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 S&P 500 INDEX FUND]
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SEMIANNUAL REPORT
USAA S&P 500 INDEX FUND
MEMBER SHARES o REWARD SHARES
JUNE 30, 2010
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FUND OBJECTIVE
SEEKS TO MATCH, BEFORE FEES AND EXPENSES, THE PERFORMANCE OF THE S&P 500 INDEX.
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TYPES OF INVESTMENTS
Normally, at least 80% of the Fund's assets will be invested in the stocks of
companies composing the S&P 500 Index.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Investment Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 2
MANAGER'S COMMENTARY 4
FUND RECOGNITION 6
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Portfolio of Investments 14
Notes to Portfolio of Investments 36
Financial Statements 38
Notes to Financial Statements 41
EXPENSE EXAMPLE 57
ADVISORY AGREEMENTS 59
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 [PHOTO OF DANIEL S. McNAMARA]
CONTINUE -- AND EVEN INCREASE -- INVESTING
IF YOU WANT TO LIVE THE RETIREMENT LIFESTYLE
YOU ENVISION."
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JULY 2010
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.
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2 | USAA S&P 500 INDEX FUND
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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 | 3
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MANAGER'S COMMENTARY ON THE FUND
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o HOW DID THE USAA S&P 500 INDEX FUND (THE FUND) PERFORM?
The Fund closely tracked its benchmark, the S&P 500 Index (the Index), for
the six-month period ended June 30, 2010. The Fund produced a return of
-6.78% (Member Shares) and -6.71% (Reward Shares) for the period, as
compared to -6.65% for the benchmark. The broad-based Index is a group of
large company stocks that is not available for direct investment.
o WHAT WERE THE MARKET CONDITIONS DURING THE PERIOD?
For the first half of 2010, large-capitalization stocks, as represented by
the Index, returned -6.65%. Mid-cap stocks, as represented by the S&P 400
MidCap Index, returned -1.36% for the period and small-cap stocks, as
represented by the Russell 2000 Index, returned -1.95%. In 2010, large cap
stocks underperformed both mid-cap stocks and small caps stocks.
o PLEASE DESCRIBE SECTOR PERFORMANCE.
All sectors finished the second quarter in negative territory. Information
technology, the largest sector in the Index with a weight of 18.69%, was
down -10.57% for the year. Financials, the second largest sector, was down
-3.67% for the year. Health Care and Industrials, which represent just over
20% of the Index, posted returns of -8.79% and -0.85% respectively.
Refer to pages 9 and 11 for benchmark definitions.
Past performance is no guarantee of future results.
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4 | USAA S&P 500 INDEX FUND
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The year started in negative territory as U.S. indexes posted negative
returns in January fueled by mixed corporate earnings and continued concerns
around jobless data and consumer confidence. February and March posted
positive returns as many U.S. corporations posted unexpected positive
earnings and the market saw an increase in corporate activity. On February
18, 2010, the Federal Reserve Board (the Fed) increased the discount rate 25
basis points to 0.75% and markets continued to rally. For the first quarter
of 2010, the U.S. dollar strengthened relative to the Japanese yen, the
euro, and the British pound, but weakened versus the Canadian dollar and the
Australian dollar.
Positive performance ended in the second quarter as concerns about the
strength of the global economy along with the sovereign debt crisis in
Europe turned the U.S. equity markets negative for 2010. The quarter started
with a better than expected earnings season and multiple mergers and
acquisitions (M&A) announcements; however, disappointing macroeconomic data
and a fraud charge by the Securities and Exchange Commission against Goldman
Sachs in mid-April reversed the market trend. Multiple sovereign credit
downgrades in Europe placed further downward pressure on performance. In
May, continued eurozone debt uncertainty, pending financial regulation, and
the oil spill in the Gulf of Mexico all impacted the U.S. equity markets. In
mid-June M&A activity and comments from the Fed provided a brief rally, but
the market quickly reverted after disappointing U.S. home sales, gross
domestic product, and several lower-than-expected corporate earnings and
guidance announcements.
o WHAT'S THE OUTLOOK?
We don't manage the Fund according to a given outlook for the equity markets
or the economy in general, because we're managing an index fund that seeks
to replicate as closely as possible (before deduction of expenses) the broad
diversification and returns of the Index. Nevertheless, we will monitor
economic conditions and their effect on the financial markets as we seek to
track the Index's performance closely.
Thank you for your investment in the Fund.
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MANAGER'S COMMENTARY ON THE FUND | 5
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FUND RECOGNITION
USAA S&P 500 INDEX FUND
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LIPPER LEADER (OVERALL)
MEMBER AND REWARD SHARES
[5]
TAX
EFFICIENCY
The Fund's Member and Reward shares are listed as a Lipper Leader for Tax
Efficiency among 160 funds within the Lipper S&P 500 Index Funds category for
the overall period ended June 30, 2010. The Fund's Member and Reward shares
received a Lipper Leader rating for Tax Efficiency amongst 160 and 147 for the
three- and five-year periods, respectively, and the Fund's Member shares
received a Lipper Leader rating among 98 funds for the 10-year period. Lipper
ratings for Tax Efficiency reflect funds' historical success in postponing
taxable distributions relative to peers as of June 30, 2010. Tax efficiency
offers no benefits to investors in tax-sheltered accounts such as 401(k) plans.
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6 | USAA S&P 500 INDEX FUND
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LIPPER LEADERS (OVERALL)
REWARD SHARES
[5] [5] [5] [5]
TOTAL RETURN PRESERVATION EXPENSE TAX
EFFICIENCY
The Fund's Reward Shares are listed as a Lipper Leader for Total Return,
Expense, and Tax Efficiency among 160, 47 and 160 funds, respectively, within
the Lipper S&P 500 Index Funds category, and for Preservation among 9,704 equity
funds, for the overall period ended June 30, 2010. The Fund's Reward Shares
received a Lipper Leader rating for Total Return among 160 and 147 funds for the
three- and five-year periods, respectively, a Lipper Leader rating for
Preservation among 7,658 funds for the five-year period and a score of 4 among
9,704 funds for the three-year period within the Lipper S&P 500 Index Funds
category. The Fund's Reward shares received a Lipper Leader rating for Expense
among 47 and 43 equity funds for the three- and five-year periods, respectively.
The Fund's Reward shares received a Lipper Leader rating for Tax Efficiency
among 160 and 147 funds for the three- and five-year periods, respectively.
Lipper ratings for Total Return reflect funds' historical total return
performance relative to peers as of June 30, 2010. Lipper ratings for
Preservation reflect funds' historical loss avoidance relative to other funds
within the same asset class as of June 30, 2010. Preservation ratings are
relative, rather than absolute, measures, and funds named Lipper Leaders for
Preservation may still experience losses periodically; those losses may be
larger for equity and mixed equity funds than for fixed-income funds. Lipper
ratings for Expense reflect funds' expense minimization relative to peers with
similar load structures as of June 30, 2010. Lipper ratings for Tax Efficiency
reflect funds' historical success in postponing taxable distributions relative
to peers as of June 30, 2010. Tax efficiency offers no benefits to investors in
tax-sheltered accounts such as 401(k) plans.
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Ratings are subject to change every month and are based on an equal-weighted
average of percentile ranks for the Total Return, Consistent Return,
Preservation, Expense, and Tax Efficiency metrics over three-, five-, and
10-year periods (if applicable). The highest 20% of funds in each peer group are
named Lipper Leaders, the next 20% receive a score of 4, the middle 20% are
scored 3, the next 20% are scored 2, and the lowest 20% are scored 1. *Lipper
ratings are not intended to predict future results, and Lipper does not
guarantee the accuracy of this information. More information is available at
WWW.LIPPERLEADERS.COM. Lipper Leader Copyright 2010, Reuters, All Rights
Reserved.
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FUND RECOGNITION | 7
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INVESTMENT OVERVIEW
USAA S&P 500 INDEX FUND MEMBER SHARES (Ticker Symbol: USSPX)
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6/30/10 12/31/09
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Net Assets $1,682.7 Million $1,831.6 Million
Net Asset Value Per Share $15.45 $16.71
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AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/10
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12/31/09 to 6/30/10* 1 YEAR 5 YEARS 10 YEARS
-6.78% 14.16% -0.98% -1.81%
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EXPENSE RATIO**
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BEFORE REIMBURSEMENT 0.40% AFTER REIMBURSEMENT 0.25%
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
** THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET
ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES, AFTER REIMBURSEMENT FROM USAA INVESTMENT
MANAGEMENT COMPANY (IMCO). BEFORE AND AFTER REIMBURSEMENT EXPENSE RATIOS ARE
REPORTED IN THE FUND'S PROSPECTUS DATED MAY 1, 2010. IMCO HAS AGREED, THROUGH
MAY 1, 2011, TO MAKE PAYMENTS OR WAIVE MANAGEMENT, ADMINISTRATION, AND OTHER
FEES TO LIMIT THE EXPENSES OF THE MEMBER SHARES SO THAT THE TOTAL ANNUAL
OPERATING EXPENSES OF THE MEMBER SHARES (EXCLUSIVE OF COMMISSION RECAPTURE,
EXPENSE OFFSET ARRANGEMENTS, ACQUIRED FUND FEES AND EXPENSES, AND EXTRAORDINARY
EXPENSES) DO NOT EXCEED AN ANNUAL RATE OF 0.25% OF THE MEMBER SHARES' AVERAGE
DAILY NET ASSETS. 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.
THESE EXPENSE RATIOS MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE
FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares. The performance data excludes the impact of a $10
account maintenance fee that is assessed on accounts of less than $10,000.
Performance of Member Shares will vary from Reward Shares due to differences in
expenses.
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8 | USAA S&P 500 INDEX FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
MEMBER SHARES
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA S&P 500 INDEX
S&P 500 INDEX FUND -- MEMBER SHARES
6/30/2000 $10,000.00 $10,000.00
7/31/2000 9,843.70 9,845.61
8/31/2000 10,455.09 10,454.34
9/30/2000 9,903.13 9,903.13
10/31/2000 9,861.26 9,858.90
11/30/2000 9,083.81 9,080.45
12/31/2000 9,128.27 9,125.34
1/31/2001 9,452.13 9,446.17
2/28/2001 8,590.27 8,584.51
3/31/2001 8,046.07 8,038.78
4/30/2001 8,671.34 8,659.27
5/31/2001 8,729.43 8,714.43
6/30/2001 8,516.97 8,498.66
7/31/2001 8,433.13 8,415.70
8/31/2001 7,905.20 7,890.29
9/30/2001 7,266.84 7,252.83
10/31/2001 7,405.41 7,391.59
11/30/2001 7,973.45 7,955.91
12/31/2001 8,043.30 8,022.07
1/31/2002 7,925.92 7,905.88
2/28/2002 7,773.07 7,752.50
3/31/2002 8,065.41 8,040.84
4/30/2002 7,576.42 7,551.40
5/31/2002 7,520.60 7,495.46
6/30/2002 6,984.91 6,958.84
7/31/2002 6,440.55 6,421.03
8/31/2002 6,482.69 6,458.44
9/30/2002 5,778.15 5,755.63
10/31/2002 6,286.73 6,263.07
11/30/2002 6,656.76 6,629.55
12/31/2002 6,265.69 6,242.06
1/31/2003 6,101.55 6,072.21
2/28/2003 6,010.00 5,982.57
3/31/2003 6,068.35 6,034.37
4/30/2003 6,568.21 6,531.70
5/31/2003 6,914.27 6,872.73
6/30/2003 7,002.47 6,955.38
7/31/2003 7,125.93 7,078.90
8/31/2003 7,264.91 7,211.93
9/30/2003 7,187.76 7,131.13
10/31/2003 7,594.37 7,536.58
11/30/2003 7,661.18 7,598.58
12/31/2003 8,062.97 7,993.15
1/31/2004 8,210.97 8,136.74
2/29/2004 8,325.10 8,246.82
3/31/2004 8,199.50 8,122.04
4/30/2004 8,070.78 7,992.43
5/31/2004 8,181.54 8,098.04
6/30/2004 8,340.63 8,253.25
7/31/2004 8,064.58 7,978.79
8/31/2004 8,097.20 8,007.68
9/30/2004 8,184.89 8,091.15
10/31/2004 8,309.94 8,216.82
11/30/2004 8,646.17 8,545.50
12/31/2004 8,940.39 8,832.99
1/31/2005 8,722.47 8,618.85
2/28/2005 8,906.02 8,798.92
3/31/2005 8,748.32 8,642.16
4/30/2005 8,582.40 8,476.05
5/31/2005 8,855.48 8,744.75
6/30/2005 8,868.05 8,755.93
7/31/2005 9,197.84 9,079.68
8/31/2005 9,113.92 8,996.29
9/30/2005 9,187.73 9,067.78
10/31/2005 9,034.56 8,915.09
11/30/2005 9,376.27 9,250.02
12/31/2005 9,379.49 9,254.13
1/31/2006 9,627.88 9,496.62
2/28/2006 9,654.01 9,521.36
3/31/2006 9,774.18 9,639.05
4/30/2006 9,905.42 9,763.26
5/31/2006 9,620.33 9,485.02
6/30/2006 9,633.37 9,495.90
7/31/2006 9,692.80 9,550.79
8/31/2006 9,923.42 9,775.34
9/30/2006 10,179.15 10,026.46
10/31/2006 10,510.84 10,352.16
11/30/2006 10,710.72 10,547.58
12/31/2006 10,860.96 10,691.77
1/31/2007 11,025.22 10,852.85
2/28/2007 10,809.58 10,641.43
3/31/2007 10,930.48 10,758.15
4/30/2007 11,414.65 11,233.37
5/31/2007 11,812.96 11,622.64
6/30/2007 11,616.71 11,430.51
7/31/2007 11,256.54 11,075.21
8/31/2007 11,425.27 11,237.64
9/30/2007 11,852.57 11,658.03
10/31/2007 12,041.10 11,841.55
11/30/2007 11,537.71 11,341.99
12/31/2007 11,457.66 11,260.71
1/31/2008 10,770.41 10,584.45
2/29/2008 10,420.53 10,241.20
3/31/2008 10,375.53 10,191.42
4/30/2008 10,880.85 10,690.70
5/31/2008 11,021.79 10,824.52
6/30/2008 10,092.61 9,910.94
7/31/2008 10,007.77 9,828.18
8/31/2008 10,152.53 9,967.84
9/30/2008 9,247.87 9,074.85
10/31/2008 7,694.71 7,551.11
11/30/2008 7,142.58 7,005.05
12/31/2008 7,218.58 7,079.36
1/31/2009 6,610.15 6,481.99
2/28/2009 5,906.31 5,790.30
3/31/2009 6,423.68 6,297.76
4/30/2009 7,038.49 6,899.05
5/31/2009 7,432.17 7,284.09
6/30/2009 7,446.91 7,299.65
7/31/2009 8,010.18 7,850.97
8/31/2009 8,299.38 8,131.93
9/30/2009 8,609.07 8,433.52
10/31/2009 8,449.14 8,273.80
11/30/2009 8,955.95 8,768.95
12/31/2009 9,128.94 8,939.64
1/31/2010 8,800.53 8,618.65
2/28/2010 9,073.15 8,880.79
3/31/2010 9,620.67 9,418.83
4/30/2010 9,772.56 9,563.82
5/31/2010 8,992.21 8,795.92
6/30/2010 8,521.48 8,333.23
[END CHART]
Data from 6/30/00 to 6/30/10.
