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 TAX EXEMPT SHORT-TERM FUND - SEMIANNUAL REPORT FOR PERIOD ENDED
SEPTEMBER 30, 2009
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TAX EXEMPT SHORT-TERM FUND]
SEMIANNUAL REPORT
USAA TAX EXEMPT SHORT-TERM FUND
SEPTEMBER 30, 2009
FUND OBJECTIVE
INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX.
TYPES OF INVESTMENTS
Invests primarily in investment-grade tax-exempt securities. The dollar-
weighted average portfolio maturity for the Fund is three years or less.
TABLE OF CONTENTS
PRESIDENT'S MESSAGE 2
MANAGERS' COMMENTARY 4
FUND RECOGNITION 7
INVESTMENT OVERVIEW 9
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 31
Financial Statements 33
Notes to Financial Statements 36
EXPENSE EXAMPLE 46
ADVISORY AGREEMENT 48
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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 TAX EXEMPT SHORT-TERM 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
|
Diversification does not guarantee a profit or prevent a loss.
PRESIDENT'S MESSAGE | 3
MANAGERS' COMMENTARY ON THE FUND
--------------------------------------------------------------------------------
[PHOTO OF CLIFF GLADSON] [PHOTO OF REGINA SHAFER]
CLIFF GLADSON, CFA REGINA SHAFER, CFA
USAA Investment USAA Investment
Management Company Management Company
--------------------------------------------------------------------------------
|
o HOW DID THE USAA TAX EXEMPT SHORT-TERM FUND (THE FUND) PERFORM FROM APRIL 1,
2009, TO SEPTEMBER 30, 2009?
The Fund provided a total return of 3.71% versus a return of 2.51% for the 69
funds in the Lipper Short Municipal Debt Funds Average. This compares to
returns of 2.53% for the Lipper Short Municipal Debt Funds Index and 9.38% for
the Barclays Capital Municipal Bond Index*. The Fund's tax-exempt
distributions over the prior 12 months produced a dividend yield of 3.89%,
compared to the Lipper category average of 3.04%.
o WHAT WERE THE MARKET CONDITIONS?
The Federal Reserve (the Fed) held the federal funds target rate at a range
between 0% and 0.25% throughout the reporting period. As the reporting period
progressed, the economy began to show signs of improvement in housing and
manufacturing, suggesting that the worst of the recession might be over.
Additionally, municipal credit quality remained stable as state and local
governments continued to exercise fiscal restraint in response to declining
tax revenues.
Refer to pages 12 and 13 for benchmark definitions.
Past performance is no guarantee of future results.
*Effective November 3, 2008, Barclays Capital combined the existing Lehman
Brothers and Barclays Capital indices into a single platform. Thus, the
Fund's benchmark, once known as the Lehman Brothers Municipal Bond Index, now
is called the Barclays Capital Municipal Bond Index.
4 | USAA TAX EXEMPT SHORT-TERM FUND
The tax-exempt bond market enjoyed a powerful rally, driven by strong demand
from individual and institutional investors. As prices rose, yields declined.
(Bond yields move in the opposite direction of prices.) With yields at
all-time lows in money market funds, demand for short-term municipal bonds
was especially heavy. The yield on a three-year AAA general obligation bond
dropped from 1.21% on April 1, 2009, to 0.98% on September 30, 2009.
o HOW DO YOU MANAGE VOLATILITY IN THE FUND'S PRICE?
We use variable rate demand notes (VRDNs) to seek to reduce share price
volatility and increase the Fund's dividend yield. The VRDNs that the Fund
owns possess a "demand" feature that allows the holder to sell the bond back
to the issuer at par (100% of the face value) with notice of seven days or
less. As a result, they give us the flexibility to respond quickly to changes
in interest rates.
o WHAT OTHER STRATEGIES DID YOU EMPLOY?
We were well positioned for the rally in the tax-exempt market. During the
flight to safety in late 2008, we were selective in choosing issues, focusing
only on those we considered creditworthy, including utilities, general
obligation, and special tax bonds. We also locked in higher yields while
interest rates were high and A- and BBB-rated investment grade municipal
bonds were selling at a discount. These higher yielding bonds helped to
enhance the Fund's returns.
As of the date of this commentary, your portfolio continues to be widely
diversified geographically and by economic sector among more than 175 issuers.
We do not rely on credit agencies or bond insurers to do our credit work. Our
experienced research team continues to analyze and monitor every bond in your
Fund, selecting those with coupons and structures that can contribute to the
Fund's dividend yield through an entire interest-rate cycle.
MANAGERS' COMMENTARY ON THE FUND | 5
To make the Fund as tax efficient as possible, we continue to avoid issues
subject to the alternative minimum tax for individuals.
o WHAT IS YOUR OUTLOOK?
The performance of the municipal bond market -- and your Fund -- has been
impressive during the last six months and we feel tax-exempt bonds continue to
offer relatively attractive yields. In fact, if federal income tax rates rise,
the tax-free income provided by your Fund should become even more valuable.
Because we do not believe inflation is an immediate threat, we expect the Fed
to keep rates between 0% and 0.25% until an economic recovery takes hold. Once
rate increases begin, we believe they will be gradual. In the meantime, we
plan to take advantage of opportunities to increase the Fund's tax-exempt
dividend return, which is the largest contributor to its long-term total
return (see page 10).
Thank you for your continued confidence in us.
6 | USAA TAX EXEMPT SHORT-TERM FUND
FUND RECOGNITION
USAA TAX EXEMPT SHORT-TERM FUND
OVERALL MORNINGSTAR RATING(TM)
out of 119 municipal national short-term bond funds
for the period ended September 30, 2009:
OVERALL RATING
* * * *
3-YEAR
* * * *
out of 119 funds
5-YEAR
* * * *
out of 117 funds
10-YEAR
* * *
out of 64 funds
The Overall Morningstar Rating for a fund is derived from a weighted average of
the performance figures associated with its three-, five-, and 10-year (if
applicable) Morningstar Rating metrics. Ratings are based on risk-adjusted
returns.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. For each fund with at least
a three-year history, Morningstar calculates a Morningstar Rating[TM] based on a
Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's
monthly performance (including the effects of sales charges, loads, and
redemption fees), placing more emphasis on downward variations and rewarding
consistent performance. The top 10% of the funds in each broad asset class
receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars,
the next 22.5% receive 2 stars, and the bottom 10% receive 1 star.
FUND RECOGNITION | 7
LIPPER LEADERS (OVERALL)
[5] [5]
TOTAL RETURN PRESERVATION
The Fund is listed as a Lipper Leader for Total Return among 53 funds within the
Lipper Short Municipal Debt Funds category and for Preservation among 4,023
fixed-income funds for the overall period ended September 30, 2009. The Fund
received a Lipper Leader rating for Total Return among 51 and 26 funds for the
five- and 10-year periods, respectively, and a score of 4 among 53 funds for the
3-year period. The Fund received a Lipper Leader rating for Preservation among
4,023, 3,566, and 2,397 fixed-income funds for the three-, five-, and 10-year
periods, respectively. Lipper ratings for Total Return reflect funds' historical
total return performance relative to peers as of September 30, 2009. Lipper
ratings for Preservation reflect funds' historical loss avoidance relative to
other funds within the same asset class, as of September 30, 2009. Preservation
ratings are relative, rather than absolute, measures, and funds named Lipper
Leaders for Preservation may still experience losses periodically; those losses
may be larger for equity and mixed equity funds than for fixed-income funds.
Ratings are subject to change every month and are based on an equal-weighted
average of percentile ranks for the Total Return and Preservation 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 2009, Reuters, All
Rights Reserved.
8 | USAA TAX EXEMPT SHORT-TERM FUND
INVESTMENT OVERVIEW
USAA TAX EXEMPT SHORT-TERM FUND (Ticker Symbol: USSTX)
--------------------------------------------------------------------------------
9/30/09 3/31/09
--------------------------------------------------------------------------------
Net Assets $1,532.5 Million $1,211.5 Million
Net Asset Value Per Share $10.58 $10.38
LAST 12 MONTHS
Tax-Exempt Dividends Per Share $0.412 $0.456
Capital Gain Distributions Per Share -- --
Dollar-Weighted Average
Portfolio Maturity 2.0 Years 2.3 Years
|
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.
