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 SMALL CAP STOCK FUND]
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SEMIANNUAL REPORT
USAA SMALL CAP STOCK FUND
FUND SHARES o INSTITUTIONAL SHARES
JANUARY 31, 2010
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FUND OBJECTIVE
LONG-TERM GROWTH OF CAPITAL.
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TYPES OF INVESTMENTS
Normally invest at least 80% of the Fund's assets in equity securities of
companies with small market capitalizations.
IRA DISTRIBUTION WITHHOLDING DISCLOSURE
We generally must withhold federal income tax at a rate of 10% of the taxable
portion of your distribution and, if you live in a state that requires state
income tax withholding, at your state's set rate. However, you may elect not to
have withholding apply or to have income tax withheld at a higher rate. If you
wish to make such an election, please call USAA Investment Management Company at
(800) 531-USAA (8722).
If you must pay estimated taxes, you may be subject to estimated tax penalties
if your estimated tax payments are not sufficient and sufficient tax is not
withheld from your distribution.
For more specific information, please consult your tax adviser.
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TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 2
MANAGERS' COMMENTARY 4
INVESTMENT OVERVIEW 8
FINANCIAL INFORMATION
Portfolio of Investments 15
Notes to Portfolio of Investments 30
Financial Statements 31
Notes to Financial Statements 34
EXPENSE EXAMPLE 51
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 SMALL CAP STOCK 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
Batterymarch Financial Management, Inc. Wellington Management Company, LLP
YU-NIEN (CHARLES) KO, CFA TIMOTHY J. McCORMACK, CFA
STEPHEN LANZENDORF, CFA SHAUN F. PEDERSEN
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o HOW DID THE USAA SMALL CAP STOCK FUND (THE FUND SHARES) PERFORM?
For the six-month period ended January 31, 2010, the Fund Shares had a
total return of 11.49%. This compares to returns of 8.86% for the Russell
2000 Index, 9.23% for the S&P SmallCap 600 Index, and 10.12% for the Lipper
Small-Cap Core Funds Index.
The Fund has two subadvisers. Batterymarch Financial Management, Inc.
(Batterymarch) manages the growth portion of the Fund against the Russell
2000 Growth Index, and Wellington Management Company, LLP (Wellington
Management) manages the value portion of the Fund against the Russell 2000
Value Index.
o HOW DID THE BATTERYMARCH PORTION OF THE FUND PERFORM DURING THE REPORTING
PERIOD?
Batterymarch uses a disciplined framework to compare U.S. small-cap stocks
across multiple perspectives based on proven fundamentals. These include
measures of growth and value as well as other
Refer to page 10 for benchmark definitions.
Past performance is no guarantee of future results.
The unmanaged Russell 2000(R) Growth Index measures the performance of those
Russell 2000 companies with higher price-to-book ratios and higher
forecasted growth values. o The unmanaged Russell 2000(R) Value Index
measures the performance of those Russell 2000 companies with lower
price-to-book ratios and lower forecasted growth values.
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4 | USAA SMALL CAP STOCK FUND
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dimensions such as cash flow and analyst expectations. For much of the
financial crisis, our process struggled in a market that was more driven by
government intervention and investor sentiment than it was by individual
company fundamentals. The good news is that this situation changed during
the reporting period, with market participants re-focusing on fundamentals,
helping our portion of the Fund to outperform the Russell 2000 Growth Index.
On an allocation level, we maintained close-to-benchmark sector weightings,
which meant that stock selection was the key driver of performance. Stock
selection in health care was particularly good, as one biotech holding,
Human Genome Sciences, Inc., is in the approval phase of the first major
drug to treat lupus in decades. We had strong stock selection in the
services and distribution and consumer services sectors relative to those
sectors in the Russell 2000 Growth Index.
Stock selection detracted from performance in the technology and software
and services sectors. However, we had one strong technology holding,
Avocent Corp., which makes computer networking equipment. The stock price
of Avocent Corp. gained when it was acquired by Emerson EMR. In the energy
sector, our holding in Cal Dive International, Inc. detracted from results.
Cal Dive International, Inc. is involved in underwater construction for
offshore oil exploration. The firm has an attractive valuation but suffered
from the general volatility in the energy sector; we continue to hold the
stock and it still ranks well in our process.
o WHAT'S BATTERYMARCH'S OUTLOOK?
In a market where fundamentals increasingly count, we are confident in our
ability to outperform the Russell 2000 Growth Index going forward. However,
we are cognizant that we're still in a financial crisis. The economy is
improving, but it's not going to be a straight
Avocent Corp. and Emerson EMR were sold out of the Fund prior to January 31,
2010.
You will find a complete list of securities that the Fund owns on pages
15-29.
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MANAGERS' COMMENTARY ON THE FUND | 5
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line up. Recoveries are generally good for small companies, both as
acquisition targets and based on organic growth from strengthened
consumers. We've made some minor adjustments to our process, building in
some "early warning" signals to help us identify and respond to abnormal
market conditions such as those in 2008 and 2009. However, our process
remains focused on quality companies with good growth prospects that are
reasonably priced and score well across our multiple dimensions.
o HOW DID THE WELLINGTON MANAGEMENT PORTION OF THE FUND PERFORM?
We significantly outperformed the Russell 2000 Value Index, largely driven
by security selection, which was a positive performance factor in seven of
10 economic sectors. Results were particularly robust in the financials,
industrials and information technology sectors; only in the materials,
health care and consumer staples sectors did stock selection detract from
Index-relative performance. Allocation among sectors, which is a residual
of our bottom-up stock selection process, modestly detracted from relative
performance, with the biggest detractors being residual exposure to cash in
an up market, below-benchmark exposure to materials, and above-benchmark
exposure to consumer staples.
Top individual contributors to performance during the period (and the
sector to which they belong) included Arbitron, Inc. (consumer
discretionary), Xyratex Ltd. (information technology), and Zep, Inc.
(materials). Significant contributors to absolute performance also included
Albany International Corp. "A" (industrials) and Belden, Inc. (industrials).
Stocks that detracted most from Index-relative performance during the
period were Delphi Financial Group, Inc. "A" (financials), Sonic Corp.
(consumer discretionary), and Lance, Inc. (consumer staples). SEACOR
Holdings, Inc. (energy) was another significant detractor from absolute
performance.
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6 | USAA SMALL CAP STOCK FUND
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o HOW IS THE WELLINGTON MANAGEMENT PORTFOLIO POSITIONED?
During the reporting period, we continued to find attractively valued
investment opportunities in a volatile environment based on our two- to
three-year time horizon. Our bottom-up focus resulted in an increase in our
overweight positions in the consumer discretionary sector. We initiated a
position in The Dress Barn, Inc. and added to our holdings of CEC
Entertainment, Inc. and Sonic Corp. In the information technology sector,
we added to positions in MTS Systems Corp., and Coherent, Inc., resulting
in a neutral sector exposure relative to the benchmark. We eliminated
positions in real estate investment trusts and trimmed exposure to Realty
Income Corp., resulting in a decline in our exposure to financials. This
was partially offset as we continued to build exposure to banks, while also
adding to insurer Alleghany Corp. Energy sector exposure fell as we
trimmed our positions in Whiting Petroleum Corp. and St. Mary Land &
Exploration Co.
The performance of the USAA Small Cap Stock Fund will reflect the
volatility of investments in small-cap stocks and IPOs. o Investing in
small-cap companies involves the greater risk of investing in smaller, less
well-known companies, especially those which have a narrow product line or
are traded infrequently, compared to investing in established companies
with proven track records.
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MANAGERS' COMMENTARY ON THE FUND | 7
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INVESTMENT OVERVIEW
USAA SMALL CAP STOCK FUND SHARES (Symbol: USCAX)
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1/31/10 7/31/09
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Net Assets $500.0 Million $464.8 Million
Net Asset Value Per Share $10.58 $9.49
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AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/10
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7/31/09 to 1/31/10* 1 Year 5 Years 10 Years
11.49% 41.26% 0.41% 0.29%
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EXPENSE RATIO**
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Before Reimbursement 1.43% After Reimbursement 1.40%
*Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT
USAA.COM.
**THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING
EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY
ACQUIRED FUND FEES AND EXPENSES, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE
NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL
OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND
EXCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, AFTER REIMBURSEMENT FROM USAA
INVESTMENT MANAGEMENT COMPANY (IMCO). BEFORE AND AFTER REIMBURSEMENT EXPENSE
RATIOS ARE REPORTED IN THE FUND SHARES' PROSPECTUS DATED DECEMBER 1, 2009. IMCO
HAS AGREED, THROUGH DECEMBER 1, 2010, TO MAKE PAYMENTS OR WAIVE MANAGEMENT,
ADMINISTRATION, AND OTHER FEES TO LIMIT THE EXPENSES OF THE FUND SHARES SO THAT
THE TOTAL ANNUAL OPERATING EXPENSES OF THE FUND SHARES (EXCLUSIVE OF COMMISSION
RECAPTURE, EXPENSE OFFSET ARRANGEMENTS, ACQUIRED FUND FEES AND EXPENSES, AND
EXTRAORDINARY EXPENSES) DO NOT EXCEED AN ANNUAL RATE OF 1.40% OF THE FUND
SHARES' AVERAGE DAILY NET ASSETS. IF THE FUND SHARES' TOTAL ANNUAL OPERATING
EXPENSE RATIO IS LOWER THAN 1.40%, THE FUND 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. THESE
EXPENSE RATIOS MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL
HIGHLIGHTS.
