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 NASDAQ-100 INDEX FUND - SEMIANNUAL REPORT FOR PERIOD ENDED
JUNE 30, 2010
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA NASDAQ-100 INDEX FUND]
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SEMIANNUAL REPORT
USAA NASDAQ-100 INDEX FUND
JUNE 30, 2010
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FUND OBJECTIVE
SEEKS TO MATCH, BEFORE FEES AND EXPENSES, THE PERFORMANCE OF THE STOCKS
COMPOSING THE NASDAQ-100 INDEX.
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TYPES OF INVESTMENTS
Under normal market conditions, at least 80% of the Fund's assets will be
invested in the common stocks of companies composing the Nasdaq-100 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 7
FINANCIAL INFORMATION
Portfolio of Investments 11
Notes to Portfolio of Investments 17
Financial Statements 18
Notes to Financial Statements 21
EXPENSE EXAMPLE 34
ADVISORY AGREEMENTS 36
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2010, USAA. All rights reserved.
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PRESIDENT'S MESSAGE
". . . INVESTORS MAY WANT TO REVIEW THEIR
LONG-TERM INVESTMENT STRATEGY. IT'S VITAL TO
CONTINUE -- AND EVEN INCREASE -- INVESTING [PHOTO OF DANIEL S. McNAMARA]
IF YOU WANT TO LIVE THE RETIREMENT LIFESTYLE
YOU ENVISION."
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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 NASDAQ-100 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 NASDAQ-100 INDEX FUND (THE FUND) PERFORM?
The Fund closely tracked its benchmark, the broad-based Nasdaq-100 Index
(the Index), for the period ended June 30, 2010. The Fund posted a return of
-6.62% versus the Index which returned -6.17%. The Index is a group of
large-company stocks that is not available for direct investment.
o WHAT WERE MARKET CONDITIONS DURING THE PERIOD?
Favorable U.S. equity performance continued over the first three months of
2010, the fourth consecutive quarter of positive stock market returns. U.S.
indices posted negative returns in January 2010 fueled by mixed corporate
earnings and continued concern over jobless data and consumer confidence.
However, in February and March the market regained positive momentum as many
U.S corporations posted unexpectedly favorable earnings, and the market
witnessed an increase in corporate activity. On February 18, 2009, the
Federal Reserve Board (the Fed) increased the discount rate by 25 basis
points to 0.75% and markets continued to rally. For the first quarter, 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. The second
Past performance is no guarantee of future results.
Refer to page 8 for benchmark definitions.
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4 | USAA NASDAQ-100 INDEX FUND
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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, a downward revision of the gross domestic
product, and several lower-than-expected corporate earnings and guidance
announcements.
o PLEASE DESCRIBE SECTOR PERFORMANCE.
The largest sector in the Index, Information Technology, which accounted for
62.88% of it, lost -6.64% during the first six months of the year. Health
care stocks, which account for 15.83% of the Index, posted the lowest
returns for the period, down -7.32%. Industrials and Telecommunication
Services were the only two sectors with positive returns, returning 2.94%
and 1.18% respectively.
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
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 NASDAQ-100 INDEX FUND
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LIPPER LEADERS (OVERALL)
[5] [5] [5] [5]
TOTAL RETURN CONSISTENT EXPENSE TAX
RETURN EFFICIENCY
The Fund is listed as a Lipper Leader for Total Return, Consistent Return,
Expense and Tax Efficiency among 731, 728, 239, and 731 funds, respectively,
within the Lipper Multi-Cap Growth Funds category for the overall period ended
June 30, 2010. The Fund received a Lipper Leader rating for Total Return among
731 and 615 funds for the three- and five-year period ending June 30, 2010,
respectively. The Fund received a Lipper Leader rating for Consistent Return
among 723 and 613 funds for the three- and five-year period ending June 30,
2010, respectively. The Fund received a Lipper Leader rating for Expense among
239 and 207 funds for the three- and five-year period ending June 30, 2010,
respectively. The Fund received a Lipper Leader rating for Tax Efficiency among
731 and 615 funds for the three- and five-year period ending June 30, 2010,
respectively. Lipper ratings for Total Return reflect funds' historical total
return performance relative to peers as of June 30, 2010. Lipper ratings for
Consistent Return reflect funds' historical risk-adjusted returns, adjusted for
volatility, relative to peers as of June 30, 2010. 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. Lipper ratings for Total Return reflect funds'
historical total return performance relative to peers as of June 30, 2010.
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Ratings are subject to change every month and are based on an equal-weighted
average of percentile ranks for the Total Return, Consistent Return, 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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6 | USAA NASDAQ-100 INDEX FUND
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INVESTMENT OVERVIEW
USAA NASDAQ-100 INDEX FUND (Ticker Symbol: USNQX)
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6/30/10 12/31/09
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Net Assets $157.4 Million $159.3 Million
Net Asset Value Per Share $5.36 $5.74
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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 Since Inception 10/27/00
-6.62% 17.54% 2.84% -6.20%
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EXPENSE RATIO**
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Before Reimbursement 1.11% After Reimbursement 0.78%
*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 FUND SO THAT THE TOTAL ANNUAL OPERATING
EXPENSES (EXCLUSIVE OF COMMISSION RECAPTURE, EXPENSE OFFSET ARRANGEMENTS,
ACQUIRED FUND FEES AND EXPENSES, AND EXTRAORDINARY EXPENSES) DO NOT EXCEED AN
ANNUAL RATE OF 0.78% OF THE FUND'S AVERAGE DAILY NET ASSETS. THIS REIMBURSEMENT
ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME 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.
