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 TAX EXEMPT INTERMEDIATE-TERM FUND - ANNUAL REPORT FOR PERIOD ENDING
MARCH 31, 2010
[LOGO OF USAA]
USAA(R)
[GRAPHIC OF USAA TAX EXEMPT INTERMEDIATE-TERM FUND]
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ANNUAL REPORT
USAA TAX EXEMPT
INTERMEDIATE-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 between three and 10 years.
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TABLE OF CONTENTS
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PRESIDENT'S MESSAGE 2
MANAGER'S COMMENTARY 4
FUND RECOGNITION 7
INVESTMENT OVERVIEW 9
FINANCIAL INFORMATION
Distributions to Shareholders 15
Report of Independent Registered Public Accounting Firm 16
Portfolio of Investments 17
Notes to Portfolio of Investments 38
Financial Statements 40
Notes to Financial Statements 43
EXPENSE EXAMPLE 54
TRUSTEES' AND OFFICERS' INFORMATION 56
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 INTERMEDIATE-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
REGINA SHAFER, CPA, CFA*
USAA Investment Management Company [PHOTO OF REGINA SHAFER]
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o HOW DID THE USAA TAX EXEMPT INTERMEDIATE-TERM FUND (THE FUND) PERFORM FROM
APRIL 1, 2009, TO MARCH 31, 2010?
The Fund provided a total return of 13.07% versus an average return of 8.34%
for the 160 funds in the Lipper Intermediate Municipal Debt Funds Average.
This compares to returns of 8.58% for the Lipper Intermediate Municipal Debt
Funds Index and 9.69% for the Barclays Capital Municipal Bond Index. The
Fund's tax-exempt distributions over the prior 12 months produced a dividend
yield of 4.47%, compared to the Lipper category average of 3.32%.
o WHAT WERE THE MARKET CONDITIONS?
The tax-exempt bond market experienced a powerful rally during the reporting
period. Demand by individual and institutional investors drove the rally,
which sent prices higher and yields lower. (Bond yields move in the opposite
direction of prices.) The yield on a 10-year AAA general obligation bond
dropped from 3.16% on March 31, 2009, to 3.09% on March 31, 2010. The ratio
between 10-year municipal yields and those of equivalent U.S. Treasuries
declined from 118% on April 1, 2009, to 81% at the end of the period, much
closer to the
Refer to pages 12 and 13 for benchmark definitions.
Past performance is no guarantee of future results.
*Effective February 28, 2010, Cliff Gladson no longer was co-manager of the
Fund.
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4 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
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historical average. Nevertheless, tax-exempt securities remained attractive
relative to comparable taxable fixed income securities.
The rally was also 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 in longer-term maturities.
Although the recession has put pressure on municipal budgets, credit spreads
narrowed as the flight to quality abated and investors realized that the
overwhelming majority of municipal issuers had the ability to service their
debt. (Credit spreads are the difference in yields between bonds of different
credit ratings.) In general, we continued to see municipalities make the
tough political decisions necessary to balance their budgets.
Meanwhile, short-term rates, which are controlled by the Federal Reserve (the
Fed), were at record lows with the federal funds target rate held in a range
between zero and 0.25%. Although economic conditions improved, unemployment
remained high and the housing market has been slow to recover.
o WHAT STRATEGIES DID YOU EMPLOY?
Your Fund was well positioned for the rally in the tax-exempt bond market.
During investors' flight to quality in 2008, when yields were above their
historical norms, we took advantage of opportunities to purchase bonds that
would provide higher income to the Fund for years to come. Those bonds also
performed very well as credit spreads narrowed. Throughout the year, we
continued to look for bonds with attractive risk return characteristics.
As always, we did not rely solely on credit agencies or bond insurers to do
our credit work. Our experienced municipal credit analysts helped us look
through the headlines and identify exceptional values for the Fund. They also
continued to carefully analyze and monitor every
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MANAGER'S COMMENTARY ON THE FUND | 5
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bond in the portfolio. With over 500 positions, the Fund remains widely
diversified by issuer and geographic area. To make it as tax efficient as
possible, we continue to avoid issues subject to the alternative minimum tax,
also known as the "AMT," for individuals.
o WHAT IS YOUR 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
contingent on inflationary trends, real estate conditions and the level of
unemployment and is unlikely until at least the end of 2010 or early 2011.
Given the steep municipal interest rate curve and the demand for municipal
bonds in general, we don't expect yields on longer-term municipal bonds to
rise as much as short-term interest rates.
The performance of the municipal bond market -- and your Fund -- has been
impressive during the one-year reporting period. However, much of that was
due to the strong rally and resulting price appreciation. Now that the market
has "normalized," shareholders should expect most of their return to come
from the tax-exempt income generated by the Fund, which is the largest
contributor to its long-term total return (see page 10).
Nevertheless, tax-exempt bonds should continue to be attractive because of
their tax-free yields and low risk of default. We expect the Build America
Bonds program to be extended, resulting in less traditional tax-exempt
issuance. We also anticipate an increase in federal income tax rates. With
less supply and higher taxes, demand for municipal bonds and the tax-free
income they provide should remain strong.
We appreciate your continued confidence in us.
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6 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
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FUND RECOGNITION
USAA TAX EXEMPT INTERMEDIATE-TERM FUND
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OVERALL MORNINGSTAR RATING(TM)
out of 210 municipal intermediate-term bond funds
for the period ended March 31, 2010:
OVERALL RATING
* * * *
3-YEAR
* * *
out of 210 funds
5-YEAR
* * * *
out of 189 funds
10-YEAR
* * * *
out of 122 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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FUND RECOGNITION | 7
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LIPPER LEADER (OVERALL)
[5]
EXPENSE
The Fund is listed as a Lipper Leader for Expense of 59 funds within the Lipper
Intermediate Municipal Debt Funds category for the overall period ended March
31, 2010. The Fund received a Lipper Leader rating for Expense among 59, 53, and
37 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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8 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
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INVESTMENT OVERVIEW
USAA TAX EXEMPT INTERMEDIATE-TERM FUND (Ticker Symbol: USATX)
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3/31/10 3/31/09
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Net Assets $2,859.7 Million $2,419.3 Million
Net Asset Value Per Share $12.83 $11.88
Last 12 Months
Tax-Exempt Dividends Per Share $0.574 $0.586
Capital Gain Distributions Per Share $0.007 $0.015
Dollar-Weighted Average
Portfolio Maturity 9.2 Years 9.4 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 0.45%
3.75%
*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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INVESTMENT OVERVIEW | 9
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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 5.01% = 4.74% + 0.27%
5 Years 4.10% = 4.49% + (0.39)%
1 Year 13.07% = 5.01% + 8.06%
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 9.81% 5.76% 4.05%
3/31/2002 3.90% 5.12% -1.22%
3/31/2003 8.29% 5.12% 3.17%
3/31/2004 5.32% 4.72% 0.60%
3/31/2005 2.51% 4.29% -1.78%
3/31/2006 3.69% 4.21% -0.52%
3/31/2007 5.10% 4.30% 0.80%
3/31/2008 0.44% 4.28% -3.84%
3/31/2009 -1.22% 4.67% -5.89%
3/31/2010 13.07% 5.01% 8.06%
[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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10 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
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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 4.74% 6.33% 6.59% 7.08% 7.30%
5 Years 4.49% 5.99% 6.24% 6.71% 6.91%
1 Year 5.01% 6.69% 6.96% 7.48% 7.71%
To match the Fund's closing 30-day SEC yield of 3.75% on 3/31/10:
A FULLY TAXABLE INVESTMENT MUST PAY: 5.00% 5.21% 5.60% 5.77%
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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INVESTMENT OVERVIEW | 11
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o CUMULATIVE PERFORMANCE COMPARISON o
[CHART OF CUMULATIVE PERFORMANCE COMPARISON]
LIPPER INTERMEDIATE