Total return measures the price change in a share assuming the reinvestment of
all net investment income and realized capital gain distributions. The total
returns quoted do not reflect adjustments made to the enclosed financial
statements in accordance with U.S. generally accepted accounting principles or
the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
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8 | USAA SMALL CAP STOCK FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
S&P SMALLCAP LIPPER SMALL-CAP RUSSELL 2000 USAA SMALL CAP
600 INDEX CORE FUNDS INDEX INDEX STOCK FUND SHARES
1/31/00 $10,000.00 $10,000.00 $10,000.00 $10,000.00
2/29/00 11,339.16 11,409.97 11,651.36 12,369.99
3/31/00 10,919.90 11,247.71 10,883.18 10,408.62
4/30/00 10,732.71 10,622.26 10,228.28 9,234.77
5/31/00 10,414.56 10,170.69 9,632.16 8,818.72
6/30/00 11,030.43 11,067.82 10,471.80 10,222.88
7/31/00 10,759.65 10,723.77 10,134.89 9,784.55
8/31/00 11,713.41 11,679.14 10,908.19 10,832.10
9/30/00 11,394.49 11,379.00 10,587.60 10,423.48
10/31/00 11,465.79 11,036.70 10,114.97 9,472.51
11/30/00 10,272.03 9,937.63 9,076.65 7,830.61
12/31/00 11,537.40 10,902.85 9,856.18 8,454.68
1/31/01 12,031.96 11,290.94 10,369.32 8,647.85
2/28/01 11,297.71 10,573.72 9,688.95 7,726.60
3/31/01 10,779.62 10,073.83 9,215.00 6,909.36
4/30/01 11,601.28 10,876.42 9,935.89 7,607.73
5/31/01 11,823.21 11,272.79 10,180.11 7,711.74
6/30/01 12,256.53 11,621.35 10,531.62 7,800.89
7/31/01 12,051.62 11,352.13 9,961.55 7,682.02
8/31/01 11,776.86 11,034.45 9,639.81 7,407.13
9/30/01 10,184.81 9,588.64 8,342.17 6,545.32
10/31/01 10,727.92 10,158.28 8,830.36 6,827.64
11/30/01 11,512.68 10,913.19 9,513.98 7,236.26
12/31/01 12,291.74 11,679.71 10,101.21 7,682.02
1/31/02 12,398.94 11,541.33 9,996.15 7,734.03
2/28/02 12,185.72 11,233.17 9,722.19 7,600.30
3/31/02 13,148.27 12,096.29 10,503.58 8,172.36
4/30/02 13,519.82 12,155.73 10,599.30 8,358.10
5/31/02 12,960.22 11,702.65 10,128.89 8,023.77
6/30/02 12,289.85 11,047.17 9,626.31 7,607.73
7/31/02 10,554.15 9,545.63 8,172.45 7,139.67
8/31/02 10,654.25 9,596.21 8,151.63 7,139.67
9/30/02 10,002.24 8,916.93 7,566.23 6,686.48
10/31/02 10,322.42 9,233.84 7,808.82 6,693.91
11/30/02 10,860.13 9,915.26 8,505.71 6,931.65
12/31/02 10,493.57 9,433.55 8,032.12 6,842.50
1/31/03 10,132.88 9,157.69 7,809.81 6,641.90
2/28/03 9,808.65 8,871.74 7,573.84 6,471.03
3/31/03 9,885.71 8,946.65 7,671.36 6,641.90
4/30/03 10,688.00 9,691.62 8,398.74 7,050.52
5/31/03 11,549.83 10,543.02 9,300.03 7,347.70
6/30/03 11,849.94 10,785.74 9,468.34 7,533.43
7/31/03 12,466.08 11,338.85 10,060.77 7,711.74
8/31/03 13,072.75 11,830.27 10,522.04 7,979.20
9/30/03 12,688.78 11,573.34 10,327.82 7,860.33
10/31/03 13,788.66 12,482.79 11,195.12 8,395.25
11/30/03 14,310.42 12,932.47 11,592.42 8,655.27
12/31/03 14,563.91 13,292.10 11,827.60 8,714.71
1/31/04 14,982.66 13,713.22 12,341.46 8,922.73
2/29/04 15,270.98 13,951.84 12,452.09 9,026.75
3/31/04 15,469.99 14,103.12 12,568.14 9,145.62
4/30/04 14,957.11 13,618.41 11,927.37 8,818.72
5/31/04 15,185.97 13,736.94 12,117.20 8,878.16
6/30/04 16,027.33 14,323.37 12,627.50 9,257.06
7/31/04 15,149.12 13,568.65 11,777.25 8,781.58
8/31/04 15,015.42 13,449.94 11,716.72 8,707.28
9/30/04 15,807.20 14,118.78 12,266.77 9,153.05
10/31/04 16,102.03 14,349.98 12,508.23 9,331.35
11/30/04 17,478.03 15,483.22 13,593.17 10,037.15
12/31/04 17,862.55 15,733.47 13,995.53 10,350.09
1/31/05 17,458.15 15,277.31 13,411.59 10,083.14
2/28/05 17,958.60 15,634.25 13,638.76 10,365.34
3/31/05 17,493.67 15,240.58 13,248.33 10,151.78
4/30/05 16,516.59 14,417.62 12,489.61 9,656.01
5/31/05 17,610.49 15,190.29 13,307.07 10,243.31
6/30/05 18,183.08 15,707.99 13,820.33 10,754.33
7/31/05 19,277.72 16,641.51 14,695.93 11,288.23
8/31/05 18,993.50 16,487.74 14,423.45 11,051.79
9/30/05 19,160.70 16,645.03 14,468.70 11,181.45
10/31/05 18,560.94 16,134.04 14,019.45 10,731.45
11/30/05 19,413.30 16,871.31 14,700.04 11,173.82
12/31/05 19,234.56 16,922.50 14,632.86 11,173.89
1/31/06 20,844.80 18,211.91 15,945.02 11,774.10
2/28/06 20,688.66 18,091.52 15,901.12 11,749.44
3/31/06 21,703.78 18,888.40 16,672.59 12,209.88
4/30/06 21,701.81 19,030.33 16,669.88 12,308.54
5/31/06 20,710.76 18,111.72 15,733.69 11,683.66
6/30/06 20,714.66 17,988.65 15,834.85 11,774.10
7/31/06 20,002.96 17,377.74 15,319.61 11,502.77
8/31/06 20,347.41 17,721.53 15,773.18 11,691.88
9/30/06 20,532.37 17,804.31 15,904.50 11,872.77
10/31/06 21,549.02 18,665.67 16,820.24 12,448.32
11/30/06 22,145.92 19,209.90 17,262.70 12,900.54
12/31/06 22,142.62 19,240.96 17,320.50 12,885.83
1/31/07 22,598.47 19,584.75 17,610.35 13,191.38
2/28/07 22,475.82 19,628.78 17,470.61 13,217.58
3/31/07 22,852.66 19,845.07 17,657.64 13,496.94
4/30/07 23,362.06 20,411.41 17,974.82 13,872.34
5/31/07 24,437.52 21,292.43 18,711.90 14,474.73
6/30/07 24,037.31 21,077.00 18,437.27 14,247.74
7/31/07 22,824.29 19,972.47 17,176.26 13,348.53
8/31/07 23,252.09 20,049.91 17,565.57 13,540.59
9/30/07 23,598.65 20,477.84 17,867.08 13,671.55
10/31/07 24,037.66 20,973.03 18,379.70 13,950.91
11/30/07 22,253.64 19,567.92 17,059.93 12,929.48
12/31/07 22,076.96 19,610.92 17,049.28 12,783.78
1/31/08 20,997.27 18,313.42 15,886.62 11,948.36
2/29/08 20,350.64 17,962.77 15,297.75 11,491.80
3/31/08 20,429.42 17,808.76 15,361.83 11,326.66
4/30/08 21,249.34 18,669.79 16,005.04 11,909.51
5/31/08 22,187.96 19,592.30 16,740.26 12,463.21
6/30/08 20,511.71 18,231.17 15,451.46 11,618.08
7/31/08 20,935.12 18,279.70 16,023.26 11,724.94
8/31/08 21,809.57 18,701.00 16,602.41 11,987.22
9/30/08 20,336.34 16,954.06 15,279.52 10,947.81
10/31/08 16,239.14 13,339.34 12,100.93 8,781.56
11/30/08 14,341.86 11,948.71 10,669.55 7,683.87
12/31/08 15,216.84 12,631.92 11,288.82 8,169.66
1/31/09 13,284.24 11,492.61 10,033.26 7,284.62
2/28/09 11,693.54 10,263.12 8,813.99 6,535.73
3/31/09 12,654.09 11,185.75 9,600.78 7,158.18
4/30/09 14,863.08 12,952.31 11,084.90 8,101.58
5/31/09 15,102.61 13,556.60 11,418.04 8,315.55
6/30/09 15,319.32 13,671.89 11,586.82 8,412.81
7/31/09 16,901.11 14,879.08 12,702.75 9,229.77
8/31/09 17,287.84 15,335.61 13,067.00 9,492.37
9/30/09 18,177.72 16,259.92 13,820.66 10,007.84
10/31/09 17,142.27 15,365.40 12,882.31 9,531.27
11/30/09 17,589.54 15,897.76 13,286.69 9,793.87
12/31/09 19,107.76 16,989.61 14,356.19 10,464.95
1/31/10 18,461.18 16,385.05 13,827.71 10,289.88
[END CHART]
*Data from 1/31/00 to 1/31/10.
See next page for benchmark definitions.
*The performance of the S&P SmallCap 600 Index, the Lipper Small-Cap Core Funds
Index, and the Russell 2000 Index is calculated from the end of the month, July
31, 1999, while the Fund Shares' inception date is August 2, 1999. There may be
a slight variation of the 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.
