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: MAY 31,
Date of reporting period: NOVEMBER 30, 2009
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED NOVEMBER 30, 2009
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA BALANCED STRATEGY FUND]
=========================================
SEMIANNUAL REPORT
USAA BALANCED STRATEGY FUND
NOVEMBER 30, 2009
=========================================
================================================================================
<PAGE>
================================================================================
FUND OBJECTIVE
HIGH TOTAL RETURN, WITH REDUCED RISK OVER TIME, THROUGH AN ASSET ALLOCATION
STRATEGY THAT SEEKS A COMBINATION OF LONG-TERM GROWTH OF CAPITAL AND CURRENT
INCOME.
--------------------------------------------------------------------------------
TYPES OF INVESTMENTS
Using preset target ranges, the Fund's strategy is to invest its assets in a
combination of stocks on the one hand and bonds and money market instruments on
the other. The Fund also may use alternative investment strategies from time to
time, in an attempt to reduce the Fund's volatility over time, including an
equity hedging strategy and a global tactical asset allocation overlay strategy.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Investment Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
================================================================================
<PAGE>
================================================================================
TABLE OF CONTENTS
--------------------------------------------------------------------------------
PRESIDENT'S MESSAGE 2
MANAGERS' COMMENTARY 4
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Portfolio of Investments 13
Notes to Portfolio of Investments 39
Financial Statements 44
Notes to Financial Statements 47
EXPENSE EXAMPLE 66
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2010, USAA. All rights reserved.
================================================================================
<PAGE>
================================================================================
PRESIDENT'S MESSAGE
"IN MY OPINION, THOSE WHO WERE DIVERSIFIED
WEATHERED THE STORM BETTER THAN THOSE [PHOTO OF DANIEL S. McNAMARA]
WHO WERE AGGRESSIVELY POSITIONED."
--------------------------------------------------------------------------------
DECEMBER 2009
As we head into 2010, I wish you a healthy and prosperous new year. I am
honored to be the new president of the USAA Investment Management Company, an
organization with a rich history of service and accomplishment.
At the time of this writing, the financial markets appear to be back on track --
an excellent time, in my opinion, to take stock of the past year. At the
beginning of 2009, stocks seemed priced for extinction. In the fixed income
market, credit spreads (or, the difference in bond yields) had widened to record
levels as investors fled to the safety of U.S. Treasury securities. The U.S.
economy was in a deep recession. Home prices continued to fall and unemployment
steadily increased, leading to a sharp decline in consumer spending.
In March 2009, however, world stock prices reversed course. For example, the S&P
500 Index rose 64% between the market bottom on March 6, 2009, and November 30,
2009. The fixed income market experienced record price appreciation, and the
prices of oil and other commodities such as gold and precious metals increased.
The dollar weakened, making U.S. goods and services less expensive to buyers
around the world. Meanwhile, the federal government's fiscal stimulus spending,
including its "cash for clunkers" program, seemed to help stabilize the economy.
In the third quarter, the U.S. gross domestic product grew at 2.2%.
================================================================================
2 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
I believe the worst of the crisis appears to be over. Nevertheless, risk
remains. And no one knows exactly what will happen next. This makes it an
opportune time for all of us to take stock of our investment portfolios.
Looking back at the market decline, many investors were not appropriately
positioned relative to their risk tolerance. In my opinion, those who were
diversified weathered the storm better than those who were aggressively
positioned.
With this in mind, I have undertaken a review of my own investment portfolio.
Like a medical exam helps me to take care of my physical health, a portfolio
checkup helps me to monitor my financial health. The process gives me the
opportunity to reflect on my goals, re-evaluate my risk tolerance, consider
changes in my investment strategy, and reposition my portfolio accordingly. I
urge you to do the same. Our trained service representatives are standing ready
to assist you -- free of charge.
At USAA Investment Management Company, we stand ready to help you with your
investment needs. We continue to offer what we consider an excellent value --
some of the industry's top investment talent, first-class service, and no-load
mutual funds. On behalf of all us, thank you for your business and the trust you
have placed in us.
Sincerely,
/s/ DANIEL S. MCNAMARA
Daniel S. McNamara
President
USAA Investment Management Company
Diversification does not guarantee a profit or prevent a loss. o Mutual fund
operating expenses apply and continue throughout the life of the Fund. o Past
performance is no guarantee of future results.
================================================================================
PRESIDENT'S MESSAGE | 3
<PAGE>
================================================================================
MANAGERS' COMMENTARY ON THE FUND
USAA Investment Management Company* Deutsche Investment Management
Americas Inc.
ARNOLD J. ESPE, CFA
Bonds and Money Market Instruments JAMES B. FRANCIS, CFA
Stocks
JOHN P. TOOHEY, CFA
WASIF A. LATIF Credit Suisse Securities (USA), LLC***
Stocks Volaris Volatility Management Group
Deutsche Investment Management YIRONG LI, CFA
Americas Inc.** DEFINA MALUKI, CFA
Index Options
ROBERT WANG
--------------------------------------------------------------------------------
o HOW DID THE USAA BALANCED STRATEGY FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the six-month period ended November 30, 2009, the Fund had a total
return of 22.29%. This compares to a total return of 15.42% for the Lipper
Balanced Funds Index, 20.17% for the Russell 3000 Index, and 6.21% for the
Barclays Capital U.S. Aggregate Bond Index.
Deutsche Investment Management Americas Inc. (DIMA) manages the U.S. stock
portion of the Fund, using a quantitative approach to active stock
selection. At times the asset allocation decisions of
Refer to page 10 for benchmark definitions.
Past performance is no guarantee of future results.
*Effective July 17, 2009, Ron Sweet no longer is a co-manager of the Fund.
**Effective August 1, 2009, Julie Abbett no longer is a co-manager of the
Fund.
***Effective June 30, 2009, Laura B. Friedman no longer is a co-manager of
the Fund.
================================================================================
4 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
USAA Investment Management Company (IMCO) resulted in cash flows into and
out of the U.S. stocks portfolio; DIMA invested in these cash flows
consistent with its quantitative approach. Credit Suisse Securities (USA)
LLC's Volaris Volatility Management Group (Volaris Group) manages a strategy
that involves selling index call or corresponding exchange-traded fund (ETF)
options and purchasing index put or corresponding ETF options or put spread
options against a highly correlated stock portfolio in an attempt to reduce
the Fund's volatility. This strategy is also referred to as an "equity
hedging strategy."
o WHAT LED TO THE FUND'S STRONG PERFORMANCE DURING THE REPORTING PERIOD?
Most instrumental was the outstanding absolute and relative performance of
the U.S. bond portion of the Fund. DIMA implemented our U.S. stock market
allocation using a diversified, quantitative approach to stock selection.
DIMA's stock selection had a mildly negative impact on performance. We also
continued to use the Volaris Group's equity hedging strategy, putting S&P
500(R) and Russell 2000 Index collars on a portion of the Fund. These
collars effectively limit the Fund's downside (and upside) potential and
give us the flexibility to quickly change the Fund's risk profile. In the
rapidly rising stock markets of the reporting period, use of these collars
had a negative impact on performance. However, in light of the strong rally
since March 2009, and arguably extended valuations, the collars remained in
place. The Fund continued to have roughly 8% of assets invested in
international developed markets within the Morgan Stanley Capital
International-Europe, Australasia and Far East Index (the MSCI-EAFE
Index(R)) through an exchange-traded fund for diversification purposes. This
holding had a mildly negative impact on performance because these markets
slightly underperformed the U.S. market.
Index collars are generally employed to protect unrealized profits from the
portfolio being protected, and the index option class chosen will generally
have an underlying index that most closely tracks the performance of the
portfolio. While losses may be limited so are potential gains.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 5
<PAGE>
================================================================================
o PLEASE DISCUSS THE PERFORMANCE OF THE FUND'S U.S. BOND PORTION.
The U.S. bond portion had a total return of 31.85%, compared to 9.88% for
the Lipper Intermediate Investment Grade Debt Funds Average. This superb
performance, both absolute and relative, reflected a continuation of trends
that started to take hold in March 2009, when bonds with any credit risk at
all were trading at what we believed to be extremely oversold levels. We
maintained and added to our positions back then when there was virtually no
confidence in the credit markets, and subsequently have benefited as the
markets rapidly normalized and many investors re-embraced risk.
As the rally has continued, we have taken some profits by trimming oversized
positions, selling bonds that approached our estimate of fair value. We have
done well with investment-grade corporate bonds, commercial mortgage-backed
securities, asset-backed securities and subordinated financial debt, and are
still finding some value in these areas. We have reduced our position in
real estate investment trusts given their strong run-up, and are
diversifying by seeking out new issuers.
o ARE YOU CONCERNED ABOUT INFLATION IN THE U.S. BOND PORTION?
We are concerned about inflation longer term because of the huge amount of
U.S. government spending and monetary stimulus. However, the immediate
problem the Federal Reserve Board is fighting is the potential for
deflation. We are beginning to position the U.S. bond portion for a
potentially inflationary future and higher interest rates. We have a
significantly shorter average duration (a measure of interest rate
sensitivity) than our Lipper peer group, and hold a minimal position in U.S.
Treasury securities. This is in line with our view that longer-term U.S.
Treasuries and agency mortgage-backed securities offer unattractive yields
and are highly vulnerable to rising interest rates.
As interest rates rise, existing bond prices fall.
================================================================================
6 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
o WHAT'S USAA'S OUTLOOK?
Our views about the nature of the U.S. economic recovery have remained
remarkably stable over the past six months. We think it will be muted, with
trend economic growth more volatile and significantly lower than we've
enjoyed in recent decades. Access to credit will remain tight;
securitization markets have yet to fully heal and banks' lending standards
remain stringent, though they have loosened recently for some types of
loans. Consumers and businesses will continue to focus on rebuilding their
balance sheets, choosing saving over borrowing and spending. Unemployment
will be structurally higher. Taxes will likely increase.
We don't believe that U.S. consumer spending will be strong enough to create
a robust recovery. However, the growth of overseas markets for American
products, along with even a small increase in U.S. business spending and
inventory restocking, should keep the economy growing, albeit at a slow
pace.
At current valuation levels, we believe the S&P 500 Index is discounting a
strong cyclical recovery in the economy and corporate profits. We are
slightly underweight stocks relative to bonds, having reduced stock exposure
multiple times in 2009. Our bias will be to further reduce stock exposure
should the weight of the evidence make it appear that stocks will not meet,
in our opinion, aggressive consensus revenue and earnings expectations for
2010.
We believe the Fund is a strong single-fund solution for investors who want
actively managed access to the full range of U.S. stock and bond markets
with the added benefit of some international developed market exposure. We
continue to look to build in protections against a variety of risks as
evidenced by our active, tactical asset allocation and use of an equity
hedging strategy. We thank you for your investment in the Fund.
================================================================================
MANAGERS' COMMENTARY ON THE FUND | 7
<PAGE>
================================================================================
INVESTMENT OVERVIEW
USAA BALANCED STRATEGY FUND (Ticker Symbol: USBSX)
--------------------------------------------------------------------------------
11/30/09 5/31/09
--------------------------------------------------------------------------------
Net Assets $558.0 Million $450.0 Million
Net Asset Value Per Share $12.04 $10.08
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/09
--------------------------------------------------------------------------------
5/31/09 to 11/30/09* 1 YEAR 5 YEARS 10 YEARS
22.29% 35.63% 1.45% 3.00%
--------------------------------------------------------------------------------
EXPENSE RATIO**
--------------------------------------------------------------------------------
BEFORE REIMBURSEMENT 1.47% AFTER REIMBURSEMENT 1.00%
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
**THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES INCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, BEFORE REDUCTIONS OF ANY
EXPENSES PAID INDIRECTLY, AS REPORTED IN THE FUND'S PROSPECTUS DATED OCTOBER 1,
2009, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. THE AFTER
REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY (IMCO)
AS REPORTED IN THE FUND'S PROSPECTUS DATED OCTOBER 1, 2009. IMCO HAS VOLUNTARILY
AGREED TO LIMIT THE FUND'S TOTAL ANNUAL OPERATING EXPENSES TO 1.00%, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AND TO REIMBURSE THE FUND FOR EXPENSES IN EXCESS OF THIS AMOUNT.
