UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7852
Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST
Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Name and address of agent for service: CHRISTOPHER P. LAIA
USAA MUTUAL FUNDS TRUST
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TX 78288
Registrant's telephone number, including area code: (210) 498-0226
Date of fiscal year end: MARCH 31
Date of reporting period: MARCH 31, 2010
ITEM 1. REPORT TO STOCKHOLDERS.
USAA MUTUAL FUNDS TRUST - ANNUAL REPORT FOR PERIOD ENDING MARCH 31, 2010
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TAX EXEMPT LONG-TERM FUND]
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ANNUAL REPORT
USAA TAX EXEMPT LONG-TERM FUND
MARCH 31, 2010
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FUND OBJECTIVE
INTEREST INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX.
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TYPES OF INVESTMENTS
Invests primarily in investment-grade tax-exempt securities. The dollar-weighted
average portfolio maturity for the Fund is 10 years or more.
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TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 2
MANAGER'S COMMENTARY 4
FUND RECOGNITION 8
INVESTMENT OVERVIEW 10
FINANCIAL INFORMATION
Distributions to Shareholders 17
Report of Independent Registered Public Accounting Firm 18
Portfolio of Investments 19
Notes to Portfolio of Investments 33
Financial Statements 35
Notes to Financial Statements 38
EXPENSE EXAMPLE 49
TRUSTEES' AND OFFICERS' INFORMATION 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
"THE PERFORMANCE OF OUR TAX-EXEMPT
BOND FUNDS REMAINED STRONG DESPITE [PHOTO OF DANIEL S. McNAMARA]
VOLATILE MARKET CONDITIONS."
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MAY 2010
As I write to you, it has been more than a year since the stock market reached a
bottom and began its remarkable recovery. The fixed income market has also
experienced a rally as the flight to quality reversed and investors moved out of
ultra-safe U.S. Treasuries into almost every other type of bond. And yet, fear
and uncertainty seem to linger. Many people remain on the sidelines with large
amounts of money in money market funds, which are yielding almost zero.
Relief from these low yields is unlikely -- at least in the near term. At the
time of this writing, the Federal Reserve (the Fed) is cautiously and
methodically unwinding its alphabet soup of stimulus programs. If the economy
and financial markets remain stable, Fed governors may consider an increase in
short-term interest rates. However, I don't expect them to act until they are
sure that unemployment has peaked -- a determination they may not be able to
make until well into the second half of 2010.
Under the circumstances, investors would be well advised to review how much they
have in their money market accounts. If the money isn't required for two or
three years, it has the potential to earn higher yields in short- and
intermediate-term bond funds. However, investors certainly should not take a lot
of risk with their immediate or emergency spending needs, in which case a money
market fund, savings account or a short-term certificate of deposit should be
considered, in my opinion. For future needs such as retirement, a diversified
portfolio of stock and bond funds may make even more sense. However, if timing
is a concern, investors might consider making changes gradually, moving assets
out of their money market funds and into other investments. I encourage you to
contact a USAA service representative with any questions or for assistance
updating your financial plan. They are available to help you free of charge.
Tax-exempt municipal bonds performed well over the past year and I believe they
remain attractive given their yields and tax-exempt status.
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2 | USAA TAX EXEMPT LONG-TERM FUND
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Going forward, tax rates are likely to rise as the federal government looks for
ways to fund growing budget deficits. The federal government is also phasing in
a 3.8% increase in the tax on unearned income, which does not appear to include
the income generated by tax-exempt securities.
Despite the media hyperbole about the budget challenges of state and local
governments, investors continue to embrace tax-exempt municipal bonds. Why?
First, state and local governments are dealing with their fiscal challenges by
raising taxes, cutting services and renegotiating or restructuring their
long-term commitments. Second, municipal securities are of relatively high
quality. In fact, some ratings agencies are about to adopt a methodology
allowing them to assess municipal bonds on a scale comparable to the one used
for corporate bonds. In doing so, a surprising number of municipal bonds (in the
tens of thousands) have been upgraded. The change is, in my opinion, an
acknowledgment that municipal issuers default less often than corporations.
But at USAA Investment Management Company, we have never invested based solely
on ratings. We do our own credit work, focusing on income generation and on
whether our shareholders are being adequately compensated for risk. As a result,
the performance of our tax-exempt bond funds remained strong despite volatile
market conditions. Going forward, however, shareholders should expect their
tax-exempt bond funds to return to their traditional role as an
income-accumulation vehicle, rather than one of asset appreciation, over the
coming months.
Rest assured, we will continue doing all we can to help you with your investment
needs. We sincerely appreciate the confidence you have in us.
Sincerely,
/s/ Daniel S. McNamara
Daniel S. McNamara
President
USAA Investment Management Company
Investment/Insurance: Not FDIC Insured o Not Bank Issued, Guaranteed or
Underwritten o May Lose Value
Investment and insurance products are not deposits, not insured by FDIC or any
government agency, not guaranteed by the Bank. Investments and certain insurance
products may lose value.
AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
THE FUND.
There may be tax consequences associated with the transfer of assets. Indirect
transfers may be subject to taxation and penalties. Consult with your own
advisors regarding your particular situation.
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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MANAGER'S COMMENTARY ON THE FUND
JOHN BONNELL, CFA
USAA Investment Management Company [PHOTO OF JOHN BONNELL]
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o HOW DID THE USAA TAX EXEMPT LONG-TERM FUND (THE FUND) PERFORM FROM APRIL 1,
2009, TO MARCH 31, 2010?
The Fund provided a total return of 16.59% versus an average of 12.86% for
the 232 funds in the Lipper General Municipal Debt Funds Average. This
compares to a 14.15% return for the Lipper General Municipal Debt Funds Index
and a 9.69% return for the Barclays Capital Municipal Bond Index. The Fund's
tax-exempt distributions over the prior 12 months produced a dividend yield
of 5.07%, compared to the Lipper category average of 4.04%.
o WHAT WERE THE RELEVANT MARKET CONDITIONS DURING THE PERIOD?
Municipal bond prices increased significantly during the reporting period,
which was one of the best 12 months of performance in the history of the
tax-exempt market. The rally was driven by strong individual and
institutional demand for the higher yields provided by longer-term municipal
securities. Short-term rates, which are controlled by the Federal Reserve
(the Fed), were at record lows throughout the annual reporting period with
the federal funds target rate held in a range between zero and 0.25%.
Refer to pages 13 and 14 for benchmark definitions.
Past performance is no guarantee of future results.
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4 | USAA TAX EXEMPT LONG-TERM FUND
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As bond prices rose, yields declined. Yields always move in the opposite
direction of prices. From 4.81% on March 31, 2009, the yield on 30-year
tax-exempt AAA general obligation bonds reached a low of 3.81% on October 2,
2009, before rebounding to close the period at 4.17%.
The rally also was fueled by a provision in the federal government's stimulus
package that allowed state and local governments to issue taxable bonds known
as "Build America Bonds" and receive a 35% subsidy on interest payments. This
resulted in reduced tax-exempt supply, especially on longer-term municipal
bonds.
Meanwhile, the ratio between 30-year municipal yields and those of equivalent
U.S. Treasuries declined from 135% to 88%, much closer to the historical
average than the extraordinarily high ratio of 208% at the height of the 2008
financial crisis. Nevertheless, tax-exempt securities remained attractive
relative to other taxable fixed income securities.
Although the recession has put pressure on municipal budgets, credit spreads
have improved as investors realized that the overwhelming majority of
municipal issuers have the ability to service their debt. (Credit spreads
are the difference in yields between bonds of different credit ratings.)
In addition, many issuers benefited from the federal government's stimulus
spending, and from the financial reserves they amassed during better economic
times. These resources give state and local governments more time to make the
tough political decisions necessary to balance their budgets while they wait
for the economic recovery.
o WHAT WERE YOUR STRATEGIES FOR BUYING AND SELLING?
Your Fund was well positioned for the rally during the one-year reporting
period. As investors' appetite for yield increased, our focus on BBB- and
A-rated bonds performed well. As always, we continued to invest the Fund in a
well-diversified portfolio of longer-term, primarily
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MANAGER'S COMMENTARY ON THE FUND | 5
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investment-grade municipal bonds that are not subject to the federal
alternative minimum tax, also known as the "AMT", for individuals.
We concentrated on buying bonds with attractive risk and return
characteristics, selling holdings when we saw opportunities to reinvest the
proceeds in a way that could improve the Fund's long-term dividend return.
The long-term dividend return contributes the majority of the portfolio's
long-term total return (see page 11).
In the aftermath of the financial crisis, credit risk and uncertainty about
bond ratings seem to pervade the tax-exempt market. However, because we do
our own independent research, we have never relied on the opinion of credit
agencies or bond insurers to identify investment opportunities.
o WHAT IS THE OUTLOOK?
We expect short-term interest rates to remain at historic lows until the Fed
sees evidence of sustained economic growth. In our opinion, a rate hike is
unlikely until at least the end of 2010, and it will be contingent on
inflationary trends, real estate conditions and the level of unemployment. If
inflation emerges, as it often does during an economic recovery, the Fed may
raise short-term interest rates aggressively in an effort to contain it.
However, the impact on long-term rates is likely to be more subdued as
investor confidence in the Fed's ability to fight inflation grows.
The supply of long-term tax-exempt bonds will remain tight as the federal
government seeks to continue the Build America Bonds program beyond 2010.
Although municipal budgets will remain under pressure, we do not anticipate a
material increase in defaults.
Recently, two of the major credit services, Moody's Investors Service and
Fitch Ratings, Ltd., announced efforts to place municipal, corporate, and
sovereign credit ratings on an equal footing. In our view, the change is an
acknowledgement that municipalities have a better debt payment record than
corporate bond issuers.
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6 | USAA TAX EXEMPT LONG-TERM FUND
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Because of the rapid increase in municipal bond prices during the reporting
period, we see limited potential for additional capital appreciation.
Nevertheless, tax-exempt bonds continue to look attractive based upon their
tax-free yields and strong credit quality. What's more, if tax rates rise as
we expect, their appeal is likely to grow.
In the months ahead, we will continue working hard to seek to maximize the
portfolio's after-tax total return. We appreciate your continued confidence
in us.
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MANAGER'S COMMENTARY ON THE FUND | 7
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FUND RECOGNITION
USAA TAX EXEMPT LONG-TERM FUND
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OVERALL MORNINGSTAR RATING(TM)
out of 251 municipal national long-term bond funds
for the period ended March 31, 2010:
OVERALL RATING
* * * *
3-YEAR
* * *
out of 251 funds
5-YEAR
* * *
out of 228 funds
10-YEAR
* * * *
out of 200 funds
The Overall Morningstar Rating for a fund is derived from a weighted average of
the performance figures associated with its three-, five-, and 10-year (if
applicable) Morningstar Rating metrics. Ratings are based on risk-adjusted
returns.
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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. For each fund with at least
a three-year history, Morningstar calculates a Morningstar Rating(TM) based on a
Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's
monthly performance (including the effects of sales charges, loads, and
redemption fees), placing more emphasis on downward variations and rewarding
consistent performance. The top 10% of the funds in each broad asset class
receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars,
the next 22.5% receive 2 stars, and the bottom 10% receive 1 star.
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8 | USAA TAX EXEMPT LONG-TERM FUND
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LIPPER LEADER (OVERALL)
[5]
EXPENSE
The Fund is listed as a Lipper Leader for Expense of 87 funds within the Lipper
General Municipal Debt Funds category for the overall period ended March 31,
2010. The Fund received a Lipper Leader rating for Expense among 87, 80, and 68
funds for the three-, five-, and 10-year periods, respectively. Lipper ratings
for Expense reflect funds' expense minimization relative to peers with similar
load structures as of March 31, 2010.
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Ratings are subject to change every month and are based on an equal-weighted
average of percentile ranks for the Expense metrics over three-, five-, and
10-year periods (if applicable). The highest 20% of funds in each peer group are
named Lipper Leaders, the next 20% receive a score of 4, the middle 20% are
scored 3, the next 20% are scored 2, and the lowest 20% are scored 1. Lipper
ratings are not intended to predict future results, and Lipper does not
guarantee the accuracy of this information. More information is available at
www.lipperleaders.com. Lipper Leader Copyright 2010, Reuters, All Rights
Reserved.
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FUND RECOGNITION | 9
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INVESTMENT OVERVIEW
USAA TAX EXEMPT LONG-TERM FUND (Ticker Symbol: USTEX)
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3/31/10 3/31/09
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Net Assets $2,344.0 Million $2,030.0 Million
Net Asset Value Per Share $12.83 $11.59
Last 12 Months
Tax-Exempt Dividends Per Share $0.651 $0.664
Capital Gain Distributions Per Share $0.002 $0.033
Dollar-Weighted Average
Portfolio Maturity 15.7 Years 15.6 Years
Dollar-weighted average portfolio maturity is obtained by multiplying the dollar
value of each investment by the number of days left to its maturity, then adding
those figures together and dividing them by the total dollar value of the Fund's
portfolio.
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30-DAY SEC YIELD* EXPENSE RATIO(+)
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As of 3/31/10 0.44%
4.10%
*Calculated as prescribed by the Securities and Exchange Commission.
(+)THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE
REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY, AS REPORTED IN THE FUND'S PROSPECTUS
DATED AUGUST 1, 2009, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS.
THIS EXPENSE RATIO MAY DIFFER FROM THE EXPENSE RATIO DISCLOSED IN THE FINANCIAL
HIGHLIGHTS.
Past performance is no guarantee of future results.
No adjustment has been made for taxes payable by shareholders on their
reinvested net investment income and realized capital gain distributions.
