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: MARCH 31,
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Date of reporting period: SEPTEMBER 30, 2009
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED SEPTEMBER 30, 2009
USAA California Money Market Fund
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA CALIFORNIA MONEY MARKET FUND]
SEMIANNUAL REPORT
USAA CALIFORNIA MONEY MARKET FUND
SEPTEMBER 30, 2009
FUND OBJECTIVE
HIGH LEVEL OF CURRENT INTEREST INCOME THAT IS EXEMPT FROM FEDERAL AND CALIFORNIA
STATE INCOME TAXES AND A FURTHER OBJECTIVE OF PRESERVING CAPITAL AND MAINTAINING
LIQUIDITY.
TYPES OF INVESTMENTS
Invests in high-quality California tax-exempt securities with remaining
maturities of 397 days or less.
TABLE OF CONTENTS
PRESIDENT'S MESSAGE 2
MANAGER'S COMMENTARY 4
INVESTMENT OVERVIEW 7
FINANCIAL INFORMATION
Portfolio of Investments 12
Notes to Portfolio of Investments 17
Financial Statements 18
Notes to Financial Statements 21
EXPENSE EXAMPLE 29
ADVISORY AGREEMENT 31
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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)2009, USAA. All rights reserved.
PRESIDENT'S MESSAGE
"WHEN SELECTING A SPECIFIC SECURITY, WE
STRIVE TO FIND A GOLDEN MEAN BETWEEN THE [PHOTO OF CHRISTOPHER W. CLAUS]
LEVEL OF INCOME, THE CREDIT RISK OF THE ISSUER,
AND THE PRICE VOLATILITY OF THE BOND."
OCTOBER 2009
The reversal in investor sentiment -- from the extreme pessimism of late 2008 to
the optimism of 2009 -- has been remarkable.
During 2008, the municipal bond market suffered one of its worst selloffs in
history. "Credit spreads," the risk premium between the yield of an
investment-grade tax-exempt bond and a comparable U.S. Treasury, widened
dramatically amid poor liquidity conditions and distressed selling. Economic
conditions deteriorated and unemployment increased. Accordingly, tax revenues
declined; however, most municipalities had the political will to address their
budgetary challenges and protect their credit standing.
Investors rediscovered the value of municipal securities -- attractive after-tax
yields -- beginning in January 2009. The result was strong demand: prices
rebounded and yields dropped as credit spreads contracted toward historical
norms. (A bond's yield moves in the opposite direction of its price.)
Yields on tax-exempt money markets also declined as the Federal Reserve (the
Fed), in an effort to stimulate the economy, cut short-term interest rates
nearly to zero. I expect Fed governors to keep rates at these levels until they
see evidence of a sustained economic recovery. Consequently, money market yields
are unlikely to increase until at least the second half of next year.
At the time of this writing, the economy appears to have stabilized. Housing
prices and manufacturing have both shown signs of improvement.
2 | USAA CALIFORNIA MONEY MARKET FUND
Corporate earnings have generally exceeded expectations, but much of the
earnings were achieved by cost cutting and inventory reduction. For an economic
recovery to take hold, companies must see top line revenue growth, and that
depends on the consumer. Unfortunately, the unemployment rate appears to be
weighing down consumer confidence. As a result, I expect the economy to
experience an extended period of slow growth before it regains its full health.
In the meantime, the after-tax yields on municipal bonds remain attractive.
Their tax-exempt status may become even more appealing if the federal and state
governments raise taxes.
At USAA, we remain confident in our approach to managing your municipal bond and
money market investments. Our primary objective is to distribute a high level of
tax-free interest without undue risk of principal. When selecting a specific
security, we strive to find a golden mean between the level of income, the
credit risk of the issuer, and the price volatility of the bond. Our portfolio
managers are supported by a fixed-income research team of experienced analysts.
As always, we continue to avoid bonds that are subject to the alternative
minimum tax for individuals.
During this uncertain period, like in any other, we encourage our members to be
diversified. You also should have an investment plan that meets your individual
goals, risk tolerance, and time horizon. Municipal bond prices may have risen,
but it is important to remember that the driver of long-term fixed-income
performance is the compounding interest of the bonds we hold.
Thank you for your trust in us. We appreciate the opportunity to serve your
investment needs.
Sincerely,
/S/ CHRISTOPHER W. CLAUS
Christopher W. Claus
President and Vice Chairman of the Board
USAA Mutual Funds Trust
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Diversification does not guarantee a profit or prevent a loss.
PRESIDENT'S MESSAGE | 3
MANAGER'S COMMENTARY ON THE FUND
REGINA SHAFER, CFA [PHOTO OF REGINA SHAFER]
USAA Investment Management Company
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o HOW DID THE USAA CALIFORNIA MONEY MARKET FUND (THE FUND) PERFORM FROM MARCH
31, 2009, TO SEPTEMBER 30, 2009?
The Fund performed well for the reporting period ended September 30, 2009.
During the reporting period, the Fund ranked 6 out of 162 state-specific tax
exempt money market funds, according to iMoneyNet, Inc. The Fund had a return
of 0.19%, compared to the average return of the category of 0.05%. The Fund
also ranked 3 out of 72 California tax-exempt money market funds, and
returned 0.19% where the category's average return was 0.05%. Rankings are
based on six-month net compound unannualized returns.
o WHAT WERE THE MARKET CONDITIONS?