BARCLAYS CAPITAL USAA TAX EXEMPT MUNICIPAL DEBT
MUNICIPAL BOND INDEX INTERMEDIATE-TERM FUND FUNDS INDEX
03/31/00 $10,000.00 $10,000.00 $10,000.00
04/30/00 9,940.92 9,955.29 9,957.74
05/31/00 9,889.21 9,916.84 9,916.43
06/30/00 10,151.26 10,139.43 10,121.02
07/31/00 10,292.51 10,258.43 10,235.94
08/31/00 10,451.13 10,386.13 10,363.11
09/30/00 10,396.76 10,358.16 10,332.54
10/31/00 10,510.21 10,447.69 10,418.64
11/30/00 10,589.73 10,511.45 10,468.19
12/31/00 10,851.37 10,737.33 10,679.02
01/31/01 10,958.89 10,837.77 10,802.22
02/28/01 10,993.64 10,893.27 10,837.25
03/31/01 11,092.17 10,981.12 10,920.21
04/30/01 10,971.98 10,871.36 10,821.96
05/31/01 11,090.13 10,986.77 10,933.06
06/30/01 11,164.33 11,067.14 11,001.04
07/31/01 11,329.70 11,218.69 11,133.61
08/31/01 11,516.32 11,367.91 11,301.84
09/30/01 11,477.69 11,360.28 11,286.51
10/31/01 11,614.44 11,462.16 11,394.66
11/30/01 11,516.53 11,391.27 11,276.14
12/31/01 11,407.58 11,333.22 11,191.37
01/31/02 11,605.45 11,475.30 11,353.83
02/28/02 11,745.26 11,592.50 11,481.17
03/31/02 11,515.10 11,411.03 11,272.35
04/30/02 11,740.15 11,599.65 11,491.73
05/31/02 11,811.49 11,659.72 11,553.72
06/30/02 11,936.39 11,749.39 11,671.38
07/31/02 12,089.90 11,878.39 11,806.59
08/31/02 12,235.24 11,974.58 11,915.16
09/30/02 12,503.22 12,173.38 12,122.79
10/31/02 12,295.95 12,014.49 11,939.08
11/30/02 12,244.84 11,992.00 11,890.46
12/31/02 12,503.22 12,204.58 12,125.75
01/31/03 12,471.54 12,181.27 12,081.70
02/28/03 12,645.90 12,348.83 12,248.97
03/31/03 12,653.46 12,357.36 12,245.60
04/30/03 12,737.07 12,442.77 12,323.68
05/31/03 13,035.30 12,678.88 12,574.27
06/30/03 12,979.91 12,604.28 12,515.33
07/31/03 12,525.71 12,259.03 12,137.31
08/31/03 12,619.12 12,359.17 12,227.67
09/30/03 12,990.13 12,651.30 12,540.88
10/31/03 12,924.72 12,608.04 12,480.66
11/30/03 13,059.42 12,728.97 12,580.39
12/31/03 13,167.56 12,836.21 12,654.62
01/31/04 13,242.98 12,884.40 12,702.22
02/29/04 13,442.29 13,084.07 12,880.68
03/31/04 13,395.47 13,014.32 12,801.28
04/30/04 13,078.23 12,774.15 12,534.07
05/31/04 13,030.80 12,749.87 12,518.07
06/30/04 13,078.23 12,816.20 12,549.04
07/31/04 13,250.34 12,952.27 12,674.65
08/31/04 13,515.87 13,184.05 12,883.72
09/30/04 13,587.62 13,250.34 12,923.98
10/31/04 13,704.54 13,346.57 12,993.78
11/30/04 13,591.50 13,224.21 12,889.21
12/31/04 13,757.49 13,384.48 13,015.26
01/31/05 13,886.06 13,498.80 13,071.65
02/28/05 13,839.86 13,455.76 13,015.68
03/31/05 13,752.58 13,340.95 12,919.50
04/30/05 13,969.46 13,551.62 13,089.13
05/31/05 14,068.19 13,647.91 13,163.71
06/30/05 14,155.47 13,715.51 13,228.66
07/31/05 14,091.49 13,639.41 13,158.13
08/31/05 14,233.76 13,778.65 13,270.86
09/30/05 14,137.89 13,694.72 13,202.73
10/31/05 14,052.04 13,614.64 13,133.92
11/30/05 14,119.50 13,682.71 13,186.52
12/31/05 14,240.92 13,798.19 13,277.21
01/31/06 14,279.35 13,832.21 13,311.43
02/28/06 14,375.22 13,933.16 13,369.03
03/31/06 14,276.08 13,837.01 13,290.36
04/30/06 14,271.17 13,808.37 13,285.97
05/31/06 14,334.74 13,878.33 13,348.47
06/30/06 14,280.78 13,823.86 13,296.14
07/31/06 14,450.64 13,987.40 13,434.53
08/31/06 14,665.07 14,186.98 13,609.25
09/30/06 14,767.07 14,292.03 13,689.71
10/31/06 14,859.67 14,361.75 13,753.72
11/30/06 14,983.54 14,476.82 13,838.67
12/31/06 14,930.60 14,425.68 13,790.74
01/31/07 14,892.38 14,406.80 13,761.44
02/28/07 15,088.61 14,588.71 13,908.22
03/31/07 15,051.41 14,541.54 13,894.54
04/30/07 15,095.97 14,590.44 13,930.05
05/31/07 15,029.13 14,519.20 13,875.90
06/30/07 14,951.25 14,438.44 13,823.55
07/31/07 15,067.15 14,521.43 13,912.13
08/31/07 15,002.14 14,410.58 13,902.35
09/30/07 15,224.13 14,637.77 14,070.43
10/31/07 15,292.00 14,690.39 14,110.24
11/30/07 15,389.50 14,735.48 14,205.91
12/31/07 15,432.22 14,701.43 14,232.84
01/31/08 15,626.82 14,902.98 14,465.15
02/29/08 14,911.38 14,194.03 13,947.00
03/31/08 15,337.58 14,604.50 14,245.34
04/30/08 15,517.05 14,752.81 14,325.58
05/31/08 15,610.88 14,868.62 14,410.93
06/30/08 15,434.68 14,724.67 14,268.10
07/31/08 15,493.34 14,722.10 14,332.30
08/31/08 15,674.66 14,885.65 14,487.36
09/30/08 14,939.59 14,209.90 13,944.53
10/31/08 14,787.10 13,845.98 13,786.58
11/30/08 14,834.12 13,793.80 13,811.44
12/31/08 15,050.38 13,624.07 13,909.10
01/31/09 15,601.27 14,344.16 14,473.35
02/28/09 15,683.24 14,403.94 14,414.44
03/31/09 15,686.10 14,425.92 14,405.16
04/30/09 15,999.46 14,777.18 14,649.73
05/31/09 16,168.72 15,116.74 14,815.82
06/30/09 16,017.25 14,992.21 14,698.14
07/31/09 16,285.23 15,277.02 14,941.74
08/31/09 16,563.64 15,517.87 15,098.95
09/30/09 17,158.07 16,159.56 15,532.03
10/31/09 16,797.89 15,896.60 15,225.78
11/30/09 16,936.69 16,051.93 15,458.35
12/31/09 16,993.92 16,114.43 15,488.81
01/31/10 17,082.43 16,219.07 15,573.34
02/28/10 17,248.01 16,379.64 15,726.39
03/31/10 17,206.71 16,312.06 15,641.72
[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 Intermediate-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 Intermediate Municipal Debt Funds Index tracks the total
return performance of the 30 largest funds within the Lipper Intermediate
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.
================================================================================
12 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
o 12-MONTH DIVIDEND YIELD COMPARISON o
[CHART OF 12-MONTH DIVIDEND YIELD COMPARISON]
USAA TAX EXEMPT LIPPER INTERMEDIATE
INTERMEDIATE-TERM FUND MUNICIPAL DEBT FUNDS AVERAGE
3/31/2001 5.27% 4.26%
3/31/2002 5.13 4.05
3/31/2003 4.82 3.62
3/31/2004 4.56 3.38
3/31/2005 4.31 3.38
3/31/2006 4.20 3.44
3/31/2007 4.18 3.52
3/31/2008 4.45 3.54
3/31/2009 4.93 3.84
3/31/2010 4.47 3.32
[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 Intermediate Municipal Debt Funds Average is an average performance
level of all intermediate-term municipal debt funds, reported by Lipper Inc., an
independent organization that monitors the performance of mutual funds.
TOP 10 INDUSTRIES AS OF 3/31/10
(% of Net Assets)
Hospital ..................................................... 16.0%
General Obligation ........................................... 12.5%
Special Assessment/Tax/Fee ................................... 10.1%
Electric Utilities ........................................... 9.9%
Appropriated Debt ............................................ 6.1%
Education .................................................... 4.9%
Escrowed Bonds ............................................... 4.8%
Electric/Gas Utilities ....................................... 4.6%
Toll Roads ................................................... 3.2%
Real Estate Tax/Fee .......................................... 2.9%
You will find a complete list of securities that the Fund owns on pages 17-37.
================================================================================
INVESTMENT OVERVIEW | 13
<PAGE>
================================================================================
o PORTFOLIO RATINGS MIX -- 3/31/2010 o
[PIE CHART OF PORTFOLIO RATINGS MIX]
AAA 15%
AA 17%
A 30%
BBB 33%
BELOW INVESTMENT-GRADE 3%
SECURITIES WITH SHORT-TERM INVESTMENT-GRADE RATINGS 2%
[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.
================================================================================
14 | USAA TAX EXEMPT INTERMEDIATE-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 $1,580,000 as long-term capital gains for the fiscal year
ended March 31, 2010.
================================================================================
DISTRIBUTIONS TO SHAREHOLDERS | 15
<PAGE>
================================================================================
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA TAX EXEMPT INTERMEDIATE-TERM
FUND:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the USAA Tax Exempt Intermediate-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 Intermediate-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
================================================================================
16 | USAA TAX EXEMPT INTERMEDIATE-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.
PERIODIC AUCTION RESET BONDS -- interest rates are reset periodically through
an auction mechanism. The bonds have the option to be sold at face value at
each interest rate reset date to the extent that there are sufficient bids in
the auction.
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 Financial Guaranty Corp., AMBAC Assurance
================================================================================
PORTFOLIO OF INVESTMENTS | 17
<PAGE>
================================================================================
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 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 Societe
Generale or Merrill Lynch & Co., Inc.
(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: Fannie Mae, Federal Housing Association
Insured Mortgage Nursing Home, Government National Mortgage
Association, or Texas Permanent School Fund.
o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS
EDA Economic Development Authority
EDC Economic Development Corp.
ETM Escrowed to final maturity
IDA Industrial Development Authority/Agency
IDB Industrial Development Board
IDC Industrial Development Corp.
