UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: CHRISTOPHER P. LAIA
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: JULY 31,
Date of reporting period: JANUARY 31, 2010
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2010
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA INTERMEDIATE-TERM BOND FUND]
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SEMIANNUAL REPORT
USAA INTERMEDIATE-TERM BOND FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2010
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FUND OBJECTIVE
HIGH CURRENT INCOME WITHOUT UNDUE RISK TO PRINCIPAL.
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TYPES OF INVESTMENTS
Normally, at least 80% of the Fund's assets will be invested in a broad range of
debt securities, and the Fund will maintain a dollar-weighted average portfolio
maturity of three to 10 years.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Investment Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 2
MANAGERS' COMMENTARY 4
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Portfolio of Investments 17
Notes to Portfolio of Investments 41
Financial Statements 45
Notes to Financial Statements 48
EXPENSE EXAMPLE 63
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
"I EXPECT THIS RECOVERY TO PROCEED AT
A SLOWER PACE THAN THOSE IN RECENT [PHOTO OF DANIEL S. McNAMARA]
MEMORY."
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FEBRUARY 2010
The U.S. economy appears to be on the mend. As the reporting period ended, the
federal government announced that the U.S. gross domestic product grew 5.9%
during the fourth quarter of 2009. The strong showing followed a 2.2% expansion
in the third quarter. While these numbers are encouraging, it is still too early
to declare that a long-term sustainable recovery has begun. Much of the growth
has been the result of inventory reduction, driven largely by the government's
"cash for clunkers" auto rebate program and its first-time homebuyer tax credit.
Consumers took advantage of the incentives to make purchases they might have put
off for a few years, but when the programs ended so did most of the spending.
There are also other obstacles to a sustained recovery. Although housing prices
have stabilized, the residential real estate market is fragile. Unemployment
remains high. Companies are making do with less, delaying hiring, and continuing
to lay off workers. While this may increase productivity and the financial
bottom line of individual businesses, it also acts as a drag on consumer
spending and on the speed at which the economy will return to more historically
normal levels of growth. As a result, I expect this recovery to proceed at a
slower pace than those in recent memory.
Nevertheless, I am cautiously optimistic. Improved economic conditions may give
the Federal Reserve Board (the Fed) the flexibility to pull back at least some
of the stimulus money it pumped into the financial system. Caution is
essential. If the Fed governors unwind the stimulus too soon,
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2 | USAA INTERMEDIATE-TERM BOND FUND
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they could stall the recovery. An inordinate delay could unleash inflation. At
the very least, the Fed is likely to keep short-term interest rates low until
the recovery is well underway. As I write to you, inflation does not appear to
be an immediate threat because employment remains weak and excess capacity
remains high. As a result, most businesses lack pricing power. However, I am
concerned about the projections for continued deficit spending, which could feed
inflation as the decade progresses.
So, how do we invest in this challenging environment? Money market yields are at
record lows. Bonds have experienced a remarkable rally, but their prices have
moved close to historic norms. Equities, which rebounded from their March 2009
lows, gave back some of their gains toward the end of the reporting period.
Under the circumstances, I plan to keep my guard up and stay focused on my
investment plan. During the market decline, many investors were not
appropriately positioned relative to their time horizon or risk tolerance. With
this in mind, I recently took some time to reflect on my own goals, reconsider
my risk tolerance, make a few changes to my investment strategy, and reposition
my portfolio. I encourage you to do the same. If you would like assistance,
please call one of our trained service representatives. They are available to
help you -- free of charge.
At USAA Investment Management Company, we are proud to provide you with what we
consider an exceptional value -- outstanding service, world-class investment
talent, and a broad array of 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. o As interest rates rise, bond prices fall.
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PRESIDENT'S MESSAGE | 3
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MANAGERS' COMMENTARY ON THE FUND
[PHOTO OF MATTHEW FREUND] [PHOTO OF JULIANNE BASS]
MATTHEW FREUND, CFA JULIANNE BASS, CFA
USAA Investment USAA Investment
Management Company Management Company
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o HOW DID THE USAA INTERMEDIATE-TERM BOND FUND (THE FUND SHARES) PERFORM
DURING THE SIX-MONTH REPORTING PERIOD?
The Fund Shares provided a total return of 13.61% for the six months ended
January 31, 2010. During the same period, the Barclays Capital U.S.
Aggregate Bond Index returned 3.87% and the Lipper Intermediate Investment
Grade Funds Index returned 6.64%. At the same time, the Fund Shares
provided a one-year dividend yield of 5.98%, compared to 4.22% for the
average Lipper Intermediate Investment Grade Debt Fund.
o WHAT WERE THE RELEVANT MARKET CONDITIONS?
The fixed-income market recorded significant gains during the reporting
period as investors continued to take on more risk, shifting out of
low-yielding U.S. Treasuries and money market funds into higher-yielding
assets. Over the six months, almost every sector of the bond market
outperformed U.S. Treasuries. Prices of corporate bonds, especially
financials, mortgage-backed securities and asset-backed securities (ABS)
climbed back to levels not seen since the beginning of the financial crisis
in September 2008.
Refer to pages 11 and 12 for benchmark definitions.
Past performance is no guarantee of future results.
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4 | USAA INTERMEDIATE-TERM BOND FUND
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o HISTORICAL YIELD CURVE o
[CHART OF HISTORICAL YIELD CURVE CHART]
7/31/2009 1/29/2010 CHANGE
--------- --------- ------
3 MONTH 0.175% 0.069% -0.1065%
6 MONTH 0.249 0.142 -0.1067
1 YEAR 0.468 0.274 -0.1937
2 YEAR 1.111 0.812 -0.2996
3 YEAR 1.587 1.348 -0.2392
5 YEAR 2.514 2.323 -0.1912
10 YEAR 3.48 3.584 0.1048
30 YEAR 4.298 4.488 0.1901
[END CAHRT]
Source: Bloomberg L.P.
Past performance is no guarantee of future results and is not an indication
of performance of any USAA product.
The Federal Reserve (the Fed) held overnight interest rates in a range of
0% to 0.25%, pledging to keep them low for an "extended period" to
stimulate the economy and help lower unemployment. The Fed also continued
its multiple support programs, which had been created to enhance liquidity
in the credit markets and to support consumer lending.
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MANAGERS' COMMENTARY ON THE FUND | 5
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As government actions pulled short-term rates to extraordinarily low
levels, the yield curve steepened. Yields on short-term maturities -- those
of one year or less -- were between 0% and 0.50%. The difference in yields
between two-and 10-year Treasuries reached a record level during the period
of 2.94%.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
Your Fund was well positioned for the bond market rally. During the turmoil
in 2009, we took advantage of indiscriminate selling and short-term
volatility to add high-quality securities to the portfolio at attractive
prices. Many of these holdings added significantly to the Fund's returns
during the reporting period. Our preference for seasoned commercial
mortgage-backed securities (CMBS), ABS, and corporate bonds -- which pay
above-average yields -- was particularly advantageous. The portfolio also
benefited from its negligible exposure to U.S. Treasuries. These
securities, which have never played a large part in the portfolio,
underperformed as investors sought out securities with higher yields.
In managing the portfolio, we strive to generate an attractive yield with
an acceptable level of price volatility. During the reporting period, your
Fund paid an above-average dividend. Our long-term strategy, which seeks to
maximize income and has added value over the long term, also produced a
positive total return. We remain committed to long-term income generation
through a high-quality portfolio diversified among multiple asset classes
and across a large number of issuers. By limiting the positions we take in
any one issuer, we seek to limit our exposure to potential surprises.
Throughout the period, our experienced research team helped us identify
opportunities while continuing to analyze and monitor every bond in your
Fund.
o WHAT IS THE OUTLOOK?
Although economic conditions have improved, we believe the recovery will be
slow and gradual as Americans continue to rebuild their
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6 | USAA INTERMEDIATE-TERM BOND FUND
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personal balance sheets. The unemployment rate is likely to remain elevated
for some time, further constraining consumer spending. Continued
joblessness, combined with excess economic capacity, should keep inflation
contained despite higher commodities prices. For all these reasons, we do
not think an interest rate increase by the Fed is imminent. We do expect
the government to begin unwinding its stimulus programs during 2010. The
timing will be crucial. If the unwinding occurs too soon, it could choke
off the recovery. If it is delayed, inflation could surge.
The bond market provided remarkable returns during the reporting period,
and investors who stayed the course were well rewarded. However, no one
should expect results of the same magnitude in the months ahead. We believe
fixed income has returned to its traditional role as an income-accumulation
investment. Going forward, shareholders should expect the majority of their
return to come from the income provided by the Fund. They would be well
advised to match their investments with their risk tolerance and time
horizon.
Rest assured, your portfolio management team remains committed to providing
you with a well-positioned, well-diversified bond fund with an acceptable
level of risk. Thank you for the opportunity to help you with your
investment needs.
As interest rates rise, existing bond prices fall.
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MANAGERS' COMMENTARY ON THE FUND | 7
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INVESTMENT OVERVIEW
USAA INTERMEDIATE-TERM BOND FUND SHARES (Symbol: USIBX)
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1/31/10 7/31/09
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Net Assets $1,205.0 Million $951.5 Million
Net Asset Value Per Share $9.84 $8.93
Dollar-Weighted Average
Portfolio Maturity(+) 5.3 Years 5.3 Years
(+)Obtained by multiplying the dollar value of each investment by the number of
days left to its maturity, adding those figures together, and dividing them by
the total dollar value of the Fund's portfolio.
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SIX-MONTH TOTAL RETURN 30-DAY SEC YIELD** EXPENSE RATIO***
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7/31/09 to 1/31/10* As of 1/31/10 Before Reimbursement 0.70%
13.61% 5.34% After Reimbursement 0.65%
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
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, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE
NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL
OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
EXCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, AFTER REIMBURSEMENT FROM USAA
INVESTMENT MANAGEMENT COMPANY (IMCO). BEFORE AND AFTER REIMBURSEMENT EXPENSE
RATIOS ARE REPORTED IN THE FUND SHARES' PROSPECTUS DATED DECEMBER 1, 2009. IMCO
HAS AGREED, THROUGH DECEMBER 1, 2010, TO MAKE PAYMENTS OR WAIVE MANAGEMENT,
ADMINISTRATION, AND OTHER FEES TO LIMIT THE EXPENSES OF THE FUND SHARES SO THAT
THE TOTAL ANNUAL OPERATING EXPENSES OF THE FUND SHARES (EXCLUSIVE OF COMMISSION
RECAPTURE, EXPENSE OFFSET ARRANGEMENTS, ACQUIRED FUND FEES AND EXPENSES, AND
EXTRAORDINARY EXPENSES) DO NOT EXCEED AN ANNUAL RATE OF 0.65% OF THE FUND
SHARES' AVERAGE DAILY NET ASSETS. THIS REIMBURSEMENT ARRANGEMENT MAY NOT BE
CHANGED OR TERMINATED DURING THIS TIME PERIOD WITHOUT APPROVAL OF THE FUND'S
BOARD OF TRUSTEES AND MAY BE CHANGED OR TERMINATED BY IMCO AT ANY TIME AFTER
DECEMBER 1, 2010. THESE EXPENSE RATIOS MAY DIFFER FROM THE EXPENSE RATIOS
DISCLOSED IN THE FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
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8 | USAA INTERMEDIATE-TERM BOND FUND
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AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS -- PERIODS
ENDED JANUARY 31, 2010
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TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
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10 Years 5.93% = 5.89% + 0.04%
5 Years 4.79% = 5.62% + (0.83)%
1 Year 34.12% = 8.61% + 25.51%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR ONE-YEAR PERIODS ENDED
JANUARY 31, 2001 -- JANUARY 31, 2010
[CHART OF ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
1/31/2001 11.89% 8.11% 3.78%
1/31/2002 6.37% 6.86% -0.49%
1/31/2003 5.70% 6.29% -0.59%
1/31/2004 8.02% 5.04% 2.98%
1/31/2005 3.65% 4.62% -0.97%
1/31/2006 2.09% 4.62% -2.53%
1/31/2007 4.92% 5.02% -0.10%
1/31/2008 4.20% 5.30% -1.10%
1/31/2009 -15.58% 5.07% -20.65%
1/31/2010 34.12% 8.61% 25.51%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE A
RELATIVELY STABLE COMPONENT OF TOTAL RETURNS.
Total return equals dividend return plus share price change and assumes
reinvestment of all net investment income and realized capital gain
distributions. Dividend return is the net investment income dividends received
over the period, assuming reinvestment of all dividends. Share price change is
the change in net asset value over the period adjusted for realized capital gain
distributions. The total returns quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles or the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares.
