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Usaa Treasury Money Market Trust (MM) | NASDAQ:UATXX | NASDAQ | Ordinary Share |
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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: MAY 31 Date of reporting period: MAY 31, 2010 ITEM 1. REPORT TO STOCKHOLDERS. USAA GROWTH AND TAX STRATEGY FUND - ANNUAL REPORT FOR PERIOD ENDING
MAY 31, 2010
[LOGO OF USAA] USAA(R) [GRAPHIC OF USAA GROWTH AND TAX STRATEGY FUND] =============================================== ANNUAL REPORT USAA GROWTH AND TAX STRATEGY FUND MAY 31, 2010 =============================================== ================================================================================ <PAGE> ================================================================================ FUND OBJECTIVE CONSERVATIVE BALANCE FOR THE INVESTOR BETWEEN INCOME, THE MAJORITY OF WHICH IS EXEMPT FROM FEDERAL INCOME TAX, AND THE POTENTIAL FOR LONG-TERM GROWTH OF CAPITAL TO PRESERVE PURCHASING POWER. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS Invests at least a majority in tax-exempt bonds and money market instruments and the remainder in blue chip stocks. IRA DISTRIBUTION WITHHOLDING DISCLOSURE We generally must withhold federal income tax at a rate of 10% of the taxable portion of your distribution and, if you live in a state that requires state income tax withholding, at your state's set rate. However, you may elect not to have withholding apply or to have income tax withheld at a higher rate. If you wish to make such an election, please call USAA Investment Management Company at (800) 531-USAA (8722). If you must pay estimated taxes, you may be subject to estimated tax penalties if your estimated tax payments are not sufficient and sufficient tax is not withheld from your distribution. For more specific information, please consult your tax adviser. ================================================================================ <PAGE> ================================================================================ TABLE OF CONTENTS -------------------------------------------------------------------------------- PRESIDENT'S MESSAGE 2 MANAGERS' COMMENTARY 4 FUND RECOGNITION 8 INVESTMENT OVERVIEW 9 FINANCIAL INFORMATION Distributions to Shareholders 14 Report of Independent Registered Public Accounting Firm 15 Portfolio of Investments 16 Notes to Portfolio of Investments 38 Financial Statements 41 Notes to Financial Statements 44 EXPENSE EXAMPLE 56 ADVISORY AGREEMENTS 58 TRUSTEES' AND OFFICERS' INFORMATION 66 THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2010, USAA. All rights reserved. ================================================================================ <PAGE> ================================================================================ PRESIDENT'S MESSAGE "WHILE IT IS STILL TOO EARLY TO DECLARE THAT A SELF-SUSTAINING RECOVERY IS UNDERWAY, WE [PHOTO OF DANIEL S. McNAMARA] THINK MOST ECONOMIC INDICATORS ARE POINTED IN THE RIGHT DIRECTION." -------------------------------------------------------------------------------- JUNE 2010 As it turned out, the fiscal year ended May 31, 2010, was kind to patient, long-term investors. With some zigs and zags along the way, the U.S. stock market, as represented by the S&P 500 Index, was up nearly 21% for the period. At the same time, high-quality bonds generated attractive returns (the U.S. 10-year Treasury returned 4.65% during the fiscal year) as investors continued to search for income. Corporate and municipal bonds did even better. However, investors suffered some setbacks in April and May of this year as Greece's debt crisis unsettled the markets. As fears of contagion spread, many of them abandoned stocks for the safety of Treasury securities and other liquid, high-quality investments. The S&P 500 Index experienced its worst May since 1962. Although the European Union (EU) crafted a rescue plan for Greece, a number of troubling problems remain. Some European countries continue to live beyond their means, threatening the EU's sustainability. What's more, no one knows how a default or a debt restructuring by one of these countries would affect major European banks, which are believed to be heavily invested in the debt securities of the weaker nations. This uncertainty caused the euro to fall during the fiscal year to a four-year low versus the U.S. dollar. At the time of this writing, the dollar is once again the world's undisputed reserve currency. Commodity prices, which had been rising for most of the fiscal year, dropped in response to the turmoil in Europe and fears about its impact on the global economy. The one exception -- gold, widely considered a safe haven. Meanwhile, the U.S. economy seems to be improving. While it is still too early to declare that a self-sustaining recovery is underway, we think most economic indicators are pointed in the right direction. Corporate earnings, fueled by surprisingly strong top-line revenue growth, have been better than expected. At the same time, inflation has remained benign, giving the Federal Reserve Board (the Fed) latitude to hold short-term rates in a range between zero and 0.25%. There is no doubt that investor confidence was badly shaken by Greece's debt problems, and at the time of this writing, market sentiment seems driven more by headlines than by investment fundamentals. Perhaps as a result, many ================================================================================ 2 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ people are keeping large amounts of money in low-yielding money market funds. We see no relief from these low yields until at least the fourth quarter of 2010. In fact, we think the debt crisis in Europe could extend the time the Fed can maintain its "easy money" stance. Under the circumstances, investors may want to review how much they have in their money market accounts. Inflation may be muted but as of this writing, it is higher than money market yields. That isn't to say that investors should take risks with their immediate or emergency spending needs. In such cases, we believe a money market fund, a savings account or short-term certificate of deposit should be considered. However, if the money isn't required for two or three years, it could be earning higher yields in short- and intermediate-term bond funds. For longer-term, future needs such as retirement, a diversified portfolio of stock and bond funds might be most appropriate. If timing is a concern, we recommend making gradual changes. However, this is based on your individual immediate needs. Our USAA service representatives would be happy to assist. They are available -- free of charge -- to help you update your financial plan and answer any questions you might have. At USAA Investment Management Company, we are proud of the long-term performance we have provided to shareholders. In the months ahead, we will continue working hard on your behalf. From all of us here, thank you for the opportunity to help you with your investment needs. Sincerely, /S/ DANIEL S. MCNAMARA Daniel S. McNamara President USAA Investment Management Company PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. 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. 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. Diversification does not guarantee a profit or prevent a loss. Gold is a volatile asset class and is subject to additional risks, such as currency fluctuation, market liquidity, political instability and increased price volatility. It may be more volatile than other asset classes that diversify across many industries and companies. Financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License # 0E36312), and USAA Financial Advisors, Inc., a registered broker dealer. As interest rates rise, bond prices fall. ================================================================================ PRESIDENT'S MESSAGE | 3 <PAGE> ================================================================================ MANAGERS' COMMENTARY ON THE FUND USAA Investment Management Company* Northern Trust Investments, N.A. JOHN C. BONNELL, CFA MICHAEL LIAO, CFA CHRISTOPHER A. FRONK, CFA, CPA Tax-Exempt Bonds and Money Market Instruments Blue Chip Stocks -------------------------------------------------------------------------------- o HOW DID THE USAA GROWTH AND TAX STRATEGY FUND (THE FUND) PERFORM? For the one-year period ended May 31, 2010, the Fund had a total return of 15.17%. This compares to returns of 20.99% for the S&P 500 Index, 16.40% for the Lipper Balanced Funds Index, 14.34% for the Composite Index, and 8.52% for the Barclays Capital Municipal Bond Index. As of May 31, 2010, the Fund had a 12-month dividend yield of 3.05%, compared to 1.96% for the average fund in the Lipper Balanced Funds peer group. o PLEASE CHARACTERIZE THE FUND'S PERFORMANCE IN LIGHT OF THE OVERALL MARKET ENVIRONMENT. The Fund is unique in that it must keep more than 50% of assets in municipal bonds in order to pass tax-free income from these bonds to shareholders. The remainder of the Fund is invested in an equity portfolio managed by Northern Trust Investments (NTI), which uses Refer to page 11 for benchmark definitions. Past performance is no guarantee of future results. *Effective February 28, 2010, Clifford A. Gladson no longer is a co-manager of the Fund. ================================================================================ 4 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ a tax-managed index strategy that seeks to track the return of the S&P 500 Index while minimizing capital gains distributions. In periods when stocks outperform bonds, as was the case during the reporting year, the Fund is likely to underperform the Lipper Balanced Funds Index because other funds in the category can keep a higher portion of their assets in stocks. The fact that we only slightly underperformed that index was due to strong price appreciation and income from the municipal bond portfolio and continuing consistent results from NTI. o WHAT LED TO THE STRONG PERFORMANCE IN THE MUNICIPAL BOND PORTION OF THE FUND? The municipal bond portion significantly outperformed the Barclays Capital Municipal Bond Index, largely due to the strong price appreciation we experienced in the first seven months of the reporting year as municipal bonds continued to bounce off of severely oversold conditions. We continued to focus on carefully-researched bonds with maturities in the 20- to 30-year ranges, taking advantage of the higher income these bonds offer given the relatively steep municipal yield curve. Maximizing tax-exempt interest over time is an essential part of the Fund's strategy. o AREN'T YOU CONCERNED ABOUT THE POTENTIAL FOR INFLATION AS A RESULT OF SO MUCH GOVERNMENT STIMULUS, AND THE NEGATIVE IMPACT THAT COULD HAVE ON LONGER-TERM BONDS? We are always on the lookout for inflation, and believe that inflation is a likely outcome at some point due to unprecedented government spending. However, there is little evidence of inflation today, and so far in 2010 the risk of deflation has grown with the eurozone debt crisis and its potential to slow the global economic recovery. When we perceive a high risk of inflation, we will adjust the portfolio's duration (a measure of interest rate sensitivity), but we will always be a longer-term fund. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 5 <PAGE> ================================================================================ o WHAT ABOUT MUNICIPAL CREDIT QUALITY? AREN'T STATE AND LOCAL GOVERNMENTS HAVING TROUBLE COPING WITH LOWER TAX RECEIPTS? Falling tax revenues have put strains on municipal budgets. However, most municipal issuers' credit quality remains solid. State and local governments have the ability to cut budgets and increase taxes, and in fact many operate under balanced budget requirements. At USAA, we benefit from a strong and independent team of experienced municipal credit analysts that continuously monitor our holdings. Recently, two of the major credit ratings services, Moody's Investor Service and Fitch Ratings Ltd., announced efforts to place municipal, corporate and sovereign credit ratings on equal footing. In our view, this change is an acknowledgement that municipalities have a better debt payment record than corporate bond issuers. Several other factors are influencing the municipal bond market, including direct federal aid to municipalities and the Build America Bonds (BABs) program. The BABs program created a new financing tool for municipalities in the taxable bond market which potentially lowers the net cost of borrowing for state and local governments with a 35% interest subsidy from the U.S. Treasury. The BABs program also reduced the supply of bonds sold in the traditional tax-exempt market and gave municipal issuers access to an expanded base of buyers by moving them to the much larger taxable market. The reduced supply of long-term tax-exempt bonds, coupled with strong demand from retail investors, helped support municipal bond prices. o HOW DID THE EQUITY PORTION OF THE FUND MANAGED BY NTI PERFORM? Our goal in actively managing the equity portion is to roughly match the return of the S&P 500 Index while consistently harvesting tax losses. The bear market from October 2007 through March 2009 gave us ample opportunities to harvest losses that we have been able ================================================================================ 6 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ to carry forward to offset future gains. In this reporting year characterized by a strong rally in stocks, we performed roughly in line with the S&P 500 Index on a pre-tax basis. We continue to work to minimize the portfolio's "active risk," which is the risk that we won't perform in line with the S&P 500 Index due to our buying and selling stocks to achieve tax efficiency. Altogether, we had a strong year and are well positioned moving forward to continue to fulfill our mandate. It is an honor to work on behalf of USAA members. We thank you for your investment in the Fund and the opportunity to serve you. ================================================================================ MANAGERS' COMMENTARY ON THE FUND | 7 <PAGE> ================================================================================ FUND RECOGNITION USAA GROWTH AND TAX STRATEGY FUND -------------------------------------------------------------------------------- LIPPER LEADER (OVERALL) [5] EXPENSE The Fund is listed as a Lipper Leader for Expense among 140 mixed-asset funds within the Lipper Mixed-Asset Target Allocation Moderate Funds category for the overall period ended May 31, 2010. The Fund received a Lipper Leader rating for Expense among 140, 114, and 76 mixed-asset 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 May 31, 2010. -------------------------------------------------------------------------------- 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. ================================================================================ 8 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ INVESTMENT OVERVIEW USAA GROWTH AND TAX STRATEGY FUND (Ticker Symbol: USBLX) -------------------------------------------------------------------------------- 5/31/10 5/31/09 -------------------------------------------------------------------------------- Net Assets $144.3 Million $132.8 Million Net Asset Value Per Share $12.28 $11.00 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 5/31/10 -------------------------------------------------------------------------------- 1 Year 5 Years 10 Years 15.17% 2.06% 1.49% -------------------------------------------------------------------------------- 30-DAY SEC YIELD* AS OF 5/31/10 EXPENSE RATIO** -------------------------------------------------------------------------------- 2.80% 0.90% *Calculated as prescribed by the Securities and Exchange Commission. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. **THE EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, AS REPORTED IN THE FUND'S PROSPECTUS DATED OCTOBER 1, 2009, AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. THIS EXPENSE RATIO MAY DIFFER FROM THE EXPENSE RATIO DISCLOSED IN THE FINANCIAL HIGHLIGHTS. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. ================================================================================ INVESTMENT OVERVIEW | 9 <PAGE> ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON] BARCLAYS CAPITAL LIPPER USAA MUNICIPAL BOND BALANCED COMPOSITE GROWTH AND TAX INDEX FUNDS INDEX INDEX STRATEGY FUND S&P 500 INDEX 05/31/00 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00 06/30/00 10,264.99 10,159.61 10,310.74 10,225.81 10,246.53 07/31/00 10,407.82 10,131.92 10,305.33 10,150.07 10,086.34 08/31/00 10,568.22 10,584.17 10,736.43 10,499.67 10,712.84 09/30/00 10,513.24 10,361.43 10,422.27 9,969.73 10,147.28 10/31/00 10,627.96 10,352.26 10,418.47 10,069.48 10,104.38 11/30/00 10,708.37 9,976.48 10,004.72 9,758.48 9,307.75 12/31/00 10,972.94 10,224.44 10,196.51 9,828.60 9,353.31 01/31/01 11,081.67 10,441.44 10,376.78 9,917.25 9,685.16 02/28/01 11,116.81 10,036.13 9,928.31 9,438.53 8,802.05 03/31/01 11,216.44 9,712.03 9,672.21 9,083.97 8,244.43 04/30/01 11,094.90 10,119.62 9,963.20 9,405.63 8,885.11 05/31/01 11,214.37 10,209.75 10,048.83 9,453.28 8,944.64 06/30/01 11,289.40 10,053.31 9,960.72 9,340.34 8,726.94 07/31/01 11,456.63 10,046.04 9,970.03 9,400.36 8,641.03 08/31/01 11,645.34 9,760.14 9,773.82 9,034.19 8,100.09 09/30/01 11,606.28 9,291.11 9,369.27 8,573.17 7,445.98 10/31/01 11,744.56 9,446.61 9,527.29 8,754.80 7,587.97 11/30/01 11,645.55 9,822.71 9,783.51 9,099.91 8,170.02 12/31/01 11,535.38 9,893.55 9,785.06 9,011.84 8,241.59 01/31/02 11,735.47 9,806.77 9,787.12 9,042.35 8,121.32 02/28/02 11,876.85 9,740.14 9,767.29 8,926.42 7,964.70 03/31/02 11,644.10 9,953.10 9,835.53 9,067.05 8,264.24 04/30/02 11,871.68 9,714.25 9,674.66 8,753.97 7,763.20 05/31/02 11,943.82 9,709.72 9,670.82 8,735.55 7,706.01 06/30/02 12,070.12 9,295.49 9,390.97 8,361.40 7,157.11 07/31/02 12,225.35 8,819.07 9,110.33 8,231.53 6,599.18 08/31/02 12,372.31 8,909.55 9,192.74 8,305.74 6,642.51 09/30/02 12,643.30 8,377.61 8,855.36 8,047.84 5,920.60 10/31/02 12,433.70 8,726.83 9,096.42 8,290.77 6,441.71 11/30/02 12,382.03 9,080.86 9,278.31 8,390.44 6,820.87 12/31/02 12,643.30 8,836.08 9,145.20 8,261.92 6,420.16 01/31/03 12,611.26 8,703.72 8,998.72 8,142.37 6,251.97 02/28/03 12,787.58 8,638.45 9,010.17 8,180.12 6,158.17 03/31/03 12,795.22 8,673.70 9,039.86 8,311.88 6,217.96 04/30/03 12,879.76 9,143.08 9,408.00 8,609.64 6,730.13 05/31/03 13,181.34 9,547.47 9,745.64 8,863.05 7,084.72 06/30/03 13,125.33 9,619.87 9,766.88 8,907.14 7,175.10 07/31/03 12,666.04 9,642.16 9,672.59 8,798.83 7,301.61 08/31/03 12,760.50 9,804.94 9,800.57 8,888.03 7,444.01 09/30/03 13,135.66 9,817.38 9,885.33 8,996.34 7,364.96 10/31/03 13,069.52 10,141.28 10,104.09 9,182.29 7,781.59 11/30/03 13,205.73 10,231.07 10,204.21 9,259.24 7,850.06 12/31/03 13,315.08 10,597.66 10,487.27 9,513.99 8,261.75 01/31/04 13,391.35 10,755.90 10,577.83 9,597.84 8,413.39 02/29/04 13,592.88 10,902.50 10,723.94 9,694.60 8,530.34 03/31/04 13,545.55 10,850.49 10,610.06 9,596.71 8,401.65 04/30/04 13,224.75 10,622.46 10,408.08 9,408.54 8,269.75 05/31/04 13,176.79 10,669.36 10,442.80 9,479.91 8,383.24 06/30/04 13,224.75 10,836.17 10,552.21 9,570.50 8,546.25 07/31/04 13,398.79 10,632.17 10,434.90 9,322.43 8,263.39 08/31/04 13,667.29 10,696.85 10,537.86 9,374.65 8,296.82 09/30/04 13,739.85 10,855.76 10,628.00 9,617.11 8,386.68 10/31/04 13,858.08 10,973.15 10,742.08 9,840.30 8,514.80 11/30/04 13,743.77 11,268.73 10,901.13 10,102.89 8,859.33 12/31/04 13,911.62 11,550.03 11,140.14 10,402.18 9,160.80 01/31/05 14,041.63 11,401.24 11,072.92 10,238.76 8,937.50 02/28/05 13,994.92 11,562.54 11,159.73 10,316.91 9,125.59 03/31/05 13,906.65 11,403.34 11,016.64 10,144.68 8,963.99 04/30/05 14,125.96 11,266.32 10,983.96 10,108.96 8,793.98 05/31/05 14,225.80 11,524.66 11,201.86 10,466.17 9,073.79 06/30/05 14,314.06 11,607.48 11,256.12 10,631.72 9,086.67 07/31/05 14,249.37 11,865.41 11,431.64 10,854.41 9,424.59 08/31/05 14,393.23 11,899.74 11,439.96 10,818.49 9,338.60 09/30/05 14,296.29 11,946.91 11,463.29 10,908.79 9,414.24 10/31/05 14,209.47 11,759.33 11,360.84 10,786.06 9,257.30 11/30/05 14,277.68 12,044.82 11,600.41 11,045.96 9,607.43 12/31/05 14,400.46 12,150.32 11,672.29 11,133.08 9,610.77 01/31/06 14,439.32 12,440.36 11,848.49 11,249.38 9,865.24 02/28/06 14,536.27 12,424.79 11,869.96 11,319.15 9,892.01 03/31/06 14,436.02 12,545.78 11,940.14 11,316.52 10,015.14 04/30/06 14,431.05 12,682.57 11,995.40 11,378.95 10,149.62 05/31/06 14,495.34 12,431.11 11,848.23 11,238.47 9,857.50 06/30/06 14,440.77 12,423.67 11,828.82 11,215.83 9,870.87 07/31/06 14,612.54 12,481.66 11,882.37 11,318.01 9,931.76 08/31/06 14,829.37 12,721.71 12,116.91 11,514.50 10,168.06 09/30/06 14,932.51 12,905.10 12,285.09 11,700.73 10,430.10 10/31/06 15,026.15 13,205.75 12,526.21 11,914.33 10,769.97 11/30/06 15,151.41 13,460.13 12,699.65 12,064.64 10,974.77 12/31/06 15,097.87 13,559.67 12,739.38 12,119.18 11,128.72 01/31/07 15,059.22 13,705.91 12,827.72 12,195.94 11,297.03 02/28/07 15,257.65 13,653.60 12,797.32 12,144.77 11,076.07 03/31/07 15,220.03 13,770.75 12,843.52 12,190.03 11,199.95 04/30/07 15,265.09 14,166.81 13,126.03 12,473.32 11,696.06 05/31/07 15,197.50 14,471.21 13,316.69 12,662.18 12,104.19 06/30/07 15,118.75 14,336.00 13,199.85 12,518.81 11,903.10 07/31/07 15,235.95 14,091.62 13,050.30 12,354.66 11,534.05 08/31/07 15,170.22 14,205.53 13,060.17 12,380.58 11,706.95 09/30/07 15,394.70 14,606.86 13,386.43 12,707.33 12,144.77 10/31/07 15,463.32 14,863.72 13,548.13 12,820.40 12,337.95 11/30/07 15,561.92 14,515.26 13,295.73 12,524.68 11,822.15 12/31/07 15,605.12 14,444.75 13,252.81 12,426.22 11,740.13 01/31/08 15,801.90 13,967.22 12,952.79 12,093.22 11,035.94 02/29/08 15,078.44 13,785.50 12,451.02 11,541.14 10,677.43 03/31/08 15,509.41 13,680.15 12,540.54 11,712.14 10,631.32 04/30/08 15,690.90 14,133.68 12,928.83 12,074.01 11,149.10 05/31/08 15,785.77 14,289.81 13,094.16 12,179.92 11,293.51 06/30/08 15,607.60 13,534.33 12,507.84 11,607.25 10,341.43 07/31/08 15,666.92 13,362.93 12,414.42 11,518.31 10,254.49 08/31/08 15,850.26 13,413.74 12,551.27 11,687.30 10,402.83 09/30/08 15,106.97 12,400.32 11,643.93 10,822.31 9,475.86 10/31/08 14,952.77 10,811.04 10,496.26 9,728.42 7,884.41 11/30/08 15,000.31 10,318.54 10,027.75 9,333.91 7,318.66 12/31/08 15,219.00 10,663.81 10,096.24 9,281.97 7,396.53 01/31/09 15,776.06 10,170.18 9,955.94 9,164.14 6,773.11 02/28/09 15,858.94 9,512.34 9,533.33 8,837.82 6,051.92 03/31/09 15,861.84 10,041.41 9,911.92 9,148.22 6,582.04 04/30/09 16,178.71 10,733.07 10,550.86 9,669.67 7,212.01 05/31/09 16,349.86 11,271.54 10,982.20 10,063.05 7,615.40 06/30/09 16,196.69 11,298.46 10,918.19 10,037.51 7,630.50 07/31/09 16,467.68 11,977.31 11,416.58 10,471.11 8,207.65 08/31/09 16,749.21 12,297.84 11,759.19 10,747.88 8,503.98 09/30/09 17,350.29 12,691.06 12,263.84 11,293.97 8,821.31 10/31/09 16,986.09 12,542.68 11,977.24 11,024.40 8,657.44 11/30/09 17,126.44 13,009.60 12,307.20 11,349.74 9,176.74 12/31/09 17,184.31 13,154.07 12,506.56 11,514.93 9,353.99 01/31/10 17,273.81 12,929.11 12,325.10 11,346.14 9,017.50 02/28/10 17,441.24 13,159.08 12,557.11 11,571.19 9,296.83 03/31/10 17,399.49 13,659.54 12,905.43 11,891.75 9,857.85 04/30/10 17,610.94 13,827.19 13,075.97 12,042.76 10,013.48 05/31/10 17,743.03 13,120.17 12,580.37 11,589.75 9,213.90 [END CHART] Data from 5/31/00 to 5/31/10. See next page for benchmark definitions. 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. ================================================================================ 10 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ The graph on page 10 illustrates the comparison of a $10,000 hypothetical investment in the USAA Growth and Tax Strategy Fund to the following benchmarks: o The unmanaged Barclays Capital Municipal Bond Index is a benchmark of total return performance for the long-term, investment-grade, tax-exempt bond market. o The unmanaged Lipper Balanced Funds Index tracks the total return performance of the 30 largest funds within the Lipper Balanced Funds category. o The Composite Index is comprised of 51% of the Lipper General Municipal Debt Funds Index and 49% of the Lipper Large-Cap Core Funds Index. The unmanaged Lipper General Municipal Debt Funds Index tracks the total return performance of the 30 largest funds within this category. This category includes funds that invest at least 65% of their assets in municipal debt issues in the top four credit categories. The unmanaged Lipper Large-Cap Core Funds Index tracks the total return performance of the 30 largest funds within this category. This category includes funds that, by portfolio practice, invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) of greater than 300% of the dollar-weighted median market capitalization of the middle 1,000 securities of the S&P 1500 Index. Large-cap core funds have more latitude in the companies in which they invest. These funds have an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales growth figure, compared to the S&P 500 Index. o The unmanaged S&P 500 Index represents the weighted average performance of a group of 500 widely held, publicly traded stocks. ================================================================================ INVESTMENT OVERVIEW | 11 <PAGE> ================================================================================ TOP 10 INDUSTRIES AS OF 5/31/10 (% of Net Assets) Integrated Oil & Gas ............................................. 3.0% Pharmaceuticals .................................................. 2.7% Computer Hardware ................................................ 