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INVESTMENT OVERVIEW | 9
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================================================================================
The graph on page 9 illustrates the comparison of a $10,000 hypothetical
investment in the USAA Small Cap Stock Fund Shares to the following benchmarks:
o The unmanaged S&P SmallCap 600(R) Index is a market-value-weighted index
consisting of 600 domestic stocks chosen for market size, liquidity, and
industry group representation.
o The unmanaged Lipper Small-Cap Core Funds Index tracks the total return
performance of the 30 largest funds in the Lipper Small-Cap Core Funds
category.
o The unmanaged Russell 2000 Index measures the performance of the 2,000
smallest companies in the Russell 3000(R) Index, which represents
approximately 10% of the total market capitalization of the Russell 3000
Index.
Indexes are unmanaged and you cannot invest directly in an Index.
================================================================================
10 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
USAA SMALL CAP STOCK FUND INSTITUTIONAL SHARES*
--------------------------------------------------------------------------------
1/31/10 7/31/09
--------------------------------------------------------------------------------
Net Assets $54.8 Million $45.0 Million
Net Asset Value Per Share $10.61 $9.50
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF 1/31/10
--------------------------------------------------------------------------------
7/31/09 to 1/31/10** 1 Year Since Inception 8/01/08
11.58% 41.90% -8.18%
--------------------------------------------------------------------------------
EXPENSE RATIO***
--------------------------------------------------------------------------------
0.90%
*The USAA Small Cap Stock Fund Institutional Shares (Institutional Shares)
commenced operations on August 1, 2008, and are not offered for sale directly to
the general public. The Institutional Shares are available only to the USAA
Target Retirement Funds.
**Total returns for periods of less than one year are not annualized. This
six-month return is cumulative.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE
DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO
THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
***THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES
AND EXPENSES, AS REPORTED IN THE INSTITUTIONAL SHARES' PROSPECTUS DATED DECEMBER
1, 2009, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. IMCO HAS
AGREED, THROUGH DECEMBER 1, 2010, TO MAKE PAYMENTS OR WAIVE MANAGEMENT,
ADMINISTRATION, AND OTHER FEES TO LIMIT THE EXPENSES OF THE INSTITUTIONAL SHARES
SO THAT THE TOTAL ANNUAL OPERATING EXPENSES OF THE INSTITUTIONAL SHARES
(EXCLUSIVE OF COMMISSION RECAPTURE, EXPENSE OFFSET ARRANGEMENTS, ACQUIRED FUND
FEES AND EXPENSES, AND EXTRAORDINARY EXPENSES) DO NOT EXCEED AN ANNUAL RATE OF
0.91% OF THE INSTITUTIONAL SHARES' AVERAGE DAILY NET ASSETS. IF THE
INSTITUTIONAL SHARES' TOTAL ANNUAL OPERATING EXPENSE RATIO IS LOWER THAN 0.91%,
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 | 11
<PAGE>
================================================================================
o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER SMALL-CAP S&P SMALLCAP USAA SMALL CAP STOCK FUND
CORE FUNDS INDEX 600 INDEX INSTITUTIONAL SHARES RUSSELL 2000 INDEX
7/31/2008 $10,000.00 $10,000.00 $10,000.00 $10,000.00
8/31/2008 10,230.47 10,417.70 10,198.35 10,361.44
9/30/2008 9,274.80 9,713.98 9,314.05 9,535.84
10/31/2008 7,297.35 7,756.89 7,471.07 7,552.10
11/30/2008 6,536.60 6,850.62 6,537.19 6,658.79
12/31/2008 6,910.35 7,268.57 6,952.86 7,045.27
1/31/2009 6,287.09 6,345.43 6,197.84 6,261.69
2/28/2009 5,614.49 5,585.61 5,558.97 5,500.74
3/31/2009 6,119.22 6,044.43 6,098.27 5,991.78
4/30/2009 7,085.63 7,099.59 6,903.08 6,918.00
5/31/2009 7,416.20 7,214.01 7,093.91 7,125.92
6/30/2009 7,479.27 7,317.52 7,168.58 7,231.25
7/31/2009 8,139.67 8,073.09 7,882.12 7,927.69
8/31/2009 8,389.42 8,257.82 8,106.14 8,155.02
9/30/2009 8,895.07 8,682.88 8,545.88 8,625.37
10/31/2009 8,405.72 8,188.28 8,139.33 8,039.75
11/30/2009 8,696.95 8,401.93 8,371.64 8,292.13
12/31/2009 9,294.25 9,127.13 8,944.13 8,959.59
1/31/2010 8,963.52 8,818.28 8,794.79 8,629.78
[END CHART]
*Data from 7/31/08 to 1/31/10.
See page 10 for benchmark definitions.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Small Cap Stock Fund Institutional Shares to the benchmarks.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
*The performance of the S&P SmallCap 600 Index, the Lipper Small-Cap Core Funds
Index, and Russell 2000 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.
================================================================================
12 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
TOP 10 EQUITY HOLDINGS
AS OF 1/31/2010
(% of Net Assets of the Fund)
Carlisle Companies, Inc. .................................... 1.7%
Zep, Inc. ................................................... 1.4%
Belden, Inc. ................................................ 1.3%
Cato Corp. "A" .............................................. 1.3%
Stage Stores, Inc. .......................................... 1.3%
United Stationers, Inc. ..................................... 1.2%
Herbalife Ltd. .............................................. 1.1%
Arbitron, Inc. .............................................. 1.1%
Maximus, Inc. ............................................... 1.1%
CEC Entertainment, Inc. ..................................... 1.0%
You will find a complete list of securities that the Fund owns on
pages 15-29.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
o SECTOR ASSET ALLOCATION* -- 1/31/2010 o
[PIE CHART OF SECTOR ASSET ALLOCATION]
INFORMATION TECHNOLOGY 17.6%
CONSUMER DISCRETIONARY 17.2%
HEALTH CARE 15.5%
INDUSTRIALS 15.5%
FINANCIALS 14.3%
CONSUMER STAPLES 5.2%
MATERIALS 4.3%
ENERGY 4.1%
UTILITIES 2.9%
TELECOMMUNICATION SERVICES 0.6%
MONEY MARKET INSTRUMENTS 3.3%
*Excludes short-term investments purchased with cash collateral from securities
loaned.
Percentages are of the net assets of the Fund and may not equal 100%.
================================================================================
14 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
January 31, 2010 (unaudited)
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
COMMON STOCKS (97.2%)
CONSUMER DISCRETIONARY (17.2%)
------------------------------
ADVERTISING (1.1%)
243,600 Arbitron, Inc.(a) $ 6,166
--------
APPAREL & ACCESSORIES & LUXURY GOODS (1.5%)
75,620 Carter's, Inc.* 1,956
41,200 Fossil, Inc.* 1,345
19,600 True Religion Apparel, Inc.* 378
88,200 UniFirst Corp. 4,431
--------
8,110
--------
APPAREL RETAIL (4.3%)
81,850 Aeropostale, Inc.* 2,692
357,564 Cato Corp. "A" 7,312
42,169 Citi Trends, Inc.* 1,313
150,800 Dress Barn, Inc.* 3,550
108,400 Hot Topic, Inc.* 623
18,100 Jos. A. Bank Clothiers, Inc.* 759
542,660 Stage Stores, Inc. 7,011
57,620 Stein Mart, Inc.* 455
--------
23,715
--------
AUTO PARTS & EQUIPMENT (0.2%)
22,800 ATC Technology Corp.* 499
17,700 Dorman Products, Inc.* 274
31,300 Standard Motor Products, Inc.* 245
--------
1,018
--------
CABLE & SATELLITE (0.2%)
42,500 Knology, Inc.* 464
118,500 Mediacom Communications Corp. "A"* 493
31,600 RCN Corp.* 310
--------
1,267
--------
CASINOS & GAMING (0.5%)
40,100 Bally Technologies, Inc.* 1,591
33,932 WMS Industries, Inc.* 1,258
--------
2,849
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 15
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
EDUCATION SERVICES (0.5%)
126,680 Corinthian Colleges, Inc.*(a) $ 1,774
49,400 Grand Canyon Education, Inc.* 986
--------
2,760
--------
FOOTWEAR (0.2%)
8,800 Deckers Outdoor Corp.* 864
--------
HOME FURNISHINGS (0.4%)
98,100 Tempur-Pedic International, Inc.* 2,442
--------
HOMEFURNISHING RETAIL (0.3%)
97,579 Kirklands, Inc.* 1,509
--------
HOTELS, RESORTS, & CRUISE LINES (0.7%)
10,200 Ambassadors Group, Inc. 116
121,000 Choice Hotels International, Inc. 3,840
--------
3,956
--------
HOUSEHOLD APPLIANCES (0.9%)
217,500 Helen of Troy Ltd.* 5,126
--------
HOUSEWARES & SPECIALTIES (0.2%)
33,300 Tupperware Brands Corp. 1,414
--------
INTERNET RETAIL (0.3%)
16,900 NutriSystem, Inc. 344
72,285 PetMed Express, Inc.(a) 1,332
--------
1,676
--------
LEISURE PRODUCTS (0.4%)
24,100 Polaris Industries, Inc. 1,066
136,200 Smith & Wesson Holding Corp.*(a) 539
41,832 Sturm Ruger & Co., Inc.(a) 436
--------
2,041
--------
MOVIES & ENTERTAINMENT (0.4%)
12,100 Cinemark Holdings, Inc. 172
134,064 Live Nation, Inc.* 1,538
26,460 World Wrestling Entertainment, Inc. "A" 423
--------
2,133
--------
PUBLISHING (0.7%)
22,243 Dolan Media Co.* 220
189,659 Valassis Communications, Inc.* 3,969
--------
4,189
--------
================================================================================