--------------------------------------------------------------------------------
SIX-MONTH TOTAL RETURN 30-DAY SEC YIELD* EXPENSE RATIO(+)
--------------------------------------------------------------------------------
3/31/09 TO 9/30/09 AS OF 9/30/09 0.56%
3.71%** 2.51%
|
*Calculated as prescribed by the Securities and Exchange Commission.
**Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
(+)THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY, AS REPORTED IN THE FUND'S PROSPECTUS
DATED AUGUST 1, 2009, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS.
THIS EXPENSE RATIO MAY DIFFER FROM THE EXPENSE RATIO DISCLOSED IN THE FINANCIAL
HIGHLIGHTS.
Past performance is no guarantee of future results.
No adjustment has been made for taxes payable by shareholders on their
reinvested net investment income and realized capital gain distributions.
INVESTMENT OVERVIEW | 9
AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS -- PERIODS
ENDED SEPTEMBER 30, 2009
--------------------------------------------------------------------------------
TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
--------------------------------------------------------------------------------
10 YEARS 3.71% = 3.67% + 0.04%
5 YEARS 3.29% = 3.68% + (0.39)%
1 YEAR 5.53% = 4.09% + 1.44%
|
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.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS
ENDED SEPTEMBER 30, 2000-SEPTEMBER 30, 2009
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
------------ --------------- ---------------------
9/30/2000 4.51% 4.70% -0.19%
9/30/2001 6.89 4.51 2.38
9/30/2002 4.74 3.63 1.11
9/30/2003 2.97 2.97 0.00
9/30/2004 1.57 2.49 -0.92
9/30/2005 1.72 2.92 -1.20
9/30/2006 3.16 3.54 -0.38
9/30/2007 3.26 3.73 -0.47
9/30/2008 2.83 4.15 -1.32
9/30/2009 5.53 4.09 1.44
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[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND'S TOTAL RETURN OVER TIME.
WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE A RELATIVELY
STABLE COMPONENT OF TOTAL RETURNS.
Total return equals dividend return plus share price change and assumes
reinvestment of all net investment income and realized capital gain
distributions. Dividend return is the net investment income dividends received
over the period, assuming reinvestment of all dividends. Share price change is
the change in net asset value over the period adjusted for realized capital gain
distributions. The total returns quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles or the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares.
10 | USAA TAX EXEMPT SHORT-TERM FUND
TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund's dividend return for the periods ended 9/30/09, and assuming
marginal federal tax rates of: 25.00% 28.00% 33.00% 35.00%
A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN
--------------------------------------------------------------------------------
10 Years 3.67% 4.89% 5.10% 5.48% 5.65%
5 Years 3.68% 4.91% 5.11% 5.49% 5.66%
1 Year 4.09% 5.45% 5.68% 6.10% 6.29%
|
To match the Fund's closing 30-day SEC yield of 2.51% on 9/30/09,
A FULLY TAXABLE INVESTMENT MUST PAY: 3.35% 3.49% 3.75% 3.86%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
Some income may be subject to federal, state, or local taxes, or the federal
alternative minimum tax. Based on 2008 tax rates.
INVESTMENT OVERVIEW | 11
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER SHORT
BARCLAYS CAPITAL USAA TAX EXEMPT MUNICIPAL DEBT
MUNICIPAL BOND INDEX SHORT-TERM FUND FUNDS INDEX
-------------------- --------------- --------------
09/30/99 $10,000.00 $10,000.00 $10,000.00
10/31/99 9,891.66 9,996.57 10,006.62
11/30/99 9,996.87 10,046.02 10,041.38
12/31/99 9,922.34 10,046.30 10,045.43
01/31/00 9,879.13 10,037.29 10,052.16
02/29/00 9,993.95 10,084.29 10,086.57
03/31/00 10,212.30 10,151.47 10,134.61
04/30/00 10,151.97 10,158.92 10,148.40
05/31/00 10,099.16 10,174.27 10,165.31
06/30/00 10,366.77 10,283.01 10,241.74
07/31/00 10,511.02 10,361.90 10,302.56
08/31/00 10,673.01 10,431.90 10,359.40
09/30/00 10,617.48 10,451.19 10,383.39
10/31/00 10,733.34 10,503.60 10,428.77
11/30/00 10,814.54 10,544.20 10,464.69
12/31/00 11,081.75 10,652.22 10,541.64
01/31/01 11,191.55 10,763.30 10,632.06
02/28/01 11,227.04 10,802.65 10,667.71
03/31/01 11,327.65 10,860.61 10,721.28
04/30/01 11,204.91 10,841.12 10,730.35
05/31/01 11,325.57 10,921.52 10,800.56
06/30/01 11,401.34 10,980.10 10,843.05
07/31/01 11,570.22 11,061.15 10,902.81
08/31/01 11,760.81 11,149.07 10,973.45
09/30/01 11,721.36 11,171.39 10,999.02
10/31/01 11,861.01 11,229.61 11,048.55
11/30/01 11,761.02 11,203.49 11,038.35
12/31/01 11,649.76 11,195.15 11,046.50
01/31/02 11,851.83 11,270.48 11,108.87
02/28/02 11,994.61 11,346.06 11,163.75
03/31/02 11,759.56 11,252.68 11,100.85
04/30/02 11,989.40 11,370.14 11,182.65
05/31/02 12,062.25 11,405.98 11,219.33
06/30/02 12,189.80 11,478.73 11,275.00
07/31/02 12,346.57 11,553.49 11,328.78
08/31/02 12,494.99 11,619.49 11,371.53
09/30/02 12,768.66 11,702.98 11,418.99
10/31/02 12,556.99 11,627.88 11,365.59
11/30/02 12,504.80 11,649.78 11,391.36
12/31/02 12,768.66 11,755.49 11,474.28
01/31/03 12,736.31 11,775.17 11,499.25
02/28/03 12,914.37 11,858.20 11,558.23
03/31/03 12,922.09 11,864.58 11,550.61
04/30/03 13,007.47 11,893.61 11,575.84
05/31/03 13,312.04 11,989.12 11,642.30
06/30/03 13,255.47 11,993.59 11,652.84
07/31/03 12,791.62 11,887.71 11,604.46
08/31/03 12,887.02 11,925.73 11,631.44
09/30/03 13,265.91 12,050.12 11,707.74
10/31/03 13,199.11 12,043.68 11,701.33
11/30/03 13,336.67 12,078.35 11,718.95
12/31/03 13,447.10 12,104.63 11,735.24
01/31/04 13,524.13 12,141.01 11,767.35
02/29/04 13,727.66 12,220.46 11,812.00
03/31/04 13,679.86 12,188.79 11,798.35
04/30/04 13,355.88 12,092.18 11,737.07
05/31/04 13,307.45 12,071.27 11,722.01
06/30/04 13,355.88 12,084.83 11,733.64
07/31/04 13,531.65 12,144.02 11,777.90
08/31/04 13,802.81 12,224.73 11,843.26
09/30/04 13,876.09 12,239.14 11,851.67
10/31/04 13,995.49 12,266.15 11,875.11
11/30/04 13,880.05 12,236.28 11,845.34
12/31/04 14,049.56 12,288.07 11,888.84
01/31/05 14,180.86 12,302.73 11,890.14
02/28/05 14,133.68 12,296.76 11,889.34
03/31/05 14,044.55 12,279.92 11,885.40
04/30/05 14,266.03 12,323.59 11,912.68
05/31/05 14,366.86 12,355.71 11,940.19
06/30/05 14,455.99 12,399.31 11,983.43
07/31/05 14,390.66 12,396.41 11,986.29
08/31/05 14,535.95 12,440.34 12,021.67
09/30/05 14,438.04 12,451.91 12,038.21
10/31/05 14,350.37 12,448.01 12,038.43
