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 HIGH-YIELD OPPORTUNITIES FUND - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2010
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA HIGH-YIELD OPPORTUNITIES FUND]
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SEMIANNUAL REPORT
USAA HIGH-YIELD OPPORTUNITIES FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2010
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FUND OBJECTIVE
PROVIDE AN ATTRACTIVE TOTAL RETURN PRIMARILY THROUGH HIGH CURRENT INCOME AND
SECONDARILY THROUGH CAPITAL APPRECIATION.
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TYPES OF INVESTMENTS
Normally invest at least 80% of the Fund's assets in high-yield securities,
including bonds (often referred to as "junk bonds"), convertible securities, or
preferred stocks. The fund may also invest in dollar-denominated foreign
securities and, to a limited extent, in non-dollar-denominated foreign
securities.
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
FUND RECOGNITION 8
INVESTMENT OVERVIEW 10
FINANCIAL INFORMATION
Portfolio of Investments 16
Notes to Portfolio of Investments 41
Financial Statements 46
Notes to Financial Statements 49
EXPENSE EXAMPLE 66
THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE
RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY
USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS
ABOUT THE FUND.
(C)2010, USAA. All rights reserved.
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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 HIGH-YIELD OPPORTUNITIES 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
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[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 HIGH-YIELD OPPORTUNITIES FUND (THE FUND SHARES) PERFORM
DURING THE SIX-MONTH REPORTING PERIOD?
The Fund Shares returned 18.46% for the six months ended January 31, 2010.
This compares to returns of 14.68% for the Lipper High Current Yield Bond
Funds Index and 15.75% for the Credit Suisse High Yield Index. Over the same
period, the Fund outperformed the S&P 500 Index, which returned 9.87%, and
the Citigroup 10-year U.S. Treasury Index, which returned 0.61%.
Since its August 2, 1999, inception, your Fund Shares have had an average
annual total return of 6.59%, compared to a 4.14%* average annual return for
the Lipper High Current Yield Bond Funds Index.
*Index performance data is from July 31, 1999, while the Fund Shares'
inception date is August 2, 1999. There might be a slight variation in the
performance numbers because of this difference.
The S&P 500 Index is an unmanaged index representing the weighted average
performance of a group of 500 widely held, publicly traded stocks. o The
unmanaged Citigroup 10-year U.S. Treasury Index is a component of the
Salomon Smith Barney U.S. Broad Investment-Grade (USBIG) Bond Index(SM); it
measures the performance of the most recently auctioned Treasury issues with
10 years to maturity. The USBIG is an unmanaged, market-capitalization-
weighted index and includes fixed-rate Treasury, government-sponsored,
mortgage, asset-backed, and investment-grade issues with a maturity of one
year or longer and a minimum amount outstanding of $1 billion in Treasuries.
Refer to page 11 for definitions of the Lipper High Current Yield Bond Funds
Index and the Credit Suisse High Yield Index.
Past performance is no guarantee of future results.
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4 | USAA HIGH-YIELD OPPORTUNITIES FUND
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High-yield securities are a unique asset class with characteristics of both
stocks and higher-quality bonds. As such, long-term total returns generally
should fall between these two asset classes. This tendency to act differently
is not an aberration and can provide long-term investors with a significant
diversification advantage. Uncharacteristically, high-yield securities
significantly outperformed both stocks and 10-year Treasuries during the
reporting period.
o COMPARATIVE RETURNS o
[CHART OF COMPARATIVE RETURNS]
USAA HIGH-YIELD
OPPORTUNITIES CITIGROUP 10-YEAR
FUND SHARES S&P 500 INDEX U.S. TREASURY INDEX
7/31/2009 0.00% 0.00% 0.00%
8/3/2009 0.43 1.53 -1.14
8/4/2009 0.72 1.84 -1.45
8/5/2009 1.15 1.58 -2.12
8/6/2009 1.29 1.02 -1.97
8/7/2009 1.58 2.38 -2.82
8/10/2009 1.87 2.04 -2.15
8/11/2009 2.01 0.78 -1.50
8/12/2009 2.01 1.98 -1.61
8/13/2009 1.87 2.69 -0.66
8/14/2009 2.01 1.81 -0.39
8/17/2009 1.44 -0.64 0.20
8/18/2009 1.44 0.39 -0.11
8/19/2009 1.44 1.09 0.39
8/20/2009 1.44 2.20 0.59
8/21/2009 1.72 4.13 -0.42
8/24/2009 1.87 4.07 0.11
8/25/2009 2.01 4.32 0.48
8/26/2009 2.44 4.34 0.59
8/27/2009 2.61 4.64 0.40
8/28/2009 2.75 4.45 0.50
8/31/2009 2.75 3.61 1.03
9/1/2009 2.75 1.32 1.24
9/2/2009 2.75 1.01 1.90
9/3/2009 2.90 1.88 1.64
9/4/2009 3.04 3.23 0.68
9/7/2009 3.04 3.23 0.71
9/8/2009 3.33 4.16 0.52
9/9/2009 3.62 4.97 0.40
9/10/2009 4.05 6.07 1.57
9/11/2009 4.63 5.95 1.55
9/14/2009 5.21 6.62 1.09
9/15/2009 6.08 6.95 0.72
9/16/2009 6.95 8.60 0.55
9/17/2009 7.09 8.28 1.16
9/18/2009 7.38 8.57 0.55
9/21/2009 7.53 8.20 0.47
9/22/2009 7.82 8.91 0.71
9/23/2009 8.25 7.82 1.05
9/24/2009 8.54 6.80 1.37
9/25/2009 8.68 6.15 1.81
9/28/2009 8.90 8.06 2.10
9/29/2009 8.90 7.83 2.16
9/30/2009 8.90 7.48 2.09
10/1/2009 8.46 4.71 3.01
10/2/2009 8.32 4.24 2.79
10/5/2009 8.61 5.79 2.79
10/6/2009 8.75 7.25 2.63
10/7/2009 9.05 7.59 3.23
10/8/2009 9.19 8.40 2.57
10/9/2009 9.34 9.01 1.51
10/12/2009 9.34 9.49 1.54
10/13/2009 9.63 9.19 2.11
10/14/2009 9.92 11.11 1.21
10/15/2009 10.07 11.57 0.82
10/16/2009 10.36 10.67 1.27
10/19/2009 10.50 11.71 1.50
10/20/2009 10.94 11.02 1.98
10/21/2009 11.09 10.05 1.38
10/22/2009 11.23 11.23 1.29
10/23/2009 11.38 9.87 0.88
10/26/2009 11.52 8.59 0.24
10/27/2009 11.52 8.23 1.04
10/28/2009 11.26 6.13 1.42
10/29/2009 11.41 8.53 0.72
10/30/2009 11.41 5.48 1.65
11/2/2009 11.41 6.16 1.39
11/3/2009 11.41 6.42 1.00
11/4/2009 11.55 6.57 0.42
11/5/2009 11.70 8.63 0.51
11/6/2009 11.85 8.92 0.75
11/9/2009 11.99 11.37 0.90
11/10/2009 12.14 11.39 0.99
11/11/2009 12.29 11.95 1.00
11/12/2009 12.43 10.81 1.29
11/13/2009 12.58 11.45 1.42
11/16/2009 12.73 13.09 2.22
11/17/2009 12.73 13.20 2.31
11/18/2009 12.87 13.17 1.90
11/19/2009 12.87 11.65 2.11
11/20/2009 12.87 11.31 1.99
11/23/2009 12.87 12.83 2.01
11/24/2009 13.02 12.78 2.38
11/25/2009 13.00 13.30 2.75
11/26/2009 13.00 13.30 2.75
11/27/2009 13.00 11.37 3.36
11/30/2009 12.86 11.81 3.46
12/1/2009 13.00 13.16 2.85
12/2/2009 13.15 13.22 2.41
12/3/2009 13.30 12.27 1.93
12/4/2009 13.45 12.89 1.08
12/7/2009 13.74 12.61 1.41
12/8/2009 13.89 11.47 1.88
12/9/2009 14.04 11.90 1.62
12/10/2009 14.04 12.56 1.14
12/11/2009 14.33 12.99 0.67
12/14/2009 14.48 13.78 0.60
12/15/2009 14.63 13.15 0.17
12/16/2009 14.92 13.28 0.26
12/17/2009 15.07 11.95 1.14
12/18/2009 15.22 12.60 0.67
12/21/2009 15.19 13.79 -0.41
12/22/2009 15.34 14.19 -0.91
12/23/2009 15.34 14.48 -0.98
12/24/2009 15.48 15.08 -1.34
12/25/2009 15.48 15.08 -1.34
12/28/2009 15.34 15.23 -1.67
12/29/2009 15.63 15.09 -1.37
12/30/2009 15.78 15.12 -1.15
12/31/2009 15.78 13.97 -1.61
1/1/2010 15.78 13.97 -1.61
1/4/2010 16.23 15.80 -1.58
1/5/2010 16.68 16.16 -0.87
1/6/2010 17.13 16.28 -1.29
1/7/2010 17.57 16.75 -1.38
1/8/2010 18.17 17.08 -1.26
1/11/2010 18.47 17.29 -1.33
1/12/2010 18.47 16.19 -0.49
1/13/2010 18.62 17.17 -1.01
1/14/2010 18.62 17.45 -0.61
1/15/2010 18.77 16.19 -0.13
1/18/2010 18.77 16.19 -0.10
1/19/2010 18.77 17.64 -0.33
1/20/2010 18.77 16.41 0.09
1/21/2010 18.47 14.21 0.50
1/22/2010 18.32 11.68 0.57
1/25/2010 18.17 12.19 0.33
1/26/2010 18.17 11.72 0.37
1/27/2010 18.27 12.27 0.26
1/28/2010 18.27 10.96 0.17
1/29/2010 18.46 9.87 0.61
[END CHART]
Source: Bloomberg L.P.
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 Treasuries and money market funds into higher yielding assets.
High-yield securities, which had seemed priced for a depression in early
2009, posted new gains as economic conditions and company fundamentals
improved.
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MANAGERS' COMMENTARY ON THE FUND | 5
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The Federal Reserve Board (the Fed) also continued its multiple support
programs, which had been created to enhance liquidity in the credit markets
and to support consumer lending. Default expectations, which had skyrocketed
in 2009, trended downwards as the market rebounded. In December 2009, ratings
agency Standard & Poor's reported that the default rate decreased to 10.9%,
its first monthly decline since October 2007.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
Your Fund was well positioned to benefit from the rally in the high-yield
market. During the turmoil from mid-2007 until early 2009, we adhered to our
disciplined research process and did not sell what we considered to be good
values. Where possible, we also added to the Fund's positions. We have never
wavered in our belief that investors should be compensated adequately for
taking on risk. As a result, we focused the portfolio's investments in
sectors with attractive returns and reasonable margins of safety. At the
same time, we purchased new securities that we believed had the potential to
outperform once the crisis ended.
We relied on the insights and expertise of our research team to identify
issues that might be overlooked by other investors, seeking those offering
potentially attractive returns relative to their perceived risks. Many of
these issues outperformed as the high-yield market rallied. The portfolio
also benefited from our use of non-traditional high-yielding securities.
Investment-grade financial sector bonds and asset-back securities, for
example, have added significant value and helped diversify risk.
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 personal balance
sheets. The unemployment rate is likely to remain
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6 | USAA HIGH-YIELD OPPORTUNITIES FUND
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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.
Although defaults increased during the economic recession, conditions in the
financial markets improved, giving companies the ability to refinance their
outstanding debt. This may have prevented the carnage predicted by some
observers. For 2010, defaults expectations are running at more modest 8% to
10% level.
The high-yield 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. Going
forward, shareholders should expect the majority of their return to come
from the income provided by the Fund. They should remain disciplined and
hold diversified portfolios through all market conditions. High-yield
securities may help in these diversification efforts. We believe that over
the long term the high-yield market has the potential to provide a total
return greater than high-quality bonds (with less interest-rate sensitivity)
and lower than the broad equity markets (with more predictability and higher
current income).
We appreciate your continued confidence. Thank you for the opportunity to
help you with your investment needs.
Non-investment-grade securities are considered speculative and are subject to
significant credit risk. They are sometimes referred to as junk bonds since they
represent a greater risk of default than more creditworthy investment-grade
securities.
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MANAGERS' COMMENTARY ON THE FUND | 7
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FUND RECOGNITION
USAA HIGH-YIELD OPPORTUNITIES FUND SHARES
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OVERALL MORNINGSTAR RATING(TM)
out of 477 high-yield bond funds
for the period ended January 31, 2010:
OVERALL RATING
* * * *
3-YEAR
* * *
out of 477 funds
5-YEAR
* * * *
out of 410 funds
10-YEAR
* * * *
out of 260 funds
The Overall Morningstar Rating for a fund is derived from a weighted average of
the performance figures associated with its three-, five-, and 10-year (if
applicable) Morningstar Rating metrics. Ratings are based on risk-adjusted
returns.
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. For each fund with at least
a three-year history, Morningstar calculates a Morningstar Rating(TM) based on a
Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's
monthly performance (including the effects of sales charges, loads, and
redemption fees), placing more emphasis on downward variations and rewarding
consistent performance. The top 10% of the funds in each broad asset class
receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars,
the next 22.5% receive 2 stars, and the bottom 10% receive 1 star.