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10 | USAA TAX EXEMPT LONG-TERM FUND
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AVERAGE ANNUAL COMPOUNDED RETURNS WITH REINVESTMENT OF DIVIDENDS -- PERIODS
ENDED MARCH 31, 2010
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TOTAL RETURN = DIVIDEND RETURN + PRICE CHANGE
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10 Years 5.29% = 5.04% + 0.25%
5 Years 3.49% = 4.87% + (1.38)%
1 Year 16.59% = 5.88% + 10.71%
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.
HIGH DOUBLE DIGIT RETURNS ARE ATTRIBUTABLE, IN PART, TO UNUSUALLY FAVORABLE
MARKET CONDITIONS AND MAY NOT BE REPEATED OR CONSISTENTLY ACHIEVED IN THE
FUTURE.
ANNUAL TOTAL RETURNS AND COMPOUNDED DIVIDEND RETURNS FOR THE ONE-YEAR PERIODS
ENDED MARCH 31, 2001-MARCH 31, 2010
[CHART OF TOTAL RETURN, DIVIDEND RETURN AND CHANGE IN SHARE PRICE]
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TOTAL RETURN DIVIDEND RETURN CHANGE IN SHARE PRICE
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3/31/2001 11.35% 6.17% 5.18%
3/31/2002 3.03% 5.27% -2.24%
3/31/2003 10.76% 5.27% 5.49%
3/31/2004 7.01% 4.84% 2.17%
3/31/2005 3.70% 4.55% -0.85%
3/31/2006 4.18% 4.45% -0.27%
3/31/2007 5.33% 4.56% 0.77%
3/31/2008 -1.98% 4.51% -6.49%
3/31/2009 -5.33% 5.06% -10.39%
3/31/2010 16.59% 5.88% 10.71%
[END CHART]
NOTE THE ROLE THAT DIVIDEND RETURNS PLAY IN THE FUND'S TOTAL RETURN OVER
TIME. WHILE SHARE PRICES TEND TO VARY, DIVIDEND RETURNS GENERALLY ARE A
RELATIVELY STABLE COMPONENT OF TOTAL RETURNS.
Total return equals dividend return plus share price change and assumes
reinvestment of all net investment income and realized capital gain
distributions. Dividend return is the net investment income dividends received
over the period, assuming reinvestment of all dividends. Share price change is
the change in net asset value over the period adjusted for realized capital gain
distributions. The total returns quoted do not reflect adjustments made to the
enclosed financial statements in accordance with U.S. generally accepted
accounting principles or the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares.
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INVESTMENT OVERVIEW | 11
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TAXABLE EQUIVALENT ILLUSTRATION
To match the Fund's dividend return for the periods ended 3/31/10, and assuming
marginal federal tax rates of: 25.00% 28.00% 33.00% 35.00%
A FULLY TAXABLE INVESTMENT MUST PAY THE FOLLOWING:
PERIOD DIVIDEND RETURN
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10 Years 5.04% 6.72% 7.00% 7.52% 7.75%
5 Years 4.87% 6.50% 6.77% 7.27% 7.50%
1 Year 5.88% 7.84% 8.17% 8.78% 9.05%
To match the Fund's closing 30-day SEC yield of 4.10% on 3/31/10:
A FULLY TAXABLE INVESTMENT MUST PAY: 5.47% 5.69% 6.12% 6.31%
This table is based on a hypothetical investment calculated for illustrative
purposes only. It is not an indication of performance for any of the USAA family
of funds. Taxable equivalent returns or yields will vary depending on applicable
tax rates.
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Some income may be subject to federal, state, or local taxes. Based on 2009 tax
rates.
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12 | USAA TAX EXEMPT LONG-TERM FUND
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
BARCLAYS CAPITAL USAA TAX LIPPER GENERAL
MUNICIPAL EXEMPT MUNICIPAL
BOND INDEX LONG-TERM FUND DEBT FUNDS INDEX
03/31/00 $10,000.00 $10,000.00 $10,000.00
04/30/00 9,940.92 9,928.20 9,931.38
05/31/00 9,889.21 9,870.61 9,864.82
06/30/00 10,151.26 10,134.03 10,118.96
07/31/00 10,292.51 10,287.11 10,260.04
08/31/00 10,451.13 10,448.64 10,421.60
09/30/00 10,396.76 10,392.41 10,356.82
10/31/00 10,510.21 10,500.62 10,464.69
11/30/00 10,589.73 10,599.35 10,534.12
12/31/00 10,851.37 10,915.47 10,806.23
01/31/01 10,958.89 10,928.30 10,886.85
02/28/01 10,993.64 11,027.71 10,937.65
03/31/01 11,092.17 11,133.64 11,029.54
04/30/01 10,971.98 10,903.36 10,874.86
05/31/01 11,090.13 11,045.25 10,999.25
06/30/01 11,164.33 11,160.67 11,090.90
07/31/01 11,329.70 11,381.14 11,265.63
08/31/01 11,516.32 11,582.47 11,468.27
09/30/01 11,477.69 11,450.59 11,373.72
10/31/01 11,614.44 11,596.90 11,492.46
11/30/01 11,516.53 11,495.36 11,375.09
12/31/01 11,407.58 11,388.63 11,254.65
01/31/02 11,605.45 11,548.65 11,429.84
02/28/02 11,745.26 11,702.16 11,568.50
03/31/02 11,515.10 11,472.14 11,348.76
04/30/02 11,740.15 11,696.49 11,554.95
05/31/02 11,811.49 11,775.47 11,626.80
06/30/02 11,936.39 11,883.58 11,738.48
07/31/02 12,089.90 12,039.39 11,888.82
08/31/02 12,235.24 12,199.29 12,005.68
09/30/02 12,503.22 12,513.80 12,261.90
10/31/02 12,295.95 12,258.01 12,001.22
11/30/02 12,244.84 12,200.65 11,956.87
12/31/02 12,503.22 12,493.85 12,225.44
01/31/03 12,471.54 12,445.73 12,149.84
02/28/03 12,645.90 12,669.00 12,335.10
03/31/03 12,653.46 12,706.99 12,314.88
04/30/03 12,737.07 12,848.75 12,426.28
05/31/03 13,035.30 13,177.46 12,722.14
06/30/03 12,979.91 13,059.78 12,655.80
07/31/03 12,525.71 12,608.53 12,224.51
08/31/03 12,619.12 12,744.51 12,314.53
09/30/03 12,990.13 13,102.72 12,676.33
10/31/03 12,924.72 13,053.28 12,630.49
11/30/03 13,059.42 13,223.50 12,773.84
12/31/03 13,167.56 13,370.62 12,878.44
01/31/04 13,242.98 13,412.05 12,921.83
02/29/04 13,442.29 13,681.01 13,125.21
03/31/04 13,395.47 13,597.55 13,049.37
04/30/04 13,078.23 13,267.66 12,757.07
05/31/04 13,030.80 13,247.94 12,715.88
06/30/04 13,078.23 13,318.46 12,758.60
07/31/04 13,250.34 13,497.90 12,914.50
08/31/04 13,515.87 13,781.84 13,156.36
09/30/04 13,587.62 13,892.00 13,232.26
10/31/04 13,704.54 14,012.39 13,338.81
11/30/04 13,591.50 13,885.92 13,239.44
12/31/04 13,757.49 14,119.31 13,411.07
01/31/05 13,886.06 14,267.07 13,543.61
02/28/05 13,839.86 14,219.64 13,509.00
03/31/05 13,752.58 14,101.06 13,407.15
04/30/05 13,969.46 14,356.28 13,616.11
05/31/05 14,068.19 14,477.51 13,722.15
06/30/05 14,155.47 14,570.59 13,807.27
07/31/05 14,091.49 14,500.95 13,757.83
08/31/05 14,233.76 14,655.86 13,898.51
09/30/05 14,137.89 14,558.57 13,799.71
10/31/05 14,052.04 14,453.56 13,716.62
11/30/05 14,119.50 14,506.34 13,779.03
12/31/05 14,240.92 14,658.68 13,907.54
01/31/06 14,279.35 14,677.41 13,945.01
02/28/06 14,375.22 14,804.88 14,054.51
03/31/06 14,276.08 14,694.33 13,973.46
04/30/06 14,271.17 14,671.32 13,960.72
05/31/06 14,334.74 14,736.35 14,031.22
06/30/06 14,280.78 14,646.37 13,974.89
07/31/06 14,450.64 14,836.44 14,144.90
08/31/06 14,665.07 15,062.96 14,355.18
09/30/06 14,767.07 15,174.35 14,454.51
10/31/06 14,859.67 15,282.29 14,548.30
11/30/06 14,983.54 15,446.70 14,670.17
12/31/06 14,930.60 15,362.16 14,617.21
01/31/07 14,892.38 15,327.15 14,588.23
02/28/07 15,088.61 15,528.06 14,762.80
03/31/07 15,051.41 15,476.25 14,725.24
04/30/07 15,095.97 15,520.56 14,770.91
05/31/07 15,029.13 15,444.15 14,707.83
06/30/07 14,951.25 15,347.11 14,626.14
07/31/07 15,067.15 15,404.14 14,696.79
08/31/07 15,002.14 15,164.91 14,556.59
09/30/07 15,224.13 15,458.02 14,764.04
10/31/07 15,292.00 15,519.15 14,807.00
11/30/07 15,389.50 15,526.99 14,832.04
12/31/07 15,432.22 15,456.26 14,819.39
01/31/08 15,626.82 15,642.48 14,995.22
02/29/08 14,911.38 14,712.37 14,229.46
03/31/08 15,337.58 15,168.74 14,608.60
04/30/08 15,517.05 15,431.26 14,804.30
05/31/08 15,610.88 15,579.22 14,917.13
06/30/08 15,434.68 15,394.10 14,717.31
07/31/08 15,493.34 15,305.02 14,702.52
08/31/08 15,674.66 15,455.74 14,839.81
09/30/08 14,939.59 14,587.29 14,052.83
10/31/08 14,787.10 13,926.21 13,625.36
11/30/08 14,834.12 13,783.88 13,467.41
12/31/08 15,050.38 13,519.46 13,418.48
01/31/09 15,601.27 14,235.86 14,051.49
02/28/09 15,683.24 14,353.86 14,190.45
03/31/09 15,686.10 14,359.48 14,141.19
04/30/09 15,999.46 14,800.38 14,546.10
05/31/09 16,168.72 15,279.28 14,880.83
06/30/09 16,017.25 15,146.77 14,729.11
07/31/09 16,285.23 15,409.12 14,961.64
08/31/09 16,563.64 15,789.38 15,342.01
09/30/09 17,158.07 16,719.86 16,122.99
10/31/09 16,797.89 16,347.04 15,705.66
11/30/09 16,936.69 16,364.01 15,753.46
12/31/09 16,993.92 16,505.38 15,900.95
01/31/10 17,082.43 16,605.40 15,979.17
02/28/10 17,248.01 16,751.61 16,129.88
03/31/10 17,206.71 16,741.99 16,141.47
[END CHART]
Data from 3/31/00 through 3/31/10.
The graph illustrates the comparison of a $10,000 hypothetical investment in the
USAA Tax Exempt Long-Term Fund to the following benchmarks:
o The unmanaged, broad-based Barclays Capital Municipal Bond Index (the Index)
tracks total return performance for the long-term, investment-grade,
tax-exempt bond market. All tax-exempt bond funds will find it difficult to
outperform the Index because the Index does not reflect any deduction for
fees, expenses, or taxes.
o The unmanaged Lipper General Municipal Debt Funds Index tracks the total
return performance of the 30 largest funds within the Lipper General
Municipal Debt Funds category.
Past performance is no guarantee of future results, and the cumulative
performance quoted does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
Indexes are unmanaged and you cannot invest directly in an index.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
LIPPER GENERAL
USAA TAX EXEMPT MUNICIPAL DEBT
LONG-TERM FUND FUNDS AVERAGE
31-03-01 5.53% 4.65%
31-03-02 5.34 4.54
31-03-03 4.81 4.20
31-03-04 4.58 3.90
31-03-05 4.49 3.92
31-03-06 4.43 3.84
31-03-07 4.44 3.80
31-03-08 4.90 4.02
31-03-09 5.72 4.44
31-03-10 5.07 4.04
[END CHART]
The 12-month dividend yield is computed by dividing net investment income
dividends paid during the previous 12 months by the latest adjusted month-end
net asset value. The net asset value is adjusted for a portion of the capital
gains distributed during the previous nine months. The graph represents data for
periods ending 3/31/01 to 3/31/10.
The Lipper General Municipal Debt Funds Average is an average performance level
of all general municipal debt funds, reported by Lipper Inc., an independent
organization that monitors the performance of mutual funds.
================================================================================
14 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
TOP 10 INDUSTRIES
AS OF 3/31/10
(% of Net Assets)
Hospital ...................................................... 23.0%
Escrowed Bonds................................................. 14.6%
General Obligation ............................................ 10.8%
Education ..................................................... 9.2%
Special Assessment/Tax/Fee..................................... 7.6%
Electric Utilities............................................. 6.3%
Nursing/CCRC................................................... 4.2%
Airport/Port................................................... 3.5%
Toll Roads..................................................... 3.0%
Casinos & Gaming............................................... 2.6%
You will find a complete list of securities that the Fund owns on pages 19-32.
