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Share Name | Share Symbol | Market | Type |
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Usaa Treasury Money Market Trust (MM) | NASDAQ:UATXX | NASDAQ | Ordinary Share |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.00 | - |
[LOGO OF USAA] USAA(R) [GRAPHIC OF USAA NASDAQ-100 INDEX FUND] =============================================== SEMIANNUAL REPORT USAA NASDAQ-100 INDEX FUND JUNE 30, 2010 =============================================== ================================================================================ <PAGE> ================================================================================ FUND OBJECTIVE SEEKS TO MATCH, BEFORE FEES AND EXPENSES, THE PERFORMANCE OF THE STOCKS COMPOSING THE NASDAQ-100 INDEX. -------------------------------------------------------------------------------- TYPES OF INVESTMENTS Under normal market conditions, at least 80% of the Fund's assets will be invested in the common stocks of companies composing the Nasdaq-100 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 7 FINANCIAL INFORMATION Portfolio of Investments 11 Notes to Portfolio of Investments 17 Financial Statements 18 Notes to Financial Statements 21 EXPENSE EXAMPLE 34 ADVISORY AGREEMENTS 36 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 CONTINUE -- AND EVEN INCREASE -- INVESTING [PHOTO OF DANIEL S. McNAMARA] 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 NASDAQ-100 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 NASDAQ-100 INDEX FUND (THE FUND) PERFORM? The Fund closely tracked its benchmark, the broad-based Nasdaq-100 Index (the Index), for the period ended June 30, 2010. The Fund posted a return of -6.62% versus the Index which returned -6.17%. The Index is a group of large-company stocks that is not available for direct investment. o WHAT WERE MARKET CONDITIONS DURING THE PERIOD? Favorable U.S. equity performance continued over the first three months of 2010, the fourth consecutive quarter of positive stock market returns. U.S. indices posted negative returns in January 2010 fueled by mixed corporate earnings and continued concern over jobless data and consumer confidence. However, in February and March the market regained positive momentum as many U.S corporations posted unexpectedly favorable earnings, and the market witnessed an increase in corporate activity. On February 18, 2009, the Federal Reserve Board (the Fed) increased the discount rate by 25 basis points to 0.75% and markets continued to rally. For the first quarter, 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. The second Past performance is no guarantee of future results. Refer to page 8 for benchmark definitions. ================================================================================ 4 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ 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, a downward revision of the gross domestic product, and several lower-than-expected corporate earnings and guidance announcements. o PLEASE DESCRIBE SECTOR PERFORMANCE. The largest sector in the Index, Information Technology, which accounted for 62.88% of it, lost -6.64% during the first six months of the year. Health care stocks, which account for 15.83% of the Index, posted the lowest returns for the period, down -7.32%. Industrials and Telecommunication Services were the only two sectors with positive returns, returning 2.94% and 1.18% respectively. 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 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 NASDAQ-100 INDEX FUND -------------------------------------------------------------------------------- LIPPER LEADERS (OVERALL) [5] [5] [5] [5] TOTAL RETURN CONSISTENT EXPENSE TAX RETURN EFFICIENCY The Fund is listed as a Lipper Leader for Total Return, Consistent Return, Expense and Tax Efficiency among 731, 728, 239, and 731 funds, respectively, within the Lipper Multi-Cap Growth Funds category for the overall period ended June 30, 2010. The Fund received a Lipper Leader rating for Total Return among 731 and 615 funds for the three- and five-year period ending June 30, 2010, respectively. The Fund received a Lipper Leader rating for Consistent Return among 723 and 613 funds for the three- and five-year period ending June 30, 2010, respectively. The Fund received a Lipper Leader rating for Expense among 239 and 207 funds for the three- and five-year period ending June 30, 2010, respectively. The Fund received a Lipper Leader rating for Tax Efficiency among 731 and 615 funds for the three- and five-year period ending June 30, 2010, respectively. Lipper ratings for Total Return reflect funds' historical total return performance relative to peers as of June 30, 2010. Lipper ratings for Consistent Return reflect funds' historical risk-adjusted returns, adjusted for volatility, relative to peers as of June 30, 2010. 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. Lipper ratings for Total Return reflect funds' historical total return performance relative to peers as of June 30, 2010. -------------------------------------------------------------------------------- Ratings are subject to change every month and are based on an equal-weighted average of percentile ranks for the Total Return, Consistent Return, 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. ================================================================================ 6 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ INVESTMENT OVERVIEW USAA NASDAQ-100 INDEX FUND (Ticker Symbol: USNQX) -------------------------------------------------------------------------------- 6/30/10 12/31/09 -------------------------------------------------------------------------------- Net Assets $157.4 Million $159.3 Million Net Asset Value Per Share $5.36 $5.74 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/10 -------------------------------------------------------------------------------- 12/31/09 to 6/30/10* 1 Year 5 Years Since Inception 10/27/00 -6.62% 17.54% 2.84% -6.20% -------------------------------------------------------------------------------- EXPENSE RATIO** -------------------------------------------------------------------------------- Before Reimbursement 1.11% After Reimbursement 0.78% *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 FUND SO THAT THE TOTAL ANNUAL OPERATING EXPENSES (EXCLUSIVE OF COMMISSION RECAPTURE, EXPENSE OFFSET ARRANGEMENTS, ACQUIRED FUND FEES AND EXPENSES, AND EXTRAORDINARY EXPENSES) DO NOT EXCEED AN ANNUAL RATE OF 0.78% OF THE FUND'S AVERAGE DAILY NET ASSETS. THIS REIMBURSEMENT ARRANGEMENT MAY NOT BE CHANGED OR TERMINATED DURING THIS TIME 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. ================================================================================ INVESTMENT OVERVIEW | 7 <PAGE> ================================================================================ o CUMULATIVE PERFORMANCE COMPARISON o [CHART OF CUMULATIVE PERFORMANCE COMPARISON] USAA NASDAQ-100 NASDAQ-100 INDEX INDEX FUND 10/31/00 $10,000.00 $10,000.00 11/30/00 7,636.90 7,683.62 12/31/00 7,134.71 7,137.48 01/31/01 7,900.80 7,900.19 02/28/01 5,814.91 5,800.38 03/31/01 4,794.16 4,783.43 04/30/01 5,653.41 5,630.89 05/31/01 5,485.34 5,461.39 06/30/01 5,577.71 5,546.14 07/31/01 5,131.28 5,094.16 08/31/01 4,479.71 4,444.44 09/30/01 3,561.28 3,531.07 10/31/01 4,160.20 4,124.29 11/30/01 4,865.50 4,811.68 12/31/01 4,807.60 4,747.88 01/31/02 4,725.89 4,672.51 02/28/02 4,144.28 4,097.87 03/31/02 4,429.65 4,371.06 