ISD Independent School District
PRE Prerefunded to a date prior to maturity
USD Unified School District
================================================================================
18 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
INVESTMENTS
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
FIXED-RATE INSTRUMENTS (89.8%)
ALABAMA (0.9%)
$ 345 Montgomery BMC Special Care Facilities
Financing Auth. (INS) 4.88% 11/15/2018 $ 345
16,340 Montgomery Medical Clinic Board 4.75 3/01/2026 14,396
5,000 Prattville IDB 5.15 9/01/2013 5,139
5,000 Private Colleges and Universities
Facilities Auth. (INS) 4.75 9/01/2026 4,883
2,000 Univ. of Alabama at Birmingham (INS)(PRE) 5.75 9/01/2020 2,066
----------
26,829
----------
ALASKA (0.8%)
7,650 Four Dam Pool Power Agency (LOC - Dexia
Credit Local)(PRE) 5.00 7/01/2021 8,592
3,750 North Slope Borough (INS) 4.36(a) 6/30/2011 3,692
2,000 State (INS) 4.75 4/01/2021 2,008
2,520 State (INS) 4.75 4/01/2022 2,528
2,000 State (INS) 4.75 4/01/2023 2,005
4,110 State (INS) 4.75 4/01/2024 4,115
----------
22,940
----------
ARIZONA (1.8%)
1,170 Health Facilities Auth. 4.50 4/01/2016 1,203
425 Health Facilities Auth. 5.00 4/01/2017 439
1,150 Health Facilities Auth. 4.75 4/01/2025 1,134
2,500 Maricopa County Union High School
District No. 210 (INS) 4.50 7/01/2024 2,551
15,000 Mohave County IDA 7.50 5/01/2019 17,139
3,270 Phoenix Civic Improvement Corp.,
5.50%, 7/01/2013 (INS) 4.50(b) 7/01/2024 3,029
2,115 Phoenix Civic Improvement Corp.,
5.50%, 7/01/2013 (INS) 4.54(b) 7/01/2025 1,952
2,000 Pinal County IDA (INS) 5.25 10/01/2020 1,878
1,250 Pinal County IDA (INS) 5.25 10/01/2022 1,146
2,000 Pinal County IDA (INS) 4.50 10/01/2025 1,642
3,540 State (INS) 5.00 10/01/2019 3,797
7,275 State (INS) 5.25 10/01/2020 7,857
1,535 State Univ. (INS) 5.00 9/01/2024 1,575
7,180 Univ. Medical Center Corp. 5.00 7/01/2022 7,193
----------
52,535
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 19
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
ARKANSAS (0.6%)
$ 3,125 Baxter County 5.00% 9/01/2026 $ 2,915
6,230 Independence County 5.00 1/01/2021 6,235
4,000 Independence County (INS) 4.90 7/01/2022 4,054
4,905 Jefferson County 4.60 10/01/2017 4,953
----------
18,157
----------
CALIFORNIA (8.7%)
10,000 Chabot-Las Positas Community College
District (INS) 4.85(a) 8/01/2022 5,263
5,000 Chabot-Las Positas Community College
District (INS) 4.88(a) 8/01/2023 2,469
5,000 City and County of San Francisco Airport
Commission 5.25 5/01/2022 5,503
7,000 City and County of San Francisco Airport
Commission 5.25 5/01/2023 7,653
2,000 Coronado Community Dev. Agency (INS) 5.00 9/01/2024 1,954
7,000 Health Facilities Financing Auth. 5.13 7/01/2022 7,288
5,000 Irvine USD Special Tax District (INS) 5.25 9/01/2019 5,340
2,500 Irvine USD Special Tax District (INS) 4.50 9/01/2020 2,535
6,745 Kern County Board of Education (INS) 5.00 6/01/2026 6,863
20,000 Los Angeles Department of Water and Power (INS) 4.75 7/01/2025 20,560
3,320 Modesto Irrigation District (INS) 5.64(a) 7/01/2017 2,305
3,325 Modesto Irrigation District (INS) 5.69(a) 7/01/2018 2,174
5,000 Public Works Board 5.50 6/01/2019 5,089
6,400 Public Works Board 5.50 4/01/2021 6,531
6,755 Public Works Board 5.60 4/01/2022 6,895
3,130 Public Works Board 5.75 4/01/2023 3,214
1,430 Sacramento Financing Auth. (INS) 5.00 12/01/2024 1,375
15,265 Sacramento Municipal Utility District
Financing Auth. (INS) 4.75 7/01/2024 14,954
4,720 Salinas Union High School District (INS) 4.37(a) 6/01/2016 3,670
2,000 Salinas Union High School District (INS) 4.37(a) 10/01/2016 1,529
3,525 San Bernardino County Redevelopment
Agency (INS) 5.00 9/01/2025 3,243
2,395 San Diego USD (INS) 4.50 7/01/2025 2,423
3,000 San Jose USD (INS) 4.50 6/01/2024 2,950
7,065 Santa Clara County Financing Auth. (INS) 4.75 5/15/2023 7,245
7,400 Santa Clara County Financing Auth. (INS) 4.75 5/15/2024 7,535
7,750 Santa Clara County Financing Auth. (INS) 4.75 5/15/2025 7,832
3,500 Santa Rosa Rancheria Tachi Yokut Tribe(c) 5.00 3/01/2020 2,878
2,175 Semitropic Improvement District (INS) 5.25 12/01/2018 2,322
2,500 Solano Community College District (INS) 4.85(a) 8/01/2023 1,217
4,735 Solano Community College District (INS) 4.88(a) 8/01/2024 2,136
================================================================================
20 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 4,035 South Orange County Public Financing Auth. (INS) 5.00% 8/15/2022 $ 3,996
4,920 South Orange County Public Financing Auth. (INS) 5.00 8/15/2025 4,741
20,000 State 5.25 10/01/2022 20,665
27,445 State 5.75 4/01/2027 28,519
3,120 Statewide Communities Dev. Auth. 5.00 5/15/2021 3,091
3,275 Statewide Communities Dev. Auth. 5.00 5/15/2022 3,219
3,440 Statewide Communities Dev. Auth. 5.00 5/15/2023 3,362
3,610 Statewide Communities Dev. Auth. 5.00 5/15/2024 3,496
3,795 Statewide Communities Dev. Auth. 5.00 5/15/2025 3,647
1,245 Systemwide Univ. (INS) 5.50 11/01/2015 1,365
16,020 Tobacco Securitization Auth. 4.75 6/01/2025 15,029
3,470 Tuolumne Wind Project Auth. 5.00 1/01/2022 3,620
2,000 Washington Township Health Care District 5.75 7/01/2024 2,058
----------
249,753
----------
COLORADO (2.1%)
4,500 Adams County (INS) 4.38 9/01/2017 4,404
5,000 Adams County (INS) 5.10 1/01/2019 5,046
2,000 Arapahoe County School District No. 6 (INS) 5.25 12/01/2018 2,187
2,585 Arapahoe County School District No. 6 (INS) 5.25 12/01/2019 2,821
2,000 Arapahoe County School District No. 6 (INS) 5.25 12/01/2020 2,178
2,000 Arapahoe County School District No. 6 (INS) 5.25 12/01/2021 2,191
2,400 Denver Health and Hospital Auth. (PRE) 6.25 12/01/2016 2,614
30,955 Denver Health and Hospital Auth. 4.75 12/01/2027 26,712
1,000 Health Facilities Auth. 5.25 6/01/2023 970
2,140 Pueblo School District No. 60 (INS)(PRE) 5.25 12/15/2020 2,374
9,045 State (INS) 5.00 11/01/2023 9,448
----------
60,945
----------
CONNECTICUT (0.5%)
4,000 Health and Educational Facilities Auth. (INS) 5.00 7/01/2025 3,545
4,400 Mashantucket (Western) Pequot Tribe, acquired
9/18/1997 and 12/20/2001; cost $4,388(c),(d) 5.70 9/01/2012 2,629
16,500 Mashantucket (Western) Pequot Tribe, acquired
9/18/1997 thru 9/11/2009; cost $14,993(c),(d) 5.75 9/01/2018 8,942
----------
15,116
----------
DELAWARE (0.3%)
1,495 Health Facilities Auth. (INS) 4.80 5/01/2017 1,366
1,830 Health Facilities Auth. (INS) 4.90 5/01/2018 1,645
1,000 Health Facilities Auth. (INS) 5.00 5/01/2019 889
1,515 Health Facilities Auth. (INS) 5.05 5/01/2020 1,328
1,010 Municipal Electric Corp. (INS) 5.25 7/01/2013 1,063
1,460 Municipal Electric Corp. (INS) 5.25 7/01/2017 1,536
1,580 Municipal Electric Corp. (INS) 5.25 7/01/2018 1,652
----------
9,479
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 21
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA (0.4%)
$ 7,000 District of Columbia (INS) 5.00% 1/01/2025 $ 7,154
7,930 District of Columbia (INS) 4.75 5/01/2027 5,399
----------
12,553
----------
FLORIDA (5.6%)
5,165 Brevard County School Board (INS) 5.00 7/01/2025 5,237
2,500 Broward County Airport System 5.00 10/01/2024 2,565
6,500 Broward County School Board (INS) 5.00 7/01/2023 6,720
4,000 Broward County School Board (INS) 5.00 7/01/2024 4,116
3,710 Broward County School Board (INS) 5.00 7/01/2025 3,808
7,905 Dade County (INS) 6.00(a) 10/01/2011 7,512
8,610 Dade County (INS) 6.10(a) 10/01/2012 7,691
3,270 Flagler County School Board (INS) 5.00 8/01/2025 3,328
8,000 Hillsborough County IDA 5.65 5/15/2018 8,820
1,725 Hillsborough County IDA 5.50 10/01/2023 1,758
4,250 Indian River County School Board (INS) 5.00 7/01/2024 4,324
5,000 JEA St. Johns River Power Park (INS) 5.00 10/01/2020 5,388
1,090 Miami Beach Health Facilities Auth. 6.13 11/15/2011 1,093
1,670 Miami Dade County (INS) 5.00 4/01/2022 1,719
2,805 Miami Dade County (INS) 5.00 4/01/2023 2,878
8,375 Miami Dade County (INS) 4.75 11/01/2023 8,285
2,345 Miami Dade County, 5.00%, 10/01/2013 (INS) 4.54(b) 10/01/2024 1,823
9,830 Miami Dade County (INS) 4.75 11/01/2024 9,768
3,670 Miami Dade County, 5.00%, 10/01/2013 (INS) 4.57(b) 10/01/2025 2,819
2,500 Miami Dade County (INS) 5.00 10/01/2026 2,533
10,000 Miami Dade County School Board (INS) 5.00 2/01/2024 10,502
12,000 Miami Dade County School Board (INS) 5.25 5/01/2025 12,712
12,000 Orange County Health Facility Auth. 5.25 10/01/2022 12,179
5,000 Orange County Health Facility Auth. 5.38 10/01/2023 5,118
7,450 Palm Beach County Health Facilities Auth. (INS) 5.00 12/01/2021 6,370
1,500 Palm Beach County School Board (INS) 5.25 8/01/2018 1,610
650 Palm Beach County School Board (INS) 5.00 8/01/2022 674