IMCO CAN MODIFY OR TERMINATE THIS ARRANGEMENT AT ANY TIME. THESE EXPENSE RATIOS
MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
================================================================================
8 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA BALANCED LIPPER BALANCED RUSSELL 3000
U.S. AGGREGATE BOND INDEX STRATEGY FUND FUNDS INDEX INDEX
11/30/99 $10,000.00 $10,000.00 $10,000.00 $10,000.00
12/31/99 9,951.78 10,464.39 10,295.89 10,638.08
01/31/00 9,919.19 10,190.06 10,037.24 10,221.05
02/29/00 10,039.15 10,169.99 10,013.06 10,315.79
03/31/00 10,171.40 10,738.43 10,602.62 11,123.91
04/30/00 10,142.28 10,429.51 10,408.32 10,731.90
05/31/00 10,137.62 10,248.19 10,310.38 10,430.48
06/30/00 10,348.54 10,476.69 10,474.95 10,739.30
07/31/00 10,442.47 10,350.91 10,446.40 10,549.48
08/31/00 10,593.82 10,755.85 10,912.69 11,331.86
09/30/00 10,660.43 10,393.88 10,683.03 10,818.78
10/31/00 10,730.97 10,286.73 10,673.58 10,664.73
11/30/00 10,906.43 9,808.11 10,286.13 9,681.75
12/31/00 11,108.75 9,993.81 10,541.79 9,844.45
01/31/01 11,290.42 10,733.29 10,765.52 10,181.22
02/28/01 11,388.77 10,482.01 10,347.64 9,250.98
03/31/01 11,445.95 10,310.07 10,013.48 8,647.95
04/30/01 11,398.44 10,743.57 10,433.71 9,341.47
05/31/01 11,467.19 11,003.67 10,526.64 9,416.50
06/30/01 11,510.52 10,903.35 10,365.35 9,242.86
07/31/01 11,767.86 11,056.10 10,357.85 9,090.54
08/31/01 11,902.62 10,830.61 10,063.08 8,553.86
09/30/01 12,041.32 10,141.11 9,579.49 7,799.20
10/31/01 12,293.29 10,345.98 9,739.81 7,980.66
11/30/01 12,123.80 10,960.60 10,127.59 8,595.35
12/31/01 12,046.81 11,089.39 10,200.63 8,716.50
01/31/02 12,144.33 10,989.28 10,111.16 8,607.20
02/28/02 12,262.02 10,781.35 10,042.46 8,431.19
03/31/02 12,058.03 11,089.69 10,262.03 8,800.86
04/30/02 12,291.86 10,911.58 10,015.77 8,339.13
05/31/02 12,396.30 10,996.76 10,011.10 8,242.51
06/30/02 12,503.49 10,377.70 9,584.01 7,649.18
07/31/02 12,654.36 9,870.90 9,092.80 7,041.04
08/31/02 12,868.02 9,972.26 9,186.09 7,074.31
09/30/02 13,076.43 9,526.91 8,637.64 6,331.00
10/31/02 13,016.86 9,840.55 8,997.69 6,835.12
11/30/02 13,013.40 10,271.81 9,362.72 7,248.72
12/31/02 13,282.21 9,968.75 9,110.34 6,838.92
01/31/03 13,293.54 9,785.33 8,973.87 6,671.57
02/28/03 13,477.48 9,745.45 8,906.57 6,561.81
03/31/03 13,467.10 9,776.77 8,942.92 6,630.82
04/30/03 13,578.22 10,249.58 9,426.87 7,172.27
05/31/03 13,831.39 10,698.35 9,843.81 7,605.22
06/30/03 13,803.94 10,821.42 9,918.46 7,707.86
07/31/03 13,339.86 10,877.79 9,941.44 7,884.67
08/31/03 13,428.42 11,030.77 10,109.27 8,059.40
09/30/03 13,783.88 11,025.23 10,122.10 7,971.90
10/31/03 13,655.33 11,453.62 10,456.05 8,454.36
11/30/03 13,688.04 11,574.87 10,548.62 8,570.80
12/31/03 13,827.33 11,901.39 10,926.59 8,962.83
01/31/04 13,938.58 12,031.20 11,089.75 9,149.80
02/29/04 14,089.45 12,193.45 11,240.89 9,273.07
03/31/04 14,194.96 12,101.14 11,187.27 9,162.99
04/30/04 13,825.66 11,881.42 10,952.16 8,973.54
05/31/04 13,770.28 11,962.80 11,000.52 9,103.95
06/30/04 13,848.10 12,197.43 11,172.51 9,284.89
07/31/04 13,985.37 11,895.36 10,962.18 8,933.78
08/31/04 14,252.14 11,911.69 11,028.86 8,970.57
09/30/04 14,290.81 12,052.26 11,192.70 9,108.46
10/31/04 14,410.65 12,158.77 11,313.74 9,258.07
11/30/04 14,295.71 12,511.08 11,618.50 9,688.44
12/31/04 14,427.24 12,860.20 11,908.52 10,033.65
01/31/05 14,517.84 12,685.40 11,755.12 9,766.41
02/28/05 14,432.14 12,818.58 11,921.42 9,981.40
03/31/05 14,358.01 12,662.65 11,757.29 9,812.57
04/30/05 14,552.33 12,537.28 11,616.00 9,599.38
05/31/05 14,709.77 12,879.96 11,882.37 9,963.11
06/30/05 14,789.98 12,944.07 11,967.75 10,032.71
07/31/05 14,655.34 13,246.26 12,233.70 10,444.30
08/31/05 14,843.22 13,296.63 12,269.09 10,344.74
09/30/05 14,690.31 13,304.55 12,317.73 10,435.24
10/31/05 14,574.06 13,034.75 12,124.32 10,239.81
11/30/05 14,638.51 13,346.71 12,418.67 10,638.13
12/31/05 14,777.69 13,420.10 12,527.45 10,647.68
01/31/06 14,778.52 13,651.03 12,826.49 11,003.43
02/28/06 14,827.58 13,615.50 12,810.44 11,023.00
03/31/06 14,682.08 13,660.58 12,935.18 11,213.53
04/30/06 14,655.46 13,740.99 13,076.22 11,335.19
05/31/06 14,639.83 13,374.69 12,816.95 10,972.28
06/30/06 14,670.86 13,398.71 12,809.28 10,991.69
07/31/06 14,869.24 13,362.74 12,869.07 10,981.40
08/31/06 15,096.86 13,542.59 13,116.57 11,250.04
09/30/06 15,229.47 13,824.00 13,305.65 11,501.87
10/31/06 15,330.21 14,095.24 13,615.63 11,915.91
11/30/06 15,508.06 14,312.22 13,877.91 12,175.18
12/31/06 15,418.06 14,409.05 13,980.54 12,320.99
01/31/07 15,411.74 14,631.77 14,131.32 12,555.50
02/28/07 15,649.39 14,563.99 14,077.39 12,349.54
03/31/07 15,649.86 14,652.32 14,198.17 12,478.08
04/30/07 15,734.25 15,022.28 14,606.53 12,976.54
05/31/07 15,615.01 15,285.14 14,920.37 13,449.44
06/30/07 15,568.82 15,133.26 14,780.97 13,197.55
07/31/07 15,698.68 14,790.66 14,529.00 12,747.48
08/31/07 15,891.09 14,927.70 14,646.45 12,930.46
09/30/07 16,011.65 15,285.20 15,060.24 13,401.87
10/31/07 16,155.48 15,550.95 15,325.07 13,647.71
11/30/07 16,446.01 15,068.67 14,965.79 13,033.31
12/31/07 16,492.20 14,942.85 14,893.10 12,954.44
01/31/08 16,769.24 14,484.03 14,400.75 12,169.25
02/29/08 16,792.51 14,212.91 14,213.38 11,791.28
03/31/08 16,849.81 14,039.74 14,104.76 11,721.42
04/30/08 16,814.60 14,417.49 14,572.37 12,307.59
05/31/08 16,691.29 14,700.81 14,733.35 12,559.73
06/30/08 16,677.81 13,875.89 13,954.42 11,523.29
07/31/08 16,664.20 13,632.63 13,777.69 11,431.39
08/31/08 16,822.35 13,674.94 13,830.08 11,608.93
09/30/08 16,596.40 12,501.23 12,785.20 10,517.41
10/31/08 16,204.66 10,614.86 11,146.60 8,652.04
11/30/08 16,732.12 9,911.46 10,638.81 7,969.06
12/31/08 17,356.38 10,092.50 10,994.80 8,121.51
01/31/09 17,203.24 9,510.24 10,485.85 7,439.95
02/28/09 17,138.30 8,723.11 9,807.59 6,660.58
03/31/09 17,376.55 9,171.91 10,353.08 7,244.00
04/30/09 17,459.63 9,969.00 11,066.21 8,006.32
05/31/09 17,586.27 10,995.38 11,621.39 8,433.51
06/30/09 17,686.29 11,275.04 11,649.14 8,462.24
07/31/09 17,971.57 11,905.11 12,349.07 9,120.91
08/31/09 18,157.65 12,358.33 12,679.54 9,446.82
09/30/09 18,348.39 13,021.44 13,084.97 9,842.60
10/31/09 18,438.99 13,054.95 12,931.99 9,589.45
11/30/09 18,677.71 13,445.82 13,413.40 10,134.36
[END CHART]
Data from 11/30/99 to 11/30/09.
See next page for benchmark definitions.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
================================================================================
INVESTMENT OVERVIEW | 9
<PAGE>
================================================================================
The graph on page 9 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Balanced Strategy Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade fixed-rate bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed
securities, and commercial mortgage-backed securities that have remaining
maturities of more than one year.
o The unmanaged Lipper Balanced Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Balanced Funds
category.
o The unmanaged Russell 3000 Index measures the performance of the 3,000
largest U.S. companies based on total market capitalization, which
represents approximately 98% of the investable U.S. equity market.
================================================================================
10 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
TOP 5 STOCK HOLDINGS
AS OF 11/30/09
(% of Net Assets)
iShares MSCI EAFE Index Fund* ................................... 12.6%
SPDR Trust Series 1* ............................................ 5.3%
Microsoft Corp. ................................................. 1.0%
Exxon Mobil Corp. ............................................... 0.8%
International Business Machines Corp. ........................... 0.8%
TOP 5 BOND HOLDINGS
AS OF 11/30/09
(% of Net Assets)
United States Treasury Bills .................................... 1.2%
Credit Suisse Commercial Mortgage Trust ......................... 0.5%
Enbridge Energy Partners, LP .................................... 0.5%
Glen Meadow ..................................................... 0.5%
Homer City Funding, LLC ......................................... 0.5%
* Pursuant to a Securities and Exchange Commission (SEC) exemptive order, the
Fund may invest in an amount that exceeds the Fund's limitations as set forth
in the Investment Company Act of 1940 that would otherwise be applicable.
You will find a complete list of securities that the Fund owns on pages 13-38.
