UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: CHRISTOPHER P. LAIA
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: DECEMBER 31
Date of reporting period: DECEMBER 31, 2009
ITEM 1. REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - ANNUAL REPORT FOR PERIOD ENDING DECEMBER 31, 2009
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TARGET RETIREMENT FUNDS]
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ANNUAL REPORT
USAA TARGET RETIREMENT FUNDS
DECEMBER 31, 2009
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TARGET RETIREMENT INCOME FUND
TARGET RETIREMENT 2020 FUND
TARGET RETIREMENT 2030 FUND
TARGET RETIREMENT 2040 FUND
TARGET RETIREMENT 2050 FUND
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>> USAA TARGET RETIREMENT FUNDS
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FUND OBJECTIVE
PROVIDE CAPITAL APPRECIATION AND CURRENT INCOME CONSISTENT WITH CURRENT
INVESTMENT ALLOCATION.
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TYPES OF INVESTMENTS
Each Target Retirement Fund attempts to achieve its objective by investing in a
diversified portfolio of underlying USAA mutual funds according to an asset
allocation strategy designed for investors planning to start withdrawing funds
for retirement in or within a few years of the Fund's specific year (target
date) included in its name.
TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 1
MARKET OUTLOOK/COMMENTARY 2
INVESTMENT OVERVIEW 5
FINANCIAL INFORMATION
Distributions to Shareholders 13
Report of Independent Registered Public Accounting Firm 14
Portfolios of Investments 15
Notes to Portfolio of Investments 20
Financial Statements 21
Notes to Financial Statements 25
EXPENSE EXAMPLE 37
TRUSTEES' AND OFFICERS' INFORMATION 39
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
"LOOKING BACK AT THE MARKET DECLINE,
MANY INVESTORS WERE NOT APPROPRIATELY [PHOTO OF DANIEL S. McNAMARA]
POSITIONED RELATIVE TO THEIR RISK TOLERANCE."
JANUARY 2010
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Equities had a remarkable run during 2009. Between March 9, 2009, when the
market reached a bottom and the end of the year, stock prices steadily climbed.
Although the rally did not completely erase the declines of 2008, the market has
established a beachhead and is moving in the right direction. Likewise, the
worst of the Great Recession appears to be over. After three quarters of
negative growth, the gross domestic product (GDP) -- the broadest measure of
U.S. economic activity -- rose by 2.2% in the third quarter of 2009. Other
important measures of economic activity have also trended higher, including
industrial production, retail sales, and residential real estate sales.
Will the recovery be swift? Or will there be a "double dip?" I say "no" to both
questions. Significant assets -- including vast amounts of U.S. government
stimulus -- have been thrown into the breach. As a result, I don't expect the
economy to fall back into a recession. But I don't expect a quick recovery
either. Instead, I anticipate a slow and steady slog with lower economic growth
than the United States has enjoyed in recent decades. Access to credit is likely
to remain tight until the securitization markets heal and banks relax lending
standards. Most consumers and businesses will continue rebuilding their balance
sheets by increasing their savings rate and reducing their spending and
borrowing. While the outlook for job growth has improved, unemployment is likely
to persist at an uncomfortably high level for most of 2010.
I also think the equity market is expecting a strong cyclical recovery. Although
many stocks seemed to trade at appropriate levels at the end of 2009, we see
support for some growth in prices over the near term. Meanwhile, consensus
forecasts (which are based on individual company estimates) call for corporate
earnings growth of 30% or more during 2010. Meeting these expectations will
require significant top-line revenue growth, not just more cost cutting. USAA's
expectations are more in line with top-down earnings forecasts in the 8% to 15%
range.
Of course, no one really knows what will happen. That's why it is important to
revisit your investment plan. A new year is an opportune time to stop and take
stock. Looking back at the market decline, many investors were not appropriately
positioned relative to their risk tolerance. With this in mind, I have
undertaken a review of my own investment portfolio. 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 appreciate the trust you have placed
in us. We will 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. Thank you for the opportunity to help you with your investment needs.
Sincerely,
/s/ Daniel S. McNamara
Daniel S. McNamara
President
USAA Investment Management Company
Mutual fund operating expenses apply and continue throughout the life of the
fund.
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PRESIDENT'S MESSAGE | 1
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MARKET OUTLOOK/COMMENTARY
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[PHOTO OF JOHN P. TOOHEY] [PHOTO OF WASIF A. LATIF]
JOHN P. TOOHEY, CFA* WASIF A. LATIF
USAA Investment USAA Investment
Management Company Management Company
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o HOW DID THE USAA TARGET RETIREMENT FUNDS (THE FUNDS) PERFORM?
For the year ended December 31, 2009, the total returns for each of the Funds
are shown below, along with the return of the relevant Lipper Mixed-Asset Target
Allocation Funds Index:
USAA FUND LIPPER INDEX
USAA Target Retirement Income Fund 25.04% 20.04%
USAA Target Retirement 2020 Fund 28.12% 27.70%
USAA Target Retirement 2030 Fund 31.68% 30.89%
USAA Target Retirement 2040 Fund 32.71% 32.00%
USAA Target Retirement 2050 Fund 31.84% 33.39%
For further comparison, the S&P 500(R) Index had a total return during the
period of 26.46%, while the total return of the Barclays Capital U.S. Aggregate
Bond Index was 5.93% for the same period.
o PLEASE DESCRIBE THE MARKET ENVIRONMENT DURING THE REPORTING YEAR.
From the market low in March 2009, we witnessed the strongest bull market since
the Great Depression. The U.S. stock market bottomed in the second week of March
as massive government stimulus programs began to gain traction. Economic data
slowly but steadily stabilized over the remainder of the year and the markets
began pricing in an economic recovery. The stock market rally was initially
concentrated in the lowest-quality stocks, but broadened as the year progressed,
with strong returns across global equity markets being led by the emerging
markets. In the credit markets, the spreads between yields on U.S. Treasury
securities and bonds with credit risk narrowed dramatically, from historically
wide levels in March 2009 to historical norms at the end of the year.
o ARE YOU SATISFIED WITH THE FUNDS' PERFORMANCE DURING THE REPORTING YEAR?
Yes. In their first full calendar year of operation, all of the Funds fully
participated in the strong market gains of 2009, and all but the 2050 Fund
outperformed their relevant Lipper Indexes. More importantly, the Funds for
investors who are closest to or in retirement--specifically those in Retirement
Income, 2020, and 2030--had smoother performance than their peers, not suffering
as much in the dramatic selloff into March 2009, yet still outperforming for the
full year.
This performance during a difficult year validates the design and philosophy of
the Funds. We believe that many investor portfolios had for too long been built
on the assumption that the 1980s and 1990s were normal, that given enough time
investors could expect double-digit returns from stocks and steady, consistent
returns from most kinds of bonds. The past decade has shown that these
assumptions did not account for investors that were nearing or in retirement
incurring losses they probably cannot recover given their shorter investment
time horizons.
Refer to pages 5--9 for benchmark definitions.
Past performance is no guarantee of future results.
*Effective July 17, 2009, Ron Sweet no longer is a co-manager of the Fund.
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2 | USAA TARGET RETIREMENT FUNDS
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With this in mind, we introduced our nearer-maturity Target Retirement Funds in
late 2008. At the same time, we have an active approach to asset allocation, so
we'll increase the stock allocation, where appropriate, if we see an opportunity
for attractive risk-adjusted returns, and reduce the stock allocation when we
see higher risk of loss.
In 2009, our lower base stock allocations helped us in the early-year downturn.
We increased our stock weightings ahead of March 9, 2009, and then gradually
lowered stock exposure as the year progressed, ending the year slightly
underweight in stocks relative to bonds. It was a year when the Funds'
philosophy, asset allocation decisions, and individual manager
performance--particularly on the fixed income side--worked well together.
o WHAT IS USAA'S OUTLOOK FOR THE ECONOMY?
The broadest measure of U.S. economic activity, the Gross Domestic Product
(GDP), has been the most significant sign that the worst of the Great Recession
may be behind us. Following four quarters of negative growth, GDP rose by 2.2%
in the third quarter. Other important measures of economic activity are
generally trending higher, including industrial production, retail sales, and
residential real estate sales.
We think the recovery may be muted, with economic growth likely lower than the
United States has enjoyed in recent decades. Access to credit will remain tight
as securitization markets have yet to fully heal from the credit crisis and
banks' lending standards are likely to remain stringent. Consumers and
businesses will continue to focus on rebuilding their balance sheets, increasing
savings relative to borrowing and spending. While the decline in job growth has
stabilized, unemployment is likely to persist at an uncomfortably high level for
most of 2010.
Based on lack of access to credit and debt burden, we believe that the U.S.
consumer may not be able to lead a robust economic recovery. However, the growth
of overseas markets for American products, along with even a small increase in
U.S. business spending and inventory restocking, should keep the economy
growing, albeit at a slow pace.
The picture abroad looks much different in our opinion. We believe emerging
market economies have superior growth prospects while most international
developed markets face issues similar to the U.S. market.
o HOW ARE THESE ECONOMIC VIEWS REFLECTED IN THE FUNDS' ALLOCATIONS?
At current valuation levels, the S&P 500 Index is anticipating a strong cyclical
recovery in the economy. Consensus forecasts based on individual company (bottom
up) estimates are calling for 30%-plus corporate earnings growth in 2010.
Meeting these expectations will require significant revenue growth, not just
more cost cutting. Our expectations are closer to more modest top-down earnings
forecasts in the 8% to 15% range. Given our current valuation targets, our bias
will be to further reduce stock market exposure if prospects for meeting the
aggressive revenue and earnings expectations diminish.
Within the United States, we favor large-cap stocks over small-cap stocks
because large-cap stocks are more exposed to growth in the global economy. As of
the date of this writing, we continue to have an overweight exposure to emerging
market stocks, which proved highly beneficial in 2009, and remain slightly
underweight in international developed markets.
At period end, we continue to invest in the USAA Precious Metals and Minerals
Fund as a hedge against the potential for rising inflation and further dollar
weakness.
In the bond market, our overweight position is concentrated in our mutual funds
that hold investment-grade corporate bonds. After having benefited from being
overweight in the USAA High-Yield Opportunities Bond Fund, we took profits late
in the year and reduced exposure to this fund. We believe that U.S.
government-backed securities without inflation protection are overvalued,
offering low yields and high sensitivity to the risk of higher inflation and
higher interest rates. Given the strong capital appreciation our fixed-income
portfolios enjoyed in 2009, investors should expect income to be the primary
driver of total return going forward.
The USAA Precious Metals and Minerals Fund is subject to additional risks, such
as currency fluctuation, market liquidity, political instability and increased
price volatility. It may be more volatile than a fund that diversifies across
many industries.
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MARKET OUTLOOK/COMMENTARY | 3
<PAGE>
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o ARE YOUR VIEWS AND ALLOCATIONS APPLIED TO THE SAME EXTENT ACROSS ALL FIVE
TARGET RETIREMENT FUNDS?
No. Investors who will not begin to draw on assets until 2040 or 2050 have more
time on their side to overcome periods of extreme volatility and allow the
long-term performance advantage of stocks to work for them. Therefore, our
tactical allocation adjustments will be less significant (but not insignificant)
in those funds. Our goal is that they potentially will benefit to a larger
degree from solid strategic base allocations and our manager selection
capabilities.
We thank you for your investment in one of our Target Retirement Funds. We are
very pleased that you have selected a diversified portfolio that draws upon all
of USAA's investment expertise.
The risks of the Target Retirement Funds reflect the risks of the underlying
funds in which the Funds invest. The target date is the approximate date when
investors plan to start withdrawing their money for retirement purposes. In
general, the Target Retirement Funds' investment program assumes funds will
start being withdrawn for retirement purposes at age 65. The principal value of
the Target Retirement Funds is not guaranteed at any time, including at the
target date. The Funds' objectives do not change over time.
As interest rates rise, existing bond prices fall.
Precious metals and minerals is a volatile asset class and is subject to
additional risks, such as currency fluctuation, market liquidity, political
instability and increased price volatility. It may be more volatile than other
asset classes that diversify across many industries and companies.
Diversification and asset allocation does not guarantee a profit or prevent a
loss.
