As filed with the Securities and Exchange commission on July 25, 1995.
1933 Act File No. 33-65572
1940 Act File No. 811-7852
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 4
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 5
USAA STATE TAX-FREE TRUST
(Exact Name of Registrant as Specified in Charter)
9800 Fredericksburg Rd., San Antonio, TX 78288
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (210) 498-0600
Michael D. Wagner, Secretary
USAA STATE TAX-FREE TRUST
9800 Fredericksburg Rd.
San Antonio, TX 78288-0227
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
It is proposed that this filing will become effective under Rule 485
immediately upon filing pursuant to paragraph (b)
X on August 1, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2)
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24f-2
The Registrant has heretofore registered an indefinite number of
shares of the Florida Tax-Free Income Fund, Florida Tax-Free
Money Market Fund, Texas Tax-Free Income Fund, and Texas Tax-Free
Money Market Fund pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Registrant filed its Rule 24f-2 notice
for the Florida Tax-Free Income Fund, Florida Tax-Free Money
Market Fund, Texas Tax-Free Income Fund and Texas Tax-Free Money
Market Fund for the fiscal year ended March 31, 1995 on May 18,
1995.
Exhibit Index on Page 121
Page 1 of 269
USAA STATE TAX-FREE TRUST
CROSS REFERENCE SHEET
Part A
FORM N-1A ITEM NO. SECTION IN PROSPECTUS
1. Cover Page Same
2. Synopsis. Fees and Expenses
3. Condensed Financial
Information Financial Highlights
Performance Information
4. General Description
of Registrant Investment Objectives and Policies
Other Investment Information
Description of Shares
5. Management of the Fund Management of the Trust
Service Providers
6. Capital Stock and Other
Securities Dividends, Distributions and Taxes
Description of Shares
7. Purchase of Securities
Being Offered Purchase of Shares
Conditions of Purchase and Redemption
Exchanges
Other Services
Share Price Calculation
8. Redemption or Repurchase Redemption of Shares
Conditions of Purchase and Redemption
Exchanges
Other Services
9. Legal Proceedings Not Applicable
USAA STATE TAX-FREE TRUST
CROSS REFERENCE SHEET
Part B
FORM N-1A ITEM NO. SECTION IN STATEMENT OF ADDITIONAL
INFORMATION
10. Cover Page Same
11. Table of Contents Same
12. General Information and
History Not Applicable
13. Investment Objectives
and Policies Investment Policies
Investment Restrictions
Special Risk Considerations
Portfolio Transactions
14. Management of the
Registrant Trustees and Officers of the Trust
15. Control Persons and
Principal Holders
of Securities Trustees and Officers of the Trust
16. Investment Advisory and
Other Services Trustees and Officers of the Trust
The Trust's Manager
General Information
17. Brokerage Allocation and
Other Practices Portfolio Transactions
18. Capital Stock and Other
Securities Further Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered Valuation of Securities
Additional Information Regarding
Redemption of Shares
Investment Plans
20. Tax Status Certain Federal Income Tax
Considerations
Florida Taxation (Florida Funds
Statement of Additional
Information only)
21. Underwriters The Trust's Manager
22. Calculation of Performance
Data Calculation of Performance Data
23. Financial Statements General Information
PART A
Prospectuses for the
Florida Tax-Free Income, Florida Tax-Free Money Market,
Texas Tax-Free Income and Texas Tax-Free Money Market Funds
are included herein
Part A
Prospectus for the
Florida Tax-Free Income Fund and
Florida Tax-Free Money Market Fund
USAA FLORIDA FUNDS
August 1, 1995 PROSPECTUS
USAA Florida Tax-Free Income Fund and USAA Florida Tax-
Free Money Market Fund (collectively, the Funds or the
Florida Funds) are two of four no-load mutual funds offered
by USAA State Tax-Free Trust (the Trust). The Funds are
managed by USAA Investment Management Company (the Manager).
WHAT ARE THE INVESTMENT
OBJECTIVES AND POLICIES?
The Funds have a common objective of providing
Florida investors with a high level of current interest
income that is exempt from federal income taxes and
shares that are exempt from the Florida intangible
personal property tax. The Florida Tax-Free Money Market
Fund has a further objective of preserving capital and
maintaining liquidity. Each Fund has separate investment
policies to achieve its objective.
The Florida Tax-Free Income Fund invests primarily
in long-term high grade Florida tax-exempt securities.
The Fund's average portfolio maturity is not restricted,
but is expected to be greater than 10 years. Page 9.
The Florida Tax-Free Money Market Fund invests in
high quality Florida tax-exempt securities with
maturities of 397 days or less. The Manager will
maintain a dollar-weighted average portfolio maturity of
no more than 90 days. The Fund will endeavor to maintain
a constant net asset value per share of $1.00. Page 9.
HOW DO YOU BUY? Fund shares are sold on a continuous
basis at the net asset value per share without a sales
charge. Make your initial investment directly with the
Manager by mail or in person. Page 13.
HOW DO YOU SELL? You may redeem shares of a Fund by
mail, telephone, fax, or telegraph on any day that the
net asset value is calculated. Page 15.
Shares of the Florida Funds are authorized for sale
only to residents of the State of Florida. The delivery
of this Prospectus shall not constitute an offer in any
state in which shares of the Florida Funds may not
lawfully be made.
This Prospectus, which should be read and retained
for future reference, provides information regarding the
Trust and the Florida Funds that you should know before
investing.
Shares of the USAA Florida Funds are not deposits or
other obligations of, or guaranteed by the USAA Federal
Savings Bank, are not insured by the FDIC or any other
Government Agency, and are subject to market risks.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) dated August 1, 1995, is
available upon request and without charge by writing to USAA
STATE TAX-FREE TRUST, Florida Funds, 9800 Fredericksburg Rd.,
San Antonio, TX 78288, or by calling 1-800-531-8181. The SAI
has been filed with the Securities and Exchange Commission
and is incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE FLORIDA TAX-FREE MONEY MARKET FUND
IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT
AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 6
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 7
Using Mutual Funds in an Investment Program 8
INVESTMENT PORTFOLIO INFORMATION
Investment Objectives and Policies 9
Florida Tax-Free Income Fund 9
Florida Tax-Free Money Market Fund 9
Other Investment Information 10
SHAREHOLDER INFORMATION
Purchase of Shares 13
Redemption of Shares 15
Conditions of Purchase and Redemption 17
Exchanges 18
Other Services 18
Share Price Calculation 19
Dividends, Distributions and Taxes 20
Management of the Trust 22
Description of Shares 23
Service Providers 24
Telephone Assistance Numbers 24
FEES AND EXPENSES
The following summary is provided to assist you in understanding
the expenses you will bear directly or indirectly.
Shareholder Transaction Expenses (applicable to each Fund)
- ---------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets
(ANA))
- ----------------------------------------------------------------------------
Florida Florida
Tax-Free Tax-Free
Income Money Market
Fund Fund
Management Fees, net of reimbursements .16% .24%
12b-1 Fees None None
Other Expenses, net of reimbursements
Transfer Agent Fees** .10% .06%
Custodian Fees .12% .10%
All Other Expenses .12% .10%
---- ----
Total Other Expenses .34% .26%
---- ----
Total Fund Operating Expenses, net of
reimbursements .50% .50%
--- ---
--- ---
- ----------------------------------------------------------------------------
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See Redemption of
Shares - Bank Wire Redemption.
** The Funds pay USAA Shareholder Account Services an annual fixed fee
per account for its services. See Transfer Agent in the SAI,
page 18.
During the year, the Manager voluntarily limited each Fund's annual
expenses to .50% of its ANA and reimbursed the Funds for all expenses in
excess of the limitation. The Management Fees, Other Expenses, and Total
Fund Operating Expenses reflect all such expense reimbursements by the
Manager. Absent such reimbursements, the amount of the Management Fees,
Other Expenses, and Total Fund Operating Expenses as a percentage of ANA
for each of the Funds would have been as follows: Florida Tax-Free Income
Fund, .46%, .35%, and .81%; and Florida Tax-Free Money Market Fund, .46%,
.26%, and .72%. The Manager has voluntarily agreed to continue to limit
each Fund's annual expenses until August 1, 1996, to .50% of its ANA and
will reimburse the Funds for all expenses in excess of the limitation.
Example of Effect of Fund Expenses
- ---------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of the periods
shown:
1 year 3 years 5 years 10 years
Florida Tax-Free Income Fund $ 5 $ 16 $ 28 $ 63
Florida Tax-Free Money Market Fund $ 5 $ 16 $ 28 $ 63
The above example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout each period in the two-year period ended March 31, 1995, has
been derived from financial statements audited by KPMG Peat Marwick LLP.
This table should be read in conjunction with the financial statements
and related notes that appear in the Funds' Annual Report. Further
performance information is contained in the Annual Report and is available
upon request without charge.
NET ASSET NET REALIZED DISTRIBUTIONS
FISCAL VALUE AT NET AND FROM NET DISTRIBUTIONS
YEAR BEGINNING INVESTMENT UNREALIZED INVESTMENT OF REALIZED
ENDED OF PERIOD INCOME GAIN(LOSS) INCOME CAPITAL GAINS
($) ($) ($) ($) ($)
FLORIDA TAX-FREE INCOME FUND:
March 31,
1994* 10.00 .21 (1.02) (.21) -
1995 8.98 .49 .11 (.49) -
FLORIDA TAX-FREE MONEY MARKET FUND:
March 31,
1994* 1.00 .01 - (.01) -
1995 1.00 .03 - (.03) -
FINANCIAL HIGHLIGHTS cont.
RATIO OF NET
NET ASSET RATIO OF INVESTMENT
VALUE AT NET ASSETS EXPENSES INCOME
END TOTAL AT END TO AVERAGE TO AVERAGE PORTFOLIO
OF PERIOD RETURN OF PERIOD NET ASSETS NET ASSETS TURNOVER
($) (%)** ($000) (%) (%) (%)
FLORIDA TAX-FREE INCOME FUND:
8.98 (8.22) 24,948 .50(a)(b) 4.63(a)(b) 284.11
9.09 7.01 42,891 .50(b) 5.59(b) 183.44
FLORIDA TAX-FREE MONEY MARKET FUND:
1.00 .96 29,877 .50(a)(b) 1.98(a)(b) -
1.00 2.86 52,225 .50(b) 2.97(b) -
- --------------
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) The information contained in this table is based on actual expenses
for the period, after giving effect to reimbursements of expenses by
the Manager. Absent such reimbursements, the Funds' ratios would
have been:
RATIO OF RATIO OF NET
EXPENSES INVESTMENT INCOME
TO AVERAGE TO AVERAGE
NET ASSETS NET ASSETS
(%) (%)
FLORIDA TAX-FREE INCOME FUND:
March 31,
1994* 1.33(a) 3.80(a)
1995 .81 5.28
FLORIDA TAX-FREE MONEY MARKET FUND:
March 31,
1994* 1.11(a) 1.37(a)
1995 .72 2.75
- --------------
* Funds commenced operations October 1, 1993.
** Assumes reinvestment of all dividend income and capital gain
distributions during the period.
PERFORMANCE INFORMATION
Performance information should be considered in light of
each Fund's investment objective and policies and market
conditions during the time periods for which it is
reported. Historical performance should not be considered
as representative of the future performance of either Fund.
The Trust may quote a Fund's yield or total return
in advertisements and reports to shareholders or
prospective investors. A Fund's performance may also be
compared to that of other mutual funds with similar
investment objectives and relevant indexes that are
referenced in Appendix B to the SAI. Standard total
return and yield results reported by the Funds do not
take into account recurring and nonrecurring charges for
optional services which only certain shareholders elect
and which involve nominal fees, such as the $10 fee for a
delivery of redemption proceeds by wire transfer.
Further information concerning yield and total
return is included in the Trust's SAI.
TOTAL RETURN - Florida Tax-Free Income Fund. The Fund's
average annual total return is computed by determining
the average annual compounded rate of return for a
specified period which, when applied to a hypothetical
$1,000 investment in the Fund at the beginning of the
period, would produce the redeemable value of that
investment at the end of the period, assuming
reinvestment of all dividends and distributions during
the period.
YIELD - Florida Tax-Free Income Fund. This Fund may
advertise performance in terms of a 30-day yield
quotation. The yield quotation is computed by dividing
the net investment income per share earned during the
period by the offering price per share on the last day of
the period. This income is then annualized. For
purposes of the yield calculation, interest income is
computed based on the yield to maturity of each debt
obligation in a Fund's portfolio and all recurring
charges are recognized.
YIELD - Florida Tax-Free Money Market Fund. The Fund may
advertise its yield and effective yield. The yield of
the Fund refers to the income generated by an investment
in the Fund over a seven-day period (which period will be
stated in the advertisement). This income is then
annualized, that is, the amount of income generated by
the investment during the week is assumed to be generated
each week over a 52-week period and is shown as a
percentage of the investment.
The effective yield is calculated similarly but,
when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of
the compounding effect of this assumed reinvestment.
TAX EQUIVALENT YIELD - The Funds may also utilize tax
equivalent yields with adjustments for assumed income tax
rates. See Appendix C - Taxable Equivalent Yield Tables
in the SAI for illustrations of this yield. </R.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of Funds, each with different objectives and
policies. In combination, these Funds are designed to
provide investors with the opportunity to formulate their
own investment program. You may exchange any shares you
hold in any one USAA Fund for shares in any other USAA
Fund. For more complete information about the Funds in
the USAA Family of Funds, including charges and expenses,
call the Manager for a Prospectus. Be sure to read it
carefully before you invest or send money.
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA INVESTMENT TRUST
Balanced Portfolio Fund
Cornerstone Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
* Available for sale only to residents of
these specific states.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give
small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment buys part of a
widely diversified portfolio. That portfolio is managed
by investment professionals, relieving the shareholder of
the need to make individual stock or bond selections.
The investor also enjoys conveniences, such as daily
pricing, liquidity, and in the case of the USAA Family of
Funds, no sales charge. The portfolio, because of its
size, has lower transaction costs on its trades than most
individuals would have. As a result each shareholder
owns an investment that in earlier times would have been
available only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT
PROGRAM
In choosing a mutual fund as an investment vehicle, the
shareholder is foregoing some investment decisions, but
must still make others. The decisions foregone are those
involved with choosing individual securities. The Fund
Manager will perform that function. In addition, the
Manager will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily
valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of
the responsibility for an equally important decision.
This decision includes determining a portfolio of mutual
funds that balances the investor's investment goals with
his or her tolerance for risk. It is likely that this
decision may involve the use of more than one fund of the
USAA Family of Funds.
For example, assume a shareholder wishes to pursue
the higher yields usually available in the long-term bond
market, but is also concerned about the possible price
swings of the long-term bonds. He or she could divide
investments between the Florida Tax-Free Income Fund and
the Florida Tax-Free Money Market Fund. This would
create a portfolio with a higher yield than that of the
money market and less volatility than that of the long-
term market. This is just one example of how an
individual could combine funds to create a portfolio
tailored to his or her own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its
portfolio funds, the Balanced Portfolio and Cornerstone
Funds. Both of these unique mutual funds provide a
professionally managed diversified investment portfolio
within a mutual fund. These Funds are designed for the
shareholder who prefers to delegate the asset allocation
process to an investment manager. The Funds are
structured to achieve diversification across a number of
investment categories.
Whether you prefer to create your own mix of mutual
funds or use a portfolio fund, the USAA Family of Funds
provides a broad range of choices covering just about any
investor's investment objectives. Our sales
representatives stand ready to inform you of your choices
and to help you craft a portfolio which meets your needs.
INVESTMENT OBJECTIVES AND POLICIES
FLORIDA TAX-FREE INCOME FUND
FLORIDA TAX-FREE MONEY MARKET FUND
INVESTMENT OBJECTIVES
The Florida Tax-Free Income Fund and Florida Tax-Free
Money Market Fund have a common investment objective of
providing Florida investors with a high level of current
interest income that is exempt from federal income taxes
and shares that are exempt from the Florida intangible
personal property tax. The Florida Tax-Free Money Market
Fund has a further objective of preserving capital and
maintaining liquidity.
INVESTMENT POLICIES
The Manager will pursue this common objective by
investing each Fund's assets primarily in debt
obligations issued by the State of Florida, its political
subdivisions and instrumentalities, and by other
governmental entities if, in the opinion of counsel, the
interest from such obligations is excluded from gross
income for federal income tax purposes and the
obligations are exempt from the Florida intangible
personal property tax. It is a fundamental policy of
each Fund that during normal market conditions at least
80% of the Fund's net assets will consist of Florida tax-
exempt securities and at least 80% of the Fund's annual
income will be exempt from federal income taxes and
excluded from the calculation of federal alternative
minimum taxes for individual taxpayers.
Florida Tax-Free Income Fund. Under normal market
conditions, the Manager will invest the assets of the
Fund so that at least 75% of the total market value of
the tax-exempt securities is rated within the three
highest long-term rating categories (at least A) by
Moody's Investors Service, Inc. (Moody's), Standard &
Poor's Ratings Group (S&P), or Fitch Investors Service,
Inc. (Fitch), in the highest short-term rating category
by Moody's, S&P, or Fitch, or, if a security is not
rated by those rating agencies, it must be of equivalent
investment quality as determined by the Manager. The
Manager will not purchase a security if, as a result of
such purchase, more than 25% of the total market value
of the tax-exempt securities of the Fund would be invested
in securities which do not meet these quality standards.
In no event will a security be purchased for the Fund
unless it is rated at least investment grade; i.e., rated
by Moody's, S&P, or Fitch at least in the fourth highest
rating category for long-term securities, in the second
highest rating category for short-term securities, or, if
not rated by those rating agencies, determined by the Manager
to be of equivalent investment quality. Securities rated
in the lowest level of investment grade have some
speculative characteristics since adverse economic
conditions and changing circumstances are more likely to
have an adverse impact on such securities.
If the rating of a security is downgraded, the
Manager will determine whether it is in the best interest
of the Fund's shareholders to continue to hold such
security in the Fund's portfolio. Unless otherwise
directed by the Board of Trustees, if downgrades result
in more than 5% of the Fund's net assets being invested
in securities that are less than investment grade
quality, the Manager will take immediate action to reduce
the Fund's holdings in such securities to 5% or less of
the Fund's net assets. For a more complete description
of tax-exempt securities and their ratings, see Appendix
A to the SAI.
The Fund's average portfolio maturity is not
restricted, but is expected to be greater than ten years.
In determining a security's maturity for purposes of
calculating the Fund's average maturity, estimates of the
expected time for its principal to be paid may be used.
This can be substantially shorter than its stated final
maturity. For a discussion of the method of calculating
the average weighted maturity of the Fund's portfolio,
see Investment Policies in the SAI. The per share net
asset value of the Florida Tax-Free Income Fund will
fluctuate with portfolio maturity, the quality of
securities held, and inversely to interest rate levels.
Florida Tax-Free Money Market Fund. The Fund will
purchase only high quality securities that qualify as
"eligible securities" under the Securities and Exchange
Commission rules applicable to money market mutual funds.
These securities must also be determined by the Manager
to present minimal credit risk. In general, the category
of eligible securities may include a security that is:
(1) issued or guaranteed by the U.S. Government or any
agency or instrumentality thereof including
"prerefunded" and "escrowed to maturity" tax-exempt
securities;
(2) rated in one of the two highest categories for
short-term securities by at least two Nationally
Recognized Statistical Rating Organizations (NRSROs),
or by one NRSRO if the security is rated by only one
NRSRO;
(3) unrated but issued by an issuer or guaranteed by a
guarantor that has other comparable short-term debt
obligations so rated; or
(4) unrated but determined to be of comparable quality
by the Manager.
If a security is downgraded after purchase, the
Manager will follow written procedures adopted by the
Fund's Board of Trustees and a determination will be made
as to whether it is in the best interest of the Fund's
shareholders for the Fund to continue to hold the
security.
Current NRSROs include Moody's, S&P, Fitch, Duff &
Phelps Inc., Thompson BankWatch, Inc., and IBCA Inc. For
a description of tax- exempt securities and their
ratings, see Appendix A to the SAI.
Consistent with regulatory requirements, the Manager
will purchase securities with remaining maturities of 397
days or less and will maintain a dollar-weighted average
portfolio maturity of no more than 90 days. The Fund
will endeavor to maintain a constant net asset value of
$1.00 per share, although there is no assurance that it
will be able to do so.
OTHER INVESTMENT INFORMATION
The investment objectives of the Funds may not be changed
without shareholder approval. In view of the risks
inherent in all investments in securities, there is no
assurance that these objectives will be achieved. The
investment policies and techniques used to pursue the
Funds' objectives may be changed without shareholder
approval, except as otherwise noted. Further information
regarding the Funds' investment policies and restrictions
is provided in the SAI.
TAX-EXEMPT SECURITIES
These securities include general obligation bonds, which
are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and
interest; revenue bonds, which are payable from the
revenue derived from a particular facility or class of
facilities or, in some cases, from annual appropriations
made by the state legislature for the repayment of
interest and principal or other specific revenue source,
but not from the general taxing power; lease obligations
backed by the municipality's covenant to budget for the
payments due under the lease obligation; and certain types
of industrial development bonds issued by or on behalf of
public authorities to obtain funds for privately-operated
facilities, provided that the interest paid on such
securities qualifies as exempt from federal income taxes.
The value of the securities in which the Trust will
invest generally fluctuates inversely with changes in
prevailing interest rates. Changes in the
creditworthiness of issuers and changes in other market
factors such as the relative supply of and demand for
tax-exempt bonds also create value fluctuations.
Each Fund may on a temporary basis due to market or
other conditions invest up to 100% of its assets in
short-term securities whether or not exempt from federal
income taxes. Such taxable securities may consist of
obligations of the United States Government, its agencies
or instrumentalities, and repurchase agreements secured
by such instruments; certificates of deposit of domestic
banks having capital, surplus and undivided profits in
excess of $100 million; banker's acceptances of similar
banks; commercial paper; and other corporate debt
obligations.
INVESTMENT TECHNIQUES
Variable Rate Securities - Each Fund may invest in tax-
exempt securities that bear interest at rates which are
adjusted periodically to market rates. These interest
rate adjustments can both raise and lower the income
generated by such securities. These changes will have
the same effect on the income earned by a Fund depending
on the proportion of such securities held.
The market value of fixed coupon securities
fluctuates with changes in prevailing interest rates,
increasing in value when interest rates decline and
decreasing in value when interest rates rise. The value
of variable rate securities, however, is less affected by
changes in prevailing interest rates because of the
periodic adjustment of their coupons to a market rate.
The shorter the period between adjustments, the smaller
the impact of interest rate fluctuations on the value of
these securities. The market value of tax-exempt
variable rate securities usually tends toward par (100%
of face value) at interest rate adjustment time.
In the case of the Florida Tax-Free Money Market
Fund only, any variable rate instrument with a demand
feature will be deemed to have a maturity equal to either
the date on which the underlying principal amount may be
recovered through demand or the next rate adjustment date
consistent with applicable regulatory requirements.
Put Bonds - Each Fund may invest in tax-exempt securities
(including securities with variable interest rates) which
may be redeemed or sold back (put) to the issuer of the
security or a third party at face value prior to stated
maturity (Put Bonds). Such securities will normally
trade as if maturity is the earlier put date, even though
stated maturity is longer. For the Florida Tax-Free
Income Fund, maturity for put bonds is deemed to be the
date on which the put becomes exercisable. Generally,
maturity for put bonds for the Florida Tax-Free Money
Market Fund is determined as stated under Variable Rate
Securities.
When-Issued Securities - Each Fund may invest in new
issues of tax-exempt securities offered on a when-issued
basis; that is, delivery and payment take place after the
date of the commitment to purchase, normally within 45
days. Both price and interest rate are fixed at the time
of commitment. The Funds do not earn interest on the
securities until settlement, and the market value of the
securities may fluctuate between purchase and settlement.
Such securities can be sold before settlement date.
Cash or high quality liquid debt securities equal to
the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities
are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at
least equal to the amount of such commitments by the
Fund. On the settlement date, the Fund will meet its
obligations from then available cash, sale of segregated
securities, sale of other securities, or sale of the
when-issued securities themselves.
Municipal Lease Obligations - Each Fund may invest in
municipal lease obligations and certificates of
participation in such obligations (collectively, lease
obligations). A lease obligation does not constitute a
general obligation of the municipality for which the
municipality's taxing power is pledged, although the
lease obligation is ordinarily backed by the
municipality's covenant to budget for the payments due
under the lease obligation.
Certain lease obligations contain "non-
appropriation" clauses which provide that the
municipality has no obligation to make lease obligation
payments in future years unless money is appropriated for
such purpose on a yearly basis. Although "non-
appropriation" lease obligations are secured by the
leased property, disposition of the property in the event
of foreclosure might prove difficult. In evaluating a
potential investment in such a lease obligation, the
Manager will consider: (1) the credit quality of the
obligor, (2) whether the underlying property is essential
to a governmental function, and (3) whether the lease
obligation contains covenants prohibiting the obligor
from substituting similar property if the obligor fails
to make appropriations for the lease obligation.
Liquidity - The Florida Tax-Free Income Fund and Florida
Tax-Free Money Market Fund may invest up to 15% and 10%,
respectively, of their net assets in illiquid securities.
Lease obligations and certain Put Bonds that are
subject to restrictions on transfer may be determined to
be liquid in accordance with the guidelines established
by the Board of Trustees for purposes of complying with
the Funds' investment restrictions applicable to
investments in illiquid securities.
In determining the liquidity of a lease obligation,
the Manager will consider: (1) the frequency of
trades and quotes for the lease obligation, (2) the
number of dealers willing to purchase or sell the lease
obligation and the number of other potential purchasers,
(3) dealer undertakings to make a market in the lease
obligation, (4) the nature of the marketplace trades,
including the time needed to dispose of the lease
obligation, the method of soliciting offers, and the
mechanics of transfer, (5) whether the lease obligation
is of a size that will be attractive to institutional
investors, (6) whether the lease obligation contains a
non-appropriation clause and the likelihood that the
obligor will fail to make an appropriation therefor, and
(7) such other factors as the Manager may determine to be
relevant to such determination.
In determining the liquidity of Put Bonds with
restrictions on transfer, the Manager will evaluate the
credit quality of the party (the Put Provider) issuing
(or unconditionally guaranteeing performance on) the
unconditional put or demand feature of the Put Bond.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without
shareholder approval:
a. Neither Fund may borrow money, except that a Fund
may borrow money for temporary or emergency purposes
in an amount not exceeding 33 1/3% of its total
assets (including the amount borrowed) less
liabilities (other than borrowings). Neither Fund
will purchase securities when its borrowings exceed
5% of its total assets.
b. Neither Fund may invest 25% or more of its total
assets in securities issued in connection with the
financing of projectswith similar characteristics,
such as toll road revenue bonds, housing revenue bonds or
electric power project revenue bonds or in
industrial revenue bonds which are based, directly
or indirectly, on the credit of private entities of
any one industry. However, each Fund reserves the
right to invest more than 25% of its total assets in
tax-exempt industrial revenue bonds.
c. Neither Fund will, with respect to 75% of its total
assets, purchase the securities of any issuer
(except Government Securities, as such term is
defined in the Investment Company Act of 1940) if,
as a result, the Fund would own more than 10% of the
outstanding voting securities of such issuer or the
Fund would have more than 5% of the value of its
total assets invested in the securities of such
issuer.
RISK FACTORS
Each Fund is subject to credit and market risks, which
will be intensified by concentration in obligations
issued by or on behalf of Florida public authorities.
For this reason, the Funds are affected by political,
economic, legal, regulatory or other developments which
constrain the taxing, spending and revenue collection
authority of Florida issuers or otherwise affect the
ability of Florida issuers to pay interest, repay
principal or any premium. See Special Risk
Considerations in the SAI.
Because each Fund will ordinarily invest at least
80% of its net assets in Florida tax-exempt securities,
it is more susceptible to factors adversely affecting
issuers of Florida tax-exempt securities than is a fund
that is not concentrated in issuers of Florida tax-exempt
securities to this degree.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the methods described in the following table. A
complete, signed application is required together with a
check (payable to USAA [Fund Name]) for each new account.
TAX ID NUMBER
We require that each shareholder named on the account
provide the Trust with a social security number or tax
identification number to avoid possible tax withholding
requirements.
EFFECTIVE DATE
Generally, when you make a purchase, your purchase price
will be the net asset value (NAV) per share next
determined after the Fund receives your request in proper
form. If a Fund receives your request prior to the close of
the New York Stock Exchange on a day on which the Exchange is
open, your purchase price will be the NAV per share
determined for that day. If a Fund receives your request
after the time at which the NAV per share is calculated,
the purchase will be effective on the next business day.
A check drawn on a foreign bank will not be deemed
received for the purchase of shares until such time as
the check has cleared and the Manager has received good
funds, which may take up to 4 to 6 weeks. Furthermore, a
bank charge may be assessed in the clearing process,
which will be deducted from the amount of the purchase.
To avoid a delay in the effectiveness of your purchase,
the Manager suggests that you convert your foreign check
to U.S. dollars prior to investment in the Funds.
PURCHASE OF SHARES
INITIAL PURCHASES: Minimum $3,000 - (Except USAA employee payroll deduction).
Mail
Send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
In Person
Bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway
San Antonio, TX
USAA Employee
Payroll Deduction
The periodic purchase of shares through payroll deduction ($25 minimum)
by any employee of USAA, its subsidiaries or affiliated companies.
Exchange
Call our telephone assistance numbers. The new account must have the
same registration as the account from which you are exchanging.
ADDITIONAL PURCHASES: Minimum $50 - (Except transfers from brokerage
accounts and USAA employee payroll deduction).
Mail
Send your check and the "Invest By Mail" stub, which accompanies your
Fund's transaction confirmation, to the Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
Bank Wire
Purchase
Instruct your bank (which may charge a fee for the service) to wire
the specified amount to the Company as follows:
State Street Bank and Trust Company
Boston, MA 02101
ABA# 011000028
Attn: USAA [Fund Name]
USAA AC-69384998
Shareholder(s) Name(s)
Shareholder Account Number
Electronic
Funds
Transfer (EFT)
You can pay for purchases electronically via electronic funds transfer.
Systematic (regular) purchases can be deducted from your bank account,
payroll, income-producing investment, or from a USAA money market account.
Intermittent (as-needed) purchases can be deducted from your bank account
through our Buy/Sell Service.
Establish any of our electronic investing services when you apply
for your account, or later upon request.
REDEMPTION OF SHARES
You may redeem shares of a Fund by any of the methods
described in the following table on any day the NAV per
share is calculated. Redemptions will be effective on
the day on which instructions are received in accordance
with the requirements set forth below. However, if
instructions are received after the NAV per share
calculation, redemption will be effective on the next
business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days
after the effective date of redemption. Payment for
redemption of shares purchased by check or electronic
funds transfer will not be disbursed until the purchase
check or electronic funds transfer has cleared, which
could take up to 15 days from the purchase date. If you
are considering redeeming shares soon after purchase, you
should purchase by bank wire or certified check to avoid
delay.
In addition, the Trust may elect to suspend the
redemption of shares or postpone the date of payment
during any period that the New York Stock Exchange is
closed, or trading in the markets the Trust normally
utilizes is restricted, or during any period that
redemption is otherwise permitted to be suspended by the
Securities and Exchange Commission.
Redemption
of Shares
Any of the following methods may be used to authorize the
Transfer Agent to redeem shares from your account based
on instructions received.
Written,
Fax, or
Telegraph
Send your written instructions to:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
Send a signed fax to 210-498-2889, or send a telegraph to
USAA Shareholder Account Services.
Written redemption requests must include the following:
(1) a letter of instruction or stock assignment, and stock
certificate (if issued), specifying the Fund and the number
of shares or dollar amount to be redeemed; (2) signatures of
all owners of the shares exactly as their names appear on the
account; (3) other supporting legal documents, if required,
as in the case of estates, trusts, guardianships, custodianships,
partnerships, corporations, and pension and profit- sharing plans;
and (4) method of payment.
Telephone
Call toll free 1-800-531-8448, in San Antonio, 210-456-7202.
The Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are
genuine, and if it does not, it may be liable for any
losses due to unauthorized or fraudulent instructions.
Information is obtained prior to any discussion regarding
an account including: (1) USAA number or account number,
(2) the name(s) on the account registration, and (3)
social security number or tax identification number for
the account registration. In addition, all telephone
communications with a shareholder are recorded and
confirmations of all account transactions are sent to the
address of record.
Redemption by telephone, fax, or telegraph is not
available for shares represented by stock certificates.
(continued)
Methods of
Payment
Any of the following methods of payment may be used with
your redemption request.
Bank Wire
Redemption
The wire redemption privilege allows redemptions to be
sent directly to your bank account. Establish this
service when you apply for your account, or later upon
request. If your account is at a savings bank, savings
and loan association, or credit union, please obtain
precise wiring instructions from your institution.
Specifically, include the name of the correspondent bank
and your institution's account number at that bank. USAA
Shareholder Account Services deducts a wire fee from the
account for the redemption by wire. The fee as of the
date of this Prospectus is $10 ($25 for wires to a
foreign bank) and is subject to change at any time. The
fee is paid to State Street Bank and Trust Company (SSB)
and the Transfer Agent for their services in connection
with the wire redemption. Your bank may also charge a
fee for receiving funds by wire.
Electronic
Funds
Transfer (EFT)
You can request electronic redemptions via electronic
funds transfer. Systematic (regular) or intermittent
(as-needed) redemptions can be credited to your bank
account.
Establish any of our electronic investing services
when you apply for your account, or later upon request.
Check
Redemption
You may request a redemption to be paid by check to the
registered shareholder(s) and mailed to the address of
record. This check redemption privilege is automatically
established when your application is completed and
accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone
address change.
Checkwriting
You may request that checks be issued for your Florida
Tax-Free Money Market Fund account. To establish your
checkwriting privilege (CWP), complete the signature card
which accompanies the application form or Shareholder
Services Guide, or request and complete the signature
card separately. A one-time $5 checkwriting fee is
charged to each account by the Transfer Agent for the
establishment of the privilege. There is no charge for
the use of checks nor for subsequent reorders. This
privilege is subject to SSB's rules and regulations
governing checking accounts. Checks must be written for
an amount of at least $250. Checks written for less than
$250 will be returned. Checkwriting may not be used to
close an account because the value of the account changes
daily as dividends are accrued.
When a check is presented to the Transfer Agent for
payment, a sufficient number of full and fractional
shares in the investor's account will be redeemed to
cover the amount of the check. Checks will be returned
if there are insufficient shares to cover the amount of
the check. Presently, there is a $15 processing fee
assessed against an account for any redemption check not
honored by a clearing or paying agent. A check paid
during the month will be returned to the shareholder by
separate mail. Checkwriting fees are subject to change
at any time. The Trust, the Transfer Agent and SSB each
reserve the right to change or suspend the checkwriting
privilege upon 30 days' written notice to participating
shareholders. See the SAI for further information.
You may request that the Transfer Agent stop payment
on a check. The Transfer Agent will use its best efforts
to execute stop payment instructions but does not
guarantee that such efforts will be effective. A $10
charge will be made for each stop payment requested by a
shareholder.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to
nonpayment or if the Trust does not receive good funds
either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares
purchased and you will be responsible for any resulting
loss incurred by the Fund or the Manager. If you are a
shareholder, shares can be redeemed from any of your
account(s) as reimbursement for all losses. In addition,
you may be prohibited or restricted from making future
purchases in any of the USAA Family of Funds. A $15 fee
is charged for all returned items, including checks and
electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by
sending written instructions to the Transfer Agent. The
account must be clearly identified and the shareholder
must include the number of shares to be transferred, the
signatures of all registered owners, and all stock
certificates, if any, which are the subject of transfer.
You also need to send written instructions and supporting
documents to change an account registration due to events
such as divorce, marriage, or death. If a new account
needs to be established, an application must be completed
and returned to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an
account with a total value of less than $500 of either
Fund, subject to certain limitations described in
Additional Information Regarding Redemption of Shares in
the SAI.
TRUST RIGHTS
The Trust reserves the right to:
(1) reject purchase or exchange orders when in the best
interest of the Trust;
(2) limit or discontinue the offering of shares of any
portfolio of the Trust without notice to the
shareholders;
(3) impose a redemption charge of up to 1% of the net
asset value of shares redeemed if circumstances
indicate a charge is necessary for the protection of
remaining investors (for example, if excessive
market-timing share activity unfairly burdens long-
term investors); provided, however, this 1% charge
will not be imposed upon shareholders unless
authorized by the Board of Trustees and adequate
notice has been given to shareholders;
(4) require a signature guarantee when deemed appropriate
by the Manager for purchases, redemptions, or changes
in account information. The section Additional
Information Regarding Redemption of Shares in the SAI
contains information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among portfolios in the USAA Family of Funds, provided
you do not hold these shares in stock certificate form
and that the shares to be acquired are offered in your
state of residence. Only Florida residents may exchange
into a Florida Fund. Exchange redemptions and purchases
will be processed simultaneously at the share prices next
determined after the exchange order is received. For
federal income tax purposes, an exchange between
portfolios is a taxable event. Accordingly, a capital
gain or loss may be realized.
The Funds have undertaken certain procedures
regarding telephone transactions. See Redemption of
Shares - Telephone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the portfolios and
their shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any
portfolio in the USAA Family of Funds are limited for
each account to six per calendar year except that there
is no limitation on exchanges out of the Tax Exempt
Short-Term Fund, Short-Term Bond Fund, or any of the
money market funds in the USAA Family of Funds.
OTHER SERVICES
INVESTMENT PLANS
You may establish a systematic investment plan by
completing the appropriate forms. At the time you sign
up for any of the following investment plans that utilize
the electronic funds transfer service, you will choose
the day of the month (the effective date) on which you
would like to regularly purchase shares. When this day
falls on a weekend or holiday, the electronic transfer
will take place on the last business day before the
effective date. Call the Manager to obtain instructions.
More information about these preauthorized plans is
contained in the SAI.
InvesTronic(registered trademark) - the periodic purchase
of shares through electronic funds transfer from a
checking or savings account.
Direct Purchase Service - the periodic purchase of shares
through electronic funds transfer from a non-governmental
employer, an income-producing investment, or an account
with a participating financial institution.
Automatic Purchase Plan - the periodic transfer of funds
from a USAA money market fund to purchase shares in
another non-money market USAA mutual fund.
Buy/Sell Service - the intermittent purchase or
redemption of shares through electronic funds transfer to
or from a checking or savings account.
Systematic Withdrawal Plan - the periodic redemption of
shares from one of your accounts permitting you to
receive a fixed amount of money monthly or quarterly.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each account
transaction in your Florida Tax-Free Income Fund, except
reinvested dividends. In the Florida Tax-Free Money
Market Fund, you will only receive a confirmation for
purchases or redemptions by check and exchanges. If your
Money Market Fund account had activity other than
reinvested dividends, you will receive a monthly
statement that will reflect quarter-to-date account
activity.
At the end of each quarter you will receive a
consolidated statement for all of your mutual fund
accounts, regardless of account activity. The fourth
quarter consolidated statement will reflect all account
activity for the prior tax year. There will be a $10 fee
charged for copies of historical statements for other
than the prior tax year for any one account. You will
receive a Fund's financial statements with a summary of
its investments and performance at least semiannually.
In an effort to reduce expenses and respond to
shareholders' requests to reduce mail, the Trust intends
to consolidate mailings of Annual and Semiannual Reports
to households having multiple accounts with the same
address of record. One copy of each report will be
furnished to that address. You may request additional
reports by notifying the Trust.
DIRECTED DIVIDENDS
If you own shares in more than one of the Funds in the
USAA Family of Funds, you may direct that dividends
and/or capital gain distributions earned in one fund be
used to automatically purchase shares in another fund.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the SAI, the most recent Annual Report and/or
Semiannual Report, or if you have any questions
concerning any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Funds are purchased and
redeemed by shareholders is equal to the net asset value
(NAV) per share determined on the effective date of the
purchase or redemption.
WHEN
The NAV per share for each Fund is calculated at the
close of the regular trading session of the New York
Stock Exchange, which is usually 4:00 p.m. Eastern time.
You may buy and sell Fund shares at the NAV per share
without a sales charge.
HOW
The NAV per share is calculated by adding the value of
all securities and other assets in a Fund, deducting
liabilities, and dividing by the number of shares
outstanding. Securities of the Florida Tax-Free Income
Fund are valued each business day at their current
market value as determined by a pricing service approved
by the Board of Trustees. Securities which cannot be
valued by the pricing service, and all other assets, are
valued in good faith at fair value using methods determined
by the Manager under the general supervision of the Board of
Trustees. In addition, securities purchased with maturities
of 60 days or less and all securities of the Florida Tax-Free
Money Market Fund are stated at amortized cost.
For additional information, see Valuation of
Securities in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income of each Fund is accrued daily and
distributed to shareholders on the last business day of
each month. Any net capital gain generally will be
distributed at least annually. The Funds intend to make
such additional distributions as may be necessary to
avoid the imposition of any federal excise tax.
All shares purchased will begin accruing dividends
on the day following the effective date of the purchase
and will receive dividends through the effective date of
redemption.
All income dividends and capital gain distributions
are automatically reinvested, unless the shareholder
specifies otherwise. The share price will be the net
asset value of the Fund shares computed on the ex-
dividend date. Any capital gain distribution paid by the
Florida Tax-Free Income Fund will reduce the per share
net asset value by the amount of the distribution. An
investor should consider carefully the effects of
purchasing shares of the Florida Tax-Free Income Fund
shortly before any capital gain distribution. Although
in effect a return of capital, these distributions are
subject to taxes. If a shareholder becomes a resident of
a state other than Florida, a check for proceeds of
income dividends will be mailed to such shareholder
monthly, and a check for any capital gain distribution
will be mailed after the distribution is paid.
Any dividend or distribution payment returned to the
Manager as not deliverable will be invested in the
shareholder's Fund account at the then-current net asset
value. If any check for the payment of dividends or
distributions is not cashed within six months from the
date on the check, it becomes void. The amount of the
check will then be invested in the shareholder's account
at the then-current net asset value.
FEDERAL TAXES
The exemption of interest income for federal income tax
purposes does not necessarily result in exemption under
the income or other tax laws of any state or local taxing
authority. The following discussion relates only to
generally applicable federal income tax provisions in
effect as of the date of this Prospectus. Therefore,
shareholders are urged to consult their own tax advisers
about the status of distributions from a Fund in their
own states and localities.
Fund - Each Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code,
neither Fund will be subject to federal income tax on its
net investment income and net capital gains (capital
gains in excess of capital losses) distributed to
shareholders.
Shareholder - Dividends of net tax-exempt interest income
paid by a Fund are excluded from a shareholder's gross
income for federal income tax purposes. Dividends from
taxable net investment income and distributions of net
short-term capital gains are taxable to shareholders as
ordinary income, whether received in cash or reinvested
in additional shares. However, it is expected that any
taxable net investment income will be insubstantial in
relation to the tax-exempt interest generated by a Fund.
Distributions of net long-term capital gains are
taxable as long-term capital gains whether received in
cash or reinvested in additional shares, and regardless
of the length of time the investor has held the shares of
a Fund.
Tax-exempt interest from private activity bonds (for
example, industrial development revenue bonds) issued after
August 7, 1986, although otherwise exempt from federal tax,
is treated as a tax preference item for purposes of the
alternative minimum tax. For corporations, all tax-exempt
interest will be considered in calculating the alternative
minimum tax as part of the adjusted current earnings.