================================================================================
INVESTMENT OVERVIEW | 11
<PAGE>
================================================================================
o ASSET ALLOCATION -- 11/30/2009* o
[PIE CHART OF ASSET ALLOCATION]
BONDS 37.1%
STOCKS 53.0%
MONEY MARKET INSTRUMENTS 9.5%
[END CHART]
* Excludes futures, options, and short-term investments purchased with cash
collateral from securities loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
12 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2009 (unaudited)
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (53.0%)
COMMON STOCKS (34.1%)
CONSUMER DISCRETIONARY (3.6%)
-----------------------------
APPAREL & ACCESSORIES & LUXURY GOODS (0.1%)
2,300 Carter's, Inc.* $ 50
10,200 Coach, Inc. 355
6,500 Jones Apparel Group, Inc. 110
--------
515
--------
APPAREL RETAIL (0.4%)
23,300 Cato Corp. "A" 446
42,600 Gap, Inc. 912
21,300 Ross Stores, Inc. 937
--------
2,295
--------
AUTO PARTS & EQUIPMENT (0.1%)
4,500 China Automotive Systems, Inc.* 87
14,600 Standard Motor Products, Inc.* 131
7,500 TRW Automotive Holdings Corp.* 163
--------
381
--------
AUTOMOBILE MANUFACTURERS (0.1%)
79,000 Ford Motor Co.* 702
--------
AUTOMOTIVE RETAIL (0.1%)
3,200 Advance Auto Parts, Inc. 126
8,600 Asbury Automotive Group, Inc.* 92
14,700 Lithia Motors, Inc.* 107
7,300 Sonic Automotive, Inc. "A" 64
--------
389
--------
CABLE & SATELLITE (0.8%)
12,300 Cablevision Systems Corp. "A" 308
90,200 Comcast Corp. "A"(a) 1,323
6,000 DISH Network Corp. "A" 124
31,700 Scripps Networks Interactive "A" 1,254
29,936 Time Warner Cable, Inc. 1,254
--------
4,263
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 13
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CATALOG RETAIL (0.0%)
9,000 Liberty Media Corp. Interactive "A"* $ 96
--------
CONSUMER ELECTRONICS (0.2%)
30,600 Garmin Ltd.(b) 914
--------
DEPARTMENT STORES (0.1%)
23,200 Dillard's, Inc. "A" 394
3,500 J.C. Penney Co., Inc. 101
2,300 Kohl's Corp.* 122
13,400 Macy's, Inc. 219
--------
836
--------
DISTRIBUTORS (0.1%)
13,500 Genuine Parts Co. 484
--------
EDUCATION SERVICES (0.2%)
26,800 Career Education Corp.* 698
4,400 DeVry, Inc. 239
--------
937
--------
GENERAL MERCHANDISE STORES (0.1%)
1,600 Dollar Tree, Inc.* 78
9,200 Family Dollar Stores, Inc. 281
--------
359
--------
HOME FURNISHINGS (0.1%)
9,000 La-Z-Boy, Inc.* 86
2,600 Leggett & Platt, Inc. 51
17,600 Tempur-Pedic International, Inc.* 379
--------
516
--------
HOME IMPROVEMENT RETAIL (0.1%)
26,700 Home Depot, Inc. 730
--------
HOMEBUILDING (0.0%)
300 NVR, Inc.* 202
--------
HOMEFURNISHING RETAIL (0.0%)
4,500 Kirklands, Inc.* 69
--------
HOUSEWARES & SPECIALTIES (0.1%)
9,500 American Greetings Corp. "A" 196
8,200 Tupperware Brands Corp. 382
--------
578
--------
INTERNET RETAIL (0.2%)
8,700 Amazon.com, Inc.* 1,182
--------
================================================================================
14 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
LEISURE PRODUCTS (0.0%)
19,600 Smith & Wesson Holding Corp.* $ 97
--------
MOVIES & ENTERTAINMENT (0.1%)
19,434 Time Warner, Inc.(a) 597
--------
PUBLISHING (0.0%)
11,000 Gannett Co., Inc. 109
100 Washington Post Co. "B" 41
--------
150
--------
RESTAURANTS (0.3%)
1,600 Bob Evans Farms, Inc. 41
24,600 McDonald's Corp.(a) 1,556
13,900 Starbucks Corp.* 304
--------
1,901
--------
SPECIALIZED CONSUMER SERVICES (0.1%)
8,700 Brinks Home Security Holdings, Inc.* 285
--------
SPECIALTY STORES (0.3%)
75,600 Barnes & Noble, Inc.(b) 1,764
1,500 Big 5 Sporting Goods Corp. 25
1,600 Signet Jewelers Ltd.* 41
--------
1,830
--------
Total Consumer Discretionary 20,308
--------
CONSUMER STAPLES (4.0%)
-----------------------
AGRICULTURAL PRODUCTS (0.6%)
104,500 Archer-Daniels-Midland Co. 3,220
--------
DRUG RETAIL (0.1%)
17,700 Walgreen Co. 688
--------
FOOD DISTRIBUTORS (0.1%)
8,000 Andersons, Inc. 209
9,700 Sysco Corp. 262
--------
471
--------
FOOD RETAIL (0.2%)
27,700 Kroger Co. 630
16,600 SUPERVALU, Inc. 230
--------
860
--------
HOUSEHOLD PRODUCTS (1.2%)
24,000 Colgate-Palmolive Co. 2,021
63,800 Kimberly-Clark Corp. 4,209
2,300 Procter & Gamble Co.(a) 143
--------
6,373
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS (0.4%)
1,300 Costco Wholesale Corp. $ 78
42,700 Wal-Mart Stores, Inc.(a) 2,329
--------
2,407
--------
PACKAGED FOODS & MEAT (0.5%)
46,300 Campbell Soup Co. 1,619
19,200 Hershey Co. 679
10,000 Kraft Foods, Inc. "A" 266
32,300 Sara Lee Corp. 392
--------
2,956
--------
PERSONAL PRODUCTS (0.2%)
6,400 China Sky One Medical, Inc.* 105
3,700 Herbalife Ltd. 155
15,000 Mead Johnson Nutrition Co.(b) 658
7,000 Nu Skin Enterprises, Inc. "A" 188
--------
1,106
--------
SOFT DRINKS (0.3%)
35,100 Coca-Cola Enterprises, Inc. 690
16,600 PepsiCo, Inc.(a) 1,033
--------
1,723
--------
TOBACCO (0.4%)
8,100 Lorillard, Inc.(a) 631
33,800 Philip Morris International, Inc.(a) 1,625
1,000 Reynolds American, Inc. 50
--------
2,306
--------
Total Consumer Staples 22,110
--------
ENERGY (3.6%)
-------------
COAL & CONSUMABLE FUELS (0.0%)
1,400 Peabody Energy Corp. 62
--------
INTEGRATED OIL & GAS (1.7%)
22,500 Chevron Corp.(a) 1,756
47,000 ConocoPhillips(a) 2,433
60,600 Exxon Mobil Corp.(a) 4,549
18,000 Marathon Oil Corp. 587
1,600 Occidental Petroleum Corp. 130
--------
9,455
--------
OIL & GAS DRILLING (0.5%)
18,800 ENSCO International, Inc. 827
26,700 Patterson-UTI Energy, Inc. 411
================================================================================
16 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
54,400 Rowan Companies, Inc.* $ 1,343
--------
2,581
--------
OIL & GAS EQUIPMENT & SERVICES (0.4%)
3,800 Dawson Geophysical Co.* 82
19,700 Helix Energy Solutions Group, Inc.* 232
10,000 National-Oilwell Varco, Inc. 430
3,000 Oceaneering International, Inc.* 164
20,100 Oil States International, Inc.* 721
12,800 Schlumberger Ltd. 818
--------
2,447
--------
OIL & GAS EXPLORATION & PRODUCTION (0.8%)
3,800 Anadarko Petroleum Corp. 226
7,900 Cimarex Energy Co. 370
28,600 Devon Energy Corp. 1,926
2,000 Encore Acquisition Co.* 90
14,600 EXCO Resources, Inc. 247
17,200 Mariner Energy, Inc.* 215
27,000 Newfield Exploration Co.* 1,142
23,400 Rosetta Resources, Inc.* 369
--------
4,585
--------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
12,300 El Paso Corp. 117
3,800 Teekay Corp. 91
48,800 Williams Companies, Inc. 971
--------
1,179
--------
Total Energy 20,309
--------
FINANCIALS (4.8%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.4%)
21,500 Bank of New York Mellon Corp. 573
1,700 BlackRock, Inc. "A" 386
1,500 Calamos Asset Management, Inc. "A" 16
7,600 Franklin Resources, Inc. 821
24,100 Invesco Ltd. ADR 536
1,200 State Street Corp. 49
--------
2,381
--------
CONSUMER FINANCE (0.5%)
45,200 Capital One Financial Corp. 1,734
43,700 Discover Financial Services 676
7,900 Nelnet, Inc. "A" 137
--------
2,547
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
DIVERSIFIED BANKS (0.5%)
33,900 U.S. Bancorp $ 818
74,800 Wells Fargo & Co.(a) 2,097
--------
2,915
--------
INSURANCE BROKERS (0.1%)
7,200 Aon Corp. 279
--------
INVESTMENT BANKING & BROKERAGE (0.4%)
11,800 Goldman Sachs Group, Inc.(a) 2,002
2,000 Oppenheimer Holdings, Inc. 63
--------
2,065
--------
LIFE & HEALTH INSURANCE (0.2%)
8,000 Conseco, Inc.* 38
200 Kansas City Life Insurance Co. 5
13,800 MetLife, Inc. 472
7,900 Prudential Financial, Inc. 394
--------
909
--------
MULTI-LINE INSURANCE (0.0%)
4,900 Assurant, Inc. 150
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.1%)
162,600 Bank of America Corp.(a) 2,577
267,000 Citigroup, Inc. 1,098
63,200 JPMorgan Chase & Co.(a) 2,685
--------
6,360
--------
PROPERTY & CASUALTY INSURANCE (0.4%)
27,100 Allstate Corp. 770
14,900 Chubb Corp. 747
4,500 Hanover Insurance Group, Inc. 187
21,100 Progressive Corp.* 354
300 White Mountains Insurance Group Ltd. 98
--------
2,156
--------
REGIONAL BANKS (0.5%)
2,800 Bancorp, Inc.* 16
27,825 Commerce Bancshares, Inc. 1,119
13,000 Fifth Third Bancorp 131
1,900 First Bancorp 25
10,600 First Busey Corp. 35
19,300 Fulton Financial Corp. 166
16,600 Huntington Bancshares, Inc. 63
17,900 KeyCorp 105
23,300 Marshall & Ilsley Corp. 134
================================================================================
18 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
8,700 PNC Financial Services Group, Inc. $ 496
22,900 Regions Financial Corp. 134
1,400 Santander BanCorp* 16
1,800 Signature Bank* 56
6,500 SunTrust Banks, Inc. 154
4,400 Wintrust Financial Corp. 114
2,300 Yadkin Valley Financial Corp. 8
--------
2,772
--------
REINSURANCE (0.2%)
9,900 Endurance Specialty Holdings Ltd. 370
2,400 PartnerRe Ltd. 185
1,200 Reinsurance Group of America, Inc. "A" 56
4,400 RenaissanceRe Holdings Ltd. 234
--------
845
--------
REITs - DIVERSIFIED (0.0%)
4,247 Vornado Realty Trust 278
--------
REITs - INDUSTRIAL (0.0%)
900 AMB Property Corp. 21
9,200 ProLogis 121
--------
142
--------
REITs - MORTGAGE (0.1%)
19,200 Annaly Capital Management, Inc. 353
--------
REITs - OFFICE (0.1%)
4,300 Boston Properties, Inc. 288
7,600 Digital Realty Trust, Inc. 370
--------
658
--------
REITs - RESIDENTIAL (0.1%)
2,063 AvalonBay Communities, Inc. 149
1,100 Camden Property Trust 43
7,300 Equity Residential Properties Trust 235
--------
427
--------
REITs - RETAIL (0.1%)
400 Federal Realty Investment Trust 26
2,900 Kimco Realty Corp. 36
1,900 Regency Centers Corp. 63
9,706 Simon Property Group, Inc. 705
--------
830
--------
REITs - SPECIALIZED (0.1%)
2,200 HCP, Inc. 69
7,900 Host Hotels & Resorts, Inc. 83
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
2,300 Public Storage $ 183
3,900 Rayonier, Inc. 155
--------
490
--------
THRIFTS & MORTGAGE FINANCE (0.0%)
2,000 First Defiance Financial Corp. 22
--------
Total Financials 26,579
--------
HEALTH CARE (4.6%)
------------------
BIOTECHNOLOGY (0.7%)
21,500 Amgen, Inc.* 1,212
8,600 Enzon Pharmaceuticals, Inc.* 83
48,700 Gilead Sciences, Inc.*(a) 2,243
43,400 PDL BioPharma, Inc. 282
--------
3,820
--------
HEALTH CARE DISTRIBUTORS (0.7%)
49,800 AmerisourceBergen Corp. 1,230
18,900 Cardinal Health, Inc. 609
34,700 McKesson Corp. 2,152
--------
3,991
--------
HEALTH CARE EQUIPMENT (0.1%)
7,400 Baxter International, Inc. 404
11,100 Hill-Rom Holdings, Inc. 246
--------
650
--------
HEALTH CARE FACILITIES (0.0%)
4,700 Kindred Healthcare, Inc.* 70
--------
HEALTH CARE SERVICES (0.3%)
700 Gentiva Health Services, Inc.* 16
26,800 Medco Health Solutions, Inc.* 1,693
2,800 Providence Service Corp.* 39
--------
1,748
--------
HEALTH CARE SUPPLIES (0.0%)
3,900 Align Technology, Inc.* 64
--------
HEALTH CARE TECHNOLOGY (0.0%)
2,900 IMS Health, Inc. 62
--------
LIFE SCIENCES TOOLS & SERVICES (0.0%)
8,200 Accelrys, Inc.* 43
--------
MANAGED HEALTH CARE (0.9%)
30,900 Aetna, Inc. 900
77,300 Coventry Health Care, Inc.* 1,743
================================================================================
20 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
23,500 Humana, Inc.* $ 975
10,800 Magellan Health Services, Inc.* 397
36,200 UnitedHealth Group, Inc. 1,038
--------
5,053
--------
PHARMACEUTICALS (1.9%)
31,100 Abbott Laboratories(a) 1,694
3,300 Allergan, Inc. 192
43,500 Eli Lilly and Co.(a) 1,598
10,400 Forest Laboratories, Inc.* 319
50,300 Johnson & Johnson(a) 3,161
20,200 Par Pharmaceutical Companies, Inc.* 479
153,900 Pfizer, Inc.(a) 2,796
--------
10,239
--------
Total Health Care 25,740
--------
INDUSTRIALS (3.4%)
------------------
AEROSPACE & DEFENSE (1.2%)
18,400 GenCorp, Inc.* 144
16,100 ITT Corp. 833
14,200 Lockheed Martin Corp.(a) 1,096
44,600 Northrop Grumman Corp.(a) 2,444
17,700 Raytheon Co. 912
15,700 United Technologies Corp. 1,056
--------
6,485
--------
AIR FREIGHT & LOGISTICS (0.3%)
7,000 FedEx Corp. 591
19,500 United Parcel Service, Inc. "B" 1,121
--------
