UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
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: DECEMBER 31,
Date of reporting period: JUNE 30, 2010
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JUNE 30, 2010
[LOGO OF USAA]
USAA (R)
[GRAPHIC OF USAA TARGET RETIREMENT FUNDS]
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SEMIANNUAL REPORT
USAA TARGET RETIREMENT FUNDS
JUNE 30, 2010
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TARGET RETIREMENT INCOME FUND
TARGET RETIREMENT 2020 FUND
TARGET RETIREMENT 2030 FUND
TARGET RETIREMENT 2040 FUND
TARGET RETIREMENT 2050 FUND
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>> USAA TARGET RETIREMENT FUNDS
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FUND OBJECTIVE
PROVIDE CAPITAL APPRECIATION AND CURRENT INCOME CONSISTENT WITH CURRENT
INVESTMENT ALLOCATION.
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TYPES OF INVESTMENTS
Each Target Retirement Fund attempts to achieve its objective by investing in a
diversified portfolio of underlying USAA mutual funds according to an asset
allocation strategy designed for investors planning to start withdrawing funds
for retirement in or within a few years of the Fund's specific year (target
date) included in its name.
TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 1
MARKET OUTLOOK/COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Portfolios of Investments 13
Notes to Portfolio of Investments 18
Financial Statements 19
Notes to Financial Statements 23
EXPENSE EXAMPLE 34
ADVISORY AGREEMENT 36
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2010, USAA. All rights reserved.
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PRESIDENT'S MESSAGE
". . . INVESTORS MAY WANT TO REVIEW THEIR
LONG-TERM INVESTMENT STRATEGY. IT'S VITAL TO
CONTINUE -- AND EVEN INCREASE -- INVESTING [PHOTO OF DANIEL S. McNAMARA]
IF YOU WANT TO LIVE THE RETIREMENT
LIFESTYLE YOU ENVISION."
JULY 2010
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At the beginning of 2010, optimism permeated the financial markets. Stocks had
just finished a strong year (the S&P 500 Index was up 26.5% in 2009). Supported
by stimulus spending by the federal government, the U.S. economy was showing
signs of improvement. The housing market was stabilizing after several years of
falling prices. At the same time, corporate earnings, driven by surprisingly
strong top-line growth, were better than expected. Unemployment remained high,
but renewed job growth was widely expected at any moment.
During the spring, however, the markets were rattled by the European debt crisis
and its potential impact on European banks. There was growing investor
uncertainty about regulatory changes pending in Washington (related to the
health care, financial, and energy industries). Sentiment was further eroded by
the still-unexplained April "flash crash" in the U.S. stock market and BP's oil
spill in the Gulf of Mexico.
As a result, the outlook for the U.S. economy grew more uncertain as 2010
progressed. The federal government is winding down its stimulus spending and
many observers have questioned whether the nation's economic recovery will be
self-sustaining. The housing market has suffered more setbacks. In May, just a
month after the federal tax subsidy ended, sales of new single-family homes
dropped 33% to the lowest seasonally adjusted rate since records began in 1963.
Meanwhile, unemployment remains stubbornly high with most of the job growth
coming from government hiring of census workers.
Bonds generally provided positive results during the six-month period, but the
performance of the stock market was disappointing (the S&P 500 Index returned
-6.7% between January 1 and June 30, 2010). Many investors continue to stay on
the sidelines, primarily in low-yielding money market funds. But while there is
reason for caution, long-term investors should also take into account the
improvement in U.S. corporate balance sheets and the favorable outlook for U.S.
corporate earnings.
While I find investors' lack of engagement understandable, I grow more concerned
about it with every passing day. Americans are not saving enough for their
retirements. Two-thirds have less than $50,000 in retirement savings (excluding
the value of their home and any traditional pension).
Fortunately, many people still have time to grow their retirement nest egg.
Furthermore, a number of catch-up provisions allow those over the age of 50 to
increase their contributions to individual retirement accounts (IRAs). Under the
circumstances, investors may want to review their long-term investment strategy.
It's vital to continue -- and even increase -- investing if you want to live the
retirement lifestyle you envision. However, this is based upon what is most
suitable for your needs. For assistance, please feel free to call one of our
USAA service representatives at 1-800-531-8722. They are available to help you
free of charge.
At USAA Investment Management Company, we are proud of the investment team that
manages our family of no-load mutual funds. Seasoned professionals all, they
understand the markets and are skilled at making the tactical decisions
necessary to pursue opportunities during market declines and to help reduce
exposure when valuations are rich. This ability can be especially valuable
during periods of market turmoil. I would argue that given the economic
headwinds it may be more important than ever. Certainly, it makes sense to have
some of the industry's top investment talent managing your hard-earned money.
Rest assured that in the months ahead, we will continue working hard on your
behalf. From all of us, thank you for your continued confidence in us. We
appreciate the opportunity to help you with your investment needs.
Sincerely,
/s/ Daniel S. McNamara
Daniel S. McNamara
President
USAA Investment Management Company
INVESTING IN SECURITIES PRODUCTS INVOLVES RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
As interest rates rise, bond prices fall. o Past performance is no guarantee of
future results. o Mutual fund operating expenses apply and continue throughout
the life of the fund.
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.
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.
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PRESIDENT'S MESSAGE | 1
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MARKET OUTLOOK/COMMENTARY
[PHOTO OF JOHN P. TOOHEY] [PHOTO OF WASIF A. LATIF]
JOHN P. TOOHEY, CFA WASIF A. LATIF
USAA Investment USAA Investment
Management Company Management Company
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o HOW DID THE USAA TARGET RETIREMENT FUNDS (THE FUNDS) PERFORM?
For the six months ended June 30, 2010, the total returns for each of the Funds
are shown below, along with the return of the relevant Lipper Mixed-Asset Target
Allocation Funds Index:
USAA FUND LIPPER INDEX
USAA Target Retirement Income Fund 1.84% 1.28%
USAA Target Retirement 2020 Fund 0.67% -3.36%
USAA Target Retirement 2030 Fund -1.49% -4.78%
USAA Target Retirement 2040 Fund -3.96% -5.83%
USAA Target Retirement 2050 Fund -6.19% -6.19%
For further comparison, the S&P 500 Index had a total return during the period
of -6.65%, while the total return of the Barclays Capital U.S. Aggregate Bond
Index was 5.33% for the same period.
o PLEASE DESCRIBE THE MARKET ENVIRONMENT DURING THE SIX-MONTH REPORTING PERIOD.
When the period began, the worst of the financial crisis and the recession
appeared to be over. The U.S. economy was improving, supported by ongoing
monetary stimulus from the Federal Reserve Board, a strong rebound in
manufacturing, robust corporate earnings, strengthening corporate balance
sheets, and increased consumer confidence. The equity markets continued a rally
that began in March 2009, and credit markets continued to heal as corporate bond
spreads narrowed towards pre-crisis levels.
In mid-April, however, volatility returned as the Greek debt crisis shone a
light on the massive levels of sovereign debt in a number of developed
countries. Markets began pricing in the financial system risk posed by
highly-leveraged European banks. Signs of a slowdown in China's economic growth
become more apparent. In the United States, financial regulatory legislation
renewed uncertainty about the future of the financial sector. The massive oil
spill in the Gulf of Mexico also focused more attention on the potential for
increased regulation of businesses.
As a result, risk aversion returned to the markets. Yields fell and prices rose
on U.S. Treasuries as investors flocked to what they perceived to be the safest
securities. Volatility spiked as stock markets declined and most commodity
prices fell.
o WHAT IS YOUR OUTLOOK FOR THE ECONOMY?
The broadest measure of U.S. economic activity, real gross domestic product,
grew at a 3.7% annual rate in the first quarter and a 2.4% annual rate in the
second quarter of 2010, driven by unprecedented monetary and fiscal stimulus.
We think that the lingering effects of the financial crisis will make this
recovery muted by historical standards.
Refer to pages 5-9 for benchmark definitions.
Past performance is no guarantee of future results.
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2 | USAA TARGET RETIREMENT FUNDS
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Corporations took advantage of a period of extremely cheap and easy credit to
prepare their balance sheets for an uncertain future. However, banks are still
working to heal their balance sheets, suggesting that lending may continue to
contract. We expect consumer spending to remain subdued compared to previous
recoveries as households continue rebuilding their balance sheets. Unemployment
is likely to remain high. We anticipate higher taxes and increased business
regulation.
Like investors everywhere, we are deeply concerned about the news from the
eurozone, where the sovereign debt crisis could lead to a new period of
austerity which may weigh on the global recovery. We are also concerned about
the U.S. real estate market. In addition, until consumers prove more willing to
open their wallets, corporations may not have the confidence to hire.
We remain vigilant for any signs of inflationary pressure. Longer term, we
believe that the unprecedented government spending is likely to be inflationary.
However, there is currently little evidence of inflation. In fact, the risk of
deflation grew during the six-month period because of the eurozone debt crisis
and its potential to slow the global economic recovery.
o ARE YOU SATISFIED WITH THE FUNDS' PERFORMANCE DURING THE SIX-MONTH PERIOD?
Yes. All of the Funds outperformed or matched their relevant Lipper Indexes.
During the period, the Funds' philosophy, asset allocation decisions, and
individual manager performance--particularly on the fixed income side--worked
well together.
The Funds were overweight U.S. large-cap stocks and underweight U.S. small- and
mid-cap stocks. We continue to be concerned about smaller companies' access to
capital. In contrast, U.S. large-cap companies are extremely well capitalized,
with record amounts of cash on hand. However, because of the superior returns of
small caps during the period, our positions detracted from relative performance.
Although we are concerned about the impact of the stronger dollar on U.S.
large-cap exports, particularly to Europe, we expect it to be somewhat offset by
higher exports into emerging markets. The funds were also overweight emerging
markets and underweight in non-U.S. developed market equities. These positions
added to relative performance.