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4 | USAA TARGET RETIREMENT FUNDS
<PAGE>
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INVESTMENT OVERVIEW
USAA TARGET RETIREMENT INCOME FUND (URINX)
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12/31/09 12/31/08
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Net Assets $90.8 Million $22.7 Million
Net Asset Value Per Share $10.17 $8.44
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AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/09
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1 Year 25.04% Since Inception 7/31/08 5.23%
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EXPENSE RATIO
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Before Reimbursement 1.57% After Reimbursement 0.00%
(Including acquired fund fees (Excluding acquired fund fees and
and expenses of 0.51%) expenses)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY, AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
EXCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2009. IMCO HAS VOLUNTARILY AGREED TO WAIVE
ALL FEES AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND UNTIL DECEMBER 31,
2010, EXCLUDING ANY AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. IMCO CAN
MODIFY OR TERMINATE THIS ARRANGEMENT AT ANY TIME. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE YEAR ENDED
DECEMBER 31, 2009, BEFORE REIMBURSEMENT, WHICH WAS 0.32% AS DISCLOSED IN THE
FINANCIAL HIGHLIGHTS, BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
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.
--------------------------------------------------------------------------------
o CUMULATIVE PERFORMANCE COMPARISON o
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[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE BOND INDEX RETIREMENT INCOME FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 10,000.00 10,144.65
9/30/2008 9,959.32 9,580.62 9,240.68
10/31/2008 9,724.23 8,617.54 7,688.73
11/30/2008 10,040.76 8,416.90 7,137.03
12/31/2008 10,415.37 8,598.81 7,212.97
1/31/2009 10,323.47 8,303.36 6,605.01
2/28/2009 10,284.50 7,997.71 5,901.73
3/31/2009 10,427.47 8,347.98 6,418.69
4/30/2009 10,477.33 8,768.46 7,033.02
5/31/2009 10,553.32 9,301.74 7,426.40
6/30/2009 10,613.35 9,397.12 7,441.13
7/31/2009 10,784.54 9,852.49 8,003.96
8/31/2009 10,896.20 10,090.52 8,292.93
9/30/2009 11,010.66 10,395.82 8,602.38
10/31/2009 11,065.03 10,427.13 8,442.58
11/30/2009 11,208.28 10,677.64 8,948.99
12/31/2009 11,033.08 10,752.00 9,121.85
[END CHART]
Data since Fund inception 7/31/08 to 12/31/09.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement Income Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed securities,
and commercial mortgage-backed securities that have remaining maturities of
more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
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. It is not
possible to invest directly in an index.
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INVESTMENT OVERVIEW | 5
<PAGE>
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USAA TARGET RETIREMENT 2020 FUND (URTNX)
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12/31/09 12/31/08
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Net Assets $179.7 Million $39.7 Million
Net Asset Value Per Share $10.38 $8.35
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AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/09
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1 Year 28.12% Since Inception 7/31/08 6.23%
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EXPENSE RATIO
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Before Reimbursement 1.30% After Reimbursement 0.00%
(Including acquired fund fees (Excluding acquired fund fees and
and expenses of 0.57%) expenses)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY, AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
EXCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2009. IMCO HAS VOLUNTARILY AGREED TO WAIVE
ALL FEES AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND UNTIL DECEMBER 31,
2010, EXCLUDING ANY AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. IMCO CAN
MODIFY OR TERMINATE THIS ARRANGEMENT AT ANY TIME. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE YEAR ENDED
DECEMBER 31, 2009, WHICH WAS 0.18% AS DISCLOSED IN THE FINANCIAL HIGHLIGHTS,
BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
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.
--------------------------------------------------------------------------------
o CUMULATIVE PERFORMANCE COMPARISON o
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[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE BOND INDEX RETIREMENT 2020 FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 10,000.00 10,144.65
9/30/2008 9,959.32 9,490.00 9,240.68
10/31/2008 9,724.23 8,360.00 7,688.73
11/30/2008 10,040.76 8,210.00 7,137.03
12/31/2008 10,415.37 8,505.09 7,212.97
1/31/2009 10,323.47 8,077.29 6,605.01
2/28/2009 10,284.50 7,618.93 5,901.73
3/31/2009 10,427.47 8,067.10 6,418.69
4/30/2009 10,477.33 8,637.50 7,033.02
5/31/2009 10,553.32 9,228.27 7,426.40
6/30/2009 10,613.35 9,309.76 7,441.13
7/31/2009 10,784.54 9,849.60 8,003.96
8/31/2009 10,896.20 10,094.06 8,292.93
9/30/2009 11,010.66 10,470.93 8,602.38
10/31/2009 11,065.03 10,470.93 8,442.58
11/30/2009 11,208.28 10,776.50 8,948.99
12/31/2009 11,033.08 10,896.68 9,121.85
[END CHART]
Data since Fund inception 7/31/08 to 12/31/09.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement 2020 Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed securities,
and commercial mortgage-backed securities that have remaining maturities of
more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
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. It is not
possible to invest directly in an index.
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6 | USAA TARGET RETIREMENT FUNDS
<PAGE>
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USAA TARGET RETIREMENT 2030 FUND (URTRX)
--------------------------------------------------------------------------------
12/31/09 12/31/08
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Net Assets $256.2 Million $50.5 Million
Net Asset Value Per Share $10.10 $7.85
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AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/09
----------------------------------------------------------------------------
1 Year 31.68% Since Inception 7/31/08 3.68%
----------------------------------------------------------------------------
EXPENSE RATIO
----------------------------------------------------------------------------
Before Reimbursement 1.23% After Reimbursement 0.00%
(Including acquired fund fees (Excluding acquired fund fees and
and expenses of 0.62%) expenses)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY, AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
EXCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2009. IMCO HAS VOLUNTARILY AGREED TO WAIVE
ALL FEES AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND UNTIL DECEMBER 31,
2010, EXCLUDING ANY AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. IMCO CAN
MODIFY OR TERMINATE THIS ARRANGEMENT AT ANY TIME. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE YEAR ENDED
DECEMBER 31, 2009, BEFORE REIMBURSEMENT, WHICH WAS 0.14% AS DISCLOSED IN THE
FINANCIAL HIGHLIGHTS, BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
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.
--------------------------------------------------------------------------------
o CUMULATIVE PERFORMANCE COMPARISON o
--------------------------------------------------------------------------------
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE BOND INDEX RETIREMENT 2030 FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 9,990.00 10,144.65
9/30/2008 9,959.32 9,250.00 9,240.68
10/31/2008 9,724.23 7,970.00 7,688.73
11/30/2008 10,040.76 7,690.00 7,137.03
12/31/2008 10,415.37 7,993.85 7,212.97
1/31/2009 10,323.47 7,555.97 6,605.01
2/28/2009 10,284.50 7,097.72 5,901.73
3/31/2009 10,427.47 7,525.42 6,418.69
4/30/2009 10,477.33 8,105.86 7,033.02
5/31/2009 10,553.32 8,696.49 7,426.40
6/30/2009 10,613.35 8,757.59 7,441.13
7/31/2009 10,784.54 9,348.22 8,003.96
8/31/2009 10,896.20 9,612.98 8,292.93
9/30/2009 11,010.66 10,030.50 8,602.38
10/31/2009 11,065.03 9,969.40 8,442.58
11/30/2009 11,208.28 10,335.99 8,948.99
12/31/2009 11,033.08 10,526.60 9,121.85
[END CHART]
Data since Fund inception 7/31/08 to 12/31/09.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement 2030 Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed securities,
and commercial mortgage-backed securities that have remaining maturities of
more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
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. It is not
possible to invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 7
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2040 FUND (URFRX)
--------------------------------------------------------------------------------
12/31/09 12/31/08
----------------------------------------------------------------------------
Net Assets $234.2 Million $43.7 Million
Net Asset Value Per Share $9.60 $7.37
----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/09
----------------------------------------------------------------------------
1 Year 32.71% Since Inception 7/31/08 -0.38%
----------------------------------------------------------------------------
EXPENSE RATIO
----------------------------------------------------------------------------
Before Reimbursement 1.40% After Reimbursement 0.00%
(Including acquired fund fees (Excluding acquired fund fees and
and expenses of 0.70%) expenses)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY, AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
EXCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2009. IMCO HAS VOLUNTARILY AGREED TO WAIVE
ALL FEES, AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND UNTIL DECEMBER 31,
2010, EXCLUDING ANY AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. IMCO CAN
MODIFY OR TERMINATE THIS ARRANGEMENT AT ANY TIME. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE YEAR ENDED
DECEMBER 31, 2009, BEFORE REIMBURSEMENT, WHICH WAS 0.15% AS DISCLOSED IN THE
FINANCIAL HIGHLIGHTS, BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
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.
--------------------------------------------------------------------------------
o CUMULATIVE PERFORMANCE COMPARISON o
--------------------------------------------------------------------------------
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE BOND INDEX RETIREMENT 2040 FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 9,990.00 10,144.65
9/30/2008 9,959.32 9,110.00 9,240.68
10/31/2008 9,724.23 7,610.00 7,688.73
11/30/2008 10,040.76 7,160.00 7,137.03
12/31/2008 10,415.37 7,494.90 7,212.97
1/31/2009 10,323.47 7,016.93 6,605.01
2/28/2009 10,284.50 6,508.46 5,901.73
3/31/2009 10,427.47 6,966.09 6,418.69
4/30/2009 10,477.33 7,545.75 7,033.02
5/31/2009 10,553.32 8,115.24 7,426.40
6/30/2009 10,613.35 8,115.24 7,441.13
7/31/2009 10,784.54 8,755.91 8,003.96
8/31/2009 10,896.20 8,999.98 8,292.93
9/30/2009 11,010.66 9,437.27 8,602.38
10/31/2009 11,065.03 9,294.89 8,442.58
11/30/2009 11,208.28 9,722.01 8,948.99
12/31/2009 11,033.08 9,946.22 9,121.85
[END CHART]
Data since Fund inception 7/31/08 to 12/31/09.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement 2040 Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed securities,
and commercial mortgage-backed securities that have remaining maturities of
more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
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. It is not
possible to invest directly in an index.
================================================================================
8 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2050 FUND (URFFX)
--------------------------------------------------------------------------------
12/31/09 12/31/08
----------------------------------------------------------------------------
Net Assets $88.5 Million $16.1 Million
Net Asset Value Per Share $9.21 $7.07
----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/09
----------------------------------------------------------------------------
1 Year 31.84% Since Inception 7/31/08 -3.78%
----------------------------------------------------------------------------
EXPENSE RATIO
----------------------------------------------------------------------------
Before Reimbursement 2.34% After Reimbursement 0.00%
(Including acquired fund fees (Excluding acquired fund fees and
and expenses of 0.79%) expenses)
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY, AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES (AFFE), AND IS CALCULATED AS A PERCENTAGE OF
AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL
ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
EXCLUDING ANY AFFE, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY
(IMCO). BEFORE AND AFTER REIMBURSEMENT AND AFFE EXPENSE RATIOS ARE REPORTED IN
THE FUND'S PROSPECTUS DATED MAY 1, 2009. IMCO HAS VOLUNTARILY AGREED TO WAIVE
ALL FEES AND TO REIMBURSE ALL OPERATING EXPENSES OF THE FUND UNTIL DECEMBER 31,
2010, EXCLUDING ANY AFFE AND BEFORE ANY EXPENSES PAID INDIRECTLY. IMCO CAN
MODIFY OR TERMINATE THIS ARRANGEMENT AT ANY TIME. THE BEFORE REIMBURSEMENT
EXPENSE RATIO DIFFERS FROM THE FUND'S ACTUAL EXPENSE RATIO FOR THE YEAR ENDED
DECEMBER 31, 2009, BEFORE REIMBURSEMENT, WHICH WAS 0.33% AS DISCLOSED IN THE
FINANCIAL HIGHLIGHTS, BEFORE ANY AFFE AND EXPENSES PAID INDIRECTLY.
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.