04/30/02 3,894.07 3,843.52 05/31/02 3,684.80 3,626.85 06/30/02 3,206.25 3,155.83 07/31/02 2,934.34 2,892.06 08/31/02 2,874.49 2,826.12 09/30/02 2,539.41 2,496.40 10/31/02 3,018.62 2,967.42 11/30/02 3,405.08 3,344.24 12/31/02 3,003.59 2,948.58 01/31/03 2,999.84 2,939.16 02/28/03 3,083.11 3,023.94 03/31/03 3,110.60 3,042.79 04/30/03 3,377.74 3,306.56 05/31/03 3,658.86 3,579.75 06/30/03 3,670.54 3,579.75 07/31/03 3,900.85 3,805.84 08/31/03 4,098.03 3,994.24 09/30/03 3,983.65 3,881.20 10/31/03 4,330.64 4,210.91 11/30/03 4,355.59 4,239.18 12/31/03 4,489.81 4,361.64 01/31/04 4,567.15 4,437.00 02/29/04 4,499.09 4,361.64 03/31/04 4,401.34 4,267.44 04/30/04 4,288.61 4,154.39 05/31/04 4,488.56 4,342.80 06/30/04 4,643.13 4,493.53 07/31/04 4,287.97 4,144.97 08/31/04 4,193.57 4,050.77 09/30/04 4,328.65 4,182.65 10/31/04 4,555.73 4,399.32 11/30/04 4,817.99 4,644.25 12/31/04 4,972.24 4,794.98 01/31/05 4,661.33 4,491.48 02/28/05 4,638.85 4,463.11 03/31/05 4,551.79 4,378.01 04/30/05 4,362.95 4,188.90 05/31/05 4,740.49 4,548.22 06/30/05 4,589.87 4,406.38 07/31/05 4,933.46 4,727.88 08/31/05 4,865.17 4,661.68 09/30/05 4,926.62 4,718.42 10/31/05 4,857.93 4,652.23 11/30/05 5,148.42 4,926.45 12/31/05 5,066.48 4,841.34 01/31/06 5,268.98 5,039.91 02/28/06 5,149.13 4,916.99 03/31/06 5,251.81 5,011.55 04/30/06 5,243.49 5,002.09 05/31/06 4,874.25 4,642.77 06/30/06 4,861.22 4,623.86 07/31/06 4,658.94 4,434.75 08/31/06 4,880.36 4,642.77 09/30/06 5,110.43 4,850.80 10/31/06 5,353.27 5,087.19 11/30/06 5,538.52 5,257.40 12/31/06 5,435.57 5,153.38 01/31/07 5,545.66 5,257.40 02/28/07 5,455.60 5,172.30 03/31/07 5,489.54 5,200.66 04/30/07 5,786.06 5,474.88 05/31/07 5,977.94 5,654.54 06/30/07 5,996.67 5,663.99 07/31/07 5,990.97 5,654.54 08/31/07 6,172.31 5,824.74 09/30/07 6,490.36 6,117.87 10/31/07 6,949.89 6,552.83 11/30/07 6,491.23 6,117.87 12/31/07 6,481.31 6,098.96 01/31/08 5,724.81 5,389.78 02/29/08 5,431.33 5,106.11 03/31/08 5,546.67 5,210.12 04/30/08 5,969.79 5,607.26 05/31/08 6,332.98 5,947.67 06/30/08 5,724.33 5,370.87 07/31/08 5,762.73 5,399.23 08/31/08 5,840.89 5,474.88 09/30/08 4,974.45 4,652.23 10/31/08 4,164.66 3,895.77 11/30/08 3,704.55 3,460.80 12/31/08 3,787.12 3,536.45 01/31/09 3,689.67 3,441.89 02/28/09 3,497.97 3,262.23 03/31/09 3,875.02 3,612.10 04/30/09 4,368.91 4,075.43 05/31/09 4,503.84 4,198.35 06/30/09 4,635.64 4,311.82 07/31/09 5,032.50 4,680.60 08/31/09 5,106.63 4,746.79 09/30/09 5,402.61 5,021.00 10/31/09 5,240.91 4,860.26 11/30/09 5,562.24 5,162.84 12/31/09 5,855.89 5,427.60 01/31/10 5,481.64 5,077.74 02/28/10 5,732.99 5,304.68 03/31/10 6,174.55 5,711.27 04/30/10 6,310.39 5,834.20 05/31/10 5,849.59 5,408.69 06/30/10 5,494.81 5,068.28 [END CHART] Data from 10/31/00* to 6/30/10. The graph illustrates how a $10,000 hypothetical investment in the USAA Nasdaq-100 Index Fund closely tracks the Nasdaq-100 Index, an unmanaged modified capitalization-weighted index composed of 100 of the largest nonfinancial domestic and international companies listed on The Nasdaq Stock Market(R) based on market capitalization. "Nasdaq-100(R)," "Nasdaq-100 Index(R)," and "Nasdaq(R)" are trademarks or service marks of The Nasdaq Stock Market, Inc. (which with its affiliates are the "Corporations") and have been licensed for our use. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE USAA NASDAQ-100 INDEX FUND. The Fund is not sponsored, sold, or promoted by The Nasdaq Stock Market, Inc., and The Nasdaq Stock Market, Inc. makes no representation regarding the advisability of investing in the Fund. 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. *The performance of the Nasdaq-100 Index is calculated from the end of the month, October 31, 2000, while the date the Fund initially invested in securities represented by the index is October 30, 2000. There may be a slight variation of the performance numbers because of this difference. ================================================================================ 8 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ TOP 10 EQUITY HOLDINGS AS OF 6/30/10 (% of Net Assets) Apple, Inc. ............................................................ 19.7% Microsoft Corp. ........................................................ 4.3% Google, Inc. "A" ....................................................... 4.1% QUALCOMM, Inc. ......................................................... 4.0% Oracle Corp. ........................................................... 2.8% Cisco Systems, Inc. .................................................... 2.7% Teva Pharmaceutical Industries Ltd. ADR ................................ 2.4% Intel Corp. ............................................................ 2.3% Amazon.com, Inc. ....................................................... 2.0% Gilead Sciences, Inc. .................................................. 1.9% You will find a complete list of securities that the Fund owns on pages 11-16. ================================================================================ INVESTMENT OVERVIEW | 9 <PAGE> ================================================================================ o SECTOR ALLOCATION* -- 6/30/2010 o [PIE CHART OF SECTOR ALLOCATION] Information Technology 62.0% Health Care 15.1% Consumer Discretionary 14.2% Industrials 4.3% Telecommunication Services 1.7% Consumer Staples 0.8% Materials 0.4% [END CHART] * Excludes money market instruments. Percentages are of the net assets of the Fund and may not equal 100%. ================================================================================ 10 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ PORTFOLIO OF INVESTMENTS June 30, 2010 (unaudited) --------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------- COMMON STOCKS (98.5%) CONSUMER DISCRETIONARY (14.2%) ------------------------------ APPAREL RETAIL (0.8%) 12,002 Ross Stores, Inc. $ 640 16,254 Urban Outfitters, Inc.* 559 -------- 1,199 -------- AUTOMOTIVE RETAIL (0.4%) 13,336 O'Reilly Automotive, Inc.* 634 -------- CABLE & SATELLITE (3.5%) 140,249 Comcast Corp. "A" 2,436 62,571 DIRECTV "A"* 2,122 21,074 DISH Network Corp. "A" 383 32,855 Virgin Media, Inc. 548 -------- 5,489 -------- CASINOS & GAMING (0.6%) 13,029 Wynn Resorts Ltd. 994 -------- CATALOG RETAIL (0.4%) 53,185 Liberty Media Corp. Interactive "A"* 558 -------- CONSUMER ELECTRONICS (0.3%) 17,801 Garmin Ltd. 521 -------- DEPARTMENT STORES (0.5%) 11,646 Sears Holdings Corp.* 753 -------- EDUCATION SERVICES (0.4%) 14,796 Apollo Group, Inc. "A"* 628 -------- HOMEFURNISHING RETAIL (0.8%) 34,310 Bed Bath & Beyond, Inc.* 1,272 -------- INTERNET RETAIL (2.9%) 28,696 Amazon.com, Inc.* 3,135 26,851 Expedia, Inc. 504 4,869 Priceline.com, Inc.* 860 -------- 4,499 -------- ================================================================================ PORTFOLIO OF INVESTMENTS | 11 <PAGE> ================================================================================ --------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------- LEISURE PRODUCTS (0.5%) 40,408 Mattel, Inc. $ 855 -------- MOVIES & ENTERTAINMENT (1.0%) 138,102 News Corp. "A" 1,652 -------- RESTAURANTS (1.5%) 100,428 Starbucks Corp. 2,440 -------- SPECIALTY STORES (0.6%) 47,536 Staples, Inc. 906 -------- Total Consumer Discretionary 22,400 -------- CONSUMER STAPLES (0.8%) ----------------------- HYPERMARKETS & SUPER CENTERS (0.8%) 22,489 Costco Wholesale Corp. 1,233 -------- HEALTH CARE (15.1%) ------------------- BIOTECHNOLOGY (7.3%) 43,284 Amgen, Inc.* 2,277 28,075 Biogen Idec, Inc.* 1,332 44,287 Celgene Corp.* 2,251 7,159 Cephalon, Inc.