We continue to follow an active approach to asset allocation, recognizing that
many investor portfolios had been built on the assumption that the 1980s and
1990s were normal, that given enough time investors could expect double-digit
returns from stocks and steady, consistent returns from most kinds of bonds. The
past decade has shown that these assumptions did not account for investors that
were nearing or in retirement, thereby incurring losses they probably cannot
recover given their shorter investment time horizons. We will increase the stock
allocation, where appropriate, especially in our nearer-maturity Target
Retirement Funds, if we see an opportunity for attractive risk-adjusted returns.
Likewise, we will reduce the stock allocation when we see higher risk of loss.
o DID YOU MAKE ANY CHANGES TO THE FUNDS' STRATEGIC ALLOCATIONS DURING THE
PERIOD?
The Funds' strategic allocations are those we consider prudent for investors at
different risk levels given our long-term views of the markets. During the
six-month reporting period, we adjusted the Funds' strategic allocation to
better reflect our long-term outlook.
To reflect changes in the global economy in which non-U.S. stocks comprise a
growing percentage of market capitalization, we reduced exposure to U.S.
small-cap stocks and increased our allocation to non-U.S. developed and emerging
markets stocks. We also slightly decreased our allocation to large-cap stocks.
We increased our allocation to investment-grade fixed-income and decreased our
allocation to high-yield bonds. We added strategic allocations to precious
metals/commodities and cash. We eliminated our allocation to global real estate
investment trusts.
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MARKET OUTLOOK/COMMENTARY | 3
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o WHAT TACTICAL CHANGES WERE MADE DURING THE SIX-MONTH REPORTING PERIOD?
The sell-off during the reporting period made large-cap stocks significantly
more attractive on relative valuation basis. We increased exposure to U.S.
large-cap stocks given their stronger balance sheets. The Funds were underweight
non-U.S. developed stock markets. Europe and Japan share many of the same
problems as the United States but have less positive demographics and
less-flexible labor markets. The European banking system is also more highly
leveraged than the U.S. banking system, and holds significant amounts of
sovereign debt of the economically weak and highly-indebted countries.
The Funds' were overweight in the emerging markets, which in our view are
selling at a discount relative to other markets and based on their historical
averages. We are confident that emerging markets will do better than developed
markets in terms of both profitability and performance. Longer-term trends in
the global economy remain intact, fiscal and private debt is lower relative to
developed markets, and consumption should expand with rising disposable incomes.
We continue to invest in the USAA Precious Metals and Minerals Fund as a hedge
against the potential for rising inflation.
In the bond portion of the Funds, our fixed-income portfolios outperformed their
peers during the six-month period. Toward the end of the period, our overweight
position in bonds, relative to stocks, also shielded the Funds as stock market
volatility spiked.
o ARE YOUR VIEWS AND ALLOCATIONS APPLIED TO THE SAME EXTENT ACROSS ALL FIVE
TARGET RETIREMENT FUNDS?
No. Investors in the Target Retirement 2050 Fund have more time to overcome
periods of extreme volatility, which should allow them to benefit from the
long-term performance advantage of stocks. As a result, this Fund has no
exposure to bonds and our tactical allocation adjustments will be less
significant (but not insignificant). Investors in the Target Retirement 2050
Fund will potentially benefit more from our strategic base allocations and our
manager selection capabilities.
From all of us on the USAA investment team, thank you for your investment in one
of our Target Retirement Funds. We are very pleased that you have selected a
diversified portfolio that draws upon all of USAA's investment expertise.
The USAA Precious Metals and Minerals Fund is subject to additional risks, such
as currency fluctuation, market liquidity, political instability and
increasedprice volatility. It may be more volatile than a fund that diversifies
across many industries.
The risks of the Target Retirement Funds reflect the risks of the underlying
funds in which the Funds invest. The target date is the approximate date when
investors plan to start withdrawing their money for retirement purposes. In
general, the Target Retirement Funds' investment program assumes funds will
start being withdrawn for retirement purposes at age 65. The principal value of
the Target Retirement Funds is not guaranteed at any time, including at the
target date. The Funds' objectives do not change over time.
As interest rates rise, existing bond prices fall.
Precious metals and minerals 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.
Diversification and asset allocation does not guarantee a profit or prevent a
loss.
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4 | USAA TARGET RETIREMENT FUNDS
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INVESTMENT OVERVIEW
USAA TARGET RETIREMENT INCOME FUND (URINX)
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6/30/10 12/31/09
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Net Assets $138.5 Million $90.8 Million
Net Asset Value Per Share $10.21 $10.17
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AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/10
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12/31/09 to 6/30/10* 1.84% 1 Year 16.52% Since Inception 7/31/08 4.84%
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EXPENSE RATIO
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BEFORE REIMBURSEMENT 0.84% AFTER REIMBURSEMENT 0.52%
(Including acquired fund (Including acquired fund
fees and expenses of 0.52%) fees and expenses)
*Periods of less than one year are not annualized. These returns are cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE 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 (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
INCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2010. IMCO HAS AGREED, THROUGH MAY 1, 2011,
TO WAIVE ALL FEES AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND, EXCLUDING
EXTRAORDINARY EXPENSES AND AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. THIS
REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME
PERIOD WITHOUT APPROVAL OF THE FUND'S BOARD OF TRUSTEES AND MAY BE CHANGED OR
TERMINATED BY IMCO AT ANY TIME AFTER MAY 1, 2011. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE SIX-MONTH
PERIOD ENDED JUNE 30, 2010, WHICH WAS 0.12% AS DISCLOSED IN THE FINANCIAL
HIGHLIGHTS, BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
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o CUMULATIVE PERFORMANCE COMPARISON o
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[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE RETIREMENT
BOND INDEX INCOME FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 10,000.00 10,144.65
9/30/2008 9,959.32 9,580.62 9,240.68
10/31/2008 9,724.23 8,617.54 7,688.73
11/30/2008 10,040.76 8,416.90 7,137.03
12/31/2008 10,415.37 8,598.81 7,212.97
1/31/2009 10,323.47 8,303.36 6,605.01
2/28/2009 10,284.50 7,997.71 5,901.73
3/31/2009 10,427.47 8,347.98 6,418.69
4/30/2009 10,477.33 8,768.46 7,033.02
5/31/2009 10,553.32 9,301.74 7,426.40
6/30/2009 10,613.35 9,397.12 7,441.13
7/31/2009 10,784.54 9,852.49 8,003.95
8/31/2009 10,896.20 10,090.52 8,292.93
9/30/2009 11,010.66 10,395.82 8,602.38
10/31/2009 11,065.03 10,427.13 8,442.58
11/30/2009 11,208.28 10,677.64 8,948.99
12/31/2009 11,033.08 10,752.00 9,121.85
1/31/2010 11,201.62 10,773.15 8,793.70
2/28/2010 11,243.45 10,889.44 9,066.10
3/31/2010 11,229.63 11,150.65 9,613.20
4/30/2010 11,346.52 11,299.60 9,764.97
5/31/2010 11,442.00 11,001.69 8,985.23
6/30/2010 11,621.43 10,949.60 8,514.87
[END CHART]
Data since Fund inception 7/31/08 to 6/30/10.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement Income Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed
securities, and commercial mortgage-backed securities that have remaining
maturities of more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares. It is not
possible to invest directly in an index.
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INVESTMENT OVERVIEW | 5
<PAGE>
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USAA TARGET RETIREMENT 2020 FUND (URTNX)
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6/30/10 12/31/09
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Net Assets $266.4 Million $179.7 Million
Net Asset Value Per Share $10.45 $10.38
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AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/10
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12/31/09 to 6/30/10* 0.67% 1 Year 17.83% Since Inception 7/31/08 4.95%
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EXPENSE RATIO
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BEFORE REIMBURSEMENT 0.75% AFTER REIMBURSEMENT 0.57%
(Including acquired fund (Including acquired fund
fees and expenses of 0.57%) fees and expenses)
*Periods of less than one year are not annualized. These returns are cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE 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 (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
INCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2010. IMCO HAS AGREED, THROUGH MAY 1, 2011,
TO WAIVE ALL FEES AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND, EXCLUDING
EXTRAORDINARY EXPENSES AND AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. THIS
REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME
PERIOD WITHOUT APPROVAL OF THE FUND'S BOARD OF TRUSTEES AND MAY BE CHANGED OR
TERMINATED BY IMCO AT ANY TIME AFTER MAY 1, 2011. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE SIX-MONTH
PERIOD ENDED JUNE 30, 2010, WHICH WAS 0.08% AS DISCLOSED IN THE FINANCIAL
HIGHLIGHTS, BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
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.
--------------------------------------------------------------------------------
o CUMULATIVE PERFORMANCE COMPARISON o
--------------------------------------------------------------------------------
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE RETIREMENT
BOND INDEX 2020 FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 10,000.00 10,144.65
9/30/2008 9,959.32 9,490.00 9,240.68
10/31/2008 9,724.23 8,360.00 7,688.73
11/30/2008 10,040.76 8,210.00 7,137.03
12/31/2008 10,415.37 8,505.09 7,212.97
1/31/2009 10,323.47 8,077.29 6,605.01
2/28/2009 10,284.50 7,618.93 5,901.73
3/31/2009 10,427.47 8,067.10 6,418.69
4/30/2009 10,477.33 8,637.50 7,033.02
5/31/2009 10,553.32 9,228.27 7,426.40
6/30/2009 10,613.35 9,309.76 7,441.13
7/31/2009 10,784.54 9,849.60 8,003.95
8/31/2009 10,896.20 10,094.06 8,292.93
9/30/2009 11,010.66 10,470.93 8,602.38
10/31/2009 11,065.03 10,470.93 8,442.58
11/30/2009 11,208.28 10,776.50 8,948.99
12/31/2009 11,033.08 10,896.68 9,121.85
1/31/2010 11,201.62 10,844.20 8,793.70
2/28/2010 11,243.45 10,991.17 9,066.10
3/31/2010 11,229.63 11,337.59 9,613.20
4/30/2010 11,346.52 11,516.05 9,764.97
5/31/2010 11,442.00 11,075.15 8,985.23
6/30/2010 11,621.43 10,970.17 8,514.87
[END CHART]
Data since Fund inception 7/31/08 to 6/30/10.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement 2020 Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed
securities, and commercial mortgage-backed securities that have remaining
maturities of more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares. It is not
possible to invest directly in an index.
