UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR/S
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: CHRISTOPHER P. LAIA
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: JULY 31,
Date of reporting period: JANUARY 31, 2010
ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JANUARY 31, 2010
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA SHORT-TERM BOND FUND]
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SEMIANNUAL REPORT
USAA SHORT-TERM BOND FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2010
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FUND OBJECTIVE
HIGH CURRENT INCOME CONSISTENT WITH PRESERVATION OF PRINCIPAL.
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TYPES OF INVESTMENTS
Normally invest at least 80% of the Fund's assets in a broad range of
investment-grade debt securities; the Fund will maintain a dollar-weighted
average portfolio maturity of three years or less.
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 19
Notes to Portfolio of Investments 38
Financial Statements 42
Notes to Financial Statements 45
EXPENSE EXAMPLE 59
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 SHORT-TERM BOND FUND
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they could stall the recovery. An inordinate delay could unleash inflation. At
the very least, the Fed is likely to keep short-term interest rates low until
the recovery is well underway. As I write to you, inflation does not appear to
be an immediate threat because employment remains weak and excess capacity
remains high. As a result, most businesses lack pricing power. However, I am
concerned about the projections for continued deficit spending, which could feed
inflation as the decade progresses.
So, how do we invest in this challenging environment? Money market yields are at
record lows. Bonds have experienced a remarkable rally, but their prices have
moved close to historic norms. Equities, which rebounded from their March 2009
lows, gave back some of their gains toward the end of the reporting period.
Under the circumstances, I plan to keep my guard up and stay focused on my
investment plan. During the market decline, many investors were not
appropriately positioned relative to their time horizon or risk tolerance. With
this in mind, I recently took some time to reflect on my own goals, reconsider
my risk tolerance, make a few changes to my investment strategy, and reposition
my portfolio. I encourage you to do the same. If you would like assistance,
please call one of our trained service representatives. They are available to
help you -- free of charge.
At USAA Investment Management Company, we are proud to provide you with what we
consider an exceptional value -- outstanding service, world-class investment
talent, and a broad array of no-load mutual funds. Thank you for the opportunity
to help you with your investment needs.
Sincerely,
/s/ Daniel S. McNamara
Daniel S. McNamara
President
USAA Investment Management Company
Mutual fund operating expenses apply and continue throughout the life of the
fund. o As interest rates rise, bond prices fall.
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PRESIDENT'S MESSAGE | 3
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MANAGERS' COMMENTARY ON THE FUND
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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 SHORT-TERM BOND FUND (THE FUND SHARES) PERFORM?
The Fund Shares provided a total return of 4.83% for the six months ended
January 31, 2010, putting your Fund in the top 29% of its peer group (the
Lipper Short Investment Grade Debt Funds Average returned 4.02%). This
compares to returns of 2.08% for the Barclays Capital 1-3 Year
Government/Credit Index and 4.67% for the Lipper Short Investment Grade Bond
Funds Index. At the same time, the Fund Shares provided a one-year dividend
yield of 4.45%, compared to 2.97% for the average Lipper Short Investment
Grade Debt Fund.
o WHAT WERE THE RELEVANT MARKET CONDITIONS?
The fixed-income market recorded significant gains during the reporting period
as investors continued to take on more risk, shifting out of low-yielding U.S.
Treasuries and money market funds into higher yielding assets. Over the six
months, almost every sector of the bond market outperformed U.S. Treasuries.
Prices of corporate bonds, especially financials, mortgage-backed securities
and asset-backed securities climbed back to levels not seen since the
beginning of the financial crisis in September 2008.
Refer to pages 13 and 14 for benchmark definitions.
Past performance is no guarantee of future results.
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4 | USAA SHORT-TERM BOND FUND
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o HISTORICAL YIELD CURVE o
[CHART OF HISTORICAL YIELD CURVE]
7/31/2009 1/29/2010 CHANGE
3 month 0.18 0.07 -0.11
6 month 0.25 0.14 -0.11
1 year 0.47 0.27 -0.19
2 year 1.11 0.81 -0.30
3 year 1.59 1.35 -0.24
5 year 2.51 2.32 -0.19
10 year 3.48 3.58 0.10
30 year 4.30 4.49 0.19
[END CHART]
Source: Bloomberg L.P.
Past performance is no guarantee of future results and is not an indication
of performance of any USAA product.
The Federal Reserve (the Fed) held overnight interest rates in a range of
0% to 0.25%, pledging to keep them low for an "extended period" to stimulate
the economy and help lower unemployment. The Fed also continued its multiple
support programs, which had been created to enhance liquidity in the credit
markets and to support consumer lending.
As government actions pulled short-term rates to extraordinarily low
levels, the yield curve steepened. Yields on short-term maturities -- those
of one year or less -- were between 0% and
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MANAGERS' COMMENTARY ON THE FUND | 5
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0.50%. The difference in yields between two- and 10-year U.S. Treasuries
reached a record level during the period of 2.94%.
o WHAT WERE YOUR STRATEGIES IN THIS ENVIRONMENT?
As always, we focused on sectors of the fixed-income market that typically
offer a yield advantage over U.S. Treasury securities with reasonable margins
of safety. This strategy enhanced your Fund's yield during the reporting
period, giving it a yield advantage of over its peers.
During the turmoil in 2009, we took advantage of indiscriminate selling and
short-term volatility to add AAA-rated short-term securities to the portfolio
at attractive prices. Many of these holdings added to the Fund's returns
during the period as investors sold Treasuries in favor of higher-yielding
securities. To identify these opportunities, we relied on our skilled team of
credit analysts who also continued to analyze and monitor every bond in your
Fund.
To control your Fund's exposure to potential surprises, we continued to
limit the positions we took in any one issuer. We remain committed to
long-term income generation through a high-quality portfolio diversified
among multiple asset classes and across a large number of issuers.
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 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
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unwinding occurs too soon, it could choke off the recovery. If it is delayed,
inflation could surge.
The bond market provided remarkable returns during the reporting period, and
investors who stayed the course were well rewarded. However, no one should
expect results of the same magnitude in the months ahead. We believe fixed
income has returned to its traditional role as an income-accumulation
investment. Going forward, shareholders should expect the majority of their
return to come from the income provided by the Fund. They would be well
advised to match their investments with their risk tolerance and time horizon.
As always, your portfolio management team remains committed to seeking to
provide a high-quality, well-diversified bond fund with an acceptable level
of risk.
As interest rates rise, existing bond prices fall. o Diversification does not
guarantee a profit or prevent a loss.
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MANAGERS' COMMENTARY ON THE FUND | 7
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FUND RECOGNITION
USAA SHORT-TERM BOND FUND SHARES
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OVERALL MORNINGSTAR RATING(TM)
out of 383 short-term bond funds
for the period ended January 31, 2010:
OVERALL RATING
* * * *
3-YEAR
* * * *
out of 383 funds
5-YEAR
* * * * *
out of 314 funds
10-YEAR
* * *
out of 169
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 SHORT-TERM BOND FUND
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LIPPER LEADERS (OVERALL)
[5] [5]
TOTAL RETURN PRESERVATION
The Short-Term Bond Fund Shares are listed as a Lipper Leader for Total Return
among 224 funds within the Lipper Short Investment Grade Debt Funds category for
the period ending January 31, 2010, and received a Lipper Leader rating among
224 and 173 funds for the three- and five-year periods, respectively. The Fund
Shares also received a Lipper Leader for Preservation among 4,135 fixed-income
funds for the overall period ended January 31, 2010, and received a Lipper
Leader rating for Preservation among 4,135, 3,611, and 2,419 fixed-income funds
for the three-, five-, and 10-year periods, respectively. Lipper ratings for
Total Return reflect funds' historical total return performance relative to
peers as of January 31, 2010. Lipper ratings for Preservation reflect funds'
expense minimization relative to peers with similar load structures 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 Preservation 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 SHORT-TERM BOND FUND SHARES (Symbol: USSBX)
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1/31/10 7/31/09
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Net Assets $1,327.8 Million $902.5 Million
Net Asset Value Per Share $9.13 $8.89
Dollar-Weighted Average
Portfolio Maturity(+) 2.2 Years 2.4 Years
(+)Obtained by multiplying the dollar value of each investment by the number of
days left to its maturity, adding those figures together, and dividing them by
the total dollar value of the Fund's portfolio.
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SIX-MONTH TOTAL RETURN 30-DAY SEC YIELD** EXPENSE RATIO***
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7/31/09 to 1/31/10* As of 1/31/10 0.72%
4.83% 3.20%
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
**Calculated as prescribed by the Securities and Exchange Commission.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
***THE 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 SHORT-TERM BOND FUND
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AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS -- PERIODS
ENDED JANUARY 31, 2010
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TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
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10 Years 4.23% = 4.79% + (0.56)%
5 Years 4.95% = 4.53% + 0.42%
1 Year 14.35% = 5.14% + 9.21%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR ONE-YEAR PERIODS ENDED
JANUARY 31, 2001 -- JANUARY 31, 2010
[CHART OF TOTAL RETURN, DIVIDEND RETURN AND CHANGE IN SHARE PRICE]
TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
1/31/2001 8.17% 7.03% 1.14%
1/31/2002 3.63% 6.29% -2.66%
1/31/2003 0.09% 5.03% -4.94%
1/31/2004 4.27% 3.72% 0.55%
1/31/2005 1.55% 3.20% -1.65%
1/31/2006 2.54% 3.77% -1.23%
1/31/2007 4.68% 4.45% 0.23%
1/31/2008 6.28% 4.81% 1.47%
1/31/2009 -2.39% 4.51% -6.90%
1/31/2010 14.35% 5.14% 9.21%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND SHARES' TOTAL RETURN
OVER TIME. WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE A
RELATIVELY STABLE COMPONENT OF TOTAL RETURNS.
Total return equals dividend return plus share price change and assumes
reinvestment of all net investment income and realized capital gain
distributions. Dividend return is the net investment income dividends received
over the period, assuming reinvestment of all dividends. Share price change is
the change in net asset value over the period adjusted for realized capital gain
distributions. The total returns quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles or the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares.