* 406 32,439 Genzyme Corp.* 1,647 84,901 Gilead Sciences, Inc.* 2,910 20,485 Vertex Pharmaceuticals, Inc.* 674 -------- 11,497 -------- HEALTH CARE DISTRIBUTORS (0.5%) 8,836 Henry Schein, Inc.* 485 11,297 Patterson Companies, Inc. 322 -------- 807 -------- HEALTH CARE EQUIPMENT (1.0%) 26,697 Hologic, Inc.* 372 3,791 Intuitive Surgical, Inc.* 1,196 -------- 1,568 -------- HEALTH CARE SERVICES (1.4%) 47,397 Express Scripts, Inc.* 2,229 -------- HEALTH CARE SUPPLIES (0.3%) 13,527 DENTSPLY International, Inc. 405 -------- HEALTH CARE TECHNOLOGY (0.4%) 7,938 Cerner Corp.* 602 -------- ================================================================================ 12 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ --------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------- LIFE SCIENCES TOOLS & SERVICES (1.1%) 11,580 Illumina, Inc.* $ 504 17,904 Life Technologies Corp.* 846 22,979 Qiagen N.V.* 442 -------- 1,792 -------- PHARMACEUTICALS (3.1%) 30,407 Mylan, Inc.* 518 71,602 Teva Pharmaceutical Industries Ltd. ADR 3,723 24,402 Warner Chilcott plc "A"* 557 -------- 4,798 -------- Total Health Care 23,698 -------- INDUSTRIALS (4.3%) ------------------ AIR FREIGHT & LOGISTICS (1.0%) 15,956 C.H. Robinson Worldwide, Inc. 888 20,281 Expeditors International of Washington, Inc. 700 -------- 1,588 -------- CONSTRUCTION & ENGINEERING (0.2%) 12,764 Foster Wheeler AG* 269 -------- CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS (1.3%) 9,854 Joy Global, Inc. 493 39,651 PACCAR, Inc. 1,581 -------- 2,074 -------- DIVERSIFIED SUPPORT SERVICES (0.3%) 17,955 Cintas Corp. 430 -------- ELECTRICAL COMPONENTS & EQUIPMENT (0.5%) 7,244 First Solar, Inc.* 825 -------- ENVIRONMENTAL & FACILITIES SERVICES (0.4%) 8,687 Stericycle, Inc.* 570 -------- TRADING COMPANIES & DISTRIBUTORS (0.4%) 13,688 Fastenal Co. 687 -------- TRUCKING (0.2%) 12,185 JB Hunt Transport Services, Inc. 398 -------- Total Industrials 6,841 -------- INFORMATION TECHNOLOGY (62.0%) ------------------------------ APPLICATION SOFTWARE (2.6%) 50,011 Adobe Systems, Inc.* 1,322 23,281 Autodesk, Inc.* 567 ================================================================================ PORTFOLIO OF INVESTMENTS | 13 <PAGE> ================================================================================ --------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------- 21,380 Citrix Systems, Inc.* $ 903 38,492 Intuit, Inc.* 1,338 -------- 4,130 -------- COMMUNICATIONS EQUIPMENT (8.4%) 197,830 Cisco Systems, Inc.* 4,216 191,796 QUALCOMM, Inc.(a) 6,298 54,077 Research In Motion Ltd.* 2,664 -------- 13,178 -------- COMPUTER HARDWARE (20.2%) 123,036 Apple, Inc.(a)* 30,947 69,884 Dell, Inc.* 843 -------- 31,790 -------- COMPUTER STORAGE & PERIPHERALS (2.0%) 16,444 Logitech International S.A.* 221 34,935 NetApp, Inc.* 1,304 22,658 SanDisk Corp.* 953 47,031 Seagate Technology* 613 -------- 3,091 -------- DATA PROCESSING & OUTSOURCED SERVICES (2.0%) 34,471 Automatic Data Processing, Inc. 1,388 18,506 Fiserv, Inc.* 845 33,243 Paychex, Inc. 863 -------- 3,096 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS (0.3%) 15,679 FLIR Systems, Inc.* 456 -------- ELECTRONIC MANUFACTURING SERVICES (0.3%) 85,941 Flextronics International Ltd.* 481 -------- HOME ENTERTAINMENT SOFTWARE (1.0%) 107,596 Activision Blizzard, Inc. 1,129 32,264 Electronic Arts, Inc.* 464 -------- 1,593 -------- INTERNET SOFTWARE & SERVICES (7.2%) 26,353 Baidu, Inc. ADR* 1,794 94,567 eBay, Inc.* 1,855 14,490 Google, Inc. "A"* 6,447 16,570 VeriSign, Inc.* 440 64,480 Yahoo!, Inc.* 892 -------- 11,428 -------- ================================================================================ 14 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ --------------------------------------------------------------------------------------- MARKET NUMBER VALUE OF SHARES SECURITY (000) --------------------------------------------------------------------------------------- IT CONSULTING & OTHER SERVICES (1.3%) 28,278 Cognizant Technology Solutions Corp. "A"* $ 1,416 10,558 Infosys Technologies Ltd. ADR 632 -------- 2,048 -------- SEMICONDUCTOR EQUIPMENT (1.2%) 67,370 Applied Materials, Inc. 810 19,976 KLA-Tencor Corp. 557 12,654 Lam Research Corp.* 482 -------- 1,849 -------- SEMICONDUCTORS (6.4%) 41,119 Altera Corp. 1,020 38,966 Broadcom Corp. "A" 1,285 188,872 Intel Corp. 3,673 29,006 Linear Technology Corp. 807 59,662 Marvell Technology Group Ltd.* 940 28,732 Maxim Integrated Products, Inc. 481 15,010 Microchip Technology, Inc. 416 54,470 NVIDIA Corp.* 556 35,573 Xilinx, Inc. 899 -------- 10,077 -------- SYSTEMS SOFTWARE (9.1%) 20,607 BMC Software, Inc.* 714 47,848 CA, Inc. 880 19,753 Check Point Software Technologies Ltd.* 582 292,408 Microsoft Corp.(a) 6,728 203,290 Oracle Corp. 4,363 80,762 Symantec Corp.* 1,121 -------- 14,388 -------- Total Information Technology 97,605 -------- MATERIALS (0.4%) ---------------- SPECIALTY CHEMICALS (0.4%) 11,203 Sigma-Aldrich Corp. 558 -------- TELECOMMUNICATION SERVICES (1.7%) --------------------------------- WIRELESS TELECOMMUNICATION SERVICES (1.7%) 10,191 Millicom International Cellular S.A. 826 15,776 NII Holdings, Inc. "B"* 513 63,266 Vodafone Group plc 1,308 -------- Total Telecommunication Services 2,647 -------- Total Common Stocks (cost: $129,281) 154,982 -------- ================================================================================ PORTFOLIO OF INVESTMENTS | 15 <PAGE> ================================================================================ --------------------------------------------------------------------------------------- PRINCIPAL MARKET AMOUNT VALUE (000) SECURITY (000) --------------------------------------------------------------------------------------- MONEY MARKET INSTRUMENTS (1.6%) U.S.TREASURY BILLS (0.3%) $ 565 0.21%, 11/18/2010(b),(c) $ 565 -------- REPURCHASE AGREEMENTS (1.3%) 2,020 State Street Bank & Trust Co., 0.00%, acquired on 6/30/2010 and due 7/01/2010 at $2,020 (collateralized by $2,100 of U.S. Treasury, 0.50%(b), due 4/30/2012; market value $2,119) 2,020 -------- Total Money Market Instruments (cost: $2,584) 2,585 -------- TOTAL INVESTMENTS (COST: $131,865) $157,567 ======== --------------------------------------------------------------------------------------- NUMBER OF CONTRACT UNREALIZED CONTRACTS EXPIRATION VALUE DEPRECIATION LONG/(SHORT) SECURITY DATE (000) (000) --------------------------------------------------------------------------------------- FUTURES (1.6%) 73 Nasdaq-100 Mini Index Futures 09/17/2010 $2,537 $ (93) ------ ------- TOTAL FUTURES $2,537 $ (93) ====== ======= ---------------------------------------------------------------------------------------------- ($ 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 $154,982 $ - $- $154,982 Money Market Instruments: U.S. Treasury Bills - 565 - 565 Repurchase Agreements - 2,020 - 2,020 Futures* (93) - - (93) ---------------------------------------------------------------------------------------------- Total $154,889 $2,585 $- $157,474 ---------------------------------------------------------------------------------------------- * Futures 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. ================================================================================ 16 | USAA NASDAQ-100 INDEX FUND <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. Investments in foreign securities were 7.5% of net assets at June 30, 2010. ADR American depositary receipts are receipts issued by a U.S. bank evidencing ownership of foreign shares. Dividends