================================================================================
6 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2030 FUND (URTRX)
--------------------------------------------------------------------------------
6/30/10 12/31/09
--------------------------------------------------------------------------------
Net Assets $375.5 Million $256.2 Million
Net Asset Value Per Share $9.95 $10.10
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/10
--------------------------------------------------------------------------------
12/31/09 to 6/30/10* -1.49% 1 Year 18.41% Since Inception 7/31/08 1.91%
--------------------------------------------------------------------------------
EXPENSE RATIO
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.76% AFTER REIMBURSEMENT 0.62%
(Including acquired fund (Including acquired fund
fees and expenses of 0.62%) fees and expenses)
*Periods of less than one year are not annualized. These returns are cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE 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 (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
INCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2010. IMCO HAS AGREED, THROUGH MAY 1, 2011,
TO WAIVE ALL FEES AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND, EXCLUDING
EXTRAORDINARY EXPENSES AND AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. THIS
REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME
PERIOD WITHOUT APPROVAL OF THE FUND'S BOARD OF TRUSTEES AND MAY BE CHANGED OR
TERMINATED BY IMCO AT ANY TIME AFTER MAY 1, 2011. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE SIX-MONTH
PERIOD ENDED JUNE 30, 2010, WHICH WAS 0.07% AS DISCLOSED IN THE FINANCIAL
HIGHLIGHTS, BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
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.
--------------------------------------------------------------------------------
o CUMULATIVE PERFORMANCE COMPARISON o
--------------------------------------------------------------------------------
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE RETIREMENT
BOND INDEX 2030 FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 9,990.00 10,144.65
9/30/2008 9,959.32 9,250.00 9,240.68
10/31/2008 9,724.23 7,970.00 7,688.73
11/30/2008 10,040.76 7,690.00 7,137.03
12/31/2008 10,415.37 7,993.85 7,212.97
1/31/2009 10,323.47 7,555.97 6,605.01
2/28/2009 10,284.50 7,097.72 5,901.73
3/31/2009 10,427.47 7,525.42 6,418.69
4/30/2009 10,477.33 8,105.86 7,033.02
5/31/2009 10,553.32 8,696.49 7,426.40
6/30/2009 10,613.35 8,757.59 7,441.13
7/31/2009 10,784.54 9,348.22 8,003.95
8/31/2009 10,896.20 9,612.98 8,292.93
9/30/2009 11,010.66 10,030.50 8,602.38
10/31/2009 11,065.03 9,969.40 8,442.58
11/30/2009 11,208.28 10,335.99 8,948.99
12/31/2009 11,033.08 10,526.60 9,121.85
1/31/2010 11,201.62 10,349.42 8,793.70
2/28/2010 11,243.45 10,526.60 9,066.10
3/31/2010 11,229.63 10,995.61 9,613.20
4/30/2010 11,346.52 11,172.79 9,764.97
5/31/2010 11,442.00 10,557.87 8,985.23
6/30/2010 11,621.43 10,370.27 8,514.87
[END CHART]
Data since Fund inception 7/31/08 to 6/30/10.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement 2030 Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed
securities, and commercial mortgage-backed securities that have remaining
maturities of more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares. It is not
possible to invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 7
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2040 FUND (URFRX)
--------------------------------------------------------------------------------
6/30/10 12/31/09
--------------------------------------------------------------------------------
Net Assets $337.6 Million $234.2 Million
Net Asset Value Per Share $9.22 $9.60
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/10
--------------------------------------------------------------------------------
12/31/09 to 6/30/10* -3.96% 1 Year 17.71% Since Inception 7/31/08 -2.36%
--------------------------------------------------------------------------------
EXPENSE RATIO
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.86% AFTER REIMBURSEMENT 0.71%
(Including acquired fund (Including acquired fund
fees and expenses of 0.71%) fees and expenses)
*Periods of less than one year are not annualized. These returns are cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE 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 (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
INCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2010. IMCO HAS AGREED, THROUGH MAY 1, 2011,
TO WAIVE ALL FEES AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND, EXCLUDING
EXTRAORDINARY EXPENSES AND AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. THIS
REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME
PERIOD WITHOUT APPROVAL OF THE FUND'S BOARD OF TRUSTEES AND MAY BE CHANGED OR
TERMINATED BY IMCO AT ANY TIME AFTER MAY 1, 2011. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE SIX-MONTH
PERIOD ENDED JUNE 30, 2010, WHICH WAS 0.07% AS DISCLOSED IN THE FINANCIAL
HIGHLIGHTS, BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
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.
--------------------------------------------------------------------------------
o CUMULATIVE PERFORMANCE COMPARISON o
--------------------------------------------------------------------------------
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE RETIREMENT
BOND INDEX 2040 FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 9,990.00 10,144.65
9/30/2008 9,959.32 9,110.00 9,240.68
10/31/2008 9,724.23 7,610.00 7,688.73
11/30/2008 10,040.76 7,160.00 7,137.03
12/31/2008 10,415.37 7,494.90 7,212.97
1/31/2009 10,323.47 7,016.93 6,605.01
2/28/2009 10,284.50 6,508.46 5,901.73
3/31/2009 10,427.47 6,966.09 6,418.69
4/30/2009 10,477.33 7,545.75 7,033.02
5/31/2009 10,553.32 8,115.24 7,426.40
6/30/2009 10,613.35 8,115.24 7,441.13
7/31/2009 10,784.54 8,755.91 8,003.95
8/31/2009 10,896.20 8,999.98 8,292.93
9/30/2009 11,010.66 9,437.27 8,602.38
10/31/2009 11,065.03 9,294.89 8,442.58
11/30/2009 11,208.28 9,722.01 8,948.99
12/31/2009 11,033.08 9,946.22 9,121.85
1/31/2010 11,201.62 9,656.13 8,793.70
2/28/2010 11,243.45 9,863.34 9,066.10
3/31/2010 11,229.63 10,402.09 9,613.20
4/30/2010 11,346.52 10,567.86 9,764.97
5/31/2010 11,442.00 9,821.90 8,985.23
6/30/2010 11,621.43 9,552.52 8,514.87
[END CHART]
Data since Fund inception 7/31/08 to 6/30/10.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement 2040 Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed
securities, and commercial mortgage-backed securities that have remaining
maturities of more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares. It is not
possible to invest directly in an index.
================================================================================
8 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2050 FUND (URFFX)
--------------------------------------------------------------------------------
6/30/10 12/31/09
--------------------------------------------------------------------------------
Net Assets $133.1 Million $88.5 Million
Net Asset Value Per Share $8.64 $9.21
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 6/30/10
--------------------------------------------------------------------------------
12/31/09 to 6/30/10* -6.19% 1 Year 16.59% Since Inception 7/31/08 -6.00%
--------------------------------------------------------------------------------
EXPENSE RATIO
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.13% AFTER REIMBURSEMENT 0.80%
(Including acquired fund (Including acquired fund
fees and expenses of 0.80%) fees and expenses)
*Periods of less than one year are not annualized. These returns are cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE 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 (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
INCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2010. IMCO HAS AGREED, THROUGH MAY 1, 2011,
TO WAIVE ALL FEES AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND, EXCLUDING
EXTRAORDINARY EXPENSES AND AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. THIS
REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME
PERIOD WITHOUT APPROVAL OF THE FUND'S BOARD OF TRUSTEES AND MAY BE CHANGED OR
TERMINATED BY IMCO AT ANY TIME AFTER MAY 1, 2011. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE SIX-MONTH
PERIOD ENDED JUNE 30, 2010, WHICH WAS 0.14% AS DISCLOSED IN THE FINANCIAL
HIGHLIGHTS, BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
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.