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INVESTMENT OVERVIEW | 7
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA NASDAQ-100
NASDAQ-100 INDEX INDEX FUND
10/31/00 $10,000.00 $10,000.00
11/30/00 7,636.90 7,683.62
12/31/00 7,134.71 7,137.48
01/31/01 7,900.80 7,900.19
02/28/01 5,814.91 5,800.38
03/31/01 4,794.16 4,783.43
04/30/01 5,653.41 5,630.89
05/31/01 5,485.34 5,461.39
06/30/01 5,577.71 5,546.14
07/31/01 5,131.28 5,094.16
08/31/01 4,479.71 4,444.44
09/30/01 3,561.28 3,531.07
10/31/01 4,160.20 4,124.29
11/30/01 4,865.50 4,811.68
12/31/01 4,807.60 4,747.88
01/31/02 4,725.89 4,672.51
02/28/02 4,144.28 4,097.87
03/31/02 4,429.65 4,371.06
04/30/02 3,894.07 3,843.52
05/31/02 3,684.80 3,626.85
06/30/02 3,206.25 3,155.83
07/31/02 2,934.34 2,892.06
08/31/02 2,874.49 2,826.12
09/30/02 2,539.41 2,496.40
10/31/02 3,018.62 2,967.42
11/30/02 3,405.08 3,344.24
12/31/02 3,003.59 2,948.58
01/31/03 2,999.84 2,939.16
02/28/03 3,083.11 3,023.94
03/31/03 3,110.60 3,042.79
04/30/03 3,377.74 3,306.56
05/31/03 3,658.86 3,579.75
06/30/03 3,670.54 3,579.75
07/31/03 3,900.85 3,805.84
08/31/03 4,098.03 3,994.24
09/30/03 3,983.65 3,881.20
10/31/03 4,330.64 4,210.91
11/30/03 4,355.59 4,239.18
12/31/03 4,489.81 4,361.64
01/31/04 4,567.15 4,437.00
02/29/04 4,499.09 4,361.64
03/31/04 4,401.34 4,267.44
04/30/04 4,288.61 4,154.39
05/31/04 4,488.56 4,342.80
06/30/04 4,643.13 4,493.53
07/31/04 4,287.97 4,144.97
08/31/04 4,193.57 4,050.77
09/30/04 4,328.65 4,182.65
10/31/04 4,555.73 4,399.32
11/30/04 4,817.99 4,644.25
12/31/04 4,972.24 4,794.98
01/31/05 4,661.33 4,491.48
02/28/05 4,638.85 4,463.11
03/31/05 4,551.79 4,378.01
04/30/05 4,362.95 4,188.90
05/31/05 4,740.49 4,548.22
06/30/05 4,589.87 4,406.38
07/31/05 4,933.46 4,727.88
08/31/05 4,865.17 4,661.68
09/30/05 4,926.62 4,718.42
10/31/05 4,857.93 4,652.23
11/30/05 5,148.42 4,926.45
12/31/05 5,066.48 4,841.34
01/31/06 5,268.98 5,039.91
02/28/06 5,149.13 4,916.99
03/31/06 5,251.81 5,011.55
04/30/06 5,243.49 5,002.09
05/31/06 4,874.25 4,642.77
06/30/06 4,861.22 4,623.86
07/31/06 4,658.94 4,434.75
08/31/06 4,880.36 4,642.77
09/30/06 5,110.43 4,850.80
10/31/06 5,353.27 5,087.19
11/30/06 5,538.52 5,257.40
12/31/06 5,435.57 5,153.38
01/31/07 5,545.66 5,257.40
02/28/07 5,455.60 5,172.30
03/31/07 5,489.54 5,200.66
04/30/07 5,786.06 5,474.88
05/31/07 5,977.94 5,654.54
06/30/07 5,996.67 5,663.99
07/31/07 5,990.97 5,654.54
08/31/07 6,172.31 5,824.74
09/30/07 6,490.36 6,117.87
10/31/07 6,949.89 6,552.83
11/30/07 6,491.23 6,117.87
12/31/07 6,481.31 6,098.96
01/31/08 5,724.81 5,389.78
02/29/08 5,431.33 5,106.11
03/31/08 5,546.67 5,210.12
04/30/08 5,969.79 5,607.26
05/31/08 6,332.98 5,947.67
06/30/08 5,724.33 5,370.87
07/31/08 5,762.73 5,399.23
08/31/08 5,840.89 5,474.88
09/30/08 4,974.45 4,652.23
10/31/08 4,164.66 3,895.77
11/30/08 3,704.55 3,460.80
12/31/08 3,787.12 3,536.45
01/31/09 3,689.67 3,441.89
02/28/09 3,497.97 3,262.23
03/31/09 3,875.02 3,612.10
04/30/09 4,368.91 4,075.43
05/31/09 4,503.84 4,198.35
06/30/09 4,635.64 4,311.82
07/31/09 5,032.50 4,680.60
08/31/09 5,106.63 4,746.79
09/30/09 5,402.61 5,021.00
10/31/09 5,240.91 4,860.26
11/30/09 5,562.24 5,162.84
12/31/09 5,855.89 5,427.60
01/31/10 5,481.64 5,077.74
02/28/10 5,732.99 5,304.68
03/31/10 6,174.55 5,711.27
04/30/10 6,310.39 5,834.20
05/31/10 5,849.59 5,408.69
06/30/10 5,494.81 5,068.28
[END CHART]
Data from 10/31/00* to 6/30/10.
