currency translations (773,000)
The difference between book-basis and tax-basis unrealized appreciation of
investments is attributable to the tax deferral of losses on wash sales and the
mark-to-market adjustments.
Distributions of net investment income and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes. At
May 31, 2010, the Fund had a current post-October currency loss of $303,000 and
capital loss carryovers of $59,310,000, for federal income tax purposes. The
post-October loss will be recognized on the first day of the following fiscal
year. If not offset by subsequent capital gains, the capital loss carryovers
will expire between 2017 and 2018, as shown below. It is unlikely that the
Trust's Board of Trustees will authorize
================================================================================
46 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
a distribution of capital gains realized in the future until the capital loss
carryovers have been used or expire.
Capital Loss Carryovers
------------------------------------------
Expires Balance
--------- -----------
2017 $17,653,000
2018 41,657,000
-----------
Total $59,310,000
===========
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties would be recognized by
the Fund as tax expense in the statement of operations if the tax positions were
deemed to not meet the more-likely-than-not threshold. For the year ended May
31, 2010, the Fund did not incur any income tax, interest, or penalties. As of
May 31, 2010, the Manager has reviewed all open tax years and concluded that
there was no impact to the Fund's net assets or results of operations. Tax year
ended May 31, 2010, and each of the three preceding fiscal years, remain subject
to examination by the Internal Revenue Service and state taxing authorities. On
an ongoing basis, the Manager will monitor its tax positions to determine if
adjustments to this conclusion are necessary.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the year ended May 31, 2010, were $481,237,000 and
$376,753,000, respectively.
As of May 31, 2010, the cost of securities, including short-term securities, for
federal income tax purposes, was $594,517,000.
Gross unrealized appreciation and depreciation of investments as of May 31,
2010, for federal income tax purposes, were $83,080,000 and $39,640,000,
respectively, resulting in net unrealized appreciation of $43,440,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
<PAGE>
================================================================================
(5) LENDING OF PORTFOLIO SECURITIES
The Fund, through its third-party securities-lending agent, Wachovia Global
Securities Lending (Wachovia), may lend its securities to qualified financial
institutions, such as certain broker-dealers, to earn additional income. The
borrowers are required to secure their loans continuously with cash collateral
in an amount at least equal to the fair value of the securities loaned,
initially in an amount at least equal to 102% of the fair value of domestic
securities loaned and 105% of the fair value of international securities loaned.
Cash collateral is invested in high-quality short-term investments. Cash
collateral requirements are determined daily based on the prior business day's
ending value of securities loaned. Imbalances in cash collateral may occur on
days where market volatility causes security prices to change significantly, and
are adjusted the next business day. The Fund and Wachovia retain 80% and 20%,
respectively, of the income earned from the investment of cash received as
collateral, net of any expenses associated with the lending transaction.
Wachovia receives no other fees from the Fund for its services as securities-
lending agent. Risks to the Fund in securities-lending transactions are that
the borrower may not provide additional collateral when required or return the
securities when due, and that the value of the short-term investments will be
less than the amount of cash collateral required to be returned to the borrower.
Wachovia Bank, N.A., parent company of Wachovia, has agreed to indemnify the
Fund against any losses due to counterparty default in securities-lending
transactions. For the year ended May 31, 2010, the Fund received securities-
lending income of $139,000, which is net of the 20% income retained by Wachovia.
As of May 31, 2010, the Fund loaned securities having a fair market value of
approximately $10,666,000 and received cash collateral of $11,188,000 for the
loans, which was invested in short-term investments, as noted in the Fund's
portfolio of investments.
(6) CAPITAL SHARE TRANSACTIONS
At May 31, 2010, there were an unlimited number of shares of capital stock at no
par value authorized for the Fund.