6,000 Seminole Tribe(c) 5.75 10/01/2022 5,854
14,815 Seminole Tribe(c) 5.50 10/01/2024 13,981
----------
161,185
----------
GEORGIA (0.9%)
10,000 Burke County Dev. Auth. 7.00 1/01/2023 11,792
5,000 Coweta County Dev. Auth. (INS) 4.35 9/01/2018 5,011
4,000 Glynn-Brunswick Memorial Hospital Auth. 5.25 8/01/2023 4,026
5,000 Savannah Hospital Auth. (INS) 5.00 7/01/2018 5,023
----------
25,852
----------
================================================================================
22 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
GUAM (0.2%)
$ 6,000 Education Financing Foundation (INS) 4.50% 10/01/2026 $ 4,817
----------
HAWAII (0.1%)
2,590 Housing Finance and Dev. Corp. 5.45 7/01/2017 2,593
----------
IDAHO (0.0%)
1,000 Univ. of Idaho (INS) 4.75 4/01/2022 1,019
----------
ILLINOIS (5.4%)
1,000 Bedford Park Village 4.60 12/01/2017 996
3,240 Bedford Park Village 4.80 12/01/2020 3,142
3,085 Bedford Park Village 4.90 12/01/2023 2,947
6,040 Channahon 6.88 1/01/2020 6,033
2,000 Chicago (PRE) 5.00 11/01/2019 2,135
5,000 Chicago 6.63 12/01/2022 4,901
14,925 Chicago Board of Education (INS) 4.82(a) 12/01/2013 13,569
2,170 Chicago-O'Hare International Airport (INS) 5.50 1/01/2014 2,244
7,000 Chicago-O'Hare International Airport (INS) 5.00 1/01/2021 7,279
10,000 Chicago-O'Hare International Airport (INS) 5.00 1/01/2022 10,353
2,370 Finance Auth. 5.50 5/01/2017 2,421
2,000 Finance Auth. 5.00 8/15/2017 1,782
4,340 Finance Auth. 5.75 5/01/2018 4,424
750 Finance Auth. 5.25 4/01/2022 736
2,000 Finance Auth. 5.00 4/01/2023 1,864
3,400 Finance Auth. (INS) 5.00 11/01/2023 3,414
10,500 Finance Auth. (INS) 5.00 11/15/2023 10,316
4,165 Finance Auth. 5.00 4/01/2025 3,811
8,000 Finance Auth. 4.50 11/15/2026 7,090
1,750 Finance Auth. 5.40 4/01/2027 1,714
1,000 Health Facilities Auth. 5.25 9/01/2013 1,007
2,000 Health Facilities Auth. 5.25 9/01/2014 2,013
2,500 Health Facilities Auth. 5.25 9/01/2018 2,504
3,000 Health Facilities Auth. (INS) 5.00 2/15/2020 3,027
4,250 Health Facilities Auth. (PRE) 6.80 11/15/2020 4,461
825 Housing Dev. Auth. 4.55 7/01/2021 839
650 Housing Dev. Auth. 4.60 7/01/2023 657
3,495 Lake County Community Unit School
District (INS)(ETM) 5.13(a) 12/01/2016 2,727
4,555 Lake County Community Unit School District (INS) 5.13(a) 12/01/2016 3,556
2,500 Metropolitan Pier and Exposition Auth.,
5.20%, 6/15/2012 (INS) 5.20(b) 6/15/2017 2,514
2,500 Metropolitan Pier and Exposition Auth.,
5.30%, 6/15/2012 (INS) 5.30(b) 6/15/2018 2,503
================================================================================
PORTFOLIO OF INVESTMENTS | 23
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 4,000 Metropolitan Pier and Exposition Auth.,
5.40%, 6/15/2012 (INS) 5.40%(b) 6/15/2019 $ 3,973
2,000 Northeastern Illinois Univ. 4.75 10/01/2025 2,023
4,735 Northern Illinois Univ. (INS) 4.88 4/01/2018 4,792
5,000 State (INS) 5.00 1/01/2021 5,321
7,815 Univ. of Illinois (INS)(PRE) 5.00 8/15/2020 8,267
3,400 Volo Village, Lake County 5.00 3/01/2016 3,123
14,070 Will County Forest Preserve District (INS) 5.40(a) 12/01/2017 10,783
----------
155,261
----------
INDIANA (2.6%)
7,465 Bond Bank (PRE) 5.50 8/01/2016 7,669
20,000 Finance Auth. (INS) 4.55 12/01/2024 18,696
1,900 Finance Auth. 5.00 10/01/2027 1,940
8,375 Health and Educational Facilities Financing Auth. 5.00 2/15/2022 8,455
1,400 Health Facility Financing Auth. 5.25 2/15/2018 1,405
3,000 Jasper County (INS) 5.85 4/01/2019 3,229
4,950 Municipal Power Agency (INS) 5.25 1/01/2017 5,323
2,100 Municipal Power Agency (INS) 5.25 1/01/2018 2,257
6,000 Rockport (INS) 4.63 6/01/2025 5,756
870 St. Joseph County 5.45 2/15/2017 870
7,260 St. Joseph County 5.75 2/15/2019 6,864
11,000 Univ. of Southern Indiana (INS) 5.00 10/01/2018 11,237
1,500 Vanderburgh County Redevelopment District 5.00 2/01/2026 1,492
----------
75,193
----------
IOWA (0.6%)
9,190 Finance Auth. (INS) 5.00 7/01/2014 9,756
1,325 Finance Auth. (INS) 5.00 12/01/2021 1,274
1,390 Finance Auth. (INS) 5.00 12/01/2022 1,328
1,460 Finance Auth. (INS) 5.00 12/01/2023 1,380
1,535 Finance Auth. (INS) 5.00 12/01/2024 1,426
1,610 Finance Auth. (INS) 5.00 12/01/2025 1,482
1,690 Finance Auth. (INS) 5.00 12/01/2026 1,538
----------
18,184
----------
KANSAS (0.8%)
1,025 Wyandotte County 4.75 12/01/2016 1,065
19,000 Wyandotte County 5.00 12/01/2020 19,280
8,000 Unified Government of Wyandotte
County/Kansas City 8.62(a) 6/01/2021 3,118
----------
23,463
----------
KENTUCKY (0.3%)
7,500 Economic Dev. Finance Auth. (INS) 5.75 12/01/2028 8,182
----------
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24 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
LOUISIANA (1.9%)
$ 2,150 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 5.25% 12/01/2015 $ 2,290
2,260 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 5.25 12/01/2016 2,449
2,355 Local Government Environmental Facilities and
Community Dev. Auth. (INS) 5.25 12/01/2017 2,548
7,000 New Orleans (INS) 5.13 9/01/2021 7,072
6,825 Office Facilities Corp. (INS) 5.38 5/01/2018 6,999
2,000 Office Facilities Corp. (INS) 5.25 11/01/2018 2,149
5,175 Offshore Terminal Auth. 5.20 10/01/2018 5,180
4,450 St. Martin Parish 4.35 10/01/2012 4,694
3,955 St. Tammany Parish Hospital Service
District No. 1 (INS) 5.00 7/01/2018 3,861
9,000 Transportation Auth. (INS) 4.38 12/01/2023 9,000
9,000 Transportation Auth. (INS) 4.38 12/01/2024 8,918
----------
55,160
----------
MAINE (0.1%)
1,715 Housing Auth. 5.35 11/15/2021 1,726
1,500 Jay 4.85 5/01/2019 1,456
----------
3,182
----------
MARYLAND (0.4%)
2,915 Community Dev. Administration 5.88 7/01/2016 2,919
2,500 EDC 6.20 9/01/2022 2,843
5,000 Health and Higher Educational Facilities Auth. 6.00 1/01/2028 5,092
----------
10,854
----------
MASSACHUSETTS (1.5%)
5,105 Commonwealth 5.75 6/15/2015 5,275
4,500 Commonwealth (INS)(PRE) 5.50 3/01/2018 4,880
7,775 Commonwealth (INS)(PRE) 5.38 8/01/2021 8,530
9,000 Health and Educational Facilities Auth. 6.00 7/01/2024 9,618
4,000 Health and Educational Facilities Auth. 5.00 7/15/2027 3,324
5,545 Massachusetts Bay Transportation Auth. 4.60(a) 7/01/2022 3,282
7,790 Massachusetts Bay Transportation Auth. 4.65(a) 7/01/2023 4,362
5,000 Massachusetts Bay Transportation Auth. 4.70(a) 7/01/2024 2,620
1,600 Massachusetts Bay Transportation Auth. 4.73(a) 7/01/2025 794
110 Water Pollution Abatement Trust 4.75 8/01/2025 116
----------
42,801
----------
MICHIGAN (1.9%)
18,000 Building Auth. (INS) 4.81(a) 10/15/2022 9,267
1,325 Detroit Building Auth. (LOC - Comerica Bank, N.A.) 6.15 2/01/2011 1,329
================================================================================
PORTFOLIO OF INVESTMENTS | 25
<PAGE>
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---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 4,000 Detroit Downtown Dev. Auth. (INS) 5.00% 7/01/2018 $ 3,840
25,000 Dickinson County EDC 4.80 11/01/2018 24,381
1,855 Hospital Finance Auth. 6.25 10/01/2016 1,857
2,675 Hospital Finance Auth. 5.00 11/15/2019 2,678
3,400 Hospital Finance Auth. 5.00 11/15/2022 3,310
2,000 Kent Hospital Finance Auth. 5.50 7/01/2020 1,848
3,000 State Trunk Line Fund 5.00 11/01/2019 3,305
2,000 State Trunk Line Fund 5.00 11/01/2020 2,182
----------
53,997
----------
MINNESOTA (1.8%)
1,080 Chippewa County 5.38 3/01/2022 1,083
5,120 Chippewa County 5.50 3/01/2027 4,999
18,015 Cohasset 4.95 7/01/2022 18,227
2,500 Higher Education Facilities Auth. 4.50 10/01/2027 2,466
3,000 Municipal Power Agency 4.38 10/01/2025 2,992
5,315 St. Paul Housing and Redevelopment Auth. 5.70 11/01/2015 5,315
1,500 St. Paul Housing and Redevelopment Auth. 5.85 11/01/2017 1,500
7,680 St. Paul Housing and Redevelopment Auth. 5.15 11/15/2020 7,078
3,500 St. Paul Housing and Redevelopment Auth. 5.25 5/15/2026 3,390
5,260 Washington County Hospital and
Redevelopment Auth. 5.38 11/15/2018 5,154
----------
52,204
----------
MISSISSIPPI (0.2%)
1,650 Hospital Equipment and Facilities Auth. 5.00 12/01/2016 1,666
1,000 Hospital Equipment and Facilities Auth. 5.25 12/01/2021 960
1,385 Lincoln County (INS) 5.50 4/01/2018 1,385
----------
4,011
----------
MISSOURI (1.0%)
17,545 Cape Girardeau County Health Care Facilities IDA 5.00 6/01/2027 15,906
1,000 Cass County 5.00 5/01/2022 955
3,315 Cass County 5.38 5/01/2022 3,276
2,000 Cass County 5.50 5/01/2027 1,834
2,000 Dev. Finance Board 4.75 6/01/2025 1,900
2,385 Fenton City 4.50 4/01/2021 2,244
1,760 Riverside IDA (INS) 5.00 5/01/2020 1,770
1,330 St. Joseph IDA 5.00 4/01/2027 1,335
----------
29,220
----------
MONTANA (0.3%)
6,500 Forsyth (INS) 4.65 8/01/2023 6,319
2,300 Health Facilities Auth. 6.38 6/01/2018 2,300