Withholding - Each Fund is required by federal law to
withhold and remit to the U.S. Treasury a portion of the
income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate
shareholder who fails to furnish the Fund with a correct
tax identification number, who underreports dividend or
interest income, or who fails to certify that he is not
subject to withholding. To avoid this withholding
requirement, you must certify on your application, or on
a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you
are not currently subject to backup withholding.
Reporting - Each Fund will report annually to its
shareholders the federal tax status of dividends and
distributions paid or declared by each Fund during the
preceding calendar year, including the portion of the
dividends constituting interest on private activity
bonds, and the percentage and source, on a state-by-state
basis, of interest income earned on tax-exempt securities
held by the Fund during the preceding year.
FLORIDA TAXATION
The following is only a summary of some of the important
Florida tax considerations generally affecting the Funds
and their shareholders. This discussion is not intended
as a substitute for careful planning. Potential investors
in the Funds should consult their tax advisers with
specific reference to their own tax situations.
Dividends and distributions paid by the Funds to
individuals who are residents of Florida are not taxable
by Florida, because Florida does not impose a personal
income tax. Dividends and distributions by the Funds will
be subject to Florida corporate income taxes. Accordingly,
investors in the Funds, including in particular corporate
investors that may be subject to the Florida corporate
income tax, should consult their tax advisers with respect
to the application of the Florida corporate income tax to
the receipt of Fund dividends and distributions and to the
investor's Florida tax situation in general.
Florida imposes a tax on intangible personal
property owned by Florida residents. The Funds received
a ruling from the Florida Department of Revenue that if,
on the last business day of any calendar year, the Funds'
investments consist solely of assets exempt from the
Florida intangible personal property tax, shares of the
Funds owned by Florida residents will be exempt from the
Florida intangible personal property tax in the following
year. Assets exempt from the Florida intangible personal
property tax include obligations issued by the State of
Florida and its political subdivisions, municipalities,
and public authorities; obligations of the United States
Government or its agencies; and cash. If shares of the
Funds are subject to Florida intangible personal property
tax, because less than 100% of the Funds' assets on the
last business day of the calendar year consist of assets
exempt from the Florida intangible personal property tax,
only the portion of the net asset value of shares of the
Funds that is attributable to obligations of the United
States Government will be exempt from taxation.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the
supervision of the Board of Trustees.
The Manager, USAA Investment Management Company
(IMCO), was organized in May 1970 and is an affiliate of
United Services Automobile Association (USAA), a large
diversified financial services institution. As of the
date of this Prospectus, the Manager had approximately
$27 billion in total assets under management. The
Manager's mailing address is at 9800 Fredericksburg Rd.,
San Antonio, TX 78288.
Officers and employees of the Manager are permitted
to engage in personal securities transactions subject to
restrictions and procedures set forth in the Joint Code
of Ethics adopted by the Trust and the Manager. Such
restrictions and procedures include substantially all of
the recommendations of the Advisory Group of the
Investment Company Institute and comply with Securities
and Exchange Commission rules and regulations.
ADVISORY AGREEMENT
The Manager serves as the manager and investment adviser
of the Trust, providing services under an Advisory
Agreement. Under the Advisory Agreement, the Manager is
responsible for the management of the portfolios,
business affairs, and placement of brokerage orders,
subject to the authority of and supervision by the Board
of Trustees.
For its services under the Advisory Agreement, each
Fund pays the Manager an annual fee which is computed as
a percentage of the aggregate average net assets (ANA) of
both Funds combined. The fee is accrued daily, paid
monthly, and allocated between the Funds based on the
relative net assets of each. The management fee is
computed at .50% of the first $50,000,000 ANA, .40% of
that portion over $50,000,000 and not over $100,000,000
ANA, and .30% of that portion over $100,000,000 ANA. For
the fiscal year ended March 31, 1995, the fees paid to
the Manager, net of reimbursements, were .16% of ANA for
the Florida Tax-Free Income Fund and .24% of ANA for
Florida Tax-Free Money Market Fund.
OPERATING EXPENSES
For the fiscal year ended March 31, 1995, the Manager
limited each Fund's total annualized operating expenses
to .50% of its ANA. The Manager reimbursed the Florida
Tax-Free Income Fund $104,638 and the Florida Tax-Free
Money Market Fund $90,717 for expenses in excess of the
limitation. The Manager has voluntarily agreed to
continue to limit each Fund's annual expenses until
August 1, 1996, to .50% of its ANA and will reimburse the
Funds for all expenses in excess of the limitation.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for
managing the Funds.
Florida Tax-Free Income Fund
Robert R. Pariseau, Assistant Vice President of Fixed
Income Investments since June of 1995, has managed the
Fund since May 1995. He has eleven years investment
management experience working for IMCO, where he has held
various positions in Fixed Income and Equity Investments.
Mr. Pariseau earned the Chartered Financial Analyst (CFA)
designation in 1987 and is a member of the Association
for Investment Management and Research (AIMR), San
Antonio Financial Analysts Society, Inc. (SAFAS), and the
National Federation of Municipal Analysts (NFMA). He
holds an MBA from Lindenwood College, Missouri and a BS
from the U.S. Naval Academy, Annapolis, Maryland.
Florida Tax-Free Money Market Fund
Pamela K. Bledsoe, Executive Director of Fixed Income
Investments since June of 1995, has managed the Fund
since May 1995. Ms. Bledsoe has seven years investment
management experience and has worked for IMCO since
July 1991 in Fixed Income Research. From October 1986
to August 1989 she was a Financial Analyst at Schenley
Industries, Inc., Dallas, Texas. Ms. Bledsoe earned the
CFA designation in 1992 and is a member of the AIMR and
SAFAS. Ms. Bledsoe holds an MBA from Texas Christian
University and a BS from Louisiana Tech University.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company
established as a business trust under the laws of the
State of Delaware pursuant to a Master Trust Agreement
dated June 21, 1993. The Trust is authorized to issue an
unlimited number of shares of beneficial interest of
separate series or Funds at $.001 par value. Four such
Funds have been established, two of which are described
in this Prospectus. Each Fund is classified as a
diversified investment company. Under the Master Trust
Agreement, the Board of Trustees is authorized to create
new Funds in addition to those already existing without
shareholder approval.
Under the Master Trust Agreement, no annual meeting
of shareholders is required. Ordinarily, no shareholder
meeting will be held unless required by the Investment
Company Act of 1940. The Trustees may fill vacancies on
the Board or appoint new Trustees provided that
immediately after such action at least two-thirds of the
Trustees have been elected by shareholders. Shareholders
are entitled to one vote per share (with proportionate
voting for fractional shares) irrespective of the relative
net asset value of the shares. For matters affecting an
individual Fund, a separate vote of the shareholders of
that Fund is required. Shareholders holding an aggregate
of at least 10% of the outstanding shares of the Trust
may request a meeting of shareholders at any time for the
purpose of voting to remove one or more of the Trustees,
and the Trust will assist shareholders in communicating
with other shareholders in connection with such a meeting.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio,
Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
Part A
Prospectus for the
Texas Tax-Free Income Fund and
Texas Tax-Free Money Market Fund
USAA TEXAS FUNDS
August 1, 1995 PROSPECTUS
USAA Texas Tax-Free Income Fund and USAA Texas Tax-Free
Money Market Fund (collectively, the Funds or the Texas
Funds) are two of four no-load mutual funds offered by USAA
State Tax-Free Trust (the Trust). The Funds are managed
by USAA Investment Management Company (the Manager).
WHAT ARE THE INVESTMENT
OBJECTIVES AND POLICIES?
The Funds have a common objective of providing Texas
investors with a high level of current interest income
that is exempt from federal income taxes. The Texas Tax-
Free Money Market Fund has a further objective of
preserving capital and maintaining liquidity. Each Fund
has separate investment policies to achieve its objective.
The Texas Tax-Free Income Fund invests primarily in
long-term high grade Texas tax-exempt securities. The
Fund's average portfolio maturity is not restricted, but
is expected to be greater than 10 years. Page 8.
The Texas Tax-Free Money Market Fund invests in high
quality Texas tax-exempt securities with maturities of
397 days or less. The Manager will maintain a dollar-
weighted average portfolio maturity of no more than 90
days. The Fund will endeavor to maintain a constant net
asset value per share of $1.00. Page 8.
HOW DO YOU BUY? Fund shares are sold on a continuous
basis at the net asset value per share without a sales
charge. Make your initial investment directly with the
Manager by mail or in person. Page 12.
HOW DO YOU SELL? You may redeem shares of a Fund by
mail, telephone, fax, or telegraph on any day that the
net asset value is calculated. Page 14.
Shares of the Texas Funds are authorized for sale
only to residents of the State of Texas. The delivery of
this Prospectus shall not constitute an offer in any
state in which shares of the Texas Funds may not lawfully
be made.
This Prospectus, which should be read and retained
for future reference, provides information regarding the
Trust and the Texas Funds that you should know before
investing.
Shares of the USAA Texas Funds are not deposits or
other obligations of, or guaranteed by the USAA Federal
Savings Bank, are not insured by the FDIC or any other
Government Agency, and are subject to market risks.
If you would like more information, a STATEMENT OF
ADDITIONAL INFORMATION (SAI) dated August 1, 1995, is
available upon request and without charge by writing to USAA
STATE TAX-FREE TRUST, Texas Funds, 9800 Fredericksburg Rd.,
San Antonio, TX 78288, or by calling 1-800-531-8181. The SAI
has been filed with the Securities and Exchange Commission
and is incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE TEXAS TAX-FREE MONEY MARKET FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND
THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
TABLE OF CONTENTS
Page
SUMMARY DATA
Fees and Expenses 3
Financial Highlights 4
Performance Information 5
USING MUTUAL FUNDS
USAA Family of No-Load Mutual Funds 6
Using Mutual Funds in an Investment Program 7
INVESTMENT PORTFOLIO INFORMATION
Investment Objectives and Policies 8
Texas Tax-Free Income Fund 8
Texas Tax-Free Money Market Fund 8
Other Investment Information 9
SHAREHOLDER INFORMATION
Purchase of Shares 12
Redemption of Shares 14
Conditions of Purchase and Redemption 16
Exchanges 17
Other Services 17
Share Price Calculation 18
Dividends, Distributions and Taxes 19
Management of the Trust 21
Description of Shares 22
Service Providers 23
Telephone Assistance Numbers 23
FEES AND EXPENSES
The following summary is provided to assist you in
understanding the expenses you will bear directly or
indirectly.
Shareholder Transaction Expenses (applicable to each Fund)
- ----------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee* None
Exchange Fee None
Annual Fund Operating Expenses (as a percentage of average net assets (ANA))
- ----------------------------------------------------------------------------
Texas Texas
Tax-Free Tax-Free
Income Money Market
Fund Fund
---- ----
Management Fees, net of reimbursements .00% .00%
12b-1 Fees None None
Other Expenses, net of reimbursements
Transfer Agent Fees** .02% .00%
Custodian Fees .46% .50%
All Other Expenses .02% .00%
--- ---
Total Other Expenses .50% .50%
--- ---
Total Fund Operating Expenses, net of reimbursements .50% .50%
--- ---
--- ---
- ----------------------------------------------------------------------------
* A shareholder who requests delivery of redemption proceeds by wire
transfer will be subject to a $10 fee. See Redemption of
Shares - Bank Wire Redemption.
** The Funds pay USAA Shareholder Account Services an annual fixed
fee per account for its services. See Transfer Agent in the SAI,
page 18.
During the eight-month period ended March 31, 1995, the Manager
voluntarily limited each Fund's annual expenses to .50% of its ANA and
reimbursed the Funds for all expenses in excess of the limitation. The
Management Fees, Other Expenses, and Total Fund Operating Expenses
reflect all such expense reimbursements by the Manager. Absent such
reimbursements, the amount of the Management Fees, Other Expenses, and
Total Fund Operating Expenses as a percentage of ANA for each of the
Funds would have been as follows: Texas Tax-Free Income Fund, .50%,
1.90%, and 2.40%; and Texas Tax-Free Money Market Fund, .50%, 2.13%, and
2.63%. The Manager has voluntarily agreed to continue to limit each
Fund's annual expenses until August 1, 1996, to .50% of its ANA and will
reimburse the Funds for all expenses in excess of the limitation.
Example of Effect of Fund Expenses
- ----------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of the
periods shown:
1 year 3 years
------ -------
Texas Tax-Free Income Fund $ 5 $ 16
Texas Tax-Free Money Market Fund $ 5 $ 16
The above example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following per share operating performance for a share outstanding
throughout the eight-month period ended March 31, 1995, has been derived
from the financial statements audited by KPMG Peat Marwick LLP. This table
should be read in conjunction with the financial statements and related
notes that appear in the Funds' Annual Report. Further performance
information is contained in the Annual Report and is available upon
request without charge.
Eight-Month Period
Ended March 31, 1995*
---------------------
Texas Texas
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- -----------
Net asset value at beginning of period $10.00 $ 1.00
Net investment income .34 .02
Net realized and unrealized gain .21 -
Distributions from net investment income (.34) (.02)
------ ------
Net asset value at end of period $10.21 $ 1.00
------ ------
------ ------
Total return (%)** 5.75 2.09
Net assets at end of period ($000) $6,446 $3,881
Ratio of expenses to average net assets (%) .50(a)(b) .50(a)(b)
Ratio of net investment income to
average net assets (%) 5.56(a)(b) 3.18(a)(b)
Portfolio turnover (%) 196.62 -
- ----------
(a) Annualized. The ratio is not necessarily indicative of 12 months
of operations.
(b) The information contained in this table is based on actual expenses
for the period, after giving effect to reimbursements of expenses
by the Manager. Absent such reimbursements the Funds' ratios would
have been:
Texas Texas
Tax-Free Tax-Free Money
Income Fund Market Fund
----------- -----------
Ratio of expenses to average net assets (%) 2.40(a) 2.63(a)
Ratio of net investment income to
average net assets (%) 3.66(a) 1.05(a)
* Funds commenced operations August 1, 1994.
** Assumes reinvestment of all dividend income and capital gain distributions
during the period.
PERFORMANCE INFORMATION
Performance information should be considered in light of
each Fund's investment objective and policies and market
conditions during the time periods for which it is
reported. Historical performance should not be
considered as representative of the future performance of
either Fund.
The Trust may quote a Fund's yield or total return
in advertisements and reports to shareholders or
prospective investors. A Fund's performance may also be
compared to that of other mutual funds with similar
investment objectives and relevant indexes that are
referenced in Appendix B to the SAI. Standard total
return and yield results reported by the Funds do not
take into account recurring and nonrecurring charges for
optional services which only certain shareholders elect
and which involve nominal fees, such as the $10 fee for a
delivery of redemption proceeds by wire transfer.
Further information concerning yield and total
return is included in the SAI.
TOTAL RETURN - Texas Tax-Free Income Fund. The Fund's
average annual total return is computed by determining
the average annual compounded rate of return for a
specified period which, when applied to a hypothetical
$1,000 investment in the Fund at the beginning of the
period, would produce the redeemable value of that
investment at the end of the period, assuming reinvestment
of all dividends and distributions during the period.
YIELD - Texas Tax-Free Income Fund. This Fund may
advertise performance in terms of a 30-day yield
quotation. The yield quotation is computed by dividing
the net investment income per share earned during the
period by the offering price per share on the last day of
the period. This income is then annualized. For
purposes of the yield calculation, interest income is
computed based on the yield to maturity of each debt
obligation in the Fund's portfolio and all recurring
charges are recognized.
YIELD - Texas Tax-Free Money Market Fund. The Fund may
advertise its yield and effective yield. The yield of
the Fund refers to the income generated by an investment
in the Fund over a seven-day period (which period will be
stated in the advertisement). This income is then
annualized, that is, the amount of income generated by
the investment during the week is assumed to be generated
each week over a 52-week period and is shown as a
percentage of the investment.
The effective yield is calculated similarly but,
when annualized, the income earned by an investment in
the Fund is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of
the compounding effect of this assumed reinvestment.
TAX EQUIVALENT YIELD - The Funds may also utilize tax
equivalent yields with adjustments for assumed income tax
rates. See Appendix C - Taxable Equivalent Yield Table
in the SAI for illustrations of this yield.
USAA FAMILY OF NO-LOAD MUTUAL FUNDS
The USAA Family of No-Load Mutual Funds includes a
variety of Funds, each with different objectives and
policies. In combination, these Funds are designed to
provide investors with the opportunity to formulate their
own investment program. You may exchange any shares you
hold in any one USAA Fund for shares in any other USAA
Fund. For more complete information about the Funds in
the USAA Family of Funds, including charges and expenses,
call the Manager for a Prospectus. Be sure to read it
carefully before you invest or send money.
USAA STATE TAX-FREE TRUST
Florida Tax-Free Income Fund*
Florida Tax-Free Money Market Fund*
Texas Tax-Free Income Fund*
Texas Tax-Free Money Market Fund*
USAA TAX EXEMPT FUND, INC.
Long-Term Fund
Intermediate-Term Fund
Short-Term Fund
Tax Exempt Money Market Fund
California Bond Fund*
California Money Market Fund*
New York Bond Fund*
New York Money Market Fund*
Virginia Bond Fund*
Virginia Money Market Fund*
USAA MUTUAL FUND, INC.
Aggressive Growth Fund
Growth Fund
Growth & Income Fund
Income Stock Fund
Income Fund
Short-Term Bond Fund
Money Market Fund
USAA INVESTMENT TRUST
Balanced Portfolio Fund
Cornerstone Fund
Emerging Markets Fund
Gold Fund
International Fund
World Growth Fund
GNMA Trust
Treasury Money Market Trust
* Available for sale only to residents of
these specific states.
USING MUTUAL FUNDS IN AN INVESTMENT PROGRAM
I. THE IDEA BEHIND MUTUAL FUNDS
Mutual funds were conceived as a vehicle that could give
small investors some of the advantages enjoyed by wealthy
investors. A relatively small investment buys part of a
widely diversified portfolio. That portfolio is managed
by investment professionals, relieving the shareholder of
the need to make individual stock or bond selections.
The investor also enjoys conveniences, such as daily
pricing, liquidity, and in the case of the USAA Family of
Funds, no sales charge. The portfolio, because of its
size, has lower transaction costs on its trades than most
individuals would have. As a result each shareholder
owns an investment that in earlier times would have been
available only to very wealthy people.
II. USING FUNDS IN AN INVESTMENT PROGRAM
In choosing a mutual fund as an investment vehicle, the
shareholder is foregoing some investment decisions, but
must still make others. The decisions foregone are those
involved with choosing individual securities. The Fund
Manager will perform that function. In addition, the
Manager will arrange for the safekeeping of securities,
auditing the annual financial statements, and daily
valuation of the Fund, as well as other functions.
The shareholder, however, retains at least part of
the responsibility for an equally important decision.
This decision includes determining a portfolio of mutual
funds that balances the investor's investment goals with
his or her tolerance for risk. It is likely that this
decision may involve the use of more than one fund of the
USAA Family of Funds.
For example, assume a shareholder wishes to pursue
the higher yields usually available in the long-term bond
market, but is also concerned about the possible price
swings of the long-term bonds. He or she could divide
investments between the Texas Tax-Free Income Fund and
the Texas Tax-Free Money Market Fund. This would create
a portfolio with a higher yield than that of the money
market and less volatility than that of the long-term
market. This is just one example of how an individual
could combine funds to create a portfolio tailored to his
or her own risk and reward goals.
III. USAA'S FAMILY OF FUNDS
The Manager offers investors another alternative in its
portfolio funds, the Balanced Portfolio and Cornerstone
Funds. Both of these unique mutual funds provide a
professionally managed diversified investment portfolio
within a mutual fund. These Funds are designed for the
shareholder who prefers to delegate the asset allocation
process to an investment manager. The Funds are
structured to achieve diversification across a number of
investment categories.
Whether you prefer to create your own mix of mutual
funds or use a portfolio fund, the USAA Family of Funds
provides a broad range of choices covering just about any
investor's investment objectives. Our sales
representatives stand ready to inform you of your choices
and to help you craft a portfolio which meets your needs.
INVESTMENT OBJECTIVES AND POLICIES
TEXAS TAX-FREE INCOME FUND
TEXAS TAX-FREE MONEY MARKET FUND
INVESTMENT OBJECTIVES
The Funds have a common investment objective of providing
Texas investors with a high level of current interest
income that is exempt from federal income taxes. The
Texas Tax-Free Money Market Fund has a further objective
of preserving capital and maintaining liquidity.
INVESTMENT POLICIES
The Manager will pursue this common objective by
investing each Fund's assets primarily in debt
obligations issued by the State of Texas, its political
subdivisions and instrumentalities, and by other
governmental entities if, in the opinion of counsel, the
interest from such obligations is excluded from gross
income for federal income tax purposes. It is a
fundamental policy of each Fund that during normal market
conditions at least 80% of the Fund's net assets will
consist of Texas tax-exempt securities and at least 80%
of the Fund's annual income will be exempt from federal
income taxes and excluded from the calculation of federal
alternative minimum taxes for individual taxpayers.
Texas currently imposes no personal state income
tax. In the event Texas enacts a personal state income
or similar tax, the Texas Funds will thereafter attempt
to seek a high level of current interest income also
exempt from such tax. The ability of the Funds to pursue
this further policy, of course, will be affected by the
actual form of such a tax.
Texas Tax-Free Income Fund. Under normal market
conditions, the Manager will invest the assets of the
Fund so that at least 75% of the total market value of
the tax-exempt securities is rated within the three
highest long-term rating categories (at least A) by
Moody's Investors Service, Inc. (Moody's), Standard &
Poor's Ratings Group (S&P), or Fitch Investors Service,
Inc. (Fitch), in the highest short-term rating category
by Moody's, S&P, or Fitch, or, if a security is not rated
by those rating agencies, it must be of equivalent
investment quality as determined by the Manager. The
Manager will not purchase a security if, as a result of
such purchase, more than 25% of the total market value
of the tax-exempt securities of the Fund would be invested
in securities which do not meet these quality standards.
In no event will a security be purchased for the Fund
unless it is rated at least investment grade; i.e., rated
by Moody's, S&P, or Fitch at least in the fourth highest
rating category for long-term securities, in the second
highest rating category for short-term securities, or, if
not rated by those rating agencies, determined by the
Manager to be of equivalent investment quality. Securities
rated in the lowest level of investment grade have some
speculative characteristics since adverse economic conditions
and changing circumstances are more likely to have an
adverse impact on such securities.
If the rating of a security is downgraded, the
Manager will determine whether it is in the best interest
of the Fund's shareholders to continue to hold such
security in the Fund's portfolio. Unless otherwise
directed by the Board of Trustees, if downgrades result
in more than 5% of the Fund's net assets being invested
in securities that are less than investment grade
quality, the Manager will take immediate action to reduce
the Fund's holdings in such securities to 5% or less of
the Fund's net assets. For a more complete description
of tax-exempt securities and their ratings, see Appendix
A to the SAI.
The Fund's average portfolio maturity is not
restricted, but is expected to be greater than ten years.
In determining a security's maturity for purposes of
calculating the Fund's average maturity, estimates of the
expected time for its principal to be paid may be used.
This can be substantially shorter than its stated final
maturity. For a discussion of the method of calculating
the average weighted maturity of the Fund's portfolio,
see Investment Policies in the SAI. The per share net
asset value of the Texas Tax-Free Income Fund will
fluctuate with portfolio maturity, the quality of
securities held, and inversely to interest rate levels.
Texas Tax-Free Money Market Fund. The Fund will purchase
only high quality securities that qualify as "eligible
securities" under the Securities and Exchange Commission
rules applicable to money market mutual funds. These
securities must also be determined by the Manager to present
minimal credit risk. In general, the category of eligible
securities may include a security that is:
(1) issued or guaranteed by the U.S. Government or any
agency or instrumentality thereof, including
"prerefunded" and "escrowed to maturity" tax-exempt
securities;
(2) rated in one of the two highest categories for
short-term securities by at least two Nationally
Recognized Statistical Rating Organizations (NRSROs),
or by one NRSRO if the security is rated by only
one NRSRO;
(3) unrated but issued by an issuer orguaranteed by a
guarantor that has other comparable short-term debt
obligations so rated; or
(4) unrated but determined to be of comparable quality
by the Manager.
If a security is downgraded after purchase, the
Manager will follow written procedures adopted by the
Fund's Board of Trustees and a determination will be made
as to whether it is in the best interest of the Fund's
shareholders for the Fund to continue to hold the
security.
Current NRSROs include Moody's, S&P, Fitch, Duff &
Phelps Inc., Thompson BankWatch, Inc., and IBCA Inc. For
a description of tax-exempt securities and their ratings,
see Appendix A to the SAI.
Consistent with regulatory requirements, the Manager
will purchase securities with remaining maturities of 397
days or less and will maintain a dollar-weighted average
portfolio maturity of no more than 90 days. The Fund
will endeavor to maintain a constant net asset value of
$1.00 per share, although there is no assurance that it
will be able to do so.
OTHER INVESTMENT INFORMATION
The investment objectives of the Funds may not be changed
without shareholder approval. In view of the risks
inherent in all investments in securities, there is no
assurance that these objectives will be achieved. The
investment policies and techniques used to pursue the
Funds' objectives may be changed without shareholder
approval, except as otherwise noted. Further information
regarding the Funds' investment policies and restrictions
is provided in the SAI.
TAX-EXEMPT SECURITIES
These securities include general obligation bonds, which
are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and
interest; revenue bonds, which are payable from the
revenue derived from a particular facility or class of
facilities or, in some cases, from annual appropriations
made by the state legislature for the repayment of
interest and principal or other specific revenue source,
but not from the general taxing power; lease obligations
backed by the municipality's covenant to budget for the
payments due under the lease obligation; and certain types
of industrial development bonds issued by or on behalf of
public authorities to obtain funds for privately-operated
facilities, provided that the interest paid on such
securities qualifies as exempt from federal income taxes.
The value of the securities in which the Trust will
invest generally fluctuates inversely with changes in
prevailing interest rates. Changes in the creditworthiness
of issuers and changes in other market factors such as the
relative supply of and demand for tax-exempt bonds also
create value fluctuations.
Each Fund may on a temporary basis due to market or
other conditions invest up to 100% of its assets in short-
term securities whether or not exempt from federal income
taxes. Such taxable securities may consist of obligations
of the United States Government, its agencies or
instrumentalities, and repurchase agreements secured by such
instruments; certificates of deposit of domestic banks having
capital, surplus and undivided profits in excess of $100
million; banker's acceptances of similar banks; commercial
paper; and other corporate debt obligations.
INVESTMENT TECHNIQUES
Variable Rate Securities - Each Fund may invest in tax-
exempt securities that bear interest at rates which are
adjusted periodically to market rates. These interest
rate adjustments can both raise and lower the income
generated by such securities. These changes will have
the same effect on the income earned by a Fund depending
on the proportion of such securities held.
The market value of fixed coupon securities
fluctuates with changes in prevailing interest rates,
increasing in value when interest rates decline and
decreasing in value when interest rates rise. The value
of variable rate securities, however, is less affected by
changes in prevailing interest rates because of the
periodic adjustment of their coupons to a market rate.
The shorter the period between adjustments, the smaller
the impact of interest rate fluctuations on the value of
these securities. The market value of tax-exempt variable
rate securities usually tends toward par (100% of face
value) at interest rate adjustment time.
In the case of the Texas Tax-Free Money Market Fund
only, any variable rate instrument with a demand feature
will be deemed to have a maturity equal to either the
date on which the underlying principal amount may be
recovered through demand or the next rate adjustment date
consistent with applicable regulatory requirements.
Put Bonds - Each Fund may invest in tax-exempt securities
(including securities with variable interest rates) which
may be redeemed or sold back (put) to the issuer of the
security or a third party at face value prior to stated
maturity (Put Bonds). Such securities will normally
trade as if maturity is the earlier put date, even though
stated maturity is longer. For the Texas Tax-Free Income
Fund, maturity for put bonds is deemed to be the date on
which the put becomes exercisable. Generally, maturity
for put bonds for the Texas Tax-Free Money Market Fund is
determined as stated under Variable Rate Securities.
When-Issued Securities - Each Fund may invest in new
issues of tax-exempt securities offered on a when-issued
basis; that is, delivery and payment take place after the
date of the commitment to purchase, normally within 45
days. Both price and interest rate are fixed at the time
of commitment. The Funds do not earn interest on the
securities until settlement, and the market value of the
securities may fluctuate between the purchase and settlement.
Such securities can be sold before settlement date.
Cash or high quality liquid debt securities equal to
the amount of the when-issued commitments are segregated
at the Fund's custodian bank. The segregated securities
are valued at market, and daily adjustments are made to
keep the value of the cash and segregated securities at
least equal to the amount of such commitments by the Fund.
On the settlement date, the Fund will meet its obligations
from then available cash, sale of segregated securities,
sale of other securities, or sale of the when-issued
securities themselves.
Municipal Lease Obligations - Each Fund may invest in
municipal lease obligations and certificates of
participation in such obligations (collectively, lease
obligations). A lease obligation does not constitute a
general obligation of the municipality for which the
municipality's taxing power is pledged, although the
lease obligation is ordinarily backed by the
municipality's covenant to budget for the payments due
under the lease obligation.
Certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no
obligation to make lease obligation payments in future
years unless money is appropriated for such purpose on a
yearly basis. Although "non-appropriation" lease
obligations are secured by the leased property, disposition
of the property in the event of foreclosure might prove
difficult. In evaluating a potential investment in such a
lease obligation, the Manager will consider: (1) the credit
quality of the obligor, (2) whether the underlying property
is essential to a governmental function, and (3) whether the
lease obligation contains covenants prohibiting the obligor
from substituting similar property if the obligor fails
to make appropriations for the lease obligation.
Liquidity - The Texas Tax-Free Income Fund and Texas Tax-
Free Money Market Fund may invest up to 15% and 10%,
respectively, of their net assets in illiquid securities.
Lease obligations and certain Put Bonds that are
subject to restrictions on transfer may be determined to
be liquid in accordance with the guidelines established
by the Board of Trustees for purposes of complying with the
Funds' investment restrictions applicable to investments in
illiquid securities.
In determining the liquidity of a lease obligation,
the Manager will consider: (1) the frequency of trades
and quotes for the lease obligation, (2) the number of
dealers willing to purchase or sell the lease obligation
and the number of other potential purchasers, (3) dealer
undertakings to make a market in the lease obligation,
(4) the nature of the marketplace trades, including the
time needed to dispose of the lease obligation, the
method of soliciting offers, and the mechanics of
transfer, (5) whether the lease obligation is of a size
that will be attractive to institutional investors, (6)
whether the lease obligation contains a non-appropriation
clause and the likelihood that the obligor will fail to
make an appropriation therefor, and (7) such other
factors as the Manager may determine to be relevant to
such determination.
In determining the liquidity of Put Bonds with
restrictions on transfer, the Manager will evaluate the
credit quality of the party (the Put Provider) issuing
(or unconditionally guaranteeing performance on) the
unconditional put or demand feature of the Put Bond.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed without
shareholder approval:
a. Neither Fund may borrow money, except that a Fund
may borrow money for temporary or emergency purposes
in an amount not exceeding 33 1/3% of its total
assets (including the amount borrowed) less
liabilities (other than borrowings). Neither Fund
will purchase securities when its borrowing exceeds
5% of its total assets.
b. Neither Fund may invest 25% or more of its total
assets in securities issued in connection with the
financing of projects with similar characteristics,
such as toll road revenue bonds, housing revenue bonds
or electric power project revenue bonds or in industrial
revenue bonds which are based, directly or indirectly,
on the credit of private entities of any one industry.
However, each Fund reserves the right to invest more
than 25% of its total assets in tax-exempt industrial
revenue bonds.
c. Neither Fund will, with respect to 75% of its total
assets, purchase the securities of any issuer (except
Government Securities, as such term is defined in the
Investment Company Act of 1940) if, as a result, the
Fund would own more than 10% of the outstanding voting
securities of such issuer or the Fund would have more
than 5% of the value of its total assets invested in the
securities of such issuer.
RISK FACTORS
The Texas Funds' investment concentration in debt
obligations issued by the State, its political
subdivisions and instrumentalities, and by other
governmental entities involves greater risks than if they
invested in the securities of a broader range of issuers.
The Texas Funds' yield and the value of their portfolios
can be affected by political and economic developments
within the State, and by the financial condition of the
State, its public authorities and political subdivisions.
In the past, Texas voters have passed amendments to the
Texas Constitution and other measures that limit the
taxing and spending authority of Texas governmental
entities, and future voter initiatives could result in
adverse consequences affecting the financial condition of
the State and/or its obligations. A more detailed
discussion of the risks of investing in the Texas Funds
is included in Special Risk Considerations in the SAI.
PURCHASE OF SHARES
OPENING AN ACCOUNT
You may open an account and make an investment by any of
the methods described in the following table. A
complete, signed application is required together with a
check (payable to USAA [Fund Name]) for each new account.
TAX ID NUMBER
We require that each shareholder named on the account
provide the Trust with a social security number or tax
identification number to avoid possible tax withholding
requirements.
EFFECTIVE DATE
Generally, when you make a purchase, your purchase price
will be the net asset value (NAV) per share next determined
after the Fund receives your request in proper form. If a
Fund receives your request prior to the close of the New York
Stock Exchange on a day on which the Exchange is open, your
purchase price will be the NAV per share determined for that
day. If a Fund receives your request after the time at which
the NAV per share is calculated, the purchase will be effective
on the next business day. A check drawn on a foreign bank will
not be deemed received for the purchase of shares until such
time as the check has cleared and the Manager has received good
funds, which may take up to 4 to 6 weeks. Furthermore, a bank
charge may be assessed in the clearing process, which will be
deducted from the amount of the purchase. To avoid a delay in
the effectiveness of your purchase, the Manager suggests that
you convert your foreign check to U.S. dollars prior to
investment in the Funds.
PURCHASE OF SHARES
INITIAL PURCHASES: Minimum $3,000 - (Except USAA employee
payroll deduction).
Mail
Send your application and check to:
USAA Investment Management Company
9800 Fredericksburg Rd., San Antonio, TX 78288
In Person
Bring your application and check to:
USAA Investment Management Company
USAA Federal Savings Bank
10750 Robert F. McDermott Freeway
San Antonio, TX
USAA Employee
Payroll Deduction
The periodic purchase of shares through payroll deduction
($25 minimum) by any employee of USAA, its subsidiaries
or affiliated companies.
Exchange
Call our telephone assistance numbers. The new account
must have the same registration as the account from which
you are exchanging.
ADDITIONAL PURCHASES: Minimum $50 - (Except transfers
from brokerage accounts and USAA employee payroll deduction).
Mail
Send your check and the "Invest By Mail" stub, which
accompanies your Fund's transaction confirmation, to the
Transfer Agent:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
Bank Wire
Purchase
Instruct your bank (which may charge a fee for the service)
to wire the specified amount to the Company as follows:
State Street Bank and Trust Company
Boston, MA 02101
ABA# 011000028
Attn: USAA [Fund Name]
USAA AC-69384998
Shareholder(s) Name(s)
Shareholder Account Number
Electronic
Funds
Transfer (EFT)
You can pay for purchases electronically via electronic
funds transfer. Systematic (regular) purchases can be
deducted from your bank account, payroll, income-
producing investment, or from a USAA money market account.
Intermittent (as-needed) purchases can be deducted from
your bank account through our Buy/Sell Service.
Establish any of our electronic investing services
when you apply for your account, or later upon request.
REDEMPTION OF SHARES
You may redeem shares of a Fund by any of the methods
described in the following table on any day the NAV per
share is calculated. Redemptions will be effective on
the day on which instructions are received in accordance
with the requirements set forth below. However, if
instructions are received after the NAV per share
calculation, redemption will be effective on the next
business day.
REDEMPTION PROCEEDS
Redemption proceeds are distributed within seven days
after the effective date of redemption. Payment for
redemption of shares purchased by check or electronic funds
transfer will not be disbursed until the purchase check or
electronic funds transfer has cleared, which could take up
to 15 days from the purchase date. If you are considering
redeeming shares soon after purchase, you should purchase
by bank wire or certified check to avoid delay.
In addition, the Trust may elect to suspend the
redemption of shares or postpone the date of payment
during any period that the New York Stock Exchange is
closed, or trading in the markets the Trust normally
utilizes is restricted, or during any period that
redemption is otherwise permitted to be suspended by
the Securities and Exchange Commission.
Redemption
of Shares
Any of the following methods may be used to authorize the
Transfer Agent to redeem shares from your account based
on instructions received.
Written,
Fax, or
Telegraph
Send your written instructions to:
USAA Shareholder Account Services
9800 Fredericksburg Rd., San Antonio, TX 78288
Send a signed fax to 210-498-2889, or send a telegraph to
USAA Shareholder Account Services.
Written redemption requests must include the
following: (1) a letter of instruction or stock
assignment, and stock certificate (if issued), specifying
the Fund and the number of shares or dollar amount to be
redeemed; (2) signatures of all owners of the shares
exactly as their names appear on the account; (3) other
supporting legal documents, if required, as in the case
of estates, trusts, guardianships, custodianships,
partnerships, corporations, and pension and profit-
sharing plans; and (4) method of payment.
Telephone
Call toll free 1-800-531-8448, in San Antonio, 210-456-7202.
The Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are
genuine, and if it does not, it may be liable for any
losses due to unauthorized or fraudulent instructions.
Information is obtained prior to any discussion regarding
an account including: (1) USAA number or account number,
(2) the name(s) on the account registration, and (3)
social security number or tax identification number for
the account registration. In addition, all telephone
communications with a shareholder are recorded and
confirmations of all account transactions are sent to the
address of record.
Redemption by telephone, fax, or telegraph is not
available for shares represented by stock certificates.
(continued)
Methods of
Payment
Any of the following methods of payment may be used with
your redemption request.
Bank Wire
Redemption
The wire redemption privilege allows redemptions to be
sent directly to your bank account. Establish this
service when you apply for your account, or later upon
request. If your account is at a savings bank, savings
and loan association, or credit union, please obtain
precise wiring instructions from your institution.
Specifically, include the name of the correspondent bank
and your institution's account number at that bank. USAA
Shareholder Account Services deducts a wire fee from the
account for the redemption by wire. The fee as of the
date of this Prospectus is $10 ($25 for wires to a
foreign bank) and is subject to change at any time. The
fee is paid to State Street Bank and Trust Company (SSB)
and the Transfer Agent for their services in connection
with the wire redemption. Your bank may also charge a
fee for receiving funds by wire.
Electronic
Funds
Transfer (EFT)
You can request electronic redemptions via electronic
funds transfer. Systematic (regular) or intermittent
(as-needed) redemptions can be credited to your bank
account.
Establish any of our electronic investing services
when you apply for your account, or later upon request.
Check
Redemption
You may request a redemption to be paid by check to the
registered shareholder(s) and mailed to the address of
record. This check redemption privilege is automatically
established when your application is completed and
accepted. There is a 15-day waiting period before a
check redemption can be processed following a telephone
address change.
Checkwriting
You may request that checks be issued for your Texas Tax-
Free Money Market Fund account. To establish your
checkwriting privilege (CWP), complete the signature card
which accompanies the application form or Shareholder
Services Guide, or request and complete the signature
card separately. A one-time $5 checkwriting fee is
charged to each account by the Transfer Agent for the
establishment of the privilege. There is no charge for
the use of checks nor for subsequent reorders. This
privilege is subject to SSB's rules and regulations
governing checking accounts. Checks must be written for
an amount of at least $250. Checks written for less than
$250 will be returned. Checkwriting may not be used to
close an account because the value of the account changes
daily as dividends are accrued.
When a check is presented to the Transfer Agent for
payment, a sufficient number of full and fractional
shares in the investor's account will be redeemed to
cover the amount of the check. Checks will be returned
if there are insufficient shares to cover the amount of
the check. Presently, there is a $15 processing fee
assessed against an account for any redemption check not
honored by a clearing or paying agent. A check paid
during the month will be returned to the shareholder by
separate mail. Checkwriting fees are subject to change
at any time. The Trust, the Transfer Agent and SSB each
reserve the right to change or suspend the checkwriting
privilege upon 30 days' written notice to participating
shareholders. See the SAI for further information.
You may request that the Transfer Agent stop payment
on a check. The Transfer Agent will use its best efforts
to execute stop payment instructions but does not
guarantee that such efforts will be effective. A $10
charge will be made for each stop payment requested by a
shareholder.
CONDITIONS OF PURCHASE AND REDEMPTION
NONPAYMENT
If any order to purchase shares is cancelled due to
nonpayment or if the Trust does not receive good funds
either by check or electronic funds transfer, the
cancellation will be treated as a redemption of shares
purchased and you will be responsible for any resulting
loss incurred by the Fund or the Manager. If you are a
shareholder, shares can be redeemed from any of your
account(s) as reimbursement for all losses. In addition,
you may be prohibited or restricted from making future
purchases in any of the USAA Family of Funds. A $15 fee
is charged for all returned items, including checks and
electronic funds transfers.
TRANSFER OF SHARES
Fund shares may be transferred to another person by
sending written instructions to the Transfer Agent. The
account must be clearly identified and the shareholder
must include the number of shares to be transferred, the
signatures of all registered owners, and all stock
certificates, if any, which are the subject of transfer.
You also need to send written instructions and supporting
documents to change an account registration due to events
such as divorce, marriage, or death. If a new account
needs to be established, an application must be completed
and returned to the Transfer Agent.
ACCOUNT BALANCE
The Board of Trustees may cause the redemption of an account
with a total value of less than $500 of either Fund, subject
to certain limitations described in Additional Information
Regarding Redemption of Shares in the SAI.
TRUST RIGHTS
The Trust reserves the right to:
(1) reject purchase or exchange orders when in the best
interest of the Trust;
(2) limit or discontinue the offering of shares of any
portfolio of the Trust without notice to the
shareholders;
(3) impose a redemption charge of up to 1% of the net
asset value of shares redeemed if circumstances
indicate a charge is necessary for the protection of
remaining investors (for example, if excessive
market-timing share activity unfairly burdens long-
term investors); provided, however, this 1% charge
will not be imposed upon shareholders unless
authorized by the Board of Trustees and adequate
notice has been given to shareholders;
(4) require a signature guarantee when deemed appropriate
by the Manager for purchases, redemptions, or changes
in account information. The section Additional
Information Regarding Redemption of Shares in the SAI
contains information on acceptable guarantors.
EXCHANGES
EXCHANGE PRIVILEGE
The Exchange Privilege is automatically established when
you complete your application. You may exchange shares
among portfolios in the USAA Family of Funds, provided
you do not hold these shares in stock certificate form
and that the shares to be acquired are offered in your
state of residence. Only Texas residents may exchange
into a Texas Fund. Exchange redemptions and purchases
will be processed simultaneously at the share prices next
determined after the exchange order is received. For
federal income tax purposes, an exchange between
portfolios is a taxable event. Accordingly, a capital
gain or loss may be realized.
The Funds have undertaken certain procedures
regarding telephone transactions. See Redemption of
Shares - Telephone.
EXCHANGE LIMITATIONS,
EXCESSIVE TRADING
To minimize Fund costs and to protect the portfolios and
their shareholders from unfair expense burdens, the Funds
restrict excessive exchanges. Exchanges out of any
portfolio in the USAA Family of Funds are limited for
each account to six per calendar year except that there
is no limitation on exchanges out of the Tax Exempt
Short-Term Fund, Short-Term Bond Fund, or any of the
money market funds in the USAA Family of Funds.