The graph illustrates how a $10,000 hypothetical investment in the USAA S&P 500
Index Fund's Member Shares closely tracks the S&P 500 Index. The S&P 500 Index
is an unmanaged index representing the weighted average performance of a group
of 500 widely held, publicly traded stocks.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for our use. The USAA S&P 500 Index Fund is not sponsored, endorsed, sold, or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the USAA S&P 500 Index Fund. o Index
products incur fees and expenses and may not always be invested in all
securities of the index the Fund attempts to mirror. It is not possible to
invest directly in an index.
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.
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INVESTMENT OVERVIEW | 9
<PAGE>
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USAA S&P 500 INDEX FUND REWARD SHARES (Ticker Symbol: USPRX)
--------------------------------------------------------------------------------
6/30/10 12/31/09
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Net Assets $911.1 Million $894.0 Million
Net Asset Value Per Share $15.45 $16.71
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/10
--------------------------------------------------------------------------------
12/31/09 to 6/30/10* 1 YEAR 5 YEARS SINCE INCEPTION 5/01/02
-6.71% 14.34% -0.86% 1.23%
--------------------------------------------------------------------------------
EXPENSE RATIO**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 0.23% AFTER REIMBURSEMENT 0.09%
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
** THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET
ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES, AFTER REIMBURSEMENT FROM USAA INVESTMENT
MANAGEMENT COMPANY (IMCO). BEFORE AND AFTER REIMBURSEMENT EXPENSE RATIOS ARE
REPORTED IN THE FUND'S PROSPECTUS DATED MAY 1, 2010. IMCO HAS AGREED, THROUGH
MAY 1, 2011, TO MAKE PAYMENTS OR WAIVE MANAGEMENT, ADMINISTRATION, AND OTHER
FEES TO LIMIT THE EXPENSES OF THE REWARD SHARES SO THAT THE TOTAL ANNUAL
OPERATING EXPENSES OF THE REWARD SHARES (EXCLUSIVE OF COMMISSION RECAPTURE,
EXPENSE OFFSET ARRANGEMENTS, ACQUIRED FUND FEES AND EXPENSES, AND EXTRAORDINARY
EXPENSES) DO NOT EXCEED AN ANNUAL RATE OF 0.09% OF THE REWARD SHARES' AVERAGE
DAILY NET ASSETS. 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.
THESE EXPENSE RATIOS MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE
FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
================================================================================
10 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
REWARD SHARES
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA S&P 500 INDEX
S&P 500 INDEX FUND -- REWARD SHARES
4/30/2002 $10,000.00 $10,000.00
5/31/2002 9,926.33 9,834.86
6/30/2002 9,219.28 9,132.62
7/31/2002 8,500.79 8,426.81
8/31/2002 8,556.41 8,482.04
9/30/2002 7,626.50 7,559.41
10/31/2002 8,297.76 8,225.87
11/30/2002 8,786.16 8,707.21
12/31/2002 8,269.99 8,200.15
1/31/2003 8,053.34 7,977.01
2/28/2003 7,932.51 7,859.25
3/31/2003 8,009.53 7,935.34
4/30/2003 8,669.28 8,582.61
5/31/2003 9,126.04 9,030.72
6/30/2003 9,242.46 9,144.24
7/31/2003 9,405.41 9,306.64
8/31/2003 9,588.84 9,481.53
9/30/2003 9,487.01 9,379.66
10/31/2003 10,023.69 9,912.95
11/30/2003 10,111.88 9,994.52
12/31/2003 10,642.20 10,518.03
1/31/2004 10,837.53 10,706.98
2/29/2004 10,988.17 10,858.13
3/31/2004 10,822.40 10,692.00
4/30/2004 10,652.50 10,521.38
5/31/2004 10,798.69 10,660.40
6/30/2004 11,008.67 10,871.11
7/31/2004 10,644.31 10,509.59
8/31/2004 10,687.37 10,547.64
9/30/2004 10,803.12 10,661.87
10/31/2004 10,968.16 10,821.09
11/30/2004 11,411.95 11,260.56
12/31/2004 11,800.29 11,640.03
1/31/2005 11,512.65 11,357.84
2/28/2005 11,754.93 11,595.13
3/31/2005 11,546.77 11,389.20
4/30/2005 11,327.78 11,176.74
5/31/2005 11,688.21 11,530.84
6/30/2005 11,704.80 11,541.98
7/31/2005 12,140.09 11,975.21
8/31/2005 12,029.32 11,865.29
9/30/2005 12,126.75 11,956.26
10/31/2005 11,924.59 11,754.93
11/30/2005 12,375.60 12,203.05
12/31/2005 12,379.84 12,205.16
1/31/2006 12,707.70 12,524.98
2/28/2006 12,742.18 12,557.61
3/31/2006 12,900.79 12,715.75
4/30/2006 13,074.02 12,886.17
5/31/2006 12,697.73 12,512.56
6/30/2006 12,714.95 12,530.42
7/31/2006 12,793.38 12,609.44
8/31/2006 13,097.77 12,905.74
9/30/2006 13,435.30 13,240.27
10/31/2006 13,873.11 13,670.15
11/30/2006 14,136.92 13,928.08
12/31/2006 14,335.22 14,122.06
1/31/2007 14,552.02 14,334.72
2/28/2007 14,267.40 14,055.60
3/31/2007 14,426.98 14,206.41
4/30/2007 15,066.03 14,840.62
5/31/2007 15,591.76 15,354.67
6/30/2007 15,332.73 15,097.99
7/31/2007 14,857.34 14,628.69
8/31/2007 15,080.05 14,849.93
9/30/2007 15,644.03 15,401.95
10/31/2007 15,892.87 15,644.40
11/30/2007 15,228.45 14,991.15
12/31/2007 15,122.80 14,887.77
1/31/2008 14,215.71 13,994.09
2/29/2008 13,753.90 13,533.72
3/31/2008 13,694.51 13,477.98
4/30/2008 14,361.48 14,131.13
5/31/2008 14,547.50 14,314.83
6/30/2008 13,321.09 13,112.08
7/31/2008 13,209.11 12,995.80
8/31/2008 13,400.18 13,187.32
9/30/2008 12,206.12 12,011.53
10/31/2008 10,156.13 9,988.97
11/30/2008 9,427.38 9,273.51
12/31/2008 9,527.69 9,369.04
1/31/2009 8,724.64 8,585.40
2/28/2009 7,795.66 7,669.99
3/31/2009 8,478.52 8,337.74
4/30/2009 9,289.99 9,140.79
5/31/2009 9,809.61 9,650.55
6/30/2009 9,829.07 9,667.85
7/31/2009 10,572.51 10,398.03
8/31/2009 10,954.22 10,777.16
9/30/2009 11,362.98 11,173.88
10/31/2009 11,151.89 10,969.31
11/30/2009 11,820.82 11,625.35
12/31/2009 12,049.15 11,849.24
1/31/2010 11,615.69 11,423.77
2/28/2010 11,975.52 11,778.33
3/31/2010 12,698.18 12,488.85
4/30/2010 12,898.65 12,681.10
5/31/2010 11,868.68 11,670.03
6/30/2010 11,247.38 11,054.13
[END CHART]
*Data from 4/30/02 to 6/30/10.
The graph illustrates how a $10,000 hypothetical investment in the USAA S&P 500
Index Fund's Reward Shares closely tracks the S&P 500 Index. The S&P 500 Index
is an unmanaged index representing the weighted average performance of a group
of 500 widely held, publicly traded stocks.
*The performance of the S&P 500 Index is calculated from the end of the month,
April 30, 2002, while the Reward Shares were introduced on May 1, 2002. There
may be a slight variation of the performance numbers because of this difference.
"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for our use. The USAA S&P 500 Index Fund is not sponsored, endorsed, sold, or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the USAA S&P 500 Index Fund. o Index
products incur fees and expenses and may not always be invested in all
securities of the index the Fund attempts to mirror. It is not possible to
invest directly in an index.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND THE CUMULATIVE
PERFORMANCE QUOTED DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER
WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
================================================================================
INVESTMENT OVERVIEW | 11
<PAGE>
================================================================================
TOP 10 EQUITY HOLDINGS
AS OF 6/30/10
(% of Net Assets)
Exxon Mobil Corp. ............................................... 3.1%
Apple, Inc. ..................................................... 2.4%
Microsoft Corp. ................................................. 1.8%
Procter & Gamble Co. ............................................ 1.8%
Johnson & Johnson ............................................... 1.7%
International Business Machines Corp. ........................... 1.7%
General Electric Co. ............................................ 1.6%
JPMorgan Chase & Co. ............................................ 1.5%
Bank of America Corp. ........................................... 1.5%
AT&T, Inc. ...................................................... 1.5%
You will find a complete list of securities that the Fund owns on pages 14-34.