----------
8,619
----------
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26 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
NEBRASKA (0.2%)
$ 500 Platte County Hospital Auth. No. 1 (INS) 5.50% 5/01/2010 $ 501
500 Platte County Hospital Auth. No. 1 (INS) 5.55 5/01/2011 506
500 Platte County Hospital Auth. No. 1 (INS) 5.65 5/01/2012 506
500 Platte County Hospital Auth. No. 1 (INS) 5.75 5/01/2013 506
500 Platte County Hospital Auth. No. 1 (INS) 5.90 5/01/2015 506
3,500 Platte County Hospital Auth. No. 1 (INS) 6.05 5/01/2020 3,519
560 Scotts Bluff County Hospital Auth. 5.13 11/15/2019 562
----------
6,606
----------
NEVADA (1.1%)
1,000 Clark County (INS) 4.50 11/01/2016 1,001
5,000 Clark County (INS)(PRE) 5.25 7/01/2019 5,291
2,865 Clark County 5.00 5/15/2020 2,959
18,000 Humboldt County 5.15 12/01/2024 18,650
2,000 Reno (INS)(PRE) 5.00 5/15/2018 2,011
----------
29,912
----------
NEW HAMPSHIRE (0.2%)
5,000 Business Finance Auth. 5.85 12/01/2022 5,078
----------
NEW JERSEY (2.0%)
2,000 EDA 5.75 12/01/2016 2,000
5,000 EDA (INS) 5.00 7/01/2022 5,100
8,830 EDA 5.25 9/01/2023 9,349
13,500 EDA 5.50 6/15/2024 13,161
20,000 State Turnpike Auth. 5.00 1/01/2021 21,571
5,000 Tobacco Settlement Financing Corp. 5.00 6/01/2017 4,973
----------
56,154
----------
NEW MEXICO (1.2%)
15,000 Farmington 5.70 12/01/2016 15,003
2,000 Farmington 6.30 12/01/2016 2,001
4,150 Farmington 6.30 12/01/2016 4,153
4,890 Jicarilla Apache Nation(c) 5.00 9/01/2018 5,094
3,250 Jicarilla Apache Nation(c) 5.50 9/01/2023 3,394
4,000 Sandoval County 4.38 6/01/2020 4,089
----------
33,734
----------
NEW YORK (11.0%)
2,500 Albany IDA 5.75 11/15/2022 2,595
5,500 Dormitory Auth. 5.75 7/01/2013 5,872
1,500 Dormitory Auth. 5.25 7/01/2015 1,683
4,000 Dormitory Auth. 5.20 2/15/2016 4,007
5,420 Dormitory Auth. (LOC - Allied Irish Banks plc) 4.40 7/01/2016 5,633
2,005 Dormitory Auth. 5.25 7/01/2016 2,208
================================================================================
PORTFOLIO OF INVESTMENTS | 27
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 4,760 Dormitory Auth. 5.30% 2/15/2017 $ 4,767
2,000 Dormitory Auth. 5.25 7/01/2017 2,179
12,560 Dormitory Auth. (ETM) 5.30 2/15/2019 14,338
5,000 Dormitory Auth. 5.00 7/01/2020 4,933
3,345 Dormitory Auth. (PRE) 5.05 2/01/2022 3,655
24,935 Dormitory Auth. 5.00 7/01/2022 24,331
2,500 Dutchess County IDA 4.50 8/01/2026 2,301
1,860 East Rochester Housing Auth. (NBGA) 4.05 2/15/2012 1,899
2,000 East Rochester Housing Auth. (NBGA) 4.63 2/15/2017 2,077
17,075 Long Island Power Auth. 5.00 4/01/2023 18,061
10,000 Metropolitan Transportation Auth. 6.25 11/15/2023 11,655
16,565 Metropolitan Transportation Auth. 5.00 11/15/2024 17,451
2,500 Metropolitan Transportation Auth. (INS) 5.00 11/15/2024 2,626
6,800 Metropolitan Transportation Auth. 5.00 11/15/2024 7,142
21,625 New York City 5.50 8/01/2015 23,848
4,455 New York City 5.63 8/01/2015 4,878
810 New York City 5.75 8/01/2016 901
6,055 New York City 5.75 8/01/2016 6,607
5,000 New York City 5.25 10/15/2019 5,287
5,000 New York City 5.13 11/15/2022 5,433
4,330 New York City 5.13 12/01/2022 4,670
6,000 New York City 5.13 12/01/2023 6,441
10,000 New York City 5.00 4/01/2024 10,512
15,000 New York City 5.00 8/01/2024 16,122
5,240 New York City 5.00 8/01/2024 5,560
5,000 New York City 5.25 11/15/2024 5,456
5,000 New York City 5.00 2/01/2025 5,305
2,175 New York City IDA (INS) 4.15 7/01/2014 2,134
1,050 New York City IDA (INS) 4.75 7/01/2019 955
10,000 New York City Municipal Water Finance Auth. 5.38 6/15/2017 10,769
2,030 New York City Transitional Finance Auth. (INS) 5.25 8/01/2019 2,236
2,765 New York City Transitional Finance Auth. (INS) 5.25 8/01/2019 2,983
3,500 New York City Transitional Finance Auth. 5.00 1/15/2022 3,749
25,000 New York City Transitional Finance Auth. 5.00 5/01/2026 27,046
6,000 Seneca Nation Indians Capital Improvements
Auth.(c) 5.00 12/01/2023 5,000
775 Suffolk County IDA 5.00 11/01/2013 813
1,880 Suffolk County IDA 5.00 11/01/2014 1,971
1,000 Suffolk County IDA 5.00 11/01/2015 1,042
3,180 Suffolk County IDA (INS) 4.75 6/01/2026 2,337
11,000 Tobacco Settlement Financing Corp. 5.50 6/01/2018 11,831
----------
313,299
----------
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28 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
NORTH CAROLINA (1.5%)
$ 6,000 Eastern Municipal Power Agency 5.50% 1/01/2012 $ 6,407
4,885 Eastern Municipal Power Agency 5.50 1/01/2015 5,222
1,830 Eastern Municipal Power Agency 5.50 1/01/2016 1,956
1,000 Eastern Municipal Power Agency 5.50 1/01/2017 1,065
3,000 Eastern Municipal Power Agency 5.00 1/01/2024 3,117
5,500 Medical Care Commission 5.00 7/01/2027 4,876
5,000 Municipal Power Agency No. 1 5.50 1/01/2013 5,511
2,000 Municipal Power Agency No. 1 5.25 1/01/2020 2,183
3,600 Turnpike Auth. (INS) 5.00 1/01/2022 3,836
3,330 Turnpike Auth. (INS) 5.13 1/01/2024 3,538
4,000 Wake County Industrial Facilities and Pollution
Control Financing Auth. 5.38 2/01/2017 4,242
----------
41,953
----------
NORTH DAKOTA (0.1%)
1,000 Grand Forks (INS) 5.00 12/15/2022 1,045
2,055 Williams County 5.00 11/01/2021 2,025
----------
3,070
----------
OHIO (2.3%)
4,000 Air Quality Dev. Auth. 5.63 10/01/2019 4,160
9,000 Air Quality Dev. Auth. 5.70 8/01/2020 9,451
3,000 American Municipal Power, Inc. 5.00 2/15/2021 3,190
2,760 American Municipal Power, Inc. 5.00 2/15/2022 2,914
22,375 Buckeye Tobacco Settlement Financing Auth. 5.13 6/01/2024 20,724
2,400 Fairview Park (INS) 4.13 12/01/2020 2,432
4,000 Franklin County 5.80 10/01/2014 4,050
2,650 Franklin County 5.50 7/01/2017 2,597
10,000 Hamilton (INS) 4.65 10/15/2022 10,420
790 Housing Finance Agency (NBGA) 5.10 9/01/2017 820
1,750 Miami County 5.25 5/15/2021 1,791
2,000 Miami County 5.25 5/15/2026 2,001
----------
64,550
----------
OKLAHOMA (1.5%)
5,360 Cherokee Nation (INS)(c) 4.60 12/01/2021 5,029
10,275 Chickasaw Nation(c) 5.38 12/01/2017 10,930
5,000 Chickasaw Nation(c) 6.00 12/01/2025 5,108
3,895 Comanche County Hospital Auth. (INS) 5.25 7/01/2022 3,864
3,000 Comanche County Hospital Auth. (INS) 5.25 7/01/2023 2,949
1,400 Norman Regional Hospital Auth. 5.50 9/01/2024 1,268
13,100 Norman Regional Hospital Auth. 5.00 9/01/2027 10,889
1,295 Valley View Hospital Auth. 6.00 8/15/2014 1,297
----------
41,334
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 29
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
OREGON (0.1%)
$ 1,000 Washington, Yamhill and Multnomah Counties
Hillsboro School District No. 1J (INS) 4.58%(a) 6/15/2025 $ 476
5,900 Washington, Yamhill and Multnomah Counties
Hillsboro School District No. 1J (INS) 4.59(a) 6/15/2026 2,631
----------
3,107
----------
PENNSYLVANIA (0.8%)
1,000 Allegheny County IDA 5.00 9/01/2021 954
1,220 Allegheny County IDA 5.10 9/01/2026 1,127
17,300 Allegheny County IDA 4.75 12/01/2032 18,220
1,615 Lancaster County Hospital Auth. 5.00 11/01/2026 1,610
----------
21,911
----------
PUERTO RICO (0.5%)
14,000 Government Dev. Bank 4.75 12/01/2015 14,422
----------
RHODE ISLAND (0.5%)
340 Health and Educational Building Corp. (INS) 5.50 5/15/2012 341
765 Health and Educational Building Corp. (INS) 5.50 5/15/2016 766
5,500 Health and Educational Building Corp. (INS) 5.00 5/15/2026 5,598
5,915 Housing and Mortgage Finance Corp. 4.65 10/01/2026 5,941
----------
12,646
----------
SOUTH CAROLINA (2.2%)
4,250 Georgetown County 5.95 3/15/2014 4,533
5,000 Georgetown County 5.70 4/01/2014 5,319
5,000 Lexington County Health Services District, Inc. 5.00 11/01/2024 5,063
7,335 Lexington County Health Services District, Inc. 5.00 11/01/2026 7,340
6,325 SCAGO Educational Facilities Corp. (INS) 4.75 12/01/2026 5,760
5,870 SCAGO Educational Facilities Corp. (INS) 4.75 12/01/2026 5,109
29,015 Tobacco Settlement Revenue Management Auth. 5.00 6/01/2018 29,013
----------
62,137
----------
SOUTH DAKOTA (0.3%)
1,700 Health and Educational Facilities Auth. 5.00 11/01/2024 1,723
6,025 Housing Dev. Auth. (INS) 5.15 11/01/2020 6,167
----------
7,890
----------
TENNESSEE (1.0%)
7,000 Jackson 5.25 4/01/2023 7,128
2,125 Johnson City Health and Educational Facilities
Board 5.25 7/01/2026 2,100
1,000 Nashville and Davidson County Health and
Educational Facilities Board (INS) 5.10 8/01/2019 876
1,255 Shelby County Health, Educational and Housing
Facility Board (PRE) 6.00 9/01/2016 1,400
================================================================================
30 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 745 Shelby County Health, Educational and Housing
Facility Board (PRE) 6.00% 9/01/2016 $ 831
1,565 Shelby County Health, Educational and Housing