are paid in U.S. dollars. o SPECIFIC NOTES (a) Security, or a portion thereof, is segregated to cover the value of open futures contracts at June 30, 2010. (b) Rate represents an annualized yield at time of purchase, not coupon rate. (c) Securities with a value of $565,000 are segregated as collateral for initial margin requirements on open futures contracts. * Non-income-producing security. See accompanying notes to financial statements. ================================================================================ NOTES TO PORTFOLIO OF INVESTMENTS | 17 <PAGE> ================================================================================ STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS) June 30, 2010 (unaudited) -------------------------------------------------------------------------------- ASSETS Investments in securities, at market value (cost of $131,865) $157,567 Receivables: Capital shares sold 192 USAA Investment Management Company (Note 5D) 45 Dividends and interest 71 -------- Total assets 157,875 -------- LIABILITIES Payables: Capital shares redeemed 385 Variation margin on futures contracts 37 Accrued management fees 28 Accrued transfer agent's fees 9 Other accrued expenses and payables 36 -------- Total liabilities 495 -------- Net assets applicable to capital shares outstanding $157,380 ======== NET ASSETS CONSIST OF: Paid-in capital $153,412 Accumulated undistributed net investment loss (22) Accumulated net realized loss on investments and futures transactions (21,619) Net unrealized appreciation of investments and futures contracts 25,609 -------- Net assets applicable to capital shares outstanding $157,380 ======== Capital shares outstanding, unlimited number of shares authorized, no par value 29,335 ======== Net asset value, redemption price, and offering price per share $ 5.36 ======== See accompanying notes to financial statements. ================================================================================ 18 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ STATEMENT OF OPERATIONS (IN THOUSANDS) Six-month period ended June 30, 2010 (unaudited) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends (net of foreign taxes withheld of $12) $ 624 Interest 1 -------- Total income 625 -------- EXPENSES Management fees 166 Administration and servicing fees 290 Transfer agent's fees 247 Custody and accounting fees 15 Postage 11 Shareholder reporting fees 10 Trustees' fees 5 Registration fees 20 Professional fees 33 Other 28 -------- Total expenses 825 Expenses reimbursed (178) -------- Net expenses 647 -------- NET INVESTMENT LOSS (22) -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, AND FUTURES CONTRACTS Net realized gain (loss) on: Investments 365 Futures transactions (225) Change in net unrealized appreciation/depreciation of: Investments (11,408) Futures contracts (219) -------- Net realized and unrealized loss (11,487) -------- Decrease in net assets resulting from operations $(11,509) ======== See accompanying notes to financial statements. ================================================================================ FINANCIAL STATEMENTS | 19 <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 loss $ (22) $ (53) Net realized gain (loss) on investments 365 (2,482) Net realized gain (loss) on futures transactions (225) 1,291 Change in net unrealized appreciation/depreciation of: Investments (11,408) 54,382 Futures contracts (219) 129 ------------------------ Increase (decrease) in net assets resulting from operations (11,509) 53,267 ------------------------ FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold 33,955 40,094 Cost of shares redeemed (24,320) (28,134) ------------------------ Increase in net assets from capital share transactions 9,635 11,960 ------------------------ Capital contribution from USAA Transfer Agency Company - 3 ------------------------ Net increase (decrease) in net assets (1,874) 65,230 NET ASSETS Beginning of period 159,254 94,024 ------------------------ End of period $157,380 $159,254 ======================== Accumulated undistributed net investment loss: End of period $ (22) $ - ======================== CHANGE IN SHARES OUTSTANDING Shares sold 5,771 8,693 Shares redeemed (4,184) (6,066) ------------------------ Increase in shares outstanding 1,587 2,627 ======================== See accompanying notes to financial statements. ================================================================================ 20 | USAA NASDAQ-100 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 Nasdaq-100 Index Fund (the Fund), which is classified as nondiversified under the 1940 Act. The Fund seeks to match, before fees and expenses, the performance of the stocks composing the Nasdaq-100 Index. The Nasdaq-100 Index represents 100 of the largest nonfinancial stocks traded on The Nasdaq Stock Market. 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 Nasdaq-100 Index. As a nondiversified fund, the Fund may invest a greater percentage of its assets in a single issuer. Because a relatively high percentage of the Fund's total assets may be invested in the securities of a single issuer or a limited number of issuers, the securities of the Fund may be more sensitive to changes in the market value of a single issuer, a limited number of issuers, or large companies generally. Such a focused investment strategy may increase the volatility of the Fund's investment results because this Fund may be more susceptible to risk associated with a single economic, political, or regulatory event than a diversified fund. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 21 <PAGE> ================================================================================ A. SECURITY VALUATION -- The value of each security is determined (as of the close of trading on the New York Stock Exchange (NYSE) on each business day the NYSE is open) as set forth below: 1. Equity securities, including exchange-traded funds (ETFs), except as otherwise noted, traded primarily on a domestic securities exchange or the Nasdaq over-the-counter markets, are valued at the last sales price or official closing price on the exchange or primary market on which they trade. Equity securities traded primarily on foreign securities exchanges or markets are valued at the last quoted sales price, or the most recently determined official closing price calculated according to local market convention, available at the time the Fund is valued. If no last sale or official closing price is reported or available, the average of the bid and asked prices is generally used. 2. Debt securities purchased with original or remaining maturities of 60 days or less may be valued at amortized cost, which approximates market value. 3. 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. 4. Repurchase agreements are valued at cost, which approximates market value. 