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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/S CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-7852 Exact name of registrant as specified in charter: USAA MUTUAL FUNDS TRUST Address of principal executive offices and zip code: 9800 FREDERICKSBURG ROAD SAN ANTONIO, TX 78288 Name and address of agent for service: CHRISTOPHER P. LAIA USAA MUTUAL FUNDS TRUST 9800 FREDERICKSBURG ROAD SAN ANTONIO, TX 78288 Registrant's telephone number, including area code: (210) 498-0226 Date of fiscal year end: DECEMBER 31, Date of reporting period: JUNE 30, 2010 ITEM 1. SEMIANNUAL REPORT TO STOCKHOLDERS. USAA MUTUAL FUNDS TRUST - SEMIANNUAL REPORT FOR PERIOD ENDED JUNE 30, 2010
[LOGO OF USAA] USAA(R) [GRAPHIC OF USAA S&P 500 INDEX FUND] =============================================== SEMIANNUAL REPORT USAA S&P 500 INDEX FUND MEMBER SHARES o REWARD SHARES JUNE 30, 2010 =============================================== ================================================================================ <PAGE> ================================================================================ FUND OBJECTIVE SEEKS TO MATCH, BEFORE FEES AND EXPENSES, THE PERFORMANCE OF THE S&P 500 INDEX. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS Normally, at least 80% of the Fund's assets will be invested in the stocks of companies composing the S&P 500 Index. 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 MANAGER'S COMMENTARY 4 FUND RECOGNITION 6 INVESTMENT OVERVIEW 8 FINANCIAL INFORMATION Portfolio of Investments 14 Notes to Portfolio of Investments 36 Financial Statements 38 Notes to Financial Statements 41 EXPENSE EXAMPLE 57 ADVISORY AGREEMENTS 59 THIS REPORT IS FOR THE INFORMATION OF THE SHAREHOLDERS AND OTHERS WHO HAVE RECEIVED A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND, MANAGED BY USAA INVESTMENT MANAGEMENT COMPANY. IT MAY BE USED AS SALES LITERATURE ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS, WHICH PROVIDES FURTHER DETAILS ABOUT THE FUND. (C)2010, USAA. All rights reserved. ================================================================================ <PAGE> ================================================================================ PRESIDENT'S MESSAGE ". . . INVESTORS MAY WANT TO REVIEW THEIR LONG-TERM INVESTMENT STRATEGY. IT'S VITAL TO [PHOTO OF DANIEL S. McNAMARA] CONTINUE -- AND EVEN INCREASE -- INVESTING IF YOU WANT TO LIVE THE RETIREMENT LIFESTYLE YOU ENVISION." -------------------------------------------------------------------------------- JULY 2010 At the beginning of 2010, optimism permeated the financial markets. Stocks had just finished a strong year (the S&P 500 Index was up 26.5% in 2009). Supported by stimulus spending by the federal government, the U.S. economy was showing signs of improvement. The housing market was stabilizing after several years of falling prices. At the same time, corporate earnings, driven by surprisingly strong top-line growth, were better than expected. Unemployment remained high, but renewed job growth was widely expected at any moment. During the spring, however, the markets were rattled by the European debt crisis and its potential impact on European banks. There was growing investor uncertainty about regulatory changes pending in Washington (related to the health care, financial, and energy industries). Sentiment was further eroded by the still-unexplained April "flash crash" in the U.S. stock market and BP's oil spill in the Gulf of Mexico. As a result, the outlook for the U.S. economy grew more uncertain as 2010 progressed. The federal government is winding down its stimulus spending and many observers have questioned whether the nation's economic recovery will be self-sustaining. The housing market has suffered more setbacks. In May, just a month after the federal tax subsidy ended, sales of new single-family homes dropped 33% to the lowest seasonally adjusted rate since records began in 1963. Meanwhile, unemployment remains stubbornly high with most of the job growth coming from government hiring of census workers. Bonds generally provided positive results during the six-month period, but the performance of the stock market was disappointing (the S&P 500 Index returned -6.7% between January 1 and June 30, 2010). Many investors continue to stay on the sidelines, primarily in low-yielding money market funds. But while there is reason for caution, long-term investors should also take into account the improvement in U.S. corporate balance sheets and the favorable outlook for U.S. corporate earnings. ================================================================================ 2 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ While I find investors' lack of engagement understandable, I grow more concerned about it with every passing day. Americans are not saving enough for their retirements. Two-thirds have less than $50,000 in retirement savings (excluding the value of their home and any traditional pension). Fortunately, many people still have time to grow their retirement nest egg. Furthermore, a number of catch-up provisions allow those over the age of 50 to increase their contributions to individual retirement accounts (IRAs). Under the circumstances, investors may want to review their long-term investment strategy. It's vital to continue -- and even increase -- investing if you want to live the retirement lifestyle you envision. However, this is based upon what is most suitable for your needs. For assistance, please feel free to call one of our USAA service representatives at 1-800-531-8722. They are available to help you free of charge. At USAA Investment Management Company, we are proud of the investment team that manages our family of no-load mutual funds. Seasoned professionals all, they understand the markets and are skilled at making the tactical decisions necessary to pursue opportunities during market declines and to help reduce exposure when valuations are rich. This ability can be especially valuable during periods of market turmoil. I would argue that given the economic headwinds it may be more important than ever. Certainly, it makes sense to have some of the industry's top investment talent managing your hard-earned money. Rest assured that in the months ahead, we will continue working hard on your behalf. From all of us, thank you for your continued confidence in us. We appreciate the opportunity to help you with your investment needs. Sincerely, /s/ Daniel S. McNamara Daniel S. McNamara President USAA Investment Management Company INVESTING IN SECURITIES PRODUCTS INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL. As interest rates rise, bond prices fall. o Past performance is no guarantee of future results. o Mutual fund operating expenses apply and continue throughout the life of the fund. 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. 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. ================================================================================ PRESIDENT'S MESSAGE | 3 <PAGE> ================================================================================ MANAGER'S COMMENTARY ON THE FUND -------------------------------------------------------------------------------- o HOW DID THE USAA S&P 500 INDEX FUND (THE FUND) PERFORM? The Fund closely tracked its benchmark, the S&P 500 Index (the Index), for the six-month period ended June 30, 2010. The Fund produced a return of -6.78% (Member Shares) and -6.71% (Reward Shares) for the period, as compared to -6.65% for the benchmark. The broad-based Index is a group of large company stocks that is not available for direct investment. o WHAT WERE THE MARKET CONDITIONS DURING THE PERIOD? For the first half of 2010, large-capitalization stocks, as represented by the Index, returned -6.65%. Mid-cap stocks, as represented by the S&P 400 MidCap Index, returned -1.36% for the period and small-cap stocks, as represented by the Russell 2000 Index, returned -1.95%. In 2010, large cap stocks underperformed both mid-cap stocks and small caps stocks. o PLEASE DESCRIBE SECTOR PERFORMANCE. All sectors finished the second quarter in negative territory. Information technology, the largest sector in the Index with a weight of 18.69%, was down -10.57% for the year. Financials, the second largest sector, was down -3.67% for the year. Health Care and Industrials, which represent just over 20% of the Index, posted returns of -8.79% and -0.85% respectively. Refer to pages 9 and 11 for benchmark definitions. Past performance is no guarantee of future results. ================================================================================ 4 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ The year started in negative territory as U.S. indexes posted negative returns in January fueled by mixed corporate earnings and continued concerns around jobless data and consumer confidence. February and March posted positive returns as many U.S. corporations posted unexpected positive earnings and the market saw an increase in corporate activity. On February 18, 2010, the Federal Reserve Board (the Fed) increased the discount rate 25 basis points to 0.75% and markets continued to rally. For the first quarter of 2010, the U.S. dollar strengthened relative to the Japanese yen, the euro, and the British pound, but weakened versus the Canadian dollar and the Australian dollar. Positive performance ended in the second quarter as concerns about the strength of the global economy along with the sovereign debt crisis in Europe turned the U.S. equity markets negative for 2010. The quarter started with a better than expected earnings season and multiple mergers and acquisitions (M&A) announcements; however, disappointing macroeconomic data and a fraud charge by the Securities and Exchange Commission against Goldman Sachs in mid-April reversed the market trend. Multiple sovereign credit downgrades in Europe placed further downward pressure on performance. In May, continued eurozone debt uncertainty, pending financial regulation, and the oil spill in the Gulf of Mexico all impacted the U.S. equity markets. In mid-June M&A activity and comments from the Fed provided a brief rally, but the market quickly reverted after disappointing U.S. home sales, gross domestic product, and several lower-than-expected corporate earnings and guidance announcements. o WHAT'S THE OUTLOOK? We don't manage the Fund according to a given outlook for the equity markets or the economy in general, because we're managing an index fund that seeks to replicate as closely as possible (before deduction of expenses) the broad diversification and returns of the Index. Nevertheless, we will monitor economic conditions and their effect on the financial markets as we seek to track the Index's performance closely. Thank you for your investment in the Fund. ================================================================================ MANAGER'S COMMENTARY ON THE FUND | 5 <PAGE> ================================================================================ FUND RECOGNITION USAA S&P 500 INDEX FUND -------------------------------------------------------------------------------- LIPPER LEADER (OVERALL) MEMBER AND REWARD SHARES [5] TAX EFFICIENCY The Fund's Member and Reward shares are listed as a Lipper Leader for Tax Efficiency among 160 funds within the Lipper S&P 500 Index Funds category for the overall period ended June 30, 2010. The Fund's Member and Reward shares received a Lipper Leader rating for Tax Efficiency amongst 160 and 147 for the three- and five-year periods, respectively, and the Fund's Member shares received a Lipper Leader rating among 98 funds for the 10-year period. Lipper ratings for Tax Efficiency reflect funds' historical success in postponing taxable distributions relative to peers as of June 30, 2010. Tax efficiency offers no benefits to investors in tax-sheltered accounts such as 401(k) plans. ================================================================================ 6 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ LIPPER LEADERS (OVERALL) REWARD SHARES [5] [5] [5] [5] TOTAL RETURN PRESERVATION EXPENSE TAX EFFICIENCY The Fund's Reward Shares are listed as a Lipper Leader for Total Return, Expense, and Tax Efficiency among 160, 47 and 160 funds, respectively, within the Lipper S&P 500 Index Funds category, and for Preservation among 9,704 equity funds, for the overall period ended June 30, 2010. The Fund's Reward Shares received a Lipper Leader rating for Total Return among 160 and 147 funds for the three- and five-year periods, respectively, a Lipper Leader rating for Preservation among 7,658 funds for the five-year period and a score of 4 among 9,704 funds for the three-year period within the Lipper S&P 500 Index Funds category. The Fund's Reward shares received a Lipper Leader rating for Expense among 47 and 43 equity funds for the three- and five-year periods, respectively. The Fund's Reward shares received a Lipper Leader rating for Tax Efficiency among 160 and 147 funds for the three- and five-year periods, respectively. Lipper ratings for Total Return reflect funds' historical total return performance relative to peers as of June 30, 2010. Lipper ratings for Preservation reflect funds' historical loss avoidance relative to other funds within the same asset class as of June 30, 2010. Preservation ratings are relative, rather than absolute, measures, and funds named Lipper Leaders for Preservation may still experience losses periodically; those losses may be larger for equity and mixed equity funds than for fixed-income funds. Lipper ratings for Expense reflect funds' expense minimization relative to peers with similar load structures as of June 30, 2010. Lipper ratings for Tax Efficiency reflect funds' historical success in postponing taxable distributions relative to peers as of June 30, 2010. Tax efficiency offers no benefits to investors in tax-sheltered accounts such as 401(k) plans. -------------------------------------------------------------------------------- Ratings are subject to change every month and are based on an equal-weighted average of percentile ranks for the Total Return, Consistent Return, Preservation, Expense, and Tax Efficiency 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. ================================================================================ FUND RECOGNITION | 7 <PAGE> ================================================================================ INVESTMENT OVERVIEW USAA S&P 500 INDEX FUND MEMBER SHARES (Ticker Symbol: USSPX) -------------------------------------------------------------------------------- 6/30/10 12/31/09 -------------------------------------------------------------------------------- Net Assets $1,682.7 Million $1,831.6 Million Net Asset Value Per Share $15.45 $16.71 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/10 -------------------------------------------------------------------------------- 12/31/09 to 6/30/10* 1 YEAR 5 YEARS 10 YEARS -6.78% 14.16% -0.98% -1.81% -------------------------------------------------------------------------------- EXPENSE RATIO** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 0.40% AFTER REIMBURSEMENT 0.25% *Total returns for periods of less than one year are not annualized. This six-month return is cumulative. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ** THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES AND EXPENSES AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY (IMCO). BEFORE AND AFTER REIMBURSEMENT EXPENSE RATIOS ARE REPORTED IN THE FUND'S PROSPECTUS DATED MAY 1, 2010. IMCO HAS AGREED, THROUGH MAY 1, 2011, TO MAKE PAYMENTS OR WAIVE MANAGEMENT, ADMINISTRATION, AND OTHER FEES TO LIMIT THE EXPENSES OF THE MEMBER SHARES SO THAT THE TOTAL ANNUAL OPERATING EXPENSES OF THE MEMBER SHARES (EXCLUSIVE OF COMMISSION RECAPTURE, EXPENSE OFFSET ARRANGEMENTS, ACQUIRED FUND FEES AND EXPENSES, AND EXTRAORDINARY EXPENSES) DO NOT EXCEED AN ANNUAL RATE OF 0.25% OF THE MEMBER SHARES' AVERAGE DAILY NET ASSETS. THIS REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME PERIOD WITHOUT APPROVAL OF THE FUND'S BOARD OF TRUSTEES AND MAY BE CHANGED OR TERMINATED BY IMCO AT ANY TIME AFTER MAY 1, 2011. THESE EXPENSE RATIOS MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The performance data excludes the impact of a $10 account maintenance fee that is assessed on accounts of less than $10,000. Performance of Member Shares will vary from Reward Shares due to differences in expenses. ================================================================================ 8 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o MEMBER SHARES [CHART OF CUMULATIVE PERFORMANCE COMPARISON] USAA S&P 500 INDEX S&P 500 INDEX FUND -- MEMBER SHARES 6/30/2000 $10,000.00 $10,000.00 7/31/2000 9,843.70 9,845.61 8/31/2000 10,455.09 10,454.34 9/30/2000 9,903.13 9,903.13 10/31/2000 9,861.26 9,858.90 11/30/2000 9,083.81 9,080.45 12/31/2000 9,128.27 9,125.34 1/31/2001 9,452.13 9,446.17 2/28/2001 8,590.27 8,584.51 3/31/2001 8,046.07 8,038.78 4/30/2001 8,671.34 8,659.27 5/31/2001 8,729.43 8,714.43 6/30/2001 8,516.97 8,498.66 7/31/2001 8,433.13 8,415.70 8/31/2001 7,905.20 7,890.29 9/30/2001 7,266.84 7,252.83 10/31/2001 7,405.41 7,391.59 11/30/2001 7,973.45 7,955.91 12/31/2001 8,043.30 8,022.07 1/31/2002 7,925.92 7,905.88 2/28/2002 7,773.07 7,752.50 3/31/2002 8,065.41 8,040.84 4/30/2002 7,576.42 7,551.40 5/31/2002 7,520.60 7,495.46 6/30/2002 6,984.91 6,958.84 7/31/2002 6,440.55 6,421.03 8/31/2002 6,482.69 6,458.44 9/30/2002 5,778.15 5,755.63 10/31/2002 6,286.73 6,263.07 11/30/2002 6,656.76 6,629.55 12/31/2002 6,265.69 6,242.06 1/31/2003 6,101.55 6,072.21 2/28/2003 6,010.00 5,982.57 3/31/2003 6,068.35 6,034.37 4/30/2003 6,568.21 6,531.70 5/31/2003 6,914.27 6,872.73 6/30/2003 7,002.47 6,955.38 7/31/2003 7,125.93 7,078.90 8/31/2003 7,264.91 7,211.93 9/30/2003 7,187.76 7,131.13 10/31/2003 7,594.37 7,536.58 11/30/2003 7,661.18 7,598.58 12/31/2003 8,062.97 7,993.15 1/31/2004 8,210.97 8,136.74 2/29/2004 8,325.10 8,246.82 3/31/2004 8,199.50 8,122.04 4/30/2004 8,070.78 7,992.43 5/31/2004 8,181.54 8,098.04 6/30/2004 8,340.63 8,253.25 7/31/2004 8,064.58 7,978.79 8/31/2004 8,097.20 8,007.68 9/30/2004 8,184.89 8,091.15 10/31/2004 8,309.94 8,216.82 11/30/2004 8,646.17 8,545.50 12/31/2004 8,940.39 8,832.99 1/31/2005 8,722.47 8,618.85 2/28/2005 8,906.02 8,798.92 3/31/2005 8,748.32 8,642.16 4/30/2005 8,582.40 8,476.05 5/31/2005 8,855.48 8,744.75 6/30/2005 8,868.05 8,755.93 7/31/2005 9,197.84 9,079.68 8/31/2005 9,113.92 8,996.29 9/30/2005 9,187.73 9,067.78 10/31/2005 9,034.56 8,915.09 11/30/2005 9,376.27 9,250.02 12/31/2005 9,379.49 9,254.13 1/31/2006 9,627.88 9,496.62 2/28/2006 9,654.01 9,521.36 3/31/2006 9,774.18 9,639.05 4/30/2006 9,905.42 9,763.26 5/31/2006 9,620.33 9,485.02 6/30/2006 9,633.37 9,495.90 7/31/2006 9,692.80 9,550.79 8/31/2006 9,923.42 9,775.34 9/30/2006 10,179.15 10,026.46 10/31/2006 10,510.84 10,352.16 11/30/2006 10,710.72 10,547.58 12/31/2006 10,860.96 10,691.77 1/31/2007 11,025.22 10,852.85 2/28/2007 10,809.58 10,641.43 3/31/2007 10,930.48 10,758.15 4/30/2007 11,414.65 11,233.37 5/31/2007 11,812.96 11,622.64 6/30/2007 11,616.71 11,430.51 7/31/2007 11,256.54 11,075.21 8/31/2007 11,425.27 11,237.64 9/30/2007 11,852.57 11,658.03 10/31/2007 12,041.10 11,841.55 11/30/2007 11,537.71 11,341.99 12/31/2007 11,457.66 11,260.71 1/31/2008 10,770.41 10,584.45 2/29/2008 10,420.53 10,241.20 3/31/2008 10,375.53 10,191.42 4/30/2008 10,880.85 10,690.70 5/31/2008 11,021.79 10,824.52 6/30/2008 10,092.61 9,910.94 7/31/2008 10,007.77 9,828.18 8/31/2008 10,152.53 9,967.84 9/30/2008 9,247.87 9,074.85 10/31/2008 7,694.71 7,551.11 11/30/2008 7,142.58 7,005.05 12/31/2008 7,218.58 7,079.36 1/31/2009 6,610.15 6,481.99 2/28/2009 5,906.31 5,790.30 3/31/2009 6,423.68 6,297.76 4/30/2009 7,038.49 6,899.05 5/31/2009 7,432.17 7,284.09 6/30/2009 7,446.91 7,299.65 7/31/2009 8,010.18 7,850.97 8/31/2009 8,299.38 8,131.93 9/30/2009 8,609.07 8,433.52 10/31/2009 8,449.14 8,273.80 11/30/2009 8,955.95 8,768.95 12/31/2009 9,128.94 8,939.64 1/31/2010 8,800.53 8,618.65 2/28/2010 9,073.15 8,880.79 3/31/2010 9,620.67 9,418.83 4/30/2010 9,772.56 9,563.82 5/31/2010 8,992.21 8,795.92 6/30/2010 8,521.48 8,333.23 [END CHART] Data from 6/30/00 to 6/30/10. The graph illustrates how a $10,000 hypothetical investment in the USAA S&P 500 Index Fund's Member Shares closely tracks the S&P 500 Index. The S&P 500 Index is an unmanaged index representing the weighted average performance of a group of 500 widely held, publicly traded stocks. "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for our use. The USAA S&P 500 Index Fund is not sponsored, endorsed, sold, or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the USAA S&P 500 Index Fund. o Index products incur fees and expenses and may not always be invested in all securities of the index the Fund attempts to mirror. It is not possible to invest directly in an index. 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. ================================================================================ INVESTMENT OVERVIEW | 9 <PAGE> ================================================================================ USAA S&P 500 INDEX FUND REWARD SHARES (Ticker Symbol: USPRX) -------------------------------------------------------------------------------- 6/30/10 12/31/09 -------------------------------------------------------------------------------- Net Assets $911.1 Million $894.0 Million Net Asset Value Per Share $15.45 $16.71 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/10 -------------------------------------------------------------------------------- 12/31/09 to 6/30/10* 1 YEAR 5 YEARS SINCE INCEPTION 5/01/02 -6.71% 14.34% -0.86% 1.23% -------------------------------------------------------------------------------- EXPENSE RATIO** -------------------------------------------------------------------------------- BEFORE REIMBURSEMENT 0.23% AFTER REIMBURSEMENT 0.09% *Total returns for periods of less than one year are not annualized. This six-month return is cumulative. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END, VISIT USAA.COM. ** THE BEFORE REIMBURSEMENT EXPENSE RATIO REPRESENTS THE TOTAL ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND INCLUDING ANY ACQUIRED FUND FEES AND EXPENSES AND IS CALCULATED AS A PERCENTAGE OF AVERAGE NET ASSETS. THE AFTER REIMBURSEMENT EXPENSE RATIO REPRESENTS TOTAL ANNUAL OPERATING EXPENSES, BEFORE REDUCTIONS OF ANY EXPENSES PAID INDIRECTLY AND EXCLUDING ANY ACQUIRED FUND FEES AND EXPENSES, AFTER REIMBURSEMENT FROM USAA INVESTMENT MANAGEMENT COMPANY (IMCO). BEFORE AND AFTER REIMBURSEMENT EXPENSE RATIOS ARE REPORTED IN THE FUND'S PROSPECTUS DATED MAY 1, 2010. IMCO HAS AGREED, THROUGH MAY 1, 2011, TO MAKE PAYMENTS OR WAIVE MANAGEMENT, ADMINISTRATION, AND OTHER FEES TO LIMIT THE EXPENSES OF THE REWARD SHARES SO THAT THE TOTAL ANNUAL OPERATING EXPENSES OF THE REWARD SHARES (EXCLUSIVE OF COMMISSION RECAPTURE, EXPENSE OFFSET ARRANGEMENTS, ACQUIRED FUND FEES AND EXPENSES, AND EXTRAORDINARY EXPENSES) DO NOT EXCEED AN ANNUAL RATE OF 0.09% OF THE REWARD SHARES' AVERAGE DAILY NET ASSETS. THIS REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME PERIOD WITHOUT APPROVAL OF THE FUND'S BOARD OF TRUSTEES AND MAY BE CHANGED OR TERMINATED BY IMCO AT ANY TIME AFTER MAY 1, 2011. THESE EXPENSE RATIOS MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS. Total return measures the price change in a share assuming the reinvestment of all net investment income and realized capital gain distributions. The total returns quoted do not reflect adjustments made to the enclosed financial statements in accordance with U.S. generally accepted accounting principles or the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. ================================================================================ 10 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o REWARD SHARES [CHART OF CUMULATIVE PERFORMANCE COMPARISON] USAA S&P 500 INDEX S&P 500 INDEX FUND -- REWARD SHARES 4/30/2002 $10,000.00 $10,000.00 5/31/2002 9,926.33 9,834.86 6/30/2002 9,219.28 9,132.62 7/31/2002 8,500.79 8,426.81 8/31/2002 8,556.41 8,482.04 9/30/2002 7,626.50 7,559.41 10/31/2002 8,297.76 8,225.87 11/30/2002 8,786.16 8,707.21 12/31/2002 8,269.99 8,200.15 1/31/2003 8,053.34 7,977.01 2/28/2003 7,932.51 7,859.25 3/31/2003 8,009.53 7,935.34 4/30/2003 8,669.28 8,582.61 5/31/2003 9,126.04 9,030.72 6/30/2003 9,242.46 9,144.24 7/31/2003 9,405.41 9,306.64 8/31/2003 9,588.84 9,481.53 9/30/2003 9,487.01 9,379.66 10/31/2003 10,023.69 9,912.95 11/30/2003 10,111.88 9,994.52 12/31/2003 10,642.20 10,518.03 1/31/2004 10,837.53 10,706.98 2/29/2004 10,988.17 10,858.13 3/31/2004 10,822.40 10,692.00 4/30/2004 10,652.50 10,521.38 5/31/2004 10,798.69 10,660.40 6/30/2004 11,008.67 10,871.11 7/31/2004 10,644.31 10,509.59 8/31/2004 10,687.37 10,547.64 9/30/2004 10,803.12 10,661.87 10/31/2004 10,968.16 10,821.09 11/30/2004 11,411.95 11,260.56 12/31/2004 11,800.29 11,640.03 1/31/2005 11,512.65 11,357.84 2/28/2005 11,754.93 11,595.13 3/31/2005 11,546.77 11,389.20 4/30/2005 11,327.78 11,176.74 5/31/2005 11,688.21 11,530.84 6/30/2005 11,704.80 11,541.98 7/31/2005 12,140.09 11,975.21 8/31/2005 12,029.32 11,865.29 9/30/2005 12,126.75 11,956.26 10/31/2005 11,924.59 11,754.93 11/30/2005 12,375.60 12,203.05 12/31/2005 12,379.84 12,205.16 1/31/2006 12,707.70 12,524.98 2/28/2006 12,742.18 12,557.61 3/31/2006 12,900.79 12,715.75 4/30/2006 13,074.02 12,886.17 5/31/2006 12,697.73 12,512.56 6/30/2006 12,714.95 12,530.42 7/31/2006 12,793.38 12,609.44 8/31/2006 13,097.77 12,905.74 9/30/2006 13,435.30 13,240.27 10/31/2006 13,873.11 13,670.15 11/30/2006 14,136.92 13,928.08 12/31/2006 14,335.22 14,122.06 1/31/2007 14,552.02 14,334.72 2/28/2007 14,267.40 14,055.60 3/31/2007 14,426.98 14,206.41 4/30/2007 15,066.03 14,840.62 5/31/2007 15,591.76 15,354.67 6/30/2007 15,332.73 15,097.99 7/31/2007 14,857.34 14,628.69 8/31/2007 15,080.05 14,849.93 9/30/2007 15,644.03 15,401.95 10/31/2007 15,892.87 15,644.40 11/30/2007 15,228.45 14,991.15 12/31/2007 15,122.80 14,887.77 1/31/2008 14,215.71 13,994.09 2/29/2008 13,753.90 13,533.72 3/31/2008 13,694.51 13,477.98 4/30/2008 14,361.48 14,131.13 5/31/2008 14,547.50 14,314.83 6/30/2008 13,321.09 13,112.08 7/31/2008 13,209.11 12,995.80 8/31/2008 13,400.18 13,187.32 9/30/2008 12,206.12 12,011.53 10/31/2008 10,156.13 9,988.97 11/30/2008 9,427.38 9,273.51 12/31/2008 9,527.69 9,369.04 1/31/2009 8,724.64 8,585.40 2/28/2009 7,795.66 7,669.99 3/31/2009 8,478.52 8,337.74 4/30/2009 9,289.99 9,140.79 5/31/2009 9,809.61 9,650.55 6/30/2009 9,829.07 9,667.85 7/31/2009 10,572.51 10,398.03 8/31/2009 10,954.22 10,777.16 9/30/2009 11,362.98 11,173.88 10/31/2009 11,151.89 10,969.31 11/30/2009 11,820.82 11,625.35 12/31/2009 12,049.15 11,849.24 1/31/2010 11,615.69 11,423.77 2/28/2010 11,975.52 11,778.33 3/31/2010 12,698.18 12,488.85 4/30/2010 12,898.65 12,681.10 5/31/2010 11,868.68 11,670.03 6/30/2010 11,247.38 11,054.13 [END CHART] *Data from 4/30/02 to 6/30/10. The graph illustrates how a $10,000 hypothetical investment in the USAA S&P 500 Index Fund's Reward Shares closely tracks the S&P 500 Index. The S&P 500 Index is an unmanaged index representing the weighted average performance of a group of 500 widely held, publicly traded stocks. *The performance of the S&P 500 Index is calculated from the end of the month, April 30, 2002, while the Reward Shares were introduced on May 1, 2002. There may be a slight variation of the performance numbers because of this difference. "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for our use. The USAA S&P 500 Index Fund is not sponsored, endorsed, sold, or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the USAA S&P 500 Index Fund. o Index products incur fees and expenses and may not always be invested in all securities of the index the Fund attempts to mirror. It is not possible to invest directly in an index. 