To maintain liquidity in the markets, the Federal Reserve (the Fed) held the
federal funds target rate at a range between 0% and 0.25% throughout the
reporting period. The economy showed signs of improvement, suggesting the
worst of the recession might be over.
Yields on short-term tax-exempt securities dropped as demand overwhelmed
supply. Investors flocked to the safety of money
Refer to page 8 for benchmark definition.
Past performance is no guarantee of future results.
4 | USAA CALIFORNIA MONEY MARKET FUND
market funds, apparently content to remain on the sidelines until the
financial markets stabilized. Demand was strong for municipal variable-rate
demand notes (VRDNs). The Bond Buyer One-Year Note Index averaged 0.71%
during the reporting period. The SIFMA Municipal Swap Index, the index of
seven-day VRDNs, started the reporting period at 0.54% on March 31, 2009,
reaching a low of 0.27% on July 8, 2009, and ended the reporting period at
0.34%.
o WHAT ARE THE CONDITIONS IN THE STATE OF CALIFORNIA?
The recession continued to weigh on California's economy. Unemployment
spiked to over 12% during the course of the reporting period and the real
estate market remained sluggish. Despite declining revenues, lawmakers
successfully reached compromises that alleviated the state's immediate budget
pressures. Because of continuing budgetary pressures, California's general
obligation bonds were downgraded; at the end of the reporting period, they
were rated Baa1 by Moody's Investors Service, A by Standard & Poor's Rating
Services, and BBB by Fitch Ratings Ltd.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
To maintain the safety and liquidity of your Fund, we concentrated our
purchases in VRDNs. The VRDNs owned by the Fund possess a feature
guaranteeing the payment of both principal and interest. In addition, they
provide flexibility because they can be sold at par value (100% of face
value) with a notice of seven days or less. At the end of the reporting
period, the portfolio's weighted average maturity (WAM) was 13 days.
The Bond Buyer One-Year Note Index is based on estimated yields for
theoretical new one-year note issues from 10 state and local issuers:
California, Colorado, Idaho, Los Angeles County, Michigan, New Jersey, New
York City, Pennsylvania, Texas, and Wisconsin. The index is an unweighted
average of the average estimated bid-side yields for the 10 issues.
The Securities Industry and Financial Markets Association (SIFMA) Municipal
Swap Index, produced by Municipal Market Data, is a seven-day high-grade
market index comprised of tax-exempt variable-rate demand obligations from
Municipal Market Data's extensive database.
MANAGER'S COMMENTARY ON THE FUND | 5
As always, we relied on our seasoned team of credit analysts to evaluate and
monitor each of the Fund's holdings. Their hard work has enabled us to avoid
credit problems in our tax-exempt money market funds in one of most difficult
credit periods in decades.
o WHAT IS THE OUTLOOK?
We expect the Fed to continue supporting the U.S. economy and the credit
markets. With no immediate threat of inflation, we believe short-term rates
are likely to remain low until at least the middle of 2010. Once rate
increases begin, we believe they will be gradual with the shortest maturities
benefiting first.
We will continue to focus on maintaining the safety and liquidity of your
Fund, while striving to maximize the tax-exempt income you receive. To make
the Fund as tax efficient as possible, we also will continue to avoid issues
subject to the alternative minimum tax, also known as the AMT, for
individuals.
Thank you for the confidence you have placed in us.
6 | USAA CALIFORNIA MONEY MARKET FUND
INVESTMENT OVERVIEW
USAA CALIFORNIA MONEY MARKET FUND
(Ticker Symbol: UCAXX)
--------------------------------------------------------------------------------
9/30/09 3/31/09
--------------------------------------------------------------------------------
Net Assets $489.7 Million $659.4 Million
Net Asset Value Per Share $1.00 $1.00
Dollar-Weighted Average
Portfolio Maturity 13 Days 11 Days
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Dollar-weighted average portfolio maturity is obtained by multiplying the dollar
value of each investment by the number of days left to its maturity, then adding
those figures together and dividing them by the total dollar value of the Fund's
portfolio.
AVERAGE ANNUAL TOTAL RETURNS AND 7-DAY YIELD AS OF 9/30/09
3/31/09 to 9/30/09 1 Year 5 Years 10 Years 7-Day Yield
0.19%* 0.96% 2.23% 2.01% 0.19%
*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. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
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 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND.
Total return equals income return and assumes 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.
Yields and returns fluctuate. The seven-day yield quotation more closely
reflects current earnings of the Fund than the total return quotation.
INVESTMENT OVERVIEW | 7
o 7-DAY YIELD COMPARISON o
[CHART OF 7-DAY YIELD COMPARISON]
USAA CALIFORNIA
MONEY MARKET FUND IMONEYNET AVERAGE
9/29/2008 5.35% 4.75%
10/27/2008 2.50 1.50
11/24/2008 1.51 0.57
12/29/2008 1.61 0.61
1/26/2009 0.82 0.15
2/23/2009 0.86 0.21
3/30/2009 0.78 0.17
4/27/2009 0.73 0.17
5/26/2009 0.68 0.12
6/29/2009 0.41 0.06
7/27/2009 0.20 0.03
8/24/2009 0.17 0.03
9/28/2009 0.17 0.03
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[END CHART]
Data represent the last Monday of each month. Ending date 9/28/09.