--------------------------------------------------------------------------------
o CUMULATIVE PERFORMANCE COMPARISON o
--------------------------------------------------------------------------------
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE RETIREMENT
BOND INDEX 2050 FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 9,960.00 10,144.65
9/30/2008 9,959.32 8,970.00 9,240.68
10/31/2008 9,724.23 7,330.00 7,688.73
11/30/2008 10,040.76 6,810.00 7,137.03
12/31/2008 10,415.37 7,180.05 7,212.97
1/31/2009 10,323.47 6,611.33 6,605.01
2/28/2009 10,284.50 6,042.61 5,901.73
3/31/2009 10,427.47 6,550.40 6,418.69
4/30/2009 10,477.33 7,129.27 7,033.02
5/31/2009 10,553.32 7,677.67 7,426.40
6/30/2009 10,613.35 7,616.74 7,441.13
7/31/2009 10,784.54 8,276.86 8,003.95
8/31/2009 10,896.20 8,510.44 8,292.93
9/30/2009 11,010.66 8,936.98 8,602.38
10/31/2009 11,065.03 8,733.86 8,442.58
11/30/2009 11,208.28 9,211.18 8,948.99
12/31/2009 11,033.08 9,466.36 9,121.85
1/31/2010 11,201.62 9,065.50 8,793.70
2/28/2010 11,243.45 9,301.91 9,066.10
3/31/2010 11,229.63 9,877.49 9,613.20
4/30/2010 11,346.52 10,021.39 9,764.97
5/31/2010 11,442.00 9,209.40 8,985.23
6/30/2010 11,621.43 8,880.50 8,514.87
[END CHART]
Data since Fund inception 7/31/08 to 6/30/10.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement 2050 Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed
securities, and commercial mortgage-backed securities that have remaining
maturities of more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares. It is not
possible to invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 9
<PAGE>
================================================================================
o TARGET RETIREMENT INCOME FUND o
ASSET ALLOCATION -- 6/30/2010
[PIE CHART OF TARGET RETIREMENT INCOME FUND]
FIXED INCOME 69.1%
EQUITY 29.4%
CASH 1.3%
[END CHART]
TARGET RETIREMENT INCOME FUND
AS OF 6/30/10
INVESTMENT ALLOCATION
----------------------------------------------------------------------------
USAA FUND:
Aggressive Growth 2.5%
Emerging Markets 3.1%
Growth 3.3%
Income Stock 3.0%
International 7.2%
Precious Metals and Minerals 1.6%
S&P 500 Index 3.0%
Small Cap Stock 2.7%
Value 3.0%
Total Equity 29.4%
Income 27.7%
Intermediate-Term Bond 20.7%
Short-Term Bond 20.7%
Total Fixed-Income 69.1%
CASH:
Money Market Instruments 1.3%
o TARGET RETIREMENT 2020 FUND o
ASSET ALLOCATION -- 6/30/2010
[PIE CHART OF TARGET RETIREMENT 2020 FUND]
FIXED INCOME 58.7%
EQUITY 39.4%
CASH 1.9%
[END CHART]
TARGET RETIREMENT 2020 FUND
AS OF 6/30/10
INVESTMENT ALLOCATION
----------------------------------------------------------------------------
USAA FUND:
Aggressive Growth 3.3%
Emerging Markets 4.1%
Growth 4.5%
Income Stock 4.1%
International 9.6%
Precious Metals and Minerals 2.2%
S&P 500 Index 3.9%
Small Cap Stock 3.7%
Value 4.0%
Total Equity 39.4%
High-Yield Opportunities 9.1%
Income 19.9%
Intermediate-Term Bond 14.8%
Short-Term Bond 14.9%
Total Fixed-Income 58.7%
CASH:
Money Market Instruments 1.9%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
10 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
o TARGET RETIREMENT 2030 FUND o
ASSET ALLOCATION -- 6/30/2010
[PIE CHART OF TARGET RETIREMENT 2030 FUND]
EQUITY 60.0%
FIXED INCOME 38.4%
CASH 1.5%
[END CHART]
TARGET RETIREMENT 2030 FUND
AS OF 6/30/10
INVESTMENT ALLOCATION
----------------------------------------------------------------------------
USAA FUND:
Aggressive Growth 5.0%
Emerging Markets 6.2%
Growth 6.8%
Income Stock 6.2%
International 14.7%
Precious Metals and Minerals 3.3%
S&P 500 Index 6.0%
Small Cap Stock 5.6%
Value 6.2%
Total Equity 60.0%
High-Yield Opportunities 9.2%
Income 17.6%
Intermediate-Term Bond 11.6%
Total Fixed-Income 38.4%
CASH:
Money Market Instruments 1.5%
o TARGET RETIREMENT 2040 FUND o
ASSET ALLOCATION -- 6/30/2010
[PIE CHART OF TARGET RETIREMENT 2040 FUND]
EQUITY 81.0%
FIXED INCOME 17.5%
CASH 1.5%
[END CHART]
TARGET RETIREMENT 2040 FUND
AS OF 6/30/10
INVESTMENT ALLOCATION
----------------------------------------------------------------------------
USAA FUND:
Aggressive Growth 6.7%
Emerging Markets 8.4%
Growth 9.2%
Income Stock 8.4%
International 19.9%
Precious Metals and Minerals 4.5%
S&P 500 Index 8.1%
Small Cap Stock 7.5%
Value 8.3%
Total Equity 81.0%
High-Yield Opportunities 9.4%
Income 8.1%
Total Fixed-Income 17.5%
CASH:
Money Market Instruments 1.5%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 11
<PAGE>
================================================================================
o TARGET RETIREMENT 2050 FUND o
ASSET ALLOCATION -- 6/30/2010
[PIE CHART OF TARGET RETIREMENT 2050 FUND]
EQUITY 98.4%
CASH 1.7%
[END CHART]
TARGET RETIREMENT 2050 FUND
AS OF 6/30/10
INVESTMENT ALLOCATION
----------------------------------------------------------------------------
USAA FUND:
Aggressive Growth 8.2%
Emerging Markets 10.2%
Growth 11.2%
Income Stock 10.2%
International 24.1%
Precious Metals and Minerals 5.4%
S&P 500 Index 9.9%
Small Cap Stock 9.1%
Value 10.1%
Total Equity 98.4%
CASH:
Money Market Instruments 1.7%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
12 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
PORTFOLIOS OF INVESTMENTS
USAA TARGET RETIREMENT INCOME FUND
June 30, 2010 (unaudited)
-----------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (29.4%)
130,415 USAA Aggressive Growth Fund $ 3,389
245,262 USAA Emerging Markets Fund 4,214
396,268 USAA Growth Fund 4,624
427,896 USAA Income Stock Fund 4,206
506,502 USAA International Fund 9,988
59,476 USAA Precious Metals and Minerals Fund 2,247
265,031 USAA S&P 500 Index Fund 4,095
349,919 USAA Small Cap Stock Fund* 3,783
378,473 USAA Value Fund 4,163
--------
Total Equity Mutual Funds (cost: $38,436) 40,709
--------
FIXED-INCOME MUTUAL FUNDS (69.1%)
3,027,435 USAA Income Fund 38,357
2,867,106 USAA Intermediate-Term Bond Fund 28,614
3,134,532 USAA Short-Term Bond Fund 28,744
--------
Total Fixed-income Mutual Funds (cost: $90,268) 95,715
--------
MONEY MARKET INSTRUMENTS (1.3%)
MONEY MARKET FUNDS (1.3%)
1,872,595 State Street Institutional Liquid Reserve Fund, 0.21%(a) (cost: $1,873) 1,873
--------
TOTAL INVESTMENTS (COST: $130,577) $138,297
========
-----------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $ 40,709 $-- $-- $ 40,709
Fixed-Income Mutual Funds 95,715 -- -- 95,715
Money Market Instruments:
Money Market Funds 1,873 -- -- 1,873
-----------------------------------------------------------------------------------------------------------------
Total $138,297 $-- $-- $138,297
-----------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIOS OF INVESTMENTS | 13
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2020 FUND
June 30, 2010 (unaudited)
-----------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (39.4%)
336,555 USAA Aggressive Growth Fund $ 8,747
632,502 USAA Emerging Markets Fund 10,866
1,019,900 USAA Growth Fund 11,902
1,104,312 USAA Income Stock Fund 10,855
1,303,941 USAA International Fund 25,714
152,289 USAA Precious Metals and Minerals Fund 5,754
682,798 USAA S&P 500 Index Fund 10,549
901,566 USAA Small Cap Stock Fund* 9,746
976,821 USAA Value Fund 10,745
--------
Total Equity Mutual Funds (cost: $96,938) 104,878
--------
FIXED-INCOME MUTUAL FUNDS (58.7%)
3,072,040 USAA High-Yield Opportunities Fund 24,177
4,184,561 USAA Income Fund 53,018
3,964,172 USAA Intermediate-Term Bond Fund 39,563
4,333,052 USAA Short-Term Bond Fund 39,734
--------
Total Fixed-income Mutual Funds (cost: $144,695) 156,492
--------
MONEY MARKET INSTRUMENTS (1.9%)
MONEY MARKET FUNDS (1.9%)
5,026,908 State Street Institutional Liquid Reserve Fund, 0.21%(a) (cost: $5,027) 5,027
--------
TOTAL INVESTMENTS (COST: $246,660) $266,397
========
-----------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $104,878 $-- $-- $104,878
Fixed-Income Mutual Funds 156,492 -- -- 156,492
Money Market Instruments:
Money Market Funds 5,027 -- -- 5,027
-----------------------------------------------------------------------------------------------------------------
Total $266,397 $-- $-- $266,397
-----------------------------------------------------------------------------------------------------------------
================================================================================
14 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2030 FUND
June 30, 2010 (unaudited)
-----------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (60.0%)
722,682 USAA Aggressive Growth Fund $ 18,782
1,357,535 USAA Emerging Markets Fund 23,322
2,191,651 USAA Growth Fund 25,577
2,371,740 USAA Income Stock Fund 23,314
2,799,468 USAA International Fund 55,206
327,780 USAA Precious Metals and Minerals Fund 12,384
1,466,596 USAA S&P 500 Index Fund 22,659
1,936,553 USAA Small Cap Stock Fund* 20,934
2,097,577 USAA Value Fund 23,073
--------
Total Equity Mutual Funds (cost: $212,581) 225,251
--------
FIXED-INCOME MUTUAL FUNDS (38.4%)
4,399,751 USAA High-Yield Opportunities Fund 34,626
5,205,648 USAA Income Fund 65,955
4,382,955 USAA Intermediate-Term Bond Fund 43,742
--------
Total Fixed-income Mutual Funds (cost: $131,206) 144,323
--------
MONEY MARKET INSTRUMENTS (1.5%)
MONEY MARKET FUNDS (1.5%)
5,752,511 State Street Institutional Liquid Reserve Fund, 0.21%(a) (cost: $5,753) 5,753
--------
TOTAL INVESTMENTS (COST: $349,540) $375,327
========
-----------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $225,251 $-- $-- $225,251
Fixed-Income Mutual Funds 144,323 -- -- 144,323
Money Market Instruments:
Money Market Funds 5,753 -- -- 5,753
-----------------------------------------------------------------------------------------------------------------
Total $375,327 $-- $-- $375,327
-----------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIOS OF INVESTMENTS | 15
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2040 FUND
June 30, 2010 (unaudited)
-----------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (81.0%)
876,346 USAA Aggressive Growth Fund $ 22,776
1,647,531 USAA Emerging Markets Fund 28,305
2,659,065 USAA Growth Fund 31,031
2,879,965 USAA Income Stock Fund 28,310
3,403,056 USAA International Fund 67,108
398,354 USAA Precious Metals and Minerals Fund 15,050
1,780,930 USAA S&P 500 Index Fund 27,515
2,349,357 USAA Small Cap Stock Fund* 25,397
2,547,125 USAA Value Fund 28,019
--------
Total Equity Mutual Funds (cost: $260,146) 273,511
--------
FIXED-INCOME MUTUAL FUNDS (17.5%)
4,007,711 USAA High-Yield Opportunities Fund 31,540
2,163,991 USAA Income Fund 27,418
--------
Total Fixed-income Mutual Funds (cost: $52,971) 58,958
--------
MONEY MARKET INSTRUMENTS (1.5%)
MONEY MARKET FUNDS (1.5%)
5,097,830 State Street Institutional Liquid Reserve Fund, 0.21%(a) (cost: $5,098) 5,098
--------
TOTAL INVESTMENTS (COST: $318,215) $337,567
========
-----------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $273,511 $-- $-- $273,511
Fixed-Income Mutual Funds 58,958 -- -- 58,958
Money Market Instruments:
Money Market Funds 5,098 -- -- 5,098
-----------------------------------------------------------------------------------------------------------------
Total $337,567 $-- $-- $337,567
-----------------------------------------------------------------------------------------------------------------
================================================================================