================================================================================
12 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
o SECTOR ALLOCATION* -- 6/30/2010 o
[PIE CHART OF SECTOR ALLOCATION]
INFORMATION TECHNOLOGY 18.4%
FINANCIALS 16.0%
HEALTH CARE 11.9%
CONSUMER STAPLES 11.3%
ENERGY 10.5%
INDUSTRIALS 10.1%
CONSUMER DISCRETIONARY 9.9%
UTILITIES 3.7%
MATERIALS 3.4%
TELECOMMUNICATION SERVICES 3.0%
[END CHART]
* Excludes money market instruments and short-term investments purchased with
cash collateral from securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
COMMON STOCKS (98.2%)
CONSUMER DISCRETIONARY (9.9%)
-----------------------------
ADVERTISING (0.1%)
125,600 Interpublic Group of Companies, Inc.* $ 895
81,829 Omnicom Group, Inc. 2,807
----------
3,702
----------
APPAREL & ACCESSORIES & LUXURY GOODS (0.2%)
85,308 Coach, Inc. 3,118
16,067 Polo Ralph Lauren Corp. 1,172
24,463 VF Corp. 1,742
----------
6,032
----------
APPAREL RETAIL (0.5%)
24,477 Abercrombie & Fitch Co. "A" 751
121,851 Gap, Inc. 2,371
75,412 Limited Brands, Inc. 1,664
32,945 Ross Stores, Inc. 1,756
111,505 TJX Companies, Inc. 4,678
35,400 Urban Outfitters, Inc.* 1,218
----------
12,438
----------
AUTO PARTS & EQUIPMENT (0.2%)
184,187 Johnson Controls, Inc. 4,949
----------
AUTOMOBILE MANUFACTURERS (0.4%)
930,773 Ford Motor Co.* 9,382
----------
AUTOMOTIVE RETAIL (0.2%)
24,711 AutoNation, Inc.(g)* 482
7,899 AutoZone, Inc.* 1,526
60,968 CarMax, Inc.* 1,213
37,100 O'Reilly Automotive, Inc.* 1,765
----------
4,986
----------
BROADCASTING (0.2%)
181,071 CBS Corp. "B" 2,341
76,573 Discovery Communications, Inc. "A"* 2,734
25,920 Scripps Networks Interactive "A" 1,046
----------
6,121
----------
================================================================================
14 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
CABLE & SATELLITE (1.0%)
773,717 Comcast Corp. "A" $ 13,439
248,366 DIRECTV "A"* 8,425
96,512 Time Warner Cable, Inc. 5,026
----------
26,890
----------
CASINOS & GAMING (0.1%)
82,696 International Game Technology 1,299
19,289 Wynn Resorts Ltd. 1,471
----------
2,770
----------
COMPUTER & ELECTRONICS RETAIL (0.2%)
93,250 Best Buy Co., Inc. 3,157
44,000 GameStop Corp. "A"* 827
37,414 RadioShack Corp. 730
----------
4,714
----------
CONSUMER ELECTRONICS (0.0%)
17,411 Harman International Industries, Inc.* 520
----------
DEPARTMENT STORES (0.4%)
62,900 J.C. Penney Co., Inc. 1,351
83,430 Kohl's Corp.* 3,963
118,671 Macy's, Inc. 2,124
45,300 Nordstrom, Inc. 1,458
13,018 Sears Holdings Corp.(g)* 842
----------
9,738
----------
DISTRIBUTORS (0.1%)
43,400 Genuine Parts Co. 1,712
----------
EDUCATION SERVICES (0.1%)
35,781 Apollo Group, Inc. "A"* 1,520
16,900 DeVry, Inc. 887
----------
2,407
----------
FOOTWEAR (0.3%)
105,747 NIKE, Inc. "B" 7,143
----------
GENERAL MERCHANDISE STORES (0.5%)
23,800 Big Lots, Inc.* 764
38,000 Family Dollar Stores, Inc. 1,432
201,695 Target Corp. 9,917
----------
12,113
----------
HOME FURNISHINGS (0.0%)
42,796 Leggett & Platt, Inc. 859
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL (0.8%)
456,761 Home Depot, Inc. $ 12,821
390,549 Lowe's Companies, Inc. 7,975
----------
20,796
----------
HOMEBUILDING (0.1%)
70,449 D.R. Horton, Inc. 693
48,914 Lennar Corp. "A" 680
92,350 Pulte Group, Inc.* 765
----------
2,138
----------
HOMEFURNISHING RETAIL (0.1%)
72,959 Bed Bath & Beyond, Inc.* 2,705
----------
HOTELS, RESORTS & CRUISE LINES (0.3%)
116,867 Carnival Corp. 3,534
70,936 Marriott International, Inc. "A" 2,124
50,800 Starwood Hotels & Resorts Worldwide, Inc. 2,104
47,262 Wyndham Worldwide Corp. 952
----------
8,714
----------
HOUSEHOLD APPLIANCES (0.1%)
43,922 Stanley Black & Decker, Inc. 2,219
20,193 Whirlpool Corp. 1,773
----------
3,992
----------
HOUSEWARES & SPECIALTIES (0.1%)
42,967 Fortune Brands, Inc. 1,684
73,100 Newell Rubbermaid, Inc. 1,070
----------
2,754
----------
INTERNET RETAIL (0.5%)
93,660 Amazon.com, Inc.* 10,233
56,053 Expedia, Inc. 1,053
13,242 Priceline.com, Inc.* 2,338
----------
13,624
----------
LEISURE PRODUCTS (0.1%)
33,800 Hasbro, Inc. 1,389
99,300 Mattel, Inc. 2,101
----------
3,490
----------
MOTORCYCLE MANUFACTURERS (0.1%)
64,900 Harley-Davidson, Inc. 1,443
----------
MOVIES & ENTERTAINMENT (1.5%)
611,028 News Corp. "A" 7,308
309,572 Time Warner, Inc. 8,950
================================================================================
16 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
164,944 Viacom, Inc. "B" $ 5,174
536,547 Walt Disney Co. 16,901
----------
38,333
----------
PHOTOGRAPHIC PRODUCTS (0.0%)
75,400 Eastman Kodak Co.(g)* 327
----------
PUBLISHING (0.2%)
61,200 Gannett Co., Inc. 824
83,532 McGraw-Hill Companies, Inc. 2,351
10,000 Meredith Corp. 311
35,200 New York Times Co. "A"* 305
1,767 Washington Post Co. "B" 725
----------
4,516
----------
RESTAURANTS (1.2%)
39,155 Darden Restaurants, Inc. 1,521
293,442 McDonald's Corp. 19,329
205,499 Starbucks Corp. 4,994
128,100 Yum! Brands, Inc. 5,001
----------
30,845
----------
SPECIALIZED CONSUMER SERVICES (0.1%)
90,300 H&R Block, Inc. 1,417
----------
SPECIALTY STORES (0.2%)
71,700 Office Depot, Inc.* 289
199,418 Staples, Inc. 3,799
33,600 Tiffany & Co. 1,274
----------
5,362
----------
TIRES & RUBBER (0.0%)
64,800 Goodyear Tire & Rubber Co.* 644
----------
Total Consumer Discretionary 257,576
----------
CONSUMER STAPLES (11.3%)
------------------------
AGRICULTURAL PRODUCTS (0.2%)
175,153 Archer-Daniels-Midland Co. 4,522
----------
BREWERS (0.1%)
42,300 Molson Coors Brewing Co. "B" 1,792
----------
DISTILLERS & VINTNERS (0.1%)
30,745 Brown-Forman Corp. "B" 1,760
56,500 Constellation Brands, Inc. "A"* 882
----------
2,642
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
DRUG RETAIL (0.7%)
370,106 CVS Caremark Corp. $ 10,852
265,486 Walgreen Co. 7,088
----------
17,940
----------
FOOD DISTRIBUTORS (0.2%)
160,351 Sysco Corp. 4,581
----------
FOOD RETAIL (0.3%)
175,045 Kroger Co. 3,446
106,689 Safeway, Inc. 2,097
55,425 SUPERVALU, Inc. 601
46,020 Whole Foods Market, Inc.* 1,658
----------
7,802
----------
HOUSEHOLD PRODUCTS (2.6%)
37,374 Clorox Co. 2,323
134,551 Colgate-Palmolive Co. 10,598
113,873 Kimberly-Clark Corp. 6,904
786,631 Procter & Gamble Co. 47,182
----------
67,007
----------
HYPERMARKETS & SUPER CENTERS (1.3%)
120,081 Costco Wholesale Corp. 6,584
567,818 Wal-Mart Stores, Inc.(f) 27,295
----------
33,879
----------
PACKAGED FOODS & MEAT (1.7%)
51,707 Campbell Soup Co. 1,853
120,646 ConAgra Foods, Inc. 2,813
48,600 Dean Foods Co.* 489
182,835 General Mills, Inc. 6,494
86,869 H.J. Heinz Co. 3,755
44,800 Hershey Co. 2,147
19,200 Hormel Foods Corp. 777
33,102 J.M. Smucker Co. 1,993
70,229 Kellogg Co. 3,533
475,138 Kraft Foods, Inc. "A" 13,304
36,559 McCormick & Co., Inc. 1,388
54,528 Mead Johnson Nutrition Co. 2,733
177,219 Sara Lee Corp. 2,499
87,352 Tyson Foods, Inc. "A" 1,432
----------
45,210
----------
================================================================================
18 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
PERSONAL PRODUCTS (0.2%)
117,513 Avon Products, Inc. $ 3,114
33,823 Estee Lauder Companies, Inc. "A" 1,885
----------
4,999
----------
SOFT DRINKS (2.4%)
629,626 Coca-Cola Co. 31,557
88,701 Coca-Cola Enterprises, Inc. 2,294
68,900 Dr Pepper Snapple Group, Inc. 2,576
441,265 PepsiCo, Inc. 26,895
----------
63,322
----------
TOBACCO (1.5%)
570,475 Altria Group, Inc. 11,432
42,493 Lorillard, Inc. 3,059
506,334 Philip Morris International, Inc. 23,210
45,600 Reynolds American, Inc. 2,377
----------
40,078
----------
Total Consumer Staples 293,774
----------
ENERGY (10.5%)
--------------
COAL & CONSUMABLE FUELS (0.2%)
60,084 CONSOL Energy, Inc. 2,028
29,480 Massey Energy Co. 806
74,819 Peabody Energy Corp. 2,928
----------
5,762
----------
INTEGRATED OIL & GAS (6.4%)
549,144 Chevron Corp. 37,265
407,004 ConocoPhillips 19,980
1,398,491 Exxon Mobil Corp.(f) 79,812
79,705 Hess Corp. 4,012
192,197 Marathon Oil Corp. 5,975
52,801 Murphy Oil Corp. 2,616
221,837 Occidental Petroleum Corp. 17,115
----------
166,775
----------
OIL & GAS DRILLING (0.2%)
19,100 Diamond Offshore Drilling, Inc.(g) 1,188
28,500 Helmerich & Payne, Inc. 1,041
79,334 Nabors Industries Ltd.* 1,398
33,700 Rowan Companies, Inc.* 739
----------
4,366
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES (1.5%)
115,939 Baker Hughes, Inc. $ 4,820
67,001 Cameron International Corp.* 2,179
34,150 FMC Technologies, Inc.* 1,798
244,395 Halliburton Co. 6,000
115,517 National Oilwell Varco, Inc. 3,820
325,858 Schlumberger Ltd. 18,033
66,484 Smith International, Inc. 2,503
----------
39,153
----------
OIL & GAS EXPLORATION & PRODUCTION (1.7%)
135,936 Anadarko Petroleum Corp. 4,906
92,283 Apache Corp. 7,769
26,950 Cabot Oil & Gas Corp. 844
180,599 Chesapeake Energy Corp. 3,784
106,791 Denbury Resources, Inc.* 1,563
121,368 Devon Energy Corp. 7,394
69,115 EOG Resources, Inc. 6,799
46,961 Noble Energy, Inc. 2,833
32,546 Pioneer Natural Resources Co. 1,935
43,244 Range Resources Corp. 1,736
95,302 Southwestern Energy Co.* 3,683
----------
43,246
----------
OIL & GAS REFINING & MARKETING (0.2%)
33,888 Sunoco, Inc. 1,178
41,000 Tesoro Corp. 479
150,826 Valero Energy Corp. 2,712
----------
4,369
----------
OIL & GAS STORAGE & TRANSPORTATION (0.3%)
198,795 El Paso Corp. 2,209
174,700 Spectra Energy Corp. 3,506
161,949 Williams Companies, Inc. 2,960
----------
8,675
----------
Total Energy 272,346
----------
FINANCIALS (16.0%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.2%)
70,060 Ameriprise Financial, Inc. 2,531
332,407 Bank of New York Mellon Corp., Inc. 8,207
22,400 Federated Investors, Inc. "B" 464
40,626 Franklin Resources, Inc. 3,502
124,056 Invesco Ltd. 2,088
================================================================================
20 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
50,388 Janus Capital Group, Inc. $ 447
46,221 Legg Mason, Inc. 1,296
65,600 Northern Trust Corp.(c) 3,063
138,498 State Street Corp. 4,684
72,149 T. Rowe Price Group, Inc. 3,203
----------
29,485
----------
CONSUMER FINANCE (0.8%)
328,240 American Express Co. 13,031
124,121 Capital One Financial Corp. 5,002
149,955 Discover Financial Services 2,097
133,300 SLM Corp.* 1,385
----------
21,515
----------
DIVERSIFIED BANKS (1.9%)
46,977 Comerica, Inc. 1,730
523,533 U.S. Bancorp 11,701
1,423,823 Wells Fargo & Co. 36,450
----------
49,881
----------
INSURANCE BROKERS (0.2%)
71,354 Aon Corp. 2,649
149,679 Marsh & McLennan Companies, Inc. 3,375
----------
6,024
----------
INVESTMENT BANKING & BROKERAGE (1.2%)
265,257 Charles Schwab Corp. 3,761
53,280 E*TRADE Financial Corp.* 630
140,546 Goldman Sachs Group, Inc. 18,449