The graph tracks the USAA California Money Market Fund's seven-day yield against
iMoneyNet, Inc. state-specific California institutional and retail state
tax-free and municipal money funds, an average of money market fund yields.
iMoneyNet, Inc. is an organization that tracks the performance of money market
funds.
Past performance is no guarantee of future results.
8 | USAA CALIFORNIA MONEY MARKET FUND
TOP 10 INDUSTRIES
AS OF 9/30/09
(% of Net Assets)
General Obligation ............................. 20.3%
Special Assessment/Tax/Fee ..................... 17.0%
Education ...................................... 13.9%
Appropriated Debt .............................. 13.8%
Hospital ....................................... 11.0%
Water/Sewer Utility ............................ 6.5%
Escrowed Bonds ................................. 5.3%
Electric/Gas Utilities ......................... 3.2%
Nursing/CCRC ................................... 3.2%
Real Estate Tax/Fee ............................ 2.2%
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You will find a complete list of securities that the Fund owns on pages 12-16.
INVESTMENT OVERVIEW | 9
o PORTFOLIO MIX -- 9/30/2009 o
[PIE CHART OF PORTFOLIO MIX]
VARIABLE-RATE DEMAND NOTES 99.9%
FIXED-RATE INSTRUMENTS 2.1%
PUT BONDS 1.1%
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[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
10 | USAA CALIFORNIA MONEY MARKET FUND
o CUMULATIVE PERFORMANCE OF $10,000 o
[CHART OF CUMULATIVE PERFORMANCE]
USAA CALIFORNIA
MONEY MARKET FUND
09/30/99 $10,000.00
10/31/99 10,022.19
11/30/99 10,049.63
12/31/99 10,076.54
01/31/00 10,099.67
02/29/00 10,120.23
03/31/00 10,145.02
04/30/00 10,169.66
05/31/00 10,206.08
06/30/00 10,235.55
07/31/00 10,264.89
08/31/00 10,294.33
09/30/00 10,321.54
10/31/00 10,352.41
11/30/00 10,384.63
12/31/00 10,413.00
01/31/01 10,437.00
02/28/01 10,459.55
03/31/01 10,480.86
04/30/01 10,511.43
05/31/01 10,538.78
06/30/01 10,560.74
07/31/01 10,583.39
08/31/01 10,601.90
09/30/01 10,618.25
10/31/01 10,637.22
11/30/01 10,652.51
12/31/01 10,663.92
01/31/02 10,674.19
02/28/02 10,683.96
03/31/02 10,694.19
04/30/02 10,705.24
05/31/02 10,717.83
06/30/02 10,727.07
07/31/02 10,737.04
08/31/02 10,747.97
09/30/02 10,758.07
10/31/02 10,770.82
11/30/02 10,782.42
12/31/02 10,791.73
01/31/03 10,799.82
02/28/03 10,807.20
03/31/03 10,815.19
04/30/03 10,823.59
05/31/03 10,832.68
06/30/03 10,838.79
07/31/03 10,843.14
08/31/03 10,847.72
09/30/03 10,852.73
10/31/03 10,858.59
11/30/03 10,864.30
12/31/03 10,870.55
01/31/04 10,875.58
02/29/04 10,879.98
03/31/04 10,884.73
04/30/04 10,890.60
05/31/04 10,896.10
06/30/04 10,901.54
07/31/04 10,907.35
08/31/04 10,913.83
09/30/04 10,922.26
10/31/04 10,933.51
11/30/04 10,944.13
12/31/04 10,956.06
01/31/05 10,967.24
02/28/05 10,979.41
03/31/05 10,992.79
04/30/05 11,011.07
05/31/05 11,032.41
06/30/05 11,049.90
07/31/05 11,066.97
08/31/05 11,085.35
09/30/05 11,105.42
10/31/05 11,124.67
11/30/05 11,146.68
12/31/05 11,173.14
01/31/06 11,195.50
02/28/06 11,218.20
03/31/06 11,244.89
04/30/06 11,270.16
05/31/06 11,299.11
06/30/06 11,330.48
07/31/06 11,358.17
08/31/06 11,387.29
09/30/06 11,416.69
10/31/06 11,444.72
11/30/06 11,473.56
12/31/06 11,505.83
01/31/07 11,533.76
02/28/07 11,561.48
03/31/07 11,592.88
04/30/07 11,622.95
05/31/07 11,656.23
06/30/07 11,688.16
07/31/07 11,718.46
08/31/07 11,753.90
09/30/07 11,783.11
10/31/07 11,814.09
11/30/07 11,845.56
12/31/07 11,875.90
01/31/08 11,902.08
02/29/08 11,924.72
03/31/08 11,951.68
04/30/08 11,973.24
05/31/08 11,996.26
06/30/08 12,012.51
07/31/08 12,028.77
08/31/08 12,047.87
09/30/08 12,079.94
10/31/08 12,116.52
11/30/08 12,132.13
12/31/08 12,147.80
01/31/09 12,157.28
02/28/09 12,164.83
03/31/09 12,172.77
04/30/09 12,179.90
05/31/09 12,187.05
06/30/09 12,191.26
07/31/09 12,193.25
08/31/09 12,195.11
09/30/09 12,196.28
[END CHART]
Data from 9/30/99 through 9/30/09.
|
The graph illustrates the performance of a hypothetical $10,000 investment in
the USAA California Money Market Fund.