OTHER SERVICES
INVESTMENT PLANS
You may establish a systematic investment plan by
completing the appropriate forms. At the time you sign
up for any of the following investment plans that utilize
the electronic funds transfer service, you will choose
the day of the month (the effective date) on which you
would like to regularly purchase shares. When this day
falls on a weekend or holiday, the electronic transfer
will take place on the last business day before the
effective date. Call the Manager to obtain instructions.
More information about these preauthorized plans is
contained in the SAI.
InvesTronic(registered trademark) - the periodic purchase
of shares through electronic funds transfer from a
checking or savings account.
Direct Purchase Service - the periodic purchase of shares
through electronic funds transfer from a non-governmental
employer, an income-producing investment, or an account
with a participating financial institution.
Automatic Purchase Plan - the periodic transfer of funds
from a USAA money market fund to purchase shares in
another non-money market USAA mutual fund.
Buy/Sell Service - the intermittent purchase or
redemption of shares through electronic funds transfer to
or from a checking or savings account.
Systematic Withdrawal Plan - the periodic redemption of
shares from one of your accounts permitting you to
receive a fixed amount of money monthly or quarterly.
SHAREHOLDER STATEMENTS
AND REPORTS
You will receive a confirmation after each account
transaction in your Texas Tax-Free Income Fund, except
reinvested dividends. In the Texas Tax-Free Money Market
Fund, you will only receive a confirmation for purchases
or redemptions by check and exchanges. If your Money
Market Fund account had activity other than reinvested
dividends, you will receive a monthly statement that
will reflect quarter-to-date account activity.
At the end of each quarter you will receive a
consolidated statement for all of your mutual fund
accounts, regardless of account activity. The fourth
quarter consolidated statement will reflect all account
activity for the prior tax year. There will be a $10 fee
charged for copies of historical statements for other
than the prior tax year for any one account. You will
receive a Fund's financial statements with a summary of
its investments and performance at least semiannually.
In an effort to reduce expenses and respond to
shareholders' requests to reduce mail, the Trust intends
to consolidate mailings of Annual and Semiannual Reports
to households having multiple accounts with the same
address of record. One copy of each report will be
furnished to that address. You may request additional
reports by notifying the Trust.
DIRECTED DIVIDENDS
If you own shares in more than one of the Funds in the
USAA Family of Funds, you may direct that dividends
and/or capital gain distributions earned in one fund be
used to automatically purchase shares in another fund.
TELEPHONE ASSISTANCE
Call our telephone assistance numbers for specific forms,
a copy of the SAI, the most recent Annual Report and/or
Semiannual Report, or if you have any questions
concerning any of the services offered.
SHARE PRICE CALCULATION
The price at which shares of the Funds are purchased and
redeemed by shareholders is equal to the net asset value
(NAV) per share determined on the effective date of the
purchase or redemption.
WHEN
The NAV per share for each Fund is calculated at the
close of the regular trading session of the New York
Stock Exchange, which is usually 4:00 p.m. Eastern time.
You may buy and sell Fund shares at the NAV per share
without a sales charge.
HOW
The NAV per share is calculated by adding the value of
all securities and other assets in a Fund, deducting
liabilities, and dividing by the number of shares
outstanding. Securities of the Texas Tax-Free Income
Fund are valued each business day at their current market
value as determined by a pricing service approved by the
Board of Trustees. Securities which cannot be valued by the
pricing service, and all other assets, are valued in good
faith at fair value using methods determined by the
Manager under the general supervision of the Board of
Trustees. In addition, securities purchased with
maturities of 60 days or less and all securities of the
Texas Tax-Free Money Market Fund are stated at amortized
cost.
For additional information, see Valuation of
Securities in the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Net investment income of each Fund is accrued daily and
distributed to shareholders on the last business day of
each month. Any net capital gain generally will be
distributed at least annually. The Funds intend to make
such additional distributions as may be necessary to
avoid the imposition of any federal excise tax.
All shares purchased will begin accruing dividends
on the day following the effective date of the purchase
and will receive dividends through the effective date of
redemption.
All income dividends and capital gain distributions
are automatically reinvested, unless the shareholder
specifies otherwise. The share price will be the net
asset value of the Fund shares computed on the ex-dividend
date. Any capital gain distribution paid by the Texas
Tax-Free Income Fund will reduce the per share net asset
value by the amount of the distribution. An investor
should consider carefully the effects of purchasing shares
of the Texas Tax-Free Income Fund shortly before any capital
gain distribution. Although in effect a return of capital,
these distributions are subject to taxes. If a shareholder
becomes a resident of a state other than Texas, a check for
proceeds of income dividends will be mailed to such
shareholder monthly, and a check for any capital gain
distribution will be mailed after the distribution is paid.
Any dividend or distribution payment returned to the
Manager as not deliverable will be invested in the
shareholder's Fund account at the then-current net asset
value. If any check for the payment of dividends or
distributions is not cashed within six months from the
date on the check, it becomes void. The amount of the
check will then be invested in the shareholder's account
at the then-current net asset value.
FEDERAL TAXES
The exemption of interest income for federal income tax
purposes does not necessarily result in exemption under
the income or other tax laws of any state or local taxing
authority. The following discussion relates only to
generally applicable federal income tax provisions in
effect as of the date of this Prospectus. Therefore,
shareholders are urged to consult their own tax advisers
about the status of distributions from a Fund in their
own states and localities.
Fund - Each Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By
complying with the applicable provisions of the Code,
neither Fund will be subject to federal income tax on its
net investment income and net capital gains (capital
gains in excess of capital losses) distributed to
shareholders.
Shareholder - Dividends of net tax-exempt interest income
paid by a Fund are excluded from a shareholder's gross
income for federal income tax purposes. Dividends from
taxable net investment income and distributions of net
short-term capital gains are taxable to shareholders as
ordinary income, whether received in cash or reinvested
in additional shares. However, it is expected that any
taxable net investment income will be insubstantial in
relation to the tax-exempt interest generated by a Fund.
Distributions of net long-term capital gains are
taxable as long-term capital gains whether received in
cash or reinvested in additional shares, and regardless
of the length of time the investor has held the shares of
a Fund.
Tax-exempt interest from private activity bonds (for
example, industrial development revenue bonds) issued
after August 7, 1986, although otherwise exempt from
federal tax, is treated as a tax preference item for
purposes of the alternative minimum tax. For corporations,
all tax-exempt interest will be considered in calculating
the alternative minimum tax as part of the adjusted
current earnings.
Withholding - Each Fund is required by federal law to
withhold and remit to the U.S. Treasury a portion of the
income dividends and capital gain distributions and
proceeds of redemptions paid to any non-corporate
shareholder who fails to furnish the Fund with a correct
tax identification number, who underreports dividend or
interest income, or who fails to certify that he is not
subject to withholding. To avoid this withholding
requirement, you must certify on your application, or on
a separate Form W-9 supplied by the Transfer Agent, that
your tax identification number is correct and that you
are not currently subject to backup withholding.
Reporting - Each Fund will report annually to its
shareholders the federal tax status of dividends and
distributions paid or declared by each Fund during the
preceding calendar year, including the portion of the
dividends constituting interest on private activity
bonds, and the percentage and source, on a state-by-state
basis, of interest income earned on tax-exempt securities
held by the Fund during the preceding year.
TEXAS TAXATION
Texas does not currently impose an income tax on
individuals. Therefore, dividends and distributions paid
by the Funds to individuals who are residents of Texas
are not subject to a Texas personal income tax. If Texas
eventually enacts a personal income tax, investors will
need to consult with their own tax advisors with respect
to the possible taxation of dividends and distributions.
Texas imposes a franchise tax on each corporation
that does business in the state or that is chartered or
authorized to do business in the state. It is a tax on
the privilege of doing business within the state,
measured by a corporation's net taxable capital and by
its net taxable earned surplus. Because the Funds are
series of a registered open-end investment company
organized as a Delaware business trust, they themselves
are not subject to the Texas franchise tax. A corporate
investor in the Funds subject to the Texas franchise tax,
however, must include distributions it receives from the
Funds in its calculation of net taxable capital. All
distributions from the Funds that are exempt from federal
income tax, though, are exempt from the portion of the
Texas franchise tax based on taxable earned surplus.
MANAGEMENT OF THE TRUST
The business affairs of the Trust are subject to the
supervision of the Board of Trustees.
The Manager, USAA Investment Management Company
(IMCO), was organized in May 1970 and is an affiliate of
United Services Automobile Association (USAA), a large
diversified financial services institution. As of the
date of this Prospectus, the Manager had approximately
$27 billion in total assets under management. The
Manager's mailing address is 9800 Fredericksburg Rd.,
San Antonio, TX 78288.
Officers and employees of the Manager are permitted
to engage in personal securities transactions subject to
restrictions and procedures set forth in the Joint Code
of Ethics adopted by the Trust and the Manager. Such
restrictions and procedures include substantially all of
the recommendations of the Advisory Group of the
Investment Company Institute and comply with Securities
and Exchange Commission rules and regulations.
ADVISORY AGREEMENT
The Manager serves as the manager and investment adviser
of the Trust, providing services under an Advisory
Agreement. Under the Advisory Agreement, the Manager is
responsible for the management of the portfolios,
business affairs, and placement of brokerage orders,
subject to the authority of and supervision by the Board
of Trustees.
For its services under the Advisory Agreement, each
Fund pays the Manager an annual fee which is computed as
a percentage of the aggregate average net assets (ANA) of
both Funds combined. The fee is accrued daily, paid
monthly, and allocated between the Funds based on the
relative net assets of each. The management fee is
computed at .50% of the first $50,000,000 ANA, .40% of
that portion over $50,000,000 and not over $100,000,000
ANA, and .30% of that portion over $100,000,000 ANA. For
the fiscal year ended March 31, 1995, the Manager waived
the advisory fee for both Funds.
OPERATING EXPENSES
For the fiscal year ended March 31, 1995, the Manager
limited each Fund's total annualized operating expenses
to .50% of its ANA. The Manager reimbursed the Texas
Tax-Free Income Fund $52,566 and the Texas Tax-Free Money
Market Fund $47,552 for expenses in excess of the
limitation. The Manager has voluntarily agreed to
continue to limit each Fund's annual expenses until
August 1, 1996, to .50% of its ANA and will reimburse the
Funds for all expenses in excess of the limitation.
PORTFOLIO MANAGERS
The following individuals are primarily responsible for
managing the Funds.
Texas Tax-Free Income Fund
Robert R. Pariseau, Assistant Vice President of Fixed
Income Investments since June of 1995, has managed the
Fund since May 1995. He has eleven years investment
management experience working for IMCO, where he has held
various positions in Fixed Income and Equity Investments.
Mr. Pariseau earned the Chartered Financial Analyst (CFA)
designation in 1987 and is a member of the Association
for Investment Management and Research (AIMR), San
Antonio Financial Analysts Society, Inc. (SAFAS), and the
National Federation of Municipal Analysts (NFMA). He
holds an MBA from Lindenwood College, Missouri and a BS
from the U.S. Naval Academy, Annapolis, Maryland.
Texas Tax-Free Money Market Fund
Pamela K. Bledsoe, Executive Director of Fixed Income
Investments since June of 1995, has managed the Fund
since May 1995. Ms. Bledsoe has seven years investment
management experience and has worked for IMCO since
July 1991 in Fixed Income Research. From October 1986
to August 1989 she was a Financial Analyst at Schenley
Industries, Inc., Dallas, Texas. Ms. Bledsoe earned the
CFA designation in 1992 and is a member of the AIMR and
SAFAS. Ms. Bledsoe holds an MBA from Texas Christian
University and a BS from Louisiana Tech University.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company
established as a business trust under the laws of the
State of Delaware pursuant to a Master Trust Agreement
dated June 21, 1993. The Trust is authorized to issue an
unlimited number of shares of beneficial interest of
separate series or Funds at $.001 par value. Four such
Funds have been established, two of which are described
in this Prospectus. Each Fund is classified as a
diversified investment company. Under the Master Trust
Agreement, the Board of Trustees is authorized to create
new Funds in addition to those already existing without
shareholder approval.
Under the Master Trust Agreement, no annual meeting
of shareholders is required. Ordinarily, no shareholder
meeting will be held unless required by the Investment
Company Act of 1940. The Trustees may fill vacancies on
the Board or appoint new Trustees provided that immediately
after such action at least two-thirds of the Trustees have
been elected by shareholders. Shareholders are entitled to
one vote per share (with proportionate voting for fractional
shares) irrespective of the relative net asset value of the
shares. For matters affecting an individual Fund, a separate
vote of the shareholders of that Fund is required. Shareholders
holding an aggregate of at least 10% of the outstanding shares
of the Trust may request a meeting of shareholders at any time
for the purpose of voting to remove one or more of the Trustees,
and the Trust will assist shareholders in communicating with
other shareholders in connection with such a meeting.
SERVICE PROVIDERS
UNDERWRITER/ USAA Investment Management Company
DISTRIBUTOR 9800 Fredericksburg Rd., San Antonio, Texas 78288.
TRANSFER USAA Shareholder Account Services
AGENT 9800 Fredericksburg Rd., San Antonio, Texas 78288.
CUSTODIAN State Street Bank and Trust Company
P.O. Box 1713, Boston, Massachusetts 02105.
LEGAL Goodwin, Procter & Hoar
COUNSEL Exchange Place, Boston, Massachusetts 02109.
INDEPENDENT KPMG Peat Marwick LLP
AUDITORS 112 East Pecan, Suite 2400, San Antonio, Texas 78205.
TELEPHONE ASSISTANCE
(Call toll free - Central Time)
Monday-Friday 8:00 a.m. to 8:00 p.m.
Saturday: 8:30 a.m. to 5:00 p.m.
For further information on mutual funds:
1-800-531-8181
In San Antonio 210-456-7211
For account servicing, exchanges or redemptions:
1-800-531-8448
In San Antonio 210-456-7202
RECORDED 24 HOUR SERVICE
MUTUAL FUND PRICE QUOTES
(From any phone)
1-800-531-8066
In San Antonio 210-498-8066
MUTUAL FUND TOUCHLINE(registered trademark)
(From Touchtone phones only)
For account balance, last transaction or fund prices:
1-800-531-8777
In San Antonio 210-498-8777
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PART B
Statements of Additional Information for the
Florida Tax-Free Income, Florida Tax-Free Money Market,
Texas Tax-Free Income and Texas Tax-Free Money Market Funds
are included herein
Part B
Statement of Additional Information for the
Florida Tax-Free Income Fund and
Florida Tax-Free Money Market Fund
(Logo
of the
USAA USAA STATE STATEMENT OF
Eagle TAX-FREE ADDITIONAL INFORMATION
is here) TRUST August 1, 1995
- -----------------------------------------------------------------
USAA STATE TAX-FREE TRUST
FLORIDA FUNDS
USAA STATE TAX-FREE TRUST (the Trust) is a registered investment
company offering shares of four no-load mutual funds, two of
which are described in this Statement of Additional Information
(SAI): the Florida Tax-Free Income Fund and Florida Tax-Free
Money Market Fund (collectively, the Funds or the Florida Funds).
Each Fund is classified as a diversified investment company and
has a common investment objective of providing Florida investors
with a high level of current interest income that is exempt from
federal income taxes and shares that are exempt from the Florida
intangible personal property tax. The Florida Tax-Free Money
Market Fund has a further objective of preserving capital and
maintaining liquidity.
A Prospectus for the Florida Funds dated August 1, 1995, which
provides the basic information you should know before investing
in the Funds, may be obtained without charge upon written request
to USAA State Tax-Free Trust, 9800 Fredericksburg Rd., San
Antonio, TX 78288, or by calling toll free 1-800-531-8181. This
SAI is not a Prospectus and contains information in addition to
and more detailed than that set forth in the Prospectus. It is
intended to provide you with additional information regarding the
activities and operations of the Trust and the Funds, and should
be read in conjunction with the Prospectus.
- -----------------------------------------------------------------
TABLE OF CONTENTS
Page
2 Valuation of Securities
3 Additional Information Regarding Redemption of Shares
4 Investment Plans
5 Investment Policies
5 Investment Restrictions
7 Special Risk Considerations
10 Portfolio Transactions
11 Further Description of Shares
11 Certain Federal Income Tax Considerations
13 Florida Taxation
14 Trustees and Officers of the Trust
17 The Trust's Manager
18 General Information
19 Calculation of Performance Data
20 Appendix A - Tax-Exempt Securities and Their Ratings
23 Appendix B - Comparison of Portfolio Performance
26 Appendix C - Taxable Equivalent Yield Tables
27 Appendix D - Dollar-Cost Averaging
VALUATION OF SECURITIES
Shares of each Fund are offered on a continuing best efforts
basis through USAA Investment Management Company (IMCO or the
Manager). The offering price for shares of each Fund is equal to
the current net asset value per share. The net asset value per
share of each Fund is calculated by adding the value of all its
portfolio securities and other assets, deducting its liabilities,
and dividing by the number of shares outstanding.
A Fund's net asset value per share is calculated each day,
Monday through Friday, except days on which the New York Stock
Exchange (NYSE) is closed. The NYSE is currently scheduled to be
closed on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas,
and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively.
The investments of the Florida Tax-Free Income Fund are
valued each business day by a pricing service (the Service)
approved by the Board of Trustees. The Service uses the mean
between quoted bid and asked prices or the last sale price to
price securities when, in the Service's judgement, 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 which include consideration of yields or prices of
tax-exempt securities of comparable quality, coupon, maturity and
type, indications as to values from dealers in securities, and
general market conditions. Securities purchased with maturities
of 60 days or less are stated at amortized cost which approximates
market value. Repurchase agreements are valued at cost. Securities
which cannot be valued by the Service, and all other assets, are
valued in good faith at fair value using methods determined by the
Manager under the general supervision of the Board of Trustees.
The value of the Florida Tax-Free Money Market Fund's
securities is stated at amortized cost which approximates market
value. This involves valuing a security at its cost and
thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating
interest rates. While this method provides certainty in
valuation, it may result in periods during which the value of an
instrument, as determined by amortized cost, is higher or lower
than the price the Fund would receive upon the sale of the
instrument.
The valuation of the Florida Tax-Free Money Market Fund's
portfolio instruments based upon their amortized cost is subject
to the Fund's adherence to certain procedures and conditions.
Consistent with regulatory requirements, the Manager will
purchase securities with remaining maturities of 397 days or less
and will maintain a dollar-weighted average portfolio maturity of
no more than 90 days. The Manager will invest only in securities
that have been determined to present minimal credit risk and that
satisfy the quality and diversification requirements of applicable
rules and regulations of the Securities and Exchange Commission.
The Board of Trustees has established procedures designed to
stabilize the Florida Tax-Free Money Market Fund's price per
share, as computed for the purpose of sales and redemptions, at
$1.00. There can be no assurance, however, that the Fund will at
all times be able to maintain a constant $1.00 net asset value
per share. Such procedures include review of the Fund's holdings
at such intervals as is deemed appropriate to determine whether
the Fund's net asset value calculated by using available market
quotations deviates from $1.00 per share and, if so, whether such
deviation may result in material dilution or is otherwise unfair
to existing shareholders. In the event that it is determined
that such a deviation exists, the Board of Trustees will take
such corrective action as it regards necessary and appropriate.
Such action may include selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends, or establishing a net
asset value per share by using available market quotations.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
The value of a shareholder's investment at the time of redemption
may be more or less than the cost at purchase, depending on the
value of the securities held in each Fund's portfolio. Requests
for redemption which are subject to any special conditions, or
which specify an effective date other than as provided herein,
cannot be accepted. A gain or loss for tax purposes may be
realized on the sale of shares, depending upon the price when
redeemed.
The Board of Trustees may cause the redemption of an account
with a total value of less than $500 provided (1) the value of
the account has been reduced, for reasons other than market
action, below the minimum initial investment in such Fund at the
time of the establishment of the account, (2) the account has
remained below the minimum level for six months, and (3) 60 days'
prior written notice of the proposed redemption has been sent to
the shareholder. Shares will be redeemed at the net asset value
on the date fixed for redemption by the Board of Trustees.
Prompt payment will be made by mail to the last known address of
the shareholder.
The Trust reserves the right to suspend the right of
redemption or postpone the date of payment (1) for any periods
during which the NYSE is closed, (2) when trading in the markets
the Trust normally utilizes is restricted, or an emergency exists
as determined by the Securities and Exchange Commission (SEC) so
that disposal of the Trust's investments or determination of its
net asset value is not reasonably practicable, or (3) for such
other periods as the SEC by order may permit for protection of
the Trust's shareholders.
For the mutual protection of the investor and the Funds, a
guarantee of signature may be required by the Trust. If
required, each signature on the account registration must be
guaranteed. Signature guarantees are acceptable from FDIC member
banks, brokers, dealers, municipal securities dealers, municipal
securities brokers, government securities dealers, government
securities brokers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations. A signature guarantee for active duty military
personnel stationed abroad may be provided by an officer of the
United States Embassy or Consulate, a staff officer of the Judge
Advocate General, or an individual's commanding officer.
Redemption by Check
Shareholders in the Florida Tax-Free Money Market Fund may
request that checks be issued for their account. A one-time $5
checkwriting fee is charged to each account by the Transfer Agent
for the use of the privilege. Checks must be written in the
amount of at least $250.
Checks issued to shareholders of the Fund will be sent only
to the person in whose name the account is registered and only to
the address of record. The checks must be manually signed by the
registered owner(s) exactly as the account is registered. For
joint accounts the signature of either or both joint owners will
be required on the check, according to the election made on the
signature card. Dividends will continue to be earned by the
shareholder until the shares are redeemed by the presentation of
a check.
When a check is presented to the Transfer Agent for payment,
a sufficient number of full and fractional shares in the
investor's account will be redeemed to cover the amount of the
check. If an investor's account is not adequate to cover the
amount of a check, the check will be returned unpaid. Because
the value of each account changes as dividends are accrued on a
daily basis, checks may not be used to close an account.
After clearance, checks paid during the month will be
returned to the shareholder by separate mail. The checkwriting
privilege will be subject to the customary rules and regulations
of State Street Bank and Trust Company (State Street Bank or the
Custodian) governing checking accounts. Other than the initial
one-time fee, there is no charge to the shareholder for the use
of the checks or for subsequent reorders of checks.
The Trust reserves the right to assess a processing fee
against a shareholder's account for any redemption check not
honored by a clearing or paying agent. Currently, this fee is
$15 and is subject to change at any time. Some examples of such
dishonor are improper endorsement, checks written for an amount
less than the minimum check amount, and insufficient or
uncollectible funds.
The Trust, the Transfer Agent and State Street Bank each
reserve the right to change or suspend the checkwriting privilege
upon 30 days' written notice to participating shareholders.
INVESTMENT PLANS
The following investment plans are made available by the Trust to
shareholders of the Funds. At the time you sign up for any of
the following investment plans that utilize the electronic funds
transfer service, you will choose the day of the month (the
effective date) on which you would like to regularly purchase
shares. When this day falls on a weekend or holiday, the
electronic transfer will take place on the last business day
before the effective date. You may terminate your participation
in a plan at any time. Please call the Manager for details and
necessary forms or applications.
Systematic Purchase of Shares
InvesTronic(registered trademark) - the periodic purchase of
shares through electronic funds transfer from a checking or
savings account. By completing an application, which may be
obtained from the Manager, you invest a specific amount each
month ($50 minimum) in any of your accounts.
Direct Purchase Service - the periodic purchase of shares through
electronic funds transfer from a non-governmental employer, an
income-producing investment, or an account with a participating
financial institution.
Automatic Purchase Plan - the periodic transfer of funds from a
USAA money market fund to purchase shares in another non-money
market USAA mutual fund. There is a minimum investment required
for this program of $5,000, with a monthly transaction minimum of
$50. The minimum initial investment requirement for the other
USAA mutual fund must be satisfied before the first transfer.
Buy/Sell Service - the intermittent purchase or redemption of
shares through electronic funds transfer to or from a checking or
savings account.
Participation in these systematic purchase plans will permit
a shareholder to engage in dollar-cost averaging. For additional
information concerning the benefits of dollar-cost averaging, see
Appendix D.
Systematic Withdrawal Plan
If a shareholder in a single investment account (accounts in
different Funds cannot be aggregated for this purpose) owns
shares having a net asset value of $5,000 or more, the
shareholder may request that enough shares to produce a fixed
amount of money be liquidated from the account monthly or
quarterly. The amount of each withdrawal must be at least $50.
Using the electronic funds transfer service, shareholders may
choose to have withdrawals electronically deposited at their bank
or other financial institution. They may also elect to have
checks mailed to a designated address.
Such a plan may be initiated by depositing shares worth at
least $5,000 with the Transfer Agent and by completing a
Systematic Withdrawal Plan application, which may be requested
from the Manager. The shareholder may terminate participation in
the plan at any time. There is no charge to the shareholder for
withdrawals under the Systematic Withdrawal Plan. The Trust will
not bear any expenses in administering the plan beyond the
regular transfer agent and custodian costs of issuing and
redeeming shares. Any additional expenses of administering the
plan will be borne by the Manager.
Withdrawals will be made by redeeming full and fractional
shares on the date selected by the shareholder at the time the
plan is established. Withdrawal payments made under this plan
may exceed dividends and distributions and, to this extent, will
involve the use of principal and could reduce the dollar value of
a shareholder's investment and eventually exhaust the account.
Reinvesting dividends and distributions helps replenish the
account. Because share values and net investment income can
fluctuate, shareholders should not expect withdrawals to be
offset by rising income or share value gains.
Each redemption of shares may result in a gain or loss,
which must be reported on the shareholder's income tax return.
Therefore, a shareholder should keep an accurate record of any
gain or loss on each withdrawal.
INVESTMENT POLICIES
The section captioned Investment Objectives and Policies in the
Prospectus describes the fundamental investment objectives and
the investment policies applicable to each Fund and the following
is provided as additional information.
Calculation of Portfolio Weighted Average Maturities
Weighted average maturity is derived by multiplying the value of
each investment by the number of days remaining to its maturity,
adding these calculations, and then dividing the total by the
value of the Fund's portfolio. An obligation's maturity is
typically determined on a stated final maturity basis, although
there are some exceptions to this rule.
With respect to obligations held by the Florida Tax-Free
Income Fund, if it is probable that the issuer of an instrument
will take advantage of a maturity-shortening device, such as a
call, refunding, or redemption provision, the date on which the
instrument will probably be called, refunded, or redeemed may be
considered to be its maturity date. Also, the maturities of
securities subject to sinking fund arrangements are determined on
a weighted average life basis, which is the average time for
principal to be repaid. The weighted average life of these
securities is likely to be substantially shorter than their
stated final maturity. In addition, for purposes of the Fund's
investment policies, an instrument will be treated as having a
maturity earlier than its stated maturity date if the instrument
has technical features such as puts or demand features which, in
the judgment of the Manager, will result in the instrument being
valued in the market as though it has the earlier maturity.
The Florida Tax-Free Money Market Fund will determine the
maturity of an obligation in its portfolio in accordance with
Rule 2a-7 under the Investment Company Act of 1940, as amended
(1940 Act).
Repurchase Agreements
Each Fund may invest up to 5% of its net assets in repurchase
agreements. A repurchase agreement is a transaction in which a
security is purchased with a simultaneous commitment to sell the
security back to the seller (a commercial bank or recognized
securities dealer) at an agreed upon price on an agreed upon date,
usually not more than 7 days from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or maturity of
the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value of the underlying
security. In these transactions, the securities purchased by a
Fund will have a total value equal to or in excess of the amount
of the repurchase obligation and will be held by the Funds'
custodian until repurchased. If the seller defaults and the value
of the underlying security declines, a Fund may incur a loss and
may incur expenses in selling the collateral. If the seller seeks
relief under the bankruptcy laws, the disposition of the collateral
may be delayed or limited. Any investments in repurchase agreements
will give rise to income which will not qualify as tax-exempt income
when distributed by a Fund.
Other Policies
Each Fund may lend its securities and engage in short sells
against the box. The Florida Tax-Free Income Fund may also
invest in options, financial futures contracts and options on
financial futures contracts. However, the Funds do not intend to
engage in any of these practices during the coming year without
first supplying further information in the Prospectus.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the
Trust for and are applicable to each Fund. These restrictions
may not be changed for any given Fund without approval by the
lesser of (1) 67% or more of the voting securities present at a
meeting of the Fund if more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy or (2)
more than 50% of the Fund's outstanding voting securities. The
investment restrictions of one Fund may be changed without
affecting those of the other Fund.
Under the restrictions, neither Fund will:
(1) With respect to 75% of its total assets, purchase the
securities of any issuer (except Government Securities, as
such term is defined in the Investment Company Act of 1940,
as amended (1940 Act)) if, as a result, the Fund would own
more than 10% of the outstanding voting securities of such
issuer or the Fund would have more than 5% of the value of
its total assets invested in the securities of such issuer;
for purposes of this limitation, identification of the
"issuer" will be based on a determination of
Investment Restrictions, cont.
the source of assets and revenues committed to meeting
interest and principal payments of each security; for
purposes of this limitation the State of Florida or other
jurisdictions and each of its separate political
subdivisions, agencies, authorities and instrumentalities
shall be treated as a separate issuer;
(2) Borrow money, except that a Fund may borrow money for
temporary or emergency purposes in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings), nor will either
Fund purchase securities when its borrowings exceed 5% of
its total assets;
(3) Purchase any securities which would cause 25% or more of the
value of that Fund's total assets at the time of such
purchase to be invested in securities the interest upon
which is derived from revenues or projects with similar
characteristics, such as toll road revenue bonds, housing
revenue bonds, electric power project revenue bonds, or in
industrial revenue bonds which are based, directly or
indirectly, on the credit of private entities of any one
industry; provided that the foregoing limitation does not
apply with respect to investments in United States Treasury
Bills, other obligations issued or guaranteed by the United
States Government, its agencies and instrumentalities, and,
in the case of the Florida Tax-Free Money Market Fund,
certificates of deposit and banker's acceptances of domestic
banks;
(4) Issue senior securities, except as permitted under the 1940
Act;
(5) Underwrite securities of other issuers, except to the extent
that it may be deemed to act as a statutory underwriter in
the distribution of any restricted securities or not readily
marketable securities;
(6) Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall
not prevent investments in securities secured by real estate
or interests therein);
(7) Lend any securities or make any loan if, as a result, more
than 33 1/3% of its total assets would be lent to other
parties, except that this limitation does not apply to
purchases of debt securities or to repurchase agreements; or
(8) Purchase or sell commodities or commodities contracts except
that the Florida Tax-Free Income Fund may invest in
financial futures contracts, options thereon and similar
instruments.
Additional Restrictions
The following restrictions are not considered to be fundamental
policies of the Funds. These additional restrictions may be
changed by the Board of Trustees of the Trust without notice to
or approval by the shareholders.
Neither Fund will:
(1) Pledge, mortgage or hypothecate its assets to any extent
greater than 33 1/3% of the value of its total assets;
(2) Purchase or retain securities of any issuer if any officer
or Trustee of the Trust or its Manager owns individually
more than one-half of one percent ( 1/2%) of the securities
of that issuer, and collectively the officers and Trustees
of the Trust and Manager together own more than 5% of the
securities of that issuer;
(3) The Florida Tax-Free Income Fund may not invest more than
15% of the value of its net assets and the Florida Tax-Free
Money Market Fund may not invest more than 10% of the value
of its net assets in illiquid securities (including
repurchase agreements maturing in more than seven days);
(4) Purchase securities on margin or sell securities short
except that a Fund may obtain short-term credits necessary
for the clearance of securities transactions and make short
sales against the box; for purposes of the restriction the
deposit or repayment of initial or variation margin in
connection with financial futures contracts or related
options will not be deemed to be a purchase of securities on
margin by a Fund;
(5) Purchase securities of other investment companies except to
the extent permitted by applicable law;
(6) Purchase or sell puts, calls, straddles or spreads or any
combination thereof, except to the extent permitted by
applicable law; or
(7) Purchase interests in oil, gas, or other mineral exploration
or development programs, except that it may purchase
securities of issuers whose principal business activities
fall within such areas.
SPECIAL RISK CONSIDERATIONS
The information set forth below is derived from official
statements prepared in connection with the issuance of bonds of
the State of Florida (the "State") and other sources that are
generally available to investors. The information is provided as
general information intended to give a brief and historical
description and is not intended to indicate future or continuing
trends in the financial or other positions of the State or of
local governmental units located in the State. The Trust has not
independently verified this information.
The Florida Economy. Throughout the 1980s, the State's
unemployment rate has, generally, tracked below that of the
nation. In recent years, however, as the State's economic growth
has slowed from its previous highs, the State's unemployment rate
has tracked above the national average. The State's unemployment
rate is projected to be 6.4% in 1993-1994 and 6.0% in 1994-1995.
Nevertheless, the average rate of unemployment for the State
since 1985 is 6.3%, while the national average is 6.4%.
Personal income in the State has been growing strongly the
last several years and has generally outperformed both the nation
as a whole and the Southeast in particular. The reasons for this
are twofold: first, as mentioned above, the State's population
has expanded at a very strong pace; and second, the State's
economy since the early seventies has diversified in such a way
as to provide a broader economic base. Income and employment
growth rates are expected however to reflect the recent slowdown
in economic growth caused by the increase of interest rates in
1994. Personal income growth is estimated at 8.3% and 6.7% for
1994-95 and 1995-96, respectively. From 1985 through 1994, the
State's per capita income rose an average of 5.2% per year, while
the national per capita income increased an average of 5.1%. The
structure of the State's income differs from that of the nation
and the southeast. Because the State has a proportionately
greater retirement age population, property income (dividends,
interest and rent) and transfer payments (social security and
pension benefits, among other sources of income) are a relatively
more important source of income. Transfer payments, such as
social security, are occasionally subject to legislative change.
The State's strong population growth is one main reason why
its economy is performing better than the nation as a whole. In
1980, the State was ranked seventh among the 50 states with a
population of 9.7 million people. The State has continued to
grow since then and as of April 1, 1994 ranks fourth with an
estimated population of 13.9 million. Since 1984, the State's
average annual rate of population increase has been approximately
2.3% as compared to an approximately 1.0% average annual increase
for the nation as a whole. While annual growth in the State's
population is expected to decline somewhat, it is still expected
to grow between 200,000 and 270,000 throughout the 1990's.
Tourism is one of the State's most important industries.
Approximately 39.9 million people visited the State in 1994, as
reported by the Florida Department of Commerce. The State
expects 43.9 million visitors in 1994-1995. The State's tourism
still appears to be suffering from the effects of negative
publicity regarding crime against tourists in the State. Also,
factors such as "product maturity" of the State's vacation
package, higher prices, and more aggressive marketing by
competing vacation destinations, could be contributory causes of
the tourism slowdown. However, unlike in fiscal year 1993-94
which experienced a 4.0% drop in the number of tourists, zero
growth in the number of tourists is expected over the current
fiscal year. A 1.7% growth in the number of tourists is expected
in 1995-96.
Until recently, the State has had a dynamic construction
industry, with single and multi-family housing starts accounting
for approximately 8.5% of total U.S. housing starts in 1994,
while the State's population was only 5.3% of the nation's total
population. The reason for such a dynamic construction industry
was the rapid growth of the State's population. Since 1985,
total housing starts have averaged 148,500 per year.
The current Florida Economic Consensus Estimating Conference
forecast shows that the State economy will experience modest
growth through the current and next fiscal year. The effect of
higher interest rates is most evident in the construction sector
of State's economy. Housing starts are expected to total 118,700
this fiscal year and 121,500 next fiscal year which is
considerably less compared to what was expected prior to the
interest rate hikes. The increased interest rates would have had
a much greater negative impact on construction expenditures were
it not for some near term boosts from the commercial and public
construction sectors. Both business investment spending and
consumer installment credit-based buying are expected to slow
down as a result of the rise in interest rates.
Special Risk Considerations, cont.
Florida Revenues and Expenditures. Financial operations of
the State covering all receipts and expenditures are maintained
through the use of three funds--General Revenue Fund, Trust
Funds, and Working Capital Fund. In fiscal year 1993-1994, the
State derived approximately 66% of its total direct revenues to
these funds from State taxes. Federal funds and other special
revenues accounted for the remaining revenues. Major sources of
tax revenues to the General Revenue Fund are the sales and use
tax, corporate income tax, intangible personal property tax, and
beverage tax, which amounted to 66%, 8%, 4%, and 4%, respectively,
of total General Revenue Fund receipts. State expenditures are
categorized for budget and appropriation purposes by type of
fund and spending unit, which are further subdivided by line
item. In fiscal year 1993-1994, appropriations from the General
Revenue Fund for education, health and welfare, and public safety
amounted to approximately 49%, 32% and 12%, respectively, of
total General Revenues.
The estimated General Revenue plus Working Capital and
Budget Stabilization funds available to the State for fiscal year
1994-1995 total $14,683.0 million, an 6.1% increase over 1993-94.
This amount reflects a transfer of $159 million in non-recurring
revenues due to Hurricane Andrew. Compared to effective
appropriations from General Revenues plus Working Capital and
Budget Stabilization funds for fiscal year 1994-1995 of $14,330.8
million, this results in unencumbered reserves estimated at
$352.1 million at the end of fiscal year 1994-1995. Estimated
fiscal year 1995-1996 General Revenue plus Working Capital and
Budget Stabilization funds available total $14,453.2 million, a
5.5% increase over fiscal year 1994-1995.
The Sales and Use tax is the greatest single source of tax
receipts in the State. For the State fiscal year ended June 30,
1994, receipts from this source were $10,012.5 million, an
increase of 6.9% from fiscal year 1992-1993. The second largest
source of State tax receipts is the Motor Fuel Tax. Preliminary
data show collections from this source in State fiscal year
ending June 30, 1994 were $1,733.4 million. However, these
revenues are almost entirely dedicated trust funds for specific
purposes and are not included in the State General Revenue Fund.
Alcoholic beverage tax revenues totalled $439.8 million for the
State fiscal year ending June 30, 1994, down .5% from the
previous year. The receipts of corporate income tax for the
fiscal year ended June 30, 1994 were $1,047.4 million, an
increase of 23.7% from the previous fiscal year. Gross Receipt
tax collections for fiscal year 1993-1994 totalled $459.4
million, an increase of 2.6% over the previous fiscal year.
Documentary stamp tax collections totalled $775 million during
fiscal year 1993-1994, increasing 21.3% from the previous fiscal
year. The intangible personal property tax is a tax on stocks,
bonds, notes, governmental leaseholds, certain limited
partnership interests, mortgages and other obligations secured by
liens on Florida realty, and other intangible personal property.
Total collections from intangible personal property taxes were
$836 million during fiscal year ending June 30, 1994, up 6.7%
from the previous fiscal year. Severance taxes totalled $54.8
million during fiscal year 1993-1994, down 15% from the previous
fiscal year. In November, 1986, the voters of the State approved
a constitutional amendment to allow the State to operate a
lottery. Fiscal year 1993-1994 produced ticket sales of $2.15
billion of which education received approximately $816.2 million.
The State Constitution does not permit a state or local
personal income tax. An amendment to the State Constitution by
the electors of the State is required to impose a personal income
tax in the State.
Since January 1, 1994, property valuations for homestead
property have been subject to a growth cap. Growth in the just
(market) value of property qualifying for the homestead exemption
is limited to 3% or the change in the Consumer Price Index,
whichever is less. If the property changes ownership or
homestead status, it is to be re-valued at full just value on the
next tax roll. Although the impact of the growth cap cannot be
determined, it may have the effect of causing local government
units in the State to rely more on non-ad valorem revenues to
meet operating and other requirements normally funded with ad
valorem tax revenues.
An amendment to the State Constitution was approved by
statewide ballot in the November 8, 1994 general election which
is commonly referred to as the "Limitation on State Revenues
Amendment." This amendment provides that State revenues
collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an
adjustment for growth. Growth is defined as an amount equal to
the average annual rate of growth in State personal income over
the most recent twenty quarters times the State revenues allowed
under the amendment for the prior fiscal year. State revenues
collected for any fiscal year in excess of this limitation are
required to be transferred to the budget stabilization fund until
the fund reaches the maximum balance specified in Section 19(g)
of Article III of the State Constitution, and thereafter is
required to be refunded to taxpayers as provided by general law.
The limitation on State revenues imposed by the amendment may be
increased by the Legislature, by a two-thirds vote of each house.
The term "State revenues," as used in the amendment, means
taxes, fees, licenses, and charges for services imposed by the
Legislature on individuals, businesses, or agencies outside State
government. However, the term "State revenues" does not include:
(i) revenues that are necessary to meet the requirements set
forth in documents authorizing the issuance of bonds by the
State; (ii) revenues that are used to provide matching funds for
the federal Medicaid program with the exception of the revenues
used to support the Public Medical Assistance Trust Fund or its
successor program and with the exception of State matching funds
used to fund elective expansions made after July 1, 1994; (iii)
proceeds from the State lottery returned as prizes; (iv) receipts
of the Florida Hurricane Catastrophe Fund; (v) balances carried
forward from prior fiscal years; (vi) taxes, licenses, fees and
charges for services imposed by local, regional, or school
district governing bodies; or (vii) revenue from taxes, licenses,
fees and charges for services required to be imposed by any
amendment or revision to the State Constitution after July 1,
1994. The amendment takes effect on January 1, 1995 and will be
first applicable to State fiscal year 1995-96.
It should be noted that many of the provisions of the
amendment are ambiguous, and likely will not be clarified until
State courts have ruled on their meanings. Further, it is
unclear how the Legislature will implement the language of the
amendment and whether such implementing legislation itself will
be the subject of further court interpretation.
The Fund cannot predict the impact of the amendment on State
finances. To the extent local governments traditionally receive
revenues from the State which are subject to, and limited by, the
amendment, the future distribution of such State revenues may be
adversely affected by the amendment.
The Florida Supreme Court recently determined in Kuhnlein v.
Florida Department of Revenue, 19 Fla.I., Weekly 467, 1994 WL
525900 (1994) that the $295 vehicle impact fee imposed by the
State on certificates of title issued for vehicles previously
titled outside the State violated the U.S. Constitution. In
making this determination, the Court approved the trial court's
order that the State refund the taxes collected. The State's
refund exposure may be in excess of $188 million. The Fund
cannot predict the impact of this ruling on State finances.
According to the Office of the Comptroller, Department of
Banking and Finance of the State, as of February 15, 1995, the
State maintains a high bond rating from Moody's Investors Service
(Aa), Standard & Poor's Ratings Group (AA), and Fitch Investors
Service, Inc. (AA) on all of its general obligation bonds. Such
ratings may be revised and downgraded at any time by such rating
agencies. Outstanding general obligation bonds at June 30, 1994
totalled almost $6.1 billion and were issued to finance capital
outlay for educational projects of both local school districts
and state universities, environmental protection and highway
construction. The State has issued over $933 million of general
obligation bonds since July 1, 1994.
PORTFOLIO TRANSACTIONS
The Manager, pursuant to the Advisory Agreement dated June 25,
1993 and subject to the general control of the Trust's Board of
Trustees, places all orders for the purchase and sale of Fund
securities. Purchases of Fund securities are made either
directly from the issuer or from dealers who deal in tax-exempt
securities. The Manager may sell Fund securities prior to
maturity if circumstances warrant and if it believes such
disposition is advisable. In connection with portfolio
transactions for the Trust, the Manager seeks to obtain the best
available net price and most favorable execution for its orders.
The Manager has no agreement or commitment to place transactions
with any broker-dealer and no regular formula is used to allocate
orders to any broker-dealer. However, the Manager may place
security orders with brokers or dealers who furnish research or
other services to the Manager as long as there is no sacrifice in
obtaining the best overall terms available. Payment for such
services would be generated only through purchase of new issue
fixed income securities.