381,469 Morgan Stanley 8,854
----------
31,694
----------
LIFE & HEALTH INSURANCE (1.1%)
126,418 AFLAC, Inc. 5,394
83,811 Lincoln National Corp. 2,036
224,506 MetLife, Inc. 8,477
88,934 Principal Financial Group, Inc. 2,085
126,760 Prudential Financial, Inc. 6,802
22,907 Torchmark Corp. 1,134
90,400 Unum Group 1,962
----------
27,890
----------
MULTI-LINE INSURANCE (0.4%)
37,832 American International Group, Inc.(g)* 1,303
28,958 Assurant, Inc. 1,005
136,946 Genworth Financial, Inc. "A"* 1,790
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
119,758 Hartford Financial Services Group, Inc. $ 2,650
95,426 Loews Corp. 3,179
----------
9,927
----------
MULTI-SECTOR HOLDINGS (0.1%)
50,400 Leucadia National Corp.* 983
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (4.0%)
2,741,453 Bank of America Corp.(f) 39,395
6,178,484 Citigroup, Inc.(f)* 23,231
1,086,858 JPMorgan Chase & Co. 39,790
----------
102,416
----------
PROPERTY & CASUALTY INSURANCE (2.2%)
147,712 Allstate Corp. 4,244
452,298 Berkshire Hathaway, Inc. "B"* 36,044
89,923 Chubb Corp. 4,497
45,792 Cincinnati Financial Corp. 1,185
183,737 Progressive Corp. 3,439
134,969 Travelers Companies, Inc. 6,647
91,600 XL Capital Ltd. "A" 1,466
----------
57,522
----------
REAL ESTATE SERVICES (0.0%)
69,456 CB Richard Ellis Group, Inc. "A"* 945
----------
REGIONAL BANKS (1.1%)
188,300 BB&T Corp. 4,954
222,171 Fifth Third Bancorp 2,731
62,573 First Horizon National Corp.* 717
206,550 Huntington Bancshares, Inc. 1,144
248,304 KeyCorp 1,909
22,700 M&T Bank Corp. 1,928
148,766 Marshall & Ilsley Corp. 1,068
143,573 PNC Financial Services Group, Inc. 8,112
318,602 Regions Financial Corp. 2,096
137,230 SunTrust Banks, Inc. 3,198
40,868 Zions Bancorp 882
----------
28,739
----------
REITs - DIVERSIFIED (0.1%)
43,246 Vornado Realty Trust 3,155
----------
REITs - INDUSTRIAL (0.1%)
125,285 ProLogis 1,269
----------
================================================================================
22 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
REITs - OFFICE (0.1%)
37,400 Boston Properties, Inc. $ 2,668
----------
REITs - RESIDENTIAL (0.2%)
34,660 Apartment Investment & Management Co. "A" 672
23,104 AvalonBay Communities, Inc. 2,157
76,686 Equity Residential Properties Trust 3,193
----------
6,022
----------
REITs - RETAIL (0.3%)
114,268 Kimco Realty Corp. 1,536
79,669 Simon Property Group, Inc. 6,433
----------
7,969
----------
REITs - SPECIALIZED (0.5%)
80,297 HCP, Inc. 2,590
32,236 Health Care REIT, Inc. 1,358
181,732 Host Hotels & Resorts, Inc. 2,450
45,600 Plum Creek Timber Co., Inc.(g) 1,574
36,857 Public Storage 3,240
43,390 Ventas, Inc. 2,037
----------
13,249
----------
SPECIALIZED FINANCE (0.4%)
18,028 CME Group, Inc. 5,076
20,400 IntercontinentalExchange, Inc.* 2,306
53,100 Moody's Corp.(g) 1,057
40,200 Nasdaq OMX Group, Inc.* 715
72,137 NYSE Euronext 1,993
----------
11,147
----------
THRIFTS & MORTGAGE FINANCE (0.1%)
129,310 Hudson City Bancorp, Inc. 1,583
105,388 People's United Financial, Inc. 1,422
----------
3,005
----------
Total Financials 415,505
----------
HEALTH CARE (11.9%)
-------------------
BIOTECHNOLOGY (1.4%)
260,677 Amgen, Inc.* 13,711
72,820 Biogen Idec, Inc.* 3,455
126,481 Celgene Corp.* 6,428
21,623 Cephalon, Inc.* 1,227
73,719 Genzyme Corp.* 3,743
242,790 Gilead Sciences, Inc.* 8,323
----------
36,887
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS (0.4%)
78,970 AmerisourceBergen Corp. $ 2,507
97,415 Cardinal Health, Inc. 3,274
73,822 McKesson Corp. 4,958
27,600 Patterson Companies, Inc. 788
----------
11,527
----------
HEALTH CARE EQUIPMENT (1.7%)
162,489 Baxter International, Inc. 6,604
63,400 Becton, Dickinson & Co. 4,287
406,176 Boston Scientific Corp.* 2,356
25,011 C.R. Bard, Inc. 1,939
48,707 Carefusion Corp.* 1,106
45,742 Hospira, Inc.* 2,628
10,642 Intuitive Surgical, Inc.* 3,359
302,388 Medtronic, Inc. 10,968
87,151 St. Jude Medical, Inc.* 3,145
78,016 Stryker Corp. 3,905
33,300 Varian Medical Systems, Inc.* 1,741
55,175 Zimmer Holdings, Inc.* 2,982
----------
45,020
----------
HEALTH CARE FACILITIES (0.0%)
114,549 Tenet Healthcare Corp.* 497
----------
HEALTH CARE SERVICES (0.8%)
28,000 DaVita, Inc.* 1,748
150,542 Express Scripts, Inc.* 7,079
27,453 Laboratory Corp. of America Holdings* 2,069
125,824 Medco Health Solutions, Inc.* 6,930
42,393 Quest Diagnostics, Inc. 2,110
----------
19,936
----------
HEALTH CARE SUPPLIES (0.1%)
40,000 DENTSPLY International, Inc. 1,196
----------
HEALTH CARE TECHNOLOGY (0.1%)
18,345 Cerner Corp.* 1,392
----------
LIFE SCIENCES TOOLS & SERVICES (0.5%)
48,523 Life Technologies Corp.* 2,293
15,822 Millipore Corp.* 1,687
32,900 PerkinElmer, Inc. 680
112,085 Thermo Fisher Scientific, Inc.* 5,498
25,082 Waters Corp.* 1,623
----------
11,781
----------
================================================================================
24 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
MANAGED HEALTH CARE (0.9%)
114,177 Aetna, Inc. $ 3,012
75,856 CIGNA Corp. 2,356
40,880 Coventry Health Care, Inc.* 723
48,172 Humana, Inc.* 2,200
310,953 UnitedHealth Group, Inc. 8,831
116,439 WellPoint, Inc.* 5,697
----------
22,819
----------
PHARMACEUTICALS (6.0%)
421,383 Abbott Laboratories 19,712
83,853 Allergan, Inc. 4,885
468,923 Bristol-Myers Squibb Co. 11,695
279,456 Eli Lilly and Co. 9,362
81,700 Forest Laboratories, Inc.* 2,241
753,121 Johnson & Johnson 44,479
65,400 King Pharmaceuticals, Inc.* 496
851,768 Merck & Co., Inc. 29,786
88,293 Mylan, Inc.(g)* 1,505
2,204,801 Pfizer, Inc.(f) 31,441
28,800 Watson Pharmaceuticals, Inc.* 1,169
----------
156,771
----------
Total Health Care 307,826
----------
INDUSTRIALS (10.1%)
-------------------
AEROSPACE & DEFENSE (2.8%)
207,798 Boeing Co. 13,039
105,823 General Dynamics Corp. 6,197
34,492 Goodrich Corp. 2,285
207,819 Honeywell International, Inc. 8,111
50,567 ITT Corp. 2,272
32,230 L-3 Communications Holdings, Inc. 2,283
85,412 Lockheed Martin Corp. 6,363
80,825 Northrop Grumman Corp. 4,400
38,300 Precision Castparts Corp. 3,942
105,141 Raytheon Co. 5,088
42,393 Rockwell Collins, Inc. 2,252
255,567 United Technologies Corp. 16,589
----------
72,821
----------
AIR FREIGHT & LOGISTICS (1.0%)
44,206 C.H. Robinson Worldwide, Inc. 2,460
56,326 Expeditors International of Washington, Inc. 1,944
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
85,436 FedEx Corp. $ 5,990
271,575 United Parcel Service, Inc. "B" 15,450
----------
25,844
----------
AIRLINES (0.1%)
199,600 Southwest Airlines Co. 2,218
----------
BUILDING PRODUCTS (0.0%)
100,000 Masco Corp. 1,076
----------
COMMERCIAL PRINTING (0.0%)
56,900 R.R. Donnelley & Sons Co. 931
----------
CONSTRUCTION & ENGINEERING (0.2%)
49,400 Fluor Corp. 2,099
33,000 Jacobs Engineering Group, Inc.* 1,203
55,893 Quanta Services, Inc.* 1,154
----------
4,456
----------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.9%)
171,534 Caterpillar, Inc. 10,304
53,948 Cummins, Inc. 3,514
115,720 Deere & Co. 6,443
100,183 PACCAR, Inc. 3,994
----------
24,255
----------
DIVERSIFIED SUPPORT SERVICES (0.1%)
36,500 Cintas Corp. 875
49,200 Iron Mountain, Inc. 1,105
----------
1,980
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.5%)
205,474 Emerson Electric Co. 8,977
39,500 Rockwell Automation, Inc. 1,939
24,978 Roper Industries, Inc. 1,398
----------
12,314
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.3%)
90,055 Republic Services, Inc. 2,677
23,000 Stericycle, Inc.* 1,508
133,795 Waste Management, Inc. 4,187
----------
8,372
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%)
43,757 Robert Half International, Inc. 1,031
----------
================================================================================
26 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES (2.3%)
194,662 3M Co. $ 15,376
2,919,052 General Electric Co. 42,093
71,800 Textron, Inc. 1,219
----------
58,688
----------
INDUSTRIAL MACHINERY (0.8%)
144,978 Danaher Corp. 5,382
50,600 Dover Corp. 2,115
45,300 Eaton Corp. 2,964
16,103 Flowserve Corp. 1,366
105,384 Illinois Tool Works, Inc. 4,350
33,036 Pall Corp. 1,135
44,830 Parker-Hannifin Corp. 2,486
16,826 Snap-On, Inc. 688
----------
20,486
----------
OFFICE SERVICES & SUPPLIES (0.1%)
32,387 Avery Dennison Corp. 1,041
57,200 Pitney Bowes, Inc. 1,256
----------
2,297
----------
RAILROADS (0.8%)
106,570 CSX Corp. 5,289
100,441 Norfolk Southern Corp. 5,328
138,245 Union Pacific Corp. 9,610
----------
20,227
----------
RESEARCH & CONSULTING SERVICES (0.1%)
14,500 Dun & Bradstreet Corp. 973
35,700 Equifax, Inc. 1,002
----------
1,975
----------
TRADING COMPANIES & DISTRIBUTORS (0.1%)
36,400 Fastenal Co. 1,827
16,794 W.W. Grainger, Inc. 1,670
----------
3,497
----------
TRUCKING (0.0%)
15,500 Ryder System, Inc. 624
----------
Total Industrials 263,092
----------
INFORMATION TECHNOLOGY (18.4%)
------------------------------
APPLICATION SOFTWARE (0.5%)
144,413 Adobe Systems, Inc.* 3,817
61,900 Autodesk, Inc.* 1,508
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
51,021 Citrix Systems, Inc.* $ 2,155
57,718 Compuware Corp.* 461
87,122 Intuit, Inc.* 3,029
30,416 salesforce.com, Inc.* 2,610
----------
13,580
----------
COMMUNICATIONS EQUIPMENT (2.2%)
1,561,196 Cisco Systems, Inc.* 33,269
35,100 Harris Corp. 1,462
59,625 JDS Uniphase Corp.* 587
142,199 Juniper Networks, Inc.* 3,245
643,544 Motorola, Inc.* 4,196
447,969 QUALCOMM, Inc. 14,711
109,604 Tellabs, Inc. 700
----------
58,170
----------
COMPUTER HARDWARE (3.7%)
248,561 Apple, Inc.(f)* 62,521
466,085 Dell, Inc.* 5,621
637,951 Hewlett-Packard Co. 27,610
47,700 Teradata Corp.* 1,454
----------
97,206
----------
COMPUTER STORAGE & PERIPHERALS (0.8%)
561,265 EMC Corp.* 10,271
21,600 Lexmark International, Inc. "A"* 713
92,300 NetApp, Inc.* 3,444
32,900 QLogic Corp.* 547
63,000 SanDisk Corp.* 2,650
61,100 Western Digital Corp.* 1,843
----------
19,468
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.2%)
137,741 Automatic Data Processing, Inc. 5,545
42,338 Computer Sciences Corp. 1,916
91,926 Fidelity National Information Services, Inc. 2,465
41,951 Fiserv, Inc.* 1,916
26,368 MasterCard, Inc. "A" 5,261
89,524 Paychex, Inc. 2,325
50,155 Total System Services, Inc. 682
123,768 Visa, Inc. "A" 8,757
180,916 Western Union Co. 2,698
----------
31,565
----------
================================================================================
28 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
ELECTRONIC COMPONENTS (0.3%)
47,572 Amphenol Corp. "A" $ 1,869
429,484 Corning, Inc. 6,936
----------
8,805
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.2%)
95,566 Agilent Technologies, Inc.* 2,717
44,459 FLIR Systems, Inc.* 1,293
----------
4,010