================================================================================
INVESTMENT OVERVIEW | 15
<PAGE>
================================================================================
o PORTFOLIO RATINGS MIX -- 3/31/2010 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 19%
AA 20%
A 21%
BBB 33%
BELOW INVESTMENT-GRADE 4%
SECURITIES WITH SHORT-TERM INVESTMENT-GRADE RATINGS 3%
[END CHART]
The four highest long-term credit ratings, in descending order of credit
quality, are AAA, AA, A, and BBB. These categories represent investment-grade
quality. This chart reflects the highest rating of either Moody's Investors
Service, Standard & Poor's Rating Services, Fitch Ratings Ltd., Dominion Bond
Rating Service Ltd., or A.M. Best Co., Inc., and includes any related credit
enhancements. If any of the Fund's securities are unrated by these agencies,
USAA Investment Management Company must determine the equivalent investment
quality.
Percentages are of the total market value of the Fund's investments.
================================================================================
16 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------------------------------------------------
The following federal tax information related to the Fund's fiscal year ended
March 31, 2010, is provided for information purposes only and should not be used
for reporting to federal or state revenue agencies. Federal tax information for
the calendar year will be reported to you on Form 1099-DIV in January 2011.
The net investment income distributed by the Fund during the fiscal year ended
March 31, 2010, was 100% tax-exempt for federal income tax purposes.
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $1,120,000 as long-term capital gains for the fiscal year
ended March 31, 2010.
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS | 17
<PAGE>
================================================================================
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA TAX EXEMPT LONG-TERM FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the USAA Tax Exempt Long-Term Fund (one of the
portfolios constituting USAA Mutual Funds Trust) (the "Fund") as of March 31,
2010, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of March 31, 2010, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
USAA Tax Exempt Long-Term Fund at March 31, 2010, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst & Young LLP
San Antonio, Texas
May 18, 2010
================================================================================
18 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
PORTFOLIO OF INVESTMENTS
March 31, 2010
--------------------------------------------------------------------------------
o CATEGORIES AND DEFINITIONS
FIXED-RATE INSTRUMENTS -- consist of municipal bonds, notes, and commercial
paper. The interest rate is constant to maturity. Prior to maturity, the
market price of a fixed-rate instrument generally varies inversely to the
movement of interest rates.
PUT BONDS -- provide the right to sell the bond at face value at specific
tender dates prior to final maturity. The put feature shortens the effective
maturity of the security.
VARIABLE-RATE DEMAND NOTES (VRDNs) -- provide the right to sell the security
at face value on either that day or within the rate-reset period. The
interest rate is adjusted at a stipulated daily, weekly, monthly, quarterly,
or other specified time interval to reflect current market conditions. VRDNs
will normally trade as if the maturity is the earlier put date, even though
stated maturity is longer.
CREDIT ENHANCEMENTS -- add the financial strength of the provider of the
enhancement to support the issuer's ability to repay the principal and
interest payments when due. The enhancement may be provided by a high-quality
bank, insurance company or other corporation, or a collateral trust. The
enhancements do not guarantee the market values of the securities.
(INS) Principal and interest payments are insured by one of the following:
ACA Insurance, AMBAC Assurance Corp., Assured Guaranty Corp.,
Assured Guaranty Municipal Corp., CIFG Assurance, N.A., Financial
Guaranty Insurance Co., National Public Finance Guarantee Corp.,
Radian Asset Assurance Inc., or XL Capital Assurance. Although bond
insurance reduces
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
the risk of loss due to default by an issuer, such bonds remain
subject to the risk that value may fluctuate for other reasons, and
there is no assurance that the insurance company will meet its
obligations.
(LIQ) Liquidity enhancement that may, under certain circumstances, provide
for repayment of principal and interest upon demand from Dexia Credit
Local.
(LOC) Principal and interest payments are guaranteed by a bank letter of
credit or other bank credit agreement.
(NBGA) Principal and interest payments or, under certain circumstances,
underlying mortgages are guaranteed by a nonbank guarantee agreement
from one of the following: Florida General Obligation, Texas
Permanent School Fund, or Utah General Obligation.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
IDC Industrial Development Corp.
ISD Independent School District
PRE Prerefunded to a date prior to maturity
================================================================================
20 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
INVESTMENTS
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (94.7%)
ALABAMA (1.5%)
$ 1,000 Marshall County Health Care Auth. 6.25% 1/01/2022 $ 1,024
1,150 Marshall County Health Care Auth. 5.75 1/01/2032 1,144
1,500 Marshall County Health Care Auth. 5.75 1/01/2032 1,493
2,500 Montgomery Medical Clinic Board 4.75 3/01/2031 2,128
2,500 Montgomery Medical Clinic Board 4.75 3/01/2036 2,060
7,670 Parks System Improvement Corp. 5.00 6/01/2020 8,026
7,805 Parks System Improvement Corp. 5.00 6/01/2021 8,167
11,000 Univ. of Alabama at Birmingham (INS)(PRE) 5.88 9/01/2031 11,366
----------
35,408
----------
ARIZONA (2.6%)
5,000 Goodyear 5.63 7/01/2039 4,898
10,000 Mohave County IDA 8.00 5/01/2025 11,380
1,000 Phoenix Civic Improvement Corp.,
5.50%, 7/01/2013 (INS) 4.65(a) 7/01/2029 900
1,500 Phoenix Civic Improvement Corp.,
5.50%, 7/01/2013 (INS) 4.66(a) 7/01/2030 1,342
4,000 Pima County IDA 5.75 9/01/2029 4,051
3,500 Scottsdale IDA 5.25 9/01/2030 3,440
28,500 Univ. Medical Center Corp. 5.00 7/01/2035 26,492
2,000 Yavapai County IDA 5.63 8/01/2033 1,918
7,500 Yavapai County IDA 5.63 8/01/2037 7,133
----------
61,554
----------
ARKANSAS (0.0%)
1,000 Baxter County 4.63 9/01/2028 879
----------
CALIFORNIA (4.5%)
6,700 Corona-Norco Unified School District (INS) 5.50 8/01/2039 6,832
2,000 Golden State Tobacco Securitization,
4.55%, 6/01/2010 (INS) 4.50(a) 6/01/2022 1,818
5,000 Golden State Tobacco Securitization,
4.60%, 6/01/2010 (INS) 4.55(a) 6/01/2023 4,317
5,000 Golden State Tobacco Securitization (PRE) 5.38 6/01/2028 5,042
7,000 Health Facilities Financing Auth. 5.00 8/15/2039 6,679
5,000 Indio Redevelopment Agency 5.25 8/15/2035 4,544
17,025 Inland Empire Tobacco Securitization Auth.,
5.75%, 12/01/2011 5.98(a) 6/01/2026 10,812
9,105 Public Works Board 5.00 11/01/2029 9,182
2,610 Public Works Board 5.00 4/01/2030 2,365
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 3,000 Public Works Board(b) 6.00% 3/01/2035 $ 3,020
5,000 San Francisco City and County Redevelopment
Financing Auth. (INS) 4.88 8/01/2036 4,277
24,700 State 4.50 8/01/2030 21,588
5,000 State 5.75 4/01/2031 5,192
8,100 State 5.00 2/01/2032 7,677
6,000 State 5.00 11/01/2032 5,681
5,000 State 5.00 12/01/2032 4,734
2,500 Victor Elementary School District (INS) 5.13 8/01/2034 2,545
----------
106,305
----------
COLORADO (2.2%)
3,500 Denver Convention Center Hotel Auth. (INS) 4.75 12/01/2035 2,806
1,000 Denver Health and Hospital Auth. (PRE) 6.00 12/01/2023 1,085
3,730 Denver Health and Hospital Auth. (PRE) 6.00 12/01/2031 4,048
3,000 Denver Health and Hospital Auth. (PRE) 6.25 12/01/2033 3,592
15,765 Denver Health and Hospital Auth. 4.75 12/01/2034 12,894
10,000 E-470 Public Highway Auth.(INS) 5.06(c) 9/01/2035 1,712
1,000 Eagle Bend Metropolitan District No.2 (INS) 5.25 12/01/2023 953
4,000 Health Facilities Auth. (INS) 5.50 12/01/2027 3,665
3,500 Health Facilities Auth. 5.00 6/01/2029 3,167
3,000 Health Facilities Auth. 5.25 6/01/2031 2,769
2,000 Health Facilities Auth. 5.00 6/01/2035 1,754
2,500 Health Facilities Auth. 5.25 6/01/2036 2,266
8,250 State (INS) 5.00 11/01/2030 8,419
2,000 Vista Ridge Metropolitan District (INS) 5.00 12/01/2036 1,512
----------
50,642
----------
CONNECTICUT (1.9%)
2,500 Health and Educational Facilities Auth. (INS) 5.13 7/01/2030 2,179
2,000 Health and Educational Facilities Auth. 5.00 7/01/2035 2,030
64,950 Mashantucket (Western) Pequot Tribe, acquired
9/01/1997-3/01/2000; cost $62,996(d),(e) 5.75 9/01/2027 35,245
1,500 Mashantucket (Western) Pequot Tribe, acquired
9/01/2001; cost $1,435(d),(e),(g) 5.50 9/01/2028 799
7,500 Mashantucket (Western) Pequot Tribe, acquired
7/19/2006; cost $7,683(d),(e),(g) 5.50 9/01/2036 3,844
----------
44,097
----------
DELAWARE (0.2%)
4,000 EDA(b) 5.40 2/01/2031 4,044
----------
DISTRICT OF COLUMBIA (1.0%)
10,000 Community Academy Public Charter School, Inc.(INS) 4.88 5/01/2037 6,218
7,500 Metropolitan Washington Airports Auth. 5.13 10/01/2034 7,780
================================================================================
22 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$10,000 Metropolitan Washington Airports Auth. 5.63% 10/01/2039 $ 10,620
----------
24,618
----------
FLORIDA (4.1%)
15,665 Board of Education (NBGA)(PRE) 5.63 6/01/2025 15,960
7,000 Board of Education (NBGA)(PRE) 5.63 6/01/2029 7,132
370 Highlands County Health Facilities Auth. (PRE) 5.25 11/15/2036 434
4,380 Highlands County Health Facilities Auth. 5.25 11/15/2036 4,392
1,725 Hillsborough County IDA 5.50 10/01/2023 1,758
6,875 Miami-Dade County 5.00 10/01/2029 6,816
2,000 Miami-Dade County 5.00 10/01/2034 2,010
2,000 Miami-Dade County 5.38 10/01/2035 2,028
2,000 Miami-Dade County School Board (INS) 5.25 2/01/2027 2,107
5,000 Miami-Dade County School Board (INS) 5.00 5/01/2033 4,966
2,000 Orange County Health Facilities Auth. (PRE) 5.75 12/01/2027 2,235
3,000 Orange County Health Facilities Auth. 5.25 10/01/2035 2,946
10,000 Orange County Health Facilities Auth. 4.75 11/15/2036 9,074
2,000 Orange County School Board (INS) 5.00 8/01/2032 2,029
8,000 Orange County School Board (INS) 5.50 8/01/2034 8,472
3,000 Orlando-Orange County Expressway Auth. 5.00 7/01/2035 3,046
22,130 Seminole Tribe(d) 5.25 10/01/2027 20,005
----------
95,410
----------
GEORGIA (1.6%)
10,000 Burke County Dev. Auth. 7.00 1/01/2023 11,792
12,000 Fayette County Public Facilities Auth. (PRE) 5.88 6/01/2028 12,232
4,000 Glynn-Brunswick Memorial Hospital Auth. 5.63 8/01/2034 3,971
10,000 Savannah EDA 6.15 3/01/2017 10,599
----------
38,594
----------
HAWAII (0.3%)
6,000 State 6.50 7/01/2039 6,452
----------
ILLINOIS (9.4%)
520 Chicago (INS) 5.25 1/01/2029 538
5,000 Chicago 6.75 12/01/2032 4,750
3,445 Chicago-O'Hare International Airport (INS) 5.13 1/01/2020 3,505
3,060 Chicago-O'Hare International Airport (INS) 5.13 1/01/2021 3,107
2,000 Finance Auth. 5.00 4/01/2026 1,811
5,000 Finance Auth. 5.50 8/15/2028 5,114
2,500 Finance Auth. (INS) 5.75 11/01/2028 2,585
5,000 Finance Auth. 7.25 11/01/2030 5,643