================================================================================
48 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated Target Funds. Capital share transactions were as
follows, in thousands:
YEAR ENDED YEAR ENDED
5/31/2010 5/31/2009
----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------
FUND SHARES:
Shares sold 13,197 $ 229,685 10,412 $ 135,494
Shares issued from reinvested
dividends 190 3,395 2,574 27,451
Shares redeemed (10,524) (183,009) (8,855) (127,390)
-------------------------------------------
Net increase from capital
share transactions 2,863 $ 50,071 4,131 $ 35,555
===========================================
INSTITUTIONAL SHARES
(INITIATED ON AUGUST 1, 2008):
Shares sold 3,678 $ 65,156 1,949 $ 23,401
Shares issued from reinvested
dividends 31 548 93 990
Shares redeemed (827) (14,286) (428) (5,127)
-------------------------------------------
Net increase from capital
share transactions 2,882 $ 51,418 1,614 $ 19,264
===========================================
(7) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager provides investment management services to the
Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is
responsible for managing the business and affairs of the Fund, subject to the
authority of and supervision by the Trust's Board of Trustees. The Manager 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 the Fund's assets. The Manager monitors each
subadviser's performance through quantitative and qualitative analysis, and
periodically recommends to the Trust's Board of Trustees as to whether each
subadviser's agreement should be renewed, terminated, or modified. The
Manager also is responsible for allocating assets to the subadvisers. The
allocation for each subadviser can range from
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
<PAGE>
================================================================================
0% to 100% of the Fund's assets, and the Manager can change the allocations
without shareholder approval.
The investment management fee for the Fund is composed of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid monthly
at an annualized rate of 1.00% of the Fund's average net assets for the
fiscal year.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class's performance to that of the Lipper
Emerging Markets Funds Index over the performance period. The Lipper Emerging
Markets Funds Index tracks the total return performance of the 30 largest
funds in the Lipper Emerging Markets Funds category. The performance period
for each class consists of the current month plus the previous 35 months. The
performance adjustment for the Institutional Shares includes the performance
of the Fund Shares for periods prior to August 1, 2008. The following table
is utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
-----------------------------------------------------------------------------
+/- 1.00% to 4.00% +/- 0.04%
+/- 4.01% to 7.00% +/- 0.05%
+/- 7.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund and
its relevant index, rounded to the nearest 0.01%. Average net assets are
calculated over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period, which
is then multiplied by a fraction, the numerator of which is the number of
days in the month and the denominator of which is 365 (366 in leap years).
The resulting amount is the performance adjustment; a positive adjustment in
the case of overperformance, or a negative adjustment in the case of
underperformance.
================================================================================
50 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Emerging Markets Funds Index over that period, even if
the class had overall negative returns during the performance period.
For the year ended May 31, 2010, the Fund incurred total management fees,
paid or payable to the Manager, of $6,194,000, which included a performance
adjustment for the Fund Shares and Institutional Shares of $183,000 and
$4,000, respectively. For the Fund Shares and Institutional Shares, the
performance adjustments were 0.03% and 0.01%, respectively.
B. SUBADVISORY ARRANGEMENTS -- The Manager has entered into an investment
subadvisory agreement with The Boston Company Asset Management, LLC (The
Boston Company) and Batterymarch Financial Management, Inc. (Batterymarch),
under which The Boston Company and Batterymarch direct the investment and
reinvestment of portions of the Fund's assets (as allocated from time to time
by the Manager).
The Manager (not the Fund) pays The Boston Company a subadvisory fee in the
annual amount of 0.69% of the portion of the Fund's average net assets that
The Boston Company manages. For the year ended May 31, 2010, the Manager
incurred subadvisory fees, paid or payable to The Boston Company, of
$2,179,000.
The Manager (not the Fund) pays Batterymarch a subadvisory fee in the annual
amount of 0.80% for assets up to $100 million; 0.75% for assets over $100
million up to $600 million; and 0.60% for assets over $600 million on the
portion of the Fund's average net assets that Batterymarch manages. For the
year ended May 31, 2010, the Manager incurred subadvisory fees, paid or
payable to Batterymarch, of $2,190,000.
C. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid monthly at an
annualized rate of 0.15% and 0.05% of average net
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
<PAGE>
================================================================================
assets of the Fund Shares and Institutional Shares, respectively. For the
year ended May 31, 2010, the Fund Shares and Institutional Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$832,000 and $23,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Trust's Board of Trustees has
approved the reimbursement of a portion of these expenses incurred by the
Manager. For the year ended May 31, 2010, the Fund reimbursed the Manager
$24,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's statement of operations.