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. ================================================================================ INVESTMENT OVERVIEW | 11 <PAGE> ================================================================================ TOP 10 EQUITY HOLDINGS AS OF 6/30/10 (% of Net Assets) Exxon Mobil Corp. ............................................... 3.1% Apple, Inc. ..................................................... 2.4% Microsoft Corp. ................................................. 1.8% Procter & Gamble Co. ............................................ 1.8% Johnson & Johnson ............................................... 1.7% International Business Machines Corp. ........................... 1.7% General Electric Co. ............................................ 1.6% JPMorgan Chase & Co. ............................................ 1.5% Bank of America Corp. ........................................... 1.5% AT&T, Inc. ...................................................... 1.5% You will find a complete list of securities that the Fund owns on pages 14-34. ================================================================================ 12 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ o SECTOR ALLOCATION* -- 6/30/2010 o [PIE CHART OF SECTOR ALLOCATION] INFORMATION TECHNOLOGY 18.4% FINANCIALS 16.0% HEALTH CARE 11.9% CONSUMER STAPLES 11.3% ENERGY 10.5% INDUSTRIALS 10.1% CONSUMER DISCRETIONARY 9.9% UTILITIES 3.7% MATERIALS 3.4% TELECOMMUNICATION SERVICES 3.0% [END CHART] * Excludes money market instruments and short-term investments purchased with cash collateral from securities loaned. Percentages are of the net assets of the Fund and may not equal 100%. ================================================================================ INVESTMENT OVERVIEW | 13 <PAGE> ================================================================================ PORTFOLIO OF INVESTMENTS June 30, 2010 (unaudited) -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- COMMON STOCKS (98.2%) CONSUMER DISCRETIONARY (9.9%) ----------------------------- ADVERTISING (0.1%) 125,600 Interpublic Group of Companies, Inc.* $ 895 81,829 Omnicom Group, Inc. 2,807 ---------- 3,702 ---------- APPAREL & ACCESSORIES & LUXURY GOODS (0.2%) 85,308 Coach, Inc. 3,118 16,067 Polo Ralph Lauren Corp. 1,172 24,463 VF Corp. 1,742 ---------- 6,032 ---------- APPAREL RETAIL (0.5%) 24,477 Abercrombie & Fitch Co. "A" 751 121,851 Gap, Inc. 2,371 75,412 Limited Brands, Inc. 1,664 32,945 Ross Stores, Inc. 1,756 111,505 TJX Companies, Inc. 4,678 35,400 Urban Outfitters, Inc.* 1,218 ---------- 12,438 ---------- AUTO PARTS & EQUIPMENT (0.2%) 184,187 Johnson Controls, Inc. 4,949 ---------- AUTOMOBILE MANUFACTURERS (0.4%) 930,773 Ford Motor Co.* 9,382 ---------- AUTOMOTIVE RETAIL (0.2%) 24,711 AutoNation, Inc.(g)* 482 7,899 AutoZone, Inc.* 1,526 60,968 CarMax, Inc.* 1,213 37,100 O'Reilly Automotive, Inc.* 1,765 ---------- 4,986 ---------- BROADCASTING (0.2%) 181,071 CBS Corp. "B" 2,341 76,573 Discovery Communications, Inc. "A"* 2,734 25,920 Scripps Networks Interactive "A" 1,046 ---------- 6,121 ---------- ================================================================================ 14 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- CABLE & SATELLITE (1.0%) 773,717 Comcast Corp. "A" $ 13,439 248,366 DIRECTV "A"* 8,425 96,512 Time Warner Cable, Inc. 5,026 ---------- 26,890 ---------- CASINOS & GAMING (0.1%) 82,696 International Game Technology 1,299 19,289 Wynn Resorts Ltd. 1,471 ---------- 2,770 ---------- COMPUTER & ELECTRONICS RETAIL (0.2%) 93,250 Best Buy Co., Inc. 3,157 44,000 GameStop Corp. "A"* 827 37,414 RadioShack Corp. 730 ---------- 4,714 ---------- CONSUMER ELECTRONICS (0.0%) 17,411 Harman International Industries, Inc.* 520 ---------- DEPARTMENT STORES (0.4%) 62,900 J.C. Penney Co., Inc. 1,351 83,430 Kohl's Corp.* 3,963 118,671 Macy's, Inc. 2,124 45,300 Nordstrom, Inc. 1,458 13,018 Sears Holdings Corp.(g)* 842 ---------- 9,738 ---------- DISTRIBUTORS (0.1%) 43,400 Genuine Parts Co. 1,712 ---------- EDUCATION SERVICES (0.1%) 35,781 Apollo Group, Inc. "A"* 1,520 16,900 DeVry, Inc. 887 ---------- 2,407 ---------- FOOTWEAR (0.3%) 105,747 NIKE, Inc. "B" 7,143 ---------- GENERAL MERCHANDISE STORES (0.5%) 23,800 Big Lots, Inc.* 764 38,000 Family Dollar Stores, Inc. 1,432 201,695 Target Corp. 9,917 ---------- 12,113 ---------- HOME FURNISHINGS (0.0%) 42,796 Leggett & Platt, Inc. 859 ---------- ================================================================================ PORTFOLIO OF INVESTMENTS | 15 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- HOME IMPROVEMENT RETAIL (0.8%) 456,761 Home Depot, Inc. $ 12,821 390,549 Lowe's Companies, Inc. 7,975 ---------- 20,796 ---------- HOMEBUILDING (0.1%) 70,449 D.R. Horton, Inc. 693 48,914 Lennar Corp. "A" 680 92,350 Pulte Group, Inc.* 765 ---------- 2,138 ---------- HOMEFURNISHING RETAIL (0.1%) 72,959 Bed Bath & Beyond, Inc.* 2,705 ---------- HOTELS, RESORTS & CRUISE LINES (0.3%) 116,867 Carnival Corp. 3,534 70,936 Marriott International, Inc. "A" 2,124 50,800 Starwood Hotels & Resorts Worldwide, Inc. 2,104 47,262 Wyndham Worldwide Corp. 952 ---------- 8,714 ---------- HOUSEHOLD APPLIANCES (0.1%) 43,922 Stanley Black & Decker, Inc. 2,219 20,193 Whirlpool Corp. 1,773 ---------- 3,992 ---------- HOUSEWARES & SPECIALTIES (0.1%) 42,967 Fortune Brands, Inc. 1,684 73,100 Newell Rubbermaid, Inc. 1,070 ---------- 2,754 ---------- INTERNET RETAIL (0.5%) 93,660 Amazon.com, Inc.* 10,233 56,053 Expedia, Inc. 1,053 13,242 Priceline.com, Inc.* 2,338 ---------- 13,624 ---------- LEISURE PRODUCTS (0.1%) 33,800 Hasbro, Inc. 1,389 99,300 Mattel, Inc. 2,101 ---------- 3,490 ---------- MOTORCYCLE MANUFACTURERS (0.1%) 64,900 Harley-Davidson, Inc. 1,443 ---------- MOVIES & ENTERTAINMENT (1.5%) 611,028 News Corp. "A" 7,308 309,572 Time Warner, Inc. 8,950 ================================================================================ 16 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- 164,944 Viacom, Inc. "B" $ 5,174 536,547 Walt Disney Co. 16,901 ---------- 38,333 ---------- PHOTOGRAPHIC PRODUCTS (0.0%) 75,400 Eastman Kodak Co.(g)* 327 ---------- PUBLISHING (0.2%) 61,200 Gannett Co., Inc. 824 83,532 McGraw-Hill Companies, Inc. 2,351 10,000 Meredith Corp. 311 35,200 New York Times Co. "A"* 305 1,767 Washington Post Co. "B" 725 ---------- 4,516 ---------- RESTAURANTS (1.2%) 39,155 Darden Restaurants, Inc. 1,521 293,442 McDonald's Corp. 19,329 205,499 Starbucks Corp. 4,994 128,100 Yum! Brands, Inc. 5,001 ---------- 30,845 ---------- SPECIALIZED CONSUMER SERVICES (0.1%) 90,300 H&R Block, Inc. 1,417 ---------- SPECIALTY STORES (0.2%) 71,700 Office Depot, Inc.* 289 199,418 Staples, Inc. 3,799 33,600 Tiffany & Co. 1,274 ---------- 5,362 ---------- TIRES & RUBBER (0.0%) 64,800 Goodyear Tire & Rubber Co.* 644 ---------- Total Consumer Discretionary 257,576 ---------- CONSUMER STAPLES (11.3%) ------------------------ AGRICULTURAL PRODUCTS (0.2%) 175,153 Archer-Daniels-Midland Co. 4,522 ---------- BREWERS (0.1%) 42,300 Molson Coors Brewing Co. "B" 1,792 ---------- DISTILLERS & VINTNERS (0.1%) 30,745 Brown-Forman Corp. "B" 1,760 56,500 Constellation Brands, Inc. "A"* 882 ---------- 2,642 ---------- ================================================================================ PORTFOLIO OF INVESTMENTS | 17 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- DRUG RETAIL (0.7%) 370,106 CVS Caremark Corp. $ 10,852 265,486 Walgreen Co. 7,088 ---------- 17,940 ---------- FOOD DISTRIBUTORS (0.2%) 160,351 Sysco Corp. 4,581 ---------- FOOD RETAIL (0.3%) 175,045 Kroger Co. 3,446 106,689 Safeway, Inc. 2,097 55,425 SUPERVALU, Inc. 601 46,020 Whole Foods Market, Inc.* 1,658 ---------- 7,802 ---------- HOUSEHOLD PRODUCTS (2.6%) 37,374 Clorox Co. 2,323 134,551 Colgate-Palmolive Co. 10,598 113,873 Kimberly-Clark Corp. 6,904 786,631 Procter & Gamble Co. 47,182 ---------- 67,007 ---------- HYPERMARKETS & SUPER CENTERS (1.3%) 120,081 Costco Wholesale Corp. 6,584 567,818 Wal-Mart Stores, Inc.(f) 27,295 ---------- 33,879 ---------- PACKAGED FOODS & MEAT (1.7%) 51,707 Campbell Soup Co. 1,853 120,646 ConAgra Foods, Inc. 2,813 48,600 Dean Foods Co.* 489 182,835 General Mills, Inc. 6,494 86,869 H.J. Heinz Co. 3,755 44,800 Hershey Co. 2,147 19,200 Hormel Foods Corp. 777 33,102 J.M. Smucker Co. 1,993 70,229 Kellogg Co. 3,533 475,138 Kraft Foods, Inc. "A" 13,304 36,559 McCormick & Co., Inc. 1,388 54,528 Mead Johnson Nutrition Co. 2,733 177,219 Sara Lee Corp. 2,499 87,352 Tyson Foods, Inc. "A" 1,432 ---------- 45,210 ---------- ================================================================================ 18 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- PERSONAL PRODUCTS (0.2%) 117,513 Avon Products, Inc. $ 3,114 33,823 Estee Lauder Companies, Inc. "A" 1,885 ---------- 4,999 ---------- SOFT DRINKS (2.4%) 629,626 Coca-Cola Co. 31,557 88,701 Coca-Cola Enterprises, Inc. 2,294 68,900 Dr Pepper Snapple Group, Inc. 2,576 441,265 PepsiCo, Inc. 26,895 ---------- 63,322 ---------- TOBACCO (1.5%) 570,475 Altria Group, Inc. 11,432 42,493 Lorillard, Inc. 3,059 506,334 Philip Morris International, Inc. 23,210 45,600 Reynolds American, Inc. 2,377 ---------- 40,078 ---------- Total Consumer Staples 293,774 ---------- ENERGY (10.5%) -------------- COAL & CONSUMABLE FUELS (0.2%) 60,084 CONSOL Energy, Inc. 2,028 29,480 Massey Energy Co. 806 74,819 Peabody Energy Corp. 2,928 ---------- 5,762 ---------- INTEGRATED OIL & GAS (6.4%) 549,144 Chevron Corp. 37,265 407,004 ConocoPhillips 19,980 1,398,491 Exxon Mobil Corp.(f) 79,812 79,705 Hess Corp. 4,012 192,197 Marathon Oil Corp. 5,975 52,801 Murphy Oil Corp. 2,616 221,837 Occidental Petroleum Corp. 17,115 ---------- 166,775 ---------- OIL & GAS DRILLING (0.2%) 19,100 Diamond Offshore Drilling, Inc.(g) 1,188 28,500 Helmerich & Payne, Inc. 1,041 79,334 Nabors Industries Ltd.* 1,398 33,700 Rowan Companies, Inc.* 739 ---------- 4,366 ---------- ================================================================================ PORTFOLIO OF INVESTMENTS | 19 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- OIL & GAS EQUIPMENT & SERVICES (1.5%) 115,939 Baker Hughes, Inc. $ 4,820 67,001 Cameron International Corp.* 2,179 34,150 FMC Technologies, Inc.* 1,798 244,395 Halliburton Co. 6,000 115,517 National Oilwell Varco, Inc. 3,820 325,858 Schlumberger Ltd. 18,033 66,484 Smith International, Inc. 2,503 ---------- 39,153 ---------- OIL & GAS EXPLORATION & PRODUCTION (1.7%) 135,936 Anadarko Petroleum Corp. 4,906 92,283 Apache Corp. 7,769 26,950 Cabot Oil & Gas Corp. 844 180,599 Chesapeake Energy Corp. 3,784 106,791 Denbury Resources, Inc.* 1,563 121,368 Devon Energy Corp. 7,394 69,115 EOG Resources, Inc. 6,799 46,961 Noble Energy, Inc. 2,833 32,546 Pioneer Natural Resources Co. 1,935 43,244 Range Resources Corp. 1,736 95,302 Southwestern Energy Co.* 3,683 ---------- 43,246 ---------- OIL & GAS REFINING & MARKETING (0.2%) 33,888 Sunoco, Inc. 1,178 41,000 Tesoro Corp. 479 150,826 Valero Energy Corp. 2,712 ---------- 4,369 ---------- OIL & GAS STORAGE & TRANSPORTATION (0.3%) 198,795 El Paso Corp. 2,209 174,700 Spectra Energy Corp. 3,506 161,949 Williams Companies, Inc. 2,960 ---------- 8,675 ---------- Total Energy 272,346 ---------- FINANCIALS (16.0%) ------------------ ASSET MANAGEMENT & CUSTODY BANKS (1.2%) 70,060 Ameriprise Financial, Inc. 2,531 332,407 Bank of New York Mellon Corp., Inc. 8,207 22,400 Federated Investors, Inc. "B" 464 40,626 Franklin Resources, Inc. 3,502 124,056 Invesco Ltd. 2,088 ================================================================================ 20 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- 50,388 Janus Capital Group, Inc. $ 447 46,221 Legg Mason, Inc. 1,296 65,600 Northern Trust Corp.(c) 3,063 138,498 State Street Corp. 4,684 72,149 T. Rowe Price Group, Inc. 3,203 ---------- 29,485 ---------- CONSUMER FINANCE (0.8%) 328,240 American Express Co. 13,031 124,121 Capital One Financial Corp. 5,002 149,955 Discover Financial Services 2,097 133,300 SLM Corp.* 1,385 ---------- 21,515 ---------- DIVERSIFIED BANKS (1.9%) 46,977 Comerica, Inc. 1,730 523,533 U.S. Bancorp 11,701 1,423,823 Wells Fargo & Co. 36,450 ---------- 49,881 ---------- INSURANCE BROKERS (0.2%) 71,354 Aon Corp. 2,649 149,679 Marsh & McLennan Companies, Inc. 3,375 ---------- 6,024 ---------- INVESTMENT BANKING & BROKERAGE (1.2%) 265,257 Charles Schwab Corp. 3,761 53,280 E*TRADE Financial Corp.* 630 140,546 Goldman Sachs Group, Inc. 18,449 381,469 Morgan Stanley 8,854 ---------- 31,694 ---------- LIFE & HEALTH INSURANCE (1.1%) 126,418 AFLAC, Inc. 5,394 83,811 Lincoln National Corp. 2,036 224,506 MetLife, Inc. 8,477 88,934 Principal Financial Group, Inc. 2,085 126,760 Prudential Financial, Inc. 6,802 22,907 Torchmark Corp. 1,134 90,400 Unum Group 1,962 ---------- 27,890 ---------- MULTI-LINE INSURANCE (0.4%) 37,832 American International Group, Inc.(g)* 1,303 28,958 Assurant, Inc. 1,005 136,946 Genworth Financial, Inc. "A"* 1,790 ================================================================================ PORTFOLIO OF INVESTMENTS | 21 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- 119,758 Hartford Financial Services Group, Inc. $ 2,650 95,426 Loews Corp. 3,179 ---------- 9,927 ---------- MULTI-SECTOR HOLDINGS (0.1%) 50,400 Leucadia National Corp.