4,500 Finance Auth. 5.00 4/01/2031 3,918
7,565 Finance Auth. 5.50 4/01/2032 7,312
17,840 Finance Auth. 4.50 11/15/2032 15,018
5,000 Finance Auth. 5.75 10/01/2035 4,870
9,000 Finance Auth. 5.00 4/01/2036 7,604
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 3,770 Finance Auth. 5.50% 4/01/2037 $ 3,592
20,000 Finance Auth. 5.38 8/15/2039 20,045
1,205 Finance Auth. 5.25 10/01/2039 1,175
9,825 Health Facilities Auth. 5.50 8/01/2020 10,256
9,445 Health Facilities Auth. 5.25 9/01/2024 9,239
5,030 Health Facilities Auth. (PRE) 6.85 11/15/2029 5,281
2,500 Housing Dev. Auth. 4.85 1/01/2037 2,418
5,000 Metropolitan Pier and Exposition Auth.,
5.50%, 6/15/2012 (INS) 5.50(a) 6/15/2020 4,946
2,500 Metropolitan Pier and Exposition Auth.,
5.55%, 6/15/2012 (INS) 5.55(a) 6/15/2021 2,466
8,000 Metropolitan Pier and Exposition Auth. (INS) 5.50 6/15/2023 8,556
23,980 Regional Transportation Auth. (INS) 5.75 6/01/2020 27,767
37,550 Regional Transportation Auth. (INS) 6.50 7/01/2030 46,370
3,000 Schaumburg (INS) 5.25 12/01/2034 3,109
4,555 State 5.13 6/15/2019 4,746
4,071 Village of Gilberts (INS) 4.75 3/01/2030 4,078
1,500 Village of Round Lake (INS) 4.70 3/01/2033 1,454
----------
221,273
----------
INDIANA (3.0%)
10,440 Bond Bank (PRE) 5.50 8/01/2021 10,726
3,440 Finance Auth. 5.00 10/01/2033 3,375
15,780 Health and Educational Facility Financing Auth. 5.00 2/15/2036 14,800
16,000 Health and Educational Facility Financing Auth. 5.00 2/15/2039 14,826
6,000 Indianapolis (INS) 5.50 1/01/2038 6,432
7,500 Rockport (INS) 4.63 6/01/2025 7,195
7,500 St. Joseph County Hospital Auth. (INS)(PRE) 5.63 8/15/2033 7,838
4,195 Transportation Finance Auth. (PRE) 5.38 12/01/2025 4,337
----------
69,529
----------
IOWA (0.6%)
1,000 Finance Auth. (INS) 5.25 5/15/2021 1,007
3,495 Finance Auth. (INS) 5.25 5/15/2026 3,510
5,000 Finance Auth. (INS) 4.75 12/01/2031 4,280
5,000 Finance Auth. (INS) 5.00 12/01/2039 4,237
----------
13,034
----------
KANSAS (0.7%)
4,000 Burlington (INS) 4.85 6/01/2031 3,973
12,500 Wyandotte County 5.00 12/01/2020 12,684
----------
16,657
----------
KENTUCKY (0.5%)
1,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2033 1,093
4,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2038 4,321
================================================================================
24 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 5,000 Municipal Power Agency (INS) 5.00% 9/01/2037 $ 5,009
2,000 Owen County 6.25 6/01/2039 2,129
----------
12,552
----------
LOUISIANA (1.0%)
25,000 Parish of St. John the Baptist 5.13 6/01/2037 23,577
----------
MAINE (1.2%)
27,750 Turnpike Auth. (INS)(PRE)(f) 5.75 7/01/2028 28,407
----------
MARYLAND (1.0%)
2,500 EDC 6.20 9/01/2022 2,843
5,000 Health and Higher Educational Facilities Auth. 5.75 1/01/2033 4,931
6,000 Health and Higher Educational Facilities Auth. 5.75 1/01/2038 5,861
9,965 Health and Higher Educational Facilities Auth. 4.75 5/15/2042 8,953
----------
22,588
----------
MASSACHUSETTS (1.9%)
2,000 Development Finance Agency (INS) 5.25 3/01/2026 1,894
5,000 Health and Educational Facilities Auth. (INS)(PRE) 5.88 10/01/2029 5,190
10,000 Health and Educational Facilities Auth. 6.25 7/01/2030 10,664
3,500 Health and Educational Facilities Auth. 5.00 7/15/2032 2,844
2,250 Health and Educational Facilities Auth. 5.00 7/01/2033 2,006
500 Health and Educational Facilities Auth. 5.00 7/15/2037 394
5,000 School Building Auth. (INS) 4.75 8/15/2032 5,062
16,000 Water Resources Auth. (INS)(PRE) 5.75 8/01/2030 16,448
----------
44,502
----------
MICHIGAN (0.7%)
49,395 Building Auth. (INS) 5.01(c) 10/15/2030 14,447
3,000 Strategic Fund 5.63 7/01/2020 3,188
----------
17,635
----------
MINNESOTA (1.2%)
5,625 Chippewa County 5.50 3/01/2037 5,309
7,562 Higher Education Facilities Auth., acquired
8/28/2006; cost $7,656(d),(e) 5.43 8/28/2031 7,408
2,500 Higher Education Facilities Auth. 5.00 10/01/2039 2,526
3,000 St. Louis Park 5.75 7/01/2030 3,051
10,000 Washington County Housing and
Redevelopment Auth. 5.50 11/15/2027 9,125
----------
27,419
----------
MISSISSIPPI (0.4%)
1,250 Hospital Equipment and Facilities Auth. 5.25 12/01/2031 1,125
8,750 Warren County 4.80 8/01/2030 7,618
----------
8,743
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
MISSOURI (1.7%)
$25,000 Cape Girardeau County IDA 5.00% 6/01/2036 $ 21,719
1,000 Cape Girardeau County IDA 5.75 6/01/2039 1,018
8,000 Cass County 5.63 5/01/2038 7,036
2,000 Dev. Finance Board 5.00 6/01/2035 1,816
7,500 Health and Educational Facilities Auth. 5.50 11/15/2033 7,576
----------
39,165
----------
MONTANA (0.5%)
6,500 Forsyth (INS) 4.65 8/01/2023 6,320
5,000 Forsyth 5.00 5/01/2033 5,058
----------
11,378
----------
NEBRASKA (0.6%)
2,250 Douglas County Hospital Auth. 6.13 8/15/2031 2,376
4,500 Platte County (INS) 6.10 5/01/2025 4,509
6,500 Platte County (INS) 6.15 5/01/2030 6,509
----------
13,394
----------
NEVADA (3.2%)
11,570 Clark County (INS) 5.25 6/15/2019 12,366
21,000 Clark County (INS)(PRE)(f) 5.50 7/01/2025 21,275
4,000 Clark County (INS) 5.00 7/01/2026 4,107
11,000 Clark County 5.13 7/01/2034 10,901
5,000 Clark County (INS) 5.25 7/01/2039 5,064
12,410 Clark County EDC 5.00 5/15/2029 12,379
10,420 Truckee Meadows Water Auth. (INS) 4.88 7/01/2034 10,152
----------
76,244
----------
NEW JERSEY (1.5%)
3,000 Camden County Improvement Auth. 5.75 2/15/2034 2,766
5,000 EDA 5.50 6/15/2024 4,874
6,000 EDA 5.75 6/15/2029 5,790
2,500 EDA 5.50 6/15/2031 2,320
11,500 Health Care Facilities Financing Auth. 5.00 7/01/2029 9,306
57,630 Health Care Facilities Financing Auth. 5.07(c) 7/01/2032 9,806
----------
34,862
----------
NEW MEXICO (1.2%)
32,380 Farmington 4.88 4/01/2033 28,602
----------
NEW YORK (6.7%)
21,485 Dormitory Auth. 6.00 8/15/2016 24,278
5,010 Dormitory Auth., 5.95%, 7/01/2010 (INS)(PRE) 5.95(a) 7/01/2020 5,054
5,690 Dormitory Auth., 6.00%, 7/01/2010 (INS)(PRE) 6.00(a) 7/01/2022 5,740
2,395 Dormitory Auth. 5.25 7/01/2024 2,345
3,210 Dormitory Auth., 6.05%, 7/01/2010 (INS)(PRE) 6.05(a) 7/01/2024 3,238
================================================================================
26 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 5,000 Dormitory Auth. 5.00% 7/01/2026 $ 4,672
2,250 Dormitory Auth. 5.25 7/01/2029 2,236
5,000 Dormitory Auth. 5.00 7/01/2036 4,495
10,910 Dutchess County IDA (PRE) 5.75 8/01/2030 11,213
16,130 Liberty Dev. Corp. 5.25 10/01/2035 16,335
2,000 Long Island Power Auth. 5.75 4/01/2039 2,179
5 New York City 5.30 12/01/2018 5
5,105 New York City 5.88 8/01/2019 5,574
7,925 New York City (PRE) 6.00 5/15/2020 8,060
875 New York City 6.00 5/15/2020 886
5,000 New York City 5.13 12/01/2028 5,297
22,740 New York City (PRE) 5.75 5/15/2030 23,120
4,160 New York City 5.30 12/01/2018 4,480
4,975 New York City Municipal Water Finance Auth. (PRE) 6.00 6/15/2033 5,084
3,025 New York City Municipal Water Finance Auth. 6.00 6/15/2033 3,087
7,500 New York City Transitional Finance Auth. 5.00 1/15/2034 7,744
1,500 Seneca Nation Indians Capital Improvements Auth.(d) 5.00 12/01/2023 1,250
10,000 Triborough Bridge and Tunnel Auth. 5.00 11/15/2031 10,499
----------
156,871
----------
NORTH CAROLINA (0.8%)
3,750 Charlotte-Mecklenberg Hospital Auth. 5.25 1/15/2034 3,859
5,000 Columbus County Industrial Facilities & Pollution
Control Financing Auth. 6.25 11/01/2033 5,130
5,250 State Medical Care Commission 5.00 7/01/2033 4,490
4,000 Wake County Industrial Facilities and Pollution
Control Financing Auth. 5.38 2/01/2017 4,242
----------
17,721
----------
NORTH DAKOTA (0.3%)
7,250 Fargo (INS) 5.63 6/01/2031 7,310
----------
OHIO (2.0%)
6,000 Air Quality Dev. Auth. 5.70 8/01/2020 6,301
5,000 Air Quality Dev. Auth. (INS) 4.80 1/01/2034 4,898
20,000 Buckeye Tobacco Settlement Financing Auth. 5.88 6/01/2030 16,812
10,000 Buckeye Tobacco Settlement Financing Auth. 5.75 6/01/2034 7,731
4,640 Higher Education Facility Commission (INS) 5.00 5/01/2036 3,978
2,000 Lake County 5.63 8/15/2029 1,941
6,325 Lorain County 5.25 2/01/2021 6,161
----------
47,822
----------
OKLAHOMA (2.4%)
14,705 Chickasaw Nation(d) 6.00 12/01/2025 15,022
13,125 Chickasaw Nation(d) 6.25 12/01/2032 13,141
4,500 Municipal Power Auth. (INS) 4.50 1/01/2047 4,131
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 7,500 Norman Regional Hospital Auth. (INS) 5.50% 9/01/2023 $ 6,804
3,100 Norman Regional Hospital Auth. 5.38 9/01/2029 2,651
8,695 Norman Regional Hospital Auth. 5.38 9/01/2036 7,075
7,600 Norman Regional Hospital Auth. 5.13 9/01/2037 5,934
2,675 Tulsa Industrial Auth. 5.00 10/01/2037 2,620
----------
57,378
----------
OREGON (0.1%)
1,855 Keizer 5.20 6/01/2031 1,906
----------
PENNSYLVANIA (0.2%)
1,135 Allegheny County IDA 5.13 9/01/2031 1,014
3,200 Washington County IDA 5.00 11/01/2036 3,195
----------
4,209
----------
RHODE ISLAND (1.2%)
5,700 EDC (INS) 5.00 7/01/2031 5,448
12,185 EDC (INS) 5.00 7/01/2036 11,248
975 Housing and Mortgage Finance Corp. 6.85 10/01/2024 977
9,950 Housing and Mortgage Finance Corp. 4.85 4/01/2033 9,838
----------
27,511
----------
SOUTH CAROLINA (2.7%)
5,000 Georgetown County 5.70 4/01/2014 5,319
2,250 Greenwood County 5.38 10/01/2039 2,256
2,300 Jobs EDA (INS) 5.25 2/01/2021 2,251
3,750 Jobs EDA (INS) 5.38 2/01/2026 3,537
12,580 Jobs EDA (PRE) 6.00 11/15/2026 14,134
12,420 Jobs EDA 6.00 11/15/2026 12,836
10,000 Jobs EDA (INS) 4.60 4/01/2027 8,511
14,505 Tobacco Settlement Revenue Management Auth. 5.00 6/01/2018 14,504
----------
63,348
----------
SOUTH DAKOTA (0.3%)
2,500 Health and Educational Facilities Auth. 5.25 11/01/2027 2,523
2,500 Health and Educational Facilities Auth. 5.25 11/01/2029 2,541
3,000 Health and Educational Facilities Auth. 5.25 7/01/2038 2,987
----------
8,051
----------
TENNESSEE (1.7%)
4,240 Jackson 5.50 4/01/2033 4,245
3,000 Johnson City Health and Educational
Facilities Board 5.50 7/01/2031 3,001
5,000 Johnson City Health and Educational
Facilities Board 5.50 7/01/2036 4,904
5,605 Shelby County (PRE) 6.38 9/01/2019 6,304
9,395 Shelby County (PRE) 6.38 9/01/2019 10,567
================================================================================
28 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$11,075 Sullivan County Health Educational & Housing
Facilities Board 5.25% 9/01/2036 $ 9,981
----------
39,002
----------
TEXAS (20.3%)
19,500 Bell County Health Facilities Dev. Corp. (ETM) 6.50 7/01/2019 24,147
1,520 Bexar County 5.00 7/01/2033 1,322
1,795 Bexar County 5.00 7/01/2037 1,517
5,000 Cypress-Fairbanks ISD (NBGA) 5.00 2/15/2035 5,235
12,100 Denton ISD (NBGA) 5.16(c) 8/15/2028 4,873
13,885 Denton ISD (NBGA) 5.18(c) 8/15/2029 5,279
11,220 Denton ISD (NBGA) 5.20(c) 8/15/2030 4,020
15,645 Denton ISD (NBGA) 5.22(c) 8/15/2031 5,292
7,000 Duncanville ISD (NBGA) 4.63 2/15/2029 7,137
2,240 Eagle Mountain-Saginaw ISD (NBGA) 4.50 8/15/2033 2,241
9,155 Ennis ISD (NBGA) 4.70(c) 8/15/2034 2,520
9,155 Ennis ISD (NBGA) 4.71(c) 8/15/2035 2,340
9,000 Fort Worth 6.00 3/01/2029 9,621
8,085 Fort Worth 6.25 3/01/2033 8,660
4,180 Guadalupe-Blanco River Auth. (INS) 5.00 5/15/2039 3,977
3,000 Harlandale ISD (NBGA) 4.75 8/15/2036 3,035
25,000 Harris County 4.75 10/01/2031 25,412
4,000 Harris County Education Facilities Finance Corp. 5.25 10/01/2029 4,136
1,500 Harris County Health Facilities Dev. Corp. 7.25 12/01/2035 1,689
7,000 Harris County IDC 5.00 2/01/2023 7,036
2,660 Hopkins County Hospital District 5.75 2/15/2028 2,414