Such research and other services may include, for example:
advice concerning the value of securities, the advisability of
investing in, purchasing, or selling securities, and the
availability of securities or the purchasers or sellers of
securities; analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and
performance of accounts; and various functions incidental to
effecting securities transactions, such as clearance and
settlement. The Manager continuously reviews the performance of
the broker-dealers with whom it places orders for transactions.
The receipt of research from broker-dealers that execute
transactions on behalf of the Trust may be useful to the Manager
in rendering investment management services to other clients
(including affiliates of the Manager), and conversely, such
research provided by broker-dealers who have executed transaction
orders on behalf of other clients may be useful to the Manager in
carrying out its obligations to the Trust. While such research
is available to and may be used by the Manager in providing
investment advice to all its clients (including affiliates of the
Manager), not all of such research may be used by the Manager for
the benefit of the Trust. Such research and services will be in
addition to and not in lieu of research and services provided by
the Manager, and the expenses of the Manager will not necessarily
be reduced by the receipt of such supplemental research. See The
Trust's Manager.
On occasions when the Manager deems the purchase or sale of
a security to be in the best interest of the Trust, as well as
the Manager's other clients, the Manager, to the extent permitted
by applicable laws and regulations, may aggregate such securities
to be sold or purchased for the Trust with those to be sold or
purchased for other customers in order to obtain best execution
and lower brokerage commissions, if any. In such event,
allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager
in the manner it considers to be most equitable and consistent
with its fiduciary obligations to all such customers, including
the Trust. In some instances, this procedure may impact the
price and size of the position obtainable for the Trust.
The tax-exempt security market is typically a "dealer"
market in which investment dealers buy and sell bonds for their
own accounts, rather than for customers, and although the price
may reflect a dealer's mark-up or mark-down, the Trust pays no
brokerage commissions as such. In addition, some securities may
be purchased directly from issuers.
Portfolio Turnover Rate
The portfolio turnover rate is computed by dividing the dollar
amount of securities purchased or sold (whichever is smaller) by
the average value of securities owned during the year.
The rate of portfolio turnover will not be a limiting factor
when the Manager deems changes in the Florida Tax-Free Income
Fund's portfolio appropriate in view of its investment objective.
For example, securities may be sold in anticipation of a rise in
interest rates (market decline) or purchased in anticipation of a
decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another security of
comparable quality may be purchased at approximately the same
time in order to take advantage of what the Fund believes to be a
temporary disparity in the normal yield relationship between the
two securities. These yield disparities may occur for reasons
not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes
in the overall demand for or supply of various types of tax-
exempt securities. Moreover, to optimize yields on the short-
term liquidity portion of the Fund, daily and weekly demand bonds
are utilized extensively. There are transactions in the Fund in
this type of security virtually daily. These transactions,
though short-term in nature, are included in the turnover rate.
Increased use of daily and weekly demand bonds may result in
higher portfolio turnover.
The Florida Tax-Free Income Fund's portfolio turnover rates
for the six-month period ended March 31, 1994 and the fiscal year
ended March 31, 1995 were 284.11% and 183.44%, respectively. The
Fund's portfolio turnover rate for the period ended March 31,
1994 was high due to the rapid increase in assets which
necessitated a high level of trading. The portfolio turnover
rate for the period ended March 31, 1995 remained high as the
Fund continued to grow and the portfolio was being restructured
to benefit from the improving market conditions.
FURTHER DESCRIPTION OF SHARES
The Trust is authorized to issue shares of beneficial interest in
separate series or Funds. Four Funds have been established, two
of which are described in this SAI. Under the Master Trust
Agreement, the Board of Trustees is authorized to create new
Funds in addition to those already existing without shareholder
approval.
The assets of each Fund and all income, earnings, profits
and proceeds thereof, subject only to the rights of creditors,
are specifically allocated to such Fund. They constitute the
underlying assets of each Fund, are required to be segregated on
the books of account, and are to be charged with the expenses of
such Fund. Any general expenses of the Trust not readily
identifiable as belonging to a particular Fund are allocated on
the basis of the Funds' relative net assets during the fiscal
year or in such other manner as the Board determines to be fair
and equitable. Each share of each Fund represents an equal
proportionate interest in that Fund with every other share and is
entitled to dividends and distributions out of the net income and
capital gains belonging to that Fund when declared by the Board.
Under the Trust's Master Trust Agreement, no annual or
regular meeting of shareholders is required. Thus, there will
ordinarily be no shareholder meeting unless otherwise required by
the 1940 Act. Under certain circumstances, however, shareholders
may apply to the Trustees for shareholder information in order to
obtain signatures to request a shareholder meeting. Moreover,
pursuant to the Master Trust Agreement, any Trustee may be
removed by the vote of two-thirds of the outstanding Trust shares
and holders of 10% or more of the outstanding shares of the Trust
can require Trustees to call a meeting of shareholders for the
purpose of voting on the removal of one or more Trustees. On any
matter submitted to the shareholders, the holder of each Fund
share is entitled to one vote per share (with proportionate
voting for fractional shares) regardless of the relative net
asset values of the Funds' shares. However, on matters affecting
an individual Fund, a separate vote of the shareholders of that
Fund is required. Shareholders of a Fund are not entitled to
vote on any matter which does not affect that Fund but which
requires a separate vote of another Fund. Shares do not have
cumulative voting rights, which means that holders of more than
50% of the shares voting for the election of Trustees can elect
100% of the Trust's Board of Trustees, and the holders of less
than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shareholders of a particular Fund might have the power to
elect all of the Trustees of the Trust because that Fund has a
majority of the total outstanding shares of the Trust. When
issued, each Fund's shares are fully paid and nonassessable, have
no pre-emptive or subscription rights, and are fully
transferable. There are no conversion rights.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Each Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as
amended (the Code). Accordingly, each Fund will not be liable
for federal income taxes on its taxable net investment income and
net capital gains (capital gains in excess of capital losses)
that are distributed to shareholders, provided that each Fund
distributes at least 90% of its net investment income and net
short-term capital gain for the taxable year.
To qualify as a regulated investment company, a Fund must,
among other things, (1) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such
stock, securities or currencies (the 90% test); (2) derive in
each taxable year less than 30% of its gross income from the sale
or other disposition of stock or securities held less than three
months (the 30% test), and (3) satisfy certain diversification
requirements at the close of each quarter of the Fund's taxable
year. Furthermore, to pay tax-exempt interest income dividends,
at least 50% of the value of each Fund's total assets at the
close of each quarter of its taxable year must consist of
obligations the interest of which is exempt from federal income
tax. Each Fund intends to satisfy this requirement.
Certain Federal Income Tax Considerations, cont.
The Code imposes a nondeductible 4% excise tax on a
regulated investment company that fails to distribute during each
calendar year an amount at least equal to the sum of (1) 98% of
its taxable net investment income for the calendar year, (2) 98%
of its capital gain net income for the twelve month period
ending on October 31, and (3) any prior amounts not distributed.
Each Fund intends to make such distributions as are necessary to
avoid imposition of this excise tax.
For federal income tax purposes, debt securities purchased
by the Funds may be treated as having original issue discount.
Original issue discount represents interest income for federal
income tax purposes and can generally be defined as the excess of
the stated redemption price at maturity of a debt obligation over
the issue price. Original issue discount is treated for federal
income tax purposes as earned by the Funds, whether or not any
income is actually received, and therefore is subject to the
distribution requirements of the Code. However, original issue
discount with respect to tax-exempt obligations generally will be
excluded from the Funds' taxable income, although such discount
will be included in gross income for purposes of the 90% test and
the 30% test described previously. Original issue discount with
respect to tax-exempt securities is accrued and added to the
adjusted tax basis of such securities for purposes of determining
gain or loss upon sale or at maturity. Generally, the amount of
original issue discount is determined on the basis of a constant
yield to maturity which takes into account the compounding of
accrued interest. An investment in a stripped bond or stripped
coupon will result in original issue discount.
Debt securities may be purchased by the Funds at a market
discount. Market discount occurs when a security is purchased at
a price less than the original issue price adjusted for accrued
original issue discount, if any. The Funds intend to defer
recognition of accrued market discount until maturity or other
disposition of the bond. For securities purchased at a market
discount, the gain realized on disposition will be treated as
taxable ordinary income to the extent it does not exceed accrued
market discount on the bond.
The Funds may also purchase debt securities at a premium,
i.e., at a purchase price in excess of face amount. With respect
to tax-exempt securities, the premium must be amortized to the
maturity date but no deduction is allowed for the premium
amortization. The amortized bond premium will reduce the Funds'
adjusted tax basis in the securities. For taxable securities,
the premium may be amortized if the Funds so elect. The
amortized premium on taxable securities is first offset against
interest received on the securities and then allowed as a
deduction, and, for securities issued after September 27, 1985,
must be amortized under an economic accrual method.
Taxation of the Shareholders
Taxable distributions are generally included in a shareholder's
gross income for the taxable year in which they are received.
Dividends declared in October, November, or December and made
payable to shareholders of record in such a month will be deemed
to have been received on December 31, if a Fund pays the dividend
during the following January. It is expected that none of the
Funds' distributions will qualify for the corporate dividends-
received deduction.
To the extent that a Fund's dividends distributed to
shareholders are derived from interest income exempt from federal
income tax and are designated as "exempt-interest dividends" by a
Fund, they will be excludable from a shareholder's gross income
for federal income tax purposes. Shareholders who are recipients
of Social Security benefits should be aware that exempt-interest
dividends received from a Fund are includible in their "modified
adjusted gross income" for purposes of determining the amount of
such Social Security benefits, if any, that are required to be
included in their gross income.
All distributions of investment income during the year will
have the same percentage designated as tax-exempt. This method
is called the "average annual method." Since the Funds invest
primarily in tax-exempt securities, the percentage will be
substantially the same as the amount actually earned during any
particular distribution period.
A shareholder of the Florida Tax-Free Income Fund should be
aware that a redemption of shares (including any exchange into
another USAA Fund) is a taxable event and, accordingly, a capital
gain or loss may be recognized. If a shareholder receives an
exempt-interest dividend with respect to any share and such share
has been held for six months or less, any loss on the redemption
or exchange will be disallowed to the extent of such exempt-
interest dividend. Similarly, if a shareholder of the Fund
receives a distribution taxable as long-term capital gain with
respect to shares of the Fund and redeems or exchanges shares
before he has held them for more than six months, any loss on the
redemption or exchange (not otherwise disallowed as attributable
to an exempt-interest dividend) will be treated as long-term
capital loss.
The Funds may invest in private activity bonds. Interest on
certain private activity bonds issued after August 7, 1986, is an
item of tax preference for purposes of the Federal Alternative
Minimum Tax (AMT), although the interest continues to be
excludable from gross income for other purposes. AMT is a
supplemental tax designed to ensure that taxpayers pay at least a
minimum amount of tax on their income, even if they make
substantial use of certain tax deductions and exclusions
(referred to as tax preference items). Interest from private
activity bonds is one of the tax preference items that is added
to income from other sources for the purposes of determining
whether a taxpayer is subject to the AMT and the amount of any
tax to be paid. For corporate investors, alternative minimum
taxable income is increased by 75% of the amount by which
adjusted current earnings (ACE) exceeds alternative minimum
taxable income before the ACE adjustment. For corporate
taxpayers, all tax-exempt interest is considered in calculating
the AMT as part of the ACE. Prospective investors should consult
their own tax advisers with respect to the possible application
of the AMT to their tax situation.
Opinions relating to the validity of tax-exempt securities
and the exemption of interest thereon from federal income tax are
rendered by recognized bond counsel to the issuers. Neither the
Manager's nor the Funds' counsel makes any review of proceedings
relating to the issuance of tax-exempt securities or the basis of
such opinions.
FLORIDA TAXATION
Taxation of the Shareholders
Florida does not impose an income tax on individuals. Thus,
dividends and distributions paid by the Funds to individuals who
are residents of Florida are not taxable by Florida. Florida
imposes an income tax on corporations and similar entities at a
rate of 5.5%. Dividends and distributions of investment income
and capital gains by the Funds will be subject to the Florida
corporate income tax. Accordingly, investors in the Funds,
including, in particular, investors that may be subject to the
Florida corporate income tax, should consult their tax advisers
with respect to the application of the Florida corporate income
tax to the receipt of Fund dividends and distributions and to the
investor's Florida tax situation in general.
Florida imposes a tax on intangible personal property owned
by Florida residents. Shares in the Funds constitute intangible
personal property for purposes of the Florida intangible personal
property tax. Thus, unless an exemption applies, shares in the
Funds will be subject to the Florida intangible personal property
tax. Florida provides an exemption for shares in an investment
fund if the fund's portfolio of assets consists solely of assets
exempt from the Florida intangible personal property tax. Assets
exempt from the Florida intangible personal property tax include
obligations issued by the State of Florida and its political
subdivisions, municipalities, and public authorities; obligations
of the United States Government or its agencies; and cash.
The Funds received a ruling from the Florida Department of
Revenue that if, on the last business day of any calendar year,
the Funds' assets consist solely of assets exempt from the
Florida intangible personal property tax, shares of the Funds
owned by Florida residents will be exempt from the Florida
intangible personal property tax in the following year. If
shares of the Funds are subject to the Florida intangible
personal property tax, because less than 100% of the Funds'
assets on the last business day of the calendar year consist of
assets exempt from the Florida intangible personal property tax,
only the portion of the net asset value of a share of the Funds
that is attributable to obligations of the United States
Government will be exempt from taxation.
Taxation of the Funds
If the Funds have tax nexus with Florida, such as through the
location within Florida of the Trust or Funds' activities or
those of their advisors, then the Florida Funds will be subject
to Florida corporate income tax. In addition, if the Funds'
intangible assets have a taxable situs in Florida, then the Funds
will be subject to Florida's intangible personal property tax.
The Funds intend to operate so as not to be subject to Florida
taxation.
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust consists of eight Trustees.
Set forth below are the Trustees and officers of the Trust, and
their respective offices and principal occupations during the
last five years. Unless otherwise indicated, the business
address of each is 9800 Fredericksburg Rd., San Antonio, TX
78288.
Hansford T. Johnson 1, 2
Trustee and Chairman of the Board of Trustees
Age: 59
Director, Vice Chairman and Deputy Attorney-in-Fact, United
Services Automobile Association (USAA) and President, Chief
Executive Officer, Director and Vice Chairman of the Board of
Directors of USAA Capital Corporation and of its various
subsidiaries and affiliates (9/93-present); Chief of Staff, USAA
(1/93-8/93); Executive Vice President, USAA (10/92-12/92);
Commander-in-Chief, CINCTRANS, Department of Defense -Pentagon
(9/89-9/92). Mr. Johnson currently serves as a Trustee and
Chairman of the Board of Trustees of USAA Investment Trust and as
a Director and Chairman of the Boards of Directors of USAA
Investment Management Company (IMCO), USAA Mutual Fund, Inc.,
USAA Tax Exempt Fund, Inc., USAA Shareholder Account Services,
USAA Federal Savings Bank and USAA Real Estate Company.
Michael J.C. Roth 1, 2
Trustee, President and Vice Chairman of the Board of Trustees
Age: 53
Chief Executive Officer, IMCO (10/93-present); President,
Director and Vice Chairman of the Board of Directors, IMCO (1/90-
present); Director, USAA Federal Savings Bank (12/83-8/91). Mr.
Roth currently serves as President, Trustee and Vice Chairman of
the Board of Trustees of USAA Investment Trust, as President,
Director and Vice Chairman of the Boards of Directors of USAA
Mutual Fund, Inc., USAA Tax Exempt Fund, Inc. and USAA Shareholder
Account Services, as Director of USAA Life Insurance Company and
as Trustee and Vice Chairman of USAA Life Investment Trust.
John W. Saunders, Jr. 1, 2, 4
Trustee and Vice President
Age: 60
Senior Vice President, Investments, IMCO (10/85-present);
Director, BHC Financial, Inc. and BHC Securities, Inc. (1/87-
present). Mr. Saunders currently serves as a Trustee and Vice
President of USAA Investment Trust, as a Director of IMCO, Director
and Vice President of USAA Mutual Fund, Inc. and USAA Tax Exempt
Fund, Inc., as Senior Vice President of USAA Shareholder Account
Services, and as Vice President of USAA Life Investment Trust.
C. Dale Briscoe 4, 5
7829 Timber Top Drive
Boerne, TX 78006
Trustee
Age: 74
Retired. Mr. Briscoe currently serves as a Trustee of USAA
Investment Trust and as a Director of USAA Mutual Fund, Inc. and
USAA Tax Exempt Fund, Inc.
George E. Brown 3, 4, 5
5829 Northgap Drive
San Antonio, TX 78239
Trustee
Age: 77
Retired. Mr. Brown currently serves as a Trustee of USAA
Investment Trust and as a Director of USAA Mutual Fund, Inc. and
USAA Tax Exempt Fund, Inc.
Howard L. Freeman, Jr. 2, 3, 5
2710 Hopeton
San Antonio, TX 78230
Trustee
Age: 60
Assistant General Manager for Finance, San Antonio City Public
Service Board (1976-present). Mr. Freeman currently serves as a
Trustee of USAA Investment Trust and as a Director of USAA Mutual
Fund, Inc. and USAA Tax Exempt Fund, Inc.
Richard A. Zucker 3, 4, 5
407 Arch Bluff
San Antonio, TX 78216
Trustee
Age: 52
Vice President, Beldon Roofing and Remodeling (1985-present).
Mr. Zucker currently serves as a Trustee of USAA Investment Trust
and as a Director of USAA Mutual Fund, Inc. and USAA Tax Exempt
Fund, Inc.
Barbara B. Dreeben 3, 5
200 Patterson #1008
San Antonio, TX 78209
Trustee
Age: 50
President, Postal Addvantage (7/92-present); Consultant, Nancy
Harkins Stationer, (8/91-present); Merchandise Manager, Nancy
Harkins Stationer (7/82-8/91). Mrs. Dreeben currently serves as
a Trustee of USAA Investment Trust and as a Director of USAA
Mutual Fund, Inc. and USAA Tax Exempt Fund, Inc.
Michael D. Wagner 1
Secretary
Age: 47
Vice President, Corporate Counsel, USAA (1982-present). Mr.
Wagner has held various positions in the legal department of USAA
since 1970 and currently serves as Vice President, Secretary and
Counsel, IMCO and USAA Shareholder Account Services; Secretary,
USAA Investment Trust, USAA Mutual Fund, Inc. and USAA Tax Exempt
Fund, Inc., and as Vice President, Corporate Counsel, for various
other USAA subsidiaries and affiliates.
Alex M. Ciccone 1
Assistant Secretary
Age: 45
Vice President, Compliance, IMCO (12/94-present); Vice President
and Chief Operating Officer, Commonwealth Shareholder Services
(6/94-11/94); Vice President, Compliance, IMCO (12/91-5/94); Vice
President, Compliance, Fund Management Co. (10/89-11/91); and
Vice President, Compliance, AIM Distributors, Inc. (4/82-11/91).
Mr. Ciccone currently serves as Assistant Secretary of USAA
Investment Trust, USAA Mutual Fund, Inc. and USAA Tax Exempt
Fund, Inc.
Sherron A. Kirk 1
Treasurer
Age: 50
Vice President, Controller, IMCO (10/92-present); Vice President,
Corporate Financial Analysis, USAA (9/92-10/92); Assistant Vice
President, Financial Plans and Support, USAA (8/91-9/92);
Assistant Vice President, Real Estate Accounting, USAA Real
Estate Company (5/90-7/91). Mrs. Kirk currently serves as
Treasurer of USAA Investment Trust, USAA Mutual Fund, Inc., and
USAA Tax Exempt Fund, Inc. and as Vice President, Controller of
USAA Shareholder Account Services.
Dean R. Pantzar 1
Assistant Treasurer
Age: 36
Director, Mutual Fund Accounting, IMCO (12/94-present); Senior
Manager, KPMG Peat Marwick LLP (7/88-12/94). Mr. Pantzar
currently serves as Assistant Treasurer of USAA Mutual Fund,
Inc., USAA Investment Trust, and USAA Tax Exempt Fund, Inc.
- -------
1 Indicates those Trustees and officers who are employees of
the Manager or affiliated companies and are considered
"interested persons" under the 1940 Act.
2 Member of Executive Committee
3 Member of Audit Committee
4 Member of Pricing and Investment Committee
5 Member of Corporate Governance Committee
Between the meetings of the Board of Trustees and while
the Board is not in session, the Executive Committee of the
Board of Trustees has all the powers and may exercise all the
duties of the Board of Trustees in the management of the business
of the Trust which may be delegated to it by the Board. The
Trustees and Officers of the Trust, cont.
Pricing and Investment Committee of the Board of Trustees acts
upon various investment-related issues and other matters which have
been delegated to it by the Board. The Audit Committee of the Board
of Trustees reviews the financial statements and the auditor's reports
and undertakes certain studies and analyses as directed by the Board.
The Corporate Governance Committee of the Board of Trustees maintains
oversight of the organization, performance, and effectiveness of the
Board and independent Trustees.
In addition to the previously listed Trustees and/or
officers of the Trust who also serve as Directors and/or officers
of the Manager, the following individuals are Directors and/or
executive officers of the Manager: Josue Robles, Jr., Senior
Vice President, Chief Financial Officer/Controller, USAA; William
McCrae, Senior Vice President, General Counsel and Secretary,
USAA; Harry W. Miller, Senior Vice President, Investments
(Equity); and John J. Dallahan, Senior Vice President, Investment
Services. There are no family relationships among the Trustees,
officers and managerial level employees of the Trust or its
Manager.
The following table sets forth information describing the
compensation of the current Trustees of the Trust for their
services as Trustees for the fiscal year ended March 31, 1995.
Name Aggregate Total Compensation
of Compensation from the USAA
Trustee from the Trust Family of Funds (c)
------- -------------- -------------------
C. Dale Briscoe $4,281 $18,500
George E. Brown (a) 4,281 18,500
Barbara B. Dreeben 4,281 18,500
Howard L. Freeman, Jr. 4,281 18,500
Hansford T. Johnson None (b) None (b)
Michael J.C. Roth None (b) None (b)
John W. Saunders, Jr. None (b) None (b)
Richard A. Zucker 4,281 18,500
- ----------------
(a) The USAA Family of Funds has accrued deferred compensation
for Mr. Brown in an amount (plus earnings thereon) of
$20,118. The compensation was deferred by Mr. Brown
pursuant to a non-qualified Deferred Compensation Plan,
under which deferred amounts accumulate interest quarterly
based on the annualized U.S. Treasury Bill rate in effect on
the last day of the quarter. Amounts deferred and
accumulated earnings thereon are not funded and are general
unsecured liabilities of the USAA Funds until paid. The
Deferred Compensation Plan was terminated in 1988 and no
compensation has been deferred by any Trustee/Director of
the USAA Family of Funds since the Plan was terminated.
(b) Hansford T. Johnson, Michael J.C. Roth, and John W.
Saunders, Jr. are affiliated with the Trust's investment
adviser, IMCO, and, accordingly, receive no remuneration
from the Trust or any other Fund of the USAA Family of
Funds. </R.
(c) At March 31, 1995, the USAA Family of Funds consisted of 4
registered investment companies offering 29 individual
funds. Each Trustee presently serves as a Trustee or
Director of each investment company in the USAA Family of
Funds. In addition, Michael J.C. Roth presently serves as a
Trustee of USAA Life Investment Trust, a registered
investment company advised by IMCO, consisting of five funds
offered to investors in a fixed and variable annuity
contract with USAA Life Insurance Company. Mr. Roth
receives no compensation as Trustee of USAA Life Investment
Trust.
All of the above Trustees are also Trustees/Directors of the
other funds for which IMCO serves as investment adviser. No
compensation is paid by any fund to any Trustee/Director who is a
director, officer, or employee of IMCO or its affiliates. No
pension or retirement benefits are accrued as part of fund
expenses. The Trust reimburses certain expenses of the Trustees
who are not affiliated with the investment adviser. As of June
30, 1995, the officers and Trustees of the Trust and their
families as a group owned beneficially or of record less than 1%
of the outstanding shares of the Trust.
As of June 30, 1995, USAA and its affiliates (including
related employee benefit plans) owned 5,490 shares (.1%) of the
Florida Tax-Free Income Fund and 52,510 shares (.1%) of the
Florida Tax-Free Money Market Fund, for an aggregate total of
58,001 shares (.1%) of the Funds.
The Trust knows of no one person who, as of June 30, 1995,
held of record or owned beneficially 5% or more of either Fund's
shares.
THE TRUST'S MANAGER
As described in the Prospectus, USAA Investment Management
Company is the Manager and investment adviser, providing services
under the Advisory Agreement. The Manager, organized in May
1970, has served as investment adviser and underwriter for USAA
State Tax-Free Trust from its inception.
In addition to managing the Trust's assets, the Manager
advises and manages the investments for USAA and its affiliated
companies as well as those of USAA Investment Trust, USAA Mutual
Fund, Inc. and USAA Tax Exempt Fund, Inc. As of the date of this
SAI, total assets under management by the Manager were
approximately $27 billion, of which approximately $15 billion
were in mutual fund investments.
Advisory Agreement
Under the Advisory Agreement, the Manager provides an investment
program, carries out the investment policy and manages the
portfolio assets for each Fund. The Manager is authorized,
subject to the control of the Board of Trustees of the Trust, to
determine the selection, amount and time to buy or sell
securities for each Fund. In addition to providing investment
services, the Manager pays for office space, facilities, business
equipment and accounting services (in addition to those provided
by the Custodian) for the Trust. The Manager compensates all
personnel, officers and Trustees of the Trust if such persons are
also employees of the Manager or its affiliates. For these
services under the Advisory Agreement, the Trust has agreed to
pay the Manager a fee computed as described under Management of
the Trust in the Prospectus. Management fees are computed and
accrued daily and payable monthly.
Except for the services and facilities provided by the
Manager, the Funds pay all other expenses incurred in their
operations. Expenses for which the Funds are responsible include
taxes (if any), brokerage commissions on portfolio transactions
(if any), expenses of issuance and redemption of shares, charges
of transfer agents, custodians and dividend disbursing agents,
cost of preparing and distributing proxy material, costs of
printing and engraving stock certificates, auditing and legal
expenses, certain expenses of registering and qualifying shares
for sale, fees of Trustees who are not interested persons (not
affiliated) of the Manager, costs of typesetting, printing and
mailing the Prospectus, SAI and periodic reports to existing
shareholders, and any other charges or fees not specifically
enumerated. The Manager pays the cost of printing and mailing
copies of the Prospectus, the SAI, and reports to prospective
shareholders.
The Advisory Agreement will remain in effect until June 25,
1996 for each Fund and will continue in effect from year to year
thereafter for each Fund as long as it is approved at least
annually by a vote of the outstanding voting securities of such
Fund (as defined by the 1940 Act) or by the Board of Trustees (on
behalf of such Fund) including a majority of the Trustees who are
not interested persons of the Manager or (otherwise than as
Trustees) of the Trust, at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be
terminated at any time by either the Trust or the Manager on 60
days' written notice. It will automatically terminate in the
event of its assignment (as defined in the 1940 Act).
Under the terms of the Advisory Agreement, the Manager is
required to reimburse each Fund in the event that the total
annual expenses, inclusive of the management fee, but exclusive
of the interest, taxes and brokerage fees and extraordinary
items, incurred by that Fund exceeds any applicable state expense
limitation. At the current time, the most restrictive expense
limitation is 2.5% of the first $30,000,000 of average net assets
(ANA), 2% of the next $70,000,000 ANA, and 1.5% of the remaining
ANA.
From time to time the Manager may, without prior notice to
shareholders, waive all or any portion of fees or agree to
reimburse expenses incurred by a Fund. Any such waiver or
reimbursement may be terminated by the Manager at any time
without prior notice to shareholders. The Manager has
voluntarily agreed to limit each Fund's expenses to .50% of its
ANA until August 1, 1996, and will reimburse the Funds for all
expenses in excess of the limitations.
For the last two fiscal years, management fees were as
follows:
Six-month period
ended 3/31/94 1995
------------- ----
Florida Tax-Free Income Fund $38,985 $158,406
Florida Tax-Free Money Market Fund $51,944 $187,847
Because the Funds' expenses exceeded the Manager's voluntary
expense limitation of .50% of average net assets, in 1994 the
Manager did not receive any management fees. In addition for
1994, the Manager did not receive fees for other operating
expenses to which it would have been entitled in the amounts of
$27,018 and $12,503, respectively, from the Florida Tax-Free
Income and Florida Tax-Free Money Market Funds. For 1995, the
Manager did not receive management fees of $104,638 and $90,717,
respectively, from the Florida Tax-Free Income and the Florida
Tax-Free Money Market Fund.
The Trust's Manager, cont.
Underwriter
The Trust has an agreement with the Manager for exclusive
underwriting and distribution of the Funds' shares on a continuing
best efforts basis. This agreement provides that the Manager will
receive no fee or other compensation for such distribution services.
Transfer Agent
USAA Shareholder Account Services performs transfer agent services
for the Trust under a Transfer Agency Agreement. Services include
maintenance of shareholder account records, handling of communications
with shareholders, distribution of Fund dividends and production of
reports with respect to account activity for shareholders and the
Trust. For its services under the Transfer Agency Agreement, USAA
Shareholder Account Services is paid an annual fixed fee per account
of $26.00 by each Fund. The fee is subject to change at any time.
The fee to the Transfer Agent includes processing of all
transactions and correspondence. Fees are billed on a monthly
basis at the rate of one-twelfth of the annual fee. In addition,
the Funds pay all out-of-pocket expenses of the Transfer Agent
and other expenses which are incurred at the specific direction
of the Trust.
GENERAL INFORMATION
Custodian
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA
02105, is the Trust's Custodian. The Custodian is responsible
for, among other things, safeguarding and controlling the Trust's
cash and securities, handling the receipt and delivery of
securities and collecting interest on the Trust's investments.
Counsel
Goodwin, Procter & Hoar, Exchange Place, Boston, MA 02109, will
review certain legal matters for the Trust in connection with the
shares offered by the Prospectus.
Independent Auditors
KPMG Peat Marwick LLP, 112 East Pecan, Suite 2400, San Antonio,
TX 78205, is the Trust's independent auditor. In this capacity,
the firm is responsible for auditing the annual financial
statements of the Funds and reporting thereon.
Financial Statements
The financial statements of the Funds and the Independent
Auditors' Report thereon for the fiscal year ended March 31,
1995, are included in the Annual Report to Shareholders of that
date and are incorporated herein by reference. A copy of the
Annual Report will be delivered free of charge with each SAI
requested from the Manager at the address set forth on page 1 of
this statement.
CALCULATION OF PERFORMANCE DATA
Information regarding total return and yield of each Fund is
provided under Performance Information in the Prospectus. See
Valuation of Securities herein for a discussion of the manner in
which each Fund's price per share is calculated.
Total Return
The Florida Tax-Free Income Fund may advertise performance in
terms of average annual total return for 1, 5 and 10 year
periods, or for such lesser period as the Fund has been in
existence. Average annual total return is computed by finding
the average annual compounded rates of return over the periods
that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1 + T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year periods at the end of the year or period
The calculation assumes all charges are deducted from the
initial $1,000 payment and assumes all dividends and distributions
by such Fund are reinvested at the price stated in the Prospectus
on the reinvestment dates during the period, and includes all
recurring fees that are charged to all shareholder accounts.
The date of commencement of operations for the Florida Tax-
Free Income Fund was October 1, 1993. The Fund's average annual
total returns for the following periods ended March 31, 1995
were:
1 year . . . . 7.01% Since inception . . . . -1.19%
Yield
The Florida Tax-Free Income Fund may advertise performance in
terms of a 30-day yield quotation. The 30-day yield quotation is
computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
2((((a - b)/(cd) + 1 ^6) - 1)
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day
of the period
For purposes of the yield calculation, interest income is
computed based on the yield to maturity of each debt obligation
in a Fund's portfolio and all recurring charges are recognized.
The Fund's 30-day yield for the period ended March 31, 1995
was 5.80%.
Yield - Florida Tax-Free Money Market Fund
When the Florida Tax-Free Money Market Fund quotes a current
annualized yield, it is based on a specified recent seven-
calendar-day period. It is computed by (1) determining the net
change, exclusive of capital changes, in the value of a hypothetical
preexisting account having a balance of one share at the beginning
of the period, (2) dividing the net change in account value by the
value of the account at the beginning of the base period to obtain
the base return, then (3) multiplying the base period by 52.14 (365
divided by 7). The resulting yield figure is carried to the nearest
hundredth of one percent.
The calculation includes (1) the value of additional shares
purchased with dividends on the original share, and dividends
declared on both the original share and any such additional
shares, and (2) any fees charged to all shareholder accounts, in
proportion to the length of the base period and the Fund's
average account size.
The capital changes excluded from the calculation are
realized capital gains and losses from the sale of securities and
unrealized appreciation and depreciation. The Fund's effective
(compounded) yield will be computed by dividing the seven-day
annualized yield as defined above by 365, adding 1 to the
quotient, raising the sum to the 365th power, and subtracting 1
from the result.
Current and effective yields fluctuate daily and will vary
with factors such as interest rates and the quality, length of
maturities, and type of investments in the portfolio.
Yield for 7-day Period ended 03/31/95 . . 3.61%
Effective Yield for 7-day Period ended 03/31/95 . . 3.68%
Tax Equivalent Yield
The Florida Tax-Free Money Market Fund may advertise performance
in terms of a tax equivalent yield based on the 7-day yield or
effective yield and the Florida Tax-Free Income Fund may
advertise performance in terms of a 30-day tax equivalent yield.
The tax equivalent yield is computed by dividing that portion of
the yield of a Fund (computed as described in the preceding
paragraphs) which is tax-exempt, by the complement of the federal
income tax rate of 31% (or other relevant rate) and adding the
result to that portion, if any, of the yield of such Fund that is
not tax-exempt. The complement, for example, of a tax rate of
31% is 69%, that is [1.00 - .31 = .69].
The tax equivalent yield computation will also reflect a .2%
benefit of owning shares that are exempt from the Florida
intangible personal property tax. Based on a tax rate of 31%,
the tax equivalent yields for the Florida Tax-Free Income and
Florida Tax-Free Money Market Funds for the period ended March
31, 1995 were 8.61% and 5.43%, respectively.
APPENDIX A - TAX-EXEMPT SECURITIES AND THEIR RATINGS
Tax-Exempt Securities
Tax-exempt securities generally include debt obligations issued
by states and their political subdivisions, and duly constituted
authorities and corporations, to obtain funds to construct,
repair or improve various public facilities such as airports,
bridges, highways, hospitals, housing, schools, streets, and
water and sewer works. Tax-exempt securities may also be issued
to refinance outstanding obligations as well as to obtain funds
for general operating expenses and for loans to other public
institutions and facilities.
The two principal classifications of tax-exempt securities
are "general obligations" and "revenue" or "special tax" bonds.
General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of
principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a
special excise or other tax, but not from general tax revenues.
The Funds may also invest in tax-exempt private activity bonds,
which in most cases are revenue bonds and generally do not have
the pledge of the credit of the issuer. The payment of the
principal and interest on such industrial revenue bonds is
dependent solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment. There are, of course, many variations
in the terms of, and the security underlying tax-exempt
securities. Short-term obligations issued by states, cities,
municipalities or municipal agencies, include Tax Anticipation
Notes, Revenue Anticipation Notes, Bond Anticipation Notes,
Construction Loan Notes and Short-Term Discount Notes.
The yields of tax-exempt securities depend on, among other
things, general money market conditions, conditions of the Tax-
Exempt Bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The
ratings of Moody's Investors Service, Inc. (Moody's), Standard &
Poor's Ratings Group (S&P), Fitch Investors Service, Inc.
(Fitch), Duff & Phelps Inc., Thompson BankWatch, Inc., and IBCA
Inc. represent their opinions of the quality of the securities
rated by them. It should be emphasized that such ratings are
general and are not absolute standards of quality. Consequently,
securities with the same maturity, coupon and rating may have
different yields, while securities of the same maturity and
coupon but with different ratings may have the same yield. It
will be the responsibility of the Manager to appraise
independently the fundamental quality of the tax-exempt
securities included in a Fund's portfolio.
Ratings
Excerpts from Moody's Bond (Tax-Exempt Securities) Ratings:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Note: Those bonds in the Aa, A, and Baa groups which Moody's
believes possess the strongest investment attributes are designated
by the symbols Aa1, A1, and Baa1.
Excerpts of Moody's Ratings of Short-Term Loans (State and Tax-
Exempt Notes):
Moody's ratings for state and tax-exempt notes and other short-
term obligations are designated Moody's Investment Grade (MIG).
Symbols used will be as follows:
MIG-1 This designation denotes best quality. There is
present strong protection by established cash flows,
superior liquidity support or demonstrated broadbased
access to the market for refinancing.
MIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
Excerpts of Moody's Rating of Commercial Paper:
Prime-1 Issuers have a superior ability for repayment of senior
short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers have a strong ability for repayment of senior
short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample
alternate liquidity is maintained.
Excerpts from S&P's Bond Ratings:
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues
only in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
Plus (+) or Minus (-): The ratings from AA to BBB may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Excerpts of S&P's Ratings of Tax-Exempt Notes:
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given
a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes
over the term of the notes.
Excerpts of S&P's Rating of Commercial Paper:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are
denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is
not as high as for issues designated A-1.
Excerpts of Fitch's Ratings of Bonds:
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
Appendix A, cont.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is
generally rated F-1+.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse
changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and
therefore, impair timely payment.
Plus (+) and Minus (-): Plus and minus signs are used with a
rating symbol to indicate the relative position of a credit
within the rating category. Plus and minus signs, however, are
not used in the AAA category.
Excerpts of Fitch's Ratings to Commercial Paper, Certificates of
Deposit and Tax-Exempt Notes:
F-1+ Exceptionally strong credit quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very strong credit quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2 Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payments, but
the margin of safety is not as great as the F-1+ and F-1
ratings.
Excerpts from Duff & Phelps Long-Term Rating Scale:
AAA Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury
debt.
AA High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of
economic conditions.
A Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic
stress.
BBB Below average protection factors but still considered
sufficient for prudent investment. Considerable variability
in risk during economic cycles.
Excerpts from Duff & Phelps Commercial Paper Rating Scale:
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
ready access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection
factors. Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are
small.
Thompson BankWatch, Inc.
TBW-1 The highest category; indicates a very high likelihood
that principal and interest will be paid on a timely
basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated TBW-1.
TBW-3 The lowest investment grade category; indicates that
while the obligation is more susceptible to adverse
developments (both internal and external) than
obligations with higher ratings, the capacity to
service principal and interest in a timely fashion is
considered adequate.
IBCA Inc.
A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong
credit feature, a rating of A1+ is assigned.
A2 Obligations supported by a good capacity for timely
repayment.
A3 Obligations supported by a satisfactory capacity for timely
repayment.
B Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
C Obligations for which there is a high risk of default or
which are currently in default.
APPENDIX B - COMPARISON OF PORTFOLIO PERFORMANCE
Occasionally, we may make comparisons in advertising and sales
literature between the Funds contained in this SAI and other
Funds in the USAA Family of Funds. These comparisons may include
such topics as risk and reward, investment objectives, investment
strategies, and performance.
Fund performance also may be compared to the performance of
broad groups of mutual funds with similar investment goals or
unmanaged indexes of comparable securities. Evaluations of Fund
performance made by independent sources may be used in
advertisements concerning the Fund, including reprints of, or
selections from, editorials or articles about the Fund. The Fund
or its performance may also be compared to products and services
not constituting securities subject to registration under the
Securities Act of 1933 such as, but not limited to, certificates
of deposit and money market accounts. Sources for performance
information and articles about the Fund may include the
following:
AAII Journal, a monthly association magazine for members of the
American Association of Individual Investors.
Arizona Republic, a newspaper which may cover financial and
investment news.
Austin American-Statesman, a newspaper which may cover financial
news.
Barron's, a Dow Jones and Company, Inc. business and financial
weekly that periodically reviews mutual fund performance data.
The Bond Buyer, a daily newspaper which covers bond market news.
Business Week, a national business weekly that periodically
reports the performance rankings and ratings of a variety of
mutual funds.
Chicago Tribune, a newspaper which may cover financial news.
Consumer Reports, a monthly magazine which from time to time
reports on companies in the mutual fund industry.
Dallas Morning News, a newspaper which may cover financial news.
Denver Post, a newspaper which may quote financial news.
Financial Planning, a monthly magazine that periodically features
companies in the mutual fund industry.
Financial Services Week, a weekly newspaper which covers
financial news.
Financial World, a monthly magazine which may periodically review
mutual fund companies.
Forbes, a national business publication that periodically reports
the performance of companies in the mutual fund industry.
Fortune, a national business publication that periodically rates
the performance of a variety of mutual funds.
Fund Action, a mutual fund news report.
Houston Chronicle, a newspaper which may cover financial news.
Houston Post, a newspaper which may cover financial news.
IBC/Donoghue's Moneyletter, a biweekly newsletter which covers
financial news and from time to time rates specific mutual funds.
IBC's Money Market Insight, a monthly money market industry
analysis prepared by IBC USA, Inc.
Income and Safety, a monthly newsletter that rates mutual funds.
InvesTech, a bimonthly investment newsletter.
Appendix B, cont.
Investment Advisor, a monthly publication directed primarily to
the advisor community; includes ranking of mutual funds using a
proprietary methodology.
Investment Company Institute, a national association of the
American Investment Company industry.
Investor's Business Daily, a newspaper which covers financial
news.
Kiplinger's Personal Finance Magazine, a monthly investment
advisory publication that periodically features the performance
of a variety of securities.
Lipper Analytical Services, Inc.'s Fixed Income Fund Performance
Analysis, a monthly publication of industry-wide mutual fund
performance averages by type of fund.
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, a weekly and quarterly publication of industry-wide
mutual fund performance averages by type of fund.
Los Angeles Times, a newspaper which may cover financial news.
Louis Rukeyser's Wall Street, a publication for investors.
Medical Economics, a monthly magazine providing information to
the medical profession.
Money, a monthly magazine that features the performance of both
specific funds and the mutual fund industry as a whole.
Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., reporting on the performance of the nation's
money market funds, summarizing money market fund activity, and
including certain averages as performance benchmarks,
specifically: (1) Taxable Money Fund Averages: "100% U.S.
Treasury" and "First Tier" and (2) Tax-Free Money Fund Averages:
"Stockbroker and General Purpose" and "State Specific Stockbroker
and General Purpose".
Morningstar 5 Star Investor, a monthly newsletter by Morningstar,
Inc. which covers financial news and rates mutual funds.
Muni Bond Fund Report, a monthly newsletter which covers news on
the municipal bond market and features performance data for
municipal bond mutual funds.
MuniWeek, a weekly newspaper which covers news on the municipal
bond market.
Mutual Fund Forecaster, a monthly newsletter that ranks mutual
funds.
Mutual Fund Investing, a newsletter covering mutual funds.
Mutual Fund Performance Report, a monthly publication of
industry-wide mutual fund averages produced by Morningstar, Inc.
Mutual Fund Magazine, a monthly publication reporting on mutual
fund investing.
Mutual Fund Source Book, an annual publication produced by
Morningstar, Inc. which describes and rates mutual funds.
Mutual Fund Values, a biweekly guidebook to mutual funds produced
by Morningstar, Inc. (a data service which tracks open-end mutual
funds).
Newsweek, a national business weekly.
New York Times, a newspaper which may cover financial news.
No Load Fund Investor, a newsletter covering companies in the
mutual fund industry.