* 983 ---------- OTHER DIVERSIFIED FINANCIAL SERVICES (4.0%) 2,741,453 Bank of America Corp.(f) 39,395 6,178,484 Citigroup, Inc.(f)* 23,231 1,086,858 JPMorgan Chase & Co. 39,790 ---------- 102,416 ---------- PROPERTY & CASUALTY INSURANCE (2.2%) 147,712 Allstate Corp. 4,244 452,298 Berkshire Hathaway, Inc. "B"* 36,044 89,923 Chubb Corp. 4,497 45,792 Cincinnati Financial Corp. 1,185 183,737 Progressive Corp. 3,439 134,969 Travelers Companies, Inc. 6,647 91,600 XL Capital Ltd. "A" 1,466 ---------- 57,522 ---------- REAL ESTATE SERVICES (0.0%) 69,456 CB Richard Ellis Group, Inc. "A"* 945 ---------- REGIONAL BANKS (1.1%) 188,300 BB&T Corp. 4,954 222,171 Fifth Third Bancorp 2,731 62,573 First Horizon National Corp.* 717 206,550 Huntington Bancshares, Inc. 1,144 248,304 KeyCorp 1,909 22,700 M&T Bank Corp. 1,928 148,766 Marshall & Ilsley Corp. 1,068 143,573 PNC Financial Services Group, Inc. 8,112 318,602 Regions Financial Corp. 2,096 137,230 SunTrust Banks, Inc. 3,198 40,868 Zions Bancorp 882 ---------- 28,739 ---------- REITs - DIVERSIFIED (0.1%) 43,246 Vornado Realty Trust 3,155 ---------- REITs - INDUSTRIAL (0.1%) 125,285 ProLogis 1,269 ---------- ================================================================================ 22 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- REITs - OFFICE (0.1%) 37,400 Boston Properties, Inc. $ 2,668 ---------- REITs - RESIDENTIAL (0.2%) 34,660 Apartment Investment & Management Co. "A" 672 23,104 AvalonBay Communities, Inc. 2,157 76,686 Equity Residential Properties Trust 3,193 ---------- 6,022 ---------- REITs - RETAIL (0.3%) 114,268 Kimco Realty Corp. 1,536 79,669 Simon Property Group, Inc. 6,433 ---------- 7,969 ---------- REITs - SPECIALIZED (0.5%) 80,297 HCP, Inc. 2,590 32,236 Health Care REIT, Inc. 1,358 181,732 Host Hotels & Resorts, Inc. 2,450 45,600 Plum Creek Timber Co., Inc.(g) 1,574 36,857 Public Storage 3,240 43,390 Ventas, Inc. 2,037 ---------- 13,249 ---------- SPECIALIZED FINANCE (0.4%) 18,028 CME Group, Inc. 5,076 20,400 IntercontinentalExchange, Inc.* 2,306 53,100 Moody's Corp.(g) 1,057 40,200 Nasdaq OMX Group, Inc.* 715 72,137 NYSE Euronext 1,993 ---------- 11,147 ---------- THRIFTS & MORTGAGE FINANCE (0.1%) 129,310 Hudson City Bancorp, Inc. 1,583 105,388 People's United Financial, Inc. 1,422 ---------- 3,005 ---------- Total Financials 415,505 ---------- HEALTH CARE (11.9%) ------------------- BIOTECHNOLOGY (1.4%) 260,677 Amgen, Inc.* 13,711 72,820 Biogen Idec, Inc.* 3,455 126,481 Celgene Corp.* 6,428 21,623 Cephalon, Inc.* 1,227 73,719 Genzyme Corp.* 3,743 242,790 Gilead Sciences, Inc.* 8,323 ---------- 36,887 ---------- ================================================================================ PORTFOLIO OF INVESTMENTS | 23 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- HEALTH CARE DISTRIBUTORS (0.4%) 78,970 AmerisourceBergen Corp. $ 2,507 97,415 Cardinal Health, Inc. 3,274 73,822 McKesson Corp. 4,958 27,600 Patterson Companies, Inc. 788 ---------- 11,527 ---------- HEALTH CARE EQUIPMENT (1.7%) 162,489 Baxter International, Inc. 6,604 63,400 Becton, Dickinson & Co. 4,287 406,176 Boston Scientific Corp.* 2,356 25,011 C.R. Bard, Inc. 1,939 48,707 Carefusion Corp.* 1,106 45,742 Hospira, Inc.* 2,628 10,642 Intuitive Surgical, Inc.* 3,359 302,388 Medtronic, Inc. 10,968 87,151 St. Jude Medical, Inc.* 3,145 78,016 Stryker Corp. 3,905 33,300 Varian Medical Systems, Inc.* 1,741 55,175 Zimmer Holdings, Inc.* 2,982 ---------- 45,020 ---------- HEALTH CARE FACILITIES (0.0%) 114,549 Tenet Healthcare Corp.* 497 ---------- HEALTH CARE SERVICES (0.8%) 28,000 DaVita, Inc.* 1,748 150,542 Express Scripts, Inc.* 7,079 27,453 Laboratory Corp. of America Holdings* 2,069 125,824 Medco Health Solutions, Inc.* 6,930 42,393 Quest Diagnostics, Inc. 2,110 ---------- 19,936 ---------- HEALTH CARE SUPPLIES (0.1%) 40,000 DENTSPLY International, Inc. 1,196 ---------- HEALTH CARE TECHNOLOGY (0.1%) 18,345 Cerner Corp.* 1,392 ---------- LIFE SCIENCES TOOLS & SERVICES (0.5%) 48,523 Life Technologies Corp.* 2,293 15,822 Millipore Corp.* 1,687 32,900 PerkinElmer, Inc. 680 112,085 Thermo Fisher Scientific, Inc.* 5,498 25,082 Waters Corp.* 1,623 ---------- 11,781 ---------- ================================================================================ 24 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- MANAGED HEALTH CARE (0.9%) 114,177 Aetna, Inc. $ 3,012 75,856 CIGNA Corp. 2,356 40,880 Coventry Health Care, Inc.* 723 48,172 Humana, Inc.* 2,200 310,953 UnitedHealth Group, Inc. 8,831 116,439 WellPoint, Inc.* 5,697 ---------- 22,819 ---------- PHARMACEUTICALS (6.0%) 421,383 Abbott Laboratories 19,712 83,853 Allergan, Inc. 4,885 468,923 Bristol-Myers Squibb Co. 11,695 279,456 Eli Lilly and Co. 9,362 81,700 Forest Laboratories, Inc.* 2,241 753,121 Johnson & Johnson 44,479 65,400 King Pharmaceuticals, Inc.* 496 851,768 Merck & Co., Inc. 29,786 88,293 Mylan, Inc.(g)* 1,505 2,204,801 Pfizer, Inc.(f) 31,441 28,800 Watson Pharmaceuticals, Inc.* 1,169 ---------- 156,771 ---------- Total Health Care 307,826 ---------- INDUSTRIALS (10.1%) ------------------- AEROSPACE & DEFENSE (2.8%) 207,798 Boeing Co. 13,039 105,823 General Dynamics Corp. 6,197 34,492 Goodrich Corp. 2,285 207,819 Honeywell International, Inc. 8,111 50,567 ITT Corp. 2,272 32,230 L-3 Communications Holdings, Inc. 2,283 85,412 Lockheed Martin Corp. 6,363 80,825 Northrop Grumman Corp. 4,400 38,300 Precision Castparts Corp. 3,942 105,141 Raytheon Co. 5,088 42,393 Rockwell Collins, Inc. 2,252 255,567 United Technologies Corp. 16,589 ---------- 72,821 ---------- AIR FREIGHT & LOGISTICS (1.0%) 44,206 C.H. Robinson Worldwide, Inc. 2,460 56,326 Expeditors International of Washington, Inc. 1,944 ================================================================================ PORTFOLIO OF INVESTMENTS | 25 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- 85,436 FedEx Corp. $ 5,990 271,575 United Parcel Service, Inc. "B" 15,450 ---------- 25,844 ---------- AIRLINES (0.1%) 199,600 Southwest Airlines Co. 2,218 ---------- BUILDING PRODUCTS (0.0%) 100,000 Masco Corp. 1,076 ---------- COMMERCIAL PRINTING (0.0%) 56,900 R.R. Donnelley & Sons Co. 931 ---------- CONSTRUCTION & ENGINEERING (0.2%) 49,400 Fluor Corp. 2,099 33,000 Jacobs Engineering Group, Inc.* 1,203 55,893 Quanta Services, Inc.* 1,154 ---------- 4,456 ---------- CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (0.9%) 171,534 Caterpillar, Inc. 10,304 53,948 Cummins, Inc. 3,514 115,720 Deere & Co. 6,443 100,183 PACCAR, Inc. 3,994 ---------- 24,255 ---------- DIVERSIFIED SUPPORT SERVICES (0.1%) 36,500 Cintas Corp. 875 49,200 Iron Mountain, Inc. 1,105 ---------- 1,980 ---------- ELECTRICAL COMPONENTS & EQUIPMENT (0.5%) 205,474 Emerson Electric Co. 8,977 39,500 Rockwell Automation, Inc. 1,939 24,978 Roper Industries, Inc. 1,398 ---------- 12,314 ---------- ENVIRONMENTAL & FACILITIES SERVICES (0.3%) 90,055 Republic Services, Inc. 2,677 23,000 Stericycle, Inc.* 1,508 133,795 Waste Management, Inc. 4,187 ---------- 8,372 ---------- HUMAN RESOURCE & EMPLOYMENT SERVICES (0.0%) 43,757 Robert Half International, Inc. 1,031 ---------- ================================================================================ 26 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES (2.3%) 194,662 3M Co. $ 15,376 2,919,052 General Electric Co. 42,093 71,800 Textron, Inc. 1,219 ---------- 58,688 ---------- INDUSTRIAL MACHINERY (0.8%) 144,978 Danaher Corp. 5,382 50,600 Dover Corp. 2,115 45,300 Eaton Corp. 2,964 16,103 Flowserve Corp. 1,366 105,384 Illinois Tool Works, Inc. 4,350 33,036 Pall Corp. 1,135 44,830 Parker-Hannifin Corp. 2,486 16,826 Snap-On, Inc. 688 ---------- 20,486 ---------- OFFICE SERVICES & SUPPLIES (0.1%) 32,387 Avery Dennison Corp. 1,041 57,200 Pitney Bowes, Inc. 1,256 ---------- 2,297 ---------- RAILROADS (0.8%) 106,570 CSX Corp. 5,289 100,441 Norfolk Southern Corp. 5,328 138,245 Union Pacific Corp. 9,610 ---------- 20,227 ---------- RESEARCH & CONSULTING SERVICES (0.1%) 14,500 Dun & Bradstreet Corp. 973 35,700 Equifax, Inc. 1,002 ---------- 1,975 ---------- TRADING COMPANIES & DISTRIBUTORS (0.1%) 36,400 Fastenal Co. 1,827 16,794 W.W. Grainger, Inc. 1,670 ---------- 3,497 ---------- TRUCKING (0.0%) 15,500 Ryder System, Inc. 624 ---------- Total Industrials 263,092 ---------- INFORMATION TECHNOLOGY (18.4%) ------------------------------ APPLICATION SOFTWARE (0.5%) 144,413 Adobe Systems, Inc.* 3,817 61,900 Autodesk, Inc.* 1,508 ================================================================================ PORTFOLIO OF INVESTMENTS | 27 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- 51,021 Citrix Systems, Inc.* $ 2,155 57,718 Compuware Corp.* 461 87,122 Intuit, Inc.* 3,029 30,416 salesforce.com, Inc.* 2,610 ---------- 13,580 ---------- COMMUNICATIONS EQUIPMENT (2.2%) 1,561,196 Cisco Systems, Inc.* 33,269 35,100 Harris Corp. 1,462 59,625 JDS Uniphase Corp.* 587 142,199 Juniper Networks, Inc.* 3,245 643,544 Motorola, Inc.* 4,196 447,969 QUALCOMM, Inc. 14,711 109,604 Tellabs, Inc. 700 ---------- 58,170 ---------- COMPUTER HARDWARE (3.7%) 248,561 Apple, Inc.(f)* 62,521 466,085 Dell, Inc.* 5,621 637,951 Hewlett-Packard Co. 27,610 47,700 Teradata Corp.* 1,454 ---------- 97,206 ---------- COMPUTER STORAGE & PERIPHERALS (0.8%) 561,265 EMC Corp.* 10,271 21,600 Lexmark International, Inc. "A"* 713 92,300 NetApp, Inc.* 3,444 32,900 QLogic Corp.* 547 63,000 SanDisk Corp.* 2,650 61,100 Western Digital Corp.* 1,843 ---------- 19,468 ---------- DATA PROCESSING & OUTSOURCED SERVICES (1.2%) 137,741 Automatic Data Processing, Inc. 5,545 42,338 Computer Sciences Corp. 1,916 91,926 Fidelity National Information Services, Inc. 2,465 41,951 Fiserv, Inc.* 1,916 26,368 MasterCard, Inc. "A" 5,261 89,524 Paychex, Inc. 2,325 50,155 Total System Services, Inc. 682 123,768 Visa, Inc. "A" 8,757 180,916 Western Union Co. 2,698 ---------- 31,565 ---------- ================================================================================ 28 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS (0.3%) 47,572 Amphenol Corp. "A" $ 1,869 429,484 Corning, Inc. 6,936 ---------- 8,805 ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.2%) 95,566 Agilent Technologies, Inc.* 2,717 44,459 FLIR Systems, Inc.* 1,293 ---------- 4,010 ---------- ELECTRONIC MANUFACTURING SERVICES (0.1%) 51,500 Jabil Circuit, Inc. 685 36,800 Molex, Inc. 671 ---------- 1,356 ---------- HOME ENTERTAINMENT SOFTWARE (0.0%) 88,216 Electronic Arts, Inc.* 1,270 ---------- INTERNET SOFTWARE & SERVICES (1.7%) 46,700 Akamai Technologies, Inc.* 1,895 311,484 eBay, Inc.* 6,108 66,135 Google, Inc. "A"* 29,427 32,200 Monster Worldwide, Inc.* 375 48,786 VeriSign, Inc.* 1,295 321,669 Yahoo!, Inc.* 4,449 ---------- 43,549 ---------- IT CONSULTING & OTHER SERVICES (1.9%) 82,208 Cognizant Technology Solutions Corp. "A"* 4,115 350,852 International Business Machines Corp. 43,323 80,809 SAIC, Inc.* 1,353 ---------- 48,791 ---------- OFFICE ELECTRONICS (0.1%) 380,992 Xerox Corp. 3,063 ---------- SEMICONDUCTOR EQUIPMENT (0.3%) 371,303 Applied Materials, Inc. 4,463 46,400 KLA-Tencor Corp. 1,294 60,700 MEMC Electronic Materials, Inc.* 600 28,336 Novellus Systems, Inc.* 718 53,300 Teradyne, Inc.* 520 ---------- 7,595 ---------- ================================================================================ PORTFOLIO OF INVESTMENTS | 29 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- SEMICONDUCTORS (2.3%) 146,927 Advanced Micro Devices, Inc.* $ 1,076 83,641 Altera Corp. 2,075 83,202 Analog Devices, Inc. 2,318 116,150 Broadcom Corp. "A" 3,829 13,460 First Solar, Inc.(g)* 1,532 1,521,665 Intel Corp. 29,596 62,074 Linear Technology Corp. 1,726 171,098 LSI Corp.* 787 51,100 Microchip Technology, Inc. 1,418 225,861 Micron Technology, Inc.* 1,918 63,330 National Semiconductor Corp. 852 161,028 NVIDIA Corp.* 1,644 333,886 Texas Instruments, Inc. 7,773 71,527 Xilinx, Inc. 1,807 ---------- 58,351 ---------- SYSTEMS SOFTWARE (3.1%) 47,160 BMC Software, Inc.* 1,633 107,022 CA, Inc. 1,969 41,900 McAfee, Inc.* 1,287 2,084,148 Microsoft Corp.(f) 47,956 87,600 Novell, Inc.* 498 1,069,862 Oracle Corp. 22,959 52,304 Red Hat, Inc.* 1,514 220,370 Symantec Corp.* 3,059 ---------- 80,875 ---------- Total Information Technology 477,654 ---------- MATERIALS (3.4%) ---------------- ALUMINUM (0.1%) 273,495 Alcoa, Inc. 2,751 ---------- CONSTRUCTION MATERIALS (0.1%) 34,973 Vulcan Materials Co. 1,533 ---------- DIVERSIFIED CHEMICALS (0.8%) 316,412 Dow Chemical Co. 7,505 248,750 E.I. du Pont de Nemours & Co. 8,604 20,600 Eastman Chemical Co. 1,099 20,100 FMC Corp. 1,155 46,071 PPG Industries, Inc. 2,783 ---------- 21,146 ---------- ================================================================================ 30 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- DIVERSIFIED METALS & MINING (0.3%) 129,713 Freeport-McMoRan Copper & Gold, Inc. $ 7,670 22,800 Titanium Metals Corp.* 401 ---------- 8,071 ---------- FERTILIZERS & AGRICULTURAL CHEMICALS (0.3%) 18,711 CF Industries Holdings, Inc. 1,187 149,859 Monsanto Co. 6,927 ---------- 8,114 ---------- FOREST PRODUCTS (0.1%) 59,394 Weyerhaeuser Co. 2,091 ---------- GOLD (0.3%) 132,896 Newmont Mining Corp. 8,205 ---------- INDUSTRIAL GASES (0.4%) 56,901 Air Products & Chemicals, Inc. 3,688 22,609 Airgas, Inc. 1,406 82,706 Praxair, Inc. 6,285 ---------- 11,379 ---------- METAL & GLASS CONTAINERS (0.1%) 23,545 Ball Corp. 1,244 45,800 Owens-Illinois, Inc.* 1,212 39,045 Pactiv Corp.