5. Futures are valued based upon the last sale price at the close of market on the principal exchange on which they are traded. ================================================================================ 22 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ 6. Securities for which market quotations are not readily available or are considered unreliable, or whose values have been materially affected by events occurring after the close of their primary markets but before the pricing of the Fund, are valued in good faith at fair value, using methods determined by the Manager in consultation with the Fund's 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 net asset value (NAV) to be more reliable than it otherwise would be. Fair value methods used by the Manager include, but are not limited to, obtaining market quotations from secondary pricing services, broker-dealers, or widely used quotation systems. General factors considered in determining the fair value of securities include fundamental analytical data, the nature and duration of any restrictions on disposition of the securities, and an evaluation of the forces that influenced the market in which the securities are purchased and sold. B. FAIR VALUE MEASUREMENTS -- Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-level valuation hierarchy disclosed in the portfolio of investments is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: Level 1 -- inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical securities. Level 2 -- inputs to the valuation methodology are other significant observable inputs, including quoted prices for similar securities, inputs that are observable for the securities, either directly or indirectly, and market-corroborated inputs such as market indices. The Fund uses amortized cost in valuing repurchase agreements and a market ================================================================================ NOTES TO FINANCIAL STATEMENTS | 23 <PAGE> ================================================================================ 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 reduce any performance discrepancies between the Fund and the Nasdaq-100 ================================================================================ 24 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ 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 $(93)** - $- appreciation of investments and futures contracts --------------------------------------------------------------------------------------------------- *For open derivative instruments as of June 30, 2010, see the 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 portfolio of investments. Only current day's variation margin is reported within the statement of assets & liabilities. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 25 <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) $(225) $(219) 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. Discounts and ================================================================================ 26 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ premiums on short-term securities are amortized on a straight-line basis over the life of the respective securities. G. FOREIGN CURRENCY TRANSLATIONS -- The Fund's assets may be invested in the securities of foreign issuers and may be traded in foreign currency. Since the Fund's accounting records are maintained in U.S. dollars, foreign currency amounts are translated into U.S. dollars on the following bases: 1. Purchases and sales of securities, income, and expenses at the exchange rate obtained from an independent pricing service on the respective dates of such transactions. 2. Market value of securities, other assets, and liabilities at the exchange rate obtained from an independent pricing service on a daily basis. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Separately, net realized foreign currency gains/losses may arise from sales of foreign currency, currency gains/losses realized between the trade and settlement dates on security transactions, and from the difference between amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts received. At the end of the Fund's fiscal year, these net realized foreign currency gains/losses are reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income on the statement of assets and liabilities as such amounts are treated as ordinary income/loss for tax purposes. Net unrealized foreign currency exchange gains/losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 27 <PAGE> ================================================================================ H. EXPENSES PAID INDIRECTLY -- Through arrangements with the Fund's custodian and other banks utilized by the Fund for cash management purposes, realized credits, if any, generated from cash balances in the Fund's bank accounts may be used to directly reduce the Fund's expenses. For the six-month period ended June 30, 2010, custodian and other bank credits reduced the Fund's expenses by less than $500. I. 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. J. USE OF ESTIMATES -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts in the financial statements. (2) LINE OF CREDIT The Fund participates in a joint, short-term, revolving, committed loan agreement of $750 million with USAA Capital Corporation (CAPCO), an affiliate of the Manager. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. Subject to availability, the Fund may borrow from CAPCO an amount up to 5% of the Fund's total assets at a rate per annum equal to the rate at which CAPCO obtains funding in the capital markets, with no markup. The USAA funds that are party to the loan agreement are assessed facility fees by CAPCO based on the funds' assessed proportionate share of CAPCO's operating expenses related to obtaining and maintaining CAPCO's funding programs in total (in no event to exceed 0.13% annually ================================================================================ 28 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ 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 less than $500, which represents 0.4% of the total fees paid to CAPCO by the USAA funds. The Fund had no borrowings under this agreement during the 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 and realized gains from security transactions not offset by capital losses are made annually in the succeeding fiscal year or as otherwise required to avoid the payment of federal taxes. At December 31, 2009, the Fund had capital loss carryovers of $19,681,000, 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 $ 1,447,000 2011 4,733,000 2016 4,632,000 2017 8,869,000 ----------- Total $19,681,000 =========== The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Income tax and related interest and penalties ================================================================================ NOTES TO FINANCIAL STATEMENTS | 29 <PAGE> ================================================================================ 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 $11,433,000 and $922,000, 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 $44,407,000 and $18,705,000, respectively, resulting in net unrealized appreciation of $25,702,000. (5) TRANSACTIONS WITH MANAGER A. MANAGEMENT FEES -- The Manager provides investment management services to the Fund pursuant to an Advisory Agreement. Under this agreement, the Manager is responsible for managing the business and affairs of the Fund, 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 ================================================================================ 30 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ whether each subadviser's agreement should be renewed, terminated, or modified. The Manager also is responsible for allocating assets to the subadvisers. The allocation for each subadviser can range from 0% to 100% of the Fund's assets, and the Manager can change the allocations without shareholder approval. The Fund's management fees are accrued daily and paid monthly at an annualized rate of 0.20% 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 $166,000. 