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INVESTMENT OVERVIEW | 9
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL LIPPER INTERMEDIATE
U.S. AGGREGATE INVESTMENT GRADE USAA INTERMEDIATE-TERM
BOND INDEX FUNDS INDEX BOND FUND
1/31/00 $10,000.00 $10,000.00 $10,000.00
2/29/00 10,120.94 10,108.56 10,113.35
3/31/00 10,254.27 10,233.34 10,237.61
4/30/00 10,224.90 10,169.95 10,162.17
5/31/00 10,220.21 10,151.50 10,074.46
6/30/00 10,432.84 10,366.46 10,306.94
7/31/00 10,527.54 10,454.95 10,403.70
8/31/00 10,680.13 10,599.91 10,448.78
9/30/00 10,747.27 10,670.14 10,586.95
10/31/00 10,818.39 10,707.75 10,537.28
11/30/00 10,995.28 10,878.15 10,699.74
12/31/00 11,199.25 11,097.92 10,933.87
1/31/01 11,382.40 11,292.92 11,188.77
2/28/01 11,481.55 11,401.44 11,331.21
3/31/01 11,539.19 11,445.75 11,427.05
4/30/01 11,491.30 11,384.19 11,383.58
5/31/01 11,560.61 11,454.30 11,460.04
6/30/01 11,604.29 11,496.42 11,523.71
7/31/01 11,863.73 11,775.31 11,852.34
8/31/01 11,999.59 11,904.98 11,986.85
9/30/01 12,139.42 11,996.62 12,113.91
10/31/01 12,393.44 12,241.16 12,263.42
11/30/01 12,222.57 12,087.44 11,989.10
12/31/01 12,144.96 12,009.75 11,851.61
1/31/02 12,243.27 12,096.41 11,900.97
2/28/02 12,361.92 12,213.33 11,927.74
3/31/02 12,156.27 12,001.40 11,821.80
4/30/02 12,392.00 12,217.89 11,936.17
5/31/02 12,497.29 12,318.18 12,024.00
6/30/02 12,605.35 12,310.23 12,010.79
7/31/02 12,757.45 12,359.12 11,863.10
8/31/02 12,972.85 12,597.30 12,166.64
9/30/02 13,182.96 12,734.75 12,394.97
10/31/02 13,122.91 12,685.91 12,158.96
11/30/02 13,119.42 12,746.21 12,193.75
12/31/02 13,390.41 13,005.60 12,534.58
1/31/03 13,401.84 13,046.27 12,578.82
2/28/03 13,587.28 13,232.30 12,797.65
3/31/03 13,576.81 13,233.61 12,811.83
4/30/03 13,688.84 13,388.29 13,017.59
5/31/03 13,944.07 13,637.97 13,378.47
6/30/03 13,916.39 13,634.66 13,392.66
7/31/03 13,448.53 13,174.93 13,010.78
8/31/03 13,537.82 13,275.16 13,050.44
9/30/03 13,896.18 13,632.10 13,421.74
10/31/03 13,766.58 13,535.87 13,334.26
11/30/03 13,799.55 13,571.62 13,355.49
12/31/03 13,939.98 13,709.65 13,485.75
1/31/04 14,052.13 13,818.66 13,587.54
2/29/04 14,204.23 13,952.89 13,716.62
3/31/04 14,310.61 14,053.40 13,806.79
4/30/04 13,938.29 13,715.74 13,530.50
5/31/04 13,882.46 13,648.47 13,445.17
6/30/04 13,960.92 13,712.08 13,495.92
7/31/04 14,099.30 13,840.79 13,603.85
8/31/04 14,368.25 14,090.03 13,827.75
9/30/04 14,407.23 14,126.90 13,880.13
10/31/04 14,528.05 14,238.24 13,986.02
11/30/04 14,412.17 14,149.25 13,878.14
12/31/04 14,544.78 14,296.41 14,017.46
1/31/05 14,636.11 14,373.63 14,081.84
2/28/05 14,549.71 14,312.69 14,025.82
3/31/05 14,474.98 14,227.99 13,954.89
4/30/05 14,670.89 14,403.06 14,138.39
5/31/05 14,829.61 14,554.29 14,259.49
6/30/05 14,910.47 14,639.65 14,355.83
7/31/05 14,774.74 14,525.31 14,228.38
8/31/05 14,964.14 14,707.07 14,409.64
9/30/05 14,810.00 14,557.92 14,284.69
10/31/05 14,692.79 14,438.02 14,194.30
11/30/05 14,757.77 14,490.88 14,264.63
12/31/05 14,898.08 14,622.80 14,395.29
1/31/06 14,898.92 14,641.40 14,376.09
2/28/06 14,948.38 14,684.61 14,419.53
3/31/06 14,801.69 14,542.67 14,323.61
4/30/06 14,774.86 14,522.49 14,279.10
5/31/06 14,759.09 14,506.69 14,281.11
6/30/06 14,790.38 14,522.21 14,300.38
7/31/06 14,990.38 14,723.69 14,473.38
8/31/06 15,219.85 14,945.03 14,695.27
9/30/06 15,353.54 15,070.10 14,861.44
10/31/06 15,455.11 15,171.89 14,964.12
11/30/06 15,634.40 15,347.61 15,146.18
12/31/06 15,543.67 15,275.73 15,071.17
1/31/07 15,537.29 15,260.21 15,083.97
2/28/07 15,776.88 15,507.30 15,329.23
3/31/07 15,777.36 15,501.95 15,318.79
4/30/07 15,862.44 15,579.97 15,411.91
5/31/07 15,742.22 15,447.84 15,277.42
6/30/07 15,695.65 15,384.87 15,242.14
7/31/07 15,826.58 15,469.72 15,263.03
8/31/07 16,020.56 15,609.29 15,381.60
9/30/07 16,142.09 15,776.41 15,489.71
10/31/07 16,287.10 15,879.92 15,586.48
11/30/07 16,579.99 16,085.30 15,675.37
12/31/07 16,626.56 16,104.80 15,649.49
1/31/08 16,905.85 16,373.47 15,718.16
2/29/08 16,929.32 16,291.59 15,600.88
3/31/08 16,987.08 16,122.93 15,507.74
4/30/08 16,951.58 16,207.03 15,481.46
5/31/08 16,827.28 16,080.01 15,525.08
6/30/08 16,813.68 15,946.39 15,403.74
7/31/08 16,799.96 15,793.37 15,250.63
8/31/08 16,959.40 15,887.91 15,248.47
9/30/08 16,731.61 15,393.33 14,648.10
10/31/08 16,336.67 14,820.47 13,635.60
11/30/08 16,868.43 14,796.07 13,374.49
12/31/08 17,497.78 15,346.49 13,223.67
1/31/09 17,343.39 15,323.24 13,271.66
2/28/09 17,277.93 15,151.68 13,183.50
3/31/09 17,518.12 15,438.14 13,452.20
4/30/09 17,601.87 15,704.63 13,774.49
5/31/09 17,729.54 16,080.97 14,704.52
6/30/09 17,830.38 16,274.33 15,123.48
7/31/09 18,117.98 16,746.17 15,669.78
8/31/09 18,305.58 16,985.34 16,169.99
9/30/09 18,497.87 17,296.28 16,699.46
10/31/09 18,589.21 17,453.74 17,002.18
11/30/09 18,829.88 17,669.57 17,243.35
12/31/09 18,535.54 17,541.21 17,304.19
1/31/10 18,818.68 17,858.10 17,796.59
[END CHART]
Data from 1/31/00 to 1/31/10.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
Indexes are unmanaged and you cannot invest directly in an index.
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10 | USAA INTERMEDIATE-TERM BOND FUND
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================================================================================
The graph on page 10 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Intermediate-Term Bond Fund Shares to the following
benchmarks:
o The unmanaged Barclays Capital U.S. Aggregate Bond Index, formerly known as
the Lehman Brothers 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 Lipper Intermediate Investment Grade Funds Index tracks the
total return performance of the 30 largest funds within the Lipper
Intermediate Investment Grade Debt Funds category.
Indexes are unmanaged and you cannot invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 11
<PAGE>
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER INTERMEDIATE
USAA INTERMEDIATE-TERM INVESTMENT GRADE DEBT
BOND FUND FUNDS AVERAGE
1/31/2001 7.31% 5.99%
1/31/2002 6.80 5.60
1/31/2003 6.06 4.63
1/31/2004 4.77 3.83
1/31/2005 4.56 3.61
1/31/2006 4.70 3.96
1/31/2007 4.88 4.38
1/31/2008 5.27 4.60
1/31/2009 7.03 5.57
1/31/2010 5.98 4.22
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data for
periods ending 1/31/01 to 1/31/10.
The Lipper Intermediate Investment Grade Debt Funds Average is the average
performance level of all intermediate investment-grade debt funds, as reported
by Lipper Inc., an independent organization that monitors the performance of
mutual funds.
================================================================================
12 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
USAA INTERMEDIATE-TERM BOND FUND INSTITUTIONAL SHARES*
--------------------------------------------------------------------------------
1/31/10 7/31/09
--------------------------------------------------------------------------------
Net Assets $85.8 Million $46.9 Million
Net Asset Value Per Share $9.84 $8.93
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/10
--------------------------------------------------------------------------------
7/31/09 to 1/31/10** 1 Year Since Inception 8/01/08
13.72% 34.37% 10.99%
--------------------------------------------------------------------------------
EXPENSE RATIO***
--------------------------------------------------------------------------------
0.46%
*The USAA Intermediate-Term Bond Fund Institutional Shares (Institutional
Shares) commenced operations on August 1, 2008, and are not offered for sale
directly to the general public. The Institutional Shares are available only to
the USAA Target Retirement Funds.
**Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
***THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AS REPORTED IN THE INSTITUTIONAL SHARES' PROSPECTUS DATED DECEMBER
1, 2009, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. IMCO HAS
AGREED, THROUGH DECEMBER 1, 2010, TO MAKE PAYMENTS OR WAIVE MANAGEMENT,
ADMINISTRATION, AND OTHER FEES TO LIMIT THE EXPENSES OF THE INSTITUTIONAL SHARES
SO THAT THE TOTAL ANNUAL OPERATING EXPENSES OF THE INSTITUTIONAL SHARES
(EXCLUSIVE OF COMMISSION RECAPTURE, EXPENSE OFFSET ARRANGEMENTS, ACQUIRED FUND
FEES AND EXPENSES, AND EXTRAORDINARY EXPENSES) DO NOT EXCEED AN ANNUAL RATE OF
0.46% OF THE INSTITUTIONAL SHARES' AVERAGE DAILY NET ASSETS. IF THE
INSTITUTIONAL SHARES' TOTAL ANNUAL OPERATING EXPENSE RATIO IS LOWER THAN 0.46%,
THE INSTITUTIONAL SHARES WILL OPERATE AT THE LOWER EXPENSE RATIO. THIS
REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME
PERIOD WITHOUT APPROVAL OF THE FUND'S BOARD OF TRUSTEES AND MAY BE CHANGED OR
TERMINATED BY IMCO AT ANY TIME AFTER DECEMBER 1, 2010. THIS EXPENSE RATIO MAY
DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
return quoted does 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.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA INTERMEDIATE-TERM LIPPER INTERMEDIATE
BOND FUND INSTITUTIONAL INVESTMENT GRADE BARCLAYS CAPITAL U.S.
SHARES FUNDS INDEX AGGREGATE BOND INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 9,995.51 10,059.87 10,094.91
9/30/2008 9,603.48 9,746.71 9,959.32
10/31/2008 8,941.32 9,383.98 9,724.23
11/30/2008 8,771.29 9,368.53 10,040.76
12/31/2008 8,673.92 9,717.05 10,415.37
1/31/2009 8,706.83 9,702.33 10,323.47
2/28/2009 8,650.28 9,593.70 10,284.50
3/31/2009 8,827.96 9,775.08 10,427.47
4/30/2009 9,040.93 9,943.81 10,477.33
5/31/2009 9,652.88 10,182.10 10,553.32
6/30/2009 9,929.45 10,304.54 10,613.35
7/31/2009 10,289.85 10,603.29 10,784.54
8/31/2009 10,619.91 10,754.73 10,896.20
9/30/2009 10,969.35 10,951.61 11,010.66
10/31/2009 11,170.03 11,051.31 11,065.03
11/30/2009 11,330.16 11,187.97 11,208.28
12/31/2009 11,372.15 11,106.69 11,033.08
1/31/2010 11,697.42 11,307.34 11,201.62
[END CHART]
Data from 7/31/08 through 1/31/10.*
See page 11 for benchmark definitions.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Intermediate-Term Bond Fund Institutional Shares to the benchmarks.
*The performance of the Barclays Capital U.S. Aggregate Bond Index and the
Lipper Intermediate Investment Grade Funds Index is calculated from the end of
the month, July 31, 2008, while the Institutional Shares' inception date is
August 1, 2008. There may be a slight variation of performance numbers because
of this difference.
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.
================================================================================
14 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
o PORTFOLIO RATINGS MIX -- 1/31/2010 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 28%
AA 6%
A 20%
BBB 36%
BELOW INVESTMENT-GRADE 10%
[END CHART]
The four highest long-term credit ratings, in descending order of credit
quality, are AAA, AA, A, and BBB. These categories represent investment-grade
quality. This chart reflects the highest rating of either Moody's Investors
Service, Standard & Poor's Ratings, Fitch Ratings, Dominion Bond Rating Service
Ltd., or A.M. Best Co., Inc., and includes any related credit enhancements. If
any of the Fund's securities are unrated by these agencies, USAA Investment
Management Company must determine that the securities are of equivalent
investment quality.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 17-40.
================================================================================
INVESTMENT OVERVIEW | 15
<PAGE>
================================================================================
o PORTFOLIO MIX -- 1/31/2010 o
[PIE CHART OF PORTFOLIO MIX]
CORPORATE OBLIGATIONS 54.3%
COMMERCIAL MORTGAGE SECURITIES 18.2%
ASSET-BACKED SECURITIES 9.9%
EURODOLLAR AND YANKEE OBLIGATIONS 6.9%
U.S. GOVERNMENT AGENCY ISSUES 5.3%
MUNICIPAL BONDS 2.3%
PREFERRED SECURITIES 1.3%
VARIABLE-RATE DEMAND NOTES 0.4%
MONEY MARKET FUNDS 0.3%
[END CHART]
Percentages are of net assets of the Fund and may not equal 100%.