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INVESTMENT OVERVIEW | 11
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA SHORT-TERM LIPPER SHORT INVESTMENT
1-3 YR GOVERNMENT/CREDIT BOND FUND GRADE BOND FUNDS
INDEX SHARES INDEX
1/31/2000 $10,000.00 $10,000.00 $10,000.00
2/29/2000 10,069.29 10,085.77 10,064.66
3/31/2000 10,126.30 10,151.67 10,116.57
4/30/2000 10,145.78 10,173.50 10,119.03
5/31/2000 10,182.47 10,161.31 10,154.87
6/30/2000 10,294.80 10,314.29 10,267.55
7/31/2000 10,365.22 10,383.63 10,330.75
8/31/2000 10,447.35 10,346.23 10,405.84
9/30/2000 10,533.43 10,445.67 10,494.23
10/31/2000 10,580.57 10,432.26 10,525.38
11/30/2000 10,679.07 10,533.69 10,620.86
12/31/2000 10,807.91 10,654.57 10,733.77
1/31/2001 10,961.02 10,816.94 10,886.63
2/28/2001 11,039.06 10,898.89 10,962.53
3/31/2001 11,128.67 11,001.71 11,041.61
4/30/2001 11,163.95 11,052.91 11,068.04
5/31/2001 11,232.68 11,124.12 11,136.46
6/30/2001 11,275.72 11,184.31 11,182.50
7/31/2001 11,417.55 11,381.48 11,320.02
8/31/2001 11,495.02 11,453.09 11,393.37
9/30/2001 11,666.06 11,553.63 11,501.95
10/31/2001 11,782.62 11,557.40 11,589.01
11/30/2001 11,750.87 11,260.91 11,531.76
12/31/2001 11,756.66 11,194.63 11,520.25
1/31/2002 11,790.24 11,209.42 11,553.64
2/28/2002 11,841.47 11,164.49 11,587.72
3/31/2002 11,764.42 11,196.46 11,535.25
4/30/2002 11,895.80 11,223.07 11,626.99
5/31/2002 11,958.32 11,261.78 11,691.91
6/30/2002 12,053.99 11,163.07 11,705.05
7/31/2002 12,173.95 10,893.00 11,740.15
8/31/2002 12,239.71 11,042.56 11,813.71
9/30/2002 12,345.69 11,141.77 11,890.56
10/31/2002 12,361.35 11,020.75 11,897.84
11/30/2002 12,360.79 11,009.47 11,902.75
12/31/2002 12,494.85 11,181.03 12,021.38
1/31/2003 12,510.23 11,219.37 12,040.28
2/28/2003 12,579.38 11,293.42 12,112.74
3/31/2003 12,606.05 11,315.80 12,131.26
4/30/2003 12,654.74 11,417.05 12,183.65
5/31/2003 12,726.43 11,557.92 12,253.34
6/30/2003 12,754.37 11,580.92 12,275.94
7/31/2003 12,671.39 11,453.25 12,167.75
8/31/2003 12,676.61 11,462.30 12,179.24
9/30/2003 12,816.46 11,621.15 12,306.10
10/31/2003 12,764.53 11,593.15 12,274.94
11/30/2003 12,765.52 11,598.41 12,277.57
12/31/2003 12,846.52 11,656.41 12,339.56
1/31/2004 12,881.52 11,698.38 12,379.42
2/29/2004 12,953.77 11,767.17 12,436.46
3/31/2004 12,999.64 11,810.83 12,478.74
4/30/2004 12,866.28 11,702.28 12,367.25
5/31/2004 12,848.36 11,691.85 12,343.03
6/30/2004 12,852.17 11,695.63 12,351.67
7/31/2004 12,906.64 11,741.91 12,401.65
8/31/2004 13,007.68 11,811.06 12,489.89
9/30/2004 13,000.48 11,831.73 12,493.17
10/31/2004 13,045.64 11,861.49 12,534.44
11/30/2004 12,982.14 11,839.80 12,499.52
12/31/2004 13,013.61 11,875.93 12,537.86
1/31/2005 13,011.49 11,879.38 12,539.66
2/28/2005 12,987.08 11,873.97 12,527.68
3/31/2005 12,977.06 11,880.35 12,510.47
4/30/2005 13,052.56 11,932.67 12,575.84
5/31/2005 13,108.86 11,978.96 12,625.71
6/30/2005 13,138.21 12,002.39 12,663.03
7/31/2005 13,103.08 11,998.49 12,634.08
8/31/2005 13,188.17 12,060.83 12,711.37
9/30/2005 13,155.15 12,072.86 12,684.94
10/31/2005 13,149.79 12,081.61 12,675.41
11/30/2005 13,192.69 12,107.96 12,712.49
12/31/2005 13,244.34 12,148.32 12,758.42
1/31/2006 13,269.88 12,181.17 12,791.96
2/28/2006 13,285.54 12,207.78 12,819.79
3/31/2006 13,301.63 12,226.50 12,829.83
4/30/2006 13,346.51 12,268.42 12,870.20
5/31/2006 13,364.99 12,284.84 12,890.31
6/30/2006 13,391.10 12,318.15 12,910.23
7/31/2006 13,494.54 12,416.17 13,007.07
8/31/2006 13,595.30 12,503.22 13,101.76
9/30/2006 13,667.98 12,579.58 13,173.09
10/31/2006 13,725.55 12,637.64 13,232.37
11/30/2006 13,800.77 12,729.34 13,310.43
12/31/2006 13,807.40 12,720.08 13,319.59
1/31/2007 13,839.30 12,751.22 13,353.76
2/28/2007 13,951.77 12,884.05 13,463.57
3/31/2007 14,006.10 12,917.55 13,511.96
4/30/2007 14,057.61 12,966.30 13,564.62
5/31/2007 14,046.74 12,942.81 13,546.67
6/30/2007 14,105.87 12,980.45 13,583.13
7/31/2007 14,216.09 13,044.78 13,664.57
8/31/2007 14,331.94 13,115.38 13,681.30
9/30/2007 14,437.92 13,206.11 13,796.64
10/31/2007 14,503.26 13,258.15 13,828.16
11/30/2007 14,708.31 13,419.46 13,954.48
12/31/2007 14,751.07 13,454.29 13,958.60
1/31/2008 15,007.91 13,552.12 14,130.82
2/29/2008 15,141.97 13,546.57 14,155.76
3/31/2008 15,153.26 13,530.57 13,979.91
4/30/2008 15,066.47 13,521.07 13,979.21
5/31/2008 15,029.07 13,589.39 13,969.75
6/30/2008 15,056.59 13,593.46 13,942.81
7/31/2008 15,099.78 13,600.34 13,854.29
8/31/2008 15,170.19 13,624.44 13,902.60
9/30/2008 15,080.02 13,491.47 13,596.96
10/31/2008 15,112.34 13,143.57 13,332.98
11/30/2008 15,293.25 13,081.95 13,119.66
12/31/2008 15,484.61 13,109.35 13,315.07
1/31/2009 15,526.38 13,230.47 13,447.54
2/28/2009 15,499.57 13,305.32 13,481.48
3/31/2009 15,572.67 13,487.27 13,470.41
4/30/2009 15,660.87 13,690.69 13,641.16
5/31/2009 15,767.97 14,020.27 13,877.11
6/30/2009 15,794.79 14,177.51 13,983.59
7/31/2009 15,869.86 14,434.74 14,167.37
8/31/2009 15,954.25 14,604.05 14,334.87
9/30/2009 16,015.36 14,759.21 14,461.17
10/31/2009 16,066.44 14,872.89 14,621.88
11/30/2009 16,170.31 14,996.38 14,658.96
12/31/2009 16,076.88 14,951.17 14,681.17
1/31/2010 16,200.50 15,127.14 14,829.54
[END CHART]
Data from 1/31/00 through 1/31/10.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
================================================================================
12 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
The graph on page 12 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Short-Term Bond Fund Shares to the following benchmarks:
o The unmanaged, broad-based Barclays Capital 1-3 Year Government/Credit Index,
formerly known as the Lehman Brothers 1-3 Year Government/Credit Index, is
made up of government, agency, corporate, and noncorporate bonds with
maturities longer than one year and shorter than three years.
o The unmanaged Lipper Short Investment Grade Bond Funds Index tracks the total
return performance of the 30 largest funds in the Lipper Short Investment
Grade Debt Funds category.
Indexes are unmanaged and you cannot invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA SHORT-TERM LIPPER SHORT INVESTMENT
BOND FUND GRADE DEBT FUNDS
SHARES AVERAGE
1/31/2001 6.66% 5.92%
1/31/2002 6.48 5.17
1/31/2003 5.23 3.85
1/31/2004 3.65 2.81
1/31/2005 3.23 2.58
1/31/2006 3.77 3.22
1/31/2007 4.35 4.13
1/31/2008 4.60 4.44
1/31/2009 4.92 4.56
1/31/2010 4.45 2.97
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data for
periods ending 1/31/01 to 1/31/10.
The Lipper Short Investment Grade Debt Funds Average is the average performance
level of all short-term investment-grade debt funds, reported by Lipper Inc., an
independent organization that monitors the performance of mutual funds.
================================================================================
14 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
USAA SHORT-TERM BOND FUND INSTITUTIONAL SHARES*
--------------------------------------------------------------------------------
1/31/10 7/31/09
--------------------------------------------------------------------------------
Net Assets $49.1 Million $26.2 Million
Net Asset Value Per Share $9.13 $8.89
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/10
--------------------------------------------------------------------------------
7/31/09 to 1/31/10** 1 Year Since Inception 8/01/08
4.94% 14.66% 7.61%
--------------------------------------------------------------------------------
EXPENSE RATIO***
--------------------------------------------------------------------------------
0.39%
*The USAA Short-Term Bond Fund Institutional Shares (Institutional Shares)
commenced operations on August 1, 2008, and are not offered for sale directly to
the general public. The Institutional Shares are available only to the USAA
Target Retirement Funds.
**Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
***THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AS REPORTED IN THE INSTITUTIONAL SHARES' PROSPECTUS DATED DECEMBER
1, 2009, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. 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 0.41% OF THE INSTITUTIONAL SHARES' AVERAGE DAILY
NET ASSETS. IF THE INSTITUTIONAL SHARES' TOTAL ANNUAL OPERATING EXPENSE RATIO IS
LOWER THAN 0.41%, THE INSTITUTIONAL SHARES WILL OPERATE AT THE LOWER EXPENSE
RATIO. THIS REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING
THIS TIME PERIOD WITHOUT APPROVAL OF THE FUND'S BOARD OF TRUSTEES AND MAY BE
CHANGED OR TERMINATED BY IMCO AT ANY TIME AFTER DECEMBER 1, 2010. THIS EXPENSE
RATIO MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
return quoted does not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
--------------------------------------------------------------------------------
INVESTMENT OVERVIEW | 15
<PAGE>
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER SHORT INVESTMENT USAA SHORT-TERM BOND BARCLAYS CAPITAL 1-3 YEAR
GRADE BOND FUNDS FUND INSTITUTIONAL GOVERNMENT/CREDIT
INDEX SHARES INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,028.22 10,016.15 10,046.64
9/30/2008 9,691.59 9,920.78 9,986.92
10/31/2008 9,180.80 9,667.70 10,008.32
11/30/2008 9,276.55 9,624.67 10,128.13
12/31/2008 9,619.78 9,647.65 10,254.86
1/31/2009 9,593.33 9,739.52 10,282.52
2/28/2009 9,479.78 9,797.00 10,264.77
3/31/2009 9,592.54 9,933.58 10,313.18
4/30/2009 9,783.75 10,085.90 10,371.59
5/31/2009 10,046.35 10,331.34 10,442.52
6/30/2009 10,222.43 10,449.65 10,460.28
7/31/2009 10,530.67 10,642.83 10,510.00
8/31/2009 10,658.41 10,769.72 10,565.89
9/30/2009 10,921.56 10,886.42 10,606.36
10/31/2009 11,010.12 10,972.54 10,640.19
11/30/2009 11,140.26 11,065.83 10,708.97
12/31/2009 11,036.39 11,033.88 10,647.10
1/31/2010 11,217.83 11,165.85 10,728.97
[END CHART]
Data from 7/31/08 through 1/31/10.*
See page 13 for benchmark definitions.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Short-Term Bond Fund Institutional Shares to the benchmarks.
*The performance of the Barclays Capital 1-3 Year Government/Credit Index and
the Lipper Short Investment Grade 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.
================================================================================
16 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
o PORTFOLIO RATINGS MIX -- 1/31/2010 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 55%
AA 8%
A 15%
BBB 18%
BELOW INVESTMENT-GRADE 1%
SECURITIES WITH SHORT-TERM INVESTMENT-GRADE RATINGS 3%
[END CHART]
The four highest long-term credit ratings, in descending order of credit
quality, are AAA, AA, A, and BBB. These categories represent investment-grade
quality. This chart reflects the highest rating of either Moody's Investors
Service, Standard & Poor's Ratings, Fitch Ratings, Dominion Bond Rating Service
Ltd., or A.M. Best Co., Inc., and includes any related credit enhancements. If
any of the Fund's securities are unrated by these agencies, USAA Investment
Management Company must determine that the securities are of equivalent
investment quality.
Percentages are of the total market value of the Fund's investments.
You will find a complete list of securities that the Fund owns on pages 19-37.