1,712
--------
BUILDING PRODUCTS (0.0%)
2,000 Armstrong World Industries, Inc.* 83
4,300 Owens Corning, Inc.* 101
--------
184
--------
COMMERCIAL PRINTING (0.2%)
61,100 R.R. Donnelley & Sons Co. 1,257
--------
CONSTRUCTION & ENGINEERING (0.2%)
5,500 Jacobs Engineering Group, Inc.* 192
10,300 KBR, Inc. 192
15,200 Shaw Group, Inc.* 434
6,400 URS Corp.* 266
--------
1,084
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.1%)
9,100 Oshkosh Corp. $ 361
24,000 Trinity Industries, Inc. 453
--------
814
--------
ELECTRICAL COMPONENTS & EQUIPMENT (0.1%)
8,800 Hubbell, Inc. "B" 400
--------
INDUSTRIAL CONGLOMERATES (0.9%)
12,400 3M Co. 960
53,700 Carlisle Companies, Inc. 1,724
149,400 General Electric Co.(a) 2,394
--------
5,078
--------
INDUSTRIAL MACHINERY (0.2%)
1,900 Lincoln Electric Holdings, Inc. 98
1,200 SPX Corp. 64
29,200 Timken Co.(a) 720
--------
882
--------
MARINE (0.0%)
2,900 Kirby Corp.* 97
--------
RAILROADS (0.0%)
1,000 CSX Corp. 48
--------
TRUCKING (0.2%)
9,100 Con-Way, Inc. 276
900 Marten Transport, Ltd.* 15
17,500 Ryder System, Inc. 709
--------
1,000
--------
Total Industrials 19,041
--------
INFORMATION TECHNOLOGY (6.5%)
-----------------------------
APPLICATION SOFTWARE (0.0%)
4,100 Bottomline Technologies, Inc.* 66
--------
COMMUNICATIONS EQUIPMENT (0.6%)
53,900 Cisco Systems, Inc.*(a) 1,261
24,400 Harris Corp. 1,071
3,600 InterDigital, Inc.* 86
2,100 Loral Space & Communications, Inc.* 70
6,400 Plantronics, Inc. 148
14,200 QUALCOMM, Inc.(a) 639
--------
3,275
--------
================================================================================
22 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE (1.4%)
14,100 Apple, Inc.*(a) $ 2,819
3,800 Diebold, Inc. 95
36,800 International Business Machines Corp.(a) 4,650
6,900 Teradata Corp.* 202
--------
7,766
--------
COMPUTER STORAGE & PERIPHERALS (0.1%)
24,900 Western Digital Corp.* 917
--------
DATA PROCESSING & OUTSOURCED SERVICES (0.5%)
10,800 Computer Sciences Corp.* 597
30,100 Convergys Corp.* 336
37,000 Global Payments, Inc. 1,897
--------
2,830
--------
ELECTRONIC COMPONENTS (0.1%)
10,300 AVX Corp. 124
33,400 Vishay Intertechnology, Inc.* 242
--------
366
--------
ELECTRONIC MANUFACTURING SERVICES (0.1%)
51,500 Jabil Circuit, Inc. 686
3,500 Multi-Fineline Electronix, Inc.* 87
1,800 Radisys Corp.* 17
--------
790
--------
INTERNET SOFTWARE & SERVICES (0.6%)
34,200 EarthLink, Inc. 281
4,700 Google, Inc. "A"*(a) 2,740
3,100 LivePerson, Inc.* 20
1,700 Opentable, Inc.* 45
3,100 VeriSign, Inc.* 70
--------
3,156
--------
IT CONSULTING & OTHER SERVICES (0.4%)
7,500 Cognizant Technology Solutions Corp. "A"* 330
101,300 SAIC, Inc.* 1,805
--------
2,135
--------
SEMICONDUCTOR EQUIPMENT (0.1%)
26,300 Photronics, Inc.* 106
7,100 Tessera Technologies, Inc.* 168
4,300 Veeco Instruments, Inc.* 118
--------
392
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
SEMICONDUCTORS (0.3%)
39,100 Intel Corp.(a) $ 751
29,600 Texas Instruments, Inc. 749
9,900 Volterra Semiconductor Corp.* 163
--------
1,663
--------
SYSTEMS SOFTWARE (1.1%)
1,300 BMC Software, Inc.* 50
189,200 Microsoft Corp.(a) 5,564
5,700 Oracle Corp. 126
2,300 Red Hat, Inc.* 62
34,700 Symantec Corp.* 616
--------
6,418
--------
TECHNOLOGY DISTRIBUTORS (1.2%)
2,200 Agilysys, Inc. 18
106,000 Arrow Electronics, Inc.*(a) 2,786
112,300 Avnet, Inc.* 3,060
46,000 Ingram Micro, Inc. "A"* 781
1,000 PC Mall, Inc.* 6
1,900 SYNNEX Corp.* 54
2,000 Tech Data Corp.* 84
--------
6,789
--------
Total Information Technology 36,563
--------
MATERIALS (1.4%)
----------------
COMMODITY CHEMICALS (0.0%)
14,800 Spartech Corp. 161
--------
DIVERSIFIED CHEMICALS (0.3%)
17,700 Ashland, Inc. 636
12,200 Cabot Corp. 280
2,000 Eastman Chemical Co. 120
56,300 Huntsman Corp. 536
--------
1,572
--------
DIVERSIFIED METALS & MINING (0.1%)
1,700 Freeport-McMoRan Copper & Gold, Inc.* 141
1,700 Walter Industries, Inc. 116
--------
257
--------
GOLD (0.0%)
1,900 Newmont Mining Corp. 102
--------
METAL & GLASS CONTAINERS (0.1%)
6,200 Ball Corp. 306
1,700 Crown Holdings, Inc.* 43
================================================================================
24 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
4,100 Owens-Illinois, Inc.* $ 128
--------
477
--------
PAPER PACKAGING (0.0%)
7,300 Bemis Co., Inc. 214
--------
PAPER PRODUCTS (0.4%)
4,300 Clearwater Paper Corp.* 211
1,800 Domtar Corp.* 102
66,500 International Paper Co. 1,692
--------
2,005
--------
SPECIALTY CHEMICALS (0.4%)
9,300 A. Schulman, Inc. 152
10,900 Cytec Industries, Inc. 370
23,400 Lubrizol Corp. 1,697
18,900 Omnova Solutions, Inc.* 125
--------
2,344
--------
STEEL (0.1%)
3,800 Commercial Metals Co. 61
10,400 Reliance Steel & Aluminum Co. 425
--------
486
--------
Total Materials 7,618
--------
TELECOMMUNICATION SERVICES (1.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.0%)
129,800 AT&T, Inc.(a) 3,497
800 HickoryTech Corp. 7
78,200 Qwest Communications International, Inc. 285
44,200 Verizon Communications, Inc.(a) 1,390
--------
5,179
--------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
45,200 Sprint Nextel Corp.* 168
11,200 Telephone & Data Systems, Inc. 341
18,600 USA Mobility, Inc. 186
--------
695
--------
Total Telecommunication Services 5,874
--------
UTILITIES (1.1%)
----------------
ELECTRIC UTILITIES (0.6%)
1,900 Entergy Corp. 150
44,400 Exelon Corp. 2,139
29,000 FirstEnergy Corp. 1,249
--------
3,538
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
GAS UTILITIES (0.1%)
7,900 National Fuel Gas Co. $ 370
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%)
10,500 Constellation Energy Group, Inc. 334
16,100 NRG Energy, Inc.* 386
--------
720
--------
MULTI-UTILITIES (0.3%)
11,900 Dominion Resources, Inc. 433
23,900 MDU Resources Group, Inc.(a) 540
20,700 Public Service Enterprise Group, Inc. 649
--------
1,622
--------
Total Utilities 6,250
--------
Total Common Stocks (cost: $167,241) 190,392
--------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
$(000)/
SHARES
--------------------------------------------------------------------------------------------------------
PREFERRED SECURITIES (1.0%)
CONSUMER STAPLES (0.3%)
-----------------------
AGRICULTURAL PRODUCTS (0.3%)
20,000 Dairy Farmers of America, Inc., 7.88%,
cumulative redeemable, perpetual(c) 1,623
--------
FINANCIALS (0.7%)
-----------------
LIFE & HEALTH INSURANCE (0.4%)
65,000 Delphi Financial Group, Inc., 7.38%, perpetual 1,135
60,000 Delphi Financial Group, Inc., 8.00% 1,353
--------
2,488
--------
REINSURANCE (0.3%)
1,500 Ram Holdings Ltd., 7.50%, non-cumulative, perpetual* 97
$2,000 Swiss Re Capital I LP, 6.85%, perpetual(c) 1,483
--------
1,580
--------
THRIFTS & MORTGAGE FINANCE (0.0%)
5,000 Washington Mutual Capital Trust, 5.38%,
cumulative convertible, perpetual* 43
--------
Total Financials 4,111
--------
================================================================================
26 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
--------------------------------------------------------------------------------------------------------
GOVERNMENT (0.0%)
-----------------
U.S. GOVERNMENT (0.0%)
40,000 Fannie Mae, 8.25%, perpetual $ 32
40,000 Freddie Mac, 8.38%, perpetual 33
--------
Total Government 65
--------
Total Preferred Securities (cost: $9,213) 5,799
--------
EXCHANGE-TRADED FUNDS (17.9%)
1,267,008 iShares MSCI EAFE Index Fund(a) 70,218
268,322 SPDR Trust Series 1 29,483
--------
Total Exchange-Traded Funds (cost: $113,124) 99,701
--------
WARRANTS (0.0%)
CONSUMER DISCRETIONARY (0.0%)
-----------------------------
RESTAURANTS (0.0%)
1,356 Krispy Kreme Doughnuts, Inc.* (cost: $0) -
--------
Total Equity Securities (cost: $289,578) 295,892
--------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) SECURITY RATE MATURITY
--------------------------------------------------------------------------------------------------------
BONDS (37.1%)
CORPORATE OBLIGATIONS (19.0%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
APPAREL & ACCESSORIES & LUXURY GOODS (0.2%)
$ 1,000 Kellwood Co.(d) 12.88% 12/31/2011 530
1,000 Kellwood Co. 7.63 10/15/2017 360
--------
Total Consumer Discretionary 890
--------
CONSUMER STAPLES (0.5%)
-----------------------
DRUG RETAIL (0.5%)
3,000 CVS Caremark Corp. 6.30 6/01/2037 2,581
--------
ENERGY (0.5%)
OIL & GAS STORAGE & TRANSPORTATION (0.5%)
3,059 Enbridge Energy Partners, LP 8.05 10/01/2037 2,910
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
FINANCIALS (14.3%)
------------------
CONSUMER FINANCE (0.9%)
$ 1,000 American Express Co. 6.80% 9/01/2066 $ 855
2,000 Capital One Financial Corp. 7.69 8/15/2036 1,720
3,000 General Motors Acceptance Corp.(a) 6.75 12/01/2014 2,662
--------
5,237
--------
DIVERSIFIED BANKS (1.5%)
1,000 Comerica Capital Trust II 6.58 2/20/2037 755
1,000 Emigrant Bancorp, Inc.(c) 6.25 6/15/2014 419
2,500 First Tennessee Bank, N.A. 5.65 4/01/2016 2,232
2,000 Manufacturers & Traders Trust Co. 5.63 12/01/2021 1,640
2,000 USB Realty Corp.(c) 6.09 -(e) 1,400
1,000 Wachovia Capital Trust III 5.80(f) -(e) 695
1,000 Wells Fargo Capital XIII 7.70 -(e) 915
--------
8,056
--------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.3%)
1,500 Brascan Corp.(g) 7.13 6/15/2012 1,552
--------
INVESTMENT BANKING & BROKERAGE (0.6%)
1,000 First Republic Bank Corp. 7.75 9/15/2012 1,100
3,000 Goldman Sachs Capital II 5.79 -(e) 2,220
--------
3,320
--------
LIFE & HEALTH INSURANCE (1.8%)
1,000 Great-West Life & Annuity Insurance Co.(c) 7.15 5/16/2046 820
2,500 Lincoln National Corp. 7.00 5/17/2066 1,950
1,000 MetLife Capital Trust X(c) 9.25 4/08/2038 1,050
1,000 MetLife, Inc. 10.75 8/01/2069 1,203
1,000 Nationwide Mutual Insurance Co. 5.81 12/15/2024 790
2,000 Prudential Financial, Inc. 8.88 6/15/2038 2,080
3,000 StanCorp Financial Group, Inc.(a) 6.90 6/01/2067 2,152
--------
10,045
--------
MULTI-LINE INSURANCE (2.1%)
3,500 Genworth Financial, Inc. 6.15 11/15/2066 2,266
4,000 Glen Meadow(c) 6.51 2/12/2067 3,010
2,964 ILFC E-Capital Trust I(c) 5.90 12/21/2065 1,393
2,000 ILFC E-Capital Trust II(c) 6.25 12/21/2065 940
4,000 Oil Casualty Insurance Ltd.(c) 8.00 9/15/2034 2,681
2,000 Oil Insurance Ltd.(c) 7.56 -(e) 1,624
--------
11,914
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.3%)
2,000 General Electric Capital Corp. 6.38 11/15/2067 1,647
--------
================================================================================
28 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE (1.6%)
$ 2,000 Allstate Corp. 6.13% 5/15/2037 $ 1,685
1,500 Fund American Companies, Inc.(a) 5.88 5/15/2013 1,495
3,000 Progressive Corp. 6.70 6/15/2037 2,554
1,000 RLI Corp.(a) 5.95 1/15/2014 1,004
2,500 Travelers Companies, Inc. 6.25 3/15/2037 2,268
--------
9,006
--------
REGIONAL BANKS (2.6%)
1,000 Cullen/Frost Bankers, Inc.(a) 5.75 2/15/2017 937
3,000 Fifth Third Capital Trust IV 6.50 4/15/2037 2,115
2,000 Fulton Capital Trust I 6.29 2/01/2036 1,319
4,000 Huntington Capital III 6.65 5/15/2037 2,442
1,000 National City Preferred Capital Trust I 12.00 -(e) 1,146
2,000 PNC Preferred Funding Trust(c) 6.52 -(e) 1,438
2,000 Regions Financing Trust II 6.63 5/15/2047 1,308
500 Susquehanna Bancshares, Inc. 2.10(f) 5/01/2014 309
1,000 TCF National Bank 5.50 2/01/2016 851
3,500 Webster Capital Trust IV 7.65 6/15/2037 2,187
1,000 Zions Bancorp 5.50 11/16/2015 696
--------
14,748
--------
REITs - INDUSTRIAL (0.3%)
1,500 ProLogis(a) 2.25 4/01/2037 1,393
--------
REITs - OFFICE (0.2%)
1,000 Brandywine Operating Partnership, LP 5.70 5/01/2017 908
--------
REITs - RETAIL (1.3%)
2,500 Developers Diversified Realty Corp.(a) 3.50 8/15/2011 2,394
3,000 New Plan Excel Realty Trust, Inc.(a) 5.13 9/15/2012 2,186
1,000 New Plan Excel Realty Trust, Inc.,
acquired 2/20/2009; cost $340(h) 7.68 11/02/2026 681
2,000 Pan Pacific Retail Properties, Inc.(a) 7.95 4/15/2011 2,090
--------