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8 | USAA HIGH-YIELD OPPORTUNITIES FUND
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LIPPER LEADER (OVERALL)
[5]
CONSISTENT
RETURN
The High-Yield Opportunities Fund Shares are listed as a Lipper Leader for
Consistent Return among 386 funds within the Lipper High Current Yield Funds
category for the overall period ended January 31, 2010. The Fund Shares
received a Lipper Leader rating for Consistent Return among 336 and 206 funds
for the five-and 10-year periods, respectively. Lipper ratings for Consistent
Return reflect funds' historical risk-adjusted returns, adjusted for volatility,
relative to peers as of January 31, 2010.
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Ratings are subject to change every month and are based on an equal-weighted
average of percentile ranks for the Tax Efficiency metrics over three-, five-,
and 10-year periods (if applicable). The highest 20% of funds in each peer group
are named Lipper Leaders, the next 20% receive a score of 4, the middle 20% are
scored 3, the next 20% are scored 2, and the lowest 20% are scored 1. Lipper
ratings are not intended to predict future results, and Lipper does not
guarantee the accuracy of this information. More information is available at
WWW.LIPPERLEADERS.COM. Lipper Leader Copyright 2010, Reuters, All Rights
Reserved.
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FUND RECOGNITION | 9
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INVESTMENT OVERVIEW
USAA HIGH-YIELD OPPORTUNITIES FUND SHARES (Symbol: USHYX)
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1/31/10 7/31/09
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Net Assets $1,143.4 Million $836.0 Million
Net Asset Value Per Share $7.90 $6.96
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/10
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7/31/09 to 1/31/10* 1 Year 5 Years 10 Years
18.46% 52.13% 5.71% 6.39%
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EXPENSE RATIO**
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1.03%
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
**THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES AS REPORTED IN THE FUND SHARES' PROSPECTUS DATED DECEMBER 1, 2009,
AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. THIS EXPENSE RATIO MAY
DIFFER FROM THE EXPENSE RATIO DISCLOSED IN THE FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
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10 | USAA HIGH-YIELD OPPORTUNITIES FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER HIGH
CREDIT SUISSE USAA HIGH-YIELD CURRENT YIELD
HIGH YIELD INDEX OPPORTUNITIES FUND SHARES BOND FUNDS INDEX
01/31/00 $10,000.00 $10,000.00 $10,000.00
02/29/00 10,062.00 10,135.32 10,070.94
03/31/00 9,911.07 9,994.61 9,896.60
04/30/00 9,896.20 10,092.73 9,853.43
05/31/00 9,737.86 9,996.99 9,678.02
06/30/00 9,955.99 10,236.68 9,857.16
07/31/00 10,049.58 10,249.84 9,874.83
08/31/00 10,116.91 10,303.58 9,926.46
09/30/00 10,023.84 10,208.94 9,780.38
10/31/00 9,712.09 9,899.78 9,446.10
11/30/00 9,329.44 9,533.98 8,918.76
12/31/00 9,516.96 9,806.92 9,073.48
01/31/01 10,087.02 10,574.85 9,675.49
02/28/01 10,188.90 10,637.49 9,706.08
03/31/01 9,986.14 10,308.01 9,384.07
04/30/01 9,882.29 10,237.88 9,261.04
05/31/01 10,079.93 10,485.07 9,361.19
06/30/01 9,923.70 10,363.22 9,085.52
07/31/01 10,029.88 10,524.40 9,138.77
08/31/01 10,170.30 10,639.84 9,179.26
09/30/01 9,528.55 9,985.93 8,531.11
10/31/01 9,745.80 10,318.99 8,726.24
11/30/01 10,060.59 10,695.74 9,003.41
12/31/01 10,066.63 10,575.13 8,979.09
01/31/02 10,160.25 10,525.26 9,000.70
02/28/02 10,088.11 10,227.50 8,841.64
03/31/02 10,319.13 10,501.69 9,016.63
04/30/02 10,483.20 10,339.16 9,110.91
05/31/02 10,446.51 10,250.56 9,019.48
06/30/02 10,081.93 9,726.83 8,511.67
07/31/02 9,793.58 9,398.19 8,232.65
08/31/02 9,920.90 9,589.69 8,374.40
09/30/02 9,798.87 9,576.48 8,257.87
10/31/02 9,739.10 9,428.86 8,205.62
11/30/02 10,254.30 9,971.09 8,678.64
12/31/02 10,379.40 10,082.59 8,762.96
01/31/03 10,661.72 10,326.20 8,956.76
02/28/03 10,819.52 10,402.79 9,076.78
03/31/03 11,096.49 10,622.99 9,303.37
04/30/03 11,662.42 11,195.55 9,760.14
05/31/03 11,831.52 11,413.43 9,876.22
06/30/03 12,177.00 11,705.54 10,142.32
07/31/03 12,078.37 11,639.86 10,064.13
08/31/03 12,213.65 11,772.65 10,199.27
09/30/03 12,547.08 12,096.52 10,446.93
10/31/03 12,803.04 12,317.29 10,681.35
11/30/03 12,978.44 12,465.28 10,805.10
12/31/03 13,278.24 12,756.43 11,072.62
01/31/04 13,535.84 13,045.71 11,250.30
02/29/04 13,542.61 13,008.96 11,228.30
03/31/04 13,633.34 13,080.42 11,271.13
04/30/04 13,614.26 13,036.93 11,245.53
05/31/04 13,399.15 12,842.92 11,071.75
06/30/04 13,606.84 12,997.58 11,226.65
07/31/04 13,781.01 13,087.57 11,316.14
08/31/04 14,005.64 13,305.37 11,500.81
09/30/04 14,218.52 13,491.83 11,660.45
10/31/04 14,463.08 13,710.85 11,867.91
11/30/04 14,646.76 13,883.82 12,036.36
12/31/04 14,866.46 14,105.19 12,217.90
01/31/05 14,863.49 14,076.98 12,187.80
02/28/05 15,059.69 14,251.64 12,374.05
03/31/05 14,699.76 13,981.74 12,045.83
04/30/05 14,554.23 13,873.80 11,905.09
05/31/05 14,733.25 14,018.00 12,095.87
06/30/05 14,979.30 14,248.85 12,290.50
07/31/05 15,184.51 14,443.49 12,481.37
08/31/05 15,262.86 14,575.03 12,540.66
09/30/05 15,115.42 14,431.17 12,459.24
10/31/05 14,973.23 14,311.46 12,356.52
11/30/05 15,075.89 14,413.35 12,469.11
12/31/05 15,201.70 14,571.21 12,584.12
01/31/06 15,397.15 14,752.47 12,746.41
02/28/06 15,551.12 14,886.99 12,853.27
03/31/06 15,670.86 14,952.02 12,905.84
04/30/06 15,775.86 15,032.98 12,980.21
05/31/06 15,818.45 15,034.71 12,951.83
06/30/06 15,729.87 14,965.51 12,879.56
07/31/06 15,865.15 15,105.75 12,977.85
08/31/06 16,085.67 15,357.72 13,154.60
09/30/06 16,286.74 15,547.35 13,300.02
10/31/06 16,511.50 15,773.72 13,492.26
11/30/06 16,812.01 16,013.97 13,725.20
12/31/06 17,012.07 16,174.17 13,863.65
01/31/07 17,207.71 16,319.14 14,012.17
02/28/07 17,474.43 16,561.17 14,193.86
03/31/07 17,525.11 16,601.58 14,238.99
04/30/07 17,773.96 16,826.48 14,435.62
05/31/07 17,912.60 16,924.80 14,558.66
06/30/07 17,640.33 16,725.47 14,322.12
07/31/07 17,086.42 16,294.32 13,857.82
08/31/07 17,264.12 16,445.30 13,991.45
09/30/07 17,649.11 16,730.04 14,328.69
10/31/07 17,786.77 16,796.68 14,452.09
11/30/07 17,455.94 16,419.12 14,144.90
12/31/07 17,464.67 16,379.66 14,158.82
01/31/08 17,188.72 16,005.71 13,870.31
02/29/08 16,999.65 15,829.27 13,683.47
03/31/08 16,960.55 15,728.61 13,662.73
04/30/08 17,627.10 16,111.68 14,174.79
05/31/08 17,694.08 16,229.59 14,247.88
06/30/08 17,267.90 15,849.44 13,872.89
07/31/08 17,035.16 15,637.17 13,692.92
08/31/08 17,081.96 15,674.44 13,711.97
09/30/08 15,879.98 14,590.71 12,688.26
10/31/08 13,363.91 12,661.79 10,643.08
11/30/08 12,210.98 11,631.33 9,731.65
12/31/08 12,895.43 11,778.50 10,074.86
01/31/09 13,652.95 12,212.38 10,514.46
02/28/09 13,373.42 11,873.04 10,271.18
03/31/09 13,644.70 11,973.16 10,423.32
04/30/09 15,020.10 13,031.90 11,434.85
05/31/09 15,836.69 14,180.94 12,099.69
06/30/09 16,405.02 14,801.44 12,506.89
07/31/09 17,400.54 15,683.16 13,299.37
08/31/09 17,722.62 16,115.22 13,522.17
09/30/09 18,720.39 17,080.40 14,229.14
10/31/09 19,061.74 17,474.58 14,439.07
11/30/09 19,327.52 17,702.54 14,623.07
12/31/09 19,887.59 18,163.71 15,061.02
01/31/10 20,140.86 18,578.33 15,251.90
[END CHART]
Data from 1/31/00 to 1/31/10.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA High-Yield Opportunities Fund Shares to the following benchmarks:
o The Credit Suisse High Yield Index is an unmanaged, trader-priced portfolio
constructed to mirror the high-yield debt market.
o The unmanaged Lipper High Current Yield Bond Funds Index tracks the total
return performance of the 30 largest funds in the Lipper High Current Yield
Funds category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
Indexes are unmanaged and you cannot invest directly in an Index.
================================================================================
INVESTMENT OVERVIEW | 11
<PAGE>
================================================================================
USAA HIGH-YIELD OPPORTUNITIES FUND INSTITUTIONAL SHARES*
--------------------------------------------------------------------------------
1/31/10 7/31/09
--------------------------------------------------------------------------------
Net Assets $72.9 Million $48.5 Million
Net Asset Value Per Share $7.90 $6.95
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/10
--------------------------------------------------------------------------------
7/31/09 to 1/31/10** 1 Year Since Inception 8/01/08
18.61% 52.61% 12.51%
--------------------------------------------------------------------------------
EXPENSE RATIO***
--------------------------------------------------------------------------------
0.65%
*The USAA High-Yield Opportunities 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. USAA
INVESTMENT MANAGEMENT COMPANY (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 0.65% OF THE INSTITUTIONAL SHARES' AVERAGE DAILY
NET ASSETS. IF THE INSTITUTIONAL SHARES' TOTAL ANNUAL OPERATING EXPENSE RATIO IS
LOWER THAN 0.65%, 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.
================================================================================
12 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
USAA HIGH-YIELD
OPPORTUNITIES FUND CREDIT SUISSE LIPPER HIGH CURRENT
INSTITUTIONAL SHARES HIGH YIELD INDEX YIELD BOND FUNDS INDEX
07/31/2008 $10,000.00 $10,000.00 $10,000.00
08/31/2008 10,026.02 10,027.47 10,013.91
09/30/2008 9,335.20 9,321.88 9,266.29
10/31/2008 8,103.33 7,844.90 7,772.69
11/30/2008 7,445.43 7,168.10 7,107.07
12/31/2008 7,543.33 7,569.89 7,357.71
01/31/2009 7,823.87 8,014.57 7,678.75
02/28/2009 7,609.28 7,850.48 7,501.09
03/31/2009 7,676.57 8,009.73 7,612.19
04/30/2009 8,357.89 8,817.12 8,350.92
05/31/2009 9,096.76 9,296.47 8,836.46
06/30/2009 9,497.08 9,630.09 9,133.84
07/31/2009 10,065.93 10,214.49 9,712.59
08/31/2009 10,345.72 10,403.56 9,875.29
09/30/2009 10,968.20 10,989.27 10,391.60
10/31/2009 11,223.91 11,189.64 10,544.91
11/30/2009 11,372.72 11,345.66 10,679.29
12/31/2009 11,671.04 11,674.44 10,999.13
01/31/2010 11,939.80 11,823.11 11,138.53
[END CHART]
*Data from 7/31/08 to 1/31/10.
See page 11 for benchmark definitions.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA High-Yield Opportunities Fund Institutional Shares to the benchmarks.
*The performance of the Credit Suisse High Yield Index and the Lipper High
Current Yield Bond 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.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
TOP 10 HOLDINGS
AS OF 1/31/10
(% of Net Assets of the Fund)
COUPON RATE % % OF NET ASSETS
--------------------------------
iShares iBoxx High Yield Corporate
Bond Fund ............................. n/a 6.5%
SPDR Barclay Capital High Yield
Bond Fund ............................. n/a 3.8%
Qwest Communications
International, Inc. ................... 7.50% 1.0%
Puget Sound Energy, Inc. ................. 6.97% 0.9%
Enbridge Energy Partners, LP ............. 8.05% 0.8%
Southern Union Co. ....................... 7.20% 0.8%
StanCorp Financial Group, Inc. ........... 6.90% 0.8%
First Data Corp. ......................... 9.88% 0.7%
General Motors Acceptance Corp. .......... 6.88% 0.7%
Oil Insurance Ltd. ....................... 7.56% 0.7%
You will find a complete list of securities that the Fund owns on pages
16-40.
