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 EMERGING MARKETS FUND]
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SEMIANNUAL REPORT
USAA EMERGING MARKETS FUND
FUND SHARES o INSTITUTIONAL SHARES
NOVEMBER 30, 2009
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FUND OBJECTIVE
CAPITAL APPRECIATION.
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TYPES OF INVESTMENTS
Invests at least 80% of the Fund's assets in equity securities of emerging
market companies.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Investment Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 2
MANAGERS' COMMENTARY 4
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Portfolio of Investments 15
Notes to Portfolio of Investments 31
Financial Statements 34
Notes to Financial Statements 37
EXPENSE EXAMPLE 54
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2010, USAA. All rights reserved.
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PRESIDENT'S MESSAGE
"IN MY OPINION, THOSE WHO WERE DIVERSIFIED
WEATHERED THE STORM BETTER THAN THOSE [PHOTO OF DANIEL S. McNAMARA]
WHO WERE AGGRESSIVELY POSITIONED."
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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%.
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2 | USAA EMERGING MARKETS FUND
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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.
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PRESIDENT'S MESSAGE | 3
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MANAGERS' COMMENTARY ON THE FUND
The Boston Company Asset Management, Batterymarch Financial Management, Inc.
LLC DAVID LAZENBY, CFA
KIRK HENRY, CFA
CAROLYN KEDERSHA, CFA, CPA
WARREN SKILLMAN
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o HOW DID THE USAA EMERGING MARKETS FUND (THE FUND) PERFORM DURING THE
REPORTING PERIOD?
For the six-month period ended November 30, 2009, the Fund had a total
return of 25.19%. This compares to a return of 25.64% for the Lipper
Emerging Markets Funds Index and 24.73% for the Morgan Stanley Capital
International Emerging Markets Index(R) (the Index).
The Fund has two subadvisers, each pursuing a distinct approach to emerging
markets investing: The Boston Company Asset Management, LLC (The Boston
Company) and Batterymarch Financial Management, Inc. (Batterymarch).
o PLEASE CHARACTERIZE THE PERFORMANCE OF THE BOSTON COMPANY'S PORTION OF THE
FUND?
Our strict valuation process tends to outperform the Index during bear
markets and in the early stages of a bull market, and then slightly
Refer to pages 9 and 12 for benchmark definitions.
Past performance is no guarantee of future results.
Foreign investing is subject to additional risks, such as currency
fluctuations, market illiquidity, and political instability.
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4 | USAA EMERGING MARKETS FUND
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underperform the Index as a bull market progresses. We've seen that
transition begin to occur. Our portion of the Fund outperformed the Index
for the reporting period.
Some of our strongest index-relative performance came in the technology
sector in Asia. Our top relative performer for the period was Samsung
Electronics Co. Ltd., the Korean conglomerate that makes everything from
semiconductors to mobile phones and other consumer electronics. Compal
Electronics Inc. in Taiwan was another top Asian technology holding for our
portion of the Fund.
On a country level, Korea and Taiwan were our best markets relative to the
Index. KB Financial Group, Inc., Korea's biggest bank, and Lotte Shopping
Co. Ltd., a major Korean retailer, are evidence of our attraction to
companies that are geared to the growth of the consumer in the emerging
markets. Even though we were underweight in the strong Brazilian market, our
stock selection there was excellent, led by Grendene S.A., a manufacturer of
casual footwear, and Medial Saude S.A., a health care company. Our best
small market was Thailand, where we participated in a rebound in some of the
banks.
Markets where we didn't do as well included China and India. Our view is
that the huge rally in emerging markets--the Index has gained 71.72%
year-to-date through November 30, 2009--has made many of the big Index
constituent stocks in these markets overvalued. In China, we were
underweight in the financials and also had lower exposure to materials
stocks, given excess capacity in steel and aluminum. In India, we owned two
telecommunications firms that became involved in a price war. In Russia, our
holding in OAO Gazprom had a negative return for the period as natural gas
prices didn't keep up with the general rise in commodities.
o WHAT'S THE BOSTON COMPANY'S OUTLOOK?
We remain very bullish in the long term on emerging markets, with their
impressive demographics and superior government finances and corporate
fundamentals. We are more cautious in the near term
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MANAGERS' COMMENTARY ON THE FUND | 5
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given how far and how fast emerging markets have come off the market lows.
Barring any pullback in the global economy, fundamentals support continuing
strong performance, yet these are still emerging markets. We need to see
additional transitioning from public spending to consumer-led spending in
developed and many emerging economies, particularly in China. Stock selection
also will become more critical. As the bull market continues, we may
underperform the Index, but we believe our strict focus on valuation provides
some protection in the event of a market sell-off.
o PLEASE CHARACTERIZE THE PERFORMANCE IN THE BATTERYMARCH PORTION OF THE FUND?
We outperformed the Index during the reporting period after lagging the
Index during the bear market and the first months of the recovery when deep
value stocks were leading the advance. Our stock selection process involves
several measures in addition to value, including growth and expectations,
and as the market broadened out during the reporting period our multiple
dimensions increasingly supported relative performance.
Stock selection tends to drive Batterymarch's performance, and during the
six-month period it was particularly strong in China, Brazil, Turkey,
Taiwan, and Russia. South Korea and South Africa were the only two
noteworthy markets where stock selection detracted from performance to any
meaningful degree. By industry, stock selection was positive in
transportation, telecommunications services, capital goods, and banks.
Within transportation, specific auto-related holdings that did well included
Geely Automobile Holdings Ltd. and Weichai Power Co., Ltd. in China, as well
as PT Astra International Tbk, an Indonesian car manufacturer. Stock
selection in the energy and technology sectors detracted from index-relative
returns.
Allocation by country and industry sector produced mixed results, with a
modestly negative impact on performance. We ended the period with our
biggest index-relative overweight position in Russia. Other markets
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6 | USAA EMERGING MARKETS FUND
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we were overweight in positions included Brazil, Turkey, and Egypt. Our
biggest underweights were in India, Taiwan, Malaysia, Israel (which will be
moving out of the Index later in 2010), and China.
o WHAT'S BATTERYMARCH'S OUTLOOK?
We believe that overall emerging market valuations are justified, in line
with historical levels and their developed market counterparts. The case for
continued outperformance in emerging markets comes down to belief in the
ongoing economic recovery and better fundamental strength in terms of growth
prospects and stronger balance sheets at both the country and consumer
levels. We remain tilted in the direction of owning stocks in industry
groups and countries that are supported by infrastructure development. Thus,
we are cyclically tilted towards capital goods and materials stocks, but are
less attracted to companies that depend on consumption from the developed
world.
Our portion of the Fund has an average price-to-earnings ratio lower than
the Index and average earnings per share growth estimates higher than the
Index. These characteristics, which actually hurt our performance during the
extreme volatility, seem to have resumed their more traditional role as
positive factors.