================================================================================
INVESTMENT OVERVIEW | 17
<PAGE>
================================================================================
o PORTFOLIO MIX -- 1/31/2010 o
[PIE CHART OF PORTFOLIO MIX]
CORPORATE OBLIGATIONS 30.5%
ASSET-BACKED SECURITIES 22.7%
COMMERCIAL MORTGAGE SECURITIES 21.2%
U.S. GOVERNMENT AGENCY ISSUES 13.6%
MUNICIPAL BONDS 4.4%
EURODOLLAR AND YANKEE OBLIGATIONS 3.9%
VARIABLE-RATE DEMAND NOTES 2.6%
MONEY MARKET FUNDS 0.8%
[END CHART]
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
18 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2010 (unaudited)
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS (30.5%)
CONSUMER DISCRETIONARY (1.3%)
-----------------------------
AUTOMOTIVE RETAIL (0.1%)
$ 1,000 AutoZone, Inc. 5.88% 10/15/2012 $ 1,089
----------
BROADCASTING (0.6%)
5,157 Comcast Cable Communications, Inc. 6.75 1/30/2011 5,442
1,000 Cox Communications, Inc. 7.75 11/01/2010 1,046
1,000 Time Warner Cable, Inc. 8.25 2/14/2014 1,189
----------
7,677
----------
HOME IMPROVEMENT RETAIL (0.1%)
2,000 Home Depot, Inc. 5.20 3/01/2011 2,087
----------
HOUSEWARES & SPECIALTIES (0.4%)
5,000 Fortune Brands, Inc. 3.00 6/01/2012 4,999
----------
SPECIALTY STORES (0.1%)
2,000 Staples, Inc. 7.75 4/01/2011 2,147
----------
Total Consumer Discretionary 17,999
----------
CONSUMER STAPLES (1.8%)
-----------------------
AGRICULTURAL PRODUCTS (0.2%)
3,000 Cargill, Inc.(a) 5.20 1/22/2013 3,210
----------
BREWERS (0.3%)
2,000 Anheuser-Busch Companies, Inc.(a) 3.00 10/15/2012 2,065
2,000 Anheuser-Busch Companies, Inc.(a) 7.20 1/15/2014 2,289
----------
4,354
----------
DRUG RETAIL (0.2%)
2,000 Walgreen Co. 4.88 8/01/2013 2,175
----------
FOOD RETAIL (0.1%)
1,000 Kroger Co. 8.05 2/01/2010 1,000
----------
PACKAGED FOODS & MEAT (0.3%)
2,000 ConAgra Foods, Inc. 5.88 4/15/2014 2,214
1,000 Kraft Foods, Inc. 5.25 10/01/2013 1,076
1,000 Kraft Foods, Inc. 6.75 2/19/2014 1,126
----------
4,416
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
SOFT DRINKS (0.7%)
$ 1,000 Bottling Group, LLC 6.95% 3/15/2014 $ 1,167
2,000 Coca Cola Enterprises, Inc. 3.75 3/01/2012 2,103
1,000 Coca Cola Enterprises, Inc. 7.38 3/03/2014 1,176
3,000 Dr Pepper Snapple Group, Inc. 1.70 12/21/2011 3,018
2,000 PepsiAmericas, Inc. 4.38 2/15/2014 2,124
----------
9,588
----------
Total Consumer Staples 24,743
----------
ENERGY (4.2%)
-------------
INTEGRATED OIL & GAS (1.1%)
5,000 BP Capital Markets plc 1.55 8/11/2011 5,066
4,000 Chevron Corp. 3.45 3/03/2012 4,183
1,000 Hess Corp. 7.00 2/15/2014 1,143
1,425 Louisiana Land and Exploration Co. 7.63 4/15/2013 1,614
3,000 Marathon Oil Corp. 6.50 2/15/2014 3,380
----------
15,386
----------
OIL & GAS EQUIPMENT & SERVICES (0.1%)
1,000 Baker Hughes, Inc. 6.50 11/15/2013 1,151
----------
OIL & GAS EXPLORATION & PRODUCTION (0.5%)
2,000 Devon Energy Corp. 5.63 1/15/2014 2,190
2,000 Woodside Finance Ltd. 8.13 3/01/2014 2,319
1,000 XTO Energy, Inc. 5.00 8/01/2010 1,022
1,000 XTO Energy, Inc. 4.63 6/15/2013 1,072
----------
6,603
----------
OIL & GAS REFINING & MARKETING (0.2%)
2,000 Valero Energy Corp. 6.88 4/15/2012 2,195
----------
OIL & GAS STORAGE & TRANSPORTATION (2.3%)
1,000 DCP Midstream, LLC(a) 9.70 12/01/2013 1,193
1,000 Duke Energy Field Services, LLC 7.88 8/16/2010 1,037
2,000 Enbridge Energy Partners, LP 9.88 3/01/2019 2,608
1,000 Energy Transfer Partners, LP 6.00 7/01/2013 1,092
1,000 Energy Transfer Partners, LP 9.70 3/15/2019 1,274
3,000 Enterprise Products Operating, LP 4.60 8/01/2012 3,196
1,105 Enterprise Products Operating, LP 6.13 2/01/2013 1,199
1,000 Enterprise Products Operating, LP 5.90 4/15/2013 1,090
2,060 Kern River Funding Corp.(a) 6.68 7/31/2016 2,213
2,000 Kinder Morgan Energy Partners, LP 6.75 3/15/2011 2,111
2,000 NGPL PipeCo, LLC 6.51 12/15/2012 2,211
2,000 Sunoco Logistics Partners Operations, LP 8.75 2/15/2014 2,249
2,000 Valero Logistics 6.88 7/15/2012 2,172
================================================================================
20 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 Williams Companies, Inc.(a) 6.38% 10/01/2010 $ 5,134
3,000 Williams Companies, Inc. 8.13 3/15/2012 3,450
----------
32,229
----------
Total Energy 57,564
----------
FINANCIALS (9.8%)
-----------------
ASSET MANAGEMENT & CUSTODY BANKS (0.2%)
2,000 State Street Corp. 2.15 4/30/2012 2,042
----------
CONSUMER FINANCE (0.2%)
2,000 American Express Credit Corp. 5.88 5/02/2013 2,169
1,000 American Honda Finance Corp.(a) 6.70 10/01/2013 1,110
----------
3,279
----------
DIVERSIFIED BANKS (0.1%)
1,000 First Tennessee Bank, N.A. 4.63 5/15/2013 943
----------
LIFE & HEALTH INSURANCE (2.2%)
1,000 Blue Cross Blue Shield, Inc. 8.25 11/15/2011 1,094
2,000 Genworth Life Institutional Funding Trust(a) 5.88 5/03/2013 2,038
2,000 Jackson National Life Global Funding(a) 5.38 5/08/2013 2,154
3,000 MetLife Global Funding I(a) 0.31(b) 5/17/2010 2,999
3,000 MetLife Global Funding I(a) 0.65(b) 7/13/2011 3,000
2,000 MetLife Global Funding I(a) 5.75 7/25/2011 2,108
1,000 MetLife Global Funding I(a) 5.13 4/10/2013 1,078
3,000 Pricoa Global Funding I(a) 5.45 6/11/2014 3,262
1,500 Principal Life Global Funding I 6.25 2/15/2012 1,584
4,000 Principal Life Income Fundings Trust 5.15 6/17/2011 4,175
2,000 Principal Life Income Fundings Trust 5.15 9/30/2011 2,098
2,000 Principal Life Income Fundings Trust 5.30 12/14/2012 2,139
2,000 Prudential Financial, Inc. 5.15 1/15/2013 2,132
----------
29,861
----------
MULTI-LINE INSURANCE (0.5%)
3,000 Genworth Global Funding Trust 5.20 10/08/2010 3,075
4,000 Hartford Life Global Funding Trust 0.35(b) 1/17/2012 3,897
----------
6,972
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (2.0%)
5,000 Citibank, N.A. 1.75 12/28/2012 5,020
5,000 Citigroup Funding, Inc. 1.88 10/22/2012 5,043
10,000 Citigroup, Inc. 2.13 4/30/2012 10,207
2,000 Citigroup, Inc. 5.30 10/17/2012 2,108
5,000 General Electric Capital Corp. 2.25 3/12/2012 5,122
584 ZFS Finance USA Trust IV(a) 5.88 5/09/2032 501
----------
28,001
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE (0.5%)
$ 2,000 Allstate Life Global Funding Trust 5.38% 4/30/2013 $ 2,172
5,000 Berkshire Hathaway Finance Corp.(c) 4.20 12/15/2010 5,168
----------
7,340
----------
REGIONAL BANKS (0.7%)
2,000 BB&T Corp. 3.38 9/25/2013 2,049
2,000 Chittenden Corp. 5.80 2/14/2017 1,993
2,000 Cullen/Frost Bankers, Inc. 5.75 2/15/2017 1,880
2,000 National City Bank 4.50 3/15/2010 2,007
2,000 Susquehanna Bancshares, Inc. 2.10(b) 5/01/2014 1,501
----------
9,430
----------
REITs - DIVERSIFIED (0.2%)
3,000 WEA Finance, LLC(a) 5.40 10/01/2012 3,205
----------
REITs - INDUSTRIAL (0.5%)
2,000 AMB Property, LP 6.30 6/01/2013 2,127
3,000 ProLogis 5.50 3/01/2013 3,100
2,000 ProLogis 2.25 4/01/2037 1,882
----------
7,109
----------
REITs - OFFICE (0.5%)
2,000 Boston Properties, LP 6.25 1/15/2013 2,183
2,000 Duke Realty, LP 5.63 8/15/2011 2,084
2,000 Mack-Cali Realty, LP 5.05 4/15/2010 2,009
1,050 Mack-Cali Realty, LP 7.75 2/15/2011 1,104
----------
7,380
----------
REITs - RESIDENTIAL (0.8%)
878 AvalonBay Communities, Inc. 6.63 9/15/2011 937
2,000 AvalonBay Communities, Inc. 5.50 1/15/2012 2,102
5,000 Camden Property Trust 5.88 11/30/2012 5,239
1,000 ERP Operating, LP 6.63 3/15/2012 1,073
2,000 ERP Operating, LP 5.50 10/01/2012 2,107
----------
11,458
----------
REITs - RETAIL (0.9%)
2,000 Equity One, Inc. 6.25 12/15/2014 2,059
1,000 Kimco Realty Corp. 6.00 11/30/2012 1,068
1,000 Regency Centers, LP 6.75 1/15/2012 1,063
2,615 Simon Property Group, LP 7.75 1/20/2011 2,725
2,000 Simon Property Group, LP 5.60 9/01/2011 2,096
3,000 Weingarten Realty Investors 5.26 5/15/2012 3,010
----------
12,021
----------
================================================================================
22 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
REITs - SPECIALIZED (0.3%)
$ 1,000 Health Care Property Investors, Inc. 5.95% 9/15/2011 $ 1,051
2,950 Nationwide Health Properties, Inc. 6.90 10/01/2037 3,038
----------
4,089
----------
THRIFTS & MORTGAGE FINANCE (0.2%)
2,255 Sovereign Bank 2.07(b) 4/01/2014 2,242
----------
Total Financials 135,372
----------
GOVERNMENT (0.8%)
-----------------
U.S. GOVERNMENT (0.8%)(d)
5,000 U.S. Central Federal Credit Union 1.25 10/19/2011 5,032
5,000 U.S. Central Federal Credit Union 1.90 10/19/2012 5,048
----------
Total Government 10,080
----------
HEALTH CARE (1.6%)
------------------
HEALTH CARE EQUIPMENT (0.2%)
2,000 Covidien International Finance S.A. 5.45 10/15/2012 2,202
----------
PHARMACEUTICALS (1.4%)
2,000 Abbott Laboratories 5.15 11/30/2012 2,206
3,000 Eli Lilly & Co. 3.55 3/06/2012 3,142
1,000 Merck & Co., Inc. 1.88 6/30/2011 1,012
9,400 Pfizer, Inc.(c) 4.45 3/15/2012 10,012
3,000 Roche Holdings, Inc.(a) 4.50 3/01/2012 3,197
----------
19,569
----------
Total Health Care 21,771
----------
INDUSTRIALS (2.8%)
------------------
AEROSPACE & DEFENSE (0.5%)
1,996 BAE Systems Asset Trust(a) 6.66 9/15/2013 2,139
3,000 BAE Systems Holdings, Inc. 6.40 12/15/2011 3,201
2,000 General Dynamics Corp. 1.80 7/15/2011 2,031
----------
7,371
----------
AIR FREIGHT & LOGISTICS (0.3%)
2,000 FedEx Corp. 7.38 1/15/2014 2,305
2,000 United Parcel Service 3.88 4/01/2014 2,118
----------
4,423
----------
AIRLINES (0.9%)
134 Airplanes Pass-Through Trust 0.61(b) 3/15/2019 126
2,085 American Airlines, Inc. Pass-Through Trust (INS) 3.86 7/09/2010 2,059
2,000 Southwest Airlines Co. 6.50 3/01/2012 2,139
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 8,615 United Airlines, Inc. Pass-Through Trust 7.78% 1/01/2014 $ 8,588
----------
12,912
----------
BUILDING PRODUCTS (0.2%)
2,000 CRH America, Inc. 5.63 9/30/2011 2,111
----------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.6%)
1,000 Caterpillar Financial Services Corp. 4.85 12/07/2012 1,085
3,000 John Deere Capital Corp. 5.25 10/01/2012 3,271