16 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
RESTAURANTS (2.4%)
82,392 California Pizza Kitchen, Inc.* $ 1,137
36,700 Carrols Restaurant Group, Inc.* 232
173,360 CEC Entertainment, Inc.* 5,754
185,340 Dominos Pizza, Inc.* 2,094
21,800 Jack in the Box, Inc.* 425
25,300 Papa John's International, Inc.* 597
367,300 Sonic Corp.* 3,096
--------
13,335
--------
SPECIALIZED CONSUMER SERVICES (0.9%)
108,138 Matthews International Corp. "A" 3,661
8,102 Spectrum Group International, Inc.* 15
38,800 Steiner Leisure Ltd.* 1,546
--------
5,222
--------
SPECIALTY STORES (0.8%)
29,157 Big 5 Sporting Goods Corp. 426
129,414 Hibbett Sports, Inc.* 2,746
21,600 Tractor Supply Co.* 1,090
--------
4,262
--------
TIRES & RUBBER (0.3%)
95,800 Cooper Tire & Rubber Co. 1,631
--------
Total Consumer Discretionary 95,685
--------
CONSUMER STAPLES (5.2%)
-----------------------
FOOD DISTRIBUTORS (0.3%)
45,600 Spartan Stores, Inc. 618
25,458 United Natural Foods, Inc.* 690
--------
1,308
--------
FOOD RETAIL (0.9%)
115,300 Casey's General Stores, Inc. 3,537
67,710 Pantry, Inc.* 912
16,640 Weis Markets, Inc. 591
--------
5,040
--------
PACKAGED FOODS & MEAT (1.9%)
18,600 American Italian Pasta Co.* 637
48,768 Diamond Foods, Inc. 1,752
27,820 J & J Snack Foods Corp. 1,163
33,109 Lancaster Colony Corp. 1,806
178,800 Lance, Inc. 3,977
28,544 Sanderson Farms, Inc. 1,334
--------
10,669
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 17
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
PERSONAL PRODUCTS (1.6%)
163,800 Herbalife Ltd. $ 6,363
109,803 Nu Skin Enterprises, Inc. "A" 2,552
--------
8,915
--------
SOFT DRINKS (0.1%)
10,080 Coca-Cola Bottling Co. Consolidated 509
--------
TOBACCO (0.4%)
297,000 Alliance One International, Inc.* 1,512
14,300 Universal Corp. 649
--------
2,161
--------
Total Consumer Staples 28,602
--------
ENERGY (4.1%)
-------------
COAL & CONSUMABLE FUELS (0.1%)
234,020 International Coal Group, Inc.* 835
--------
OIL & GAS EQUIPMENT & SERVICES (1.7%)
156,549 Cal Dive International, Inc.* 1,102
12,580 ENGlobal Corp.* 39
11,771 Geokinetics, Inc.* 115
104,575 Matrix Service Co.* 1,055
101,608 RPC, Inc. 1,255
53,689 Seacor Holdings, Inc.* 3,772
67,993 TETRA Technologies, Inc.* 711
76,700 Willbros Group, Inc.* 1,173
--------
9,222
--------
OIL & GAS EXPLORATION & PRODUCTION (2.1%)
6,600 Contango Oil & Gas Co.* 322
78,564 Gulfport Energy Corp.* 812
176,900 Penn Virginia Corp. 4,293
64,789 St. Mary Land & Exploration Co. 2,076
40,727 W&T Offshore, Inc. 363
57,300 Whiting Petroleum Corp.* 3,814
--------
11,680
--------
OIL & GAS REFINING & MARKETING (0.2%)
138,965 CVR Energy, Inc.* 1,115
--------
Total Energy 22,852
--------
FINANCIALS (14.3%)
------------------
ASSET MANAGEMENT & CUSTODY BANKS (1.0%)
375,200 Ares Capital Corp. 4,615
24,156 Calamos Asset Management, Inc. "A" 313
================================================================================
18 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
83,680 Penson Worldwide, Inc.*(a) $ 704
--------
5,632
--------
CONSUMER FINANCE (1.0%)
30,428 Credit Acceptance Corp.*(a) 1,619
62,307 Dollar Financial Corp.* 1,405
77,860 EZCORP, Inc. "A"* 1,414
42,199 First Cash Financial Services, Inc.* 964
--------
5,402
--------
INVESTMENT BANKING & BROKERAGE (0.2%)
69,732 optionsXpress Holdings, Inc. 1,001
--------
LIFE & HEALTH INSURANCE (1.0%)
256,900 Delphi Financial Group, Inc. "A" 5,202
19,062 FBL Financial Group, Inc. "A" 342
--------
5,544
--------
PROPERTY & CASUALTY INSURANCE (1.0%)
9,100 Alleghany Corp.* 2,376
11,341 Amerisafe, Inc.* 196
8,840 AmTrust Financial Services, Inc. 106
21,418 Argo Group International Holdings Ltd.* 573
107,434 Assured Guaranty Ltd. 2,434
--------
5,685
--------
REAL ESTATE OPERATING COMPANIES (0.1%)
36,400 PennyMac Mortgage Investment Trust* 586
--------
REGIONAL BANKS (4.3%)
99,985 Cardinal Financial Corp. 933
421,984 First Busey Corp.(a) 1,498
886 First Financial Corp. 24
355,900 First Midwest Bancorp, Inc. 4,687
205,980 International Bancshares Corp. 4,293
152,100 MB Financial, Inc. 3,085
11,260 Park National Corp.(a) 617
21,240 Signature Bank* 734
31,320 Southside Bancshares, Inc. 623
6,580 SVB Financial Group* 286
284,100 Webster Financial Corp. 4,395
45,300 Westamerica Bancorp(a) 2,518
--------
23,693
--------
REINSURANCE (1.9%)
135,200 Platinum Underwriters Holdings Ltd. 4,902
59,800 Reinsurance Group of America, Inc. "A" 2,913
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
97,002 Validus Holdings Ltd. $ 2,571
--------
10,386
--------
REITs - DIVERSIFIED (0.2%)
28,300 PS Business Parks, Inc. 1,355
--------
REITs - OFFICE (0.4%)
69,400 Mack-Cali Realty Corp. 2,264
--------
REITs - RESIDENTIAL (0.6%)
95,500 American Campus Communities, Inc. 2,451
59,140 Associated Estates Realty Corp. 698
--------
3,149
--------
REITs - RETAIL (0.6%)
122,400 Realty Income Corp.(a) 3,419
--------
REITs - SPECIALIZED (0.6%)
269,994 DiamondRock Hospitality Co.* 2,198
56,180 OMEGA Healthcare Investors, Inc. 1,051
--------
3,249
--------
SPECIALIZED FINANCE (0.7%)
95,253 Financial Federal Corp. 2,596
39,870 Interactive Brokers Group, Inc. "A"* 634
27,100 Life Partners Holdings, Inc.(a) 539
--------
3,769
--------
THRIFTS & MORTGAGE FINANCE (0.7%)
176,600 NewAlliance Bancshares, Inc. 2,056
142,800 Northwest Bancshares, Inc. 1,672
16,400 Oritani Financial Corp. 215
19,451 United Financial Bancorp, Inc. 255
--------
4,198
--------
Total Financials 79,332
--------
HEALTH CARE (15.5%)
-------------------
BIOTECHNOLOGY (2.8%)
214,420 Alkermes, Inc.* 2,346
60,200 BioCryst Pharmaceuticals, Inc.*(a) 412
96,000 Cubist Pharmaceuticals, Inc.* 1,967
73,391 Emergent BioSolutions, Inc.* 1,051
134,684 Human Genome Sciences, Inc.* 3,565
103,100 Isis Pharmaceuticals, Inc.* 1,150
96,078 Martek Biosciences Corp.* 2,069
129,837 Maxygen, Inc.* 726
12,173 Myriad Pharmaceuticals, Inc.* 57
================================================================================
20 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
16,000 Onyx Pharmaceuticals, Inc.* $ 460
234,510 PDL BioPharma, Inc. 1,501
19,200 Sangamo Biosciences, Inc.*(a) 106
106,943 SciClone Pharmaceuticals, Inc.* 282
--------
15,692
--------
HEALTH CARE DISTRIBUTORS (0.2%)
55,700 PSS World Medical, Inc.* 1,143
--------
HEALTH CARE EQUIPMENT (1.8%)
50,500 American Medical Systems Holdings, Inc.* 969
111,800 Cyberonics, Inc.* 2,095
104,426 Invacare Corp. 2,615
46,270 Kensey Nash Corp.* 1,121
28,770 Sirona Dental Systems, Inc.* 925
85,650 Steris Corp. 2,234
--------
9,959
--------
HEALTH CARE FACILITIES (0.6%)
146,500 AmSurg Corp.* 3,093
26,970 NovaMed, Inc.*(a) 111
--------
3,204
--------
HEALTH CARE SERVICES (2.9%)
41,580 Amedisys, Inc.*(a) 2,285
128,780 AMN Healthcare Services, Inc.* 1,120
81,374 CorVel Corp.* 2,454
52,570 Emergency Medical Services Corp. "A"* 2,761
86,370 Gentiva Health Services, Inc.* 2,206
65,100 LHC Group, Inc.* 2,004
114,360 Odyssey Healthcare, Inc.* 1,679
62,893 RehabCare Group, Inc.* 1,828
--------
16,337
--------
HEALTH CARE SUPPLIES (1.4%)
40,570 Haemonetics Corp.* 2,297
118,000 ICU Medical, Inc.* 4,104
43,175 Merit Medical Systems, Inc.* 770
23,580 Quidel Corp.* 313
--------
7,484
--------
LIFE SCIENCES TOOLS & SERVICES (2.5%)
25,800 Bio-Rad Laboratories, Inc. "A"* 2,404
233,710 Bruker Corp.* 2,868
132,700 Charles River Laboratories International, Inc.* 4,822
134,700 ICON plc ADR* 3,346
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
50,200 Luminex Corp.* $ 679
--------
14,119
--------
MANAGED HEALTH CARE (1.4%)
195,910 Centene Corp.* 3,771
56,900 HealthSpring, Inc.* 990
207,400 Universal American Financial Corp.* 2,771
--------
7,532
--------
PHARMACEUTICALS (1.9%)
22,200 Hi-Tech Pharmacal Co., Inc.* 478
152,505 Medicines Co.* 1,264
133,965 Par Pharmaceutical Companies, Inc.* 3,526
294,132 Questcor Pharmaceuticals, Inc.* 1,332
36,690 Santarus, Inc.* 174
88,035 Valeant Pharmaceuticals International* 2,947
67,350 ViroPharma, Inc.* 665
--------
10,386
--------
Total Health Care 85,856
--------
INDUSTRIALS (15.5%)
-------------------
AEROSPACE & DEFENSE (0.8%)
11,500 Cubic Corp. 449
45,050 DynCorp International, Inc. "A"* 541
22,900 Esterline Technologies Corp.* 865
149,651 GenCorp, Inc.* 838
51,615 Stanley, Inc.* 1,351
5,060 Triumph Group, Inc. 258
--------
4,302
--------
AIRLINES (0.5%)
87,830 AirTran Holdings, Inc.* 423
18,350 Allegiant Travel Co.* 940
224,033 Hawaiian Holdings, Inc.* 1,331
--------
2,694
--------
COMMERCIAL PRINTING (0.4%)
303,515 Bowne & Co., Inc. 1,994
--------
CONSTRUCTION & ENGINEERING (1.3%)
34,400 EMCOR Group, Inc.* 827
145,843 Great Lakes Dredge & Dock Corp. 862
98,440 MasTec, Inc.* 1,210
42,314 Michael Baker Corp.* 1,651
46,043 Orion Marine Group, Inc.* 871
103,300 Sterling Construction Co., Inc.* 1,965
--------
7,386
--------
================================================================================