================================================================================
16 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2010 (unaudited)
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (54.3%)
CONSUMER DISCRETIONARY (2.4%)
-----------------------------
APPAREL & ACCESSORIES & LUXURY GOODS (0.1%)
$ 2,048 Kellwood Co. 7.88% 7/15/2011 $ 1,546
----------
AUTOMOTIVE RETAIL (0.1%)
1,000 AutoZone, Inc. 5.75 1/15/2015 1,088
----------
BROADCASTING (0.4%)
980 Charter Communications Operating, LLC(a) 2.24(b) 3/06/2014 913
1,000 Comcast Corp. 6.50 1/15/2017 1,120
2,000 Liberty Media Corp., LLC 5.70 5/15/2013 1,945
1,000 Time Warner Cable, Inc. 8.25 2/14/2014 1,189
----------
5,167
----------
CABLE & SATELLITE (0.1%)
2,000 Virgin Media Secured Finance(c) 6.50 1/15/2018 1,978
----------
CASINOS & GAMING (0.1%)
134 Harrah's Operating Co., Inc. 10.00 2/01/2016 107
1,000 Mashantucket (Western) Pequot Tribe,
acquired 7/29/2005; cost $1,000(c),(d) 5.91 9/01/2021 555
950 Seminole Tribe of Florida(c) 7.80 10/01/2020 890
----------
1,552
----------
DEPARTMENT STORES (0.7%)
4,000 J.C. Penney Co., Inc. 7.95 4/01/2017 4,360
5,000 Macy's Retail Holdings, Inc. 6.63 4/01/2011 5,231
----------
9,591
----------
HOTELS, RESORTS, & CRUISE LINES (0.2%)
2,000 Starwood Hotels & Resorts Worldwide, Inc. 7.88 10/15/2014 2,140
----------
HOUSEHOLD APPLIANCES (0.2%)
2,000 Stanley Works Capital Trust I 5.90 12/01/2045 1,852
1,000 Whirlpool Corp. 7.75 7/15/2016 1,077
----------
2,929
----------
LEISURE PRODUCTS (0.2%)
2,000 Hasbro, Inc. 6.13 5/15/2014 2,196
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
SPECIALTY STORES (0.3%)
$ 1,000 Staples, Inc. 7.75% 4/01/2011 $ 1,073
2,000 Staples, Inc. 9.75 1/15/2014 2,442
----------
3,515
----------
Total Consumer Discretionary 31,702
----------
CONSUMER STAPLES (2.2%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
1,000 Bunge Ltd. Finance Co. 8.50 6/15/2019 1,176
2,000 Cargill, Inc.(c) 6.00 11/27/2017 2,171
----------
3,347
----------
BREWERS (0.2%)
2,000 Anheuser-Busch Companies, Inc.(c) 7.20 1/15/2014 2,289
----------
DISTILLERS & VINTNERS (0.1%)
2,000 Constellation Brands, Inc. 7.25 5/15/2017 2,017
----------
DRUG RETAIL (1.0%)
2,778 CVS Caremark Corp. 6.04 12/10/2028 2,800
10,600 CVS Caremark Corp. 6.30 6/01/2037 9,863
----------
12,663
----------
FOOD RETAIL (0.3%)
1,593 Ahold Lease USA, Inc. 7.82 1/20/2020 1,711
2,000 Kroger Co.(e) 5.50 2/01/2013 2,152
----------
3,863
----------
PACKAGED FOODS & MEAT (0.1%)
1,000 Tyson Foods, Inc. 7.85 4/01/2016 1,055
----------
SOFT DRINKS (0.2%)
1,000 Bottling Group, LLC 5.50 4/01/2016 1,108
1,000 Coca Cola Enterprises, Inc. 7.38 3/03/2014 1,176
----------
2,284
----------
TOBACCO (0.1%)
1,000 Universal Corp. 5.00 9/01/2011 1,032
----------
Total Consumer Staples 28,550
----------
ENERGY (7.1%)
-------------
INTEGRATED OIL & GAS (0.4%)
2,000 Hess Corp. 8.13 2/15/2019 2,444
1,000 Marathon Oil Corp. 6.50 2/15/2014 1,126
1,000 Occidental Petroleum Corp. 7.00 11/01/2013 1,167
1,000 Polar Tankers, Inc.(c) 5.95 5/10/2037 986
----------
5,723
----------
================================================================================
18 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
OIL & GAS DRILLING (0.2%)
$ 2,000 Nabors Industries, Inc. 9.25% 1/15/2019 $ 2,527
----------
OIL & GAS EQUIPMENT & SERVICES (0.4%)
2,000 Seacor Holdings, Inc.(e) 5.88 10/01/2012 2,028
2,000 Weatherford International Ltd. 9.63 3/01/2019 2,543
----------
4,571
----------
OIL & GAS EXPLORATION & PRODUCTION (1.1%)
4,000 Denbury Resources, Inc. 7.50 12/15/2015 4,010
1,208 Denbury Resources, Inc. 9.75 3/01/2016 1,279
2,000 Devon Energy Corp. 6.30 1/15/2019 2,245
1,500 Newfield Exploration Co. 6.88 2/01/2020 1,504
2,000 Noble Energy, Inc. 8.25 3/01/2019 2,431
1,000 Range Resources Corp. 8.00 5/15/2019 1,070
1,000 XTO Energy, Inc. 4.63 6/15/2013 1,072
1,000 XTO Energy, Inc. 5.65 4/01/2016 1,109
----------
14,720
----------
OIL & GAS REFINING & MARKETING (0.5%)
2,000 Motiva Enterprises, LLC(c) 5.75 1/15/2020 2,105
1,000 Plains All American Pipeline, LP 8.75 5/01/2019 1,246
2,000 Premcor Refining Group, Inc.(e) 7.50 6/15/2015 2,049
1,000 Sunoco, Inc. 9.63 4/15/2015 1,216
----------
6,616
----------
OIL & GAS STORAGE & TRANSPORTATION (4.5%)
250 Buckeye Partners, LP 5.13 7/01/2017 249
1,000 DCP Midstream, LLC(c) 9.70 12/01/2013 1,193
2,000 El Paso Energy Corp.(c),(e) 5.90 4/01/2017 2,122
8,000 Enbridge Energy Partners, LP 8.05 10/01/2037 7,974
1,000 Energy Transfer Partners, LP 6.00 7/01/2013 1,092
1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,274
1,000 Enterprise Products Operating, LP 8.38 8/01/2066 995
5,000 Enterprise Products Operating, LP(e) 7.00 6/01/2067 4,565
3,550 Enterprise Products Operating, LP 7.03 1/15/2068 3,360
2,000 Gulf South Pipeline Co., LP 5.75 8/15/2012 2,135
2,000 Kaneb Pipe Line Operating Partnership, LP(e) 5.88 6/01/2013 2,091
1,000 Kinder Morgan Finance Co. 5.70 1/05/2016 976
2,000 Kinder Morgan, Inc.(e) 6.50 9/01/2012 2,087
1,000 NGPL PipeCo, LLC 6.51 12/15/2012 1,106
2,000 NGPL PipeCo, LLC(e) 7.12 12/15/2017 2,275
2,000 Rockies Express Pipeline, LLC(c),(e) 6.25 7/15/2013 2,199
2,000 Sabine Pass LNG, LP(e) 7.25 11/30/2013 1,880
6,110 SourceGas, LLC(c) 5.90 4/01/2017 5,706
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 3,000 Southeast Supply Header(c) 4.85% 8/15/2014 $ 3,107
1,000 Spectra Energy Capital, LLC 5.90 9/15/2013 1,104
2,000 Sunoco Logistics Partners Operations, LP 8.75 2/15/2014 2,249
1,000 Tennessee Gas Pipeline Co. 8.00 2/01/2016 1,170
2,000 Tennessee Gas Pipeline Co. 7.00 10/15/2028 2,183
500 Transcontinental Gas Pipeline Corp. 8.88 7/15/2012 575
1,000 Valero Logistics Operations, LP 6.05 3/15/2013 1,083
2,000 Williams Companies, Inc. 8.13 3/15/2012 2,300
500 Williams Partners Finance Corp. 7.50 6/15/2011 530
250 Williams Partners Finance Corp. 7.25 2/01/2017 281
----------
57,861
----------
Total Energy 92,018
----------
FINANCIALS (23.1%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
2,000 Mellon Bank, N.A. 5.45 4/01/2016 2,169
----------
CONSUMER FINANCE (0.8%)
3,000 American Express Co. 6.80 9/01/2066 2,805
1,000 American Honda Finance Corp.(c) 6.70 10/01/2013 1,110
965 Capital One Financial Corp. 7.69 8/15/2036 917
1,000 ERAC USA Finance Co.(c) 6.20 11/01/2016 1,063
1,000 Ford Motor Credit Co., LLC 7.50 8/01/2012 1,014
2,000 Ford Motor Credit Co., LLC 7.00 10/01/2013 2,003
1,266 General Motors Acceptance Corp. 6.88 8/28/2012 1,253
----------
10,165
----------
DIVERSIFIED BANKS (2.2%)
1,000 Comerica Bank 5.20 8/22/2017 972
5,000 Comerica Capital Trust II 6.58 2/20/2037 4,100
1,000 Emigrant Bancorp, Inc.(c) 6.25 6/15/2014 678
1,000 First Tennessee Bank, N.A. 4.63 5/15/2013 943
3,000 First Tennessee Bank, N.A. 5.65 4/01/2016 2,741
2,000 First Union National Bank, FL 6.18 2/15/2036 2,065
3,000 First Union National Bank, NC(e) 6.18 2/15/2036 3,098
2,000 Key Bank, N.A. 5.45 3/03/2016 1,905
3,000 LBG Capital No. 1 plc 7.88 11/01/2020 2,670
5,000 USB Capital IX 6.19 -(f) 4,200
3,470 Wells Fargo Capital XIII 7.70 -(f) 3,383
1,000 Wells Fargo Capital XV 9.75 -(f) 1,070
----------
27,825
----------
DIVERSIFIED REAL ESTATE ACTIVITIES (0.1%)
1,000 Brascan Corp. 7.13 6/15/2012 1,068
500 Brookfield Asset Management, Inc. 5.80 4/25/2017 479
----------
1,547
----------
================================================================================
20 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE (0.4%)
$ 1,000 First Republic Bank Corp. 7.75% 9/15/2012 $ 1,086
3,000 Goldman Sachs Capital II 5.79 -(f) 2,362
2,000 Merrill Lynch & Co., Inc. 6.05 8/15/2012 2,162
----------
5,610
----------
LIFE & HEALTH INSURANCE (2.8%)
2,000 Blue Cross Blue Shield, Inc. 8.25 11/15/2011 2,188
2,000 Great-West Life & Annuity Insurance Co.(c) 7.15 5/16/2046 1,800
3,000 Jackson National Life Global Funding(c) 5.38 5/08/2013 3,231
6,000 Lincoln National Corp. 7.00 5/17/2066 5,085
5,000 MetLife Capital Trust X(c) 9.25 4/08/2038 5,650
6,000 Nationwide Mutual Insurance Co.(c),(e) 5.81 12/15/2024 5,085
2,000 Prudential Financial, Inc. 6.00 12/01/2017 2,126
1,000 Prudential Financial, Inc. 8.88 6/15/2038 1,090
10,000 StanCorp Financial Group, Inc. 6.90 6/01/2067 7,914
2,000 Travelers Life & Annuity(c) 5.13 8/15/2014 2,149
----------
36,318
----------
MULTI-LINE INSURANCE (2.2%)
2,000 American General Finance Corp. 4.88 7/15/2012 1,662
2,000 American International Group, Inc. 8.18 5/15/2058 1,360
3,000 Farmers Exchange Capital(c) 7.05 7/15/2028 2,680
8,000 Genworth Financial, Inc. 6.15 11/15/2066 5,700
10,000 Glen Meadow(c) 6.51 2/12/2067 7,775
2,000 HCC Insurance Holdings, Inc. 6.30 11/15/2019 2,086
1,000 ILFC E-Capital Trust I(c) 5.90 12/21/2065 570
2,000 ILFC E-Capital Trust II(c) 6.25 12/21/2065 1,150
2,000 Oil Casualty Insurance Ltd.(c) 8.00 9/15/2034 1,663
5,000 Oil Insurance Ltd.(c) 7.56 -(f) 3,961
----------
28,607
----------
MULTI-SECTOR HOLDINGS (0.2%)
1,000 Leucadia National Corp. 7.00 8/15/2013 1,022
1,000 Leucadia National Corp. 7.13 3/15/2017 990
----------
2,012
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (1.4%)
3,000 AgFirst Farm Credit Bank 6.59 -(f) 2,427
1,000 Bank of America Corp. 8.00 -(f) 951
1,000 Bank of America Corp. 8.13 -(f) 951
2,000 Bank of America Corp. 5.75 12/01/2017 2,043
2,000 Citigroup, Inc. 6.38 8/12/2014 2,124
2,000 General Electric Capital Corp. 4.80 5/01/2013 2,121
6,440 General Electric Capital Corp. 6.38 11/15/2067 5,699
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 2,000 NORTHGROUP PREFERRED CAPITAL CORP.(C) 6.38% -(f) $ 1,759
----------
18,075
----------
PROPERTY & CASUALTY INSURANCE (3.2%)
1,000 21st Century Insurance Group 5.90 12/15/2013 996
5,000 Allstate Corp. 6.13 5/15/2037 4,700
1,535 Assured Guaranty U.S. Holdings, Inc. 7.00 6/01/2034 1,417
2,425 Assured Guaranty U.S. Holdings, Inc. 6.40 12/15/2066 1,722
5,500 Chubb Corp. 6.38 3/29/2067 5,335
2,000 CNA Financial Corp. 7.35 11/15/2019 2,099
3,000 Financial Security Assurance Holdings Ltd.(c) 6.40 12/15/2066 2,085
2,000 First American Capital Trust I 8.50 4/15/2012 1,992
2,275 Fund American Companies, Inc. 5.88 5/15/2013 2,348
1,000 Infinity Property & Casualty Corp. 5.50 2/18/2014 990
2,000 Liberty Mutual Group, Inc. 7.30 6/15/2014 2,119
3,000 Liberty Mutual Group, Inc.(c) 7.00 3/15/2037 2,415
7,000 Progressive Corp. 6.70 6/15/2037 6,449
2,000 RLI Corp. 5.95 1/15/2014 1,993
5,000 Travelers Companies, Inc. 6.25 3/15/2037 4,708
----------
41,368
----------
REGIONAL BANKS (3.2%)
1,500 AmSouth Bank, N.A. 5.20 4/01/2015 1,378
1,750 Bank of Oklahoma 5.75 5/15/2017 1,641
2,000 Chittenden Corp. 5.80 2/14/2017 1,993
2,000 City National Capital Trust I 9.63 2/01/2040 2,148
1,000 City National Corp. 5.13 2/15/2013 1,030
2,000 Cullen/Frost Bankers, Inc. 5.75 2/15/2017 1,880
5,000 Fifth Third Capital Trust IV 6.50 4/15/2037 3,887
2,395 First Empire Capital Trust I 8.23 2/01/2027 2,217
2,000 Fulton Capital Trust I 6.29 2/01/2036 1,284
2,500 Huntington Capital III 6.65 5/15/2037 1,690
4,000 Manufacturers & Traders Trust Co. 5.63 12/01/2021 3,492
1,000 National City Bank 4.50 3/15/2010 1,004
1,500 National City Preferred Capital Trust I 12.00 -(f) 1,711
5,000 PNC Preferred Funding Trust III(c) 8.70 3/29/2049 5,176
2,000 Susquehanna Bancshares, Inc. 2.10(b) 5/01/2014 1,501
2,000 TCF Financial Bank 1.88(b) 6/15/2014 1,478
2,000 TCF National Bank 5.50 2/01/2016 1,674
2,000 U.S. AgBank, FCB(c) 6.11 -(f) 1,239
4,000 Webster Capital Trust IV 7.65 6/15/2037 2,680
1,000 Whitney National Bank 5.88 4/01/2017 834
1,000 Wilmington Trust Corp. 8.50 4/02/2018 1,012
1,000 Zions Bancorp 6.00 9/15/2015 826
----------
41,775
----------
================================================================================
22 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
REITs - DIVERSIFIED (0.7%)
$ 1,000 Liberty Property, LP 5.13% 3/02/2015 $ 992
1,000 Liberty Property, LP 6.63 10/01/2017 1,019