The Fund may rely on Securities and Exchange Commission (SEC) exemptive
orders or rules that permit funds meeting various conditions to invest in an
ETF in amounts exceeding limits set forth in the Investment Company Act of
1940 that would otherwise be applicable.
================================================================================
14 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
o SECTOR ASSET ALLOCATION -- 1/31/2010 o
[PIE CHART OF SECTOR ASSET ALLOCATION]
FINANCIALS 30.6%
CONSUMER DISCRETIONARY 11.1%
EXCHANGED-TRADED FUNDS* 10.3%
ENERGY 9.1%
INDUSTRIALS 8.2%
UTILITIES 6.9%
TELECOMMUNICATION SERVICES 5.0%
MATERIALS 4.7%
HEALTH CARE 4.4%
CONSUMER STAPLES 3.6%
INFORMATION TECHNOLOGY 2.5%
MUNICIPAL BONDS 0.4%
MONEY MARKET INSTRUMENTS 4.0%
[END CHART]
* Exchange-traded funds (ETFs) are baskets of securities and are traded, like
individual stocks, on an exchange. These particular ETFs represent multiple
sectors.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
INVESTMENT OVERVIEW | 15
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2010 (unaudited)
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (68.7%)
CONSUMER DISCRETIONARY (10.2%)
------------------------------
ADVERTISING (0.1%)
$ 1,000 Lamar Media Corp. 9.75% 4/01/2014 $ 1,103
----------
APPAREL & ACCESSORIES & LUXURY GOODS (1.0%)
2,250 Hanesbrands, Inc. 3.83(a) 12/15/2014 2,137
1,000 Jostens IH Corp. 7.63 10/01/2012 1,010
3,840 Kellwood Co.(b) 12.88 12/31/2014 2,899
3,000 Kellwood Co. 7.63 10/15/2017 1,530
3,000 Levi Strauss & Co. 9.75 1/15/2015 3,150
2,000 Quiksilver, Inc. 6.88 4/15/2015 1,765
----------
12,491
----------
APPAREL RETAIL (0.1%)
1,000 Limited Brands, Inc.(c) 8.50 6/15/2019 1,080
----------
AUTO PARTS & EQUIPMENT (0.7%)
1,000 American Axle & Manufacturing Holdings, Inc.(c) 9.25 1/15/2017 1,042
2,000 Arvinmeritor, Inc. 8.13 9/15/2015 1,890
1,314 Federal-Mogul Corp.(d) 3.01 12/27/2014 1,117
671 Federal-Mogul Corp.(d) 3.01 12/27/2015 570
997 Metaldyne Co., LLC(d) 5.59 1/11/2014 74
1,029 Tenneco Automotive, Inc. 10.25 7/15/2013 1,062
200 Tenneco Automotive, Inc. 8.63 11/15/2014 197
500 Tenneco Automotive, Inc. 8.13 11/15/2015 497
2,000 Titan International, Inc. 8.00 1/15/2012 2,000
----------
8,449
----------
BROADCASTING (2.6%)
3,000 Canwest Mediaworks LP(c),(e) 9.25 8/01/2015 705
1,320 CCH II, LLC(c) 13.50 11/30/2016 1,590
3,000 CCO Holdings, LLC(e) 8.75 11/15/2013 3,067
8,000 Charter Communications Operating LLC(c) 10.00 4/30/2012 8,400
400 Clear Channel Worldwide Holdings, Inc.(c) 9.25 12/15/2017 409
1,600 Clear Channel Worldwide Holdings, Inc.(c) 9.25 12/15/2017 1,640
1,000 CSC Holdings, Inc. 7.63 4/01/2011 1,049
1,000 EchoStar DBS Corp. 7.13 2/01/2016 1,010
================================================================================
16 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 3,000 LBI Media, Inc.(c) 8.50% 8/01/2017 $ 2,550
2,000 Liberty Media Corp., LLC 5.70 5/15/2013 1,945
3,000 Mediacom Broadband, LLC 8.50 10/15/2015 3,008
1,000 Sinclair Television Group, Inc.(c) 9.25 11/01/2017 1,035
980 Telesat Canada, Inc.(d) 8.20 9/01/2014 964
4,000 Univision Communications, Inc.(d) 2.50 9/29/2014 3,470
1,000 XM Satellite Radio, Inc. 11.25 6/15/2013 1,075
----------
31,917
----------
CABLE & SATELLITE (0.2%)
1,000 Cequel Communications Holdings I, LLC
and Cequel Capital Corp.(c) 8.63 11/15/2017 1,007
1,000 Virgin Media Finance plc 8.38 10/15/2019 1,029
----------
2,036
----------
CASINOS & GAMING (2.9%)
1,000 Ameristar Casinos, Inc.(c) 9.25 6/01/2014 1,040
3,235 Harrah's Operating Co., Inc.(d) 3.25 1/28/2015 2,679
172 Harrah's Operating Co., Inc. 10.00 2/01/2016 138
3,000 Harrah's Operating Co., Inc. 11.25 6/01/2017 3,199
4,927 Harrah's Operating Co., Inc. 10.00 12/15/2018 3,942
3,200 Inn of the Mountain Gods(e) 12.00 11/15/2010 1,608
3,000 Jacobs Entertainment, Inc. 9.75 6/15/2014 2,865
1,695 MGM Mirage(d) 4.19 10/03/2011 1,638
1,030 MGM Mirage 6.75 9/01/2012 955
3,000 MGM Mirage 13.00 11/15/2013 3,457
1,000 MGM Mirage(c) 10.38 5/15/2014 1,100
1,000 MGM Mirage(c) 11.13 11/15/2017 1,120
1,000 Pinnacle Entertainment, Inc.(c) 8.63 8/01/2017 1,018
3,734 Pokagon Gaming Auth.(c) 10.38 6/15/2014 3,939
2,000 Shingle Springs Tribal Gaming Auth.(c) 9.38 6/15/2015 1,620
3,000 Snoqualmie Entertainment Auth.(c) 4.68(a) 2/01/2014 1,980
1,000 Snoqualmie Entertainment Auth.(c) 9.13 2/01/2015 705
2,000 Turning Stone Resort Casino(c) 9.13 9/15/2014 1,970
----------
34,973
----------
CATALOG RETAIL (0.2%)
3,500 Harry & David Operations Corp. 9.00 3/01/2013 2,537
----------
DEPARTMENT STORES (0.5%)
2,460 Dillard's, Inc. 7.13 8/01/2018 2,177
1,000 Federated Department Stores, Inc. 6.90 4/01/2029 920
1,000 J.C. Penney Co., Inc. 7.40 4/01/2037 1,022
2,100 May Dept Stores Co. 7.88 8/15/2036 1,877
----------
5,996
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
DISTRIBUTORS (0.1%)
$ 797 KAR Holdings, Inc.(d) 2.99% 10/18/2013 $ 777
----------
HOMEBUILDING (0.3%)
2,000 D. R. Horton, Inc. 5.63 1/15/2016 1,890
1,000 Lennar Corp. 12.25 5/15/2017 1,205
1,000 Pulte Homes, Inc. 5.25 1/15/2014 982
----------
4,077
----------
HOTELS, RESORTS, & CRUISE LINES (0.3%)
2,000 Royal Caribbean Cruises Ltd. 7.25 6/15/2016 1,960
1,000 Starwood Hotels & Resorts Worldwide, Inc. 7.88 10/15/2014 1,070
----------
3,030
----------
HOUSEHOLD APPLIANCES (0.1%)
1,000 Stanley Works Capital Trust I 5.90 12/01/2045 926
----------
HOUSEWARES & SPECIALTIES (0.0%)
500 Libbey Glass, Inc.(c),(f) 10.00 2/15/2015 505
----------
LEISURE FACILITIES (0.3%)
4,475 Town Sports International Holdings, Inc. 11.00 2/01/2014 3,826
----------
MOVIES & ENTERTAINMENT (0.2%)
1,500 AMC Entertainment, Inc. 8.75 6/01/2019 1,549
1,000 Cinemark USA, Inc. 8.63 6/15/2019 1,050
250 WMG Acquisition Corp. 9.50 6/15/2016 267
----------
2,866
----------
PUBLISHING (0.3%)
178 American Media Operations, Inc.(c) 9.00 5/01/2013 117
1,906 American Media Operations, Inc.(c) 14.00 11/01/2013 1,248
2,000 Network Communications, Inc. 10.75 12/01/2013 795
1,000 Quebecor Media, Inc. 7.75 3/15/2016 1,008
4,000 Readers Digest Association, Inc.(e) 9.00 2/15/2017 30
----------
3,198
----------
SPECIALIZED CONSUMER SERVICES (0.1%)
600 Mac-Gray Corp. 7.63 8/15/2015 588
1,000 Service Corp. International 7.63 10/01/2018 1,023
----------
1,611
----------
TIRES & RUBBER (0.2%)
1,000 Goodyear Tire & Rubber Co. 9.00 7/01/2015 1,030
1,000 Goodyear Tire & Rubber Co. 10.50 5/15/2016 1,090
----------
2,120
----------
Total Consumer Discretionary 123,518
----------
================================================================================
18 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (2.4%)
-----------------------
AGRICULTURAL PRODUCTS (0.1%)
$ 1,000 Southern States Cooperative, Inc. 11.00% 11/01/2010 $ 1,013
----------
DISTILLERS & VINTNERS (0.1%)
1,000 Constellation Brands, Inc. 7.25 5/15/2017 1,009
----------
DRUG RETAIL (1.0%)
1,852 CVS Caremark Corp. 6.04 12/10/2028 1,866
5,100 CVS Caremark Corp. 6.30 6/01/2037 4,746
1,000 Rite Aid Corp. 8.63 3/01/2015 835
1,250 Rite Aid Corp.(d) 9.50 6/05/2015 1,307
1,000 Rite Aid Corp. 9.38 12/15/2015 842
3,000 Rite Aid Corp. 10.38 7/15/2016 3,180
----------
12,776
----------
FOOD RETAIL (0.3%)
1,000 American Stores Co. 8.00 6/01/2026 912
3,000 ARAMARK Corp.(g) 8.50 2/01/2015 3,015
----------
3,927
----------
HOUSEHOLD PRODUCTS (0.2%)
2,250 JohnsonDiversey Holdings, Inc.(c) 8.25 11/15/2019 2,343
----------
PACKAGED FOODS & MEAT (0.7%)
1,000 Bumble Bee Foods, LLC(c) 7.75 12/15/2015 1,015
1,000 Marfrig Overseas 9.63 11/16/2016 1,034
1,000 Michael Foods, Inc. 8.00 11/15/2013 1,020
2,175 Reddy Ice Holdings, Inc. 10.50 11/01/2012 2,148
1,000 Smithfield Foods, Inc.(c) 10.00 7/15/2014 1,090
2,000 Tyson Foods, Inc. 7.85 4/01/2016 2,110
----------
8,417
----------
Total Consumer Staples 29,485
----------
ENERGY (8.3%)
-------------
COAL & CONSUMABLE FUELS (0.6%)
1,000 Arch Coal, Inc. 8.75 8/01/2016 1,068
2,000 Cloud Peak Energy Resourrces, LLC/Cloud
Peak Energy Finance Corp.(c) 8.25 12/15/2017 2,060
1,500 Murray Energy Corp.(c) 10.25 10/15/2015 1,537
2,000 Peabody Energy Corp. 7.88 11/01/2026 2,065
----------
6,730
----------
OIL & GAS DRILLING (0.2%)
2,000 Hercules Offshore, LLC(c) 10.50 10/15/2017 2,110
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES (0.7%)
$ 2,500 Basic Energy Services, Inc. 7.13% 4/15/2016 $ 2,169
3,000 Edgen Murray Corp.(c) 12.25 1/15/2015 2,880
2,000 Mcjunkin Red Man Corp.(c) 9.50 12/15/2016 2,010
1,700 Seitel, Inc. 9.75 2/15/2014 1,262
----------
8,321
----------
OIL & GAS EXPLORATION & PRODUCTION (2.6%)
2,000 Berry Petroleum Co. 8.25 11/01/2016 2,010
1,000 Bill Barrett Corp. 9.88 7/15/2016 1,080
1,000 Brigham Exploration Co. 9.63 5/01/2014 1,020
2,000 Chaparral Energy, Inc. 8.50 12/01/2015 1,740
3,000 Chesapeake Energy Corp. 9.50 2/15/2015 3,274
1,000 Chesapeake Energy Corp. 6.50 8/15/2017 962
1,000 Cimarex Energy Co. 7.13 5/01/2017 1,001
1,000 Denbury Resources, Inc. 9.75 3/01/2016 1,059
1,000 Encore Acquisition Co. 9.50 5/01/2016 1,049
1,500 Helix Energy Solutions Group, Inc.(c) 9.50 1/15/2016 1,541
1,000 Linn Energy LLC(c) 11.75 5/15/2017 1,141
1,000 Linn Energy LLC 9.88 7/01/2018 1,085
2,000 Mariner Energy, Inc. 11.75 6/30/2016 2,267
2,000 Petrohawk Energy Corp. 10.50 8/01/2014 2,205
1,000 Plains Exploration & Production Co. 7.75 6/15/2015 1,024
3,000 Plains Exploration & Production Co. 7.00 3/15/2017 2,977
1,000 Plains Exploration & Production Co. 7.63 6/01/2018 1,020
1,000 Quicksilver Resources, Inc. 8.25 8/01/2015 1,034
1,000 Quicksilver Resources, Inc. 11.75 1/01/2016 1,155
1,000 Quicksilver Resources, Inc. 7.13 4/01/2016 948
1,000 SandRidge Energy, Inc.(c) 9.88 5/15/2016 1,075
1,000 SandRidge Energy, Inc.(c) 8.00 6/01/2018 995
----------
31,662
----------
OIL & GAS REFINING & MARKETING (0.3%)
1,133 Amerigas Partners, LP 7.25 5/20/2015 1,156
1,000 MarkWest Energy Partners LP 6.88 11/01/2014 982
1,000 Tesoro Corp. 6.63 11/01/2015 978
1,000 Tesoro Corp. 9.75 6/01/2019 1,085
----------
4,201
----------
OIL & GAS STORAGE & TRANSPORTATION (3.9%)
1,000 El Paso Corp. 12.00 12/12/2013 1,191
2,000 El Paso Corp. 7.80 8/01/2031 1,992
10,400 Enbridge Energy Partners, LP 8.05 10/01/2037 10,367
4,000 Enterprise Products Operating, LP(g) 8.38 8/01/2066 3,980
9,250 Enterprise Products Operating, LP 7.00 6/01/2067 8,445
9,000 Enterprise Products Operating, LP 7.03 1/15/2068 8,518
================================================================================
20 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 1,405 Kinder Morgan Finance Co. 5.70% 1/05/2016 $ 1,372
2,980 MarkWest Energy Partners LP 8.50 7/15/2016 3,077
250 MarkWest Energy Partners LP 8.75 4/15/2018 260