11/30/05 14,419.25 12,469.47 12,058.58
12/31/05 14,543.25 12,506.24 12,096.37
01/31/06 14,582.50 12,538.86 12,128.50
02/28/06 14,680.40 12,573.53 12,155.31
03/31/06 14,579.16 12,576.99 12,158.76
04/30/06 14,574.15 12,588.21 12,176.87
05/31/06 14,639.07 12,626.69 12,219.33
06/30/06 14,583.96 12,644.07 12,225.74
07/31/06 14,757.43 12,704.73 12,274.98
08/31/06 14,976.41 12,779.90 12,338.83
09/30/06 15,080.58 12,844.11 12,386.40
10/31/06 15,175.14 12,881.76 12,417.96
11/30/06 15,301.64 12,932.39 12,457.31
12/31/06 15,247.58 12,949.54 12,473.69
01/31/07 15,208.54 12,949.07 12,484.02
02/28/07 15,408.94 13,024.26 12,540.32
03/31/07 15,370.95 13,053.00 12,567.85
04/30/07 15,416.46 13,091.59 12,600.02
05/31/07 15,348.20 13,082.60 12,618.59
06/30/07 15,268.66 13,088.30 12,616.36
07/31/07 15,387.02 13,139.59 12,661.28
08/31/07 15,320.64 13,159.96 12,678.09
09/30/07 15,547.34 13,261.30 12,740.29
10/31/07 15,616.65 13,291.29 12,773.49
11/30/07 15,716.22 13,361.35 12,813.62
12/31/07 15,759.85 13,379.39 12,852.79
01/31/08 15,958.58 13,562.69 12,987.09
02/29/08 15,227.96 13,418.70 12,833.97
03/31/08 15,663.20 13,552.74 12,881.85
04/30/08 15,846.48 13,573.54 12,907.13
05/31/08 15,942.30 13,622.27 12,959.79
06/30/08 15,762.36 13,604.01 12,937.78
07/31/08 15,822.27 13,678.96 13,009.27
08/31/08 16,007.43 13,781.08 13,071.27
09/30/08 15,256.76 13,636.41 12,961.20
10/31/08 15,101.03 13,548.90 12,919.12
11/30/08 15,149.05 13,596.11 12,969.42
12/31/08 15,369.90 13,556.56 12,976.05
01/31/09 15,932.49 13,845.88 13,145.30
02/28/09 16,016.20 13,854.04 13,141.84
03/31/09 16,019.12 13,875.41 13,177.47
04/30/09 16,339.13 13,962.26 13,237.12
05/31/09 16,511.98 14,046.19 13,291.03
06/30/09 16,357.29 14,074.20 13,316.82
07/31/09 16,630.97 14,172.15 13,388.00
08/31/09 16,915.29 14,248.69 13,422.09
09/30/09 17,522.33 14,390.28 13,511.34
|
[END CHART]
Data from 9/30/99 through 9/30/09.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Tax Exempt Short-Term Fund to the following benchmarks:
o The unmanaged, broad-based Barclays Capital Municipal Bond Index (the Index)
tracks total return performance for the long-term, investment-grade,
tax-exempt bond market. Before November 3, 2008, it was referred to as the
Lehman Brothers Municipal Bond Index. All tax-exempt bond funds will find it
difficult to outperform the Index because the Index does not reflect any
deduction for fees, expenses, or taxes.
o The unmanaged Lipper Short Municipal Debt Funds Index tracks the total return
performance of the 10 largest funds within the Lipper Short Municipal Debt
Funds category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
Indexes are unmanaged and you cannot invest directly in an index.
12 | USAA TAX EXEMPT SHORT-TERM FUND
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER SHORT
USAA TAX EXEMPT MUNICIPAL DEBT
SHORT-TERM FUND FUNDS AVERAGE
--------------- --------------
09/30/2000 4.61% 4.20%
09/30/2001 4.29 3.98
09/30/2002 3.48 2.99
09/30/2003 2.92 2.23
09/30/2004 2.49 2.02
09/30/2005 2.93 2.27
09/30/2006 3.48 2.80
09/30/2007 3.69 3.18
09/30/2008 4.18 3.23
09/30/2009 3.89 3.04
|
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data for
periods ending 9/30/00 to 9/30/09.
The Lipper Short Municipal Debt Funds Average is an average performance level of
all short-term municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
INVESTMENT OVERVIEW | 13
TOP 10 INDUSTRIES
AS OF 9/30/09
(% of Net Assets)
Hospital ....................................... 21.7%
Electric Utilities ............................. 17.2%
General Obligation ............................. 10.3%
Nursing/CCRC ................................... 7.6%
Special Assessment/Tax/Fee ..................... 4.9%
Community Service .............................. 4.8%
Sales Tax ...................................... 4.4%
Multifamily Housing ............................ 4.0%
Education ...................................... 3.3%
Multi-Utilities ................................ 2.9%
|
You will find a complete list of securities that the Fund owns on pages 16-30.
14 | USAA TAX EXEMPT SHORT-TERM FUND
o PORTFOLIO RATINGS MIX -- 9/30/2009 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 2%
AA 8%
A 23%
BBB 22%
BELOW INVESTMENT-GRADE 2%
SECURITIES WITH SHORT-TERM INVESTMENT-GRADE RATINGS 43%
|
[END CHART]
The four highest long-term credit ratings, in descending order of credit
quality, are AAA, AA, A, and BBB. These categories represent investment-grade
quality. This chart reflects the highest rating of either Moody's Investors
Service, Standard & Poor's Rating Services, Fitch Ratings Ltd., Dominion Bond
Rating Service Ltd., or A.M. Best Co., Inc., and includes any related credit
enhancements. If any of the Fund's securities are unrated by these agencies,
USAA Investment Management Company must determine the equivalent investment
quality.
Percentages are of the total market value of the Fund's investments.
INVESTMENT OVERVIEW | 17
PORTFOLIO OF INVESTMENTS
September 30, 2009 (unaudited)
o CATEGORIES AND DEFINITIONS
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.
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.
PERIODIC AUCTION RESET BONDS -- interest rates are reset periodically
through an auction mechanism. The bonds have the option to be
sold at face value at each interest rate reset date to the extent that
there are sufficient bids in the auction.
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. VRDNs will normally trade as if the maturity is the earlier
put date, even though stated maturity is longer.
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 market values
of the securities.
(INS) Principal and interest payments are insured by one of the
following: ACA Financial Guaranty Corp., AMBAC
16 | USAA TAX EXEMPT SHORT-TERM FUND
Assurance Corp., Financial Guaranty Insurance Co., Financial
Security Assurance, Inc., National Public Finance Guarantee Corp.,
Radian Asset Assurance, Inc., or XL Capital Assurance. 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 New York Mellon, Bayerische
Landesbank, Dexia Credit Local, JPMorgan Chase Bank, N.A.,
Landesbank Hessen-Thuringen, or Wachovia Bank, N.A.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages are guaranteed by a nonbank guarantee
agreement from one of the following: Continental Casualty Co.,
Dauphin County, Pennsylvania, Government National Mortgage
Association, Monumental Life Insurance Co., National Rural
Utilities Cooperative Finance Corp., or Texas Permanent School Fund.