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MANAGERS' COMMENTARY ON THE FUND | 7
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INVESTMENT OVERVIEW
USAA EMERGING MARKETS FUND SHARES (Ticker Symbol: USEMX)
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11/30/09 5/31/09
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Net Assets $579.8 Million $425.9 Million
Net Asset Value Per Share $18.04 $14.41
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AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/09
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5/31/09 to 11/30/09* 1 YEAR 5 YEARS 10 YEARS
25.19% 83.33% 13.21% 9.08%
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EXPENSE RATIO**
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1.79%
*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 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 EXPENSE RATIO MAY DIFFER
FROM THE EXPENSE RATIO DISCLOSED IN THE FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
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8 | USAA EMERGING MARKETS FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI EMERGING LIPPER EMERGING USAA EMERGING
MARKETS INDEX MARKETS FUNDS INDEX MARKETS FUND SHARES
11/30/99 $10,000.00 $10,000.00 $10,000.00
12/31/99 11,271.80 11,756.83 11,445.15
01/31/00 11,338.98 11,620.53 11,202.53
02/29/00 11,488.74 11,966.37 11,582.28
03/31/00 11,544.80 12,001.87 11,561.18
04/30/00 10,450.44 10,696.18 10,084.39
05/31/00 10,018.40 10,126.85 9,472.57
06/30/00 10,371.30 10,629.00 9,978.90
07/31/00 9,837.91 10,195.33 9,523.68
08/31/00 9,886.28 10,300.68 9,650.38
09/30/00 9,023.05 9,316.23 8,795.15
10/31/00 8,368.85 8,620.71 8,267.23
11/30/00 7,637.06 7,841.46 7,433.11
12/31/00 7,821.51 8,124.51 7,792.10
01/31/01 8,898.54 9,065.81 8,520.63
02/28/01 8,201.77 8,362.84 7,792.10
03/31/01 7,396.20 7,565.07 7,095.24
04/30/01 7,761.66 7,951.60 7,422.55
05/31/01 7,854.30 8,170.26 7,559.81
06/30/01 7,693.08 8,027.74 7,454.23
07/31/01 7,206.95 7,529.90 7,063.57
08/31/01 7,135.86 7,431.72 6,810.17
09/30/01 6,031.38 6,371.23 5,954.94
10/31/01 6,405.68 6,705.67 6,250.57
11/30/01 7,074.45 7,369.92 6,746.82
12/31/01 7,635.99 7,840.31 7,340.62
01/31/02 7,894.75 8,149.44 7,700.76
02/28/02 8,024.45 8,331.73 7,944.39
03/31/02 8,507.95 8,788.06 8,474.02
04/30/02 8,562.35 8,895.42 8,484.61
05/31/02 8,425.92 8,813.60 8,399.87
06/30/02 7,793.80 8,169.41 7,774.91
07/31/02 7,201.03 7,558.84 7,118.17
08/31/02 7,311.98 7,620.85 7,202.91
09/30/02 6,523.09 6,856.64 6,429.66
10/31/02 6,946.35 7,183.66 6,662.69
11/30/02 7,424.50 7,666.91 7,128.77
12/31/02 7,177.81 7,477.45 6,969.88
01/31/03 7,146.56 7,434.13 6,885.14
02/28/03 6,953.68 7,258.78 6,694.47
03/31/03 6,756.51 7,024.71 6,503.81
04/30/03 7,358.32 7,701.55 7,128.77
05/31/03 7,886.44 8,255.35 7,658.39
06/30/03 8,335.93 8,670.92 8,029.13
07/31/03 8,857.98 9,067.84 8,474.02
08/31/03 9,452.53 9,673.67 8,908.31
09/30/03 9,521.83 9,888.23 9,109.57
10/31/03 10,332.11 10,658.47 9,798.08
11/30/03 10,459.08 10,816.61 9,978.15
12/31/03 11,217.32 11,735.66 10,666.67
01/31/04 11,615.71 12,071.21 10,995.04
02/29/04 12,151.54 12,613.05 11,471.70
03/31/04 12,307.68 12,782.22 11,545.85
04/30/04 11,301.43 11,774.79 10,836.15
05/31/04 11,151.61 11,545.01 10,656.07
06/30/04 11,129.46 11,604.29 10,793.78
07/31/04 10,932.66 11,433.98 10,634.89
08/31/04 11,390.31 11,878.29 10,952.67
09/30/04 12,048.18 12,574.81 11,471.70
10/31/04 12,336.81 12,958.55 11,757.70
11/30/04 13,479.51 14,024.24 12,827.54
12/31/04 14,128.44 14,750.98 13,460.71
01/31/05 14,173.15 14,803.42 13,332.92
02/28/05 15,417.68 16,037.75 14,344.60
03/31/05 14,401.95 14,947.30 13,343.57
04/30/05 14,018.09 14,581.52 13,077.33
05/31/05 14,511.65 15,032.65 13,407.46
06/30/05 15,012.57 15,531.65 13,907.98
07/31/05 16,074.83 16,603.81 14,781.22
08/31/05 16,219.54 16,861.98 14,845.12
09/30/05 17,731.95 18,336.69 16,027.19
10/31/05 16,573.42 17,231.00 14,909.01
11/30/05 17,945.65 18,522.49 15,952.64
12/31/05 19,008.71 19,567.58 16,898.96
01/31/06 21,143.39 21,819.81 18,432.31
02/28/06 21,123.25 21,692.12 18,443.03
03/31/06 21,312.60 21,986.46 18,818.32
04/30/06 22,833.37 23,543.95 20,072.88
05/31/06 20,446.25 20,955.31 18,035.57
06/30/06 20,402.93 20,851.51 17,928.34
07/31/06 20,708.07 21,299.70 18,035.57
08/31/06 21,246.04 21,879.76 18,410.86
09/30/06 21,424.62 22,042.59 18,732.54
10/31/06 22,443.06 23,193.81 19,579.63
11/30/06 24,114.90 24,717.89 20,973.58
12/31/06 25,202.99 25,842.81 21,860.66
01/31/07 24,941.90 25,719.01 21,741.44
02/28/07 24,797.42 25,477.71 21,470.48
03/31/07 25,794.41 26,448.92 22,218.32
04/30/07 26,992.26 27,701.91 23,096.22
05/31/07 28,336.19 29,192.69 24,570.21
06/30/07 29,676.48 30,209.36 25,469.78
07/31/07 31,257.68 31,304.51 26,521.09
08/31/07 30,603.65 30,625.94 26,065.88
09/30/07 33,985.70 33,596.98 28,244.36
10/31/07 37,778.46 37,181.76 31,062.30
11/30/07 35,102.82 34,897.10 29,003.04
12/31/07 35,228.21 35,211.59 29,207.39
01/31/08 30,842.26 31,322.85 26,595.54
02/29/08 33,130.02 32,689.98 27,680.83
03/31/08 31,379.80 31,166.98 26,571.69
04/30/08 33,931.44 33,524.47 28,682.64
05/31/08 34,570.76 34,142.00 29,183.54
06/30/08 31,128.42 30,629.60 26,368.94
07/31/08 29,978.88 29,558.72 25,641.44
08/31/08 27,594.11 27,312.87 23,721.32
09/30/08 22,768.02 22,834.02 19,869.14
10/31/08 16,540.23 16,202.90 14,275.72
11/30/08 15,296.30 14,816.37 13,011.54
12/31/08 16,493.53 15,930.10 14,122.42
01/31/09 15,435.11 14,555.29 12,958.78
02/28/09 14,566.96 13,735.49 12,324.06
03/31/09 16,662.37 15,506.03 13,857.96
04/30/09 19,437.70 18,068.13 16,132.35
05/31/09 22,770.29 21,341.30 19,054.69
06/30/09 22,468.09 21,088.96 18,724.11
07/31/09 25,010.63 23,528.32 20,866.27
08/31/09 24,927.82 23,623.47 20,932.39
09/30/09 27,194.60 25,732.82 22,929.10
10/31/09 27,230.75 25,420.27 22,677.86
11/30/09 28,401.83 26,813.58 23,854.72
[END CHART]
Data from 11/30/99 to 11/30/09.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Emerging Markets Fund Shares to the following benchmarks:
o The unmanaged Morgan Stanley Capital International (MSCI) Emerging Markets
Index is a free-float-adjusted market capitalization index that is designed
to measure equity market performance in the global emerging markets.
o The unmanaged Lipper Emerging Markets Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Emerging Markets Funds
category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
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INVESTMENT OVERVIEW | 9
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USAA EMERGING MARKETS FUND INSTITUTIONAL SHARES*
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11/30/09 5/31/09
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Net Assets $51.2 Million $23.3 Million
Net Asset Value Per Share $18.10 $14.41
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AVERAGE ANNUAL TOTAL RETURNS AS OF 11/30/09
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5/31/09 To 11/30/09** 1 Year Since Inception 8/01/08
25.52% 84.57% -3.99%
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EXPENSE RATIO***
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Before Reimbursement 1.28% After Reimbursement 1.13%
*The USAA Emerging Markets Fund Institutional Shares (Institutional Shares)
commenced operations on August 1, 2008, and are not offered for sale directly to
the general public. The Institutional Shares are available only to the USAA
Target Retirement Funds.
**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.
***THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE
NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL
OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
EXCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, AFTER REIMBURSEMENT FROM USAA
INVESTMENT MANAGEMENT COMPANY (IMCO). BEFORE AND AFTER REIMBURSEMENT EXPENSE
RATIOS ARE REPORTED IN THE INSTITUTIONAL SHARES' PROSPECTUS DATED OCTOBER 1,
2009. FOR THE FIRST TWO FISCAL YEARS, IMCO HAS VOLUNTARILY AGREED TO LIMIT THE
INSTITUTIONAL SHARES' TOTAL ANNUAL OPERATING EXPENSES TO 1.13%, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AND TO REIMBURSE THE INSTITUTIONAL SHARES 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.
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10 | USAA EMERGING MARKETS FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
MSCI EMERGING USAA EMERGING MARKETS LIPPER EMERGING
MARKETS INDEX FUND INSTITUTIONAL SHARES MARKETS FUNDS INDEX
07/31/08 $10,000.00 $10,000.00 $10,000.00
08/31/08 9,204.52 9,355.60 9,240.21
09/30/08 7,594.69 7,836.31 7,724.97
10/31/08 5,517.29 5,630.29 5,481.60
11/30/08 5,102.36 5,131.70 5,012.52
12/31/08 5,501.72 5,573.05 5,389.31
01/31/09 5,148.66 5,117.79 4,924.20
02/28/09 4,859.08 4,871.84 4,646.85
03/31/09 5,558.04 5,484.09 5,245.84
04/30/09 6,483.80 6,384.15 6,112.62
05/31/09 7,595.45 7,545.86 7,219.97
06/30/09 7,494.64 7,415.03 7,134.60
07/31/09 8,342.75 8,273.23 7,959.86
08/31/09 8,315.13 8,299.40 7,992.05
09/30/09 9,071.25 9,094.80 8,705.66
10/31/09 9,083.31 9,000.61 8,599.92
11/30/09 9,473.95 9,471.56 9,071.29
[END CHART]
*Data from 7/31/08 to 11/30/09.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
*The performance of the MSCI Emerging Markets Index and the Lipper Emerging
Markets Funds Index is calculated from the end of the month, July 31, 2008,
while the Institutional Shares' inception date is August 1, 2008. There may be a
slight variation of performance numbers because of this difference.