22 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.2%)
269,300 Force Protection, Inc.* $ 1,371
--------
DIVERSIFIED SUPPORT SERVICES (0.2%)
77,600 Comfort Systems USA, Inc. 910
--------
ELECTRICAL COMPONENTS & EQUIPMENT (2.2%)
86,100 Acuity Brands, Inc.(a) 3,081
325,390 Belden, Inc. 7,428
217,881 GT Solar International, Inc.*(a) 1,253
21,578 Powell Industries, Inc.* 630
--------
12,392
--------
ENVIRONMENTAL & FACILITIES SERVICES (0.3%)
57,100 Standard Packaging Corp.* 927
26,384 Tetra Tech, Inc.* 597
--------
1,524
--------
HUMAN RESOURCE & EMPLOYMENT SERVICES (0.4%)
47,750 Administaff, Inc. 1,091
21,000 Towers Watson & Co. 916
--------
2,007
--------
INDUSTRIAL CONGLOMERATES (1.7%)
284,400 Carlisle Companies, Inc. 9,533
--------
INDUSTRIAL MACHINERY (2.6%)
258,403 Albany International Corp. \"A" 5,139
79,300 Chart Industries, Inc.* 1,279
92,070 EnPro Industries, Inc.* 2,242
43,000 ESCO Technologies, Inc. 1,406
187,300 Mueller Industries, Inc. 4,606
--------
14,672
--------
MARINE (0.6%)
110,151 Kirby Corp.* 3,573
--------
OFFICE SERVICES & SUPPLIES (2.0%)
496,100 ACCO Brands Corp.* 3,820
67,126 Interface, Inc. "A" 545
124,400 United Stationers, Inc.* 6,787
--------
11,152
--------
RAILROADS (0.8%)
140,800 Genesee & Wyoming, Inc. "A"* 4,149
--------
RESEARCH & CONSULTING SERVICES (0.2%)
46,500 Huron Consulting Group, Inc.* 1,109
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS (1.0%)
82,556 Beacon Roofing Supply, Inc.* $ 1,387
165,600 GATX Corp. 4,342
--------
5,729
--------
TRUCKING (0.3%)
82,600 Knight Transportation, Inc. 1,495
--------
Total Industrials 85,992
--------
INFORMATION TECHNOLOGY (17.6%)
------------------------------
APPLICATION SOFTWARE (2.8%)
25,924 ACI Worldwide, Inc.* 415
71,840 Actuate Corp.* 359
97,391 Interactive Intelligence, Inc.* 1,685
136,720 JDA Software Group, Inc.* 3,583
92,900 Mentor Graphics Corp.* 745
106,200 Net 1 U.E.P.S Technologies, Inc.* 1,899
59,725 Pegasystems, Inc. 1,986
122,990 Quest Software, Inc.* 2,118
22,194 Solera Holdings, Inc. 735
215,430 TIBCO Software, Inc.* 1,930
--------
15,455
--------
COMMUNICATIONS EQUIPMENT (2.3%)
278,824 3Com Corp.* 2,077
75,800 ADC Telecommunications, Inc.* 402
28,060 ADTRAN, Inc. 595
143,000 ARRIS Group, Inc.* 1,436
26,640 Aviat Networks Inc.* 192
128,600 Bigband Networks, Inc.* 404
69,470 InterDigital, Inc.* 1,722
20,700 Loral Space & Communications, Inc.* 589
70,800 Netgear, Inc.* 1,461
114,050 Oplink Communications, Inc.* 1,694
42,300 SeaChange International, Inc.* 274
143,260 Tekelec* 2,146
--------
12,992
--------
COMPUTER HARDWARE (0.9%)
114,896 Cray, Inc.* 542
159,400 Diebold, Inc. 4,235
--------
4,777
--------
COMPUTER STORAGE & PERIPHERALS (1.2%)
208,286 Electronics for Imaging, Inc.* 2,414
42,500 Isilon Systems, Inc.* 263
================================================================================
24 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
213,830 Novatel Wireless, Inc.* $ 1,599
236,900 Quantum Corp.* 607
126,900 Xyratex Ltd.* 1,740
--------
6,623
--------
DATA PROCESSING & OUTSOURCED SERVICES (2.1%)
73,520 CSG Systems International, Inc.* 1,427
83,840 Euronet Worldwide, Inc.* 1,712
139,490 Global Cash Access Holdings, Inc.* 1,130
98,780 Heartland Payment Systems, Inc. 1,410
89,050 TeleTech Holdings, Inc.* 1,695
42,438 TNS, Inc.* 972
90,800 VeriFone Holdings, Inc.* 1,615
50,600 Wright Express Corp.* 1,486
--------
11,447
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS (0.7%)
52,900 Coherent, Inc.* 1,570
94,130 MTS Systems Corp. 2,422
--------
3,992
--------
ELECTRONIC MANUFACTURING SERVICES (0.4%)
13,000 CTS Corp. 99
50,900 Multi-Fineline Electronix, Inc.* 1,215
253,398 Nam Tai Electronics, Inc.* 1,214
--------
2,528
--------
INTERNET SOFTWARE & SERVICES (1.0%)
163,900 Art Technology Group, Inc.* 734
39,940 Digital River, Inc.* 1,004
172,800 EarthLink, Inc. 1,401
89,390 J2 Global Communications, Inc.* 1,836
65,800 ValueClick, Inc.* 609
--------
5,584
--------
IT CONSULTING & OTHER SERVICES (1.6%)
77,075 Acxiom Corp.* 1,185
23,800 CACI International, Inc. "A"* 1,142
121,900 Maximus, Inc. 5,834
38,200 SRA International, Inc. "A"* 658
--------
8,819
--------
OFFICE ELECTRONICS (0.6%)
124,000 Zebra Technologies Corp. "A"* 3,236
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT (0.4%)
8,000 FEI Co.* $ 166
75,800 Kulicke & Soffa Industries, Inc.* 350
49,500 Tessera Technologies, Inc.* 850
49,440 Ultratech, Inc.* 674
--------
2,040
--------
SEMICONDUCTORS (1.8%)
57,657 Actel Corp.* 635
112,670 Advanced Analogic Technologies, Inc.* 376
214,791 Applied Micro Circuits Corp.* 1,575
120,660 Cirrus Logic, Inc.* 823
43,758 IXYS Corp.* 305
186,980 Lattice Semiconductor Corp.* 484
117,218 Micrel, Inc. 876
170,798 MIPS Technologies, Inc.* 659
124,000 RF Micro Devices, Inc.* 477
32,480 Semtech Corp.* 487
124,130 Skyworks Solutions, Inc.* 1,575
22,100 Standard Microsystems Corp.* 441
193,200 TriQuint Semiconductor, Inc.* 1,159
--------
9,872
--------
SYSTEMS SOFTWARE (1.7%)
27,800 FalconStor Software, Inc.* 96
72,600 Progress Software Corp.* 2,042
50,920 Sybase, Inc.* 2,071
155,754 TeleCommunication Systems, Inc. "A"* 1,364
223,300 Websense, Inc.* 4,138
--------
9,711
--------
TECHNOLOGY DISTRIBUTORS (0.1%)
31,380 SYNNEX Corp.* 831
--------
Total Information Technology 97,907
--------
MATERIALS (4.3%)
----------------
DIVERSIFIED CHEMICALS (0.2%)
71,584 LSB Industries, Inc.* 941
--------
FOREST PRODUCTS (0.6%)
80,400 Deltic Timber Corp. 3,611
--------
METAL & GLASS CONTAINERS (0.7%)
108,300 AptarGroup, Inc. 3,843
--------
================================================================================
26 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
PAPER PACKAGING (0.6%)
102,720 Boise, Inc.* $ 530
65,400 Rock-Tenn Co. "A" 2,792
--------
3,322
--------
SPECIALTY CHEMICALS (1.9%)
56,430 Innophos Holdings, Inc. 1,104
134,160 Omnova Solutions, Inc.* 759
123,510 PolyOne Corp.* 920
343,400 Zep, Inc. 7,596
--------
10,379
--------
STEEL (0.3%)
144,100 General Steel Holdings, Inc.*(a) 552
92,800 Worthington Industries, Inc. 1,343
--------
1,895
--------
Total Materials 23,991
--------
TELECOMMUNICATION SERVICES (0.6%)
---------------------------------
ALTERNATIVE CARRIERS (0.4%)
24,200 Cogent Communications Group, Inc.* 264
106,720 PAETEC Holding Corp.* 338
183,180 Premiere Global Services, Inc.* 1,480
--------
2,082
--------
WIRELESS TELECOMMUNICATION SERVICES (0.2%)
16,100 NTELOS Holdings Corp. 262
84,320 USA Mobility, Inc. 876
--------
1,138
--------
Total Telecommunication Services 3,220
--------
UTILITIES (2.9%)
----------------
ELECTRIC UTILITIES (1.5%)
141,900 UniSource Energy Corp. 4,362
5,540 Unitil Corp. 121
162,700 Weststar Energy, Inc. 3,470
--------
7,953
--------
GAS UTILITIES (1.4%)
111,500 Atmos Energy Corp. 3,080
56,150 New Jersey Resources Corp. 2,049
7,100 South Jersey Industries, Inc. 272
74,500 WGL Holdings, Inc. 2,364
--------
7,765
--------
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
MARKET
NUMBER VALUE
OF SHARES SECURITY (000)
---------------------------------------------------------------------------------------------------
WATER UTILITIES (0.0%)
5,710 Consolidated Water Co. Ltd.(a) $ 77
--------
Total Utilities 15,795
--------
Total Common Stocks (cost: $479,586) 539,232
--------
MONEY MARKET INSTRUMENTS (3.3%)
MONEY MARKET FUNDS (3.3%)
18,411,952 State Street Institutional Liquid Reserve Fund, 0.13%(b) (cost: $18,412) 18,412
--------
SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED (3.9%)
MONEY MARKET FUNDS (1.4%)
7,719,801 BlackRock Liquidity Funds TempFund Portfolio, 0.11%(b) 7,720
--------
---------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000)
---------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (2.5%)
$9,100 Credit Suisse First Boston LLC, 0.11%, acquired on 1/29/2010
and due 2/01/2010 at $9,100 (collateralized by $9,150 of
U.S. Treasury, 3.63%, due 8/15/2019; market value $9,287) 9,100
4,700 Deutsche Bank Securities, Inc., 0.11%, acquired on 1/29/2010
and due 2/01/2010 at $4,700 (collateralized by $4,796 of
Fannie Mae(c), 0.09%(d), due 5/10/2010; market value $4,795) 4,700
--------
Total Repurchase Agreements 13,800
--------
Total Short-Term Investments Purchased With
Cash Collateral From Securities Loaned (cost: $21,520) 21,520
--------
TOTAL INVESTMENTS (COST: $519,518) $579,164
========
================================================================================
28 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
---------------------------------------------------------------------------------------------------
Equity Securities:
Common Stocks $539,232 $ - $- $539,232
Money Market Instruments:
Money Market Funds 18,412 - - 18,412
Short-Term Investments
Purchased with Cash Collateral
from Securities Loaned:
Money Market Funds 7,720 - - 7,720
Repurchase Agreements - 13,800 - 13,800