2.7% Other Diversified Financial Services ............................. 1.9% Systems Software ................................................. 1.5% Aerospace & Defense .............................................. 1.4% Household Products ............................................... 1.2% Integrated Telecommunication Services ............................ 1.2% Communications Equipment ......................................... 1.1% Soft Drinks ...................................................... 1.1% TOP 5 TAX-EXEMPT BOND HOLDINGS AS OF 5/31/10 (% of Net Assets) Lewisville ....................................................... 3.9% Hospital Finance Auth. ........................................... 2.8% Houston Utility Systems .......................................... 2.2% MTA .............................................................. 2.1% El Paso .......................................................... 2.1% TOP 5 BLUE CHIP STOCK HOLDINGS AS OF 5/31/10 (% of Net Assets) Exxon Mobil Corp. ................................................ 1.3% Apple, Inc. ...................................................... 1.2% Microsoft Corp. .................................................. 0.9% Procter & Gamble Co. ............................................. 0.9% International Business Machines Corp. ............................ 0.8% You will find a complete list of securities that the Fund owns on pages 16-37. ================================================================================ 12 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ o ASSET ALLOCATION -- 5/31/2010 o [PIE CHART OF ASSET ALLOCATION] TAX-EXEMPT BONDS 53.0% BLUE CHIP STOCKS 46.9% TAX-EXEMPT MONEY MARKET INSTRUMENTS 1.8% [END CHART] Percentages are of the net assets of the Fund and may not equal 100%. ================================================================================ INVESTMENT OVERVIEW | 13 <PAGE> ================================================================================ DISTRIBUTIONS TO SHAREHOLDERS -------------------------------------------------------------------------------- The following federal tax information related to the Fund's fiscal year ended May 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. 100% of ordinary income distributions qualify for the dividends-received deductions eligible to corporations. For the fiscal year ended May 31, 2010, the Fund hereby designates 100%, or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates. The Fund has designated 73.07% of dividends paid from net investment income as tax-exempt for federal income tax purposes. ================================================================================ 14 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- THE SHAREHOLDERS AND BOARD OF TRUSTEES OF USAA GROWTH AND TAX STRATEGY FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the USAA Growth and Tax Strategy Fund (one of the portfolios constituting USAA Mutual Funds Trust) (the "Fund") as of May 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 May 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 Growth and Tax Strategy Fund at May 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 July 23, 2010 ================================================================================ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 15 <PAGE> ================================================================================ PORTFOLIO OF INVESTMENTS May 31, 2010 ---------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------- TAX-EXEMPT SECURITIES (54.8%) TAX-EXEMPT BONDS (53.0%) ARIZONA (2.9%) $ 1,000 Maricopa County 5.00% 6/01/2035 $ 1,006 1,000 Pima County IDA 5.75 9/01/2029 1,024 2,250 Univ. Medical Center Corp. 5.00 7/01/2035 2,121 -------- 4,151 -------- CALIFORNIA (0.6%) 4,435 West Contra Costa USD (INS) 5.05(a) 8/01/2034 837 -------- COLORADO (0.3%) 500 Univ. of Colorado Hospital Auth. 5.00 11/15/2037 483 -------- CONNECTICUT (2.1%) 6,000 Mashantucket (Western) Pequot Tribe, acquired 9/21/1999; cost $5,583(b),(c) 5.75 9/01/2027 3,010 -------- FLORIDA (3.5%) 2,000 Miami-Dade County 5.00 10/01/2034 2,070 3,000 Orlando (INS) 5.13 11/01/2027 3,047 -------- 5,117 -------- HAWAII (0.8%) 1,000 State (INS) 5.25 9/01/2019 1,115 -------- INDIANA (3.9%) 1,250 Finance Auth. 5.38 11/01/2032 1,302 550 Health and Educational Facility Financing Auth. 5.25 2/15/2036 510 1,000 Health and Educational Facility Financing Auth. 5.00 2/15/2039 941 3,000 Rockport (INS) 4.63 6/01/2025 2,944 -------- 5,697 -------- KENTUCKY (0.8%) 1,000 Economic Dev. Finance Auth. (INS) 6.00 12/01/2033 1,104 -------- LOUISIANA (1.3%) 985 Local Government Environmental Facilities and Community Dev. Auth. (INS) 6.55 9/01/2025 898 1,000 Parish of St. John the Baptist 5.13 6/01/2037 958 -------- 1,856 -------- ================================================================================ 16 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------- MAINE (0.4%) $ 595 Health and Higher Educational Facilities Auth. (INS) 5.75% 7/01/2030 $ 603 -------- MICHIGAN (4.9%) 3,000 Hospital Finance Auth. (INS) 5.00 11/15/2026 3,008 4,000 Hospital Finance Auth. 6.25 10/01/2027 4,000 -------- 7,008 -------- MISSOURI (1.0%) 1,500 Health and Educational Facility Financing Auth. 5.38 2/01/2035 1,406 -------- NEW JERSEY (2.2%) 2,000 EDA 5.00 9/01/2033 2,106 1,000 Middlesex County Improvement Auth. 5.00 8/15/2023 1,025 -------- 3,131 -------- NEW MEXICO (1.3%) 1,000 Farmington 4.88 4/01/2033 878 1,000 Farmington(d) 5.90 6/01/2040 1,007 -------- 1,885 -------- NEW YORK (9.0%) 1,000 Dormitory Auth. 5.50 5/01/2037 1,032 3,000 MTA 5.00 11/15/2030 3,094 265 New York City 6.00 5/15/2020 269 1,000 New York City 5.25 8/15/2023 1,114 1,500 New York City Housing Dev. Corp. (INS) 5.00 7/01/2025 1,573 1,500 New York City Municipal Water Finance Auth. 5.00 6/15/2037 1,573 2,000 New York City Trust for Cultural Resources 5.00 12/01/2039 2,058 8,455 Oneida County IDA (INS) 4.65(a) 7/01/2035 2,310 -------- 13,023 -------- NORTH CAROLINA (0.8%) 1,000 Charlotte-Mecklenberg Hospital Auth. (PRE) 4.88 1/15/2032 1,147 -------- RHODE ISLAND (0.1%) 205 Housing and Mortgage Finance Corp. 6.85 10/01/2024 205 -------- TENNESSEE (0.3%) 2,000 Knox County Health, Educational and Housing Facilities Board 5.01(a) 1/01/2035 460 -------- TEXAS (14.2%) 3,000 El Paso (INS) 4.75 8/15/2033 3,072 2,000 Hidalgo County Health Services Corp. 5.00 8/15/2026 1,827 3,000 Houston Utility Systems (INS)(e) 5.13 5/15/2028 3,135 5,675 Lewisville (INS)(e) 5.80 9/01/2025 5,567 1,500 Manor ISD (NBGA) 5.00 8/01/2037 1,569 2,000 Pflugerville (INS) 5.00 8/01/2028 2,061 ================================================================================ PORTFOLIO OF INVESTMENTS | 17 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT COUPON VALUE (000) SECURITY RATE MATURITY (000) ---------------------------------------------------------------------------------------------- $ 1,500 Public Finance Auth. (INS) 5.00% 2/15/2036 $ 1,328 1,000 San Leanna Education Facilities Corp. 4.75 6/01/2032 895 1,000 Transportation Commission 4.50 4/01/2033 1,004 -------- 20,458 -------- WASHINGTON (1.6%) 1,500 Economic Dev. Finance Auth. (INS) 5.00 6/01/2038 1,526 1,000 Vancouver Downtown Redevelopment Auth. (INS) 5.00 1/01/2023 833 -------- 2,359 -------- WEST VIRGINIA (1.0%) 1,500 Pleasants County 5.25 10/15/2037 1,473 -------- Total Tax-Exempt Bonds (cost: $79,645) 76,528 -------- TAX-EXEMPT MONEY MARKET INSTRUMENTS (1.8%) VARIABLE-RATE DEMAND NOTES (1.7%) CALIFORNIA (1.7%) 2,500 ABAG Finance Auth. (LOC - Allied Irish Banks plc)(d) 2.75 9/01/2037 2,500 -------- ---------------------------------------------------------------------------------------------- NUMBER OF SHARES ---------------------------------------------------------------------------------------------- MONEY MARKET FUNDS (0.1%) 60,698 SSgA Tax Free Money Market Fund, 0.00%(f) 61 -------- Total Tax-Exempt Money Market Instruments (cost: $2,561) 2,561 -------- Total Tax-Exempt Securities (cost: $82,206) 79,089 -------- BLUE CHIP STOCKS (46.9%) CONSUMER DISCRETIONARY (4.8%) ----------------------------- ADVERTISING (0.1%) 2,760 Interpublic Group of Companies, Inc.* 23 1,760 Omnicom Group, Inc. 67 -------- 90 -------- APPAREL & ACCESSORIES & LUXURY GOODS (0.1%) 2,260 Coach, Inc. 93 420 Polo Ralph Lauren Corp. 37 650 VF Corp. 50 -------- 180 -------- APPAREL RETAIL (0.2%) 750 Abercrombie & Fitch Co. "A" 27 3,060 Gap, Inc. 66 ================================================================================ 18 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 1,450 Limited Brands, Inc. $ 36 630 Ross Stores, Inc. 33 3,010 TJX Companies, Inc. 137 -------- 299 -------- AUTO PARTS & EQUIPMENT (0.1%) 4,330 Johnson Controls, Inc. 124 -------- AUTOMOBILE MANUFACTURERS (0.2%) 24,051 Ford Motor Co.* 282 -------- AUTOMOTIVE RETAIL (0.1%) 920 AutoNation, Inc.* 19 300 AutoZone, Inc.* 57 240 O'Reilly Automotive, Inc.* 12 -------- 88 -------- BROADCASTING (0.1%) 5,840 CBS Corp. "B" 85 930 Discovery Communications, Inc. "A"* 35 -------- 120 -------- CABLE & SATELLITE (0.5%) 19,712 Comcast Corp. "A" 357 6,660 DIRECTV "A"* 251 630 Scripps Networks Interactive "A" 28 1,899 Time Warner Cable, Inc. 104 -------- 740 -------- CASINOS & GAMING (0.1%) 2,100 International Game Technology 41 490 Wynn Resorts Ltd. 41 -------- 82 -------- COMPUTER & ELECTRONICS RETAIL (0.1%) 2,800 Best Buy Co., Inc. 118 1,310 GameStop Corp. "A"* 30 970 RadioShack Corp. 20 -------- 168 -------- CONSUMER ELECTRONICS (0.0%) 510 Harman International Industries, Inc.* 16 -------- DEPARTMENT STORES (0.2%) 1,710 J.C. Penney Co., Inc. 47 2,160 Kohl's Corp.* 110 2,970 Macy's, Inc. 66 ================================================================================ PORTFOLIO OF INVESTMENTS | 19 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 1,370 Nordstrom, Inc. $ 54 470 Sears Holdings Corp.* 41 -------- 318 -------- DISTRIBUTORS (0.0%) 1,300 Genuine Parts Co. 53 -------- EDUCATION SERVICES (0.0%) 1,040 Apollo Group, Inc. "A"* 55 -------- FOOTWEAR (0.1%) 2,810 NIKE, Inc. "B" 203 -------- GENERAL MERCHANDISE STORES (0.2%) 600 Big Lots, Inc.* 21 1,230 Family Dollar Stores, Inc. 50 4,590 Target Corp. 251 -------- 322 -------- HOME IMPROVEMENT RETAIL (0.5%) 11,320 Home Depot, Inc. 383 8,920 Lowe's Companies, Inc. 221 770 Sherwin-Williams Co. 59 -------- 663 -------- HOMEBUILDING (0.0%) 2,350 D.R. Horton, Inc. 29 1,120 Lennar Corp. "A" 19 1,840 Pulte Homes, Inc.* 21 -------- 69 -------- HOMEFURNISHING RETAIL (0.1%) 2,070 Bed Bath & Beyond, Inc.* 93 -------- HOTELS, RESORTS, & CRUISE LINES (0.2%) 3,010 Carnival Corp. 109 1,776 Marriott International, Inc. "A" 59 1,570 Starwood Hotels & Resorts Worldwide, Inc. 73 1,270 Wyndham Worldwide Corp. 30 -------- 271 -------- HOUSEHOLD APPLIANCES (0.1%) 1,273 Stanley Black & Decker, Inc. 71 570 Whirlpool Corp. 60 -------- 131 -------- HOUSEWARES & SPECIALTIES (0.1%) 1,070 Fortune Brands, Inc. 51 2,370 Newell Rubbermaid, Inc. 39 -------- 90 -------- ================================================================================ 20 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- INTERNET RETAIL (0.2%) 2,370 Amazon.com, Inc.* $ 297 1,800 Expedia, Inc. 39 160 Priceline.com, Inc.* 31 -------- 367 -------- LEISURE PRODUCTS (0.1%) 1,440 Hasbro, Inc. 58 1,240 Mattel, Inc. 27 -------- 85 -------- MOTORCYCLE MANUFACTURERS (0.0%) 1,720 Harley-Davidson, Inc. 52 -------- MOVIES & ENTERTAINMENT (0.6%) 15,930 News Corp. "A" 211 4,590 Viacom, Inc. "B"* 154 13,495 Walt Disney Co. 451 -------- 816 -------- PHOTOGRAPHIC PRODUCTS (0.0%) 2,170 Eastman Kodak Co.* 12 -------- PUBLISHING (0.1%) 1,980 Gannett Co., Inc. 31 2,160 McGraw-Hill Companies, Inc. 60 300 Meredith Corp. 10 1,000 New York Times Co. "A"* 9 50 Washington Post Co. "B" 23 -------- 133 -------- RESTAURANTS (0.6%) 7,930 McDonald's Corp. 530 6,180 Starbucks Corp. 160 3,350 Yum! Brands, Inc. 137 -------- 827 -------- SPECIALIZED CONSUMER SERVICES (0.0%) 2,720 H&R Block, Inc. 44 -------- SPECIALTY STORES (0.1%) 2,330 Office Depot, Inc.* 13 4,350 Staples, Inc. 94 720 Tiffany & Co. 33 -------- 140 -------- TIRES & RUBBER (0.0%) 1,710 Goodyear Tire & Rubber Co.* 20 -------- Total Consumer Discretionary 6,953 -------- ================================================================================ PORTFOLIO OF INVESTMENTS | 21 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- CONSUMER STAPLES (5.3%) ----------------------- AGRICULTURAL PRODUCTS (0.1%) 4,660 Archer-Daniels-Midland Co. $ 118 -------- BREWERS (0.0%) 920 Molson Coors Brewing Co. "B" 38 -------- DISTILLERS & VINTNERS (0.0%) 320 Brown-Forman Corp. "B" 18 1,440 Constellation Brands, Inc. "A"* 24 -------- 42 -------- DRUG RETAIL (0.4%) 10,232 CVS Caremark Corp. 354 7,230 Walgreen Co. 232 -------- 586 -------- FOOD DISTRIBUTORS (0.1%) 4,290 Sysco Corp. 128 -------- FOOD RETAIL (0.2%) 3,770 Kroger Co. 76 2,940 Safeway, Inc. 65 1,490 SUPERVALU, Inc. 20 1,070 Whole Foods Market, Inc.