2,000 Hopkins County Hospital District 6.00 2/15/2033 1,813
2,255 Hopkins County Hospital District 6.00 2/15/2038 2,003
12,500 Houston Airport System 5.50 7/01/2034 13,415
22,000 Houston ISD (NBGA) 5.00 2/15/2033 23,087
5,000 Irving ISD (NBGA) 5.38(c) 2/15/2028 2,036
22,000 Judson ISD (NBGA) 4.50 2/01/2035 21,730
7,750 Kerrville Health Facilities Dev. Corp. 5.38 8/15/2035 7,029
12,700 Lower Colorado River Auth. (INS) 5.00 5/15/2031 12,816
5,300 Matagorda County 6.30 11/01/2029 5,721
4,235 Mesquite Health Facilities Dev. Corp. 5.63 2/15/2035 3,701
10,945 Midlothian Dev. Auth. (PRE) 7.88 11/15/2021 11,920
890 Midlothian Dev. Auth. 5.13 11/15/2026 776
9,175 Midlothian ISD (NBGA) 5.00 2/15/2034 9,295
11,500 North Central Health Facilities Dev. Corp. (INS) 5.25 8/15/2022 11,857
3,000 North Texas Tollway Auth. 5.63 1/01/2028 3,166
5,000 North Texas Tollway Auth. 5.63 1/01/2033 5,185
15,000 North Texas Tollway Auth. 5.63 1/01/2033 15,556
15,000 North Texas Tollway Auth. 5.75 1/01/2033 15,539
12,500 North Texas Tollway Auth. 5.75 1/01/2040 12,973
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 3,195 Northside ISD (NBGA) 5.13% 2/15/2022 $ 3,294
13,500 Port of Corpus Christi IDC 5.45 4/01/2027 12,716
5,490 Red River Education Finance Corp. 4.38 3/15/2027 5,435
1,000 San Leanna Education Facilities Corp. 5.13 6/01/2026 952
1,815 San Leanna Education Facilities Corp. 5.13 6/01/2027 1,730
6,025 San Leanna Education Facilities Corp. 4.75 6/01/2032 5,261
2,395 San Leanna Education Facilities Corp. 5.13 6/01/2036 2,137
7,205 Schertz - Cibolo - Universal City ISD (NBGA) 5.09(c) 2/01/2033 2,249
6,200 Schertz - Cibolo - Universal City ISD (NBGA) 5.11(c) 2/01/2035 1,718
1,100 Tarrant County Cultural Education Facilities
Finance Corp. 6.00 11/15/2026 1,033
6,315 Tarrant County Cultural Education Facilities
Finance Corp. 5.63 11/15/2027 5,758
4,000 Tarrant County Cultural Education Facilities
Finance Corp. 6.00 11/15/2036 3,546
13,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.13 5/15/2037 10,907
4,000 Tarrant County Cultural Education Facilities
Finance Corp. 5.75 11/15/2037 3,528
4,000 Transportation Commission 4.50 4/01/2033 3,969
4,595 Tyler Health Facilities Dev. Corp. (PRE) 5.75 7/01/2027 5,168
7,350 Tyler Health Facilities Dev. Corp. (PRE) 6.00 7/01/2027 8,087
22,000 Tyler Health Facilities Dev. Corp. 5.25 11/01/2032 20,048
10,000 Tyler Health Facilities Dev. Corp. 5.00 7/01/2033 8,488
8,585 Tyler Health Facilities Dev. Corp. (PRE) 5.75 7/01/2033 9,655
2,500 Tyler Health Facilities Dev. Corp. 5.00 7/01/2037 2,076
5,000 Tyler Health Facilities Dev. Corp. 5.38 11/01/2037 4,562
1,000 Uptown Development Auth. 5.50 9/01/2029 993
22,995 Veterans'Land Board(f) 6.25 8/01/2035 24,209
3,000 Weatherford ISD (NBGA) 4.83(c) 2/15/2027 1,342
2,500 Weatherford ISD (NBGA) 4.84(c) 2/15/2028 1,054
4,315 Weatherford ISD (NBGA)(PRE) 5.45 2/15/2030 4,771
3,105 Weatherford ISD (NBGA) 5.45 2/15/2030 3,262
6,360 West Harris County Regional Water Auth. (INS) 4.70 12/15/2030 6,325
----------
475,794
----------
UTAH (0.3%)
7,150 Nebo School District (NBGA)(PRE) 5.50 7/01/2020 7,244
----------
VIRGINIA (2.1%)
11,280 College Building Auth. 5.00 6/01/2026 10,176
5,000 College Building Auth. 5.00 6/01/2029 4,409
880 College Building Auth. (PRE) 5.00 6/01/2036 1,020
3,120 College Building Auth. 5.00 6/01/2036 2,703
1,478 Farms of New Kent Community Dev. Auth. 5.13 3/01/2036 1,009
8,665 Farms of New Kent Community Dev. Auth. 5.45 3/01/2036 6,149
================================================================================
30 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
$ 2,000 Farms of New Kent Community Dev. Auth. 5.80% 3/01/2036 $ 1,477
1,300 Lewistown Commerce Center Community Dev. Auth. 5.75 3/01/2017 1,190
10,875 Lewistown Commerce Center Community Dev. Auth. 6.05 3/01/2027 8,704
4,500 Peninsula Town Center Community Dev. Auth. 6.45 9/01/2037 4,348
5,000 Small Business Financing Auth. 5.25 9/01/2037 4,517
3,000 Watkins Centre Community Dev. Auth. 5.40 3/01/2020 2,878
----------
48,580
----------
WASHINGTON (1.6%)
7,665 Health Care Facilities Auth. (INS) 5.25 10/01/2021 7,761
13,030 Health Care Facilities Auth. (INS) 4.75 12/01/2031 11,195
2,500 Health Care Facilities Auth. (INS) 6.00 8/15/2039 2,661
5,000 Housing Finance Commission (INS) 6.00 7/01/2029 4,999
8,730 Snohomish County (INS) 5.13 12/01/2021 8,935
1,100 Snohomish County (INS)(PRE) 5.13 12/01/2021 1,178
----------
36,729
----------
WEST VIRGINIA (0.2%)
2,500 West Virginia Univ. Board of Governors (INS) 5.00 10/01/2027 2,553
2,500 West Virginia Univ. Board of Governors (INS) 5.00 10/01/2028 2,545
----------
5,098
----------
WISCONSIN (1.1%)
5,000 Health & Educational Facilities Auth. 5.75 11/15/2030 5,340
2,500 Health & Educational Facilities Auth. 5.38 8/15/2037 2,549
635 Health & Educational Facilities Auth. 5.38 10/01/2021 649
10,600 Health & Educational Facilities Auth. 5.38 2/15/2034 10,139
8,000 Univ. of Wisconsin Hospitals and
Clinics Auth. (INS)(PRE) 6.20 4/01/2029 8,080
----------
26,757
----------
WYOMING (0.5%)
2,360 Municipal Power Agency 5.50 1/01/2033 2,475
2,300 Municipal Power Agency 5.50 1/01/2038 2,392
6,000 Sweetwater County 5.25 7/15/2026 6,315
11,182
----------
Total Fixed-Rate Instruments (cost: $2,284,721) 2,220,077
----------
PUT BONDS (1.9%)
ARIZONA (0.6%)
12,500 Maricopa County 6.00 5/01/2029 13,132
----------
FLORIDA (0.2%)
5,000 Miami-Dade County IDA 4.00 10/01/2018 5,000
----------
INDIANA (0.4%)
9,000 Rockport 6.25 6/01/2025 9,986
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 31
<PAGE>
================================================================================
-------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
-------------------------------------------------------------------------------------------------------
LOUISIANA (0.5%)
$10,000 Public Facilities Auth. 7.00% 12/01/2038 $ 10,684
----------
MICHIGAN (0.2%)
5,500 Strategic Fund Ltd.(INS) 4.85 9/01/2030 5,645
----------
Total Put Bonds (cost :$42,000) 44,447
----------
VARIABLE-RATE DEMAND NOTES (2.7%)
CALIFORNIA (0.4%)
10,000 Educational Facilities Auth.
(LOC - Allied Irish Banks plc) 0.40 5/01/2030 10,000
----------
MINNESOTA (0.4%)
8,000 Higher Education Facilities Auth.
(LOC - Allied Irish Banks plc) 0.58 10/01/2032 8,000
----------
NEVADA (0.9%)
19,855 Washoe County (LIQ)(d) 0.64 12/01/2035 19,855
----------
PENNSYLVANIA (0.8%)
19,275 Higher Educational Facilities Auth.
(LOC - Allied Irish Banks plc) 0.45 5/01/2033 19,275
----------
PUERTO RICO (0.2%)
1,940 Highway & Transportation Auth.
(LIQ)(LOC - Dexia Credit Local)(d) 0.39 7/01/2030 1,940
2,892 Sales Tax Financing Corp.
(LIQ)(LOC - Dexia Credit Local)(d) 0.58 8/01/2042 2,892
----------
4,832
----------
Total Variable-Rate Demand Notes (cost: $61,962) 61,962
----------
TOTAL INVESTMENTS (COST: $2,388,683) $2,326,486
==========
-------------------------------------------------------------------------------------------------------
($ 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
-------------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $2,220,077 $- $2,220,077
Put Bonds - 44,447 - 44,447
Variable-Rate Demand Notes - 61,962 - 61,962
-------------------------------------------------------------------------------------------------------
Total $- $2,326,486 $- $2,326,486
-------------------------------------------------------------------------------------------------------
================================================================================
32 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS
March 31, 2010
--------------------------------------------------------------------------------
o GENERAL NOTES
Market values of securities are determined by procedures and practices
discussed in Note 1 to the financial statements.
The portfolio of investments category percentages shown represent the
percentages of the investments to net assets, and, in total, may not equal
100%. A category percentage of 0.0% represents less than 0.1% of net assets.
o SPECIFIC NOTES
(a) Stepped-coupon security that is initially issued in zero-coupon form and
converts to coupon form at the specified date and rate shown in the
security's description. The rate presented in the coupon rate column
represents the effective yield at the date of purchase.
(b) At March 31, 2010, the aggregate market value of securities purchased on
a when-issued basis was $7,064,000.
(c) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(d) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Investment Management
Company (the Manager) under liquidity guidelines approved by the Board of
Trustees, unless otherwise noted as illiquid.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 33
<PAGE>
================================================================================
(e) Security deemed illiquid by the Manager, under liquidity guidelines
approved by the Board of Trustees. The aggregate market value of these
securities at March 31, 2010, was $47,296,000, which represented 2.0% of
the Fund's net assets.
(f) At March 31, 2010, portions of these securities were segregated to cover
delayed-delivery and/or when-issued purchases.
(g) Currently the issuer is in default with respect to interest and/or
principal payments.
See accompanying notes to financial statements.
================================================================================
34 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
March 31, 2010
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,388,683) $2,326,486
Cash 76
Receivables:
Capital shares sold 627
USAA Transfer Agency Company (Note 5C) 1
Interest 33,185
----------
Total assets 2,360,375
----------
LIABILITIES
Payables:
Securities purchased 12,004
Capital shares redeemed 1,266
Dividends on capital shares 2,517
Accrued management fees 481
Accrued transfer agent's fees 13
Other accrued expenses and payables 87
----------
Total liabilities 16,368
----------
Net assets applicable to capital shares outstanding $2,344,007
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,405,309
Overdistribution of net investment income (163)
Accumulated net realized gain on investments 1,058
Net unrealized depreciation of investments (62,197)
----------
Net assets applicable to capital shares outstanding $2,344,007
==========
Capital shares outstanding, unlimited number of shares
authorized, no par value 182,699
==========
Net asset value, redemption price, and offering price per share $ 12.83
==========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 35
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended March 31, 2010
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $126,839
--------
EXPENSES
Management fees 5,249
Administration and servicing fees 3,364
Transfer agent's fees 886
Custody and accounting fees 300
Postage 56
Shareholder reporting fees 40
Trustees' fees 10
Registration fees 47
Professional fees 150
Other 45
--------
Total expenses 10,147
Transfer agent's fees reimbursed (Note 5C) (102)
--------
Net expenses 10,045
--------
NET INVESTMENT INCOME 116,794
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain 1,386
Change in net unrealized appreciation/depreciation 218,918
--------
Net realized and unrealized gain 220,304
--------
Increase in net assets resulting from operations $337,098
========
See accompanying notes to financial statements.