16 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2050 FUND
June 30, 2010 (unaudited)
-----------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (98.4%)
419,985 USAA Aggressive Growth Fund $ 10,915
789,521 USAA Emerging Markets Fund 13,564
1,274,154 USAA Growth Fund 14,869
1,378,534 USAA Income Stock Fund 13,551
1,630,514 USAA International Fund 32,154
190,645 USAA Precious Metals and Minerals Fund 7,203
853,900 USAA S&P 500 Index Fund 13,193
1,125,440 USAA Small Cap Stock Fund* 12,166
1,219,221 USAA Value Fund 13,411
--------
Total Equity Mutual Funds (cost: $125,163) 131,026
--------
MONEY MARKET INSTRUMENTS (1.7%)
MONEY MARKET FUNDS (1.7%)
2,212,056 State Street Institutional Liquid Reserve Fund, 0.21%(a) (cost: $2,212) 2,212
--------
Total Investments (cost: $127,375) $133,238
========
-----------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $131,026 $-- $-- $131,026
Money Market Instruments:
Money Market Funds 2,212 -- -- 2,212
-----------------------------------------------------------------------------------------------------------------
Total $133,238 $-- $-- $133,238
-----------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIOS OF INVESTMENTS | 17
<PAGE>
================================================================================
NOTES TO PORTFOLIOS OF INVESTMENTS
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
The equity and fixed-income mutual funds in which the Funds invest are
managed by USAA Investment Management Company, an affiliate of the Funds. The
USAA Target Retirement Funds invest in the Reward Shares of the USAA S&P 500
Index Fund and the Institutional Shares of the other USAA mutual funds.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
June 30, 2010.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
18 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
USAA TARGET RETIREMENT
-------------------------------------------------------------------
INCOME FUND 2020 FUND 2030 FUND 2040 FUND 2050 FUND
---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at value
(cost of $128,704, $241,633, $343,787, $313,117,
and $125,163, respectively) $136,424 $261,370 $369,574 $332,469 $131,026
Investments in other securities, at value
(cost of $1,873, $5,027, $5,753, $5,098,
and $2,212, respectively) 1,873 5,027 5,753 5,098 2,212
Receivables:
Capital shares sold 275 364 595 504 226
USAA Investment Management Company (Note 5C) 33 34 27 31 37
Dividends from affiliated underlying funds 223 306 222 - -
Interest - 1 1 1 -
Securities sold 51 - - - -
----------------------------------------------------------------
Total assets 138,879 267,102 376,172 338,103 133,501
----------------------------------------------------------------
LIABILITIES
Payables:
Securities purchased 223 619 411 296 271
Capital shares redeemed 83 86 215 139 55
Other accrued expenses and payables 33 39 24 32 37
----------------------------------------------------------------
Total liabilities 339 744 650 467 363
----------------------------------------------------------------
Net assets applicable to capital shares
outstanding $138,540 $266,358 $375,522 $337,636 $133,138
================================================================
NET ASSETS CONSIST OF:
Paid-in capital $132,089 $247,416 $350,806 $320,962 $129,706
Accumulated undistributed net investment income 236 3,814 4,215 2,291 211
Accumulated net realized loss on investments (1,505) (4,609) (5,286) (4,969) (2,642)
Net unrealized appreciation of investments 7,720 19,737 25,787 19,352 5,863
----------------------------------------------------------------
Net assets applicable to capital shares
outstanding $138,540 $266,358 $375,522 $337,636 $133,138
================================================================
Capital shares outstanding, unlimited number of shares
authorized, no par value 13,569 25,487 37,746 36,631 15,415
================================================================
Net asset value, redemption price, and offering price
per share $ 10.21 $ 10.45 $ 9.95 $ 9.22 $ 8.64
================================================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
<PAGE>
================================================================================
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Six-month period ended June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
USAA TARGET RETIREMENT
-------------------------------------------------------------------
INCOME FUND 2020 FUND 2030 FUND 2040 FUND 2050 FUND
---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $2,080 $ 3,790 $ 4,188 $ 2,287 $ 210
Interest 2 4 4 4 1
----------------------------------------------------------------
Total income 2,082 3,794 4,192 2,291 211
----------------------------------------------------------------
EXPENSES
Custody and accounting fees 13 14 14 14 12
Postage 3 10 15 16 10
Shareholder reporting fees 3 5 10 10 6
Trustees' fees 5 5 5 5 5
Registration fees 22 32 35 31 22
Professional fees 23 24 24 24 23
Other 4 5 5 5 4
----------------------------------------------------------------
Total expenses 73 95 108 105 82
Expenses reimbursed (73) (95) (108) (105) (82)
----------------------------------------------------------------
Net expenses - - - - -
----------------------------------------------------------------
NET INVESTMENT INCOME 2,082 3,794 4,192 2,291 211
----------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS
Net realized loss on sales of affiliated underlying funds (208) (331) (640) (817) (660)
Change in net unrealized appreciation/depreciation of
affiliated underlying funds (638) (4,223) (12,442) (18,144) (9,258)
----------------------------------------------------------------
Net realized and unrealized loss (846) (4,554) (13,082) (18,961) (9,918)
----------------------------------------------------------------
Increase (decrease) in net assets resulting from
operations $1,236 $ (760) $ (8,890) $(16,670) $ (9,707)
================================================================
See accompanying notes to financial statements.
================================================================================
20 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2010 (unaudited), and year ended December 31,
2009
--------------------------------------------------------------------------------
USAA TARGET RETIREMENT
--------------------------------------------------------------------------
INCOME FUND 2020 FUND 2030 FUND
--------------------------------------------------------------------------
6/30/2010 12/31/2009 6/30/2010 12/31/2009 6/30/2010 12/31/2009
----------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,082 $ 2,206 $ 3,794 $ 4,443 $ 4,192 $ 5,586
Net realized loss on sales of affiliated
underlying funds (208) (1,019) (331) (3,118) (640) (3,203)
Change in net unrealized appreciation/depreciation
of affiliated underlying funds (638) 10,571 (4,223) 27,039 (12,442) 42,827
--------------------------------------------------------------------------
Increase (decrease) in net assets resulting
from operations 1,236 11,758 (760) 28,364 (8,890) 45,210
--------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,863) (2,192) - (4,425) - (5,566)
Net realized gains - (110) - (847) - (246)
--------------------------------------------------------------------------
Distributions to shareholders (1,863) (2,302) - (5,272) - (5,812)
--------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 69,800 69,222 115,687 130,636 161,762 184,168
Reinvested dividends 1,775 2,125 1 5,121 4 5,704
Cost of shares redeemed (23,257) (12,692) (28,230) (18,914) (33,590) (23,530)
--------------------------------------------------------------------------
Increase in net assets from capital
share transactions 48,318 58,655 87,458 116,843 128,176 166,342
--------------------------------------------------------------------------
Capital contribution from USAA Transfer
Agency Company - 1 - 8 - 4
--------------------------------------------------------------------------
Net increase in net assets 47,691 68,112 86,698 139,943 119,286 205,744
NET ASSETS
Beginning of period 90,849 22,737 179,660 39,717 256,236 50,492
--------------------------------------------------------------------------
End of period $138,540 $ 90,849 $266,358 $179,660 $375,522 $256,236
==========================================================================
Accumulated undistributed net investment income:
End of period $ 236 $ 17 $ 3,814 $ 20 $ 4,215 $ 23
==========================================================================
CHANGE IN SHARES OUTSTANDING
Shares sold 6,706 7,404 10,835 14,100 15,617 21,068
Shares issued for dividends reinvested 171 218 - 491 - 563
Shares redeemed (2,242) (1,381) (2,652) (2,044) (3,253) (2,680)
--------------------------------------------------------------------------
Increase in shares outstanding 4,635 6,241 8,183 12,547 12,364 18,951
==========================================================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended June 30, 2010 (unaudited), and year ended December 31,
2009
--------------------------------------------------------------------------------
USAA TARGET RETIREMENT
-----------------------------------------------------
2040 FUND 2050 FUND
-----------------------------------------------------
6/30/2010 12/31/2009 6/30/2010 12/31/2009
-----------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,291 $ 3,827 $ 211 $ 817
Net realized loss on sales of affiliated underlying funds (817) (3,945) (660) (1,823)
Change in net unrealized appreciation/depreciation of affiliated
underlying funds (18,144) 44,291 (9,258) 18,463
----------------------------------------------------
Increase (decrease) in net assets resulting from operations (16,670) 44,173 (9,707) 17,457
----------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (3,828) - (819)
Net realized gains - (436) - (223)
----------------------------------------------------
Distributions to shareholders - (4,264) - (1,042)
----------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 147,612 163,652 65,809 61,543
Reinvested dividends 1 4,182 - 993
Cost of shares redeemed (27,520) (17,280) (11,417) (6,587)
----------------------------------------------------
Increase in net assets from capital share transactions 120,093 150,554 54,392 55,949
----------------------------------------------------
Capital contribution from USAA Transfer Agency Company - 8 - -
----------------------------------------------------
Net increase in net assets 103,423 190,471 44,685 72,364
NET ASSETS
Beginning of period 234,213 43,742 88,453 16,089
----------------------------------------------------
End of period $337,636 $234,213 $133,138 $88,453
====================================================
Accumulated undistributed net investment income:
End of period $ 2,291 $ - $ 211 $ -
====================================================
CHANGE IN SHARES OUTSTANDING
Shares sold 15,057 20,102 7,038 8,045
Shares issued for dividends reinvested - 434 - 107
Shares redeemed (2,813) (2,082) (1,227) (825)
----------------------------------------------------
Increase in shares outstanding 12,244 18,454 5,811 7,327
====================================================
See accompanying notes to financial statements.