Personal Investor, a monthly magazine which from time to time
features mutual fund companies and the mutual fund industry.
San Antonio Business Journal, a weekly newspaper that
periodically covers mutual fund companies as well as financial
news.
San Antonio Express-News, a newspaper which may cover financial
news.
San Francisco Chronicle, a newspaper which may cover financial
news.
Smart Money, a monthly magazine featuring news and articles on
investing and mutual funds.
USA Today, a newspaper which may cover financial news.
U.S. News and World Report, a national business weekly that
periodically reports mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper
which covers financial news.
Washington Post, a newspaper which may cover financial news.
Weisenberger Mutual Funds Investment Report, a monthly newsletter
that reports on both specific mutual fund companies and the
mutual fund industry as a whole.
Worth, a magazine which covers financial and investment subjects
including mutual funds.
Your Money, a monthly magazine directed towards the novice
investor.
Among the organizations cited above, Lipper Analytical
Services, Inc.'s tracking results may be used. Each Fund will be
compared to Lipper's appropriate fund category according to
objective and portfolio holdings. The Florida Tax-Free Income
Fund will be compared to funds in Lipper's Florida tax-exempt
bond funds category, and the Florida Tax-Free Money Market Fund
to funds in Lipper's Florida short-term tax-exempt bond funds
category. Footnotes in advertisements and other sales literature
will include the time period as applicable for any rankings used.
For comparative purposes, unmanaged indices of comparable
securities or economic data may be cited. Examples include the
following:
- Shearson Lehman Hutton Bond Indices, indices of fixed-rate
debt issues rated investment grade or higher which can be
found in the Bond Market Report.
- Bond Buyer Indices, indices of debt of varying maturities
including revenue bonds, general obligation bonds, and U.S.
Treasury bonds which can be found in MuniWeek and The Bond
Buyer.
Other sources for total return and other performance data
which may be used by the Fund or by those publications listed
previously are Morningstar, Inc., Schabaker Investment
Management, and Investment Company Data, Inc. These are services
that collect and compile data on mutual fund companies.
APPENDIX C - TAXABLE EQUIVALENT YIELD TABLES
FEDERAL INCOME TAX RATES
(INCLUDES EFFECT OF FLORIDA INTANGIBLES TAX)
TO MATCH A A FULLY TAXABLE INVESTMENT
TAX-FREE WOULD HAVE TO PAY YOU:
YIELD OF:* ASSUMING A MARGINAL ASSUMING A MARGINAL ASSUMING A MARGINAL
TAX RATE OF 28% (a) TAX RATE OF 31% (b) TAX RATE OF 36% (c)
- ----------------------------------------------------------------------------
2.00% 2.98% 3.10% 3.33%
3.00% 4.37% 4.55% 4.89%
4.00% 5.76% 6.00% 6.45%
5.00% 7.14% 7.45% 8.01%
6.00% 8.53% 8.90% 9.58%
* FEDERALLY TAX (a) FEDERAL RATE OF 28%
EXEMPT PLUS (b) FEDERAL RATE OF 31%
SHARE VALUE (c) FEDERAL RATE OF 36%
EXEMPT FROM
THE FLORIDA
INTANGIBLES TAX
THIS TABLE IS A HYPOTHETICAL ILLUSTRATION AND SHOULD NOT BE CONSIDERED AN
INDICATION OF FUND PERFORMANCE OF ANY OF THE USAA FAMILY OF FUNDS.
THE ASSUMED MARGINAL TAX RATES ARE NOT NECESSARILY THE HIGHEST POSSIBLE
MARGINAL TAX RATES, NOR ARE THEY THE LOWEST RATES. THESE RATES WERE PICKED
AS EXEMPLARY RATES THAT MANY TAXPAYERS WOULD BE SUBJECT TO.
THE ABOVE TABLE ALSO INCLUDES THE EFFECT OF A 0.2% INTANGIBLES TAX. THIS
RATE VARIES DEPENDING ON YOUR FILING STATUS AND THE TOTAL AMOUNT OF YOUR
TAXABLE INTANGIBLES. SHAREHOLDERS OF EITHER FLORIDA FUND WILL HAVE THE
POTENTIAL BENEFIT OF OWNING SHARES IN A FUND THE VALUE OF WHICH IS EXEMPT
FROM THE FLORIDA INTANGIBLES TAX.
<TABLE>
THE FOLLOWING TABLE DISPLAYS THE FLORIDA INTANGIBLES TAX RATES.
FLORIDA INTANGIBLES TAX RATES
<CAPTION>
TOTAL TAXABLE
INTANGIBLES SINGLE MARRIED CORPORATE
- -------------------------------------------------------------------------------------
<C> <C> <C> <C>
$0 TO 20,000 None None 0.2% ($2 per 1,000)
$20,000 to 40,000 0.1% ($1 per 1,000) None 0.2% ($2 per 1,000)
$40,000 to 100,000 0.1% ($1 per 1,000) 0.1% ($1 per 1,000) 0.2% ($2 per 1,000)
$100,000 to 200,000 0.2% ($2 per 1,000) 0.1% ($1 per 1,000) 0.2% ($2 per 1,000)
$ 200,000 and up 0.2% ($2 per 1,000) 0.2% ($2 per 1,000) 0.2% ($2 per 1,000)
</TABLE>
APPENDIX D - DOLLAR-COST AVERAGING
Dollar-cost averaging is a systematic investing method which can
be used by investors as a disciplined technique for investing. A
fixed amount of money is invested in a security (such as a stock
or mutual fund) on a regular basis over a period of time,
regardless of whether securities markets are moving up or down.
This practice reduces average share costs to the investor
who acquires more shares in periods of lower securities prices
and fewer shares in periods of higher prices.
While dollar-cost averaging does not assure a profit or
protect against loss in declining markets, this investment
strategy is an effective way to help calm the effect of
fluctuations in the financial markets. Systematic investing
involves continuous investment in securities regardless of
fluctuating price levels of such securities. Investors should
consider their financial ability to continue purchases through
periods of low and high price levels.
As the following chart illustrates, dollar-cost averaging
tends to keep the overall cost of shares lower. This example is
for illustration only, and different trends would result in
different average costs.
HOW DOLLAR-COST AVERAGING WORKS
$100 Invested Regularly for 5 Periods
Market Trend
-----------------------------------------------------------------
Down Up Mixed
------------------- ------------------- -------------------
Share Shares Share Shares Share Shares
Investment Price Purchased Price Purchased Price Purchased
------------------- ------------------- -------------------
$100 10 10 6 16.67 10 10
100 9 11.1 7 14.29 9 11.1
100 8 12.5 7 14.29 8 12.5
100 8 12.5 9 11.1 9 11.1
100 6 16.67 10 10 10 10
--- -- ----- -- ----- -- -----
$500 ***41 62.77 ***39 66.35 ***46 54.7
*Avg. Cost: $7.97 *Avg. Cost: $7.54 *Avg. Cost: $9.14
----- ----- -----
**Avg. Price: $8.20 **Avg. Price: $7.80 **Avg. Price: $9.20
----- ----- -----
* Average Cost is the total amount invested divided by shares
purchased.
** Average Price is the sum of the prices paid divided by number
of purchases.
*** Cumulative total of share prices used to compute average prices.
22735-0895
Part B
Statement of Additional Information for the
Texas Tax-Free Income Fund and
Texas Tax-Free Money Market Fund
(Logo
of the
USAA USAA STATE STATEMENT OF
Eagle TAX-FREE ADDITIONAL INFORMATION
is here) TRUST August 1, 1995
- -----------------------------------------------------------------
USAA STATE TAX-FREE TRUST
TEXAS FUNDS
USAA STATE TAX-FREE TRUST (the Trust) is a registered investment
company offering shares of four no-load mutual funds, two of
which are described in this Statement of Additional Information
(SAI): the Texas Tax-Free Income Fund and Texas Tax-Free Money
Market Fund (collectively, the Funds or the Texas Funds). Each
Fund is classified as a diversified investment company and has a
common investment objective of providing Texas investors with a
high level of current interest income that is exempt from federal
income taxes. The Texas Tax-Free Money Market Fund has a further
objective of preserving capital and maintaining liquidity.
A Prospectus for the Texas Funds dated August 1, 1995, which
provides the basic information you should know before investing
in the Funds, may be obtained without charge upon written request
to USAA State Tax-Free Trust, 9800 Fredericksburg Rd., San
Antonio, TX 78288, or by calling toll free 1-800-531-8181. This
SAI is not a Prospectus and contains information in addition to
and more detailed than that set forth in the Prospectus. It is
intended to provide you with additional information regarding the
activities and operations of the Trust and the Funds, and should
be read in conjunction with the Prospectus.
- -----------------------------------------------------------------
TABLE OF CONTENTS
Page
2 Valuation of Securities
2 Additional Information Regarding Redemption of Shares
3 Investment Plans
4 Investment Policies
5 Investment Restrictions
6 Special Risk Considerations
11 Portfolio Transactions
12 Further Description of Shares
12 Certain Federal Income Tax Considerations
14 Trustees and Officers of the Trust
17 The Trust's Manager
18 General Information
19 Calculation of Performance Data
20 Appendix A - Tax-Exempt Securities and Their Ratings
23 Appendix B - Comparison of Portfolio Performance
26 Appendix C - Taxable Equivalent Yield Table
27 Appendix D - Dollar-Cost Averaging
VALUATION OF SECURITIES
Shares of each Fund are offered on a continuing best efforts
basis through USAA Investment Management Company (IMCO or the
Manager). The offering price for shares of each Fund is equal to
the current net asset value per share. The net asset value per
share of each Fund is calculated by adding the value of all its
portfolio securities and other assets, deducting its liabilities,
and dividing by the number of shares outstanding.
A Fund's net asset value per share is calculated each day,
Monday through Friday, except days on which the New York Stock
Exchange (NYSE) is closed. The NYSE is currently scheduled to be
closed on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving, and Christmas,
and on the preceding Friday or subsequent Monday when one of
these holidays falls on a Saturday or Sunday, respectively.
The investments of the Texas Tax-Free Income Fund are valued
each business day by a pricing service (the Service) approved by
the Board of Trustees. The Service uses the mean between quoted
bid and asked prices or the last sale price to price securities
when, in the Service's judgement, 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 which include consideration of yields or prices of
tax-exempt securities of comparable quality, coupon, maturity and
type, indications as to values from dealers in securities, and
general market conditions. Securities purchased with maturities
of 60 days or less are stated at amortized cost which
approximates market value. Repurchase agreements are valued at
cost. Securities which cannot be valued by the Service, and all
other assets, are valued in good faith at fair value using
methods determined by the Manager under the general supervision
of the Board of Trustees.
The value of the Texas Tax-Free Money Market Fund's
securities is stated at amortized cost which approximates market
value. This involves valuing a security at its cost and
thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating
interest rates. While this method provides certainty in
valuation, it may result in periods during which the value of an
instrument, as determined by amortized cost, is higher or lower
than the price the Fund would receive upon the sale of the
instrument.
The valuation of the Texas Tax-Free Money Market Fund's
portfolio instruments based upon their amortized cost is subject
to the Fund's adherence to certain procedures and conditions.
Consistent with regulatory requirements, the Manager will
purchase securities with remaining maturities of 397 days or less
and will maintain a dollar-weighted average portfolio maturity of
no more than 90 days. The Manager will invest only in securities
that have been determined to present minimal credit risk and that
satisfy the quality and diversification requirements of
applicable rules and regulations of the Securities and Exchange
Commission.
The Board of Trustees has established procedures designed to
stabilize the Texas Tax-Free Money Market Fund's price per share,
as computed for the purpose of sales and redemptions, at $1.00.
There can be no assurance, however, that the Fund will at all
times be able to maintain a constant $1.00 net asset value per
share. Such procedures include review of the Fund's holdings at
such intervals as is deemed appropriate to determine whether the
Fund's net asset value calculated by using available market
quotations deviates from $1.00 per share and, if so, whether such
deviation may result in material dilution or is otherwise unfair
to existing shareholders. In the event that it is determined
that such a deviation exists, the Board of Trustees will take
such corrective action as it regards necessary and appropriate.
Such action may include selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends, or establishing a net
asset value per share by using available market quotations.
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
The value of a shareholder's investment at the time of redemption
may be more or less than the cost at purchase, depending on the
value of the securities held in each Fund's portfolio. Requests
for redemption which are subject to any special conditions, or
which specify an effective date other than as provided herein,
cannot be accepted. A gain or loss for tax purposes may be
realized on the sale of shares, depending upon the price when
redeemed.
The Board of Trustees may cause the redemption of an account
with a total value of less than $500 provided (1) the value of
the account has been reduced, for reasons other than market
action, below the minimum initial investment in such Fund at the
time of the establishment of the account, (2) the account has
remained below the minimum level for six months, and (3) 60 days'
prior written notice of the proposed redemption has been sent to
the shareholder. Shares will be redeemed at the net asset value
on the date fixed for redemption by the Board of Trustees. Prompt
payment will be made by mail to the last known address of the
shareholder.
The Trust reserves the right to suspend the right of
redemption or postpone the date of payment (1) for any periods
during which the NYSE is closed, (2) when trading in the markets
the Trust normally utilizes is restricted, or an emergency exists
as determined by the Securities and Exchange Commission (SEC) so
that disposal of the Trust's investments or determination of its
net asset value is not reasonably practicable, or (3) for such
other periods as the SEC by order may permit for protection of
the Trust's shareholders.
For the mutual protection of the investor and the Funds, a
guarantee of signature may be required by the Trust. If
required, each signature on the account registration must be
guaranteed. Signature guarantees are acceptable from FDIC member
banks, brokers, dealers, municipal securities dealers, municipal
securities brokers, government securities dealers, government
securities brokers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings
associations. A signature guarantee for active duty military
personnel stationed abroad may be provided by an officer of the
United States Embassy or Consulate, a staff officer of the Judge
Advocate General, or an individual's commanding officer.
Redemption by Check
Shareholders in the Texas Tax-Free Money Market Fund may request
that checks be issued for their account. A one-time $5
checkwriting fee is charged to each account by the Transfer Agent
for the use of the privilege. Checks must be written in the
amount of at least $250.
Checks issued to shareholders of the Fund will be sent only
to the person in whose name the account is registered and only to
the address of record. The checks must be manually signed by the
registered owner(s) exactly as the account is registered. For
joint accounts the signature of either or both joint owners will
be required on the check, according to the election made on the
signature card. Dividends will continue to be earned by the
shareholder until the shares are redeemed by the presentation of
a check.
When a check is presented to the Transfer Agent for payment,
a sufficient number of full and fractional shares in the
investor's account will be redeemed to cover the amount of the
check. If an investor's account is not adequate to cover the
amount of a check, the check will be returned unpaid. Because
the value of each account changes as dividends are accrued on a
daily basis, checks may not be used to close an account.
After clearance, checks paid during the month will be
returned to the shareholder by separate mail. The checkwriting
privilege will be subject to the customary rules and regulations
of State Street Bank and Trust Company (State Street Bank or the
Custodian) governing checking accounts. Other than the initial
one-time fee, there is no charge to the shareholder for the use
of the checks or for subsequent reorders of checks.
The Trust reserves the right to assess a processing fee
against a shareholder's account for any redemption check not
honored by a clearing or paying agent. Currently, this fee is
$15 and is subject to change at any time. Some examples of such
dishonor are improper endorsement, checks written for an amount
less than the minimum check amount, and insufficient or
uncollectible funds.
The Trust, the Transfer Agent and State Street Bank each
reserve the right to change or suspend the checkwriting privilege
upon 30 days' written notice to participating shareholders.
INVESTMENT PLANS
The following investment plans are made available by the Trust to
shareholders of the Funds. At the time you sign up for any of
the following investment plans that utilize the electronic funds
transfer service, you will choose the day of the month (the
effective date) on which you would like to regularly purchase
shares. When this day falls on a weekend or holiday, the
electronic transfer will take place on the last business day
before the effective date. You may terminate your participation
in a plan at any time. Please call the Manager for details and
necessary forms or applications.
Systematic Purchase of Shares
InvesTronic(registered trademark) - the periodic purchase of
shares through electronic funds transfer from a checking or
savings account. By completing an application, which may be
obtained from the Manager, you invest a specific amount each
month ($50 minimum) in any of your accounts.
Direct Purchase Service - the periodic purchase of shares through
electronic funds transfer from a non-governmental employer, an
income-producing investment, or an account with a participating
financial institution.
Investment Plans, cont.
Automatic Purchase Plan - the periodic transfer of funds from a
USAA money market fund to purchase shares in another non-money
market USAA mutual fund. There is a minimum investment required
for this program of $5,000, with a monthly transaction minimum of
$50. The minimum initial investment requirement for the other
USAA mutual fund must be satisfied before the first transfer.
Buy/Sell Service - the intermittent purchase or redemption of
shares through electronic funds transfer to or from a checking or
savings account.
Participation in these systematic purchase plans will permit
a shareholder to engage in dollar-cost averaging. For additional
information concerning the benefits of dollar-cost averaging, see
Appendix D.
Systematic Withdrawal Plan
If a shareholder in a single investment account (accounts in
different Funds cannot be aggregated for this purpose) owns
shares having a net asset value of $5,000 or more, the
shareholder may request that enough shares to produce a fixed
amount of money be liquidated from the account monthly or
quarterly. The amount of each withdrawal must be at least $50.
Using the electronic funds transfer service, shareholders may
choose to have withdrawals electronically deposited at their bank
or other financial institution. They may also elect to have
checks mailed to a designated address.
Such a plan may be initiated by depositing shares worth at
least $5,000 with the Transfer Agent and by completing the
Systematic Withdrawal Plan application, which may be requested
from the Manager. The shareholder may terminate participation in
the plan at any time. There is no charge to the shareholder for
withdrawals under the Systematic Withdrawal Plan. The Trust will
not bear any expenses in administering the plan beyond the
regular transfer agent and custodian costs of issuing and
redeeming shares. Any additional expenses of administering the
plan will be borne by the Manager.
Withdrawals will be made by redeeming full and fractional
shares on the date selected by the shareholder at the time the
plan is established. Withdrawal payments made under this plan
may exceed dividends and distributions and, to this extent, will
involve the use of principal and could reduce the dollar value of
a shareholder's investment and eventually exhaust the account.
Reinvesting dividends and distributions helps replenish the
account. Because share values and net investment income can
fluctuate, shareholders should not expect withdrawals to be
offset by rising income or share value gains.
Each redemption of shares may result in a gain or loss,
which must be reported on the shareholder's income tax return.
Therefore, a shareholder should keep an accurate record of any
gain or loss on each withdrawal.
INVESTMENT POLICIES
The section captioned Investment Objectives and Policies in the
Prospectus describes the fundamental investment objectives and
the investment policies applicable to each Fund and the following
is provided as additional information.
Calculation of Portfolio Weighted Average Maturities
Weighted average maturity is derived by multiplying the value of
each investment by the number of days remaining to its maturity,
adding these calculations, and then dividing the total by the
value of the Fund's portfolio. An obligation's maturity is
typically determined on a stated final maturity basis, although
there are some exceptions to this rule.
With respect to obligations held by the Texas Tax-Free
Income Fund, if it is probable that the issuer of an instrument
will take advantage of a maturity-shortening device, such as a
call, refunding, or redemption provision, the date on which the
instrument will probably be called, refunded, or redeemed may be
considered to be its maturity date. Also, the maturities of
securities subject to sinking fund arrangements are determined on
a weighted average life basis, which is the average time for
principal to be repaid. The weighted average life of these
securities is likely to be substantially shorter than their
stated final maturity. In addition, for purposes of the Fund's
investment policies, an instrument will be treated as having a
maturity earlier than its stated maturity date if the instrument
has technical features such as puts or demand features which, in
the judgment of the Manager, will result in the instrument being
valued in the market as though it has the earlier maturity.
The Texas Tax-Free Money Market Fund will determine the
maturity of an obligation in its portfolio in accordance with
Rule 2a-7 under the Investment Company Act of 1940, as amended
(1940 Act).
Repurchase Agreements
Each Fund may invest up to 5% of its net assets in repurchase
agreements. A repurchase agreement is a transaction in which a
security is purchased with a simultaneous commitment to sell the
security back to the seller (a commercial bank or recognized
securities dealer) at an agreed upon price on an agreed upon
date, usually not more than 7 days from the date of purchase.
The resale price reflects the purchase price plus an agreed upon
market rate of interest which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon
price, which obligation is in effect secured by the value of the
underlying security. In these transactions, the securities
purchased by a Fund will have a total value equal to or in excess
of the amount of the repurchase obligation and will be held by
the Funds' custodian until repurchased. If the seller defaults
and the value of the underlying security declines, a Fund may
incur a loss and may incur expenses in selling the collateral.
If the seller seeks relief under the bankruptcy laws, the
disposition of the collateral may be delayed or limited. Any
investments in repurchase agreements will give rise to income
which will not qualify as tax-exempt income when distributed by a
Fund.
Other Policies
Each Fund may lend its securities and engage in short sells
against the box. The Texas Tax-Free Income Fund may also invest
in options, financial futures contracts and options on financial
futures contracts. However, the Funds do not intend to engage in
any of these practices during the coming year without first
supplying further information in the Prospectus.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the
Trust for and are applicable to each Fund. These restrictions
may not be changed for any given Fund without approval by the
lesser of (1) 67% or more of the voting securities present at a
meeting of the Fund if more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy or (2)
more than 50% of the Fund's outstanding voting securities. The
investment restrictions of one Fund may be changed without
affecting those of the other Fund.
Under the restrictions, neither Fund will:
(1) With respect to 75% of its total assets, purchase the
securities of any issuer (except Government Securities, as
such term is defined in the Investment Company Act of 1940,
as amended (1940 Act)) if, as a result, the Fund would own
more than 10% of the outstanding voting securities of such
issuer or the Fund would have more than 5% of the value of
its total assets invested in the securities of such issuer;
for purposes of this limitation, identification of the
"issuer" will be based on a determination of the source of
assets and revenues committed to meeting interest and
principal payments of each security; for purposes of this
limitation the State of Texas or other jurisdictions and
each of its separate political subdivisions, agencies,
authorities and instrumentalities shall be treated as a
separate issuer;
(2) Borrow money, except that a Fund may borrow money for
temporary or emergency purposes in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings), nor will either
Fund purchase securities when its borrowings exceed 5% of
its total assets;
(3) Purchase any securities which would cause 25% or more of the
value of that Fund's total assets at the time of such
purchase to be invested in securities the interest upon
which is derived from revenues or projects with similar
characteristics, such as toll road revenue bonds, housing
revenue bonds, electric power project revenue bonds, or in
industrial revenue bonds which are based, directly or
indirectly, on the credit of private entities of any one
industry; provided that the foregoing limitation does not
apply with respect to investments in United States Treasury
Bills, other obligations issued or guaranteed by the United
States Government, its agencies and instrumentalities, and,
in the case of the Texas Tax-Free Money Market Fund,
certificates of deposit and banker's acceptances of domestic
banks;
(4) Issue senior securities, except as permitted under the 1940
Act;
(5) Underwrite securities of other issuers, except to the extent
that it may be deemed to act as a statutory underwriter in
the distribution of any restricted securities or not readily
marketable securities;
(6) Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall
not prevent investments in securities secured by real estate
or interests therein);
(7) Lend any securities or make any loan if, as a result, more
than 33 1/3% of its total assets would be lent to other
parties, except that this limitation does not apply to
purchases of debt securities or to repurchase agreements; or
(8) Purchase or sell commodities or commodities contracts except
that the Texas Tax-Free Income Fund may invest in financial
futures contracts, options thereon and similar instruments.
Investment Restrictions, cont.
Additional Restrictions
The following restrictions are not considered to be fundamental
policies of the Funds. These additional restrictions may be
changed by the Board of Trustees of the Trust without notice to
or approval by the shareholders.
Neither Fund will:
(1) Pledge, mortgage or hypothecate its assets to any extent
greater than 33 1/3% of the value of its total assets;
(2) Purchase or retain securities of any issuer if any officer
or Trustee of the Trust or its Manager owns individually
more than one-half of one percent ( 1/2%) of the securities
of that issuer, and collectively the officers and Trustees
of the Trust and Manager together own more than 5% of the
securities of that issuer;
(3) The Texas Tax-Free Income Fund may not invest more than 15%
of the value of its net assets and the Texas Tax-Free Money
Market Fund may not invest more than 10% of the value of its
net assets in illiquid securities (including repurchase
agreements maturing in more than seven days);
(4) Purchase securities on margin or sell securities short
except that a Fund may obtain short-term credits necessary
for the clearance of securities transactions and make short
sales against the box; for purposes of the restriction the
deposit or repayment of initial or variation margin in
connection with financial futures contracts or related
options will not be deemed to be a purchase of securities on
margin by a Fund;
(5) Purchase securities of other investment companies except to
the extent permitted by applicable law;
(6) Purchase or sell puts, calls, straddles or spreads or any
combination thereof, except to the extent permitted by
applicable law; or
(7) Purchase interests in oil, gas, or other mineral exploration
or development programs, except that it may purchase
securities of issuers whose principal business activities
fall within such areas.
SPECIAL RISK CONSIDERATIONS
The following only highlights some of the more significant
financial trends and budget information affecting the State of
Texas, and is based on information drawn from official statements
and prospectuses relating to various securities offerings by the
State of Texas, its agencies and instrumentalities, as available
on the date of this SAI.
Because the Texas Funds concentrate their investments in a
specific state, there are risks associated with investment in the
Funds which would not exist if the Funds' investments were more
widely diversified. These risks include the possible enactment
of new legislation in the State which could affect State and/or
municipal obligations, economic factors which could affect these
obligations, and varying levels of supply and demand for state
and municipal obligations.
State Debt. Except as specifically authorized, the Texas
Constitution generally prohibits the creation of debt by or on
behalf of the State, with two exceptions: (i) debt created to
supply deficiencies in revenues which do not total more than
$200,000 at any time, and (ii) debt to repel invasion, suppress
insurrection, defend the State in war, or pay existing debt. In
addition, the Texas Constitution prohibits the Legislature from
lending the credit of the State to any person, including
municipalities, or pledging the credit of the State in any manner
for the payment of the liabilities of any individual, association
of individuals, corporation or municipality. The limitations of
the Constitution do not prohibit the issuance of revenue bonds,
however, since Texas courts have held that certain obligations do
not create a "debt" within the meaning of the Constitution. The
State of Texas and various State agencies have issued revenue
bonds payable from the revenues produced by various facilities or
from lease payments appropriated by the Legislature.
Furthermore, obligations which are payable from funds expected to
be available during the current budget period do not constitute
"debt" within the meaning of the Constitution. Certain short
term obligations, like the Tax and Revenue Anticipation Notes
issued by the Treasurer of the State of Texas, which mature
within the biennial budget period in which they are issued
(discussed below in more detail), are not deemed to be "debt"
within the meaning of the Texas Constitution.
Voters in the State have from time to time by constitutional
amendment authorized the issuance of general obligation
indebtedness for which the full faith, credit and taxing power of
the State are pledged. In some cases, the authorized
indebtedness may not be issued without the approval of the
Legislature, but in other cases, the constitutional amendments
are self-operating and the debt may be issued without specific
legislative action. The total sum of general obligation bonds
that have been authorized by Texas voters is currently in excess
of $10.03 billion. Texas voters have also adopted a
constitutional amendment which authorizes the Water Development
Board to incur unlimited contractual obligations to the United
States for the acquisition and development of water storage
facilities in reservoirs constructed by the United States. These
contractual obligations are declared by the Constitution to
constitute general obligations of the State. Texas voters have
also authorized the governing bodies of certain public colleges
and universities to issue bonds payable from certain
appropriations required by the Constitution, without limitation
as to principal amount, except that the debt service on such
bonds may not exceed fifty percent of the amount appropriated
each year.
Credit ratings on State debt are dependent upon several
economic and political factors, including the ability to continue
to fund a substantial portion of the debt service on general
obligation debt from general fund revenue in the annual State
budget and the ability to maintain the amount of authorized debt
within the range of affordability.
Outstanding Debt Summary. Texas had a total of
approximately $10.3 billion in State bonds outstanding on
February 28, 1995. This figure includes commercial paper and
variable rate notes; however, it does not include short-term debt
issued by the State Treasurer for cash management purposes
(described below). This represents an increase of approximately
$95 million over the amount of State bonds outstanding on
November 30, 1994. General obligation bonds accounted for
approximately 45 percent of the total amount of bonds outstanding
at the end of February 1995. These bonds carry a constitutional
pledge of the full faith and credit of the State to pay off the
bonds if pledged revenues are insufficient. The remaining debt,
non-general obligation debt, is dependent only on the revenue
stream of a particular program or an appropriation from the
Legislature for lease payments. General obligation and non-
general obligation bonds that depend on general revenue for debt
service are classified as "not self-supporting" for purposes of
this disclosure. "Not self-supporting" debt outstanding totaled
approximately $3 billion or 30 percent of total State bonds
outstanding as of the end of February 1995. Debt service on
"self-supporting" bonds (both general obligation and non-general
obligation bonds) is paid from sources outside the State's
general revenue fund or outside State government entirely. Self-
supporting bonds, therefore, do not put direct pressure on State
finances.
During the second quarter of fiscal 1995, State agencies and
institutions of higher education issued $210.4 million in bonds
and commercial paper. Texas State agencies and institutions of
higher education plan to issue about $501.8 million in bonds
during the April 1995 through June 1995 period. About $342.8
million will be general obligation bonds, of which $10 million
will be issued on a taxable basis, with the remainder being non-
general obligation bonds.
As of November 30, 1994, Texas had approximately $6 billion
in authorized but unissued bonds. Approximately $3.8 billion or
63 percent of these authorized but unissued bonds would be State
general obligation debt. About $1.9 billion or 31 percent of the
total authorized but unissued bonds would require the payment of
debt service from general revenue. The remainder would be
supported through program revenues, such as the repayment of
loans from veterans or local governments.
General Obligation Debt. Much of the outstanding bond
indebtedness of the State is designed to be self-supporting, even
though the full faith and credit of the State is pledged for its
payment. Revenues from land and housing programs are expected to
be sufficient to pay principal and interest on all outstanding
Veterans Land Board bonds. The majority of the bonded
indebtedness of the Texas Water Development Board is self-
supporting to the extent that all funds provided from payments on
obligations of political subdivisions for water projects are
applied to such bonded indebtedness in an effort to avoid
resorting to appropriated funds. Accordingly, the bonds do not
depend totally on the State's general revenue for debt service;
however, approximately ninety percent of the bonds issued may be
used for grants. Revenues from student loans are pledged to pay
the principal and interest on the outstanding bonds of the Texas
Higher Education Coordinating Board. Revenues from park entrance
fees and other income have been sufficient to pay principal and
interest on the outstanding bonds of the Texas Parks and Wildlife
Department.
The general obligation bonds that have been issued by the
Texas Public Finance Authority and the Texas National Research
Laboratory Commission are not self-supporting. All debt service
on these bonds is paid from the State's general revenue fund.
The higher education constitutional bonds are not explicitly a
general obligation or full faith and credit bond, but the revenue
pledge has the same effect. Debt service is paid from an annual
constitutional appropriation to qualified institutions of higher
education from the first monies coming into the state treasury
that are not otherwise dedicated by the Constitution.
State Revenue Bonds. The Texas Public Finance Authority
(the "TPFA"), the Texas National Research Laboratory Commission
(the "Laboratory Commission") and the National Guard Armory Board
(the "Armory Board") have authority to issue state-backed lease
revenue bonds. Such obligations do not constitute "debt" within
the meaning of the Constitution, even though they are payable
from rental payments appropriated and made by the State under
leases covering the facilities financed with the proceeds of the
obligations.
Special Risk Considerations, cont.
The Armory Board is authorized to issue bonds, payable
solely from rents received with respect to buildings constructed
by it and leased to the National Guard without limitation as to
amount. The aggregate principal amount of bonds outstanding by
the Armory Board as of November 30, 1994, is $32.2 million.
Effective January 1, 1992, the TPFA issues bonds on behalf of the
Armory Board.
The Laboratory Commission is authorized to issue up to $500
million in lease-revenue bonds to pay for activities related to a
superconducting super space collider research facility; $250
million of this authorization has been used and $238 million of
these bonds were outstanding on November 30, 1994. Due to the
action by the U.S. Congress to halt federal funding for this
facility, it is unlikely that the remaining authorization will be
used unless circumstances change. Funds for the repayment of
these revenue bonds will come from the biennial general revenue
appropriations. Effective January 1, 1992, the TPFA issues bonds
on behalf of the Laboratory Commission.
The TPFA is authorized to issue lease-revenue bonds to
finance the construction, acquisition or renovation of state
office buildings and equipment revenue bonds to finance the
acquisition of equipment. The TPFA had $382.5 million in such
bonds outstanding (including the accreted value of capital
appreciation bonds as of the most recent accretion date) and
another $302.9 million authorized but unissued on November 30,
1994. For the lease-revenue bonds, the authorized amount of debt
is equal to 1.5 times the estimated cost of projects that have
been approved by the Legislature. The TPFA also had $33.5
million in commercial paper outstanding on November 30, 1994.
In addition to the foregoing revenue obligations issued or
authorized to be issued by state agencies, additional state
programs may be financed with revenue bonds or similar
obligations payable from revenues generated by the specific
authorized programs, and not from the general revenues of the
State or its taxing power. Among the state agencies authorized
to issue such revenue bonds are the Texas Water Development
Board, the Texas Water Resources Finance Authority, the Texas
Agricultural Finance Authority, the State Treasurer on behalf of
the Texas School Facilities Finance Program, Texas Department of
Housing and Community Affairs, Texas Department of Commerce,
Texas Turnpike Authority, Texas Public Finance Authority, Texas
Low-Level Radioactive Waste Disposal Authority and Texas colleges
and universities.
Short Term Borrowing. By statute, the Texas Comptroller of
Public Accounts is authorized, with the consent of the Treasurer,
to make interfund transfers of surplus cash, excluding
constitutionally dedicated revenues, between funds in the
Treasury in order to avoid temporary cash deficiencies in the
General Revenue Fund. This procedure effectively allows the
Comptroller of Public Accounts to borrow against cash balances
held in special funds to finance deficiencies in the General
Revenue Fund caused by timing differences between cash receipts
and cash expenditures. Interfund borrowing during fiscal year
1993 was approximately $1.8 billion, which included $1.5 billion
in Tax and Revenue Anticipation Notes. The Treasurer is
authorized to issue Tax and Revenue Anticipation Notes ("Notes")
on behalf of the State under legislation which became effective
in October 1986. Under the terms of the legislation, Notes may
be issued solely to coordinate the State's cash flow within a
fiscal year and must mature and be paid in full during the
biennium in which the Notes are issued. The total amount of
Notes issued and interfund borrowing may not exceed twenty-five
percent of the taxes and revenues to be credited to the State's
General Revenue Fund for the fiscal year as forecasted by the
Treasurer. On September 1, 1994, the Treasurer (on behalf of the
State) issued $1.7 billion of Notes for fiscal 1995, and in March
1995, an additional $500 million was issued, both of which issues
will mature on August 31, 1995. Cash shortages were about $2
billion in January 1994. The shortfall was covered using $1.4
billion in Notes and other funds and accounts in the Treasury.
Sources of Revenue. As a result of the State's expansion in
Medicaid spending and other Health and Human Services programs
requiring federal matching revenues, federal receipts were the
State's leading source of income in fiscal 1994, accounting for
28.7 percent of total revenues. Sales tax, which had been the
main source of revenue for the previous twelve years prior to
fiscal 1993, was second. Sales tax accounted for 26.7 percent of
the total revenues in fiscal 1994. Licenses, fees, fines and
penalties were the third largest revenue source to the State,
contributing 8.6% of total revenues in fiscal 1994. Motor fuels
taxes, the State's fourth largest revenue source and second
largest tax, accounted for 5.9% of total collections in fiscal
1994. Interest and investment income are fifth, accounting for
4.6% of revenues. The remainder of the State's revenues are
derived primarily from the motor vehicle, cigarette and tobacco,
franchise, oil and gas severance and other taxes.
There can be no assurance that the State will not face
budget gaps, decreases in revenues or deficits in future years
resulting from a disparity between tax or other revenues
projected and the spending required to maintain State programs
and debt service at current levels. Furthermore, the State is a
party to numerous lawsuits in which an adverse decision could
require extraordinary and unbudgeted expenditures. Notwithstanding
the foregoing, the State of Texas finished fiscal year 1994 with
a $2,225 million positive cash balance in the General Revenue Fund.
This was the seventh consecutive year that Texas has ended a fiscal
year with a positive balance in the General Revenue Fund.
Limitations on Taxing Power. The Constitution prohibits the
State of Texas from levying ad valorem taxes on property for
general revenue purposes. The Constitution also limits the rate
of growth of appropriations from tax revenues not regulated by
the Constitution during any biennium to the estimated rate of
growth for the State's economy. The Legislature may avoid the
constitutional limitations if it finds, by a majority vote of
both houses, that an emergency exists. The Constitution
authorizes the Legislature to provide by law for the implementation
of this restriction, and the Legislature, pursuant to such
authorization, has defined the estimated rate of growth in the
State's economy to mean the estimated increase in personal income.
Appropriations and Budgeting. The Constitution requires an
appropriation for any funds to be drawn out of the Treasury.
Certain appropriations are made by the Constitution and do not
require further legislative action, although the Legislature
frequently makes a parallel appropriation. All other
appropriations must be made through a bill passed by the
Legislature and approved by the Governor or passed by the
Legislature over the Governor's veto. Legislative appropriations
are limited by the Constitution to a period of two years.
Article III, Section 49a of the Texas Constitution, the so-called
"pay-as-you-go" provision, provides that an appropriation from
any fund other than the General Revenue Fund is not valid if it
exceeds the amount of cash and estimated revenues of the fund
from which such appropriation is to be paid. No appropriations
that are passed by the Legislature may be sent to the Governor
for consideration until the Comptroller of Public Accounts has
certified that the amounts appropriated are within the amounts
estimated to be available in the affected funds.
The Governor is authorized by statute to make findings of
any facts specified by the Legislature in any appropriations bill
as a contingency to the expenditure of funds. Accordingly, the
Governor has some minimal discretion to prevent the expenditure
of funds, exercisable in situations in which an appropriation
made by the Legislature is conditioned upon the occurrence of a
given event or the existence of a given fact.
The Legislature has provided a means of dealing with fiscal
emergencies under which the Governor is empowered to authorize
expenditures from a general appropriation made by the Legislature
specifically for emergencies. The Legislature is not obligated
to appropriate any amount for such purpose, but customarily does
so. The Governor may not authorize the expenditure of the
emergency funds unless a certification is made to the Comptroller
of Public Accounts that an emergency and imperative public
necessity requiring the use of such funds exists and the
Comptroller of Public Accounts determines that no other funds are
available for such purpose.
The Legislature, in the second called session held during
the Summer of 1987, enacted a budget execution law which gave the
Governor, subject to the review of the Legislative Budget Board,
the ability to make changes in legislative appropriations during
periods when the Legislature is not in session. The statute was
amended in 1991, giving both the Governor and the Legislative
Budget Board the authority to make proposals that require a state
agency be prohibited from spending an appropriation, or that an
agency be obligated to expend an appropriation, or which affect
the manner in which part or all of an appropriation made by the
Legislature to an agency may be distributed or redistributed. In
addition, the Governor or the Legislative Budget Board, upon
making a determination that an emergency exists, may propose that
an appropriation made to a state agency be transferred to another
agency, that an appropriation be retained by the agency but used
for a different purpose or that the time when an appropriation is
made available to a state agency be changed. Funds which are
dedicated by the Constitution may be withheld upon the Governor's
or the Legislative Budget Board's proposal, but may not be
transferred to other state agencies, except to an agency which is
entitled to receive appropriations from those funds under the
terms of the Constitution. Federal funds appropriated by the
Texas Legislature may be transferred only as permitted by federal
law. The Governor's or the Legislative Budget Board's use of the
budget execution law is subject to publication and, in certain
instances, public hearing requirements. In addition, before the
Governor's proposal may be executed, it must be ratified by
action of the Legislative Budget Board, or if proposed by the
Board, the proposal must be ratified by the Governor.
Except under the circumstances set forth above, appropriations
or adjustments of appropriations may currently be authorized only
by the Legislature.
Public School Finance. In recent years, special sessions of
the Legislature have been called to deal with various fiscal
matters. After four successive special sessions called to deal
with the public school finance system, the Legislature passed a
school finance bill and accompanying revenue bill on June 7,
1990. However, on January 22, 1991, the Texas Supreme Court
ruled that the Legislature's school finance plan was
unconstitutional, and issued an April 1, 1991, deadline for a new
plan. A new school bill (SB 351) was passed by the 72nd
Legislature in April 1991. In August 1991, Judge Scott McCown
affirmed the constitutionality of the school finance system
developed in this bill; however, the Texas Supreme Court ruled
Special Risk Considerations, cont.
on January 30, 1992, that the County Education District ("CED")
system was unconstitutional and gave the Texas Legislature until
June 1, 1993, to develop a new system. In February 1993, the
73rd Texas Legislature passed SB 7 and SJR 7 in an attempt to
legalize the CED system. On May 1, however, Texas voters
overwhelmingly defeated SJR 7. Working under the pressure of the
June 1 court deadline, the Legislature passed a new version of SB
7 which directed 98 of the State's wealthiest school districts to
choose among five alternatives for redistributing their wealth to
poorer districts. Although a number of both poor and wealthy
school districts have challenged the new funding law, Judge
McCown has stated SB 7 shall be implemented for at least the
1993-94 school year before any constitutional challenges are
considered. On May 25, 1994 representatives from the property-
rich and property-poor districts appealed the case to the Texas
Supreme Court. The Texas Supreme Court issued its opinion on
January 30, 1995. The court upheld all provisions of SB 7 and
overturned the lower court's mandate to provide additional
funding for school facilities in property-poor districts. The
court ruled that convincing evidence of an inability to provide
facilities had not yet been presented, but that the absence of a
separate funding source for facilities could cause the court to
declare the entire finance system unconstitutional. The court
also cautioned of the appearance of a constitutionally-prohibited
state ad valorem tax if all districts were forced to tax at the
capped value to maintain standards.
Retirement Systems. The State of Texas operates three
retirement systems: the Teacher Retirement System of Texas
("TRST"), the Employee's Retirement System of Texas ("ERST") and
the Judicial Retirement System of Texas ("JRST"). In addition,
state employees, except those compensated on a fee basis, are
covered under the federal Social Security system. Political
subdivisions of the State may voluntarily provide for coverage of
their employees under the State's agreement with the federal
Social Security Administration.
TRST and ERST are maintained on an actuarial basis. As of
August 31, 1994, the unfunded actuarial liability of TRST was
approximately $825.22 million and the overfunded actuarial
liability of ERST was approximately $619.4 million. The period
required to amortize the unfunded actuarial liability, given
then-current contribution rates, benefits and investment
assumptions, was estimated to be 2.2 years in the case of TRST.
The TRST market value of investments, as of August 31, 1994, was
$37.9 billion. The ERST market value of investments as of August
31, 1994, was $10.18 billion. Until recently, JRST was
maintained on a pay-as-you-go basis. However, legislation
enacted in June 1985, divided JRST into two plans by changing the
name of the existing plan and establishing a second, separate
plan. The new plan, known as Judicial Retirement System of Texas
Plan Two, is to be maintained on an actuarially sound basis and
covers individuals who became judicial officers after September
1, 1985. The unfunded actuarial liability of JRST Plan Two as of
August 31, 1994 was $4 million. The old plan, now known as the
Judicial Retirement System of Texas Plan One, will continue to be
maintained on a pay-as-you-go basis and will cover judicial
officers who are active on September 1, 1985, or had retired
before that date.