3,000 Paccar, Inc. 6.88 2/15/2014 3,453
----------
7,809
----------
INDUSTRIAL CONGLOMERATES (0.1%)
1,000 Tyco International Finance 8.50 1/15/2019 1,256
----------
RAILROADS (0.2%)
2,000 Union Pacific Corp. 5.13 2/15/2014 2,149
----------
Total Industrials 38,031
----------
INFORMATION TECHNOLOGY (0.2%)
-----------------------------
DATA PROCESSING & OUTSOURCED SERVICES (0.1%)
1,000 Computer Sciences Corp. 5.50 3/15/2013 1,087
----------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%)
2,000 Agilent Technologies, Inc. 4.45 9/14/2012 2,108
----------
Total Information Technology 3,195
----------
MATERIALS (0.7%)
----------------
DIVERSIFIED CHEMICALS (0.5%)
2,000 Chevron Phillips Chemical Co., LLC 7.00 3/15/2011 2,107
2,000 Dow Chemical Co. 4.85 8/15/2012 2,138
1,000 E. I. du Pont de Nemours and Co. 5.00 1/15/2013 1,080
1,000 E. I. du Pont de Nemours and Co. 5.00 7/15/2013 1,092
----------
6,417
----------
GOLD (0.1%)
2,000 Barrick Gold Finance Co., LLC 6.13 9/15/2013 2,246
----------
STEEL (0.1%)
1,000 Arcelormittal USA, Inc. 6.50 4/15/2014 1,092
----------
Total Materials 9,755
----------
TELECOMMUNICATION SERVICES (2.1%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (1.5%)
2,000 AT&T, Inc. 4.85 2/15/2014 2,165
5,852 Bellsouth Corp.(c) 6.00 10/15/2011 6,332
4,880 Qwest Corp. 8.88 3/15/2012 5,264
================================================================================
24 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 Telecom Italia Capital 5.25% 11/15/2013 $ 5,345
1,000 Verizon Communications, Inc. 5.25 4/15/2013 1,094
----------
20,200
----------
WIRELESS TELECOMMUNICATION SERVICES (0.6%)
2,000 ALLTEL Corp. 7.00 7/01/2012 2,236
5,000 Verizon Wireless Capital 3.75 5/20/2011 5,169
1,000 Verizon Wireless Capital 7.38 11/15/2013 1,165
----------
8,570
----------
Total Telecommunication Services 28,770
----------
UTILITIES (5.2%)
----------------
ELECTRIC UTILITIES (3.6%)
2,000 Allegheny Energy Supply Co., LLC 7.80 3/15/2011 2,127
1,000 Appalachian Power Co. 5.55 4/01/2011 1,046
747 Aquila, Inc. 7.95 2/01/2011 783
1,040 Cedar Brakes II, LLC(a) 9.88 9/01/2013 1,069
2,000 Cincinnati Gas & Electric Co. 5.70 9/15/2012 2,192
2,000 Commonwealth Edison Co. 6.15 3/15/2012 2,186
1,367 Consumers Energy Co. 4.00 5/15/2010 1,379
2,145 Detroit Edison Co. 6.13 10/01/2010 2,222
2,000 Duke Energy Ohio, Inc. 2.10 6/15/2013 2,000
3,000 Entergy Louisiana Holdings, Inc. 5.83 11/01/2010 3,007
2,000 FPL Group Capital, Inc. 5.63 9/01/2011 2,131
3,000 FPL Group Capital, Inc. 0.67(b) 11/09/2012 3,017
2,000 ITC Holdings Corp.(a) 5.25 7/15/2013 2,051
4,825 Nevada Power Co. 6.50 4/15/2012 5,207
1,000 Northeast Utilities 5.65 6/01/2013 1,056
2,000 Northern States Power Co. 8.00 8/28/2012 2,317
536 Oglethorpe Power Corp. 6.97 6/30/2011 541
2,000 PacifiCorp 6.90 11/15/2011 2,198
2,000 Pepco Holdings, Inc. 4.00 5/15/2010 2,015
459 Power Contract Financing, LLC(a) 6.26 2/01/2010 459
7,000 Southern Co. 0.65(b) 10/21/2011 7,041
4,000 UtiliCorp Canada Finance Corp. 7.75 6/15/2011 4,252
----------
50,296
----------
GAS UTILITIES (0.3%)
2,000 AGL Capital Corp. 7.13 1/14/2011 2,108
1,000 Consolidated Natural Gas Co. 5.00 3/01/2014 1,071
1,000 ONEOK Partners, LP 5.90 4/01/2012 1,077
----------
4,256
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES (1.3%)
$ 3,605 Black Hills Corp. 6.50% 5/15/2013 $ 3,869
2,000 CenterPoint Energy Houston Electric, LLC 5.70 3/15/2013 2,163
2,000 CenterPoint Energy Houston Electric, LLC 7.00 3/01/2014 2,316
1,000 CenterPoint Energy, Inc. 7.25 9/01/2010 1,030
1,000 Dominion Resources, Inc. 8.88 1/15/2019 1,270
1,000 Energy East Corp. 6.75 6/15/2012 1,114
2,000 Nisource Finance Corp. 7.88 11/15/2010 2,098
1,000 Puget Sound Energy, Inc. 6.75 1/15/2016 1,108
2,252 TECO Finance, Inc. 7.00 5/01/2012 2,443
----------
17,411
----------
Total Utilities 71,963
----------
Total Corporate Obligations (cost: $399,943) 419,243
----------
EURODOLLAR AND YANKEE OBLIGATIONS (3.9%)
ENERGY (0.7%)
-------------
INTEGRATED OIL & GAS (0.7%)
5,000 BP Capital Markets plc(c) 3.13 3/10/2012 5,196
2,000 Husky Energy, Inc. 5.90 6/15/2014 2,204
1,551 PEMEX Finance Ltd. 9.03 2/15/2011 1,596
----------
8,996
----------
OIL & GAS DRILLING (0.0%)
268 Delek & Avner-Yam Tethys Ltd.(a) 1.38(b) 8/01/2013 267
----------
Total Energy 9,263
----------
FINANCIALS (2.3%)
-----------------
DIVERSIFIED BANKS (1.4%)
2,000 Barclays Bank plc(a) 7.38 -(e) 1,910
5,000 BBVA US Senior SA Uniper(a) 0.44(b) 5/24/2011 4,999
5,000 Commonwealth Bank Australia(a) 0.58(b) 11/04/2011 5,001
2,000 Den Norske Bank ASA(a) 7.73 -(e) 1,921
1,000 HSBC Capital Funding, LP(a) 9.55 -(e) 1,020
3,000 Mizuho Financial Group, Inc. 8.38 -(e) 3,023
1,000 Royal Bank of Scotland Group plc 9.12 -(e) 860
----------
18,734
----------
DIVERSIFIED CAPITAL MARKETS (0.1%)
1,500 UBS Preferred Funding Trust II 7.25 -(e) 1,427
----------
INVESTMENT BANKING & BROKERAGE (0.2%)
2,000 Credit Suisse Group, AG 5.50 5/01/2014 2,188
----------
================================================================================
26 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MULTI-LINE INSURANCE (0.1%)
$ 2,000 ING Capital Funding Trust III 8.44% -(e) $ 1,830
----------
OTHER DIVERSIFIED FINANCIAL SERVICES (0.1%)
2,000 ZFS Finance USA Trust I(a) 6.15 12/15/2065 1,930
----------
REGIONAL BANKS (0.4%)
5,000 Canadian Imperial Bank(a),(f) 2.00 2/04/2013 5,018
----------
Total Financials 31,127
----------
INDUSTRIALS (0.1%)
------------------
INDUSTRIAL CONGLOMERATES (0.1%)
2,000 Siemens Finance(a) 5.50 2/16/2012 2,168
----------
MATERIALS (0.3%)
----------------
DIVERSIFIED METALS & MINING (0.2%)
3,030 Xstrata Finance Canada(a) 5.50 11/16/2011 3,211
----------
FERTILIZERS & AGRICULTURAL CHEMICALS (0.1%)
1,148 Agrium, Inc. 8.25 2/15/2011 1,236
----------
Total Materials 4,447
----------
TELECOMMUNICATION SERVICES (0.5%)
---------------------------------
INTEGRATED TELECOMMUNICATION SERVICES (0.5%)
6,000 British Telecommunications plc(c) 9.13 12/15/2010 6,433
----------
Total Eurodollar and Yankee Obligations (cost: $52,740) 53,438
----------
ASSET-BACKED SECURITIES (22.7%)
FINANCIALS (22.7%)
------------------
ASSET-BACKED FINANCING (22.7%)
201 Aerco Ltd.(a) 0.75(b) 7/15/2025 181
4,000 AESOP Funding II, LLC(a) 0.45(b) 3/20/2012 3,879
4,000 AESOP Funding II, LLC 5.68 2/20/2013 4,189
2,000 AESOP Funding II, LLC(a) 9.31 10/20/2013 2,255
2,000 American Express Credit Account Master Trust 0.51(b) 12/15/2013 1,967
2,500 American Express Credit Account Master Trust 0.50(b) 9/15/2014 2,431
527 AmeriCredit Automobile Receivables Trust 1.98(b) 1/12/2012 527
1,000 AmeriCredit Automobile Receivables Trust 2.21 1/15/2014 1,003
10,000 AmeriCredit Automobile Receivables Trust 6.96 10/14/2014 10,667
1,726 AmeriCredit Automobile Receivables Trust 2.90 12/15/2014 1,732
3,235 Aviation Capital Group Trust (INS)(a) 0.93(b) 9/20/2033 2,178
2,000 Banc of America Securities Auto Trust 5.51 2/19/2013 2,003
4,000 Bank of America Auto Trust(a) 5.73 1/20/2013 4,237
5,000 Bank of America Auto Trust(a) 3.52 6/15/2016 5,218
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 2,500 Bank of America Auto Trust(a) 3.03% 10/15/2016 $ 2,577
4,000 Bank of America Credit Card Trust 4.72 5/15/2013 4,139
3,000 Bank of America Credit Card Trust 0.52 6/15/2014 2,893
2,500 Bank of America Securities Auto Trust(a) 2.13 9/15/2013 2,540
5,000 Bank One Issuance Trust 4.77 2/16/2016 5,171
5,000 Bank One Issuance Trust 1.03(b) 2/15/2017 4,754
2,000 Cabela's Credit Card Master Note Trust(a) 5.26 10/15/2014 2,111
613 Capital One Auto Finance Trust (INS) 4.71 6/15/2012 616
1,722 Capital One Auto Finance Trust 0.26(b) 5/15/2013 1,702
750 Capital One Auto Finance Trust 0.26(b) 4/15/2014 729
6,699 Capital One Multi-Asset Execution Trust 0.63(b) 2/15/2013 6,681
3,637 Capital One Multi-Asset Execution Trust 6.00 8/15/2013 3,743
3,000 Capital One Multi-Asset Execution Trust 3.20 4/15/2014 3,093
2,020 Capital One Multi-Asset Execution Trust 0.53(b) 6/16/2014 1,975
6,000 Carmax Auto Owner Trust 1.74 4/15/2014 6,030
725 Caterpillar Financial Asset Trust 5.34 6/25/2012 737
2,000 Caterpillar Financial Asset Trust 4.94 4/25/2014 2,044
2,670 CenterPoint Energy Transition Bond Co., LLC 4.19 2/01/2020 2,847
2,275 Chase Issuance Trust 2.40 6/17/2013 2,321
5,000 Citi Financial Auto Issuance Trust 2.59 10/15/2013 5,050
5,000 Citi Financial Auto Issuance Trust(a) 3.15 8/15/2016 5,037
1,300 Citibank Credit Card Issuance Trust 6.95 2/18/2014 1,402
4,000 Citibank Credit Card Issuance Trust 4.40 6/20/2014 4,259
8,000 Citibank Credit Card Issuance Trust 6.30 6/20/2014 8,556
2,000 CNH Equipment Trust 5.28 11/15/2012 2,095
10,000 CPS Auto Receivables Trust (INS) 6.48 7/15/2013 10,335
10,000 Credit Acceptance Auto Loan Trust(a) 3.96 11/15/2016 10,149
964 E*Trade RV and Marine Trust 3.62 10/08/2018 970
3,000 Fifth Third Auto Trust 4.81 1/15/2013 3,125
2,000 Ford Credit Auto Owner Trust 1.98(b) 4/15/2013 2,047
3,000 Ford Credit Auto Owner Trust 2.98 8/15/2014 3,089
4,000 Ford Credit Auto Owner Trust 2.42 11/15/2014 4,001
2,216 GE Capital Commercial Mortgage Corp. 4.87 7/10/2039 2,229
600 GE Capital Credit Card Master Note Trust 0.40(b) 3/15/2013 600
1,000 GE Capital Credit Card Master Note Trust 0.50(b) 3/15/2013 1,000
1,000 GE Capital Credit Card Master Note Trust 0.24(b) 6/15/2013 998
1,000 GE Capital Credit Card Master Note Trust 0.53(b) 6/15/2013 984
3,000 GE Capital Credit Card Master Note Trust 2.54 9/15/2014 3,043
1,000 GE Capital Credit Card Master Note Trust 0.27(b) 3/15/2015 977
5,000 GE Capital Credit Card Master Note Trust(a) 5.39 11/15/2017 5,014
678 GE Equipment Midticket, LLC 0.26(b) 10/15/2012 676
3,416 GE Equipment Midticket, LLC 0.38(b) 9/15/2017 3,259
5,000 GE Equipment Midticket, LLC 3.13 11/16/2020 5,073