The graph illustrates how a $10,000 hypothetical investment in the USAA
Nasdaq-100 Index Fund closely tracks the Nasdaq-100 Index, an unmanaged modified
capitalization-weighted index composed of 100 of the largest nonfinancial
domestic and international companies listed on The Nasdaq Stock Market(R) based
on market capitalization.
"Nasdaq-100(R)," "Nasdaq-100 Index(R)," and "Nasdaq(R)" are trademarks or
service marks of The Nasdaq Stock Market, Inc. (which with its affiliates are
the "Corporations") and have been licensed for our use. THE CORPORATIONS MAKE NO
WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE USAA NASDAQ-100 INDEX FUND.
The Fund is not sponsored, sold, or promoted by The Nasdaq Stock Market, Inc.,
and The Nasdaq Stock Market, Inc. makes no representation regarding the
advisability of investing in the Fund. 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.
*The performance of the Nasdaq-100 Index is calculated from the end of the
month, October 31, 2000, while the date the Fund initially invested in
securities represented by the index is October 30, 2000. There may be a slight
variation of the performance numbers because of this difference.
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8 | USAA NASDAQ-100 INDEX FUND
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TOP 10 EQUITY HOLDINGS
AS OF 6/30/10
(% of Net Assets)
Apple, Inc. ............................................................ 19.7%
Microsoft Corp. ........................................................ 4.3%
Google, Inc. "A" ....................................................... 4.1%
QUALCOMM, Inc. ......................................................... 4.0%
Oracle Corp. ........................................................... 2.8%
Cisco Systems, Inc. .................................................... 2.7%
Teva Pharmaceutical Industries Ltd. ADR ................................ 2.4%
Intel Corp. ............................................................ 2.3%
Amazon.com, Inc. ....................................................... 2.0%
Gilead Sciences, Inc. .................................................. 1.9%
You will find a complete list of securities that the Fund owns on pages 11-16.
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INVESTMENT OVERVIEW | 9
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o SECTOR ALLOCATION* -- 6/30/2010 o
[PIE CHART OF SECTOR ALLOCATION]
Information Technology 62.0%
Health Care 15.1%
Consumer Discretionary 14.2%
Industrials 4.3%
Telecommunication Services 1.7%
Consumer Staples 0.8%
Materials 0.4%
[END CHART]
* Excludes money market instruments.
Percentages are of the net assets of the Fund and may not equal 100%.
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10 | USAA NASDAQ-100 INDEX FUND
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PORTFOLIO OF INVESTMENTS
June 30, 2010 (unaudited)
---------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------
COMMON STOCKS (98.5%)
CONSUMER DISCRETIONARY (14.2%)
------------------------------
APPAREL RETAIL (0.8%)
12,002 Ross Stores, Inc. $ 640
16,254 Urban Outfitters, Inc.* 559
--------
1,199
--------
AUTOMOTIVE RETAIL (0.4%)
13,336 O'Reilly Automotive, Inc.* 634
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CABLE & SATELLITE (3.5%)
140,249 Comcast Corp. "A" 2,436
62,571 DIRECTV "A"* 2,122
21,074 DISH Network Corp. "A" 383
32,855 Virgin Media, Inc. 548
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5,489
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CASINOS & GAMING (0.6%)
13,029 Wynn Resorts Ltd. 994
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CATALOG RETAIL (0.4%)
53,185 Liberty Media Corp. Interactive "A"* 558
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CONSUMER ELECTRONICS (0.3%)
17,801 Garmin Ltd. 521
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DEPARTMENT STORES (0.5%)
11,646 Sears Holdings Corp.* 753
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EDUCATION SERVICES (0.4%)
14,796 Apollo Group, Inc. "A"* 628
--------
HOMEFURNISHING RETAIL (0.8%)
34,310 Bed Bath & Beyond, Inc.* 1,272
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INTERNET RETAIL (2.9%)
28,696 Amazon.com, Inc.* 3,135
26,851 Expedia, Inc. 504
4,869 Priceline.com, Inc.* 860
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4,499
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PORTFOLIO OF INVESTMENTS | 11
<PAGE>
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MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------