--------------------------------------------------------------------------------
o CUMULATIVE PERFORMANCE COMPARISON o
--------------------------------------------------------------------------------
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TARGET
U.S. AGGREGATE BOND INDEX RETIREMENT 2050 FUND S&P 500 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,094.91 9,960.00 10,144.65
9/30/2008 9,959.32 8,970.00 9,240.68
10/31/2008 9,724.23 7,330.00 7,688.73
11/30/2008 10,040.76 6,810.00 7,137.03
12/31/2008 10,415.37 7,180.05 7,212.97
1/31/2009 10,323.47 6,611.33 6,605.01
2/28/2009 10,284.50 6,042.61 5,901.73
3/31/2009 10,427.47 6,550.40 6,418.69
4/30/2009 10,477.33 7,129.27 7,033.02
5/31/2009 10,553.32 7,677.67 7,426.40
6/30/2009 10,613.35 7,616.74 7,441.13
7/31/2009 10,784.54 8,276.86 8,003.96
8/31/2009 10,896.20 8,510.44 8,292.93
9/30/2009 11,010.66 8,936.98 8,602.38
10/31/2009 11,065.03 8,733.86 8,442.58
11/30/2009 11,208.28 9,211.18 8,948.99
12/31/2009 11,033.08 9,466.36 9,121.85
[END CHART]
Data since Fund inception 7/31/08 to 12/31/09.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Target Retirement 2050 Fund to the following benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index covers the U.S.
investment-grade rated bond market, including government and credit
securities, agency mortgage pass-through securities, asset-backed securities,
and commercial mortgage-backed securities that have remaining maturities of
more than one year.
o The unmanaged S&P 500 Index represents the weighted average performance of a
group of 500 widely held, publicly traded stocks.
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. It is not
possible to invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 9
<PAGE>
================================================================================
o TARGET RETIREMENT INCOME FUND
ASSET ALLOCATION -- 12/31/2009
---------------------------------------------------------------------
[PIE CHART OF ASSET ALLOCATION]
FIXED INCOME 70.4%
EQUITY 27.0%
CASH 2.6%
[END CHART]
TARGET RETIREMENT INCOME FUND
AS OF 12/31/09
INVESTMENT ALLOCATION
--------------------------------------------------------------------------
USAA Fund:
Aggressive Growth 2.1%
Emerging Markets 3.3%
Growth 3.5%
Income Stock 3.0%
International 6.4%
Precious Metals and Minerals 0.9%
S&P 500 Index 1.9%
Small Cap Stock 3.2%
Value 2.7%
Total Equity 27.0%
Income 22.2%
Intermediate-Term Bond 26.6%
Short-Term Bond 21.6%
Total Fixed-Income 70.4%
Cash:
Money Market Instruments 2.6%
o TARGET RETIREMENT 2020 FUND
ASSET ALLOCATION -- 12/31/2009
---------------------------------------------------------------------
[PIE CHART OF ASSET ALLOCATION]
FIXED INCOME 60.5%
EQUITY 36.9%
CASH 2.1%
[END CHART]
TARGET RETIREMENT 2020 FUND
AS OF 12/31/09
INVESTMENT ALLOCATION
--------------------------------------------------------------------------
USAA Fund:
Aggressive Growth 2.7%
Emerging Markets 4.4%
Growth 4.4%
Income Stock 3.8%
International 8.6%
Precious Metals and Minerals 1.6%
S&P 500 Index 3.9%
Small Cap Stock 4.2%
Value 3.3%
Total Equity 36.9%
High-Yield Opportunities 10.1%
Income 18.2%
Intermediate-Term Bond 16.2%
Short-Term Bond 16.0%
Total Fixed-Income 60.5%
Cash:
Money Market Instruments 2.1%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
10 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
o TARGET RETIREMENT 2030 FUND
ASSET ALLOCATION -- 12/31/2009
---------------------------------------------------------------------
[PIE CHART OF ASSET ALLOCATION]
EQUITY 56.8%
FIXED INCOME 40.8%
CASH 2.5%
[END CHART]
TARGET RETIREMENT 2030 FUND
AS OF 12/31/09
INVESTMENT ALLOCATION
--------------------------------------------------------------------------
USAA Fund:
Aggressive Growth 3.9%
Emerging Markets 6.6%
Growth 7.1%
Income Stock 5.5%
International 12.8%
Precious Metals and Minerals 1.9%
S&P 500 Index 7.1%
Small Cap Stock 6.4%
Value 5.5%
Total Equity 56.8%
High-Yield Opportunities 10.1%
Income 17.9%
Intermediate-Term Bond 12.8%
Total Fixed-Income 40.8%
Cash:
Money Market Instruments 2.5%
o TARGET RETIREMENT 2040 FUND
ASSET ALLOCATION -- 12/31/2009
---------------------------------------------------------------------
[PIE CHART OF ASSET ALLOCATION]
EQUITY 76.6%
FIXED INCOME 20.9%
CASH 2.4%
[END CHART]
TARGET RETIREMENT 2040 FUND
AS OF 12/31/09
INVESTMENT ALLOCATION
--------------------------------------------------------------------------
USAA Fund:
Aggressive Growth 4.7%
Emerging Markets 8.5%
Growth 11.5%
Income Stock 8.5%
International 17.4%
Precious Metals and Minerals 2.5%
S&P 500 Index 7.5%
Small Cap Stock 8.6%
Value 7.4%
Total Equity 76.6%
High-Yield Opportunities 10.1%
Income 10.8%
Total Fixed-Income 20.9%
Cash:
Money Market Instruments 2.4%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 11
<PAGE>
================================================================================
o TARGET RETIREMENT 2050 FUND
ASSET ALLOCATION -- 12/31/2009
---------------------------------------------------------------------
[PIE CHART OF ASSET ALLOCATION]
EQUITY 97.7%
CASH 2.2%
[END CHART]
TARGET RETIREMENT 2050 FUND
AS OF 12/31/09
INVESTMENT ALLOCATION
--------------------------------------------------------------------------
USAA Fund:
Aggressive Growth 6.2%
Emerging Markets 10.8%
Growth 15.9%
Income Stock 11.9%
International 21.3%
Precious Metals and Minerals 3.1%
S&P 500 Index 7.7%
Small Cap Stock 10.5%
Value 10.3%
Total Equity 97.7%
Cash:
Money Market Instruments 2.2%
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
12 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------------------------------------------------
The following federal tax information related to the Funds' fiscal year ended
December 31, 2009, is provided for information purposes only and should not be
used for reporting to federal or state revenue agencies. Federal tax information
for the calendar year will be reported to you on Form 1099-DIV in January 2010.
For the fiscal year ended December 31, 2009, the percent of ordinary income
distributions that qualify for the dividends-received deductions eligible to
corporations is 6.74%, 10.80%, 17.01%, 26.51%, and 52.12% for the Target
Retirement Income Fund, Target Retirement 2020 Fund, Target Retirement 2030
Fund, Target Retirement 2040 Fund, and Target Retirement 2050 Fund,
respectively.
For the fiscal year ended December 31, 2009, the Funds hereby designate 100%, or
the maximum amount allowable, of their net taxable income as dividends taxed at
individual net capital gains rates.
For the fiscal year ended December 31, 2009, certain dividends paid by the Funds
qualify as interest-related dividends. The Funds designate $5,000, $8,000,
$12,000, $11,000, and $4,000, as qualifying interest income for the Target
Retirement Income Fund, Target Retirement 2020 Fund, Target Retirement 2030
Fund, Target Retirement 2040 Fund, and Target Retirement 2050 Fund,
respectively.
For the fiscal year ended December 31, 2009, pursuant to Section 852 of the
Internal Revenue Code, as amended, the designation of long-term capital gains is
$110,000, $90,000, $97,000, $414,000, and $191,000 for the Target Retirement
Income Fund, Target Retirement 2020 Fund, Target Retirement 2030 Fund, Target
Retirement 2040 Fund, and Target Retirement 2050 Fund, respectively.
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS | 13
<PAGE>
================================================================================
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA TARGET RETIREMENT INCOME FUND,
USAA TARGET RETIREMENT 2020 FUND, USAA TARGET RETIREMENT 2030 FUND, USAA TARGET
RETIREMENT 2040 FUND, AND USAA TARGET RETIREMENT 2050 FUND:
We have audited the accompanying statements of assets and liabilities, including
the portfolio of investments, of the USAA Target Retirement Income Fund, the
USAA Target Retirement 2020 Fund, the USAA Target Retirement 2030 Fund, the USAA
Target Retirement 2040 Fund, and the USAA Target Retirement 2050 Fund (Funds of
USAA Mutual Funds Trust) (the "Funds") as of December 31, 2009, and the related
statements of operations for the year then ended, and the statements of changes
in net assets and the financial highlights for each of the two periods in the
period then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatements. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2009, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA Target Retirement Income Fund, the USAA Target Retirement 2020 Fund, the
USAA Target Retirement 2030 Fund, the USAA Target Retirement 2040 Fund, and the
USAA Target Retirement 2050 Fund at December 31, 2009, the results of their
operations for the year then ended, and the changes in their net assets and the
financial highlights for each of the two periods in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
San Antonio, Texas
February 17, 2010
================================================================================
14 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
PORTFOLIOS OF INVESTMENTS
USAA TARGET RETIREMENT INCOME FUND
December 31, 2009
---------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (27.0%)
68,942 USAA Aggressive Growth Fund $ 1,935
160,922 USAA Emerging Markets Fund 2,985
253,424 USAA Growth Fund 3,206
250,752 USAA Income Stock Fund 2,681
260,491 USAA International Fund 5,814
25,128 USAA Precious Metals and Minerals Fund 855
101,228 USAA S&P 500 Index Fund 1,692
268,951 USAA Small Cap Stock Fund* 2,899
209,876 USAA Value Fund 2,451
-------
Total Equity Mutual Funds (cost: $19,580) 24,518
-------
FIXED-INCOME MUTUAL FUNDS (70.4%)
1,640,504 USAA Income Fund 20,195
2,517,219 USAA Intermediate-Term Bond Fund 24,190
2,164,111 USAA Short-Term Bond Fund 19,585
-------
Total Fixed-income Mutual Funds (cost: $60,550) 63,970
-------
MONEY MARKET INSTRUMENTS (2.6%)
MONEY MARKET FUNDS (2.6%)
2,401,290 State Street Institutional Liquid Reserve Fund, 0.15%(a) (cost: $2,401) 2,401
-------
TOTAL INVESTMENTS (COST: $82,531) $90,889
=======
---------------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $24,518 $-- $-- $24,518
Fixed-Income Mutual Funds 63,970 -- -- 63,970
Money Market Instruments:
Money Market Funds 2,401 -- -- 2,401
---------------------------------------------------------------------------------------------------------------------
Total $90,889 $-- $-- $90,889
---------------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIOS OF INVESTMENTS | 15
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2020 FUND
December 31, 2009
---------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (36.9%)
169,797 USAA Aggressive Growth Fund $ 4,766
423,712 USAA Emerging Markets Fund 7,860
625,842 USAA Growth Fund 7,917
631,091 USAA Income Stock Fund 6,747
695,535 USAA International Fund 15,524
86,554 USAA Precious Metals and Minerals Fund 2,945
420,182 USAA S&P 500 Index Fund 7,021
700,666 USAA Small Cap Stock Fund* 7,553
506,260 USAA Value Fund 5,913
--------
Total Equity Mutual Funds (cost: $51,134) 66,246
--------
FIXED-INCOME MUTUAL FUNDS (60.5%)
2,340,909 USAA High-Yield Opportunities Fund 18,165
2,659,219 USAA Income Fund 32,735
3,027,075 USAA Intermediate-Term Bond Fund 29,090
3,173,488 USAA Short-Term Bond Fund 28,720
--------
Total Fixed-income Mutual Funds (cost: $99,862) 108,710
--------
MONEY MARKET INSTRUMENTS (2.1%)
MONEY MARKET FUNDS (2.1%)
3,727,858 State Street Institutional Liquid Reserve Fund, 0.15%(a) (cost: $3,728) 3,728
--------
TOTAL INVESTMENTS (COST: $154,724) $178,684
========
---------------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $ 66,246 $-- $-- $ 66,246
Fixed-Income Mutual Funds 108,710 -- -- 108,710
Money Market Instruments:
Money Market Funds 3,728 -- -- 3,728
---------------------------------------------------------------------------------------------------------------------
Total $178,684 $-- $-- $178,684
---------------------------------------------------------------------------------------------------------------------
================================================================================
16 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2030 FUND
December 31, 2009
---------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (56.8%)
355,524 USAA Aggressive Growth Fund $ 9,980
904,816 USAA Emerging Markets Fund 16,784
1,435,110 USAA Growth Fund 18,154
1,315,459 USAA Income Stock Fund 14,062
1,482,964 USAA International Fund 33,100
145,400 USAA Precious Metals and Minerals Fund 4,946
1,084,659 USAA S&P 500 Index Fund 18,125
1,522,352 USAA Small Cap Stock Fund* 16,411
1,201,102 USAA Value Fund 14,029
--------
Total Equity Mutual Funds (cost: $117,423) 145,591
--------
FIXED-INCOME MUTUAL FUNDS (40.8%)
3,336,409 USAA High-Yield Opportunities Fund 25,890
3,717,196 USAA Income Fund 45,759
3,417,802 USAA Intermediate-Term Bond Fund 32,845
--------
Total Fixed-income Mutual Funds (cost: $94,433) 104,494
--------
MONEY MARKET INSTRUMENTS (2.5%)
MONEY MARKET FUNDS (2.5%)
6,333,344 State Street Institutional Liquid Reserve Fund, 0.15%(a) (cost: $6,334) 6,334
--------
TOTAL INVESTMENTS (COST: $218,190) $256,419
========
---------------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $145,591 $-- $-- $145,591
Fixed-Income Mutual Funds 104,494 -- -- 104,494
Money Market Instruments:
Money Market Funds 6,334 -- -- 6,334
---------------------------------------------------------------------------------------------------------------------