|
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
ISD Independent School District
PRE Prerefunded to a date prior to maturity
USD Unified School District
PORTFOLIO OF INVESTMENTS | 17
INVESTMENTS
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (32.6%)
ALABAMA (0.7%)
$ 2,000 Mobile IDB 4.65% 12/01/2011 $ 2,023
1,165 Montgomery Medical Clinic Board 4.50 3/01/2012 1,172
1,265 Montgomery Medical Clinic Board 4.50 3/01/2013 1,266
1,200 Montgomery Medical Clinic Board 4.50 3/01/2014 1,191
2,480 Montgomery Medical Clinic Board 4.50 3/01/2015 2,424
2,595 Montgomery Medical Clinic Board 4.50 3/01/2016 2,506
----------
10,582
----------
ARIZONA (0.8%)
1,495 Health Facilities Auth. 4.00 4/01/2010 1,508
1,350 Health Facilities Auth. 4.00 4/01/2012 1,385
4,655 Mohave County IDA 6.75 5/01/2012 4,809
1,010 Pinal County Correctional Facilities IDA (INS) 5.00 10/01/2010 1,028
1,000 Pinal County Correctional Facilities IDA (INS) 5.25 10/01/2012 1,043
1,000 Pinal County Correctional Facilities IDA (INS) 5.25 10/01/2013 1,047
1,710 Pinal County Correctional Facilities IDA (INS) 5.25 10/01/2014 1,778
----------
12,598
----------
ARKANSAS (0.0%)
565 Springdale (INS)(PRE) 4.00 7/01/2016 576
----------
CALIFORNIA (2.9%)
5,000 Golden State Tobacco Securitization Corp. 5.00 6/01/2015 5,210
7,000 Golden State Tobacco Securitization Corp. 5.00 6/01/2016 7,269
3,000 Golden State Tobacco Securitization Corp. 5.00 6/01/2017 3,080
8,500 Municipal Finance Auth. 4.90 2/01/2039 8,542
2,000 Salinas USD (INS) 4.21(a) 6/01/2014 1,735
1,000 Salinas USD (INS) 4.21(a) 10/01/2014 857
560 Santa Rosa Rancheria Tachi Yokut Tribe(b) 4.50 3/01/2011 561
1,750 Santa Rosa Rancheria Tachi Yokut Tribe(b) 4.88 3/01/2016 1,549
15,000 State 3.00 5/25/2010 15,186
----------
43,989
----------
COLORADO (1.1%)
405 Beacon Point Metropolitan District
(LOC - Compass Bank) 4.38 12/01/2015 397
1,000 Denver Health and Hospital Auth. 5.00 12/01/2014 1,024
1,000 Denver Health and Hospital Auth. 5.00 12/01/2015 1,013
1,475 Denver Health and Hospital Auth. 5.00 12/01/2016 1,485
2,000 Health Facilities Auth. 5.00 6/01/2012 2,084
1,335 Health Facilities Auth. 5.00 6/01/2013 1,402
|
18 | USAA TAX EXEMPT SHORT-TERM FUND
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 2,000 Health Facilities Auth. 5.00% 6/01/2015 $ 2,090
1,890 Health Facilities Auth. 5.00 11/15/2015 2,062
110 Health Facilities Auth. (ETM) 5.00 11/15/2015 131
2,840 Health Facilities Auth. 5.00 11/15/2016 3,105
160 Health Facilities Auth. (ETM) 5.00 11/15/2016 191
2,000 High Plains Metropolitan District
(LOC - Compass Bank) 4.38 12/01/2015 1,945
----------
16,929
----------
DISTRICT OF COLUMBIA (0.2%)
4,095 Community Academy (INS) 4.50 5/01/2017 3,090
----------
FLORIDA (1.2%)
1,340 Clay County Dev. Auth. 3.95 3/01/2011 1,387
10,000 Hurricane Catastrophe Fund Finance Corp. 5.00 7/01/2014 10,884
3,700 Jacksonville Economic Dev. Commission 4.00 3/01/2011 3,831
2,000 Palm Beach County School Board (INS) 5.00 8/01/2015 2,254
----------
18,356
----------
GUAM (0.1%)
1,000 Education Financing Foundation 4.00 10/01/2013 995
760 Education Financing Foundation 5.00 10/01/2014 782
----------
1,777
----------
ILLINOIS (1.9%)
2,195 Chicago 6.13 12/01/2012 2,198
20,000 Chicago Board of Education (INS)(c) 4.50(a) 12/01/2009 19,947
880 Housing Dev. Auth. 4.15 1/01/2014 930
290 Housing Dev. Auth. 4.20 1/01/2014 307
805 Housing Dev. Auth. 4.15 7/01/2014 854
1,010 Housing Dev. Auth. 4.20 7/01/2015 1,068
560 Housing Dev. Auth. 4.30 1/01/2016 582
315 Housing Dev. Auth. 4.35 1/01/2016 328
3,098 Pingree Grove 5.25 3/01/2015 2,723
----------
28,937
----------
INDIANA (2.7%)
10,000 Finance Auth. 4.90 1/01/2016 10,572
2,060 Health and Educational Facility Auth. 5.00 2/15/2013 2,163
3,000 Health Facility Financing Auth. (INS) 5.00 11/01/2009 3,007
20,000 Jasper County (INS) 5.60 11/01/2016 21,967
3,750 Port Commission 4.10 5/01/2012 3,927
----------
41,636
----------
IOWA (0.7%)
10,000 Finance Auth. (INS) 5.00 7/01/2014 10,746
----------
|
PORTFOLIO OF INVESTMENTS | 19
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
KANSAS (0.8%)
$ 2,000 La Cygne (INS) 4.05% 3/01/2015 $ 2,126
9,375 Wyandotte County 4.75 12/01/2016 9,808
----------
11,934
----------
MARYLAND (0.8%)
10,000 Anne Arundel County 4.10 7/01/2014 10,128
1,410 Health and Higher Education Facilities Auth.,
acquired 3/05/2003, cost $1,410(d) 5.00 2/01/2013 1,472
----------
11,600
----------
MICHIGAN (1.6%)
7,500 Detroit 5.00 3/01/2010 7,508
4,950 Dickinson County EDC 5.75 6/01/2016 5,043
1,000 Hospital Finance Auth. 5.00 11/15/2014 1,051
1,000 Hospital Finance Auth. 5.00 11/15/2015 1,040
8,000 Municipal Bond Auth. 6.00 1/20/2010 8,055
1,300 Wayne County (INS) 5.63 5/01/2011 1,352
----------
24,049
----------
MINNESOTA (0.2%)
1,000 Higher Education Facilities Auth. 4.00 4/01/2015 1,069
250 St. Paul Housing and Redevelopment Auth. 5.00 5/15/2013 259
250 St. Paul Housing and Redevelopment Auth. 5.00 5/15/2014 258
250 St. Paul Housing and Redevelopment Auth. 5.00 5/15/2015 257
300 St. Paul Housing and Redevelopment Auth. 5.00 5/15/2016 306
325 St. Paul Housing and Redevelopment Auth. 5.25 5/15/2017 334
----------
2,483
----------
MISSISSIPPI (0.7%)
1,500 Hospital Equipment and Facilities Auth. 5.00 8/15/2013 1,556
2,280 Hospital Equipment and Facilities Auth. 5.00 8/15/2014 2,364
4,330 Hospital Equipment and Facilities Auth. 5.00 12/01/2014 4,431
1,000 Hospital Equipment and Facilities Auth. 5.00 8/15/2015 1,029
2,000 Hospital Equipment and Facilities Auth. 5.00 8/15/2016 2,049
----------
11,429
----------
MISSOURI (1.3%)
1,135 Cape Girardeau County IDA 5.00 6/01/2014 1,172
1,000 Cape Girardeau County IDA 5.00 6/01/2017 1,014
6,000 Environmental Improvement and Energy
Resources Auth. 4.00 1/02/2012 6,071
2,440 Fenton 4.10 4/01/2010 2,460
1,200 Fenton 5.00 4/01/2011 1,238
1,750 Fenton 5.00 4/01/2012 1,830
|
20 | USAA TAX EXEMPT SHORT-TERM FUND
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 1,055 Joint Municipal Electric Utility Commission (INS) 5.00% 1/01/2015 $ 1,123
5,500 Riverside IDA (INS) 4.50 5/01/2016 5,667
----------
20,575
----------
NEW JERSEY (2.0%)
10,000 Bayonne 5.88 10/23/2009 10,017
9,745 Tobacco Settlement Financing Corp. 5.00 6/01/2014 10,198
9,640 Transit Corp. 5.75 9/15/2014 10,569
----------
30,784
----------
NEW MEXICO (0.3%)
1,050 Jicarilla Apache Nation(b) 5.00 9/01/2011 1,095
1,620 Jicarilla Apache Nation(b) 5.00 9/01/2013 1,742
2,120 Sandoval County 4.00 6/01/2015 2,251
----------
5,088
----------