Facility Board (PRE) 6.25 9/01/2018 1,756
935 Shelby County Health, Educational and Housing
Facility Board (PRE) 6.25 9/01/2018 1,049
14,750 Sullivan County Health, Educational and Housing
Facilities Board 5.25 9/01/2026 14,033
----------
29,173
----------
TEXAS (17.3%)
910 Alamo Community College District (INS)(PRE) 5.00 11/01/2020 972
1,050 Alamo Community College District (INS) 5.00 11/01/2020 1,112
2,300 Austin (INS) 5.00 11/15/2024 2,394
5,610 Austin Utility Systems (INS) 5.15(a) 5/15/2017 4,409
1,855 Bastrop ISD (NBGA) 5.55(a) 2/15/2014 1,732
3,030 Bastrop ISD (NBGA) 5.55(a) 2/15/2015 2,727
3,055 Bastrop ISD (NBGA) 5.60(a) 2/15/2016 2,610
3,155 Bastrop ISD (NBGA) 5.60(a) 2/15/2017 2,564
4,540 Bexar County Health Facilities Dev. Corp. 5.00 7/01/2027 4,011
32,925 Brazos River Auth. 5.38 4/01/2019 32,828
5,365 Cass County IDC 5.35 4/01/2012 5,604
2,680 Central Regional Mobility Auth.,
4.55%, 1/01/2014 (INS) 4.55(b) 1/01/2020 1,976
3,445 Central Regional Mobility Auth.,
4.60%, 1/01/2014 (INS) 4.60(b) 1/01/2021 2,501
2,500 Central Regional Mobility Auth. 5.75 1/01/2025 2,507
2,600 Conroe ISD (NBGA) 5.00 2/15/2023 2,809
3,100 Conroe ISD (NBGA) 5.00 2/15/2024 3,329
13,745 Denton ISD (NBGA) 5.03(a) 8/15/2023 7,392
16,500 Denton ISD (NBGA) 5.06(a) 8/15/2024 8,375
2,905 Eagle Mountain-Saginaw ISD (NBGA) 4.38 8/15/2026 2,965
1,520 Edgewood ISD (NBGA) 4.88 8/15/2019 1,555
1,595 Edgewood ISD (NBGA) 5.00 8/15/2020 1,681
1,675 Edgewood ISD (NBGA) 5.00 8/15/2021 1,766
2,245 Ennis ISD (NBGA) 4.56(a) 8/15/2024 1,153
3,715 Ennis ISD (NBGA) 4.58(a) 8/15/2025 1,799
3,720 Ennis ISD (NBGA) 4.60(a) 8/15/2026 1,694
6,580 Fort Worth ISD (NBGA)(PRE) 5.00 2/15/2018 6,842
40,000 Harris County IDC 5.00 2/01/2023 40,208
1,895 Hidalgo County Health Services Corp. 4.75 8/15/2017 1,860
350 Hidalgo County Health Services Corp. 5.00 8/15/2019 340
3,805 Hidalgo County Health Services Corp. 5.00 8/15/2022 3,600
1,785 Hidalgo County Health Services Corp. 5.00 8/15/2026 1,603
================================================================================
PORTFOLIO OF INVESTMENTS | 31
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 3,000 Houston (INS) 5.00% 3/01/2019 $ 3,240
4,000 Houston Airport System 5.00 7/01/2024 4,287
7,000 Houston Airport System 5.00 7/01/2025 7,472
3,635 Houston ISD Public Facility Corp. (INS) 5.35(a) 9/15/2015 3,172
4,955 Houston ISD Public Facility Corp. (INS) 5.35(a) 9/15/2015 4,324
6,955 Houston ISD Public Facility Corp. (INS) 5.38(a) 9/15/2016 5,744
2,635 Houston ISD Public Facility Corp. (INS) 5.38(a) 9/15/2016 2,176
3,885 Houston ISD Public Facility Corp. (INS) 5.40(a) 9/15/2017 3,042
5,000 Irving ISD (NBGA) 5.31(a) 2/15/2025 2,429
2,200 Judson ISD (INS) 5.00 2/01/2023 2,309
1,500 Judson ISD (INS) 5.00 2/01/2024 1,562
1,595 La Porte ISD (INS) 5.00 2/15/2022 1,676
3,535 La Porte ISD (INS) 5.00 2/15/2024 3,688
3,830 Lewisville (INS) 5.38 9/01/2015 3,797
4,555 Lower Colorado River Auth. (INS) 4.38 5/15/2025 4,454
4,555 Lower Colorado River Auth. (INS) 4.38 5/15/2026 4,434
2,325 Marlin ISD Public Facility Corp.,
acquired 7/22/1998; cost $2,363(d) 5.85 2/15/2018 2,335
3,425 Mesquite Health Facilities Dev. Corp. 5.50 2/15/2025 3,156
2,040 Midlothian Dev. Auth. (INS) 5.00 11/15/2018 1,960
2,235 Midlothian Dev. Auth. (INS) 5.00 11/15/2021 2,112
9,265 Midlothian Dev. Auth. 6.00 11/15/2024 8,984
1,695 Midlothian Dev. Auth. (INS) 5.00 11/15/2026 1,520
2,755 Midlothian Dev. Auth. 5.13 11/15/2026 2,402
2,500 North Texas Tollway Auth. 6.00 1/01/2023 2,714
15,000 North Texas Tollway Auth. 6.00 1/01/2025 16,306
2,800 Northside ISD (NBGA)(PRE) 5.00 2/15/2017 2,912
2,500 Northside ISD (NBGA) 5.00 2/15/2017 2,590
2,865 Northside ISD (NBGA)(PRE) 5.00 2/15/2018 2,979
2,555 Northside ISD (NBGA) 5.00 2/15/2018 2,640
1,220 Nueces River Auth. (INS) 5.00 7/15/2023 1,276
1,530 Nueces River Auth. (INS) 5.00 7/15/2024 1,597
5,945 Plano ISD (NBGA) 5.00 2/15/2019 6,143
2,965 Plano ISD (NBGA) 4.50 2/15/2023 3,098
6,260 Port of Corpus Christi IDA 5.40 4/01/2018 6,246
19,050 Port of Corpus Christi IDC 5.40 4/01/2018 19,048
2,000 Red River Education Finance Corp. 4.38 3/15/2025 2,013
5,255 Red River Education Finance Corp. 4.38 3/15/2026 5,256
8,395 Rockwall ISD (NBGA) 5.14(a) 2/15/2022 4,847
9,205 Sabine River Auth. (INS) 4.95 3/01/2018 9,266
2,000 San Leanna Education Facilities Corp. 5.00 6/01/2018 2,038
1,965 San Leanna Education Facilities Corp. 5.13 6/01/2023 1,926
1,000 San Leanna Education Facilities Corp. 5.13 6/01/2024 971
================================================================================
32 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$ 1,545 San Leanna Education Facilities Corp. 5.13% 6/01/2025 $ 1,489
5,200 Schertz-Cibolo-Universal City ISD (NBGA) 4.86(a) 2/01/2023 2,890
3,320 State 5.00 8/01/2016 3,667
3,750 Tarrant County Cultural Education Facilities
Finance Corp. 5.25 11/15/2022 3,759
9,410 Tarrant County Cultural Education Facilities
Finance Corp. 5.50 11/15/2022 8,862
1,100 Tarrant County Cultural Education Facilities
Finance Corp. 6.00 11/15/2026 1,033
8,300 Tarrant County Cultural Education Facilities
Finance Corp. 5.13 5/15/2027 7,350
8,000 Tarrant Regional Water District (INS) 5.25 3/01/2017 8,796
2,000 Tarrant Regional Water District (INS) 5.25 3/01/2019 2,189
2,000 Tarrant Regional Water District (INS) 5.25 3/01/2020 2,189
5,000 Tarrant Regional Water District (INS) 4.38 3/01/2021 5,180
7,000 Transportation Commission 4.38 4/01/2025 7,166
18,000 Transportation Commission 4.50 4/01/2026 18,550
4,000 Transportation Commission 4.75 4/01/2027 4,175
3,895 Tyler Health Facilities Dev. Corp. 5.25 7/01/2011 3,995
2,125 Tyler Health Facilities Dev. Corp. 5.25 7/01/2012 2,207
1,500 Tyler Health Facilities Dev. Corp. 5.25 7/01/2013 1,560
7,170 Tyler Health Facilities Dev. Corp. 5.25 11/01/2019 7,193
7,945 Tyler Health Facilities Dev. Corp. 5.25 11/01/2021 7,850
3,360 Tyler Health Facilities Dev. Corp. 5.25 11/01/2022 3,305
3,800 Tyler Health Facilities Dev. Corp. 5.25 11/01/2023 3,703
8,745 Tyler Health Facilities Dev. Corp. 5.25 7/01/2026 7,993
4,500 Univ. of Texas Board of Regents (PRE) 5.38 8/15/2017 4,788
7,000 Univ. of Texas Board of Regents (PRE) 5.25 7/01/2018 7,510
12,505 Univ. of Texas Board of Regents 4.25 8/15/2025 12,818
11,900 Univ. of Texas Board of Regents 4.25 8/15/2026 12,145
1,795 Weatherford ISD (NBGA) 4.73(a) 2/15/2023 1,007
1,795 Weatherford ISD (NBGA) 4.77(a) 2/15/2024 947
5,970 Williamson County (INS) 5.13 2/15/2022 6,578
1,385 Wylie ISD (NBGA) 5.00(a) 8/15/2014 1,277
1,690 Wylie ISD (NBGA) 5.10(a) 8/15/2015 1,496
----------
494,726
----------
UTAH (0.9%)
4,410 Intermountain Power Agency (INS)(ETM) 5.00 7/01/2012 4,426
19,626 Jordanelle Special Service District(c) 12.00 8/01/2030 20,370
----------
24,796
----------
VIRGINIA (2.0%)
1,750 Albemarle County IDA 5.00 1/01/2024 1,655
2,290 College Building Auth. 5.00 6/01/2021 2,161
================================================================================
PORTFOLIO OF INVESTMENTS | 33
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
$11,280 College Building Auth. 5.00% 6/01/2026 $ 10,176
1,775 Commonwealth Housing Dev. Auth. 4.35 1/01/2017 1,800
1,810 Commonwealth Housing Dev. Auth. 4.35 7/01/2017 1,835
15,342 Farms of New Kent Community Dev. Auth. 5.13 3/01/2036 10,469
3,889 Peninsula Town Center Community Dev. Auth. 5.80 9/01/2017 3,917
6,752 Peninsula Town Center Community Dev. Auth. 6.25 9/01/2024 6,695
5,378 Peninsula Town Center Community Dev. Auth. 6.35 9/01/2028 5,286
5,510 Public School Auth. (PRE) 5.00 8/01/2017 5,652
5,000 Richmond Convention Center Auth. (PRE) 6.13 6/15/2020 5,110
1,000 Small Business Financing Auth. 5.13 9/01/2022 968
----------
55,724
----------
WASHINGTON (0.5%)
1,800 Health Care Facilities Auth. (INS) 5.00 12/01/2023 1,706
2,000 Health Care Facilities Auth. (INS) 5.00 12/01/2024 1,866
2,310 Health Care Facilities Auth. (INS) 5.00 12/01/2025 2,135
1,470 Higher Education Facilities Auth. 5.20 10/01/2017 1,472
2,000 Housing Finance Commission (INS) 5.88 7/01/2019 2,009
5,000 King County Housing Auth. (INS) 5.20 7/01/2018 4,759
----------
13,947
----------
WISCONSIN (0.9%)
4,130 Health and Educational Facilities Auth. (INS) 5.25 8/15/2012 4,140
5,000 Health and Educational Facilities Auth. (INS) 5.13 8/15/2020 5,007
8,300 Health and Educational Facilities Auth. 5.13 2/15/2026 7,887
1,625 Housing and EDA 4.85 9/01/2017 1,659
1,345 Kaukauna Area School District (INS) 4.85 3/01/2017 1,389
6,000 Sheboygan (INS) 5.00 9/01/2015 6,631
----------
26,713
----------