----------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
51,500 Jabil Circuit, Inc. 685
36,800 Molex, Inc. 671
----------
1,356
----------
HOME ENTERTAINMENT SOFTWARE (0.0%)
88,216 Electronic Arts, Inc.* 1,270
----------
INTERNET SOFTWARE & SERVICES (1.7%)
46,700 Akamai Technologies, Inc.* 1,895
311,484 eBay, Inc.* 6,108
66,135 Google, Inc. "A"* 29,427
32,200 Monster Worldwide, Inc.* 375
48,786 VeriSign, Inc.* 1,295
321,669 Yahoo!, Inc.* 4,449
----------
43,549
----------
IT CONSULTING & OTHER SERVICES (1.9%)
82,208 Cognizant Technology Solutions Corp. "A"* 4,115
350,852 International Business Machines Corp. 43,323
80,809 SAIC, Inc.* 1,353
----------
48,791
----------
OFFICE ELECTRONICS (0.1%)
380,992 Xerox Corp. 3,063
----------
SEMICONDUCTOR EQUIPMENT (0.3%)
371,303 Applied Materials, Inc. 4,463
46,400 KLA-Tencor Corp. 1,294
60,700 MEMC Electronic Materials, Inc.* 600
28,336 Novellus Systems, Inc.* 718
53,300 Teradyne, Inc.* 520
----------
7,595
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
SEMICONDUCTORS (2.3%)
146,927 Advanced Micro Devices, Inc.* $ 1,076
83,641 Altera Corp. 2,075
83,202 Analog Devices, Inc. 2,318
116,150 Broadcom Corp. "A" 3,829
13,460 First Solar, Inc.(g)* 1,532
1,521,665 Intel Corp. 29,596
62,074 Linear Technology Corp. 1,726
171,098 LSI Corp.* 787
51,100 Microchip Technology, Inc. 1,418
225,861 Micron Technology, Inc.* 1,918
63,330 National Semiconductor Corp. 852
161,028 NVIDIA Corp.* 1,644
333,886 Texas Instruments, Inc. 7,773
71,527 Xilinx, Inc. 1,807
----------
58,351
----------
SYSTEMS SOFTWARE (3.1%)
47,160 BMC Software, Inc.* 1,633
107,022 CA, Inc. 1,969
41,900 McAfee, Inc.* 1,287
2,084,148 Microsoft Corp.(f) 47,956
87,600 Novell, Inc.* 498
1,069,862 Oracle Corp. 22,959
52,304 Red Hat, Inc.* 1,514
220,370 Symantec Corp.* 3,059
----------
80,875
----------
Total Information Technology 477,654
----------
MATERIALS (3.4%)
----------------
ALUMINUM (0.1%)
273,495 Alcoa, Inc. 2,751
----------
CONSTRUCTION MATERIALS (0.1%)
34,973 Vulcan Materials Co. 1,533
----------
DIVERSIFIED CHEMICALS (0.8%)
316,412 Dow Chemical Co. 7,505
248,750 E.I. du Pont de Nemours & Co. 8,604
20,600 Eastman Chemical Co. 1,099
20,100 FMC Corp. 1,155
46,071 PPG Industries, Inc. 2,783
----------
21,146
----------
================================================================================
30 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
DIVERSIFIED METALS & MINING (0.3%)
129,713 Freeport-McMoRan Copper & Gold, Inc. $ 7,670
22,800 Titanium Metals Corp.* 401
----------
8,071
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.3%)
18,711 CF Industries Holdings, Inc. 1,187
149,859 Monsanto Co. 6,927
----------
8,114
----------
FOREST PRODUCTS (0.1%)
59,394 Weyerhaeuser Co. 2,091
----------
GOLD (0.3%)
132,896 Newmont Mining Corp. 8,205
----------
INDUSTRIAL GASES (0.4%)
56,901 Air Products & Chemicals, Inc. 3,688
22,609 Airgas, Inc. 1,406
82,706 Praxair, Inc. 6,285
----------
11,379
----------
METAL & GLASS CONTAINERS (0.1%)
23,545 Ball Corp. 1,244
45,800 Owens-Illinois, Inc.* 1,212
39,045 Pactiv Corp.* 1,087
----------
3,543
----------
PAPER PACKAGING (0.1%)
30,166 Bemis Co., Inc. 814
42,700 Sealed Air Corp. 842
----------
1,656
----------
PAPER PRODUCTS (0.2%)
122,613 International Paper Co. 2,775
46,411 MeadWestvaco Corp. 1,030
----------
3,805
----------
SPECIALTY CHEMICALS (0.3%)
62,113 Ecolab, Inc. 2,790
21,200 International Flavors & Fragrances, Inc. 899
25,498 Sherwin-Williams Co. 1,764
32,071 Sigma-Aldrich Corp. 1,598
----------
7,051
----------
STEEL (0.3%)
29,699 AK Steel Holding Corp. 354
27,100 Allegheny Technologies, Inc. 1,198
================================================================================
PORTFOLIO OF INVESTMENTS | 31
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
36,860 Cliffs Natural Resources, Inc. $ 1,738
86,964 Nucor Corp. 3,329
38,056 United States Steel Corp. 1,467
----------
8,086
----------
Total Materials 87,431
----------
TELECOMMUNICATION SERVICES (3.0%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (2.6%)
1,613,550 AT&T, Inc.(f) 39,032
82,114 CenturyLink, Inc. 2,735
82,200 Frontier Communications Corp.(g) 584
420,666 Qwest Communications International, Inc. 2,208
771,330 Verizon Communications, Inc. 21,613
132,654 Windstream Corp. 1,401
----------
67,573
----------
WIRELESS TELECOMMUNICATION SERVICES (0.4%)
111,564 American Tower Corp. "A"* 4,965
70,100 MetroPCS Communications, Inc.* 574
824,954 Sprint Nextel Corp.* 3,498
----------
9,037
----------
Total Telecommunication Services 76,610
----------
UTILITIES (3.7%)
----------------
ELECTRIC UTILITIES (1.7%)
44,946 Allegheny Energy, Inc. 930
130,687 American Electric Power Co., Inc. 4,221
88,216 Edison International 2,798
51,654 Entergy Corp. 3,699
179,675 Exelon Corp. 6,822
83,509 FirstEnergy Corp. 2,942
114,701 NextEra Energy, Inc. 5,593
47,702 Northeast Utilities 1,215
64,409 Pepco Holdings, Inc. 1,010
28,747 Pinnacle West Capital Corp. 1,045
128,042 PPL Corp. 3,195
79,876 Progress Energy, Inc. 3,133
224,325 Southern Co. 7,466
----------
44,069
----------
GAS UTILITIES (0.2%)
39,056 EQT Corp. 1,412
13,517 Nicor, Inc. 547
28,490 ONEOK, Inc. 1,232
================================================================================
32 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
46,500 Questar Corp. $ 2,115
----------
5,306
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%)
181,500 AES Corp.* 1,677
55,775 Constellation Energy Group, Inc. 1,799
69,388 NRG Energy, Inc.* 1,472
----------
4,948
----------
MULTI-UTILITIES (1.6%)
65,129 Ameren Corp. 1,548
110,746 CenterPoint Energy, Inc. 1,457
67,649 CMS Energy Corp.(g) 991
75,959 Consolidated Edison, Inc. 3,274
161,963 Dominion Resources, Inc. 6,274
45,832 DTE Energy Co. 2,090
362,738 Duke Energy Corp. 5,804
22,550 Integrys Energy Group, Inc. 986
73,559 NiSource, Inc. 1,067
101,951 PG&E Corp. 4,190
137,146 Public Service Enterprise Group, Inc. 4,297
29,384 SCANA Corp. 1,051
66,633 Sempra Energy 3,118
60,290 TECO Energy, Inc. 909
31,500 Wisconsin Energy Corp. 1,598
125,786 Xcel Energy, Inc. 2,593
----------
41,247
----------
Total Utilities 95,570
----------
Total Common Stocks (cost: $2,637,663) 2,547,384
----------
MONEY MARKET INSTRUMENTS (1.7%)
MONEY MARKET FUND (1.4%)
36,498,761 Northern Institutional Funds - Diversified
Assets Portfolio, 0.02%(a),(d) 36,499
----------
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
--------------------------------------------------------------------------------
U.S. TREASURY BILLS (0.3%)
$7,185 0.20%, 11/18/2010(b),(e) 7,179
----------
Total Money Market Instruments (cost: $43,678) 43,678
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
<PAGE>
================================================================================
--------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED (0.4%)
MONEY MARKET FUNDS (0.4%)
89,494 AIM Short-Term Investment Co. Liquid Assets
Portfolio, 0.21%(a) $ 90
63,679 BlackRock Liquidity Funds TempFund, 0.18%(a) 64
9,485,377 Fidelity Institutional Money Market Portfolio, 0.25%(a) 9,485
----------
Total Money Market Funds 9,639
----------
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (0.0%)
$500 Credit Suisse First Boston LLC, 0.03%, acquired on
6/30/2010 and due 7/01/2010 at $500 (collateralized
by $515 of Freddie Mac(i), 0.44%(h), due 6/20/2011;
market value $513) 500
100 Deutsche Bank Securities, Inc., 0.02%, acquired on
6/30/2010 and due 7/01/2010 at $100 (collateralized
by $98 of Fannie Mae(i), 6.13%, due 10/17/2036;
market value $102) 100
----------
Total Repurchase Agreements 600
----------
Total Short-Term Investments Purchased With
Cash Collateral From Securities Loaned (cost: $10,239) 10,239
----------
TOTAL INVESTMENTS (COST: $2,691,580) $2,601,301
==========
================================================================================
34 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
----------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
----------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
----------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $2,547,384 $ - $- $2,547,384
Money Market Instruments:
Money Market Fund 36,499 - - 36,499
U.S. Treasury Bills - 7,179 - 7,179
Short-Term Investments Purchased
With Cash Collateral From
Securities Loaned:
Money Market Fund 9,639 - - 9,639
Repurchase Agreements - 600 - 600
Other financial instruments* (2,613) - - (2,613)
----------------------------------------------------------------------------------------------------
Total $ 2,590,909 $7,779 $- $2,598,688
----------------------------------------------------------------------------------------------------
* Other financial instruments are derivative instruments not reflected in the
portfolio of investments, such as futures, which are valued at the unrealized
appreciation/depreciation on the investment.
For the six-month period ended June 30, 2010, there were no significant
transfers of securities between levels 1, 2, or 3. Transfers into and out of
the levels are recognized based on the securities' placements as of the
beginning of the period in which the event or circumstance that caused the
transfer occurred.
================================================================================
PORTFOLIO OF INVESTMENTS | 35
<PAGE>
================================================================================
NOTES TO PORTFOLIO 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.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
REIT -- Real estate investment trust
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
June 30, 2010.
(b) Rate represents an annualized yield at time of purchase, not a coupon
rate.
(c) Northern Trust Corp. is the parent to Northern Trust Investments, N.A.
(NTI), which is the subadviser of the Fund.
(d) NTI is both the subadviser of the Fund and the adviser of the Northern
Institutional Funds.
(e) Security with a value of $7,179,000 is segregated as collateral for
initial margin requirements on open futures contracts.
================================================================================
36 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
(f) Security, or a portion thereof, is segregated to cover the value of open
futures contracts at June 30, 2010, as shown in the following table:
VALUE AT UNREALIZED
TYPE OF FUTURE EXPIRATION CONTRACTS POSITION JUNE 30, 2010 DEPRECIATION
------------------------------------------------------------------------------------------------
S&P 500 Index Futures September 16, 2010 182 Long $46,710,000 $(2,613,000)
(g) The security or a portion thereof was out on loan as of June 30, 2010.