D. EXPENSE LIMITATION -- The Manager has voluntarily agreed to limit the annual
expenses of the Institutional Shares for its first two fiscal years to 1.13%
of its average annual net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and will reimburse the
Institutional Shares for all expenses in excess of that amount. The Manager
may modify or terminate this voluntary agreement at any time. For the year
ended May 31, 2010, the Institutional Shares incurred reimbursable expenses
of $53,000 which was receivable from the Manager.
E. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA Shareholder
Account Services (SAS), an affiliate of the Manager, provides transfer agent
services to the Fund. Transfer agent's fees for Fund Shares are paid monthly
based on an annual charge of $23 per shareholder account plus out-of-pocket
expenses. The Fund Shares also pay SAS fees that are related to the
administration and servicing of accounts that are traded on an omnibus basis.
Transfer agent's fees for Institutional Shares are paid monthly based on a
fee accrued daily at an annualized rate of 0.05% of the Institutional Shares'
average net assets, plus out-of-pocket expenses. For the year ended May 31,
2010, the Fund Shares and Institutional Shares incurred transfer agent's
fees, paid or payable to SAS, of $1,738,000 and $23,000, respectively. For
the year ended May 31, 2010, the Fund Shares
================================================================================
52 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
recorded capital contributions from SAS of $3,000 for adjustments related to
corrections to shareholder accounts, which was recorded as a receivable at
May 31, 2010. During the year ended May 31, 2010, SAS reimbursed the Fund
Shares $102,000 for corrections in fees paid for the administration and
servicing of certain accounts.
F. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
(8) TRANSACTIONS WITH AFFILIATES
The Fund is one of 13 USAA mutual funds in which the affiliated Target Funds may
invest. The Target Funds do not invest in the Fund for the purpose of exercising
management or control. As of May 31, 2010, the Fund recorded a receivable for
capital shares sold of $83,000 and a payable for capital shares redeemed of
$1,000 for the Target Funds' purchases and redemptions of Institutional Shares.
As of May 31, 2010, the Target Funds owned the following percent of the total
outstanding shares of the Fund:
OWNERSHIP %
--------------------------------------------------------------------------------
USAA Target Retirement Income Fund 0.6%
USAA Target Retirement 2020 Fund 1.6
USAA Target Retirement 2030 Fund 3.5
USAA Target Retirement 2040 Fund 4.3
USAA Target Retirement 2050 Fund 2.1
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) SUBSEQUENT EVENTS
Events or transactions that occur after the balance sheet date, but before the
financial statements are issued are categorized as recognized or non-recognized
for financial statement purposes. The Manager has evaluated subsequent events
through the date the financial statements
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
<PAGE>
================================================================================
were issued, and has determined there were no events that require recognition or
disclosure in the Fund's financial statements. The following subsequent event
will affect the Fund's future financial statements.
Effective August 1, 2010, the Fund will offer a new class of shares, Adviser
Shares, which are intended for persons purchasing shares through financial
intermediaries, banks, broker-dealers, insurance companies, investment advisers,
plan sponsors, and financial professionals that provide various administrative
and distribution services.
(10) NEW ACCOUNTING PRONOUNCEMENT
FAIR VALUE MEASUREMENTS -- In January 2010, the Financial Accounting
Standards Board issued amended guidance for improving disclosures about fair
value measurements that adds new disclosure requirements about significant
transfers between Level 1, Level 2, and Level 3, and separate disclosures
about purchases, sales, issuances, and settlements in the reconciliation for
fair value measurements using significant unobservable inputs (Level 3). It
also clarifies existing disclosure requirements relating to the levels of
disaggregation for fair value measurement and inputs and valuation
techniques used to measure fair value. The amended guidance is effective for
financial statements for fiscal years and interim periods beginning after
December 15, 2009, except for disclosures about purchases, sales, issuances
and settlements in the rollforward of activity in Level 3 fair value
measurements, which are effective for fiscal years beginning after December
15, 2010, and for interim periods within those fiscal years. The Manager is
in the process of evaluating the impact of this guidance on the Fund's
financial statement disclosures.