================================================================================
22 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
(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 semiannual report pertains only to the USAA Target
Retirement Income Fund (Target Income), the USAA Target Retirement 2020 Fund
(Target 2020), the USAA Target Retirement 2030 Fund (Target 2030), the USAA
Target Retirement 2040 Fund (Target 2040), and the USAA Target Retirement 2050
Fund (Target 2050) (collectively, the Funds), which are classified as
diversified under the 1940 Act. Each Fund's investment objective is to provide
capital appreciation and current income consistent with its current investment
allocation.
Each Fund is a "fund of funds" in that it invests in a portfolio of underlying
USAA equity and fixed-income mutual funds (underlying USAA funds) managed by
USAA Investment Management Company (the Manager), an affiliate of the Funds,
according to an asset allocation strategy designed for investors planning to
start withdrawing funds for retirement in or within a few years of each Fund's
specific year (target date) included in its name.
A. SECURITY VALUATION -- The values of the Funds' investments as well as the
investments of the underlying USAA funds are 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. Investments in the underlying USAA funds and other open-end investment
companies, other than exchange-traded funds (ETFs) are valued at their
net asset value (NAV) at the end of each business day.
2. The underlying USAA funds have specific valuation procedures. Securities
held by an underlying USAA fund 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 a fund, are valued in good faith at fair
value, using methods determined by the Manager in consultation with a
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 a fund's NAV
to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include fundamental
analytical data, the nature and duration of any restrictions on
disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments is
based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
<PAGE>
================================================================================
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 Funds' 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 and capital gain distributions from the underlying USAA
funds are recorded on the ex-dividend date. 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. EXPENSES PAID INDIRECTLY -- Through arrangements with the Funds' custodian
and other banks utilized by the Funds for cash management purposes, realized
credits, if any, generated from cash balances in the Funds' bank accounts
may be used to directly reduce the Funds' expenses. For the six-month period
ended June 30, 2010, the Manager has reimbursed the Funds for all operating
expenses incurred, before reductions of expenses paid indirectly; therefore,
the custodian and bank credits have been reclassified to income on the
statements of operations. For the six-month period ended June 30, 2010,
these custodian and other bank credits increased each of the Funds'
investment income by less than $500.
F. 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.
G. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Funds participate 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, each Fund may borrow from
CAPCO an amount up to 5% of its 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). The facility fees are allocated among the funds based on their
respective average net assets for the period.
For the six-month period ended June 30, 2010, the facility fees paid to CAPCO
were $1,000 for Target 2030 and Target 2040 and were less than $500 for each of
the other Funds. The related percent of those fees to the total fees paid to
CAPCO by all USAA funds was 0.3% for Target Income and Target 2050, 0.5%. for
Target 2020, and 0.7% for Target 2030 and Target 2040. The Funds had no
borrowings under this agreement during the period June 30, 2010.
================================================================================
24 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Funds' tax year-end of December 31,
2010, in accordance with applicable tax law.
Distributions of net investment income are made quarterly by Target Income and
annually by each of the other Funds or as otherwise required to avoid the
payment of federal taxes. Distributions of realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes.
The Funds are required to evaluate tax positions taken or expected to be taken
in the course of preparing the Funds' 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 Funds 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 six-month
period, ended June 30, 2010, the Funds did not incur any income tax, interest,
or penalties. As of June 30, 2010, the Manager has reviewed all open tax years
and concluded that there was no impact to the Funds' net assets or results of
operations. Tax years ended December 31, 2008, through December 31, 2009, 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 six-month period ended June 30, 2010, were as
follows (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
--------------------------------------------------------------------------------------------------------------
Cost of purchases $69,682 $120,876 $182,689 $172,078 $70,940
Proceeds from sales/maturities 20,900 29,908 50,117 48,958 16,374
As of June 30, 2010, the cost of securities, for federal income tax purposes,
was approximately the same as that reported in the financial statements.
As of June 30, 2010, gross unrealized appreciation and depreciation of
investments and resulting net appreciation (depreciation), for federal income
tax purposes, were as follows (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
--------------------------------------------------------------------------------------------------------------
Unrealized appreciation $7,720 $19,737 $25,943 $19,954 $7,009
Unrealized depreciation - - (156) (602) (1,146)
--------------------------------------------------------------------------------------------------------------
Net $7,720 $19,737 $25,787 $19,352 $5,863
--------------------------------------------------------------------------------------------------------------
(5) AGREEMENTS WITH MANAGER
A. ADVISORY AGREEMENT -- The Manager carries out the Funds' investment
policies and manages the Funds' portfolios pursuant to an Advisory
Agreement. The Manager does not receive any management fees for from the
Funds for these services.
B. ADMINISTRATION AND SERVICING AGREEMENT -- The Manager provides certain
administration and shareholder servicing functions for the Funds. The
Manager does not receive any fees from the Funds for these services.
In addition to the services provided under its Administration and
Servicing Agreement with the Funds, the Manager also provides certain
compliance and legal services for the benefit of the Funds. The Trust's
Board of Trustees has approved the billing of these expenses to the Funds.
These expenses are included in the professional fees on the Funds'
statements of operations. For the six-month period ended June 30, 2010,
the amounts for each of the Funds are shown below (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
--------------------------------------------------------------------------------------------------------------
Compliance and legal services $1 $3 $4 $4 $1
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
<PAGE>
================================================================================
C. EXPENSE LIMITATION -- The Manager has agreed, through May 1, 2011, to
waive all fees and to reimburse all operating expenses of the Funds,
excluding extraordinary expenses and before reductions of expenses paid
indirectly. This expense reimbursement arrangement may not be changed or
terminated through May 1, 2011, without approval of the Trust's Board of
Trustees, and may be changed or terminated by the Manager at any time
after that date. For the six-month period ended June 30, 2010, the Funds
incurred reimbursable expenses, a portion of which was receivable from the
Manager, as shown below (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
--------------------------------------------------------------------------------------------------------------
Reimbursable expenses $73 $95 $108 $105 $82
Receivable from Manager 33 34 27 31 37
D. TRANSFER AGENCY AGREEMENT -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Funds. SAS does not receive any fees from
the Funds for these services.
E. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and
distribution of the Funds' shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At June 30, 2010,
USAA and its affiliated companies owned the following number of shares and
percent of total outstanding shares of each of the Funds:
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
--------------------------------------------------------------------------------------------------------------
Number of shares (000) 450 450 450 450 450
% of outstanding shares 3.3% 1.8% 1.2% 1.2% 2.9%
Certain trustees and officers of the Funds are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Funds officers
received any compensation from the Funds.