================================================================================
INVESTMENT OVERVIEW | 11
<PAGE>
================================================================================
The graph on page 11 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Emerging Markets Fund Institutional Shares to the
following benchmarks:
o The unmanaged Morgan Stanley Capital International (MSCI) Emerging Markets
Index is a free-float-adjusted market capitalization index that is designed
to measure equity market performance in the global emerging markets.
o The unmanaged Lipper Emerging Markets Funds Index tracks the total return
performance of the 30 largest funds within the Lipper Emerging Markets Funds
category.
================================================================================
12 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
TOP 10 INDUSTRIES
AS OF 11/30/09
(% of Net Assets)
Diversified Banks .............................................. 17.1%
Integrated Oil & Gas ........................................... 10.5%
Wireless Telecommunication Services ............................ 6.4%
Semiconductors ................................................. 5.3%
Steel .......................................................... 4.9%
Diversified Metals & Mining .................................... 4.5%
Money Market Funds ............................................. 3.8%
Integrated Telecommunication Services .......................... 3.3%
Computer Hardware .............................................. 2.4%
Automobile Manufacturers ....................................... 2.0%
TOP 10 EQUITY HOLDINGS
AS OF 11/30/09
(% of Net Assets)
Petroleo Brasileiro S.A. ADR ................................... 3.4%
Samsung Electronics Co. Ltd. ................................... 2.9%
America Movil S.A.B. de C.V. ADR "L" ........................... 1.5%
Itau Unibanco Banco Multiplo S.A. GDR .......................... 1.4%
LUKoil Holdings ADR ............................................ 1.4%
Vale S.A. ADR .................................................. 1.4%
China Mobile Ltd. .............................................. 1.3%
China Construction Bank Corp. "H" .............................. 1.2%
OAO Gazprom ADR ................................................ 1.2%
Vale S.A. ...................................................... 1.1%
You will find a complete list of securities that the Fund owns on pages 15-30.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
o ASSET ALLOCATION -- 11/30/2009* o
[PIE CHART OF ASSET ALLOCATION]
BRAZIL 13.3%
SOUTH KOREA 12.0%
CHINA 11.5%
TAIWAN 11.0%
SOUTH AFRICA 7.8%
MEXICO 5.6%
RUSSIA 5.6%
INDIA 5.2%
HONG KONG 3.1%
GERMANY 3.0%
OTHER** 21.8%
* Excludes short-term investments purchased with cash collateral from
securities loaned.
** Includes countries with less than 3% of portfolio and money market
instruments (3.8%).
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
14 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
November 30, 2009 (unaudited)
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
EQUITY SECURITIES (96.0%)
COMMON STOCKS (89.1%)
CONSUMER DISCRETIONARY (6.7%)
-----------------------------
APPAREL & ACCESSORIES & LUXURY GOODS (0.3%)
7,890,000 Bosideng International Holdings Ltd. $ 1,639
1,261,400 Delta Dunia Petroindo Tbk* 204
73,500 Ports Design Ltd. 198
--------
2,041
--------
APPAREL RETAIL (0.1%)
168,600 Mr. Price Group Ltd. 742
--------
AUTO PARTS & EQUIPMENT (0.4%)
42,600 Halla Climate Control Corp. 439
14,700 Hyundai Mobis Co. Ltd. 1,884
266,000 Minth Group Ltd. 377
--------
2,700
--------
AUTOMOBILE MANUFACTURERS (2.0%)
3,829,800 Denway Motors Ltd. 2,342
1,844,000 Dongfeng Motor Group Co. Ltd. 2,822
5,235,000 Geely Automobile Holdings Ltd. 2,655
19,189 Hyundai Motor Co. Ltd. 1,634
127,800 Mahindra & Mahindra Ltd. GDR 2,811
113,000 PT Astra International Tbk 387
--------
12,651
--------
BROADCASTING (0.2%)
379,000 ABS-CBN Broadcasting Corp. PDR, acquired 2/14/2005 - 4/20/2006;
cost $117(a),(b) 238
47,800 Grupo Televisa S.A. de C.V. ADR 983
--------
1,221
--------
CABLE & SATELLITE (0.1%)
51,000 Net Servicos de Comunicacao S.A. 730
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
CASINOS & GAMING (0.9%)
66,700 Genting Berhad $ 137
186,560 Kangwon Land, Inc. 2,615
3,850,620 Resorts World Berhad 3,189
--------
5,941
--------
CONSUMER ELECTRONICS (0.2%)
11,039 LG Electronics, Inc. 978
--------
DEPARTMENT STORES (0.4%)
348,000 Golden Eagle Retail Group Ltd. 771
6,056 Lotte Shopping Co. Ltd. 1,875
--------
2,646
--------
FOOTWEAR (0.4%)
344,380 Grendene S.A., acquired 12/27/2004 - 6/17/2008; cost $1,128(a) 1,764
1,120,000 Prime Success International Group Ltd. 861
--------
2,625
--------
HOME FURNISHINGS (0.3%)
728,300 Steinhoff International Holdings Ltd.* 1,773
--------
HOME IMPROVEMENT RETAIL (0.2%)
248,690 JD Group Ltd. 1,478
--------
HOMEBUILDING (0.6%)
149,200 Brascan Residential Properties S.A. 640
1,343,900 Consorcio ARA S.A. de C.V.* 965
470,900 Corporacion GEO, S.A. de C.V. "B"* 1,287
19,000 Desarrolladora Homex S.A. De C.V. ADR* 661
--------
3,553
--------
HOUSEWARES & SPECIALTIES (0.2%)
1,178,275 Turk Sise ve Cam Fabrikalari A.S.*(b) 1,177
--------
TEXTILES (0.4%)
237,500 Texwinca Holdings Ltd. 218
2,974,500 Weiqiao Textile Co. Ltd. "H" 2,026
--------
2,244
--------
Total Consumer Discretionary 42,500
--------
CONSUMER STAPLES (3.3%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
86,500 Genting Plantations Berhad 157
6,000,500 Global Bio-chem Technology Group Co. Ltd. 1,355
--------
1,512
--------
================================================================================
16 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
BREWERS (0.1%)
25,000 Compania Cervecerias Unidas S.A. ADR $ 901
--------
FOOD DISTRIBUTORS (0.0%)
1,308,000 Alliance Global Group Inc.*(b) 119
--------
FOOD RETAIL (0.5%)
93,200 Shoprite Holdings Ltd. 780
71,300 X5 Retail Group NV* 2,068
--------
2,848
--------
PACKAGED FOODS & MEAT (1.1%)
120,300 Acucar Guarani S.A.* 349
5,605,000 Charoen Pokphand Foods Public Co. Ltd.(b) 1,804
730,000 China Yurun Food Group Ltd. 1,799
5,953 CJ Cheiljedang Corp. 1,124
357 Lotte Confectionery Co. Ltd. 383
43,200 Marfrig Frigorificos E Comercio de Alimentos S.A.* 504
1,029,300 Thai Union Frozen Products Public Co. Ltd.(b) 828
--------
6,791
--------
SOFT DRINKS (0.9%)
12,100 Coca Cola Femsa S.A. de C.V. ADR 691
727,000 Embotelladoras Arca S.A., acquired 3/30/2006 - 10/28/2009; cost $1,845(a) 2,162
22,000 Fomento Economico Mexicano ADR 1,001
688,800 Grupo Continental S.A., acquired 7/02/2002 - 3/27/2009; cost $1,160(a) 1,585
420 Lotte Chilsung Beverage Co. Ltd. 298
--------
5,737
--------
TOBACCO (0.5%)
38,058 KT&G Corp. 2,206
389,900 PT Gudang Garam Tbk, acquired 2/24/2009; cost $264(a) 711
--------
2,917
--------
Total Consumer Staples 20,825
--------
ENERGY (10.3%)
--------------
COAL & CONSUMABLE FUELS (0.3%)
21,500 Banpu Public Co. Ltd. 343
2,105,400 PT Bumi Resources Tbk 523
582,000 Yanzhou Coal Mining Co. Ltd. "H" 1,159
--------
2,025
--------
INTEGRATED OIL & GAS (7.1%)
608,000 China Petroleum and Chemical Corp. "H" 506
147,120 LUKoil Holdings ADR 8,548
10,510 MOL Hungarian Oil and Gas Nyrt.* 919
================================================================================