================================================================================
54 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
(11) FINANCIAL HIGHLIGHTS -- FUND SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
YEAR ENDED MAY 31,
-----------------------------------------------------------------
2010 2009 2008 2007 2006
-----------------------------------------------------------------
Net asset value at
beginning of period $ 14.41 $ 24.47 $ 22.67 $ 16.82 $ 12.59
-----------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .11 .23 .29 .14 .13
Net realized and unrealized
gain (loss) 2.79 (9.15) 3.99 5.93 4.21
-----------------------------------------------------------------
Total from investment operations 2.90 (8.92) 4.28 6.07 4.34
-----------------------------------------------------------------
Less distributions from:
Net investment income (.11) (.20) (.29) (.22) (.11)
Realized capital gains - (.94) (2.19) - -
-----------------------------------------------------------------
Total distributions (.11) (1.14) (2.48) (.22) (.11)
-----------------------------------------------------------------
Net asset value at end of period $ 17.20 $ 14.41 $ 24.47 $ 22.67 $ 16.82
=================================================================
Total return (%)* 20.07(d) (34.71) 18.78 36.23(a) 34.52
Net assets at end of
period (000) $557,639 $425,934 $622,436 $445,365 $314,876
Ratios to average net assets:**
Expenses (%)(b),(c) 1.66(d) 1.79 1.51 1.65(a) 1.61
Net investment income (%) .61 1.98 1.22 .88 1.31
Portfolio turnover (%) 66 76 64 109 48
* Assumes reinvestment of all net investment income and realized capital gain distributions, if any,
during the period. Includes adjustments in accordance with U.S. generally accepted accounting
principles and could differ from the Lipper reported return.
** For the year ended May 31, 2010, average net assets were $554,659,000.
(a) For the year ended May 31, 2007, SAS voluntarily reimbursed the Fund Shares for a portion of the
transfer agent's fees incurred. The reimbursement had no effect on the Fund Shares' total return
or ratio of expenses to average net assets.
(b) Reflects total operating expenses of the Fund Shares before reductions of any expenses paid
indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) (.00%)(+) (.01%) (.02%)
(+) Represents less than 0.01% of average net assets.
(c) Effective March 1, 2004, through September 30, 2008, the Manager voluntarily agreed to limit
the annual expenses of the Fund Shares to 1.80% of the Fund Shares' average net assets.
(d) During the year ended May 31, 2010, SAS reimbursed the Fund $102,000 for corrections in fees
paid for the administration and servicing of certain accounts. The effect of this reimbursement on
the Fund's total return was less than 0.01%. The reimbursement decreased the Fund's expense
ratios by 0.02%. This decrease is excluded from the expense ratios above.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
<PAGE>
================================================================================
(11) FINANCIAL HIGHLIGHTS (CONTINUED) -- INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each
period is as follows:
YEAR ENDED MAY 31,
-----------------------
2010 2009***
-----------------------
Net asset value at beginning of period $ 14.41 $ 21.26
-----------------------
Income (loss) from investment operations:
Net investment income(a) .21 .31
Net realized and unrealized gain (loss)(a) 2.78 (5.98)
-----------------------
Total from investment operations(a) 2.99 (5.67)
-----------------------
Less distributions from:
Net investment income (.18) (.24)
Realized capital gains - (.94)
-----------------------
Total distributions (.18) (1.18)
-----------------------
Net asset value at end of period $ 17.22 $ 14.41
=======================
Total return (%)* 20.74 (24.59)
Net assets at end of period (000) $77,410 $23,255
Ratios to average net assets:**
Expenses (%)(b) 1.13 1.13(c)
Expenses, excluding reimbursements (%)(b) 1.24 1.28(c)
Net investment income (%) 1.17 3.30(c)
Portfolio turnover (%) 66 76
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return.
** For the year ended May 31, 2010, average net assets were $46,557,000.
*** Institutional Shares were initiated on August 1, 2008.
(a) Calculated using average shares. For the year ended May 31, 2010 average
shares were 2,647,000.
(b) Reflects total operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
56 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
EXPENSE EXAMPLE
May 31, 2010 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of December 1, 2009, through May
31, 2010.
ACTUAL EXPENSES
The first line of the table on the next page provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you
================================================================================
EXPENSE EXAMPLE | 57
<PAGE>
================================================================================
paid for the period. You may use this information to compare the ongoing costs
of investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the second line of the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE DECEMBER 1, 2009 -
DECEMBER 1, 2009 MAY 31, 2010 MAY 31, 2010
-------------------------------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $ 959.13 $7.86
Hypothetical
(5% return before expenses) 1,000.00 1,016.90 8.10
INSTITUTIONAL SHARES
Actual 1,000.00 961.24 5.53
Hypothetical
(5% return before expenses) 1,000.00 1,019.30 5.69
* Expenses are equal to the annualized expense ratio of 1.61% for Fund Shares
and 1.13% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 182 days/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of (4.09)% for Fund Shares and (3.88)% for Institutional Shares for the six-
month period of December 1, 2009, through May 31, 2010.
