For Period ended 09/30/2001 All Series
File No. 811-7852
Sub-Item 77Q1(e): Exhibits
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Shareholders at a special meeting held on July 20, 2001 approved a new
advisory agreement between USAA STATE TAX-FREE TRUST and USAA INVESTMENT
MANAGEMENT COMPANY. The following is the approved agreement.
ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of August, 2001 between USAA
INVESTMENT MANAGEMENT COMPANY, a corporation organized under the laws of the
state of Delaware and having a place of business in San Antonio, Texas (the
"Manager"), and USAA STATE TAX-FREE TRUST, a business trust organized under the
laws of the state of Delaware and having a place of business in San Antonio,
Texas (the "Trust").
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is so registered under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Manager is engaged principally in the business of
rendering investment management services and is registered under the Investment
Advisers Act of 1940, as amended; and
WHEREAS, the Trust is authorized to issue shares of capital stock (the
"Shares") in separate classes with each such class representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Trust presently offers Shares in each of the classes
identified in Schedule A hereto (the "Existing Funds") (such classes, together
with all other classes subsequently established by the Trust with respect to
which the Trust desires to retain the Manager to render investment advisory
services hereunder and with respect to which the Manager is willing so to do,
being herein collectively referred to as the "Funds");
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the
parties hereto as follows:
1. APPOINTMENT OF MANAGER.
(a) EXISTING FUNDS. The Trust hereby appoints the Manager to act as
manager and investment adviser for each of the Existing Funds for the period and
on the terms herein set forth. The Manager accepts such appointment and agrees
to render the services herein set forth, for the compensation herein provided.
(b) ADDITIONAL FUNDS. In the event that the Trust establishes one or
more classes of Shares other than the Existing Funds with respect to which it
desires to retain the Manager to render management and investment advisory
services hereunder, it shall so notify the Manager in writing. If the Manager is
willing to render such services it shall notify the Trust in writing, whereupon
the Trust shall appoint the Manager to act as manager and investment adviser for
each of such classes of Shares for the period and on the terms herein set forth,
the Manager shall accept such appointment and agree to render the services
herein set forth for the compensation herein provided, and each of such classes
of Shares shall become a Fund hereunder.
2. DUTIES OF MANAGER.
The Manager, at its own expense, shall furnish the following services
and facilities to the Trust:
(a) INVESTMENT PROGRAM. The Manager will (i) furnish continuously an
investment program for each Fund, (ii) determine (subject to the overall
supervision and review of the Board of Trustees of the Trust) what investments
shall be purchased, held, sold or exchanged for each Fund and what portion, if
any, of the assets of each Fund shall be held uninvested, and (iii) make changes
on behalf of the Trust in the investments of each Fund.
(b) MONITORING. Should the Trust's Board of Trustees determine it is in
the best interests of a Fund's shareholders to invest all of its investable
assets in another mutual fund with substantially the same investment objective
(the "Portfolio"), the Manager will monitor the services provided to the
Portfolio, subject always to the control of the Trust's Board of Trustees. Such
monitoring may include among other things, review of Portfolio reports showing
the composition of securities in the Portfolio on a periodic basis and periodic
review of investment practices of the Portfolio. The Manager will report to the
Trust's Board of Trustees, at least annually, on the results of such monitoring
such that the Board may determine whether continued investment exclusively in
the Portfolio is in the best interests of the Fund's shareholders.
3. SUB-ADVISERS.
The Manager may employ one or more sub-advisers from time to time to
perform such of the acts and services of the Manager, including the selection of
brokers or dealers to execute the Fund's portfolio security transactions, and
upon such terms and conditions as may be agreed upon between the Manager and
such investment adviser and approved by the Trust's Board of Trustees.