7,351
--------
REITs - SPECIALIZED (0.4%)
1,000 Hospitality Properties Trust 5.13 2/15/2015 914
1,500 Ventas Realty, LP 6.75 4/01/2017 1,433
--------
2,347
--------
SPECIALIZED FINANCE (0.2%)
2,000 Financial Security Assurance Holdings Ltd.(c) 6.40 12/15/2066 1,230
1,000 Syncora Holdings Ltd.(i) 6.88 -(e) -
--------
1,230
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE (0.2%)
$ 1,000 Sovereign Bank 2.35%(f) 6/20/2013 $ 983
1,000 Washington Mutual Preferred Funding
Trust I(c),(j) 6.53 -(e) 10
1,000 Washington Mutual Preferred Funding
Trust IV(c),(j) 9.75 -(e) 10
--------
1,003
--------
Total Financials 79,757
--------
INDUSTRIALS (0.4%)
------------------
AIRLINES (0.2%)
1,154 America West Airlines, Inc. Pass-Through
Trust (INS) 7.93 1/02/2019 1,037
--------
INDUSTRIAL CONGLOMERATES (0.2%)
2,000 Textron Financial Corp.(c) 6.00 2/15/2067 1,410
--------
Total Industrials 2,447
--------
UTILITIES (3.1%)
----------------
ELECTRIC UTILITIES (1.8%)
1,040 Cedar Brakes II, LLC(c) 9.88 9/01/2013 1,065
1,000 FPL Group Capital, Inc. 6.35 10/01/2066 919
1,000 FPL Group Capital, Inc. 6.65 6/15/2067 929
2,920 Homer City Funding, LLC 8.14 10/01/2019 2,788
617 Oglethorpe Power Corp.(a) 6.97 6/30/2011 625
237 Power Contract Financing, LLC(c) 6.26 2/01/2010 238
2,500 PPL Capital Funding, Inc. 6.70 3/30/2067 2,172
1,000 West Penn Power Co. 6.63 4/15/2012 1,095
--------
9,831
--------
GAS UTILITIES (0.1%)
1,000 Southern Union Co. 7.20 11/01/2066 835
--------
MULTI-UTILITIES (1.2%)
2,500 Dominion Resources, Inc. 7.50 6/30/2066 2,466
2,000 Integrys Energy Group, Inc. 6.11 12/01/2066 1,672
1,325 Puget Sound Energy, Inc. 6.97 6/01/2067 1,171
1,500 Wisconsin Energy Corp. 6.25 5/15/2067 1,326
--------
6,635
--------
Total Utilities 17,301
--------
Total Corporate Obligations (cost: $97,402) 105,886
--------
EURODOLLAR AND YANKEE OBLIGATIONS (3.6%)
ENERGY (0.6%)
-------------
INTEGRATED OIL & GAS (0.5%)
267 PEMEX Finance Ltd. 8.88 11/15/2010 278
2,500 Trans-Canada Pipelines Ltd.(a) 6.35 5/15/2067 2,343
--------
2,621
--------
================================================================================
30 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
OIL & GAS DRILLING (0.1%)
$ 764 Delek & Avner-Yam Tethys Ltd.(c) 5.33% 8/01/2013 $ 764
--------
Total Energy 3,385
--------
FINANCIALS (2.6%)
-----------------
DIVERSIFIED BANKS (0.6%)
2,000 BayernLB Capital Trust I 6.20 -(e) 840
1,000 BNP Paribas Capital Trust(c) 9.00 -(e) 990
1,000 BOI Capital Funding Number 3, LP(c) 6.11 -(e) 425
1,000 Landsbanki Islands hf, acquired 10/12/2007;
cost $1,000(c),(h),(j) 7.43 -(e) 3
2,000 Royal Bank of Scotland Group plc 7.64 -(e) 936
--------
3,194
--------
DIVERSIFIED CAPITAL MARKETS (0.3%)
2,000 UBS Preferred Funding Trust I 8.62(f) -(e) 1,800
--------
MULTI-LINE INSURANCE (0.4%)
2,625 ING Capital Funding Trust III 8.44 -(e) 2,238
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.2%)
1,000 ZFS Finance USA Trust II(c) 6.45 12/15/2065 875
--------
PROPERTY & CASUALTY INSURANCE (0.2%)
1,000 Allied World Assurance Holdings Ltd. 7.50 8/01/2016 1,076
--------
REGIONAL BANKS (0.3%)
2,000 Glitnir Banki hf, acquired 9/11/06 and 10/18/06;
cost $2,034(c),(h),(j) 7.45 -(e) 5
2,000 Unicredito Italiano Capital Trust II(c) 9.20 -(e) 1,900
--------
1,905
--------
REINSURANCE (0.5%)
1,500 Max USA Holdings Ltd.(c) 7.20 4/14/2017 1,269
1,500 Platinum Underwriters Finance, Inc.(a) 7.50 6/01/2017 1,510
--------
2,779
--------
SPECIALIZED FINANCE (0.1%)
1,000 QBE Insurance Group Ltd.(c) 5.65 7/01/2023 864
--------
Total Financials 14,731
--------
MATERIALS (0.4%)
----------------
DIVERSIFIED METALS & MINING (0.4%)
1,000 Glencore Finance S.A. 8.00 -(e) 935
1,000 Glencore Funding, LLC(c) 6.00 4/15/2014 993
--------
Total Materials 1,928
--------
Total Eurodollar and Yankee Obligations (cost: $23,094) 20,044
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (5.4%)
FINANCIALS (5.4%)
-----------------
ASSET-BACKED FINANCING (5.4%)
$ 226 Aerco Ltd.(c) 0.76%(f) 7/15/2025 $ 227
2,000 AESOP Funding II, LLC(a),(c) 0.46(f) 3/20/2012 1,908
1,500 AESOP Funding II, LLC(c) 9.31 10/20/2013 1,682
155 Airport Airplanes 0.61(f) 3/15/2019 147
1,000 American Express Credit Account Master Trust 0.51(f) 9/15/2014 949
1,000 American Express Credit Account Master Trust(c) 0.59(f) 9/15/2016 919
383 AmeriCredit Automobile Receivables Trust 1.99(f) 1/12/2012 384
1,000 AmeriCredit Automobile Receivables Trust 6.96 10/14/2014 1,062
1,000 Bank One Issuance Trust 4.77 2/16/2016 1,014
2,000 Bank One Issuance Trust 1.04(f) 2/15/2017 1,839
462 Capital One Auto Finance Trust (INS) 4.71 6/15/2012 466
941 Capital One Auto Finance Trust 0.27(f) 5/15/2013 927
2,290 Capital One Multi-Asset Execution Trust(a) 6.00 8/15/2013 2,334
1,000 Citibank Credit Card Issuance Trust 6.30 6/20/2014 1,031
1,220 CPS Auto Receivables Trust (INS)(a) 6.48 7/15/2013 1,262
1,500 Credit Acceptance Auto Loan Trust(c),(i),(k) 5.68 5/15/2017 1,500
1,000 Detroit Edison Securitization Funding, LLC(a) 6.42 3/01/2015 1,119
1,000 GE Equipment Midticket, LLC 0.56(f) 9/15/2017 822
500 Hertz Vehicle Financing, LLC(c) 5.01 2/25/2011 502
1,000 Hertz Vehicle Financing, LLC(c) 5.08 11/25/2011 1,022
700 HSBC Automotive Trust 4.94 11/19/2012 704
2,000 HSBC Private Label Credit Card Master Note Trust 0.35 12/16/2013 1,994
1,000 Huntington Auto Trust(c) 4.81 4/16/2012 1,027
1,000 MBNA Master Credit Card Note Trust 6.80 7/15/2014 1,032
1,500 Rental Car Finance Corp.(c) 0.38(f) 7/25/2013 1,296
940 SLM Student Loan Trust 0.83(f) 10/25/2038 709
1,500 Triad Automobile Receivables Owners Trust(a) 5.43 7/14/2014 1,524
451 USXL Funding, LLC (INS)(c) 5.38 4/15/2014 451
--------
Total Financials 29,853
--------
Total Asset-Backed Securities (cost: $27,121) 29,853
--------
COMMERCIAL MORTGAGE SECURITIES (8.6%)
FINANCIALS (8.6%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (8.6%)
3,000 Banc of America Commercial Mortgage Trust 5.81 7/10/2044 2,351
680 Banc of America Commercial Mortgage, Inc. 7.20 9/15/2032 683
1,000 Banc of America Commercial Mortgage, Inc. 5.11(f) 11/10/2042 575
1,205 Banc of America Commercial Mortgage, Inc. 4.95 7/10/2043 813
2,000 Banc of America Commercial Mortgage, Inc. 5.77(f) 5/10/2045 1,428
================================================================================
32 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
$ 2,643 Banc of America Commercial Mortgage, Inc.(a) 5.18% 10/10/2045 $ 2,372
1,000 Banc of America Commercial Mortgage, Inc. 5.68 7/10/2046 797
2,429 Banc of America Commercial Mortgage, Inc.(a) 5.18(f) 9/10/2047 2,196
319 Bear Stearns Commercial Mortgage Securities, Inc. 4.00 3/13/2040 323
1,000 Bear Stearns Commercial Mortgage Securities, Inc. 5.69 6/11/2050 876
1,000 Citigroup Commercial Mortgage Trust 5.23(f) 7/15/2044 598
2,000 Citigroup Commercial Mortgage Trust 6.10 12/10/2049 1,545
3,000 Commercial Mortgage Loan Trust(a) 6.02(f) 12/10/2049 2,208
1,000 Credit Suisse Commercial Mortgage Trust(f) 5.83 6/15/2038 875
3,000 Credit Suisse Commercial Mortgage Trust 6.22 2/15/2041 2,690
1,000 Credit Suisse First Boston Mortgage
Securities Corp. 5.10 8/15/2038 775
821 Credit Suisse First Boston Mortgage
Securities Corp. 7.17 5/17/2040 836
469 Credit Suisse First Boston Mortgage
Securities Corp. 7.55 4/15/2062 475
1,675 G-Force, LLC(c) 5.16 12/25/2039 1,187
1,000 GE Capital Commercial Mortgage Corp.(a) 6.07 6/10/2038 1,020
1,000 GE Capital Commercial Mortgage Corp. 5.33(f) 11/10/2045 212
1,000 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 650
1,000 GMAC Commercial Mortgage Securities, Inc. 4.75 5/10/2043 888
1,000 GMAC Commercial Mortgage Securities, Inc.(a) 4.81 5/10/2043 782
287 Government Lease Trust(c) 6.48 5/18/2011 296
1,000 GS Mortgage Securities Corp. II(a) 4.78 7/10/2039 777
1,000 J.P. Morgan Chase Commercial
Mortgage Securities Corp.(a) 4.82 9/12/2037 1,009
1,000 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 4.99 9/12/2037 760
1,500 J.P. Morgan Chase Commercial
Mortgage Securities Corp.(a) 5.81 6/12/2043 1,437
1,000 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.33(f) 12/15/2044 647
1,000 J.P. Morgan Chase Commercial
Mortgage Securities Corp. 5.33(f) 12/15/2044 593
1,500 Merrill Lynch Mortgage Trust 5.23(f) 11/12/2037 1,307
1,000 Merrill Lynch Mortgage Trust 5.83(f) 6/12/2050 842
2,000 Merrill Lynch Mortgage Trust 5.69 2/12/2051 1,756
1,000 ML-CFC Commercial Mortgage Trust 5.42 8/12/2048 645
1,500 ML-CFC Commercial Mortgage Trust 5.96(f) 8/12/2049 1,119
1,500 ML-CFC Commercial Mortgage Trust 5.70 9/12/2049 1,193
878 Morgan Stanley Capital I, Inc. 5.15 8/13/2042 569
723 Morgan Stanley Capital I, Inc. 5.17 8/13/2042 448
2,000 Morgan Stanley Capital I, Inc. 5.81 12/12/2049 1,815
1,500 Mortgage Capital Funding, Inc.(a) 7.09(f) 6/18/2030 1,489
2,000 Prudential Mortgage Capital Funding, LLC(a) 6.76 5/10/2034 2,080
2,000 Wachovia Bank Commercial Mortgage Trust 5.42 1/15/2045 1,894
--------
47,831
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 33
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
--------------------------------------------------------------------------------------------------------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.0%)
$ 9,705 Greenwich Capital Commercial Funding Corp.,
acquired 8/13/2003; cost $548(c),(h) 2.23% 1/11/2035 $ 19
--------
Total Financials 47,850
--------
Total Commercial Mortgage Securities (cost: $43,116) 47,850
--------
U.S. GOVERNMENT AGENCY ISSUES (0.0%)(n)
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.0%)
1,976 Government National Mortgage Assn. (cost: $22) 1.76 7/16/2010 22
--------
U.S. TREASURY SECURITIES (0.0%)
NOTES (0.0%)
200 1.00%, 7/31/2011(o),(p) (cost: $200) 202
--------
MUNICIPAL BONDS (0.5%)
CASINOS & GAMING (0.4%)
2,000 Mashantucket (Western) Pequot Tribe,
acquired 7/29/2005; cost $2,000(c),(h) 5.91 9/01/2021 1,100
1,145 Seneca Nation of Indians Capital Improvements
Auth. 6.75 12/01/2013 1,079
--------
2,179
--------
SPECIAL ASSESSMENT/TAX/FEE (0.1%)
855 Erie County Tobacco Asset Securitization Corp. 6.00 6/01/2028 670
--------
Total Municipal Bonds (cost: $3,972) 2,849
--------
Total Bonds (cost: $194,927) 206,706
--------
MONEY MARKET INSTRUMENTS (9.5%)
COMMERCIAL PAPER (2.0%)
CONSUMER DISCRETIONARY (0.6%)
-----------------------------
BROADCASTING (0.6%)
3,548 Time Warner Cable, Inc.(c),(m) 0.30 12/03/2009 3,548
--------
FINANCIALS (0.5%)
-----------------
ASSET-BACKED FINANCING (0.5%)
2,664 Working Capital Management Co.(c),(m) 0.25 12/02/2009 2,664
--------
UTILITIES (0.9%)
----------------
GAS UTILITIES (0.9%)
5,000 AGL Capital Corp.(c),(m) 0.25 12/07/2009 4,999
--------
Total Commercial Paper 11,211
--------
================================================================================
34 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
(000) SECURITY (000)
--------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS (1.2%)
$ 6,625 1.01%, 3/18/2010(o),(p) $ 6,624
--------
--------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
--------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (6.3%)
35,039,862 State Street Institutional Liquid Reserve Fund, 0.19%(l),(p) 35,040
--------
Total Money Market Instruments (cost: $52,873) 52,875
--------
SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED (0.6%)
MONEY MARKET FUNDS (0.5%)
3,127,824 BlackRock Liquidity Funds TempFund, 0.15%(l) 3,128
--------
--------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
--------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (0.1%)
$200 Credit Suisse First Boston LLC, 0.16%, acquired on 11/30/2009
and due 12/01/2009 at $200 (collateralized by $200 of
Fannie Mae(n), 0.10%(q), due 5/12/2010; market value $205) 200
200 Deutsche Bank Securities, Inc., 0.16%, acquired on 11/30/2009
and due 12/01/2009 at $200 (collateralized by $200 of U.S. Treasury,