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 equal to the greater of a minimum annual fee of $50,000 or a fee at an annual rate equal to 0.06% of the Fund's average daily net assets on amounts up to $100 million; 0.04% of daily net assets for amounts over $100 million and up to $250 million; and 0.03% of daily net assets for amounts over $250 million. For the six-month period ended June 30, 2010, the Manager incurred subadvisory fees, paid or payable to NTI, of $43,000. C. ADMINISTRATION AND SERVICING FEES -- The Manager provides certain administration and shareholder servicing functions for the Fund. For such services, the Manager receives a fee accrued daily and paid monthly at an annualized rate of 0.35% of the Fund's average net assets for the fiscal year. For the six-month period ended June 30, 2010, the Fund incurred administration and servicing fees, paid or payable to the Manager, of $290,000. In addition to the services provided under its Administration and Servicing Agreement with the Fund, the Manager also provides certain compliance and legal services for the benefit of the Fund. The Trust's Board of Trustees has approved the reimbursement of a portion of these expenses incurred by the Manager. For the six-month period ended June 30, 2010, the Fund reimbursed the Manager $2,000 for ================================================================================ NOTES TO FINANCIAL STATEMENTS | 31 <PAGE> ================================================================================ 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 Fund to 0.78% of its average annual net assets, excluding extraordinary expenses and before reductions of any expenses paid indirectly, and will reimburse the Fund for all expenses in excess of that amount. 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 of $178,000, of which $45,000 was receivable from the Manager. 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 $26 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 agent's fees, paid or payable to SAS, of $247,000. 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. (6) TRANSACTIONS WITH AFFILIATES Certain trustees and officers of the Fund are also directors, officers, and/or employees of the Manager. None of the affiliated trustees or Fund officers received any compensation from the Fund. ================================================================================ 32 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ (7) FINANCIAL HIGHLIGHTS 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 $ 5.74 $ 3.74 $ 6.45 $ 5.45 $ 5.12 $ 5.09 -------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment loss (.00)(a),(d) (.00)(a),(d) (.01)(a) (.02)(a) (.01) (.01)(a) Net realized and unrealized gain (loss) (.38)(a) 2.00(a) (2.70)(a) 1.02(a) .34 .06(a) -------------------------------------------------------------------------------------- Total from investment operations (.38)(a) 2.00(a) (2.71)(a) 1.00(a) .33 .05(a) -------------------------------------------------------------------------------------- Less distributions from: Net investment income - - - - - (.02) -------------------------------------------------------------------------------------- Net asset value at end of period $ 5.36 $ 5.74 $ 3.74 $ 6.45 $ 5.45 $ 5.12 ====================================================================================== Total return (%)* (6.62) 53.48 (42.02) 18.35 6.45 .97 Net assets at end of period (000) $157,380 $159,254 $94,024 $149,358 $127,286 $130,390 Ratios to average net assets:** Expenses (%)(b),(c) .78(e) .78 .78 .78 .80 .80 Expenses, excluding reimbursements (%)(b) 1.00(e) 1.11 1.08 1.01 1.11 1.03 Net investment loss (%) (.03)(e) (.04) (.26) (.27) (.25) (.24) Portfolio turnover (%) 1 4 7 14 8 15 * 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 $167,435,000. (a) Calculated using average shares. For the six-month period ended June 30, 2010, average shares were 28,899,000. (b) Reflects total operating expenses of the Fund before reductions of any expenses paid indirectly. The Fund's expenses paid indirectly decreased the expense ratios by less than 0.01%. (c) Effective April 13, 2007, the Manager voluntarily agreed to reimburse the Fund for expenses in excess of 0.78% of its annual average net assets. Prior to April 13, 2007, the Manager voluntarily agreed to reimburse the Fund for expenses in excess of 0.80% of its annual average net assets. (d) Represents less than $0.01 per share. (e) Annualized. The ratio is not necessarily indicative of 12 months of operations. ================================================================================ NOTES TO FINANCIAL STATEMENTS | 33 <PAGE> ================================================================================ EXPENSE EXAMPLE June 30, 2010 (unaudited) -------------------------------------------------------------------------------- EXAMPLE As a shareholder of the Fund, you incur two types of costs: direct costs, such as wire fees, redemption fees, and low balance fees; and indirect costs, including management fees, transfer agency fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs" (in dollars), of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period of January 1, 2010, through June 30, 2010. ACTUAL EXPENSES The first line of the table on the next page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ================================================================================ 34 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ 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 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 -------------------------------------------------------------- Actual $1,000.00 $ 933.80 $3.74 Hypothetical (5% return before expenses) 1,000.00 1,020.93 3.91 * Expenses are equal to the Fund's annualized expense ratio of 0.78%, which is 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 ending account value on the first line in the table is based on its actual total return of (6.62)% for the six-month period of January 1, 2010, through June 30, 2010. ================================================================================ EXPENSE EXAMPLE | 35 <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 Advisory Agreement between the Trust and the Manager with respect to the Fund and the Subadvisory Agreement with respect to the Fund. In advance of the meeting, the Trustees received and considered a variety of information relating to the Advisory Agreement and Subadvisory Agreement and the Manager and the Subadviser, and were given the opportunity to ask questions and request additional information from management. The information provided to the Board included, among other things: (i) a separate report prepared by an independent third party, which provided a statistical analysis comparing the Fund's investment performance, expenses, and fees to comparable investment companies; (ii) information concerning the services rendered to the Fund, as well as information regarding the Manager's revenues and costs of providing services to the Fund and compensation paid to affiliates of the Manager; and (iii) information about the Manager's and Subadviser's operations and personnel. Prior to voting, the Independent Trustees reviewed the proposed continuance of the Advisory Agreement and the Subadvisory Agreement with management and with experienced independent counsel and received materials from such counsel discussing the legal standards for their consideration of the proposed continuation of the Advisory Agreement and the Subadvisory Agreement with respect to the Fund. The Independent Trustees also reviewed the proposed continuation of the Advisory Agreement and the Subadvisory Agreement with respect to the Fund in private sessions with their counsel at which no representatives of management were present. At each regularly scheduled meeting of the Board and its committees, the Board receives and reviews, among other things, information concerning ================================================================================ 36 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ the Fund's performance and related services provided by the Manager and by the Subadviser. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning Fund performance, comparability of fees and total expenses, and profitability. However, the Board noted that the evaluation process with respect to the Manager and the Subadviser is an ongoing one. In this regard, the Board's and its committees' consideration of the Advisory Agreement and Subadvisory Agreement included certain information previously received at such meetings. ADVISORY AGREEMENT After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Advisory Agreement. In approving the Advisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by independent counsel. NATURE, EXTENT, AND QUALITY OF SERVICES -- In considering the nature, extent, and quality of the services provided by the Manager under the Advisory Agreement, the Board reviewed information provided by the Manager relating to its operations and personnel. The Board also took into account its familiarity with the Manager's management through Board meetings, discussions, and reports during the preceding year. The Board considered the fees paid to the Manager and the services provided to the Fund by the Manager under the Advisory Agreement, as well as other services provided by the Manager and its affiliates under other agreements, and the personnel who provide these services. In addition to the investment advisory services provided to the Fund, the Manager and its affiliates provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements, and other services necessary for the operation of the Fund and the Trust. The Board considered the level and depth of knowledge of the Manager, including the professional experience and qualifications of senior personnel, ================================================================================ ADVISORY AGREEMENTS | 37 <PAGE> ================================================================================ 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," was also considered. The Manager's role in coordinating the activities of the Fund's other service providers also was considered. The Board considered the Manager's financial condition and that it had the financial wherewithal to continue to provide the same scope and high quality of services under the Advisory Agreement. In reviewing the Advisory Agreement, the Board focused on the experience, resources, and strengths of the Manager and its affiliates in managing investment companies, including the Fund. The Board also reviewed the compliance and administrative services provided to the Fund by the Manager 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 trustees of the Fund and other investment companies managed by the Manager, also focused on the quality of the Manager's compliance and administrative staff. EXPENSES AND PERFORMANCE -- In connection with its consideration of the Advisory Agreement, the Board evaluated the Fund's advisory fees and total expense ratio as compared to other open-end investment companies deemed to be comparable to the Fund as determined by the independent third party in its report. The Fund's expenses were compared to (i) a group of investment companies chosen by the independent third party to be comparable to the Fund based upon certain factors, including fund type, comparability of investment objectives and classifications, sales load type (in this case, pure-index 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 similar investment classifications/objectives as the Fund regardless of asset size, excluding outliers (the "expense universe"). Among other data, the Board noted that the Fund's management fee rate -- which includes advisory and administrative services and the effects of any ================================================================================ 38 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ reimbursements -- was below the median of its expense group and its expense universe. The data indicated that the Fund's total expenses, after reimbursements, were below the median of its expense group and its expense universe. The Board took into account the various services provided to the Fund by the Manager and its affiliates, including the nature and high quality of the services provided by the Manager. The Board also considered the level of correlation between the Nasdaq-100 Index and the Fund and the relatively low tracking error between the Fund and the 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 Board noted the size of the Fund and its impact on Fund expenses. The Trustees also took into account the Manager's current voluntary undertakings to maintain expense limitations for the Fund and that the subadvisory fees under the Subadvisory Agreement are paid by the Manager. In considering the Fund's performance, the Board noted that it reviews at its regularly scheduled meetings information about the Fund's performance results. The Trustees also reviewed various comparative data provided to them in connection with their consideration of the renewal of the Advisory Agreement, including, among other information, a comparison of the Fund's average annual total return with its Lipper index and with that of other mutual funds deemed to be in its peer group by the independent third party in its report (the "performance universe"). The Fund's performance universe consisted of the Fund and all retail and institutional open-end investment companies with similar classifications/objectives as the Fund regardless of asset size or primary channel of distribution. This comparison indicated that, among other data, the Fund's performance was above the average of its performance universe and its Lipper index for the one-, three-, and five periods ended December 31, 2009. The Board also noted that the Fund's percentile performance ranking was in the top 10% of its performance universe for the one- and three-year periods ended December 31, 2009 and in the top 20% of its performance universe for the five-year period ended December 31, 2009. The Trustees noted management's discussion of the Fund's performance relative to its benchmark, as well as the investment category in which the Fund was placed for the third-party report. ================================================================================ ADVISORY AGREEMENTS | 39 <PAGE> ================================================================================ COMPENSATION AND PROFITABILITY -- The Board took into consideration the level and method of computing the management fee. The information considered by the Board included operating profit margin information for the Manager's business as a whole. The Board also received and considered profitability information related to the management revenues from the Fund. This consideration included a broad review of the methodology used in the allocation of certain costs to the Fund. In