NEW YORK (2.9%)
1,000 Albany IDA 5.50 11/15/2012 1,058
1,000 Albany IDA 5.50 11/15/2013 1,066
3,500 Albany IDA 4.25 11/15/2014 3,549
2,410 Albany IDA 5.00 11/15/2015 2,505
1,000 Dormitory Auth. 5.00 7/01/2013 1,040
3,710 Dormitory Auth. 5.00 7/01/2013 3,864
3,010 Dormitory Auth. 5.00 7/01/2014 3,130
3,000 Dormitory Auth. 6.00 7/01/2014 3,089
3,145 Dormitory Auth. 5.00 7/01/2015 3,249
4,095 Dormitory Auth. 5.00 7/01/2015 4,242
2,000 Dormitory Auth. 4.00 8/15/2015 2,167
720 Dormitory Auth. 4.00 2/15/2016 765
3,295 Dormitory Auth. 5.00 7/01/2016 3,399
2,890 East Rochester Housing Auth. (NBGA) 3.75 12/20/2012 3,013
2,500 Seneca Nation Indians Capital
Improvements Auth.(b) 5.25 12/01/2016 2,360
4,660 Suffolk County IDA 4.30 11/01/2011 4,726
450 Ulster County IDA (LOC - Manufacturers &
Traders Trust Co.) 5.20 11/15/2009 452
----------
43,674
----------
NORTH CAROLINA (0.3%)
2,000 Eastern Municipal Power Agency(e) 5.00 1/01/2016 2,191
2,100 Medical Care Commission 4.38 7/01/2017 1,980
----------
4,171
----------
OHIO (1.0%)
7,500 American Municipal Power - Ohio, Inc. 5.00 2/01/2010 7,584
4,500 Buckeye Tobacco Settlement Financing Auth. 5.00 6/01/2015 4,689
|
PORTFOLIO OF INVESTMENTS | 21
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 1,240 Miami County 5.25% 5/15/2011 $ 1,279
1,865 Miami County 5.25 5/15/2012 1,945
----------
15,497
----------
OKLAHOMA (0.4%)
730 Cherokee Nation (INS)(b) 4.10 12/01/2011 747
2,150 Cherokee Nation (INS)(b) 4.30 12/01/2016 2,162
1,685 Norman Regional Hospital Auth. (INS) 5.00 9/01/2011 1,698
1,000 Norman Regional Hospital Auth. (INS) 5.00 9/01/2013 1,005
1,090 Norman Regional Hospital Auth. (INS) 5.00 9/01/2014 1,078
----------
6,690
----------
PENNSYLVANIA (0.9%)
1,000 Allegheny County Hospital Dev. Auth. 5.00 11/15/2009 1,001
9,750 Harrisburg Auth. (NBGA)(b) 4.50(a) 12/15/2010 9,241
1,500 Montgomery County IDA 5.00 11/15/2016 1,529
2,000 Montgomery County IDA 5.00 11/15/2017 2,029
----------
13,800
----------
SOUTH CAROLINA (1.9%)
13,000 Berkeley County 4.88 10/01/2014 13,771
2,125 Georgetown County 5.13 2/01/2012 2,154
3,000 Jobs EDA (INS) 4.05 4/01/2013 3,002
1,000 Lexington County Health Services District, Inc. 5.00 11/01/2014 1,087
4,000 Richland County 4.60 9/01/2012 4,045
1,485 SCAGO Educational Facilities Corp. (INS) 4.00 12/01/2016 1,458
3,720 Tobacco Settlement Revenue Management Auth. 5.00 6/01/2018 3,721
----------
29,238
----------
TEXAS (3.6%)
315 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2011 321
3,000 Dallas Fort Worth International Airport 5.00 11/01/2016 3,388
1,335 Gregg County Health Facilities Dev. Corp. 5.00 10/01/2015 1,366
2,105 Gregg County Health Facilities Dev. Corp. 5.00 10/01/2016 2,143
190 Hidalgo County Health Services Corp. 5.00 8/15/2010 193
655 Lewisville (INS) 5.00 9/01/2010 664
4,000 Lewisville ISD (NBGA) 4.01(a) 8/15/2010 3,976
3,000 Lewisville ISD (NBGA) 4.07(a) 8/15/2011 2,948
500 Midlothian Dev. Auth. (INS) 5.00 11/15/2011 517
760 Midlothian Dev. Auth. (INS) 5.00 11/15/2012 794
535 Midlothian Dev. Auth. (INS) 5.00 11/15/2013 561
560 Midlothian Dev. Auth. (INS) 5.00 11/15/2014 583
390 Midlothian Dev. Auth. (INS) 5.00 11/15/2015 404
1,220 Northwest ISD (NBGA) 4.01(a) 2/15/2013 1,158
1,000 Northwest ISD (NBGA) 4.07(a) 2/15/2014 920
1,000 San Leanna Education Facilities Corp. 5.00 6/01/2013 1,061
|
22 | USAA TAX EXEMPT SHORT-TERM FUND
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 1,585 San Leanna Education Facilities Corp. 5.00% 6/01/2017 $ 1,681
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 5/15/2011 1,019
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.25 11/15/2011 1,009
1,155 Tarrant County Cultural Education Facilities
Finance Corp. 5.25 11/15/2012 1,167
1,220 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2013 1,267
1,100 Tarrant County Cultural Education Facilities
Finance Corp. 5.25 11/15/2013 1,110
1,265 Tarrant County Cultural Education Facilities
Finance Corp. 5.25 11/15/2014 1,278
1,470 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 5/15/2015 1,494
1,250 Tarrant County Cultural Education Facilities
Finance Corp. 5.75 11/15/2015 1,306
1,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.00 11/15/2017 1,022
3,635 Titus County 4.50 7/01/2011 3,731
2,810 Tyler Health Facilities Dev. Corp. 5.00 11/01/2013 2,950
4,575 Tyler Health Facilities Dev. Corp. 5.00 11/01/2014 4,814
3,360 Tyler Health Facilities Dev. Corp. 5.00 11/01/2015 3,499
6,155 Tyler Health Facilities Dev. Corp. 5.25 11/01/2016 6,484
----------
54,828
----------
VIRGINIA (1.6%)
18,665 Chesapeake Port Facility IDA(c) 3.90 3/01/2013 19,510
5,655 Marquis Community Dev. Auth. 5.10 9/01/2013 5,129
----------
24,639
----------
Total Fixed-Rate Instruments (cost: $490,977) 499,695
----------
PUT BONDS (25.1%)
ALABAMA (0.9%)
5,000 Chatom IDB (NBGA) 4.00 8/01/2037 5,002
8,000 East Alabama Health Care Auth. 5.00 9/01/2033 8,277
----------
13,279
----------
ARIZONA (1.0%)
15,000 Navajo County 5.50 6/01/2034 15,537
----------
CALIFORNIA (1.5%)
245 Health Facilities Financing Auth. (PRE) 4.45 7/01/2026 261
2,755 Health Facilities Financing Auth. 4.45 7/01/2026 2,851
|
PORTFOLIO OF INVESTMENTS | 23
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 5,000 Statewide Communities Dev. Auth. (INS) 4.10% 4/01/2028 $ 5,151
5,775 Statewide Communities Dev. Auth. 3.85 11/01/2029 5,926
8,500 Statewide Communities Dev. Auth. 3.45 4/01/2035 8,633
----------
22,822
----------
COLORADO (0.5%)
8,000 E-470 Public Highway Auth. (INS) 5.00 9/01/2039 8,257
----------
CONNECTICUT (0.1%)
1,000 Dev. Auth. 5.75 6/01/2026 1,056
----------
FLORIDA (1.9%)
7,500 Highlands County Health Facilities Auth. 5.00 11/15/2029 7,537
5,000 Highlands County Health Facilities Auth. 3.95 11/15/2032 5,162
7,610 Hillsborough County (INS) 5.00 12/01/2034 7,921
6,075 Miami Dade County Health Facilities Auth. (INS) 4.55 8/01/2046 6,321
2,500 Miami-Dade County IDA(e) 2.75 10/01/2018 2,500
----------
29,441
----------
ILLINOIS (2.3%)
8,000 Dev. Finance Auth. 3.75 2/01/2033 8,027
1,250 Educational Facilities Auth. 4.13 3/01/2030 1,299
1,250 Educational Facilities Auth. 4.13 3/01/2030 1,293
12,000 Educational Facilities Auth. 3.65 3/01/2034 12,117
10,000 Educational Facilities Auth. 4.45 3/01/2034 10,623
1,900 Educational Facilities Auth. 3.90 11/01/2036 1,933
----------
35,292
----------
KENTUCKY (0.7%)
10,000 Louisville/Jefferson County 5.38 5/01/2027 10,420
----------
LOUISIANA (2.0%)
10,000 Offshore Terminal Auth. 4.30 10/01/2037 10,189