(h) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(i) Securities issued by government-sponsored enterprises are supported only
by the right of the government-sponsored enterprise to borrow from the
U.S. Treasury, the discretionary authority of the U.S. government to
purchase the government-sponsored enterprises' obligations, or by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 37
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities
on loan of $8,980) (cost of $2,691,580) $2,601,301
Receivables:
Capital shares sold:
Affiliated transactions (Note 8) 79
Nonaffiliated transactions 1,734
USAA Investment Management Company (Note 7D) 140
Dividends and interest 3,459
Other 25
----------
Total assets 2,606,738
----------
LIABILITIES
Payables:
Upon return of securities loaned 10,239
Capital shares redeemed:
Affiliated transactions (Note 8) 2
Nonaffiliated transactions 1,928
Variation margin on futures contracts 388
Accrued management fees 247
Accrued transfer agent's fees 75
Other accrued expenses and payables 36
----------
Total liabilities 12,915
----------
Net assets applicable to capital shares outstanding $2,593,823
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,978,393
Accumulated undistributed net investment income 590
Accumulated net realized loss on investments and futures transactions (292,268)
Net unrealized depreciation of investments and futures contracts (92,892)
----------
Net assets applicable to capital shares outstanding $2,593,823
==========
Net asset value, redemption price, and offering price per share:
Member Shares (net assets of $1,682,731/108,894 shares outstanding) $ 15.45
==========
Reward Shares (net assets of $911,092/58,952 shares outstanding) $ 15.45
==========
See accompanying notes to financial statements.
================================================================================
38 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 26,729
Interest 8
Other (Note 7B) 1
Securities lending (net) 78
---------
Total income 26,816
---------
EXPENSES
Management fees 1,387
Administration and servicing fees:
Member Shares 547
Reward Shares 285
Transfer agent's fees:
Member Shares 1,538
Reward Shares 271
Custody and accounting fees:
Member Shares 7
Reward Shares 3
Postage:
Member Shares 104
Reward Shares 3
Shareholder reporting fees:
Member Shares 43
Trustees' fees 5
Registration fees:
Member Shares 23
Reward Shares 21
Professional fees 100
Other 36
---------
Total expenses 4,373
Expenses reimbursed:
Member Shares (972)
Reward Shares (678)
---------
Net expenses 2,723
---------
NET INVESTMENT INCOME 24,093
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments 12,906
Futures transactions (2,869)
Change in net unrealized appreciation/depreciation of:
Investments (220,760)
Futures contracts (2,763)
---------
Net realized and unrealized loss (213,486)
---------
Decrease in net assets resulting from operations $(189,393)
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 39
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
Six-month period ended June 30, 2010 (unaudited), and year ended
December 31, 2009
--------------------------------------------------------------------------------
6/30/2010 12/31/2009
-----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 24,093 $ 49,945
Net realized gain (loss) on investments 12,906 (7,048)
Net realized gain (loss) on futures transactions (2,869) 10,440
Change in net unrealized appreciation/depreciation of:
Investments (220,760) 524,600
Futures contracts (2,763) (342)
--------------------------
Increase (decrease) in net assets resulting from
operations (189,393) 577,595
--------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Member Shares (14,900) (32,663)
Reward Shares (8,676) (17,209)
--------------------------
Total distributions of net investment income (23,576) (49,872)
--------------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 6)
Member Shares (11,891) 32,302
Reward Shares 93,003 21,722
--------------------------
Total net increase in net assets from capital
share transactions 81,112 54,024
--------------------------
Capital contribution from USAA Transfer Agency
Company:
Reward Shares - 23
--------------------------
Net increase (decrease) in net assets (131,857) 581,770
NET ASSETS
Beginning of period 2,725,680 2,143,910
--------------------------
End of period $2,593,823 $2,725,680
==========================
Accumulated undistributed net investment income:
End of period $ 590 $ 73
==========================
See accompanying notes to financial statements.
================================================================================
40 | USAA S&P 500 INDEX FUND
<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 S&P
500 Index Fund (the Fund), which is classified as diversified under the 1940
Act. The Fund seeks to match, before fees and expenses, the performance of the
S&P 500 Index. USAA Investment Management Company (the Manager), an affiliate
of the Fund, has retained Northern Trust Investments, N.A. (NTI) to serve as
subadviser for the Fund. NTI is responsible for investing the Fund's assets.
Under normal market conditions, NTI attempts to achieve the Fund's objective by
investing at least 80% of the Fund's assets in the stocks of companies composing
the S&P 500 Index.
The Fund has two classes of shares: Member Shares and Reward Shares. Each class
of shares has equal rights to assets and earnings, except that each class bears
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agency fees, postage,
shareholder reporting fees, and certain registration and custodian fees.
Expenses not attributable to a specific class, income, and realized gains or
losses on investments are allocated to each class of shares based on each
class's relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to both classes. The Reward Shares are offered for sale to qualified public
shareholders and to the USAA Target Retirement Funds (Target Funds), which are
managed by the Manager.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
<PAGE>
================================================================================
A. SECURITY VALUATION -- The value of each security is determined (as of the
close of trading on the New York Stock Exchange (NYSE) on each business day
the NYSE is open) as set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the Nasdaq over-the-counter markets, are valued at the last sales price
or official closing price on the exchange or primary market on which
they trade. If no last sale or official closing price is reported or
available, the average of the bid and asked prices is generally used.
2. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their net asset value (NAV) at the end
of each business day.
3. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
4. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Trust's
Board of Trustees. The Service uses an evaluated mean between quoted
bid and asked prices or the last sales price to price securities when,
in the Service's judgment, these prices are readily available and are
representative of the securities' market values. For many securities,
such prices are not readily available. The Service generally prices
these securities based on methods that include consideration of yields
or prices of securities of comparable quality, coupon, maturity, and
type; indications as to values from dealers in securities; and general
market conditions.
5. Repurchase agreements are valued at cost, which approximates market
value.
6. Futures are valued based upon the last sale price at the close of
market on the principal exchange on which they are traded.
================================================================================
42 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
7. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager in consultation with the Fund's
subadviser, if applicable, under valuation procedures approved by the
Trust's Board of Trustees. The effect of fair value pricing is that
securities may not be priced on the basis of quotations from the
primary market in which they are traded and the actual price realized
from the sale of a security may differ materially from the fair value
price. Valuing these securities at fair value is intended to cause the
Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
<PAGE>
================================================================================
indirectly, and market-corroborated inputs such as market indices. The
Fund uses amortized cost in valuing repurchase agreements and a market
approach in valuing U.S. Treasury bills, which is further discussed in Note
A1.
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. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -- On January 1, 2009, the
Fund adopted an accounting standard that requires qualitative disclosures
about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features
in derivative agreements, if any.
The Fund may buy, sell, and enter into certain types of derivatives,
including, but not limited to futures contracts and options on futures
contracts under circumstances in which such instruments are expected by the
portfolio manager to aid in achieving the Fund's investment objective. The
Fund also may use derivatives in circumstances where the portfolio manager
believes they offer an economical means of gaining exposure to a particular
securities market, or to keep cash on hand to meet shareholder redemptions
or other needs while maintaining exposure to the market. With exchange
listed futures contracts and options, counterparty credit risk to the Fund
is limited to the exchange's clearinghouse which, as counterparty to all
exchange traded futures contracts and options, guarantees the transactions
against default from the actual counterparty to the trade.
FUTURES CONTRACTS -- The Fund is subject to cash flow and tracking error
risk in the normal course of pursuing its investment objectives. The Fund
may use stock index futures contracts in an attempt to
================================================================================
44 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
reduce any performance discrepancies between the Fund and the S&P 500
Index. A futures contract represents a commitment for the future purchase
or sale of an asset at a specified price on a specified date. Upon entering
into such contracts, the Fund is required to deposit with the broker in
either cash or securities an initial margin in an amount equal to a certain
percentage of the contract amount. Subsequent payments (variation margin)
are made or received by the Fund each day, depending on the daily
fluctuations in the value of the contract, and are recorded for financial
statement purposes as unrealized gains or losses. When the contract is
closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value
at the time it was closed. Upon entering into such contracts, the Fund
bears the risk of interest or exchange rates or securities prices moving
unexpectedly in an unfavorable direction, in which case, the Fund may not
achieve the anticipated benefits of the futures contracts.
FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 2010*
(IN THOUSANDS)
ASSET DERIVATIVES LIABILITY DERIVATIVES
---------------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
ASSETS AND ASSETS AND
DERIVATIVES NOT ACCOUNTED LIABILITIES LIABILITIES
FOR AS HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE
---------------------------------------------------------------------------------------------------
Equity contracts Net unrealized $(2,613)** - $-
depreciation of
investments
and futures
contracts
---------------------------------------------------------------------------------------------------
*For open derivative instruments as of June 30, 2010, see the notes to
portfolio of investments, which is also indicative of activity for the
six-month period ended June 30, 2010.
**Includes cumulative appreciation (depreciation) of futures contracts as
reported in the notes to portfolio of investments. Only current day's
variation margin is reported within the statement of assets & liabilities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
<PAGE>
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE
SIX-MONTH PERIOD ENDED JUNE 30, 2010 (IN THOUSANDS)
CHANGE IN
UNREALIZED
REALIZED APPRECIATION
DERIVATIVES NOT ACCOUNTED STATEMENT OF GAIN (LOSS) (DEPRECIATION)
FOR AS HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES
-----------------------------------------------------------------------------------------
Equity contracts Net realized gain (loss) $(2,869) $(2,763)
on futures transactions/
Change in net unrealized
appreciation/depreciation
of futures contracts
-----------------------------------------------------------------------------------------
D. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers. These agreements are
collateralized by underlying securities. The collateral obligations are
marked-to-market daily to ensure their value is equal to or in excess of
the repurchase agreement price plus accrued interest and are held by the
Fund, either through its regular custodian or through a special "tri-party"
custodian that maintains separate accounts for both the Fund and its
counterparty, until maturity of the repurchase agreement. Repurchase
agreements are subject to credit risk, and the Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into repurchase
agreements.
E. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its income to its shareholders.
Therefore, no federal income tax provision is required.
F. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis.
================================================================================
46 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
Discounts and premiums on short-term securities are amortized on a
straight-line basis over the life of the respective securities.
G. EXPENSES PAID INDIRECTLY -- Through arrangements with banks utilized by the
Fund for cash management purposes, realized credits, if any, generated from
cash balances in the Fund's bank accounts may be used to directly reduce
the Fund's expenses. For the six-month period ended June 30, 2010, these
bank credits reduced the expenses of the Member Shares and Reward Shares by
less than $500.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
<PAGE>
================================================================================
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 Fund paid CAPCO facility fees
of $6,000, which represents 6.3% of the total fees paid to CAPCO by the USAA
funds. The Fund had no borrowings under this agreement during the six-month
period ended June 30, 2010.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of December 31,
2010, in accordance with applicable tax law.
Distributions of net investment income are made quarterly. 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. At December 31, 2009, the Fund had capital loss
carryovers of $290,906,000, for federal income tax purposes which, if not offset
by subsequent capital gains, will expire between 2010 and 2017, as shown in the
following table. It is unlikely that the Trust's Board of Trustees will
authorize a distribution of capital gains realized in the future until the
capital loss carryovers have been used or expire.
CAPITAL LOSS CARRYOVERS
------------------------------------------
EXPIRES BALANCE
---------- ------------
2010 $213,601,000
2011 344,000
2012 1,474,000
2013 17,856,000
2014 10,601,000
2016 41,901,000
2017 5,129,000
------------
Total $290,906,000
============
================================================================================
48 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties would be recognized by
the Fund as tax expense in the statement of operations if the tax positions were
deemed to not meet the more-likely-than-not threshold. For the six-month
period, ended June 30, 2010, the Fund 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 Fund's net assets or results of
operations. Tax year ended December 31, 2009, and each of the three preceding
fiscal years, remain subject to examination by the Internal Revenue Service and
state taxing authorities. On an ongoing basis, the Manager will monitor its tax
positions to determine if adjustments to this conclusion are necessary.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended June 30, 2010, were
$94,453,000 and $49,343,000, respectively.
As of June 30, 2010, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
Gross unrealized appreciation and depreciation of investments as of June 30,
2010, were $522,996,000 and $613,275,000, respectively, resulting in net
unrealized depreciation of $90,279,000.