Total $256,419 $-- $-- $256,419
---------------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIOS OF INVESTMENTS | 17
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2040 FUND
December 31, 2009
---------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (76.6%)
388,890 USAA Aggressive Growth Fund $ 10,916
1,079,342 USAA Emerging Markets Fund 20,022
2,111,568 USAA Growth Fund 26,711
1,862,956 USAA Income Stock Fund 19,915
1,814,869 USAA International Fund 40,508
173,725 USAA Precious Metals and Minerals Fund 5,910
1,053,674 USAA S&P 500 Index Fund 17,607
1,869,973 USAA Small Cap Stock Fund* 20,158
1,508,561 USAA Value Fund 17,620
--------
Total Equity Mutual Funds (cost: $146,946) 179,367
--------
FIXED-INCOME MUTUAL FUNDS (20.9%)
3,042,696 USAA High-Yield Opportunities Fund 23,611
2,057,799 USAA Income Fund 25,332
--------
Total Fixed-income Mutual Funds (cost: $43,868) 48,943
--------
MONEY MARKET INSTRUMENTS (2.4%)
MONEY MARKET FUNDS (2.4%)
5,738,116 State Street Institutional Liquid Reserve Fund, 0.15%(a) (cost: $5,738) 5,738
--------
TOTAL INVESTMENTS (COST: $196,552) $234,048
========
---------------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $179,367 $-- $-- $179,367
Fixed-Income Mutual Funds 48,943 -- -- 48,943
Money Market Instruments:
Money Market Funds 5,738 -- -- 5,738
---------------------------------------------------------------------------------------------------------------------
Total $234,048 $-- $-- $234,048
---------------------------------------------------------------------------------------------------------------------
================================================================================
18 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
USAA TARGET RETIREMENT 2050 FUND
December 31, 2009
---------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------------------------
EQUITY MUTUAL FUNDS (97.7%)
196,415 USAA Aggressive Growth Fund $ 5,513
513,282 USAA Emerging Markets Fund 9,521
1,113,871 USAA Growth Fund 14,091
977,915 USAA Income Stock Fund 10,454
843,723 USAA International Fund 18,832
81,282 USAA Precious Metals and Minerals Fund 2,765
406,748 USAA S&P 500 Index Fund 6,797
863,273 USAA Small Cap Stock Fund* 9,306
779,083 USAA Value Fund 9,100
-------
Total Equity Mutual Funds (cost: $71,258) 86,379
-------
MONEY MARKET INSTRUMENTS (2.2%)
MONEY MARKET FUNDS (2.2%)
1,978,145 State Street Institutional Liquid Reserve Fund, 0.15%(a) (cost: $1,978) 1,978
-------
TOTAL INVESTMENTS (COST: $73,236) $88,357
=======
---------------------------------------------------------------------------------------------------------------------
($ 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 Mutual Funds $86,379 $-- $-- $86,379
Money Market Instruments:
Money Market Funds 1,978 -- -- 1,978
---------------------------------------------------------------------------------------------------------------------
Total $88,357 $-- $-- $88,357
---------------------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIOS OF INVESTMENTS | 19
<PAGE>
================================================================================
NOTES TO PORTFOLIOS OF INVESTMENTS
December 31, 2009
--------------------------------------------------------------------------------
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 equity and fixed-income mutual funds in which the Funds invest are managed
by USAA Investment Management Company, an affiliate of the Funds. The USAA
Target Retirement Funds invest in the Reward Shares of the USAA S&P 500 Index
Fund and the Institutional Shares of the other USAA mutual funds.
o SPECIFIC NOTES
(a) Rate represents the money market fund annualized seven-day yield at
December 31, 2009.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
20 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
December 31, 2009
--------------------------------------------------------------------------------
USAA TARGET RETIREMENT
---------------------------------------------------------------
INCOME FUND 2020 FUND 2030 FUND 2040 FUND 2050 FUND
---------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in affiliated underlying funds, at value
(cost of $80,130, $150,996, $211,856, $190,814,
and $71,258, respectively) $88,488 $174,956 $250,085 $228,310 $86,379
Investments in other securities, at value
(cost of $2,401, $3,728, $6,334, $5,738,
and $1,978, respectively) 2,401 3,728 6,334 5,738 1,978
Receivables:
Capital shares sold 591 1,341 1,272 1,435 382
USAA Investment Management Company (Note 5C) 41 47 52 52 42
USAA Transfer Agency Company (Note 5D) 1 8 4 8 -
Dividends from affiliated underlying funds 204 266 182 - -
Interest - 1 1 1 -
-----------------------------------------------------------
Total assets 91,726 180,347 257,930 235,544 88,781
-----------------------------------------------------------
LIABILITIES
Payables:
Securities purchased 818 470 1,492 1,158 245
Capital shares redeemed 18 164 149 120 41
Other accrued expenses and payables 41 53 53 53 42
-----------------------------------------------------------
Total liabilities 877 687 1,694 1,331 328
-----------------------------------------------------------
Net assets applicable to capital shares
outstanding $90,849 $179,660 $256,236 $234,213 $88,453
===========================================================
NET ASSETS CONSIST OF:
Paid-in capital $83,771 $159,958 $222,630 $200,869 $75,314
Accumulated undistributed net investment income 17 20 23 - -
Accumulated net realized loss on investments (1,297) (4,278) (4,646) (4,152) (1,982)
Net unrealized appreciation of investments 8,358 23,960 38,229 37,496 15,121
-----------------------------------------------------------
Net assets applicable to capital shares
outstanding $90,849 $179,660 $256,236 $234,213 $88,453
===========================================================
Capital shares outstanding, unlimited number of shares
authorized, no par value 8,934 17,304 25,382 24,387 9,604
===========================================================
Net asset value, redemption price, and offering price
per share $ 10.17 $ 10.38 $ 10.10 $ 9.60 $ 9.21
===========================================================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 21
<PAGE>
================================================================================
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
Year ended December 31, 2009
--------------------------------------------------------------------------------
USAA TARGET RETIREMENT
---------------------------------------------------------------
INCOME FUND 2020 FUND 2030 FUND 2040 FUND 2050 FUND
---------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income distributions from affiliated underlying funds $ 2,201 $ 4,435 $ 5,574 $ 3,817 $ 813
Interest 5 8 12 10 4
-----------------------------------------------------------
Total income 2,206 4,443 5,586 3,827 817
-----------------------------------------------------------
EXPENSES
Custody and accounting fees 27 29 28 28 24
Postage 3 6 12 16 8
Shareholder reporting fees 3 4 8 10 5
Trustees' fees 10 10 10 10 10
Registration fees 59 72 81 73 61
Professional fees 47 48 49 49 47
Other 8 9 9 9 8
-----------------------------------------------------------
Total expenses 157 178 197 195 163
Expenses reimbursed (157) (178) (197) (195) (163)
-----------------------------------------------------------
Net expenses - - - - -
-----------------------------------------------------------
NET INVESTMENT INCOME 2,206 4,443 5,586 3,827 817
-----------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized loss on sales of affiliated underlying funds (1,019) (3,118) (3,203) (3,945) (1,823)
Change in net unrealized appreciation/depreciation of
affiliated underlying funds 10,571 27,039 42,827 44,291 18,463
-----------------------------------------------------------
Net realized and unrealized gain 9,552 23,921 39,624 40,346 16,640
-----------------------------------------------------------
Increase in net assets resulting from operations $11,758 $28,364 $45,210 $44,173 $17,457
===========================================================
See accompanying notes to financial statements.
================================================================================
22 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Year ended December 31, 2009, and period ended December 31, 2008
--------------------------------------------------------------------------------
USAA TARGET RETIREMENT
-----------------------------------------------------------------
INCOME FUND 2020 FUND 2030 FUND
-----------------------------------------------------------------
2009 2008* 2009 2008* 2009 2008*
---------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 2,206 $ 387 $ 4,443 $ 693 $ 5,586 $ 863
Net realized loss on sales of affiliated
underlying funds (1,019) (278) (3,118) (612) (3,203) (1,611)
Net realized gain on capital gain distributions
from affiliated underlying funds - 110 - 299 - 414
Change in net unrealized appreciation/depreciation
of affiliated underlying funds 10,571 (2,213) 27,039 (3,079) 42,827 (4,598)
---------------------------------------------------------------
Increase (decrease) in net assets resulting
from operations 11,758 (1,994) 28,364 (2,699) 45,210 (4,932)
---------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,192) (384) (4,425) (691) (5,566) (860)
Net realized gains (110) - (847) - (246) -
---------------------------------------------------------------
Distributions to shareholders (2,302) (384) (5,272) (691) (5,812) (860)
---------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 69,222 28,737 130,636 46,781 184,168 59,539
Reinvested dividends 2,125 311 5,121 623 5,704 796
Cost of shares redeemed (12,692) (3,933) (18,914) (4,300) (23,530) (4,051)
---------------------------------------------------------------
Increase in net assets from capital
share transactions 58,655 25,115 116,843 43,104 166,342 56,284
---------------------------------------------------------------
Capital contribution from USAA Transfer
Agency Company (Note 5D) 1 - 8 3 4 -
---------------------------------------------------------------
Net increase in net assets 68,112 22,737 139,943 39,717 205,744 50,492
NET ASSETS
Beginning of year 22,737 - 39,717 - 50,492 -
---------------------------------------------------------------
End of year $90,849 $22,737 $179,660 $39,717 $256,236 $50,492
===============================================================
Accumulated undistributed net investment income:
End of year $ 17 $ 3 $ 20 $ 2 $ 23 $ 3
===============================================================
CHANGE IN SHARES OUTSTANDING
Shares sold 7,404 3,103 14,100 5,179 21,068 6,812
Shares issued for dividends reinvested 218 37 491 77 563 104
Shares redeemed (1,381) (447) (2,044) (499) (2,680) (485)
---------------------------------------------------------------
Increase in shares outstanding 6,241 2,693 12,547 4,757 18,951 6,431
===============================================================
* Fund commenced operations on July 31, 2008.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 23
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Year ended December 31, 2009, and period ended December 31, 2008
--------------------------------------------------------------------------------
USAA TARGET RETIREMENT
-------------------------------------
2040 FUND 2050 FUND
-------------------------------------
2009 2008* 2009 2008*
---------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 3,827 $ 685 $ 817 $ 234
Net realized loss on sales of affiliated underlying funds (3,945) (182) (1,823) (126)
Net realized gain on capital gain distributions from affiliated underlying funds - 411 - 190
Change in net unrealized appreciation/depreciation of affiliated underlying funds 44,291 (6,795) 18,463 (3,342)
-------------------------------------
Increase (decrease) in net assets resulting from operations 44,173 (5,881) 17,457 (3,044)
-------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,828) (684) (819) (232)
Net realized gains (436) - (223) -
-------------------------------------
Distributions to shareholders (4,264) (684) (1,042) (232)
-------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 163,652 53,029 61,543 20,380
Reinvested dividends 4,182 629 993 185
Cost of shares redeemed (17,280) (3,367) (6,587) (1,203)
-------------------------------------
Increase in net assets from capital share transactions 150,554 50,291 55,949 19,362
-------------------------------------
Capital contribution from USAA Transfer Agency Company (Note 5D) 8 16 - 3
-------------------------------------
Net increase in net assets 190,471 43,742 72,364 16,089
NET ASSETS
Beginning of year 43,742 - 16,089 -
-------------------------------------
End of year $234,213 $43,742 $88,453 $16,089
=====================================
Accumulated undistributed net investment income:
End of year $ - $ 1 $ - $ 2
=====================================
CHANGE IN SHARES OUTSTANDING
Shares sold 20,102 6,271 8,045 2,413
Shares issued for dividends reinvested 434 88 107 27
Shares redeemed (2,082) (426) (825) (163)
-------------------------------------
Increase in shares outstanding 18,454 5,933 7,327 2,277
=====================================
* Fund commenced operations on July 31, 2008.