2.75%, due 10/31/2013; market value $204) 200
--------
Total Repurchase Agreements 400
--------
Total Short-term Investments Purchased With Cash
Collateral From Securities Loaned (cost: $3,528) 3,528
--------
TOTAL INVESTMENTS (COST: $540,906) $559,001
========
================================================================================
PORTFOLIO OF INVESTMENTS | 35
<PAGE>
================================================================================
--------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF CONTRACTS SECURITY (000)
--------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS (0.1%)
594 Put - Russell 2000 Index expiring December 19, 2009 at 550 $ 362
899 Put - S&P 500 Index expiring December 19, 2009 at 980 198
--------
TOTAL PURCHASED OPTIONS (COST: $831) $ 560
========
WRITTEN OPTIONS (0.2%)
(535) Call - Russell 2000 Index expiring December 19, 2009 at 620 (93)
(899) Call - S&P 500 Index expiring December 19, 2009 at 1,110 (1,115)
(899) Put - S&P 500 Index expiring December 19, 2009 at 890 (63)
--------
TOTAL WRITTEN OPTIONS (PREMIUMS RECEIVED: $2,911) $ (1,271)
========
--------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF CONTRACT APPRECIATION/
CONTRACTS EXPIRATION VALUE (DEPRECIATION)
LONG/(SHORT) SECURITY DATE (000) (000)
--------------------------------------------------------------------------------------------------------
FUTURES (0.0%)
586 Russell 2000 Mini Index Futures 12/18/2009 $33,941 $ (209)
40 S&P 500 E Mini Index Futures 12/18/2009 2,189 47
------- --------
TOTAL FUTURES $36,130 $ (162)
======= ========
================================================================================
36 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------
($ IN 000S) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
-----------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $190,392 $ - $ - $190,392
Preferred Securities 1,428 4,371 - 5,799
Exchange-Traded Funds 99,701 - - 99,701
Warrants - - - -
Bonds:
Corporate Obligations - 105,886 - 105,886
Eurodollar and Yankee Obligations - 20,044 - 20,044
Asset-Backed Securities - 28,353 1,500 29,853
Commercial Mortgage Securities - 47,850 - 47,850
U.S. Government Agency Issues - 22 - 22
U.S. Treasury Securities - 202 - 202
Municipal Bonds - 2,849 - 2,849
Money Market Instruments:
Commercial Paper - 11,211 - 11,211
U.S. Treasury Bills - 6,624 - 6,624
Money Market Funds 35,040 - - 35,040
Short-Term Investments
Purchased with Cash
Collateral from Securities
Loaned:
Repurchase Agreements - 400 - 400
Money Market Funds 3,128 - - 3,128
Purchased Options 560 - - 560
Futures* (162) - - (162)
-----------------------------------------------------------------------------------------------
Total $330,087 $227,812 $1,500 $559,399
-----------------------------------------------------------------------------------------------
* Futures are valued at the unrealized appreciation/depreciation on the
investment.
================================================================================
PORTFOLIO OF INVESTMENTS | 37
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------
($ IN 000S) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
LIABILITIES FOR IDENTICAL LIABILITIES INPUTS INPUTS TOTAL
-----------------------------------------------------------------------------------------------
Written Options $(1,271) $- $- $(1,271)
-----------------------------------------------------------------------------------------------
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
-----------------------------------------------------------------------------------------------
CORPORATE ASSET-BACKED
OBLIGATIONS SECURITIES
-----------------------------------------------------------------------------------------------
Balance as of May 31, 2009 $- $ -
Net realized gain (loss) - -
Change in net unrealized appreciation/depreciation (1) -
Net purchases (sales) - 1,500
Transfers in and/or out of Level 3 1 -
-----------------------------------------------------------------------------------------------
Balance as of November 30, 2009 $- $1,500
-----------------------------------------------------------------------------------------------
================================================================================
38 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
November 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.
Investments in foreign securities were 16.6% of net assets at November 30,
2009.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set
forth in the Investment Company Act of 1940 that would otherwise be
applicable.
o CATEGORIES AND DEFINITIONS
EURODOLLAR AND YANKEE OBLIGATIONS -- Eurodollar obligations are
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) -- represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 39
<PAGE>
================================================================================
purchase and the estimated timing and amount of future cash flows. Coupon
rates after purchase vary from period to period. The principal amount
represents the notional amount of the underlying pool on which current
interest is calculated. CMBS IOs are backed by loans that have various forms
of prepayment protection, which include lock-out provisions, yield
maintenance provisions, and prepayment penalties. This serves to moderate
their prepayment risk. CMBS IOs are subject to default-related prepayments
that may have a negative impact on yield.
WARRANTS -- entitle the holder to buy a proportionate amount of common stock
at a specified price for a stated period.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
iShares Exchange-traded funds, managed by Barclays Global Fund Advisors
(BlackRock, Inc. effective December 1, 2009), that represent a
portfolio of stocks designed to closely track a specific market
index. iShares funds are traded on securities exchanges.
REIT Real estate investment trust
SPDR Exchange-traded funds, managed by State Street Global Advisers,
that represent a portfolio of stocks designed to closely track a
specific market index. SPDR is an acronym for the first member of
the fund family, Standard & Poor's Depositary Receipts, which
tracks the S&P 500 Index. SPDRs are traded on securities
exchanges.
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
================================================================================
40 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
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: AMBAC Assurance Corp., Financial Guaranty Insurance
Co., or Financial Security Assurance Holdings Ltd. 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.
o SPECIFIC NOTES
(a) At November 30, 2009, the security, or a portion thereof, is
segregated to cover the notional value of outstanding written call
options.
(b) The security or a portion thereof was out on loan as of November 30,
2009.
(c) 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.
(d) Pay-in-kind (PIK) -- security in which the issuer has the option to
make interest or dividend payments in cash or in additional
securities. The security issued with the interest or dividend payment
option usually has the same terms, including maturity date, as the PIK
securities.
(e) Security is perpetual and has no final maturity date but may be
subject to calls at various dates in the future.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 41
<PAGE>
================================================================================
(f) Variable-rate or floating-rate security -- interest rate is adjusted
periodically. The interest rate disclosed represents the current rate
at November 30, 2009.
(g) At November 30, 2009, portions of these securities were segregated to
cover delayed-delivery and/or when-issued purchases.
(h) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board of Trustees. The aggregate market value of these
securities at November 30, 2009, was $1,808,000, which represented
0.3% of the Fund's net assets.
(i) Security was fair valued at November 30, 2009, by the Manager in
accordance with valuation procedures approved by the Board of Trustees.
(j) Currently the issuer is in default with respect to interest and/or
principal payments.
(k) At November 30, 2009, the aggregate market value of securities
purchased on a when-issued basis was $1,500,000.
(l) Rate represents the money market fund annualized seven-day yield at
November 30, 2009.
(m) Commercial paper issued in reliance on the "private placement"
exemption from registration afforded by Section 4(2) of the Securities
Act of 1933. Unless this commercial paper is subsequently registered,
a resale of this commercial paper in the United States must be
effected in a transaction exempt from registration under the
Securities Act of 1933. Section 4(2) commercial paper is normally
resold to other investors through or with the assistance of the issuer
or an investment dealer who makes a market in this security, and as
such has been deemed liquid by the Manager under liquidity guidelines
approved by the Board of Trustees, unless otherwise noted as illiquid.
(n) U.S. government agency issues -- mortgage-backed securities issued by
Government National Mortgage Association (GNMA)
================================================================================
42 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
and certain other U.S. government guaranteed securities are supported
by the full faith and credit of the U.S. government. Securities issued
by government-sponsored enterprises, indicated with "+", are supported
only by the right of the government-sponsored enterprise to borrow
from the U.S. Treasury, the discretionary authority of the U.S.
government to purchase the government-sponsored enterprises'
obligations, or by the credit of the issuing agency, instrumentality,
or corporation, and are neither issued nor guaranteed by the U.S.
Treasury.
(o) Securities with a value of $6,826,000 are segregated as collateral for
initial margin requirements on open futures contracts.
(p) Security, or a portion thereof, is segregated to cover the value of
open futures contracts at November 30, 2009.
(q) Zero-coupon security. Rate represents the effective yield at the date
of purchase.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 43
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2009 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value
(including securities on loan of $3,315) (cost of $540,906) $ 559,001
Purchased options, at market value (cost of $831) 560
Cash 62
Receivables:
Capital shares sold 468
USAA Investment Management Company (Note 6D) 748
Dividends and interest 4,007
Securities sold 5
Other 11
Variation margin on futures contracts 333
---------
Total assets 565,195
---------
LIABILITIES
Payables:
Upon return of securities loaned 3,528
Securities purchased 1,500
Capital shares redeemed 413
Written options, at market value (premiums received of $2,911) 1,271
Accrued management fees 343
Accrued transfer agent's fees 12
Other accrued expenses and payables 91
---------
Total liabilities 7,158
---------
Net assets applicable to capital shares outstanding $ 558,037
=========
NET ASSETS CONSIST OF:
Paid-in capital $ 648,172
Accumulated undistributed net investment income 3,586
Accumulated net realized loss on investments, options, and
futures transactions (113,023)
Net unrealized appreciation of investments, options, and futures contracts 19,302
---------
Net assets applicable to capital shares outstanding $ 558,037
=========
Capital shares outstanding, unlimited number of shares
authorized, no par value 46,334
=========
Net asset value, redemption price, and offering price per share $ 12.04
=========
See accompanying notes to financial statements.