PORTFOLIO OF INVESTMENTS | 17
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
335,910 OAO Gazprom ADR(b) $ 7,632
158,700 OAO Gazprom ADR 3,606
224,200 OJSC OC Rosneft* 1,805
5,142,000 PetroChina Co. Ltd. "H" 6,369
22,480 PetroChina Co. Ltd. ADR 2,808
101,720 Petroleo Brasileiro S.A. ADR 5,216
451,200 PTT Public Co. Ltd.(b) 3,040
84,100 Sasol Ltd. 3,303
21,580 Sasol Ltd. ADR 854
--------
44,606
--------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
226,282 Maridive & Oil Services Co. 885
--------
OIL & GAS EXPLORATION & PRODUCTION (1.1%)
1,808,000 CNOOC Ltd. 2,781
6,460 CNOOC Ltd. ADR 1,001
134,800 JKX Oil & Gas plc 603
1,200 Ogx Petroleo E Gas Participa 1,015
67,700 Pacific Rubiales Energy Corp.* 986
85,200 PTT Exploration & Production plc GDR(b) 334
--------
6,720
--------
OIL & GAS REFINING & MARKETING (1.7%)
128,142 Reliance Industries Ltd. GDR(b),(c) 5,856
37,200 Reliance Industries Ltd. GDR 1,700
42,976 S-Oil Corp. 2,022
83,970 Tupras-Turkiye Petrol Rafinerileri A.S.(b) 1,435
--------
11,013
--------
Total Energy 65,249
--------
FINANCIALS (22.4%)
------------------
CONSUMER FINANCE (0.7%)
185,500 Industrial Bank of Korea* 2,146
160,500 Redecard S.A. 2,450
--------
4,596
--------
DIVERSIFIED BANKS (16.3%)
33,000 ABSA Group Ltd. 568
217,400 Banco Bradesco S.A. ADR 4,607
43,600 Banco do Brasil S.A. 767
287,280 Banco Santander Brasil S.A. ADS* 3,921
12,800 Bancolombia S.A. ADR 549
466,340 Bangkok Bank Public Co. Ltd. 1,578
================================================================================
18 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
455,970 Bank Hapoalim Ltd.* $ 1,772
7,620,000 Bank of China Ltd. "H" 4,287
736,877 Bank of the Philippine Islands(b) 746
8,430 Bank Polska Kasa Opieki S.A.* 536
20,600 Bank Zachodni WBK* 1,212
12,300 BRE Bank S.A.* 1,021
595,000 China CITIC Bank "H" 491
8,455,620 China Construction Bank Corp. "H" 7,517
223,000 China Merchants Bank Co. Ltd. "H" 606
4,001,774 Chinatrust Financial Holding Co. Ltd. 2,313
133,638 Commercial International Bank 1,232
4,515,448 First Financial Holding Co. Ltd. 2,673
9,700 HDFC Bank Ltd. ADR 1,305
24,200 ICICI Bank Ltd. ADR 900
6,807,300 Industrial and Commercial Bank of China Ltd. "H" 5,753
2,700 ING Bank Slaski* 710
400,479 Itau Unibanco Banco Multiplo S.A. GDR 8,911
521,500 JSC VTB Bank GDR 2,242
1,288,600 Kasikornbank Public Co. Ltd. 3,372
84,753 KB Financial Group, Inc.* 4,227
13,655 KB Financial Group, Inc. ADR* 688
7,648,800 Krung Thai Bank Public Co. Ltd.(b) 2,094
3,009,970 Malayan Banking Berhad 5,989
1,266,000 Mega Financial Holding Co. Ltd. 714
477,200 Metropolitan Bank & Trust Co.(b) 462
106,705 Nedcor Ltd. 1,628
46,100 OTP Bank* 1,375
4,856,500 PT Bank Mandiri Tbk 2,286
377,500 RHB Capital Berhad 591
62,789 Shinhan Financial Group Co. Ltd.* 2,460
7,541,639 SinoPac Financials Holdings Co. Ltd.* 2,684
137,070 Standard Bank Group Ltd. 1,773
60,790 State Bank of India Ltd. GDR(b) 5,885
1,288,000 Taishin Financial Holdings Co. Ltd.* 480
927,400 Turk Ekonomi Bankasi A.S.*(b) 1,239
342,100 Turkiye Garanti Bankasi A.S.(b) 1,172
276,400 Turkiye Halk Bankasi(b) 1,646
819,496 Turkiye Is Bankasi(b) 2,806
548,400 Turkiye Vakiflar Bankasi T.A.O.*(b) 1,127
645,500 Union Bank of the Philippines(b) 502
135,600 Woori Finance Holdings Co. Ltd.* 1,697
--------
103,114
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.2%)
91,200 Guangzhou R&F Properties Co. Ltd. "H" $ 160
376,000 Huaku Development Co. Ltd. 941
--------
1,101
--------
INVESTMENT BANKING & BROKERAGE (0.2%)
1,053,800 Dubai Islamic Bank 703
10,467 Kiwoom Securities Co. Ltd. 384
236,000 Polaris Securities Co. Ltd.* 126
--------
1,213
--------
LIFE & HEALTH INSURANCE (1.4%)
77,600 Amil Participacoes S.A. 564
892,000 Cathay Financial Holding Co. Ltd.* 1,552
1,876,802 China Life Insurance Co. Ltd.* 1,303
586,000 China Life Insurance Co. Ltd. "H" 2,930
277,794 Sanlam Ltd. 831
149,940 Tong Yang Life Insurance Co. Ltd.* 1,831
--------
9,011
--------
MULTI-LINE INSURANCE (0.1%)
78,700 Porto Seguro S.A. 860
--------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.7%)
1,862,470 FirstRand Ltd. 4,369
--------
PROPERTY & CASUALTY INSURANCE (0.7%)
38,900 Dongbu Insurance Co. Ltd. 1,121
50,800 Hyundai Marine & Fire Insurance Co. Ltd. 865
35,990 LIG Non-Life Insurance Co. Ltd. 730
8,255 Samsung Fire & Marine Insurance Co. Ltd. 1,434
--------
4,150
--------
REAL ESTATE DEVELOPMENT (1.0%)
203,040 China Overseas Land & Investment Ltd. 436
305,800 China Vanke Co. "B" 391
376,000 Hopson Development Holdings Ltd. 627
6,247,200 L.P.N. Development Public Co. Ltd. 1,268
1,130,800 Sansiri Public Co. Ltd.(b) 142
416,000 Sino-Ocean Land Holdings Ltd.(d) 414
3,765,000 SOHO China Ltd. 2,031
2,831,000 Supali Public Co. Ltd.(b) 485
447,600 Talaat Moustafa Group Holding* 485
--------
6,279
--------
================================================================================
20 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
REAL ESTATE OPERATING COMPANIES (0.5%)
27,300 Iguatemi Empresa de Shopping Centers S.A. $ 449
58,100 Longfor Properties Co.* 60
13,154,000 Renhe Commercial Holdings Co. Ltd. 2,648
--------
3,157
--------
REAL ESTATE SERVICES (0.1%)
28,900 E-House (China) Holdings Ltd.* 562
--------
REGIONAL BANKS (0.3%)
110,020 Daegu Bank 1,561
--------
REINSURANCE (0.2%)
142,430 Korean Reinsurance Co. Ltd. 1,138
--------
Total Financials 141,111
--------
HEALTH CARE (1.3%)
------------------
MANAGED HEALTH CARE (0.2%)
90,600 Medical Saude S.A.* 857
--------
PHARMACEUTICALS (1.1%)
91,700 Teva Pharmaceutical Industries Ltd. ADR 4,841
14,863 Yuhan Corp. 2,256
--------
7,097
--------
Total Health Care 7,954
--------
INDUSTRIALS (6.7%)
------------------
AEROSPACE & DEFENSE (0.2%)
45,914 Embraer Empresa Brasileira de Aeronautica S.A. ADR* 934
--------
AIR FREIGHT & LOGISTICS (0.6%)
162,900 Imperial Holdings Ltd. 1,780
7,855,200 Sinotrans Ltd. "H" 2,037
--------
3,817
--------
AIRLINES (0.7%)
1,184,000 Air China Ltd. "H"* 854
3,006,000 China Southern Airlines Co. Ltd. "H"* 1,001
44,300 Gol - Linhas Aereas Inteligentes S.A. ADR(c) 627
274,400 Thai Airways International Public Co. Ltd.*(b) 145
614,400 Turk Hava Yollari Anonim Ortakligi(b) 1,962
--------
4,589
--------
CONSTRUCTION & ENGINEERING (1.6%)
922,100 Arabtec Holding PJSC 698
214,900 Aveng Ltd. 1,074
1,280,000 China Railway Construction Corp. 1,698
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
435,000 CTCI Corp. $ 405
19,400 Daelim Industrial Co. Ltd. 1,375
1,650,100 Gamuda Berhad 1,362
17,020 GS Engineering & Construction Corp. 1,595
25,000 Orascom Construction Industries 1,019
37,000 Sany Heavy Equipment International Holdings Co. Ltd.* 36
244,800 Tekfen Holding Co., Inc.*(b) 653
--------
9,915
--------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.8%)
1,343,000 PT United Tractors Tbk 2,124
100,800 Tata Motors Ltd. ADR(c) 1,443
186,000 Weichai Power Co. Ltd. "H" 1,567
--------
5,134
--------
HEAVY ELECTRICAL EQUIPMENT (0.1%)
624,000 Harbin Power Equipment Co. Ltd. 569
--------
HIGHWAYS & RAILTRACKS (0.2%)
1,610,000 Anhui Expressway Co. Ltd. "H" 1,085
--------
INDUSTRIAL CONGLOMERATES (1.7%)
486,400 Barloworld Ltd. 3,056
85,800 Bidvest Group Ltd. 1,389
39,940 LG Corp. 2,185
593,102 Mexichem S.A. de C.V. 1,124
293,760 Murray & Roberts Holdings Ltd. 1,898