See accompanying notes to financial statements.
================================================================================
24 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
--------------------------------------------------------------------------------
(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 annual report pertains only to the USAA Target
Retirement Income Fund (Target Income), the USAA Target Retirement 2020 Fund
(Target 2020), the USAA Target Retirement 2030 Fund (Target 2030), the USAA
Target Retirement 2040 Fund (Target 2040), and the USAA Target Retirement 2050
Fund (Target 2050) (collectively, the Funds), which are classified as
diversified under the 1940 Act. Each Fund's investment objective is to provide
capital appreciation and current income consistent with its current investment
allocation.
Each Fund is a "fund of funds" in that it invests in a portfolio of underlying
USAA equity and fixed-income mutual funds (underlying USAA funds) managed by
USAA Investment Management Company (the Manager), an affiliate of the Funds,
according to an asset allocation strategy designed for investors planning to
start withdrawing funds for retirement in or within a few years of each Fund's
specific year (target date) included in its name.
A. SECURITY VALUATION -- The values of the Funds' investments as well as the
investments of the underlying USAA funds are 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. Investments in the underlying USAA funds and other open-end investment
companies, other than exchange-traded funds (ETFs) are valued at their
net asset value (NAV) at the end of each business day.
2. The underlying USAA funds have specific valuation procedures. Securities
held by an underlying USAA fund 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 a fund, are valued in good
faith at fair value, using methods determined by the Manager in
consultation with a 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 a fund's NAV to be more reliable than it otherwise
would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions
on disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 25
<PAGE>
================================================================================
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 Funds' policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its income to its shareholders.
Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income and capital gain distributions from the underlying
USAA funds are recorded on the ex-dividend date. 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. EXPENSES PAID INDIRECTLY -- Through arrangements with the Funds' custodian
and other banks utilized by the Funds for cash management purposes,
realized credits, if any, generated from cash balances in the Funds' bank
accounts may be used to directly reduce the Funds' expenses. For the year
ended December 31, 2009, the Manager has reimbursed the Funds for all
operating expenses incurred, before reductions of expenses paid indirectly;
therefore, the custodian and bank credits have been reclassified to income
on the statements of operations. For the year ended December 31, 2009,
these custodian and other bank credits increased each of the Funds'
investment income by less than $500.
F. 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.
G. 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 Funds participate 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, each Fund may borrow from
CAPCO an amount up to 5% of its 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 year ended December 31, 2009, the facility fees paid to CAPCO were
$1,000 for Target 2030 and Target 2040 and were less than $500 for each of the
other Funds. The related percent of those fees to the total fees paid to CAPCO
by all USAA funds was 0.2% for Target 2020, 0.3% for Target 2030 and Target
2040, and 0.1% for Target Income and Target 2050. The Funds had no borrowings
under this agreement during the period ended December 31, 2009.
(3) DISTRIBUTIONS
The character of any distributions made during the year from net investment
income or net realized gains is determined in accordance with federal tax
regulations and may differ from those determined in accordance with
================================================================================
26 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
U.S. generally accepted accounting principles. Also, due to the timing of
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gains were recorded by the Funds.
The tax character of distributions paid during the year ended December 31, 2009
and the period ended December 31, 2008, was as follows (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
-------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2009*
Ordinary income* $2,192 $5,182 $5,716 $3,850 $851
Long-term realized capital gains 110 90 97 414 191
PERIOD ENDED DECEMBER 31, 2008**
Ordinary income* 384 691 860 684 232
* Includes distribution of short-term realized capital gains, if any, which are
taxable as ordinary income.
** Funds commenced operation on July 31, 2008.
As of December 31, 2009, the components of net assets representing distributable
earnings on a tax basis were as follows (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
-------------------------------------------------------------------------------------------------------------------------
Undistributed ordinary income $ 47 $ 221 $ 362 $ - $ -
Undistributed long-term capital gains - 4 53 - -
Accumulated capital and other losses - - - (215) (91)
Unrealized appreciation of investments $7,031 $19,481 $33,191 $33,559 $13,231
The difference between book-basis and tax-basis unrealized appreciation of
investments is attributable to the tax deferral of losses on wash sales.
Distributions of net investment income are made quarterly by Target Income and
annually by each of the other Funds or as otherwise required to avoid the
payment of federal taxes. Distributions of realized gains from security
transactions not offset by capital losses are made annually in the succeeding
fiscal year or as otherwise required to avoid the payment of federal taxes. At
December 31, 2009, the Funds had the following post-October deferred capital
losses for federal income tax purposes (in thousands).
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
-------------------------------------------------------------------------------------------------------------------------
Post-October deferred capital losses $- $- $- $(215) $(91)
The post-October losses will be recognized on the first day of the following
fiscal year.
The Funds are required to evaluate tax positions taken or expected to be taken
in the course of preparing the Funds' 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 Funds 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 year ended
December 31, 2009, the Funds did not incur any income tax, interest, or
penalties. As of December 31, 2009, the Manager has reviewed all open tax years
and concluded that there was no impact to the Funds' net assets or results of
operations. Tax years ended December 31, 2008, through December 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 year ended December 31, 2009, were as follows (in
thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
-------------------------------------------------------------------------------------------------------------------------
Cost of purchases $68,773 $145,265 $193,254 $165,133 $64,858
Proceeds from sales/maturities 12,057 33,343 32,146 20,015 10,858
================================================================================
NOTES TO FINANCIAL STATEMENTS | 27
<PAGE>
================================================================================
As of December 31, 2009, the cost of securities, for federal income tax
purposes, was as follows (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
-------------------------------------------------------------------------------------------------------------------------
Cost of securities $83,858 $159,203 $223,228 $200,489 $75,126
As of December 31, 2009, gross unrealized appreciation and depreciation of
investments and resulting net appreciation (depreciation), for federal income
tax purposes, were as follows (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
-------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation $7,031 $19,481 $33,191 $33,559 $13,231
Unrealized depreciation - - - - -
-------------------------------------------------------------------------------------------------------------------------
Net $7,031 $19,481 $33,191 $33,559 $13,231
-------------------------------------------------------------------------------------------------------------------------
(5) AGREEMENTS WITH MANAGER
A. ADVISORY AGREEMENT -- The Manager carries out the Funds' investment
policies and manages the Funds' portfolios pursuant to an Advisory
Agreement. The Manager does not receive any management fees for from
the Funds for these services.
B. ADMINISTRATION AND SERVICING AGREEMENT -- The Manager provides certain
administration and shareholder servicing functions for the Funds. The
Manager does not receive any fees from the Funds for these services.
In addition to the services provided under its Administration and
Servicing Agreement with the Funds, the Manager also provides certain
compliance and legal services for the benefit of the Funds. The Trust's
Board of Trustees has approved the billing of these expenses to the
Funds. These expenses are included in the professional fees on the
Funds' statements of operations. For the year ended December 31, 2009,
the amounts for each of the Funds are shown below (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
-------------------------------------------------------------------------------------------------------------------------
Compliance and legal services $2 $4 $5 $4 $2
C. EXPENSE LIMITATION -- The Manager has voluntarily agreed to waive all
fees and to reimburse all operating expenses of the Funds until
December 31, 2010, excluding extraordinary expenses and before
reductions of expenses paid indirectly. The Manager may modify or
terminate this voluntary agreement at any time. For the year ended
December 31, 2009, the Funds incurred reimbursable expenses, a portion
of which was receivable from the Manager, as shown below (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
--------------------------------------------------------------------------------------------------------------------------
Reimbursable expenses $157 $178 $197 $195 $163
Receivable from Manager 41 47 52 52 42
D. TRANSFER AGENCY AGREEMENT -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager,
provides transfer agent services to the Funds. SAS does not receive any
fees from the Funds for these services. For the year ended December 31,
2009, the Funds recorded a capital contribution and a receivable from
SAS for adjustments related to corrections to shareholder transactions,
as shown below (in thousands):
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
-------------------------------------------------------------------------------------------------------------------------
Receivable from SAS $1 $8 $4 $8 $-
E. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting
and distribution of the Funds' shares on a continuing best-efforts
basis. The Manager receives no commissions or fees for this service.
================================================================================
28 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
(6) TRANSACTIONS WITH AFFILIATES
The Manager is indirectly wholly owned by United Services Automobile Association
(USAA), a large, diversified financial services institution. At December 31,
2009, USAA and its affiliated companies owned the following number of shares and
percent of total outstanding shares of each of the Funds:
TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
--------------------------------------------------------------------------------------------------------------------------
Number of shares (000) 450 450 450 450 450
% of outstanding shares 5.0% 2.6% 1.8% 1.9% 4.7%
Certain trustees and officers of the Funds are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Funds officers
received any compensation from the Funds.
(7) TRANSACTIONS WITH AFFILIATED FUNDS
A. SHARE OWNERSHIP -- The Funds do not invest in the underlying USAA funds
for the purpose of exercising management or control; however,
investments by the Funds may represent a significant portion of the
underlying USAA funds' net assets. At December 31, 2009, the Funds
owned the following percent of the total outstanding shares of each of
the underlying USAA funds:
AFFILIATED USAA FUND TARGET INCOME TARGET 2020 TARGET 2030 TARGET 2040 TARGET 2050
-------------------------------------------------------------------------------------------------------------------------
Aggressive Growth 0.2% 0.5% 1.0% 1.1% 0.6%
Emerging Markets 0.5% 1.2% 2.5% 3.0% 1.4%
Growth 0.4% 1.1% 2.5% 3.6% 1.9%
High-Yield Opportunities - 1.6% 2.2% 2.0% -
Income 0.8% 1.3% 1.8% 1.0% -
Income Stock 0.2% 0.5% 1.0% 1.5% 0.8%
Intermediate-Term Bond 2.0% 2.4% 2.7% - -
International 0.4% 1.1% 2.3% 2.8% 1.3%
Precious Metals and Minerals 0.1% 0.2% 0.3% 0.4% 0.2%
S&P 500 Index 0.1% 0.3% 0.7% 0.6% 0.2%
Short-Term Bond 1.5% 2.2% - - -
Small Cap Stock 0.5% 1.3% 2.9% 3.6% 1.7%
Value 0.5% 1.3% 3.1% 3.9% 2.0%
B. TRANSACTIONS WITH AFFILIATED FUNDS -- The following tables provide
details related to each Fund's investment in the underlying USAA funds
for the year ended December 31, 2009 (in thousands):
Target Income:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2008 12/31/2009
----------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ 1,969 $1,645 $ 16 $(115) $1,107 $ 1,935
Emerging Markets 2,133 862 29 (133) 875 2,985
Growth 2,225 209 6 (86) 744 3,206
Income 17,058 52 494 (3) 2,436 20,195
Income Stock 2,057 903 39 (174) 1,162 2,681
Intermediate-Term Bond 17,358 1,410 930 (34) 5,467 24,190
International 4,152 1,320 78 (216) 1,847 5,814
Precious Metals and Minerals 831 634 15 22 372 855
S&P 500 Index 2,369 2,851 43 - 1,622 1,692
Short-Term Bond 14,478 90 517 (3) 4,429 19,585
Small Cap Stock 2,425 1,568 - (196) 1,364 2,899
Value 1,718 513 34 (81) 795 2,451
================================================================================
NOTES TO FINANCIAL STATEMENTS | 29
<PAGE>
================================================================================
Target 2020:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2008 12/31/2009
----------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ 5,116 $4,418 $ 41 $(195) $2,752 $ 4,766
Emerging Markets 5,707 2,274 76 (306) 2,181 7,860
Growth 5,866 954 15 (279) 1,903 7,917
High-Yield Opportunities 16,151 5,260 1,094 (430) 3,575 18,165
Income 28,053 2 919 - 2,966 32,735
Income Stock 5,393 2,504 102 (453) 2,926 6,747
Intermediate-Term Bond 22,690 305 1,012 (7) 3,607 29,090
International 11,501 3,816 211 (605) 4,666 15,524
Precious Metals and Minerals 2,524 1,832 51 152 1,248 2,945
S&P 500 Index 7,323 6,216 138 (254) 4,223 7,021
Short-Term Bond 24,074 3 693 - 3,645 28,720
Small Cap Stock 6,663 4,367 - (469) 3,434 7,553
Value 4,204 1,392 83 (272) 1,987 5,913
Target 2030:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2008 12/31/2009
----------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ 9,136 $5,254 $ 84 $(193) $3,778 $ 9,980
Emerging Markets 11,560 2,102 160 (564) 3,057 16,784
Growth 13,791 315 36 (99) 2,486 18,154
High-Yield Opportunities 20,770 4,441 1,527 (197) 4,484 25,890
Income 36,061 131 1,439 (4) 6,994 45,759
Income Stock 10,696 2,417 182 (696) 3,921 14,062
Intermediate-Term Bond 25,947 120 1,109 (10) 3,622 32,845
International 22,406 1,943 445 (542) 6,304 33,100
Precious Metals and Minerals 4,030 2,360 85 128 1,711 4,946
S&P 500 Index 16,115 7,765 312 (96) 5,779 18,125
Small Cap Stock 12,694 4,490 - (668) 4,607 16,411
Value 10,049 808 195 (262) 2,609 14,029
Target 2040:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2008 12/31/2009
----------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ 7,810 $ - $ 92 $ - $1,547 $10,916
Emerging Markets 13,651 1,742 192 (613) 3,103 20,022
Growth 19,534 3,823 52 (1,064) 6,237 26,711
High-Yield Opportunities 17,898 2,100 1,325 (122) 3,460 23,611
Income 20,329 - 756 - 3,588 25,332
Income Stock 14,650 2,474 263 (811) 4,838 19,915
International 27,354 1,360 546 (277) 6,616 40,508
Precious Metals and Minerals 4,268 1,747 102 (27) 1,707 5,910
S&P 500 Index 12,620 1,633 244 (323) 3,573 17,607
Small Cap Stock 15,381 4,603 - (593) 4,869 20,158
Value 11,638 533 245 (115) 3,309 17,620
================================================================================
30 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
Target 2050:
REALIZED MARKET VALUE
AFFILIATED USAA FUND PURCHASE COST(a) SALES PROCEEDS DIVIDEND INCOME GAIN (LOSS)(b) 12/31/2008 12/31/2009
----------------------------------------------------------------------------------------------------------------------------
Aggressive Growth $ 4,558 $ 1 $ 47 $ (1) $ 389 $ 5,513
Emerging Markets 6,588 819 92 (335) 1,368 9,521
Growth 11,848 4,159 28 (593) 3,486 14,091
Income Stock 8,277 1,951 150 (355) 2,418 10,454
International 12,885 704 256 (153) 2,909 18,832
Precious Metals and Minerals 2,009 808 48 (26) 764 2,765
S&P 500 Index 5,526 1 65 (1) 616 6,797
Small Cap Stock 7,188 2,160 - (307) 2,138 9,306
Value 5,979 255 127 (52) 1,651 9,100
(a) Includes reinvestment of distributions from dividend income and realized
gains.