10,000 Public Facilities Auth. 7.00 12/01/2038 10,757
10,000 West Baton Rouge Industrial District No. 3 3.00 12/01/2016 10,000
----------
30,946
----------
MASSACHUSETTS (0.7%)
10,000 Health and Educational Facilities Auth. 4.13 10/01/2037 10,304
----------
MICHIGAN (1.9%)
10,000 Hospital Finance Auth. 5.50 12/01/2034 11,110
8,000 Strategic Fund Ltd. 5.25 8/01/2029 8,407
10,000 Strategic Fund Ltd. (INS) 4.85 9/01/2030 10,192
----------
29,709
----------
|
24 | USAA TAX EXEMPT SHORT-TERM FUND
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
MISSOURI (0.3%)
$ 4,000 Bi-State Dev. Agency (LOC - JPMorgan
Chase Bank, N.A.) 3.95% 10/01/2035 $ 4,000
----------
NEVADA (0.3%)
4,835 Clark County 5.45 3/01/2038 5,002
----------
NEW MEXICO (0.4%)
6,500 Farmington (INS) 4.00 6/01/2032 6,505
----------
NEW YORK (0.7%)
1,885 Amherst IDA (INS) 4.20 10/01/2031 1,930
1,095 Brookhaven IDA (LOC - North Fork Bank) 4.25 11/01/2037 1,095
7,000 Hempstead 5.00 12/01/2010 6,984
----------
10,009
----------
OHIO (0.9%)
10,000 Air Quality Dev. Auth. 4.75 8/01/2029 10,216
4,000 Air Quality Dev. Auth. 3.88 12/01/2038 4,090
----------
14,306
----------
PENNSYLVANIA (0.5%)
4,000 EDA 3.60 9/01/2013 4,011
3,100 EDA 5.00 12/01/2042 3,267
----------
7,278
----------
TENNESSEE (0.2%)
2,200 Lewisburg IDB 5.00 7/01/2012 2,209
----------
TEXAS (3.7%)
17,500 Matagorda County Navigation District No. 1 5.13 6/01/2030 17,885
12,000 North Texas Tollway Auth. 5.75 1/01/2038 12,992
15,000 North Texas Tollway Auth. 5.00 1/01/2042 15,870
9,590 Northside ISD (NBGA)(c) 4.10 6/01/2035 10,191
----------
56,938
----------
VIRGINIA (0.9%)
8,000 Louisa IDA 5.38 11/01/2035 8,773
5,300 Peninsula Ports Auth. 5.00 10/01/2033 5,420
----------
14,193
----------
WEST VIRGINIA (0.5%)
7,000 EDA 4.85 5/01/2019 7,310
----------
WISCONSIN (1.2%)
10,000 Health and Educational Facilities Auth. 4.75 8/15/2025 10,110
8,500 Health and Educational Facilities Auth. 5.13 8/15/2027 8,779
----------
18,889
----------
|
PORTFOLIO OF INVESTMENTS | 25
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
WYOMING (2.0%)
$15,000 Lincoln County 3.40% 1/01/2016 $ 15,076
14,000 Sweetwater County 3.90 12/01/2014 14,825
----------
29,901
----------
Total Put Bonds (cost: $371,916) 383,603
----------
PERIODIC AUCTION RESET BONDS (1.1%)
ARIZONA (0.3%)
11,500 Maricopa County IDA, acquired 6/08/2006,
cost $11,500(d),(f) 0.56 1/01/2039 4,600
----------
CALIFORNIA (0.5%)
7,650 Statewide Communities Dev. Auth., acquired
8/03/2005-8/08/2007, cost $7,650 (INS)(d) 0.73 5/15/2029 7,650
----------
OKLAHOMA (0.3%)
12,000 Tulsa County Industrial Auth., acquired
7/20/2006 & 9/27/2006, cost $12,000(d),(f) 0.62 1/01/2039 4,800
----------
Total Periodic Auction Reset Bonds (cost: $31,150) 17,050
----------
VARIABLE-RATE DEMAND NOTES (40.7%)
CALIFORNIA (4.9%)
15,000 Economic Recovery (LIQ) 1.00 7/01/2023 15,000
25,000 Economic Recovery (LIQ) 1.00 7/01/2023 25,000
2,000 San Diego USD (LIQ)(LOC - Dexia Credit Local)(b) 1.26 7/01/2028 2,000
18,820 State (LIQ)(LOC - Dexia Credit Local)(b) 2.00 8/01/2032 18,820
14,860 State (LOC - DEPFA Bank plc) 1.50 5/01/2040 14,860
----------
75,680
----------
COLORADO (0.5%)
7,250 Educational and Cultural Facilities Auth.
(LOC - Regions Bank) 2.00 7/01/2031 7,250
----------
FLORIDA (2.3%)
8,000 Highlands County Health Facilities Auth.
(LOC - SunTrust Bank) 1.20 11/15/2025 8,000
13,000 Highlands County Health Facilities Auth.
(LOC - SunTrust Bank) 0.95 11/15/2034 13,000
7,015 Highlands County Health Facilities Auth.
(LOC - SunTrust Bank) 1.09 11/15/2035 7,015
7,500 Sarasota County (LOC - SunTrust Bank) 0.85 8/01/2030 7,500
----------
35,515
----------
|
26 | USAA TAX EXEMPT SHORT-TERM FUND
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
GEORGIA (0.3%)
$ 4,000 La Grange Dev. Auth. 6.75% 10/01/2012 $ 4,000
----------
IDAHO (1.3%)
19,885 American Falls Reservoir District 3.47 2/01/2025 19,885
----------
ILLINOIS (1.6%)
14,620 Regional Transportation Auth. (LIQ)
(LOC - Dexia Credit Local)(b) 1.30 7/01/2029 14,620
10,000 State (LIQ)(LOC - Dexia Credit Local)(b) 1.30 11/01/2026 10,000
----------
24,620
----------
INDIANA (1.0%)
15,000 Tipton (LOC - Fifth Third Bank) 1.75 6/01/2031 15,000
----------
LOUISIANA (3.4%)
13,865 Lafayette (LIQ)(b) 3.28 11/01/2028 13,865
15,380 Local Government Environmental Facilities
and Community Dev. Auth. (LOC - Regions Bank) 1.60 4/01/2035 15,380
7,500 Public Facilities Auth. (LOC - Regions Bank) 1.60 2/01/2033 7,500
16,000 Public Facilities Auth. (LOC - Regions Bank) 1.60 3/01/2040 16,000
----------
52,745
----------
MARYLAND (1.9%)
15,000 Health and Higher Educational Facilities Auth.
(LOC - Citizens Bank of Pennsylvania) 1.50 7/01/2040 15,000
15,000 Montgomery County (NBGA)(b) 2.40 11/01/2020 15,000
----------
30,000
----------
MASSACHUSETTS (0.5%)
7,170 Dev. Finance Agency (LOC - RBS Citizens, N.A.) 1.60 12/01/2035 7,170
----------
MICHIGAN (0.3%)
4,200 Detroit EDC (LOC - RBS Citizens, N.A.) 1.65 6/01/2012 4,200
----------
NEW JERSEY (1.1%)
16,360 EDA (LIQ)(b) 1.28 9/01/2022 16,360
----------
NEW YORK (3.4%)
8,805 Onondaga County IDA (LOC - Key Bank, N.A.) 1.90 7/01/2033 8,805
2,000 Ontario County IDA (LOC - RBS Citizens, N.A.) 1.50 10/01/2040 2,000
11,465 Orange County IDA (LOC - Key Bank, N.A.) 2.15 7/01/2032 11,465
16,350 State Energy Research and Dev. Auth. (INS)
(LOC - Wachovia Bank, N.A.) 0.70 8/01/2015 16,350
14,000 Tompkins County IDA (LOC - RBS Citizens, N.A.) 1.50 1/01/2038 14,000
----------
52,620
----------
|
PORTFOLIO OF INVESTMENTS | 27
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
NORTH CAROLINA (1.0%)
$15,000 Charlotte-Mecklenberg Hospital Auth. (LIQ) 2.50% 1/15/2037 $ 15,000
----------
OHIO (3.1%)
3,530 Franklin County Health Care Facilities
(LOC - Fifth Third Bank) 1.75 8/01/2020 3,530
2,120 Franklin County Health Care Facilities
(LOC - Fifth Third Bank) 1.75 8/01/2035 2,120
10,200 Franklin County Health Care Facilities
(LOC - Fifth Third Bank) 1.75 8/01/2035 10,200
15,000 Middleburg Heights Hospital
(LOC - Fifth Third Bank) 1.60 8/15/2022 15,000
16,560 Sandusky County Hospital Facilities
(LOC - Fifth Third Bank) 1.75 2/01/2030 16,560
----------
47,410
----------
OREGON (0.5%)
8,010 Health, Housing, Educational and Cutural
Facilities Auth. (LOC - Key Bank, N.A.) 1.30 3/01/2033 8,010
----------
PENNSYLVANIA (4.8%)
9,100 Berks County IDA (NBGA) 5.10 7/01/2016 9,100
6,000 Delaware County Auth. (LOC - Citizens
Bank of Pennsylvania) 1.14 4/01/2030 6,000
9,070 Grove City Area Hospital Auth.