2,000 Regency Energy Partners, LP(c) 9.38 6/01/2016 2,157
2,000 Sabine Pass LNG, LP 7.25 11/30/2013 1,880
2,000 Sabine Pass LNG, LP 7.50 11/30/2016 1,775
2,000 SourceGas, LLC(c) 5.90 4/01/2017 1,868
500 Targa Resources partners LP(d) 6.00 6/04/2017 502
----------
47,384
----------
Total Energy 100,408
----------
FINANCIALS (20.6%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
2,000 Nuveen Investments, Inc. 10.50 11/15/2015 1,850
----------
CONSUMER FINANCE (4.7%)
4,000 Capital One Financial Corp. 7.69 8/15/2036 3,800
5,000 Credit Acceptance Corp.(c),(f) 9.13 2/01/2017 4,975
842 Daimler Finance N.A. LLC(d) 9.36 8/03/2012 830
2,000 Ford Motor Credit Co., LLC 7.50 8/01/2012 2,027
8,000 Ford Motor Credit Co., LLC 7.00 10/01/2013 8,012
7,000 Ford Motor Credit Co., LLC 8.00 6/01/2014 7,105
2,000 Ford Motor Credit Co., LLC 8.70 10/01/2014 2,080
5,000 Ford Motor Credit Co., LLC 12.00 5/15/2015 5,725
2,000 General Motors Acceptance Corp. 6.88 9/15/2011 2,003
9,000 General Motors Acceptance Corp. 6.88 8/28/2012 8,884
3,000 General Motors Acceptance Corp. 6.88 8/28/2012 2,970
2,000 General Motors Acceptance Corp. 6.75 12/01/2014 1,944
7,000 General Motors Acceptance Corp. 6.75 12/01/2014 6,842
----------
57,197
----------
DIVERSIFIED BANKS (1.3%)
2,000 Comerica Capital Trust II 6.58 2/20/2037 1,640
3,000 First Tennessee Bank, N.A. 5.65 4/01/2016 2,741
750 KeyCorp Capital II 6.88 3/17/2029 643
5,000 USB Capital IX 6.19 -(h) 4,200
2,000 USB Realty Corp.(c) 6.09 -(h) 1,545
4,000 Wachovia Capital Trust III 5.80 -(h) 3,132
2,000 Wells Fargo Capital XV 9.75 -(h) 2,140
----------
16,041
----------
INVESTMENT BANKING & BROKERAGE (0.1%)
2,000 Lehman Brothers Holdings, Inc.(e) 5.75 4/25/2011 430
2,000 Lehman Brothers Holdings, Inc.(e) 6.88 5/02/2018 460
----------
890
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
LIFE & HEALTH INSURANCE (2.4%)
$ 1,000 Americo Life, Inc.(c) 7.88% 5/01/2013 $ 933
2,000 Great-West Life & Annuity Insurance Co.(c) 7.15 5/16/2046 1,800
9,000 Lincoln National Corp. 7.00 5/17/2066 7,628
2,000 MetLife, Inc. 10.75 8/01/2069 2,506
5,500 Nationwide Mutual Insurance Co.(c) 5.81 12/15/2024 4,661
2,000 Prudential Financial, Inc. 8.88 6/15/2038 2,180
12,000 StanCorp Financial Group, Inc. 6.90 6/01/2067 9,497
----------
29,205
----------
MULTI-LINE INSURANCE (3.4%)
1,000 Farmers Exchange Capital(c) 7.05 7/15/2028 893
1,700 Farmers Insurance Exchange(c) 8.63 5/01/2024 1,834
7,200 Genworth Financial, Inc. 6.15 11/15/2066 5,130
10,000 Glen Meadow(c) 6.51 2/12/2067 7,775
3,780 Hanover Insurance Group, Inc. 8.21 2/03/2027 3,513
15,500 ILFC E-Capital Trust I(c) 5.90 12/21/2065 8,835
3,000 ILFC E-Capital Trust II(c) 6.25 12/21/2065 1,725
3,000 Oil Casualty Insurance Ltd.(c) 8.00 9/15/2034 2,495
11,250 Oil Insurance Ltd.(c) 7.56 -(h) 8,913
----------
41,113
----------
MULTI-SECTOR HOLDINGS (0.9%)
2,750 Leucadia National Corp. 7.13 3/15/2017 2,723
9,025 Leucadia National Corp. 8.65 1/15/2027 8,348
----------
11,071
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.8%)
2,000 AgFirst Farm Credit Bank 6.59 -(h) 1,618
5,000 BankAmerica Institutional Capital(c) 8.07 12/31/2026 4,900
4,000 General Electric Capital Corp. 6.38 11/15/2067 3,540
----------
10,058
----------
PROPERTY & CASUALTY INSURANCE (1.2%)
1,000 Financial Security Assurance Holdings Ltd.(c) 6.40 12/15/2066 695
2,000 First American Capital Trust I 8.50 4/15/2012 1,992
1,500 Kingsway America, Inc. 7.50 2/01/2014 1,155
2,000 Liberty Mutual Group, Inc.(c) 7.00 3/15/2037 1,610
8,000 Progressive Corp. 6.70 6/15/2037 7,370
2,000 Zenith National Insurance Capital Trust(c),(g) 8.55 8/01/2028 1,963
----------
14,785
----------
REGIONAL BANKS (1.6%)
1,500 AmSouth Bank, N.A. 5.20 4/01/2015 1,378
3,000 City National Cap Trust I 9.63 2/01/2040 3,222
5,000 Fifth Third Capital Trust IV 6.50 4/15/2037 3,888
================================================================================
22 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 1,500 First Empire Capital Trust I 8.23% 2/01/2027 $ 1,388
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
2,000 National City Preferred Capital Trust I 12.00 -(h) 2,282
4,000 Webster Capital Trust IV 7.65 6/15/2037 2,680
----------
20,020
----------
REITs - INDUSTRIAL (0.1%)
1,500 DuPont Fabros Technology, LP(c) 8.50 12/15/2017 1,545
----------
REITs - MORTGAGE (0.2%)
1,000 iStar Financial, Inc.(c) 8.00 3/15/2011 960
1,000 iStar Financial, Inc.(c) 10.00 6/15/2014 935
----------
1,895
----------
REITs - OFFICE (0.8%)
1,000 Brandywine Operating Partnership, LP 6.00 4/01/2016 971
2,000 Brandywine Operating Partnership, LP 5.70 5/01/2017 1,872
2,000 HRPT Properties Trust 6.25 8/15/2016 2,006
1,700 HRPT Properties Trust 6.25 6/15/2017 1,693
3,055 Reckson Operating Partnership, LP 6.00 3/31/2016 2,930
----------
9,472
----------
REITs - RETAIL (2.1%)
4,000 Developers Diversified Realty Corp. 3.50 8/15/2011 3,850
2,000 Developers Diversified Realty Corp. 3.00 3/15/2012 1,865
2,000 Developers Diversified Realty Corp. 5.38 10/15/2012 1,948
2,500 New Plan Excel Realty Trust, Inc. 4.50 2/01/2011 2,300
7,000 New Plan Excel Realty Trust, Inc. 5.13 9/15/2012 6,195
3,000 New Plan Excel Realty Trust, Inc. 5.30 1/15/2015 2,325
2,675 New Plan Excel Realty Trust, Inc. 5.25 9/15/2015 2,073
1,550 New Plan Excel Realty Trust, Inc. 7.50 7/30/2029 1,031
2,000 Rouse Co.(e) 8.00 4/30/2009 2,085
2,000 Rouse Co., LP(c),(e) 6.75 5/01/2013 2,030
----------
25,702
----------
REITs - SPECIALIZED (0.5%)
2,000 Host Hotels & Resorts, LP 6.75 6/01/2016 1,972
1,000 Host Hotels & Resorts, LP(c) 9.00 5/15/2017 1,084
1,000 Strategic Hotels & Resorts, Inc.(c) 3.50 4/01/2012 797
2,000 Ventas Realty, LP 6.75 4/01/2017 1,970
----------
5,823
----------
SPECIALIZED FINANCE (0.3%)
2,300 Assured Guaranty U.S. Holdings, Inc. 6.40 12/15/2066 1,633
2,500 MBIA Insurance Co.(c) 14.00 1/15/2033 1,238
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 1,000 Petroplus Finance Ltd.(c) 7.00% 5/01/2017 $ 910
2,000 Security Capital Assurance Ltd.(i) 6.88 -(h) -
----------
3,781
----------
THRIFTS & MORTGAGE FINANCE (0.0%)
1,000 Washington Mutual Bank 5.55 6/16/2010 446
----------
Total Financials 250,894
----------
HEALTH CARE (4.3%)
------------------
HEALTH CARE EQUIPMENT (0.5%)
1,000 Accellent, Inc. 10.50 12/01/2013 1,013
500 Accellent, Inc.(c) 8.38 2/01/2017 508
987 Biomet, Inc.(d) 3.25 3/25/2015 965
1,000 Biomet, Inc. 10.00 10/15/2017 1,092
1,000 Insight Health Services Corp. 5.53(a) 11/01/2011 605
2,500 Universal Hospital Services, Inc. 3.86(a) 6/01/2015 2,150
----------
6,333
----------
HEALTH CARE FACILITIES (2.8%)
2,881 Community Health Systems, Inc.(d),(f) 7.57 7/24/2014 2,726
1,000 Community Health Systems, Inc. 8.88 7/15/2015 1,040
2,257 HCA, Inc.(d) 2.50 11/18/2013 2,151
4,000 HCA, Inc. 5.75 3/15/2014 3,690
3,000 HCA, Inc. 9.25 11/15/2016 3,180
4,207 HCA, Inc. 9.63 11/15/2016 4,480
2,000 HCA, Inc.(c) 8.50 4/15/2019 2,120
956 HealthSouth Corp.(d) 6.04 3/10/2013 933
2,000 HealthSouth Corp. 10.75 6/15/2016 2,175
2,000 IASIS Healthcare, LLC 8.75 6/15/2014 2,045
1,000 LifePoint Hospitals, Inc. 3.50 5/15/2014 926
3,000 Select Medical Corp. 7.63 2/01/2015 2,940
1,000 Sun Healthcare Group, Inc. 9.13 4/15/2015 1,030
2,000 Tenet Healthcare Corp. 7.38 2/01/2013 2,000
2,000 Tenet Healthcare Corp.(c) 9.00 5/01/2015 2,130
1,000 United Surgical Partners International, Inc. 8.88 5/01/2017 1,046
----------
34,612
----------
HEALTH CARE SERVICES (0.7%)
2,000 Alliance Healthcare Services, Inc.(c) 8.00 12/01/2016 1,890
1,750 AMR Holdco, Inc. 10.00 2/15/2015 1,837
500 Omnicare, Inc. 6.88 12/15/2015 494
2,000 Psychiatric Solutions, Inc. 7.75 7/15/2015 1,930
1,038 US Oncology, Inc. 5.68(a) 3/15/2012 989
1,000 US Oncology, Inc. 10.75 8/15/2014 1,047
----------
8,187
----------
================================================================================
24 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
HEALTH CARE SUPPLIES (0.3%)
$ 1,000 Bausch & Lomb, Inc. 9.88% 11/01/2015 $ 1,063
1,000 DJO Finance LLC 10.88 11/15/2014 1,065
1,056 VWR Funding, Inc. 10.25 7/15/2015 1,114
----------
3,242
----------
Total Health Care 52,374
----------
INDUSTRIALS (7.2%)
------------------
AEROSPACE & DEFENSE (0.2%)
1,000 BE Aerospace, Inc. 8.50 7/01/2018 1,055
1,000 Bombardier, Inc.(c) 8.00 11/15/2014 1,053
----------
2,108
----------
AIR FREIGHT & LOGISTICS (0.2%)
3,000 Park Ohio Industries, Inc. 8.38 11/15/2014 2,497
----------
AIRLINES (2.0%)
134 Airplanes Pass-Through Trust 0.61(a) 3/15/2019 126
1,237 America West Airlines, Inc. Pass-Through Trust 6.87 1/02/2017 1,129
565 America West Airlines, Inc. Pass-Through Trust 7.12 1/02/2017 438
3,000 American Airlines, Inc. Pass-Through Trust 6.82 5/23/2011 2,963
2,000 Continental Airlines, Inc. 8.75 12/01/2011 1,985
135 Continental Airlines, Inc. Pass-Through Trust 8.50 5/01/2011 129
372 Continental Airlines, Inc. Pass-Through Trust 7.03 6/15/2011 356
1,960 Continental Airlines, Inc. Pass-Through Trust 9.00 7/08/2016 2,116
5,000 United Air Lines, Inc. 12.00 1/15/2016 5,087
3,000 United Air Lines, Inc. 9.75 1/15/2017 3,158
4,652 United Airlines, Inc. Pass-Through Trust(g) 8.03 7/01/2011 6,629
721 United Airlines, Inc. Pass-Through Trust 7.78 1/01/2014 719
----------
24,835
----------
BUILDING PRODUCTS (0.5%)
2,000 Building Materials Corp. of America 7.75 8/01/2014 2,077
2,000 Esco Corp.(c) 4.13(a) 12/15/2013 1,843
250 Esco Corp.(c) 8.63 12/15/2013 252
500 Ply Gem Industries, Inc. 11.75 6/15/2013 516
750 USG Corp.(c) 9.75 8/01/2014 788
1,000 USG Corp. 6.30 11/15/2016 890
----------
6,366
----------
COMMERCIAL PRINTING (0.5%)
2,000 Cenveo Corp.(f) 8.88 2/01/2018 1,993
3,000 Deluxe Corp. 5.00 12/15/2012 2,947
2,000 Harland Clarke Holdings Corp. 6.00(a) 5/15/2015 1,640
----------
6,580
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.6%)
$ 500 Case New Holland, Inc.(c) 7.75% 9/01/2013 $ 515
1,000 Case New Holland, Inc. 7.13 3/01/2014 1,010
1,735 Manitowoc Co., Inc.(d) 7.08 4/14/2014 1,731
1,000 Navistar International Corp. 8.25 11/01/2021 1,008
1,000 Terex Corp. 7.38 1/15/2014 1,010
2,000 United Rentals North America, Inc. 7.75 11/15/2013 1,950
----------
7,224
----------
DIVERSIFIED SUPPORT SERVICES (0.4%)
4,030 Mobile Services Group 9.75 8/01/2014 4,191
----------
ELECTRICAL COMPONENTS & EQUIPMENT (0.3%)
1,500 Baldor Electric Co. 8.63 2/15/2017 1,530
2,000 RBS Global, Inc. 9.50 8/01/2014 2,020
----------
3,550
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.1%)
1,000 Casella Waste Systems, Inc.(c) 11.00 7/15/2014 1,090
----------
HIGHWAYS & RAILTRACKS (0.3%)
2,100 American Railcar Industries, Inc. 7.50 3/01/2014 1,995
1,800 RailAmerica, Inc. 9.25 7/01/2017 1,928