* 43 -------- 204 -------- HOUSEHOLD PRODUCTS (1.2%) 1,020 Clorox Co. 64 3,610 Colgate-Palmolive Co. 282 2,620 Kimberly-Clark Corp. 159 20,333 Procter & Gamble Co. 1,242 -------- 1,747 -------- HYPERMARKETS & SUPER CENTERS (0.6%) 1,990 Costco Wholesale Corp. 116 15,290 Wal-Mart Stores, Inc. 773 -------- 889 -------- PACKAGED FOODS & MEAT (0.8%) 1,310 Campbell Soup Co. 47 3,840 ConAgra Foods, Inc. 93 920 Dean Foods Co.* 10 2,840 General Mills, Inc. 202 2,125 H.J. Heinz Co. 94 1,160 Hershey Co. 54 828 J.M. Smucker Co. 46 ================================================================================ 22 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 1,830 Kellogg Co. $ 98 12,230 Kraft Foods, Inc. "A" 350 1,120 McCormick & Co., Inc. 43 1,441 Mead Johnson Nutrition Co. 71 5,070 Sara Lee Corp. 72 550 Tyson Foods, Inc. "A" 9 -------- 1,189 -------- PERSONAL PRODUCTS (0.1%) 3,050 Avon Products, Inc. 81 840 Estee Lauder Companies, Inc. "A" 49 -------- 130 -------- SOFT DRINKS (1.1%) 14,730 Coca-Cola Co. 757 2,700 Coca-Cola Enterprises, Inc. 71 1,960 Dr. Pepper Snapple Group, Inc. 74 11,033 PepsiCo, Inc. 694 -------- 1,596 -------- TOBACCO (0.7%) 14,120 Altria Group, Inc. 286 1,225 Lorillard, Inc. 88 13,560 Philip Morris International, Inc. 598 980 Reynolds American, Inc. 51 -------- 1,023 -------- Total Consumer Staples 7,690 -------- ENERGY (5.0%) ------------- COAL & CONSUMABLE FUELS (0.1%) 1,030 CONSOL Energy, Inc. 37 720 Massey Energy Co. 24 1,920 Peabody Energy Corp. 75 -------- 136 -------- INTEGRATED OIL & GAS (3.0%) 13,650 Chevron Corp. 1,008 9,250 ConocoPhillips 480 31,970 Exxon Mobil Corp. 1,933 2,130 Hess Corp. 113 4,810 Marathon Oil Corp. 149 1,400 Murphy Oil Corp. 75 6,250 Occidental Petroleum Corp. 516 -------- 4,274 -------- ================================================================================ PORTFOLIO OF INVESTMENTS | 23 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- OIL & GAS DRILLING (0.1%) 510 Diamond Offshore Drilling, Inc. $ 32 2,180 Nabors Industries Ltd.* 41 960 Rowan Companies, Inc.* 24 -------- 97 -------- OIL & GAS EQUIPMENT & SERVICES (0.7%) 3,257 Baker Hughes, Inc. 124 1,400 Cameron International Corp.* 51 920 FMC Technologies, Inc.* 53 5,260 Halliburton Co. 131 3,080 National-Oilwell Varco, Inc. 117 8,310 Schlumberger Ltd. 467 2,020 Smith International, Inc. 76 -------- 1,019 -------- OIL & GAS EXPLORATION & PRODUCTION (0.9%) 3,330 Anadarko Petroleum Corp. 174 2,190 Apache Corp. 196 700 Cabot Oil & Gas Corp. 24 3,970 Chesapeake Energy Corp. 89 3,170 Denbury Resources, Inc.* 52 2,560 Devon Energy Corp. 163 2,090 EOG Resources, Inc. 219 1,270 Noble Energy, Inc. 76 1,020 Pioneer Natural Resources Co. 65 1,130 Range Resources Corp. 51 1,800 Southwestern Energy Co.* 68 4,062 XTO Energy, Inc. 174 -------- 1,351 -------- OIL & GAS REFINING & MARKETING (0.1%) 1,000 Sunoco, Inc. 30 4,530 Valero Energy Corp. 85 -------- 115 -------- OIL & GAS STORAGE & TRANSPORTATION (0.1%) 2,770 El Paso Corp. 32 4,910 Spectra Energy Corp. 98 4,220 Williams Companies, Inc. 83 -------- 213 -------- Total Energy 7,205 -------- ================================================================================ 24 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- FINANCIALS (7.7%) ----------------- ASSET MANAGEMENT & CUSTODY BANKS (0.5%) 2,195 Ameriprise Financial, Inc. $ 87 5,185 Bank of New York Mellon Corp. 141 770 Federated Investors, Inc. "B" 17 1,110 Franklin Resources, Inc. 109 3,300 Invesco Ltd. ADR 61 1,180 Janus Capital Group, Inc. 13 1,220 Legg Mason, Inc. 36 1,540 Northern Trust Corp.(g) 78 3,500 State Street Corp. 134 2,210 T. Rowe Price Group, Inc. 110 -------- 786 -------- CONSUMER FINANCE (0.4%) 8,630 American Express Co. 344 3,560 Capital One Financial Corp. 147 3,520 Discover Financial Services 47 4,030 SLM Corp.* 45 -------- 583 -------- DIVERSIFIED BANKS (0.9%) 1,300 Comerica, Inc. 50 13,330 U.S. Bancorp 319 32,240 Wells Fargo & Co. 925 -------- 1,294 -------- INSURANCE BROKERS (0.1%) 2,220 Aon Corp. 88 4,130 Marsh & McLennan Companies, Inc. 90 -------- 178 -------- INVESTMENT BANKING & BROKERAGE (0.6%) 6,900 Charles Schwab Corp. 113 15,550 E*TRADE Financial Corp.* 23 3,790 Goldman Sachs Group, Inc. 547 7,320 Morgan Stanley 198 -------- 881 -------- LIFE & HEALTH INSURANCE (0.5%) 3,460 AFLAC, Inc. 153 2,199 Lincoln National Corp. 58 5,380 MetLife, Inc. 218 2,260 Principal Financial Group, Inc. 62 2,755 Prudential Financial, Inc. 159 ================================================================================ PORTFOLIO OF INVESTMENTS | 25 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 665 Torchmark Corp. $ 34 2,390 Unum Group 55 -------- 739 -------- MULTI-LINE INSURANCE (0.2%) 780 American International Group, Inc.* 28 700 Assurant, Inc. 24 3,680 Genworth Financial, Inc. "A"* 57 2,730 Hartford Financial Services Group, Inc. 68 2,636 Loews Corp. 86 -------- 263 -------- MULTI-SECTOR HOLDINGS (0.0%) 900 Leucadia National Corp.* 20 -------- OTHER DIVERSIFIED FINANCIAL SERVICES (1.9%) 69,913 Bank of America Corp. 1,100 131,730 Citigroup, Inc.* 522 27,109 JPMorgan Chase & Co. 1,073 -------- 2,695 -------- PROPERTY & CASUALTY INSURANCE (1.0%) 3,880 Allstate Corp. 119 11,368 Berkshire Hathaway, Inc. "B"* 802 2,920 Chubb Corp. 147 1,410 Cincinnati Financial Corp. 38 4,290 Progressive Corp. 84 3,530 Travelers Companies, Inc. 174 2,830 XL Capital Ltd. "A" 50 -------- 1,414 -------- REAL ESTATE SERVICES (0.0%) 1,830 CB Richard Ellis Group, Inc. "A"* 29 -------- REGIONAL BANKS (0.6%) 4,390 BB&T Corp. 133 5,810 Fifth Third Bancorp 76 1,794 First Horizon National Corp.* 22 5,750 Huntington Bancshares, Inc. 35 7,160 KeyCorp 57 700 M&T Bank Corp. 56 4,250 Marshall & Ilsley Corp. 35 3,605 PNC Financial Services Group, Inc. 226 9,610 Regions Financial Corp. 73 4,000 SunTrust Banks, Inc. 108 1,130 Zions Bancorp 27 -------- 848 -------- ================================================================================ 26 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- REITs - DIVERSIFIED (0.1%) 1,358 Vornado Realty Trust $ 105 -------- REITs - INDUSTRIAL (0.0%) 3,345 ProLogis 38 -------- REITs - OFFICE (0.1%) 1,050 Boston Properties, Inc. 81 -------- REITs - RESIDENTIAL (0.1%) 510 AvalonBay Communities, Inc. 50 2,235 Equity Residential Properties Trust 101 -------- 151 -------- REITs - RETAIL (0.2%) 3,250 Kimco Realty Corp. 47 2,004 Simon Property Group, Inc. 170 -------- 217 -------- REITs - SPECIALIZED (0.2%) 1,880 HCP, Inc. 60 940 Health Care REIT, Inc. 40 4,372 Host Hotels & Resorts, Inc. 62 1,310 Plum Creek Timber Co., Inc. 46 795 Public Storage 74 1,230 Ventas, Inc. 58 -------- 340 -------- SPECIALIZED FINANCE (0.2%) 500 CME Group, Inc. 158 540 IntercontinentalExchange, Inc.* 63 1,150 Moody's Corp. 24 2,110 NYSE Euronext 60 -------- 305 -------- THRIFTS & MORTGAGE FINANCE (0.1%) 3,850 Hudson City Bancorp, Inc. 49 1,430 People's United Financial, Inc. 20 -------- 69 -------- Total Financials 11,036 -------- HEALTH CARE (5.5%) ----------------- BIOTECHNOLOGY (0.7%) 7,200 Amgen, Inc.* 373 2,050 Biogen Idec, Inc.* 97 2,970 Celgene Corp.* 157 ================================================================================ PORTFOLIO OF INVESTMENTS | 27 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 610 Cephalon, Inc.* $ 36 810 Genzyme Corp.* 39 6,330 Gilead Sciences, Inc.* 227 -------- 929 -------- HEALTH CARE DISTRIBUTORS (0.2%) 2,160 AmerisourceBergen Corp. 68 2,620 Cardinal Health, Inc. 90 1,500 McKesson Corp. 105 760 Patterson Companies, Inc. 23 -------- 286 -------- HEALTH CARE EQUIPMENT (0.9%) 4,460 Baxter International, Inc. 188 1,750 Becton, Dickinson and Co. 125 11,100 Boston Scientific Corp.* 67 720 C.R. Bard, Inc. 58 1,315 CareFusion Corp.* 34 1,160 Hospira, Inc.* 60 230 Intuitive Surgical, Inc.* 74 8,060 Medtronic, Inc. 316 1,810 St. Jude Medical, Inc.* 68 2,040 Stryker Corp. 108 830 Varian Medical Systems, Inc.* 42 1,720 Zimmer Holdings, Inc.* 96 -------- 1,236 -------- HEALTH CARE FACILITIES (0.0%) 3,580 Tenet Healthcare Corp.* 20 -------- HEALTH CARE SERVICES (0.4%) 900 DaVita, Inc.* 57 1,770 Express Scripts, Inc.* 178 795 Laboratory Corp. of America Holdings* 60 3,620 Medco Health Solutions, Inc.* 209 1,110 Quest Diagnostics, Inc. 59 -------- 563 -------- HEALTH CARE SUPPLIES (0.0%) 1,270 DENTSPLY International, Inc. 41 -------- LIFE SCIENCES TOOLS & SERVICES (0.2%) 1,469 Life Technologies Corp.* 74 330 Millipore Corp.* 35 3,000 Thermo Fisher Scientific, Inc.* 156 690 Waters Corp.* 47 -------- 312 -------- ================================================================================ 28 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- MANAGED HEALTH CARE (0.4%) 1,570 Aetna, Inc. $ 46 2,340 CIGNA Corp. 78 1,260 Coventry Health Care, Inc.* 26 1,210 Humana, Inc.* 56 8,230 UnitedHealth Group, Inc. 239 3,150 WellPoint, Inc.* 162 -------- 607 -------- PHARMACEUTICALS (2.7%) 11,100 Abbott Laboratories 528 2,250 Allergan, Inc. 135 8,286 Bristol-Myers Squibb Co. 192 8,110 Eli Lilly and Co. 266 2,420 Forest Laboratories, Inc.* 63 18,480 Johnson & Johnson 1,077 680 King Pharmaceuticals, Inc.* 6 21,263 Merck & Co., Inc. 716 2,210 Mylan, Inc.* 43 57,684 Pfizer, Inc. 879 930 Watson Pharmaceuticals, Inc.* 41 -------- 3,946 -------- Total Health Care 7,940 -------- INDUSTRIALS (4.9%) ------------------ AEROSPACE & DEFENSE (1.4%) 5,150 Boeing Co. 331 2,730 General Dynamics Corp. 185 900 Goodrich Corp. 63 5,330 Honeywell International, Inc. 228 1,220 ITT Corp. 59 830 L-3 Communications Holdings, Inc. 69 2,320 Lockheed Martin Corp. 185 1,340 Northrop Grumman Corp. 81 1,010 Precision Castparts Corp. 118 2,985 Raytheon Co. 156 1,340 Rockwell Collins, Inc. 78 6,660 United Technologies Corp. 449 -------- 2,002 -------- AIR FREIGHT & LOGISTICS (0.5%) 1,230 C.H. Robinson Worldwide, Inc. 72 810 Expeditors International of Washington, Inc. 31 ================================================================================ PORTFOLIO OF INVESTMENTS | 29 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 2,650 FedEx Corp. $ 221 6,380 United Parcel Service, Inc. "B" 400 -------- 724 -------- AIRLINES (0.0%) 5,130 Southwest Airlines Co. 64 -------- BUILDING PRODUCTS (0.0%) 3,110 Masco Corp. 42 -------- COMMERCIAL PRINTING (0.0%) 1,460 R.R. Donnelley & Sons Co. 28 -------- CONSTRUCTION & ENGINEERING (0.1%) 50 Fluor Corp. 2 1,010 Jacobs Engineering Group, Inc.* 42 1,470 Quanta Services, Inc.* 31 -------- 75 -------- CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.5%) 4,145 Caterpillar, Inc. 252 1,700 Cummins, Inc. 116 3,070 Deere & Co. 177 2,572 PACCAR, Inc. 105 -------- 650 -------- DIVERSIFIED SUPPORT SERVICES (0.1%) 1,130 Cintas Corp. 29 1,550 Iron Mountain, Inc. 38 -------- 67 -------- ELECTRICAL COMPONENTS & EQUIPMENT (0.3%) 5,920 Emerson Electric Co. 275 210 First Solar, Inc.* 23 1,210 Rockwell Automation, Inc. 65 -------- 363 -------- ENVIRONMENTAL & FACILITIES SERVICES (0.2%) 2,526 Republic Services, Inc. 73 430 Stericycle, Inc.* 25 3,525 Waste Management, Inc. 115 -------- 213 -------- HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%) 750 Robert Half International, Inc. 19 -------- INDUSTRIAL CONGLOMERATES (1.0%) 4,660 3M Co. 369 65,560 General Electric Co. 1,072 ================================================================================ 30 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 2,070 Textron, Inc. $ 43 -------- 1,484 -------- INDUSTRIAL MACHINERY (0.4%) 1,835 Danaher Corp. 146 1,320 Dover Corp. 59 1,210 Eaton Corp. 85 490 Flowserve Corp. 46 2,480 Illinois Tool Works, Inc. 115 850 Pall Corp. 29 1,120 Parker-Hannifin Corp. 69 -------- 549 -------- OFFICE SERVICES & SUPPLIES (0.0%) 660 Avery Dennison Corp. 22 1,670 Pitney Bowes, Inc. 38 -------- 60 -------- RAILROADS (0.3%) 2,990 CSX Corp. 156 1,150 Norfolk Southern Corp. 65 3,850 Union Pacific Corp. 275 -------- 496 -------- RESEARCH & CONSULTING SERVICES (0.0%) 400 Dun & Bradstreet Corp. 29 720 Equifax, Inc. 22 -------- 51 -------- TRADING COMPANIES & DISTRIBUTORS (0.1%) 930 Fastenal Co. 47 480 W.W. Grainger, Inc. 49 -------- 96 -------- Total Industrials 6,983 -------- INFORMATION TECHNOLOGY (9.1%) ----------------------------- APPLICATION SOFTWARE (0.3%) 3,800 Adobe Systems, Inc.* 122 1,090 Autodesk, Inc.* 32 1,240 Citrix Systems, Inc.* 54 1,730 Compuware Corp.* 14 2,210 Intuit, Inc.* 79 640 Salesforce.com, Inc.* 56 -------- 357 -------- ================================================================================ PORTFOLIO OF INVESTMENTS | 31 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- COMMUNICATIONS EQUIPMENT (1.1%) 39,185 Cisco Systems, Inc.* $ 908 980 Harris Corp. 46 1,890 JDS Uniphase Corp.* 22 3,970 Juniper Networks, Inc.* 106 15,930 Motorola, Inc.* 109 11,570 QUALCOMM, Inc. 411 2,800 Tellabs, Inc. 25 -------- 1,627 -------- COMPUTER HARDWARE (1.8%) 6,400 Apple, Inc.* 1,646 11,200 Dell, Inc.* 149 17,540 Hewlett-Packard Co. 807 1,255 Teradata Corp.