================================================================================
58 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
ADVISORY AGREEMENTS
May 31, 2010
--------------------------------------------------------------------------------
At a meeting of the Board of Trustees (the Board) held on April 9, 2010, the
Board, including the Trustees who are not "interested persons" of the Trust (the
Independent Trustees), approved the continuance of the Advisory Agreement
between the Trust and the Manager with respect to the Fund and the Subadvisory
Agreements 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 Subadvisory Agreements and
the Manager and each Subadviser, and were given the opportunity to ask questions
and request additional information from management. The information provided to
the Board included, among other things: (i) a separate report prepared by an
independent third party, which provided a statistical analysis comparing the
Fund Shares class' investment performance, expenses, and fees to comparable
investment companies; (ii) information concerning the services rendered to the
Fund, as well as information regarding the Manager's revenues and costs of
providing services to the Fund and compensation paid to affiliates of the
Manager; and (iii) information about the Manager's and Subadvisers' operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement and the Subadvisory Agreements with
management and with experienced independent counsel and received materials from
such counsel discussing the legal standards for their consideration of the
proposed continuation of the Advisory Agreement and the Subadvisory Agreements
with respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory Agreement and the Subadvisory Agreements 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
================================================================================
ADVISORY AGREEMENTS | 59
<PAGE>
================================================================================
the Fund's performance and related services provided by the Manager and by each
Subadviser. At the meeting at which the renewal of the Advisory Agreement and
Subadvisory Agreements 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 and the Subadvisers is an ongoing one. In this regard, the
Board's and its committees' consideration of the Advisory Agreement and
Subadvisory Agreements included certain information previously received at such
quarterly meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES -- In considering the nature, extent,
and quality of the services provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its familiarity
with the Manager's management through Board meetings, discussions, and reports
during the preceding year. The Board considered the fees paid to the Manager and
the services provided to the Fund by the Manager under the Advisory Agreement,
as well as other services provided by the Manager and its affiliates under other
agreements, and the personnel who provide these services. In addition to the
investment advisory services provided to the Fund, the Manager and its
affiliates provide administrative services, stockholder services, oversight of
Fund accounting, marketing services, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Fund and the
Trust.
The Board considered the level and depth of knowledge of the Manager, including
the professional experience and qualifications of senior and
================================================================================
60 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
investment personnel, as well as current staffing levels. The Board discussed
the Manager's effectiveness in monitoring the performance of each Subadviser and
its timeliness in responding to performance issues. The allocation of the
Fund's brokerage, including the Manager's process for monitoring "best
execution," also was considered. The Manager's role in coordinating the
activities of the Fund's other service providers also was considered. The Board
considered the Manager's financial condition and that it had the financial
wherewithal to continue to provide the same scope and high quality of services
under the Advisory Agreement. In reviewing the Advisory Agreement, the Board
focused on the experience, resources, and strengths of the Manager and its
affiliates in managing investment companies, including the Fund.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager, including oversight of the Fund's day-to-day operations
and oversight of Fund accounting. The Manager and its affiliates provide
compliance and administrative services to the Fund. The Trustees, guided also by
information obtained from their experiences as directors/trustees of the Fund
and other investment companies managed by the Manager, also focused on the
quality of the Manager's compliance and administrative staff.