Past performance is no guarantee of future results. The cumulative performance
quoted does not reflect the deduction of taxes that a shareholder would pay on
reinvested net investment income and realized capital gain distributions or on
the redemption of fund shares. Some income may be subject to federal, state, or
local taxes, or to the federal alternative minimum tax. For seven-day yield
information, please refer to the Fund's Investment Overview.
INVESTMENT OVERVIEW | 11
PORTFOLIO OF INVESTMENTS
September 30, 2009 (unaudited)
o CATEGORIES AND DEFINITIONS
VARIABLE-RATE DEMAND NOTES (VRDNs) -- provide the right to sell the security
at face value on either that day or within the rate-reset period. The
interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly,
or other specified time interval to reflect current market conditions. The
effective maturity of these instruments is deemed to be less than 397 days in
accordance with detailed regulatory requirements.
PUT BONDS -- provide the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the effective
maturity of the security.
FIXED-RATE INSTRUMENTS -- consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the
market price of a fixed-rate instrument generally varies inversely to the
movement of interest rates.
CREDIT ENHANCEMENTS -- add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the values of the securities.
The Fund's investments consist of securities meeting the requirements to
qualify at the time of purchase as "eligible securities" under the Securities
and Exchange Commission (SEC) rules applicable to money market funds. With
respect to quality, eligible securities generally consist of securities rated
in one of the two highest categories for short-term securities or, if not
rated, of comparable quality at the
12 | USAA CALIFORNIA MONEY MARKET FUND
time of purchase. USAA Investment Management Company (the Manager) also
attempts to minimize credit risk in the Fund through rigorous internal credit
research.
(INS) Principal and interest payments are insured by one of the following:
Assured Guaranty Corp., Berkshire Hathaway Assurance Corp., Financial
Security Assurance, Inc., or National Indemnity Co. Although bond
insurance reduces the risk of loss due to default by an issuer, such
bonds remain subject to the risk that value may fluctuate for other
reasons, and there is no assurance that the insurance company will
meet its obligations.
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from one of the
following: Bank of America, N.A., Citibank, N.A., Citigroup, Inc.,
Deutsche Bank A.G., Deutsche Postbank, Dexia Credit Local, JPMorgan
Chase & Co., JPMorgan Chase Bank, N.A., Merrill Lynch & Co., Inc.,
Morgan Stanley, Rabobank Nederland N.V., Societe Generale, SunTrust
Bank, Wachovia Bank, N.A., or Wells Fargo & Co.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
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(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages are guaranteed by a nonbank guarantee agreement
from Merrill Lynch & Co., Inc.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
CCD Community College District
SPEAR Short Puttable Exempt Adjustable Receipts
USD Unified School District
================================================================================
PORTFOLIO OF INVESTMENTS | 13
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INVESTMENTS
-------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (99.9%)
CALIFORNIA (91.3%)
$10,885 Anaheim Public Financing Auth. (INS)(LIQ)(a) 0.38% 4/01/2013 $ 10,885
1,705 Apple Valley (LOC - Union Bank of California, N.A.) 0.55 9/01/2015 1,705
12,000 Azusa USD (LIQ)(INS) 1.90 6/01/2029 12,000
11,050 Azusa USD (LIQ)(INS) 1.90 6/01/2038 11,050
4,950 Carlsbad USD (INS)(LIQ) 0.50 9/01/2030 4,950
2,570 Department of Water Resources (LIQ)(a) 0.45 6/01/2013 2,570
5,010 Dublin USD (INS)(LIQ)(a) 0.85 2/01/2012 5,010
18,000 Educational Facilities Auth.
(LOC - Allied Irish Banks plc) 0.45 10/01/2034 18,000
18,000 Educational Facilities Auth. (LIQ) 0.63 10/01/2040 18,000
20,000 Golden State Tobacco Securitization
Corp. (INS)(LIQ)(a) 0.43 6/01/2013 20,000
9,000 Golden State Tobacco Securitization
Corp. (LIQ)(NBGA)(a) 0.82 6/01/2047 9,000
4,500 Hanford (LOC - Union Bank of California, N.A.) 0.55 4/01/2023 4,500
5,700 Infrastructure and Economic Dev. Bank
(LOC - Allied Irish Banks plc) 0.55 10/01/2027 5,700
8,000 Infrastructure and Economic Dev. Bank
(LOC - Allied Irish Banks plc) 0.42 8/01/2037 8,000
15,000 Irvine Ranch Water District (LOC - Landesbank
Baden-Wurttemberg) 0.40 5/01/2037 15,000
18,000 Irvine USD Communities Facilities District (LIQ)
(LOC - State Street Bank and Trust Co.)(a) 1.00 3/01/2012 18,000
70 Livermore (LOC - Allied Irish Banks plc) 0.40 10/01/2030 70
7,540 Loma Linda (LOC - Union Bank of California, N.A.) 0.57 6/01/2025 7,540
14,000 Long Beach 0.35 10/01/2016 14,000
12,800 Los Angeles Municipal Improvement
Corp. (INS)(LIQ)(a) 0.43 1/01/2015 12,800
6,690 Montebello Public Financing Auth. (LOC -
Union Bank of California, N.A.) 0.57 12/01/2034 6,690
7,190 Municipal Finance Auth. (LOC - Allied Irish Banks plc) 0.45 5/01/2039 7,190
1,635 Perris Union High School District (LIQ)(INS) 2.00 9/01/2018 1,635
3,935 Perris Union High School District (LIQ)(INS) 2.00 9/01/2033 3,935
15,500 Pomona (LOC - HSH Nordbank A.G.) 0.42 1/01/2034 15,500
6,005 Redwood (LOC - KBC Bank, N.V.) 0.47 7/01/2021 6,005
1,625 San Diego County (LOC - Allied Irish Banks plc) 0.42 11/01/2034 1,625
15,000 San Diego USD (LIQ)(LOC - Dexia Credit Local)(a) 1.26 7/01/2028 15,000
10,750 San Marcos Public Facilities Auth. (INS)(LIQ)(a) 0.38 8/01/2015 10,750
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14 | USAA CALIFORNIA MONEY MARKET FUND
-------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 5,115 Selma Public Financing Auth.