4. ALLOCATION OF EXPENSES.
Except for the services and facilities to be provided by the Manager
set forth in Paragraph 2 above, the Trust assumes and shall pay all expenses for
all other Trust operations and activities and shall reimburse the Manager for
any such expenses incurred by the Manager. The expenses to be borne by the Trust
shall include, without limitation:
(a) the charges and expenses of any registrar, share transfer or
dividend disbursing agent, custodian, or depository appointed by the Trust for
the safekeeping of its cash, portfolio securities and other property;
(b) the charges and expenses of auditors;
(c) brokerage commissions for transactions in the portfolio securities
of the Trust;
(d) all taxes, including issuance and transfer taxes, and fees
payable by the Trust to federal, state or other governmental agencies;
(e) the cost of share certificates representing Shares of the Trust;
(f) fees involved in registering and maintaining registrations of the
Trust and of its Shares with the Securities and Exchange Commission and various
states and other jurisdictions;
(g) all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing proxy statements, quarterly reports, semiannual
reports, annual reports and other communications (including Prospectuses) to
existing shareholders;
(h) compensation and travel expenses of Directors who are not
"interested persons" within the meaning of the 1940 Act;
(i) the expense of furnishing or causing to be furnished to each
shareholder a statement of his account, including the expense of mailing;
(j) charges and expenses of legal counsel in connection with matters
relating to the Trust, including, without limitation, legal services rendered in
connection with the Trust's legal and financial structure and relations with its
shareholders, issuance of Trust Shares, and registration and qualification of
securities under federal, state and other laws;
(k) membership or association dues for the Investment Company
Institute or similar organizations;
(l) interest payable on Trust borrowings; and
(m) postage.
5. ADVISORY FEE.
(a) For the services and facilities to be provided by the Manager as
provided in Paragraph 2(a) hereof, the Trust shall pay to the Manager a monthly
fee with respect to each Fund computed as set forth in Schedule B or Schedule C
hereto. For the services and facilities to be provided by the Manager as
provided in Paragraph 2(b) hereof, the Trust shall pay no fee.
(b) The Manager may from time to time and for such periods as it deems
appropriate voluntarily waive fees or otherwise reduce its compensation
hereunder. With respect to each Fund identified in Schedule D hereto, in
addition to any amounts otherwise payable to the Manager as an advisory fee for
current services under this Agreement, the Trust shall be obligated to pay the
Manager amounts previously waived or expenses paid by the Manager with respect
to such Fund, provided that such additional payments are made not later than the
date identified in Schedule D hereto as the "Ending Date" and provided further
that the amount of such additional payment in any year, together with all other
expenses of the Fund, in the aggregate, would not cause the Fund's expense ratio
in such year to exceed the percentage of the Fund's average net assets
identified in Schedule D.
(c) In the event this Agreement is terminated with respect to any one
or more Funds as of a date other than the last day of any month, the Manager
shall pay the Trust a pro rata portion of the amount that the Manager would have
been required to pay, if any, had this Agreement remained in effect for the full
month, subject to such other adjustments as may be provided in Schedule B
hereto.
6. TRUST TRANSACTIONS.
In connection with the management of the investment and
reinvestment of the assets of the Trust, the Manager, acting by its own
officers, directors or employees or by a duly authorized subcontractor, is
authorized to select the brokers or dealers that will execute purchase and sale
transactions for the Trust and is directed to use its best efforts to seek on
behalf of a Fund the best overall terms available. In assessing the best overall
terms available for any transaction, the Manager shall consider all factors it
deems relevant, including the breadth of the market in and the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, with respect to the
specific transaction and on a continuing basis. Subject to this primary
requirement, and maintaining as its first consideration the benefits to the
Trust and its shareholders, the Manager shall have the right, subject to the
control of the Board of Trustees, to follow a policy of selecting brokers and
dealers who furnish statistical, research and other services to the Trust or to
the Manager.
7. RELATIONS WITH TRUST.
Subject to and in accordance with the Master Trust Agreement and Bylaws
of the Trust and of the Manager, respectively, it is understood that Directors,
officers, agents and shareholders of the Trust are or may be interested in the
Manager (or any successor thereof) as directors, officers, or otherwise, that
directors, officers, agents and shareholders of the Manager are or may be
interested in the Trust as Directors, officers, shareholders or otherwise, that
the Manager (or any such successor) is or may be interested in the Trust as a
shareholder or otherwise and that the effect of any such interests shall be
governed by said Master Trust Agreement and Bylaws.