Contributions to each of the three retirement systems are
made by both the State and the covered employees. As a result of
revenue decreases experienced in 1982 and 1983 and a
determination that the amortization periods for unfunded
actuarial liabilities had reached an acceptable level, the
Legislature in its appropriations bill for the 1984-1985 biennium
imposed a one-time reduction in contribution rates which, coupled
with an increase in teachers' salaries as part of the 1984
educational reform package, resulted in a slight increase in the
unfunded actuarial liability of TRST and the amortization for the
unfunded liability. Effective September 1, 1994 state
contribution rates for retirement systems are as follows: ERST
is 6.45 percent of payroll; TRST remains at 7.31 percent of
payroll; JRST is 14.73 percent of payroll for contributing
members. Member contribution rates are as follows: ERST is 6
percent of payroll; TRST is 6.4 percent of payroll; and JRST is 6
percent of payroll.
As part of the 1985 changes in the State's retirement
systems, the Legislature prohibited the implementation of changes
in the ERST and TRST systems that would cause the period required
to amortize the unfunded actuarial liability of either plan to
exceed thirty-one years. In addition, the legislation creating
JRST Plan Two specifies that the State's contribution to that
plan each year will be in an amount required to finance the plan
without any unfunded liability. Prior to the adoption of these
measures, the State had no official limit on the amortization
period for unfunded actuarial liability, although the management
of both ERST and TRST had adopted an informal policy of limiting
the period to thirty years.
The State's retirement systems were created and are operated
pursuant to statutes enacted by the Legislature. The Legislature
has the authority to modify these statutes and, accordingly,
contribution rates, benefits, benefit levels and such other
aspects of each system as it deems appropriate, including the
provisions limiting changes that increase the amortization period
for unfunded actuarial liability of any plan. The State's
retirement systems are not subject to the funding and vesting
requirements of the Employee Retirement Income Security Act of
1974, as amended, although Congress has from time to time
considered legislation that would regulate pension funds of
public bodies.
PORTFOLIO TRANSACTIONS
The Manager, pursuant to the Advisory Agreement dated June 25,
1993 and subject to the general control of the Trust's Board of
Trustees, places all orders for the purchase and sale of Fund
securities. Purchases of Fund securities are made either
directly from the issuer or from dealers who deal in tax-exempt
securities. The Manager may sell Fund securities prior to
maturity if circumstances warrant and if it believes such
disposition is advisable. In connection with portfolio
transactions for the Trust, the Manager seeks to obtain the best
available net price and most favorable execution for its orders.
The Manager has no agreement or commitment to place transactions
with any broker-dealer and no regular formula is used to allocate
orders to any broker-dealer. However, the Manager may place
security orders with brokers or dealers who furnish research or
other services to the Manager as long as there is no sacrifice in
obtaining the best overall terms available. Payment for such
services would be generated only through purchase of new issue
fixed income securities.
Such research and other services may include, for example:
advice concerning the value of securities, the advisability of
investing in, purchasing, or selling securities, and the
availability of securities or the purchasers or sellers of
securities; analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and
performance of accounts; and various functions incidental to
effecting securities transactions, such as clearance and
settlement. The Manager continuously reviews the performance of
the broker-dealers with whom it places orders for transactions.
The receipt of research from broker-dealers that execute
transactions on behalf of the Trust may be useful to the Manager
in rendering investment management services to other clients
(including affiliates of the Manager), and conversely, such
research provided by broker-dealers who have executed transaction
orders on behalf of other clients may be useful to the Manager in
carrying out its obligations to the Trust. While such research
is available to and may be used by the Manager in providing
investment advice to all its clients (including affiliates of the
Manager), not all of such research may be used by the Manager for
the benefit of the Trust. Such research and services will be in
addition to and not in lieu of research and services provided by
the Manager, and the expenses of the Manager will not necessarily
be reduced by the receipt of such supplemental research. See The
Trust's Manager.
On occasions when the Manager deems the purchase or sale of
a security to be in the best interest of the Trust, as well as
the Manager's other clients, the Manager, to the extent permitted
by applicable laws and regulations, may aggregate such securities
to be sold or purchased for the Trust with those to be sold or
purchased for other customers in order to obtain best execution
and lower brokerage commissions, if any. In such event,
allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager
in the manner it considers to be most equitable and consistent
with its fiduciary obligations to all such customers, including
the Trust. In some instances, this procedure may impact the
price and size of the position obtainable for the Trust.
The tax-exempt security market is typically a "dealer"
market in which investment dealers buy and sell bonds for their
own accounts, rather than for customers, and although the price
may reflect a dealer's mark-up or mark-down, the Trust pays no
brokerage commissions as such. In addition, some securities may
be purchased directly from issuers.
Portfolio Turnover Rate
The portfolio turnover rate is computed by dividing the dollar
amount of securities purchased or sold (whichever is smaller) by
the average value of securities owned during the year.
The rate of portfolio turnover will not be a limiting factor
when the Manager deems changes in the Texas Tax-Free Income
Fund's portfolio appropriate in view of its investment objective.
For example, securities may be sold in anticipation of a rise in
interest rates (market decline) or purchased in anticipation of a
decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another security of
comparable quality may be purchased at approximately the same
time in order to take advantage of what the Fund believes to be a
temporary disparity in the normal yield relationship between the
two securities. These yield disparities may occur for reasons
not directly related to the investment quality of particular
issues or the general movement of interest rates, such as changes
in the overall demand for or supply of various types of tax-
exempt securities. Moreover, to optimize yields on the short-
term liquidity portion of the Fund, daily and weekly demand bonds
are utilized extensively. There are transactions in the Fund in
this type of security virtually daily. These transactions,
though short-term in nature, are included in the turnover rate.
Increased use of daily and weekly demand bonds may result in
higher portfolio turnover.
The portfolio turnover rate for the Texas Tax-Free Income
Fund for the period August 1, 1994 to March 31, 1995 was 196.62%.
The portfolio turnover rate for the Fund was high due to an
increase in assets during the start-up period which necessitated
a high level of trading.
FURTHER DESCRIPTION OF SHARES
The Trust is authorized to issue shares of beneficial interest in
separate series or Funds. Four Funds have been established, two
of which are described in this SAI. Under the Master Trust
Agreement, the Board of Trustees is authorized to create new
Funds in addition to those already existing without shareholder
approval.
The assets of each Fund and all income, earnings, profits
and proceeds thereof, subject only to the rights of creditors,
are specifically allocated to such Fund. They constitute the
underlying assets of each Fund, are required to be segregated on
the books of account, and are to be charged with the expenses of
such Fund. Any general expenses of the Trust not readily
identifiable as belonging to a particular Fund are allocated on
the basis of the Funds' relative net assets during the fiscal
year or in such other manner as the Board determines to be fair
and equitable. Each share of each Fund represents an equal
proportionate interest in that Fund with every other share and is
entitled to dividends and distributions out of the net income and
capital gains belonging to that Fund when declared by the Board.
Under the Trust's Master Trust Agreement, no annual or
regular meeting of shareholders is required. Thus, there will
ordinarily be no shareholder meeting unless otherwise required by
the 1940 Act. Under certain circumstances, however, shareholders
may apply to the Trustees for shareholder information in order to
obtain signatures to request a shareholder meeting. Moreover,
pursuant to the Master Trust Agreement, any Trustee may be
removed by the vote of two-thirds of the outstanding Trust shares
and holders of 10% or more of the outstanding shares of the Trust
can require Trustees to call a meeting of shareholders for the
purpose of voting on the removal of one or more Trustees. On any
matter submitted to the shareholders, the holder of each Fund
share is entitled to one vote per share (with proportionate
voting for fractional shares) regardless of the relative net
asset values of the Funds' shares. However, on matters affecting
an individual Fund, a separate vote of the shareholders of that
Fund is required. Shareholders of a Fund are not entitled to
vote on any matter which does not affect that Fund but which
requires a separate vote of another Fund. Shares do not have
cumulative voting rights, which means that holders of more than
50% of the shares voting for the election of Trustees can elect
100% of the Trust's Board of Trustees, and the holders of less
than 50% of the shares voting for the election of Trustees will
not be able to elect any person as a Trustee.
Shareholders of a particular Fund might have the power to
elect all of the Trustees of the Trust because that Fund has a
majority of the total outstanding shares of the Trust. When
issued, each Fund's shares are fully paid and nonassessable, have
no pre-emptive or subscription rights, and are fully
transferable. There are no conversion rights.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Each Fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as
amended (the Code). Accordingly, each Fund will not be liable
for federal income taxes on its taxable net investment income and
net capital gains (capital gains in excess of capital losses)
that are distributed to shareholders, provided that each Fund
distributes at least 90% of its net investment income and net
short-term capital gain for the taxable year.
To qualify as a regulated investment company, a Fund must,
among other things, (1) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such
stock, securities or currencies (the 90% test); (2) derive in
each taxable year less than 30% of its gross income from the sale
or other disposition of stock or securities held less than three
months (the 30% test), and (3) satisfy certain diversification
requirements at the close of each quarter of the Fund's taxable
year. Furthermore, to pay tax-exempt interest income dividends,
at least 50% of the value of each Fund's total assets at the
close of each quarter of its taxable year must consist of
obligations the interest of which is exempt from federal income
tax. Each Fund intends to satisfy this requirement.
The Code imposes a nondeductible 4% excise tax on a
regulated investment company that fails to distribute during each
calendar year an amount at least equal to the sum of (1) 98% of
its taxable net investment income for the calendar year, (2) 98%
of its capital gain net income for the twelve month period ending
on October 31, and (3) any prior amounts not distributed. Each
Fund intends to make such distributions as are necessary to avoid
imposition of this excise tax.
For federal income tax purposes, debt securities purchased
by the Funds may be treated as having original issue discount.
Original issue discount represents interest income for federal
income tax purposes and can generally be defined as the excess of
the stated redemption price at maturity of a debt obligation over
the issue price. Original issue discount is treated for federal
income tax purposes as earned by the Funds, whether or not any
income is actually received, and therefore is subject to the
distribution requirements of the Code. However, original issue
discount with respect to tax-exempt obligations generally will be
excluded from the Funds' taxable income, although such discount
will be included in gross income for purposes of the 90% test and
the 30% test described previously. Original issue discount with
respect to tax-exempt securities is accrued and added to the
adjusted tax basis of such securities for purposes of determining
gain or loss upon sale or at maturity. Generally, the amount of
original issue discount is determined on the basis of a constant
yield to maturity which takes into account the compounding of
accrued interest. An investment in a stripped bond or stripped
coupon will result in original issue discount.
Debt securities may be purchased by the Funds at a market
discount. Market discount occurs when a security is purchased at
a price less than the original issue price adjusted for accrued
original issue discount, if any. The Funds intend to defer
recognition of accrued market discount until maturity or other
disposition of the bond. For securities purchased at a market
discount, the gain realized on disposition will be treated as
taxable ordinary income to the extent it does not exceed accrued
market discount on the bond.
The Funds may also purchase debt securities at a premium,
i.e., at a purchase price in excess of face amount. With respect
to tax-exempt securities, the premium must be amortized to the
maturity date but no deduction is allowed for the premium
amortization. The amortized bond premium will reduce the Funds'
adjusted tax basis in the securities. For taxable securities,
the premium may be amortized if the Funds so elect. The
amortized premium on taxable securities is first offset against
interest received on the securities and then allowed as a
deduction, and, for securities issued after September 27, 1985,
must be amortized under an economic accrual method.
Taxation of the Shareholders
Taxable distributions are generally included in a shareholder's
gross income for the taxable year in which they are received.
Dividends declared in October, November, or December and made
payable to shareholders of record in such a month will be deemed
to have been received on December 31, if a Fund pays the dividend
during the following January. It is expected that none of the
Funds' distributions will qualify for the corporate dividends-
received deduction.
To the extent that a Fund's dividends distributed to
shareholders are derived from interest income exempt from federal
income tax and are designated as "exempt-interest dividends" by a
Fund, they will be excludable from a shareholder's gross income
for federal income tax purposes. Shareholders who are recipients
of Social Security benefits should be aware that exempt-interest
dividends received from a Fund are includible in their "modified
adjusted gross income" for purposes of determining the amount of
such Social Security benefits, if any, that are required to be
included in their gross income.
A shareholder of the Texas Tax-Free Income Fund should be
aware that a redemption of shares (including any exchange into
another USAA Fund) is a taxable event and, accordingly, a capital
gain or loss may be recognized. If a shareholder receives an
exempt-interest dividend with respect to any share and such share
has been held for six months or less, any loss on the redemption
or exchange will be disallowed to the extent of such exempt-
interest dividend. Similarly, if a shareholder of the Fund
receives a distribution taxable as long-term capital gain with
respect to shares of the Fund and redeems or exchanges shares
before he has held them for more than six months, any loss on the
redemption or exchange (not otherwise disallowed as attributable
to an exempt-interest dividend) will be treated as long-term
capital loss.
The Funds may invest in private activity bonds. Interest on
certain private activity bonds issued after August 7, 1986, is an
item of tax preference for purposes of the Federal Alternative
Minimum Tax (AMT), although the interest continues to be
excludable from gross income for other purposes. AMT is a
supplemental tax designed to ensure that taxpayers pay at least a
minimum amount of tax on their income, even if they make
substantial use of certain tax deductions and exclusions
(referred to as tax preference items). Interest from private
activity bonds is one of the tax preference items that is added
to income from other sources for the purposes of determining
whether a taxpayer is subject to the AMT and the amount of any
tax to be paid. For corporate investors, alternative minimum
taxable income is increased by 75% of the amount by which
adjusted current earnings (ACE) exceeds alternative minimum
taxable income before the ACE adjustment. For corporate
taxpayers, all tax-exempt interest is considered in calculating
the AMT as part of the ACE. Prospective investors should consult
their own tax advisers with respect to the possible application
of the AMT to their tax situation.
Opinions relating to the validity of tax-exempt securities
and the exemption of interest thereon from federal income tax are
rendered by recognized bond counsel to the issuers. Neither the
Manager's nor the Funds' counsel makes any review of proceedings
relating to the issuance of tax-exempt securities or the basis of
such opinions.
TRUSTEES AND OFFICERS OF THE TRUST
The Board of Trustees of the Trust consists of eight Trustees.
Set forth below are the Trustees and officers of the Trust, and
their respective offices and principal occupations during the
last five years. Unless otherwise indicated, the business
address of each is 9800 Fredericksburg Rd., San Antonio, TX
78288.
Hansford T. Johnson 1, 2
Trustee and Chairman of the Board of Trustees
Age: 59
Director, Vice Chairman and Deputy Attorney-in-Fact, United
Services Automobile Association (USAA) and President, Chief
Executive Officer, Director and Vice Chairman of the Board of
Directors of USAA Capital Corporation and of its various
subsidiaries and affiliates (9/93-present); Chief of Staff, USAA
(1/93-8/93); Executive Vice President, USAA (10/92-12/92);
Commander-in-Chief, CINCTRANS, Department of Defense -Pentagon
(9/89-9/92). Mr. Johnson currently serves as a Trustee and
Chairman of the Board of Trustees of USAA Investment Trust and as
a Director and Chairman of the Boards of Directors of USAA
Investment Management Company (IMCO), USAA Mutual Fund, Inc.,
USAA Tax Exempt Fund, Inc., USAA Shareholder Account Services,
USAA Federal Savings Bank and USAA Real Estate Company.
Michael J.C. Roth 1, 2
Trustee, President and Vice Chairman of the Board of Trustees
Age: 53
Chief Executive Officer, IMCO (10/93-present); President,
Director and Vice Chairman of the Board of Directors, IMCO (1/90-
present); Director, USAA Federal Savings Bank (12/83-8/91). Mr.
Roth currently serves as President, Trustee and Vice Chairman of
the Board of Trustees of USAA Investment Trust, as President,
Director and Vice Chairman of the Boards of Directors of USAA
Mutual Fund, Inc., USAA Tax Exempt Fund, Inc. and USAA
Shareholder Account Services, as Director of USAA Life Insurance
Company and as Trustee and Vice Chairman of USAA Life Investment
Trust.
John W. Saunders, Jr. 1, 2, 4
Trustee and Vice President
Age: 60
Senior Vice President, Investments, IMCO (10/85-present);
Director, BHC Financial, Inc. and BHC Securities, Inc. (1/87-
present). Mr. Saunders currently serves as a Trustee and Vice
President of USAA Investment Trust, as a Director of IMCO,
Director and Vice President of USAA Mutual Fund, Inc. and USAA
Tax Exempt Fund, Inc., as Senior Vice President of USAA
Shareholder Account Services, and as Vice President of USAA Life
Investment Trust.
C. Dale Briscoe 4, 5
7829 Timber Top Drive
Boerne, TX 78006
Trustee
Age: 74
Retired. Mr. Briscoe currently serves as a Trustee of USAA
Investment Trust and as a Director of USAA Mutual Fund, Inc. and
USAA Tax Exempt Fund, Inc.
George E. Brown 3, 4, 5
5829 Northgap Drive
San Antonio, TX 78239
Trustee
Age: 77
Retired. Mr. Brown currently serves as a Trustee of USAA
Investment Trust and as a Director of USAA Mutual Fund, Inc. and
USAA Tax Exempt Fund, Inc.
Howard L. Freeman, Jr. 2, 3, 5
2710 Hopeton
San Antonio, TX 78230
Trustee
Age: 60
Assistant General Manager for Finance, San Antonio City Public
Service Board (1976-present). Mr. Freeman currently serves as a
Trustee of USAA Investment Trust and as a Director of USAA Mutual
Fund, Inc. and USAA Tax Exempt Fund, Inc.
Richard A. Zucker 3, 4, 5
407 Arch Bluff
San Antonio, TX 78216
Trustee
Age: 52
Vice President, Beldon Roofing and Remodeling (1985-present).
Mr. Zucker currently serves as a Trustee of USAA Investment Trust
and as a Director of USAA Mutual Fund, Inc. and USAA Tax Exempt
Fund, Inc.
Barbara B. Dreeben 3, 5
200 Patterson #1008
San Antonio, TX 78209
Trustee
Age: 50
President, Postal Addvantage (7/92-present); Consultant, Nancy
Harkins Stationer, (8/91-present); Merchandise Manager, Nancy
Harkins Stationer (7/82-8/91). Mrs. Dreeben currently serves as
a Trustee of USAA Investment Trust and as a Director of USAA
Mutual Fund, Inc. and USAA Tax Exempt Fund, Inc.
Michael D. Wagner 1
Secretary
Age: 47
Vice President, Corporate Counsel, USAA (1982-present). Mr.
Wagner has held various positions in the legal department of USAA
since 1970 and currently serves as Vice President, Secretary and
Counsel, IMCO and USAA Shareholder Account Services; Secretary,
USAA Investment Trust, USAA Mutual Fund, Inc. and USAA Tax Exempt
Fund, Inc., and as Vice President, Corporate Counsel, for various
other USAA subsidiaries and affiliates.
Alex M. Ciccone 1
Assistant Secretary
Age: 45
Vice President, Compliance, IMCO (12/94-present); Vice President
and Chief Operating Officer, Commonwealth Shareholder Services
(6/94-11/94); Vice President, Compliance, IMCO (12/91-5/94); Vice
President, Compliance, Fund Management Co. (10/89-11/91); and
Vice President, Compliance, AIM Distributors, Inc. (4/82-11/91).
Mr. Ciccone currently serves as Assistant Secretary of USAA
Investment Trust, USAA Mutual Fund, Inc. and USAA Tax Exempt
Fund, Inc.
Sherron A. Kirk 1
Treasurer
Age: 50
Vice President, Controller, IMCO (10/92-present); Vice President,
Corporate Financial Analysis, USAA (9/92-10/92); Assistant Vice
President, Financial Plans and Support, USAA (8/91-9/92);
Assistant Vice President, Real Estate Accounting, USAA Real
Estate Company (5/90-7/91). Mrs. Kirk currently serves as
Treasurer of USAA Investment Trust, USAA Mutual Fund, Inc., and
USAA Tax Exempt Fund, Inc. and as Vice President, Controller of
USAA Shareholder Account Services.
Dean R. Pantzar 1
Assistant Treasurer
Age: 36
Director, Mutual Fund Accounting, IMCO (12/94-present); Senior
Manager, KPMG Peat Marwick LLP (7/88-12/94). Mr. Pantzar
currently serves as Assistant Treasurer of USAA Mutual Fund,
Inc., USAA Investment Trust, and USAA Tax Exempt Fund, Inc.
- -------
1 Indicates those Trustees and officers who are employees of
the Manager or affiliated companies and are considered
"interested persons" under the 1940 Act.
2 Member of Executive Committee
3 Member of Audit Committee
4 Member of Pricing and Investment Committee
5 Member of Corporate Governance Committee
Between the meetings of the Board of Trustees and while the
Board is not in session, the Executive Committee of the Board of
Trustees has all the powers and may exercise all the duties of
the Board of Trustees in the management of the business of the
Trust which may be delegated to it by the Board. The
Trustees and Officers of the Trust, cont.
Pricing and Investment Committee of the Board of Trustees acts
upon various investment-related issues and other matters which
have been delegated to it by the Board. The Audit Committee of
the Board of Trustees reviews the financial statements and the
auditor's reports and undertakes certain studies and analyses as
directed by the Board. The Corporate Governance Committee of the
Board of Trustees maintains oversight of the organization,
performance, and effectiveness of the Board and independent
Trustees.
In addition to the previously listed Trustees and/or
officers of the Trust who also serve as Directors and/or officers
of the Manager, the following individuals are Directors and/or
executive officers of the Manager: Josue Robles, Jr., Senior
Vice President, Chief Financial Officer/Controller, USAA; William
McCrae, Senior Vice President, General Counsel and Secretary,
USAA; Harry W. Miller, Senior Vice President, Investments
(Equity); and John J. Dallahan, Senior Vice President, Investment
Services. There are no family relationships among the Trustees,
officers and managerial level employees of the Trust or its
Manager.
The following table sets forth information describing the
compensation of the current Trustees of the Trust for their
services as Trustees for the fiscal year ended March 31, 1995.
Name Aggregate Total Compensation
of Compensation from the USAA
Trustee from the Trust Family of Funds (c)
------- -------------- -------------------
C. Dale Briscoe $4,281 $18,500
George E. Brown (a) 4,281 18,500
Barbara B. Dreeben 4,281 18,500
Howard L. Freeman, Jr. 4,281 18,500
Hansford T. Johnson None (b) None (b)
Michael J.C. Roth None (b) None (b)
John W. Saunders, Jr. None (b) None (b)
Richard A. Zucker 4,281 18,500
- ----------------
(a) The USAA Family of Funds has accrued deferred compensation
for Mr. Brown in an amount (plus earnings thereon) of
$20,118. The compensation was deferred by Mr. Brown
pursuant to a non-qualified Deferred Compensation Plan,
under which deferred amounts accumulate interest quarterly
based on the annualized U.S. Treasury Bill rate in effect on
the last day of the quarter. Amounts deferred and
accumulated earnings thereon are not funded and are general
unsecured liabilities of the USAA Funds until paid. The
Deferred Compensation Plan was terminated in 1988 and no
compensation has been deferred by any Trustee/Director of
the USAA Family of Funds since the Plan was terminated.
(b) Hansford T. Johnson, Michael J.C. Roth, and John W.
Saunders, Jr. are affiliated with the Trust's investment
adviser, IMCO, and, accordingly, receive no remuneration
from the Trust or any other Fund of the USAA Family of
Funds.
(c) At March 31, 1995, the USAA Family of Funds consisted of 4
registered investment companies offering 29 individual
funds. Each Trustee presently serves as a Trustee or
Director of each investment company in the USAA Family of
Funds. In addition, Michael J.C. Roth presently serves as a
Trustee of USAA Life Investment Trust, a registered
investment company advised by IMCO, consisting of five funds
offered to investors in a fixed and variable annuity
contract with USAA Life Insurance Company. Mr. Roth
receives no compensation as Trustee of USAA Life Investment
Trust.
All of the above Trustees are also Trustees/Directors of the
other funds for which IMCO serves as investment adviser. No
compensation is paid by any fund to any Trustee/Director who is a
director, officer, or employee of IMCO or its affiliates. No
pension or retirement benefits are accrued as part of fund
expenses. The Trust reimburses certain expenses of the Trustees
who are not affiliated with the investment adviser. As of June
30, 1995, the officers and Trustees of the Trust and their
families as a group owned beneficially or of record less than 1%
of the outstanding shares of the Trust.
As of June 30, 1995, USAA and its affiliates (including
related employee benefit plans) owned 220,585 shares (32.5%) of
the Texas Tax-Free Income Fund and 2,164,142 shares (47%) of the
Texas Tax-Free Money Market Fund, for an aggregate total of
2,384,727 shares (45%) of the Funds.
The following table identifies all other persons, who as of
June 30, 1995, held of record or owned beneficially 5% or more of
either Fund's shares.
Name and address
Title of Class of beneficial owner Percent of class
-------------- ------------------- ----------------
Texas Tax-Free Money Charles A. Baker 8.7%
Market Fund Josephine K. Baker
2245 Christopher Ln
Burleson, TX 76028-8389
THE TRUST'S MANAGER
As described in the Prospectus, USAA Investment Management
Company is the Manager and investment adviser, providing services
under the Advisory Agreement. The Manager, organized in May
1970, has served as investment adviser and underwriter for USAA
State Tax-Free Trust from its inception.
In addition to managing the Trust's assets, the Manager
advises and manages the investments for USAA and its affiliated
companies as well as those of USAA Investment Trust, USAA Mutual
Fund, Inc. and USAA Tax Exempt Fund, Inc. As of the date of this
SAI, total assets under management by the Manager were
approximately $27 billion, of which approximately $15 billion
were in mutual fund investments.
Advisory Agreement
Under the Advisory Agreement, the Manager provides an investment
program, carries out the investment policy and manages the
portfolio assets for each Fund. The Manager is authorized,
subject to the control of the Board of Trustees of the Trust, to
determine the selection, amount and time to buy or sell
securities for each Fund. In addition to providing investment
services, the Manager pays for office space, facilities, business
equipment and accounting services (in addition to those provided
by the Custodian) for the Trust. The Manager compensates all
personnel, officers and Trustees of the Trust if such persons are
also employees of the Manager or its affiliates. For these
services under the Advisory Agreement, the Trust has agreed to
pay the Manager a fee computed as described under Management of
the Trust in the Prospectus. Management fees are computed and
accrued daily and payable monthly.
Except for the services and facilities provided by the
Manager, the Funds pay all other expenses incurred in their
operations. Expenses for which the Funds are responsible include
taxes (if any), brokerage commissions on portfolio transactions
(if any), expenses of issuance and redemption of shares, charges
of transfer agents, custodians and dividend disbursing agents,
cost of preparing and distributing proxy material, costs of
printing and engraving stock certificates, auditing and legal
expenses, certain expenses of registering and qualifying shares
for sale, fees of Trustees who are not interested persons (not
affiliated) of the Manager, costs of typesetting, printing and
mailing the Prospectus, SAI and periodic reports to existing
shareholders, and any other charges or fees not specifically
enumerated. The Manager pays the cost of printing and mailing
copies of the Prospectus, the SAI, and reports to prospective
shareholders.
The Advisory Agreement will remain in effect until June 25,
1996 for each Fund and will continue in effect from year to year
thereafter for each Fund as long as it is approved at least
annually by a vote of the outstanding voting securities of such
Fund (as defined by the 1940 Act) or by the Board of Trustees (on
behalf of such Fund) including a majority of the Trustees who are
not interested persons of the Manager or (otherwise than as
Trustees) of the Trust, at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be
terminated at any time by either the Trust or the Manager on 60
days' written notice. It will automatically terminate in the
event of its assignment (as defined in the 1940 Act).
Under the terms of the Advisory Agreement, the Manager is
required to reimburse each Fund in the event that the total
annual expenses, inclusive of the management fee, but exclusive
of the interest, taxes and brokerage fees and extraordinary
items, incurred by that Fund exceeds any applicable state expense
limitation. At the current time, the most restrictive expense
limitation is 2.5% of the first $30,000,000 of average net assets
(ANA), 2% of the next $70,000,000 ANA, and 1.5% of the remaining
ANA.
From time to time the Manager may, without prior notice to
shareholders, waive all or any portion of fees or agree to
reimburse expenses incurred by a Fund. Any such waiver or
reimbursement may be terminated by the Manager at any time
without prior notice to shareholders. The Manager has
voluntarily agreed to limit each Fund's annual expenses to .50%
of its ANA until August 1, 1996, and will reimburse the Funds for
all expenses in excess of the limitations.
The Trust's Manager, cont.
For the eight-month period ended March 31, 1995, management
fees were as follows:
Texas Tax-Free Income Fund $13,843
Texas Tax-Free Money Market Fund $11,156
Because the Funds' expenses exceeded the Manager's voluntary
expense limitation of .50% of average net assets, the Manager did
not receive any management fees. In addition for 1995, the
Manager did not receive fees for other operating expenses to
which it would have been entitled in the amounts of $38,724 and
$36,396, respectively, from the Texas Tax-Free Income and Texas
Tax-Free Money Market Funds.
Underwriter
The Trust has an agreement with the Manager for exclusive
underwriting and distribution of the Funds' shares on a
continuing best efforts basis. This agreement provides that the
Manager will receive no fee or other compensation for such
distribution services.
Transfer Agent
USAA Shareholder Account Services performs transfer agent
services for the Trust under a Transfer Agency Agreement.
Services include maintenance of shareholder account records,
handling of communications with shareholders, distribution of
Fund dividends and production of reports with respect to account
activity for shareholders and the Trust. For its services under
the Transfer Agency Agreement, USAA Shareholder Account Services
is paid an annual fixed fee per account of $26.00 by each Fund.
The fee is subject to change at any time.
The fee to the Transfer Agent includes processing of all
transactions and correspondence. Fees are billed on a monthly
basis at the rate of one-twelfth of the annual fee. In addition,
the Funds pay all out-of-pocket expenses of the Transfer Agent
and other expenses which are incurred at the specific direction
of the Trust.
GENERAL INFORMATION
Custodian
State Street Bank and Trust Company, P.O. Box 1713, Boston, MA
02105, is the Trust's Custodian. The Custodian is responsible
for, among other things, safeguarding and controlling the Trust's
cash and securities, handling the receipt and delivery of
securities and collecting interest on the Trust's investments.
Counsel
Goodwin, Procter & Hoar, Exchange Place, Boston, MA 02109, will
review certain legal matters for the Trust in connection with the
shares offered by the Prospectus.
Independent Auditors
KPMG Peat Marwick LLP, 112 East Pecan, Suite 2400, San Antonio,
TX 78205, is the Trust's independent auditor. In this capacity,
the firm is responsible for auditing the annual financial
statements of the Funds and reporting thereon.
Financial Statements
The financial statements of the Funds and the Independent
Auditors' Report thereon for the fiscal year ended March 31,
1995, are included in the Annual Report to Shareholders of that
date and are incorporated herein by reference. A copy of the
Annual Report will be delivered free of charge with each SAI
requested from the Manager at the address set forth on page 1 of
this statement.
CALCULATION OF PERFORMANCE DATA
Information regarding total return and yield of each Fund is
provided under Performance Information in the Prospectus. See
Valuation of Securities herein for a discussion of the manner in
which each Fund's price per share is calculated.
Total Return
The Texas Tax-Free Income Fund may advertise performance in terms
of average annual total return for 1, 5 and 10 year periods, or
for such lesser period as the Fund has been in existence.
Average annual total return is computed by finding the average
annual compounded rates of return over the periods that would
equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1 + T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year periods at the end of the year or period
The calculation assumes all charges are deducted from the
initial $1,000 payment and assumes all dividends and distributions
by such Fund are reinvested at the price stated in the Prospectus
on the reinvestment dates during the period, and includes all
recurring fees that are charged to all shareholder accounts.
The date of commencement of operations for the Texas Tax-
Free Income Fund was August 1, 1994. The Fund's total return
since inception as of March 31, 1995 was 5.75%.
Yield
The Texas Tax-Free Income Fund may advertise performance in terms
of a 30-day yield quotation. The 30-day yield quotation is
computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
2((((a - b)/(cd) + 1 ^6) -1)
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day
of the period
For purposes of the yield calculation, interest income is
computed based on the yield to maturity of each debt obligation
in a Fund's portfolio and all recurring charges are recognized.
The Fund's 30-day yield for the period ended March 31, 1995
was 5.72%.
Yield - Texas Tax-Free Money Market Fund
When the Texas Tax-Free Money Market Fund quotes a current
annualized yield, it is based on a specified recent seven-
calendar-day period. It is computed by (1) determining the net
change, exclusive of capital changes, in the value of a
hypothetical preexisting account having a balance of one share at
the beginning of the period, (2) dividing the net change in
account value by the value of the account at the beginning of the
base period to obtain the base return, then (3) multiplying the
base period by 52.14 (365 divided by 7). The resulting yield
figure is carried to the nearest hundredth of one percent.
The calculation includes (1) the value of additional shares
purchased with dividends on the original share, and dividends
declared on both the original share and any such additional
shares, and (2) any fees charged to all shareholder accounts, in
proportion to the length of the base period and the Fund's
average account size.
The capital changes excluded from the calculation are
realized capital gains and losses from the sale of securities and
unrealized appreciation and depreciation. The Fund's effective
(compounded) yield will be computed by dividing the seven-day
annualized yield as defined above by 365, adding 1 to the
quotient, raising the sum to the 365th power, and subtracting 1
from the result.
Calculation of Performance Data, cont.
Current and effective yields fluctuate daily and will vary
with factors such as interest rates and the quality, length of
maturities, and type of investments in the portfolio.
Yield for 7-day Period ended 3/31/95 was 3.63%
Effective Yield for 7-day Period ended 3/31/95 was 3.70%
Tax Equivalent Yield
The Texas Tax-Free Money Market Fund may advertise performance in
terms of a tax equivalent yield based on the 7-day yield or
effective yield and the Texas Tax-Free Income Fund may advertise
performance in terms of a 30-day tax equivalent yield. The tax
equivalent yield is computed by dividing that portion of the
yield of a Fund (computed as described in the preceding
paragraphs) which is tax-exempt, by the complement of the federal
income tax rate of 31% (or other relevant rate) and adding the
result to that portion, if any, of the yield of such Fund that is
not tax-exempt. The complement, for example, of a tax rate of
31% is 69%, that is [1.00 - .31 = .69].
Based on a tax rate of 31%, the tax equivalent yields for
the Texas Tax-Free Income and Texas Tax-Free Money Market Funds
for the period ended March 31, 1995 were 8.29% and 5.26%,
respectively.
APPENDIX A - TAX-EXEMPT SECURITIES AND THEIR RATINGS
Tax-Exempt Securities
Tax-exempt securities generally include debt obligations issued
by states and their political subdivisions, and duly constituted
authorities and corporations, to obtain funds to construct,
repair or improve various public facilities such as airports,
bridges, highways, hospitals, housing, schools, streets, and
water and sewer works. Tax-exempt securities may also be issued
to refinance outstanding obligations as well as to obtain funds
for general operating expenses and for loans to other public
institutions and facilities.
The two principal classifications of tax-exempt securities
are "general obligations" and "revenue" or "special tax" bonds.
General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of
principal and interest. Revenue or special tax bonds are payable
only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a
special excise or other tax, but not from general tax revenues.
The Funds may also invest in tax-exempt private activity bonds,
which in most cases are revenue bonds and generally do not have
the pledge of the credit of the issuer. The payment of the
principal and interest on such industrial revenue bonds is
dependent solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment. There are, of course, many variations
in the terms of, and the security underlying tax-exempt
securities. Short-term obligations issued by states, cities,
municipalities or municipal agencies, include Tax Anticipation
Notes, Revenue Anticipation Notes, Bond Anticipation Notes,
Construction Loan Notes and Short-Term Discount Notes.
The yields of tax-exempt securities depend on, among other
things, general money market conditions, conditions of the Tax-
Exempt Bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The
ratings of Moody's Investors Service, Inc. (Moody's), Standard &
Poor's Ratings Group (S&P), Fitch Investors Service, Inc.
(Fitch), Duff & Phelps Inc., Thompson BankWatch, Inc., and IBCA
Inc. represent their opinions of the quality of the securities
rated by them. It should be emphasized that such ratings are
general and are not absolute standards of quality. Consequently,
securities with the same maturity, coupon and rating may have
different yields, while securities of the same maturity and
coupon but with different ratings may have the same yield. It
will be the responsibility of the Manager to appraise
independently the fundamental quality of the tax-exempt
securities included in a Fund's portfolio.
Ratings
Excerpts from Moody's Bond (Tax-Exempt Securities) Ratings:
Aaa Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Note: Those bonds in the Aa, A, and Baa groups which Moody's
believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, and Baa1.
Excerpts of Moody's Ratings of Short-Term Loans (State and Tax-
Exempt Notes):
Moody's ratings for state and tax-exempt notes and other short-
term obligations are designated Moody's Investment Grade (MIG).
Symbols used will be as follows:
MIG-1 This designation denotes best quality. There is
present strong protection by established cash flows,
superior liquidity support or demonstrated broadbased
access to the market for refinancing.
MIG-2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
Excerpts of Moody's Rating of Commercial Paper:
Prime-1 Issuers have a superior ability for repayment of senior
short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Prime-2 Issuers have a strong ability for repayment of senior
short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample
alternate liquidity is maintained.
Excerpts from S&P's Bond Ratings:
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues
only in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
Plus (+) or Minus (-): The ratings from AA to BBB may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Appendix A, cont.
Excerpts of S&P's Ratings of Tax-Exempt Notes:
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are given
a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes
over the term of the notes.
Excerpts of S&P's Rating of Commercial Paper:
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are
denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is
not as high as for issues designated A-1.
Excerpts of Fitch's Ratings of Bonds:
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is
generally rated F-1+.
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse
changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and
therefore, impair timely payment.
Plus (+) and Minus (-): Plus and minus signs are used with a
rating symbol to indicate the relative position of a credit
within the rating category. Plus and minus signs, however, are
not used in the AAA category.
Excerpts of Fitch's Ratings to Commercial Paper, Certificates of
Deposit and Tax-Exempt Notes:
F-1+ Exceptionally strong credit quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 Very strong credit quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.
F-2 Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payments, but
the margin of safety is not as great as the F-1+ and F-1
ratings.
Excerpts from Duff & Phelps Long-Term Rating Scale:
AAA Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury
debt.
AA High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of
economic conditions.
A Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic
stress.
BBB Below average protection factors but still considered
sufficient for prudent investment. Considerable variability
in risk during economic cycles.
Excerpts from Duff & Phelps Commercial Paper Rating Scale:
Duff 1+ Highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or
ready access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection
factors. Risk factors are very small.
Duff 2 Good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are
small.
Thompson BankWatch, Inc.
TBW-1 The highest category; indicates a very high likelihood
that principal and interest will be paid on a timely
basis.
TBW-2 The second highest category; while the degree of safety
regarding timely repayment of principal and interest is
strong, the relative degree of safety is not as high as
for issues rated TBW-1.
TBW-3 The lowest investment grade category; indicates that
while the obligation is more susceptible to adverse
developments (both internal and external) than
obligations with higher ratings, the capacity to
service principal and interest in a timely fashion is
considered adequate.
IBCA Inc.
A1 Obligations supported by the highest capacity for timely
repayment. Where issues possess a particularly strong
credit feature, a rating of A1+ is assigned.
A2 Obligations supported by a good capacity for timely
repayment.
A3 Obligations supported by a satisfactory capacity for timely
repayment.
B Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.
C Obligations for which there is a high risk of default or
which are currently in default.
APPENDIX B - COMPARISON OF PORTFOLIO PERFORMANCE
Occasionally, we may make comparisons in advertising and sales
literature between the Funds contained in this SAI and other
Funds in the USAA Family of Funds. These comparisons may include
such topics as risk and reward, investment objectives, investment
strategies, and performance.
Fund performance also may be compared to the performance of
broad groups of mutual funds with similar investment goals or
unmanaged indexes of comparable securities. Evaluations of Fund
performance made by independent sources may also be used in
advertisements concerning the Fund, including reprints of, or
selections from, editorials or articles about the Fund. The Fund
or its performance may also be compared to products and services
not constituting securities subject to registration under the
Securities Act of 1933 such as, but not limited to, certificates
of deposit and money market accounts. Sources for performance
information and articles about the Fund may include the
following:
AAII Journal, a monthly association magazine for members of the
American Association of Individual Investors.
Arizona Republic, a newspaper which may cover financial and
investment news.
Austin American-Statesman, a newspaper which may cover financial
news.
Barron's, a Dow Jones and Company, Inc. business and financial
weekly that periodically reviews mutual fund performance data.
The Bond Buyer, a daily newspaper which covers bond market news.
Business Week, a national business weekly that periodically
reports the performance rankings and ratings of a variety of
mutual funds.
Chicago Tribune, a newspaper which may cover financial news.
Consumer Reports, a monthly magazine which from time to time
reports on companies in the mutual fund industry.
Appendix B, cont.
Dallas Morning News, a newspaper which may cover financial news.
Denver Post, a newspaper which may quote financial news.
Financial Planning, a monthly magazine that periodically features
companies in the mutual fund industry.
Financial Services Week, a weekly newspaper which covers
financial news.
Financial World, a monthly magazine which may periodically review
mutual fund companies.
Forbes, a national business publication that periodically reports
the performance of companies in the mutual fund industry.
Fortune, a national business publication that periodically rates
the performance of a variety of mutual funds.
Fund Action, a mutual fund news report.
Houston Chronicle, a newspaper which may cover financial news.
Houston Post, a newspaper which may cover financial news.
IBC/Donoghue's Moneyletter, a biweekly newsletter which covers
financial news and from time to time rates specific mutual funds.
IBC's Money Market Insight, a monthly money market industry
analysis prepared by IBC USA, Inc.
Income and Safety, a monthly newsletter that rates mutual funds.
InvesTech, a bimonthly investment newsletter.
Investment Advisor, a monthly publication directed primarily to
the advisor community; includes ranking of mutual funds using a
proprietary methodology.
Investment Company Institute, a national association of the
American Investment Company industry.
Investor's Business Daily, a newspaper which covers financial
news.
Kiplinger's Personal Finance Magazine, a monthly investment
advisory publication that periodically features the performance
of a variety of securities.
Lipper Analytical Services, Inc.'s Fixed Income Fund Performance
Analysis, a monthly publication of industry-wide mutual fund
performance averages by type of fund.
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, a weekly and quarterly publication of industry-wide
mutual fund performance averages by type of fund.
Los Angeles Times, a newspaper which may cover financial news.
Louis Rukeyser's Wall Street, a publication for investors.
Medical Economics, a monthly magazine providing information to
the medical profession.
Money, a monthly magazine that features the performance of both
specific funds and the mutual fund industry as a whole.
Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., reporting on the performance of the nation's
money market funds, summarizing money market fund activity, and
including certain averages as performance benchmarks,
specifically: (1) Taxable Money Fund Averages: "100% U.S.
Treasury" and "First Tier" and (2) Tax-Free Money Fund Averages:
"Stockbroker and General Purpose" and "State Specific Stockbroker
and General Purpose".
Morningstar 5 Star Investor, a monthly newsletter by Morningstar,
Inc. which covers financial news and rates mutual funds.
Muni Bond Fund Report, a monthly newsletter which covers news on
the municipal bond market and features performance data for
municipal bond mutual funds.