(LOC - Allied Irish Banks plc) 0.55% 9/15/2022 $ 5,115
4,135 Southern California Public Power Auth.
(LOC - Lloyds TSB Bank plc) 0.45 7/01/2019 4,135
12,114 SPEAR (LIQ)(LOC - Deutsche Bank A.G.)(a) 0.42 8/01/2031 12,114
6,395 SPEAR (LIQ)(LOC - Deutsche Bank A.G.)(a) 0.42 8/01/2041 6,395
7,795 State (INS)(LIQ)(a) 0.50 9/01/2012 7,795
11,540 State (INS)(LIQ)(a) 0.43 12/01/2012 11,540
15,000 State (LIQ)(a) 0.38 12/01/2030 15,000
10,700 State (LIQ)(a) 0.38 12/01/2030 10,700
9,050 State (INS)(LIQ)(a) 0.50 8/01/2032 9,050
20,000 Statewide Communities Dev. Auth. (LIQ)
(LOC - Citigroup, Inc.)(a) 1.04 7/01/2012 20,000
3,200 Statewide Communities Dev. Auth.
(LOC - SunTrust Bank) 0.70 6/01/2013 3,200
4,210 Statewide Communities Dev. Auth. (LIQ)
(LOC - Citigroup, Inc.)(a) 1.25 6/01/2013 4,210
9,000 Statewide Communities Dev. Auth. (LIQ)(a) 0.65 7/01/2016 9,000
6,600 Statewide Communities Dev. Auth.
(LOC - SunTrust Bank) 0.80 4/01/2027 6,600
5,008 Statewide Communities Dev. Auth. (LIQ)
(LOC - Wells Fargo & Co.)(a) 0.34 7/01/2030 5,008
5,000 Statewide Communities Dev. Auth. (LIQ)
(LOC - Wells Fargo & Co.)(a) 0.34 10/01/2036 5,000
6,000 Statewide Communities Dev. Auth.
(LOC - City National Bank) 2.50 8/01/2037 6,000
7,000 Statewide Communities Dev. Auth. (LIQ)(NBGA)(a) 1.57 9/01/2038 7,000
3,000 Sweetwater Union High School District (INS)(LIQ)(a) 0.38 10/01/2016 3,000
2,200 Univ. of California Regents (LIQ)(a) 0.45 5/15/2030 2,200
2,500 Univ. of California Regents (LIQ)(a) 0.36 5/15/2029 2,500
5,000 Ventura County CCD (LIQ)(a) 0.50 8/01/2027 5,000
6,985 West Covina Public Financing Auth.
(LOC - Union Bank of California, N.A.) 0.57 5/01/2034 6,985
5,290 West Covina Public Financing Auth.
(LOC - Union Bank of California, N.A.) 0.57 5/01/2034 5,290
7,050 William S. Hart Union High School
District (LIQ)(LOC - Wells Fargo & Co.)(a) 0.36 9/01/2021 7,050
--------
446,997
--------
PUERTO RICO (8.6%)
2,600 Aqueduct and Sewer Auth. (INS)(LIQ)(a) 0.52 7/01/2039 2,600
7,300 Commonwealth (LIQ)(LOC - Bank of America, N.A.)(a) 0.80 7/01/2011 7,300
1,000 Electric Power Auth. (LIQ)(LOC - Dexia Credit Local)(a) 1.29 7/01/2033 1,000
|
PORTFOLIO OF INVESTMENTS | 15
-------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$17,300 Highway and Transportation Auth. (INS)(LIQ)(a) 0.95% 7/01/2041 $ 17,300
13,980 Highway and Transportation Auth. (LIQ)
(LOC - Dexia Credit Local)(a) 1.29 7/01/2041 13,980
--------
42,180
--------
Total Variable-Rate Demand Notes (cost: $489,177) 489,177
--------
PUT BONDS (1.1%)
PUERTO RICO (1.1%)
5,500 Industrial, Medical and Environmental Pollution
Control Facilities Financing Auth. (cost: $5,500) 2.00 3/01/2023 5,500
--------
FIXED-RATE INSTRUMENTS (2.1%)
CALIFORNIA (2.1%)
10,000 State (cost: $10,112) 3.00 5/25/2010 10,112
--------
TOTAL INVESTMENTS (COST: $504,789) $504,789
========
|
-------------------------------------------------------------------------------------------------------
($ 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
-------------------------------------------------------------------------------------------------------
Variable-Rate Demand Notes $- $489,177 $- $489,177
Put Bonds - 5,500 - 5,500
Fixed-Rate Instruments - 10,112 - 10,112
-------------------------------------------------------------------------------------------------------
TOTAL $- $504,789 $- $504,789
-------------------------------------------------------------------------------------------------------
|
16 | USAA CALIFORNIA MONEY MARKET FUND
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2009 (unaudited)
o GENERAL NOTES
Values of securities are determined by procedures and practices discussed in
Note 1 to the financial statements.