----------
3,923
----------
INDUSTRIAL CONGLOMERATES (0.5%)
2,774 Textron Financial Corp. 5.40 4/28/2013 2,850
5,000 Textron Financial Corp.(c) 6.00 2/15/2067 3,994
----------
6,844
----------
INDUSTRIAL MACHINERY (0.0%)
500 Mueller Water Products, Inc. 7.38 6/01/2017 453
----------
MARINE (0.0%)
500 United Maritime Group LLC(c) 11.75 6/15/2015 506
----------
OFFICE SERVICES & SUPPLIES (0.3%)
1,000 ACCO Brands Corp. 10.63 3/15/2015 1,101
1,477 West Corp.(d) 2.61 10/24/2013 1,423
500 West Corp. 9.50 10/15/2014 509
----------
3,033
----------
RAILROADS (0.3%)
5,784 Southern Capital Corp.(c) 5.70 6/30/2023 3,836
----------
TRADING COMPANIES & DISTRIBUTORS (0.5%)
3,000 United Rentals North America, Inc.(g) 6.50 2/15/2012 2,996
2,500 United Rentals North America, Inc. 9.25 12/15/2019 2,594
----------
5,590
----------
================================================================================
26 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
TRUCKING (0.5%)
$ 2,000 Avis Budget Car Rental, LLC 7.63% 5/15/2014 $ 1,910
1,979 Hertz Corp.(d) 5.26 12/21/2012 1,927
2,000 Hertz Corp. 8.88 1/01/2014 2,025
----------
5,862
----------
Total Industrials 88,488
----------
INFORMATION TECHNOLOGY (1.8%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.2%)
3,000 Clearwire Corp.(c) 12.00 12/01/2015 3,052
----------
DATA PROCESSING & OUTSOURCED SERVICES (1.4%)
10,000 First Data Corp. 9.88 9/24/2015 8,925
1,000 Iron Mountain, Inc. 7.75 1/15/2015 1,013
7,000 SunGard Data Systems, Inc. 10.25 8/15/2015 7,297
----------
17,235
----------
SEMICONDUCTORS (0.2%)
500 Advanced Micro Devices(c) 8.13 12/15/2017 505
1,375 Freescale Semiconductor, Inc.(d) 5.87 12/15/2014 1,424
----------
1,929
----------
Total Information Technology 22,216
----------
MATERIALS (2.5%)
----------------
COMMODITY CHEMICALS (0.5%)
1,000 Arco Chemical Co.(e) 9.80 2/01/2020 790
1,000 Georgia Gulf Corp.(c) 9.00 1/15/2017 1,035
3,000 Hexion Finance Escrow LLC/Hexion Escrow Corp.(c) 8.88 2/01/2018 2,895
1,000 Hexion U.S. Financial Corp. 9.75 11/15/2014 972
----------
5,692
----------
CONSTRUCTION MATERIALS (0.1%)
500 Headwaters, Inc.(c) 11.38 11/01/2014 530
----------
DIVERSIFIED CHEMICALS (0.2%)
2,500 Huntsman International, LLC 7.38 1/01/2015 2,375
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
1,250 Scotts Miracle-Gro Co. 7.25 1/15/2018 1,280
----------
METAL & GLASS CONTAINERS (0.3%)
1,000 Crown Americas, LLC 7.75 11/15/2015 1,033
3,000 Graham Pack Co. LP/GPC Capital Corp.(c) 8.25 1/01/2017 2,970
----------
4,003
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
PAPER PACKAGING (0.3%)
$ 250 Graphic Packaging Corp. 8.63% 2/15/2012 $ 249
3,000 Graphic Packaging International, Inc. 9.50 8/15/2013 3,083
----------
3,332
----------
PAPER PRODUCTS (0.3%)
597 Boise Cascade, LLC 7.13 10/15/2014 551
1,000 Cascades, Inc.(c) 7.75 12/15/2017 1,031
1,100 Georgia Pacific, LLC(c) 8.25 5/01/2016 1,185
1,000 NewPage Corp. 10.00 5/01/2012 665
----------
3,432
----------
SPECIALTY CHEMICALS (0.3%)
2,000 Momentive Performance Materials, Inc. 9.75 12/01/2014 1,915
1,000 Nalco Co. 8.88 11/15/2013 1,030
1,000 Tronox Worldwide, LLC(e) 9.50 12/01/2012 980
----------
3,925
----------
STEEL (0.4%)
1,500 AK Steel Holding Corp. 7.75 6/15/2012 1,509
2,000 Allegheny Technologies, Inc. 9.38 6/01/2019 2,392
1,250 Metals USA, Inc. 11.13 12/01/2015 1,294
----------
5,195
----------
Total Materials 29,764
----------
TELECOMMUNICATION SERVICES (4.5%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
1,000 Level 3 Communications, Inc.(d) 9.52 3/13/2014 1,086
1,000 Level 3 Communications, Inc.(c) 10.00 2/01/2018 942
----------
2,028
----------
INTEGRATED TELECOMMUNICATION SERVICES (2.7%)
3,000 Cincinnati Bell, Inc. 8.25 10/15/2017 3,030
2,000 Citizens Communications Co. 7.88 1/15/2027 1,855
1,000 Frontier Communications Corp. 8.25 5/01/2014 1,051
3,000 GCI, Inc. 8.63 11/15/2019 3,045
2,042 Hawaiian Telcom Communications, Inc.(d) 6.26 6/01/2014 1,496
2,000 Hawaiian Telcom Communications, Inc.(e) 12.50 5/01/2015 3
12,000 Qwest Communications International, Inc. 7.50 2/15/2014 12,120
5,000 Qwest Communications International, Inc. 7.50 2/15/2014 5,050
1,000 Windstream Corp. 8.13 8/01/2013 1,057
4,000 Windstream Corp.(c) 7.88 11/01/2017 3,970
----------
32,677
----------
================================================================================
28 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES (1.7%)
$ 1,000 Crown Castle International Corp. 9.00% 1/15/2015 $ 1,084
1,974 MetroPCS Communications, Inc.(d) 2.50 2/20/2014 1,917
1,000 MetroPCS Communications, Inc. 9.25 11/01/2014 1,006
3,000 Nextel Communications, Inc. 6.88 10/31/2013 2,816
4,000 Nextel Communications, Inc. 5.95 3/15/2014 3,555
2,000 NII Capital Corp.(c) 8.88 12/15/2019 2,003
6,000 Sprint Capital Corp. 8.38 3/15/2012 6,120
2,000 Sprint Nextel Corp. 8.38 8/15/2017 1,955
----------
20,456
----------
Total Telecommunication Services 55,161
----------
UTILITIES (6.9%)
----------------
ELECTRIC UTILITIES (2.7%)
672 FPL Energy National Wind Portfolio, LLC(c) 6.13 3/25/2019 624
529 FPL Energy Wind Funding, LLC(c) 6.88 6/27/2017 505
2,000 FPL Group Capital, Inc. 7.30 9/01/2067 2,013
3,000 Otter Tail Corp. 9.00 12/15/2016 3,142
8,000 PPL Capital Funding, Inc. 6.70 3/30/2067 7,010
1,000 Public Service Co. of New Mexico 7.95 5/15/2018 1,059
3,000 Reliant Energy, Inc. 7.63 6/15/2014 2,910
2,000 Reliant Energy, Inc. 7.88 6/15/2017 1,915
697 Sierra Pacific Resources 8.63 3/15/2014 723
2,000 Texas Competitive Electric Holding Co., LLC(d),(f) 3.25 10/10/2014 1,643
5,955 Texas Competitive Electric Holding Co., LLC(d),(f) 3.73 10/10/2014 4,892
2,978 Texas Competitive Electric Holding Co., LLC(d),(f) 3.73 10/10/2014 2,434
5,000 Texas Competitive Electric Holding Co., LLC 10.25 11/01/2015 3,925
----------
32,795
----------
GAS UTILITIES (1.1%)
3,000 El Paso Energy Corp. 7.75 1/15/2032 2,992
500 Southern Star Central Corp. 6.75 3/01/2016 503
11,000 Southern Union Co. 7.20(a) 11/01/2066 9,845
----------
13,340
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (1.0%)
2,000 AES Corp. 7.75 3/01/2014 2,015
3,000 AES Corp. 8.00 6/01/2020 3,022
3,000 Dynegy Holdings, Inc. 7.50 6/01/2015 2,685
2,000 Dynegy Holdings, Inc. 8.38 5/01/2016 1,830
1,000 Mirant Americas Generation, Inc. 8.30 5/01/2011 1,026
1,000 NRG Energy, Inc. 7.38 1/15/2017 999
----------
11,577
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
MULTI-UTILITIES (2.1%)
$ 2,000 Calpine Construction Finance Co., LP(c) 8.00% 6/01/2016 $ 2,055
1,500 CMS Energy Corp. 8.75 6/15/2019 1,718
6,790 Integrys Energy Group, Inc. 6.11 12/01/2066 5,847
3,000 PNM Resources, Inc. 9.25 5/15/2015 3,236
13,000 Puget Sound Energy, Inc. 6.97 6/01/2067 11,637
1,181 Tenaska Oklahoma, LP(c) 6.53 12/30/2014 1,156
----------
25,649
----------
Total Utilities 83,361
----------
Total Corporate Obligations (cost: $775,686) 835,669
----------
EURODOLLAR AND YANKEE OBLIGATIONS (9.8%)
CONSUMER DISCRETIONARY (0.5%)
-----------------------------
BROADCASTING (0.2%)
1,051 NTL Cable plc 8.75 4/15/2014 1,076
500 UPC Holding B.V.(c) 9.88 4/15/2018 539
----------
1,615
----------
HOTELS, RESORTS, & CRUISE LINES (0.1%)
1,000 NCL Corp. Ltd.(c) 11.75 11/15/2016 1,070
----------
PUBLISHING (0.2%)
2,000 Nielsen Finance LLC and Nielsen Finance Co. 11.63 2/01/2014 2,247
500 Nielsen Finance, LLC 11.50 5/01/2016 563
----------
2,810
----------
Total Consumer Discretionary 5,495
----------
CONSUMER STAPLES (0.4%)
-----------------------
PACKAGED FOODS & MEAT (0.4%)
5,000 Bracol Holding Ltd.(a) 10.25 10/05/2016 5,150
----------
ENERGY (0.6%)
-------------
OIL & GAS DRILLING (0.2%)
382 Delek & Avner-Yam Tethys Ltd.(c) 5.33 8/01/2013 391
2,000 Gibson Energy ULC(c) 11.75 5/27/2014 2,190
----------
2,581
----------
OIL & GAS EQUIPMENT & SERVICES (0.3%)
2,000 Expro Finance Luxembourg SCA 8.50 12/15/2016 2,009
2,000 TRICO Marine Services, Inc.(c) 11.88 11/01/2014 2,104
----------
4,113
----------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
1,000 Compton Petroleum Finance Corp. 7.63 12/01/2013 803
----------
Total Energy 7,497
----------
================================================================================
30 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
FINANCIALS (4.6%)
-----------------
DIVERSIFIED BANKS (1.8%)
$ 6,000 BOI Capital Funding Number 2, LP(c),(j) 5.57% -(h) $ 3,480
6,000 Credit Agricole S.A.(c) 6.64 -(h) 5,257
786 Groupe BPCE 10.00 -(h) 948
5,986 ING Groep N.V. 5.78 -(h) 4,716
1,415 MUFG Capital Finance 1 Ltd. 6.35 -(h) 1,371
1,500 Natixis(c) 10.00 -(h) 1,439
4,000 Royal Bank of Scotland Group plc 7.64 -(h) 2,323
2,000 Standard Chartered plc(c) 6.41 -(h) 1,758
1,000 Sumitomo Mitsui Financial Group(c),(i) 6.08 -(h) 954
----------
22,246
----------
DIVERSIFIED CAPITAL MARKETS (0.4%)
4,000 UBS Preferred Funding Trust II 7.25 -(h) 3,804
1,000 UBS Preferred Funding Trust V 6.24 -(h) 837
----------
4,641
----------
MULTI-LINE INSURANCE (0.3%)
2,000 AXA S.A.(c) 6.46 -(h) 1,593
2,000 ING Capital Funding Trust III 8.44 -(h) 1,830
----------
3,423
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.3%)
2,210 ZFS Finance USA Trust I(c) 6.15 12/15/2065 2,133
2,000 ZFS Finance USA Trust II(c) 6.45 12/15/2065 1,820
----------
3,953
----------
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 -(h) 2,445
----------
3,535
----------
REGIONAL BANKS (0.1%)
2,000 Glitnir Banki hf, acquired 1/25/2008;
cost $1,830(c),(e),(k) 4.75 10/15/2010 525
1,000 Kaupthing Bank hf, acquired 1/25/2008;
cost $888(c),(e),(k) 5.75 10/04/2011 250
----------
775
----------
REINSURANCE (1.2%)
5,000 Max USA Holdings Ltd.(c),(g) 7.20 4/14/2017 5,198
2,000 Platinum Underwriters Finance, Inc. 7.50 6/01/2017 2,115
9,000 PXRE Capital Trust I 8.85 2/01/2027 7,628
----------
14,941
----------
SPECIALIZED FINANCE (0.2%)
3,000 XL Capital Ltd. 6.50 -(h) 2,310
----------
Total Financials 55,824
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
INDUSTRIALS (0.8%)
------------------
MARINE (0.3%)
$ 1,000 General Maritime Corp. 12.00% 11/15/2017 $ 1,050
1,000 Navios Maritime Holdings, Inc. 9.50 12/15/2014 997
500 Navios Maritime Holdings, Inc.(c) 8.88 11/01/2017 524
1,000 Stena AB 7.00 12/01/2016 936
----------
3,507
----------
MARINE PORTS & SERVICES (0.1%)
1,000 Teekay Corp. 8.50 1/15/2020 1,020
----------
RAILROADS (0.4%)
1,000 Kansas City Southern de Mexico, S.A. de C.V.(c) 8.00 2/01/2018 992
3,942 Kansas City Southern de Mexico, S.A. de C.V.(g) 9.38 5/01/2012 4,060
----------
5,052
----------
Total Industrials 9,579
----------
INFORMATION TECHNOLOGY (0.7%)
-----------------------------
COMMUNICATIONS EQUIPMENT (0.7%)
5,000 Intelsat Bermuda Ltd. 11.25 6/15/2016 5,375