(7) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP -- The Funds do not invest in the underlying USAA funds
for the purpose of exercising management or control; however, investments
by the Funds may represent a significant portion of the underlying USAA
funds' net assets. At June 30, 2010, the Funds owned the following percent
of the total outstanding shares of each of the underlying USAA funds:
AFFILIATED USAA FUND TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
--------------------------------------------------------------------------------------------------------------
Aggressive Growth 0.3% 0.9% 1.9% 2.3% 1.1%
Emerging Markets 0.7% 1.7% 3.6% 4.4% 2.1%
Growth 0.7% 1.8% 3.8% 4.6% 2.2%
High-Yield Opportunities - 2.2% 3.2% 2.9% -
Income 1.4% 1.9% 2.4% 1.0% -
Income Stock 0.3% 0.9% 1.9% 2.3% 1.1%
Intermediate-Term Bond 2.2% 3.0% 3.3% - -
International 0.7% 1.8% 3.8% 4.6% 2.2%
Precious Metals and Minerals 0.1% 0.3% 0.7% 0.8% 0.4%
S&P 500 Index 0.2% 0.4% 0.9% 1.1% 0.5%
Short-Term Bond 1.6% 2.2% - - -
Small Cap Stock 0.6% 1.7% 3.6% 4.4% 2.1%
Value 0.9% 2.2% 4.7% 5.8% 2.8%
================================================================================
26 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
B. TRANSACTIONS WITH AFFILIATED FUNDS -- The following tables provide details
related to each Fund's investment in the underlying USAA funds for the
six-month period ended June 30, 2010 (in thousands):
TARGET INCOME:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2009 6/30/2010
-------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ 2,042 $ 301 $ - $(13) $ 1,935 $ 3,389
Emerging Markets 2,348 818 - (52) 2,985 4,214
Growth 3,249 1,426 - (73) 3,206 4,624
Income 20,119 2,741 761 (2) 20,195 38,357
Income Stock 2,436 508 27 (28) 2,681 4,206
Intermediate-Term Bond 12,409 8,955 810 37 24,190 28,614
International 5,808 591 - (55) 5,814 9,988
Precious Metals and Minerals 1,382 232 - (4) 855 2,247
S&P 500 Index 3,425 680 36 (35) 1,692 4,095
Short-Term Bond 11,731 2,880 446 - 19,585 28,744
Small Cap Stock 2,105 1,167 - 45 2,899 3,783
Value 2,628 601 - (28) 2,451 4,163
TARGET 2020:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2009 6/30/2010
-------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ 5,122 $ 412 $ - $ (3) $ 4,766 $ 8,747
Emerging Markets 5,514 1,740 - (81) 7,860 10,866
Growth 8,158 3,151 - (163) 7,917 11,902
High-Yield Opportunities 9,475 3,618 926 (60) 18,165 24,177
Income 22,039 2,917 1,066 7 32,735 53,018
Income Stock 5,979 849 69 (36) 6,747 10,855
Intermediate-Term Bond 14,925 5,626 1,027 21 29,090 39,563
International 13,431 581 - (15) 15,524 25,714
Precious Metals and Minerals 3,212 974 - (51) 2,945 5,754
S&P 500 Index 5,795 1,353 94 (64) 7,021 10,549
Short-Term Bond 15,612 5,032 608 7 28,720 39,734
Small Cap Stock 4,898 2,569 - 145 7,553 9,746
Value 6,716 1,086 - (38) 5,913 10,745
TARGET 2030:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2009 6/30/2010
-------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $10,941 $ 564 $ - $ (12) $ 9,980 $18,782
Emerging Markets 11,588 3,405 - (175) 16,784 23,322
Growth 15,830 6,153 - (377) 18,154 25,577
High-Yield Opportunities 14,150 5,632 1,332 (91) 25,890 34,626
Income 29,286 10,625 1,367 29 45,759 65,955
Income Stock 12,797 1,342 150 (79) 14,062 23,314
Intermediate-Term Bond 19,790 10,205 1,137 71 32,845 43,742
International 28,063 217 - (6) 33,100 55,206
Precious Metals and Minerals 7,467 1,382 - (13) 4,946 12,384
S&P 500 Index 9,790 3,222 202 (165) 18,125 22,659
Small Cap Stock 10,330 5,500 - 264 16,411 20,934
Value 12,657 1,870 - (86) 14,029 23,073
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
<PAGE>
================================================================================
TARGET 2040:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2009 6/30/2010
-------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $14,151 $ 390 $ - $ (56) $10,916 $22,776
Emerging Markets 13,943 3,643 - (210) 20,022 28,305
Growth 14,461 7,234 - (480) 26,711 31,031
High-Yield Opportunities 13,514 5,786 1,226 (84) 23,611 31,540
Income 18,569 17,234 628 123 25,332 27,418
Income Stock 12,508 1,387 184 (92) 19,915 28,310
International 33,723 - - - 40,508 67,108
Precious Metals and Minerals 9,405 1,945 - (4) 5,910 15,050
S&P 500 Index 14,913 2,588 249 (168) 17,607 27,515
Small Cap Stock 12,472 6,866 - 275 20,158 25,397
Value 14,419 1,885 - (121) 17,620 28,019
TARGET 2050:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2009 6/30/2010
-------------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ 6,520 $ 174 $ - $ (27) $ 5,513 $10,915
Emerging Markets 7,085 2,030 - (121) 9,521 13,564
Growth 7,642 5,374 - (306) 14,091 14,869
Income Stock 6,220 1,775 89 (82) 10,454 13,551
International 16,834 - - - 18,832 32,154
Precious Metals and Minerals 4,859 1,233 - 2 2,765 7,203
S&P 500 Index 8,873 1,315 121 (120) 6,797 13,193
Small Cap Stock 6,480 3,419 - 66 9,306 12,166
Value 6,427 1,054 - (72) 9,100 13,411
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) Includes capital gain distributions received, if any.
================================================================================
28 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
(8) FINANCIAL HIGHLIGHTS -- TARGET INCOME
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
2010 2009 2008*
--------------------------------------------------------
Net asset value at beginning of period $ 10.17 $ 8.44 $ 10.00
--------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17 .34 .23(a)
Net realized and unrealized gain (loss) .02(e) 1.74 (1.63)(a)
--------------------------------------------------------
Total from investment operations .19 2.08 (1.40)(a)
--------------------------------------------------------
Less distributions from:
Net investment income (.15) (.34) (.16)
Realized capital gains - (.01) -
--------------------------------------------------------
Total distributions (.15) (.35) (.16)
--------------------------------------------------------
Net asset value at end of period $ 10.21 $ 10.17 $ 8.44
========================================================
Total return (%)** 1.84 25.04 (14.01)
Net assets at end of period (000) $138,540 $90,849 $22,737
Ratios to average net assets:***(b)
Expenses(c) - - -
Expenses, excluding reimbursements (%)(c) .12(d) .32 1.06(d)
Net investment income (%) 3.50(d) 4.44 6.31(d)
Portfolio turnover (%) 18 25 20
* Fund commenced operations on July 31, 2008.
** Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
*** For the six-month period ended June 30, 2010, average net assets
were $119,951,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflected a net realized and unrealized gain per share, whereas the
statement of operations reflected a net realized and unrealized loss for
the period. The difference in realized and unrealized gains and losses is
due to the timing of sales and repurchases of shares in relation to
fluctuating market values for the portfolio.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
<PAGE>
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) -- TARGET 2020
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
2010 2009 2008*
--------------------------------------------------------
Net asset value at beginning of period $ 10.38 $ 8.35 $ 10.00
--------------------------------------------------------
Income (loss) from investment operations:
Net investment income .15 .27 .26(a)
Net realized and unrealized gain (loss) (.08) 2.08 (1.76)(a)
--------------------------------------------------------
Total from investment operations .07 2.35 (1.50)(a)
--------------------------------------------------------
Less distributions from:
Net investment income - (.27) (.15)
Realized capital gains - (.05) -
--------------------------------------------------------
Total distributions - (.32) (.15)
--------------------------------------------------------
Net asset value at end of period $ 10.45 $ 10.38 $ 8.35
========================================================
Total return (%)** .67 28.12 (14.95)
Net assets at end of period (000) $266,358 $179,660 $39,717
Ratios to average net assets:***(b)
Expenses(c) - - -
Expenses, excluding reimbursements (%)(c) .08(d) .18 .73(d)
Net investment income (%) 3.33(d) 4.40 7.35(d)
Portfolio turnover (%) 13 34 31
* Fund commenced operations on July 31, 2008.
** Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
*** For the six-month period ended June 30, 2010, average net assets were
$229,924,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
30 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) -- TARGET 2030
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
2010 2009 2008*
--------------------------------------------------------
Net asset value at beginning of period $ 10.10 $ 7.85 $ 10.00
--------------------------------------------------------
Income (loss) from investment operations:
Net investment income .11 .23 .25(a)
Net realized and unrealized gain (loss) (.26) 2.26 (2.26)(a)
--------------------------------------------------------
Total from investment operations (.15) 2.49 (2.01)(a)
--------------------------------------------------------
Less distributions from:
Net investment income - (.23) (.14)
Realized capital gains - (.01) -
--------------------------------------------------------
Total distributions - (.24) (.14)
--------------------------------------------------------
Net asset value at end of period $ 9.95 $ 10.10 $ 7.85
========================================================
Total return (%)** (1.49) 31.68 (20.06)
Net assets at end of period (000) $375,522 $256,236 $50,492
Ratios to average net assets:***(b)
Expenses(c) - - -
Expenses, excluding reimbursements (%)(c) .07(d) .14 .61(d)
Net investment income (%) 2.56(d) 3.96 7.27(d)
Portfolio turnover (%) 16 23 18
* Fund commenced operations on July 31, 2008.
** Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
*** For the six-month period ended June 30, 2010, average net assets were
$330,225,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
<PAGE>
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) -- TARGET 2040
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
2010 2009 2008*
--------------------------------------------------------
Net asset value at beginning of period $ 9.60 $ 7.37 $ 10.00
--------------------------------------------------------
Income (loss) from investment operations:
Net investment income .06 .16 .21(a)
Net realized and unrealized gain (loss) (.44) 2.25 (2.72)(a)
--------------------------------------------------------
Total from investment operations (.38) 2.41 (2.51)(a)
--------------------------------------------------------
Less distributions from:
Net investment income - (.16) (.12)
Realized capital gains - (.02) -
--------------------------------------------------------
Total distributions - (.18) (.12)
--------------------------------------------------------
Net asset value at end of period $ 9.22 $ 9.60 $ 7.37
========================================================
Total return (%)** (3.96) 32.71 (25.05)
Net assets at end of period (000) $337,636 $234,213 $43,742
Ratios to average net assets:***(b)
Expenses (c) - - -
Expenses, excluding reimbursements (%)(c) .07(d) .15 .70(d)
Net investment income (%) 1.52(d) 2.98 6.61(d)
Portfolio turnover (%) 17 16 4
* Fund commenced operations on July 31, 2008.
** Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
*** For the six-month period ended June 30, 2010, average net assets were
$303,714,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
32 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
(8) FINANCIAL HIGHLIGHTS (CONTINUED) -- TARGET 2050
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
2010 2009 2008*
--------------------------------------------------------
Net asset value at beginning of period $ 9.21 $ 7.07 $ 10.00
--------------------------------------------------------
Income (loss) from investment operations:
Net investment income .01 .09 .17(a)
Net realized and unrealized gain (loss) (.58) 2.16 (2.99)(a)
--------------------------------------------------------
Total from investment operations (.57) 2.25 (2.82)(a)
Less distributions from:
Net investment income - (.09) (.11)
Realized capital gains - (.02) -
--------------------------------------------------------
Total distributions - (.11) (.11)
--------------------------------------------------------
Net asset value at end of period $ 8.64 $ 9.21 $ 7.07
========================================================
Total return (%)** (6.19) 31.84 (28.20)
Net assets at end of period (000) $133,138 $88,453 $16,089
Ratios to average net assets:***(b)
Expenses(c) - - -
Expenses, excluding reimbursements (%)(c) .14(d) .33 1.55(d)
Net investment income (%) .36(d) 1.66 5.40(d)
Portfolio turnover (%) 14 23 2
* Fund commenced operations on July 31, 2008.
** Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return. Total returns for periods of less
than one year are not annualized.