LEISURE PRODUCTS (0.5%)
40,408 Mattel, Inc. $ 855
--------
MOVIES & ENTERTAINMENT (1.0%)
138,102 News Corp. "A" 1,652
--------
RESTAURANTS (1.5%)
100,428 Starbucks Corp. 2,440
--------
SPECIALTY STORES (0.6%)
47,536 Staples, Inc. 906
--------
Total Consumer Discretionary 22,400
--------
CONSUMER STAPLES (0.8%)
-----------------------
HYPERMARKETS & SUPER CENTERS (0.8%)
22,489 Costco Wholesale Corp. 1,233
--------
HEALTH CARE (15.1%)
-------------------
BIOTECHNOLOGY (7.3%)
43,284 Amgen, Inc.* 2,277
28,075 Biogen Idec, Inc.* 1,332
44,287 Celgene Corp.* 2,251
7,159 Cephalon, Inc.* 406
32,439 Genzyme Corp.* 1,647
84,901 Gilead Sciences, Inc.* 2,910
20,485 Vertex Pharmaceuticals, Inc.* 674
--------
11,497
--------
HEALTH CARE DISTRIBUTORS (0.5%)
8,836 Henry Schein, Inc.* 485
11,297 Patterson Companies, Inc. 322
--------
807
--------
HEALTH CARE EQUIPMENT (1.0%)
26,697 Hologic, Inc.* 372
3,791 Intuitive Surgical, Inc.* 1,196
--------
1,568
--------
HEALTH CARE SERVICES (1.4%)
47,397 Express Scripts, Inc.* 2,229
--------
HEALTH CARE SUPPLIES (0.3%)
13,527 DENTSPLY International, Inc. 405
--------
HEALTH CARE TECHNOLOGY (0.4%)
7,938 Cerner Corp.* 602
--------
================================================================================
12 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES (1.1%)
11,580 Illumina, Inc.* $ 504
17,904 Life Technologies Corp.* 846
22,979 Qiagen N.V.* 442
--------
1,792
--------
PHARMACEUTICALS (3.1%)
30,407 Mylan, Inc.* 518
71,602 Teva Pharmaceutical Industries Ltd. ADR 3,723
24,402 Warner Chilcott plc "A"* 557
--------
4,798
--------
Total Health Care 23,698
--------
INDUSTRIALS (4.3%)
------------------
AIR FREIGHT & LOGISTICS (1.0%)
15,956 C.H. Robinson Worldwide, Inc. 888
20,281 Expeditors International of Washington, Inc. 700
--------
1,588
--------
CONSTRUCTION & ENGINEERING (0.2%)
12,764 Foster Wheeler AG* 269
--------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (1.3%)
9,854 Joy Global, Inc. 493
39,651 PACCAR, Inc. 1,581
--------
2,074
--------
DIVERSIFIED SUPPORT SERVICES (0.3%)
17,955 Cintas Corp. 430
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.5%)
7,244 First Solar, Inc.* 825
--------
ENVIRONMENTAL & FACILITIES SERVICES (0.4%)
8,687 Stericycle, Inc.* 570
--------
TRADING COMPANIES & DISTRIBUTORS (0.4%)
13,688 Fastenal Co. 687
--------
TRUCKING (0.2%)
12,185 JB Hunt Transport Services, Inc. 398
--------
Total Industrials 6,841
--------
INFORMATION TECHNOLOGY (62.0%)
------------------------------
APPLICATION SOFTWARE (2.6%)
50,011 Adobe Systems, Inc.* 1,322
23,281 Autodesk, Inc.* 567
================================================================================
PORTFOLIO OF INVESTMENTS | 13
<PAGE>
================================================================================
---------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------
21,380 Citrix Systems, Inc.* $ 903
38,492 Intuit, Inc.* 1,338
--------
4,130
--------
COMMUNICATIONS EQUIPMENT (8.4%)
197,830 Cisco Systems, Inc.* 4,216
191,796 QUALCOMM, Inc.(a) 6,298
54,077 Research In Motion Ltd.* 2,664
--------
13,178
--------
COMPUTER HARDWARE (20.2%)
123,036 Apple, Inc.(a)* 30,947
69,884 Dell, Inc.* 843
--------
31,790
--------
COMPUTER STORAGE & PERIPHERALS (2.0%)
16,444 Logitech International S.A.* 221
34,935 NetApp, Inc.* 1,304
22,658 SanDisk Corp.* 953
47,031 Seagate Technology* 613
--------
3,091
--------
DATA PROCESSING & OUTSOURCED SERVICES (2.0%)
34,471 Automatic Data Processing, Inc. 1,388
18,506 Fiserv, Inc.* 845
33,243 Paychex, Inc. 863
--------
3,096
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%)
15,679 FLIR Systems, Inc.* 456
--------
ELECTRONIC MANUFACTURING SERVICES (0.3%)
85,941 Flextronics International Ltd.* 481
--------
HOME ENTERTAINMENT SOFTWARE (1.0%)
107,596 Activision Blizzard, Inc. 1,129
32,264 Electronic Arts, Inc.* 464
--------
1,593
--------
INTERNET SOFTWARE & SERVICES (7.2%)
26,353 Baidu, Inc. ADR* 1,794
94,567 eBay, Inc.* 1,855
14,490 Google, Inc. "A"* 6,447
16,570 VeriSign, Inc.* 440
64,480 Yahoo!, Inc.* 892
--------
11,428
--------
================================================================================
14 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES (1.3%)
28,278 Cognizant Technology Solutions Corp. "A"* $ 1,416
10,558 Infosys Technologies Ltd. ADR 632
--------
2,048
--------
SEMICONDUCTOR EQUIPMENT (1.2%)
67,370 Applied Materials, Inc. 810
19,976 KLA-Tencor Corp. 557