Total Fixed-Rate Instruments (cost: $2,563,560) 2,566,986
----------
PUT BONDS (7.1%)
ALABAMA (0.4%)
10,900 Baptist Health Care Auth. 6.00 11/15/2024 11,455
----------
ARIZONA (0.5%)
12,500 Maricopa County 6.00 5/01/2029 13,132
----------
CALIFORNIA (0.1%)
3,000 Health Facilities Financing Auth. 4.95 7/01/2026 3,240
----------
FLORIDA (0.9%)
7,375 Miami-Dade County IDA 4.00 10/01/2018 7,375
16,000 Putnam County Dev. Auth. (INS) 5.35 3/15/2042 17,021
----------
24,396
----------
================================================================================
34 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
GEORGIA (0.3%)
$ 8,015 DeKalb County Housing Auth. 4.70% 10/01/2031 $ 8,338
----------
ILLINOIS (0.3%)
7,500 Educational Facilities Auth. 4.75 11/01/2036 7,927
----------
LOUISIANA (0.5%)
14,000 Public Facilities Auth. 7.00 12/01/2038 14,958
----------
MASSACHUSETTS (0.2%)
6,000 Dev. Finance Agency 5.75 12/01/2042 6,393
----------
MICHIGAN (1.5%)
15,000 Hospital Finance Auth. 6.00 12/01/2034 17,370
15,000 Monroe County EDC (INS) 4.65 10/01/2024 15,438
10,550 Strategic Fund Ltd. (INS) 4.85 9/01/2030 10,829
----------
43,637
----------
NEW YORK (0.3%)
8,500 Hempstead 5.00 12/01/2010 8,514
----------
OHIO (0.3%)
8,000 Air Quality Dev. Auth. 5.75 6/01/2033 8,739
----------
PENNSYLVANIA (0.3%)
10,000 Economic Dev. Financing Auth. 2.63 12/01/2033 10,003
----------
TENNESSEE (0.1%)
1,975 Knox County Health, Educational, and Housing
Facilities Board (NBGA) 4.90 6/01/2031 2,062
----------
TEXAS (1.1%)
3,465 Beaumont Multifamily Housing Finance Corp. (NBGA) 4.70 12/15/2031 3,542
7,500 Matagorda County Navigation District No. 1 5.13 6/01/2030 7,775
3,470 Montgomery County Housing Finance Corp. (NBGA) 4.85 6/01/2031 3,584
15,000 North State Tollway Auth. 6.00 1/01/2038 16,563
----------
31,464
----------
WISCONSIN (0.3%)
9,000 Madison 4.88 10/01/2027 9,572
----------
Total Put Bonds (cost: $192,883) 203,830
----------
PERIODIC AUCTION RESET BONDS (0.1%)
OKLAHOMA (0.1%)
5,900 Tulsa County Industrial Auth., acquired 7/20/2006;
cost $5,900(d),(e) 0.34 1/01/2039 1,770
----------
================================================================================
PORTFOLIO OF INVESTMENTS | 35
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT COUPON FINAL VALUE
(000) SECURITY RATE MATURITY (000)
---------------------------------------------------------------------------------------------------
VARIABLE-RATE DEMAND NOTES (2.0%)
CALIFORNIA (1.2%)
$ 7,700 Dept. of Water Resources (LOC - Allied
Irish Banks plc) 0.32% 5/01/2022 $ 7,700
13,950 Infrastructure and Economic Dev. Bank (LOC -
Allied Irish Banks plc) 0.32 9/01/2037 13,950
12,250 State (LIQ)(c) 0.32 12/01/2030 12,250
----------
33,900
----------
LOUISIANA (0.5%)
6,000 Local Government Environmental Facilities and
Community Dev. Auth. (LOC - Regions Bank) 0.60 4/01/2035 6,000
10,000 Public Facilities Auth. 0.40 8/01/2049 10,000
----------
16,000
----------
MULTI-STATE (0.1%)
3,595 Non-Profit Preferred Funding Trust I (LIQ)(c) 0.93 9/15/2037 3,595
----------
TEXAS (0.2%)
4,845 Tarrant County Health Facilities Dev. Corp.
(LOC - HSH Nordbank A.G.) 0.35 8/15/2036 4,845
----------
Total Variable-Rate Demand Notes (cost: $58,340) 58,340
----------
TOTAL INVESTMENTS (COST: $2,820,683) $2,830,926
==========
================================================================================
36 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
---------------------------------------------------------------------------------------------------
($ IN 000s) VALUATION HIERARCHY
---------------------------------------------------------------------------------------------------
(LEVEL 1) (LEVEL 2) (LEVEL 3)
QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT
IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE
ASSETS FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL
---------------------------------------------------------------------------------------------------
Fixed-Rate Instruments $- $2,566,986 $ - $2,566,986
Put Bonds - 203,830 - 203,830
Periodic Auction Reset Bonds - - 1,770 1,770
Variable-Rate Demand Notes - 58,340 - 58,340
---------------------------------------------------------------------------------------------------
Total $- $2,829,156 $1,770 $2,830,926
---------------------------------------------------------------------------------------------------
Reconciliation of investments in which significant unobservable inputs (Level 3)
were used in determining value:
---------------------------------------------------------------------------------------------------
PERIODIC AUCTION
RESET BONDS
---------------------------------------------------------------------------------------------------
Balance as of March 31, 2009 $ -
Net realized gain (loss) -
Change in net unrealized appreciation/depreciation (4,130)
Net purchases (sales) -
Transfers in and/or out of Level 3 5,900
---------------------------------------------------------------------------------------------------
Balance as of March 31, 2010 $ 1,770
---------------------------------------------------------------------------------------------------
================================================================================
PORTFOLIO OF INVESTMENTS | 37
<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) Zero-coupon security. Rate represents the effective yield at the date of
purchase.
(b) 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.
(c) Restricted security that is not registered under the Securities Act of
1933. A resale of this security in the United States may occur in an
exempt transaction to a qualified institutional buyer as defined by Rule
144A, and as such has been deemed liquid by USAA Investment Management
Company (the Manager) under liquidity guidelines approved by the Board of
Trustees, unless otherwise noted as illiquid.
================================================================================
38 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
(d) 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 $15,676,000, which represented 0.6% of
the Fund's net assets.
(e) Security was fair valued at March 31, 2010, by the Manager in accordance
with valuation procedures approved by the Board of Trustees.
See accompanying notes to financial statements.
================================================================================
NOTES TO PORTFOLIO OF INVESTMENTS | 39
<PAGE>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS)
March 31, 2010
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (cost of $2,820,683) $2,830,926
Cash 66
Receivables:
Capital shares sold 1,031
Interest 40,483
----------
Total assets 2,872,506
----------
LIABILITIES
Payables:
Securities purchased 7,375
Capital shares redeemed 2,493
Dividends on capital shares 2,137
Accrued management fees 682
Accrued transfer agent's fees 16
Other accrued expenses and payables 112
----------
Total liabilities 12,815
----------
Net assets applicable to capital shares outstanding $2,859,691
==========
NET ASSETS CONSIST OF:
Paid-in capital $2,851,981
Overdistribution of net investment income (75)
Accumulated net realized loss on investments (2,458)
Net unrealized appreciation of investments 10,243
----------
Net assets applicable to capital shares outstanding $2,859,691
==========
Capital shares outstanding, unlimited number of shares
authorized, no par value 222,814
==========
Net asset value, redemption price, and offering price per share $ 12.83
==========
See accompanying notes to financial statements.
================================================================================
40 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
STATEMENT OF OPERATIONS
(IN THOUSANDS)
Year ended March 31, 2010
--------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $134,266
--------
EXPENSES
Management fees 6,754
Administration and servicing fees 4,009
Transfer agent's fees 990
Custody and accounting fees 384
Postage 44
Shareholder reporting fees 34
Trustees' fees 11
Registration fees 75
Professional fees 173
Other 50
--------
Total expenses 12,524
Transfer agent's fees reimbursed (Note 5C) (66)
--------
Net expenses 12,458
--------
NET INVESTMENT INCOME 121,808
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Unaffiliated transactions (3,351)
Affiliated transactions (Note 7) 2,421
Change in net unrealized appreciation/depreciation 200,659
--------
Net realized and unrealized gain 199,729
--------
Increase in net assets resulting from operations $321,537
========
See accompanying notes to financial statements.