(5) LENDING OF PORTFOLIO SECURITIES
The Fund, through its third-party securities-lending agent, Wachovia Global
Securities Lending (Wachovia), may lend its securities to qualified financial
institutions, such as certain broker-dealers, to earn additional income.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
<PAGE>
================================================================================
The borrowers are required to secure their loans continuously with cash
collateral in an amount at least equal to the fair value of the securities
loaned, initially in an amount at least equal to 102% of the fair value of
domestic securities loaned and 105% of the fair value of international
securities loaned. Cash collateral is invested in high-quality short-term
investments. Cash collateral requirements are determined daily based on the
prior business day's ending value of securities loaned. Imbalances in cash
collateral may occur on days where market volatility causes security prices to
change significantly, and are adjusted the next business day. The Fund and
Wachovia retain 80% and 20%, respectively, of the income earned from the
investment of cash received as collateral, net of any expenses associated with
the lending transaction. Wachovia receives no other fees from the Fund for its
services as securities-lending agent. Risks to the Fund in securities-lending
transactions are that the borrower may not provide additional collateral when
required or return the securities when due, and that the value of the short-term
investments will be less than the amount of cash collateral required to be
returned to the borrower. Wachovia Bank, N.A., parent company of Wachovia, has
agreed to indemnify the Fund against any losses due to counterparty default in
securities-lending transactions. For the six-month period ended June 30, 2010,
the Fund received securities-lending income of $78,000, which is net of the 20%
income retained by Wachovia. As of June 30, 2010, the Fund loaned securities
having a fair market value of approximately $8,980,000 and received cash
collateral of $10,239,000 for the loans, which was invested in short-term
investments, as noted in the Fund's portfolio of investments.
================================================================================
50 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
(6) CAPITAL SHARE TRANSACTIONS
At June 30, 2010, there were an unlimited number of shares of capital stock at
no par value authorized for the Fund.
Capital share transactions were as follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
6/30/2010 12/31/2009
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------
MEMBER SHARES:
Shares sold 10,894 $ 185,721 21,247 $ 294,006
Shares issued from reinvested
dividends 852 14,312 2,174 31,344
Shares redeemed (12,466) (211,924) (20,832) (293,048)
-------------------------------------------
Net increase (decrease) from
capital share transactions (720) $ (11,891) 2,589 $ 32,302
===========================================
REWARD SHARES:
Shares sold 11,640 $ 198,313 15,558 $ 219,222
Shares issued from reinvested
dividends 496 8,325 1,141 16,479
Shares redeemed (6,680) (113,635) (14,838) (213,979)
-------------------------------------------
Net increase from
capital share transactions 5,456 $ 93,003 1,861 $ 21,722
===========================================
(7) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
subject to the authority of and supervision by the Trust's Board of
Trustees. The Manager is authorized to select (with approval of the Trust's
Board of Trustees and without shareholder approval) one or more subadvisers
to manage the actual day-to-day investment of the Fund's assets. The
Manager monitors each subadviser's performance through quantitative and
qualitative analysis, and periodically recommends to the Trust's Board of
Trustees as to whether each subadviser's agreement should be renewed,
terminated,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
<PAGE>
================================================================================
or modified. The Manager also is responsible for allocating assets to the
subadvisers. The allocation for each subadviser can range from 0% to 100%
of the Fund's assets, and the Manager can change the allocations without
shareholder approval. The Fund's management fees are accrued daily and paid
monthly at an annualized rate of 0.10% of the Fund's average net assets for
the fiscal year. For the six-month period ended June 30, 2010, the Fund
incurred management fees, paid or payable to the Manager, of $1,387,000.
B. SUBADVISORY ARRANGEMENTS -- The Manager has entered into an investment
subadvisory agreement with NTI, under which NTI directs the investment and
reinvestment of the Fund's assets (as allocated from time to time by the
Manager). The Manager (not the Fund) pays NTI a subadvisory fee in an
annual amount of 0.02% of the Fund's average daily net assets on amounts up
to $1.5 billion; 0.01% of the Fund's average daily net assets for the next
$1.5 billion; and 0.005% of the Fund's average daily net assets that exceed
$3 billion. For the six-month period ended June 30, 2010, the Manager
incurred subadvisory fees, paid or payable to NTI, of $213,000.
NTI has agreed to remit to the Fund all subadvisory fees earned on Fund
assets invested in any of NTI's affiliated money market funds. For the
six-month period ended June 30, 2010, NTI remitted $1,000 to the Fund for
the investments in the Northern Institutional Funds Money Market Portfolios.
NTI is a direct subsidiary of The Northern Trust Company, the Fund's
custodian and accounting agent.
C. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid monthly at an
annualized rate of 0.06% of the Fund's average net assets for the fiscal
year. For the six-month period ended June 30, 2010, the Member Shares and
Reward Shares incurred administration and servicing fees, paid or payable
to the Manager, of $547,000 and $285,000, respectively.
================================================================================
52 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Trust's Board of Trustees
has approved the reimbursement of a portion of these expenses incurred by
the Manager. For the six-month period ended June 30, 2010, the Fund
reimbursed the Manager $31,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's
statement of operations.
D. EXPENSE LIMITATION -- The Manager has agreed, through May 1, 2011 to limit
the annual expenses of the Member Shares and the Reward Shares to 0.25% and
0.09%, respectively, of their annual average net assets, excluding
extraordinary expenses and before reductions of any expenses paid
indirectly, and will reimburse the Fund for all expenses in excess of those
amounts. This expense limitation 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 Fund incurred
reimbursable expenses from the Manager for the Member Shares and the Reward
Shares of $972,000 and $678,000, respectively, of which $140,000 in total
was receivable from the Manager.
In addition, NTI has contractually agreed to reimburse the Fund for all
license fees paid by the Fund to Standard & Poor's, in amounts not
exceeding the annual rate of 0.001% of the average daily net assets of the
Fund. For the six-month period ended June 30, 2010, the Fund incurred
reimbursable expenses from NTI for the Member Shares and the Reward Shares
of $12,000 and $7,000, respectively.
E. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $20 per
shareholder account plus out of pocket expenses. The Fund also pays SAS
fees that are related to the administration and servicing of accounts that
are traded on an omnibus basis. For the six-month period ended June 30,
2010, the Fund incurred transfer
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
<PAGE>
================================================================================
agent's fees, paid or payable to SAS for the Member Shares and Reward
Shares, of $1,538,000 and $271,000, respectively.
F. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
G. ACCOUNT MAINTENANCE FEE -- SAS assesses a $10 annual account maintenance
fee to allocate part of the fixed cost of maintaining shareholder accounts.
This fee is charged directly to the shareholders' accounts and does not
impact the Fund. The fee is waived on accounts with balances of $10,000 or
more.
(8) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
The Fund is one of 13 USAA mutual funds in which the affiliated Target Funds may
invest. The Target Funds do not invest in the Fund for the purpose of exercising
management or control. As of June 30, 2010, the Fund recorded a receivable for
capital shares sold of $79,000 and a payable for capital shares redeemed of
$2,000 for the Target Funds' purchases and redemptions of the Fund's Reward
Shares. As of June 30, 2010, the Target Funds owned the following percent of the
total outstanding shares of the Fund:
OWNERSHIP %
------------------------------------------------------------------------------
USAA Target Retirement Income Fund 0.2%
USAA Target Retirement 2020 Fund 0.4
USAA Target Retirement 2030 Fund 0.9
USAA Target Retirement 2040 Fund 1.1
USAA Target Retirement 2050 Fund 0.5
================================================================================
54 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
(9) FINANCIAL HIGHLIGHTS -- MEMBER SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
2010 2009 2008 2007 2006 2005
-----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 16.71 $ 13.51 $ 21.98 $ 21.24 $ 18.70 $ 18.15
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .14 .30 .39 .39 .35 .30
Net realized and
unrealized gain (loss) (1.26) 3.20 (8.47) .74 2.53 .55
-----------------------------------------------------------------------------------------
Total from investment
operations (1.12) 3.50 (8.08) 1.13 2.88 .85
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.30) (.39) (.39) (.34) (.30)
-----------------------------------------------------------------------------------------
Net asset value at
end of period $ 15.45 $ 16.71 $ 13.51 $ 21.98 $ 21.24 $ 18.70
=========================================================================================
Total return (%)* (6.78) 26.28 (37.13) 5.32(a) 15.54 4.77
Net assets at
end of period (000) $1,682,731 $1,831,645 $1,446,160 $2,315,340 $2,248,677 $2,292,568
Ratios to average
net assets:**
Expenses (%)(b),(c) .25(d) .25 .23 .19(a) .19 .19
Expenses, excluding
reimbursements (%)(c) .36(d) .40 .37 .33 .34 .33
Net investment
income (%) 1.68(d) 2.11 2.12 1.76 1.73 1.68
Portfolio turnover (%) 2 5 3 5 4 6
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period; does not reflect $10 annual
account maintenance fee. Includes adjustments in accordance with U.S.
generally accepted accounting principles and could differ from the Lipper
reported return.
** For the six-month period ended June 30, 2010, average net assets were
$1,847,442,000.
(a) For the year ended December 31, 2007, SAS voluntarily reimbursed the Member
Shares for a portion of the transfer agent's fees incurred. The
reimbursement had no effect on the Member Shares' total return or ratio of
expenses to average net assets.
(b) Effective May 1, 2008, the Manager voluntarily agreed to reimburse the
Member Shares for expenses in excess of 0.25% of their annual average net
assets. Prior to May 1, 2008, the Manager voluntarily agreed to reimburse
the Member Shares for expenses in excess of 0.19% of their annual average
net assets from October 1, 2004, through April 30, 2008.
(c) Reflects total operating expenses of the Member Shares before reductions of
any expenses paid indirectly. The Member Shares' 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 | 55
<PAGE>
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) -- REWARD SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
2010 2009 2008 2007 2006 2005
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 16.71 $ 13.51 $ 21.99 $ 21.25 $ 18.70 $ 18.15
----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .15 .32 .41 .41 .36 .32
Net realized and
unrealized gain (loss) (1.26) 3.20 (8.48) .74 2.55 .55
----------------------------------------------------------------------------------------
Total from investment
operations (1.11) 3.52 (8.07) 1.15 2.91 .87
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.15) (.32) (.41) (.41) (.36) (.32)
----------------------------------------------------------------------------------------
Net asset value at
end of period $ 15.45 $ 16.71 $ 13.51 $ 21.99 $ 21.25 $ 18.70
========================================================================================
Total return (%)* (6.71) 26.47 (37.07) 5.42(a) 15.71 4.86
Net assets at
end of period (000) $911,092 $894,035 $697,750 $1,040,077 $952,147 $506,999
Ratios to average
net assets:**
Expenses (%)(b),(c) .09(d) .09 .09 .09(a) .09 .09
Expenses, excluding
reimbursements (%)(c) .23(d) .23 .21 .20 .20 .19
Net investment income (%) 1.84(d) 2.26 2.27 1.86 1.85 1.78
Portfolio turnover (%) 2 5 3 5 4 6
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return.
** For the six-month period ended June 30, 2010, average net assets were
$958,532,000.
(a) For the year ended December 31, 2007, SAS voluntarily reimbursed the Reward
Shares for a portion of the transfer agent's fees incurred. The
reimbursement had no effect on the Reward Shares' total return or ratio of
expenses to average net assets.
(b) Effective October 1, 2004, the Manager voluntarily agreed to reimburse the
Reward Shares for expenses in excess of 0.09% of their average annual net
assets.
(c) Reflects total operating expenses of the Reward Shares before reductions of
any expenses paid indirectly. The Reward Shares' 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.
================================================================================
56 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
EXPENSE EXAMPLE
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as account maintenance fees, wire fees, redemption fees, and low balance fees;
and indirect costs, including management fees, transfer agency fees, and other
Fund operating expenses. This example is intended to help you understand your
indirect costs, also referred to as "ongoing costs" (in dollars), of investing
in the Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2010, through June
30, 2010.
ACTUAL EXPENSES
The line labeled "actual" under each share class in 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 for your share
class in the "actual" line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Actual expenses in the table on the next page do not reflect the effect of the
annual $10.00 account maintenance fee that is assessed on accounts with balances
of less than $10,000, at a rate of $2.50 per quarter. To include the effect of
this fee on the expenses that you paid, add $5.00 ($2.50 for two quarters) to
your calculated estimated expenses. If you are currently assessed this fee, your
ending account value reflects the quarterly deduction from your account.
================================================================================
EXPENSE EXAMPLE | 57
<PAGE>
================================================================================
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as account
maintenance fees, wire fees, redemption fees, or low balance fees. Therefore,
the second line of the table is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different funds. In
addition, if these direct costs were included, your costs would have been
higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JANUARY 1, 2010 -
JANUARY 1, 2010 JUNE 30, 2010 JUNE 30, 2010
--------------------------------------------------------------
MEMBER SHARES
Actual $1,000.00 $ 932.20 $1.20
Hypothetical
(5% return before expenses) 1,000.00 1,023.55 1.25
REWARD SHARES
Actual 1,000.00 932.90 0.43
Hypothetical
(5% return before expenses) 1,000.00 1,024.35 0.45
* Expenses are equal to the Fund's annualized expense ratio of 0.25% for Member
Shares and 0.09% for Reward Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 181 days/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of (6.78)% for Member Shares and (6.71)% for Reward Shares for the six-month
period of January 1, 2010, through June 30, 2010.