12,654 Lam Research Corp.* 482
--------
1,849
--------
SEMICONDUCTORS (6.4%)
41,119 Altera Corp. 1,020
38,966 Broadcom Corp. "A" 1,285
188,872 Intel Corp. 3,673
29,006 Linear Technology Corp. 807
59,662 Marvell Technology Group Ltd.* 940
28,732 Maxim Integrated Products, Inc. 481
15,010 Microchip Technology, Inc. 416
54,470 NVIDIA Corp.* 556
35,573 Xilinx, Inc. 899
--------
10,077
--------
SYSTEMS SOFTWARE (9.1%)
20,607 BMC Software, Inc.* 714
47,848 CA, Inc. 880
19,753 Check Point Software Technologies Ltd.* 582
292,408 Microsoft Corp.(a) 6,728
203,290 Oracle Corp. 4,363
80,762 Symantec Corp.* 1,121
--------
14,388
--------
Total Information Technology 97,605
--------
MATERIALS (0.4%)
----------------
SPECIALTY CHEMICALS (0.4%)
11,203 Sigma-Aldrich Corp. 558
--------
TELECOMMUNICATION SERVICES (1.7%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (1.7%)
10,191 Millicom International Cellular S.A. 826
15,776 NII Holdings, Inc. "B"* 513
63,266 Vodafone Group plc 1,308
--------
Total Telecommunication Services 2,647
--------
Total Common Stocks (cost: $129,281) 154,982
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
<PAGE>
================================================================================
---------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
---------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (1.6%)
U.S.TREASURY BILLS (0.3%)
$ 565 0.21%, 11/18/2010(b),(c) $ 565
--------
REPURCHASE AGREEMENTS (1.3%)
2,020 State Street Bank & Trust Co., 0.00%, acquired on 6/30/2010 and
due 7/01/2010 at $2,020 (collateralized by $2,100 of
U.S. Treasury, 0.50%(b), due 4/30/2012; market value $2,119) 2,020
--------
Total Money Market Instruments (cost: $2,584) 2,585
--------
TOTAL INVESTMENTS (COST: $131,865) $157,567
========
---------------------------------------------------------------------------------------
NUMBER OF CONTRACT UNREALIZED
CONTRACTS EXPIRATION VALUE DEPRECIATION
LONG/(SHORT) SECURITY DATE (000) (000)
---------------------------------------------------------------------------------------
FUTURES (1.6%)
73 Nasdaq-100 Mini Index Futures 09/17/2010 $2,537 $ (93)
------ -------
TOTAL FUTURES $2,537 $ (93)
====== =======
----------------------------------------------------------------------------------------------
($ 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 $154,982 $ - $- $154,982
Money Market Instruments:
U.S. Treasury Bills - 565 - 565
Repurchase Agreements - 2,020 - 2,020
Futures* (93) - - (93)
----------------------------------------------------------------------------------------------
Total $154,889 $2,585 $- $157,474
----------------------------------------------------------------------------------------------
* Futures 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.
================================================================================
16 | USAA NASDAQ-100 INDEX FUND
<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.
Investments in foreign securities were 7.5% of net assets at June 30, 2010.
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
o SPECIFIC NOTES
(a) Security, or a portion thereof, is segregated to cover the value of open
futures contracts at June 30, 2010.
(b) Rate represents an annualized yield at time of purchase, not coupon rate.
(c) Securities with a value of $565,000 are segregated as collateral for
initial margin requirements on open futures contracts.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 17
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $131,865) $157,567
Receivables:
Capital shares sold 192
USAA Investment Management Company (Note 5D) 45
Dividends and interest 71
--------
Total assets 157,875
--------
LIABILITIES
Payables:
Capital shares redeemed 385
Variation margin on futures contracts 37
Accrued management fees 28
Accrued transfer agent's fees 9
Other accrued expenses and payables 36
--------
Total liabilities 495
--------
Net assets applicable to capital shares outstanding $157,380
========
NET ASSETS CONSIST OF:
Paid-in capital $153,412
Accumulated undistributed net investment loss (22)
Accumulated net realized loss on investments and futures transactions (21,619)
Net unrealized appreciation of investments and futures contracts 25,609
--------
Net assets applicable to capital shares outstanding $157,380
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 29,335
========
Net asset value, redemption price, and offering price per share $ 5.36
========
See accompanying notes to financial statements.