================================================================================
28 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,000 GE Equipment Small Ticket, LLC(a) 1.92% 7/15/2016 $ 5,031
3,792 GMAC Commercial Mortgage Securities, Inc. 6.96 9/15/2035 3,892
500 Hertz Vehicle Financing, LLC(a) 5.01 2/25/2011 501
5,000 Hertz Vehicle Financing, LLC(a) 5.08 11/25/2011 5,103
1,000 Hertz Vehicle Financing, LLC(a) 5.08 11/25/2011 1,021
5,000 Hertz Vehicle Financing, LLC(a) 4.26 3/25/2014 5,134
2,000 Honda Auto Receivables Owner Trust 5.57 11/21/2013 2,079
3,000 Honda Auto Receivables Owner Trust 4.43 7/15/2015 3,183
1,236 HSBC Automotive Trust 4.94 11/19/2012 1,243
1,575 HSBC Automotive Trust 5.33 11/17/2013 1,640
2,500 HSBC Private Label Credit Card Master Note Trust 0.25(b) 12/16/2013 2,499
10,000 HSBC Private Label Credit Card Master Note Trust 0.34(b) 12/16/2013 9,994
2,685 Huntington Auto Trust(a) 4.81 4/16/2012 2,749
3,000 Huntington Auto Trust 3.94 6/17/2013 3,096
3,000 Huntington Auto Trust(a) 5.73 1/15/2014 3,251
4,000 Hyundai Auto Receivables Trust 2.03 8/15/2013 4,060
2,000 Hyundai Auto Receivables Trust 5.48 11/17/2014 2,144
5,000 John Deere Owner Trust 1.57 10/15/2013 5,029
4,291 John Deere Owner Trust 5.07 4/15/2014 4,396
5,000 John Deere Owner Trust 3.96 5/16/2016 5,248
2,092 Long Beach Acceptance Auto Receivables Trust 5.50 5/15/2013 2,127
2,000 MBNA Master Credit Card Note Trust 6.80 7/15/2014 2,141
7,000 MMAF Equipment Finance, LLC(a) 2.37 11/15/2013 7,004
3,000 MMAF Equipment Finance, LLC(a) 3.51 1/15/2030 3,002
5,000 Nissan Auto Receivables Owner Trust 4.28 6/16/2014 5,221
2,000 Nissan Auto Receivables Owner Trust 5.05 11/17/2014 2,122
7,318 Prestige Auto Receivables Trust "A"(a) 5.67 4/15/2017 7,322
10,500 Rental Car Finance Corp.(a) 0.37 7/25/2013 9,419
2,500 SLM Student Loan Trust 0.61(b) 12/15/2023 2,204
6,278 SLM Student Loan Trust 0.63(b) 1/27/2025 5,236
1,250 SLM Student Loan Trust 0.45(b) 10/27/2025 1,016
1,847 SLM Student Loan Trust 0.80(b) 10/25/2038 1,606
13 Triad Automobile Receivables Owners Trust 5.26 11/14/2011 14
900 USXL Funding, LLC (INS)(a) 5.38 4/15/2014 900
3,000 Volkswagen Auto Loan Enhanced Trust 6.24 7/20/2015 3,344
2,000 Wachovia Auto Owner Trust 4.81 9/20/2012 2,057
1,294 Wachovia Auto Owner Trust 5.49 4/22/2013 1,352
2,000 Wachovia Auto Owner Trust 5.35 3/20/2014 2,128
----------
Total Financials 312,646
----------
Total Asset-Backed Securities (cost: $301,845) 312,646
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
COMMERCIAL MORTGAGE SECURITIES (21.2%)
FINANCIALS (21.2%)
------------------
COMMERCIAL MORTGAGE-BACKED SECURITIES (20.5%)
$ 3,000 Banc of America Commercial Mortgage, Inc. 6.02% 3/10/2013 $ 3,109
1,064 Banc of America Commercial Mortgage, Inc. 6.33 5/11/2035 1,084
2,000 Banc of America Commercial Mortgage, Inc. 4.65 9/11/2036 2,042
6,361 Banc of America Commercial Mortgage, Inc. 4.05 11/10/2038 6,336
3,025 Banc of America Commercial Mortgage, Inc. 4.56 11/10/2041 3,047
5,000 Banc of America Commercial Mortgage, Inc. 4.50 7/10/2042 5,076
5,100 Banc of America Commercial Mortgage, Inc. 5.04 11/10/2042 5,159
4,590 Banc of America Commercial Mortgage, Inc. 4.16 12/10/2042 4,606
3,674 Banc of America Commercial Mortgage, Inc. 4.50 7/10/2043 3,704
1,000 Banc of America Commercial Mortgage, Inc. 4.62 7/10/2043 996
5,557 Banc of America Commercial Mortgage, Inc. 4.78 7/10/2043 5,649
2,278 Banc of America Commercial Mortgage, Inc. 4.76 7/10/2045 2,294
3,000 Banc of America Commercial Mortgage, Inc. 5.15 7/10/2045 3,058
1,500 Banc of America Commercial Mortgage, Inc. 5.17 9/10/2047 1,504
6,300 Banc of America Commercial Mortgage, Inc. 5.32 9/10/2047 6,370
3,935 Bear Stearns Commercial Mortgage Securities, Inc. 4.24 8/13/2039 3,899
1,061 Bear Stearns Commercial Mortgage Securities, Inc. 4.00 3/13/2040 1,074
2,221 Bear Stearns Commercial Mortgage Securities, Inc. 4.95 2/11/2041 2,298
3,000 Chase Commercial Mortgage Securities Corp. 7.73 1/15/2032 3,002
53 Chase Commercial Mortgage Securities Corp. 7.76 4/15/2032 53
4,058 Chase Commercial Mortgage Securities Corp. 7.32 10/15/2032 4,149
2,050 Citigroup Commercial Mortgage Trust 4.38 10/15/2041 2,057
873 Commercial Mortgage Asset Trust 6.64 1/17/2032 873
1,000 Commercial Mortgage Asset Trust 7.64 11/17/2032 961
2,466 Commercial Mortgage Asset Trust 4.63 5/10/2043 2,456
2,000 Commercial Mortgage Trust 4.58 10/15/2037 1,925
1,994 Commercial Mortgage Trust(a) 5.65 3/03/2041 1,464
5,100 Commercial Mortgage Trust 5.22 7/15/2044 5,159
2,418 Credit Suisse First Boston Mortgage Securities Corp. 6.51 2/15/2034 2,494
1,000 Credit Suisse First Boston Mortgage Securities Corp.(a) 5.78 12/15/2035 860
1,000 Credit Suisse First Boston Mortgage Securities Corp. 4.92 4/15/2037 780
4,389 Credit Suisse First Boston Mortgage Securities Corp. 4.51 7/15/2037 4,397
1,561 Credit Suisse First Boston Mortgage Securities Corp. 4.18 11/15/2037 1,562
1,106 Credit Suisse First Boston Mortgage Securities Corp. 3.38 5/15/2038 1,107
1,320 Credit Suisse First Boston Mortgage Securities Corp. 5.10 8/15/2038 1,349
456 Credit Suisse First Boston Mortgage Securities Corp.(c) 3.88 10/15/2039 453
5,000 Credit Suisse First Boston Mortgage Securities Corp. 5.21 12/15/2040 5,057
702 Credit Suisse First Boston Mortgage Securities Corp. 7.55 4/15/2062 708
1,623 Deutsche Mortgage & Asset Receiving Corp. 7.50 6/15/2031 1,727
3,000 First Union National Bank Commercial Mortgage Trust 6.22 12/12/2033 3,141
================================================================================
30 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 465 G-Force, LLC(a) 4.39% 8/22/2036 $ 447
236 GE Commercial Mortgage Corp. 4.17 7/10/2037 238
4,985 GE Commercial Mortgage Corp. 4.86 7/10/2045 4,964
3,675 GE Commercial Mortgage Corp. 5.31 11/10/2045 3,718
1,800 GE Commercial Mortgage Corp. 5.34 11/10/2045 1,835
4,558 GE Commercial Mortgage Corp. 4.35 6/10/2048 4,623
3,516 GMAC Commercial Mortgage Securities, Inc. 7.53 9/15/2033 3,409
2,000 GMAC Commercial Mortgage Securities, Inc. 6.50 5/15/2035 2,010
3,000 GMAC Commercial Mortgage Securities, Inc. 4.65 4/10/2040 3,048
2,000 GMAC Commercial Mortgage Securities, Inc. 4.75 5/10/2043 1,759
3,878 Greenwich Capital Commercial Funding Corp. 4.31 8/10/2042 3,900
1,349 GS Mortgage Securities Corp. II(a) 6.04 8/15/2018 1,342
1,000 GS Mortgage Securities Corp. II 4.96 8/10/2038 999
1,000 GS Mortgage Securities Corp. II 5.53 8/10/2038 665
3,410 GS Mortgage Securities Corp. II(a) 4.48 7/10/2039 3,396
2,570 GS Mortgage Securities Corp. II 4.30 1/10/2040 2,625
3,762 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.85 8/15/2042 3,737
369 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 6.24 4/15/2035 373
4,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.82 9/12/2037 4,040
4,200 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.87 10/15/2042 4,351
2,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.49 4/15/2043 2,104
4,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp.(c) 5.79 6/12/2043 4,188
960 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.20 12/15/2044 964
2,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.87 4/15/2045 2,063
3,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.52 5/12/2045 3,077
3,000 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 5.37 5/15/2045 3,144
4,028 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.63 3/15/2046 4,038
1,725 J.P. Morgan Chase Commercial Mortgage
Securities Corp. 4.87 3/15/2046 1,711
2,000 LB-UBS Commercial Mortgage Trust(a) 6.83 7/14/2016 2,048
17 LB-UBS Commercial Mortgage Trust 6.27 6/15/2020 17
868 LB-UBS Commercial Mortgage Trust 4.56 9/15/2026 882
2,270 LB-UBS Commercial Mortgage Trust 4.56 9/15/2027 2,296
================================================================================
PORTFOLIO OF INVESTMENTS | 31
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 2,070 LB-UBS Commercial Mortgage Trust 3.97% 3/15/2029 $ 2,028
6,000 LB-UBS Commercial Mortgage Trust 5.07 6/15/2029 5,988
3,000 LB-UBS Commercial Mortgage Trust 4.55 8/15/2029 3,017
5,400 LB-UBS Commercial Mortgage Trust 4.51 12/15/2029 5,301
3,045 LB-UBS Commercial Mortgage Trust 4.82 4/15/2030 3,041
2,000 LB-UBS Commercial Mortgage Trust 5.00 4/15/2030 2,014
4,940 LB-UBS Commercial Mortgage Trust 4.65 7/15/2030 4,944
5,000 LB-UBS Commercial Mortgage Trust 5.10 11/15/2030 5,030
1,121 LB-UBS Commercial Mortgage Trust 5.02 2/15/2031 1,134
1,500 Merrill Lynch Mortgage Trust 5.10 7/12/2038 1,008
4,690 Merrill Lynch Mortgage Trust 4.17 8/12/2039 4,724
1,827 Merrill Lynch Mortgage Trust 4.35 2/12/2042 1,791
2,583 Merrill Lynch Mortgage Trust 4.81 9/12/2042 2,584
2,992 Merrill Lynch Mortgage Trust 4.56 6/12/2043 3,006
3,000 Merrill Lynch-Countrywide Commercial Mortgage Trust 5.38 7/12/2046 2,976
2,310 Morgan Stanley Capital I, Inc. 4.90 6/15/2040 2,301
2,000 Morgan Stanley Capital I, Inc. 4.73 6/12/2047 2,002
3,100 Morgan Stanley Dean Witter Capital I, Inc. 7.49 2/23/2034 3,283
2,712 Morgan Stanley Dean Witter Capital I, Inc. 6.51 4/15/2034 2,855
898 Morgan Stanley Dean Witter Capital I, Inc.(a) 5.13 5/24/2043 836
2,000 Mortgage Capital Funding, Inc. 7.08 6/18/2030 1,988
2,000 PNC Mortgage Acceptance Corp. 7.50 10/12/2033 2,020
2,000 Prudential Securities Secured Financing Corp. 6.76 6/16/2031 2,023
614 Salomon Brothers Mortgage Securities VII, Inc. 7.46 7/18/2033 615
1,931 Salomon Brothers Mortgage Securities VII, Inc. 4.47 3/18/2036 2,008
2,000 SBA Trust(a) 5.45 11/15/2036 2,081
3,012 Structured Asset Securities Corp. 7.15 10/12/2034 3,084
248 Trizechahn Office Properties Trust(a) 6.09 5/15/2016 256
3,003 Wachovia Bank Commercial Mortgage Trust 4.78 3/15/2042 2,998
5,527 Wachovia Bank Commercial Mortgage Trust 4.66 4/15/2042 5,565
5,080 Wachovia Bank Commercial Mortgage Trust 5.24 7/15/2042 5,100