================================================================================
58 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
ADVISORY AGREEMENTS
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 Management Agreement
between the Trust and the Manager with respect to the Fund and the Subadvisory
Agreement with respect to the Fund.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Management Agreement and Subadvisory Agreement and
the Manager and the Subadviser, and were given the opportunity to ask questions
and request additional information from management. The information provided to
the Board included, among other things: (i) a separate report prepared by an
independent third party, which provided a statistical analysis comparing the
Fund's investment performance, expenses, and fees to comparable investment
companies; (ii) information concerning the services rendered to the Fund, as
well as information regarding the Manager's revenues and costs of providing
services to the Fund and compensation paid to affiliates of the Manager; and
(iii) information about the Manager's and Subadviser's operations and personnel.
Prior to voting, the Independent Trustees reviewed the proposed continuance of
the Management Agreement and the Subadvisory Agreement with management and with
experienced independent counsel and received materials from such counsel
discussing the legal standards for their consideration of the proposed
continuation of the Management Agreement and the Subadvisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Management Agreement and the Subadvisory Agreement with
respect to the Fund in private sessions with their counsel at which no
representatives of management were present.
At each regularly scheduled meeting of the Board and its committees, the Board
receives and reviews, among other things, information
================================================================================
ADVISORY AGREEMENTS | 59
<PAGE>
================================================================================
concerning the Fund's performance and related services provided by the Manager
and by the Subadviser. At the meeting at which the renewal of the Management
Agreement and Subadvisory Agreement is considered, particular focus is given to
information concerning Fund performance, comparability of fees and total
expenses, and profitability. However, the Board noted that the evaluation
process with respect to the Manager and the Subadviser is an ongoing one. In
this regard, the Board's and its committees' consideration of the Management
Agreement and Subadvisory Agreement included certain information previously
received at such meetings.
MANAGEMENT AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Management Agreement. In approving
the Management 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 Management
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its familiarity
with the Manager's management through Board meetings, discussions, and reports
during the preceding year. The Board considered the fees paid to the Manager and
the services provided to the Fund by the Manager under the Management Agreement,
as well as other services provided by the Manager and its affiliates under other
agreements, and the personnel who provide these services. In addition to the
investment advisory services provided to the Fund, the Manager and its
affiliates provide administrative services, stockholder services, oversight of
Fund accounting, marketing services, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Fund and the
Trust.
The Board considered the level and depth of knowledge of the Manager, including
the professional experience and qualifications of senior
================================================================================
60 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
personnel, as well as current staffing levels. The Board discussed the Manager's
effectiveness in monitoring the performance of the Subadviser and its timeliness
in responding to performance issues. The allocation of the Fund's brokerage,
including the Manager's process for monitoring "best execution," also was
considered. The Manager's role in coordinating the activities of the Fund's
other service providers also was considered. The Board considered the Manager's
financial condition and that it had the financial wherewithal to continue to
provide the same scope and high quality of services under the Management
Agreement. In reviewing the Management Agreement, the Board focused on the
experience, resources, and strengths of the Manager and its affiliates in
managing investment companies, including the Fund.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager and its affiliates, including the Manager's oversight of
the Fund's day-to-day operations and oversight of Fund accounting. The Trustees,
guided also by information obtained from their experiences as directors/trustees
of the Fund and other investment companies managed by the Manager, also focused
on the quality of the Manager's compliance and administrative staff.
EXPENSES AND PERFORMANCE -- In connection with its consideration of the
Management Agreement, the Board evaluated the advisory fees and total expense
ratios of each of the Member Shares and Reward Shares classes of the Fund as
compared to other open-end investment companies deemed to be comparable to each
class of the Fund as determined by the independent third party in its report.
The expenses of each class of the Fund were compared to (i) a group of
investment companies chosen by the independent third party to be comparable to
the class of the Fund based upon certain factors, including fund type,
comparability of investment objective and classification, sales load type (in
this case, investment companies with no sales loads and front-end loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes all no-load and front-end load retail
open-end investment companies in the same investment classification/objective as
the Fund regardless of asset size, excluding outliers (the "expense universe").
Among other data, the Board noted
================================================================================
ADVISORY AGREEMENTS | 61
<PAGE>
================================================================================
that the Fund's management fee rate -- which includes advisory and
administrative services and the effects of any reimbursements -- was below the
median of its expense universe and its expense group for Member Shares and for
Reward Shares. The data indicated that the Fund's total expenses, after
reimbursements, were below the median of its expense group and its expense
universe for Member Shares and for Reward Shares. The Trustees also took into
account the Manager's current undertakings to maintain expense limitations for
the Fund. The Board took into account the various services provided to the Fund
by the Manager and its affiliates. The Board also noted the high level of
correlation between the S&P 500 Index and the Fund and the relatively low
tracking error between the Fund and the S&P 500 Index, and noted that it reviews
such information on a quarterly basis. The Board also noted the level and method
of computing the management fee. The Trustees also took into account that the
subadvisory fees under the Subadvisory Agreement are paid by the Manager.
In considering the Fund's performance, the Board noted that it reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Trustees also reviewed various comparative data provided to them in
connection with their consideration of the renewal of the Management Agreement,
including, among other information, a comparison of the average annual total
return of each class of the Fund with its Lipper index and with that of other
mutual funds deemed to be in its peer group by the independent third party in
its report (the "performance universe"). The performance universe of each class
of the Fund 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 performance of the Fund's Member Shares
was above the average of its performance universe and was lower than its Lipper
index for the one- and three-year periods ended December 31, 2009, and was above
the average of its performance universe and its Lipper index for the five-year
period ended December 31, 2009. The comparison indicated that the performance of
the Fund's Reward Shares was above the average of its performance universe and
its
================================================================================
62 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
Lipper index for the one-, three-, and five-year periods ended December 31,
2009. The Board also noted that the percentile performance ranking of the Fund's
Member Shares was in the top 40% of its performance universe for the one-year
period ended December 31, 2009 and in the top 30% of its performance universe
for the three- and five-year periods ended December 31, 2009, and that the
percentile performance ranking for the Fund's Reward Shares was in the top 20%
of its performance universe for the one-, three-, and five-year periods ended
December 31, 2009.
COMPENSATION AND PROFITABILITY -- The Board took into consideration the level
and method of computing the management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the level of management revenues from the Fund. This consideration
included a broad review of the methodology used in the allocation of certain
costs to the Fund. In considering the profitability data with respect to the
Fund, the Trustees noted that the Manager reimbursed a portion of its management
fees to the Fund and also pays the subadvisory fees. The Trustees reviewed the
profitability of the Manager's relationship with the Fund before tax expenses.
In reviewing the overall profitability of the management fee to the Manager, the
Board also considered the fact that affiliates provide shareholder servicing and
administrative services to the Fund for which they receive compensation. The
Board also considered the possible direct and indirect benefits to the Manager
from its relationship with the Trust, including that the Manager may derive
reputational and other benefits from its association with the Fund.
ECONOMIES OF SCALE -- The Board considered whether there should be changes in
the management fee rate or structure in order to enable the Fund to participate
in any economies of scale. The Board took into account Management's discussion
of the Fund's commentary fee structure. The Board also noted the fact that the
Manager pays the subadvisory fee. The Board determined that the current
investment management fee structure was reasonable. The Board also considered
the effects of each class's growth and size on the class's performance and fees,
noting that if the
================================================================================
ADVISORY AGREEMENTS | 63
<PAGE>
================================================================================
Fund's assets increase over time, the Fund may realize other economies of scale
if assets increase proportionally more than some expenses.
CONCLUSIONS -- The Board reached the following conclusions regarding the Fund's
Management Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Management Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant indices; (iv) the Fund's advisory expenses are
reasonable in relation to those of similar funds and to the services to be
provided by the Manager; and (v) the Manager's level of profitability, if any,
from its relationship with the Fund is reasonable. Based on its conclusions, the
Board determined that continuation of the Management Agreement would be in the
best interests of the Fund and its shareholders.
SUBADVISORY AGREEMENT
In approving the Fund's Subadvisory Agreement, the Board considered various
factors, among them: (i) the nature, extent, and quality of services provided to
the Fund, including the personnel providing services; (ii) the Subadviser's
compensation and any other benefits derived from the subadvisory relationship;
(iii) comparisons of subadvisory fees and performance to comparable investment
companies; and (iv) the terms of the Subadvisory Agreement. The Board's analysis
of these factors is set forth below.
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Subadvisory Agreement. In approving
the Subadvisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL -- The
Trustees considered information provided to them regarding the services provided
by the Subadviser, including information
================================================================================
64 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
presented periodically throughout the previous year. The Board noted that the
Subadviser and its affiliates also provide accounting and custody services to
the Fund at no additional charge. The Board considered the Subadviser's level of
knowledge and investment style. The Board reviewed the experience and
credentials of the investment personnel who are responsible for managing the
investment of portfolio securities with respect to the Fund and the Subadviser's
level of staffing. The Trustees noted that the materials provided to them
indicated that the method of compensating portfolio managers is reasonable and
includes appropriate mechanisms to prevent a manager with underperformance from
taking undue risks. The Trustees also noted the Subadviser's brokerage
practices. The Board also considered the Subadviser's regulatory and compliance
history. The Board noted that the Manager's monitoring processes of the
Subadviser include: (i) regular telephonic meetings to discuss, among other
matters, investment strategies and to review portfolio performance; (ii) monthly
portfolio compliance checklists and quarterly compliance certifications to the
Board; and (iii) due diligence visits to the Subadviser.
SUBADVISER COMPENSATION -- The Board also took into consideration the financial
condition of the Subadviser. In considering the cost of services to be provided
by the Subadviser and the profitability to the Subadviser of its relationship
with the Fund, the Trustees noted that the fees under the Subadvisory Agreement
were paid by the Manager and that the Subadviser had agreed to reimburse the
Fund for license fees paid to Standard & Poor's. The Trustees also relied on the
ability of the Manager to negotiate the Subadvisory Agreement and the fees
thereunder at arm's length. The Board also considered information relating to
the cost of services to be provided by the Subadviser, the Subadviser's
profitability with respect to the Fund, and the potential economies of scale in
the Subadviser's management of the Fund, to the extent available. However, for
the reasons noted above, this information was less significant to the Board's
consideration of the Subadvisory Agreement than the other factors considered.
SUBADVISORY FEES AND FUND PERFORMANCE -- The Board compared the subadvisory fees
for the Fund with the fees that the Subadviser charges to comparable clients.
The Board considered that the Fund pays a
================================================================================
ADVISORY AGREEMENTS | 65
<PAGE>
================================================================================
management fee to the Manager and that, in turn, the Manager pays a subadvisory
fee to the Subadviser. As noted above, the Board considered, among other data,
the Fund's performance with respect to each class during the one-, three-,
five-, and ten-year periods, as applicable, ended December 31, 2009, as compared
to the Fund's respective peer group and noted that the Board reviews at its
regularly scheduled meetings information about the Fund's performance results.
The Board noted the Manager's expertise and resources in monitoring the
performance, investment style, and risk-adjusted performance of the Subadviser.
CONCLUSIONS -- The Board reached the following conclusions regarding the
Subadvisory Agreement, among others: (i) the Subadviser is qualified to manage
the Fund's assets in accordance with its investment objectives and policies;
(ii) the Subadviser maintains an appropriate compliance program; (iii) the
performance of the Fund is reasonable in relation to the performance of funds
with similar investment objectives and to relevant indices; and (iv) the Fund's
advisory expenses are reasonable in relation to those of similar funds and to
the services to be provided by the Manager and the Subadviser. Based on its
conclusions, the Board determined that approval of the subadvisory Agreement
with respect to the Fund would be in the best interests of the Fund and its
shareholders.
================================================================================
66 | USAA S&P 500 INDEX FUND
<PAGE>
================================================================================
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND The Northern Trust Company
ACCOUNTING AGENT 50 S. LaSalle St.
Chicago, Illinois 60603
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "Products & Services"
SELF-SERVICE 24/7 click "Investments," then
AT USAA.COM "Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA "Investments." View account balances,
(8722) or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available (i) at USAA.COM; and (ii) on
the SEC's Web site at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
<PAGE>
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
At usaa.com click: MY DOCUMENTS
Set preferences to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
28651-0810 (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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