The cost of securities at September 30, 2009, for federal income tax
purposes, was approximately the same as that reported in the financial
statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o SPECIFIC NOTES
(a) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board of Trustees, unless otherwise noted as
illiquid.
See accompanying notes to financial statements.
NOTES TO PORTFOLIO OF INVESTMENTS | 17
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2009 (unaudited)
ASSETS
Investments in securities (amortized cost approximates market value) $504,789
Cash 48
Receivables:
Capital shares sold 798
Interest 556
Securities sold 5,017
--------
Total assets 511,208
--------
LIABILITIES
Payables:
Securities purchased 20,000
Capital shares redeemed 1,294
Dividends on capital shares 4
Accrued management fees 130
Accrued transfer agent's fees 16
Other accrued expenses and payables 43
--------
Total liabilities 21,487
--------
Net assets applicable to capital shares outstanding $489,721
========
NET ASSETS CONSIST OF:
Paid-in capital $489,600
Accumulated net realized gain on investments 121
--------
Net assets applicable to capital shares outstanding $489,721
========
Capital shares outstanding, unlimited number of shares
authorized, no par value 489,592
========
Net asset value, redemption price, and offering price per share $ 1.00
========
|
See accompanying notes to financial statements.
18 | USAA CALIFORNIA MONEY MARKET FUND
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2009 (unaudited)
INVESTMENT INCOME
Interest income $2,815
------
EXPENSES
Management fees 916
Administration and servicing fees 293
Transfer agent's fees 176
Custody and accounting fees 40
Postage 9
Shareholder reporting fees 14
Trustees' fees 5
Registration fees 1
Professional fees 42
Guarantee program fee (Note 1F) 119
Other 11
------
Total expenses 1,626
------
NET INVESTMENT INCOME $1,189
======
|
See accompanying notes to financial statements.
FINANCIAL STATEMENTS | 19
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended September 30, 2009 (unaudited), and year ended March 31,
2009
9/30/2009 3/31/2009
------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 1,189 $ 12,175
Net realized gain on investments - 151
------------------------
Increase in net assets resulting from operations 1,189 12,326
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,189) (12,175)
Net realized gains - (62)
------------------------
Distributions to shareholders (1,189) (12,237)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 143,072 629,915
Reinvested dividends 1,164 11,992
Cost of shares redeemed (313,868) (614,362)
------------------------
Increase (decrease) in net assets from capital
share transactions (169,632) 27,545
------------------------
Net increase (decrease) in net assets (169,632) 27,634
NET ASSETS
Beginning of period 659,353 631,719
------------------------
End of period $ 489,721 $ 659,353
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 143,072 629,915
Shares issued for dividends reinvested 1,164 11,992
Shares redeemed (313,868) (614,362)
------------------------
Increase (decrease) in shares outstanding (169,632) 27,545
========================
|
See accompanying notes to financial statements.
20 | USAA CALIFORNIA MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 (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 45 separate funds. The
information presented in this semiannual report pertains only to the USAA
California Money Market Fund (the Fund), which is classified as diversified
under the 1940 Act. The Fund's investment objective is to provide investors
with a high level of current interest income that is exempt from federal and
California state income taxes, with a further objective of preserving capital
and maintaining liquidity.
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. Pursuant to Rule 2a-7 under the 1940 Act, securities in the Fund are
valued at amortized cost, which approximates market value. This method
values a security at its cost on the date of purchase and, thereafter,
assumes a constant amortization to maturity of any premiums or
discounts.
2. Securities for which amortized cost valuations are considered unreliable
or whose values have been materially affected by a significant event are
valued in good faith at fair value, using methods determined by USAA
Investment Management Company (the Manager), an affiliate of the Fund,
under valuation procedures and procedures to stabilize net asset value
(NAV) approved by the Trust's Board of Trustees.
NOTES TO FINANCIAL STATEMENTS | 21
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For example, money market securities are valued using amortized cost, in
accordance with rules under the 1940 Act. Generally, amortized cost
approximates the current fair value of a security, but since the value is
not obtained from a quoted price in an active market, such securities are
reflected as Level 2.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its income to its shareholders.
Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the
22 | USAA CALIFORNIA MONEY MARKET FUND
respective securities using the straight-line method. The Fund concentrates
its investments in California tax-exempt securities and, therefore, may be
exposed to more credit risk than portfolios with a broader geographical
diversification.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -- Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments.
F. GUARANTEE PROGRAM -- Subject to certain terms and conditions, the U.S.
Department of the Treasury's Temporary Guarantee Program for Money Market
Funds (the Program) provided coverage to shareholders for amounts held in
participating money market funds as of the close of business on September
19, 2008, for the term of the Program of September 19, 2008, through
September 18, 2009 (Program Term). The Fund was responsible for payment of
fees required to continue its participation in the Program without regard
to any waivers or expense limitations in effect for the Fund. The
participation fee for the Program Term was 0.04% of the number of shares
outstanding of the Fund as of September 19, 2008. For the six-month period
ended September 30, 2009, the Fund recorded $119,000, as guarantee program
fee on the statement of operations. Effective September 18, 2009, the
Program has expired.