902 Wachovia Bank Commercial Mortgage Trust 5.68 5/15/2043 910
2,000 Wachovia Bank Commercial Mortgage Trust 5.17 10/15/2044 2,096
7,000 Wachovia Bank Commercial Mortgage Trust 5.50 10/15/2048 7,116
----------
282,773
----------
ESCROWED BONDS (0.3%)
1,313 GS Mortgage Securities Corp. II(a) 6.21 2/14/2016 1,367
3,000 GS Mortgage Securities Corp. II(a) 6.77 5/03/2018 3,146
----------
4,513
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.4%)
40,645 Credit Suisse First Boston Mortgage
Securities Corp., acquired 2/26/2004
and 8/30/2004; cost $1,819(a),(g) 0.95 1/15/2037 413
================================================================================
32 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 6,736 Credit Suisse First Boston Mortgage
Securities Corp., acquired 6/17/2003
and 8/04/2005; cost $594(a),(g) 1.69% 5/15/2038 $ 43
35,852 J.P. Morgan Chase Commercial Mortgage
Securities Corp., acquired 8/05/2009;
cost $466(a),(g) 0.70 1/12/2037 412
62,097 LB-UBS Commercial Mortgage Trust,
acquired 8/05/2009; cost $944(a),(g) 1.05 3/15/2036 674
130,064 LB-UBS Commercial Mortgage Trust,
acquired 7/10/2009; cost $1,687(a),(g) 0.73 10/15/2036 1,585
38,729 LB-UBS Commercial Mortgage Trust,
acquired 5/20/2003 and 12/14/2007;
cost $1,225(a),(g) 1.04 2/15/2037 138
49,559 Morgan Stanley Capital I, Inc.,
acquired 5/09/2008; cost $1,175(a),(g) 0.87 4/15/2038 672
48,060 Morgan Stanley Capital I, Inc.,
acquired 5/09/2008; cost $1,265(a),(g) 0.88 1/13/2041 1,079
----------
5,016
----------
Total Financials 292,302
----------
Total Commercial Mortgage Securities (cost: $288,560) 292,302
----------
U.S. GOVERNMENT AGENCY ISSUES (13.6%)(d)
COLLATERALIZED MORTGAGE OBLIGATIONS (0.2%)
2,000 Freddie Mac(+) 4.50 1/15/2029 2,105
----------
DEBENTURES (0.7%)
5,000 Fannie Mae(+)(c) 1.38 4/28/2011 5,051
4,000 Fannie Mae(+) 1.88 4/20/2012 4,069
----------
9,120
----------
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (0.0%)
3,952 Government National Mortgage Assn. 1.75%(b) 7/16/2010 48
----------
MORTGAGE-BACKED PASS-THROUGH SECURITIES (8.2%)
8,331 Fannie Mae(+) 4.50 5/01/2023 8,691
3,985 Fannie Mae(+) 4.50 2/01/2024 4,153
3,168 Fannie Mae(+) 5.00 12/01/2021 3,359
7,986 Fannie Mae(+) 5.00 6/01/2023 8,445
4,950 Fannie Mae(+) 5.00 9/01/2023 5,235
16,394 Fannie Mae(+) 5.00 2/01/2024 17,336
4,633 Fannie Mae(+) 5.50 12/01/2020 4,986
3,441 Fannie Mae(+) 5.50 2/01/2023 3,682
9,922 Fannie Mae(+) 5.50 6/01/2023 10,627
4,538 Fannie Mae(+) 5.50 9/01/2023 4,857
8,840 Fannie Mae(+) 5.50 6/01/2024 9,467
================================================================================
PORTFOLIO OF INVESTMENTS | 33
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
$ 5,241 Fannie Mae(+) 6.00% 10/01/2022 $ 5,645
6,668 Fannie Mae(+) 6.00 1/01/2023 7,182
3,620 Fannie Mae(+) 6.00 1/01/2023 3,899
3,940 Fannie Mae(+) 6.00 7/01/2023 4,242
2,896 Freddie Mac(+) 3.90(b) 4/01/2035 2,990
2,824 Freddie Mac(+) 5.00 5/01/2020 3,003
1,645 Freddie Mac(+) 5.00 9/01/2020 1,750
944 Freddie Mac(+) 5.50 11/01/2018 1,014
2,704 Freddie Mac(+) 5.50 4/01/2021 2,899
----------
113,462
----------
OTHER U.S. GOVERNMENT GUARANTEED SECURITIES (4.5%)(h)
2,000 Bank of America Corp. (INS) 3.13 6/15/2012 2,089
3,000 Citbank, N.A. (INS) 1.63 3/30/2011 3,037
10,000 Citibank N.A. (INS) 1.25 11/15/2011 10,067
10,000 Citigroup Funding, Inc. (INS) 1.88 11/15/2012 10,084
3,000 Citigroup, Inc. (INS) 0.31(b) 5/07/2012 3,007
3,000 Citigroup, Inc. (INS) 1.38 5/05/2011 3,028
3,000 General Electric Capital Corp. (INS) 2.13 12/21/2012 3,044
10,000 GMAC, Inc. (INS) 1.75 10/30/2012 10,046
1,000 MetLife, Inc. (INS) 0.57(b) 6/29/2012 1,009
2,000 PNC Funding Corp. (INS) 0.45(b) 4/01/2012 2,012
5,000 PNC Funding Corp. (INS) 0.53(b) 6/22/2011 5,024
2,000 Sovereign Bank (INS) 2.75 1/17/2012 2,066
3,000 State Street Corp. (INS) 1.85 3/15/2011 3,045
5,000 Western Corp. Federal Credit Union (INS) 1.75 11/02/2012 5,031
----------
62,589
----------
Total U.S. Government Agency Issues (cost: $180,933) 187,324
----------
MUNICIPAL BONDS (4.4%)
AIRPORT/PORT (0.3%)
880 Cleveland (INS) 5.24 1/01/2017 889
2,745 College Park Georgia (INS) 5.66 1/01/2012 2,855
500 Metropolitan Nashville Airport Auth. (INS)(f) 2.25 7/01/2012 502
500 Metropolitan Nashville Airport Auth. (INS)(f) 3.73 7/01/2014 504
----------
4,750
----------
APPROPRIATED DEBT (0.3%)
1,000 Commonwealth Finance Auth. 3.38 6/01/2013 1,033
2,000 Commonwealth Finance Auth. 4.18 6/01/2015 2,085
950 Reeves County (INS) 5.75 3/01/2012 949
----------
4,067
----------
BUILDINGS (0.2%)
3,000 Rhode Island EDC 3.78 5/15/2012 3,096
----------
================================================================================
34 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
COMMUNITY SERVICE (0.1%)
$ 1,500 American National Red Cross 5.36% 11/15/2011 $ 1,539
----------
ELECTRIC UTILITIES (0.8%)
2,000 Air Quality Dev. Auth. 4.75 8/01/2029 2,050
2,000 American Municipal Power, Inc. 3.62 2/15/2013 2,072
3,000 American Municipal Power, Inc. 3.82 2/15/2014 3,063
2,000 Maricopa County 5.50 5/01/2029 2,096
1,605 Mississippi Dev. Bank (INS) 5.24 7/01/2011 1,637
----------
10,918
----------
ELECTRIC/GAS UTILITIES (0.2%)
1,750 Energy Northwest 5.23 7/01/2011 1,855
700 Pedernales Electric Cooperative, Inc. (INS)(a) 4.09 11/15/2012 708
----------
2,563
----------
ENVIRONMENTAL & FACILITIES SERVICES (0.5%)
2,000 Amelia County IDA 4.80 4/01/2027 2,006
2,000 Gloucester County 3.38(b) 12/01/2029 2,018
1,750 Miami Dade County 2.00(b) 12/01/2018 1,751
1,600 Yavapai County IDA 4.00 6/01/2027 1,606
----------
7,381
----------
GENERAL OBLIGATION (0.9%)
10,000 California 3.00 5/25/2010 10,063
2,000 California 5.65 4/01/2039 2,083
----------
12,146
----------
MISCELLANEOUS (0.4%)
5,000 Statewide Communities Dev. Auth. 5.00 6/15/2013 5,352
----------
NURSING/CCRC (0.2%)
2,000 Waco Health Facilities Dev. Corp. (INS) 5.27 2/01/2016 2,100
----------
SALES TAX (0.4%)
5,000 Louisiana 3.00(b) 5/01/2043 5,056
----------
SPECIAL ASSESSMENT/TAX/FEE (0.1%)
710 City and County of San Francisco Redevelopment
Financing Auth. (INS) 5.62 8/01/2016 721
1,000 New York State Housing Finance Agency 5.19 9/15/2011 1,073
----------
1,794
----------
Total Municipal Bonds (cost: $59,479) 60,762
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS (3.4%)
VARIABLE-RATE DEMAND NOTES (2.6%)
FINANCIALS (0.7%)
-----------------
REAL ESTATE OPERATING COMPANIES (0.7%)
$ 9,330 Wake County Housing Auth. (LOC - SunTrust Bank) 0.40% 12/01/2033 $ 9,330
----------
HEALTH CARE (0.3%)
------------------
HEALTH CARE FACILITIES (0.3%)
3,260 Albany IDA (LOC - RBS Citizens, N.A.) 1.15 5/01/2035 3,260
----------
MUNICIPAL BONDS (1.2%)
----------------------
HOSPITAL (0.7%)
10,000 Johnson City Health and Educational
Facilities Board (LOC - Regions Bank) 1.45 7/01/2033 10,000
----------
MULTIFAMILY HOUSING (0.5%)
6,975 Housing Finance Commission
(LOC - HSH Nordbank A.G.) 0.30 3/01/2036 6,975
----------
Total Municipal Bonds 16,975
----------
UTILITIES (0.4%)
----------------
ELECTRIC UTILITIES (0.4%)
6,000 Gulf Coast IDA 2.15 5/01/2039 6,000
----------
Total Variable-Rate Demand Notes 35,565
----------
-------------------------------------------------------------------------------------------------------------
NUMBER
OF SHARES
-------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS (0.8%)
11,730,880 State Street Institutional Liquid Reserve Fund, 0.13%(i) 11,731
----------
Total Money Market Instruments (cost: $47,296) 47,296
----------
TOTAL INVESTMENTS (COST: $1,330,796) $1,373,011
==========
================================================================================
36 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
---------------------------------------------------------------------------------------------------------
Bonds:
Corporate Obligations $ - $ 419,243 $- $ 419,243
Eurodollar and Yankee Obligations - 53,438 - 53,438
Asset-Backed Securities - 312,646 - 312,646
Commercial Mortgage Securities - 292,302 - 292,302
U.S. Government Agency Issues - 187,324 - 187,324
Municipal Bonds - 60,762 - 60,762
Money Market Instruments:
Variable-Rate Demand Notes - 35,565 - 35,565
Money Market Funds 11,731 - - 11,731
---------------------------------------------------------------------------------------------------------
Total $11,731 $1,361,280 $- $1,373,011
---------------------------------------------------------------------------------------------------------
Reconciliation of assets in which significant unobservable inputs (Level 3) were
used in determining value:
---------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES
---------------------------------------------------------------------------------------------------------
Balance as of July 31, 2009 $ 1,008
Net realized gain (loss) -
Change in net unrealized appreciation/depreciation 152
Net purchases (sales) 1,095
Transfers in and/or out of Level 3 (2,255)
---------------------------------------------------------------------------------------------------------
Balance as of January 31, 2010 $ -
---------------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
<PAGE>
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o CATEGORIES AND DEFINITIONS
ASSET-BACKED AND COMMERCIAL MORTGAGE-BACKED SECURITIES -- Asset-backed
securities represent a participation in, or are secured by and payable from,
a stream of payments generated by particular assets. Commercial
mortgage-backed securities reflect an interest in, and are secured by,
mortgage loans on commercial real property. The weighted average life is
likely to be substantially shorter than the stated final maturity as a result
of scheduled and unscheduled principal repayments. Rates on commercial
mortgage-backed securities may change slightly over time as underlying
mortgages pay down.