EXPENSES AND PERFORMANCE -- In connection with its consideration of the Advisory
Agreement, the Board evaluated the advisory fees and total expense ratio of the
Fund Shares class as compared to other open-end investment companies deemed to
be comparable to the Fund Shares class as determined by the independent third
party in its report. The expenses of the Fund Shares class were compared to (i)
a group of investment companies chosen by the independent third party to be
comparable to the Fund Shares class based upon certain factors, including fund
type, comparability of investment objective and classification, sales load type
(in this case, investment companies with no sales loads and front-end loads),
asset size, and expense components (the "expense group") and (ii) a larger group
of investment companies that includes all no-load and front-end load retail
open-end investment companies in the same investment classification/objective as
the Fund Shares class regardless
================================================================================
ADVISORY AGREEMENTS | 61
<PAGE>
================================================================================
of asset size, excluding outliers (the "expense universe"). Among other data,
the Board noted that the Fund Shares class' management fee rate -- which
includes advisory and administrative services and the effects of any performance
adjustment -- was above the median of its expense group and its expense
universe. The data indicated that the Fund Shares class' total expenses were
above the median of its expense group and its expense universe. The Board took
into account the various services provided to the Fund by the Manager and its
affiliates. The Board also noted the level and method of computing the
management fee, including the performance adjustment to such fee. The Board also
took into account that the subadvisory fees under the Subadvisory Agreement
relating to the Fund are paid by the Manager. The Board also took into account
Management's discussion with respect to the Fund's expenses.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund Share class' performance
results. The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Advisory Agreement,
including, among other information, a comparison of the Fund Share class'
average annual total return with its Lipper index and with that of other mutual
funds deemed to be in its peer group by the independent third party in its
report (the "performance universe"). The Fund Shares class' performance universe
consisted of the Fund Shares class and all retail and institutional open-end
investment companies with the same classification/objective as the Fund Shares
class regardless of asset size or primary channel of distribution. This
comparison indicated that, among other data, the Fund Shares class' performance
was lower than the average of its performance universe and above its Lipper
index for the one-period ended December 31, 2009, was above the average of its
performance universe and its Lipper index for the three-year period ended
December 31, 2009, and was lower than the average of its performance universe
and its Lipper index for the five-year period ended December 31, 2009. The Board
also noted that the Fund Shares class' percentile performance ranking was in the
top 50% of its performance universe for the one- and three-year periods ended
December 31, 2009, and was in the bottom 50% of its
================================================================================
62 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
performance universe for the five-year period ended December 31, 2009. The
Board also took into account Management's discussion of the Fund's performance.
COMPENSATION AND PROFITABILITY -- The Board took into consideration the level
and method of computing the management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the management revenues from the Fund. This consideration included a
broad review of the methodology used in the allocation of certain costs to the
Fund. In considering the profitability data with respect to the Fund, the
Trustees noted that the Manager pays the subadvisory fees. The Trustees reviewed
the profitability of the Manager's relationship with the Fund before tax
expenses. In reviewing the overall profitability of the management fee to the
Manager, the Board also considered the fact that affiliates provide shareholder
servicing and administrative services to the Fund for which they receive
compensation. The Board also considered the possible direct and indirect
benefits to the Manager from its relationship with the Trust, including that the
Manager may derive reputational and other benefits from its association with the
Fund. The Trustees recognized that the Manager should be entitled to earn a
reasonable level of profits in exchange for the level of services it provides to
the Fund and the entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE -- The Board considered whether there should be changes in
the management fee rate or structure in order to enable the Fund to participate
in any economies of scale. The Board took into account management's discussions
of the current advisory fee structure. The Board also considered the effect of
the Fund's growth and size on its performance and fees, noting that if the
Fund's assets increase over time, the Fund may realize other economies of scale
if assets increase proportionally more than some expenses. The Board determined
that the current investment management fee structure was reasonable.
CONCLUSIONS -- The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the
================================================================================
ADVISORY AGREEMENTS | 63
<PAGE>
================================================================================
Manager has demonstrated that it possesses the capability and resources to
perform the duties required of it under the Advisory Agreement; (ii) the Manager
maintains an appropriate compliance program; (iii) the performance of the Fund
is reasonable in relation to the performance of funds with a similar investment
objective and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager and its affiliates' level of
profitability from their relationship with the Fund is reasonable. Based on its
conclusions, the Board determined that continuation of the Advisory Agreement
would be in the best interests of the Fund and its shareholders.