considering the profitability data with respect to the Fund, the Trustees noted the current size of the Fund and that the Manager has reimbursed a portion of its management fees for 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 management's discussion of the advisory fee structure. The Board also noted that if the Fund's assets increase over time, the Fund may realize other economies of scale if assets increase proportionally more than some expenses. The Board determined that the current investment management fee structure was reasonable. CONCLUSIONS -- The Board reached the following conclusions regarding the Fund's Advisory Agreement with the Manager, among others: (i) the Manager has demonstrated that it possesses the capability and resources to perform the duties required of it under the Advisory Agreement; (ii) the Manager maintains an appropriate compliance program; (iii) the performance of the Fund is reasonable in relation to the performance of funds with similar investment objectives and to relevant ================================================================================ 40 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ 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 from its relationship with the Fund, if any, is reasonable. Based on its conclusions, the Board determined that continuation of the Advisory Agreement would be in the best interests of the Fund and its shareholders. SUBADVISORY AGREEMENT In approving the 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 performance to comparable investment companies; and (iii) the terms of the Subadvisory Agreement. The Board's analysis of these factors is set forth below. After full consideration of a variety of factors, the Board, including the Independent Trustees, voted to approve the Subadvisory Agreement. In approving the Subadvisory Agreement, the Trustees did not identify any single factor as controlling, and each Trustee may have attributed different weights to various factors. Throughout their deliberations, the Independent Trustees were represented and assisted by independent counsel. NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL -- The Trustees considered information provided to them regarding the services provided by the Subadviser, including information presented periodically throughout the previous year. The Board considered the Subadviser's level of knowledge and investment style. The Board reviewed the experience and credentials of the investment personnel who are responsible for managing the investment of portfolio securities 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 ================================================================================ ADVISORY AGREEMENTS | 41 <PAGE> ================================================================================ history. The Board noted that the Manager's monitoring processes of the Subadviser include: (i) regular telephonic meetings to discuss, among other matters, investment strategies and to review portfolio performance; (ii) monthly portfolio compliance checklists and quarterly compliance certifications to the Board; and (iii) due diligence visits to the Subadviser. SUBADVISER COMPENSATION -- The Board also took into consideration the financial condition of the Subadviser. In considering the cost of services to be provided by the Subadviser and the profitability to the Subadviser of its relationship with the Fund, the Trustees noted that the fees under the Subadvisory Agreement were paid by the Manager. The Trustees also relied on the ability of the Manager to negotiate the Subadvisory Agreement and the fees thereunder at arm's length. The Board also considered information relating to the cost of services to be provided by the Subadviser, the Subadviser's profitability with respect to the Fund, and the potential economies of scale in the Subadviser's management of the Fund, to the extent available. However, for the reasons noted above, this information was less significant to the Board's consideration of the Subadvisory Agreement than the other factors considered. SUBADVISORY FEES AND FUND PERFORMANCE -- The Board 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 management fee to the Manager and that, in turn, the Manager pays a subadvisory fee to the Subadviser. As noted above, the Board considered, among other data, the Fund's performance during the one-, three-, and five-year periods ended December 31, 2009, as compared to the Fund's 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 ================================================================================ 42 | USAA NASDAQ-100 INDEX FUND <PAGE> ================================================================================ 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. ================================================================================ ADVISORY AGREEMENTS | 43 <PAGE> ================================================================================ TRUSTEES Christopher W. Claus Barbara B. Dreeben Robert L. Mason, Ph.D. Barbara B. Ostdiek, Ph.D. Michael F. Reimherr Richard A. Zucker -------------------------------------------------------------------------------- ADMINISTRATOR, USAA Investment Management Company INVESTMENT ADVISER, P.O. Box 659453 UNDERWRITER, AND San Antonio, Texas 78265-9825 DISTRIBUTOR -------------------------------------------------------------------------------- TRANSFER AGENT USAA Shareholder Account Services 9800 Fredericksburg Road San Antonio, Texas 78288 -------------------------------------------------------------------------------- CUSTODIAN AND State Street Bank and Trust Company ACCOUNTING AGENT P.O. Box 1713 Boston, Massachusetts 02105 -------------------------------------------------------------------------------- INDEPENDENT Ernst & Young LLP REGISTERED PUBLIC 100 West Houston St., Suite 1800 ACCOUNTING FIRM San Antonio, Texas 78205 -------------------------------------------------------------------------------- MUTUAL FUND Under "Products & Services" SELF-SERVICE 24/7 click "Investments," then AT USAA.COM "Mutual Funds" OR CALL Under "My Accounts" go to (800) 531-USAA "Investments." View account balances, (8722) or click "I want to...," and select the desired action. -------------------------------------------------------------------------------- Copies of the Manager's proxy voting policies and procedures, approved by the Trust's Board of Trustees for use in voting proxies on behalf of the Fund, are available without charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM; and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (i) at USAA.COM; and (ii) on the SEC's Web site at HTTP://WWW.SEC.GOV. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. These Forms N-Q are available at no charge (i) by calling (800) 531-USAA (8722); (ii) at USAA.COM; and (iii) on the SEC's Web site at HTTP://WWW.SEC.GOV. These Forms N-Q also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) 732-0330. ================================================================================ <PAGE> USAA 9800 Fredericksburg Road -------------- San Antonio, TX 78288 PRSRT STD U.S. Postage PAID USAA -------------- >> SAVE PAPER AND FUND COSTS At USAA.COM click: MY DOCUMENTS Set preferences to USAA DOCUMENTS ONLINE. [LOGO OF USAA] USAA We know what it means to serve.(R) ============================================================================= 37758-0810 (C)2010, USAA. All rights reserved.
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