EURODOLLAR AND YANKEE OBLIGATIONS -- Eurodollar obligations are
dollar-denominated instruments that are issued outside the U.S. capital
markets by foreign corporations and financial institutions and by foreign
branches of U.S. corporations and financial institutions. Yankee obligations
are dollar-denominated instruments that are issued by foreign issuers in the
U.S. capital markets.
================================================================================
38 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
INTEREST-ONLY COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS IOs) -- represent
the right to receive only the interest payments on an underlying pool of
commercial mortgage loans. The purchase yield reflects an anticipated yield
based upon interest rates at the time of purchase and the estimated timing
and amount of future cash flows. Coupon rates after purchase vary from period
to period. The principal amount represents the notional amount of the
underlying pool on which current interest is calculated. CMBS IOs are backed
by loans that have various forms of prepayment protection, which include
lock-out provisions, yield maintenance provisions, and prepayment penalties.
This serves to moderate their prepayment risk. CMBS IOs are subject to
default-related prepayments that may have a negative impact on yield.
VARIABLE-RATE DEMAND NOTES (VRDNs) -- provide the right to sell the security
at face value on either that day or within the rate-reset period. The
interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly,
or other specified time interval to reflect current market conditions. VRDNs
will normally trade as if the maturity is the earlier put date, even though
stated maturity is longer.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDC Economic Development Corp.
IDA Industrial Development Authority/Agency
REIT Real estate investment trust
CREDIT ENHANCEMENTS -- add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
(INS) Principal and interest payments are insured by one of the following:
ACA Financial Guaranty Corp., AMBAC Assurance Corp., Assured Guaranty
Ltd., Assured Guaranty Municipal
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 39
<PAGE>
================================================================================
Corp., Federal Deposit Insurance Corp., Financial Guaranty Insurance
Co., MBIA Insurance Corp., or National Public Finance Guarantee Corp.
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) 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.
(b) Variable-rate or floating-rate security -- interest rate is adjusted
periodically. The interest rate disclosed represents the current rate at
January 31, 2010.
(c) At January 31, 2010, portions of these securities were segregated to
cover delayed-delivery and/or when-issued purchases.
(d) U.S. government agency issues - mortgage-backed securities issued by
Government National Mortgage Association (GNMA) and certain other U.S.
government guaranteed securities are supported by the full faith and
credit of the U.S. government. Securities issued by government-sponsored
enterprises, indicated with "+", are supported only by the right of the
government-sponsored enterprise to borrow from the U.S. Treasury, the
discretionary authority of the U.S. government to purchase the
government-sponsored enterprises' obligations, or by the credit of the
issuing agency, instrumentality, or corporation, and are neither issued
nor guaranteed by the U.S. Treasury.
================================================================================
40 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
(e) Security is perpetual and has no final maturity date but may be subject
to calls at various dates in the future.
(f) At January 31, 2010, the aggregate market value of securities purchased
on a when-issued basis was $6,024,000.
(g) 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 $5,016,000, which represented 0.4%
of the Fund's net assets.
(h) Other U.S. government guaranteed securities - The FDIC Temporary
Liquidity Guarantee Program provides a guarantee of payment of
principal and interest on certain newly issued senior unsecured debt
through the program's expiration date on December 31, 2012. The
guarantee carries the full faith and credit of the U.S. government.
(i) Rate represents the money market fund annualized seven-day yield at
January 31, 2010.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 41
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $1,330,796) $1,373,011
Cash 533
Receivables:
Capital shares sold:
Affiliated transactions (Note 7) 19
Nonaffiliated transactions 5,419
Interest 9,884
Securities sold 20
----------
Total assets 1,389,886
----------
LIABILITIES
Payables:
Securities purchased 11,317
Capital shares redeemed:
Affiliated transactions (Note 7) 2
Nonaffiliated transactions 1,062
Dividends on capital shares 198
Accrued management fees 307
Accrued transfer agent's fees 54
Other accrued expenses and payables 30
----------
Total liabilities 12,970
----------
Net assets applicable to capital shares outstanding $1,376,916
==========
NET ASSETS CONSIST OF:
Paid-in capital $1,381,704
Accumulated undistributed net investment income 1
Accumulated net realized loss on investments (47,004)
Net unrealized appreciation of investments 42,215
----------
Net assets applicable to capital shares outstanding $1,376,916
==========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $1,327,791/145,423 shares outstanding) $ 9.13
==========
Institutional Shares (net assets of $49,125/5,380 shares outstanding) $ 9.13
==========
See accompanying notes to financial statements.
================================================================================
42 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $27,225
-------
EXPENSES
Management fees 1,598
Administration and servicing fees:
Fund Shares 846
Institutional Shares 10
Transfer agent's fees:
Fund Shares 977
Institutional Shares 10
Custody and accounting fees:
Fund Shares 106
Institutional Shares 4
Postage:
Fund Shares 29
Shareholder reporting fees:
Fund Shares 18
Trustees' fees 5
Registration fees:
Fund Shares 45
Institutional Shares 1
Professional fees 31
Other 10
-------
Total expenses 3,690
Transfer agent's fees reimbursed (Note 6D):
Fund Shares (128)
-------
Net expenses 3,562
-------
NET INVESTMENT INCOME 23,663
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 458
Change in net unrealized appreciation/depreciation 28,977
-------
Net realized and unrealized gain 29,435
-------
Increase in net assets resulting from operations $53,098
=======
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 43
<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 $ 23,663 $ 35,944
Net realized gain (loss) on investments 458 (2,976)
Change in net unrealized appreciation/depreciation
of investments 28,977 18,207
-------------------------
Increase in net assets resulting from operations 53,098 51,175
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares (22,813) (35,289)
Institutional Shares* (849) (655)
-------------------------
Distributions to shareholders (23,662) (35,944)
-------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 5)
Fund Shares 396,785 236,744
Institutional Shares* 21,985 25,336
-------------------------
Total net increase in net assets from capital
share transactions 418,770 262,080
-------------------------
Capital contribution from USAA Transfer
Agency Company:
Fund Shares - 1
-------------------------
Net increase in net assets 448,206 277,312
-------------------------
NET ASSETS
Beginning of period 928,710 651,398
-------------------------
End of period $1,376,916 $928,710
=========================
Accumulated undistributed net investment income:
End of period $ 1 $ -
=========================
* Institutional Shares were initiated on August 1, 2008.
See accompanying notes to financial statements.
================================================================================
44 | USAA SHORT-TERM BOND 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
Short-Term Bond Fund (the Fund), which is classified as diversified under the
1940 Act. The Fund's investment objective is high current income consistent
with preservation of principal.
The Fund has two classes of shares: Short-Term Bond Fund Shares (Fund Shares)
and Short-Term Bond Fund Institutional Shares (Institutional Shares). Each class
of shares has equal rights to assets and earnings, except that each class bears
certain class-related expenses specific to the particular class. These expenses
include administration and servicing fees, transfer agent fees, postage,
shareholder reporting fees, and certain registration and custodian fees.
Expenses not attributable to a specific class, income, and realized gains or
losses on investments are allocated to each class of shares based on each
class's relative net assets. Each class has exclusive voting rights on matters
related solely to that class and separate voting rights on matters that relate
to both classes. The Institutional Shares are currently offered for sale only to
the USAA Target Retirement Funds (Target Funds) and not to the general public.
The Target Funds are managed by USAA Investment Management Company (the
Manager), an affiliate of the Fund.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
<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. Investments in open-end investment companies, hedge, or other funds, other
than exchange-traded funds, are valued at their net asset value (NAV) at
the end of each business day.
3. Debt securities purchased with original or remaining maturities of 60 days
or less may be valued at amortized cost, which approximates market value.
4. Futures are valued based upon the last sale price at the close of market
on the principal exchange on which they are traded.
5. 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
================================================================================
46 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
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.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore,
no federal income tax provision is required.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
<PAGE>
================================================================================
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.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using the
effective yield method for long-term securities and the straight-line method
for short-term securities.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -- Delivery
and payment for securities that have been purchased by the Fund on a
delayed-delivery or when-issued basis can take place a month or more after
the trade date. During the period prior to settlement, these securities do
not earn interest, are subject to market fluctuation, and may increase or
decrease in value prior to their delivery. The Fund maintains segregated
assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a delayed-delivery or
when-issued basis may increase the volatility of the Fund's NAV to the extent
that the Fund makes such purchases while remaining substantially fully
invested. As of January 31, 2010, the Fund's outstanding delayed-delivery
commitments, including interest purchased, were $5,999,000; all of which were
when-issued securities.
F. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts may
be used to directly reduce the Fund's expenses. For the six-month period
ended January 31, 2010, these custodian and other bank credits reduced the
Fund's expenses by less than $500.
G. INDEMNIFICATIONS -- Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under
================================================================================
48 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
these arrangements is unknown, as this would involve future claims that may
be made against the Trust that have not yet occurred. However, the Trust
expects the risk of loss to be remote.
H. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet temporary or emergency cash
needs, including redemption requests that might otherwise require the untimely
disposition of securities. Subject to availability, the Fund may borrow from
CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to
the rate at which CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.13% annually of the amount of the committed loan
agreement). Prior to September 25, 2009, the maximum annual facility fee was
0.07% of the amount of the committed loan agreement. The facility fees are
allocated among the funds based on their respective average net assets for the
period.