---------------------------------------------------------------------------------------------------
Total $565,364 $13,800 $- $579,164
---------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<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.
ADR American depositary receipts are receipts issued by a U.S. bank
evidencing ownership of foreign shares. Dividends are paid in U.S.
dollars.
REIT Real estate investment trust
o SPECIFIC NOTES
(a) The security or a portion thereof was out on loan as of January 31, 2010.
(b) Rate represents the money market fund annualized seven-day yield at
January 31, 2010.
(c) Securities issued by government-sponsored enterprises are supported only
by the right of the government-sponsored enterprise to borrow from the
U.S. Treasury, the discretionary authority of the U.S. government to
purchase the government-sponsored enterprises' obligations, or by the
credit of the issuing agency, instrumentality, or corporation, and are
neither issued nor guaranteed by the U.S. Treasury.
(d) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
* Non-income-producing security.
See accompanying notes to financial statements.
================================================================================
30 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (including
securities on loan of $21,519) (cost of $519,518) $ 579,164
Cash 136
Receivables:
Capital shares sold:
Affiliated transactions (Note 8) 132
Nonaffiliated transactions 559
Dividends and interest 227
Securities sold 2,740
Other 88
---------
Total assets 583,046
---------
LIABILITIES
Payables:
Upon return of securities loaned 21,520
Securities purchased 5,763
Capital shares redeemed (nonaffiliated transactions) 391
Accrued management fees 350
Accrued transfer agent's fees 62
Other accrued expenses and payables 83
---------
Total liabilities 28,169
---------
Net assets applicable to capital shares outstanding $ 554,877
=========
NET ASSETS CONSIST OF:
Paid-in capital $ 636,430
Accumulated undistributed net investment income 545
Accumulated net realized loss on investments (141,744)
Net unrealized appreciation of investments 59,646
---------
Net assets applicable to capital shares outstanding $ 554,877
=========
Net asset value, redemption price, and offering price per share:
Fund Shares (net assets of $500,042/47,264 shares outstanding) $ 10.58
=========
Institutional Shares (net assets of $54,835/5,170 shares outstanding) $ 10.61
=========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 31
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Six-month period ended January 31, 2010 (unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 3,780
Interest 16
Securities lending (net) 277
-------
Total income 4,073
-------
EXPENSES
Management fees 1,931
Administration and servicing fees:
Fund Shares 366
Institutional Shares 13
Transfer agent's fees:
Fund Shares 1,017
Institutional Shares 13
Custody and accounting fees:
Fund Shares 59
Institutional Shares 6
Postage:
Fund Shares 42
Shareholder reporting fees:
Fund Shares 21
Trustees' fees 5
Registration fees:
Fund Shares 20
Professional fees 42
Other 8
-------
Total expenses 3,543
Transfer agent's fees reimbursed (Note 7E):
Fund Shares (47)
-------
Net expenses 3,496
-------
NET INVESTMENT INCOME 577
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 13,160
Change in net unrealized appreciation/depreciation 42,513
-------
Net realized and unrealized gain 55,673
-------
Increase in net assets resulting from operations $56,250
=======
See accompanying notes to financial statements.
================================================================================
32 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Six-month period ended January 31, 2010 (unaudited), and year ended July 31,
2009
--------------------------------------------------------------------------------
1/31/2010 7/31/2009
-------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 577 $ 173
Net realized gain (loss) on investments 13,160 (107,569)
Net realized loss on foreign currency transactions - (1)
Change in net unrealized appreciation/depreciation
of investments 42,513 10,975
-------------------------
Increase (decrease) in net assets resulting from operations 56,250 (96,422)
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Fund Shares - (273)
Institutional Shares* - (30)
-------------------------
Total distributions of net investment income - (303)
-------------------------
Return of Capital
Fund Shares - (149)
Institutional Shares* - (28)
-------------------------
Total distributions of return of capital - (177)
-------------------------
Distributions to shareholders - (480)
-------------------------
NET INCREASE IN NET ASSETS FROM CAPITAL
SHARE TRANSACTIONS (NOTE 6)
Fund Shares (15,838) 44,615
Institutional Shares* 4,730 40,424
-------------------------
Total net increase (decrease) in net assets from
capital share transactions (11,108) 85,039
-------------------------
Capital contribution from USAA Transfer Agency Company:
Institutional Shares* - 10
-------------------------
Net increase (decrease) in net assets 45,142 (11,853)
NET ASSETS
Beginning of period 509,735 521,588
-------------------------
End of period $554,877 $ 509,735
=========================
Accumulated undistributed (overdistribution of)
net investment income:
End of period $ 545 $ (32)
=========================
*Institutional Shares were initiated on August 1, 2008.
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 33
<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 Small
Cap Stock Fund (the Fund), which is classified as diversified under the 1940
Act. The Fund's investment objective is long-term growth of capital.
The Fund has two classes of shares: Small Cap Stock Fund Shares (Fund Shares)
and Small Cap Stock 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.
================================================================================
34 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
A. SECURITY VALUATION -- The value of each security is determined (as of the
close of trading on the New York Stock Exchange (NYSE) on each business day
the NYSE is open) as set forth below:
1. Equity securities, including exchange-traded funds (ETFs), except as
otherwise noted, traded primarily on a domestic securities exchange or
the Nasdaq over-the-counter markets are valued at the last sales price
or official closing price on the exchange or primary market on which
they trade. Equity securities traded primarily on foreign securities
exchanges or markets are valued at the last quoted sales price, or the
most recently determined official closing price calculated according to
local market convention, available at the time the Fund is valued. If no
last sale or official closing price is reported or available, the
average of the bid and asked prices generally is used.
2. Equity securities trading in various foreign markets may take place on
days when the NYSE is closed. Further, when the NYSE is open, the
foreign markets may be closed. Therefore, the calculation of the Fund's
net asset value (NAV) may not take place at the same time the prices of
certain foreign securities held by the Fund are determined. In most
cases, events affecting the values of foreign securities that occur
between the time of their last quoted sales or official closing prices
and the close of normal trading on the NYSE on a day the Fund's NAV is
calculated will not be reflected in the value of the Fund's foreign
securities. However, the Manager and the Fund's subadvisers, if
applicable, will monitor for events that would materially affect the
value of the Fund's foreign securities. The Fund's subadvisers have
agreed to notify the Manager of significant events they identify that
would materially affect the value of the Fund's foreign securities. If
the Manager determines that a particular event would materially affect
the value of the Fund's foreign securities, then the Manager, under
valuation procedures approved by the Trust's Board of Trustees, will
consider such available information that it deems relevant
================================================================================
NOTES TO FINANCIAL STATEMENTS | 35
<PAGE>
================================================================================
to determine a fair value for the affected foreign securities. In
addition, the Fund may use information from an external vendor or other
sources to adjust the foreign market closing prices of foreign equity
securities to reflect what the Fund believes to be the fair value of the
securities as of the close of the NYSE. Fair valuation of affected
foreign equity securities may occur frequently based on an assessment
that events that occur on a fairly regular basis (such as U.S. market
movements) are significant.