4,000 Washington REIT 5.35 5/01/2015 4,117
2,000 WEA Finance(c) 5.75 9/02/2015 2,150
----------
8,278
----------
REITs - INDUSTRIAL (0.5%)
2,500 AMB Property, LP 6.30 6/01/2013 2,659
2,000 ProLogis 5.50 3/01/2013 2,067
1,000 ProLogis 2.25 4/01/2037 941
1,000 ProLogis 1.88 11/15/2037 896
----------
6,563
----------
REITs - OFFICE (1.1%)
2,000 Boston Properties, Inc. 5.88 10/15/2019 2,086
1,500 Boston Properties, LP 6.25 1/15/2013 1,638
2,000 Brandywine Operating Partnership, LP 7.50 5/15/2015 2,117
1,000 Duke Realty, LP 5.50 3/01/2016 991
1,000 Duke Realty, LP 5.95 2/15/2017 1,002
1,000 Duke Realty, LP 6.50 1/15/2018 995
1,000 HRPT Properties Trust 5.75 11/01/2015 989
1,000 HRPT Properties Trust 6.65 1/15/2018 996
1,500 Mack-Cali Realty, LP 5.80 1/15/2016 1,484
1,000 Mack-Cali Realty, LP 7.75 8/15/2019 1,115
1,000 Reckson Operating Partnership, LP 6.00 3/31/2016 959
----------
14,372
----------
REITs - RESIDENTIAL (0.8%)
2,000 AvalonBay Communities, Inc. 5.50 1/15/2012 2,103
1,330 BRE Properties, Inc. 5.50 3/15/2017 1,276
1,000 ERP Operating, LP 6.63 3/15/2012 1,074
1,965 ERP Operating, LP 6.58 4/13/2015 2,129
1,000 Post Apartment Homes, LP 5.45 6/01/2012 1,002
3,000 UDR, Inc. 5.13 1/15/2014 3,021
----------
10,605
----------
REITs - RETAIL (2.1%)
1,000 Developers Diversified Realty Corp. 5.38 10/15/2012 974
2,000 Developers Diversified Realty Corp. 5.50 5/01/2015 1,881
3,000 Equity One, Inc. 6.25 12/15/2014 3,089
1,000 Federal Realty Investment Trust 6.20 1/15/2017 1,004
1,000 National Retail Properties, Inc. 6.88 10/15/2017 1,028
1,000 Pan Pacific Retail Properties, Inc. 7.95 4/15/2011 1,039
1,000 Pan Pacific Retail Properties, Inc. 5.25 9/01/2015 1,028
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 2,000 Realty Income Corp. 5.95% 9/15/2016 $ 2,031
2,000 Regency Centers, LP 5.88 6/15/2017 1,982
2,000 Rouse Co.(g) 7.20 9/12/2012 2,060
2,000 Rouse Co.(g) 5.38 11/26/2013 1,970
3,525 Simon Property Group, LP 5.30 5/30/2013 3,774
1,000 Simon Property Group, LP 6.10 5/01/2016 1,076
4,000 Weingarten Realty Investors 4.86 1/15/2014 4,011
----------
26,947
----------
REITs - SPECIALIZED (1.0%)
2,000 Health Care Property Investors, Inc. 6.30 9/15/2016 2,022
3,000 Healthcare Realty Trust 6.50 1/17/2017 3,136
1,000 Hospitality Properties Trust 5.13 2/15/2015 962
2,000 Nationwide Health Properties, Inc. 6.90 10/01/2037 2,060
1,000 Ventas Realty, LP 9.00 5/01/2012 1,052
500 Ventas Realty, LP 6.50 6/01/2016 488
3,000 Ventas Realty, LP 6.75 4/01/2017 2,955
----------
12,675
----------
SPECIALIZED FINANCE (0.0%)
3,000 Security Capital Assurance Ltd.(h) 6.88 -(f) -
----------
THRIFTS & MORTGAGE FINANCE (0.2%)
2,000 Sovereign Bank 1.99(b) 8/01/2013 1,983
1,000 Sovereign Bank 2.07(b) 4/01/2014 994
----------
2,977
----------
Total Financials 297,888
----------
HEALTH CARE (0.6%)
------------------
HEALTH CARE EQUIPMENT (0.2%)
1,000 Baxter International, Inc. 4.00 3/01/2014 1,051
1,000 Hospira, Inc. 6.40 5/15/2015 1,123
1,000 Hospira, Inc. 6.05 3/30/2017 1,084
----------
3,258
----------
HEALTH CARE SERVICES (0.1%)
1,000 Laboratory Corp. of America 5.63 12/15/2015 1,091
----------
MANAGED HEALTH CARE (0.1%)
2,000 Highmark, Inc.(c) 6.80 8/15/2013 2,166
----------
PHARMACEUTICALS (0.2%)
2,000 Roche Holdings, Inc.(c) 5.00 3/01/2014 2,165
----------
Total Health Care 8,680
----------
================================================================================
24 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS (3.2%)
------------------
AIR FREIGHT & LOGISTICS (0.2%)
$ 2,000 FedEx Corp. 7.38% 1/15/2014 $ 2,305
----------
AIRLINES (1.0%)
267 Airplanes Pass-Through 0.61(b) 3/15/2019 252
309 America West Airlines, Inc. Pass-Through Trust 6.87 1/02/2017 282
1,723 America West Airlines, Inc. Pass-Through Trust (INS) 7.93 1/02/2019 1,599
2,483 American Airlines Pass-Through Trust 10.38 7/02/2019 2,818
888 American Airlines, Inc. Pass-Through Trust (INS) 3.86 7/09/2010 877
1,000 American Airlines, Inc. Pass-Through Trust 6.82 5/23/2011 988
2,939 Continental Airlines, Inc. Pass-Through Trust 9.00 7/08/2016 3,175
1,196 Continental Airlines, Inc. Pass-Through Trust 6.55 2/02/2019 1,196
1,113 Continental Airlines, Inc. Pass-Through Trust (INS) 6.24 3/15/2020 901
140 United Airlines Pass-Through Trust 7.73 7/01/2010 140
469 United Airlines, Inc. Pass-Through Trust 7.78 1/01/2014 467
----------
12,695
----------
BUILDING PRODUCTS (0.3%)
2,000 CRH America, Inc. 5.63 9/30/2011 2,111
1,000 USG Corp. 6.30 11/15/2016 890
1,000 USG Corp. 9.25(b) 1/15/2018 1,025
----------
4,026
----------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.1%)
1,000 Paccar, Inc. 6.88 2/15/2014 1,151
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.3%)
2,000 Allied Waste North America, Inc. 7.25 3/15/2015 2,082
2,000 Allied Waste North America, Inc. 6.88 6/01/2017 2,163
----------
4,245
----------
INDUSTRIAL CONGLOMERATES (0.5%)
2,000 Textron Financial Corp. 5.40 4/28/2013 2,055
3,000 Tyco International Finance 8.50 1/15/2019 3,769
----------
5,824
----------
INDUSTRIAL MACHINERY (0.3%)
2,000 Ingersoll-Rand GL Holding Co. 9.50 4/15/2014 2,448
1,000 Pall Corp.(c) 6.00 8/01/2012 1,010
----------
3,458
----------
RAILROADS (0.3%)
2,000 Norfolk Southern Corp. 7.70 5/15/2017 2,399
1,494 Southern Capital Corp.(c) 5.70 6/30/2023 990
----------
3,389
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
SECURITY & ALARM SERVICES (0.2%)
$ 2,000 Corrections Corp. of America 7.75% 6/01/2017 $ 2,065
1,000 Geo Group, Inc.(c) 7.75 10/15/2017 1,025
----------
3,090
----------
Total Industrials 40,183
----------
INFORMATION TECHNOLOGY (0.5%)
-----------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.3%)
1,000 Computer Sciences Corp. 5.50 3/15/2013 1,086
2,000 Fiserv, Inc. 6.13 11/20/2012 2,215
1,000 Iron Mountain, Inc. 7.75 1/15/2015 1,013
----------
4,314
----------
ELECTRONIC MANUFACTURING SERVICES (0.2%)
2,000 Tyco International Finance S.A. 4.13 10/15/2014 2,087
----------
Total Information Technology 6,401
----------
MATERIALS (1.8%)
----------------
DIVERSIFIED CHEMICALS (0.4%)
2,000 Chevron Phillips Chemical Co., LP(c) 7.00 6/15/2014 2,226
2,000 Dow Chemical Co. 5.90 2/15/2015 2,171
1,000 E.I. du Pont de Nemours and Co. 6.00 7/15/2018 1,113
----------
5,510
----------
DIVERSIFIED METALS & MINING (0.3%)
3,000 Rio Tinto Finance (USA) Ltd. 8.95 5/01/2014 3,622
----------
GOLD (0.2%)
2,000 Barrick Gold Finance Co., LLC 6.13 9/15/2013 2,246
----------
METAL & GLASS CONTAINERS (0.4%)
2,000 Ball Corp. 6.63 3/15/2018 2,020
1,000 Owens Brockway Glass Container, Inc. 6.75 12/01/2014 1,015
2,725 Silgan Holdings, Inc. 7.25 8/15/2016 2,841
----------
5,876
----------
PAPER PRODUCTS (0.3%)
3,000 International Paper Co. 7.50 8/15/2021 3,412
----------
STEEL (0.2%)
2,000 Allegheny Technologies, Inc. 9.38 6/01/2019 2,392
----------
Total Materials 23,058
----------
MUNICIPAL BONDS (0.3%)
----------------------
HOSPITAL (0.2%)
3,000 Novant Health, Inc. 5.35 11/01/2016 3,021
----------
================================================================================
26 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS (0.1%)
$ 812 Keenan Dev. Association of Tennessee, LLC (INS) 5.02% 7/15/2028 $ 732
----------
Total Municipal Bonds 3,753
----------
TELECOMMUNICATION SERVICES (2.0%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.9%)
1,708 Citizens Communications Co. 6.25 1/15/2013 1,733
5,000 Qwest Communications International, Inc. 7.25 2/15/2011 5,000
5,000 Qwest Communications International, Inc.(c) 7.13 4/01/2018 4,900
4,000 Qwest Corp. 8.38 5/01/2016 4,400
2,000 Telecom Italia Capital 5.25 11/15/2013 2,138
1,000 Verizon Communications, Inc. 5.25 4/15/2013 1,094
3,000 Verizon Wireless Capital, LLC 5.55 2/01/2014 3,312
2,000 Windstream Corp.(c) 7.88 11/01/2017 1,985
----------
24,562
----------
WIRELESS TELECOMMUNICATION SERVICES (0.1%)
1,000 AT&T Wireless Services, Inc. 7.88 3/01/2011 1,075
----------
Total Telecommunication Services 25,637
----------
UTILITIES (11.1%)
-----------------
ELECTRIC UTILITIES (4.8%)
1,000 Ameren UE 5.10 10/01/2019 1,009
1,000 Baltimore Gas and Electric Co. 5.90 10/01/2016 1,069
992 Bruce Mansfield Unit 1 & 2 2007 Pass-Through Trust 6.85 6/01/2034 971
1,045 Carolina Power & Light Co. 6.13 9/15/2033 1,119
1,560 Cedar Brakes II, LLC(c) 9.88 9/01/2013 1,603
2,000 Cleveland Electric Illuminating Co. 8.88 11/15/2018 2,540
2,000 Commonwealth Edison Co. 5.80 3/15/2018 2,170
1,000 Duke Energy Carolinas, LLC 5.75 11/15/2013 1,113
2,550 Entergy Gulf States, Inc. 5.70 6/01/2015 2,569
1,000 Entergy Louisiana Holdings, Inc. 5.83 11/01/2010 1,002
2,000 Entergy Mississippi, Inc. 5.92 2/01/2016 2,059
744 FPL Energy National Wind, LLC(c) 5.61 3/10/2024 736
4,000 FPL Group Capital, Inc. 6.35 10/01/2066 3,745
1,000 FPL Group Capital, Inc. 7.30 9/01/2067 1,006
1,000 Illinois Power Co. 6.13 11/15/2017 1,076
2,000 Illinois Power Co. 9.75 11/15/2018 2,572
2,000 Indiana Michigan Power Co. 7.00 3/15/2019 2,300
2,320 ITC Holdings Corp.(c) 5.25 7/15/2013 2,379
2,000 Metropolitan Edison Co. 7.70 1/15/2019 2,365
1,000 MidAmerican Energy Holdings Co. 5.88 10/01/2012 1,105
1,000 Nevada Power Co. 6.50 5/15/2018 1,102
1,000 New York State Electric & Gas Corp. 5.50 11/15/2012 1,092
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 2,000 Northeast Utilities 5.65% 6/01/2013 $ 2,112
1,700 Northern States Power Co. 8.00 8/28/2012 1,970
341 Oglethorpe Power Corp. 6.97 6/30/2011 344
2,000 Oglethorpe Power Corp. 6.10 3/15/2019 2,200
2,000 Otter Tail Corp. 9.00 12/15/2016 2,095
237 Power Contract Financing, LLC(c) 6.26 2/01/2010 237
5,000 PPL Capital Funding, Inc. 6.70 3/30/2067 4,381
2,000 PPL Energy Supply, LLC 6.40 11/01/2011 2,162
1,000 PSI Energy, Inc. 6.05 6/15/2016 1,118
2,000 Public Service Co. of New Mexico 7.95 5/15/2018 2,117
1,000 Public Service Co. of Oklahoma 6.15 8/01/2016 1,093
1,000 Sierra Pacific Power Co. 6.25 4/15/2012 1,074
978 Texas Competitive Electric Holding Co., LLC(a) 3.73(b) 10/10/2014 803
978 Texas Competitive Electric Holding Co., LLC(a) 3.73(b) 10/10/2014 799
838 Tristate General & Transport Association(c) 6.04 1/31/2018 858
1,000 Union Electric Co. 6.70 2/01/2019 1,127
1,000 Virginia Electric Power Co. 5.40 1/15/2016 1,080
----------
62,272
----------
GAS UTILITIES (2.3%)
2,000 AGL Capital Corp. 6.38 7/15/2016 2,202
2,000 Atmos Energy Corp. 6.35 6/15/2017 2,186
1,000 Atmos Energy Corp. 8.50 3/15/2019 1,243
1,000 CenterPoint Energy Resources Corp. 5.95 1/15/2014 1,088
1,000 Duke Capital Corp., LLC 5.50 3/01/2014 1,070
1,000 Duke Capital Corp., LLC 8.00 10/01/2019 1,207
1,000 EQT Corp. 8.13 6/01/2019 1,207
2,000 Equitable Resources Foundation, Inc. 6.50 4/01/2018 2,194
2,000 Florida Gas Transmission Co.(c) 7.90 5/15/2019 2,412
3,000 Gulfstream Natural Gas(c) 6.95 6/01/2016 3,394
1,000 National Fuel Gas Co. 7.38 6/13/2025 1,092
1,000 Northern Natural Gas Co.(c) 5.38 10/31/2012 1,096
2,000 Oneok Partners, LP 8.63 3/01/2019 2,501
1,000 Questar Pipeline Co. 5.83 2/01/2018 1,041
1,000 Southern Star Central Gas Pipeline, Inc.(c) 6.00 6/01/2016 1,048
6,000 Southern Union Co. 7.20 11/01/2066 5,370
----------
30,351
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.4%)
2,680 IPALCO Enterprises, Inc.(c) 7.25 4/01/2016 2,734
2,000 Transalta Corp. 4.75 1/15/2015 2,076
----------
4,810
----------
MULTI-UTILITIES (3.4%)
1,000 Ameren Corp. 8.88 5/15/2014 1,163
3,500 Black Hills Corp. 6.50 5/15/2013 3,756
================================================================================
28 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 2,000 CenterPoint Energy Houston Electric, LLC 7.00% 3/01/2014 $ 2,316
1,000 CenterPoint Energy, Inc. 7.25 9/01/2010 1,030
2,000 CMS Energy Corp. 6.25 2/01/2020 2,001
1,000 Dominion Resources, Inc. 8.88 1/15/2019 1,270
5,000 Dominion Resources, Inc. 7.50 6/30/2066 4,981
1,000 Energy East Corp. 6.75 6/15/2012 1,114