================================================================================
FINANCIAL STATEMENTS | 41
<PAGE>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS)
Years ended March 31,
--------------------------------------------------------------------------------
2010 2009
------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income $ 121,808 $ 122,006
Net realized gain (loss) on investments (930) 906
Change in net unrealized appreciation/depreciation of
investments 200,659 (160,707)
------------------------
Increase (decrease) in net assets resulting
from operations 321,537 (37,795)
------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (121,710) (122,006)
Net realized gains (1,582) (3,121)
------------------------
Distributions to shareholders (123,292) (125,127)
------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 448,244 270,947
Reinvested dividends 97,469 97,684
Cost of shares redeemed (303,540) (464,378)
------------------------
Increase (decrease) in net assets from capital
share transactions 242,173 (95,747)
------------------------
Capital contribution from USAA Transfer Agency Company - 15
------------------------
Net increase (decrease) in net assets 440,418 (258,654)
NET ASSETS
Beginning of year 2,419,273 2,677,927
------------------------
End of year $2,859,691 $2,419,273
========================
Overdistribution of net investment income:
End of year $ (75) $ (98)
========================
CHANGE IN SHARES OUTSTANDING
Shares sold 35,427 22,152
Shares issued for dividends reinvested 7,717 8,081
Shares redeemed (24,015) (38,456)
------------------------
Increase (decrease) in shares outstanding 19,129 (8,223)
========================
See accompanying notes to financial statements.
================================================================================
42 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<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
Intermediate-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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 43
<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, inputs
that are observable for the securities, either directly or indirectly, and
market-corroborated inputs such as market indices.
================================================================================
44 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
Level 3 -- inputs to the valuation methodology are unobservable and
significant to the fair value measurement, including the Manager's own
assumptions in determining the fair value.
The inputs or methodologies used for valuing securities are not necessarily
an indication of the risks associated with investing in those securities.
For the securities valued using significant unobservable inputs, the Manager
determined the market quotations from the pricing services were not
determinative of fair value. As such, the securities were valued in good
faith using methods determined by the Manager, under valuation procedures
approved by the Trust's Board of Trustees. These unobservable inputs
included risk premium adjustments reflecting the amount the Manager assumed
market participants would demand because of the risk (uncertainty) in the
cash flows from the securities and other information related to the
securities such as credit quality and coupon rates. Refer to the portfolio
of investments for a reconciliation of investments in which significant
unobservable inputs (Level 3) were used in determining value.
C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its income to its shareholders. Therefore,
no federal income tax provision is required.
D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the
date the securities are purchased or sold (trade date). Gains or losses from
sales of investment securities are computed on the identified cost basis.
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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 45
<PAGE>
================================================================================
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.
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
================================================================================
46 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
to 5% of the Fund's total assets at a rate per annum equal to the rate at which
CAPCO obtains funding in the capital markets, with no markup.
The USAA funds that are party to the loan agreement are assessed facility fees
by CAPCO based on the funds' assessed proportionate share of CAPCO's operating
expenses related to obtaining and maintaining CAPCO's funding programs in total
(in no event to exceed 0.13% annually of the amount of the committed loan
agreement). Prior to September 25, 2009, the maximum annual facility fee was
0.07% of the amount of the committed loan agreement. The facility fees are
allocated among the funds based on their respective average net assets for the
period.
For the year ended March 31, 2010, the Fund paid CAPCO facility fees of $16,000,
which represents 6.8% 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 for the classification of distributions and market discount
resulted in reclassifications to the statement of assets and liabilities to
increase overdistribution of net investment income and decrease accumulated net
realized loss on investments by $75,000. 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 $121,712,000 $122,006,000
Net long-term capital gains 1,580,000 3,121,000
================================================================================
NOTES TO FINANCIAL STATEMENTS | 47
<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 $ 2,062,000
Accumulated capital and other losses (1,103,000)
Unrealized appreciation 8,889,000
The difference between book-basis and tax-basis unrealized appreciation of
investments is attributable to the tax deferral of losses on wash sales.
Net investment income is accrued daily as dividends and distributed to
shareholders monthly. Distributions of realized gains from security transactions
not offset by capital losses are made annually in the succeeding fiscal year or
as otherwise required to avoid the payment of federal taxes. At March 31, 2010,
the Fund had a post-October capital loss of $1,103,000 which will be recognized
on the first day of the following fiscal year.
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 $394,176,000 and
$186,609,000, respectively.
================================================================================
48 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
As of March 31, 2010, the cost of securities, including short-term securities,
for federal income tax purposes, was $2,822,037,000.
Gross unrealized appreciation and depreciation of investments as of March 31,
2010, for federal income tax purposes, were $78,781,000 and $69,892,000,
respectively, resulting in net unrealized appreciation of $8,889,000.
(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 Intermediate Municipal Debt Funds Index
over the performance period. The Lipper Intermediate Municipal Debt Funds
Index tracks the total return performance of the 30 largest funds in the
Lipper Intermediate 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
================================================================================
NOTES TO FINANCIAL STATEMENTS | 49
<PAGE>
================================================================================
of days in the month and the denominator of which is 365 (366 in leap
years). The resulting amount is the performance adjustment; a positive
adjustment in the case of overperformance, or a negative adjustment in the
case of underperformance.
Under the performance fee arrangement, the Fund will pay a positive
performance fee adjustment for a performance period whenever the Fund
outperforms the Lipper Intermediate 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 $6,754,000, which included a (0.03%)
performance adjustment of $(730,000).
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 $4,009,000.
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 $118,000 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
================================================================================
50 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
omnibus basis. For the year ended March 31, 2010, the Fund incurred transfer
agent's fees, paid or payable to SAS, of $990,000. During the year ended
March 31, 2010, SAS reimbursed the Fund $66,000 for corrections in fees paid
for the administration and servicing of certain accounts.
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) SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
During the year ended March 31, 2010, in accordance with affiliated transaction
procedures approved by the Trust's Board of Trustees, purchases and sales of
security transactions were executed between the Fund and the following
affiliated USAA fund at the then-current market price with no brokerage
commissions incurred.
COST TO NET REALIZED
SELLER PURCHASER PURCHASER GAIN TO SELLER
--------------------------------------------------------------------------------
USAA Tax Exempt USAA Tax Exempt
Intermediate-Term Fund Short-Term Fund $54,229,000 $2,421,000
USAA Tax Exempt USAA Tax Exempt
Short-Term Fund Intermediate-Term Fund 18,473,000 3,000
(8) 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 51
<PAGE>
================================================================================
(9) 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 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.
================================================================================
52 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
(10) 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 $ 11.88 $ 12.64 $ 13.17 $ 13.07 $ 13.16
--------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .57 .59 .56 .55 .55
Net realized and unrealized
gain (loss) .96 (.74) (.51) .10 (.07)
--------------------------------------------------------------------------
Total from investment operations 1.53 (.15) .05 .65 .48
--------------------------------------------------------------------------
Less distributions from:
Net investment income (.57) (.59) (.56) (.55) (.55)
Realized capital gains (.01) (.02) (.02) (.00)(a) (.02)
--------------------------------------------------------------------------
Total distributions (.58) (.61) (.58) (.55) (.57)
--------------------------------------------------------------------------
Net asset value at end of period $ 12.83 $ 11.88 $ 12.64 $ 13.17 $ 13.07
==========================================================================
Total return (%)* 13.07(d) (1.22) .44 5.10(b) 3.69
Net assets at end of period (000) $2,859,691 $2,419,273 $2,677,927 $2,830,190 $2,782,611
Ratios to average net assets:**
Expenses (%)(c) .47(d) .45 .51 .56(b) .55
Net investment income (%) 4.55 4.81 4.35 4.19 4.15
Portfolio turnover (%) 7 13 21 23 22
* 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 $2,674,481,000.
(a) Represents less than $0.01 per share.
(b) For the year ended March 31, 2007, SAS voluntarily reimbursed the Fund for a portion of the transfer agency
fees incurred. The reimbursement had no effect on the Fund's total return or ratio of expenses to average net
assets.
(c) 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.
(d) During the year ended March 31, 2010, SAS reimbursed the Fund $66,000 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.
================================================================================
NOTES TO FINANCIAL STATEMENTS | 53
<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
================================================================================
54 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<PAGE>
================================================================================
use this information to compare the ongoing costs of investing in the Fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any direct costs, such as wire fees,
redemption fees, or low balance fees. Therefore, the second line of the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these direct
costs were included, your costs would have been higher.
EXPENSES PAID
BEGINNING ENDING DURING PERIOD*
ACCOUNT VALUE ACCOUNT VALUE OCTOBER 1, 2009 -
OCTOBER 1, 2009 MARCH 31, 2010 MARCH 31, 2010
------------------------------------------------------------------------------------
Actual $1,000.00 $1,009.40 $2.40
Hypothetical
(5% return before expenses) 1,000.00 1,022.54 2.42
* Expenses are equal to the Fund's annualized expense ratio of 0.48%, 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 0.94% for the
six-month period of October 1, 2009, through March 31, 2010.
================================================================================
EXPENSE EXAMPLE | 55
<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).
================================================================================
56 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<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.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 57
<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.
================================================================================
58 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<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.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 59
<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.
================================================================================
60 | USAA TAX EXEMPT INTERMEDIATE-TERM FUND
<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.
================================================================================
TRUSTEES' AND OFFICERS' INFORMATION | 61
<PAGE>
================================================================================
TRUSTEES Christopher W. Claus
Barbara B. Dreeben
Robert L. Mason, Ph.D.
Barbara B. Ostdiek, Ph.D.
Michael F. Reimherr
Richard A. Zucker
--------------------------------------------------------------------------------
ADMINISTRATOR, USAA Investment Management Company
INVESTMENT ADVISER, P.O. Box 659453
UNDERWRITER, AND San Antonio, Texas 78265-9825
DISTRIBUTOR
--------------------------------------------------------------------------------
TRANSFER AGENT USAA Shareholder Account Services
9800 Fredericksburg Road
San Antonio, Texas 78288
--------------------------------------------------------------------------------
CUSTODIAN AND State Street Bank and Trust Company
ACCOUNTING AGENT P.O. Box 1713
Boston, Massachusetts 02105
--------------------------------------------------------------------------------
INDEPENDENT Ernst & Young LLP
REGISTERED PUBLIC 100 West Houston St., Suite 1800
ACCOUNTING FIRM San Antonio, Texas 78205
--------------------------------------------------------------------------------
MUTUAL FUND Under "Products & Services"
SELF-SERVICE 24/7 click "Investments," then
AT usaa.com "Mutual Funds"
OR CALL Under "My Accounts" go to
(800) 531-USAA "Investments." View account balances,
(8722) or click "I want to...," and select
the desired action.
--------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are
available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM;
and (iii) on the SEC's 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.
================================================================================
<PAGE>
USAA
9800 Fredericksburg Road --------------
San Antonio, TX 78288 PRSRT STD
U.S. Postage
PAID
USAA
--------------
>> SAVE PAPER AND FUND COSTS
At USAA.COM click: MY DOCUMENTS
Set preferences to USAA DOCUMENTS ONLINE.
[LOGO OF USAA]
USAA WE KNOW WHAT IT MEANS TO SERVE.(R)
=============================================================================
40857-0510 (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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