8. LIABILITY OF MANAGER.
Neither the Manager nor its officers, directors, employees, agents or
controlling persons or assigns shall be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust or its shareholders in
connection with the matters to which this Agreement relates; provided that no
provision of this Agreement shall be deemed to protect the Manager against any
liability to the Trust or its shareholders to which it might otherwise be
subject by reason of any willful misfeasance, bad faith or gross negligence in
the performance of its duties or the reckless disregard of its obligations and
duties under this Agreement. Nor shall any provision hereof be deemed to protect
any Trustee or officer of the Trust against any such liability to which he might
otherwise be subject by reason of any willful misfeasance, bad faith or gross
negligence in the performance of his duties or the reckless disregard of his
obligations and duties. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
9. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) DURATION. This Agreement shall be executed on the first date upon
which the Agreement shall have been approved by a majority of the outstanding
voting securities (as that term is defined in the 1940 Act) of any Existing
Fund. This Agreement shall become effective with respect to any Existing Fund on
the first day of the first month following the date upon which the Agreement
shall have been approved by a majority of the outstanding voting securities (as
that term is defined in the 1940 Act) of such Existing Fund, and with respect to
any additional Fund on the date set forth in the notice from the Manager in
accordance with Paragraph 1(b) hereof that the Manager is willing to serve as
Manager with respect to such Fund. Unless terminated as herein provided, this
Agreement shall remain in full force and effect with respect to each Existing
Fund through July 31, 2003, and, with respect to each additional Fund, through
the first July 31 occurring more than twelve months after the date on which such
Fund becomes a Fund hereunder, and shall continue in full force and effect for
periods of one year thereafter with respect to each Fund so long as such
continuance with respect to any such Fund is approved at least annually (a) by
either the Trustees of the Trust or by vote of a majority of the outstanding
voting shares (as defined in the 1940 Act) of such Fund, and (b) in either event
by the vote of a majority of the Trustees of the Trust who are not parties to
this Agreement or "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
Any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of any Fund shall be effective
to continue this Agreement with respect to any such Fund notwithstanding (A)
that this Agreement has not been approved by the holders of a majority of the
outstanding shares of any other Fund affected thereby, and (B) that this
Agreement has not been approved by the vote of a majority of the outstanding
shares of the Trust, unless such approval shall be required by any other
applicable law or otherwise.
(b) TERMINATION. This Agreement may be terminated at any time, without
payment of any penalty, by vote of the Trustees of the Trust or by vote of a
majority of the outstanding shares (as defined in the 1940 Act), or by the
Manager on sixty (60) days' written notice to the other party.
(c) AUTOMATIC TERMINATION. This Agreement shall automatically
terminate in the event of its assignment.
10. NAME OF TRUST.
It is understood that the name "USAA," and any logo associated with
that name, is the valuable property of the United Services Automobile
Association, and that the Trust has the right to include "USAA" as a part of its
name only so long as this Agreement shall continue and the Manager is a wholly
owned subsidiary of the United Services Automobile Association. Upon termination
of this Agreement the Trust shall forthwith cease to use the "USAA" name and
logo and shall submit to its shareholders an amendment to its Master Trust
Agreement to change the Trust's name.
11. PRIOR AGREEMENT SUPERSEDED.
This Agreement supersedes any prior agreement relating to the subject
matter hereof between the parties.
12. SERVICES NOT EXCLUSIVE.
The services of the Manager to the Trust hereunder are not to be deemed
exclusive, and the Manager shall be free to render similar services to others so
long as its services hereunder are not impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
USAA STATE TAX-FREE TRUST USAA INVESTMENT MANAGEMENT COMPANY
By: By:
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Name: Xxxxxxxxxxx X. Xxxxx Name: Xxxxx X. Xxxxxxx
Title: President Title: Senior Vice President
SCHEDULE A TO ADVISORY AGREEMENT
LISTING OF FUNDS
NAME OF FUND
FLORIDA TAX-FREE INCOME FUND
FLORIDA TAX-FREE MONEY MARKET FUND
SCHEDULE B TO ADVISORY AGREEMENT - FOR
FUNDS WITH PERFORMANCE ADJUSTMENTS
This Schedule B shall apply to each of the Funds identified on Schedule B-1
hereto (each, a "Fund").
(a) GENERAL. The Trust shall pay to the Manager, as compensation for the
Manager's services and expenses assumed hereunder, a fee determined with respect
to each Fund, which shall be composed of the Basic Fee (defined below) and a
Performance Adjustment (defined below) to the Basic Fee based upon the
investment performance of a class of shares of the Fund in relation to the
investment record of a securities index determined by the Trustees of the Trust
to be appropriate over the same period.