================================================================================
18 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
STATEMENT OF OPERATIONS (IN THOUSANDS)
Six-month period ended June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $12) $ 624
Interest 1
--------
Total income 625
--------
EXPENSES
Management fees 166
Administration and servicing fees 290
Transfer agent's fees 247
Custody and accounting fees 15
Postage 11
Shareholder reporting fees 10
Trustees' fees 5
Registration fees 20
Professional fees 33
Other 28
--------
Total expenses 825
Expenses reimbursed (178)
--------
Net expenses 647
--------
NET INVESTMENT LOSS (22)
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments 365
Futures transactions (225)
Change in net unrealized appreciation/depreciation of:
Investments (11,408)
Futures contracts (219)
--------
Net realized and unrealized loss (11,487)
--------
Decrease in net assets resulting from operations $(11,509)
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 19
<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 loss $ (22) $ (53)
Net realized gain (loss) on investments 365 (2,482)
Net realized gain (loss) on futures transactions (225) 1,291
Change in net unrealized appreciation/depreciation of:
Investments (11,408) 54,382
Futures contracts (219) 129
------------------------
Increase (decrease) in net assets resulting
from operations (11,509) 53,267
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 33,955 40,094
Cost of shares redeemed (24,320) (28,134)
------------------------
Increase in net assets from capital
share transactions 9,635 11,960
------------------------
Capital contribution from USAA Transfer Agency
Company - 3
------------------------
Net increase (decrease) in net assets (1,874) 65,230
NET ASSETS
Beginning of period 159,254 94,024
------------------------
End of period $157,380 $159,254
========================
Accumulated undistributed net investment loss:
End of period $ (22) $ -
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 5,771 8,693
Shares redeemed (4,184) (6,066)
------------------------
Increase in shares outstanding 1,587 2,627
========================
See accompanying notes to financial statements.
================================================================================
20 | USAA NASDAQ-100 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
Nasdaq-100 Index Fund (the Fund), which is classified as nondiversified under
the 1940 Act. The Fund seeks to match, before fees and expenses, the
performance of the stocks composing the Nasdaq-100 Index. The Nasdaq-100 Index
represents 100 of the largest nonfinancial stocks traded on The Nasdaq Stock
Market. 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 Nasdaq-100 Index.
As a nondiversified fund, the Fund may invest a greater percentage of its assets
in a single issuer. Because a relatively high percentage of the Fund's total
assets may be invested in the securities of a single issuer or a limited number
of issuers, the securities of the Fund may be more sensitive to changes in the
market value of a single issuer, a limited number of issuers, or large companies
generally. Such a focused investment strategy may increase the volatility of the
Fund's investment results because this Fund may be more susceptible to risk
associated with a single economic, political, or regulatory event than a
diversified fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 21
<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. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and asked prices is generally used.
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
3. 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.
4. Repurchase agreements are valued at cost, which approximates market
value.
5. Futures are valued based upon the last sale price at the close of
market on the principal exchange on which they are traded.
================================================================================
22 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
6. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager in consultation with the Fund's
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 net asset value (NAV) to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, and an evaluation of the
forces that influenced the market in which the securities are purchased
and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices. The Fund uses amortized
cost in valuing repurchase agreements and a market
================================================================================
NOTES TO FINANCIAL STATEMENTS | 23
<PAGE>
================================================================================
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 reduce any
performance discrepancies between the Fund and the Nasdaq-100
================================================================================
24 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
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 $(93)** - $-
appreciation of
investments and
futures contracts
---------------------------------------------------------------------------------------------------
*For open derivative instruments as of June 30, 2010, see the 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 portfolio of investments. Only current day's variation
margin is reported within the statement of assets & liabilities.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
<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) $(225) $(219)
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. Discounts and
================================================================================
26 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
premiums on short-term securities are amortized on a straight-line basis
over the life of the respective securities.
G. FOREIGN CURRENCY TRANSLATIONS -- The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
<PAGE>
================================================================================
H. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended June 30, 2010, custodian and other bank credits reduced the
Fund's expenses by less than $500.
I. 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.
J. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.13% annually
================================================================================
28 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
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 less than $500, which represents 0.4% 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 and realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes. At
December 31, 2009, the Fund had capital loss carryovers of $19,681,000, 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 $ 1,447,000
2011 4,733,000
2016 4,632,000
2017 8,869,000
-----------
Total $19,681,000
===========
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
<PAGE>
================================================================================
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
$11,433,000 and $922,000, 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 $44,407,000 and $18,705,000, respectively, resulting in net
unrealized appreciation of $25,702,000.
(5) 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
================================================================================
30 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
whether each subadviser's agreement should be renewed, terminated, or
modified. The Manager also is responsible for allocating assets to the
subadvisers. The allocation for each subadviser can range from 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 0.20% 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 $166,000.
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 equal to
the greater of a minimum annual fee of $50,000 or a fee at an annual rate
equal to 0.06% of the Fund's average daily net assets on amounts up to $100
million; 0.04% of daily net assets for amounts over $100 million and up to
$250 million; and 0.03% of daily net assets for amounts over $250 million.