* 40 -------- 2,642 -------- COMPUTER STORAGE & PERIPHERALS (0.4%) 14,680 EMC Corp.* 273 670 Lexmark International, Inc. "A"* 25 2,010 NetApp, Inc.* 76 1,600 SanDisk Corp.* 75 1,210 Western Digital Corp.* 42 -------- 491 -------- DATA PROCESSING & OUTSOURCED SERVICES (0.6%) 3,810 Automatic Data Processing, Inc. 156 1,130 Computer Sciences Corp.* 56 2,280 Fidelity National Information Services, Inc. 63 880 Fiserv, Inc.* 42 600 MasterCard, Inc. "A" 121 2,340 Paychex, Inc. 67 1,690 Total System Services, Inc. 25 2,970 Visa, Inc. "A" 215 5,545 Western Union Co. 88 -------- 833 -------- ELECTRONIC COMPONENTS (0.2%) 1,270 Amphenol Corp. "A" 54 11,020 Corning, Inc. 192 -------- 246 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.1%) 1,090 Agilent Technologies, Inc.* 35 1,020 FLIR Systems, Inc.* 29 -------- 64 -------- ================================================================================ 32 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- ELECTRONIC MANUFACTURING SERVICES (0.0%) 1,810 Jabil Circuit, Inc. $ 25 1,210 Molex, Inc. 26 -------- 51 -------- HOME ENTERTAINMENT SOFTWARE (0.0%) 2,610 Electronic Arts, Inc.* 43 -------- INTERNET SOFTWARE & SERVICES (1.0%) 1,440 Akamai Technologies, Inc.* 57 7,590 eBay, Inc.* 163 1,660 Google, Inc. "A"* 805 1,060 Monster Worldwide, Inc.* 16 8,393 Time Warner, Inc. 260 1,550 VeriSign, Inc.* 43 9,650 Yahoo!, Inc.* 148 -------- 1,492 -------- IT CONSULTING & OTHER SERVICES (0.9%) 2,120 Cognizant Technology Solutions Corp. "A"* 106 9,530 International Business Machines Corp. 1,194 -------- 1,300 -------- OFFICE ELECTRONICS (0.0%) 6,153 Xerox Corp. 57 -------- SEMICONDUCTOR EQUIPMENT (0.1%) 8,140 Applied Materials, Inc. 105 990 KLA-Tencor Corp. 31 1,620 MEMC Electronic Materials, Inc.* 18 830 Novellus Systems, Inc.* 21 1,450 Teradyne, Inc.* 16 -------- 191 -------- SEMICONDUCTORS (1.1%) 5,210 Advanced Micro Devices, Inc.* 45 2,150 Altera Corp. 51 2,500 Analog Devices, Inc. 73 3,180 Broadcom Corp. "A" 110 37,330 Intel Corp. 800 1,440 Linear Technology Corp. 40 5,530 LSI Corp.* 29 1,370 Microchip Technology, Inc. 38 6,140 Micron Technology, Inc.* 56 1,660 National Semiconductor Corp. 23 3,610 NVIDIA Corp.* 47 ================================================================================ PORTFOLIO OF INVESTMENTS | 33 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 8,770 Texas Instruments, Inc. $ 214 1,990 Xilinx, Inc. 49 -------- 1,575 -------- SYSTEMS SOFTWARE (1.5%) 1,755 BMC Software, Inc.* 65 1,110 McAfee, Inc.* 35 51,935 Microsoft Corp. 1,340 2,810 Novell, Inc.* 16 28,117 Oracle Corp. 635 620 Red Hat, Inc.* 18 5,910 Symantec Corp.* 84 -------- 2,193 -------- Total Information Technology 13,162 -------- MATERIALS (1.6%) ---------------- ALUMINUM (0.1%) 7,080 Alcoa, Inc. 82 -------- CONSTRUCTION MATERIALS (0.0%) 870 Vulcan Materials Co. 44 -------- DIVERSIFIED CHEMICALS (0.4%) 8,320 Dow Chemical Co. 224 5,660 E.I. du Pont de Nemours & Co. 205 470 Eastman Chemical Co. 28 1,260 PPG Industries, Inc. 81 -------- 538 -------- DIVERSIFIED METALS & MINING (0.1%) 2,961 Freeport-McMoRan Copper & Gold, Inc. 207 510 Titanium Metals Corp.* 9 -------- 216 -------- FERTILIZERS & AGRICULTURAL CHEMICALS (0.2%) 410 CF Industries Holdings, Inc. 28 3,930 Monsanto Co. 200 -------- 228 -------- FOREST PRODUCTS (0.0%) 1,495 Weyerhaeuser Co. 64 -------- GOLD (0.1%) 3,220 Newmont Mining Corp. 173 -------- INDUSTRIAL GASES (0.2%) 1,525 Air Products & Chemicals, Inc. 105 480 Airgas, Inc. 30 ================================================================================ 34 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 2,250 Praxair, Inc. $ 175 -------- 310 -------- METAL & GLASS CONTAINERS (0.1%) 690 Ball Corp. 34 1,440 Owens-Illinois, Inc.* 44 1,020 Pactiv Corp.* 29 -------- 107 -------- PAPER PACKAGING (0.0%) 790 Bemis Co., Inc. 23 1,350 Sealed Air Corp. 28 -------- 51 -------- PAPER PRODUCTS (0.1%) 3,700 International Paper Co. 86 1,460 MeadWestvaco Corp. 35 -------- 121 -------- SPECIALTY CHEMICALS (0.1%) 1,530 Ecolab, Inc. 72 570 International Flavors & Fragrances, Inc. 25 1,140 Sigma-Aldrich Corp. 61 -------- 158 -------- STEEL (0.2%) 960 AK Steel Holding Corp. 14 260 Allegheny Technologies, Inc. 14 800 Cliffs Natural Resources, Inc. 45 2,530 Nucor Corp. 109 970 United States Steel Corp. 46 -------- 228 -------- Total Materials 2,320 -------- TELECOMMUNICATION SERVICES (1.3%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (1.2%) 41,790 AT&T, Inc. 1,016 1,581 CenturyTel, Inc. 54 2,540 Frontier Communications Corp. 20 7,500 Qwest Communications International, Inc. 39 19,005 Verizon Communications, Inc. 523 3,606 Windstream Corp. 39 -------- 1,691 -------- WIRELESS TELECOMMUNICATION SERVICES (0.1%) 2,180 American Tower Corp. "A"* 88 2,120 MetroPCS Communications, Inc.* 19 ================================================================================ PORTFOLIO OF INVESTMENTS | 35 <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 24,510 Sprint Nextel Corp.* $ 126 -------- 233 -------- Total Telecommunication Services 1,924 -------- UTILITIES (1.7%) --------------- ELECTRIC UTILITIES (0.8%) 1,360 Allegheny Energy, Inc. 28 3,380 American Electric Power Co., Inc. 108 8,194 Duke Energy Corp. 131 2,810 Edison International 91 1,430 Entergy Corp. 107 2,925 Exelon Corp. 113 3,490 FPL Group, Inc. 174 1,480 Northeast Utilities 38 1,890 Pepco Holdings, Inc. 31 850 Pinnacle West Capital Corp. 30 3,020 PPL Corp. 78 2,080 Progress Energy, Inc. 80 5,510 Southern Co. 180 -------- 1,189 -------- GAS UTILITIES (0.1%) 1,130 EQT Corp. 44 360 Nicor, Inc. 15 1,260 Questar Corp. 56 -------- 115 -------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.1%) 5,750 AES Corp.* 59 1,520 Constellation Energy Group, Inc. 54 2,090 NRG Energy, Inc.* 49 -------- 162 -------- MULTI-UTILITIES (0.7%) 1,920 Ameren Corp. 47 2,760 CenterPoint Energy, Inc. 38 2,000 Consolidated Edison, Inc. 85 4,220 Dominion Resources, Inc. 164 920 DTE Energy Co. 42 621 Integrys Energy Group, Inc. 28 2,360 NiSource, Inc. 35 2,630 PG&E Corp. 109 3,670 Public Service Enterprise Group, Inc. 112 880 SCANA Corp. 32 ================================================================================ 36 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) ---------------------------------------------------------------------------------------------- 1,780 Sempra Energy $ 82 1,830 TECO Energy, Inc. 29 870 Wisconsin Energy Corp. 43 3,320 Xcel Energy, Inc. 68 -------- 914 -------- Total Utilities 2,380 -------- Total Blue Chip Stocks (cost: $51,905) 67,593 -------- TOTAL INVESTMENTS (COST: $134,111) $146,682 ======== ---------------------------------------------------------------------------------------------- ($ 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 ---------------------------------------------------------------------------------------------- Tax-Exempt Bonds $ -- $76,528 $-- $ 76,528 Tax-Exempt Money Market Instruments: Variable-Rate Demand Notes -- 2,500 -- 2,500 Money Market Funds 61 -- -- 61 Blue Chip Stocks 67,593 -- -- 67,593 ---------------------------------------------------------------------------------------------- Total $67,654 $79,028 $-- $146,682 ---------------------------------------------------------------------------------------------- ================================================================================ PORTFOLIO OF INVESTMENTS | 37 <PAGE> ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS May 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 CATEGORIES AND DEFINITIONS 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., Assured Guaranty Corp., Assured Guaranty Municipal Corp., Financial Guaranty Insurance Co., or National Public Finance Guarantee Corp. ================================================================================ 38 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that value may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. (LOC) Principal and interest payments are guaranteed by a bank letter of credit or other bank credit agreement. (NBGA) Principal and interest payments or, under certain circumstances, underlying mortgages are guaranteed by a nonbank guarantee agreement from Texas Permanent School Fund. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS ABAG Association of Bay Area Governments ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. EDA Economic Development Authority IDA Industrial Development Authority/Agency ISD Independent School District MTA Metropolitan Transportation Authority PRE Prerefunded to a date prior to maturity REIT Real estate investment trust USD Unified School District o SPECIFIC NOTES (a) Zero-coupon security. Rate represents the effective yield at the date of purchase. (b) Security deemed illiquid by USAA Investment Management Company (the Manager), under liquidity guidelines approved by the Board of Trustees. The aggregate market value of these ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 39 <PAGE> ================================================================================ securities at May 31, 2010, was $3,010,000, which represented 2.1% of the Fund's net assets. (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 the Manager under liquidity guidelines approved by the Board of Trustees, unless otherwise noted as illiquid. (d) At May 31, 2010, the aggregate market value of securities purchased on a delayed-delivery basis was $3,507,000, which included when-issued securities of $1,007,000. (e) At May 31, 2010, portions of these securities were segregated to cover delayed-delivery and/or when-issued purchases. (f) Rate represents the money market fund annualized seven-day yield at May 31, 2010. (g) Northern Trust Corp. is the parent of Northern Trust Investments, N.A., which is the subadviser of the Fund. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ 40 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) May 31, 2010 -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $134,111) $146,682 Cash 14 Receivables: Capital shares sold 19 Dividends and interest 1,177 -------- Total assets 147,892 -------- LIABILITIES Payables: Securities purchased 3,301 Capital shares redeemed 211 Accrued management fees 56 Accrued transfer agent's fees 1 Other accrued expenses and payables 72 -------- Total liabilities 3,641 -------- Net assets applicable to capital shares outstanding $144,251 ======== NET ASSETS CONSIST OF: Paid-in capital $149,663 Accumulated undistributed net investment income 753 Accumulated net realized loss on investments (18,736) Net unrealized appreciation of investments 12,571 -------- Net assets applicable to capital shares outstanding $144,251 ======== Capital shares outstanding, unlimited number of shares authorized, no par value 11,747 ======== Net asset value, redemption price, and offering price per share $ 12.28 ======== See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 41 <PAGE> ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Year ended May 31, 2010 -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 1,519 Interest 4,133 ------- Total income 5,652 ------- EXPENSES Management fees 636 Administration and servicing fees 216 Transfer agent's fees 183 Custody and accounting fees 94 Postage 9 Shareholder reporting fees 19 Trustees' fees 10 Registration fees 33 Professional fees 66 Other 4 ------- Total expenses 1,270 Transfer agent's fees reimbursed (Note 5D) (21) ------- Net expenses 1,249 ------- NET INVESTMENT INCOME 4,403 ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Unaffiliated transactions (1,810) Affiliated transactions (Note 7) 17 Change in net unrealized appreciation/depreciation 17,308 ------- Net realized and unrealized gain 15,515 ------- Increase in net assets resulting from operations $19,918 ======= See accompanying notes to financial statements. ================================================================================ 42 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Years ended May 31, ------------------------------------------------------------------------------------------ 2010 2009 ------------------------------------------------------------------------------------------ FROM OPERATIONS Net investment income $ 4,403 $ 4,910 Net realized loss on investments (1,793) (12,348) Change in net unrealized appreciation/depreciation of investments 17,308 (24,321) ----------------------- Increase (decrease) in net assets resulting from operations 19,918 (31,759) ----------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (4,460) (5,067) ----------------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 10,563 6,375 Reinvested dividends 4,163 4,709 Cost of shares redeemed (18,740) (21,651) ----------------------- Decrease in net assets from capital share transactions (4,014) (10,567) ----------------------- Net increase (decrease) in net assets 11,444 (47,393) NET ASSETS Beginning of year 132,807 180,200 ----------------------- End of year $144,251 $132,807 ======================= Accumulated undistributed net investment income: End of year $ 753 $ 809 ======================= CHANGE IN SHARES OUTSTANDING Shares sold 871 561 Shares issued for dividends reinvested 348 419 Shares redeemed (1,550) (1,958) ----------------------- Decrease in shares outstanding (331) (978) ======================= See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 43 <PAGE> ================================================================================ NOTES TO FINANCIAL STATEMENTS May 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 Growth and Tax Strategy Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund's investment objective is to seek a conservative balance between income, the majority of which is exempt from federal income tax, and the potential for long-term growth of capital to preserve purchasing power. A. SECURITY VALUATION -- The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the Nasdaq over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices is generally used. 2. Investments in open-end investment companies, hedge, or other funds, other than ETFs, are valued at their net asset value (NAV) at the end of each business day. ================================================================================ 44 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ 3. Debt securities purchased with original or remaining maturities of 60 days or less may be valued at amortized cost, which approximates market value. 