================================================================================
44 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2009 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 3,184
Interest 10,614
Securities lending (net) 72
--------
Total income 13,870
--------
EXPENSES
Management fees 1,841
Administration and servicing fees 383
Transfer agent's fees 1,097
Custody and accounting fees 99
Postage 63
Shareholder reporting fees 30
Trustees' fees 5
Registration fees 19
Professional fees 40
Other 10
--------
Total expenses 3,587
Expenses reimbursed (1,031)
--------
Net expenses 2,556
--------
NET INVESTMENT INCOME 11,314
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS, AND FUTURES CONTRACTS
Net realized gain (loss) on:
Investments:
Unaffiliated transactions 1,244
Affiliated transactions (Note 8) (228)
Options (6,833)
Futures transactions 12,516
Change in net unrealized appreciation/depreciation of:
Investments 89,250
Options 1,053
Futures contracts (7,229)
--------
Net realized and unrealized gain 89,773
--------
Increase in net assets resulting from operations $101,087
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 45
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended November 30, 2009 (unaudited), and year ended
May 31, 2009
--------------------------------------------------------------------------------
11/30/2009 5/31/2009
----------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 11,314 $ 18,908
Net realized gain (loss) on investments 1,016 (82,452)
Net realized gain (loss) on options (6,833) 1,402
Net realized gain (loss) on futures transactions 12,516 (20,082)
Change in net unrealized appreciation/depreciation of:
Investments 89,250 (77,587)
Options 1,053 196
Futures contracts (7,229) 4,780
-----------------------
Increase (decrease) in net assets
resulting from operations 101,087 (154,835)
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (11,148) (17,911)
Net realized gains - (78)
-----------------------
Distributions to shareholders (11,148) (17,989)
-----------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 45,830 89,126
Reinvested dividends 11,037 17,794
Cost of shares redeemed (38,753) (106,338)
-----------------------
Increase in net assets from capital share transactions 18,114 582
-----------------------
Capital contribution from USAA Transfer Agency Company - 40
-----------------------
Net increase (decrease) in net assets 108,053 (172,202)
NET ASSETS
Beginning of period 449,984 622,186
-----------------------
End of period $558,037 $ 449,984
=======================
Accumulated undistributed net investment income:
End of period $ 3,586 $ 3,420
=======================
CHANGE IN SHARES OUTSTANDING
Shares sold 4,120 8,741
Shares issued for dividends reinvested 1,015 1,730
Shares redeemed (3,455) (10,214)
-----------------------
Increase in shares outstanding 1,680 257
=======================
See accompanying notes to financial statements.
================================================================================
46 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
November 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 46 separate funds. The
information presented in this semiannual report pertains only to the USAA
Balanced Strategy Fund (the Fund), which is classified as diversified under the
1940 Act. The Fund's investment objective is to seek high total return, with
reduced risk over time, through an asset allocation strategy that seeks a
combination of long-term growth of capital and current income.
A. SECURITY VALUATION -- The value of each security is determined (as of the
close of trading on the New York Stock Exchange (NYSE) on each business day
the NYSE is open) as set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the Nasdaq over-the-counter markets are valued at the last sales price
or official closing price on the exchange or primary market on which
they trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If
no last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
<PAGE>
================================================================================
the Fund's net asset value (NAV) may not take place at the same time
the prices of certain foreign securities held by the Fund are
determined. In most cases, events affecting the values of foreign
securities that occur between the time of their last quoted sales or
official closing prices and the close of normal trading on the NYSE on
a day the Fund's NAV is calculated will not be reflected in the value
of the Fund's foreign securities. However, USAA Investment Management
Company (the Manager), an affiliate of the Fund, and the Fund's
subadvisers, if applicable, will monitor for events that would
materially affect the value of the Fund's foreign securities. The
Fund's subadvisers have agreed to notify the Manager of significant
events they identify that would materially affect the value of the
Fund's foreign securities. If the Manager determines that a particular
event would materially affect the value of the Fund's foreign
securities, then the Manager, under valuation procedures approved by
the Trust's Board of Trustees, will consider such available information
that it deems relevant to determine a fair value for the affected
foreign securities. In addition, the Fund may use information from an
external vendor or other sources to adjust the foreign market closing
prices of foreign equity securities to reflect what the Fund believes
to be the fair value of the securities as of the close of the NYSE.
Fair valuation of affected foreign equity securities may occur
frequently based on an assessment that events that occur on a fairly
regular basis (such as U.S. market movements) are significant.
3. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their NAV at the end of each business
day.
4. Futures are valued based upon the last sale price at the close of
market on the principal exchange on which they are traded.
5. Options are valued by a pricing service at the National Best Bid/Offer
(NBBO) composite price, which is derived from the best available bid
and ask prices in all participating options exchanges determined to
most closely reflect market value of the options at the time of
computation of the Fund's NAV.
================================================================================
48 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
6. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
7. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Trust's
Board of Trustees. The Service uses an evaluated mean between quoted
bid and asked prices or the last sales price to price securities when,
in the Service's judgment, these prices are readily available and are
representative of the securities' market values. For many securities,
such prices are not readily available. The Service generally prices
these securities based on methods that include consideration of yields
or prices of securities of comparable quality, coupon, maturity, and
type; indications as to values from dealers in securities; and general
market conditions.
8. Repurchase agreements are valued at cost, which approximates market
value.
9. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager in consultation with the Fund's
subadvisers, if applicable, under valuation procedures approved by the
Trust's Board of Trustees. The effect of fair value pricing is that
securities may not be priced on the basis of quotations from the
primary market in which they are traded and the actual price realized
from the sale of a security may differ materially from the fair value
price. Valuing these securities at fair value is intended to cause the
Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
<PAGE>
================================================================================
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.
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, market
quotations were not available from the pricing services. As such, the
securities were valued in good faith using methods determined by the
Manager in consultation with the Fund's subadvisers, if applicable, under
valuation procedures approved by the Trust's Board of Trustees. The fair
value methods included using inputs such as market quotations obtained from
the broker-dealers from which the Fund purchased the securities. Refer to
the portfolio of investments for a reconciliation of investments in which
significant unobservable inputs (Level 3) were used in determining value.
================================================================================
50 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -- On December 1, 2008, the
Fund adopted an accounting standard that requires qualitative disclosures
about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features
in derivative agreements, if any.
The Fund may buy, sell, and enter into certain types of derivatives,
including, but not limited to futures contracts, options, and options on
futures contracts under circumstances in which such instruments are
expected by the portfolio manager to aid in achieving the Fund's investment
objective. The Fund also may use derivatives in circumstances where the
portfolio manager believes they offer an economical means of gaining
exposure to a particular asset class or securities market or to keep cash
on hand to meet shareholder redemptions or other needs while maintaining
exposure to the market. With exchange listed futures contracts and options,
counterparty credit risk to the Fund is limited to the exchange's
clearinghouse which, as counterparty to all exchange traded futures
contracts and options, guarantees the transactions against default from the
actual counterparty to the trade.
FUTURES CONTRACTS -- The Fund is subject to equity price risk, interest
rate risk, and foreign currency exchange rate risk in the normal course of
pursuing its investment objectives. The Fund may use futures contracts to
gain exposure to, or hedge against, changes in the value of equities,
interest rates, or foreign currencies. A futures contract represents a
commitment for the future purchase or sale of an asset at a specified price
on a specified date. Upon entering into such contracts, the Fund is
required to deposit with the broker in either cash or securities an initial
margin in an amount equal to a certain percentage of the contract amount.
Subsequent payments (variation margin) are made or received by the Fund
each day, depending on the daily fluctuations in the value of the contract,
and are recorded for financial statement purposes as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Upon entering into
such contracts, the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
<PAGE>
================================================================================
Fund bears the risk of interest or exchange rates or securities prices
moving unexpectedly in an unfavorable direction, in which case, the Fund
may not achieve the anticipated benefits of the futures contracts.
OPTION TRANSACTIONS -- The Fund is subject to equity price risk in the
normal course of pursuing its investment objectives. The Fund may use
options on underlying instruments, namely, equity securities, ETFs, and
equity indexes, to gain exposure to, or hedge against, changes in the value
of equity securities, ETFs, or equity indexes. A call option gives the
purchaser the right to buy, and the writer the obligation to sell, the
underlying instrument at a specified price during a specified period.
Conversely, a put option gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying instrument at a specified
price during a specified period. The purchaser of the option pays a premium
to the writer of the option.
Premiums paid for purchased options are included in the Fund's statement of
assets and liabilities as an investment. If a purchased option expires
unexercised, the premium paid is recognized as a realized loss. If a
purchased call option on a security is exercised, the cost of the security
acquired includes the exercise price and the premium paid. If a purchased
put option on a security is exercised, the realized gain or loss on the
security sold is determined from the exercise price, the original cost of
the security, and the premium paid. The risk associated with purchasing a
call or put option is limited to the premium paid.
Premiums received from writing options are included in the Fund's statement
of assets and liabilities as a liability. If a written option expires
unexercised, the premium received is recognized as a realized gain. If a
written call option on a security is exercised, the realized gain or loss
on the security sold is determined from the exercise price, the original
cost of the security, and the premium received. If a written put option on
a security is exercised, the cost of the security acquired is the exercise
price paid less the premium received. The Fund, as a writer of an option,
bears the market risk of an unfavorable change in the price of the security
underlying the written option.
In an attempt to reduce the Fund's volatility over time, the Fund may
implement a strategy that involves selling index call or corresponding
================================================================================
52 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
ETF options and purchasing index put or corresponding ETF options or put
spread options against a highly correlated stock portfolio to reduce the
Fund's volatility. The combination of the diversified stock portfolio with
the index call and put options is designed to provide the Fund with
consistent returns over a wide range of equity market environments. This
strategy may not fully protect the Fund against declines in the portfolio's
value, and the Fund could experience a loss. Options on securities indexes
or corresponding ETF options are different from options on individual
securities in that the holder of the index options contract has the right
to receive an amount of cash equal to the difference between the exercise
price and the closing price of the underlying index on exercise date. If an
option on an index is exercised, the realized gain or loss is determined
from the exercise price, the value of the underlying index, and the amount
of the premium.
FAIR VALUES OF DERIVATIVE INSTRUMENTS
(IN THOUSANDS)
ASSETS 11/30/2009 5/31/2009
---------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ACCOUNTED ASSETS AND ASSETS AND
FOR AS HEDGING INSTRUMENTS LIABILITIES LIABILITIES
UNDER STATEMENT 133 LOCATION FAIR VALUE LOCATION FAIR VALUE
---------------------------------------------------------------------------------------------
Equity contracts Purchased options; $398* Purchased options; $8,323*
Net unrealized Net unrealized
appreciation of depreciation of
investments, investments,
options, and options, and
futures contracts futures contracts
---------------------------------------------------------------------------------------------
*Includes cumulative appreciation (depreciation) of futures contracts as
reported in the portfolio of investments. Only current day's variation margin
is reported within the statement of assets and liabilities.
LIABILITIES 11/30/2009 5/31/2009
---------------------------------------------------------------------------------------------
STATEMENT OF STATEMENT OF
DERIVATIVES NOT ACCOUNTED ASSETS AND ASSETS AND
FOR AS HEDGING INSTRUMENTS LIABILITIES LIABILITIES
UNDER STATEMENT 133 LOCATION FAIR VALUE LOCATION FAIR VALUE
---------------------------------------------------------------------------------------------
Equity contracts Written options $1,271 Payables: $774
Written options
---------------------------------------------------------------------------------------------
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
<PAGE>
================================================================================
THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF CHANGES IN NET
ASSETS DURING THE SIX-MONTH PERIODS ENDED NOVEMBER 30, 2009, AND MAY 31,
2009*
(IN THOUSANDS)
DERIVATIVES
NOT ACCOUNTED
FOR AS HEDGING STATEMENT OF CHANGE IN UNREALIZED
INSTRUMENTS CHANGES IN APPRECIATION
UNDER NET ASSETS REALIZED GAIN (LOSS) (DEPRECIATION) ON
STATEMENT 133 LOCATION ON DERIVATIVES DERIVATIVES
----------------------------------------------------------------------------------------------
11/30/2009 5/31/2009* 11/30/2009 5/31/2009*
----------------------------------------------------------------------------------------------
Equity contracts Net realized gain $5,683 $(19,041) $(6,176) $20,790
(loss) on options and
futures transactions/
change in net
unrealized
appreciation/
depreciation
of options and
futures contracts
----------------------------------------------------------------------------------------------
*The statement of changes reflects the year ended May 31, 2009, while the
schedule reflects the period December 1, 2008 - May 31, 2009. This accounting
standard was effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.
D. 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.
E. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income, less foreign taxes, if any, is recorded on the
ex-dividend date. If the ex-dividend date has passed, certain dividends
from foreign securities are recorded upon notification. Interest income is
recorded daily on the accrual basis. Discounts and premiums 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.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers.
================================================================================
54 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
These agreements are collateralized by underlying securities. The
collateral obligations are marked-to-market daily to ensure their value is
equal to or in excess of the repurchase agreement price plus accrued
interest and are held by the Fund, either through its regular custodian or
through a special "tri-party" custodian that maintains separate accounts
for both the Fund and its counterparty, until maturity of the repurchase
agreement. Repurchase agreements are subject to credit risk, and the Fund's
Manager monitors the creditworthiness of sellers with which the Fund may
enter into repurchase agreements.