* 1,087 ---------- 3,543 ---------- PAPER PACKAGING (0.1%) 30,166 Bemis Co., Inc. 814 42,700 Sealed Air Corp. 842 ---------- 1,656 ---------- PAPER PRODUCTS (0.2%) 122,613 International Paper Co. 2,775 46,411 MeadWestvaco Corp. 1,030 ---------- 3,805 ---------- SPECIALTY CHEMICALS (0.3%) 62,113 Ecolab, Inc. 2,790 21,200 International Flavors & Fragrances, Inc. 899 25,498 Sherwin-Williams Co. 1,764 32,071 Sigma-Aldrich Corp. 1,598 ---------- 7,051 ---------- STEEL (0.3%) 29,699 AK Steel Holding Corp. 354 27,100 Allegheny Technologies, Inc. 1,198 ================================================================================ PORTFOLIO OF INVESTMENTS | 31 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- 36,860 Cliffs Natural Resources, Inc. $ 1,738 86,964 Nucor Corp. 3,329 38,056 United States Steel Corp. 1,467 ---------- 8,086 ---------- Total Materials 87,431 ---------- TELECOMMUNICATION SERVICES (3.0%) --------------------------------- INTEGRATED TELECOMMUNICATION SERVICES (2.6%) 1,613,550 AT&T, Inc.(f) 39,032 82,114 CenturyLink, Inc. 2,735 82,200 Frontier Communications Corp.(g) 584 420,666 Qwest Communications International, Inc. 2,208 771,330 Verizon Communications, Inc. 21,613 132,654 Windstream Corp. 1,401 ---------- 67,573 ---------- WIRELESS TELECOMMUNICATION SERVICES (0.4%) 111,564 American Tower Corp. "A"* 4,965 70,100 MetroPCS Communications, Inc.* 574 824,954 Sprint Nextel Corp.* 3,498 ---------- 9,037 ---------- Total Telecommunication Services 76,610 ---------- UTILITIES (3.7%) ---------------- ELECTRIC UTILITIES (1.7%) 44,946 Allegheny Energy, Inc. 930 130,687 American Electric Power Co., Inc. 4,221 88,216 Edison International 2,798 51,654 Entergy Corp. 3,699 179,675 Exelon Corp. 6,822 83,509 FirstEnergy Corp. 2,942 114,701 NextEra Energy, Inc. 5,593 47,702 Northeast Utilities 1,215 64,409 Pepco Holdings, Inc. 1,010 28,747 Pinnacle West Capital Corp. 1,045 128,042 PPL Corp. 3,195 79,876 Progress Energy, Inc. 3,133 224,325 Southern Co. 7,466 ---------- 44,069 ---------- GAS UTILITIES (0.2%) 39,056 EQT Corp. 1,412 13,517 Nicor, Inc. 547 28,490 ONEOK, Inc. 1,232 ================================================================================ 32 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- 46,500 Questar Corp. $ 2,115 ---------- 5,306 ---------- INDEPENDENT POWER PRODUCERS & ENERGY TRADERS (0.2%) 181,500 AES Corp.* 1,677 55,775 Constellation Energy Group, Inc. 1,799 69,388 NRG Energy, Inc.* 1,472 ---------- 4,948 ---------- MULTI-UTILITIES (1.6%) 65,129 Ameren Corp. 1,548 110,746 CenterPoint Energy, Inc. 1,457 67,649 CMS Energy Corp.(g) 991 75,959 Consolidated Edison, Inc. 3,274 161,963 Dominion Resources, Inc. 6,274 45,832 DTE Energy Co. 2,090 362,738 Duke Energy Corp. 5,804 22,550 Integrys Energy Group, Inc. 986 73,559 NiSource, Inc. 1,067 101,951 PG&E Corp. 4,190 137,146 Public Service Enterprise Group, Inc. 4,297 29,384 SCANA Corp. 1,051 66,633 Sempra Energy 3,118 60,290 TECO Energy, Inc. 909 31,500 Wisconsin Energy Corp. 1,598 125,786 Xcel Energy, Inc. 2,593 ---------- 41,247 ---------- Total Utilities 95,570 ---------- Total Common Stocks (cost: $2,637,663) 2,547,384 ---------- MONEY MARKET INSTRUMENTS (1.7%) MONEY MARKET FUND (1.4%) 36,498,761 Northern Institutional Funds - Diversified Assets Portfolio, 0.02%(a),(d) 36,499 ---------- -------------------------------------------------------------------------------- PRINCIPAL AMOUNT (000) -------------------------------------------------------------------------------- U.S. TREASURY BILLS (0.3%) $7,185 0.20%, 11/18/2010(b),(e) 7,179 ---------- Total Money Market Instruments (cost: $43,678) 43,678 ---------- ================================================================================ PORTFOLIO OF INVESTMENTS | 33 <PAGE> ================================================================================ -------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED (0.4%) MONEY MARKET FUNDS (0.4%) 89,494 AIM Short-Term Investment Co. Liquid Assets Portfolio, 0.21%(a) $ 90 63,679 BlackRock Liquidity Funds TempFund, 0.18%(a) 64 9,485,377 Fidelity Institutional Money Market Portfolio, 0.25%(a) 9,485 ---------- Total Money Market Funds 9,639 ---------- -------------------------------------------------------------------------------- PRINCIPAL AMOUNT (000) -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS (0.0%) $500 Credit Suisse First Boston LLC, 0.03%, acquired on 6/30/2010 and due 7/01/2010 at $500 (collateralized by $515 of Freddie Mac(i), 0.44%(h), due 6/20/2011; market value $513) 500 100 Deutsche Bank Securities, Inc., 0.02%, acquired on 6/30/2010 and due 7/01/2010 at $100 (collateralized by $98 of Fannie Mae(i), 6.13%, due 10/17/2036; market value $102) 100 ---------- Total Repurchase Agreements 600 ---------- Total Short-Term Investments Purchased With Cash Collateral From Securities Loaned (cost: $10,239) 10,239 ---------- TOTAL INVESTMENTS (COST: $2,691,580) $2,601,301 ========== ================================================================================ 34 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ ---------------------------------------------------------------------------------------------------- ($ IN 000s) VALUATION HIERARCHY ---------------------------------------------------------------------------------------------------- (LEVEL 1) (LEVEL 2) (LEVEL 3) QUOTED PRICES OTHER SIGNIFICANT SIGNIFICANT IN ACTIVE MARKETS OBSERVABLE UNOBSERVABLE FOR IDENTICAL ASSETS INPUTS INPUTS TOTAL ---------------------------------------------------------------------------------------------------- Equity Securities: Common Stocks $2,547,384 $ - $- $2,547,384 Money Market Instruments: Money Market Fund 36,499 - - 36,499 U.S. Treasury Bills - 7,179 - 7,179 Short-Term Investments Purchased With Cash Collateral From Securities Loaned: Money Market Fund 9,639 - - 9,639 Repurchase Agreements - 600 - 600 Other financial instruments* (2,613) - - (2,613) ---------------------------------------------------------------------------------------------------- Total $ 2,590,909 $7,779 $- $2,598,688 ---------------------------------------------------------------------------------------------------- * Other financial instruments are derivative instruments not reflected in the portfolio of investments, such as futures, which are valued at the unrealized appreciation/depreciation on the investment. For the six-month period ended June 30, 2010, there were no significant transfers of securities between levels 1, 2, or 3. Transfers into and out of the levels are recognized based on the securities' placements as of the beginning of the period in which the event or circumstance that caused the transfer occurred. ================================================================================ PORTFOLIO OF INVESTMENTS | 35 <PAGE> ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS June 30, 2010 (unaudited) -------------------------------------------------------------------------------- o GENERAL NOTES Market values of securities are determined by procedures and practices discussed in Note 1 to the financial statements. The portfolio of investments category percentages shown represent the percentages of the investments to net assets, and, in total, may not equal 100%. A category percentage of 0.0% represents less than 0.1% of net assets. o PORTFOLIO ABBREVIATIONS AND DESCRIPTIONS REIT -- Real estate investment trust o SPECIFIC NOTES (a) Rate represents the money market fund annualized seven-day yield at June 30, 2010. (b) Rate represents an annualized yield at time of purchase, not a coupon rate. (c) Northern Trust Corp. is the parent to Northern Trust Investments, N.A. (NTI), which is the subadviser of the Fund. (d) NTI is both the subadviser of the Fund and the adviser of the Northern Institutional Funds. (e) Security with a value of $7,179,000 is segregated as collateral for initial margin requirements on open futures contracts. ================================================================================ 36 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ (f) Security, or a portion thereof, is segregated to cover the value of open futures contracts at June 30, 2010, as shown in the following table: VALUE AT UNREALIZED TYPE OF FUTURE EXPIRATION CONTRACTS POSITION JUNE 30, 2010 DEPRECIATION ------------------------------------------------------------------------------------------------ S&P 500 Index Futures September 16, 2010 182 Long $46,710,000 $(2,613,000) (g) The security or a portion thereof was out on loan as of June 30, 2010. (h) Zero-coupon security. Rate represents the effective yield at the date of purchase. (i) Securities issued by government-sponsored enterprises are supported only by the right of the government-sponsored enterprise to borrow from the U.S. Treasury, the discretionary authority of the U.S. government to purchase the government-sponsored enterprises' obligations, or by the credit of the issuing agency, instrumentality, or corporation, and are neither issued nor guaranteed by the U.S. Treasury. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 37 <PAGE> ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) June 30, 2010 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (including securities on loan of $8,980) (cost of $2,691,580) $2,601,301 Receivables: Capital shares sold: Affiliated transactions (Note 8) 79 Nonaffiliated transactions 1,734 USAA Investment Management Company (Note 7D) 140 Dividends and interest 3,459 Other 25 ---------- Total assets 2,606,738 ---------- LIABILITIES Payables: Upon return of securities loaned 10,239 Capital shares redeemed: Affiliated transactions (Note 8) 2 Nonaffiliated transactions 1,928 Variation margin on futures contracts 388 Accrued management fees 247 Accrued transfer agent's fees 75 Other accrued expenses and payables 36 ---------- Total liabilities 12,915 ---------- Net assets applicable to capital shares outstanding $2,593,823 ========== NET ASSETS CONSIST OF: Paid-in capital $2,978,393 Accumulated undistributed net investment income 590 Accumulated net realized loss on investments and futures transactions (292,268) Net unrealized depreciation of investments and futures contracts (92,892) ---------- Net assets applicable to capital shares outstanding $2,593,823 ========== Net asset value, redemption price, and offering price per share: Member Shares (net assets of $1,682,731/108,894 shares outstanding) $ 15.45 ========== Reward Shares (net assets of $911,092/58,952 shares outstanding) $ 15.45 ========== See accompanying notes to financial statements. ================================================================================ 38 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended June 30, 2010 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 26,729 Interest 8 Other (Note 7B) 1 Securities lending (net) 78 --------- Total income 26,816 --------- EXPENSES Management fees 1,387 Administration and servicing fees: Member Shares 547 Reward Shares 285 Transfer agent's fees: Member Shares 1,538 Reward Shares 271 Custody and accounting fees: Member Shares 7 Reward Shares 3 Postage: Member Shares 104 Reward Shares 3 Shareholder reporting fees: Member Shares 43 Trustees' fees 5 Registration fees: Member Shares 23 Reward Shares 21 Professional fees 100 Other 36 --------- Total expenses 4,373 Expenses reimbursed: Member Shares (972) Reward Shares (678) --------- Net expenses 2,723 --------- NET INVESTMENT INCOME 24,093 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS Net realized gain (loss) on: Investments 12,906 Futures transactions (2,869) Change in net unrealized appreciation/depreciation of: Investments (220,760) Futures contracts (2,763) --------- Net realized and unrealized loss (213,486) --------- Decrease in net assets resulting from operations $(189,393) ========= See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 39 <PAGE> ================================================================================ STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) Six-month period ended June 30, 2010 (unaudited), and year ended December 31, 2009 -------------------------------------------------------------------------------- 6/30/2010 12/31/2009 ----------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 24,093 $ 49,945 Net realized gain (loss) on investments 12,906 (7,048) Net realized gain (loss) on futures transactions (2,869) 10,440 Change in net unrealized appreciation/depreciation of: Investments (220,760) 524,600 Futures contracts (2,763) (342) -------------------------- Increase (decrease) in net assets resulting from operations (189,393) 577,595 -------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Member Shares (14,900) (32,663) Reward Shares (8,676) (17,209) -------------------------- Total distributions of net investment income (23,576) (49,872) -------------------------- NET INCREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS (NOTE 6) Member Shares (11,891) 32,302 Reward Shares 93,003 21,722 -------------------------- Total net increase in net assets from capital share transactions 81,112 54,024 -------------------------- Capital contribution from USAA Transfer Agency Company: Reward Shares - 23 -------------------------- Net increase (decrease) in net assets (131,857) 581,770 NET ASSETS Beginning of period 2,725,680 2,143,910 -------------------------- End of period $2,593,823 $2,725,680 ========================== Accumulated undistributed net investment income: End of period $ 590 $ 73 ========================== See accompanying notes to financial statements. ================================================================================ 40 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ NOTES TO FINANCIAL STATEMENTS June 30, 2010 (unaudited) -------------------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USAA MUTUAL FUNDS TRUST (the Trust), registered under the Investment Company Act of 1940 (the 1940 Act), as amended, is an open-end management investment company organized as a Delaware statutory trust consisting of 46 separate funds. The information presented in this semiannual report pertains only to the USAA S&P 500 Index Fund (the Fund), which is classified as diversified under the 1940 Act. The Fund seeks to match, before fees and expenses, the performance of the S&P 500 Index. USAA Investment Management Company (the Manager), an affiliate of the Fund, has retained Northern Trust Investments, N.A. (NTI) to serve as subadviser for the Fund. NTI is responsible for investing the Fund's assets. Under normal market conditions, NTI attempts to achieve the Fund's objective by investing at least 80% of the Fund's assets in the stocks of companies composing the S&P 500 Index. The Fund has two classes of shares: Member Shares and Reward Shares. Each class of shares has equal rights to assets and earnings, except that each class bears certain class-related expenses specific to the particular class. These expenses include administration and servicing fees, transfer agency fees, postage, shareholder reporting fees, and certain registration and custodian fees. Expenses not attributable to a specific class, income, and realized gains or losses on investments are allocated to each class of shares based on each class's relative net assets. Each class has exclusive voting rights on matters related solely to that class and separate voting rights on matters that relate to both classes. The Reward Shares are offered for sale to qualified public shareholders and to the USAA Target Retirement Funds (Target Funds), which are managed by the Manager. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 41 <PAGE> ================================================================================ A. SECURITY VALUATION -- The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the Nasdaq over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. 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. 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. Repurchase agreements are valued at cost, which approximates market value. 6. Futures are valued based upon the last sale price at the close of market on the principal exchange on which they are traded. ================================================================================ 42 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ 7. Securities for which market quotations are not readily available or are considered unreliable, or whose values have been materially affected by events occurring after the close of their primary markets but before the pricing of the Fund, are valued in good faith at fair value, using methods determined by the Manager in consultation with the Fund's 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, 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 ================================================================================ NOTES TO FINANCIAL STATEMENTS | 43 <PAGE> ================================================================================ indirectly, and market-corroborated inputs such as market indices. The Fund uses amortized cost in valuing repurchase agreements and a market approach in valuing U.S. Treasury bills, which is further discussed in Note A1. 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. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -- On January 1, 2009, the Fund adopted an accounting standard that requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements, if any. The Fund may buy, sell, and enter into certain types of derivatives, including, but not limited to futures contracts and options on futures contracts under circumstances in which such instruments are expected by the portfolio manager to aid in achieving the Fund's investment objective. The Fund also may use derivatives in circumstances where the portfolio manager believes they offer an economical means of gaining exposure to a particular securities market, or to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the market. With exchange listed futures contracts and options, counterparty credit risk to the Fund is limited to the exchange's clearinghouse which, as counterparty to all exchange traded futures contracts and options, guarantees the transactions against default from the actual counterparty to the trade. FUTURES CONTRACTS -- The Fund is subject to cash flow and tracking error risk in the normal course of pursuing its investment objectives. The Fund may use stock index futures contracts in an attempt to ================================================================================ 44 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ reduce any performance discrepancies between the Fund and the S&P 500 Index. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. Upon entering into such contracts, the Fund is required to deposit with the broker in either cash or securities an initial margin in an amount equal to a certain percentage of the contract amount. Subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Upon entering into such contracts, the Fund bears the risk of interest or exchange rates or securities prices moving unexpectedly in an unfavorable direction, in which case, the Fund may not achieve the anticipated benefits of the futures contracts. FAIR VALUES OF DERIVATIVE INSTRUMENTS AS OF JUNE 30, 2010* (IN THOUSANDS) ASSET DERIVATIVES LIABILITY DERIVATIVES --------------------------------------------------------------------------------------------------- STATEMENT OF STATEMENT OF ASSETS AND ASSETS AND DERIVATIVES NOT ACCOUNTED LIABILITIES LIABILITIES FOR AS HEDGING INSTRUMENTS LOCATION FAIR VALUE LOCATION FAIR VALUE --------------------------------------------------------------------------------------------------- Equity contracts Net unrealized $(2,613)** - $- depreciation of investments and futures contracts --------------------------------------------------------------------------------------------------- *For open derivative instruments as of June 30, 2010, see the notes to portfolio of investments, which is also indicative of activity for the six-month period ended June 30, 2010. **Includes cumulative appreciation (depreciation) of futures contracts as reported in the notes to portfolio of investments. Only current day's variation margin is reported within the statement of assets & liabilities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 45 <PAGE> ================================================================================ THE EFFECT OF DERIVATIVE INSTRUMENTS ON THE STATEMENT OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2010 (IN THOUSANDS) CHANGE IN UNREALIZED REALIZED APPRECIATION DERIVATIVES NOT ACCOUNTED STATEMENT OF GAIN (LOSS) (DEPRECIATION) FOR AS HEDGING INSTRUMENTS OPERATIONS LOCATION ON DERIVATIVES ON DERIVATIVES ----------------------------------------------------------------------------------------- Equity contracts Net realized gain (loss) $(2,869) $(2,763) on futures transactions/ Change in net unrealized appreciation/depreciation of futures contracts ----------------------------------------------------------------------------------------- D. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements with commercial banks or recognized security dealers. These agreements are collateralized by underlying securities. The collateral obligations are marked-to-market daily to ensure their value is equal to or in excess of the repurchase agreement price plus accrued interest and are held by the Fund, either through its regular custodian or through a special "tri-party" custodian that maintains separate accounts for both the Fund and its counterparty, until maturity of the repurchase agreement. Repurchase agreements are subject to credit risk, and the Fund's Manager monitors the creditworthiness of sellers with which the Fund may enter into repurchase agreements. E. 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. F. 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. ================================================================================ 46 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ Discounts and premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. G. EXPENSES PAID INDIRECTLY -- Through arrangements with banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended June 30, 2010, these bank credits reduced the expenses of the Member Shares and Reward Shares by less than $500. H. INDEMNIFICATIONS -- Under the Trust's organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business the Trust enters into contracts that contain a variety of representations and warranties that provide general indemnifications. The Trust's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, the Trust expects the risk of loss to be remote. I. USE OF ESTIMATES -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires 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 ================================================================================ NOTES TO FINANCIAL STATEMENTS | 47 <PAGE> ================================================================================ 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). The facility fees are allocated among the funds based on their respective average net assets for the period. For the six-month period ended June 30, 2010, the Fund paid CAPCO facility fees of $6,000, which represents 6.3% of the total fees paid to CAPCO by the USAA funds. The Fund had no borrowings under this agreement during the six-month period ended June 30, 2010. (3) DISTRIBUTIONS The tax basis of distributions and accumulated undistributed net investment income will be determined based upon the Fund's tax year-end of December 31, 2010, in accordance with applicable tax law. 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 December 31, 2009, the Fund had capital loss carryovers of $290,906,000, for federal income tax purposes which, if not offset by subsequent capital gains, will expire between 2010 and 2017, as shown in the following table. It is unlikely that the Trust's Board of Trustees will authorize a distribution of capital gains realized in the future until the capital loss carryovers have been used or expire. CAPITAL LOSS CARRYOVERS ------------------------------------------ EXPIRES BALANCE ---------- ------------ 2010 $213,601,000 2011 344,000 2012 1,474,000 2013 17,856,000 2014 10,601,000 2016 41,901,000 2017 5,129,000 ------------ Total $290,906,000 ============ ================================================================================ 48 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the statement of operations if the tax positions were deemed to not meet the more-likely-than-not threshold. For the six-month period, ended June 30, 2010, the Fund did not incur any income tax, interest, or penalties. As of June 30, 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 December 31, 2009, 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 six-month period ended June 30, 2010, were $94,453,000 and $49,343,000, respectively. As of June 30, 2010, the cost of securities, including short-term securities, for federal income tax purposes, was approximately the same as that reported in the financial statements. Gross unrealized appreciation and depreciation of investments as of June 30, 2010, were $522,996,000 and $613,275,000, respectively, resulting in net unrealized depreciation of $90,279,000. (5) LENDING OF PORTFOLIO SECURITIES The Fund, through its third-party securities-lending agent, Wachovia Global Securities Lending (Wachovia), may lend its securities to qualified financial institutions, such as certain broker-dealers, to earn additional income. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 49 <PAGE> ================================================================================ The borrowers are required to secure their loans continuously with cash collateral in an amount at least equal to the fair value of the securities loaned, initially in an amount at least equal to 102% of the fair value of domestic securities loaned and 105% of the fair value of international securities loaned. Cash collateral is invested in high-quality short-term investments. Cash collateral requirements are determined daily based on the prior business day's ending value of securities loaned. Imbalances in cash collateral may occur on days where market volatility causes security prices to change significantly, and are adjusted the next business day. The Fund and Wachovia retain 80% and 20%, respectively, of the income earned from the investment of cash received as collateral, net of any expenses associated with the lending transaction. Wachovia receives no other fees from the Fund for its services as securities-lending agent. Risks to the Fund in securities-lending transactions are that the borrower may not provide additional collateral when required or return the securities when due, and that the value of the short-term investments will be less than the amount of cash collateral required to be returned to the borrower. Wachovia Bank, N.A., parent company of Wachovia, has agreed to indemnify the Fund against any losses due to counterparty default in securities-lending transactions. For the six-month period ended June 30, 2010, the Fund received securities-lending income of $78,000, which is net of the 20% income retained by Wachovia. As of June 30, 2010, the Fund loaned securities having a fair market value of approximately $8,980,000 and received cash collateral of $10,239,000 for the loans, which was invested in short-term investments, as noted in the Fund's portfolio of investments. ================================================================================ 50 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ (6) CAPITAL SHARE TRANSACTIONS At June 30, 2010, there were an unlimited number of shares of capital stock at no par value authorized for the Fund. Capital share transactions were as follows, in thousands: SIX-MONTH PERIOD ENDED YEAR ENDED 6/30/2010 12/31/2009 -------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------- MEMBER SHARES: Shares sold 10,894 $ 185,721 21,247 $ 294,006 Shares issued from reinvested dividends 852 14,312 2,174 31,344 Shares redeemed (12,466) (211,924) (20,832) (293,048) ------------------------------------------- Net increase (decrease) from capital share transactions (720) $ (11,891) 2,589 $ 32,302 =========================================== REWARD SHARES: Shares sold 11,640 $ 198,313 15,558 $ 219,222 Shares issued from reinvested dividends 496 8,325 1,141 16,479 Shares redeemed (6,680) (113,635) (14,838) (213,979) ------------------------------------------- Net increase from capital share transactions 5,456 $ 93,003 1,861 $ 21,722 =========================================== (7) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES -- The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, subject to the authority of and supervision by the Trust's Board of Trustees. The Manager is authorized to select (with approval of the Trust's Board of Trustees and without shareholder approval) one or more subadvisers to manage the actual day-to-day investment of the Fund's assets. The Manager monitors each subadviser's performance through quantitative and qualitative analysis, and periodically recommends to the Trust's Board of Trustees as to whether each subadviser's agreement should be renewed, terminated, ================================================================================ NOTES TO FINANCIAL STATEMENTS | 51 <PAGE> ================================================================================ 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 Fund's management fees are accrued daily and paid monthly at an annualized rate of 0.10% of the Fund's average net assets for the fiscal year. For the six-month period ended June 30, 2010, the Fund incurred management fees, paid or payable to the Manager, of $1,387,000. B. SUBADVISORY ARRANGEMENTS -- The Manager has entered into an investment subadvisory agreement with NTI, under which NTI directs the investment and reinvestment of the Fund's assets (as allocated from time to time by the Manager). The Manager (not the Fund) pays NTI a subadvisory fee in an annual amount of 0.02% of the Fund's average daily net assets on amounts up to $1.5 billion; 0.01% of the Fund's average daily net assets for the next $1.5 billion; and 0.005% of the Fund's average daily net assets that exceed $3 billion. For the six-month period ended June 30, 2010, the Manager incurred subadvisory fees, paid or payable to NTI, of $213,000. NTI has agreed to remit to the Fund all subadvisory fees earned on Fund assets invested in any of NTI's affiliated money market funds. For the six-month period ended June 30, 2010, NTI remitted $1,000 to the Fund for the investments in the Northern Institutional Funds Money Market Portfolios. NTI is a direct subsidiary of The Northern Trust Company, the Fund's custodian and accounting agent. 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 0.06% of the Fund's average net assets for the fiscal year. For the six-month period ended June 30, 2010, the Member Shares and Reward Shares incurred administration and servicing fees, paid or payable to the Manager, of $547,000 and $285,000, respectively. ================================================================================ 52 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Trust's Board of Trustees has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended June 30, 2010, the Fund reimbursed the Manager $31,000 for these compliance and legal services. These expenses are included in the professional fees on the Fund's statement of operations. D. EXPENSE LIMITATION -- The Manager has agreed, through May 1, 2011 to limit the annual expenses of the Member Shares and the Reward Shares to 0.25% and 0.09%, respectively, of their annual average net assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and will reimburse the Fund for all expenses in excess of those amounts. This expense limitation arrangement may not be changed or terminated through May 1, 2011, without approval of the Trust's Board of Trustees, and may be changed or terminated by the Manager at any time after that date. For the six-month period ended June 30, 2010, the Fund incurred reimbursable expenses from the Manager for the Member Shares and the Reward Shares of $972,000 and $678,000, respectively, of which $140,000 in total was receivable from the Manager. In addition, NTI has contractually agreed to reimburse the Fund for all license fees paid by the Fund to Standard & Poor's, in amounts not exceeding the annual rate of 0.001% of the average daily net assets of the Fund. For the six-month period ended June 30, 2010, the Fund incurred reimbursable expenses from NTI for the Member Shares and the Reward Shares of $12,000 and $7,000, respectively. E. TRANSFER AGENT'S FEES -- USAA Transfer Agency Company, d/b/a USAA Shareholder Account Services (SAS), an affiliate of the Manager, provides transfer agent services to the Fund based on an annual charge of $20 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 six-month period ended June 30, 2010, the Fund incurred transfer ================================================================================ NOTES TO FINANCIAL STATEMENTS | 53 <PAGE> ================================================================================ agent's fees, paid or payable to SAS for the Member Shares and Reward Shares, of $1,538,000 and $271,000, respectively. F. UNDERWRITING SERVICES -- The Manager provides exclusive underwriting and distribution of the Fund's shares on a continuing best-efforts basis. The Manager receives no commissions or fees for this service. G. ACCOUNT MAINTENANCE FEE -- SAS assesses a $10 annual account maintenance fee to allocate part of the fixed cost of maintaining shareholder accounts. This fee is charged directly to the shareholders' accounts and does not impact the Fund. The fee is waived on accounts with balances of $10,000 or more. (8) 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. The Fund is one of 13 USAA mutual funds in which the affiliated Target Funds may invest. The Target Funds do not invest in the Fund for the purpose of exercising management or control. As of June 30, 2010, the Fund recorded a receivable for capital shares sold of $79,000 and a payable for capital shares redeemed of $2,000 for the Target Funds' purchases and redemptions of the Fund's Reward Shares. As of June 30, 2010, the Target Funds owned the following percent of the total outstanding shares of the Fund: OWNERSHIP % ------------------------------------------------------------------------------ USAA Target Retirement Income Fund 0.2% USAA Target Retirement 2020 Fund 0.4 USAA Target Retirement 2030 Fund 0.9 USAA Target Retirement 2040 Fund 1.1 USAA Target Retirement 2050 Fund 0.5 ================================================================================ 54 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ (9) FINANCIAL HIGHLIGHTS -- MEMBER SHARES Per share operating performance for a share outstanding throughout each period is as follows: SIX-MONTH PERIOD ENDED JUNE 30, YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------------- 2010 2009 2008 2007 2006 2005 ----------------------------------------------------------------------------------------- Net asset value at beginning of period $ 16.71 $ 13.51 $ 21.98 $ 21.24 $ 18.70 $ 18.15 ----------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .14 .30 .39 .39 .35 .30 Net realized and unrealized gain (loss) (1.26) 3.20 (8.47) .74 2.53 .55 ----------------------------------------------------------------------------------------- Total from investment operations (1.12) 3.50 (8.08) 1.13 2.88 .85 ----------------------------------------------------------------------------------------- Less distributions from: Net investment income (.14) (.30) (.39) (.39) (.34) (.30) ----------------------------------------------------------------------------------------- Net asset value at end of period $ 15.45 $ 16.71 $ 13.51 $ 21.98 $ 21.24 $ 18.70 ========================================================================================= Total return (%)* (6.78) 26.28 (37.13) 5.32(a) 15.54 4.77 Net assets at end of period (000) $1,682,731 $1,831,645 $1,446,160 $2,315,340 $2,248,677 $2,292,568 Ratios to average net assets:** Expenses (%)(b),(c) .25(d) .25 .23 .19(a) .19 .19 Expenses, excluding reimbursements (%)(c) .36(d) .40 .37 .33 .34 .33 Net investment income (%) 1.68(d) 2.11 2.12 1.76 1.73 1.68 Portfolio turnover (%) 2 5 3 5 4 6 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period; does not reflect $10 annual account maintenance fee. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. ** For the six-month period ended June 30, 2010, average net assets were $1,847,442,000. (a) For the year ended December 31, 2007, SAS voluntarily reimbursed the Member Shares for a portion of the transfer agent's fees incurred. The reimbursement had no effect on the Member Shares' total return or ratio of expenses to average net assets. (b) Effective May 1, 2008, the Manager voluntarily agreed to reimburse the Member Shares for expenses in excess of 0.25% of their annual average net assets. Prior to May 1, 2008, the Manager voluntarily agreed to reimburse the Member Shares for expenses in excess of 0.19% of their annual average net assets from October 1, 2004, through April 30, 2008. (c) Reflects total operating expenses of the Member Shares before reductions of any expenses paid indirectly. The Member Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 55 <PAGE> ================================================================================ (9) FINANCIAL HIGHLIGHTS (CONTINUED) -- REWARD SHARES Per share operating performance for a share outstanding throughout each period is as follows: SIX-MONTH PERIOD ENDED JUNE 30, YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------------------- 2010 2009 2008 2007 2006 2005 --------------------------------------------------------------------------------------- Net asset value at beginning of period $ 16.71 $ 13.51 $ 21.99 $ 21.25 $ 18.70 $ 18.15 ---------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .15 .32 .41 .41 .36 .32 Net realized and unrealized gain (loss) (1.26) 3.20 (8.48) .74 2.55 .55 ---------------------------------------------------------------------------------------- Total from investment operations (1.11) 3.52 (8.07) 1.15 2.91 .87 ---------------------------------------------------------------------------------------- Less distributions from: Net investment income (.15) (.32) (.41) (.41) (.36) (.32) ---------------------------------------------------------------------------------------- Net asset value at end of period $ 15.45 $ 16.71 $ 13.51 $ 21.99 $ 21.25 $ 18.70 ======================================================================================== Total return (%)* (6.71) 26.47 (37.07) 5.42(a) 15.71 4.86 Net assets at end of period (000) $911,092 $894,035 $697,750 $1,040,077 $952,147 $506,999 Ratios to average net assets:** Expenses (%)(b),(c) .09(d) .09 .09 .09(a) .09 .09 Expenses, excluding reimbursements (%)(c) .23(d) .23 .21 .20 .20 .19 Net investment income (%) 1.84(d) 2.26 2.27 1.86 1.85 1.78 Portfolio turnover (%) 2 5 3 5 4 6 * Assumes reinvestment of all net investment income and realized capital gain distributions, if any, during the period. Includes adjustments in accordance with U.S. generally accepted accounting principles and could differ from the Lipper reported return. ** For the six-month period ended June 30, 2010, average net assets were $958,532,000. (a) For the year ended December 31, 2007, SAS voluntarily reimbursed the Reward Shares for a portion of the transfer agent's fees incurred. The reimbursement had no effect on the Reward Shares' total return or ratio of expenses to average net assets. (b) Effective October 1, 2004, the Manager voluntarily agreed to reimburse the Reward Shares for expenses in excess of 0.09% of their average annual net assets. (c) Reflects total operating expenses of the Reward Shares before reductions of any expenses paid indirectly. The Reward Shares' expenses paid indirectly decreased the expense ratios by less than 0.01%. (d) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ 56 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ EXPENSE EXAMPLE June 30, 2010 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as account maintenance fees, 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 January 1, 2010, through June 30, 2010. ACTUAL EXPENSES The line labeled "actual" under each share class in 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 for your share class in the "actual" line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Actual expenses in the table on the next page do not reflect the effect of the annual $10.00 account maintenance fee that is assessed on accounts with balances of less than $10,000, at a rate of $2.50 per quarter. To include the effect of this fee on the expenses that you paid, add $5.00 ($2.50 for two quarters) to your calculated estimated expenses. If you are currently assessed this fee, your ending account value reflects the