528,551 NWS Holdings Ltd. 1,027
--------
10,679
--------
INDUSTRIAL MACHINERY (0.2%)
127,900 Metalfrio Solutions S.A. 822
27,000 NEPES Corp.* 337
--------
1,159
--------
MARINE (0.1%)
1,236,000 China Shipping Container Lines Co. Ltd. "H"* 456
278,000 China Shipping Development Co. Ltd. "H" 408
--------
864
--------
MARINE PORTS & SERVICES (0.4%)
1,901,709 Cosco Pacific Ltd. 2,635
--------
TRUCKING (0.1%)
82,700 Localiza Rent a Car S.A. 923
--------
Total Industrials 42,303
--------
================================================================================
22 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (12.2%)
------------------------------
COMMUNICATIONS EQUIPMENT (0.2%)
772,000 Comba Telecom Systems Holdings Ltd. $ 869
28,498 Humax Co. Ltd., acquired 7/17/2009 - 7/28/2009; cost $374*(a) 380
34,500 People & Telecomun, Inc. 270
--------
1,519
--------
COMPUTER HARDWARE (2.4%)
172,000 Acer, Inc. 428
3,407,563 Compal Electronics, Inc. 4,522
253,000 High Tech Computer Corp. 2,870
798,000 Lenovo Group Ltd. 460
735,300 Quanta Computer, Inc. 1,485
11,664,000 Tatung Co. Ltd.* 2,737
1,301,972 Wistron Corp. 2,391
--------
14,893
--------
COMPUTER STORAGE & PERIPHERALS (1.2%)
761,654 Asustek Computer, Inc. 1,513
309,000 Avermedia Tech, Inc. 400
973,100 Catcher Technology Co. Ltd. 2,746
166,000 Giga-Byte Technology Co. Ltd. 150
713,195 Lite-On Technology Corp. 955
400,000 Sunrex Technology Corp. 425
2,419,530 TPV Technology Ltd. 1,380
--------
7,569
--------
ELECTRONIC COMPONENTS (0.8%)
14,500 KH Vatec Co. Ltd.* 538
11,400 LG Philips LCD Co. Ltd. 314
757,384 Nan Ya Printed Circuit Board Corp. 2,695
4,509,440 Yageo Corp. 1,289
--------
4,836
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%)
186,760 AU Optronics Corp. ADR(c) 1,952
218,000 Unimicron Technology Corp. 277
--------
2,229
--------
ELECTRONIC MANUFACTURING SERVICES (0.8%)
1,238,989 Hon Hai Precision Industry Corp. Ltd. 5,236
--------
INTERNET SOFTWARE & SERVICES (0.6%)
197,400 Tencent Holdings Ltd. 3,650
--------
IT CONSULTING & OTHER SERVICES (0.5%)
61,090 Infosys Technologies Ltd. ADR 3,114
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
SEMICONDUCTORS (5.3%)
516,287 King Yuan Electronics Co. Ltd. $ 211
115,270 Media Tek, Inc. 1,816
230,320 Radiant Opto-Electronics Corp. 286
29,456 Samsung Electronics Co. Ltd. 18,239
120,495 Siliconware Precision Industries Co. ADR 810
3,116,378 Taiwan Semiconductor Manufacturing Co. Ltd. 5,917
137,413 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 1,428
7,340,286 United Microelectronics Corp.* 3,604
355,500 United Microelectronics Corp. ADR*(c) 1,205
--------
33,516
--------
TECHNOLOGY DISTRIBUTORS (0.1%)
301,000 WPG Holdings Ltd. 427
--------
Total Information Technology 76,989
--------
MATERIALS (14.7%)
-----------------
COMMODITY CHEMICALS (0.4%)
207,240 Formosa Plastics Corp. 412
23,500 Huchems Fine Chemical Corp. 592
9,500 Hyosung Chemical, Inc. 686
4,050 LG Chem Ltd. 730
--------
2,420
--------
CONSTRUCTION MATERIALS (2.0%)
391,544 Ambuja Cements Ltd. 777
3,909,500 Asia Cement Corp. 2,921
88,092 Cemex S.A. de C.V. ADR* 995
290,000 China National Building Material Co. Ltd. "H" 558
961,650 India Cements Ltd. GDR(b) 4,617
560,500 PT Indocement Tunggal Prakarsa Tbk 658
1,377,500 PT Semen Gresik (Perssero) Tbk. 1,064
31,400 Siam Cement Public Co. Ltd. 213
110,100 Siam Makro Public Co. Ltd. 755
--------
12,558
--------
DIVERSIFIED METALS & MINING (4.5%)
775,000 China Molybdenum Co. Ltd. 642
15,800 Eurasian Natural Resources Corp. plc 224
685,668 Grupo Mexico S.A.B. de C.V. "B" 1,611
145,000 Jiangxi Copper Co. "H" 370
56,200 KGHM Polska Miedz S.A. 2,187
9,560 Korea Zinc Co. Ltd. 1,755
294,104 Mining and Metallurgical Co. Norilsk Nickel ADR* 4,044
34,030 Poongsan Corp.* 685
================================================================================
24 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
54,800 Sterlite Industries India Ltd. ADR $ 1,006
251,900 Vale S.A. 7,222
349,900 Vale S.A. ADR 8,573
--------
28,319
--------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.6%)
298,480 Makhteshim-Agan Industries Ltd. 1,454
91,100 Uralkali GDR* 2,084
--------
3,538
--------
GOLD (0.8%)
56,266 AngloGold Ashanti Ltd. ADR 2,478
68,800 Gold Fields Ltd. 1,004
91,330 Gold Fields Ltd. ADR 1,350
--------
4,832
--------
METAL & GLASS CONTAINERS (0.3%)
1,004,634 Nampak Ltd. 2,172
--------
PAPER PRODUCTS (0.7%)
220,000 Lee & Man Paper Manufacturing Ltd. 561
1,116,000 Nine Dragons Paper Holdings Ltd. 2,053
466,811 Sappi Ltd.* 2,031
--------
4,645
--------
PRECIOUS METALS & MINERALS (0.6%)
37,670 Anglo Platinum Ltd.* 3,876
--------
SPECIALTY CHEMICALS (0.2%)
2,284,000 Lumena Resources Corp.* 846
25,600 Techno Semichem Co. Ltd. 370
--------
1,216
--------
STEEL (4.6%)
279,039 ArcelorMittal South Africa Ltd. 3,870
3,987,082 China Steel Corp. 3,760
1,388,000 Chongqing Iron & Steel Co. Ltd. 536
816,757 El Ezz Steel Rebars S.A.E. 2,077
51,100 Evraz Group S.A. GDR* 1,260
98,700 Gerdau S.A. ADR 1,589
10,800 Hyundai Steel Co. 721
55,700 Kumba Iron Ore Ltd. 1,896
538,000 Maanshan Iron & Steel Co. Ltd.* 364
61,900 Novolipetsk Steel GDR* 1,865
9,480 POSCO 4,549
24,790 POSCO ADR 2,955
155,300 Severstal Joint Stock Co.* 1,202
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
155,100 Tata Steel Ltd. GDR, acquired 7/22/2009 - 10/14/2009; cost $1,450*(a) $ 1,737
18,925 Usinas Siderurgicas de Minas Gerais S.A. 533
--------
28,914
--------
Total Materials 92,490
--------
TELECOMMUNICATION SERVICES (9.0%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (2.8%)
578,406 China Unicom Hong Kong Ltd. 778
178,786 Chunghwa Telecom Co. Ltd. 320
19,329 Chunghwa Telecom Co. Ltd. ADR 344
21,480 KT Corp. 711
260,360 KT Corp. ADR 4,325
857,420 Mahanagar Telephone Nigam Ltd. ADR(c) 2,778
2,102,500 PT Indonesian Satellite Corp. Tbk 1,079
1,416,700 PT Telekomunikasi Indonesia Tbk 1,349
29,500 Tele Norte Leste Participacoes S.A. 739
43,200 Telefonos de Mexico S.A. de C.V. ADR "L" 775
321,180 Telekomunikacja Polska S.A. 1,869
118,700 Vimpel-Communications ADR 2,266
--------
17,333
--------
WIRELESS TELECOMMUNICATION SERVICES (6.2%)
200,400 America Movil S.A.B. de C.V. ADR "L" 9,695
876,500 China Mobile Ltd. 8,211
89,480 China Mobile Ltd. ADR 4,194
84,300 Mobile TeleSystems ADR 4,222
206,231 MTN Group Ltd. 3,308
15,700 NII Holdings, Inc. "B"* 468
9,300 Philippine Long Distance Telephone Co.(b) 511
6,118 SK Telecom Co. Ltd. 892
175,850 SK Telecom Co. Ltd. ADR 2,914
106,290 Turkcell Iletisim Hizmetleri A.S.(b) 651
46,450 Turkcell Iletisim Hizmetleri A.S. ADR 713
77,400 Vivo Participacoes S.A. 2,361
158,690 Vodacom Group Pty Ltd. 1,221
--------
39,361
--------
Total Telecommunication Services 56,694
--------
UTILITIES (2.5%)
----------------
ELECTRIC UTILITIES (1.3%)
113,913 Centrais Electricas Brasileiras S.A. 1,882
76,272 Companhia Energetica de Minas Gerais ADR(c) 1,371
5,500 CPFL Energia S.A. 100
================================================================================
26 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
44,900 Enersis S.A. ADR $ 862
85,040 Korea Electric Power Corp.* 2,333
47,500 Korea Electric Power Corp. ADR* 652
357,750 Tenaga Nasional Berhad 888
--------
8,088
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.9%)