6,525 Integrys Energy Group, Inc. 6.11 12/01/2066 5,619
1,000 NiSource Finance Corp. 6.40 3/15/2018 1,067
1,000 Puget Sound Energy, Inc. 6.75 1/15/2016 1,109
7,500 Puget Sound Energy, Inc. 6.97 6/01/2067 6,714
2,000 Sempra Energy 9.80 2/15/2019 2,609
4,000 Texas - New Mexico Power Co.(c) 9.50 4/01/2019 4,948
4,890 Wisconsin Energy Corp. 6.25 5/15/2067 4,456
----------
44,153
----------
WATER UTILITIES (0.2%)
2,000 American Water Capital Corp. 6.09 10/15/2017 2,165
----------
Total Utilities 143,751
----------
Total Corporate Obligations (cost: $664,489) 701,621
----------
EURODOLLAR AND YANKEE OBLIGATIONS (6.9%)
ENERGY (0.9%)
-------------
INTEGRATED OIL & GAS (0.3%)
1,000 Husky Energy, Inc. 7.25 12/15/2019 1,171
1,000 Nakilat, Inc.(c) 6.07 12/31/2033 910
533 PEMEX Finance Ltd. 8.88 11/15/2010 548
250 PEMEX Finance Ltd. 9.03 2/15/2011 257
2,000 Trans-Canada Pipelines Ltd. 6.35 5/15/2067 1,901
----------
4,787
----------
OIL & GAS DRILLING (0.1%)
268 Delek & Avner-Yam Tethys Ltd.(c) 1.38(b) 8/01/2013 268
382 Delek & Avner-Yam Tethys Ltd.(c) 5.33 8/01/2013 391
----------
659
----------
OIL & GAS EXPLORATION & PRODUCTION (0.3%)
1,500 Talisman Energy, Inc. 7.75 6/01/2019 1,778
2,000 Woodside Finance Ltd.(c) 8.75 3/01/2019 2,483
----------
4,261
----------
OIL & GAS STORAGE & TRANSPORTATION (0.2%)
2,000 TransCanada Pipelines Ltd. 7.13 1/15/2019 2,357
----------
Total Energy 12,064
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
FINANCIALS (4.7%)
-----------------
DIVERSIFIED BANKS (3.0%)
$ 1,000 Banco Santander(c) 5.38% 12/09/2014 $ 1,083
4,000 Barclays Bank plc(c),(e) 5.93 -(f) 3,390
3,000 BayernLB Capital Trust I 6.20 -(f) 1,230
2,000 BBVA International Preferred S.A. Unipersonal(c) 5.92 -(f) 1,657
2,000 BNP Paribas(c) 5.19 -(f) 1,780
1,000 BOI Capital Funding Number 2, LP(c),(i) 5.57 -(f) 580
2,000 BOI Capital Funding Number 3, LP(c),(i) 6.11 -(f) 1,160
4,000 Credit Agricole S.A.(c) 6.64 -(f) 3,505
1,000 HSBC Capital Funding, LP(c) 9.55 -(f) 1,020
4,000 ING Groep N.V. 5.78 -(f) 3,151
2,000 LBG Capital No.1 plc 8.00 -(f) 1,630
3,000 Mizuho Capital Investment 1 Ltd.(c) 6.69 -(f) 2,559
2,000 MUFG Capital Finance 1 Ltd. 6.35 -(f) 1,938
2,000 National Capital Trust II(c) 5.49 -(f) 1,742
2,000 Nordea Bank AB(c) 5.42 -(f) 1,731
1,500 Rabobank Nederland 5.26 -(f) 1,922
4,000 Royal Bank of Scotland Group plc 7.64 -(f) 2,323
2,000 Societe Generale(c) 5.92 -(f) 1,687
2,000 Standard Chartered plc(c) 6.41 -(f) 1,758
2,000 Sumitomo Mitsui Financial Group(c),(h) 6.08 -(f) 1,909
1,000 Westpac Capital Trust IV(c) 5.26 -(f) 831
----------
8,586
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
1,000 Credit Suisse Group, AG 5.50 5/01/2014 1,094
----------
MULTI-LINE INSURANCE (0.2%)
1,500 AXA S.A. 3.69(b) -(f) 1,010
2,000 AXA S.A.(c) 6.46 -(f) 1,592
----------
2,602
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.4%)
2,500 ZFS Finance USA Trust I(c) 6.15 12/15/2065 2,412
3,000 ZFS Finance USA Trust II(c) 6.45 12/15/2065 2,730
----------
5,142
----------
PROPERTY & CASUALTY INSURANCE (0.3%)
1,000 Allied World Assurance Holdings Ltd. 7.50 8/01/2016 1,090
3,000 Catlin Insurance Co. Ltd.(c) 7.25 -(f) 2,445
----------
3,535
----------
================================================================================
30 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
REINSURANCE (0.3%)
$ 2,624 Max USA Holdings Ltd.(c) 7.20% 4/14/2017 $ 2,728
1,000 Platinum Underwriters Finance, Inc. 7.50 6/01/2017 1,058
----------
3,786
----------
SPECIALIZED FINANCE (0.4%)
1,000 QBE Capital Funding II, LP(c) 6.80 -(f) 892
2,000 QBE Insurance Group Ltd.(c) 5.65 7/01/2023 1,825
4,000 XL Capital Ltd. 6.50 -(f) 3,080
----------
5,797
----------
Total Financials 60,542
----------
INDUSTRIALS (0.4%)
------------------
BUILDING PRODUCTS (0.2%)
2,000 CRH America, Inc. 6.00 9/30/2016 2,131
----------
INDUSTRIAL CONGLOMERATES (0.2%)
2,000 Hutchison Whampoa Ltd.(c) 7.63 4/09/2019 2,302
1,000 Siemens Financieringsmat(c) 6.13 8/17/2026 1,105
----------
3,407
----------
Total Industrials 5,538
----------
MATERIALS (0.9%)
----------------
DIVERSIFIED METALS & MINING (0.4%)
2,000 Glencore Funding, LLC(c) 6.00 4/15/2014 2,073
3,000 Noranda, Inc. 6.00 10/15/2015 3,248
----------
5,321
----------
GOLD (0.2%)
2,000 Barrick Gold Corp. 6.95 4/01/2019 2,300
----------
PAPER PRODUCTS (0.2%)
2,000 Sappi Papier Holding AG(c) 6.75 6/15/2012 1,942
----------
STEEL (0.1%)
1,000 ArcelorMittal 9.00 2/15/2015 1,212
----------
Total Materials 10,775
----------
Total Eurodollar and Yankee Obligations (cost: $91,475) 88,919
----------
ASSET-BACKED SECURITIES (9.9%)
FINANCIALS (9.9%)
-----------------
ASSET-BACKED FINANCING (9.9%)
502 Aerco Ltd.(c) 0.75 7/15/2025 452
4,000 AESOP Funding II, LLC(c) 0.45 3/20/2012 3,879
3,000 AESOP Funding II, LLC(c) 9.31 10/20/2013 3,382
================================================================================
PORTFOLIO OF INVESTMENTS | 31
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 2,000 American Express Credit Account Master Trust(c) 0.51% 3/17/2014 $ 1,960
3,000 American Express Credit Account Master Trust(c) 0.58 9/15/2016 2,844
5,000 AmeriCredit Automobile Receivables Trust 6.96 10/14/2014 5,334
2,000 Banc of America Securities Auto Trust 5.51 2/19/2013 2,003
3,000 Bank of America Auto Trust(c) 5.73 1/20/2013 3,178
4,405 Bank One Issuance Trust(e) 4.77 2/16/2016 4,556
2,000 Bank One Issuance Trust 1.03(b) 2/15/2017 1,902
2,000 Cabela's Credit Card Master Note Trust(c) 5.26 10/15/2014 2,111
736 Capital One Auto Finance Trust 5.03 4/15/2012 743
1,206 Capital One Auto Finance Trust 5.13 4/16/2012 1,229
817 Capital One Auto Finance Trust (INS) 4.71 6/15/2012 821
861 Capital One Auto Finance Trust 0.26(b) 5/15/2013 851
3,000 Capital One Multi-Asset Execution Trust 6.00 8/15/2013 3,087
2,000 Caterpillar Financial Asset Trust 4.94 4/25/2014 2,044
2,670 CenterPoint Energy Transition Bond Co., LLC 4.19 2/01/2020 2,847
1,000 Citibank Credit Card Issuance Trust 6.95 2/18/2014 1,078
4,000 Citibank Credit Card Issuance Trust 6.30 6/20/2014 4,278
1,000 Citibank Credit Card Issuance Trust 5.50 3/24/2017 1,022
1,000 Citibank Credit Card Issuance Trust 5.65 9/20/2019 1,108
5,000 CPS Auto Receivables Trust (INS) 6.48 7/15/2013 5,167
5,000 Credit Acceptance Auto Loan Trust(c) 5.68 5/15/2017 5,100
530 Detroit Edison Securitization Funding, LLC 6.19 3/01/2013 549
2,000 Ford Credit Auto Owner Trust 1.98(b) 4/15/2013 2,047
3,000 GE Capital Credit Card Master Note Trust 0.50(b) 3/15/2013 3,000
1,000 GE Capital Credit Card Master Note Trust 0.24(b) 6/15/2013 998
1,000 GE Capital Credit Card Master Note Trust 0.27(b) 3/15/2015 977
2,500 GE Dealer Floorplan Master Trust 0.24(b) 7/20/2012 2,493
1,130 GE Equipment Midticket, LLC 0.26(b) 10/15/2012 1,127
2,463 GE Equipment Midticket, LLC 0.38(b) 9/15/2017 2,350
333 Hertz Vehicle Financing, LLC(c) 5.01 2/25/2011 334
2,000 Hertz Vehicle Financing, LLC(c) 5.08 11/25/2011 2,041
2,000 Hertz Vehicle Financing, LLC(c) 5.08 11/25/2011 2,041
3,000 Hertz Vehicle Financing, LLC(c) 4.26 3/25/2014 3,080
1,854 HSBC Automotive Trust 4.94 11/19/2012 1,864
2,000 HSBC Private Label Credit Card Master Note Trust 0.25(b) 12/16/2013 2,000
4,475 Huntington Auto Trust(c) 4.81 4/16/2012 4,581
2,000 Hyundai Auto Receivables Trust 5.48 11/17/2014 2,144
2,000 MBNA Master Credit Card Note Trust 6.80 7/15/2014 2,141
3,000 Nissan Auto Receivables Owner Trust 5.05 11/17/2014 3,183
7,500 Rental Car Finance Corp.(c),(e) 0.37(b) 7/25/2013 6,728
5,289 SLM Student Loan Trust 0.61(b) 4/25/2025 4,585
6,045 SLM Student Loan Trust 0.63(b) 4/25/2025 4,971
================================================================================
32 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 1,479 SLM Student Loan Trust 0.45%(b) 10/27/2025 $ 1,202
1,847 SLM Student Loan Trust 0.80(b) 10/25/2038 1,606
173 Triad Auto Receivables Owners Trust 5.30 10/12/2011 174
2,220 Trinity Rail Leasing, LP (INS) 5.27 8/14/2027 2,107
4,785 Trinity Rail Leasing, LP(c) 5.90 5/14/2036 4,402
1,162 USXL Funding, LLC (INS)(c) 5.38 4/15/2014 1,162
3,000 Wachovia Auto Owner Trust 5.35 3/20/2014 3,192
----------
Total Financials 128,055
----------
Total Asset-Backed Securities (cost: $119,205) 128,055
----------
COMMERCIAL MORTGAGE SECURITIES (18.2%)
FINANCIALS (18.2%)
------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (17.6%)
2,000 Banc of America Commercial Mortgage, Inc. 6.21 1/10/2018 1,197
2,000 Banc of America Commercial Mortgage, Inc. 6.33 5/11/2035 2,037
2,000 Banc of America Commercial Mortgage, Inc. 6.97 4/15/2036 2,052
870 Banc of America Commercial Mortgage, Inc. 6.56 4/11/2037 741
3,000 Banc of America Commercial Mortgage, Inc. 4.56 11/10/2041 3,021
2,000 Banc of America Commercial Mortgage, Inc. 4.50 7/10/2042 2,030
1,000 Banc of America Commercial Mortgage, Inc. 5.10 11/10/2042 780
1,000 Banc of America Commercial Mortgage, Inc. 5.10 11/10/2042 582
5,400 Banc of America Commercial Mortgage, Inc. 4.51 12/10/2042 5,518
2,000 Banc of America Commercial Mortgage, Inc. 4.77 7/10/2043 1,492
4,000 Banc of America Commercial Mortgage, Inc.(e) 5.72 5/10/2045 4,156
7,523 Banc of America Commercial Mortgage, Inc. 5.18 10/10/2045 6,874
2,000 Banc of America Commercial Mortgage, Inc. 5.18 9/10/2047 1,808
959 Banc of America Commercial Mortgage, Inc.(c) 5.32 9/10/2047 749
3,357 Banc of America Commercial Mortgage, Inc.(c) 5.46 9/10/2047 2,684
1,000 BCRR Trust(c) 5.86 7/17/2040 650
1,500 Bear Stearns Commercial Mortgage Securities, Inc.(c) 6.00 6/16/2030 1,122
3,000 Bear Stearns Commercial Mortgage Securities, Inc. 5.46 4/12/2038 3,192
796 Bear Stearns Commercial Mortgage Securities, Inc. 4.00 3/13/2040 805
2,221 Bear Stearns Commercial Mortgage Securities, Inc. 4.95 2/11/2041 2,298
2,000 Bear Stearns Commercial Mortgage Securities, Inc. 5.53 10/12/2041 2,121
2,000 Bear Stearns Commercial Mortgage Securities, Inc. 4.82 2/13/2042 2,084
4,000 Chase Commercial Mortgage Securities Corp.(e) 7.73 1/15/2032 4,002
1,000 Citigroup Commercial Mortgage Trust 5.22 7/15/2044 506
2,000 Citigroup Commercial Mortgage Trust(c) 4.83 9/20/2051 1,679
1,000 Commercial Mortgage Asset Trust 7.64 11/17/2032 961
3,000 Commercial Mortgage Trust 4.58 10/15/2037 2,888
3,989 Commercial Mortgage Trust(c) 5.65 3/03/2041 2,927
================================================================================
PORTFOLIO OF INVESTMENTS | 33
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 3,000 Commercial Mortgage Trust 5.12% 6/10/2044 $ 2,940
2,500 Credit Suisse First Boston Mortgage Capital 5.55 2/15/2039 2,498
3,525 Credit Suisse First Boston Mortgage Securities Corp.(c) 6.65 12/18/2035 3,560
666 Credit Suisse First Boston Mortgage Securities Corp. 4.30 7/15/2036 668
2,000 Credit Suisse First Boston Mortgage Securities Corp. 4.92 4/15/2037 1,560
3,000 Credit Suisse First Boston Mortgage Securities Corp. 5.10 8/15/2038 3,013
1,300 Credit Suisse First Boston Mortgage Securities Corp. 5.10 8/15/2038 1,192
1,000 Credit Suisse First Boston Mortgage Securities Corp. 4.82 10/15/2039 529
167 Credit Suisse First Boston Mortgage Securities Corp. 7.17 5/17/2040 169
4,000 Credit Suisse First Boston Mortgage Securities Corp. 5.21 12/15/2040 4,046
2,000 Credit Suisse First Boston Mortgage Securities Corp. 5.23 12/15/2040 907
1,665 Deutsche Mortgage & Asset Receiving Corp. 7.50 6/15/2031 1,772
63 Diversified REIT(c) 6.97 3/08/2010 63
465 G-Force, LLC(c) 4.39 8/22/2036 447
1,500 GE Capital Commercial Mortgage Corp.(c) 5.34 12/10/2037 1,414
2,200 GE Capital Commercial Mortgage Corp. 6.26 6/10/2038 2,249
1,000 GE Capital Commercial Mortgage Corp. 5.33 11/10/2045 499
1,200 GE Commercial Mortgage Corp. 5.33 11/10/2045 1,223
2,129 GE Commercial Mortgage Corp. 4.35 6/10/2048 2,159
558 GMAC Commercial Mortgage Securities, Inc. 6.98 5/15/2033 551
76 GMAC Commercial Mortgage Securities, Inc. 6.50 5/15/2035 77
2,000 GMAC Commercial Mortgage Securities, Inc. 6.50 5/15/2035 2,010