3. Investments in open-end investment companies, hedge, or other funds,
other than ETFs, are valued at their NAV at the end of each business day.
4. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
5. Repurchase agreements are valued at cost, which approximates market
value.
6. Securities for which market quotations are not readily available or are
considered unreliable, or whose values have been materially affected by
events occurring after the close of their primary markets but before the
pricing of the Fund, are valued in good faith at fair value, using
methods determined by the Manager in consultation with the Fund's
subadvisers, if applicable, under valuation procedures approved by the
Trust's Board of Trustees. The effect of fair value pricing is that
securities may not be priced on the basis of quotations from the primary
market in which they are traded and the actual price realized from the
sale of a security may differ materially from the fair value price.
Valuing these securities at fair value is intended to cause the Fund's
NAV to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems.
================================================================================
36 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
General factors considered in determining the fair value of securities
include fundamental analytical data, the nature and duration of any
restrictions on disposition of the securities, and an evaluation of the
forces that influenced the market in which the securities are purchased
and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The
three-level valuation hierarchy disclosed in the portfolio of investments
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels are defined as
follows:
Level 1 -- inputs to the valuation methodology are quoted prices
(unadjusted) in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its income to its shareholders.
Therefore, no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses
from sales of investment securities are computed on
================================================================================
NOTES TO FINANCIAL STATEMENTS | 37
<PAGE>
================================================================================
the identified cost basis. Dividend income, less foreign taxes, if any, is
recorded on the ex-dividend date. If the ex-dividend date has passed,
certain dividends from foreign securities are recorded upon notification.
Interest income is recorded daily on the accrual basis. Discounts and
premiums on short-term securities are amortized on a straight-line basis
over the life of the respective securities.
E. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with
commercial banks or recognized security dealers. These agreements are
collateralized by underlying securities. The collateral obligations are
marked-to-market daily to ensure their value is equal to or in excess of
the repurchase agreement price plus accrued interest and are held by the
Fund, either through its regular custodian or through a special "tri-party"
custodian that maintains separate accounts for both the Fund and its
counterparty, until maturity of the repurchase agreement. Repurchase
agreements are subject to credit risk, and the Fund's Manager monitors the
creditworthiness of sellers with which the Fund may enter into repurchase
agreements.
F. FOREIGN CURRENCY TRANSLATIONS -- The Fund's assets may be invested in the
securities of foreign issuers and may be traded in foreign currency. Since
the Fund's accounting records are maintained in U.S. dollars, foreign
currency amounts are translated into U.S. dollars on the following bases:
1. Purchases and sales of securities, income, and expenses at the exchange
rate obtained from an independent pricing service on the respective
dates of such transactions.
2. Market value of securities, other assets, and liabilities at the
exchange rate obtained from an independent pricing service on a daily
basis.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
================================================================================
38 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
Separately, net realized foreign currency gains/losses may arise from sales
of foreign currency, currency gains/losses realized between the trade and
settlement dates on security transactions, and from the difference between
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts received. At
the end of the Fund's fiscal year, these net realized foreign currency
gains/losses are reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income on the statement of assets
and liabilities as such amounts are treated as ordinary income/loss for tax
purposes. Net unrealized foreign currency exchange gains/losses arise from
changes in the value of assets and liabilities, other than investments in
securities, resulting from changes in the exchange rate.
G. EXPENSES PAID INDIRECTLY -- A portion of the brokerage commissions that the
Fund pays may be recaptured as a credit that is tracked and used by the
custodian to directly reduce expenses paid by the Fund. In addition,
through arrangements with the Fund's custodian and other banks utilized by
the Fund for cash management purposes, realized credits, if any, generated
from cash balances in the Fund's bank accounts may be used to directly
reduce the Fund's expenses. For the six-month period ended January 31,
2010, custodian and other bank credits reduced the Fund's expenses by less
than $500.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, its
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the Trust. In addition, in the
normal course of business the Trust enters into contracts that contain a
variety of representations and warranties that provide general
indemnifications. The Trust's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Trust that have not yet occurred. However, the Trust expects the risk of
loss to be remote.
I. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
<PAGE>
================================================================================
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 $1,000, which represents 1.3% of the total fees paid to CAPCO by the
USAA funds. The Fund had no borrowings under this agreement during the six-month
period ended January 31, 2010.
(3) DISTRIBUTIONS
The tax basis of distributions and accumulated undistributed net investment
income will be determined based upon the Fund's tax year-end of July 31, 2010,
in accordance with applicable tax law.
Distributions of net investment income and 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
$73,680,000, for federal income tax purposes, which, if not offset by
================================================================================
40 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
subsequent capital gains, will expire between 2016 and 2017. It is unlikely that
the Trust's Board of Trustees will authorize a distribution of capital gains
realized in the future until the capital loss carryovers have been used or
expire.
CAPITAL LOSS CARRYOVERS
------------------------------------------
EXPIRES BALANCE
------------ -----------
2016 $ 5,400,000
2017 68,280,000
-----------
Total $73,680,000
===========
The Fund is required to evaluate tax positions taken or expected to be taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Income tax and related interest and penalties would be recognized by
the Fund as tax expense in the statement of operations if the tax positions were
deemed to not meet the more-likely-than-not threshold. For the six-month period
ended January 31, 2010, the Fund did not incur any income tax, interest, or
penalties. As of January 31, 2010, the Manager has reviewed all open tax years
and concluded that there was no impact to the Fund's net assets or results of
operations. Tax years ended July 31, 2006, through July 31, 2009, remain
subject to examination by the Internal Revenue Service and state taxing
authorities. On an ongoing basis, the Manager will monitor its tax positions to
determine if adjustments to this conclusion are necessary.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the six-month period ended January 31, 2010, were
$87,543,000 and $91,460,000, 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
<PAGE>
================================================================================
Gross unrealized appreciation and depreciation of investments as of January 31,
2010, were $89,989,000 and $30,343,000, respectively, resulting in net
unrealized appreciation of $59,646,000.
(5) LENDING OF PORTFOLIO SECURITIES
The Fund, through its third-party securities-lending agent, Wachovia Global
Securities Lending (Wachovia), may lend its securities to qualified financial
institutions, such as certain broker-dealers, to earn additional income. The
borrowers are required to secure their loans continuously with cash collateral
in an amount at least equal to the fair value of the securities loaned,
initially in an amount at least equal to 102% of the fair value of domestic
securities loaned and 105% of the fair value of international securities loaned.
Cash collateral is invested in high-quality short-term investments. Cash
collateral requirements are determined daily based on the prior business day's
ending value of securities loaned. Imbalances in cash collateral may occur on
days where market volatility causes security prices to change significantly, and
are adjusted the next business day. The Fund and Wachovia retain 80% and 20%,
respectively, of the income earned from the investment of cash received as
collateral, net of any expenses associated with the lending transaction.
Wachovia receives no other fees from the Fund for its services as
securities-lending agent. Risks to the Fund in securities-lending transactions
are that the borrower may not provide additional collateral when required or
return the securities when due, and that the value of the short-term investments
will be less than the amount of cash collateral required to be returned to the
borrower. Wachovia Bank, N.A., parent company of Wachovia, has agreed to
indemnify the Fund against any losses due to counterparty default in
securities-lending transactions. For the six-month period ended January 31,
2010, the Fund received securities-lending income of $277,000, which is net of
the 20% income retained by Wachovia. As of January 31, 2010, the Fund loaned
securities having a fair market value of approximately $21,519,000 and received
cash collateral of $21,520,000 for the loans, which was invested in short-term
investments, as noted in the Fund's portfolio of investments.
================================================================================
42 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
(6) CAPITAL SHARE TRANSACTIONS
At January 31, 2010, there were an unlimited number of shares of capital stock
at no par value authorized for the Fund.
Capital share transactions for the Institutional Shares resulted from purchases
and sales by the affiliated Target Funds. Capital share transactions were as
follows, in thousands:
SIX-MONTH
PERIOD ENDED YEAR ENDED
1/31/2010 7/31/2009
-------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------
FUND SHARES:
Shares sold 5,538 $ 57,311 15,868 $132,281
Shares issued from reinvested
dividends 0 0 52 418
Shares redeemed (7,230) (73,149) (10,180) (88,084)
-----------------------------------------
Net increase (decrease) from
capital share transactions (1,692) $(15,838) 5,740 $ 44,615
=========================================
INSTITUTIONAL SHARES
(INITIATED ON AUGUST 1, 2008):
Shares sold 2,368 $ 24,531 5,127 $ 43,583
Shares issued from reinvested
dividends 0 0 7 58
Shares redeemed (1,934) (19,801) (398) (3,217)
-----------------------------------------
Net increase from capital
share transactions 434 $ 4,730 4,736 $ 40,424
=========================================
(7) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager provides investment management services to
the Fund pursuant to an Advisory Agreement. Under this agreement, the
Manager is responsible for managing the business and affairs of the Fund,
subject to the authority of and supervision by the Trust's Board of
Trustees. The Manager is authorized to select (with approval of the Trust's
Board of Trustees and without shareholder approval) one or more subadvisers
to manage the
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
<PAGE>
================================================================================
actual day-to-day investment of the Fund's assets. The Manager monitors
each subadviser's performance through quantitative and qualitative
analysis, and periodically recommends to the Trust's Board of Trustees as
to whether each subadviser's agreement should be renewed, terminated, or
modified. The Manager also is responsible for allocating assets to the
subadvisers. The allocation for each subadviser can range from 0% to 100%
of the Fund's assets, and the Manager can change the allocations without
shareholder approval.