3,000 Intelsat Jackson Holdings, Ltd.(d) 3.23 2/01/2014 2,791
----------
8,166
----------
SEMICONDUCTORS (0.0%)
1,750 New Asat Finance Ltd.(e) 9.25 2/01/2011 24
320 NXP B.V./NXP Funding LLC 10.00 7/15/2013 331
----------
355
----------
Total Information Technology 8,521
----------
MATERIALS (2.1%)
----------------
ALUMINUM (0.2%)
2,500 Novelis, Inc. 7.25 2/15/2015 2,381
500 Novelis, Inc. 11.50 2/15/2015 543
----------
2,924
----------
COMMODITY CHEMICALS (0.2%)
1,000 LyondellBasell Industries(d),(f) 0.25 12/20/2013 728
1,000 Nova Chemicals Corp. 8.38 11/01/2016 1,011
----------
1,739
----------
CONSTRUCTION MATERIALS (0.3%)
3,000 Cemex Finance, LLC(c) 9.50 12/14/2016 3,058
----------
DIVERSIFIED CHEMICALS (0.3%)
3,000 INEOS Group Holdings plc(c) 8.50 2/15/2016 1,980
2,000 Novasep Holding SAS(c) 9.75 12/15/2016 2,000
----------
3,980
----------
================================================================================
32 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
DIVERSIFIED METALS & MINING (0.3%)
$ 1,000 Glencore Funding, LLC(c) 6.00% 4/15/2014 $ 1,036
1,000 Teck Resources Ltd. 9.75 5/15/2014 1,153
1,000 Teck Resources Ltd. 10.75 5/15/2019 1,182
----------
3,371
----------
FOREST PRODUCTS (0.0%)
684 Ainsworth Lumber Co. Ltd.(c) 11.00 7/29/2015 506
----------
PAPER PACKAGING (0.2%)
3,000 JSG Funding plc 7.75 4/01/2015 2,925
----------
PAPER PRODUCTS (0.6%)
3,000 Abitibi-Consolidated Co. of Canada(e) 6.00 6/20/2013 675
1,000 Domtar Corp. 5.38 12/01/2013 991
500 PE Paper Escrow GmbH(c) 12.00 8/01/2014 566
4,250 Sappi Papier Holding AG(c) 6.75 6/15/2012 4,127
385 Sappi Papier Holding AG(c) 7.50 6/15/2032 253
----------
6,612
----------
Total Materials 25,115
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
ALTERNATIVE CARRIERS (0.1%)
1,500 Global Crossing Ltd.(c) 12.00 9/15/2015 1,650
----------
Total Eurodollar and Yankee Obligations
(cost: $119,533) 118,831
----------
ASSET-BACKED SECURITIES (0.6%)
FINANCIALS (0.6%)
-----------------
ASSET-BACKED FINANCING (0.6%)
3,000 AESOP Funding II, LLC(c) 0.45(a) 3/20/2012 2,910
2,000 Banc of America Securities Auto Trust 5.51 2/19/2013 2,003
2,236 GE Equipment Midticket, LLC 0.55(a) 9/15/2017 1,932
1,162 USXL Funding, LLC (INS)(c) 5.38 4/15/2014 1,163
----------
Total Asset-Backed Securities (cost: $7,120) 8,008
----------
COMMERCIAL MORTGAGE SECURITIES (4.1%)
FINANCIALS (4.1%)
-----------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (4.1%)
1,500 Banc of America Commercial Mortgage, Inc. 4.77 7/10/2043 1,119
2,400 Banc of America Commercial Mortgage, Inc. 4.95 7/10/2043 1,865
2,560 Banc of America Commercial Mortgage, Inc. 5.81 7/10/2044 1,984
1,439 Banc of America Commercial Mortgage, Inc.(c) 5.46 9/10/2047 1,150
================================================================================
PORTFOLIO OF INVESTMENTS | 33
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 3,837 Banc of America Commercial Mortgage, Inc.(c) 5.94% 9/10/2047 $ 2,713
5,000 Banc of America Commericial Mortgage, Inc. 5.18 9/10/2047 3,770
4,000 BCRR Trust(c) 5.86 7/17/2040 2,600
1,620 Citigroup Commercial Mortgage Trust 4.83 5/15/2043 1,407
2,000 Citigroup Commercial Mortgage Trust 6.09 12/10/2049 1,543
1,000 Commercial Mortgage Loan Trust 6.02 12/10/2049 725
5,000 GE Capital Commercial Mortgage Corp. 5.61 12/10/2049 3,348
2,000 GMAC Commercial Mortgage Securities, Inc. 4.75 5/10/2043 1,759
2,151 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.32 1/12/2043 1,851
3,378 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.33 12/15/2044 2,195
2,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.81 6/12/2043 2,021
6,000 LB-UBS Commercial Mortgage Trust 5.21 4/15/2030 4,738
1,700 LB-UBS Commercial Mortgage Trust 5.46 2/15/2040 1,139
6,400 Merrill Lynch Mortgage Trust 5.14 7/12/2038 4,681
2,000 Merrill Lynch Mortgage Trust 4.92 10/12/2041 1,570
1,755 Morgan Stanley Capital I, Inc. 5.15 8/13/2042 1,146
1,445 Morgan Stanley Capital I, Inc. 5.17 8/13/2042 904
7,000 Morgan Stanley Capital I, Inc. 4.77 7/15/2056 5,528
----------
49,756
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.0%)
1,237 Credit Suisse First Boston Corp., acquired
6/13/2003; cost $60(k) 1.42 5/17/2040 78
----------
Total Financials 49,834
----------
Total Commercial Mortgage Securities (cost: $47,168) 49,834
----------
MUNICIPAL BONDS (0.4%)
CASINOS & GAMING (0.3%)
2,000 Mashantucket (Western) Pequot Tribe, acquired
10/05/2009; cost $1,410(c),(k) 5.91 9/01/2021 1,110
3,225 Seneca Nation of Indians Capital Improvements Auth. 6.75 12/01/2013 3,051
----------
4,161
----------
SPECIAL ASSESSMENT/TAX/FEE (0.1%)
710 Erie County Tobacco Asset Securitization Corp. 6.00 6/01/2028 547
----------
Total Municipal Bonds (cost: $5,330) 4,708
----------
================================================================================
34 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
EQUITY SECURITIES (13.2%)
COMMON STOCKS (1.1%)
CONSUMER DISCRETIONARY (0.3%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
20,591 Lear Corp.* $ 1,417
----------
BROADCASTING (0.1%)
12,489 Charter Communications, Inc. "A"* 383
30,000 Sinclair Broadcast Group, Inc. "A"* 151
----------
534
----------
CABLE & SATELLITE (0.1%)
50,000 Comcast Corp. "A" 791
6,666 Time Warner Cable, Inc. 291
----------
1,082
----------
PUBLISHING (0.0%)
32,656 American Media, Inc., acquired 2/02/2009; cost $723*(i),(k) -
----------
Total Consumer Discretionary 3,033
----------
CONSUMER STAPLES (0.1%)
-----------------------
PACKAGED FOODS & MEAT (0.0%)
20,000 Reddy Ice Holdings, Inc.* 100
----------
TOBACCO (0.1%)
20,171 Philip Morris International, Inc. 918
----------
Total Consumer Staples 1,018
----------
ENERGY (0.2%)
-------------
OIL & GAS EXPLORATION & PRODUCTION (0.1%)
169,107 Energy Partners Ltd.* 1,456
----------
Oil & Gas Refining & Marketing (0.1%)
15,000 Valero Energy Corp. 276
----------
Total Energy 1,732
----------
FINANCIALS (0.0%)
-----------------
REITs - OFFICE (0.0%)
10,000 Maguire Properties, Inc.* 16
----------
REITs - SPECIALIZED (0.0%)
10,000 Entertainment Properties Trust 349
10,000 Strategic Hotel Capital, Inc.* 23
10,951 Sunstone Hotel Investors, Inc.* 94
----------
466
----------
Total Financials 482
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
HEALTH CARE (0.1%)
------------------
HEALTH CARE FACILITIES (0.0%)
20,000 Community Health Systems, Inc.* $ 652
----------
PHARMACEUTICALS (0.1%)
10,000 Merck & Co., Inc. 382
30,000 Pfizer, Inc. 560
----------
942
----------
Total Health Care 1,594
----------
INDUSTRIALS (0.2%)
------------------
BUILDING PRODUCTS (0.1%)
20,000 Masco Corp. 271
32,962 Nortek, Inc., acquired 6/20/2005; cost $1,440*(i),(k) 1,178
----------
1,449
----------
COMMERCIAL PRINTING (0.1%)
39,632 World Color Press, Inc.* 456
----------
Total Industrials 1,905
----------
MATERIALS (0.1%)
----------------
CONSTRUCTION MATERIALS (0.0%)
596 Panolam Holdings Co., acquired 1/20/2010; cost $315*(i),(k) 315
----------
FOREST PRODUCTS (0.1%)
195,497 Ainsworth Lumber Co. Ltd.* 391
----------
STEEL (0.0%)
20,000 Worthington Industries, Inc. 290
----------
Total Materials 996
----------
TELECOMMUNICATION SERVICES (0.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.1%)
70,000 Frontier Communications Corp. 533
30,000 Iowa Telecommunication Services, Inc. 491
60,000 Windstream Corp. 618
----------
Total Telecommunication Services 1,642
----------
UTILITIES (0.0%)
----------------
ELECTRIC UTILITIES (0.0%)
10,000 Progress Energy, Inc. 390
----------
Total Common Stocks (cost: $21,175) 12,792
----------
================================================================================
36 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
$(000)/SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
PREFERRED SECURITIES (1.7%)
CONSUMER STAPLES (0.7%)
-----------------------
AGRICULTURAL PRODUCTS (0.7%)
110,000 Dairy Farmers of America, Inc., 7.88%, cumulative
redeemable, perpetual(c) $ 8,673
----------
FINANCIALS (0.7%)
-----------------
LIFE & HEALTH INSURANCE (0.2%)
120,000 Delphi Financial Group, Inc., 7.38%, perpetual 2,211
----------
PROPERTY & CASUALTY INSURANCE (0.1%)
$ 2,000 White Mountains Re Group, 7.51%, perpetual(c) 1,709
----------
REINSURANCE (0.1%)
3,000 Ram Holdings Ltd., 7.50%, non-cumulative, perpetual* 216
$ 1,000 Swiss Re Capital I LP, 6.85%, perpetual(c) 860
----------
1,076
----------
REITs - OFFICE (0.1%)
20,000 Maguire Properties, Inc., Series A, 7.63% cumulative
redeemable, perpetual 142
20,000 Parkway Properties, Inc., Series D, 8.00%, cumulative
redeemable, perpetual 464
----------
606
----------
REITs - RETAIL (0.0%)
20,000 Tanger Factory Outlet Centers, Inc., Class C, 7.50%, perpetual 478
----------
REITs - SPECIALIZED (0.1%)
70,000 Felcor Lodging Trust, Inc., Series C, 8.00%, perpetual 855
20,000 Sunstone Hotel Investors, Inc., Series A, 8.00%, perpetual 461
----------
1,316
----------
THRIFTS & MORTGAGE FINANCE (0.1%)
40,000 Sovereign Capital Trust V, 7.75%, Capital Securities, perpetual 1,011
----------
Total Financials 8,407
----------
U.S. GOVERNMENT (0.0%)
----------------------
15,000 Fannie Mae, 8.25%, perpetual* 17
----------
TELECOMMUNICATION SERVICES (0.3%)
---------------------------------
WIRELESS TELECOMMUNICATION SERVICES (0.3%)
2,000 Centaur Funding Corp., 9.08%(c) 2,082
30,000 Crown Castle International Corp., 6.25%, cumulative
redeemable, perpetual(b) 1,716
----------
Total Telecommunication Services 3,798
----------
Total Preferred Securities (cost: $26,576) 20,895
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
EXCHANGE-TRADED FUNDS (10.3%)
916,599 iShares iBoxx High Yield Corporate Bond Fund $ 79,029
1,204,539 SPDR Barclay Capital High Yield Bond Fund 46,833
----------
Total Exchange-Traded Funds (cost: $119,769) 125,862
----------
WARRANTS (0.1%)
CONSUMER DISCRETIONARY (0.1%)
-----------------------------
AUTO PARTS & EQUIPMENT (0.1%)
7,631 Lear Corp.*(i) 525
----------
BROADCASTING (0.0%)
5,016 Charter Communications Inc. "A"* 32
250 Ono Finance plc, acquired 7/16/2001-1/24/2002;
cost $0*(c),(i),(k) -
----------
32
----------
Total Consumer Discretionary 557
----------
INDUSTRIALS (0.0%)
------------------
COMMERCIAL PRINTING (0.0%)
22,461 World Color Press, Inc.* 219
22,461 World Color Press, Inc.* 136
----------
Total Industrials 355
----------
INFORMATION TECHNOLOGY (0.0%)
-----------------------------
SEMICONDUCTORS (0.0%)
1 New Asat Finance Ltd. , acquired 12/03/2007; cost $0*(c),(i),(k) -
----------
Total Warrants (cost: $817) 912
----------
Total Equity Securities (cost: $168,337) 160,461
----------
-------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON
(000) RATE MATURITY
-------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (4.0%)
VARIABLE-RATE DEMAND NOTES (0.7%)
MUNICIPAL BONDS (0.7%)
----------------------
MUNICIPAL FINANCE (0.7%)
$8,700 Sunshine State Governmental Financing
Commission (LOC - Dexia Credit Local) 0.23% 7/01/2016 8,700
----------
================================================================================
38 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
-------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (3.3%)
40,331,615 State Street Institutional Liquid Reserve Fund, 0.13%(l) $ 40,332
----------
Total Money Market Instruments (cost: $49,032) 49,032
----------
TOTAL INVESTMENTS (Cost: $1,172,206) $1,226,543
==========
-------------------------------------------------------------------------------------------------------
($ 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
-------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $ 835,669 $ - $ 835,669
Eurodollar And Yankee Obligations - 118,831 - 118,831
Asset-Backed Securities - 8,008 - 8,008
Commercial Mortgage Securities - 49,834 - 49,834
Municipal Bonds - 4,708 - 4,708
Equity Securities:
Common Stocks 11,299 - 1,493 12,792
Preferred Securities - 20,895 - 20,895
Exchange-Traded Funds 125,862 - - 125,862
Warrants 387 525 - 912
Money Market Instruments:
Variable-Rate Demand Notes - 8,700 - 8,700
Money Market Funds 40,332 - - 40,332
-----------------------------------------------------------------------------------------------------
Total $177,880 $1,047,170 $1,493 $1,226,543
-----------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 39
<PAGE>
================================================================================
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
-----------------------------------------------------------------------------------------
COMMON CORPORATE ASSET-BACKED
STOCK OBLIGATIONS SECURITIES
-----------------------------------------------------------------------------------------
Balance as of July 31, 2009 $ - $ 2,582 $ 1,007
Net realized gain (loss) - - 96
Change in net unrealized
appreciation/depreciation (262) 2,719 (7)
Net purchases (sales) 1,755 89 (1,096)
Transfers in and/or out of Level 3 - (5,390) -
-----------------------------------------------------------------------------------------
Balance as of January 31, 2010 $1,493 $ - $ -
-----------------------------------------------------------------------------------------
================================================================================
40 | USAA HIGH-YIELD OPPORTUNITIES 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%. Investments in foreign securities were 10.5% of net assets at January
31, 2010. A category percentage of 0.0% represents less than 0.1% of net
assets.
The Fund may rely on certain Securities and Exchange Commission (SEC)
exemptive orders or rules that permit funds meeting various conditions to
invest in an exchange-traded fund (ETF) in amounts exceeding limits set forth
in the Investment Company Act of 1940 that would otherwise be applicable.
o CATEGORIES AND DEFINITIONS
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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 41
<PAGE>
================================================================================
EURODOLLAR AND YANKEE OBLIGATIONS -- Eurodollar obligations are
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) -- represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of 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.
WARRANTS -- entitle the holder to buy a proportionate amount of common stock
at a specified price for a stated period.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
iShares Exchange-traded funds, managed by Barclays Global Fund Advisors,
that represent a portfolio of stocks designed to closely track a
specific market index. iShares funds are traded on securities
exchanges.
================================================================================
42 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
REIT Real estate investment trust.
SPDR Exchange-traded funds, managed by State Street Global Advisers,
that represent a portfolio of stocks designed to closely track a
specific market index. SPDR is an acronym for the first member of
the fund family, Standard & Poor's Depositary Receipts, which
tracks the S&P 500 Index. SPDRs are traded on securities
exchanges.
CREDIT ENHANCEMENTS -- add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
(INS) Principal and interest payments are insured by Financial Guaranty
Insurance Co. 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) Variable-rate or floating-rate security -- interest rate is adjusted
periodically. The interest rate disclosed represents the current rate at
January 31, 2010.
(b) Pay-in-kind (PIK) -- security in which the issuer has the option to make
interest or dividend payments in cash or in additional securities. The
security issued with the interest or dividend payment option usually has
the same terms, including maturity date, as the PIK securities.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 43
<PAGE>
================================================================================
(c) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Investment Management
Company (the Manager) under liquidity guidelines approved by the Board
of Trustees, unless otherwise noted as illiquid.
(d) 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 the Manager, under liquidity guidelines
approved by the Board of Trustees, unless otherwise noted as illiquid.
(e) Currently the issuer is in default with respect to interest and/or
principal payments.
(f) At January 31, 2010, the aggregate market value of securities purchased
on a delayed-delivery basis was $14,794,000, which included when-issued
securities of $7,473,000.
(g) At January 31, 2010, portions of these securities were segregated to
cover delayed-delivery and/or when-issued purchases.
(h) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(i) Security was fair valued at January 31, 2010, by the Manager in
accordance with valuation procedures approved by the Board of Trustees.
(j) Security is currently trading without accrued interest.
================================================================================
44 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
(k) 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 $3,456,000, which represented 0.3%
of the Fund's net assets.
(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.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 45
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,172,206) $1,226,543
Cash 1,449
Receivables:
Capital shares sold:
Affiliated transactions (Note 8) 154
Nonaffiliated transactions 1,323
Dividends and interest 19,214
Securities sold 1,611
Other 1,066
----------
Total assets 1,251,360
----------
LIABILITIES
Payables:
Securities purchased 33,642
Capital shares redeemed (nonaffiliated transactions) 729
Accrued management fees 546
Accrued transfer agent's fees 58
Other accrued expenses and payables 81
----------
Total liabilities 35,056
----------
Net assets applicable to capital shares outstanding $1,216,304
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,225,876
Accumulated undistributed net investment income 1,192
Accumulated net realized loss on investments (65,101)
Net unrealized appreciation of investments 54,337
----------
Net assets applicable to capital shares outstanding $1,216,304
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,143,436/144,748 shares outstanding) $ 7.90
==========
Institutional Shares (net assets of $72,868/9,228 shares outstanding) $ 7.90
==========
See accompanying notes to financial statements.
================================================================================
46 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 4,967
Interest 45,450
--------
Total income 50,417
--------
EXPENSES
Management fees 2,811
Administration and servicing fees:
Fund Shares 742
Institutional Shares 15
Transfer agent's fees:
Fund Shares 936
Institutional Shares 15
Custody and accounting fees:
Fund Shares 98
Institutional Shares 6
Postage:
Fund Shares 30
Shareholder reporting fees:
Fund Shares 19
Trustees'fees 5
Registration fees:
Fund Shares 24
Professional fees 52
Other 10
--------
Total expenses 4,763
Transfer agent's fees reimbursed (Note 7D):
Fund Shares (124)
--------
Net expenses 4,639
--------
NET INVESTMENT INCOME 45,778
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Unaffiliated transactions (10,758)
Affiliated transactions (Note 9) 3,386
Change in net unrealized appreciation/depreciation 133,333
--------
Net realized and unrealized gain 125,961
--------
Increase in net assets resulting from operations $171,739
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 47
<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 $ 45,778 $ 62,802
Net realized loss on investments (7,372) (53,220)
Change in net unrealized appreciation/depreciation of
investments 133,333 8,098
----------------------
Increase in net assets resulting from operations 171,739 17,680
----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (42,497) (60,857)
Institutional Shares* (2,618) (2,034)
----------------------
Total distributions of net investment income (45,115) (62,891)
----------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares 187,678 180,814
Institutional Shares* 17,432 43,542
----------------------
Total net increase in net assets from capital
share transactions 205,110 224,356
----------------------
Net increase in net assets 331,734 179,145
NET ASSETS
Beginning of period 884,570 705,425
----------------------
End of period $1,216,304 $884,570
======================
Accumulated undistributed net investment income:
End of period $ 1,192 $ 529
======================
* Institutional Shares were initiated on August 1, 2008.
See accompanying notes to financial statements.
================================================================================
48 | USAA HIGH-YIELD OPPORTUNITIES FUND
<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
High-Yield Opportunities Fund (the Fund), which is classified as diversified
under the 1940 Act. The Fund's investment objective is to provide an attractive
total return primarily through high current income and secondarily through
capital appreciation.
The Fund has two classes of shares: High-Yield Opportunities Fund Shares (Fund
Shares) and High-Yield Opportunities 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
<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.