For the six-month period ended June 30, 2010, the Manager incurred
subadvisory fees, paid or payable to NTI, of $43,000.
C. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid monthly at an
annualized rate of 0.35% of the Fund's average net assets for the fiscal
year. For the six-month period ended June 30, 2010, the Fund incurred
administration and servicing fees, paid or payable to the Manager, of
$290,000.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Trust's Board of Trustees
has approved the reimbursement of a portion of these expenses incurred by
the Manager. For the six-month period ended June 30, 2010, the Fund
reimbursed the Manager $2,000 for
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
<PAGE>
================================================================================
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 Fund to 0.78% of its average annual net assets,
excluding extraordinary expenses and before reductions of any expenses paid
indirectly, and will reimburse the Fund for all expenses in excess of that
amount. 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 of $178,000, of which $45,000 was receivable from the
Manager.
E. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $26 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 agent's fees, paid or payable to SAS, of
$247,000.
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.
(6) TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
================================================================================
32 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
(7) FINANCIAL HIGHLIGHTS
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 $ 5.74 $ 3.74 $ 6.45 $ 5.45 $ 5.12 $ 5.09
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment loss (.00)(a),(d) (.00)(a),(d) (.01)(a) (.02)(a) (.01) (.01)(a)
Net realized and
unrealized gain (loss) (.38)(a) 2.00(a) (2.70)(a) 1.02(a) .34 .06(a)
--------------------------------------------------------------------------------------
Total from investment
operations (.38)(a) 2.00(a) (2.71)(a) 1.00(a) .33 .05(a)
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income - - - - - (.02)
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 5.36 $ 5.74 $ 3.74 $ 6.45 $ 5.45 $ 5.12
======================================================================================
Total return (%)* (6.62) 53.48 (42.02) 18.35 6.45 .97
Net assets at
end of period (000) $157,380 $159,254 $94,024 $149,358 $127,286 $130,390
Ratios to average
net assets:**
Expenses (%)(b),(c) .78(e) .78 .78 .78 .80 .80
Expenses, excluding
reimbursements (%)(b) 1.00(e) 1.11 1.08 1.01 1.11 1.03
Net investment loss (%) (.03)(e) (.04) (.26) (.27) (.25) (.24)
Portfolio turnover (%) 1 4 7 14 8 15
* 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
$167,435,000.
(a) Calculated using average shares. For the six-month period ended June 30,
2010, average shares were 28,899,000.
(b) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased
the expense ratios by less than 0.01%.
(c) Effective April 13, 2007, the Manager voluntarily agreed to reimburse the
Fund for expenses in excess of 0.78% of its annual average net assets.
Prior to April 13, 2007, the Manager voluntarily agreed to reimburse the
Fund for expenses in excess of 0.80% of its annual average net assets.
(d) Represents less than $0.01 per share.
(e) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
<PAGE>
================================================================================
EXPENSE EXAMPLE
June 30, 2010 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of January 1, 2010, through June
30, 2010.
ACTUAL EXPENSES
The first line of the table on the next page provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual
================================================================================
34 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
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 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
--------------------------------------------------------------
Actual $1,000.00 $ 933.80 $3.74
Hypothetical
(5% return before expenses) 1,000.00 1,020.93 3.91
* Expenses are equal to the Fund's annualized expense ratio of 0.78%, which is
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 ending account value on the
first line in the table is based on its actual total return of (6.62)% for
the six-month period of January 1, 2010, through June 30, 2010.
================================================================================
EXPENSE EXAMPLE | 35
<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 Advisory 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 Advisory 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 Advisory 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 Advisory Agreement and the Subadvisory Agreement with
respect to the Fund. The Independent Trustees also reviewed the proposed
continuation of the Advisory 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 concerning
================================================================================
36 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
the Fund's performance and related services provided by the Manager and by the
Subadviser. At the meeting at which the renewal of the Advisory 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 Advisory Agreement and Subadvisory
Agreement included certain information previously received at such meetings.
ADVISORY AGREEMENT
After full consideration of a variety of factors, the Board, including the
Independent Trustees, voted to approve the Advisory Agreement. In approving the
Advisory Agreement, the Trustees did not identify any single factor as
controlling, and each Trustee may have attributed different weights to various
factors. Throughout their deliberations, the Independent Trustees were
represented and assisted by independent counsel.
NATURE, EXTENT, AND QUALITY OF SERVICES -- In considering the nature, extent,
and quality of the services provided by the Manager under the Advisory
Agreement, the Board reviewed information provided by the Manager relating to
its operations and personnel. The Board also took into account its familiarity
with the Manager's management through Board meetings, discussions, and reports
during the preceding year. The Board considered the fees paid to the Manager and
the services provided to the Fund by the Manager under the Advisory Agreement,
as well as other services provided by the Manager and its affiliates under other
agreements, and the personnel who provide these services. In addition to the
investment advisory services provided to the Fund, the Manager and its
affiliates provide administrative services, stockholder services, oversight of
Fund accounting, marketing services, assistance in meeting legal and regulatory
requirements, and other services necessary for the operation of the Fund and the
Trust.