4. Debt securities with maturities greater than 60 days are valued each business day by a pricing service (the Service) approved by the Trust's Board of Trustees. The Service uses an evaluated mean between quoted bid and asked prices or the last sales price to price securities when, in the Service's judgment, these prices are readily available and are representative of the securities' market values. For many securities, such prices are not readily available. The Service generally prices these securities based on methods that include consideration of yields or prices of securities of comparable quality, coupon, maturity, and type; indications as to values from dealers in securities; and general market conditions. 5. Securities for which market quotations are not readily available or are considered unreliable, or whose values have been materially affected by events occurring after the close of their primary markets but before the pricing of the Fund, are valued in good faith at fair value, using methods determined by USAA Investment Management Company (the Manager), an affiliate of the Fund, in consultation with the Fund's subadviser, if applicable, under valuation procedures approved by the Trust's Board of Trustees. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded and the actual price realized from the sale of a security may differ materially from the fair value price. Valuing these securities at fair value is intended to cause the Fund's NAV to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, or widely used quotation systems. 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, ================================================================================ NOTES TO FINANCIAL STATEMENTS | 45 <PAGE> ================================================================================ and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the portfolio of investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 -- inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 -- inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indices. Level 3 -- inputs to the valuation methodology are unobservable and significant to the fair value measurement, including the Manager's own assumptions in determining the fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. C. FEDERAL TAXES -- The Fund's policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its income to its shareholders. Therefore, no federal income tax provision is required. D. INVESTMENTS IN SECURITIES -- Security transactions are accounted for on the date the securities are purchased or sold (trade date). Gains or losses from sales of investment securities are computed on the identified cost basis. Dividend income, less foreign taxes, if any, is recorded on the ex-dividend date. If the ex-dividend date has passed, certain dividends from foreign securities are recorded upon notification. Interest income is recorded daily on the accrual basis. Discounts and premiums are amortized over the life of the ================================================================================ 46 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ respective securities, using the effective yield method for long-term securities and the straight-line method for short-term securities. E. SECURITIES PURCHASED ON A DELAYED-DELIVERY OR WHEN-ISSUED BASIS -- Delivery and payment for securities that have been purchased by the Fund on a delayed-delivery or when-issued basis can take place a month or more after the trade date. During the period prior to settlement, these securities do not earn interest, are subject to market fluctuation, and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its purchase commitments. The purchase of securities on a delayed-delivery or when-issued basis may increase the volatility of the Fund's NAV to the extent that the Fund makes such purchases while remaining substantially fully invested. As of May 31,2010, the Fund's outstanding delayed delivery commitments, including interest payments, were 3,301,000, which included when-issued securities of $1,000,000. F. EXPENSES PAID INDIRECTLY -- A portion of the brokerage commissions that the Fund pays may be recaptured as a credit that is tracked and used by the custodian to directly reduce expenses paid by the Fund. In addition, through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the year ended May 31, 2010, custodian and other bank credits reduced the Fund's expenses by less than $500. For the year ended May 31, 2010, the Fund did not incur any brokerage commission recapture credits. 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 =============================================================================== NOTES TO FINANCIAL STATEMENTS | 47 <PAGE> ================================================================================ that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. H. USE OF ESTIMATES -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to the rate at which CAPCO obtains funding in the capital markets, with no markup. The USAA funds that are party to the loan agreement are assessed facility fees by CAPCO based on the funds' assessed proportionate share of CAPCO's operating expenses related to obtaining and maintaining CAPCO's funding programs in total (in no event to exceed 0.13% annually of the amount of the committed loan agreement). Prior to September 25, 2009, the maximum annual facility fee was 0.07% of the amount of the committed loan agreement. The facility fees are allocated among the funds based on their respective average net assets for the period. For the year ended May 31, 2010, the Fund paid CAPCO facility fees of $1,000, which represents 0.4% of the total fees paid to CAPCO by the USAA funds. The Fund had no borrowings under this agreement during the year ended May 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, ================================================================================ 48 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ 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 distributions resulted in reclassifications to the statement of assets and liabilities to increase accumulated undistributed net investment income and increase accumulated net realized loss on investments by $1,000. These reclassifications had no effect on net assets. The tax character of distributions paid during the years ended May 31, 2010, and 2009, was as follows: 2010 2009 --------------------------------------- Ordinary income* $1,201,000 $1,344,000 Tax-exempt income 3,259,000 3,723,000 *Includes distribution of short-term realized capital gains, if any, which are taxable as ordinary income. As of May 31, 2010, the components of net assets representing distributable earnings on a tax basis were as follows: Undistributed tax-exempt income $ 655,000 Undistributed ordinary income 105,000 Accumulated capital and other losses (18,677,000) Unrealized appreciation 12,514,000 The difference between book-basis and tax-basis unrealized appreciation of investments is attributable to the tax deferral of losses on wash sales. Distributions of net investment income are made quarterly. 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 May 31, 2010, the Fund had a current post-October capital loss of $90,000 and capital loss carryovers of $18,587,000, for federal income tax purposes. The post-October loss will be recognized on the first day of the following fiscal year. If not offset by subsequent capital gains, the capital loss carryovers will expire ================================================================================ NOTES TO FINANCIAL STATEMENTS | 49 <PAGE> ================================================================================ between 2015 and 2018, as shown below. It is unlikely that the Trust's Board of Trustees will authorize a distribution of capital gains realized in the future until the capital loss carryovers have been used or expire. CAPITAL LOSS CARRYOVERS ---------------------------------------- EXPIRES BALANCE ------- ----------- 2015 $ 833,000 2017 6,222,000 2018 11,532,000 ----------- Total $18,587,000 =========== The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the statement of operations if the tax positions were deemed to not meet the more-likely-than-not threshold. For the year ended May 31, 2010, the Fund did not incur any income tax, interest, or penalties. As of May 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 May 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 May 31, 2010, were $25,394,000 and $28,128,000, respectively. As of May 31, 2010, the cost of securities, including short-term securities, for federal income tax purposes, was $134,168,000. Gross unrealized appreciation and depreciation of investments as of May 31, 2010, for federal income tax purposes, were $18,095,000 and ================================================================================ 50 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ $5,581,000, respectively, resulting in net unrealized appreciation of $12,514,000. (5) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES -- The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund and for directly managing the day-to-day investment of a portion of the Fund's assets, subject to the authority of and supervision by the Trust's Board of Trustees. The Manager is also authorized to select (with approval of the Trust's Board of Trustees and without shareholder approval) one or more subadvisers to manage the day-to-day investment of a portion of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis, and periodically recommends to the Trust's Board of Trustees as to whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadvisers. The allocation for each subadviser can range from 0% to 100% of the Fund's assets, and the Manager can change the allocations without shareholder approval. The investment management fee for the Fund is composed of a base fee and a performance adjustment. The Fund's base fee is accrued daily and paid monthly at an annualized rate of 0.50% of the Fund's average net assets for the fiscal year. The performance adjustment is calculated monthly by comparing the Fund's performance to the performance of certain Lipper indexes. The portion of the performance adjustment that includes periods beginning August 1, 2006, is based on a Composite Index comprised of 51% of the Lipper General Municipal Debt Funds Index, which tracks the total return performance of the 30 largest funds within this category, and 49% of the Lipper Large-Cap Core Funds Index, which tracks the total return performance of the 30 largest funds within this category. The portion of the performance adjustment ================================================================================ NOTES TO FINANCIAL STATEMENTS | 51 <PAGE> ================================================================================ that includes periods before August 1, 2006, is based on the Lipper Balanced Funds Index, which tracks the total return performance of the 30 largest funds within this category. The performance period for the Fund consists of the current month plus the previous 35 months. The following table is utilized to determine the extent of the performance adjustment: OVER/UNDER PERFORMANCE ANNUAL ADJUSTMENT RATE RELATIVE TO INDEX(1) AS A % OF THE FUND'S AVERAGE NET