7,231,000 China Power International Development Ltd.* 1,950
10,000 Empresa Nacional De Electricidad S.A. ADR 484
3,103,800 Huaneng Power International, Inc. "H" 1,935
9,200 Huaneng Power International, Inc. ADR "H" 231
92,470 Tractebel Energia S.A. 1,106
--------
5,706
--------
WATER UTILITIES (0.3%)
50,304 Companhia de Saneamento Basico do Estado de Sao Paulo 905
5,640 Companhia de Saneamento Basico do Estado de Sao Paulo ADR 206
53,400 Companhia de Saneamento de Minas Gerais 916
--------
2,027
--------
Total Utilities 15,821
--------
Total Common Stocks (cost: $460,299) 561,936
--------
PREFERRED SECURITIES (6.5%)
CONSUMER DISCRETIONARY (0.2%)
-----------------------------
GENERAL MERCHANDISE STORES (0.0%)
30,200 Lojas Americanas S.A. 249
--------
TEXTILES (0.2%)
287,688 Companhia de Tecidos Norte de Minas, acquired 5/29/2003 - 4/20/2009;
cost $1,011(a) 933
--------
Total Consumer Discretionary 1,182
--------
ENERGY (3.3%)
-------------
INTEGRATED OIL & GAS (3.3%)
469,450 Petroleo Brasileiro S.A. ADR 21,153
--------
Total Energy 21,153
--------
FINANCIALS (0.3%)
-----------------
DIVERSIFIED BANKS (0.2%)
61,400 Bradespar S.A. 1,354
--------
REGIONAL BANKS (0.1%)
102,100 Banco Panamericano S.A. 503
--------
Total Financials 1,857
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
INDUSTRIALS (0.4%)
------------------
TRADING COMPANIES & DISTRIBUTORS (0.4%)
428,542 Itausa - Investimentos Itau S.A. $ 2,737
--------
Total Industrials 2,737
--------
MATERIALS (0.9%)
----------------
COMMODITY CHEMICALS (0.4%)
398,600 Braskem S.A. "A"* 2,616
--------
PAPER PRODUCTS (0.2%)
113,400 Suzano Papel e Celulose S.A. 1,211
--------
STEEL (0.3%)
98,049 Confab Industrial S.A. 284
59,500 Metalurgica Gerdau S.A. 1,120
21,275 Usinas Siderurgicas de Minas Gerais S.A. 620
--------
2,024
--------
Total Materials 5,851
--------
TELECOMMUNICATION SERVICES (0.7%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.5%)
141,850 Tele Norte Leste Participacoes S.A. ADR 3,087
--------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
38,300 Tim Participacoes S.A. ADR 1,034
--------
Total Telecommunication Services 4,121
--------
UTILITIES (0.7%)
----------------
ELECTRIC UTILITIES (0.4%)
158,329 Companhia Energetica de Minas Gerais 2,715
--------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.3%)
123,700 Companhia Energetica de Sao Paulo 1,511
--------
Total Utilities 4,226
--------
Total Preferred Securities (cost: $30,195) 41,127
--------
EXCHANGE-TRADED FUNDS (0.4%)
45,451 iPath MSCI India Index*(c) (cost: $1,764) 2,790
--------
Total Equity Securities (cost: $492,258) 605,853
--------
EQUITY LINKED STRUCTURED NOTES (0.1%)
FINANCIALS (0.1%)
-----------------
DIVERSIFIED BANKS (0.1%)
211,200 BNP Fujian Septwolves Industry Inc.*(b) 707
--------
Total Equity Linked Structured Notes (cost: $351) 707
--------
================================================================================
28 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (3.8%)
MONEY MARKET FUNDS (3.8%)
23,837,281 State Street Institutional Liquid Reserve Fund, 0.19%(e) (cost: $23,837) $ 23,837
--------
SHORT-TERM INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM SECURITIES LOANED (2.0%)
MONEY MARKET FUNDS (1.3%)
91,378 AIM Short-Term Investment Co. Liquid Assets Portfolio, 0.20%(e) 92
--------
7,825,157 BlackRock Liquidity Funds TempFund, 0.15%(e) 7,825
--------
Total Money Market Funds 7,917
--------
---------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
---------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (0.7%)
$3,200 Credit Suisse First Boston LLC, 0.16%, acquired on 11/30/2009 and
due 12/01/2009 at $3,200 (collateralized by $3,270 of Fannie Mae(g),
0.10%(f), due 5/12/2010; market value $3,268) 3,200
1,300 Deutsche Bank Securities, Inc., 0.16%, acquired on 11/30/2009 and
due 12/01/2009 at $1,300 (collateralized by $1,457 of U.S. Treasury,
1.97%(f), due 8/15/2014; market value $1,326) 1,300
--------
Total Repurchase Agreements 4,500
--------
Total Short-term Investments Purchased With Cash Collateral
From Securities Loaned (cost: $12,417) 12,417
--------
TOTAL INVESTMENTS (COST: $528,863) $642,814
========
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------
($ IN 000S) VALUATION HIERARCHY
-----------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
-----------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $512,632 $49,304 $- $561,936
Preferred Securities 41,127 - - 41,127
Exchange-Traded Funds 2,790 - - 2,790
Equity Linked Structured Notes - 707 - 707
Money Market Instruments:
Money Market Funds 23,837 - - 23,837
Short-Term Investments
Purchased with Cash
Collateral from Securities
Loaned:
Money Market Funds 7,917 - - 7,917
Repurchase Agreements - 4,500 - 4,500
-----------------------------------------------------------------------------------------------------
Total $588,303 $54,511 $- $642,814
-----------------------------------------------------------------------------------------------------
================================================================================
30 | USAA EMERGING MARKETS 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.
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
EQUITY-LINKED STRUCTURED NOTES (ELSNs) -- hybrid securities which are
specially designed to combine the characteristics of one or more underlying
securities and their equity derivatives in a single note form. The return
and/or yield or income component may be based on the performance of the
underlying equity securities, an equity index, and/or option positions. ELSNs
typically are offered in limited transactions by financial institutions in
either registered or nonregistered form. An investment in ELSNs creates
exposure to the credit risk of the issuing financial institution, as well as
to the market risk of the underlying securities. There is no guaranteed
return of principal with these securities, and the appreciation potential of
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 31
<PAGE>
================================================================================
these securities may be limited by a maximum payment or call right. In
certain cases, ELSNs may be more volatile and less liquid than less complex
securities or other types of fixed-income securities. Such securities may
exhibit price behavior that does not correlate with other fixed-income
securities.
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.
GDR Global depositary receipts are receipts issued by a U.S. or foreign
bank evidencing ownership of foreign shares. Dividends are paid in
U.S. dollars.
iPath iPath -- Exchange traded notes (ETNs) that are senior, unsecured,
unsubordinated debt securities issued by Barclays Bank, PLC. ETNs are
traded on securities exchanges and are linked to the return of a
benchmark index.
PDR Philippine depositary receipts are receipts issued by a U.S. or
foreign bank evidencing ownership of a stock traded on the Philippine
stock exchange. Dividends are paid in U.S. dollars.
o SPECIFIC NOTES
(a) Security deemed illiquid by USAA Investment Management Company (the
Manager), under liquidity guidelines approved by the Board of Trustees.
The aggregate market value of these securities at November 30, 2009, was
$9,509,000, which represented 1.5% of the Fund's net assets.