(b) INDEX, CLASS AND CHANGES THERETO. The Trustees have initially
designated for each Fund the index and class of shares of the Fund identified on
Schedule B-1 as the index and class to be used for purposes of determining the
Performance Adjustment (referred to herein as the "Index" and the "Class,"
respectively). From time to time, the Trustees may, by a vote of the Trustees of
the Trust voting in person, including a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of any such parties, determine (i) that another securities index is a more
appropriate benchmark than the Index for purposes of evaluating the performance
of the Trust; and/or (ii) that a different class of shares of the Trust
representing interests in a Fund other than the Class is most appropriate for
use in calculating the Performance Adjustment. After ten days' written notice to
the Manager, a different index (the "Successor Index") may be substituted for
the Index in prospectively calculating the Performance Adjustment, and/or a
different class of shares (the "Successor Class") may be substituted in
calculating the Performance Adjustment. However, the calculation of that portion
of the Performance Adjustment attributable to any portion of the performance
period prior to the adoption of the Successor Index will still be based upon the
Fund's performance compared to the Index. The use of a Successor Class of shares
for purposes of calculating the Performance Adjustment shall apply to the entire
performance period so long as such Successor Class was outstanding at the
beginning of such period. In the event that such Successor Class of shares was
not outstanding for all or a portion of the Performance Period, it may only be
used in calculating that portion of the Performance Adjustment attributable to
the period during which such Successor Class was outstanding and any prior
portion of the Performance Period shall be calculated using the Successor Class
of shares previously designated.
(c) BASIC FEE. The basic fee for a Fund (the "Basic Fee") for any period
shall equal: (i) the Fund's average net assets during such period, multiplied by
(ii) the annual rate identified for such Fund on Schedule B-1 hereto, multiplied
by (iii) a fraction, the numerator of which is the number of calendar days in
the payment period and the denominator of which is 365 (366 in leap years).
(d) PERFORMANCE ADJUSTMENT. The amount of the performance adjustment
(the "Performance Adjustment") shall equal: (i) the average net assets of the
Fund over the Performance Period (as defined below), multiplied by (ii) the
Adjustment Rate (as defined below), multiplied by (iii) a fraction, the
numerator of which shall be the number of days in the last month of the
Performance Period and the denominator of which shall be 365. The resulting
dollar figure will be added to or subtracted from the Basic Fee depending on
whether the Fund experienced better or worse performance than the Index.
(e) ADJUSTMENT RATE. The adjustment rate (the "Adjustment Rate") shall
be as set forth in Schedule B-2 for each Fund, PROVIDED, HOWEVER, that the
Performance Adjustment may be further adjusted to the extent necessary to insure
that the total adjustment to the Basic Fee on an annualized basis does not
exceed the maximum Performance Adjustment identified for such Fund in Schedule
B-2.
(f) PERFORMANCE PERIOD. The performance period (the "Performance
Period") shall commence on the first day of the month next occurring after this
Agreement becomes effective with respect to the Fund (the "Commencement Date"),
PROVIDED, HOWEVER, that if this Agreement should become effective on the first
day of a month with respect to a Fund, then the Commencement Date shall be the
first day of such month. The Performance Period shall consist of the current
month plus the preceding months through the Commencement Date until a period of
36 months is included in the Performance Period, provided, however, that no
Performance Adjustment shall be made with respect to any period that is less
than 12 months. In months subsequent to a 36-month Performance Period having
been reached, the Performance Period will be a rolling 36-month period
consisting of the most recently completed month and the previous 35 months.
(g) MEASUREMENT CALCULATION. The Fund's investment performance will be
measured by comparing the (i) opening net asset value of one share of the Class
of the Fund on the first business day of the Performance Period with (ii) the
closing net asset value of one share of the Class of the Fund as of the last
business day of such period. In computing the investment performance of the Fund
and the investment record of the Index, distributions of realized capital gains,
the value of capital gains taxes per share paid or payable undistributed
realized long-term capital gains accumulated to the end of such period and
dividends paid out of investment income on the part of the Fund, and all cash
distributions of the companies whose securities comprise the Index, will be
treated as reinvested in accordance with Rule 205-1 or any other applicable rule
under the Investment Advisers Act of 1940, as the same from time to time may be
amended.