The Board considered the level and depth of knowledge of the Manager, including
the professional experience and qualifications of senior personnel,
================================================================================
ADVISORY AGREEMENTS | 37
<PAGE>
================================================================================
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," was also
considered. The Manager's role in coordinating the activities of the Fund's
other service providers also was considered. The Board considered the Manager's
financial condition and that it had the financial wherewithal to continue to
provide the same scope and high quality of services under the Advisory
Agreement. In reviewing the Advisory Agreement, the Board focused on the
experience, resources, and strengths of the Manager and its affiliates in
managing investment companies, including the Fund.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager 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 trustees of the
Fund and other investment companies managed by the Manager, also focused on the
quality of the Manager's compliance and administrative staff.
EXPENSES AND PERFORMANCE -- In connection with its consideration of the Advisory
Agreement, the Board evaluated the Fund's advisory fees and total expense ratio
as compared to other open-end investment companies deemed to be comparable to
the Fund as determined by the independent third party in its report. The Fund's
expenses were compared to (i) a group of investment companies chosen by the
independent third party to be comparable to the Fund based upon certain factors,
including fund type, comparability of investment objectives and classifications,
sales load type (in this case, pure-index 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 similar
investment classifications/objectives as the Fund regardless of asset size,
excluding outliers (the "expense universe"). Among other data, the Board noted
that the Fund's management fee rate -- which includes advisory and
administrative services and the effects of any
================================================================================
38 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
reimbursements -- was below the median of its expense group and its expense
universe. The data indicated that the Fund's total expenses, after
reimbursements, were below the median of its expense group and its expense
universe. The Board took into account the various services provided to the Fund
by the Manager and its affiliates, including the nature and high quality of the
services provided by the Manager. The Board also considered the level of
correlation between the Nasdaq-100 Index and the Fund and the relatively low
tracking error between the Fund and the 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 Board noted the size of the Fund and its
impact on Fund expenses. The Trustees also took into account the Manager's
current voluntary undertakings to maintain expense limitations for the Fund and
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 Advisory Agreement,
including, among other information, a comparison of the Fund's average annual
total return with its Lipper index and with that of other mutual funds deemed to
be in its peer group by the independent third party in its report (the
"performance universe"). The Fund's performance universe consisted of the Fund
and all retail and institutional open-end investment companies with similar
classifications/objectives as the Fund regardless of asset size or primary
channel of distribution. This comparison indicated that, among other data, the
Fund's performance was above the average of its performance universe and its
Lipper index for the one-, three-, and five periods ended December 31, 2009. The
Board also noted that the Fund's percentile performance ranking was in the top
10% of its performance universe for the one- and three-year periods ended
December 31, 2009 and in the top 20% of its performance universe for the
five-year period ended December 31, 2009. The Trustees noted management's
discussion of the Fund's performance relative to its benchmark, as well as the
investment category in which the Fund was placed for the third-party report.
================================================================================
ADVISORY AGREEMENTS | 39
<PAGE>
================================================================================
COMPENSATION AND PROFITABILITY -- The Board took into consideration the level
and method of computing the management fee. The information considered by the
Board included operating profit margin information for the Manager's business as
a whole. The Board also received and considered profitability information
related to the management revenues from the Fund. This consideration included a
broad review of the methodology used in the allocation of certain costs to the
Fund. In considering the profitability data with respect to the Fund, the
Trustees noted the current size of the Fund and that the Manager has reimbursed
a portion of its management fees for 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 management's
discussion of the advisory fee structure. The Board also noted that if the
Fund's assets increase over time, the Fund may realize other economies of scale
if assets increase proportionally more than some expenses. The Board determined
that the current investment management fee structure was reasonable.
CONCLUSIONS -- The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Manager, among others: (i) the Manager has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (ii) the Manager maintains
an appropriate compliance program; (iii) the performance of the Fund is
reasonable in relation to the performance of funds with similar investment
objectives and to relevant
================================================================================
40 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
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 from its relationship with the Fund, if any, is
reasonable. Based on its conclusions, the Board determined that continuation of
the Advisory Agreement would be in the best interests of the Fund and its
shareholders.
SUBADVISORY 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 performance to comparable
investment companies; and (iii) 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 presented periodically throughout the
previous year. 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
================================================================================
ADVISORY AGREEMENTS | 41
<PAGE>
================================================================================
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. 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 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 during the
one-, three-, and five-year periods ended December 31, 2009, as compared to the
Fund's respective peer group and noted that the Board reviews at its regularly
scheduled meetings information about the Fund'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
================================================================================
42 | USAA NASDAQ-100 INDEX FUND
<PAGE>
================================================================================
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.
================================================================================
ADVISORY AGREEMENTS | 43
<PAGE>
================================================================================
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "Products & Services"
SELF-SERVICE 24/7 click "Investments," then
AT USAA.COM "Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA "Investments." View account balances,
(8722) or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available (i) at USAA.COM; and (ii) on
the SEC's Web site at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
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<PAGE>
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37758-0810 (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
------------------------------
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