*** For the six-month period ended June 30, 2010, average net assets were
$119,568,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
<PAGE>
================================================================================
EXPENSE EXAMPLE
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Funds, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including 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 Funds and to compare these costs with the ongoing
costs of investing in other mutual funds. The Manager has agreed, through May 1,
2011, to reimburse each Fund for all of the Fund's operating expenses;
therefore, each Fund's net ongoing costs are zero for the current period. Each
Fund also indirectly bears its pro-rata share of the expenses of the underlying
USAA funds in which it invests (acquired funds). These acquired fund fees and
expenses are not included in the Funds' annualized expense ratios used to
calculate the expense estimates in the table on the next page.
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 January 1, 2010, through June
30, 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. The actual expenses of each Fund, net of reimbursements, are
zero.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Funds' actual expense ratios and
an assumed rate of return of 5% per year before expenses, which is not the
Funds' actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Funds 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. If these direct costs were
included, your costs would have been higher. Acquired fund fees and expenses are
================================================================================
34 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
not included in the Funds' annualized expense ratio used to calculate the
expenses paid in the table below. As reported in the Funds' prospectus dated May
1, 2010, the Funds had acquired fund fees and expenses ratios of 0.52% for
Target Income, 0.57% for Target 2020, 0.62% for Target 2030, 0.71% for Target
2040, and 0.80% for Target 2050.
ACTUAL EXPENSES
BEGINNING ENDING PAID DURING PERIOD**
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2010 -
JANUARY 1, 2010 JUNE 30, 2010 JUNE 30, 2010
-------------------------------------------------------------------------
TARGET INCOME
Actual $1,000.00 $1,018.40 $0.00
Hypothetical* 1,000.00 1,024.79 0.00
TARGET 2020
Actual 1,000.00 1,006.70 0.00
Hypothetical* 1,000.00 1,024.79 0.00
TARGET 2030
Actual 1,000.00 985.10 0.00
Hypothetical* 1,000.00 1,024.79 0.00
TARGET 2040
Actual 1,000.00 960.40 0.00
Hypothetical* 1,000.00 1,024.79 0.00
TARGET 2050
Actual 1,000.00 938.10 0.00
Hypothetical* 1,000.00 1,024.79 0.00
* 5% return per year before expenses
** Actual expenses equal each Fund's annualized expense ratio of 0.00%, which
is net of any reimbursements and excludes expenses of the acquired funds,
multiplied by 181 days/365 days (to reflect the one-half year period).
Each Fund's ending account value in the actual expenses section of the
table is based on its actual total return for the current period of
January 1, 2010, through June 30, 2010. These total returns equaled 1.84%,
0.67%, (1.49)%, (3.96)%, and (6.19)% for the Target Income, Target 2020,
Target 2030, Target 2040, and Target 2050 Funds, respectively.
================================================================================
EXPENSE EXAMPLE | 35
<PAGE>
================================================================================
ADVISORY AGREEMENT
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
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 each of the Funds.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the Funds' investment performance, expenses, and
fees to comparable investment companies; (ii) information concerning the
services rendered to the Funds, as well as information regarding the Manager's
revenues and costs of providing services to the Funds and compensation paid to
affiliates of the Manager; and (iii) information about the Manager's operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuance of the Advisory Agreement with management and with experienced
independent counsel and received materials from such counsel discussing the
legal standards for their consideration of the proposed continuance of the
Advisory Agreement with respect to the Funds. The Independent Trustees also
reviewed the proposed Advisory Agreement with respect to the Funds in private
sessions with their counsel at which no representatives of management were
present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information concerning the Funds'
performance and related services provided by the Manager. At the meeting at
which the renewal of the Advisory Agreement is considered, particular focus is
given to information concerning Funds performance, comparability of fees and
total expenses, and profitability. However, the Board noted that the evaluation
process with respect to the Manager is an ongoing one. In this regard, the
Board's and its committees' consideration of the Advisory Agreement included
certain information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES -- In considering the nature, extent,
and quality of the services provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its familiarity
with the Manager's management through Board meetings, discussions, and reports
during the preceding year. The Board considered the services provided to the
Funds 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 Funds, the Manager and its affiliates provide
administrative services, stockholder services, oversight of the Funds'
accounting, marketing services, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Funds and
the Trust.
The Board considered the Manager's management style and the performance of its
duties under the Advisory Agreement. The Board considered the level and depth of
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The Manager's role in coordinating the activities of the Funds'
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 Funds.
================================================================================
36 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
The Board also reviewed the compliance and administrative services provided to
the Funds by the Manager and its affiliates, including the Manager's oversight
of the Funds' day-to-day operations and oversight of Funds accounting. The
Trustees, guided also by information obtained from their experiences as trustees
of the Funds 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 Funds' advisory fees and total expense ratios
as compared to other open-end investment companies deemed to be comparable to
the Funds as determined by the independent third party in its report. The Funds'
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Funds based upon certain
factors, including the 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 same
investment classifications/objectives as the Funds regardless of asset size,
excluding outliers (the "expense universe"). Among other data, the Board noted
that each Funds' management fee rate -- which includes advisory and
administrative services and the effects of any fee waivers or reimbursements --
was equal to the median of its respective expense group and its respective
expense universe. The Board noted that the Manager does not receive a management
fee from the Funds. The data indicated that the total expense ratio for each
Fund, which included underlying fund expenses and any reimbursements, for each
Fund was below the median of its respective expense group and its respective
expense universe. The Board took into account the various services provided to
the Funds by the Manager and its affiliates, including the high quality of
services provided by the Manager and the Manager's current voluntary
undertakings to maintain expense limitations for the Funds.
In considering the Funds' performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Funds' performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the approval of the Advisory Agreement,
including, among other information, a comparison of the Funds' average annual
total return with their Lipper indexes and with that of other mutual funds
deemed to be in their peer group by the independent third party in its report
(the "performance universe"). Each Fund's performance universe consisted of the
Fund and all retail and institutional open-end investment companies with the
same classification/objective as the Fund regardless of asset size or primary
channel of distribution. This comparison indicated that, among other data, the
Target Retirement Income, Target Retirement 2020, Target Retirement 2030, and
Target Retirement 2040 Funds' performance was above the average of its
respective performance universe and its respective Lipper index for the one-year
period ended December 31, 2009. This comparison indicated that the Target
Retirement 2050 Fund's performance was lower than the average of its performance
universe and its Lipper index for the one-year period ended December 31, 2009.
The Board also noted that the Target Retirement Income Fund's percentile
performance ranking was in the top 20% of its performance universe for the
one-year period ended December 31, 2009, that the Target Retirement 2020 and
Target Retirement 2030 Funds' percentile performance rankings were in the top
30% of their respective performance universe for the one-year period ended
December 31, 2009, that the Target Retirement 2040 Fund's percentile performance
ranking was in the top 40% of its performance universe for the one-year period
ended December 31, 2009, and that the Target Retirement 2050 Fund's percentile
performance ranking was in the top 50% of its performance universe for the same
period. The Board took into account management's discussion of the Funds'
performance since their inception date on July 31, 2008. The Board also took
into account the fact that the Funds have a limited performance history because
they only recently commenced operations.
COMPENSATION AND PROFITABILITY -- The Board took into consideration that the
Manager does not collect a management fee from the Funds. The information
considered by the Board included operating profit margin information for the
Manager's business as a whole. This consideration included a broad review of the
methodology used in the allocation of certain costs to the Funds. The Trustees
reviewed the profitability of the Manager's relationship with the Funds 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 Funds for which they
receive no compensation. The Board also took into account the Manager's receipt
of fees from the underlying funds. 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 Funds.
================================================================================
ADVISORY AGREEMENT | 37
<PAGE>
================================================================================
The Board also took into account the high quality of services received by the
Funds from the Manager. 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 Funds and the entrepreneurial risk that it assumes
as Manager.
ECONOMIES OF SCALE -- With respect to the consideration of any economies of
scale to be realized by the Funds, the Board took into account that the Manager
does not receive any advisory fees under the Advisory Agreement. The Board took
into account Management's discussion of the Fund's commentary fee structure. The
Board determined that the current fee structure was reasonable. The Board also
considered the effects of the Funds' growth and size on the Funds' performance
and fees, noting that if the Funds' assets increase over time, the Funds may
realize other economies of scale if assets increase proportionally more than
some expenses.
CONCLUSIONS -- The Board reached the following conclusions regarding the
Advisory Agreement with the Manager with respect to each Fund, among others: (i)
the Manager has demonstrated that it possesses the capability and resources to
perform the duties required of it under the Advisory Agreement; (ii) the Manager
maintains an appropriate compliance program; (iii) the performance of each of
the Funds is reasonable in relation to the performance of funds with similar
investment objectives and to relevant indices; (iv) each 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's and its affiliates
level of profitability from their relationship with each Fund, if any, is
reasonable in light of the nature and high quality of services provided by the
Manager and the type of Funds. Based on its conclusions, the Board determined
that continuation of the Advisory Agreement would be in the best interests of
the Funds and its shareholders.
================================================================================
38 | USAA TARGET RETIREMENT FUNDS
<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, INVESTMENT ADVISER, USAA Investment Management Company
UNDERWRITER, AND DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT REGISTERED Ernst & Young LLP
PUBLIC ACCOUNTING FIRM 100 West Houston St., Suite 1800
San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND SELF-SERVICE 24/7 Under "Products & Services"
AT USAA.COM click "Investments," then
"Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA (8722) "Investments." View account balances,
or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
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.
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
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=============================================================================
88219-0810 (C)2010, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
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/S 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
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(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 June 30, 2010
By:* CHRISTOPHER P. LAIA
-----------------------------------------------------------
Signature and Title: Christopher P. Laia, Secretary
Date: 08/25/2010
------------------------------
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:* CHRISTOPHER W. CLAUS
-----------------------------------------------------
Signature and Title: Christopher W. Claus, President
Date: 08/25/2010
------------------------------
By:* ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 08/25/2010
------------------------------
*Print the name and title of each signing officer under his or her signature.
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