================================================================================
36 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended March 31,
--------------------------------------------------------------------------------
2010 2009
---------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 116,794 $ 117,480
Net realized gain (loss) on investments 1,386 (218)
Change in net unrealized appreciation/depreciation of
investments 218,918 (240,155)
-------------------------
Increase (decrease) in net assets resulting
from operations 337,098 (122,893)
-------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (116,541) (117,480)
Net realized gains (279) (5,704)
-------------------------
Distributions to shareholders (116,820) (123,184)
-------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 247,591 173,527
Reinvested dividends 85,441 89,560
Cost of shares redeemed (239,285) (290,292)
-------------------------
Increase (decrease) in net assets from capital
share transactions 93,747 (27,205)
-------------------------
Capital contribution from USAA Transfer Agency
Company (Note 5C) 1 7
-------------------------
Net increase (decrease) in net assets 314,026 (273,275)
NET ASSETS
Beginning of year 2,029,981 2,303,256
-------------------------
End of year $2,344,007 $2,029,981
=========================
Overdistribution of net investment income:
End of year $ (163) $ (253)
=========================
CHANGE IN SHARES OUTSTANDING
Shares sold 19,668 14,119
Shares issued for dividends reinvested 6,801 7,428
Shares redeemed (18,991) (23,967)
-------------------------
Increase (decrease) in shares outstanding 7,478 (2,420)
=========================
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 37
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
March 31, 2010
--------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act
of 1940 (the 1940 Act), as amended, is an open-end management investment company
organized as a Delaware statutory trust consisting of 46 separate funds. The
information presented in this annual report pertains only to the USAA Tax Exempt
Long-Term Fund (the Fund), which is classified as diversified under the 1940
Act. The Fund's investment objective is to provide investors with interest
income that is exempt from federal income tax.
A. SECURITY VALUATION -- The value of each security is determined (as of the
close of trading on the New York Stock Exchange (NYSE) on each business day
the NYSE is open) as set forth below:
1. Debt securities with maturities greater than 60 days are valued each
business day by a pricing service (the Service) approved by the Trust's
Board of Trustees. The Service uses an evaluated mean between quoted bid
and asked prices or the last sales price to price securities when, in the
Service's judgment, these prices are readily available and are
representative of the securities' market values. For many securities,
such prices are not readily available. The Service generally prices these
securities based on methods that include consideration of yields or
prices of tax- exempt securities of comparable quality, coupon, maturity,
and type; indications as to values from dealers in securities; and
general market conditions.
2. Debt securities purchased with original or remaining maturities of 60
days or less may be valued at amortized cost, which approximates market
value.
================================================================================
38 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
3. 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 USAA Investment Management Company (the Manager),
an affiliate of the Fund, 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
net asset value (NAV) to be more reliable than it otherwise would be.
Fair value methods used by the Manager include, but are not limited to,
obtaining market quotations from secondary pricing services,
broker-dealers, or widely used quotation systems. General factors
considered in determining the fair value of securities include
fundamental analytical data, the nature and duration of any restrictions
on disposition of the securities, and an evaluation of the forces that
influenced the market in which the securities are purchased and sold.
B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The three-
level valuation hierarchy disclosed in the portfolio of investments is based
upon the transparency of inputs to the valuation of an asset or liability as
of the measurement date. The three levels are defined as follows:
Level 1 -- inputs to the valuation methodology are quoted prices (unadjusted)
in active markets for identical securities.
Level 2 -- inputs to the valuation methodology are other significant
observable inputs, including quoted prices for similar securities,
================================================================================
NOTES TO FINANCIAL STATEMENTS | 39
<PAGE>
================================================================================
inputs that are observable for the securities, either directly or indirectly,
and market-corroborated inputs such as market indices.
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore, no
federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
Interest income is recorded daily on the accrual basis. Premiums and
discounts are amortized over the life of the respective securities, using the
effective yield method for long-term securities and the straight-line method
for short-term securities.
E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -- Delivery
and payment for securities that have been purchased by the Fund on a delayed-
delivery or when-issued basis can take place a month or more after the trade
date. During the period prior to settlement, these securities do not earn
interest, are subject to market fluctuation, and may increase or decrease in
value prior to their delivery. The Fund maintains segregated assets with a
market value equal to or greater than the amount of its purchase commitments.
The purchase of securities on a delayed-delivery or when-issued basis may
increase the volatility of the Fund's NAV to the extent that the Fund makes
such purchases while remaining substantially fully invested. As of March 31,
2010, the Fund's outstanding delayed-delivery commitments, including interest
purchased, were $7,004,000; all of which were when-issued securities.
================================================================================
40 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
F. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian
and other banks utilized by the Fund for cash management purposes, realized
credits, if any, generated from cash balances in the Fund's bank accounts may
be used to directly reduce the Fund's expenses. For the year ended March 31,
2010, these custodian and other bank credits reduced the Fund's expenses by
less than $500.
G. INDEMNIFICATIONS -- Under the Trust's organizational documents, its officers
and trustees are indemnified against certain liabilities arising out of the
performance of their duties to the Trust. In addition, in the normal course
of business the Trust enters into contracts that contain a variety of
representations and warranties that provide general indemnifications. The
Trust's maximum exposure under these arrangements is unknown, as this would
involve future claims that may be made against the Trust that have not yet
occurred. However, the Trust expects the risk of loss to be remote.
H. USE OF ESTIMATES -- The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts in the
financial statements.
(2) LINE OF CREDIT
The Fund participates in a joint, short-term, revolving, committed loan
agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of
the Manager. The purpose of the agreement is to meet 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 41
<PAGE>
================================================================================
amount of the committed loan agreement). Prior to September 25, 2009, the
maximum annual facility fee was 0.07% of the amount of the committed loan
agreement. The facility fees are allocated among the funds based on their
respective average net assets for the period.
For the year ended March 31, 2010, the Fund paid CAPCO facility fees of $14,000,
which represents 5.7% of the total fees paid to CAPCO by the USAA funds. The
Fund had no borrowings under this agreement during the year ended March 31,
2010.
(3) DISTRIBUTIONS
The character of any distributions made during the year from net investment
income or net realized gains is determined in accordance with federal tax
regulations and may differ from those determined in accordance with U.S.
generally accepted accounting principles. Also, due to the timing of
distributions, the fiscal year in which amounts are distributed may differ from
the year that the income or realized gains were recorded by the Fund.
During the current fiscal year, permanent differences between book-basis and
tax-basis accounting resulted in reclassifications to the statement of assets
and liabilities to increase paid-in capital by $243,000, increase
overdistribution of net investment income by $163,000, and increase accumulated
net realized loss on investments by $80,000. This includes the utilization of
earnings and profits distributed to shareholders on redemption of shares as part
of the dividends-paid deduction for federal income tax purposes and differences
in the classification of market discount. This reclassification had no effect on
net assets.
The tax character of distributions paid during the years ended March 31, 2010,
and March 31, 2009, was as follows:
2010 2009
---------------------------------
Tax-exempt income $116,541,000 $117,480,000
Ordinary income* 243,000 -
Net long-term capital gains 36,000 5,704,000
================================================================================
42 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
As of March 31, 2010, the components of net assets representing distributable
earnings on a tax basis were as follows:
Undistributed tax-exempt income $ 2,350,000
Undistributed ordinary income* 185,000
Undistributed long-term capital gains 877,000
Unrealized depreciation (62,197,000)
*Represents short-term realized capital gains, which are taxable as ordinary
income.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes.
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 year ended March
31, 2010, the Fund did not incur any income tax, interest, or penalties. As of
March 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 year
ended March 31, 2010, and each of the three preceding fiscal years, remain
subject to examination by the Internal Revenue Service and state taxing
authorities. On an ongoing basis, the Manager will monitor its tax positions to
determine if adjustments to this conclusion are necessary.
(4) INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales/maturities of securities, excluding
short-term securities, for the year ended March 31, 2010, were $244,458,000 and
$166,579,000, respectively.
As of March 31, 2010, the cost of securities, including short-term securities,
for federal income tax purposes, was $2,388,683,000.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
<PAGE>
================================================================================
Gross unrealized appreciation and depreciation of investments as of March 31,
2010, for federal income tax purposes, were $76,338,000 and $138,535,000,
respectively, resulting in net unrealized depreciation of $62,197,000.
(5) TRANSACTIONS WITH MANAGER
A. MANAGEMENT FEES -- The Manager carries out the Fund's investment policies and
manages the Fund's portfolio pursuant to an Advisory Agreement. The
investment management fee for the Fund is composed of a base fee and a
performance adjustment. The Fund's base fee is accrued daily and paid monthly
at an annualized rate of 0.28% of the Fund's average net assets for the
fiscal year.
The performance adjustment is calculated monthly by comparing the Fund's
performance to that of the Lipper General Municipal Debt Funds Index over the
performance period. The Lipper General Municipal Debt Index tracks the total
return performance of the 30 largest funds in the Lipper General Municipal
Debt Funds category. The performance period for the Fund consists of the
current month plus the previous 35 months. The following table is utilized to
determine the extent of the performance adjustment:
OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE
RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1)
-----------------------------------------------------------------------------
+/- 0.20% to 0.50% +/- 0.04%
+/- 0.51% to 1.00% +/- 0.05%
+/- 1.01% and greater +/- 0.06%
(1)Based on the difference between average annual performance of the Fund and
its relevant index, rounded to the nearest 0.01%. Average net assets are
calculated over a rolling 36-month period.
The annual performance adjustment rate is multiplied by the average net
assets of the Fund over the entire performance period, which is then
multiplied by a fraction, the numerator of which is the number of days in the
month and the denominator of which is 365 (366 in leap years). The resulting
amount is the performance adjustment; a positive adjustment in the case of
overperformance, or a negative adjustment in the case of underperformance.
================================================================================
44 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
Under the performance fee arrangement, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper General Municipal Debt Funds Index over that period,
even if the Fund had overall negative returns during the performance period.
For the year ended March 31, 2010, the Fund incurred total management fees,
paid or payable to the Manager, of $5,249,000, which included a (0.05)%
performance adjustment of $(1,030,000).
B. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain
administration and shareholder servicing functions for the Fund. For such
services, the Manager receives a fee accrued daily and paid monthly at an
annualized rate of 0.15% of the Fund's average net assets. For the year
ended March 31, 2010, the Fund incurred administration and servicing fees,
paid or payable to the Manager, of $3,364,000.
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 year ended March 31, 2010, the Fund reimbursed the Manager
$100,000 for these compliance and legal services. These expenses are included
in the professional fees on the Fund's statement of operations.
C. 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 based on an annual charge of $25.50 per shareholder
account plus out-of-pocket expenses. The Fund also pays SAS fees that are
related to the administration and servicing of accounts that are traded on an
omnibus basis. For the year ended March 31, 2010, the Fund incurred transfer
agent's fees, paid or payable to SAS, of $886,000. During the year ended
March 31, 2010, SAS reimbursed the Fund $102,000 for corrections in fees paid
for the administration and servicing of certain accounts. Additionally, the
Fund recorded a capital contribution and a receivable from SAS of $1,000 at
March 31, 2010, for adjustments related to corrections to shareholder
transactions.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
<PAGE>
================================================================================
D. 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.
(6) TRANSACTIONS WITH AFFILIATES
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.
(7) SUBSEQUENT EVENTS
Events or transactions that occur after the balance sheet date, but before the
financial statements are issued are categorized as recognized or non-recognized
for financial statement purposes. The Manager has evaluated subsequent events
through the date the financial statements were issued, and has determined there
were no events that require recognition or disclosure in the Fund's financial
statements.
(8) NEW ACCOUNTING PRONOUNCEMENTS
A. DERIVATIVES AND HEDGING -- In March 2008, the Financial Accounting Standards
Board issued an accounting standard that requires qualitative disclosures
about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features
in derivative agreements. The Fund adopted the accounting standard on April
1, 2009; however, the Fund did not invest in any derivatives during the
period from April 1, 2009, through March 31, 2010. Therefore, no disclosures
have been made.
B. FAIR VALUE MEASUREMENTS -- In January 2010, the Financial Accounting
Standards Board issued amended guidance for improving disclosures about fair
value measurements that adds new disclosure requirements about significant
transfers between Level 1, Level 2, and Level 3, 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
================================================================================
46 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
<PAGE>
================================================================================
(9) FINANCIAL HIGHLIGHTS
Per share operating performance for a share outstanding throughout each period
is as follows:
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------
2010 2009 2008 2007 2006
--------------------------------------------------------------------------
Net asset value at
beginning of period $ 11.59 $ 12.97 $ 13.91 $ 13.94 $ 14.01
--------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .65 .66 .64 .62 .62
Net realized and unrealized
gain (loss) 1.24 (1.35) (.90) .11 (.04)
--------------------------------------------------------------------------
Total from investment operations 1.89 (.69) (.26) .73 .58
--------------------------------------------------------------------------
Less distributions from:
Net investment income (.65) (.66) (.64) (.62) (.62)
Realized capital gains (.00)(a) (.03) (.04) (.14) (.03)
--------------------------------------------------------------------------
Total distributions (.65) (.69) (.68) (.76) (.65)
--------------------------------------------------------------------------
Net asset value at end of period $ 12.83 $ 11.59 $ 12.97 $ 13.91 $ 13.94
==========================================================================
Total return (%)* 16.59(c) (5.34) (1.98) 5.33 4.18
Net assets at end of period (000) $2,344,007 $2,029,981 $2,303,256 $2,446,313 $2,382,893
Ratios to average net assets:**
Expenses (%)(b) .45(c) .44 .48 .55 .55
Net investment income (%) 5.21 5.42 4.71 4.45 4.38
Portfolio turnover (%) 8 13 32 36 26
* 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 year ended March 31, 2010, average net assets were $2,243,624,000.
(a) Represents less than $0.01 per share.
(b) Reflects total operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's
expenses paid indirectly decreased the expense ratios as follows:
(.00%)(+) (.00%)(+) (.01%) (.00%)(+) (.00%)(+)
+ Represents less than 0.01% of average net assets.
(c) During the period ended March 31, 2010, SAS reimbursed the Fund $102,000 for corrections in fees paid for the
administration and servicing of certain accounts. The effect of this reimbursement on the Fund's total return
was less than 0.01%. The reimbursement decreased the Fund's expense ratios by less than 0.01%. This decrease
is excluded from the expense ratios above.
================================================================================
48 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
EXPENSE EXAMPLE
March 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 October 1, 2009, through
March 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 second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio 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 expenses you paid for the period.