For the six-month period ended January 31, 2010, the Fund paid CAPCO facility
fees of $2,800, which represents 2.6% 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
<PAGE>
================================================================================
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes. At July 31, 2009,
the Fund had capital loss carryovers of $45,760,000, for federal income tax
purposes, which, if not offset by subsequent capital gains, will expire between
2010 and 2017, as shown below. It is unlikely that the Trust's Board of Trustees
will authorize a distribution of capital gains realized in the future until the
capital loss carryovers have been used or expire.
CAPITAL LOSS CARRYOVERS
--------------------------------------
EXPIRES BALANCE
------- -----------
2010 $ 2,084,000
2011 39,474,000
2012 1,083,000
2014 1,383,000
2015 461,000
2017 1,275,000
-----------
Total $45,760,000
===========
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties would be recognized by
the Fund as tax expense in the statement of operations if the tax positions were
deemed to not meet the more-likely-than-not threshold. For the six-month period
ended January 31, 2010, the Fund did not incur any income tax, interest, or
penalties. As of January 31, 2010, the Manager has reviewed all open tax years
and concluded that there was no impact to the Fund's net assets or results of
operations. Tax years ended July 31, 2006, through July 31, 2009, remain subject
to examination by the Internal Revenue Service and state taxing authorities. On
an ongoing basis, the Manager will monitor its tax positions to determine if
adjustments to this conclusion are necessary.
================================================================================
50 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
(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
$549,083,000 and $146,626,000, 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 $47,900,000 and $5,685,000, respectively, resulting in net unrealized
appreciation of $42,215,000.
(5) CAPITAL SHARE TRANSACTIONS
At January 31, 2010, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated Target Funds. Capital share transactions were as
follows, in thousands:
SIX-MONTH PERIOD YEAR ENDED
ENDED 1/31/2010 7/31/2009
-------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------
FUND SHARES:
Shares sold 58,436 $ 528,019 53,018 $ 453,919
Shares issued from reinvested
dividends 2,387 21,611 3,844 32,907
Shares redeemed (16,899) (152,845) (29,298) (250,082)
---------------------------------------------------
Net increase from capital
share transactions 43,924 $ 396,785 27,564 $ 236,744
===================================================
INSTITUTIONAL SHARES
(INITIATED ON AUGUST 1, 2008):
Shares sold 2,817 $ 25,454 3,347 $ 28,755
Shares issued from reinvested
dividends 94 849 76 655
Shares redeemed (473) (4,318) (481) (4,074)
---------------------------------------------------
Net increase from capital
share transactions 2,438 $ 21,985 2,942 $ 25,336
===================================================
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
<PAGE>
================================================================================
(6) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager carries out the Fund's investment policies
and manages the Fund's portfolio pursuant to an Advisory Agreement. The
investment management fee for the Fund is composed of a base fee and a
performance adjustment. The base fee is accrued daily and paid monthly at an
annualized rate of 0.24% 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
Short Investment Grade Bond Funds Index over the performance period. The
Lipper Short Investment Grade Bond Funds Index tracks the total return
performance of the 30 largest funds in the Lipper Short Investment Grade
Debt Funds category. The performance period for each class consists of the
current month plus the previous 35 months. The performance adjustment for
the Institutional Shares includes the performance of the Fund Shares for
periods prior to August 1, 2008. The following table is utilized to
determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
----------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest 0.01%. Average net assets
are calculated over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the average
net assets of each respective class over the entire performance period,
which is then multiplied by a fraction, the numerator of which is the number
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is the performance adjustment; a positive
adjustment in the case of overperformance, or a negative adjustment in the
case of underperformance.
================================================================================
52 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Short Investment Grade Bond Funds Index over that
period, even if the class had overall negative returns during the
performance period.
For the six-month period ended January 31, 2010, the Fund incurred total
management fees, paid or payable to the Manager, of $1,598,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $194,000 and $2,000, respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were 0.03% and 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
$846,000 and $10,000, 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 $25,000 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 0.41% of its
average annual net assets, excluding extraordinary expenses and before
reductions of any expenses paid indirectly, and will
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
<PAGE>
================================================================================
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 Institutional Shares
did not incur any reimbursable expenses.
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 $977,000 and $10,000, respectively.
During the six-month period ended January 31, 2010, SAS reimbursed the Fund
Shares $128,000 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.
(7) TRANSACTIONS WITH AFFILIATES
The Fund is one of 13 USAA mutual funds in which the affiliated Target Funds may
invest. The Target Funds do not invest in the Fund for the purpose of exercising
management or control. As of January 31, 2010, the Fund recorded a receivable
for capital shares sold of $19,000 and a payable for capital shares redeemed of
$2,000 for the Target Funds'
================================================================================
54 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
purchases and redemptions of Institutional Shares. As of January 31, 2010, the
Target Funds owned the following percent of the total outstanding shares of the
Fund:
OWNERSHIP %
--------------------------------------------------------------------------------
USAA Target Retirement Income Fund 1.5%
USAA Target Retirement 2020 Fund 2.1
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(8) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the six-month period ended January 31, 2010, in accordance with
affiliated transaction procedures approved by the Trust's Board of Trustees,
purchases and sales of security transactions were executed between the Fund and
the following affiliated USAA funds at the then-current market price with no
brokerage commissions incurred.
COST TO NET REALIZED
SELLER PURCHASER PURCHASER GAIN TO SELLER
--------------------------------------------------------------------------------
USAA High-Yield
Opportunities Fund USAA Short-Term Bond Fund $36,304,000 $3,386,000
USAA Intermediate-Term
Bond Fund USAA Short-Term Bond Fund 2,050,000 50,000
(9) SUBSEQUENT EVENTS
Events or transactions that occur after the balance sheet date, but before the
financial statements, are issued and are categorized as recognized or
non-recognized for financial statement purposes. The Manager has evaluated
subsequent events through the date the financial statements were issued, and has
determined there were no events that required recognition or disclosure in the
Fund's financial statements.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 55
<PAGE>
================================================================================
(10) NEW ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board issued amended
guidance for improving disclosure about fair value measurements that adds new
disclosure requirements about transfers into and out of Levels 1 and 2 and
separate disclosures about purchases, sales, issuances, and settlements in the
reconciliation for fair value measurements using significant unobservable inputs
(Level 3). It also clarifies existing disclosure requirements relating to the
levels of disaggregation for fair value measurement and inputs and valuation
techniques used to measure fair value. The amended guidance is effective for
financial statements for fiscal years and interim periods beginning after
December 15, 2009, except for disclosures about purchases, sales, issuances and
settlements in the rollforward of activity in Level 3 fair value measurements,
which are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The Manager is in the process of
evaluating the impact of this guidance on the Fund's financial statement
disclosures.
================================================================================
56 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
(11) FINANCIAL HIGHLIGHTS - FUND SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED
JANUARY 31, YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------
2010 2009 2008 2007 2006 2005
-------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 8.89 $ 8.81 $ 8.85 $ 8.80 $ 8.87 $ 8.98
-------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .19 .43 .41 .40 .36 .30
Net realized and
unrealized gain (loss) .24 .08 (.04) .05 (.07) (.11)
-------------------------------------------------------------------------------------
Total from investment
operations .43 .51 .37 .45 .29 .19
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.19) (.43) (.41) (.40) (.36) (.30)
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.13 $ 8.89 $ 8.81 $ 8.85 $ 8.80 $ 8.87
=====================================================================================
Total return (%)* 4.83(b) 6.11 4.26 5.18(a) 3.36 2.19
Net assets at
end of period (000) $1,327,791 $902,546 $651,398 $515,684 $439,343 $425,137
Ratios to average
net assets:**
Expenses (%)(c) .64(b),(d) .72 .69 .69(a) .69 .56
Net investment
income (%) 4.03(d) 5.04 4.63 4.50 3.94 3.06
Portfolio turnover (%) 13 31 33 37 51 42
* Assumes reinvestment of all net investment income and realized capital gain
distributions, if any, during the period. Includes adjustments in accordance
with U.S. generally accepted accounting principles and could differ from the
Lipper reported return.
** For the six-month period ended January 31, 2010, average net assets were
$1,121,812,000.
(a) For the year ended July 31, 2007, SAS voluntarily reimbursed the Fund Shares
for a portion of the transfer agent's fees incurred. The reimbursement had
no effect on the Fund Shares' total return or ratio of expenses to average
net assets.
(b) During the period ended January 31, 2010, SAS reimbursed the Fund Shares
$128,000 for corrections in fees paid for the administration and servicing
of certain accounts. The effect of this reimbursement on the Fund Shares'
total return was less than 0.01%. The reimbursement decreased the Fund
Shares' expense ratios by 0.02%. This decrease is excluded from the expense
ratios in the Financial Highlights table.
(c) Reflects total operating expenses of the Fund Shares before reductions of
any expenses paid indirectly. The Fund Shares' expenses paid indirectly
decreased the expense ratios by less than 0.01%.
(d) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 57
<PAGE>
================================================================================
(11) FINANCIAL HIGHLIGHTS (CONTINUED) -- INSTITUTIONAL SHARES
Per share operating performance for a share outstanding throughout each period
is as follows:
SIX-MONTH
PERIOD ENDED PERIOD ENDED
JANUARY 31, JULY 31,
2010 2009***
------------------------------
Net asset value at beginning of period $ 8.89 $ 8.81
--------------------------
Income from investment operations:
Net investment income .20 .45
Net realized and unrealized gain .24 .08
--------------------------
Total from investment operations .44 .53
--------------------------
Less distributions from:
Net investment income (.20) (.45)
--------------------------
Net asset value at end of period $ 9.13 $ 8.89
==========================
Total return (%)* 4.94 6.40
Net assets at end of period (000) $49,125 $26,164
Ratios to average net assets:**(a)
Expenses (%)(b) .39 .39
Net investment income (%) 4.23 5.39
Portfolio turnover (%) 13 31
* 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 $39,854,000.
*** Institutional Shares were initiated on August 1, 2008.
(a) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(b) Reflects total operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
================================================================================
58 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
EXPENSE EXAMPLE
January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
EXAMPLE
As a shareholder of the Fund, you incur two types of costs: direct costs, such
as wire fees, redemption fees, and low balance fees; and indirect costs,
including management fees, transfer agency fees, and other Fund operating
expenses. This example is intended to help you understand your indirect costs,
also referred to as "ongoing costs" (in dollars), of investing in the Fund and
to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire six-month period of August 1, 2009, through
January 31, 2010.
ACTUAL EXPENSES
The first line of the table on the next page provides information about actual
account values and actual expenses. You may use the information in this line,
together with the amount you invested at the beginning of the period, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The line labeled "hypothetical" under each share class in the table provides
information about hypothetical account values and hypothetical expenses based
on the Fund's actual expense ratios for each class and an assumed rate of
return of 5% per year before expenses, which is not the Fund's actual return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or
================================================================================
EXPENSE EXAMPLE | 59
<PAGE>
================================================================================
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 $1,048.30 $3.20
Hypothetical
(5% return before expenses) 1,000.00 1,022.08 3.16
INSTITUTIONAL SHARES
Actual 1,000.00 1,049.40 2.01
Hypothetical
(5% return before expenses) 1,000.00 1,023.24 1.99
* Expenses are equal to the annualized expense ratio of 0.62% for Fund Shares
and 0.39% 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 4.83% for Fund Shares and 4.94% for Institutional Shares for
the six-month period of August 1, 2009, through January 31, 2010.
================================================================================
60 | USAA SHORT-TERM BOND FUND
<PAGE>
================================================================================
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "Products & Services"
SELF-SERVICE 24/7 click "Investments," then
AT USAA.COM "Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA "Investments." View account balances,
(8722) or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
<PAGE>
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
At USAA.COM click: MY DOCUMENTS
Set preferences to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
============================================================================
23426-0310 (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:* 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:* CHRISTOPHER W. CLAUS
-----------------------------------------------------
Signature and Title: Christopher W. Claus, President
Date: APRIL 1, 2010
------------------------------
By:* 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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