(b) Includes capital gain distributions received, if any.
(8) 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 February 17, 2010, the date the financial statements were issued, and
has determined there were no events that required recognition or disclosure in
the Funds' financial statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 31
<PAGE>
================================================================================
(9) FINANCIAL HIGHLIGHTS -- TARGET INCOME
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
2009 2008*
----------------------------------
Net asset value at beginning of period $ 8.44 $ 10.00
----------------------------------
Income (loss) from investment operations:
Net investment income .34 .23(a)
Net realized and unrealized gain (loss) 1.74 (1.63)(a)
----------------------------------
Total from investment operations 2.08 (1.40)(a)
----------------------------------
Less distributions from:
Net investment income (.34) (.16)
Realized capital gains (.01) -
----------------------------------
Total distributions (.35) (.16)
----------------------------------
Net asset value at end of period $ 10.17 $ 8.44
==================================
Total return (%)** 25.04 (14.01)
Net assets at end of period (000) $90,849 $22,737
Ratios to average net assets:***(b)
Expenses(c) - -
Expenses, excluding reimbursements (%)(c) .32 1.06(d)
Net investment income (%) 4.44 6.31(d)
Portfolio turnover (%) 25 20
* Fund commenced operations on July 31, 2008.
** 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. Total returns for periods of less
than one year are not annualized.
*** For the year ended December 31, 2009, average net assets were
$49,662,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
32 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) -- TARGET 2020
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
2009 2008*
----------------------------------
Net asset value at beginning of period $ 8.35 $ 10.00
----------------------------------
Income (loss) from investment operations:
Net investment income .27 .26(a)
Net realized and unrealized gain (loss) 2.08 (1.76)(a)
----------------------------------
Total from investment operations 2.35 (1.50)(a)
----------------------------------
Less distributions from:
Net investment income (.27) (.15)
Realized capital gains (.05) -
----------------------------------
Total distributions (.32) (.15)
----------------------------------
Net asset value at end of period $ 10.38 $ 8.35
==================================
Total return (%)** 28.12 (14.95)
Net assets at end of period (000) $179,660 $39,717
Ratios to average net assets:***(b)
Expenses(c) - -
Expenses, excluding reimbursements (%)(c) .18 .73(d)
Net investment income (%) 4.40 7.35(d)
Portfolio turnover (%) 34 31
* Fund commenced operations on July 31, 2008.
** 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. Total returns for periods of less
than one year are not annualized.
*** For the year ended December 31, 2009, average net assets were
$100,957,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 33
<PAGE>
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) -- TARGET 2030
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
2009 2008*
----------------------------------
Net asset value at beginning of period $ 7.85 $ 10.00
----------------------------------
Income (loss) from investment operations:
Net investment income .23 .25(a)
Net realized and unrealized gain (loss) 2.26 (2.26)(a)
----------------------------------
Total from investment operations 2.49 (2.01)(a)
----------------------------------
Less distributions from:
Net investment income (.23) (.14)
Realized capital gains (.01) -
----------------------------------
Total distributions (.24) (.14)
----------------------------------
Net asset value at end of period $ 10.10 $ 7.85
==================================
Total return (%)** 31.68 (20.06)
Net assets at end of period (000) $256,236 $50,492
Ratios to average net assets:***(b)
Expenses(c) - -
Expenses, excluding reimbursements (%)(c) .14 .61(d)
Net investment income (%) 3.96 7.27(d)
Portfolio turnover (%) 23 18
* Fund commenced operations on July 31, 2008.
** 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. Total returns for periods of less
than one year are not annualized.
*** For the year ended December 31, 2009, average net assets were
$141,037,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
34 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) -- TARGET 2040
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
2009 2008*
----------------------------------
Net asset value at beginning of period $ 7.37 $ 10.00
----------------------------------
Income (loss) from investment operations:
Net investment income .16 .21(a)
Net realized and unrealized gain (loss) 2.25 (2.72)(a)
----------------------------------
Total from investment operations 2.41 (2.51)(a)
----------------------------------
Less distributions from:
Net investment income (.16) (.12)
Realized capital gains (.02) -
----------------------------------
Total distributions (.18) (.12)
----------------------------------
Net asset value at end of period $ 9.60 $ 7.37
==================================
Total return (%)** 32.71 (25.05)
Net assets at end of period (000) $234,213 $43,742
Ratios to average net assets:***(b)
Expenses(c) - -
Expenses, excluding reimbursements (%)(c) .15 .70(d)
Net investment income (%) 2.98 6.61(d)
Portfolio turnover (%) 16 4
* Fund commenced operations on July 31, 2008.
** 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. Total returns for periods of less
than one year are not annualized.
*** For the year ended December 31, 2009, average net assets were
$128,500,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
<PAGE>
================================================================================
(9) FINANCIAL HIGHLIGHTS (CONTINUED) -- TARGET 2050
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
2009 2008*
----------------------------------
Net asset value at beginning of period $ 7.07 $ 10.00
----------------------------------
Income (loss) from investment operations:
Net investment income .09 .17(a)
Net realized and unrealized gain (loss) 2.16 (2.99)(a)
----------------------------------
Total from investment operations 2.25 (2.82)(a)
----------------------------------
Less distributions from:
Net investment income (.09) (.11)
Realized capital gains (.02) -
----------------------------------
Total distributions (.11) (.11)
----------------------------------
Net asset value at end of period $ 9.21 $ 7.07
==================================
Total return (%)** 31.84 (28.20)
Net assets at end of period (000) $88,453 $16,089
Ratios to average net assets:***(b)
Expenses(c) - -
Expenses, excluding reimbursements (%)(c) .33 1.55(d)
Net investment income (%) 1.66 5.40(d)
Portfolio turnover (%) 23 2
* Fund commenced operations on July 31, 2008.
** 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. Total returns for periods of less
than one year are not annualized.
*** For the year ended December 31, 2009, average net assets were
$49,370,000.
(a) Calculated using average shares.
(b) Calculated excluding the Funds' pro-rata share of expenses of the
underlying USAA funds.
(c) Reflects total operating expenses of the Fund before reductions of any
expenses paid indirectly. The Fund's expenses paid indirectly decreased the
expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
36 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
EXPENSE EXAMPLE
December 31, 2009 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Funds, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including 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 Funds and to compare these costs with the ongoing
costs of investing in other mutual funds. The Manager has voluntarily agreed to
reimburse each Fund for all of the Fund's operating expenses until December 31,
2010; therefore, each Fund's net ongoing costs are zero for the current period.
Each Fund also indirectly bears its pro-rata share of the expenses of the
underlying USAA funds in which it invests (acquired funds). These acquired fund
fees and expenses are not included in the Funds' annualized expense ratios used
to calculate the expense estimates in the table on the next page.
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 July 1, 2009, through
December 31, 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. The actual expenses of each Fund, net of reimbursements, are
zero.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Funds' actual expense ratios and
an assumed rate of return of 5% per year before expenses, which is not the
Funds' actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Funds 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. If these direct costs were
included, your costs would have been higher. Acquired fund fees and expenses are
================================================================================
EXPENSE EXAMPLE | 37
<PAGE>
================================================================================
not included in the Funds' annualized expense ratio used to calculate the
expenses paid in the table below. As reported in the Funds' prospectus dated May
1, 2009, the Funds had acquired fund fees and expenses ratios of: 0.51% for
Target Income, 0.57% for Target 2020, 0.62% for Target 2030, 0.70% for Target
2040, and 0.79% for Target 2050.
ACTUAL EXPENSES
BEGINNING ENDING PAID DURING PERIOD**
ACCOUNT VALUE ACCOUNT VALUE JULY 1, 2009 -
JULY 1, 2009 DECEMBER 31, 2009 DECEMBER 31, 2009
----------------------------------------------------------------------
Target Income
Actual $1,000.00 $1,144.20 $0.00
Hypothetical* 1,000.00 1,025.21 0.00
Target 2020
Actual 1,000.00 1,170.50 0.00
Hypothetical* 1,000.00 1,025.21 0.00
Target 2030
Actual 1,000.00 1,202.00 0.00
Hypothetical* 1,000.00 1,025.21 0.00
Target 2040
Actual 1,000.00 1,225.60 0.00
Hypothetical* 1,000.00 1,025.21 0.00
Target 2050
Actual 1,000.00 1,242.80 0.00
Hypothetical* 1,000.00 1,025.21 0.00
* 5% return per year before expenses
** Actual expenses equal each Fund's annualized expense ratio of 0.00%, which
is net of any reimbursements and excludes expenses of the acquired funds,
multiplied by 184 days/365 days (to reflect the one-half year period). Each
Fund's ending account value in the actual expenses section of the table is
based on its actual total return for the current period of July 1, 2009,
through December 31, 2009. These total returns equaled 14.42%, 17.05%,
20.20%, 22.56%, and 24.28% for the Target Income, Target 2020, Target 2030,
Target 2040, and Target 2050 Funds, respectively.
================================================================================
38 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION
TRUSTEES AND OFFICERS OF THE TRUST
--------------------------------------------------------------------------------
The Board of Trustees of the Trust consists of six Trustees. These Trustees and
the Trust's Officers supervise the business affairs of the USAA family of funds.
The Board of Trustees is responsible for the general oversight of the funds'
business and for assuring that the funds are managed in the best interests of
each fund's respective shareholders. The Board of Trustees periodically reviews
the funds' investment performance as well as the quality of other services
provided to the funds and their shareholders by each of the fund's service
providers, including USAA Investment Management Company (IMCO) and its
affiliates. The term of office for each Trustee shall be 20 years or until the
Trustee reaches age 70. All members of the Board of Trustees shall be presented
to shareholders for election or re-election, as the case may be, at least once
every five years. Vacancies on the Board of Trustees can be filled by the action
of a majority of the Trustees, provided that at least two-thirds of the Trustees
have been elected by the shareholders.