You may use this
================================================================================
EXPENSE EXAMPLE | 49
<PAGE>
================================================================================
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 OCTOBER 1, 2009 -
OCTOBER 1, 2009 MARCH 31, 2010 MARCH 31, 2010
----------------------------------------------------------
Actual $1,000.00 $1,001.30 $2.25
Hypothetical
(5% return before expenses) 1,000.00 1,022.69 2.27
* Expenses are equal to the Fund's annualized expense ratio of 0.45%, which is
net of any reimbursements and expenses paid indirectly, multiplied by the
average account value over the period, multiplied by 182 days/365 days (to
reflect the one-half-year period). The Fund's ending account value on the
first line in the table is based on its actual total return of 0.13% for the
six-month period of October 1, 2009, through March 31, 2010.
================================================================================
50 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION
TRUSTEES AND OFFICERS OF THE TRUST
--------------------------------------------------------------------------------
The Board of Trustees of the Trust consists of six Trustees. These Trustees and
the Trust's Officers supervise the business affairs of the USAA family of funds.
The Board of Trustees is responsible for the general oversight of the funds'
business and for assuring that the funds are managed in the best interests of
each fund's respective shareholders. The Board of Trustees periodically reviews
the funds' investment performance as well as the quality of other services
provided to the funds and their shareholders by each of the fund's service
providers, including USAA Investment Management Company (IMCO) and its
affiliates. The term of office for each Trustee shall be 20 years or until the
Trustee reaches age 70. All members of the Board of Trustees shall be presented
to shareholders for election or re-election, as the case may be, at least once
every five years. Vacancies on the Board of Trustees can be filled by the action
of a majority of the Trustees, provided that at least two-thirds of the Trustees
have been elected by the shareholders.
Set forth below are the Trustees and Officers of the Trust, their respective
offices and principal occupations during the last five years, length of time
served, and information relating to any other directorships held. Each serves on
the Board of Trustees of the USAA family of funds consisting of one registered
investment company offering 46 individual funds as of March 31, 2010. Unless
otherwise indicated, the business address of each is 9800 Fredericksburg Road,
San Antonio, TX 78288.
If you would like more information about the funds' Trustees, you may call (800)
531-USAA (8722) to request a free copy of the funds' statement of additional
information (SAI).
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 51
<PAGE>
================================================================================
INTERESTED TRUSTEE(1)
--------------------------------------------------------------------------------
CHRISTOPHER W. CLAUS(2, 4)
Trustee
Born: December 1960
Year of Election or Appointment: 2001
Chair of the Board of Directors, IMCO (11/04-present); President, IMCO
(2/01-10/09); Chief Investment Officer, IMCO (2/07-2/08); Chief Executive
Officer, IMCO (2/01-2/07); Chair of the Board of Directors, USAA Financial
Advisors, Inc. (FAI) (1/07-present); President, FAI (12/07-10/09); President,
Financial Advice and Solutions Group (FASG) USAA (9/09-present); President,
Financial Services Group, USAA (1/07-9/09). Mr. Claus serves as Chair of the
Board of Directors of USAA Investment Corporation, USAA Shareholder Account
Services (SAS), USAA Financial Planning Services Insurance Agency, Inc. (FPS),
and FAI. He also is Vice Chair for USAA Life Insurance Company (USAA Life).
NON-INTERESTED (INDEPENDENT) TRUSTEES
--------------------------------------------------------------------------------
BARBARA B. DREEBEN(3, 4, 5, 6)
Trustee
Born: June 1945
Year of Election or Appointment: 1994
President, Postal Addvantage (7/92-present), a postal mail list management
service. Mrs. Dreeben holds no other directorships of any publicly held
corporations or other investment companies outside the USAA family of funds.
================================================================================
52 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
ROBERT L. MASON, Ph.D.(3, 4, 5, 6)
Trustee
Born: June 1946
Year of Election or Appointment: 1997
Institute Analyst, Southwest Research Institute (3/02-present), which focuses in
the fields of technological research. Dr. Mason holds no other directorships of
any publicly held corporations or other investment companies outside the USAA
family of funds.
BARBARA B. OSTDIEK, Ph.D.(3, 4, 5, 6, 7)
Trustee
Born: March 1964
Year of Election or Appointment: 2007
Academic Director of the El Paso Corporation Finance Center at Jesse H. Jones
Graduate School of Management at Rice University (7/02-present); Associate
Professor of Finance at Jesse H. Jones Graduate School of Management at Rice
University (7/01-present). Dr. Ostdiek holds no other directorships of any
publicly held corporations or other investment companies outside the USAA family
of funds.
MICHAEL F. REIMHERR(3, 4, 5, 6)
Trustee
Born: August 1945
Year of Election or Appointment: 2000
President of Reimherr Business Consulting (5/95-present), an organization that
performs business valuations of large companies to include the development of
annual business plans, budgets, and internal financial reporting. Mr. Reimherr
holds no other directorships of any publicly held corporations or other
investment companies outside the USAA family of funds.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 53
<PAGE>
================================================================================
RICHARD A. ZUCKER(2, 3, 4, 5, 6)
Trustee and Chair of the Board of Trustees
Born: July 1943
Year of Election or Appointment: 1992(+)
Vice President, Beldon Roofing Company (7/85-present). Mr. Zucker holds no other
directorships of any publicly held corporations or other investment companies
outside the USAA family of funds.
(1) Indicates the Trustee is an employee of IMCO or affiliated companies and
is considered an "interested person" under the Investment Company Act of
1940.
(2) Member of Executive Committee
(3) Member of Audit Committee
(4) Member of Pricing and Investment Committee
(5) Member of Corporate Governance Committee
(6) The address for all non-interested trustees is that of the USAA Funds,
P.O. Box 659430, San Antonio, TX 78265-9430.
(7) Dr. Ostdiek was appointed the Audit Committee Financial Expert for the
Funds' Board in November 2008.
(+) Mr. Zucker was elected as Chair of the Board in 2005.
================================================================================
54 | USAA TAX EXEMPT LONG-TERM FUND
<PAGE>
================================================================================
INTERESTED OFFICERS(1)
--------------------------------------------------------------------------------
DANIEL S. McNAMARA
Vice President
Born: June 1966
Year of Appointment: 2009
President and Director, IMCO, FAI, FPS, and SAS (10/09-present); President, Banc
of America Investment Advisors (9/07-9/09); Managing Director, Planning and
Financial Products Group, Bank of America (9/01-9/09).
CLIFFORD A. GLADSON
Vice President
Born: November 1950
Year of Appointment: 2002
Senior Vice President, Fixed Income Investments, IMCO (9/02-present).
Mr. Gladson also serves as a Director for SAS.
JOHN P. TOOHEY
Vice President
Born: March 1968
Year of Appointment: 2009
Vice President, Equity Investments, IMCO (2/09-present); Managing Director, AIG
Investments (12/00-1/09).
MARK S. HOWARD
Secretary
Born: October 1963
Year of Appointment: 2002
Senior Vice President and Deputy General Counsel, Business & Regulatory
Services, USAA (10/08-present); Senior Vice President, USAA Life/IMCO/ FPS
General Counsel, USAA (10/03-10/08). Mr. Howard also holds the Officer positions
of Senior Vice President, Secretary, and Counsel for USAA Life, FAI, and FPS,
and is an Assistant Secretary of USAA, IMCO, and SAS.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 55
<PAGE>
================================================================================
ROBERTO GALINDO, Jr.
Treasurer
Born: November 1960
Year of Appointment: 2000
Assistant Vice President, Portfolio Accounting/Financial Administration, USAA
(12/02-present); Assistant Treasurer, USAA family of funds (7/00-2/08).
CHRISTOPHER P. LAIA
Assistant Secretary
Born: January 1960
Year of Appointment: 2008
Vice President, FASG General Counsel, USAA (10/08-present); Vice President,
Securities Counsel, USAA (6/07-10/08); General Counsel, Secretary, and Partner,
Brown Advisory (6/02-6/07). Mr. Laia also holds the Officer positions of Vice
President and Secretary, IMCO and SAS, and Vice President and Assistant
Secretary, FAI and FPS.
WILLIAM A. SMITH
Assistant Treasurer
Born: June 1948
Year of Appointment: 2009
Vice President, Senior Financial Officer, and Treasurer, FASG, FAI, and SAS
(2/09-present); Senior Financial Officer, USAA Life (2/07-present); consultant,
Robert Half/Accounttemps (8/06-1/07); Chief Financial Officer, California State
Automobile Association (8/04-12/05).
JEFFREY D. HILL
Chief Compliance Officer
Born: December 1967
Year of Appointment: 2004
Assistant Vice President, Mutual Funds Compliance, USAA (9/04-present).
(1) Indicates those Officers who are employees of IMCO or affiliated companies
and are considered "interested persons" under the Investment Company Act
of 1940.
================================================================================
56 | USAA TAX EXEMPT LONG-TERM 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
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CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
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INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
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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.
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The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. These Forms N-Q also may
be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) 732-0330.
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<PAGE>
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40858-0510 (C)2010, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS.
On September 24, 2009, the Board of Trustees of USAA Mutual Funds Trust approved
a Code of Ethics (Sarbanes Code) applicable solely to its senior financial
officers, including its principal executive officer (President), as defined
under the Sarbanes-Oxley Act of 2002 and implementing regulations of the
Securities and Exchange Commission. A copy of the Sarbanes Code is attached as
an Exhibit to this Form N-CSR.
No waivers (explicit or implicit) have been granted from a provision of the
Sarbanes Code.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
On November 18, 2008, the Board of Trustees of USAA Mutual Funds Trust
designated Dr. Barbara B. Ostdiek, Ph.D. as the Board's audit committee
financial expert. Dr. Ostdiek has served as an Associate Professor of Management
at Rice University since 2001. Dr. Ostdiek also has served as an Academic
Director at El Paso Corporation Finance Center since 2002. Dr. Ostdiek is an
independent trustee who serves as a member of the Audit Committee, Pricing and
Investment Committee and the Corporate Governance Committee of the Board of
Trustees of USAA Mutual Funds Trust.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The Registrant, USAA Mutual Funds Trust, consists of 46 funds in
all. Only 12 funds of the Registrant have a fiscal year-end of March 31 and are
included within this report (the Funds). The aggregate fees accrued or billed by
the Registrant's independent auditor, Ernst & Young LLP, for professional
services rendered for the audit of the Registrant's annual financial statements
and services provided in connection with statutory and regulatory filings by the
Registrant for the Funds for fiscal years ended March 31, 2010 and 2009 were
$244,354 and $268,065, respectively.
(b) AUDIT RELATED FEE. The aggregate fees accrued or paid to Ernst & Young, LLP
by USAA Shareholder Account Services (SAS) for professional services rendered
for audit related services related to the annual study of internal controls of
the transfer agent for fiscal years ended March 31, 2010 and 2009 were $61,513
and $63,500, respectively. All services were preapproved by the Audit Committee.
(c) TAX FEES. No such fees were billed by Ernst & Young LLP for the review of
federal, state and city income and tax returns and excise tax calculations for
fiscal years ended March 31, 2010 and 2009.
(d) ALL OTHER FEES. No such fees were billed by Ernst & Young LLP for fiscal
years ended March 31, 2010 and 2009.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICY. All audit and non-audit services to
be performed for the Registrant by Ernst & Young LLP must be pre-approved by the
Audit Committee. The Audit Committee Charter also permits the Chair of the Audit
Committee to pre-approve any permissible non-audit service that must be
commenced prior to a scheduled meeting of the Audit Committee. All non-audit
services were pre-approved by the Audit Committee or its Chair, consistent with
the Audit Committee's preapproval procedures.
(2) Not applicable.
(f) Not applicable.
(g) The aggregate non-audit fees billed by Ernst & Young LLP for services
rendered to the Registrant and the Registrant's investment adviser, IMCO, and
the Funds' transfer agent, SAS, for March 31, 2010 and 2009 were $104,896 and
$108,000, respectively.
(h) Ernst & Young LLP provided non-audit services to IMCO in 2010 and 2009 that
were not required to be pre-approved by the Registrant's Audit Committee because
the services were not directly related to the operations of the Registrant's
Funds. The Board of Trustees will consider Ernst & Young LLP's independence and
will consider whether the provision of these non-audit services to IMCO is
compatible with maintaining Ernst & Young LLP's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Filed as part of the report to shareholders.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
Item 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporate Governance Committee selects and nominates candidates for
membership on the Board as independent directors. Currently, there is no
procedure for shareholders to recommend candidates to serve on the Board.
ITEM 11. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of USAA Mutual
Funds Trust (Trust) have concluded that the Trust's disclosure controls and
procedures are sufficient to ensure that information required to be disclosed by
the Trust in this Form N-CSR was recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, based upon such officers' evaluation of these controls and
procedures as of a date within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation. The only change to the
procedures was to document the annual disclosure controls and procedures
established for the new section of the shareholder reports detailing the factors
considering by the Trust's Board in approving the Trust's advisory agreements.
ITEM 12. EXHIBITS.
(a)(1). Code of Ethics pursuant to Item 2 of Form N-CSR is filed hereto exactly
as set forth below:
CODE OF ETHICS
FOR PRINCIPAL EXECUTIVE OFFICER
AND SENIOR FINANCIAL OFFICERS
USAA MUTUAL FUNDS TRUST
I. PURPOSE OF THE CODE OF ETHICS
USAA Mutual Funds Trust (the Trust or the Funds) has adopted this code
of ethics (the Code) to comply with Section 406 of the Sarbanes-Oxley Act of
2002 (the Act) and implementing regulations of the Securities and Exchange
Commission (SEC). The Code applies to the Trust's Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer (each a Covered
Officer), as detailed in Appendix A.