(h) PAYMENT OF FEES. The Management Fee payable hereunder shall be
computed daily and paid monthly in arrears.
(i) AVERAGE NET ASSETS. The term "average net assets" of a Fund as used
herein for any period shall mean the quotient produced by dividing (i) the sum
of the net assets of the Fund, as determined in accordance with procedures
established from time to time under the direction of the Board of Trustees of
the Trust, for each calendar day of such period, by (ii) the number of such
days.
(j) TERMINATION. In the event this Agreement with respect to any Fund is
terminated as of a date other than the last day of any month, the Basic Fee
shall be computed on the basis of the period ending on the last day on which
this Agreement is in effect for such Fund, subject to a pro rata adjustment
based on the number of days elapsed in the current month as a percentage of the
total number of days in such month. The amount of any Performance Adjustment to
the Basic Fee will be computed on the basis of and applied to the average net
assets over the Performance Period ending on the last day on which this
Agreement is in effect for such Fund.
SCHEDULE B-1 TO ADVISORY AGREEMENT - LISTING OF FUNDS
WITH PERFORMANCE ADJUSTMENT
ANNUAL BASIC
NAME OF FUND PERFORMANCE INDEX+ FEE RATE
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FLORIDA TAX-FREE INCOME FUND FLORIDA MUNICIPAL DEBT *
* The fee is computed at one-half of one percent (.50%) of the first $50
million of average net assets, two-fifths of one percent (.40%) for that
portion of average net assets over $50 million but not over $100 million,
and three-tenths of one percent (.30%) for that portion of average net
assets over $100 million. In calculating the fee for the Fund, the average
net assets of the Florida Tax-Free Income are combined with the average net
assets of the Florida Tax-Free Money Market Fund and the fee is allocated
pro rata based upon the average net assets of the two Funds.
+ Unless otherwise indicated, name refers to Lipper index.
SCHEDULE B-2 TO ADVISORY AGREEMENT - PERFORMANCE ADJUSTMENT RATE
FLORIDA TAX-FREE INCOME FUND
OVER/UNDER PERFORMANCE RELATIVE PERFORMANCE ADJUSTMENT RATE
TO INDEX (IN BASIS POINTS) (IN BASIS POINTS AS A PERCENTAGE
OF AVERAGE NET ASSETS)
+/- 20 to 50 +/- 4
+/- 51 to 100 +/- 5
+/- 101 and greater +/- 6
SCHEDULE C TO ADVISORY AGREEMENT - FOR FUNDS
WITH NO PERFORMANCE ADJUSTMENT)
This Schedule C shall apply to each of the Funds identified on Schedule C-1
hereto (each, a "Fund").
(a) The Trust shall pay to the Manager a fee for each Fund calculated
daily and payable monthly in arrears, computed as a percentage of the average
net assets of the Fund for such month at the rate set forth in Schedule C-1
thereto.
(b) The "average net assets" of the Fund for any month shall be equal to
the quotient produced by dividing (i) the sum of the net assets of such Fund,
determined in accordance with procedures established from time to time by or
under the direction of the Board of Trustees of the Trust, for each calendar day
of such month, by (ii) the number of such days.
SCHEDULE C-1 TO ADVISORY AGREEMENT - LISTING OF FUNDS
AND FEE RATES
NAME OF FUND FEE RATE
FLORIDA TAX-FREE MONEY MARKET FUND *
* The fee is computed at one-half of one percent (.50%) of the first $50 million
of average net assets, two-fifths of one percent (.40%) for that portion of
average net assets over $50 million but not over $100 million, and three-tenths
of one percent (.30%) for that portion of average net assets over $100 million.
In calculating the fee for the Fund, the average net assets of the Florida
Tax-Free Money Market Fund are combined with the average net assets of the
Florida Tax-Free Income Fund and the fee is allocated pro rata based upon the
average net assets of the two Funds.
SCHEDULE D TO ADVISORY AGREEMENT- FOR FUNDS WITH XXX
XXXXXX AND EXPENSE REIMBURSEMENT RECOVERY PLANS
NAME OF FUND ENDING DATE PERCENTAGE OF ANA