1,500 GMAC Commercial Mortgage Securities, Inc. 5.04 12/10/2041 511
2,829 GMAC Commercial Mortgage Securities, Inc. 4.81 5/10/2043 2,200
2,000 Greenwich Capital Commercial Funding Corp. 5.12 4/10/2037 2,023
2,000 Greenwich Capital Commercial Funding Corp. 5.44 3/10/2039 1,855
1,933 GS Mortgage Securities Corp. II(c) 6.04 8/15/2018 1,924
2,000 GS Mortgage Securities Corp. II 5.53 8/10/2038 1,329
5,000 J.P. Morgan Chase Commercial Mortgage Securities Corp.(e) 4.82 9/12/2037 5,050
4,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 4.99 9/12/2037 3,054
1,429 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.32 1/12/2043 1,229
2,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.49 4/15/2043 2,104
2,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.79 6/12/2043 2,094
5,000 J.P. Morgan Chase Commercial Mortgage Securities Corp.(e) 5.42 12/12/2043 5,103
3,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.18 12/15/2044 3,065
2,025 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.30 12/15/2044 1,563
================================================================================
34 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 4,000 J.P. Morgan Chase Commercial Mortgage Securities Corp.(e) 5.87% 4/15/2045 $ 4,126
1,000 J.P. Morgan Chase Commercial Mortgage Securities Corp. 5.37 5/15/2045 1,048
3,150 J.P. Morgan Chase Commercial Mortgage Securities Corp. 4.63 3/15/2046 3,157
1,000 LB-UBS Commercial Mortgage Trust(c) 6.83 7/14/2016 1,024
4,000 LB-UBS Commercial Mortgage Trust 4.58 8/15/2029 3,912
4,220 LB-UBS Commercial Mortgage Trust 4.51 12/15/2029 4,143
3,400 LB-UBS Commercial Mortgage Trust 5.47 11/15/2030 3,543
3,000 LB-UBS Commercial Mortgage Trust 5.64 3/15/2032 3,107
2,000 LB-UBS Commercial Mortgage Trust 5.22 4/15/2040 1,327
3,000 Machine One Trust(c),(e) 5.22 5/28/2040 2,711
2,000 Merrill Lynch Mortgage Trust 5.23 11/12/2037 1,463
2,000 Merrill Lynch Mortgage Trust 5.10 7/12/2038 1,344
2,000 Merrill Lynch Mortgage Trust 4.86 10/12/2041 1,934
2,285 Merrill Lynch Mortgage Trust 4.92 10/12/2041 1,794
4,000 Merrill Lynch Mortgage Trust 5.76 8/12/2043 4,069
2,000 Merrill Lynch Mortgage Trust 5.38 1/12/2044 1,075
2,000 Merrill Lynch Mortgage Trust(c) 6.27 2/12/2051 382
2,000 Merrill Lynch Mortgage Trust 6.27 2/12/2051 1,196
2,000 Merrill Lynch-Countrywide Commercial Mortgage Trust 5.92 6/12/2046 1,224
2,000 Merrill Lynch-Countrywide Commercial Mortgage Trust 5.38 7/12/2046 1,984
4,000 Morgan Stanley Capital I, Inc. 5.80 8/12/2041 4,332
4,600 Morgan Stanley Capital I, Inc. 5.69 7/12/2044 4,646
3,445 Morgan Stanley Capital I, Inc. 4.89 6/12/2047 3,434
2,000 Morgan Stanley Capital I, Inc. 4.77 7/15/2056 1,580
4,989 Morgan Stanley Dean Witter Capital I, Inc.(c),(e) 5.13 5/24/2043 4,645
2,000 Morgan Stanley Dean Witter Capital I, Inc. 4.54 7/15/2056 2,012
3,000 Mortgage Capital Funding, Inc. 7.08 6/18/2030 2,982
3,213 Prudential Securities Secured Financing Corp. 6.76 6/16/2031 3,249
1,000 SBA Commercial Mortgage-Backed Trust(c) 5.56 11/15/2036 1,037
1,478 Structured Asset Securities Corp. 7.15 10/12/2034 1,514
2,000 Timberstar Trust(c) 5.75 10/15/2036 1,822
7,782 Wachovia Bank Commercial Mortgage Trust 5.00 7/15/2041 7,858
2,000 Wachovia Bank Commercial Mortgage Trust 5.08 3/15/2042 2,004
2,000 Wachovia Bank Commercial Mortgage Trust 4.81 4/15/2042 2,082
1,860 Wachovia Bank Commercial Mortgage Trust 5.18 7/15/2042 1,662
5,000 Wachovia Bank Commercial Mortgage Trust 5.62 7/15/2045 5,105
5,000 Wachovia Bank Commercial Mortgage Trust(e) 5.50 10/15/2048 5,083
----------
227,216
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
ESCROWED BONDS (0.3%)
$ 1,000 GS Mortgage Securities Corp. II 6.62% 5/03/2018 $ 1,047
2,000 Hilton Hotels Pool Trust(c) 7.46 10/03/2015 2,079
----------
3,126
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.3%)
27,945 Credit Suisse First Boston Mortgage
Securities Corp., acquired 8/30/2004;
cost $1,209(c),(d) 0.95 1/15/2037 284
24,577 Credit Suisse First Boston Mortgage
Securities Corp., acquired 6/17/2003 &
12/05/2007; cost $1,168(c),(d) 1.69 5/15/2038 157
64,120 GS Mortgage Securities Corp. II, acquired
5/13/2004; cost $964(c),(d) 0.19 5/03/2018 200
35,852 J.P. Morgan Chase Commercial
Mortgage Securities Corp., acquired
8/05/2009; cost $466(c),(d) 0.70 1/12/2037 412
62,097 LB-UBS Commercial Mortgage Trust, acquired
8/05/2009; cost $944(c),(d) 1.05 3/15/2036 674
128,981 LB-UBS Commercial Mortgage Trust,
acquired 7/22/2009; cost $1,663(c),(d) 0.73 10/15/2036 1,572
6,398 LB-UBS Commercial Mortgage Trust,
acquired 7/16/2003; cost $323(c),(d) 0.57 4/15/2037 22
11,027 Morgan Stanley Capital I, Inc.,
acquired 1/23/2004; cost $600(c),(d) 0.87 9/13/2045 165
48,604 Morgan Stanley Capital I, Inc., acquired
8/05/2009; cost $720(c),(d) 0.40 6/12/2047 665
----------
4,151
----------
Total Financials 234,493
----------
Total Commercial Mortgage Securities (cost: $244,234) 234,493
----------
U.S. GOVERNMENT AGENCY ISSUES (5.3%)(j)
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
2,000 Freddie Mac(+) 4.50 1/15/2029 2,105
704 Freddie Mac(+) 6.00 2/15/2013 723
----------
2,828
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.0%)
3,171 Government National Mortgage Assn. 1.76 7/16/2010 39
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (5.1%)
6,919 Fannie Mae(+) 5.50 11/01/2037 7,340
3,998 Fannie Mae(+) 5.50 6/01/2038 4,241
7,894 Fannie Mae(+) 6.00 4/01/2037 8,457
================================================================================
36 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
$ 8,397 Fannie Mae(+) 6.00% 7/01/2037 $ 8,996
5,760 Fannie Mae(+) 6.00 11/01/2037 6,171
13,964 Fannie Mae(+) 6.00 11/01/2037 14,960
3,324 Fannie Mae(+) 6.00 11/01/2037 3,562
3,579 Fannie Mae(+) 6.00 7/01/2038 3,835
4,080 Fannie Mae(+) 6.00 8/01/2038 4,369
1,515 Freddie Mac(+) 5.00 9/01/2020 1,612
2,112 Freddie Mac(+) 5.50 4/01/2036 2,244
----------
65,787
----------
Total U.S. Government Agency Issues (cost: $64,554) 68,654
----------
MUNICIPAL BONDS (2.3%)
AIRPORT/PORT (0.4%)
2,000 College Park (INS) 5.76 1/01/2015 2,035
1,745 Metropolitan Nashville Airport Auth.(k) 5.14 7/01/2018 1,749
1,695 Riverside (INS) 5.19 8/01/2017 1,619
----------
5,403
----------
APPROPRIATED DEBT (0.2%)
1,500 Kentucky State Property and Buildings Commission 4.08 11/01/2015 1,533
1,000 Reeves County (INS) 5.75 3/01/2012 999
----------
2,532
----------
CASINOS & GAMING (0.2%)
2,715 Seneca Nation of Indians Capital
Improvements Auth.(e) 6.75 12/01/2013 2,569
----------
EDUCATION (0.2%)
1,680 California State Univ. (INS) 5.27 11/01/2017 1,708
1,000 Univ. of Oklahoma 5.25 11/01/2019 1,033
----------
2,741
----------
ELECTRIC UTILITIES (0.2%)
2,000 American Municipal Power, Inc. 3.82 2/15/2014 2,042
----------
ELECTRIC/GAS UTILITIES (0.1%)
1,000 North Carolina Eastern Municipal Power Agency 5.23 1/01/2011 1,035
----------
GENERAL OBLIGATION (0.1%)
1,000 Riverside (INS) 4.21 2/15/2011 1,026
----------
HOSPITAL (0.1%)
1,000 Medical Univ. (INS) 5.01 2/15/2015 1,005
----------
MULTIFAMILY HOUSING (0.1%)
1,080 American Eagle Northwest, LLC 4.97 12/15/2018 1,080
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
NURSING/CCRC (0.1%)
$ 2,000 Statewide Communities Dev. Auth. (INS) 5.59% 2/01/2015 $ 1,887
----------
SPECIAL ASSESSMENT/TAX/FEE (0.5%)
1,565 Erie County Tobacco Asset Securitization Corp. 6.00 6/01/2028 1,205
2,000 Florida State Department of Environmental Protection 5.76 7/01/2020 2,073
1,000 New York State Housing Finance Agency 5.19 9/15/2011 1,073
2,000 New York State Urban Dev. Corp. (INS) 4.38 12/15/2011 2,134
----------
6,485
----------
WATER/SEWER UTILITY (0.1%)
1,885 Escondido Joint Powers Financing Auth. (INS) 5.53 9/01/2018 1,866
----------
Total Municipal Bonds (cost: $29,855) 29,671
----------
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
$(000)/Shares
-----------------------------------------------------------------------------------------------------------------------------------
PREFERRED SECURITIES (1.3%)
CONSUMER STAPLES (0.6%)
-----------------------
AGRICULTURAL PRODUCTS (0.6%)
105,000 Dairy Farmers of America, Inc., 7.88%,
cumulative redeemable, perpetual(c) 8,279
----------
FINANCIALS (0.5%)
-----------------
DIVERSIFIED BANKS (0.1%)
50,000 HSBC Holdings, 6.20%, perpetual* 1,100
----------
LIFE & HEALTH INSURANCE (0.1%)
100,000 Delphi Financial Group, Inc., 7.38%, perpetual 1,842
----------
REINSURANCE (0.1%)
2,000 Ram Holdings Ltd., 7.50%, non-cumulative, perpetual* 144
$2,000 Swiss Re Capital I LP, 6.85%, perpetual(c) 1,721
----------
1,865
----------
REITs - INDUSTRIAL (0.1%)
30,000 AMB Property Corp., Series C, 7.00%, cumulative redeemable, perpetual 681
----------
REITs - SPECIALIZED (0.1%)
40,000 Public Storage, Inc., 7.00%, perpetual 969
----------
Total Financials 6,457
----------
================================================================================
38 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-----------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT (0.0%)
-----------------
U.S. GOVERNMENT (0.0%)
80,000 Fannie Mae, 8.25%, perpetual* $ 91
80,000 Freddie Mac, 8.38%, perpetual* 86
----------
Total Government 177
----------
TELECOMMUNICATION SERVICES (0.2%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
2,000 Centaur Funding Corp., 9.08%(c) 2,082
----------
Total Preferred Securities (cost: $24,004) 16,995
----------
-----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (0.7%)
VARIABLE-RATE DEMAND NOTES (0.4%)
CONSUMER DISCRETIONARY (0.4%)
-----------------------------
EDUCATION SERVICES (0.4%)
$5,155 Glendale IDA (LOC - Bank of New York Mellon) 0.15% 7/01/2035 5,155
----------
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.3%)
3,282,921 State Street Institutional Liquid Reserve Fund, 0.13%(l) 3,283
----------
Total Money Market Instruments (cost: $8,438) 8,438
----------
TOTAL INVESTMENTS (COST: $1,246,254) $1,276,846
==========
================================================================================
PORTFOLIO OF INVESTMENTS | 39
<PAGE>
================================================================================
------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
------------------------------------------------------------------------------------------------
Corporate Obligations $ - $ 701,621 $- $ 701,621
Eurodollar and Yankee Obligations - 88,919 - 88,919
Asset-Backed Securities - 128,055 - 128,055
Commercial Mortgage Securities - 234,493 - 234,493
U.S. Government Agency Issues - 68,654 - 68,654
Municipal Bonds - 29,671 - 29,671
Equity Securities:
Preferred Securities 86 16,909 - 16,995
Money Market Instruments:
Variable-Rate Demand Notes - 5,155 - 5,155
Money Market Funds 3,283 - - 3,283
------------------------------------------------------------------------------------------------
Total $3,369 $1,273,477 $- $1,276,846
------------------------------------------------------------------------------------------------
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS ASSET-BACKED SECURITIES
------------------------------------------------------------------------------------------------
Balance as of July 31, 2009 $ 1,555,000 $ 4,566,000
Net realized gain (loss) - -
Change in net unrealized
appreciation/depreciation 1,601,000 1,009,000
Net purchases (sales) 48,000 (86,000)
Transfers in and/or out of Level 3 (3,204,000) (5,489,000)
------------------------------------------------------------------------------------------------
Balance as of January 31, 2010 $ - $ -
------------------------------------------------------------------------------------------------
================================================================================
40 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net
assets. Investments in foreign securities were 6.8% of net assets at
January 31, 2010.