SUBADVISORY AGREEMENTS
In approving each Subadvisory Agreement, the Board considered various factors,
among them: (i) the nature, extent, and quality of services provided to the Fund
by the respective Subadviser, including the personnel providing services; (ii)
each Subadviser's compensation and any other benefits derived from the
subadvisory relationship; (iii) comparisons of subadvisory fees and performance
to comparable investment companies; and (iv) the terms of each Subadvisory
Agreement. The Board's analysis of these factors is set forth below. After full
consideration of a variety of factors, the Board, including the Independent
Trustees, voted to approve each Subadvisory Agreement. In approving each
Subadvisory 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 PROVIDED; INVESTMENT PERSONNEL -- The
Trustees considered information provided to them regarding the services provided
by each Subadviser, including information presented periodically throughout the
previous year. The Board considered each Subadviser's level of knowledge and
investment style. The Board reviewed the experience and credentials of the
investment personnel who are responsible for managing the investment of
portfolio securities with respect to the Fund and each Subadviser's level of
staffing. The
================================================================================
64 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
Trustees noted that the materials provided to them by each Subadviser indicated
that the method of compensating portfolio managers is reasonable and includes
appropriate mechanisms to prevent a manager with underperformance from taking
undue risks. The Trustees also noted each Subadviser's brokerage practices. The
Board also considered each Subadviser's regulatory and compliance history. The
Board noted that the Manager's monitoring processes of each Subadviser include:
(i) regular telephonic meetings to discuss, among other matters, investment
strategies and to review portfolio performance; (ii) monthly portfolio
compliance checklists and quarterly compliance certifications to the Board; and
(iii) due diligence visits to each Subadviser.
SUBADVISER COMPENSATION -- The Board also took into consideration the financial
condition of each Subadviser. In considering the cost of services to be provided
by each Subadviser and the profitability to that Subadviser of its relationship
with the Fund, the Trustees noted that the fees under the Subadvisory Agreements
were paid by the Manager. The Trustees also relied on the ability of the Manager
to negotiate each Subadvisory Agreement and the fees thereunder at arm's length.
The Board also considered information relating to the cost of services to be
provided by each Subadviser, each Subadviser's profitability with respect to the
Fund, and the potential economies of scale in each Subadviser's management of
the Fund, to the extent available. However, for the reasons noted above, this
information was less significant to the Board's consideration of the Subadvisory
Agreements than the other factors considered.
SUBADVISORY FEES AND FUND PERFORMANCE -- The Board compared the subadvisory fees
for the Fund with the fees that each Subadviser charges to comparable clients.
The Board considered that the Fund pays a management fee to the that, in turn,
the Manager pays a subadvisory fee to each Subadviser. As noted above, the Board
considered, among other data, the Fund Shares class' performance during the
one-, three-, and five-year periods ended December 31, 2009, as compared to the
Fund's respective peer group and noted that the Board reviews at its regularly
scheduled meetings information about the Fund Shares
================================================================================
ADVISORY AGREEMENTS | 65
<PAGE>
================================================================================
class' performance results. The Board noted the Manager's expertise and
resources in monitoring the performance, investment style, and risk-adjusted
performance of each Subadviser. The Board was mindful of the Manager's focus on
each Subadviser's performance and the explanations of management regarding the
performance of the Fund. The Board also noted each Subadviser's long-term
performance record for similar accounts.
CONCLUSIONS -- The Board reached the following conclusions regarding each
Subadvisory Agreement, among others: (i) each Subadviser is qualified to manage
the Fund's assets in accordance with its investment objective and policies; (ii)
each Subadviser maintains an appropriate compliance program; (iii) the
performance of the Fund is reasonable in relation to the performance of funds
with a similar investment objective and to relevant indices; and (iv) the Fund's
advisory expenses are reasonable in relation to those of similar funds and to
the services to be provided by the Manager and each Subadviser. Based on its
conclusions, the Board determined that approval of each Subadvisory Agreement
with respect to the Fund would be in the best interests of the Fund and its
shareholders.
================================================================================
66 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION
TRUSTEES AND OFFICERS OF THE TRUST
--------------------------------------------------------------------------------
The Board of Trustees of the Trust consists of six Trustees. These Trustees and
the Trust's Officers supervise the business affairs of the USAA family of funds.
The Board of Trustees is responsible for the general oversight of the funds'
business and for assuring that the funds are managed in the best interests of
each fund's respective shareholders. The Board of Trustees periodically reviews
the funds' investment performance as well as the quality of other services
provided to the funds and their shareholders by each of the fund's service
providers, including USAA Investment Management Company (IMCO) and its
affiliates. The term of office for each Trustee shall be 20 years or until the
Trustee reaches age 70. All members of the Board of Trustees shall be presented
to shareholders for election or re-election, as the case may be, at least once
every five years. Vacancies on the Board of Trustees can be filled by the action
of a majority of the Trustees, provided that at least two-thirds of the Trustees
have been elected by the shareholders.