MuniWeek, a weekly newspaper which covers news on the municipal
bond market.
Mutual Fund Forecaster, a monthly newsletter that ranks mutual
funds.
Mutual Fund Investing, a newsletter covering mutual funds.
Mutual Fund Performance Report, a monthly publication of
industry-wide mutual fund averages produced by Morningstar, Inc.
Mutual Fund Magazine, a monthly publication reporting on mutual
fund investing.
Mutual Fund Source Book, an annual publication produced by
Morningstar, Inc. which describes and rates mutual funds.
Mutual Fund Values, a biweekly guidebook to mutual funds produced
by Morningstar, Inc. (a data service which tracks open-end mutual
funds).
Newsweek, a national business weekly.
New York Times, a newspaper which may cover financial news.
No Load Fund Investor, a newsletter covering companies in the
mutual fund industry.
Personal Investor, a monthly magazine which from time to time
features mutual fund companies and the mutual fund industry.
San Antonio Business Journal, a weekly newspaper that
periodically covers mutual fund companies as well as financial
news.
San Antonio Express-News, a newspaper which may cover financial
news.
San Francisco Chronicle, a newspaper which may cover financial
news.
Smart Money, a monthly magazine featuring news and articles on
investing and mutual funds.
USA Today, a newspaper which may cover financial news.
U.S. News and World Report, a national business weekly that
periodically reports mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper
which covers financial news.
Washington Post, a newspaper which may cover financial news.
Weisenberger Mutual Funds Investment Report, a monthly newsletter
that reports on both specific mutual fund companies and the
mutual fund industry as a whole.
Worth, a magazine which covers financial and investment subjects
including mutual funds.
Your Money, a monthly magazine directed towards the novice
investor.
Among the organizations cited above, Lipper Analytical
Services, Inc.'s tracking results may be used. Each Fund will be
compared to Lipper's appropriate fund category according to
objective and portfolio holdings. The Texas Tax-Free Income Fund
will be compared to funds in Lipper's Texas tax-exempt bond funds
category, and the Texas Tax-Free Money Market Fund to funds in
Lipper's Texas short-term tax-exempt bond funds category.
Footnotes in advertisements and other sales literature will
include the time period applicable for any rankings used.
For comparative purposes, unmanaged indices of comparable
securities or economic data may be cited. Examples include the
following:
- Shearson Lehman Hutton Bond Indices, indices of fixed-rate
debt issues rated investment grade or higher which can be
found in the Bond Market Report.
- Bond Buyer Indices, indices of debt of varying maturities
including revenue bonds, general obligation bonds, and U.S.
Treasury bonds which can be found in MuniWeek and The Bond
Buyer.
Other sources for total return and other performance data
which may be used by the Fund or by those publications listed
previously are Morningstar, Inc., Schabaker Investment
Management, and Investment Company Data, Inc. These are services
that collect and compile data on mutual fund companies.
APPENDIX C - TAXABLE EQUIVALENT YIELD TABLE
FEDERAL INCOME TAX RATES
TO MATCH A A FULLY TAXABLE INVESTMENT
TAX-FREE WOULD HAVE TO PAY YOU:
YIELD OF:* ASSUMING A MARGINAL ASSUMING A MARGINAL ASSUMING A MARGINAL
TAX RATE OF 28% (a) TAX RATE OF 31% (b) TAX RATE OF 36% (c)
- ----------------------------------------------------------------------------
2.00% 2.78% 2.90% 3.13%
3.00% 4.17% 4.35% 4.69%
4.00% 5.56% 5.80% 6.25%
5.00% 6.94% 7.25% 7.81%
6.00% 8.33% 8.70% 9.38%
* FEDERALLY TAX (a) FEDERAL RATE OF 28%
EXEMPT (b) FEDERAL RATE OF 31%
(c) FEDERAL RATE OF 36%
THIS TABLE IS A HYPOTHETICAL ILLUSTRATION AND SHOULD NOT BE CONSIDERED AN
INDICATION OF FUND PERFORMANCE OF ANY OF THE USAA FAMILY OF FUNDS.
THE ASSUMED MARGINAL TAX RATES ARE NOT NECESSARILY THE HIGHEST POSSIBLE
MARGINAL TAX RATES, NOR ARE THEY THE LOWEST RATES. THESE RATES WERE PICKED
AS EXEMPLARY RATES THAT MANY TAXPAYERS WOULD BE SUBJECT TO.
APPENDIX D - DOLLAR-COST AVERAGING
Dollar-cost averaging is a systematic investing method which can
be used by investors as a disciplined technique for investing. A
fixed amount of money is invested in a security (such as a stock
or mutual fund) on a regular basis over a period of time,
regardless of whether securities markets are moving up or down.
This practice reduces average share costs to the investor
who acquires more shares in periods of lower securities prices
and fewer shares in periods of higher prices.
While dollar-cost averaging does not assure a profit or
protect against loss in declining markets, this investment
strategy is an effective way to help calm the effect of
fluctuations in the financial markets. Systematic investing
involves continuous investment in securities regardless of
fluctuating price levels of such securities. Investors should
consider their financial ability to continue purchases through
periods of low and high price levels.
As the following chart illustrates, dollar-cost averaging
tends to keep the overall cost of shares lower. This example is
for illustration only, and different trends would result in
different average costs.
HOW DOLLAR-COST AVERAGING WORKS
$100 Invested Regularly for 5 Periods
Market Trend
-----------------------------------------------------------------
Down Up Mixed
------------------- ------------------- -------------------
Share Shares Share Shares Share Shares
Investment Price Purchased Price Purchased Price Purchased
------------------- ------------------- -------------------
$100 10 10 6 16.67 10 10
100 9 11.1 7 14.29 9 11.1
100 8 12.5 7 14.29 8 12.5
100 8 12.5 9 11.1 9 11.1
100 6 16.67 10 10 10 10
--- -- ----- -- ----- -- -----
$500 ***41 62.77 ***39 66.35 ***46 54.7
*Avg. Cost: $7.97 *Avg. Cost: $7.54 *Avg. Cost: $9.14
----- ----- -----
**Avg. Price: $8.20 **Avg. Price: $7.80 **Avg. Price: $9.20
----- ----- -----
* Average Cost is the total amount invested divided by shares
purchased.
** Average Price is the sum of the prices paid divided by number
of purchases.
*** Cumulative total of share prices used to compute average prices.
23702-0895
1933 Act File No. 33-65572
1940 Act File No. 811-7852
USAA STATE TAX-FREE TRUST
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 4
PART C
USAA STATE TAX-FREE TRUST
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Statements included in Parts A and B
(Prospectuses and Statements of Additional Information)
of this Registration Statement:
Financial Statements and Independent Auditors' Report
are incorporated by reference to the USAA STATE TAX-
FREE TRUST, USAA Florida Funds and USAA Texas Funds
Annual Reports to Shareholders for fiscal year ended
March 31, 1995.
(b) Exhibits:
Exhibit No. Description of Exhibits
- ---------- -----------------------
1(a) Master Trust Agreement dated June 21, 1993 (filed
herewith)
(b) Amendment No. 1 to Master Trust Agreement dated
September 8, 1993 (filed herewith)
(c) Amendment No. 2 to Master Trust Agreement dated May 3,
1994 (filed herewith)
2 By-Laws, as amended November 8, 1993 (filed herewith)
3 Voting trust agreement - Not Applicable
4 Specimen Certificates for Shares of
(a) Florida Tax-Free Income Fund (filed herewith)
(b) Florida Tax-Free Money Market Fund (filed herewith)
(c) Texas Tax-Free Income Fund (filed herewith)
(d) Texas Tax-Free Money Market Fund (filed herewith)
5(a) Advisory Agreement (filed herewith)
(b) Letter Agreement adding Texas Tax-Free Income Fund and
Texas Tax-Free Money Market Fund (filed herewith)
6(a) Underwriting Agreement (filed herewith)
(b) Letter Agreement adding Texas Tax-Free Income Fund and
Texas Tax-Free Money Market Fund (filed herewith)
7 Not Applicable
8(a) Custodian Agreement (filed herewith)
(b) Letter Agreement adding Texas Tax-Free Income Fund and
Texas Tax-Free Money Market Fund (filed herewith)
9(a) Transfer Agency Agreement (filed herewith)
(b) Letter Agreement adding Texas Tax-Free Income Fund and
Texas Tax-Free Money Market Fund (filed herewith)
(c) Amendment to Transfer Agency Agreement Fee Schedule for
Florida Tax-Free Money Market Fund (filed herewith)
(d) Amendment to Letter Agreement for Texas Tax-Free Money
Market Fund (filed herewith)
10 Opinion and Consent of Counsel (filed herewith)
11 Independent Auditors' Consent (filed herewith)
12 Financial statements omitted from prospectuses - Not
Applicable
13 Subscriptions
(a) Florida Bond Fund and Florida Money Market Fund
(filed herewith)
(b) Texas Tax-Free Income Fund and Texas Tax-Free
Money Market Fund (filed herewith)
14 Prototype Plans - Not Applicable
15 12b-1 Plans - Not Applicable
C-1
Exhibit No. Description of Exhibits
- ---------- -----------------------
16 Schedule for Computation of Performance Quotation
(filed herewith)
17 Financial Data Schedules
(a) Florida Tax-Free Income Fund (filed herewith)
(b) Florida Tax-Free Money Market Fund (filed
herewith)
(c) Texas Tax-Free Income Fund (filed herewith)
(d) Texas Tax-Free Money Market Fund (filed herewith)
18 Plan Adopting Multiple Classes of Shares - Not Applicable
19 Powers of Attorney
(a) Powers of Attorney for Michael J.C. Roth, Sherron
A. Kirk, John W. Saunders, Jr., C. Dale Briscoe,
George E. Brown, Howard L. Freeman, Jr., and
Richard A. Zucker dated June 25, 1993 (filed herewith)
(b) Powers of Attorney for Hansford T. Johnson and
Barbara B. Dreeben (filed herewith)
Item 25. Persons Controlled by or Under Common Control with
Registrant
Information pertaining to persons controlled by or under
common control with Registrant is hereby incorporated by
reference to the section captioned "Management of the Trust"
in the Prospectus and the section captioned "Trustees and
Officers of the Trust" in the Statement of Additional
Information.
Item 26. Number of Holders of Securities
Set forth below are the number of record holders, as of
March 31, 1995, of each class of securities of the
Registrant.
Title of Class Number of Record Holders
-------------- ------------------------
Florida Tax-Free Income Fund 1,312
Florida Tax-Free Money Market Fund 1,128
Texas Tax-Free Income Fund 247
Texas Tax-Free Money Market Fund 151
Item 27. Indemnification
Protection for the liability of the adviser and
underwriter and for the officers and trustees of the
Registrant is provided by two methods:
(a) The Trustee and Officer Liability Policy. This policy
covers all losses incurred by the Registrant, its
adviser and its underwriter from any claim made against
those entities or persons during the policy period by
any shareholder or former shareholder of any Fund by
reason of any alleged negligent act, error or omission
committed in connection with the administration of the
investments of said Registrant or in connection with
the sale or redemption of shares issued by said
Registrant. The Trust will not pay for such insurance
to the extent that payment therefor is in violation of
the Investment Company Act of 1940 or the Securities
Act of 1933.
(b) Indemnification Provisions under Agreement and
Declaration of Trust. Under Article VI of the Registrant's
Agreement and Declaration of Trust, each of its Trustees
and officers or any person serving at the Registrant's
request as directors, officers or trustees of another
organization in which the Registrant has any interest as a
shareholder, creditor or otherwise ("Covered Person")
shall be indemnified against all liabilities, including
but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties,
and expenses, including reasonable accountants' and
counsel fees, incurred by any Covered Person in
connection with the defense or disposition of any
action, suit or other proceeding, whether civil or
criminal, before any court or administrative or
legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or
with which such person may be or may have been
threatened, while in office or thereafter, by reason of
being or having been such an officer, director or
trustee, except with respect to any matter as to which
it has been determined that such Covered Person had
acted with willful misfeasance, bad
C-2
faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's
office (such conduct referred to hereafter as
"Disabling Conduct"). A determination that the
Covered Person is entitled to indemnification may be
made by (i) a final decision on the merits by a court
or other body before whom the proceeding was brought
that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court
action or an administrative proceeding against a
Covered Person for insufficiency of evidence of
Disabling Conduct, or (iii) a reasonable determination,
based upon a review of the facts, that the Covered
Person was not liable by reason of Disabling Conduct by
(a) a vote of a majority of a quorum of Trustees who
are neither "interested persons" of the Registrant as
defined in section 2(a)(19) of the 1940 Act nor parties
to the proceeding, or (b) an independent legal counsel
in a written opinion.
Expenses, including accountants and counsel fees so
incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from
time to time from funds attributable to the Fund of the
Registrant in question in advance of the final
disposition of any such action, suit or proceeding,
provided that the Covered Person shall have undertaken
to repay the amounts so paid to the Fund of the
Registrant in question if it is ultimately determined
that indemnification of such expenses is not authorized
under this Article VI and (i) the Covered Person shall
have provided security for such undertaking, (ii) the
Registrant shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a
quorum of the disinterested Trustees who are not a
party to the proceeding, or an independent legal
counsel in a written opinion, shall have determined,
based on a review of readily available facts (as
opposed to full trial-type inquiry), that there is
reason to believe that the Covered Person ultimately
will be found entitled to indemnification.
As to any matter disposed of by a compromise payment by
any such Covered Person pursuant to a consent decree or
otherwise, no such indemnification either for said
payment or for any other expenses shall be provided
unless such indemnification shall be approved (a) by a
majority of the disinterested Trustees who are not
parties to the proceeding or (b) by an independent
legal counsel in a written opinion. Approval by the
Trustees pursuant to clause (a) or by independent legal
counsel pursuant to clause (b) shall not prevent the
recovery from any Covered Person of any amount paid to
such Covered Person in accordance with any of such
clauses as indemnification if such Covered Person is
subsequently adjudicated by a court of competent
jurisdiction to have been liable to the Registrant or
its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's
office.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant pursuant to the Registrant's Agreement and
Declaration of the Trust or otherwise, the Registrant
has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of
the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee,
officer or controlling person in connection with the
securities being registered, then the Registrant will,
unless in the opinion of its counsel the matter has
been settled by a controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether indemnification by it is against public policy
as expressed in the Act and will be governed by the
final adjudication of such issue.
C-3
Item 28. Business and Other Connections of Investment Adviser
Information pertaining to business and other
connections of the Registrant's investment adviser is
hereby incorporated by reference to the section of the
Prospectus captioned "Management of the Trust" and to
the section of the Statement of Additional Information
captioned "Trustees and Officers of the Trust."
Item 29. Principal Underwriters
(a) USAA Investment Management Company (the "Adviser") acts
as principal underwriter and distributor of the
Registrant's shares on a best-efforts basis and
receives no fee or commission for its underwriting
services. The Adviser, wholly owned by United Services
Automobile Association, also serves as principal
underwriter for USAA Investment Trust, USAA Mutual
Fund, Inc., and USAA Tax Exempt Fund, Inc.
(b) Following is information concerning directors and
executive officers of USAA Investment Management
Company.
Name and Principal Position and Offices Position and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- --------------------
Hansford T. Johnson Director and Chairman Trustee and
9800 Fredericksburg Rd. of the Board of Chairman of the
San Antonio, TX 78288 Directors Board of Trustees
Michael J.C. Roth Chief Executive President, Trustee
9800 Fredericksburg Rd. Officer, President, and Vice Chairman
San Antonio, TX 78288 Director, and Vice of the Board of
Chairman of the Trustees
Board of Directors
John W. Saunders, Jr. Senior Vice President, Vice President
9800 Fredericksburg Rd. Fixed Income and Trustee
San Antonio, TX 78288 Investments, and Director
Harry W. Miller Senior Vice President, None
9800 Fredericksburg Rd. Equity Investments,
San Antonio, TX 78288 and Director
William McCrae Director None
9800 Fredericksburg Rd.
San Antonio, TX 78288
Josue Robles, Jr. Director None
9800 Fredericksburg Rd.
San Antonio, TX 78288
John J. Dallahan Senior Vice President, None
9800 Fredericksburg Rd. Investment Services
San Antonio, TX 78288
Michael D. Wagner Vice President, Secretary
9800 Fredericksburg Rd. Secretary and Counsel
San Antonio, TX 78288
Sherron A. Kirk Vice President and Treasurer
9800 Fredericksburg Rd. Controller
San Antonio, TX 78288
Alex M. Ciccone Vice President, Assistant
9800 Fredericksburg Rd. Compliance Secretary
San Antonio, TX 78288
(c) Not Applicable
C-4
Item 30. Location of Accounts and Records
The following entities prepare, maintain and preserve
the records required by Section 31(a) of the Investment
Company Act of 1940 (the "1940 Act") for the Registrant.
These services are provided to the Registrant through
written agreements between the parties to the effect that
such services will be provided to the Registrant for such
periods prescribed by the Rules and Regulations of the
Securities and Exchange Commission under the 1940 Act and
such records are the property of the entity required to
maintain and preserve such records and will be surrendered
promptly on request.
USAA Investment Management Company
9800 Fredericksburg Rd.
San Antonio, Texas 78288
USAA Shareholder Account Services
10750 Robert F. McDermott Freeway
San Antonio, Texas 78288
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Item 31. Management Services
Not Applicable.
Item 32. Undertaking
The Registrant hereby undertakes, if requested to do so
by the holders of at least 10% of the Registrant's
outstanding shares, to call a meeting of shareholders
for the purpose of voting upon the question of removal
of a Trustee or Trustees and to assist in
communications with other shareholders as required by
Section 16(c) of the Investment Company Act of 1940.
The Registrant hereby undertakes to provide each person
to whom a prospectus is delivered a copy of the
Registrant's latest annual report to shareholders upon
request and without charge.
C-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
securities Act of 1933 and has duly caused this amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San
Antonio and State of Texas on the 12th day of July, 1995.
USAA STATE TAX-FREE TRUST
/s/ Michael J.C. Roth
---------------------
Michael J.C. Roth
President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to its Registration Statement has been signed
below by the following persons in the capacities and on the date
indicated.
(Signature) (Title) (Date)
/s/ Hansford T. Johnson Chairman of the July 12, 1995
Hansford T. Johnson Board of Trustees
/s/ Michael J.C. Roth Vice Chairman of the July 12, 1995
Michael J.C. Roth Board of Trustees and
President (Principal
Executive Officer)
/s/ Sherron A. Kirk Treasurer (Principal July 12, 1995
Sherron A. Kirk Financial and
Accounting Officer)
/s/ John W. Saunders, Jr. Trustee July 12, 1995
John W. Saunders, Jr.
/s/ C. Dale Briscoe Trustee July 12, 1995
C. Dale Briscoe
/s/ George E. Brown Trustee July 12, 1995
George E. Brown
/s/ Howard L. Freeman, Jr. Trustee July 12, 1995
Howard L. Freeman, Jr.
/s/ Richard A. Zucker Trustee July 12, 1995
Richard A. Zucker
/s/ Barbara B. Dreeben Trustee July 12, 1995
Barbara B. Dreeben
C-6
EXHIBIT INDEX
Exhibit Item Page No. *
------- ---- -----------
1(a) Master Trust Agreement dated June 21, 1993 123
(filed herewith)
(b) Amendment No. 1 to Master Trust Agreement
dated September 8, 1993 (filed herewith) 145
(c) Amendment No. 2 to Master Trust Agreement
dated May 3, 1994 (filed herewith) 150
2 By-Laws, as amended November 8, 1993 (filed herewith) 154
3 Voting trust agreement - Not Applicable
4 Specimen Certificates for Shares of
(a) Florida Tax-Free Income Fund (filed herewith) 160
(b) Florida Tax-Free Money Market Fund (filed herewith) 163
(c) Texas Tax-Free Income Fund (filed herewith) 166
(d) Texas Tax-Free Money Market Fund (filed herewith) 169
5(a) Advisory Agreement (filed herewith) 172
(b) Letter Agreement adding Texas Tax-Free Income Fund
and Texas Tax-Free Money Market Fund (filed herewith) 178
6(a) Underwriting Agreement (filed herewith) 180
(b) Letter Agreement adding Texas Tax-Free Income Fund
and Texas Tax-Free Money Market Fund (filed herewith) 185
7 Not Applicable
8(a) Custodian Agreement (filed herewith) 187
(b) Letter Agreement adding Texas Tax-Free Income Fund
and Texas Tax-Free Money Market Fund (filed herewith) 215
9(a) Transfer Agency Agreement (filed herewith) 221
(b) Letter Agreement adding Texas Tax-Free Income Fund
and Texas Tax-Free Money Market Fund (filed herewith) 231
(c) Amendment to Transfer Agency Agreement Fee Schedule
for Florida Tax-Free Money Market Fund (filed herewith) 235
(d) Amendment to Letter Agreement for Texas Tax-Free Money
Market Fund (filed herewith) 237
10 Opinion and Consent of Counsel (filed herewith) 239
11 Independent Auditors' Consent (filed herewith) 241
12 Financial statements omitted from prospectuses - Not
Applicable
13 Subscriptions (filed herewith)
(a) Florida Bond Fund and Florida Money Market Fund
(filed herewith) 243
(b) Texas Tax-Free Income Fund and Texas Tax-Free
Money Market Fund (filed herewith) 248
14 Prototype Plans - Not Applicable
15 12b-1 Plans - Not Applicable
16 Schedule for Computation of Performance Quotation
(filed herewith) 251
C-7
EXHIBIT INDEX, cont.
Exhibit Item Page No. *
- ------- ---- ----------
17 Financial Data Schedules
(a) Florida Tax-Free Income Fund (filed herewith) 253
(b) Florida Tax-Free Money Market Fund (filed herewith) 256
(c) Texas Tax-Free Income Fund (filed herewith) 259
(d) Texas Tax-Free Money Market Fund (filed herewith) 262
18 Plan Adopting Multiple Classes of Shares - Not Applicable
19 Powers of Attorney
(a) Powers of Attorney for Michael J.C. Roth, Sherron A. Kirk,
John W. Saunders, Jr., C. Dale Briscoe, George E. Brown,
Howard L. Freeman, Jr., and Richard A. Zucker dated
June 25, 1993 (filed herewith) 265
(b) Powers of Attorney for Hansford T. Johnson and
Barbara B. Dreeben (filed herewith) 267
- -----------------------
* Refers to sequentially numbered pages
C-8
EXHIBIT 1(a)
USAA STATE TAX-EXEMPT TRUST
MASTER TRUST AGREEMENT
JUNE 21, 1993
1993 Goodwin, Procter & Hoar
All Rights Reserved
MASTER TRUST AGREEMENT
Page
ARTICLE I. NAME AND DEFINITIONS. . . . . . . . . . . . . . . . . 1
Section 1.1 Name and Principal Office. . . . . . . . . . . . . . 1
Section 1.2 Definitions. . . . . . . . . . . . . . . . . . . . . 1
(a) "Act". . . . . . . . . . . . . . . . . . . . . 2
(b) "By-laws". . . . . . . . . . . . . . . . . . . 2
(c) "class". . . . . . . . . . . . . . . . . . . . 2
(d) "Commission" . . . . . . . . . . . . . . . . . 2
(e) "Declaration of Trust" . . . . . . . . . . . . 2
(f) "Majority of the Outstanding Voting
Shares". . . . . . . . . . . . . . . . . . . 2
(g) "1940 Act" . . . . . . . . . . . . . . . . . . 2
(h) "person" . . . . . . . . . . . . . . . . . . . 2
(i) "Shareholder". . . . . . . . . . . . . . . . . 2
(j) "Shares" . . . . . . . . . . . . . . . . . . . 2
(k) "Sub-Trust or "Series" . . . . . . . . . . . . 2
(l) "Trust". . . . . . . . . . . . . . . . . . . . 2
(m) "Trustees" . . . . . . . . . . . . . . . . . . 3
ARTICLE II. PURPOSE OF TRUST . . . . . . . . . . . . . . . . . . 3
ARTICLE III. THE TRUSTEES . . . . . . . . . . . . . . . . . . . . 3
Section 3.1 Number, Designation, Election, Term, etc . . . . . . 3
(a) Initial Trustees . . . . . . . . . . . . . . . 3
(b) Number . . . . . . . . . . . . . . . . . . . . 3
(c) Election and Term. . . . . . . . . . . . . . . 3
(d) Resignation and Retirement . . . . . . . . . . 3
(e) Removal. . . . . . . . . . . . . . . . . . . . 4
(f) Vacancies. . . . . . . . . . . . . . . . . . . 4
(g) Effect of Death, Resignation, etc. . . . . . . 4
(h) No Accounting. . . . . . . . . . . . . . . . . 5
Section 3.2 Powers of Trustees . . . . . . . . . . . . . . . . . 5
(a) Investments. . . . . . . . . . . . . . . . . . 6
(b) Disposition of Assets. . . . . . . . . . . . . 6
(c) Ownership Powers . . . . . . . . . . . . . . . 6
(d) Subscription . . . . . . . . . . . . . . . . . 7
(e) Form of Holding. . . . . . . . . . . . . . . . 7
(f) Reorganization, etc. . . . . . . . . . . . . . 7
(g) Voting Trusts, etc.. . . . . . . . . . . . . . 7
(h) Compromise . . . . . . . . . . . . . . . . . . 7
(i) Partnerships, etc. . . . . . . . . . . . . . . 7
(j) Borrowing and Security . . . . . . . . . . . . 7
(k) Guarantees, etc. . . . . . . . . . . . . . . . 7
(l) Insurance. . . . . . . . . . . . . . . . . . . 8
(m) Pensions, etc. . . . . . . . . . . . . . . . . 8
(n) Distribution Plans . . . . . . . . . . . . . . 8
Section 3.3 Certain Contracts. . . . . . . . . . . . . . . . . . 8
(a) Advisory . . . . . . . . . . . . . . . . . . . 9
(b) Administration . . . . . . . . . . . . . . . . 9
(c) Distribution . . . . . . . . . . . . . . . . . 9
(d) Custodian and Depository . . . . . . . . . . . 9
(e) Transfer and Dividend
Disbursing Agency. . . . . . . . . . . . . . 9
(f) Shareholder Servicing. . . . . . . . . . . . . 9
(g) Accounting . . . . . . . . . . . . . . . . . . 9
Section 3.4 Payment of Trust Expenses and
Compensation of Trustees . . . . . . . . . . . . . 11
Section 3.5 Ownership of Assets of the Trust . . . . . . . . . . 11
Section 3.6 Action by Trustees . . . . . . . . . . . . . . . . . 11
ARTICLE IV. SHARES . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1 Description of Shares. . . . . . . . . . . . . . . . 12
Section 4.2 Establishment and Designation of
Sub-Trusts and Classes . . . . . . . . . . . . . . 14
(a) Assets Belonging to Sub-Trusts . . . . . . . . 14
(b) Liabilities Belonging to Sub-Trusts. . . . . . 15
(c) Dividends. . . . . . . . . . . . . . . . . . . 16
(d) Liquidation. . . . . . . . . . . . . . . . . . 16
(e) Voting . . . . . . . . . . . . . . . . . . . . 17
(f) Redemption by Shareholder. . . . . . . . . . . 17
(g) Redemption by Trust. . . . . . . . . . . . . . 17
(h) Net Asset Value. . . . . . . . . . . . . . . . 18
(i) Transfer . . . . . . . . . . . . . . . . . . . 18
(j) Equality . . . . . . . . . . . . . . . . . . . 19
(k) Fractions. . . . . . . . . . . . . . . . . . . 19
(l) Conversion Rights. . . . . . . . . . . . . . . 19
(m) Class Differences. . . . . . . . . . . . . . . 19
Section 4.3 Ownership of Shares. . . . . . . . . . . . . . . . . 20
Section 4.4 Investments in the Trust . . . . . . . . . . . . . . 20
Section 4.5 No Pre-emptive Rights. . . . . . . . . . . . . . . . 20
Section 4.6 Status of Shares and Limitation of
Personal Liability . . . . . . . . . . . . . . . . 20
Section 4.7 No Appraisal Rights. . . . . . . . . . . . . . . . . 21
ARTICLE V. SHAREHOLDERS' VOTING POWERS AND MEETINGS . . . . . . 21
Section 5.1 Voting Powers. . . . . . . . . . . . . . . . . . . . 21
Section 5.2 Meetings . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.3 Record Dates . . . . . . . . . . . . . . . . . . . . 22
Section 5.4 Quorum and Required Vote . . . . . . . . . . . . . . 22
Section 5.5 Action by Written Consent. . . . . . . . . . . . . . 23
Section 5.6 Inspection of Records. . . . . . . . . . . . . . . . 23
Section 5.7 Additional Provisions. . . . . . . . . . . . . . . . 23
ARTICLE VI. LIMITATION OF LIABILITY; INDEMNIFICATION . . . . . . 23
Section 6.1 Trustees, Shareholders, etc. Not
Personally Liable; Notice. . . . . . . . . . . . . 23
Section 6.2 Trustee's Good Faith Action; Expert
Advice; No Bond or Surety. . . . . . . . . . . . . 24
Section 6.3 Indemnification of Shareholders. . . . . . . . . . . 25
Section 6.4 Indemnification of Trustees, Officers, etc. . . . . 25
Section 6.5 Compromise Payment . . . . . . . . . . . . . . . . . 26
Section 6.6 Indemnification Not Exclusive, etc. . . . . . . . . 27
Section 6.7 Liability of Third Persons Dealing with Trustees . . 27
Section 6.8 Discretion. . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 28
Section 7.1 Duration and Termination of Trust . . . . . . . . . . 28
Section 7.2 Reorganization. . . . . . . . . . . . . . . . . . . . 28
Section 7.3 Amendments. . . . . . . . . . . . . . . . . . . . . . 29
Section 7.4 Filing of Copies; References; Headings. . . . . . . . 30
Section 7.5 Applicable Law. . . . . . . . . . . . . . . . . . . . 30
Section 7.6 Registered Agent. . . . . . . . . . . . . . . . . . . 31
Section 7.7 Integration . . . . . . . . . . . . . . . . . . . . . 31
MASTER TRUST AGREEMENT
AGREEMENT AND DECLARATION OF TRUST made at Wilmington,
Delaware this 21st day of June, 1993, by the Trustee or Trustees
hereunder, and by the holders of shares of beneficial interest to
be issued hereunder as hereinafter provided.
WITNESSETH
WHEREAS, this Trust has been formed to carry on the business
of an investment company; and
WHEREAS, this Trust is authorized to issue its shares of
beneficial interest in separate series, each separate series to
be a Sub-Trust hereunder, and to issue classes of Shares of any
Sub-Trust or divide Shares of any Sub-Trust into two or more
classes, all in accordance with the provisions hereinafter set
forth; and
WHEREAS, the Trustees have agreed to manage all property
coming into their hands as trustees of a Delaware business trust
in accordance with the provisions of the Delaware Business Trade
Act (12 Del. C. (section)3801, et seq.), as from time to time
amended and including any successor statute of similar import
(the "Act"), and the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will
hold all cash, securities and other assets which they may from
time to time acquire in any manner as Trustees hereunder IN TRUST
to manage and dispose of the same upon the following terms and
conditions for the benefit of the holders from time to time of
shares of beneficial interest in this Trust and the Sub-Trusts
created hereunder as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name and Principal Office. This Trust shall be
known as "USAA State Tax-Exempt Trust" and the Trustees shall
conduct the business of the Trust under that name or any other
name or names as they may from time to time determine. The
principal office of the Trust shall be located at such location
as the Trustees may from time to time determine.
Section 1.2 Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided:
(a) "Act" shall have the meaning given to it in the recitals
of this Declaration of Trust.
(b) "By-Laws" shall mean the By-Laws of the Trust as amended
from time to time;
(c) "class" refers to any class of Shares of any Series or
Sub-Trust established and designated under or in accordance with
the provisions of Article IV;
(d) "Commission" shall have the meaning given it in the 1940
Act;
(e) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time;
(f) "Majority of the Outstanding Voting Shares" of the Trust
or Sub-Trust shall mean the vote, at the annual or a special
meeting of Shareholders duly called, (A) of 67 per centum or more
of the Shares of the Trust or Sub-Trust present at such meeting,
if holders of more then 50 per centum of the outstanding Shares
of the Trust or Sub-Trust are present or represented by proxy; or
(B) or more than 50 per centum of the outstanding voting Shares
of the Trust or Sub-Trust, whichever is the less.
(g) "1940 Act" refers to the Investment Company Act of 1940
and the Rules and Regulations thereunder, all as amended from
time to time;
(h) "person" means a natural person, corporation, limited
liability company, trust, association, partnership (whether
general, limited or otherwise), joint venture or any other
entity.
(i) "Shareholder" means a beneficial owner of record of
Shares;
(j) "Shares" refers to the transferable units of interest
into which the beneficial interest in the Trust and each Sub-
Trust of the Trust and/or any class of any Sub-Trust (as the
context may require) shall be divided from time to time;
(k) "Sub-Trust" or "Series" refers to a series of Shares
established and designated under or in accordance with the
provisions of Article IV;
(l) "Trust" refers to the Delaware business trust
established by this Declaration of Trust, inclusive of each and
every Sub-Trust established hereunder; and
(m) "Trustees" refers to the trustees of the Trust and of
each Sub-Trust hereunder named herein or elected in accordance
with Article III.
ARTICLE II
PURPOSE OF TRUST
The purposes of the Trust are (i) to operate as an investment
company and to offer Shareholders of the Trust and each Sub-Trust
of the Trust one or more investment programs primarily in
securities and debt instruments, and (ii) to engage in such
activities that are necessary, suitable, incidental or convenient
to the accomplishment of the foregoing.
ARTICLE III
THE TRUSTEES
Section 3.1 Number, Designation, Election, Term, etc.
(a) Trustees. The initial Trustee hereof and of each Sub-Trust
hereunder shall be George E. Brown.
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase or decrease the number of
Trustees to a number other than the number theretofore determined. No
decrease in the number of Trustees shall have the effect of removing
any Trustee from office prior to the expiration of his term, but the
number of Trustees may be decreased in conjunction with the removal
of a Trustee pursuant to subsection (e) of this Section 3.1.
(c) Election and Term. The Trustees shall be elected by the
Shareholders of the Trust at the first meeting of the Shareholders
following the initial public offering of shares of the Trust. Each
Trustee, whether named above or hereafter becoming a Trustee, shall
serve as a Trustee of the Trust and of each Sub-Trust hereunder during
the lifetime of this Trust and until its termination as hereinafter
provided except as such Trustee sooner dies, resigns, retires or is
removed. Subject to Section 16(a) of the 1940 Act, the Trustees may
elect successors and may, pursuant to Section 3.1(f) hereof, appoint
Trustees to fill vacancies.
(d) Resignation and Retirement. Any Trustee may resign his trust
or retire as a Trustee of the Trust, by written instrument signed by
him and delivered to the other Trustees or to any officer of the Trust,
and such resignation or retirement shall take effect upon such delivery
or upon such later date as is specified in such instrument and shall be
effective as to the Trust and each Sub-Trust hereunder.
(e) Removal. Any Trustee may be removed with or without cause at
any time: (i) by written instrument, signed by at least two-thirds of
the number of Trustees in office immediately prior to such removal,
specifying the date upon which such removal shall become effective; or
(ii) by vote of Shareholders holding not less than two-thirds of the
Shares then outstanding, cast in person or by proxy at any meeting
called for the purpose; or (iii) by a written declaration signed by
Shareholders holding not less than two-thirds of the Shares then
outstanding and filed with the minutes of the Trust. Any such removal
shall be effective as to the Trust and each Sub-Trust hereunder.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from
any reason, including without limitation the death, resignation, retirement,
removal or incapacity of any of the Trustees, or resulting from an increase
in the number of Trustees by the other Trustees may (but so long as there
are at least two remaining Trustees, need not unless required by the 1940
Act) be filled by a majority of the remaining Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, through the appointment in
writing of such other person as such remaining Trustees in their discretion
shall determine and such appointment shall be effective upon the written
acceptance of the person named therein to serve as a trustee of the trust
and agreement by such person to be bound by the provisions of this
Declaration of Trust, except that any such appointment in anticipation of
a vacancy to occur by reason of retirement, resignation or increase in
number of Trustees to be effective at a later date shall be deemed effective
upon the effective date of said retirement, resignation or increase in
number of Trustees. As soon as any Trustee so appointed shall have accepted
such appointment and shall have agreed in writing to be bound by this
Declaration of Trust and the appointment is effective, the Trust estate
shall vest in the new Trustee, together with the continuing Trustees,
without any further act or conveyance.
(g) Effect of Death, Resignation, etc. The death, resignation,
retirement, removal or incapacity of the Trustees or any one of them, shall
cause a Trustee to cease to be a trustee of the Trust but shall not operate
to annul or terminate the Trust or any Sub-Trust hereunder or to revoke or
terminate any existing agency or contract created or entered into pursuant
to the terms of this Declaration of Trust.
(h) No Accounting. Except to the extent required by the 1940 Act or
under circumstances which would justify his removal for cause, no person
ceasing to be a trustee of the Trust as a result of his death, resignation,
retirement, removal or incapacity (nor the estate of any such person) shall
be required to make an accounting to the Shareholders or remaining Trustees
upon such cessation.
Section 3.2 Powers of Trustees. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be managed by the
Trustees, and they shall have all powers necessary or convenient to carry
out that responsibility and the purpose of the Trust. The Trustees in all
instances shall act as principals, and are and shall be free from the control
of the Shareholders. The Trustees shall have full power and authority
to do any and all acts and to make and execute any and all contracts and
instruments that they may consider necessary or appropriate in connection
with the management of the Trust. The Trustees shall not be bound or limited
by present or future laws or customs with regard to investment by trustees
or fiduciaries, but shall have full authority and absolute power and control
over the assets of the Trust and the business of the Trust to the same
extent as if the Trustees were the sole owners of the assets of the Trust
and the business in their own right, including such authority, power and
control to do all acts and things as they, in their sole discretion, shall
deem proper to accomplish the purposes of this Trust. Without limiting the
foregoing, the Trustees may adopt By-Laws not inconsistent with this
Declaration of Trust providing for the conduct of the business and affairs
of the Trust and may amend and repeal them to the extent that such By-Laws
do not reserve that right to the Shareholders; they may from time to time
in accordance with the provisions of Section 4.1 hereof establish Sub-Trusts,
each such Sub-Trust to operate as a separate and distinct investment
medium and with separately defined investment objectives and policies and
distinct investment purposes; they may from time to time in accordance
with the provisions of Section 4.1 hereof establish Series or establish
classes of Shares of any Series or Sub-Trust or divide the Shares of any
Series or Sub-Trust into classes; they may as they consider appropriate
designate employees and agents who may be denominated as officers with
titles, including, but not limited to, "president," "vice-president,"
"treasurer," "secretary," "assistant secretary," "assistant treasurer,"
"managing director," "chairman of the board" and "vice chairman of the
board" and who in such capacity may act for and on behalf of the Trust,
as and to the extent authorized by the Trustees, and appoint and terminate
agents and consultants and hire and terminate employees, any one or more
of the foregoing of whom may be a Trustee, and may provide for the
compensation of all of the foregoing; they may appoint from their own
number, and terminate, any one or more committees consisting of two or
more Trustees, including without implied limitation an executive committee,
which may, when the Trustees are not in session and subject to the 1940
Act, exercise some or all of the power and authority of the Trustees as
the Trustees may determine; in accordance with Section 3.3 they may
employ one or more advisers, administrators, depositories and custodians
and may authorize any depository or custodian to employ subcustodians or
agents and to deposit all or any part of such assets in a system or systems
for the central handling of securities and debt instruments, retain transfer,
dividend, accounting or Shareholder servicing agents or any of the foregoing,
provide for the distribution of Shares by the Trust through one or more
distributors, principal underwriters or otherwise, and subject to Section 5.3,
set record dates or times for the determination of Shareholders or various of
them with respect to various matters; they may compensate or provide for
the compensation of the Trustees, officers, advisers, administrators,
custodians, other agents, consultants and employees of the Trust or the
Trustees on such terms as they deem appropriate; and in general they may
delegate to any officer of the Trust, to any committee of the Trustees and to
any employee, adviser, administrator, distributor, depository, custodian,
transfer and dividend disbursing agent, or any other agent or consultant of
the Trust such authority, powers, functions and duties as they consider
desirable or appropriate for the conduct of the business and affairs of the
Trust, including without implied limitation the power and authority to act
in the name of the Trust and any Sub-Trust and of the Trustees, to sign
documents and to act as attorney-in-fact for the Trustees.
Without limiting the foregoing and to the extent not inconsistent with
the 1940 Act or other applicable law, the Trustees shall have power and
authority for and on behalf of the Trust and each separate Sub-Trust
established hereunder;
(a) Investments. To invest and reinvest cash and other property, and
to hold cash or other property uninvested without in any event being bound
or limited by any present or future law or custom in regard to investments
by trustees;
(b) Disposition of Assets. To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets of the
Trust;
(c) Ownership Powers. To vote or give assent, or exercise any rights
of ownership, with respect to stock or other securities, debt instruments
or property; and to execute and deliver proxies or powers of attorney to
such person or persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to securities,
debt instruments or property as the Trustees shall deem proper;
(d) Subscription. To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(e) Form of Holding. To hold any security, debt instrument or property
in a form not indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust or of any
Sub-Trust or in the name of a custodian, subcustodian or other depositary
or a nominee or nominees or otherwise;
(f) Reorganization, etc. To consent to or participate in any plan for
the reorganization, consolidation or merger of any corporation or issuer,
any security or dept instrument of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or sale of property by
such corporation or issuer, and to pay calls or subscriptions with respect
to any security or debt instrument held in the Trust;
(g) Voting Trusts, etc. To join with other holders of any securities
or debt instruments in acting through a committee, depositary, voting trustee
or otherwise, and in that connection to deposit any security or debt
instrument with, or transfer any security or debt instrument to, any such
committee, depositary or trustee, and to delegate to them such power and
authority with relation to any security or debt instrument (whether or not
so deposited or transferred) as the Trustees shall deem proper, and to agree
to pay, and to pay, such portion of the expenses and compensation of such
committee, depositary or trustee as the Trustees shall deem proper;
(h) Compromise. To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any Sub-Trust or any matter in controversy,
including but not limited to claims for taxes;
(i) Partnerships, etc. To enter into joint ventures, general or limited
partnerships, limited liability companies and any other combinations or
associations;
(j) Borrowing and Security. To borrow funds and to mortgage and pledge
the assets of the Trust or any part thereof to secure obligations arising
in connection with such borrowing;
(k) Guarantees, etc. To endorse or guarantee the payment of any notes
or other obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and to
mortgage and pledge the Trust property or any part thereof to secure any of
or all such obligations;
(l) Insurance. To purchase and pay for entirely out of Trust property
such insurance as they may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, consultants, investment advisers,
managers, administrators, distributors, principal underwriters, or independent
contractors, or any thereof (or any person connected therewith), of the Trust
individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person
in any such capacity, including any action taken or omitted that may
be determined to constitute negligence, whether or not the Trust would have
the power to indemnify such person against such liability;
(m) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plants, trusts and provisions, including
the purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust; and
(n) Distribution Plans. To adopt on behalf of the Trust or any Sub-Trust,
including with respect to any class thereof, a plan of distribution and
related agreements thereto pursuant to the terms of Rule 12b-1 of the 1940
Act and to make payments from the assets of the Trust or the relevant
Sub-Trust or Sub-Trusts pursuant to said Rule 12b-1 Plan.