o CATEGORIES AND DEFINITIONS
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES -- Asset-backed
securities represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. The weighted average life is
likely to be substantially shorter than the stated final maturity as a
result of scheduled and unscheduled principal repayments. Rates on
commercial mortgage-backed securities may change slightly over time as
underlying mortgages pay down.
EURODOLLAR AND YANKEE OBLIGATIONS -- Eurodollar obligations are
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee
obligations are dollar-denominated instruments that are issued by foreign
issuers in the U.S. capital markets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 41
<PAGE>
================================================================================
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) -- represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from
period to period. The principal amount represents the notional amount of
the underlying pool on which current interest is calculated. CMBS IOs are
backed by loans that have various forms of prepayment protection, which
include lock-out provisions, yield maintenance provisions, and prepayment
penalties. This serves to moderate their prepayment risk. CMBS IOs are
subject to default-related prepayments that may have a negative impact on
yield.
VARIABLE-RATE DEMAND NOTES (VRDNs) -- provide the right to sell the
security at face value on either that day or within the rate-reset period.
The interest rate is adjusted at a stipulated daily, weekly, monthly,
quarterly, or other specified time interval to reflect current market
conditions. VRDNs will normally trade as if the maturity is the earlier put
date, even though stated maturity is longer.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
IDA Industrial Development Authority/Agency
REIT Real estate investment trust
CREDIT ENHANCEMENTS -- add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a
high-quality bank, insurance company or other corporation, or a collateral
trust. The enhancements do not guarantee the market values of the
securities.
(INS) Principal and interest payments are insured by one of the
following: ACA Financial Guaranty Corp., AMBAC Assurance Corp.,
Assured Guaranty Ltd., Assured Guaranty Municipal Corp., Financial
Guaranty Insurance Co., National Public
================================================================================
42 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
Finance Guarantee Corp., Radian Asset Assurance, Inc., or XL
Capital Assurance. Although bond insurance reduces the risk of
loss due to default by an issuer, such bonds remain subject to the
risk that value may fluctuate for other reasons, and there is no
assurance that the insurance company will meet its obligations.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
o SPECIFIC NOTES
(a) Senior loan (loan) -- is not registered under the Securities Act of
1933. The loan contains certain restrictions on resale and cannot be
sold publicly. The interest rate is adjusted periodically, and the rate
disclosed represents the current rate at January 31, 2010. The weighted
average life of the loan is likely to be substantially shorter than the
stated final maturity date due to mandatory or optional prepayments.
Security deemed liquid by USAA Investment Management Company (the
Manager), under liquidity guidelines approved by the Board of Trustees,
unless otherwise noted as illiquid.
(b) Variable-rate or floating-rate security -- interest rate is adjusted
periodically. The interest rate disclosed represents the current rate at
January 31, 2010.
(c) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by the Manager under liquidity
guidelines approved by the Board of Trustees, unless otherwise noted as
illiquid.
(d) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board of Trustees. The aggregate market value of these
securities at January 31, 2010, was $4,706,000, which represented 0.4%
of the Fund's net assets.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 43
<PAGE>
================================================================================
(e) At January 31, 2010, portions of these securities were segregated to
cover delayed-delivery and/or when-issued purchases.
(f) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(g) Currently the issuer is in default with respect to interest and/or
principal payments.
(h) Security was fair valued at January 31, 2010, by the Manager in
accordance with valuation procedures approved by the Board of
Trustees.
(i) Security is currently trading without accrued interest.
(j) U.S. government agency issues -- mortgage-backed securities issued by
Government National Mortgage Association (GNMA) and certain other U.S.
government guaranteed securities are supported by the full faith and
credit of the U.S. government. Securities issued by government-sponsored
enterprises, indicated with "+", are supported only by the right of the
government-sponsored enterprise to borrow from the U.S. Treasury, the
discretionary authority of the U.S. government to purchase the
government-sponsored enterprises' obligations, or by the credit of the
issuing agency, instrumentality, or corporation, and are neither issued
nor guaranteed by the U.S. Treasury.
(k) At January 31, 2010, the aggregate market value of securities purchased
on a when-issued basis was $1,749,000.
(l) Rate represents the money market fund annualized seven-day yield at
January 31, 2010.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
44 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,246,254) $1,276,846
Cash 783
Receivables:
Capital shares sold:
Affiliated transactions (Note 7) 99
Nonaffiliated transactions 2,343
USAA Investment Management Company (Note 6C) 176
Dividends and interest 15,665
----------
Total assets 1,295,912
----------
LIABILITIES
Payables:
Securities purchased 3,415
Capital shares redeemed:
Affiliated transactions (Note 7) 2
Nonaffiliated transactions 811
Dividends on capital shares 326
Accrued management fees 364
Accrued transfer agent's fees 57
Other accrued expenses and payables 109
----------
Total liabilities 5,084
----------
Net assets applicable to capital shares outstanding $1,290,828
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,289,306
Accumulated net realized loss on investments (29,070)
Net unrealized appreciation of investments 30,592
----------
Net assets applicable to capital shares outstanding $1,290,828
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,205,014/122,467 shares outstanding) $ 9.84
==========
Institutional Shares (net assets of $85,814/8,722 shares outstanding) $ 9.84
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 45
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 547
Interest 38,461
--------
Total income 39,008
--------
EXPENSES
Management fees 1,707
Administration and servicing fees:
Fund Shares 810
Institutional Shares 18
Transfer agent's fees:
Fund Shares 1,005
Institutional Shares 18
Custody and accounting fees:
Fund Shares 111
Institutional Shares 9
Postage:
Fund Shares 36
Shareholder reporting fees:
Fund Shares 22
Trustees' fees 5
Registration fees:
Fund Shares 38
Professional fees 59
Other 13
--------
Total expenses 3,851
Expenses reimbursed:
Fund Shares (176)
--------
Net expenses 3,675
--------
NET INVESTMENT INCOME 35,333
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Unaffiliated transactions (8,591)
Affiliated transactions (Note 8) 50
Change in net unrealized appreciation/depreciation 116,502
--------
Net realized and unrealized gain 107,961
--------
Increase in net assets resulting from operations $143,294
========
See accompanying notes to financial statements.
================================================================================
46 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2010 (unaudited), and year ended
July 31, 2009
--------------------------------------------------------------------------------
1/31/2010 7/31/2009
---------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 35,333 $ 60,759
Net realized loss on investments (8,541) (15,024)
Change in net unrealized appreciation/depreciation of
investments 116,502 (22,139)
-----------------------
Increase in net assets resulting from operations 143,294 23,596
-----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (33,070) (59,269)
Institutional Shares* (2,263) (1,490)
-----------------------
Distributions to shareholders (35,333) (60,759)
-----------------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS (NOTE 5)
Fund Shares 152,026 25,281
Institutional Shares* 32,405 44,009
-----------------------
Total net increase in net assets from capital
share transactions 184,431 69,290
-----------------------
Capital contribution from USAA Transfer
Agency Company:
Fund Shares - 1
-----------------------
Net increase in net assets 292,392 32,128
NET ASSETS
Beginning of period 998,436 966,308
-----------------------
End of period $1,290,828 $998,436
=======================
* Institutional Shares were initiated on August 1, 2008.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 47
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940 (the 1940 Act), as amended, is an open-end management investment company
organized as a Delaware statutory trust consisting of 46 separate funds. The
information presented in this semiannual report pertains only to the USAA
Intermediate-Term Bond Fund (the Fund), which is classified as diversified under
the 1940 Act. The Fund's investment objective is high current income without
undue risk to principal.
The Fund has two classes of shares: Intermediate-Term Bond Fund Shares (Fund
Shares) and Intermediate-Term Bond Fund Institutional Shares (Institutional
Shares). Each class of shares has equal rights to assets and earnings, except
that each class bears certain class-related expenses specific to the particular
class. These expenses include administration and servicing fees, transfer agent
fees, postage, shareholder reporting fees, and certain registration and
custodian fees. Expenses not attributable to a specific class, income, and
realized gains or losses on investments are allocated to each class of shares
based on each class's relative net assets. Each class has exclusive voting
rights on matters related solely to that class and separate voting rights on
matters that relate to both classes. The Institutional Shares are currently
offered for sale only to the USAA Target Retirement Funds (Target Funds) and not
to the general public. The Target Funds are managed by USAA Investment
Management Company (the Manager), an affiliate of the Fund.
================================================================================
48 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
A. SECURITY VALUATION -- The value of each security is determined (as of the
close of trading on the New York Stock Exchange (NYSE) on each business day
the NYSE is open) as set forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Trust's
Board of Trustees. The Service uses an evaluated mean between quoted
bid and asked prices or the last sales price to price securities when,
in the Service's judgment, these prices are readily available and are
representative of the securities' market values. For many securities,
such prices are not readily available. The Service generally prices
these securities based on methods that include consideration of yields
or prices of securities of comparable quality, coupon, maturity, and
type; indications as to values from dealers in securities; and general
market conditions.
2. Equity securities, including exchange-traded funds (ETFs), except
as otherwise noted, traded primarily on a domestic securities
exchange or the Nasdaq over-the-counter markets are valued at
the last sales price or official closing price on the exchange or
primary market on which they trade. Equity securities traded
primarily on foreign securities exchanges or markets are valued
at the last quoted sales price, or the most recently determined
official closing price calculated according to local market convention,
available at the time the Fund is valued. If no last sale or official
closing price is reported or available, the average of the bid and
asked prices generally is used.
3. Investments in open-end investment companies, hedge, or other
funds, other than ETFs, are valued at their net asset value (NAV)
at the end of each business day.
4. Debt securities purchased with original or remaining maturities
of 60 days or less may be valued at amortized cost, which
approximates market value.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
<PAGE>
================================================================================
5. Futures are valued based upon the last sale price at the close of market
on the principal exchange on which they are traded.
6. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before
the pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager under valuation procedures approved
by the Trust's Board of Trustees. The effect of fair value pricing is
that securities may not be priced on the basis of quotations from the
primary market in which they are traded and the actual price realized
from the sale of a security may differ materially from the fair value
price. Valuing these securities at fair value is intended to cause the
Fund's NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of 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.
================================================================================
50 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its income to its shareholders.
Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on the identified cost
basis. Dividend income is recorded on the ex-dividend date; interest income
is recorded daily on the accrual basis. Discounts and premiums on
securities are amortized over the life of the respective securities, using
the effective yield method for long-term securities and the straight-line
method for short-term securities.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -- Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
<PAGE>
================================================================================
The purchase of securities on a delayed-delivery or when-issued basis may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases while remaining substantially fully invested. As of January
31, 2010, the Fund's outstanding delayed-delivery commitments, including
interest purchased, were $1,745,000; all of which were when-issued
securities.
F. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts
may be used to directly reduce the Fund's expenses. For the six-month
period ended January 31, 2010, these custodian and other bank credits
reduced the Fund's expenses by less than $500.
G. INDEMNIFICATIONS -- Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
H. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet
================================================================================
52 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
temporary or emergency cash needs, including redemption requests that might
otherwise require the untimely disposition of securities. Subject to
availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's
total assets at a rate per annum equal to the rate at which CAPCO obtains
funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.13% annually of the amount of the committed loan
agreement). Prior to September 25, 2009, the maximum annual facility fee was
0.07% of the amount of the committed loan agreement. The facility fees are
allocated among the funds based on their respective average net assets for the
period.