(LOC - Fifth Third Bank) 1.75 12/01/2029 9,070
20,000 Lackawanna County (LIQ)(INS) 1.10 9/01/2035 20,000
19,300 Langhorne Manor (LOC - Citizens
Bank of Pennsylvania) 1.65 10/01/2032 19,300
10,000 Schuylkill County IDA 4.32 4/01/2021 10,000
----------
73,470
----------
RHODE ISLAND (1.3%)
4,165 EDC (LOC - RBS Citizens, N.A.) 1.90 10/01/2034 4,165
3,800 Health and Educational Building Corp.
(LOC - RBS Citizens, N.A.) 0.60 4/01/2036 3,800
12,600 Health and Educational Building Corp.
(LOC - RBS Citizens, N.A.) 1.75 2/01/2038 12,600
----------
20,565
----------
SOUTH DAKOTA (0.7%)
10,400 Grant County 3.25 12/01/2012 10,400
----------
TENNESSEE (1.1%)
2,000 Cookeville Regional Medical Center Auth.
(LOC - Regions Bank) 1.60 3/01/2036 2,000
|
28 | USAA TAX EXEMPT SHORT-TERM FUND
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 8,000 Johnson City Health and Educational
Facilities Board (LOC - Regions Bank) 2.50% 7/01/2038 $ 8,000
7,000 Knox County Health, Educational and
Housing Facilities Board (LOC - Regions Bank) 3.00 10/01/2026 7,000
----------
17,000
----------
TEXAS (0.7%)
10,300 Red River Auth. (INS)(LIQ) 8.50 7/01/2016 10,300
----------
VIRGINIA (1.7%)
8,200 Chesapeake Hospital Auth. (LOC - SunTrust Bank) 0.85 7/01/2031 8,200
5,500 Fairfax County EDA (LOC - SunTrust Bank) 0.85 6/01/2037 5,500
13,000 Harrisonburg IDA (LOC - SunTrust Bank) 0.95 12/01/2021 13,000
----------
26,700
----------
WASHINGTON (2.2%)
15,000 Health Care Facilities Auth. (LOC - Key Bank, N.A.) 1.00 7/01/2030 15,000
18,910 Housing Finance Commission
(LOC - HSH Nordbank A.G.) 0.50 3/01/2036 18,910
----------
33,910
----------
WISCONSIN (1.1%)
16,360 Milwaukee Metropolitan Sewer District (LIQ)(b) 1.30 10/01/2022 16,360
----------
Total Variable-Rate Demand Notes (cost: $624,170) 624,170
----------
TOTAL INVESTMENTS (COST: $1,518,213) $1,524,518
==========
|
PORTFOLIO OF INVESTMENTS | 29
----------------------------------------------------------------------------------------------
($ 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
----------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $ 499,695 $ - $ 499,695
Put Bonds - 383,603 - 383,603
Periodic Auction Reset Bonds - 7,650 9,400 17,050
Variable-Rate Demand Notes - 624,170 - 624,170
----------------------------------------------------------------------------------------------
Total $- $1,515,118 $9,400 $1,524,518
----------------------------------------------------------------------------------------------
|
Reconciliation of assets in which significant unobservable inputs (Level 3) were
used in determining value:
----------------------------------------------------------------------------------------------
PERIODIC AUCTION
RESET BONDS
----------------------------------------------------------------------------------------------
Balance as of March 31, 2009 $ -
Net realized gain (loss) -
Change in net unrealized appreciation/depreciation (14,100)
Net purchases (sales) -
Transfers in and/or out of Level 3 23,500
----------------------------------------------------------------------------------------------
Balance as of September 30, 2009 $ 9,400
----------------------------------------------------------------------------------------------
|
30 | USAA TAX EXEMPT SHORT-TERM FUND
NOTES TO PORTFOLIO OF INVESTMENTS
September 30, 2009 (unaudited)
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o SPECIFIC NOTES
(a) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(b) 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 USAA Investment Management
Company (the Manager) under liquidity guidelines approved by the Board of
Trustees, unless otherwise noted as illiquid.
(c) At September 30, 2009, portions of these securities were segregated to
cover delayed-delivery and/or when-issued purchases.
(d) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board of Trustees. The aggregate market value
NOTES TO PORTFOLIO OF INVESTMENTS | 31
of these securities at September 30, 2009, was $18,522,000, which
represented 1.2% of the Fund's net assets.
(e) At September 30, 2009, the aggregate market value of securities purchased
on a delayed-delivery basis was $4,691,000, which included when-issued
securities of $2,191,000.
(f) Security was fair valued at September 30, 2009, by the Manager in
accordance with valuation procedures approved by the Board of Trustees.
See accompanying notes to financial statements.
32 | USAA TAX EXEMPT SHORT-TERM FUND
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
September 30, 2009 (unaudited)
ASSETS
Investments in securities, at market value (cost of $1,518,213) $1,524,518
Cash 1
Receivables:
Capital shares sold 2,438
Interest 12,701
----------
Total assets 1,539,658
----------
LIABILITIES
Payables:
Securities purchased 4,660
Capital shares redeemed 1,413
Dividends on capital shares 624
Accrued management fees 391
Accrued transfer agent's fees 11
Other accrued expenses and payables 17
----------
Total liabilities 7,116
----------
Net assets applicable to capital shares outstanding $1,532,542
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,530,075
Accumulated net realized loss on investments (3,838)
Net unrealized appreciation of investments 6,305
----------
Net assets applicable to capital shares outstanding $1,532,542
==========
Capital shares outstanding, unlimited number of shares
authorized, no par value 144,855
==========
Net asset value, redemption price, and offering price per share $ 10.58
==========
|
See accompanying notes to financial statements.
FINANCIAL STATEMENTS | 33
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended September 30, 2009 (unaudited)
INVESTMENT INCOME
Interest income $27,319
-------
EXPENSES
Management fees 2,151
Administration and servicing fees 1,006
Transfer agent's fees 298
Custody and accounting fees 94
Postage 13
Shareholder reporting fees 10
Trustees' fees 5
Registration fees 36
Professional fees 48
Other 12
-------
Total expenses 3,673
-------
NET INVESTMENT INCOME 23,646
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Unaffiliated transactions (26)
Affiliated transactions (Note 7) 3
Change in net unrealized appreciation/depreciation 26,403
-------
Net realized and unrealized gain 26,380
-------
Increase in net assets resulting from operations $50,026
=======
|
See accompanying notes to financial statements.
34 | USAA TAX EXEMPT SHORT-TERM FUND
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 $ 23,646 $ 48,149
Net realized loss on investments (23) (481)
Change in net unrealized appreciation/depreciation of
investments 26,403 (22,409)
-------------------------
Increase in net assets resulting from operations 50,026 25,259
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (23,118) (48,118)
-------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 405,379 471,416
Reinvested dividends 18,732 38,093
Cost of shares redeemed (129,937) (295,695)
-------------------------
Increase in net assets from capital share transactions 294,174 213,814
-------------------------
Net increase in net assets 321,082 190,955
NET ASSETS
Beginning of period 1,211,460 1,020,505
-------------------------
End of period $1,532,542 $1,211,460
=========================
Accumulated undistributed net investment income:
End of period $ - $ (528)
=========================
CHANGE IN SHARES OUTSTANDING
Shares sold 38,737 45,097
Shares issued for dividends reinvested 1,789 3,650
Shares redeemed (12,427) (28,350)
-------------------------
Increase in shares outstanding 28,099 20,397
=========================
|
See accompanying notes to financial statements.
FINANCIAL STATEMENTS | 35
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 Tax
Exempt Short-Term Fund (the Fund), which is classified as diversified under the
1940 Act. The Fund's investment objective is to provide investors with interest
income that is exempt from federal income tax.
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. 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 tax-exempt securities of comparable quality, coupon,
maturity, and type; indications as to values from dealers in
securities; and general market conditions.
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
36 | USAA TAX EXEMPT SHORT-TERM FUND
3. 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 USAA Investment Management Company (the Manager),
an affiliate of the Fund, 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.
NOTES TO FINANCIAL STATEMENTS | 37
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 the securities valued using significant unobservable inputs, the
Manager determined the market quotations from the pricing services were not
determinative of fair value. As such, the securities were valued in good
faith using methods determined by the Manager, under valuation procedures
approved by the Trust's Board of Trustees. These unobservable inputs
included risk premium adjustments reflecting the amount the Manager assumed
market participants would demand because of the risk (uncertainty) in the
cash flows from the securities and other information related to the
securities such as credit quality and coupon rates. Refer to the portfolio
of investments for a reconciliation of investments in which significant
unobservable inputs (Level 3) were used in determining value.