Set forth below are the Trustees and Officers of the Trust, their respective
offices and principal occupations during the last five years, length of time
served, and information relating to any other directorships held. Each serves on
the Board of Trustees of the USAA family of funds consisting of one registered
investment company offering 46 individual funds as of May 31, 2010. Unless
otherwise indicated, the business address of each is 9800 Fredericksburg Road,
San Antonio, TX 78288.
If you would like more information about the funds' Trustees, you may call (800)
531-USAA (8722) to request a free copy of the funds' statement of additional
information (SAI).
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 67
<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.
================================================================================
68 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
ROBERT L. MASON, PH.D.(3, 4, 5, 6)
Trustee
Born: June 1946
Year of Election or Appointment: 1997
Institute Analyst, Southwest Research Institute (3/02-present), which focuses in
the fields of technological research. Dr. Mason holds no other directorships of
any publicly held corporations or other investment companies outside the USAA
family of funds.
BARBARA B. OSTDIEK, PH.D.(3, 4, 5, 6, 7)
Trustee
Born: March 1964
Year of Election or Appointment: 2007
Academic Director of the El Paso Corporation Finance Center at Jesse H. Jones
Graduate School of Business at Rice University (7/02-present); Associate
Professor of Finance at Jesse H. Jones Graduate School of Management at Rice
University (7/01-present). Dr. Ostdiek holds no other directorships of any
publicly held corporations or other investment companies outside the USAA family
of funds.
MICHAEL F. REIMHERR(3, 4, 5, 6)
Trustee
Born: August 1945
Year of Election or Appointment: 2000
President of Reimherr Business Consulting (5/95-present), an organization that
performs business valuations of large companies to include the development of
annual business plans, budgets, and internal financial reporting. Mr. Reimherr
holds no other directorships of any publicly held corporations or other
investment companies outside the USAA family of funds.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 69
<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.
================================================================================
70 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
INTERESTED OFFICERS(1)
--------------------------------------------------------------------------------
DANIEL S. McNAMARA
Vice President
Born: June 1966
Year of Appointment: 2009
President and Director, IMCO, FAI, FPS, and SAS (10/09-present); President, Banc
of America Investment Advisors (9/07-9/09); Managing Director, Planning and
Financial Products Group, Bank of America (9/01-9/09).
R. MATTHEW FREUND
Vice President
Born: July 1963
Year of Appointment: 2010
Senior Vice President, Investment Portfolio Management, IMCO (3/10-present);
Vice President, Fixed Income Investments, IMCO (2/04-3/10). Mr. Freund also
serves as a Director for SAS.
JOHN P. TOOHEY
Vice President
Born: March 1968
Year of Appointment: 2009
Vice President, Equity Investments, IMCO (2/09-present); Managing Director, AIG
Investments (12/00-1/09).
CHRISTOPHER P. LAIA
Secretary
Born: January 1960
Year of Appointment: 2010
Vice President, Financial Advice & Solutions Group General Counsel, USAA
(10/08-present); Vice President, Securities Counsel, USAA (6/07-10/08);
Assistant Secretary, USAA family of funds (11/08-4/10); General Counsel,
Secretary, and Partner, Brown Advisory (6/02-6/07). Mr. Laia also holds the
Officer positions of Vice President and Secretary of IMCO and SAS and Vice
President and Assistant Secretary of FAI and FPS.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 71
<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.
================================================================================
72 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "Products & Services"
SELF-SERVICE 24/7 click "Investments," then
AT USAA.COM "Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA "Investments." View account balances,
(8722) or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available (i) at usaa.com; and (ii) on
the SEC's Web site at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
<PAGE>
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
At USAA.COM click: MY DOCUMENTS
Set preferences to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
25558-0710 (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.
Usaa Treasury Money Market Trust (NASDAQ:UATXX)
Historical Stock Chart
From May 2024 to Jun 2024
Usaa Treasury Money Market Trust (NASDAQ:UATXX)
Historical Stock Chart
From Jun 2023 to Jun 2024