For the six-month period ended January 31, 2010, the Fund paid CAPCO facility
fees of $3,000, which represents 2.7% of the total fees paid to CAPCO by the
USAA funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2010.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 2010,
in accordance with applicable tax law.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes. At July 31, 2009,
the Fund had capital loss carryovers of $7,843,000, for federal income tax
purposes, which, if not offset by subsequent capital gains, will expire between
2010 and 2017, as shown below. It is unlikely that the Trust's Board of Trustees
will authorize a
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
<PAGE>
================================================================================
distribution of capital gains realized in the future until the capital loss
carryovers have been used or expire.
CAPITAL LOSS CARRYOVERS
--------------------------------------
EXPIRES BALANCE
--------- ----------
2010 $5,465,000
2014 40,000
2017 2,338,000
----------
Total $7,843,000
==========
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties would be recognized by
the Fund as tax expense in the statement of operations if the tax positions were
deemed to not meet the more-likely-than-not threshold. For the six-month period
ended January 31, 2010, the Fund did not incur any income tax, interest, or
penalties. As of January 31, 2010, the Manager has reviewed all open tax years
and concluded that there was no impact to the Fund's net assets or results of
operations. Tax years ended July 31, 2006, through July 31, 2009, remain subject
to examination by the Internal Revenue Service and state taxing authorities. On
an ongoing basis, the Manager will monitor its tax positions to determine if
adjustments to this conclusion are necessary.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2010, were
$305,960,000 and $116,108,000, respectively.
As of January 31, 2010, the cost of securities, including short-term securities,
for federal income tax purposes, was approximately the same as that reported in
the financial statements.
================================================================================
54 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
Gross unrealized appreciation and depreciation of investments as of January 31,
2010, were $79,213,000 and $48,621,000, respectively, resulting in net
unrealized appreciation of $30,592,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2010, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated Target Funds. Capital share transactions were as
follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
1/31/2010 7/31/2009
--------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------
FUND SHARES:
Shares sold 27,184 $ 257,473 32,635 $ 272,693
Shares issued from reinvested
dividends 3,230 30,785 6,503 53,915
Shares redeemed (14,464) (136,232) (36,320) (301,327)
------------------------------------------
Net increase from capital
share transactions 15,950 $ 152,026 2,818 $ 25,281
==========================================
INSTITUTIONAL SHARES
(INITIATED ON AUGUST 1, 2008):
Shares sold 4,457 $ 42,070 5,836 $ 48,822
Shares issued from reinvested
dividends 237 2,265 179 1,490
Shares redeemed (1,221) (11,930) (766) (6,303)
------------------------------------------
Net increase from capital
share transactions 3,473 $ 32,405 5,249 $ 44,009
==========================================
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager carries out the Fund's investment policies
and manages the Fund's portfolio pursuant to an Advisory Agreement. The
investment management fee for the Fund is composed
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
<PAGE>
================================================================================
of a base fee and a performance adjustment. The base fee, which is accrued
daily and paid monthly, is computed as a percentage of the Fund's average
net assets at annualized rates of 0.50% of the first $50 million of average
net assets, 0.40% of that portion of average net assets over $50 million
but not over $100 million, and 0.30% of that portion of average net assets
over $100 million. For the six-month period ended January 31, 2010, the
Fund's effective annualized base fee was 0.31% of the Fund's average net
assets for the same period.
The performance adjustment is calculated separately for each share class
on a monthly basis by comparing each class's performance to that of the
Lipper Intermediate Investment Grade Funds Index over the performance
period. The Lipper Intermediate Investment Grade Funds Index tracks the
total return performance of the 30 largest funds in the Lipper Intermediate
Investment Grade Debt Funds category. The performance period for each class
consists of the current month plus the previous 35 months. The performance
adjustment for the Institutional Shares includes the performance of the
Fund Shares for periods prior to August 1, 2008. The following table is
utilized to determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
----------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest 0.01%. Average net assets
are calculated over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the
average net assets of each respective class over the entire performance
period, which is then multiplied by a fraction, the numerator of which is
the number of days in the month and the denominator of which is 365 (366 in
leap years). The resulting amount
================================================================================
56 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
is the performance adjustment; a positive adjustment in the case of
overperformance, or a negative adjustment in the case of underperformance.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Intermediate Investment Grade Funds Index over that
period, even if the class had overall negative returns during the
performance period.
For the six-month period ended January 31, 2010, the Fund incurred total
management fees, paid or payable to the Manager, of $1,707,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $(96,000) and $(1,000), respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were (0.02)% and less than
(0.01)%, respectively.
B. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid monthly at an
annualized rate of 0.15% and 0.05% of average net assets of the Fund Shares
and Institutional Shares, respectively. For the six-month period ended
January 31, 2010, the Fund Shares and Institutional Shares incurred
administration and servicing fees, paid or payable to the Manager, of
$810,000 and $18,000, respectively.
In addition to the services provided under its Administration and Servicing
Agreement with the Fund, the Manager also provides certain compliance and
legal services for the benefit of the Fund. The Trust's Board of Trustees
has approved the reimbursement of a portion of these expenses incurred by
the Manager. For the six-month period ended January 31, 2010, the Fund
reimbursed the Manager $26,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's
statement of operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
<PAGE>
================================================================================
C. EXPENSE LIMITATION -- The Manager has agreed, through December 1, 2010, to
limit the annual expenses of the Fund Shares and the Institutional shares
to 0.65% and 0.46%, respectively, of their average annual net assets,
excluding extraordinary expenses and before reductions of any expenses paid
indirectly, and will reimburse the Fund Shares and Institutional Shares for
all expenses in excess of those amounts. This expense limitation
arrangement may not be changed or terminated through December 1, 2010,
without approval of the Trust's Board of Trustees, and may be changed or
terminated by the Manager at any time after that date. For the six-month
period ended January 31, 2010, the Fund incurred reimbursable expenses from
the Manager for the Fund Shares of $176,000, all of which was receivable
from the Manager.
D. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. Transfer agent's fees for Fund Shares
are paid monthly based on an annual charge of $25.50 per shareholder
account plus out-of-pocket expenses. The Fund Shares also pay SAS fees that
are related to the administration and servicing of accounts that are traded
on an omnibus basis. Transfer agent's fees for Institutional Shares are
paid monthly based on a fee accrued daily at an annualized rate of 0.05% of
the Institutional Shares' average net assets, plus out-of-pocket expenses.
For the six-month period ended January 31, 2010, the Fund Shares and
Institutional Shares incurred transfer agent's fees, paid or payable to
SAS, of $1,005,000 and $18,000, respectively.
E. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
(7) TRANSACTIONS WITH AFFILIATES
The Fund is one of 13 USAA mutual funds in which the affiliated Target Funds may
invest. The Target Funds do not invest in the Fund for the purpose of exercising
management or control. As of January 31, 2010, the Fund recorded a receivable
for capital shares sold of $99,000 and a
================================================================================
58 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
payable for capital shares redeemed of $2,000 for the Target Funds' purchases
and redemptions of Institutional Shares. As of January 31, 2010, the Target
Funds owned the following percent of the total outstanding shares of the Fund:
OWNERSHIP %
--------------------------------------------------------------------------------
USAA Target Retirement Income Fund 1.9%
USAA Target Retirement 2020 Fund 2.3
USAA Target Retirement 2030 Fund 2.4
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2010, in accordance with
affiliated transaction procedures approved by the Trust's Board of Trustees,
purchases and sales of security transactions were executed between the Fund and
the following affiliated USAA fund at the then-current market price with no
brokerage commissions incurred.
NET
COST TO REALIZED GAIN
SELLER PURCHASER PURCHASER (LOSS) TO SELLER
-----------------------------------------------------------------------------------
USAA Intermediate-Term USAA Short-Term
Bond Fund Bond Fund $2,050,000 $ 50,000
USAA Cornerstone USAA Intermediate-Term
Strategy Fund Bond Fund 1,595,000 (455,000)
(9) SUBSEQUENT EVENTS
Events or transactions that occur after the balance sheet date but before the
financial statements are issued are categorized as recognized or non-recognized
for financial statement purposes. The Manager has evaluated subsequent events
through the date the financial statements were issued, and has determined there
were no events that required recognition or disclosure in the Fund's financial
statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
<PAGE>
================================================================================
(10) NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board issued amended
guidance for improving disclosure about fair value measurements that adds new
disclosure requirements about transfers into and out of Levels 1 and 2 and
separate disclosures about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements using significant unobservable inputs
(Level 3). It also clarifies existing disclosure requirements relating to the
levels of disaggregation for fair value measurement and inputs and valuation
techniques used to measure fair value. The amended guidance is effective for
financial statements for fiscal years and interim periods beginning after
December 15, 2009, except for disclosures about purchases, sales, issuances and
settlements in the rollforward of activity in Level 3 fair value measurements,
which are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The Manager is in the process of
evaluating the impact of this guidance on the Fund's financial statement
disclosures.
================================================================================
60 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
(11) FINANCIAL HIGHLIGHTS -- FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
--------------------------------------------------------------------------
2010 2009 2008 2007 2006 2005
--------------------------------------------------------------------------
Net asset value at beginning of period $ 8.93 $ 9.32 $ 9.85 $ 9.81 $ 10.13 $ 10.14
--------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .29 .58 .53 .50 .48 .47
Net realized and unrealized gain (loss) .91 (.39) (.53) .04(a) (.32) (.01)
--------------------------------------------------------------------------
Total from investment operations 1.20 .19 .00(b) .54 .16 .46
--------------------------------------------------------------------------
Less distributions from:
Net investment income (.29) (.58) (.53) (.50) (.48) (.47)
--------------------------------------------------------------------------
Net asset value at end of period $ 9.84 $ 8.93 $ 9.32 $ 9.85 $ 9.81 $ 10.13
==========================================================================
Total return (%)* 13.61 2.71 (.08) 5.56 1.62 4.60
Net assets at end of period (000) $1,205,014 $951,548 $966,308 $702,923 $433,902 $359,073
Ratios to average net assets:**
Expenses (%)(c) .65(d) .65 .65 .65 .65 .65
Expenses, excluding reimbursements (%)(c) .68(d) .70 .69 .74 .79 .74
Net investment income (%) 6.11(d) 6.93 5.48 5.06 4.69 4.47
Portfolio turnover (%) 10 49(e) 21 28 30 42
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return.
** For the six-month period ended January 31, 2010, average net assets were
$1,072,994,000.
(a) Reflected a net realized and unrealized gain per share, whereas the
statement of operations reflected a net realized and unrealized loss for
the period. The difference in realized and unrealized gains and losses is
due to the timing of sales and repurchases of shares in relation to
fluctuating market values for the portfolio.
(b) Represents less than $0.01 per share.
(c) Reflects total operating expenses of the Fund Shares before reductions of
any expenses paid indirectly. The Fund Shares' expenses paid indirectly
decreased the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(e) Reflects increased trading activity due to market volatility.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
<PAGE>
================================================================================
(11) FINANCIAL HIGHLIGHTS (CONTINUED) -- INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JANUARY 31, JULY 31,
2010 2009***
--------------------------------
Net asset value at beginning of period $ 8.93 $ 9.32
----------------------------
Income (loss) from investment operations:
Net investment income .30 .59
Net realized and unrealized gain (loss) .91 (.39)
----------------------------
Total from investment operations 1.21 .20
----------------------------
Less distributions from:
Net investment income (.30) (.59)
----------------------------
Net asset value at end of period $ 9.84 $ 8.93
============================
Total return (%)* 13.72 2.86
Net assets at end of period (000) $85,814 $46,888
Ratios to average net assets:**(a)
Expenses (%)(b) .46 .46
Net investment income (%) 6.28 7.28
Portfolio turnover (%) 10 49
* Assumes reinvestment of all net investment income and realized capital
gain distributions, if any, during the period. Includes adjustments in
accordance with U.S. generally accepted accounting principles and could
differ from the Lipper reported return.
** For the six-month period ended January 31, 2010, average net assets were
$71,552,000.
*** Institutional Shares were initiated on August 1, 2008.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Reflects total operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
================================================================================
62 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
EXPENSE EXAMPLE
January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire six-month period of August 1, 2009, through
January 31, 2010.
ACTUAL EXPENSES
The first line of the table on the next page provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class and an assumed rate of return of
5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be
================================================================================
EXPENSE EXAMPLE | 63
<PAGE>
================================================================================
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 Fund and other funds. To do so, compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the second line of the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE AUGUST 1, 2009 -
AUGUST 1, 2009 JANUARY 31, 2010 JANUARY 31, 2010
------------------------------------------------------
FUND SHARES
Actual $1,000.00 $1,136.10 $3.50
Hypothetical
(5% return before expenses) 1,000.00 1,021.93 3.31
INSTITUTIONAL SHARES
Actual 1,000.00 1,137.20 2.48
Hypothetical
(5% return before expenses) 1,000.00 1,022.89 2.35
* Expenses are equal to the annualized expense ratio of 0.65% for Fund Shares
and 0.46% for Institutional Shares, which are net of any reimbursements and
expenses paid indirectly, multiplied by the average account value over the
period, multiplied by 184 days/365 days (to reflect the one-half-year period).
The Fund's actual ending account values are based on its actual total returns
of 13.61% for Fund Shares and 13.72% for Institutional Shares for the
six-month period of August 1, 2009, through January 31, 2010.
================================================================================
64 | USAA INTERMEDIATE-TERM BOND FUND
<PAGE>
================================================================================
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "Products & Services"
SELF-SERVICE 24/7 click "Investments," then
AT USAA.COM "Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA "Investments." View account balances,
(8722) or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
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 website 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)
============================================================================
40049-0310 (C)2010, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NOT APPLICABLE. This item must be disclosed only in annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR/S was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considered by the Funds' Board in approving the Funds' advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports.
(a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit
99.CERT.
(a)(3). Not Applicable.
(b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit
99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: USAA MUTUAL FUNDS TRUST, Period Ended January 31, 2010
By:* /S/ CHRISTOPHER P. LAIA
-----------------------------------------------------------
Signature and Title: Christopher P. Laia, Assistant Secretary
Date: March 31, 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: April 1, 2010
------------------------------
By:* /S/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: March 31, 2010
------------------------------
*Print the name and title of each signing officer under his or her signature.
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