G. 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 September 30, 2009, these custodian and other bank credits
reduced the Fund's expenses by less than $500.
NOTES TO FINANCIAL STATEMENTS | 23
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.07% annually of the amount of the committed loan
agreement). The facility fees are allocated among the funds based on their
respective average net assets for the period.
For the six-month period ended September 30, 2009, the Fund paid CAPCO facility
fees of $2,000, which represents 1.8% 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 September 30, 2009.
24 | USAA CALIFORNIA MONEY MARKET FUND
(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 March 31, 2010,
in accordance with applicable tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties would be recognized by
the Fund as tax expense in the statement of operations if the tax positions were
deemed to not meet the more-likely-than-not threshold. For the six-month period
ended September 30, 2009, the Fund did not incur any income tax, interest, or
penalties. As of September 30, 2009, 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 years ended March 31, 2006, through March 31, 2009, remain
subject to examination by the Internal Revenue Service and state taxing
authorities. On an ongoing basis, the Manager will monitor its tax positions to
determine if adjustments to this conclusion are necessary.
(4) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager carries out the Fund's investment policies
and manages the Fund's portfolio pursuant to an Advisory Agreement. The
Fund's management fees are accrued daily and paid monthly as a percentage
of aggregate average net assets of the USAA California Bond and USAA
California Money Market funds combined, which on an annual basis is equal
to 0.50% of the first $50 million, 0.40% of that portion over $50 million
but not over $100 million, and 0.30% of that portion over $100 million.
These
NOTES TO FINANCIAL STATEMENTS | 25
fees are allocated on a proportional basis to each Fund monthly based upon
average net assets. For the six-month period ended September 30, 2009, the
Fund incurred total management fees, paid or payable to the Manager, of
$916,000, resulting in an effective annualized management fee of 0.31% of
the Fund's average net assets for the same period.
B. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid monthly at an
annualized rate of 0.10% of the Fund's average net assets. For the
six-month period ended September 30, 2009, the Fund incurred administration
and servicing fees, paid or payable to the Manager, of $293,000.
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 September 30, 2009, the Fund
reimbursed the Manager $15,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's
statement of operations.
C. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $25.50 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 September
30, 2009, the Fund incurred transfer agent's fees, paid or payable to SAS,
of $176,000.
D. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
26 | USAA CALIFORNIA MONEY MARKET FUND
(5) 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.
(6) SUBSEQUENT EVENTS
Events or transactions that occur after the balance sheet date but before the
financial statements are issued are categorized as recognized or non-recognized
for financial statement purposes. The Manager has evaluated subsequent events
through November 17, 2009, the date the financial statements were issued, and
has determined there were no events that required recognition or disclosure in
the Fund's financial statements. Subsequent events that will affect future
financial statements are as follows:
The Manager has voluntarily agreed, on a temporary basis, to reimburse
management, administrative, or other fees to limit the Fund's expenses in order
to distribute a minimum annualized daily yield of 0.01%. The Manager can modify
or terminate this arrangement at any time.
(7) NEW ACCOUNTING PRONOUNCEMENT
DERIVATIVES AND HEDGING -- In March 2008, the Financial Accounting
Standards Board issued 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. The accounting standard is
effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Manager has evaluated the
accounting standard, and due to the Fund's investment restrictions
pertaining to derivative instruments, has determined that there is no
impact on the Fund's financial statement disclosures.
NOTES TO FINANCIAL STATEMENTS | 27
(8) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------
2009 2009 2008 2007 2006 2005
----------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------------------
Income from
investment operations:
Net investment income .00(a) .02 .03 .03 .02 .01
Net realized gain - .00(a) .00(a) .00(a) - -
----------------------------------------------------------------------------------------
Total from investment
operations .00(a) .02 .03 .03 .02 .01
----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.00)(a) (.02) (.03) (.03) (.02) (.01)
Realized capital gains - (.00)(a) (.00)(a) - - -
----------------------------------------------------------------------------------------
Total distributions (.00)(a) (.02) (.03) (.03) (.02) (.01)
----------------------------------------------------------------------------------------
Net asset value at end
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================================================================
Total return (%)* .19 1.85 3.10 3.10(b) 2.28 .99
Net assets at end
of period (000) $489,721 $659,353 $631,719 $556,726 $510,915 $459,510
Ratios to average
net assets:**
Expenses (%)(d) .56(c) .51 .49 .50(b) .49 .50
Net investment
income (%) .41(c) 1.82 3.04 3.06 2.26 .99
* 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 iMoneyNet reported return.
** For the six-month period ended September 30, 2009, average net assets were $583,697,000.
(a) Represents less than $0.01 per share.
(b) For the year ended March 31, 2007, the Manager voluntarily reimbursed the Fund for excise tax
expense incurred. The reimbursement had no effect on the Fund's total return or ratio of expenses
to average net assets.
(c) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(d) Reflects total operating expenses of the Fund before reductions of any expenses paid indirectly.
The Fund's expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) (.00%)(+) (.00%)(+) (.01%) (.00%)(+)
+ Represents less than 0.01% of average net assets.
|
28 | USAA CALIFORNIA MONEY MARKET FUND
EXPENSE EXAMPLE
September 30, 2009 (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 April 1, 2009, through
September 30, 2009.