5. Repurchase agreements are valued at cost, which approximates market
value.
================================================================================
50 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
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.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
<PAGE>
================================================================================
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For the securities that were valued as of January 31, 2010, using significant
unobservable inputs, market quotations were not available from the pricing
services. As such, the securities were valued in good faith using methods
determined by the Manager, under valuation procedures approved by the Trust's
Board of Trustees. The Fund received unlisted common stock in exchange for
notes held by the Fund. The fair value methods included using inputs such as
the last available quotations for the original notes from which the common
stock was exchanged. Refer to the portfolio of investments for a
reconciliation of investments in which significant unobservable inputs (Level
3) were used in determining value.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Dividend income, less foreign taxes, if any, is recorded on the ex-dividend
date. If the ex-dividend date has passed, certain dividends from foreign
securities are recorded upon notification. Interest income is recorded daily
on the accrual basis. Discounts and premiums are amortized over the life of
the respective securities, using the effective yield method for long-term
securities and the straight-line method for short-term securities.
E. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers. These agreements are
collateralized by underlying securities.
================================================================================
52 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
The collateral obligations are marked-to-market daily to ensure their value
is equal to or in excess of the repurchase agreement price plus accrued
interest and are held by the Fund, either through its regular custodian or
through a special "tri-party" custodian that maintains separate accounts for
both the Fund and its counterparty, until maturity of the repurchase
agreement. Repurchase agreements are subject to credit risk, and the Fund's
Manager monitors the creditworthiness of sellers with which the Fund may
enter into repurchase agreements.
F. FOREIGN CURRENCY TRANSLATIONS -- The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective dates
of such transactions.
2. Market value of securities, other assets, and liabilities at the exchange
rate obtained from an independent pricing service on a daily basis.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from
investments.
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts received. At the
end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
<PAGE>
================================================================================
Net unrealized foreign currency exchange gains/losses arise from changes in
the value of assets and liabilities, other than investments in securities,
resulting from changes in the exchange rate.
G. 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 or for delayed draws on loans 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 receives a commitment fee for delayed draws on loans. The Fund
maintains segregated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a
delayed-delivery or when-issued basis and delayed-draw loan commitments may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases and commitments while remaining substantially fully invested.
As of January 31, 2010, the Fund's outstanding delayed-delivery commitments,
including interest purchased, were $14,559,000; which included when-issued
securities of $7,353,000.
H. 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.
I. HIGH-YIELD SECURITIES -- Although the Fund has a diversified portfolio, over
81% of its net assets were invested in non-investment-grade (high-yield)
securities at January 31, 2010. Non-investment-grade securities are rated
below the four highest credit grades by at least one of the public rating
agencies (or are of equivalent quality if not publicly rated). Participation
in high-yielding securities transactions generally involves greater returns
in the form of higher average yields. However, participation in such
transactions involves greater risks, often related to sensitivity to interest
rates, economic changes,
================================================================================
54 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
solvency, and relative liquidity in the secondary trading market. Lower
ratings may reflect a greater possibility that the financial condition of the
issuer, or adverse changes in general economic conditions, or both, may
impair the ability of the issuer to make payments of interest and principal.
The prices and yields of lower-rated securities generally fluctuate more than
higher-quality securities, and such prices may decline significantly in
periods of general economic difficulty or rising interest rates.
J. 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.
K. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.13% annually
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
<PAGE>
================================================================================
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
2.3% 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.
Distributions of net investment income are made 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 $20,609,000, for federal income tax purposes, which, if not offset by
subsequent capital gains, will expire in 2017. It is unlikely that the Trust's
Board of Trustees will authorize a distribution of capital gains realized in the
future until the capital loss carryovers have been used or expire.
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties would be recognized by
the Fund as tax expense in the statement of operations if the tax positions were
deemed to not meet the more-likely-than-not threshold. For the six-month period
ended 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
================================================================================
56 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
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
$380,936,000 and $193,997,000, 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.
Gross unrealized appreciation and depreciation of investments as of January 31,
2010, were $115,127,000 and $60,790,000, respectively, resulting in net
unrealized appreciation of $54,337,000.
(5) LENDING OF PORTFOLIO SECURITIES
The Fund, through its third-party securities-lending agent, Wachovia Global
Securities Lending (Wachovia), may lend its securities to qualified financial
institutions, such as certain broker-dealers, to earn additional income. The
borrowers are required to secure their loans continuously with cash collateral
in an amount at least equal to the fair value of the securities loaned,
initially in an amount at least equal to 102% of the fair value of domestic
securities loaned and 105% of the fair value of international securities loaned.
Cash collateral is invested in high-quality short-term investments. Cash
collateral requirements are determined daily based on the prior business day's
ending value of securities loaned. Imbalances in cash collateral may occur on
days where market volatility causes security prices to change significantly, and
are adjusted the next business day. The Fund and Wachovia retain 80% and 20%,
respectively, of the income earned from the investment of cash received as
collateral, net of any expenses associated with the lending transaction.
Wachovia receives no other fees from the Fund for its services as
securities-lending agent. Risks to the Fund in securities-lending transactions
are that the borrower may not provide additional collateral when required or
return the securities when due, and that the value of the short-term investments
will be less than the amount of cash collateral required to
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
<PAGE>
================================================================================
be returned to the borrower. Wachovia Bank, N.A., parent company of Wachovia,
has agreed to indemnify the Fund against any losses due to counterparty default
in securities-lending transactions. The Fund had no securities-lending
transactions during the six-month period ended January 31, 2010.
(6) 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 38,259 $ 289,560 54,026 $ 335,909
Shares issued from reinvested
dividends 5,158 39,043 9,161 55,878
Shares redeemed (18,846) (140,925) (34,822) (210,973)
--------------------------------------------
Net increase from capital
share transactions 24,571 $ 187,678 28,365 $ 180,814
============================================
INSTITUTIONAL SHARES
(INITIATED ON AUGUST 1, 2008):
Shares sold 3,453 $ 26,126 7,223 $ 44,929
Shares issued from reinvested
dividends 346 2,618 333 2,034
Shares redeemed (1,549) (11,312) (578) (3,421)
--------------------------------------------
Net increase from capital
share transactions 2,250 $ 17,432 6,978 $ 43,542
============================================
(7) 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
================================================================================
58 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
of a base fee and a performance adjustment. The Fund's base fee is accrued
daily and paid monthly at an annualized rate of 0.50% of the Fund's average
net assets for the fiscal year.
The performance adjustment is calculated separately for each share class on a
monthly basis by comparing each class's performance to that of the Lipper
High Current Yield Bond Funds Index over the performance period. The Lipper
High Current Yield Bond Funds Index tracks the total return performance of
the 30 largest funds in the Lipper High Current Yield 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 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 High Current Yield Bond Funds Index over that period,
even if the class had overall negative returns during the performance period.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 59
<PAGE>
================================================================================
For the six-month period ended January 31, 2010, the Fund incurred total
management fees, paid or payable to the Manager, of $2,811,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $190,000 and less than $(500), respectively. For the Fund Shares
and Institutional Shares, the performance adjustments were 0.04% 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
$742,000 and $15,000, 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 $22,000 for these compliance and legal services. These expenses
are included in the professional fees on the Fund's statement of operations.
C. EXPENSE LIMITATION -- The Manager has agreed, through December 1, 2010, to
limit the annual expenses of the Institutional Shares to 0.65% of its average
annual net assets, excluding extraordinarly expenses and before reductions of
any expenses paid indirectly, and will reimburse the Institutional Shares for
all expenses in excess of that amount. 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 did not incur any
reimbursable expenses from the Manager for the Institutional Shares.
================================================================================
60 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
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 $936,000 and
$15,000, respectively.
During the six-month period, SAS reimbursed the Fund Shares $124,000 for
corrections in fees paid for the administration and servicing of certain
accounts.
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.
(8) TRANSACTIONS WITH AFFILIATES
The Fund is one of 13 USAA mutual funds in which the affiliated Target Funds may
invest. The Target Funds do not invest in the Fund for the purpose of exercising
management or control. As of January 31, 2010, the Fund recorded a receivable
for capital shares sold of $154,000 for the Target Funds' purchases 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 2020 Fund 1.6%
USAA Target Retirement 2030 Fund 2.3
USAA Target Retirement 2040 Fund 2.1
================================================================================
NOTES TO FINANCIAL STATEMENTS | 61
<PAGE>
================================================================================
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) 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 funds at the then-current market price with no
brokerage commissions incurred.
COST TO NET REALIZED GAIN
SELLER PURCHASER PURCHASER (LOSS) TO SELLER
--------------------------------------------------------------------------------
USAA High-Yield USAA Short-Term
Opportunities Fund Bond Fund $36,304,000 $3,386,000
USAA Balanced USAA High-Yield
Strategy Fund Opportunities Fund 798,000 (228,000)
(10) 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.
(11) 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
================================================================================
62 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 63
<PAGE>
================================================================================
(12) 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 $ 6.96 $ 7.68 $ 8.64 $ 8.58 $ 8.79 $ 8.54
--------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .33 .62 .63 .61 .60 .61
Net realized and
unrealized gain (loss) .93 (.72) (.96)(b) .06 (.21) .25
--------------------------------------------------------------------------------------
Total from investment
operations 1.26 (.10) (.33) .67 .39 .86
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.32) (.62) (.62) (.61) (.60) (.61)
Realized capital gains - - (.01) - - -
--------------------------------------------------------------------------------------
Total distributions (.32) (.62) (.63) (.61) (.60) (.61)
--------------------------------------------------------------------------------------
Net asset value at end
of period $ 7.90 $ 6.96 $ 7.68 $ 8.64 $ 8.58 $ 8.79
======================================================================================
Total return (%)* 18.46(e) .29 (4.03)(b) 7.87(a) 4.59 10.36
Net assets at end
of period (000) $1,143,436 $836,042 $705,425 $642,742 $453,259 $306,749
Ratios to average
net assets:**
Expenses (%)(d) .92(e),(g) .99(c) .90(c) .94(a),(c) .95(c) .95(c)
Expenses, excluding
reimbursements (%)(d) .92(e),(g) 1.02 .94 .94(a) .95 .95
Net investment income (%) 8.70(g) 9.98 7.61 6.95 7.04 7.03
Portfolio turnover (%) 19 46(f) 26 38 35 30
* 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
$984,022,000.
(a) For the year ended July 31, 2007, SAS voluntarily reimbursed the Fund for a
portion of the transfer agent's fees incurred. The reimbursement had no
effect on the Fund's total return or ratio of expenses to average net
assets.
(b) For the year ended July 31, 2008, the Manager reimbursed the Fund $15,000
for a loss incurred in a settlement delay of a security sold. The
reimbursement had no effect on the Fund's per share net realized loss or
total return.
(c) Effective April 13, 2007 through November 30, 2008, the Manager voluntarily
agreed to limit the annual expenses of the Fund Shares to 0.90% of the Fund
Shares' average net assets. Prior to April 13, 2007, the voluntary expense
limit was 1.00%
(d) 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%.
(e) During the period ended January 31, 2010, SAS reimbursed the Fund $124,000
for corrections in fees paid for the administration and servicing of certain
accounts. The effect of this reimbursement on the Fund's total return was
less than 0.01%. The reimbursement decreased the Fund's expense ratios by
0.02%. This decrease is excluded from the expense ratios in the Financial
Highlights table.
(f) Reflects increased trading activity due to market volatility.
(g) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
64 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
(12) 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 $ 6.95 $ 7.68
-------------------------
Income (loss) from investment operations:
Net investment income .34 .65(a)
Net realized and unrealized gain (loss) .94 (.74)(a)
-------------------------
Total from investment operations 1.28 (.09)(a)
-------------------------
Less distributions from:
Net investment income (.33) (.64)
-------------------------
Net asset value at end of period $ 7.90 $ 6.95
=========================
Total return (%)* 18.79 .51
Net assets at end of period (000) $72,868 $48,528
Ratios to average net assets:**(b)
Expenses (%)(c) .63 .64
Net investment income (%) 8.96 10.55
Portfolio turnover (%) 19 46
* 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
$58,534,000.
*** Institutional Shares were initiated on August 1, 2008.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) 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%.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 65
<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
================================================================================
66 | USAA HIGH-YIELD OPPORTUNITIES FUND
<PAGE>
================================================================================
expenses, which is not the Fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may 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 $1,184.60 $4.96
Hypothetical
(5% return before expenses) 1,000.00 1,020.67 4.58
INSTITUTIONAL SHARES
Actual 1,000.00 1,187.90 3.47
Hypothetical
(5% return before expenses) 1,000.00 1,022.03 3.21
* Expenses are equal to the annualized expense ratio of 0.90% for Fund Shares
and 0.63% 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 18.46% for Fund Shares and 18.79% for Institutional Shares for the
six-month period of August 1, 2009, through January 31, 2010.
================================================================================
EXPENSE EXAMPLE | 67
<PAGE>
================================================================================
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "Products & Services"
SELF-SERVICE 24/7 click "Investments," then
AT USAA.COM "Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA "Investments." View account balances,
(8722) or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how
the Fund voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available without charge (i) at USAA.COM; and
(ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's 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)
=============================================================================
40051-0310 (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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