(b) Security was fair valued at November 30, 2009, by the Manager in
accordance with valuation procedures approved by the Board of Trustees.
(c) The security or a portion thereof was out on loan as of November 30, 2009.
================================================================================
32 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
(d) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board of Trustees, unless otherwise noted as
illiquid.
(e) Rate represents the money market fund annualized seven-day yield at
November 30, 2009.
(f) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(g) Securities issued by government-sponsored enterprises are supported only
by the right of the government-sponsored enterprise to borrow from the
U.S. Treasury, the discretionary authority of the U.S. government to
purchase the government-sponsored enterprises' obligations, or by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
November 30, 2009 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including securities
on loan of $10,289) (cost of $528,863) $642,814
Cash 349
Cash denominated in foreign currencies (identified cost of $3,970) 3,972
Receivables:
Capital shares sold:
Affiliated transactions (Note 8) 105
Nonaffiliated transactions 769
USAA Investment Management Company (Note 7D) 15
Dividends and interest 705
Securities sold 2,652
Other 7
Unrealized appreciation on foreign currency contracts held, at value 3
--------
Total assets 651,391
--------
LIABILITIES
Payables:
Upon return of securities loaned 12,417
Securities purchased 6,131
Capital shares redeemed 627
Accrued management fees 526
Accrued transfer agent's fees 101
Other accrued expenses and payables 626
--------
Total liabilities 20,428
--------
Net assets applicable to capital shares outstanding $630,963
========
NET ASSETS CONSIST OF:
Paid-in capital $609,505
Accumulated undistributed net investment income 3,983
Accumulated net realized loss on investments (95,945)
Net unrealized appreciation of investments 113,951
Net unrealized depreciation of foreign currency translations (531)
--------
Net assets applicable to capital shares outstanding $630,963
========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $579,796/32,134 shares outstanding) $ 18.04
========
Institutional Shares (net assets of $51,167/2,827 shares outstanding) $ 18.10
========
See accompanying notes to financial statements.
================================================================================
34 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended November 30, 2009 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $592) $ 4,954
Interest 19
Securities lending (net) 36
--------
Total income 5,009
--------
EXPENSES
Management fees 2,757
Administration and servicing fees:
Fund Shares 376
Institutional Shares 8
Transfer agent's fees:
Fund Shares 856
Institutional Shares 8
Custody and accounting fees:
Fund Shares 286
Institutional Shares 18
Postage:
Fund Shares 31
Shareholder reporting fees:
Fund Shares 17
Trustees' fees 5
Registration fees:
Fund Shares 21
Professional fees 38
Other 9
--------
Total expenses 4,430
Expenses reimbursed:
Institutional Shares (15)
--------
Net expenses 4,415
--------
NET INVESTMENT INCOME 594
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY
Net realized gain on:
Investments (net of foreign taxes withheld of $315) 20,783
Foreign currency transactions 134
Change in net unrealized appreciation/depreciation of:
Investments 96,933
Foreign currency translations (497)
--------
Net realized and unrealized gain 117,353
--------
Increase in net assets resulting from operations $117,947
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
<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 $ 594 $ 7,668
Net realized gain (loss) on investments 20,783 (115,156)
Net realized gain (loss) on foreign currency transactions 134 (1,159)
Change in net unrealized appreciation/depreciation of:
Investments 96,933 (90,726)
Foreign currency translations (497) 236
------------------------
Increase (decrease) in net assets resulting from operations 117,947 (199,137)
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (5,291)
Institutional Shares* - (220)
------------------------
Total distributions of net investment income - (5,511)
------------------------
Net realized gains:
Fund Shares - (22,676)
Institutional Shares* - (771)
------------------------
Total distributions of net realized gains - (23,447)
------------------------
Distributions to shareholders - (28,958)
------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares 42,837 35,555
Institutional Shares* 20,990 19,264
------------------------
Total net increase in net assets from
capital share transactions 63,827 54,819
------------------------
Capital contribution from USAA Transfer
Agency Company:
Fund Shares - 19
Institutional Shares* - 10
------------------------
Net increase (decrease) in net assets 181,774 (173,247)
NET ASSETS
Beginning of period 449,189 622,436
------------------------
End of period $630,963 $ 449,189
========================
Accumulated undistributed net investment income:
End of period $ 3,983 $ 3,389
========================
*Institutional Shares were initiated on August 1, 2008
See accompanying notes to financial statements.
================================================================================
36 | USAA EMERGING MARKETS 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
Emerging Markets Fund (the Fund), which is classified as diversified under the
1940 Act. The Fund's investment objective is capital appreciation. The Fund
concentrates its investments in securities of companies in emerging market
countries, which may have limited or developing capital markets. Such
investments may involve greater risks than investments in developed markets, and
political, social, or economic changes in these markets may cause the prices of
such investments to be volatile.
The Fund has two classes of shares: Emerging Markets Fund Shares (Fund Shares)
and Emerging Markets Fund Institutional Shares (Institutional Shares). Each
class of shares has equal rights to assets and earnings, except that each class
bears certain class-related expenses specific to the particular class. These
expenses include administration and servicing fees, transfer agent fees,
postage, shareholder reporting fees, and certain registration and custodian
fees. Expenses not attributable to a specific class, income, and realized gains
or losses on investments are allocated to each class of shares based on each
class's relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to both classes. The Institutional Shares are currently offered for sale only to
the USAA Target Retirement Funds (Target Funds) and not to the general public.
The Target
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
<PAGE>
================================================================================
Funds are managed by USAA Investment Management Company (the Manager), an
affiliate of the Fund.
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. Securities, including exchange-traded funds (ETFs), exchange-traded
notes (ETNs), and equity-linked structured notes, 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.
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. 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 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, the Manager 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
================================================================================
38 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
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. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
5. Repurchase agreements are valued at cost, which approximates market
value.
6. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager in consultation with the Fund's
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
<PAGE>
================================================================================
services, broker-dealers, or widely used quotation systems. General
factors considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, and an evaluation of the
forces that influenced the market in which the securities are purchased
and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its income to its shareholders.
Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the
================================================================================
40 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
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 on short-term securities are amortized on a straight-line basis
over the life of the respective securities.
E. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers. These agreements are
collateralized by underlying securities. The collateral obligations are
marked-to-market daily to ensure their value is equal to or in excess of
the repurchase agreement price plus accrued interest and are held by the
Fund, either through its regular custodian or through a special "tri-party"
custodian that maintains separate accounts for both the Fund and its
counterparty, until maturity of the repurchase agreement. Repurchase
agreements are subject to credit risk, and the Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into repurchase
agreements.
F. 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
<PAGE>
================================================================================
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. 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, custodian and other bank credits reduced the Fund Shares and
Institutional Shares expenses by less than $500. For the six-month period
ended November 30, 2009, the Fund did not incur any brokerage commission
recapture credits.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
================================================================================
42 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
I. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.13% 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.
(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 and realized gains from security
transactions not offset by capital losses are made annually in the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
<PAGE>
================================================================================
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 $17,653,000, 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
$245,636,000 and $183,257,000, 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.
Gross unrealized appreciation and depreciation of investments as of November 30,
2009, were $132,258,000 and $18,307,000, respectively, resulting in net
unrealized appreciation of $113,951,000.
================================================================================
44 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
(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 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 $36,000, 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 $10,289,000 and received
cash collateral of $12,417,000 for the loans, which was invested in short-term
investments, as noted in the Fund's portfolio of investments.
(6) CAPITAL SHARE TRANSACTIONS
At November 30, 2009, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
<PAGE>
================================================================================
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated Target Funds. Capital share transactions were as
follows, in thousands:
SIX-MONTH PERIOD YEAR ENDED
ENDED 11/30/2009 5/31/2009
---------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------
FUND SHARES:
Shares sold 6,638 $108,792 10,412 $ 135,494
Shares issued from reinvested
dividends - - 2,574 27,451
Shares redeemed (4,070) (65,955) (8,855) (127,390)
-----------------------------------------
Net increase from capital
share transactions 2,568 $ 42,837 4,131 $ 35,555
=========================================
INSTITUTIONAL SHARES
(INITIATED ON AUGUST 1, 2008):
Shares sold 1,387 $ 23,688 1,949 $ 23,401
Shares issued from reinvested
dividends - - 93 990
Shares redeemed (174) (2,698) (428) (5,127)
-----------------------------------------
Net increase from capital
share transactions 1,213 $ 20,990 1,614 $ 19,264
=========================================
(7) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
subject to the authority of and supervision by the Trust's Board of
Trustees. The Manager is authorized to select (with approval of the Trust's
Board of Trustees and without shareholder approval) one or more subadvisers
to manage the actual day-to-day investment of the Fund's assets. The
Manager monitors each subadviser's performance through quantitative and
qualitative analysis, and periodically recommends to the Trust's Board of
Trustees as to whether each subadviser's agreement should be renewed,
terminated, or modified. The Manager also is responsible for allocating
================================================================================
46 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
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 1.00% of the Fund's average net assets for
the fiscal year.