ACTUAL EXPENSES
The first line of the table on the next page provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Fund's
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this
EXPENSE EXAMPLE | 29
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 APRIL 1, 2009 -
APRIL 1, 2009 SEPTEMBER 30, 2009 SEPTEMBER 30, 2009
-----------------------------------------------------------
Actual $1,000.00 $1,001.90 $2.81
Hypothetical
(5% return before expenses) 1,000.00 1,011.13 2.84
|
* Expenses are equal to the Fund's annualized expense ratio of 0.56%, which is
net of any expenses paid indirectly, multiplied by the average account value
over the period, multiplied by 183 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 0.19% for the six-month period of April 1,
2009, through September 30, 2009.
30 | USAA CALIFORNIA MONEY MARKET FUND
ADVISORY AGREEMENT
September 30, 2009 (unaudited)
At a meeting of the Board of Trustees (the Board) held on April 16, 2009, 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.
In advance of the meeting, the Trustees received and considered a variety of
information relating to the Advisory Agreement and the Manager and were given
the opportunity to ask questions and request additional information from
management. The information provided to the Board included, among other things:
(i) a separate report prepared by an independent third party, which provided a
statistical analysis comparing the 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 operations
and personnel. Prior to voting, the Independent Trustees reviewed the proposed
continuation of the Advisory Agreement with management and with experienced
independent counsel and received materials from such counsel discussing the
legal standards for their consideration of the proposed continuation of the
Advisory Agreement with respect to the Fund. The Independent Trustees also
reviewed the proposed continuation of the Advisory Agreement with respect to the
Fund in private sessions with their counsel at which no representatives of
management were present. At each regularly scheduled meeting of the Board and
its committees, the Board receives and reviews, among other things, information
concerning the Fund's performance and related services provided by the Manager.
At the meeting at which the renewal of the Advisory Agreement is considered,
particular focus is given to information concerning Fund performance,
comparability of fees and total expenses,
ADVISORY AGREEMENT | 31
and profitability. However, the Board noted that the evaluation process with
respect to the Manager is an ongoing one. In this regard, the Board's and its
committees' consideration of the Advisory Agreement included 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 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 Manager's management style and the performance of its
duties under the Advisory Agreement. The Board considered the level and depth of
knowledge of the Manager, including the professional experience and
qualifications of its senior and investment personnel, as well as current
staffing levels. The allocation of the Fund's brokerage, including the Manager's
process for monitoring "best execution," also was considered. The Manager's role
in coordinating the activities of the
32 | USAA CALIFORNIA MONEY MARKET FUND
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 objective and classification,
sales load type (in this case, investment companies with no sales loads), asset
size, and expense components (the "expense group") and (ii) a larger group of
investment companies that includes the Fund and all other no-load retail
open-end investment companies in the same investment classification/objective as
the Fund regardless of asset size, excluding outliers (the "expense universe").
Among other data, the Board noted that the Fund's management fee rate -- which
includes advisory and administrative services -- was above the median of its
expense group and its expense universe. The data indicated that the Fund's total
expense ratio was the lowest of its expense group and below the median of 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 noted the level
and method of computing the management fee.
ADVISORY AGREEMENT | 33
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 California tax-exempt money market funds
regardless of asset size or primary channel of distribution. This comparison
indicated that the Fund's performance was above the average of its performance
universe and its Lipper index for the one-, three-, and five-year periods ended
December 31, 2008. The Board also noted that the Fund's percentile performance
ranking was in the top 20% of its performance universe for the same periods.
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. The Trustees reviewed the profitability of the Manager's relationship with
the Fund before tax expenses. In reviewing the overall profitability of the
management fee to the Manager, the Board also considered the fact that
affiliates provide shareholder servicing and administrative services to the Fund
for which they receive compensation. The Board also considered the possible
direct and indirect benefits to the Manager from its relationship with the
Trust, including that the Manager may derive reputational and other benefits
from its association with the Fund. The Board also took into account the high
quality of services received by the Fund from the Manager as well as the type of
fund. The Trustees recognized that the Manager should be entitled to earn a
reasonable level of profits in exchange for the level of services it provides to
the Fund and the entrepreneurial risk that it assumes as Manager.
34 | USAA CALIFORNIA MONEY MARKET FUND
ECONOMIES OF SCALE -- The Board noted that the Fund has advisory fee breakpoints
that allow the Fund to participate in economies of scale and that such economies
of scale currently were reflected in the advisory fee. The Board also noted that
the Fund's contractual management fee is below or comparable to the
asset-weighted average of funds up to $3 billion in its peer group as set forth
in the report prepared by the independent third party. The Board also considered
the effect of the Fund's growth and size on its performance and fees, noting
that the Fund may realize additional 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 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 is reasonable in light of the nature and high quality
of services provided by the Manager and the type of fund. 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.
ADVISORY AGREEMENT | 35
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.
--------------------------------------------------------------------------------
|
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.
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
At usaa.com click: MY DOCUMENTS
Set preferences to USAA DOCUMENTS ONLINE.
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=============================================================================
39602-1109 (C)2009, 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 September 30, 2009
By:* CHRISTOPHER P. LAIA
-----------------------------------------------------------
Signature and Title: Christopher P. Laia, Assistant Secretary
Date: NOVEMBER 20, 2009
------------------------------
|
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: NOVEMBER 23, 2009
------------------------------
By:* ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: NOVEMBER 23, 2009
------------------------------
|
*Print the name and title of each signing officer under his or her signature.
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