ASSETS(1) --------------------------------------------------------------------------- +/- 0.20% to 0.50% +/- 0.04% +/- 0.51% to 1.00% +/- 0.05% +/- 1.01% and greater +/- 0.06% (1)Based on the difference between average annual performance of the Fund and its relevant index, rounded to the nearest 0.01%. Average net assets are calculated over a rolling 36-month period. The annual performance adjustment rate is multiplied by the average net assets of the Fund over the entire performance period, which is then multiplied by a fraction, the numerator of which is the number of days in the month and the denominator of which is 365 (366 in leap years). The resulting amount is the performance adjustment; a positive adjustment in the case of overperformance, or a negative adjustment in the case of underperformance. Under the performance fee arrangement, the Fund will pay a positive performance fee adjustment for a performance period whenever the Fund outperforms the applicable Lipper index over that period, even if the Fund had overall negative returns during the performance period. For the year ended May 31, 2010, the Fund incurred total management fees, paid or payable to the Manager, of $636,000, which included a (0.06)% performance adjustment of $(83,000). B. SUBADVISORY ARRANGEMENTS -- The Manager has entered into an investment subadvisory agreement with Northern Trust Investments, N.A. (NTI), under which NTI directs the investment and reinvestment of the portion of the Fund's assets invested in blue chip stocks (as allocated from time to time by the Manager). The Manager (not the =============================================================================== 52 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ Fund) pays NTI a subadvisory fee equal to the greater of a minimum annual fee of $100,000 or a fee at an annual amount of 0.25% on the first $40 million of assets and 0.10% on assets over $40 million of the portion of the Fund's average net assets that NTI manages. For the year ended May 31, 2010, the Manager incurred subadvisory fees, paid or payable to NTI, of $128,000. C. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain administration and shareholder servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.15% of the Fund's average net assets. For the year ended May 31, 2010, the Fund incurred administration and servicing fees, paid or payable to the Manager, of $216,000. 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 May 31, 2010, the Fund reimbursed the Manager $6,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's statement of operations. D. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund based on an annual charge of $25.50 per shareholder account plus out-of-pocket expenses. The Fund also pays SAS fees that are related to the administration and servicing of accounts that are traded on an omnibus basis. For the year ended May 31, 2010, the Fund incurred transfer agent's fees, paid or payable to SAS, of $183,000. During the year ended May 31, 2010, SAS reimbursed the Fund $21,000 for corrections in fees paid for the administration and servicing of certain accounts. E. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis. The Manager receives no commissions or fees for this service. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 53 <PAGE> ================================================================================ (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 May 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 Growth and USAA New York Tax Strategy Fund Bond Fund $4,029,000 $17,000 (8) NEW ACCOUNTING PRONOUNCEMENTS 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. ================================================================================ 54 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ (9) FINANCIAL HIGHLIGHTS Per share operating performance for a share outstanding throughout each period is as follows: YEAR ENDED MAY 31, -------------------------------------------------------------------- 2010 2009 2008 2007 2006 -------------------------------------------------------------------- Net asset value at beginning of period $ 11.00 $ 13.80 $ 14.75 $ 14.40 $ 14.65 -------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .37 .40 .40 .38 .36 Net realized and unrealized gain (loss) 1.28 (2.80) (.96) 1.37 .71 -------------------------------------------------------------------- Total from investment operations 1.65 (2.40) (.56) 1.75 1.07 -------------------------------------------------------------------- Less distributions from: Net investment income (.37) (.40) (.39) (.39) (.34) Realized capital gains - - - (1.01) (.98) -------------------------------------------------------------------- Total distributions (.37) (.40) (.39) (1.40) (1.32) -------------------------------------------------------------------- Net asset value at end of period $ 12.28 $ 11.00 $ 13.80 $ 14.75 $ 14.40 ==================================================================== Total return (%)* 15.17(b) (17.38) (3.81) 12.67(a) 7.38 Net assets at end of period (000) $144,251 $132,807 $180,200 $201,778 $191,755 Ratios to average net assets:** Expenses (%)(c) .88(b) .90 .89 .91(a) .83 Net investment income (%) 3.06 3.46 2.80 2.66 2.44 Portfolio turnover (%) 18 25 38 37 111 * 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 May 31, 2010, average net assets were $143,797,000. (a) For the year ended May 31, 2007, SAS voluntarily reimbursed the Fund for a portion of the transfer agent's fees incurred. The reimbursement had no effect on the Fund's total return or ratio of expenses to average net assets. (b) During the year ended May 31, 2010, SAS reimbursed the Fund $21,000 for corrections in fees paid for the administration and servicing of certain accounts. The effect of this reimbursement on the Fund's total return was less than 0.01%. The reimbursement decreased the Fund's expense ratios by 0.01%. This decrease is excluded from the expense ratios above. (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%)(+) (.00%)(+) (.00%)(+) (.01%) (+)Represents less than 0.01% of average net assets. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 55 <PAGE> ================================================================================ EXPENSE EXAMPLE May 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 December 1, 2009, through May 31, 2010. ACTUAL EXPENSES The first line of the table on the next page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this ================================================================================ 56 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as wire fees, redemption fees, or low balance fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would have been higher. EXPENSES PAID BEGINNING ENDING DURING PERIOD* ACCOUNT VALUE ACCOUNT VALUE DECEMBER 1, 2009 - DECEMBER 1, 2009 MAY 31, 2010 MAY 31, 2010 -------------------------------------------------------------- Actual $1,000.00 $1,021.10 $4.28 Hypothetical (5% return before expenses) 1,000.00 1,020.69 4.28 * Expenses are equal to the Fund's annualized expense ratio of 0.85%, 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 2.11% for the six-month period of December 1, 2009, through May 31, 2010. ================================================================================ EXPENSE EXAMPLE | 57 <PAGE> ================================================================================ ADVISORY AGREEMENTS May 31, 2010 -------------------------------------------------------------------------------- At a meeting of the Board of Trustees (the Board) held on April 9, 2010, the Board, including the Trustees who are not "interested persons" of the Trust (the Independent Trustees), approved the continuance of the Advisory Agreement between the Trust and the Manager with respect to the Fund and the Subadvisory Agreement with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and Subadvisory Agreement and the Manager and the Subadviser, and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's and Subadviser's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuance of the Advisory Agreement and the Subadvisory Agreement with management and with experienced independent counsel and received materials from such counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement and the Subadvisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement and the Subadvisory Agreement with respect to the Fund in private sessions with their counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning ================================================================================ 58 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ the Fund's performance and related services provided by the Manager and by the Subadviser. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning Fund performance, comparability of fees and total expenses, and profitability. However, the Board noted that the evaluation process with respect to the Manager and the Subadviser is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement and Subadvisory Agreement included certain information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by independent counsel. NATURE, EXTENT, AND QUALITY OF SERVICES -- In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its familiarity with the Manager's management through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the Manager's management style and the performance of its duties under the Advisory Agreement. The Board ================================================================================ ADVISORY AGREEMENTS | 59 <PAGE> ================================================================================ considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of its senior and investment personnel, as well as current staffing levels. The Board discussed the Manager's effectiveness in monitoring the performance of the Subadviser and its timeliness in responding to performance issues. The allocation of the Fund's brokerage, including the Manager's process for monitoring "best execution," also was considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing investment companies, including the Fund. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager, including oversight of the Fund's day-to-day operations and oversight of Fund accounting. The Manager and its affiliates provide compliance and administrative services to the Fund. The Trustees, guided also by information obtained from their experiences as directors/trustees of the Fund and other investment companies managed by the Manager, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE -- In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objective and classification, sales load type (in this case, investment companies with no sales loads and front-end loads), asset size, and expense components (the "expense group") and (ii) a larger group of investment companies that includes all no-load and front-end load retail open-end investment companies in the same ================================================================================ 60 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ investment classification/objective as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate -- which includes advisory and administrative services and the effects of any performance fee adjustment -- was below the median of its expense group and its expense universe. The data indicated that the Fund's total expenses were below the median of its expense group and its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates. The Board also noted the level and method of computing the management fee, including any performance adjustment to such fee. The Board also took into account that the subadvisory fees under the Subadvisory Agreement are paid by the Manager. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with the same classification/objective as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and lower than its Lipper index for the one-year period ended December 31, 2009, and was lower than the average of its performance universe and its Lipper index for the three-, and five-year periods ended December 31, 2009. The Board also noted that the Fund's percentile performance ranking was in the top 50% of its performance universe for the one-year period ended December 31, 2009, and in the bottom 50% of its performance universe for the three-, and five-year periods ended December 31, 2009. The Board took into account management's discussion ================================================================================ ADVISORY AGREEMENTS | 61 <PAGE> ================================================================================ of the factors that contributed to the Fund's relative performance, including its Lipper peer group, and any plans to address such performance. The Board also noted the more recent improvement in the Fund's performance. COMPENSATION AND PROFITABILITY -- The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This consideration included a broad review of the methodology used in the allocation of certain costs to the Fund. In considering the profitability data with respect to the Fund, the Trustees noted that the Manager pays the subadvisory fees. The Trustees reviewed the profitability of the Manager's relationship with the Fund before tax expenses. In reviewing the overall profitability of the management fee to the Manager, the Board also considered the fact that affiliates provide shareholder servicing and administrative services to the Fund for which they receive compensation. The Board also considered the possible direct and indirect benefits to the Manager from its relationship with the Trust, including that the Manager may derive reputational and other benefits from its association with the Fund. The Trustees recognized that the Manager should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the Fund and the entrepreneurial risk that it assumes as Manager. ECONOMIES OF SCALE -- The Board considered whether there should be changes in the management fee rate or structure in order to enable the Fund to participate in any economies of scale. The Board took into account management's discussions of the current advisory fee structure. The Board also considered the effect of the Fund's growth and size on its performance and fees, noting that if the Fund's assets increase over time, the Fund may realize other economies of scale if assets increase proportionally more than some expenses. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS -- The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the ================================================================================ 62 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the overall performance of the Fund is reasonable in relation to the performance of funds with a similar investment objective and to relevant indices; (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager; and (v) the Manager and its affiliates' level of profitability from their relationship with the Fund is reasonable. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. SUBADVISORY AGREEMENT In approving the Subadvisory Agreement with respect to the Fund, the Board considered various factors, among them: (i) the nature, extent, and quality of services provided to the Fund by the Subadviser, including the personnel providing services; (ii) the Subadviser's compensation and any other benefits derived from the subadvisory relationship; (iii) comparisons of subadvisory fees and performance to comparable investment companies; and (iv) the terms of the Subadvisory Agreement. The Board's analysis of these factors is set forth below. After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Subadvisory Agreement. In approving the Subadvisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by independent counsel. NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL -- The Trustees considered information provided to them regarding the services provided by the Subadviser, including information presented periodically throughout the previous year. The Board considered the Subadviser's level of knowledge and investment style. The Board reviewed the experience and credentials of the investment personnel who are responsible for managing the investment of portfolio securities ================================================================================ ADVISORY AGREEMENTS | 63 <PAGE> ================================================================================ with respect to the Fund and the Subadviser's level of staffing. The Trustees noted that the materials provided to them by the Subadviser indicated that the method of compensating portfolio managers is reasonable and includes appropriate mechanisms to prevent a manager with underperformance from taking undue risks. The Trustees also noted the Subadviser's brokerage practices. The Board also considered the Subadviser's regulatory and compliance history. The Board noted that the Manager's monitoring processes of the Subadviser include: (i) regular telephonic meetings to discuss, among other matters, investment strategies and to review portfolio performance; (ii) monthly portfolio compliance checklists and quarterly compliance certifications to the Board; and (iii) due diligence visits to the Subadviser. SUBADVISER COMPENSATION -- The Board also took into consideration the financial condition of the Subadviser. In considering the cost of services to be provided by the Subadviser and the profitability to the Subadviser of its relationship with the Fund, the Trustees noted that the fees under the Subadvisory Agreement were paid by the Manager. The Trustees also relied on the ability of the Manager to negotiate the Subadvisory Agreement and the fees thereunder at arm's length. The Board also considered information relating to the cost of services to be provided by the Subadviser, the Subadviser's profitability with respect to the Fund, and the potential economies of scale in the Subadviser's management of the Fund, to the extent available. However, for the reasons noted above, this information was less significant to the Board's consideration of the Subadvisory Agreement than the other factors considered. SUBADVISORY FEES AND FUND PERFORMANCE -- The Board noted that it was reported that the subadvisory fees that the Subadviser charges the Fund are unique due to the type of fund and could not be compared to the fees that the Subadviser charges to other clients. The Board considered that the Fund pays a management fee to the Manager and that, in turn, the Manager pays a subadvisory fee to the Subadviser. As noted above, the Board considered, among other data, the Fund's performance during the one-, three-, and five-year periods ended December 31, 2009, as compared to the Fund's peer group and noted that the Board reviews at ================================================================================ 64 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ its regularly scheduled meetings information about the Fund's performance results. The Board also considered the performance of the Subadviser. The Board noted the Manager's expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadviser. The Board was mindful of the Manager's focus on the Subadviser's performance and the explanations of management regarding the factors that contributed to the recent performance of the Fund. The Board also noted the Subadviser's long-term performance record for similar accounts. CONCLUSIONS -- The Board reached the following conclusions regarding the Subadvisory Agreement, among others: (i) the Subadviser is qualified to manage the Fund's assets in accordance with its investment objectives and policies; (ii) the Subadviser maintains an appropriate compliance program; (iii) the overall performance of the Fund is reasonable in relation to the performance of funds with a similar investment objective and to relevant indices; and (iv) the Fund's advisory expenses are reasonable in relation to those of similar funds and to the services to be provided by the Manager and the Subadviser. Based on its conclusions, the Board determined that approval of the Subadvisory Agreement with respect to the Fund would be in the best interests of the Fund and its shareholders. ================================================================================ ADVISORY AGREEMENTS | 65 <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 May 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). ================================================================================ 66 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ INTERESTED TRUSTEE(1) -------------------------------------------------------------------------------- CHRISTOPHER W. CLAUS(2, 4) Trustee, President, and Vice Chair of the Board of Trustees Born: December 1960 Year of Election or Appointment: 2001 Chair of the Board of Directors, IMCO (11/04-present); President, IMCO (2/08-10/09); Chief Investment Officer, IMCO (2/07-2/08); President and 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 Shareholder Account Services (SAS), USAA Financial Planning Services Insurance Agency, Inc. (FPS), and FAI. He also serves as 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 | 67 <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 Business 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. ================================================================================ 68 | USAA GROWTH AND TAX STRATEGY 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 | 69 <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). R. MATTHEW FREUND Vice President Born: July 1963 Year of Appointment: 2010 Senior Vice President, Investment Portfolio Management, IMCO (3/10-present); Vice President, Fixed Income Investments, IMCO (2/04-3/10). Mr. Freund 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). CHRISTOPHER P. LAIA Secretary Born: January 1960 Year of Appointment: 2010 Vice President, Financial Advice & Solutions Group General Counsel, USAA (10/08-present); Vice President, Securities Counsel, USAA (6/07-10/08); Assistant Secretary, USAA family of funds (11/08-4/10); General Counsel, Secretary, and Partner, Brown Advisory (6/02-6/07). Mr. Laia also holds the Officer positions of Vice President and Secretary of IMCO and SAS and Vice President and Assistant Secretary of FAI and FPS. ================================================================================ 70 | USAA GROWTH AND TAX STRATEGY FUND <PAGE> ================================================================================ JAMES G. WHETZEL Assistant Secretary Born: February 1978 Year of Appointment: 2010 Executive Attorney, Financial Advice & Solutions Group General Counsel, USAA (11/08-present); Reed Smith, LLP, Associate (08/05-11/08). ROBERTO GALINDO, JR. Treasurer Born: November 1960 Year of Appointment: 2008 Assistant Vice President, Portfolio Accounting/Financial Administration, USAA (12/02-present); Assistant Treasurer, USAA family of funds (7/00-2/08). WILLIAM A. SMITH Assistant Treasurer Born: June 1948 Year of Appointment: 2009 Vice President, Senior Financial Officer, and Treasurer, IMCO, FAI, FPS, SAS and USAA Life (2/09-present); Vice President, Senior Financial Officer, USAA (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 | 71 <PAGE> ================================================================================ TRUSTEES Christopher W. Claus Barbara B. Dreeben Robert L. Mason, Ph.D. Barbara B. Ostdiek, Ph.D. Michael F. Reimherr Richard A. Zucker -------------------------------------------------------------------------------- ADMINISTRATOR, USAA Investment Management Company INVESTMENT ADVISER, P.O. Box 659453 UNDERWRITER, AND San Antonio, Texas 78265-9825 DISTRIBUTOR -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1800 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "Products & Services" SELF-SERVICE 24/7 click "Investments," then AT USAA.COM "Mutual Funds" OR CALL Under "My Accounts" go to (800) 531-USAA "Investments." View account balances, (8722) or click "I want to...," and select the desired action. -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM; and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (i) at USAA.COM; and (ii) on the SEC's Web site at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM; and (iii) on the SEC's 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) ============================================================================= 23403-0710 (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 10 funds of the Registrant have a fiscal year-end of May 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 May 31, 2010 and 2009 were
$280,916 and $288,764, 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 May 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 May 31, 2010 and 2009. (d) ALL OTHER FEES. No such fees were billed by Ernst & Young LLP for fiscal years ended May 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 May 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. <PAGE> APPENDIX A COVERED OFFICERS PRESIDENT TREASURER <PAGE> (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 May 31, 2010 By:* /s/ CHRISTOPHER P. LAIA -------------------------------------------------------------- Signature and Title: Christopher P. Laia, Secretary Date: August 6, 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: August 6, 2010 ------------------------------ By:* /s/ ROBERTO GALINDO, JR. ----------------------------------------------------- Signature and Title: Roberto Galindo, Jr., Treasurer Date: August 6, 2010 ------------------------------ *Print the name and title of each signing officer under his or her signature.
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