Set forth below are the Trustees and Officers of the Trust, their respective
offices and principal occupations during the last five years, length of time
served, and information relating to any other directorships held. Each serves on
the Board of Trustees of the USAA family of funds consisting of one registered
investment company offering 46 individual funds as of December 31, 2009. Unless
otherwise indicated, the business address of each is 9800 Fredericksburg Road,
San Antonio, TX 78288.
If you would like more information about the funds' Trustees, you may call (800)
531-USAA (8722) to request a free copy of the funds' statement of additional
information (SAI).
INTERESTED TRUSTEE(1)
--------------------------------------------------------------------------------
CHRISTOPHER W. CLAUS(2, 4)
Trustee
Born: December 1960
Year of Election or Appointment: 2001
Chair of the Board of Directors, IMCO (11/04-present); President, IMCO
(2/01-10/09); Chief Investment Officer, IMCO (2/07-2/08); Chief Executive
Officer, IMCO (2/01-2/07); Chair of the Board of Directors, USAA Financial
Advisors, Inc. (FAI) (1/07-present); President, FAI (12/07-10/09); President,
Financial Advice and Solutions Group (FASG) USAA (9/09-present); President,
Financial Services Group, USAA (1/07-9/09). Mr. Claus serves as Chair of the
Board of Directors of USAA Investment Corporation, USAA Shareholder Account
Services (SAS), USAA Financial Planning Services Insurance Agency, Inc. (FPS),
and FAI. He also is Vice Chair for USAA Life Insurance Company (USAA Life).
NON-INTERESTED (INDEPENDENT) TRUSTEES
--------------------------------------------------------------------------------
BARBARA B. DREEBEN(3, 4, 5, 6)
Trustee
Born: June 1945
Year of Election or Appointment: 1994
President, Postal Addvantage (7/92-present), a postal mail list management
service. Mrs. Dreeben holds no other directorships of any publicly held
corporations or other investment companies outside the USAA family of funds.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 39
<PAGE>
================================================================================
ROBERT L. MASON, Ph.D.(3, 4, 5, 6)
Trustee
Born: June 1946
Year of Election or Appointment: 1997
Institute Analyst, Southwest Research Institute (3/02-present), which focuses in
the fields of technological research. Dr. Mason holds no other directorships of
any publicly held corporations or other investment companies outside the USAA
family of funds.
BARBARA B. OSTDIEK, Ph.D.(3, 4, 5, 6, 7)
Trustee
Born: March 1964
Year of Election or Appointment: 2007
Academic Director of the El Paso Corporation Finance Center at Jesse H. Jones
Graduate School of Management at Rice University (7/02-present); Associate
Professor of Finance at Jesse H. Jones Graduate School of Management at Rice
University (7/01-present). Dr. Ostdiek holds no other directorships of any
publicly held corporations or other investment companies outside the USAA family
of funds.
MICHAEL F. REIMHERR(3, 4, 5, 6)
Trustee
Born: August 1945
Year of Election or Appointment: 2000
President of Reimherr Business Consulting (5/95-present), an organization that
performs business valuations of large companies to include the development of
annual business plans, budgets, and internal financial reporting. Mr. Reimherr
holds no other directorships of any publicly held corporations or other
investment companies outside the USAA family of funds.
RICHARD A. ZUCKER(2, 3, 4, 5, 6)
Trustee and Chair of the Board of Trustees
Born: July 1943
Year of Election or Appointment: 1992(+)
Vice President, Beldon Roofing Company (7/85-present). Mr. Zucker holds no other
directorships of any publicly held corporations or other investment companies
outside the USAA family of funds.
(1) Indicates the Trustee is an employee of IMCO or affiliated companies and
is considered an "interested person" under the Investment Company Act of
1940.
(2) Member of Executive Committee
(3) Member of Audit Committee
(4) Member of Pricing and Investment Committee
(5) Member of Corporate Governance Committee
(6) The address for all non-interested trustees is that of the USAA Funds,
P.O. Box 659430, San Antonio, TX 78265-9430.
(7) Dr. Ostdiek was appointed the Audit Committee Financial Expert for the
Funds' Board in November 2008.
(+) Mr. Zucker was elected as Chair of the Board in 2005.
================================================================================
40 | USAA TARGET RETIREMENT FUNDS
<PAGE>
================================================================================
INTERESTED OFFICERS(1)
--------------------------------------------------------------------------------
DANIEL S. McNAMARA
Vice President
Born: June 1966
Year of Appointment: 2009
President and Director, IMCO, FAI, FPS, and SAS (10/09-present); President, Banc
of America Investment Advisors (9/07-9/09); Managing Director, Planning and
Financial Products Group, Bank of America (9/01-9/09).
CLIFFORD A. GLADSON
Vice President
Born: November 1950
Year of Appointment: 2002
Senior Vice President, Fixed Income Investments, IMCO (9/02-present). Mr.
Gladson also serves as a Director for SAS.
JOHN P. TOOHEY
Vice President
Born: March 1968
Year of Appointment: 2009
Vice President, Equity Investments, IMCO (2/09-present); Managing Director, AIG
Investments (12/00-1/09).
MARK S. HOWARD
Secretary
Born: October 1963
Year of Appointment: 2002
Senior Vice President and Deputy General Counsel, Business & Regulatory
Services, USAA (10/08-present); Senior Vice President, USAA Life/IMCO/FPS
General Counsel, USAA (10/03-10/08). Mr. Howard also holds the Officer positions
of Senior Vice President, Secretary, and Counsel for USAA Life, FAI, and FPS,
and is an Assistant Secretary of USAA, IMCO, and SAS.
ROBERTO GALINDO, Jr.
Treasurer
Born: November 1960
Year of Appointment: 2000
Assistant Vice President, Portfolio Accounting/Financial Administration, USAA
(12/02-present); Assistant Treasurer, USAA family of funds (7/00-2/08).
CHRISTOPHER P. LAIA
Assistant Secretary
Born: January 1960
Year of Appointment: 2008
Vice President, FASG General Counsel, USAA (10/08-present); Vice President,
Securities Counsel, USAA (6/07-10/08); General Counsel, Secretary, and Partner,
Brown Advisory (6/02-6/07). Mr. Laia also holds the Officer positions of Vice
President and Secretary, IMCO and SAS, and Vice President and Assistant
Secretary, FAI and FPS.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 41
<PAGE>
================================================================================
WILLIAM A. SMITH
Assistant Treasurer
Born: June 1948
Year of Appointment: 2009
Vice President, Senior Financial Officer, and Treasurer, FASG, FAI, and SAS
(2/09-present); Senior Financial Officer, USAA Life (2/07-present); consultant,
Robert Half/Accounttemps (8/06-1/07); Chief Financial Officer, California State
Automobile Association (8/04-12/05).
JEFFREY D. HILL
Chief Compliance Officer
Born: December 1967
Year of Appointment: 2004
Assistant Vice President, Mutual Funds Compliance, USAA (9/04-present).
(1) Indicates those Officers who are employees of IMCO or affiliated companies
and are considered "interested persons" under the Investment Company Act
of 1940.
================================================================================
42 | USAA TARGET RETIREMENT FUNDS
<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, INVESTMENT ADVISER, USAA Investment Management Company
UNDERWRITER, AND DISTRIBUTOR P.O. Box 659453
San Antonio, Texas 78265-9825
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT REGISTERED Ernst & Young LLP
PUBLIC ACCOUNTING FIRM 100 West Houston St., Suite 1800
San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND SELF-SERVICE 24/7 Under "Products & Services"
AT USAA.COM click "Investments," then
"Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA (8722) "Investments." View account balances,
or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
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.
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)
============================================================================
88214-0210 (C)2010, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
On September 24, 2009, the Board of Trustees of USAA Mutual Funds Trust approved
a Code of Ethics (Sarbanes Code) applicable solely to its senior financial
officers, including its principal executive officer (President), as defined
under the Sarbanes-Oxley Act of 2002 and implementing regulations of the
Securities and Exchange Commission. A copy of the Sarbanes Code is attached as
an Exhibit to this Form N-CSR.
No waivers (explicit or implicit) have been granted from a provision of the
Sarbanes Code.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
On November 18, 2008, the Board of Trustees of USAA Mutual Funds Trust
designated Dr. Barbara B. Ostdiek, Ph.D. as the Board's audit committee
financial expert. Dr. Ostdiek has served as an Associate Professor of Management
at Rice University since 2001. Dr. Ostdiek also has served as an Academic
Director at El Paso Corporation Finance Center since 2002. Dr. Ostdiek is an
independent trustee who serves as a member of the Audit Committee, Pricing and
Investment Committee and the Corporate Governance Committee of the Board of
Trustees of USAA Mutual Funds Trust.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The Registrant, USAA Mutual Funds Trust, consists of 46 funds in
all. Only 10 funds of the Registrant have a fiscal year-end of December 31 and are
included within this report (the Funds). The aggregate fees accrued or billed by
the Registrant's independent auditor, Ernst & Young LLP, for professional
services rendered for the audit of the Registrant's annual financial statements
and services provided in connection with statutory and regulatory filings by the
Registrant for the Funds for fiscal years ended December 31, 2009 and 2008 were
$262,287 and $244,927, respectively.
(b) AUDIT RELATED FEE. The aggregate fees accrued or paid to Ernst & Young, LLP
by USAA Shareholder Account Services (SAS) for professional services rendered
for audit related services related to the annual study of internal controls of
the transfer agent for fiscal years ended December 31, 2009 and 2008 were $61,513
and $63,500, respectively. All services were preapproved by the Audit Committee.
(c) TAX FEES. No such fees were billed by Ernst & Young LLP for the review of
federal, state and city income and tax returns and excise tax calculations for
fiscal years ended December 31, 2009 and 2008.
(d) ALL OTHER FEES. No such fees were billed by Ernst & Young LLP for fiscal
years ended December 31, 2009 and 2008.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY. All audit and non-audit services to
be performed for the Registrant by Ernst & Young LLP must be pre-approved by the
Audit Committee. The Audit Committee Charter also permits the Chair of the Audit
Committee to pre-approve any permissible non-audit service that must be
commenced prior to a scheduled meeting of the Audit Committee. All non-audit
services were pre-approved by the Audit Committee or its Chair, consistent with
the Audit Committee's preapproval procedures.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate non-audit fees billed by Ernst & Young LLP for services
rendered to the Registrant and the Registrant's investment adviser, IMCO, and
the Funds' transfer agent, SAS, for December 31, 2009 and 2008 were $104,896 and
$108,000, respectively.
(h) Ernst & Young LLP provided non-audit services to IMCO in 2009 and 2008 that
were not required to be pre-approved by the Registrant's Audit Committee because
the services were not directly related to the operations of the Registrant's
Funds. The Board of Trustees will consider Ernst & Young LLP's independence and
will consider whether the provision of these non-audit services to IMCO is
compatible with maintaining Ernst & Young LLP's independence.
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 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
considering by the Trust's Board in approving the Trust's advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). Code of Ethics pursuant to Item 2 of Form N-CSR is filed hereto exactly
as set forth below:
CODE OF ETHICS
FOR PRINCIPAL EXECUTIVE OFFICER
AND SENIOR FINANCIAL OFFICERS
USAA MUTUAL FUNDS TRUST
I. PURPOSE OF THE CODE OF ETHICS
USAA Mutual Funds Trust (the Trust or the Funds) has adopted this code
of ethics (the Code) to comply with Section 406 of the Sarbanes-Oxley Act of
2002 (the Act) and implementing regulations of the Securities and Exchange
Commission (SEC). The Code applies to the Trust's Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer (each a Covered
Officer), as detailed in Appendix A.
The purpose of the Code is to promote:
- honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between the Covered
Officers' personal and professional relationships;
- full, fair, accurate, timely and understandable disclosure in
reports and documents that the Trust files with, or submits
to, the SEC and in other public communications made by the
Trust;
- compliance with applicable laws and governmental rules and
regulations;
- prompt internal reporting of violations of the Code to the
Chief Legal Officer of the Trust, the President of the Trust
(if the violation concerns the Treasurer), the CEO of USAA,
and if deemed material to the Funds' financial condition or
reputation, the Chair of the Trust's Board of Trustees; and
- accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to actual and apparent conflicts of interest.