The purpose of the Code is to promote:
- honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between the Covered
Officers' personal and professional relationships;
- full, fair, accurate, timely and understandable disclosure in
reports and documents that the Trust files with, or submits
to, the SEC and in other public communications made by the
Trust;
- compliance with applicable laws and governmental rules and
regulations;
- prompt internal reporting of violations of the Code to the
Chief Legal Officer of the Trust, the President of the Trust
(if the violation concerns the Treasurer), the CEO of USAA,
and if deemed material to the Funds' financial condition or
reputation, the Chair of the Trust's Board of Trustees; and
- accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to actual and apparent conflicts of interest.
II. CONFLICTS OF INTEREST
A. DEFINITION OF A CONFLICT OF INTEREST.
A conflict of interest exists when a Covered Officer's private interest
influences, or reasonably appears to influence, the Covered Officer's judgment
or ability to act in the best interests of the Funds and their shareholders. For
example, a conflict of interest could arise if a Covered Officer, or an
immediate family member, receives personal benefits as a result of his or her
position with the Funds.
Certain conflicts of interest arise out of relationships between
Covered Officers and the Funds and are already subject to conflict of interest
provisions in the Investment Company Act of 1940 (the 1940 Act) and the
Investment Advisers Act of 1940 (the Advisers Act). For example, Covered
Officers may not individually engage in certain transactions with the Funds
because of their status as "affiliated persons" of the Funds. The USAA Funds'
and USAA Investment Management Company's (IMCO) compliance programs and
procedures are designed to prevent, or identify and correct, violations of these
provisions. This Code does not, and is not intended to, repeat or replace these
programs and procedures, and such conflicts fall outside of the parameters of
this Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts could arise from, or as a result of, the contractual
relationships between the Funds and IMCO of which the Covered Officers are also
officers or employees. As a result, this Code recognizes that the Covered
Officers will, in the normal course of their duties (whether formally for the
Funds or for IMCO, or for both), be involved in establishing policies and
implementing decisions that will have different effects on IMCO and the Funds.
The participation of Covered Officers in such activities is inherent in the
contractual relationship between the Funds and IMCO and is consistent with the
performance by the Covered Officers of their duties as officers of the Funds.
Thus, if performed in compliance with the provisions of the 1940 Act and the
Advisers Act, such activities will be deemed to have been handled ethically.
B. GENERAL RULE. Covered Officers Should Avoid Actual and Apparent
Conflicts of Interest.
Conflicts of interest, other than the conflicts described in the two
preceding paragraphs, are covered by the Code. The following list provides
examples of conflicts of interest under the Code, but Covered Officers should
keep in mind that these examples are not exhaustive. The overarching principle
is that the personal interest of a Covered Officer should not be placed
improperly before the interest of the Funds and their shareholders.
Each Covered Officer must not engage in conduct that constitutes an
actual conflict of interest between the Covered Officer's personal interest and
the interests of the Funds and their shareholders. Examples of actual conflicts
of interest are listed below but are not exclusive. Each Covered Officer must
not:
- use his personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Funds
whereby the Covered Officer would benefit personally to the
detriment of the Funds and their shareholders;
- cause the Funds to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the
benefit of the Funds and their shareholders.
- accept gifts, gratuities, entertainment or any other benefit from
any person or entity that does business or is seeking to do
business with the Funds DURING CONTRACT NEGOTIATIONS.
- accept gifts, gratuities, entertainment or any other benefit with
a market value over $100 per person, per year, from or on behalf
of any person or entity that does, or seeks to do, business with
or on behalf of the Funds.
- EXCEPTION. Business-related entertainment such as meals,
and tickets to sporting or theatrical events, which are
infrequent and not lavish are excepted from this
prohibition. Such entertainment must be appropriate as to
time and place, reasonable and customary in nature, modest
in cost and value, incidental to the business, and not so
frequent as to raise any question of impropriety
(Customary Business Entertainment).
Certain situations that could present the appearance of a conflict of
interest should be discussed with, and approved by, or reported to, an
appropriate person. Examples of these include:
- service as a director on the board or an officer of any public or
private company, other than a USAA company or the Trust, must be
approved by the USAA Funds' and Investment Code of Ethics
Committee and reported to the Trust.
- the receipt of any non-nominal (I.E., valued over $25) gifts from
any person or entity with which a Trust has current or prospective
business dealings must be reported to the Chief Legal Officer. For
purposes of this Code, the individual holding the title of
Secretary of the Trust shall be considered the Chief Legal Officer
of the Trust.
- the receipt of any business-related entertainment from any person
or entity with which the Funds have current or prospective
business dealings must be approved in advance by the Chief Legal
Officer unless such entertainment qualifies as Customary Business
Entertainment.
- any ownership interest in, or any consulting or employment
relationship with, any of the Trust's service providers, other
than IMCO or any other USAA company, must be approved by the CEO
of USAA and reported to the Trust's Board.
- any material direct or indirect financial interest in commissions,
transaction charges or spreads paid by the Funds for effecting
portfolio transactions or for selling or redeeming shares other
than an interest arising from the Covered Officer's employment,
such as compensation or equity ownership should be approved by the
CEO of USAA and reported to the Trust's Board.
III. DISCLOSURE AND COMPLIANCE REQUIREMENTS
- Each Covered Officer should familiarize himself with the
disclosure requirements applicable to the Funds, and the
procedures and policies implemented to promote full, fair,
accurate, timely and understandable disclosure by the Trust.
- Each Covered Officer should not knowingly misrepresent, or
cause others to misrepresent, facts about the Funds to others,
whether within or outside the Funds, including to the Funds'
Trustees and auditors, and to government regulators and
self-regulatory organizations.
- Each Covered Officer should, to the extent appropriate within
his area of responsibility, consult with other officers and
employees of the Funds and IMCO with the goal of promoting
full, fair, accurate, timely and understandable disclosure in
the reports and documents filed by the Trust with, or
submitted to, the SEC, and in other public communications made
by the Funds.
- Each Covered Officer is responsible for promoting compliance
with the standards and restrictions imposed by applicable
laws, rules and regulations, and promoting compliance with the
USAA Funds' and IMCO's operating policies and procedures.
- A Covered Officer should not retaliate against any person
who reports a potential violation of this Code in good faith.
- A Covered Officer should notify the Chief Legal Officer
promptly if he knows of any violation of the Code. Failure
to do so itself is a violation of this Code.
IV. REPORTING AND ACCOUNTABILITY
A. INTERPRETATION OF THE CODE. The Chief Legal Officer of the Trust
is responsible for applying this Code to specific situations in
which questions are presented under it and has the authority to
interpret the Code in any particular situation. The Chief Legal
Officer should consult, if appropriate, the USAA Funds' outside
counsel or counsel for the Independent Trustees. However, any
approvals or waivers sought by a Covered Officer will be
reported initially to the CEO of USAA and will be considered by
the Trust's Board of Trustees.
B. REQUIRED REPORTS
- EACH COVERED OFFICER MUST:
- Upon adoption of the Code, affirm in writing to the
Board that he has received, read and understands the
Code.
- Annually thereafter affirm to the Chief Legal Officer
that he has complied with the requirements of the Code.
- THE CHIEF LEGAL OFFICER MUST:
- report to the Board about any matter or situation
submitted by a Covered Officer for interpretation under
the Code, and the advice given by the Chief Legal
Officer;
- report annually to the Board and the Corporate
Governance Committee describing any issues that arose
under the Code, or informing the Board and Corporate
Governance Committee that no reportable issues occurred
during the year.
C. INVESTIGATION PROCEDURES
The Funds will follow these procedures in investigating and enforcing
this Code:
- INITIAL COMPLAINT. All complaints or other inquiries
concerning potential violations of the Code must be reported
to the Chief Legal Officer. The Chief Legal Officer shall be
responsible for documenting any complaint. The Chief Legal
Officer also will report immediately to the President of the
Trust (if the complaint involves the Treasurer), the CEO of
USAA and the Chair of the Trust's Audit Committee (if the
complaint involves the President) any material potential
violations that could have a material effect on the Funds'
financial condition or reputation. For all other complaints,
the Chief Legal Officer will report quarterly to the Board.
- INVESTIGATIONS. The Chief Legal Officer will take all
appropriate action to investigate any potential violation
unless the CEO of USAA directs another person to undertake
such investigation. The Chief Legal Officer may utilize USAA's
Office of Ethics to do a unified investigation under this Code
and USAA's Code of Conduct. The Chief Legal Officer may direct
the Trust's outside counsel or the counsel to the Independent
Trustees (if any) to participate in any investigation under
this Code.
- STATUS REPORTS. The Chief Legal Officer will provide monthly
status reports to the Board about any alleged violation of the
Code that could have a material effect on the Funds' financial
condition or reputation, and quarterly updates regarding all
other alleged violations of the Code.
- VIOLATIONS OF THE CODE. If after investigation, the Chief
Legal Officer, or other investigating person, believes that a
violation of the Code has occurred, he will report immediately
to the CEO of USAA the nature of the violation, and his
recommendation regarding the materiality of the violation. If,
in the opinion of the investigating person, the violation
could materially affect the Funds' financial condition or
reputation, the Chief Legal Officer also will notify the Chair
of the Trust's Audit Committee. The Chief Legal Officer will
inform, and make a recommendation to, the Board, which will
consider what further action is appropriate. Appropriate
action could include: (1) review of, and modifications to, the
Code or other applicable policies or procedures;
(2) notifications to appropriate personnel of IMCO or USAA;
(3) dismissal of the Covered Officer; and/or (4) other
disciplinary actions including reprimands or fines.
- The Board of Trustees understands that Covered
Officers also are subject to USAA's Code of Business
Conduct. If a violation of this Code also violates
USAA's Code of Business Conduct, these procedures do
not limit or restrict USAA's ability to discipline
such Covered Officer under USAA's Code of Business
Conduct. In that event, the Chairman of the Board of
Trustees will report to the Board the action taken by
USAA with respect to a Covered Officer.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Funds for
purposes of Section 406 of the Act and the implementing regulations adopted by
the SEC applicable to registered investment companies. If other policies and
procedures of the Trust, IMCO, or other service providers govern or purport to
govern the behavior or activities of Covered Officers, they are superseded by
this Code to the extent that they overlap, conflict with, or are more lenient
than the provisions of this Code. The Investment Code of Ethics (designated to
address 1940 Act and Advisers Act requirements) and IMCO's more detailed
compliance policies and procedures (including its Insider Trading Policy) are
separate requirements applying to Covered Officers and other IMCO employees, and
are not part of this Code. Also, USAA's Code of Conduct imposes separate
requirements on Covered Officers and all employees of USAA, and also is not part
of this Code.
VI. AMENDMENTS
Any amendment to this Code, other than amendments to Appendix A, must
be approved or ratified by majority vote of the Board of Trustees.
VII. CONFIDENTIALITY AND DOCUMENT RETENTION
The Chief Legal Officer shall retain material investigation documents
and reports required to be prepared under the Code for six years from the date
of the resolution of any such complaint. All reports and records prepared or
maintained pursuant to this Code will be considered confidential and shall be
maintained and protected accordingly. Except as otherwise required by law or
this Code, such matters shall not be disclosed to anyone other than the Trust's
Board of Trustees and counsel for the Independent Trustees (if any), the Trust
and its counsel, IMCO, and other personnel of USAA as determined by the Trust's
Chief Legal Officer or the Chair of the Trust's Board of Trustees.
Approved and adopted by IMCO's Code of Ethics Committee: June 12, 2003.
Approved and adopted by the Boards of Directors/Trustees of USAA Mutual Fund,
Inc., USAA Tax-Exempt Fund, Inc., USAA Investment Trust & USAA State Tax-Free
Trust: June 25, 2003.
Approved and adopted by the Board of Trustees of USAA Life Investment Trust:
August 20, 2003.
Approved and adopted as amended by IMCO's Code of Ethics Committee: August 15,
2005.
Approved and adopted as amended by the Boards of Directors/Trustees of USAA
Mutual Fund, Inc., USAA Tax-Exempt Fund, Inc., USAA Investment Trust & USAA
State Tax-Free Trust: September 14, 2005.
Approved and adopted as amended by the Board of Trustees of USAA Life Investment
Trust: December 8, 2005.
Approved and adopted as amended by IMCO's Code of Ethics Committee: August 16,
2006.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 13, 2006.
Approved and adopted by IMCO's Code of Ethics Committee: August 28, 2007.
Approved and adopted by the Investment Code of Ethics Committee: August 29,
2008.
Approved and adopted as amended by the Board of Trustees of USAA Mutual Funds
Trust: September 19, 2008.
Approved and adopted by the Investment Code of Ethics Committee: August 17,
2009.
Approved and adopted by the Board of Trustees of USAA Mutual Funds Trust:
September 24, 2009.
APPENDIX A
COVERED OFFICERS
PRESIDENT
TREASURER
(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 March 31, 2010
By:* /s/ CHRISTOPHER P. LAIA
--------------------------------------------------------------
Signature and Title: Christopher P. Laia, Secretary
Date: 05/26/2010
------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:* /s/ CHRISTOPHER W. CLAUS
-----------------------------------------------------
Signature and Title: Christopher W. Claus, President
Date: 05/27/2010
------------------------------
By:* /s/ ROBERTO GALINDO, JR.
-----------------------------------------------------
Signature and Title: Roberto Galindo, Jr., Treasurer
Date: 05/26/2010
------------------------------
*Print the name and title of each signing officer under his or her signature.
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