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 respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities.
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,
38 | USAA TAX EXEMPT SHORT-TERM FUND
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. The purchase of securities on a
delayed-delivery or when-issued basis may increase the volatility of the
Fund's NAV to the extent that the Fund makes such purchases while remaining
substantially fully invested. As of September 30, 2009, the Fund's
outstanding delayed-delivery commitments, including interest purchased,
were $4,660,000; of which $2,160,000 were when-issued securities.
F. 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.
G. 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.
H. 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.
I. SUBSEQUENT EVENTS -- Subsequent events are events or transactions that
occur after the balance sheet date but before the financial statements are
issued and are categorized as recognized or non-recognized for financial
statement purposes. The Fund has evaluated subsequent events through
November 17, 2009, the date the financial
NOTES TO FINANCIAL STATEMENTS | 39
statements were issued, and has determined there were no events that
required recognition or disclosure in the Fund's 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 $4,000, which represents 3.5% 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.
(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. At March 31, 2009,
the Fund had capital loss carryovers of $3,639,000, for federal income tax
purposes, which, if not offset by subsequent capital gains, will expire between
2012 and 2016, as shown
40 | USAA TAX EXEMPT SHORT-TERM FUND
below. 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
----------- ----------
2012 $ 11,000
2013 941,000
2014 265,000
2015 2,326,000
2016 96,000
----------
Total $3,639,000
==========
|
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties would be recognized by
the Fund as tax expense in the statement of operations if the tax positions were
deemed to not meet the more-likely-than-not threshold. For the 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) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended September 30, 2009, were
$119,500,000 and $55,461,000, respectively.
As of September 30, 2009, the cost of securities, including short-term
securities, for federal income tax purposes, was approximately the same as that
reported in the financial statements.
NOTES TO FINANCIAL STATEMENTS | 41
Gross unrealized appreciation and depreciation of investments as of September
30, 2009, were $23,677,000 and $17,372,000, respectively, resulting in net
unrealized appreciation of $6,305,000.
(5) 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
investment management fee for the Fund is composed of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.28% of the Fund's average net assets for
the fiscal year.
The performance adjustment is calculated monthly by comparing the Fund's
performance to that of the Lipper Short Municipal Debt Funds Index over the
performance period. The Lipper Short Municipal Debt Funds Index tracks the
total return performance of the 10 largest funds in the Lipper Short
Municipal Debt Funds category. The performance period for the Fund consists
of the current month plus the previous 35 months. The following table is
utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
---------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
|
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest 0.01%. Average net assets
are calculated over a rolling 36-month period.
The annual performance adjustment rate is multiplied by the average net
assets of the Fund over the entire performance period, which is then
multiplied by a fraction, the numerator of which is the number of days in
the month and the denominator of which is 365 (366 in leap years). The
resulting amount is the performance adjustment; a positive adjustment in
the case of overperformance, or a negative adjustment in the case of
underperformance.
42 | USAA TAX EXEMPT SHORT-TERM FUND
Under the performance fee arrangement, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Short Municipal Debt Funds Index over that period,
even if the Fund had overall negative returns during the performance period.
For the six-month period ended September 30, 2009, the Fund incurred
incurred total management fees, paid or payable to the Manager, of
$2,151,000, which included a 0.04% performance adjustment of $274,000.
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 0.15% 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 $1,006,000.
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 $30,000 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 $298,000.
NOTES TO FINANCIAL STATEMENTS | 43
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.
(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.
(7) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended September 30, 2009, in accordance with
affiliated transaction procedures approved by the Trust's Board of Trustees,
purchases and sales of security transactions were executed between the Fund and
the following affiliated USAA fund at the then-current market price with no
brokerage commissions incurred.
COST TO NET REALIZED
SELLER PURCHASER PURCHASER GAIN TO SELLER
-------------------------------------------------------------------------------
USAA Tax Exempt USAA Tax Exempt
Short-Term Fund Intermediate-Term Fund $18,473,000 $ 3,000
USAA Tax Exempt USAA Tax Exempt
Intermediate-Term Fund Short-Term Fund 11,354,000 354,000
|
(8) 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 Fund adopted the
accounting standard on April 1, 2009; however, the Fund did not invest in
any derivatives during the period from April 1, 2009, through September 30,
2009. Therefore, no disclosures have been made.
44 | USAA TAX EXEMPT SHORT-TERM FUND
(9) 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 $ 10.38 $ 10.59 $ 10.60 $ 10.59 $ 10.68 $ 10.88
-----------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .45 .41 .39 .34 .28
Net realized and
unrealized gain (loss) .19 (.20) (.01) .01 (.09) (.20)
-----------------------------------------------------------------------------------------
Total from investment
operations .38 .25 .40 .40 .25 .08
-----------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.18) (.46) (.41) (.39) (.34) (.28)
-----------------------------------------------------------------------------------------
Net asset value at end
of period $ 10.58 $ 10.38 $ 10.59 $ 10.60 $ 10.59 $ 10.68
=========================================================================================
Total return (%)* 3.71 2.38 3.84 3.79 2.40 .75
Net assets at end
of period (000) $1,532,542 $1,211,460 $1,020,505 $1,066,679 $1,160,117 $1,282,834
Ratios to average
net assets:**
Expenses (%)(a) .55(b) .56 .55 .55 .56 .55
Net investment
income (%) 3.52(b) 4.36 3.86 3.64 3.22 2.60
Portfolio turnover (%) 7 24 26 35 24 8
* 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 September 30, 2009, average net assets were $1,339,365,000.
(a) 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%)(+) (.01%) (.00%)(+) (.01%) (.00%)(+)
+ Represents less than 0.01% of average net assets.
(b) Annualized. The ratio is not necessarily indicative of 12 months of operations.
|
NOTES TO FINANCIAL STATEMENTS | 45
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
46 | USAA TAX EXEMPT SHORT-TERM FUND
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 APRIL 1, 2009 -
APRIL 1, 2009 SEPTEMBER 30, 2009 SEPTEMBER 30, 2009
------------------------------------------------------------
Actual $1,000.00 $1,037.10 $2.81
Hypothetical
(5% return before expenses) 1,000.00 1,022.31 2.79
|
* Expenses are equal to the Fund's annualized expense ratio of 0.55%, 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 3.71% for the six-month period of April 1,
2009, through September 30, 2009.
EXPENSE EXAMPLE | 47
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
48 | USAA TAX EXEMPT SHORT-TERM FUND
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 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,"
ADVISORY AGREEMENT | 49
also was considered. The Manager's role in coordinating the activities of the
Fund's other service providers also was considered. The Board considered the
Manager's financial condition and that it had the financial wherewithal to
continue to provide the same scope and high quality of services under the
Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on
the experience, resources, and strengths of the Manager and its affiliates in
managing investment companies, including the Fund.
The Board also reviewed the compliance and administrative services provided to
the Fund by the Manager 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, investment companies with no sales loads or
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 performance adjustment -- was above the median
of its expense group and its expense universe. The data indicated that the
Fund's total expense ratio was above the median 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
high quality of services provided
50 | USAA TAX EXEMPT SHORT-TERM FUND
by the Manager. The Board also noted the level and method of computing the
management fee, including the performance adjustment to such fee.
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 approval 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 the same
classification/objective as the Fund 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 bottom 50% of its
performance universe for the one-and three-year periods ended December 31,
2008, and in the top 40% of its performance universe for the five-year period
ended December 31, 2008. The Board took into account management's discussion of
the Fund's performance, including its more recent improved performance, and any
actions taken with respect to the Fund.
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
ADVISORY AGREEMENT | 51
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. The Trustees
recognized that the Manager should be entitled to earn a reasonable level of
profits in exchange for the level of services it provides to the Fund and the
entrepreneurial risk that it assumes as Manager.
ECONOMIES OF SCALE -- The Board considered whether there should be changes in
the management fee rate or structure in order to enable the Fund to participate
in any economies of scale. The Board also noted that the Fund's contractual
management fee is below or comparable to the asset-weighted average of funds at
all asset levels in its peer group as set forth in the report prepared by the
independent third party. The Board also took into account management's
discussion of the current advisory fee structure. 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 the 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.
52 | USAA TAX EXEMPT SHORT-TERM FUND
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.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
39592-1109 (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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