II. CONFLICTS OF INTEREST
A. DEFINITION OF A CONFLICT OF INTEREST.
A conflict of interest exists when a Covered Officer's private interest
influences, or reasonably appears to influence, the Covered Officer's judgment
or ability to act in the best interests of the Funds and their shareholders. For
example, a conflict of interest could arise if a Covered Officer, or an
immediate family member, receives personal benefits as a result of his or her
position with the Funds.
Certain conflicts of interest arise out of relationships between
Covered Officers and the Funds and are already subject to conflict of interest
provisions in the Investment Company Act of 1940 (the 1940 Act) and the
Investment Advisers Act of 1940 (the Advisers Act). For example, Covered
Officers may not individually engage in certain transactions with the Funds
because of their status as "affiliated persons" of the Funds. The USAA Funds'
and USAA Investment Management Company's (IMCO) compliance programs and
procedures are designed to prevent, or identify and correct, violations of these
provisions. This Code does not, and is not intended to, repeat or replace these
programs and procedures, and such conflicts fall outside of the parameters of
this Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts could arise from, or as a result of, the contractual
relationships between the Funds and IMCO of which the Covered Officers are also
officers or employees. As a result, this Code recognizes that the Covered
Officers will, in the normal course of their duties (whether formally for the
Funds or for IMCO, or for both), be involved in establishing policies and
implementing decisions that will have different effects on IMCO and the Funds.
The participation of Covered Officers in such activities is inherent in the
contractual relationship between the Funds and IMCO and is consistent with the
performance by the Covered Officers of their duties as officers of the Funds.
Thus, if performed in compliance with the provisions of the 1940 Act and the
Advisers Act, such activities will be deemed to have been handled ethically.
B. GENERAL RULE. Covered Officers Should Avoid Actual and Apparent
Conflicts of Interest.
Conflicts of interest, other than the conflicts described in the two
preceding paragraphs, are covered by the Code. The following list provides
examples of conflicts of interest under the Code, but Covered Officers should
keep in mind that these examples are not exhaustive. The overarching principle
is that the personal interest of a Covered Officer should not be placed
improperly before the interest of the Funds and their shareholders.
Each Covered Officer must not engage in conduct that constitutes an
actual conflict of interest between the Covered Officer's personal interest and
the interests of the Funds and their shareholders. Examples of actual conflicts
of interest are listed below but are not exclusive. Each Covered Officer must
not:
- use his personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Funds
whereby the Covered Officer would benefit personally to the
detriment of the Funds and their shareholders;
- cause the Funds to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the
benefit of the Funds and their shareholders.
- accept gifts, gratuities, entertainment or any other benefit from
any person or entity that does business or is seeking to do
business with the Funds DURING CONTRACT NEGOTIATIONS.
- accept gifts, gratuities, entertainment or any other benefit with
a market value over $100 per person, per year, from or on behalf
of any person or entity that does, or seeks to do, business with
or on behalf of the Funds.
- EXCEPTION. Business-related entertainment such as meals,
and tickets to sporting or theatrical events, which are
infrequent and not lavish are excepted from this
prohibition. Such entertainment must be appropriate as to
time and place, reasonable and customary in nature, modest
in cost and value, incidental to the business, and not so
frequent as to raise any question of impropriety
(Customary Business Entertainment).
Certain situations that could present the appearance of a conflict of
interest should be discussed with, and approved by, or reported to, an
appropriate person. Examples of these include:
- service as a director on the board or an officer of any public or
private company, other than a USAA company or the Trust, must be
approved by the USAA Funds' and Investment Code of Ethics
Committee and reported to the Trust.
- the receipt of any non-nominal (I.E., valued over $25) gifts from
any person or entity with which a Trust has current or prospective
business dealings must be reported to the Chief Legal Officer. For
purposes of this Code, the individual holding the title of
Secretary of the Trust shall be considered the Chief Legal Officer
of the Trust.
- the receipt of any business-related entertainment from any person
or entity with which the Funds have current or prospective
business dealings must be approved in advance by the Chief Legal
Officer unless such entertainment qualifies as Customary Business
Entertainment.
- any ownership interest in, or any consulting or employment
relationship with, any of the Trust's service providers, other
than IMCO or any other USAA company, must be approved by the CEO
of USAA and reported to the Trust's Board.
- any material direct or indirect financial interest in commissions,
transaction charges or spreads paid by the Funds for effecting
portfolio transactions or for selling or redeeming shares other
than an interest arising from the Covered Officer's employment,
such as compensation or equity ownership should be approved by the
CEO of USAA and reported to the Trust's Board.
III. DISCLOSURE AND COMPLIANCE REQUIREMENTS
- Each Covered Officer should familiarize himself with the
disclosure requirements applicable to the Funds, and the
procedures and policies implemented to promote full, fair,
accurate, timely and understandable disclosure by the Trust.
- Each Covered Officer should not knowingly misrepresent, or
cause others to misrepresent, facts about the Funds to others,
whether within or outside the Funds, including to the Funds'
Trustees and auditors, and to government regulators and
self-regulatory organizations.
- Each Covered Officer should, to the extent appropriate within
his area of responsibility, consult with other officers and
employees of the Funds and IMCO with the goal of promoting
full, fair, accurate, timely and understandable disclosure in
the reports and documents filed by the Trust with, or
submitted to, the SEC, and in other public communications made
by the Funds.
- Each Covered Officer is responsible for promoting compliance
with the standards and restrictions imposed by applicable
laws, rules and regulations, and promoting compliance with the
USAA Funds' and IMCO's operating policies and procedures.
- A Covered Officer should not retaliate against any person
who reports a potential violation of this Code in good faith.
- A Covered Officer should notify the Chief Legal Officer
promptly if he knows of any violation of the Code. Failure
to do so itself is a violation of this Code.
IV. REPORTING AND ACCOUNTABILITY
A. INTERPRETATION OF THE CODE. The Chief Legal Officer of the Trust
is responsible for applying this Code to specific situations in
which questions are presented under it and has the authority to
interpret the Code in any particular situation. The Chief Legal
Officer should consult, if appropriate, the USAA Funds' outside
counsel or counsel for the Independent Trustees. However, any
approvals or waivers sought by a Covered Officer will be
reported initially to the CEO of USAA and will be considered by
the Trust's Board of Trustees.
B. REQUIRED REPORTS
- EACH COVERED OFFICER MUST:
- Upon adoption of the Code, affirm in writing to the
Board that he has received, read and understands the
Code.
- Annually thereafter affirm to the Chief Legal Officer
that he has complied with the requirements of the Code.
- THE CHIEF LEGAL OFFICER MUST:
- report to the Board about any matter or situation
submitted by a Covered Officer for interpretation under
the Code, and the advice given by the Chief Legal
Officer;
- report annually to the Board and the Corporate
Governance Committee describing any issues that arose
under the Code, or informing the Board and Corporate
Governance Committee that no reportable issues occurred
during the year.
C. INVESTIGATION PROCEDURES
The Funds will follow these procedures in investigating and enforcing
this Code:
- INITIAL COMPLAINT. All complaints or other inquiries
concerning potential violations of the Code must be reported
to the Chief Legal Officer. The Chief Legal Officer shall be
responsible for documenting any complaint. The Chief Legal
Officer also will report immediately to the President of the
Trust (if the complaint involves the Treasurer), the CEO of
USAA and the Chair of the Trust's Audit Committee (if the
complaint involves the President) any material potential
violations that could have a material effect on the Funds'
financial condition or reputation. For all other complaints,
the Chief Legal Officer will report quarterly to the Board.
- INVESTIGATIONS. The Chief Legal Officer will take all
appropriate action to investigate any potential violation
unless the CEO of USAA directs another person to undertake
such investigation. The Chief Legal Officer may utilize USAA's
Office of Ethics to do a unified investigation under this Code
and USAA's Code of Conduct. The Chief Legal Officer may direct
the Trust's outside counsel or the counsel to the Independent
Trustees (if any) to participate in any investigation under
this Code.
- STATUS REPORTS. The Chief Legal Officer will provide monthly
status reports to the Board about any alleged violation of the
Code that could have a material effect on the Funds' financial
condition or reputation, and quarterly updates regarding all
other alleged violations of the Code.
- VIOLATIONS OF THE CODE. If after investigation, the Chief
Legal Officer, or other investigating person, believes that a
violation of the Code has occurred, he will report immediately
to the CEO of USAA the nature of the violation, and his
recommendation regarding the materiality of the violation. If,
in the opinion of the investigating person, the violation
could materially affect the Funds' financial condition or
reputation, the Chief Legal Officer also will notify the Chair
of the Trust's Audit Committee. The Chief Legal Officer will
inform, and make a recommendation to, the Board, which will
consider what further action is appropriate. Appropriate
action could include: (1) review of, and modifications to, the
Code or other applicable policies or procedures;
(2) notifications to appropriate personnel of IMCO or USAA;
(3) dismissal of the Covered Officer; and/or (4) other
disciplinary actions including reprimands or fines.
- The Board of Trustees understands that Covered
Officers also are subject to USAA's Code of Business
Conduct. If a violation of this Code also violates
USAA's Code of Business Conduct, these procedures do
not limit or restrict USAA's ability to discipline
such Covered Officer under USAA's Code of Business
Conduct. In that event, the Chairman of the Board of
Trustees will report to the Board the action taken by
USAA with respect to a Covered Officer.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Act and the implementing regulations adopted by
the SEC applicable to registered investment companies. If other policies and
procedures of the Trust, IMCO, or other service providers govern or purport to
govern the behavior or activities of Covered Officers, they are superseded by
this Code to the extent that they overlap, conflict with, or are more lenient
than the provisions of this Code. The Investment Code of Ethics (designated to
address 1940 Act and Advisers Act requirements) and IMCO's more detailed
compliance policies and procedures (including its Insider Trading Policy) are
separate requirements applying to Covered Officers and other IMCO employees, and
are not part of this Code. Also, USAA's Code of Conduct imposes separate
requirements on Covered Officers and all employees of USAA, and also is not part
of this Code.
VI. AMENDMENTS
Any amendment to this Code, other than amendments to Appendix A, must
be approved or ratified by majority vote of the Board of Trustees.
VII. CONFIDENTIALITY AND DOCUMENT RETENTION
The Chief Legal Officer shall retain material investigation documents
and reports required to be prepared under the Code for six years from the date
of the resolution of any such complaint. All reports and records prepared or
maintained pursuant to this Code will be considered confidential and shall be
maintained and protected accordingly. Except as otherwise required by law or
this Code, such matters shall not be disclosed to anyone other than the Trust's
Board of Trustees and counsel for the Independent Trustees (if any), the Trust
and its counsel, IMCO, and other personnel of USAA as determined by the Trust's
Chief Legal Officer or the Chair of the Trust's Board of Trustees.
Approved and adopted by IMCO's Code of Ethics Committee: June 12, 2003.
Approved and adopted by the Boards of Directors/Trustees of USAA Mutual Fund,
Inc., USAA Tax-Exempt Fund, Inc., USAA Investment Trust & USAA State Tax-Free
Trust: June 25, 2003.
Approved and adopted by the Board of Trustees of USAA Life Investment Trust:
August 20, 2003.
Approved and adopted as amended by IMCO's Code of Ethics Committee: August 15,
2005.
Approved and adopted as amended by the Boards of Directors/Trustees of USAA
Mutual Fund, Inc., USAA Tax-Exempt Fund, Inc., USAA Investment Trust & USAA
State Tax-Free Trust: September 14, 2005.
Approved and adopted as amended by the Board of Trustees of USAA Life Investment
Trust: December 8, 2005.
Approved and adopted as amended by IMCO's Code of Ethics Committee: August 16,
2006.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 13, 2006.
Approved and adopted by IMCO's Code of Ethics Committee: August 28, 2007.
Approved and adopted by the Investment Code of Ethics Committee: August 29,
2008.
Approved and adopted as amended by the Board of Trustees of USAA Mutual Funds
Trust: September 19, 2008.
Approved and adopted by the Investment Code of Ethics Committee: August 17,
2009.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 24, 2009.
<PAGE>
APPENDIX A
COVERED OFFICERS
PRESIDENT
TREASURER
<PAGE>
(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 December 31, 2009
By:* /s/ CHRISTOPHER P. LAIA
--------------------------------------------------------------
Signature and Title: Christopher P. Laia, Assistant Secretary
Date: 02/26/2010
------------------------------
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:* /s/ CHRISTOPHER W. CLAUS
-----------------------------------------------------
Signature and Title: Christopher W. Claus, President
Date: 02/26/2010
------------------------------
By:* /s/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 02/26/2010
------------------------------
*Print the name and title of each signing officer under his or her signature.
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