quarterly deduction from your account. ================================================================================ EXPENSE EXAMPLE | 57 <PAGE> ================================================================================ HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The line labeled "hypothetical" under each share class in the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratios for each class and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direct costs, such as account maintenance fees, 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 JANUARY 1, 2010 - JANUARY 1, 2010 JUNE 30, 2010 JUNE 30, 2010 -------------------------------------------------------------- MEMBER SHARES Actual $1,000.00 $ 932.20 $1.20 Hypothetical (5% return before expenses) 1,000.00 1,023.55 1.25 REWARD SHARES Actual 1,000.00 932.90 0.43 Hypothetical (5% return before expenses) 1,000.00 1,024.35 0.45 * Expenses are equal to the Fund's annualized expense ratio of 0.25% for Member Shares and 0.09% for Reward Shares, which are net of any reimbursements and expenses paid indirectly, multiplied by the average account value over the period, multiplied by 181 days/365 days (to reflect the one-half-year period). The Fund's actual ending account values are based on its actual total returns of (6.78)% for Member Shares and (6.71)% for Reward Shares for the six-month period of January 1, 2010, through June 30, 2010. ================================================================================ 58 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ ADVISORY AGREEMENTS June 30, 2010 (unaudited) -------------------------------------------------------------------------------- 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 Management 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 Management 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 Management 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 Management Agreement and the Subadvisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Management 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 ================================================================================ ADVISORY AGREEMENTS | 59 <PAGE> ================================================================================ concerning the Fund's performance and related services provided by the Manager and by the Subadviser. At the meeting at which the renewal of the Management 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 Management Agreement and Subadvisory Agreement included certain information previously received at such meetings. MANAGEMENT AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Management Agreement. In approving the Management 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 Management 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 Management 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 level and depth of knowledge of the Manager, including the professional experience and qualifications of senior ================================================================================ 60 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ 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 Management Agreement. In reviewing the Management 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 and its affiliates, including the Manager's oversight of the Fund's day-to-day operations and oversight of Fund accounting. 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 Management Agreement, the Board evaluated the advisory fees and total expense ratios of each of the Member Shares and Reward Shares classes of the Fund as compared to other open-end investment companies deemed to be comparable to each class of the Fund as determined by the independent third party in its report. The expenses of each class of the Fund were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the class of 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 investment classification/objective as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted ================================================================================ ADVISORY AGREEMENTS | 61 <PAGE> ================================================================================ that the Fund's management fee rate -- which includes advisory and administrative services and the effects of any reimbursements -- was below the median of its expense universe and its expense group for Member Shares and for Reward Shares. The data indicated that the Fund's total expenses, after reimbursements, were below the median of its expense group and its expense universe for Member Shares and for Reward Shares. The Trustees also took into account the Manager's current undertakings to maintain expense limitations for the Fund. The Board took into account the various services provided to the Fund by the Manager and its affiliates. The Board also noted the high level of correlation between the S&P 500 Index and the Fund and the relatively low tracking error between the Fund and the S&P 500 Index, and noted that it reviews such information on a quarterly basis. The Board also noted the level and method of computing the management fee. The Trustees 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 Management Agreement, including, among other information, a comparison of the average annual total return of each class of the Fund 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 performance universe of each class of the Fund 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 performance of the Fund's Member Shares was above the average of its performance universe and was lower than its Lipper index for the one- and three-year periods ended December 31, 2009, and was above the average of its performance universe and its Lipper index for the five-year period ended December 31, 2009. The comparison indicated that the performance of the Fund's Reward Shares was above the average of its performance universe and its ================================================================================ 62 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ Lipper index for the one-, three-, and five-year periods ended December 31, 2009. The Board also noted that the percentile performance ranking of the Fund's Member Shares was in the top 40% of its performance universe for the one-year period ended December 31, 2009 and in the top 30% of its performance universe for the three- and five-year periods ended December 31, 2009, and that the percentile performance ranking for the Fund's Reward Shares was in the top 20% of its performance universe for the one-, three-, and five-year periods ended December 31, 2009. 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 level of 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 reimbursed a portion of its management fees to the Fund and also 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. 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 discussion of the Fund's commentary fee structure. The Board also noted the fact that the Manager pays the subadvisory fee. The Board determined that the current investment management fee structure was reasonable. The Board also considered the effects of each class's growth and size on the class's performance and fees, noting that if the ================================================================================ ADVISORY AGREEMENTS | 63 <PAGE> ================================================================================ Fund's assets increase over time, the Fund may realize other economies of scale if assets increase proportionally more than some expenses. CONCLUSIONS -- The Board reached the following conclusions regarding the Fund's Management Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Management Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives 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's level of profitability, if any, from its relationship with the Fund is reasonable. Based on its conclusions, the Board determined that continuation of the Management Agreement would be in the best interests of the Fund and its shareholders. SUBADVISORY AGREEMENT In approving the Fund's Subadvisory Agreement, the Board considered various factors, among them: (i) the nature, extent, and quality of services provided to the Fund, 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 ================================================================================ 64 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ presented periodically throughout the previous year. The Board noted that the Subadviser and its affiliates also provide accounting and custody services to the Fund at no additional charge. 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 with respect to the Fund and the Subadviser's level of staffing. The Trustees noted that the materials provided to them 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 and that the Subadviser had agreed to reimburse the Fund for license fees paid to Standard & Poor's. 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 compared the subadvisory fees for the Fund with the fees that the Subadviser charges to comparable clients. The Board considered that the Fund pays a ================================================================================ ADVISORY AGREEMENTS | 65 <PAGE> ================================================================================ 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 with respect to each class during the one-, three-, five-, and ten-year periods, as applicable, ended December 31, 2009, as compared to the Fund's respective peer group and noted that the Board reviews at its regularly scheduled meetings information about the Fund's performance results. The Board noted the Manager's expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadviser. 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 performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives 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. ================================================================================ 66 | USAA S&P 500 INDEX FUND <PAGE> ================================================================================ TRUSTEES Christopher W. Claus Barbara B. Dreeben Robert L. Mason, Ph.D. Barbara B. Ostdiek, Ph.D. Michael F. Reimherr Richard A. Zucker -------------------------------------------------------------------------------- ADMINISTRATOR, USAA Investment Management Company INVESTMENT ADVISER, P.O. Box 659453 UNDERWRITER, AND San Antonio, Texas 78265-9825 DISTRIBUTOR -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND The Northern Trust Company ACCOUNTING AGENT 50 S. LaSalle St. Chicago, Illinois 60603 -------------------------------------------------------------------------------- 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) ============================================================================= 28651-0810 (C)2010, USAA. All rights reserved.
ITEM 2. CODE OF ETHICS. NOT APPLICABLE. This item must be disclosed only in annual reports. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. NOT APPLICABLE. This item must be disclosed only in annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. NOT APPLICABLE. This item must be disclosed only in annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not Applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Filed as part of the report to shareholders. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not Applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not Applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not Applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Corporate Governance Committee selects and nominates candidates for membership on the Board as independent directors. Currently, there is no procedure for shareholders to recommend candidates to serve on the Board. ITEM 11. CONTROLS AND PROCEDURES The principal executive officer and principal financial officer of USAA Mutual Funds Trust (Trust) have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust in this Form N-CSR/S was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Trust's internal controls or in other factors that could significantly affect the Trust's internal controls subsequent to the date of their evaluation. The only change to the procedures was to document the annual disclosure controls and procedures established for the new section of the shareholder reports detailing the factors considered by the Funds' Board in approving the Funds' advisory agreements. ITEM 12. EXHIBITS. (a)(1). NOT APPLICABLE. This item must be disclosed only in annual reports. (a)(2). Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. (a)(3). Not Applicable. (b). Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b))is filed and attached hereto as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: USAA MUTUAL FUNDS TRUST, Period Ended June 30, 2010 By:* CHRISTOPHER P. LAIA ----------------------------------------------------------- Signature and Title: Christopher P. Laia, Secretary Date: 08/25/2010 ------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By:* CHRISTOPHER W. CLAUS ----------------------------------------------------- Signature and Title: Christopher W. Claus, President Date: 08/25/2010 ------------------------------ By:* ROBERTO GALINDO, JR. ----------------------------------------------------- Signature and Title: Roberto Galindo, Jr., Treasurer Date: 08/25/2010 ------------------------------ *Print the name and title of each signing officer under his or her signature.
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