The performance adjustment is calculated separately for each share class on
a monthly basis by comparing each class's performance to that of the Lipper
Emerging Markets Funds Index over the performance period. The Lipper
Emerging Markets Funds Index tracks the total return performance of the 30
largest funds in the Lipper Emerging Markets Funds category. The
performance period for each class consists of the current month plus the
previous 35 months. The performance adjustment for the Institutional Shares
includes the performance of the Fund Shares for periods prior to August 1,
2008. 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.
Each class's annual performance adjustment rate is multiplied by the
average net assets of each respective class 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
<PAGE>
================================================================================
case of overperformance, or a negative adjustment in the case of
underperformance.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Emerging Markets Funds Index over that period, even
if the class 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 $2,757,000, which
included a performance adjustment for the Fund shares and Institutional
Shares of $88,000 and $1,000, respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were 0.04% and 0.01%,
respectively.
B. SUBADVISORY ARRANGEMENTS -- The Manager has entered into an investment
subadvisory agreement with The Boston Company Asset Management, LLC (The
Boston Company) and Batterymarch Financial Management, Inc. (Batterymarch),
under which The Boston Company and Batterymarch direct the investment and
reinvestment of portions of the Fund's assets (as allocated from time to
time by the Manager).
The Manager (not the Fund) pays The Boston Company a subadvisory fee in the
annual amount of 0.69% of the portion of the Fund's average net assets that
The Boston Company manages. For the six-month period ended November 30,
2009, the Manager incurred subadvisory fees, paid or payable to The Boston
Company, of $981,000.
The Manager (not the Fund) pays Batterymarch a subadvisory fee in the
annual amount of 0.80% for assets up to $100 million; 0.75% for assets over
$100 million up to $600 million; and 0.60% for assets over $600 million on
the portion of the Fund's average net assets that Batterymarch manages. For
the six-month period ended November 30, 2009, the Manager incurred
subadvisory fees, paid or payable to Batterymarch, of $963,000.
================================================================================
48 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
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% and 0.05% of average net assets of the Fund Shares
and Institutional Shares, respectively. For the six-month period ended
November 30, 2009, the Fund Shares and Institutional Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$376,000 and $8,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Trust's Board of Trustees
has approved the reimbursement of a portion of these expenses incurred by
the Manager. For the six-month period ended November 30, 2009, the Fund
reimbursed the Manager $11,000 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 Institutional Shares for its first two fiscal years
to 1.13% of its average annual net assets, excluding extraordinary expenses
and before reductions of any expenses paid indirectly, and will reimburse
the Institutional Shares 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 Institutional Shares
incurred reimbursable expenses of $15,000 which 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. Transfer agent's fees for Fund Shares
are paid monthly based on an annual charge of $23 per shareholder account
plus out of pocket expenses. The Fund Shares also pay SAS fees that are
related to the administration and servicing of accounts that are traded on
an omnibus basis. Transfer
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
<PAGE>
================================================================================
agent's fees for Institutional Shares are paid monthly based on a fee
accrued daily at an annualized rate of 0.05% of the Institutional Shares'
average net assets, plus out-of-pocket expenses. For the six-month period
ended November 30, 2009, the Fund Shares and Institutional Shares incurred
transfer agent's fees, paid or payable to SAS, of $856,000 and $8,000,
respectively.
F. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
(8) TRANSACTIONS WITH AFFILIATES
The Fund is one of 13 USAA mutual funds in which the affiliated Target Funds may
invest. The Target Funds do not invest in the Fund for the purpose of exercising
management or control. As of November 30, 2009, the Fund recorded a receivable
for capital shares sold of $105,000 for the Target Funds' purchases of
Institutional Shares. As of November 30, 2009, the Target Funds owned the
following percent of the total outstanding shares of the Fund:
Ownership %
--------------------------------------------------------------------------------
USAA Target Retirement Income Fund 0.4%
USAA Target Retirement 2020 Fund 1.1
USAA Target Retirement 2030 Fund 2.4
USAA Target Retirement 2040 Fund 2.8
USAA Target Retirement 2050 Fund 1.4
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.
(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
================================================================================
50 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
financial statements were issued, and has determined there were no events that
required recognition or disclosure in the Fund's financial statements.
Subsequent events that will affect future financial statements are as follows:
On December 4, 2009, the Fund Shares received a reimbursement from SAS in the
amount of $102,000 related to corrections in fees paid for the administration
and servicing of certain accounts. This amount will be reflected on the
statement of operations as a reduction of expenses.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
<PAGE>
================================================================================
(10) FINANCIAL HIGHLIGHTS -- FUND SHARES
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 $ 14.41 $ 24.47 $ 22.67 $ 16.82 $ 12.59 $ 10.06
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .01 .23 .29 .14 .13 .13
Net realized and
unrealized gain (loss) 3.62 (9.15) 3.99 5.93 4.21 2.47
------------------------------------------------------------------------------
Total from investment
operations 3.63 (8.92) 4.28 6.07 4.34 2.60
------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.20) (.29) (.22) (.11) (.07)
Realized capital gains - (.94) (2.19) - - -
------------------------------------------------------------------------------
Total distributions - (1.14) (2.48) (.22) (.11) (.07)
------------------------------------------------------------------------------
Net asset value at end
of period $ 18.04 $ 14.41 $ 24.47 $ 22.67 $ 16.82 $ 12.59
==============================================================================
Total return (%)* 25.19 (34.71) 18.78 36.23(a) 34.52 25.82
Net assets at end
of period (000) $579,796 $425,934 $622,436 $445,365 $314,876 $152,351
Ratios to average
net assets:**
Expenses (%)(b),(c) 1.68(d) 1.79 1.51 1.65(a) 1.61 1.80
Net investment
income (%) .20(d) 1.98 1.22 .88 1.31 1.42
Portfolio turnover (%) 36 76 64 109 48 36
* 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 $501,182,000.
(a) For the year ended May 31, 2007, SAS voluntarily reimbursed the Fund Shares for a portion of the
transfer agent's fees incurred. The reimbursement had no effect on the Fund Shares' total return or
ratio of expenses to average net assets.
(b) Reflects total operating expenses of the Fund Shares before reductions of any expenses paid
indirectly. The Fund Shares' expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) (.00%)(+) (.01%) (.02%) (.02%)
(+) Represents less than 0.01% of average net assets.
(c) Effective March 1, 2004, through September 30, 2008, the Manager voluntarily agreed to limit the
annual expenses of the Fund Shares to 1.80% of the Fund Shares' average net assets. From June 1,
2003, through February 29, 2004, the voluntary expense ratio limit was 2.10% of the Fund Shares'
average annual net assets.
(d) Annualized. The ratio is not necessarily indicative of 12 months of operations.
================================================================================
52 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
(10) FINANCIAL HIGHLIGHTS (CONTINUED) -- INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
NOVEMBER 30, MAY 31,
2009 2009***
------------------------------
Net asset value at beginning of period $ 14.41 $ 21.26
---------------------------
Income (loss) from investment operations:
Net investment income(a) .04 .31
Net realized and unrealized gain (loss)(a) 3.65 (5.98)
---------------------------
Total from investment operations(a) 3.69 (5.67)
---------------------------
Less distributions from:
Net investment income - (.24)
Realized capital gains - (.94)
---------------------------
Total distributions - 1.18)
---------------------------
Net asset value at end of period $ 18.10 $ 14.41
===========================
Total return (%)* 25.61 (24.59)
Net assets at end of period (000) $51,167 $23,255
Ratios to average net assets:**
Expenses (%)(b),(c) 1.13 1.13
Expenses, excluding reimbursements (%)(b),(c) 1.23 1.28
Net investment income (%)(c) .54 3.30
Portfolio turnover (%) 36 76
* 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
$32,049,000.
*** Institutional Shares were initiated on August 1, 2008.
(a) Calculated using average shares. For the six-month period ended November
30, 2009, average shares were 1,982,000.
(b) Reflects total operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
<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 line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid
================================================================================
54 | USAA EMERGING MARKETS FUND
<PAGE>
================================================================================
for the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the second line of the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE JUNE 1, 2009 -
JUNE 1, 2009 NOVEMBER 30, 2009 NOVEMBER 30, 2009
------------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,251.90 $9.48
Hypothetical
(5% return before expenses) 1,000.00 1,016.65 8.49
INSTITUTIONAL SHARES
Actual 1,000.00 1,256.10 6.39
Hypothetical
(5% return before expenses) 1,000.00 1,019.40 5.72
* Expenses are equal to the annualized expense ratio of 1.68% for Fund Shares
and 1.13% for Institutional Shares, which are 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 actual ending account values are based on its actual
total returns of 25.19% for Fund Shares and 25.61% for Institutional Shares
for the six-month period of June 1, 2009, through November 30, 2009.
================================================================================
EXPENSE EXAMPLE | 55
<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)
=============================================================================
25559-0110 (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.
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