G. FOREIGN CURRENCY TRANSLATIONS -- The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
<PAGE>
================================================================================
from accumulated net realized gain/loss to accumulated undistributed net
investment income on the statement of assets and liabilities as such
amounts are treated as ordinary income/loss for tax purposes. Net
unrealized foreign currency exchange gains/losses arise from changes in the
value of assets and liabilities, other than investments in securities,
resulting from changes in the exchange rate.
H. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -- Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. 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 November 30, 2009, net outstanding delayed-delivery
commitments, including interest purchased, for the Fund were $1,500,000,
all of which were when-issued securities.
I. EXPENSES PAID INDIRECTLY -- A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition,
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 November 30,
2009, the Fund incurred custodian and other bank credits of less than $500.
For the six-month period ended November 30, 2009, the Fund did not incur
any brokerage commission recapture credits.
J. INDEMNIFICATIONS -- Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
================================================================================
56 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
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.
K. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.13% annually of the amount of the committed loan
agreement). Prior to September 25, 2009, the maximum annual facility fee was
0.07% 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 November 30, 2009, the Fund paid CAPCO facility
fees of $1,000, which represents 1.2% 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 November 30, 2009.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
<PAGE>
================================================================================
(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 May 31, 2010, in
accordance with applicable tax law.
Distributions of net investment income are made quarterly. Distributions of
realized gains from security transactions not offset by capital losses are made
annually in the succeeding fiscal year or as otherwise required to avoid the
payment of federal taxes. At May 31, 2009, the Fund had capital loss carryovers
of $58,135,000, for federal income tax purposes, which, if not offset by
subsequent capital gains, will expire in 2017. 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.
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 November 30, 2009, the Fund did not incur any income tax, interest, or
penalties. As of November 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 May 31, 2006, through May 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 November 30, 2009, were
$251,988,000 and $234,108,000, respectively.
As of November 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.
================================================================================
58 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
Gross unrealized appreciation and depreciation of investments as of November 30,
2009, were $55,321,000 and $37,497,000, respectively, resulting in net
unrealized appreciation of $17,824,000.
For the six-month period ended November 30, 2009, transactions in written call
and put options* were as follows:
PREMIUMS
NUMBER OF RECEIVED
CONTRACTS (000's)
-------------------------
Outstanding at May 31, 2009 2,986 $ 1,841
Options written 8,305 7,939
Options terminated in closing purchase transactions (5,319) (4,865)
Options expired (3,639) (2,004)
------------------------
Outstanding at November 30, 2009 2,333 $ 2,911
========================
*Refer to Note 1C for a discussion of derivative instruments and how they are
accounted for in the Fund's financial statements.
(5) LENDING OF PORTFOLIO SECURITIES
The Fund, through its third-party securities-lending agent, Wachovia Global
Securities Lending (Wachovia), may lend its securities to qualified financial
institutions, such as certain broker-dealers, to earn additional income. The
borrowers are required to secure their loans continuously with cash collateral
in an amount at least equal to the fair value of the securities loaned,
initially in an amount at least equal to 102% of the fair value of domestic
securities loaned and 105% of the fair value of international securities loaned.
Cash collateral is invested in high-quality short-term investments. Cash
collateral requirements are determined daily based on the prior business day's
ending value of securities loaned. Imbalances in cash collateral may occur on
days where market volatility causes security prices to change significantly, and
are adjusted the next business day. The Fund and Wachovia retain 80% and 20%,
respectively, of the income earned from the investment of cash received as
collateral, net of any expenses associated with the lending transaction.
Wachovia receives no other fees from the Fund for its services as
securities-lending agent. Risks to the Fund in securities-lending transactions
are that the borrower may not provide additional collateral when required or
return the securities when due, and that the value of the short-term investments
will be less
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
<PAGE>
================================================================================
than the amount of cash collateral required to be returned to the borrower.
Wachovia Bank, N.A., parent company of Wachovia, has agreed to indemnify the
Fund against any losses due to counterparty default in securities-lending
transactions. For the six-month period ended November 30, 2009, the Fund
received securities-lending income of $72,000, which is net of the 20% income
retained by Wachovia. As of November 30, 2009, the Fund loaned securities having
a fair market value of approximately $3,315,000 and received cash collateral of
$3,528,000 for the loans, which was invested in short-term investments, as noted
in the Fund's portfolio of investments.
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund
and for directly managing the day-to-day investment of a portion of the
Fund's assets, subject to the authority of and supervision by the Trust's
Board of Trustees. The Manager is also authorized to select (with approval
of the Trust's Board of Trustees and without shareholder approval) one or
more subadvisers to manage the day-to-day investment of a portion of the
Fund's assets. The Manager monitors each subadviser's performance through
quantitative and qualitative analysis, and periodically recommends to the
Trust's Board of Trustees as to whether each subadviser's agreement should
be renewed, terminated, or modified. The Manager also is responsible for
allocating assets to the subadvisers. The allocation for each subadviser
can range from 0% to 100% of the Fund's assets, and the Manager can change
the allocations without shareholder approval.
The 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 0.75% 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 Balanced Funds Index over the performance
period. The Lipper Balanced Funds Index tracks the total return performance
of the 30 largest funds in the Lipper Balanced
================================================================================
60 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
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)
---------------------------------------------------------------------------
+/- 1.00% to 4.00% +/- 0.04%
+/- 4.01% to 7.00% +/- 0.05%
+/- 7.01% 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.
Under the performance fee arrangement, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Balanced Funds Index over that period, even if the
Fund had overall negative returns during the performance period.
For the six-month period ended November 30, 2009, the Fund incurred total
management fees, paid or payable to the Manager, of $1,841,000, which
included a (0.03)% performance adjustment of $(76,000).
B. SUBADVISORY ARRANGEMENTS -- The Manager has entered into an investment
subadvisory agreement with Deutsche Investment Management Americas Inc.
(DIMA) and Credit Suisse Securities (USA) LLC (CSSU) for its Volaris
Volatility Management Group (Volaris Group), under which DIMA directs the
investment and reinvestment of a portion of the Fund's assets invested in
equity securities (as allocated from
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
<PAGE>
================================================================================
time to time by the Manager) and Volaris Group directs the investment and
reinvestment of the portion of the Fund's assets invested in index options
(as allocated from time to time by the Manager).
The Manager (not the Fund) pays DIMA a subadvisory fee in an annual amount
of 0.15% of the portion of the Fund's average net assets that DIMA manages.
For the six-month period ended November 30, 2009, the Manager incurred
subadvisory fees, paid or payable to DIMA, of $158,000.
The Manager (not the Fund) pays CSSU's Volaris Group a subadvisory fee
based on the total notional amount of the options contracts that CSSU's
Volaris Group manages in the USAA Balanced Strategy Fund, the USAA
Cornerstone Strategy Fund, the USAA First Start Growth Fund, the USAA Total
Return Strategy Fund, and the USAA Global Opportunities Fund, in an annual
amount of 0.23% on the first $50 million of the total notional amount;
0.20% on the total notional amount over $50 million and up to $250 million;
0.12% on the total notional amount over $250 million and up to $500
million; 0.10% on the total notional amount over $500 million and up to $2
billion; and 0.08% on the total notional amount over $2 billion. The
notional amount is based on the daily closing price of the index that
underlies the written options strategy for the Fund. For the six-month
period ended November 30, 2009, the Manager incurred subadvisory fees for
the Fund, paid or payable to CSSU's Volaris Group of $83,000.
C. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid monthly at an
annualized rate of 0.15% of the Fund's average net assets. For the
six-month period ended November 30, 2009, the Fund incurred administration
and servicing fees, paid or payable to the Manager, of $383,000.
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
================================================================================
62 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
these expenses incurred by the Manager. For the six-month period ended
November 30, 2009, the Fund reimbursed the Manager $12,000 for these
compliance and legal services. These expenses are included in the
professional fees on the Fund's statement of operations.
D. EXPENSE LIMITATION -- The Manager has voluntarily agreed to limit the
annual expenses of the Fund to 1.00% of its average annual net assets,
excluding extraordinary expenses and before reductions of any expenses paid
indirectly, and will reimburse the Fund for all expenses in excess of that
amount. The Manager may modify or terminate this voluntary agreement at any
time. For the six-month period ended November 30, 2009, the Fund incurred
reimbursable expenses of $1,031,000, of which $748,000 was receivable from
the Manager.
E. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund based on an annual charge of $23 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 November 30,
2009, the Fund incurred transfer agent's fees, paid or payable to SAS, of
$1,097,000.
F. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
(7) 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.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended November 30, 2009, in accordance with
affiliated transaction procedures approved by the Trust's Board
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
<PAGE>
================================================================================
of Trustees, purchases and sales of security transactions were executed between
the Fund and the following affiliated USAA funds at the then-current market
price with no brokerage commissions incurred.
COST TO NET REALIZED
SELLER PURCHASER PURCHASER LOSS TO SELLER
--------------------------------------------------------------------------------
USAA Balanced USAA High-Yield
Strategy Fund Opportunities Fund $798,000 $(228,000)
(9) SUBSEQUENT EVENTS
Events or transactions that occur after the balance sheet date but before the
financial statements are issued are categorized as recognized or non-recognized
for financial statement purposes. The Manager has evaluated subsequent events
through January 19, 2010, the date the financial statements were issued, and has
determined there were no events that required recognition or disclosure in the
Fund's financial statements.
================================================================================
64 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
(10) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
NOVEMBER 30, YEAR ENDED MAY 31,
---------------------------------------------------------------------------------------
2009 2009 2008 2007 2006 2005
---------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 10.08 $ 14.01 $ 15.70 $ 14.97 $ 15.41 $ 14.70
---------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .25 .43 .38 .37 .34 .26
Net realized and
unrealized gain (loss) 1.96 (3.95) (.96) 1.68 .26 .86
---------------------------------------------------------------------------------------
Total from investment
operations 2.21 (3.52) (.58) 2.05 .60 1.12
---------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.25) (.41) (.38) (.38) (.31) (.25)
Realized capital gains -- (.00)(a) (.73) (.94) (.73) (.16)
---------------------------------------------------------------------------------------
Total distributions (.25) (.41) (1.11) (1.32) (1.04) (.41)
---------------------------------------------------------------------------------------
Net asset value at end
of period $ 12.04 $ 10.08 $ 14.01 $ 15.70 $ 14.97 $ 15.41
=======================================================================================
Total return (%)* 22.16 (25.13) (3.82) 14.28(b) 3.84 7.67
Net assets at end
of period (000) $558,037 $449,984 $622,186 $661,780 $634,124 $609,763
Ratios to average
net assets:**
Expenses (%)(c) 1.00(d) 1.00 1.00 1.00(b) 1.00 1.00
Expenses, excluding
reimbursements (%)(c) 1.40(d) 1.42 1.26 1.26(b) 1.27 1.29
Net investment income (%) 4.42(d) 4.12 2.61 2.46 2.15 1.74
Portfolio turnover (%) 52 115 185(e) 179 153 68
* 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 November 30, 2009, average net assets were $510,237,000.
(a) Represents less than $0.01 per share.
(b) For the year ended May 31, 2007, SAS voluntarily reimbursed the Fund for a portion of the transfer agent's
fees incurred. The reimbursement had no effect on the Fund's total return or ratio of expenses to average net
assets.
(c) Reflects total operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's
expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) (.00%)(+) (.01%) (.01%) (.02%)
(+) Represents less than 0.01% of average net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(e) Reflects increased trading activity due to changes in subadvisers and asset allocation strategies.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
<PAGE>
================================================================================
EXPENSE EXAMPLE
November 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 June 1, 2009, through
November 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
================================================================================
66 | USAA BALANCED STRATEGY FUND
<PAGE>
================================================================================
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 JUNE 1, 2009 -
JUNE 1, 2009 NOVEMBER 30, 2009 NOVEMBER 30, 2009
---------------------------------------------------------------
Actual $1,000.00 $1,221.60 $5.57
Hypothetical
(5% return before expenses) 1,000.00 1,020.05 5.06
* Expenses are equal to the Fund's annualized expense ratio of 1.00%, which is
net of any reimbursements and 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 22.16% for the
six-month period of June 1, 2009, through November 30, 2009.
================================================================================
EXPENSE EXAMPLE | 67
<PAGE>
================================================================================
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "Products & Services"
SELF-SERVICE 24/7 click "Investments," then
AT USAA.COM "Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA "Investments." View account balances,
(8722) or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. Information regarding
how the Fund voted proxies relating to portfolio securities during the most
recent 12-month period ended June 30 is available (i) at USAA.COM; and (ii) on
the SEC's Web site at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
<PAGE>
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
At usaa.com click: MY DOCUMENTS
Set preferences to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
27804-0110 (C)2010, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended November 30, 2009
By:* CHRISTOPHER P. LAIA
-----------------------------------------------------------
Signature and Title: Christopher P. Laia, Assistant Secretary
Date: 01/26/2010
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* CHRISTOPHER W. CLAUS
-----------------------------------------------------
Signature and Title: Christopher W. Claus, President
Date: 01/27/2010
------------------------------
By:* ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 01/27/2010
------------------------------
*Print the name and title of each signing officer under his or her signature.