The investment management fee for the Fund is composed of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid
monthly at an annualized rate of 0.75% 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
Small-Cap Core Funds Index over the performance period. The Lipper
Small-Cap Core Funds Index tracks the total return performance of the 30
largest funds in the Lipper Small-Cap Core Funds category. The performance
period for each class consists of the current month plus the previous 35
months. The performance adjustment for the Institutional Shares includes
the performance of the Fund Shares for periods prior to August 1, 2008. The
following table is utilized to determine the extent of the performance
adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
----------------------------------------------------------------------------
+/- 1.00% to 4.00% +/- 0.04%
+/- 4.01% to 7.00% +/- 0.05%
+/- 7.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund
and its relevant index, rounded to the nearest 0.01%. Average net assets are
calculated over a rolling 36-month period.
Each class's annual performance adjustment rate is multiplied by the
average net assets of each respective class over the entire performance
period, which is then multiplied by a fraction, the
================================================================================
44 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
numerator of which is the number of days in the month and the denominator
of which is 365 (366 in leap years). The resulting amount is the
performance adjustment; a positive adjustment in the case of
overperformance, or a negative adjustment in the case of underperformance.
Under the performance fee arrangement, each class will pay a positive
performance fee adjustment for a performance period whenever the class
outperforms the Lipper Small-Cap Core 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 $1,931,000, which
included a performance adjustment for the Fund Shares and Institutional
Shares of $(93,000) and $(2,000), respectively. For the Fund Shares and
Institutional Shares, the performance adjustments were (0.04)% and (0.01)%,
respectively.
B. SUBADVISORY ARRANGEMENTS -- The Manager has entered into investment
subadvisory agreements with Batterymarch Financial Management, Inc.
(Batterymarch) and Wellington Management Company, LLP (Wellington
Management), under which Batterymarch and Wellington Management direct the
investment and reinvestment of portions of the Fund's assets (as allocated
from time to time by the Manager). The Manager (not the Fund) pays
Batterymarch a subadvisory fee in the annual amount of 0.50% of the Fund's
average daily net assets that Batterymarch manages, and pays Wellington
Management a subadvisory fee in the annual amount of 0.70% of the Fund's
average daily net assets that Wellington Management manages. For the
six-month period ended January 31, 2010, the Manager incurred subadvisory
fees, paid or payable to Batterymarch and Wellington Management, of
$665,000 and $960,000, respectively.
C. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
<PAGE>
================================================================================
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 $366,000 and $13,000, 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 $12,000 for these compliance and legal services.
These expenses are included in the professional fees on the Fund's
statement of operations.
D. EXPENSE LIMITATION -- The Manager has agreed, through December 1, 2010, to
limit the annual expenses of the Fund Shares and the Institutional shares
to 1.40% and 0.91%, respectively, of their average annual net assets,
excluding extraordinary expenses and before reductions of any expenses paid
indirectly, and will reimburse the Fund Shares and Institutional Shares for
all expenses in excess of those amounts. This expense limitation
arrangement may not be changed or terminated through December 1, 2010,
without approval of the Trust's Board of Trustees, and may be changed or
terminated by the Manager at any time after that date. For the six-month
period ended January 31, 2010, the Fund did not incur any reimbursable
expenses from the Manager for the Fund Shares or the Institutional Shares.
E. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA
Shareholder Account Services (SAS), an affiliate of the Manager, provides
transfer agent services to the Fund. Transfer agent's fees for Fund Shares
are paid monthly based on an annual charge of $23 per shareholder account
plus out-of-pocket expenses. The Fund Shares also pay SAS fees that are
related to the administration and servicing of accounts that are traded on
an omnibus basis. Transfer 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'
================================================================================
46 | USAA SMALL CAP STOCK FUND
<PAGE>
================================================================================
average net assets, plus out-of-pocket expenses. For the six-month period
ended January 31, 2010, the Fund Shares and Institutional Shares incurred
transfer agent's fees, paid or payable to SAS, of $1,017,000 and $13,000,
respectively.
During the six-month period ended January 31, 2010, SAS reimbursed the Fund
Shares $47,000 for corrections in fees paid for the administration and
servicing of certain accounts.
F. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and
distribution of the Fund's shares on a continuing best-efforts basis. The
Manager receives no commissions or fees for this service.
(8) TRANSACTIONS WITH AFFILIATES
The Fund is one of 13 USAA mutual funds in which the affiliated Target Funds may
invest. The Target Funds do not invest in the Fund for the purpose of exercising
management or control. As of January 31, 2010, the Fund recorded a receivable
for capital shares sold of $132,000 and a payable for capital shares redeemed of
less than $500 for the Target Funds' purchases and redemptions of Institutional
Shares. As of January 31, 2010, the Target Funds owned the following percent of
the total outstanding shares of the Fund:
OWNERSHIP %
--------------------------------------------------------------------------------
USAA Target Retirement Income Fund 0.5%
USAA Target Retirement 2020 Fund 1.3
USAA Target Retirement 2030 Fund 2.9
USAA Target Retirement 2040 Fund 3.5
USAA Target Retirement 2050 Fund 1.7
Certain trustees and officers of the Fund are also directors, officers, and/or
employees of the Manager. None of the affiliated trustees or Fund officers
received any compensation from the Fund.
(9) SUBSEQUENT EVENTS
Events or transactions that occur after the balance sheet date but before the
financial statements are issued are categorized as recognized or non-recognized
for financial statement purposes. The Manager has
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
<PAGE>
================================================================================
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.
(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.
================================================================================
48 | USAA SMALL CAP STOCK 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 $ 9.49 $ 12.07 $ 15.29 $ 13.99 $ 14.80 $ 11.82
-----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income (loss) .01 (00)(b) .00(b) .04 - .00(a),(b)
Net realized and
unrealized gain (loss) 1.08 (2.57) (1.72) 2.17 .26 3.34(a)
-----------------------------------------------------------------------------------
Total from investment operations 1.09 (2.57) (1.72) 2.21 .26 3.34(a)
-----------------------------------------------------------------------------------
Less distributions from:
Net investment income - (.01) (.01) (.02) - (.01)
Realized capital gains - - (1.49) (.89) (1.07) (.35)
Return of capital - (.00)(b) - - - -
-----------------------------------------------------------------------------------
Total distributions - (.01) (1.50) (.91) (1.07) (.36)
-----------------------------------------------------------------------------------
Net asset value at end of period $ 10.58 $ 9.49 $ 12.07 $ 15.29 $ 13.99 $ 14.80
===================================================================================
Total return (%)* 11.49(f) (21.28) (12.16) 16.05(c) 1.90 28.54
Net assets at end of period (000) $500,042 $464,755 $521,588 $514,204 $375,167 $311,167
Ratios to average net assets:**
Expenses (%)(d) 1.36(e),(f) 1.40 1.31 1.32(c) 1.30 1.34
Expenses, excluding
reimbursements (%)(d) 1.36(e),(f) 1.43 1.31 1.32(c) 1.30 1.34
Net investment income (%) .17(e) .02 .03 .25 .11 .02
Portfolio turnover (%) 17 70 84 110 66 69
* 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 $483,104,000.
(a) Calculated using average shares.
(b) Represents less than $0.01 per share.
(c) 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.
(d) Reflects total operating expenses of the Fund Shares before reductions of any expenses paid indirectly.
The Fund Shares' expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) (.00%)(+) (.01%) (.01%) (.03%)
+ Represents less than 0.01% of average net assets.
(e) Annualized. The ratio is not necessarily indicative of 12 months of operations.
(f) During the period ended January 31, 2010, SAS reimbursed the Fund Shares $47,000 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
<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 $ 9.50 $ 12.10
----------------------------
Income (loss) from investment operations:
Net investment income .03 .03(a)
Net realized and unrealized gain (loss) 1.08 (2.60)(a)
----------------------------
Total from investment operations 1.11 (2.57)(a)
----------------------------
Less distributions from:
Net investment income - (.02)
Return of capital - (.01)
----------------------------
Total distributions - (.03)
----------------------------
Net asset value at end of period $ 10.61 $ 9.50
============================
Total return (%)* 11.68 (21.18)
Net assets at end of period (000) $54,835 $44,980
Ratios to average net assets:**
Expenses (%)(b),(c) .89 .90
Net investment income (%)(b) .60 .40
Portfolio turnover (%) 17 70
* 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 $52,734,000.
*** Institutional Shares were initiated on August 1, 2008.
(a) Calculated using average shares.
(b) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
(c) Reflects total operating expenses of the Institutional Shares before
reductions of any expenses paid indirectly. The Institutional Shares'
expenses paid indirectly decreased the expense ratios by less than 0.01%.
================================================================================
50 | USAA SMALL CAP STOCK 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 | 51
<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 $1,114.90 $7.14
Hypothetical
(5% return before expenses) 1,000.00 1,018.45 6.82
INSTITUTIONAL SHARES
Actual 1,000.00 1,116.80 4.75
Hypothetical
(5% return before expenses) 1,000.00 1,020.72 4.53
* Expenses are equal to the annualized expense ratio of 1.34% for Fund Shares
and 0.89% 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 11.49% for Fund Shares and 11.68% for Institutional Shares for the
six-month period of August 1, 2009, through January 31, 2010.
================================================================================
52 | USAA SMALL CAP STOCK 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.
--------------------------------------------------------------------------------
Copies of the Manager's proxy voting policies and procedures, approved by the
Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are
available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. Information regarding how
the Fund voted proxies relating to portfolio securities during the most recent
12-month period ended June 30 is available without charge (i) at USAA.COM; and
(ii) on the SEC's website at HTTP://WWW.SEC.GOV.
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's website at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
================================================================================
<PAGE>
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
At USAA.COM click: MY DOCUMENTS
Set preferences to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
============================================================================
40053-0310 (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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