Section 3.3 Certain Contracts. Subject to compliance with the provisions
of the 1940 Act, but notwithstanding any limitations of present and future
law or custom in regard to delegation of powers by trustees generally, the
Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth herein, enter
into one or more contracts with any one or more corporations, trusts,
associations, partnerships, limited partnerships, limited liability
companies, other type of organizations, or individuals (a "Contracting
Party"), to provide for the performance and assumption of some or all of
the following services, duties and responsibilities to, for or on behalf of
the Trust and/or any Sub-Trust, and/or the Trustees, and to provide for the
performance and assumption of such other services, duties and responsibilities
in addition to those set forth below as the Trustees may determine appropriate:
(a) Advisory. Subject to the general supervision of the Trustees and
in conformity with the stated policy of the Trustees with respect to the
investments of the Trust or of the assets belonging to any Sub-Trust of the
Trust (as that phrase is defined in subsection (a) of Section 4.2), to manage
such investments and assets, make investment decisions with respect thereto,
and to place purchase and sale orders for portfolio transactions relating
to such investments and assets;
(b) Administration. Subject to the general supervision of the Trustees
and in conformity with any policies of the Trustees with respect to the
operations of the Trust and each Sub-Trust (including each class thereof),
to supervise all or any part of the operations of the Trust and each
Sub-Trust, and to provide all or any part of the administrative and clerical
personnel, office space and office equipment and services appropriate for
the efficient administration and operations of the Trust and each Sub-Trust;
(c) Distribution. To distribute the Shares of the Trust and each
Sub-Trust (including any classes thereof), to be principal underwriter of
such Shares, and/or to act as agent of the Trust and each Sub-Trust in
the sale of Shares and the acceptance or rejection of orders for the
purchase of Shares;
(d) Custodian and Depository. To act as depository for and to
maintain custody of the property of the Trust and each Sub-Trust and
accounting records in connection therewith;
(e) Transfer and Dividend Disbursing Agency. To maintain records
of the ownership of outstanding Shares, the issuance and redemption and
the transfer thereof, and to disburse any dividends declared by the
Trustees and in accordance with the policies of the Trustees and/or the
instructions of any particular Shareholder to reinvest any such dividends;
(f) Shareholder Servicing. To provide service with respect to the
relationship of the Trust and its Shareholders, records with respect to
Shareholders and their Shares, and similar matters; and
(g) Accounting. To handle all or any part of the accounting
responsibilities, whether with respect to the Trust's properties,
Shareholders or otherwise.
The same person may be the Contracting Party for some or all of
the services, duties and responsibilities to, for and of the
Trust and/or the Trustees, and the contracts with respect thereto
may contain such terms interpretive of or in addition to the
delineating of the services, duties and responsibilities provided
for, including provisions that are not inconsistent with the 1940
Act relating to the standard of duty of and the rights to
indemnification of the Contracting Party and other, as the
Trustees may determine. Nothing herein shall preclude, prevent
or limit the Trust or a Contracting Party from entering into sub-
contractual arrangements relating to any of the matters referred
to in Sections 3.3 (a) through (g) hereof.
The fact that:
(i) any of the Shareholders, Trustees or officers of the
Trust is a shareholder, director, officer, partner, trustee,
employee, manager, adviser, principal underwriter or
distributor or agent of or for any Contracting Party, or of
or for any parent or affiliate of any Contracting Party or
that the Contracting Party or any parent or affiliate thereof
is a Shareholder or has an interest in the Trust or any Sub-
Trust, or that
(ii) any Contracting Party may have a contract
providing for the rendering of any similar services to one or
more other corporations, trusts, associations, partnerships,
limited partnerships, limited liability companies or other
organizations, or have other business or interests,
shall not affect the validity of any contract for the performance
and assumption of services, duties and responsibilities to, for
or of the Trust or any Sub-Trust and/or the Trustees or
disqualify any Shareholder, Trustee or officer of the Trust from
voting upon or executing the same or create any liability or
accountability to the Trust, any Sub-Trust or its Shareholders,
provided that in the case of any relationship or interest
referred to in the preceding clause (i) on the part of any
Trustee or officer of the Trust either (x) the material facts as
to such relationship or interest have been disclosed to or are
known by the Trustees not having any such relationship or
interest and the contract involved is approved in good faith by a
majority of such Trustees not having any such relationship or
interest (even though such unrelated or disinterested Trustees
are less than a quorum of all of the Trustees), (y) the material
facts as to such relationship or interest and as to the contract
have been disclosed to or are known by the Shareholders entitled
to vote thereon and the contract involved is specifically
approved in good faith by vote of the Shareholders, or (z) the
specific contract involved is fair to the Trust as of the time it
is authorized, approved or ratified by the Trustees or by the
Shareholders.
Section 3.4. Payment of Trust Expenses and Compensation of
Trustees. The Trustees are authorized to pay or to cause to be
paid out of the principal or income of the Trust or any Sub-
Trust, or partly out of principal and partly out of income, and
to charge or allocate the same to, between or among such one or
more of the Sub-Trusts and/or one or more classes of Shares
thereof that may be established and designated pursuant to
Article IV, as the Trustees deem fair, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection
with the Trust, any Sub-Trust and/or any class of Shares thereof,
or in connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees,
investment adviser, administrator, distributor, principal
underwriter, auditor, counsel, depository, custodian, transfer
agent, dividend disbursing agent, accounting agent, Shareholder
servicing agent, and such other agents, consultants, and
independent contractors and such other expenses and charges as
the Trustees may deem necessary or proper to incur. Without
limiting the generality of any other provision hereof, the
Trustees shall be entitled to reasonable compensation from the
Trust for their services as Trustees of the Trust and may fix the
amount of such compensation.
Section 3.5 Ownership of Assets of the Trust. Title to all
of the assets of the Trust and of each Sub-Trust shall at all
times be considered as vested in the Trust.
Section 3.6 Action by Trustees. Except as otherwise
provided by the 1940 Act or other applicable law, this
Declaration of Trust or the By-Laws, any action to be taken by
the Trustees on behalf of or with respect to the Trust or any
Sub-Trust or class thereof may be taken by a majority of the
Trustees present at a meeting of Trustees (a quorum, consisting
of at least one-half of the Trustees then in office, being
present), within or without Delaware, including any meeting held
by means of a conference telephone or other communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation
by such means shall constitute presence in person at a meeting,
or by written consents of a majority of the Trustees then in
office (or such larger or different number as may be required by
the 1940 Act or other applicable law).
ARTICLE IV
SHARES
Section 4.1 Description of Shares. The beneficial interest
in the Trust shall be divided into Shares, all with $.001 par
value, but the Trustees shall have the authority from time to
time to issue Shares in one or more Series (each of which Series
of Shares shall represent the beneficial interest in a separate
and distinct Sub-Trust of the Trust, including without limitation
each Sub-Trust specifically established and designated in Section
4.2), as they deem necessary or desirable. For all purposes
under this Declaration of Trust or otherwise, including, without
implied limitation, (i) with respect to the rights of creditors
and (ii) for purposes of interpreting the relevant rights of each
Sub-Trust and the Shareholders of each Sub-Trust, each Sub-Trust
established hereunder shall be deemed to be a separate trust.
Notice of the limitation of liabilities of a Sub-Trust shall be
set forth in the certificate of trust of the Trust, and debts,
liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular Sub-Trust shall
be enforceable against the assets of such Sub-Trust only, and not
against the assets of the Trust generally. The Trustees shall
have exclusive power without the requirement of Shareholder
approval to establish and designate such separate and distinct
Sub-Trusts, and to fix and determine the relative rights and
preferences as between the shares of the separate Sub-Trusts as
to right of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and other
distributions and on liquidation, sinking or purchase fund
provisions, conversion rights, and conditions under which the
several Sub-Trusts shall have separate voting rights or no voting rights.
In addition, the Trustees shall have exclusive power, without
the requirement of Shareholder approval, to issue classes of
Shares or any Sub-Trust or divide the Shares of any Sub-Trust
into classes, each class having such different dividend,
liquidation, voting and other rights as the Trustees may
determine in their sole discretion, and may establish and
designate the specific classes of Shares of each Sub-Trust. The
fact that a Sub-Trust shall have initially been established and
designated without any specific establishment or designation of
classes (i.e., that all Shares of such Sub-Trust are initially of
a single class), or that a Sub-Trust shall have more than one
established and designated class, shall not limit the authority
of the Trustees to establish and designate separate classes, or
one or more further classes, of said Sub-Trust without approval
of the holders of the initial class thereof, or previously
established and designated class or classes thereof, provided
that the establishment and designation of such further separate
classes would not adversely affect the rights of the holders of
the initial or previously established and designated class or classes.
The number of authorized Shares and the number of Shares of
each Sub-Trust or class thereof that may be issued is unlimited,
and the Trustees may issue Shares of any Sub-Trust or class
thereof for such consideration and on such terms as they may
determine (or for no consideration if pursuant to a Share
dividend or split-up), all without action or approval of the
Shareholders. All Shares when so issued on the terms determined
by the Trustees shall be fully paid and non-assessable (but may
be subject to mandatory contribution back to the Trust as
provided in subsection (h) of Section 4.2). The Trustees may
classify or reclassify any unissued Shares or any Shares
previously issued and reacquired of any Sub-Trust or class
thereof into one or more Sub-Trusts or classes thereof that may
be established and designated from time to time. The Trustees
may hold as treasury Shares, reissue for such consideration and
on such terms as they may determine, or cancel, at their
discretion from time to time, any Shares of any Sub-Trust or
class thereof reacquired by the Trust.
The Trustees may from time to time close the transfer books
or establish record dates and times for the purposes of
determining the holders of Shares entitled to be treated as such,
to the extent provided or referred to in Section 5.3.
The establishment and designation of any Sub-Trust or of any
class of Shares of any Sub-Trust in addition to those established
and designated in Section 4.2 shall be effective (i) upon the
execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation of the relative
rights and preferences of the Shares of such Sub-Trust or class,
(ii) upon the execution of an instrument in writing by an officer
of the Trust pursuant to the vote of a majority of the Trustees,
or (iii) as otherwise provided in either such instrument. At any
time that there are no Shares outstanding of any particular Sub-
Trust or class previously established and designated, the
Trustees may be an instrument executed by a majority of their
number (or by an instrument executed by an officer of the Trust
pursuant to the vote of a majority of the Trustees) abolish that
Sub-Trust or class and the establishment and designation thereof.
Each instrument establishing and designating any Sub-Trust shall
have the status of an amendment to this Declaration of Trust.
Any Trustee, officer or other agent of the Trust, and any
organization in which any such person is interested may acquire,
own, hold and dispose of Shares of any Sub-Trust (including any
classes thereof) of the Trust to the same extent as if such
person were not a Trustee, officer or other agent of the Trust;
and the Trust may issue and sell or cause to be issued and sold
and may purchase Shares of any Sub-Trust (including any classes
thereof) from any such person or any such organization subject
only to the general limitations, restrictions or other provisions
applicable to the sale or purchase of Shares of such Sub-Trust
(including any classes thereof) generally.
Section 4.2 Establishment and Designation of Sub-Trusts and
Classes. Without limiting the authority of the Trustees set
forth in Section 4.1 to establish and designate any further Sub-
Trusts, the Trustees hereby establish and designate two Sub-
Trusts: "Florida Bond Fund" and "Florida Money Market Fund,"
each of which shall consist of a single class of Shares. The
Shares of such Sub-Trusts and any Shares of any further Sub-Trust
or class thereof that may from time to time be established and
designated by the Trustees shall (unless the Trustees otherwise
determine with respect to some further Sub-Trust at the time of
establishing and designating the same) have the following
relative rights and preferences:
(a) Assets Belonging to Sub-Trusts. All consideration
received by the Trust for the issue or sale of Shares of a
particular Sub-Trust or any classes thereof, together with all
assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall be held
by the Trustees in trust for the benefit of the holders of Shares
of that Sub-Trust or class thereof and shall irrevocably belong
to that Sub-Trust (and be allocable to any classes thereof) for
all purposes, and shall be so recorded upon the books of account
of the Trust. Separate and distinct records shall be maintained
for each Sub-Trust and the assets associated with a Sub-Trust
shall be held and accounted for separately from the other assets
of the Trust, or any other Sub-Trust. Such consideration,
assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds, in whatever form the same
may be, together with any General Items (as hereinafter defined)
allocated to that Sub-Trust as provided in the following
sentence, are herein referred to as "assets belonging to" that
Sub-Trust (and allocable to any classes thereof). In the event
that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular Sub-Trust
(collectively "General Items"), the Trustees shall allocate such
General Items to and among any one or more of the Sub-Trusts
established and designated from time to time in such manner and
on such basis as they, in their sole discretion, deem fair and
equitable; and any General Items so allocated to a particular
Sub-Trust shall belong to that Sub-Trust (and be allocable to any
classes thereof). Each such allocation by the Trustees shall be
conclusive and binding upon the holders of all Shares of all Sub-
Trusts (including any classes thereof) for all purposes.
(b) Liabilities belonging to Sub-Trusts. The assets
belonging to each particular Sub-Trust shall be charged with the
liabilities in respect of that Sub-Trust and all expenses, costs,
charges and reserves belonging to that Sub-Trust, and any general
liabilities, expenses, costs, charges or reserves of the Trust
which are not readily identifiable as belonging to any particular
Sub-Trust shall be allocated and charged by the Trustees to and
among any one or more of the Sub-Trusts established and
designated from time to time in such manner and on such basis as
the Trustees in their sole discretion shall determine. In
addition, the liabilities in respect of a particular class of
Shares of a particular Sub-Trust and all expenses, costs, charges
and reserves belonging to that class of Shares, and any general
liabilities, expenses, costs, charges or reserves of that
particular Sub-Trust which are not readily identifiable as
belonging to any particular class of Shares of that Sub-Trust
shall be allocated and charged by the Trustees to and among any
one or more of the classes of Shares of that Sub-Trust
established and designated from time to time in such manner and
on such basis as the Trustees in their sole discretion shall
determine. The liabilities, expenses, costs, charges and
reserves allocated and so charged to a Sub-Trust or class thereof
are herein referred to as "liabilities belonging to" that Sub-
Trust or class thereof. Each allocation of liabilities,
expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders, creditors and any
other persons dealing with the Trust or any Sub-Trust (including
any classes thereof) for all purposes. Any creditor of any Sub-
Trust may look only to the assets of that Sub-Trust to satisfy
such creditor's debt.
The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be
treated as income and which items as capital; and each such
determination and allocation shall be conclusive and binding upon
the Shareholders.
(c) Dividends. Dividends and distributions on Shares of a
particular Sub-Trust or any class thereof may be paid with such
frequency as the Trustees may determine, which may be daily or
otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may
determine, to the holders of Shares of that Sub-Trust or class,
from such of the income and capital gains, accrued or realized,
from the assets belonging to that Sub-Trust, or in the case of a
class, belonging to that Sub-Trust and allocable to that class,
as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Sub-Trust or class. All
dividends and distributions on Shares of a particular Sub-Trust
or class thereof shall be distributed pro rata to the holders of
Shares of that Sub-Trust or class in proportion to the number of
Shares of that Sub-Trust or class held by such holders at the
date and time of record established for the payment of such
dividends or distributions, except that in connection with any
dividend or distribution program or procedure the Trustees may
determine that no dividend or distribution shall be payable on
Shares as to which the Shareholder's purchase order and/or
payment have not been received by the time or times established
by the Trustees under such program or procedure. Such dividends
and distributions may be made in cash or Shares of that Sub-Trust
or class or a combination thereof as determined by the Trustees
or pursuant to any program that the Trustees may have in effect
at the time for the election by each Shareholder of the mode of
the making of such dividend or distribution to that Shareholder.
Any such dividend or distribution paid in Shares will be paid at
the net asset value thereof as determined in accordance with
subsection (h) of this Section 4.2.
The Trustees shall have full discretion to determine which
items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and
binding upon the Shareholders.
(d) Liquidation. In the event of the liquidation or
dissolution of the Trust, subject to Section 7.1 hereof, the
holders of Shares of each Sub-Trust or any class thereof that has
been established and designated shall be entitled to receive,
when and as declared by the Trustees, the excess of the assets
belonging to that Sub-Trust, or in the case of a class, belonging
to that Sub-Trust and allocable to that class, over the
liabilities belonging to that Sub-Trust or class. The assets so
distributable to the holders of Shares of any particular Sub-
Trust or class thereof shall be distributed among such holders in
proportion to the number of Shares of that Sub-Trust or class
thereof held by them and recorded on the books of the Trust. The
liquidation of any particular Sub-Trust or class thereof may be
authorized at any time by vote of a majority of the Trustees then
in office.
(e) Voting. On each matter submitted to a vote of the
Shareholders, each holder of a Share shall be entitled to one
vote for each whole Share standing in his name on the books of
the Trust irrespective of the Series thereof or class thereof and
all Shares of all Series and classes thereof shall vote together
as a single class; provided, however, that as to any matter (i)
with respect to which a separate vote of one or more Series or
classes thereof is required by the 1940 Act or the provisions of
the writing establishing and designating the Sub-Trust or class,
such requirements as to a separate vote by such Series or class
thereof shall apply in lieu of all Shares of all Series and
classes thereof voting together; and (ii) as to any matter which
affects the interests of one or more particular Series or classes
thereof, only the holders of Shares of the one or more affected
Series or classes shall be entitled to vote, and each such Series
or class shall vote as a separate class.
(f) Redemption by Shareholder. Each holder of Shares of a
particular Sub-Trust or any class thereof shall have the right at
such times as may be permitted by the Trust to require the Trust
to redeem all or any part of his Shares of that Sub-Trust or
class thereof at a redemption price equal to the net asset value
per Share of that Sub-Trust or class thereof next determined in
accordance with subsection (h) of this Section 4.2 after the
Shares are properly tendered for redemption, subject to any
contingent deferred sales charge or redemption charge in effect
at the time of redemption. Payment of the redemption price shall
be in cash; provided, however, that if the Trustees determine,
which determination shall be conclusive, that conditions exist
which make payment wholly in cash unwise or undesirable, the
Trust may, subject to the requirements of the 1940 Act, make
payment wholly or partly in securities or other assets belonging
to the Sub-Trust of which the Shares being redeemed are part at
the value of such securities or assets used in such determination
of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment
of the redemption price and may suspend the right of the holders
of Shares of any Sub-Trust or class thereof to require the Trust
to redeem Shares of that Sub-Trust during any period or at any
time when and to the extent permissible under the 1940 Act.
(g) Redemption by Trust. Each Share of each Sub-Trust or
class thereof that has been established and designated is subject
to redemption by the Trust at the redemption price which would be
applicable if such Share was then being redeemed by the
Shareholder pursuant to subsection (f) of this Section 4.2: (i)
at any time, in the sole discretion of the Trustees, or (ii) upon
such other conditions as may from time to time be determined by
the Trustees and set forth in the then current Prospectus of the
Trust. Upon such redemption the holders of the Shares so
redeemed shall have no further right with respect thereto other
than to receive payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any
Sub-Trust shall be (i) in the case of a Sub-Trust whose Shares
are not divided into classes, the quotient obtained by dividing
the value of the net assets of that Sub-Trust (being the value of
the assets belonging to that Sub-Trust less the liabilities
belonging to that Sub-Trust) by the total number of Shares of
that Sub-Trust outstanding, and (ii) in the case of a class of
Shares of a Sub-Trust whose Shares are divided into classes the
quotient obtained by dividing the value of the net assets of that
Sub-Trust allocable to such class (being the value of the assets
belonging to that Sub-Trust allocable to such class less the
liabilities belonging to such class) by the total number of
Shares of such class outstanding; all determined in accordance
with the methods and procedures, including without limitation
those with respect to rounding, established by the Trustees from
time to time.
The Trustees may determine to maintain the next asset value
per Share of any Sub-Trust at a designated constant dollar amount
and in connection therewith may adopt procedures not inconsistent
with the 1940 Act for the continuing declarations of income
attributable to that Sub-Trust as dividends payable in additional
Shares of that Sub-Trust at the designated constant dollar amount
and for the handling of any losses attributable to that Sub-
Trust. Such procedures may provide that in the event of any loss
each Shareholder shall be deemed to have contributed to the
capital of the Trust attributable to that Sub-Trust his pro rata
portion of the total number of Shares required to be cancelled in
order to permit the net asset value per Share of that Sub-Trust
to be maintained, after reflecting such loss, at the designated
constant dollar amount. Each Shareholder of the Trust shall be
deemed to have agreed, by his investment in any Sub-Trust with
respect to which the Trustees shall have adopted any such
procedure, to make the contribution referred to in the preceding
sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Sub-Trust or
class thereof shall be transferable, but transfers of Shares of a
particular Sub-Trust or class thereof will be recorded on the
Share transfer records of the Trust applicable to that Sub-Trust
or class only at such times as Shareholders shall have the right
to require the Trust to redeem Shares of that Sub-Trust or class
and at such other times as may be permitted by the Trustees.
(j) Equality. Except as provided herein or in the
instrument designating and establishing any class of Shares or
any Sub-Trust, all Shares of each particular Sub-Trust or class
thereof shall represent an equal proportionate interest in the
assets belonging to that Sub-Trust, or in the case of a class,
belonging to that Sub-Trust and allocable to that class, subject
to the liabilities belonging to that Sub-Trust or class, and each
Share of any particular Sub-Trust or class shall be equal to each
other Share of that Sub-Trust or class; but the provisions of
this sentence shall not restrict any distinctions permissible
under subsection (c) of this Section 4.2 that may exist with
respect to dividends and distributions on Shares of the same Sub-
Trust or class. The Trustees may from time to time divide or
combine the Shares of any particular Sub-Trust or class into a
greater or lesser number of Shares of that Sub-Trust or class
without thereby changing the proportionate beneficial interest in
the assets belonging to that Sub-Trust or class or in any way
affecting the rights of Shares of any other Sub-Trust or class.
(k) Fractions. Any fractional Share of any Sub-Trust or
class, if any such fractional Share is outstanding, shall carry
proportionately all the rights and obligations of a whole Share
of that Sub-Trust or class, including rights and obligations with
respect to voting, receipt of dividends and distributions,
redemption of Shares, and liquidation of the Trust.
(l) Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the
authority to provide that holders of Shares of any Sub-Trust or
class thereof shall have the right to convert said Shares into
Shares of one or more other Sub-Trust or class thereof in
accordance with such requirements and procedures as may be
established by the Trustees.
(m) Class Differences. Subject to Section 4.1, the relative
rights and preferences of the classes of any Sub-Trust may differ
in such other respects as the Trustees may determine to be
appropriate in their sole discretion, provided that such
differences are set forth in the instrument establishing and
designating such classes and executed by a majority of the
Trustees (or by an instrument executed by an officer of the Trust
pursuant to a vote of a majority of the Trustees).
Section 4.2 Ownership of Shares. The ownership of Shares
shall be recorded on the books of the Trust or of a transfer or
similar agent for the Trust, which books shall be maintained
separately for the Shares of each Sub-Trust and each class
thereof that has been established and designated. No
certificates certifying the ownership of Shares need be issued
except as the Trustees may otherwise determine from time to time.
The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the use of facsimile
signatures, the transfer of Shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer or
similar agent, as the case may be, shall be conclusive as to who
are the Shareholders and as to the number of Shares of each Sub-
Trust and class thereof held from time to time by each such
Shareholder.
Section 4.4 Investments in the Trust. The Trustees may
accept investments in the Trust and each Sub-Trust from such
persons and on such terms and for such consideration, not
inconsistent with the provisions of the 1940 Act, as they from
time to time authorize. The Trustees may authorize any
distributor, principal underwriter, custodian, transfer agent or
other person to accept orders from the purchase of Shares that
conform to such authorized terms and to reject any purchase
orders for Shares whether or not conforming to such authorized
terms.
Section 4.5 No Pre-emptive Rights. Shareholders shall have
no pre-emptive or other right to subscribe to any additional
Shares or other securities issued by the Trust or any Sub-Trust.
Section 4.6 Status of Shares and Limitation of Personal
Liability. Shares shall be deemed to be personal property giving
only the rights provided in this Declaration of Trust. Every
Shareholder by virtue or acquiring Shares shall be held to have
expressly assented and agreed to the terms hereof and to have
become a party hereto. The death, incapacity, dissolution,
termination or bankruptcy of a Shareholder during the continuance
of the Trust shall not operate to dissolve or terminate the Trust
or any Sub-Trust thereof nor entitle the representative of such
Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the
rights of such Shareholder under this Trust. Ownership of Shares
shall not entitle the Shareholder to any title in or to the whole
or any part of the Trust property or right to call for a
partition or division of the same or for an accounting, nor shall
the ownership of Shares constitute the Shareholders partners.
Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind personally any
Shareholder, nor except as specifically provided herein to call
upon any Shareholder for the payment of any sum of money or
assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay.
Section 4.7 No Appraisal Rights. Shareholders shall have no
right to demand payment for their shares or to any other rights
of dissenting shareholders in the event the Trust participates in
any transaction which would give rise to appraisal or dissenters'
rights by a shareholder of a corporation organized under the
General Corporation Law of the State of Delaware, or otherwise.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 5.1 Voting Powers. The Shareholders shall have
power to vote only (i) for the election or removal of Trustees as
provided in Section 3.1, (ii) with respect to any contract with a
Contracting Party as provided in Section 3.3 as to which
Shareholder approval is required by the 1940 Act, (iii) with
respect to any termination or reorganization of the Trust to the
extent and as provided in Sections 7.1 and 7.2, (iv) with respect
to any amendment of this Declaration of Trust to the extent and
as provided in Section 7.3, and (v) with respect to such
additional matters relating to the Trust as may be required by
the 1940 Act, this Declaration of Trust, the By-Laws or any
registration of the Trust with the Commission (or any successor
agency) or any state, or as the Trustees may consider necessary
or desirable. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy.
Proxies may be given orally or in writing or pursuant to any
computerized or mechanical data gathering process specifically
approved by the Trustees. A proxy with respect to Shares held in
the name of two or more persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust
receives a specific written notice to the contrary from any one
of them. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior
to its exercise and the burden of proving invalidity shall rest
on the challenger. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the By-Laws to be
taken by Shareholders.
Section 5.2 Meetings. No annual or regular meeting of
Shareholders is required. Special meetings of Shareholders may
be called by the Trustees from time to time for the purpose of
taking action upon any matter requiring the vote or authority of
the Shareholders as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Written
notice of any meeting of Shareholders shall be given or caused to
be given by the Trustees by mailing such notice at least seven
days before such meeting, postage prepaid, stating the time,
place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust.
The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any
Trustee of the Trust when requested to do so in writing by
Shareholders holding not less than 10% of the Shares then
outstanding. If the Trustees shall fail to call or give notice
of any meeting of Shareholders for a period of 30 days after
written application by Shareholders holding at least 10% of the
Shares then outstanding requesting a meeting be called for any
other purpose requiring action by the Shareholders as provided
herein or in the By-Laws, then Shareholders holding at least 10%
of the Shares then outstanding may call and give notice of such
meeting, and thereupon the meeting shall be held in the manner
provided for herein in case of call thereof by the Trustees.
Section 5.3 Record Dates. For the purpose of determining
the Shareholders who are entitled to vote or act at any meeting
or any adjournment thereof, or who are entitled to participate in
any dividend or distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer
books for such period, not exceeding 30 days (except at or in
connection with the termination of the Trust), as the Trustees
may determine; or without closing the transfer books the Trustees
may fix a date and time not more than 90 days prior to the date
of any meeting of Shareholders or other action as the date and
time of record for the determination of Shareholders entitled to
vote at such meeting or any adjournment thereof or to be treated
as Shareholders of record for purposes of such other action, and
any Shareholder who was a Shareholder at the date and time so
fixed shall be entitled to vote at such meeting or any
adjournment thereof or to be treated as a Shareholder of record
for purposes of such other action, even though he has since that
date and time disposed of his Shares, and no Shareholder becoming
such after that date and time shall be so entitled to vote at
such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.
Section 5.4 Quorum and Required Vote. Except as otherwise
provided by the 1940 Act or other applicable law, thirty percent
of the Shares entitled to vote shall be a quorum for the
transaction of business at a Shareholders' meeting, but any
lesser number shall be sufficient for adjournments. Any meeting
of shareholders, whether or not a quorum is present, may be
adjourned for any lawful purpose provided that no meeting shall
be adjourned for more than six months beyond the originally
scheduled meeting date. Any adjourned session or sessions may be
held, within a reasonable time after the date set for the
original meeting without the necessity of further notice. A
majority of the Shares voted, at a meeting of which a quorum is
present shall decide any questions and a plurality shall elect a
Trustee, except when a different vote is required or permitted by
any provision of the 1940 Act or other applicable law or by this
Declaration of Trust or the By-Laws.
Section 5.5 Action by Written Consent. Subject to the
provisions of the 1940 Act and other applicable law, any action
taken by Shareholders may be taken without a meeting if a
majority of Shareholders entitled to vote on the matter (or such
larger proportion thereof as shall be required by the 1940 Act or
by any express provision of this Declaration of Trust or the By-
Laws) consent to the action in writing and such written consents
are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
Section 5.6 Inspection of Records. The records of the Trust
shall be open to inspection by Shareholders to the same extent as
is permitted stockholders of a Delaware corporation under the
Delaware General Corporation Law.
Section 5.7 Additional Provisions. The By-Laws may include
further provisions for Shareholders' votes and meetings and
related matters not inconsistent with the provisions hereof.
ARTICLE VI
LIMITATION OF LIABILITY; INDEMNIFICATION
Section 6.1 Trustees, Shareholders, etc. Not Personally
Liable; Notice. All persons extending credit to, contracting
with or having any claim against the Trust shall look only to the
assets of the Sub-Trust with which such person dealt for payment
under such credit, contract or claim; and neither the
Shareholders of any Sub-trust nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or
future, nor any other Sub-Trust shall be personally liable
therefor. Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever executed or
done by or on behalf of the Trust, any Sub-Trust or the Trustees
or any of them in connection with the Trust shall be conclusively
deemed to have been executed or done only by or for the Trust (or
the Sub-Trust) or the Trustees and not personally. The Trustees
and the Trust's officers, employees and agents shall not be
liable to the Trust or the Shareholders; provided however, that
nothing in this Declaration of Trust shall protect any Trustee or
officer, employee or agent against any liability to the Trust or
the Shareholders to which such Trustee or officer, employee or
agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office of Trustee or of
such officer, employee or agent.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officers or
officer shall give notice that the same was executed or made by
or on behalf of the Trust or by them as Trustees or Trustee or as
officers or officer and not individually and that the obligations
of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets
and property of the Trust, or the particular Sub-Trust in
question, as the case may be, but the omission thereof shall not
operate to bind any Trustees or Trustee or officers or officer or
Shareholders or Shareholder individually or otherwise invalidate
any such note, bond, contract, instrument, certificate or undertaking.
Section 6.2 Trustee's Good Faith Action; Expert Advice; No
Bond or Surety. The exercise by the Trustees of their powers and
discretion hereunder shall be binding upon everyone interested.
A Trustee shall be liable to the Trust and the Shareholders for
his own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable
for errors of judgment or mistakes of fact or law. Subject to
the foregoing, (a) the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer,
agent, employee, consultant, adviser, administrator, distributor
or principal underwriter, custodian or transfer, dividend
disbursing, Shareholder servicing or accounting agent of the
Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee; (b) the Trustees may take advice
of counsel or other experts with respect to the meaning and
operation of this Declaration of Trust and their duties as
Trustees, and shall be under no liability for any act or omission
in accordance with such advice or for failing to follow such
advice; and (c) in discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of
account of the Trust and upon written reports made to the
Trustees by any officer appointed by them, any independent public
accountant, and (with respect to the subject matter of the
contract involved) any officer, partner or responsible employee
of a Contracting Party appointed by the Trustees pursuant to
Section 3.3. The Trustees as such shall not be required to give
any bond or surety or any other security for the performance of
their duties. To the extent that, at law or in equity, a Trustee
has duties (including fiduciary duties) and liabilities relating
thereto to the Trust or to a Shareholder, any such Trustee acting
under this Declaration of Trust shall not be liable to the Trust
or to any such Shareholder for the Trustee's good faith reliance
on the provisions of this Declaration of Trust. The provisions
of this Declaration of Trust, to the extent that they restrict
the duties and liabilities of a Trustee otherwise existing at law
or in equity, are agreed by the Shareholders to replace such
other duties and liabilities of such Trustee.
Section 6.3 Indemnification of Shareholders. In case any
Shareholder (or former Shareholder) of any Sub-Trust of the Trust
shall be charged or held to be personally liable for any
obligation or liability of the Trust solely by reason of being or
having been a Shareholder and not because of such Shareholder's
acts or omissions or for some other reason, the Trust on behalf
of said Sub-Trust (upon proper and timely request by the
Shareholder) shall assume the defense against such charge and
satisfy any judgment thereon, and, to the fullest extent
permitted by law, the Shareholder or former Shareholder (or his
heirs, executors, administrators or other legal representatives
or in the case of a corporation or other entity, its corporate or
other general successor) shall be entitled out of the assets of
said Sub-Trust estate to be held harmless from and indemnified
against all loss and expense arising from such liability.
Section 6.4 Indemnification of Trustees, Officers, etc. To
the fullest extent permitted by law, the Trust shall indemnify
(from the assets of the Sub-Trust or Sub-Trusts in question) each
of its Trustees and officers (including persons who serve at the
Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a
shareholder, creditor or otherwise [hereinafter referred to as a
"Covered Person"]) against all liabilities, including but not
limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered
Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which
such Covered Person may be or may have been involved as a party
or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or
having been such a Trustee or officer, director or trustee,
except with respect to any matter as to which it has been
determined that such Covered Person had acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's
office (such conduct referred to hereafter as "Disabling
Conduct"). A determination that the Covered Person is entitled
to indemnification may be made by (i) a final decision on the
merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by
reason of Disabling Conduct, (ii) dismissal of a court action or
an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a
reasonable determination, based upon a review of the facts, that
the Covered Person was not liable by reason of Disabling Conduct
by (a) a vote of a majority of a quorum of Trustees who are
neither "interested persons" of the Trust as defined in section
2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an
independent legal counsel in a written opinion. Expenses,
including accountants' and counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be paid
from time to time from funds attributable to the Sub-Trust in
question in advance of the final disposition of any such action,
suit or proceeding, provided that the Covered Person shall have
undertaken to repay the amounts so paid to the Sub-Trust in
question if it is ultimately determined that indemnification of
such expenses is not authorized under this Article VI and (i) the
Covered Person shall have provided security for such undertaking,
(ii) the Trust shall be insured against losses arising by reason
of any lawful advances, or (iii) a majority of a quorum of the
disinterested Trustees who are not a party to the proceeding, or
an independent legal counsel in a written opinion, shall have
determined, based on a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to
believe that the Covered Person ultimately will be found entitled
to indemnification.
Section 6.5 Compromise Payment. As to any matter disposed
of by a compromise payment by any such Covered Person referred to
in Section 6.4, pursuant to a consent decree or otherwise, no
such indemnification either for said payment or for any other
expenses shall be provided unless such indemnification shall be
approved (a) by a majority of the disinterested Trustees who are
not parties to the proceeding or (b) by an independent legal
counsel in a written opinion. Approval by the Trustees pursuant
to clause (a) or by independent legal counsel pursuant to clause
(b) shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with any of such
clauses as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office.
Section 6.6 Indemnification Not Exclusive, etc. The right
of indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article VI, "Covered
Person" shall include such person's heirs, executors and
administrators, an "interested Covered Person" is one against
whom the action, suit or other proceeding in question or another
action, suit or other proceeding on the same or similar grounds
is then or has been pending or threatened, and a "disinterested"
person is a person against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or has been pending or
threatened. Nothing contained in this Article shall affect any
rights to indemnification to which personnel of the Trust, other
than Trustees and officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such person.
Section 6.7 Liability of Third Persons Dealing with
Trustees. No person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its order.
Section 6.8 Discretion. Whenever in this Declaration of
Trust the Trustees are permitted or required to make a decision
(a) in their "sole discretion," "sole and absolute discretion,"
"full discretion" or "discretion," or under a similar grant of
authority or latitude, the Trustees shall be entitled to consider
only such interests and factors as they desire, whether
reasonable or unreasonable, and may consider their own interests,
and shall have no duty or obligation to give any consideration to
any interests of or factors affecting the Trust or the
Shareholders, or (b) in their "good faith" or under another
express standard, the Trustees shall act under such express
standard and shall not be subject to any other or different
standards imposed by this Declaration of Trust or by law or any
other agreement contemplated herein. Each Shareholder and
Trustee hereby agrees that any standard of care or duty imposed
in this Declaration of Trust or any other agreement contemplated
herein or under the Act or any other applicable law, rule or
regulation shall be modified, waived or limited in each case as
required to permit the Trustees to act under this Declaration of
Trust or any other agreement contemplated herein and to make any
decision pursuant to the authority prescribed in this Declaration
of Trust.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Duration and Termination of Trust. Unless
terminated as provided herein, the Trust shall continue without
limitation of time and, without limiting the generality of the
foregoing, no change, alteration or modification with respect to
any Sub-Trust or class thereof shall operate to terminate the
Trust. The Trust may be terminated at any time by a majority of
the Trustees then in office subject to a favorable vote of a
Majority of the Outstanding Voting Shares of the Trust.
Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued
or anticipated as may be determined by the Trustees, the Trust
shall in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets to distributable form in
cash, securities or other property, or any combination thereof,
and distribute the proceeds to the Shareholders, in conformity
with the provisions of subsection (d) of Section 4.2.
Section 7.2 Reorganization. The Trustees may sell, convey,
merge and transfer the assets of the Trust, or the assets
belonging to any one or more Sub-Trusts, to another trust,
partnership, association or corporation organized under the laws
of any state of the United States, or to the Trust to be held as
assets belonging to another Sub-Trust of the Trust, in exchange
for cash, shares or other securities (including, in the case of a
transfer to another Sub-Trust of the Trust, Shares of such other
Sub-Trust or any class thereof) with such transfer either (1)
being made subject to, or with the assumption by the transferee
of, the liabilities belonging to each Sub-Trust the assets of
which are so transferred, or 2) not being made subject to, or not
with the assumption of, such liabilities; provided, however, that
no assets belonging to any particular Sub-Trust shall be so
transferred unless the terms of such transfer shall have first
been approved at a meeting called for the purpose by the
affirmative vote of the holders of a Majority of the Outstanding
Voting Shares of that Sub-Trust. Following such transfer, the
Trustees shall distribute such cash, shares or other securities
among the Shareholders of the Sub-Trust (taking into account the
differences among the classes of Shares thereof, if any) the
assets belonging to which have been so transferred; and if all of
the assets of the Trust have been so transferred, the trust shall
be terminated.
The Trust, or any one or more Sub-Trusts, may, either as the
successor, survivor, or non-survivor, (1) consolidate with one or
more other trusts, partnerships, limited liability companies,
associations or corporations organized under the laws of the
State of Delaware or any other state of the United States, to
form a new consolidated trust, partnership, association or
corporation under the laws of which any one of the constituent
entities is organized, or (2) merge into or transfer a
substantial portion of its assets to one or more other trusts,
partnerships, associations or corporations organized under the
laws of the State of Delaware or any other state of the United
States, or have one or more such trusts, partnerships,
associations or corporations merged into or transfer a
substantial portion of its assets to it, any such consolidation,
merger or transfer to be upon such terms and conditions as are
specified in an agreement and plan of reorganization entered into
by the Trust, or one or more Sub-Trusts as the case may be, in
connection therewith. Any such consolidation, merger or transfer
shall require the affirmative vote of the holders of a Majority
of the Outstanding Voting Shares of the Trust (or each Sub-Trust
affected thereby, as the case may be), except that such
affirmative vote of the holders of Shares shall not be required
if the Trust (or Sub-Trust affected thereby, as the case may be)
shall be the survivor of such consolidation or merger or
transferee of such assets.
Section 7.3 Amendments. All rights granted to the
Shareholders under this Declaration of Trust are granted subject
to the reservation of the right to amend this Declaration of
Trust as herein provided, except that no amendment shall repeal
the limitations on personal liability of any Shareholder or
Trustee or repeal the prohibition of assessment upon the
Shareholders without the express consent of each Shareholder or
Trustee involved. Subject to the foregoing, the provisions of
this Declaration of Trust (whether or not related to the rights
of Shareholders) may be amended at any time, so long as such
amendment does not adversely affect the rights of any Shareholder
with respect to which such amendment is or purports to be
applicable and so long as such amendment is not in contravention
of applicable law, including the 1940 Act, by an instrument in
writing signed by a majority of the then Trustees (or by an
officer of the Trust pursuant to the vote of a majority of such
Trustees). Any amendment to this Declaration of Trust that
adversely affects the rights of Shareholders may be adopted at
any time by an instrument in writing signed by a majority of the
then Trustees (or by an officer of the Trust pursuant to a vote
of a majority of such Trustees) when authorized to do so by the
vote in accordance with subsection (e) of Section 4.2 of
Shareholders holding a majority of the Shares entitled to vote.
Subject to the foregoing, any such amendment shall be effective
as provided in the instrument containing the terms of such
amendment or, if there is no provision therein with respect to
effectiveness, upon the execution of such instrument and of a
certificate (which may be a part of such instrument) executed by
a Trustee or officer of the Trust to the effect that such
amendment has been duly adopted.
Section 7.4 Filing of Copies; References; Headings. The
original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may
rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made, as to the identities of
the Trustees and officers, and as to any matters in connection
with the Trust hereunder; and, with the same effect as if it were
the original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such amendments.
In this instrument and in any such amendment, references to this
instrument, and all expressions like "herein," "hereof" and
"hereunder" shall be deemed to refer to this instrument as a
whole as the same may be amended or affected by any such
amendments. The masculine gender shall include the feminine and
neuter genders. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument.
This instrument may be executed in any number of counterparts
each of which shall be deemed an original.
Section 7.5 Applicable Law. This Declaration of Trust is
created under and is to be governed by and construed and
administered according to the laws of the State of Delaware. The
trust shall be of the type referred to in Section 3801 of the
Delaware Business Trust Act and of the type commonly called a
business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by
such a trust.
Section 7.6 Registered Agent. RL&F Service Corp, of One
Rodney Square, 10th Floor, 10th and King Streets, City of
Wilmington, County of New Castle, Delaware 19801 is hereby
designated as the initial registered agent for service of process
on the Trust in Delaware. The address of the registered office
of the Trust in the State of Delaware is c/o RL&F Service Corp.,
One Rodney Square, 10th Floor, 10th and King Streets, City of
Wilmington, County of New Castle, Delaware 19801.
Section 7.7 Integration. This Declaration of Trust
constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
[END OF TEXT]
IN WITNESS WHEREOF, the undersigned hereunto set his hand and
seal in the City of Wilmington, Delaware for himself and his
assigns, as of the day and year first above written.
/s/ George E. Brown
-------------------
George E. Brown
EXHIBIT 1(b)
USAA STATE TAX-EXEMPT TRUST
AMENDMENT NO. 1 TO MASTER TRUST AGREEMENT
AMENDMENT NO. 1 to the Master Trust Agreement of USAA STATE
TAX-EXEMPT TRUST, dated June 21, 1993, made at San Antonio, Texas
this 8th day of September, 1993 by the Trustees hereunder.
WHEREAS, Section 7.3 of the Master Trust Agreement dated June
21, 1993 (the "Agreement") of the USAA STATE TAX-EXEMPT TRUST
(the "Trust") provides that the Agreement may be amended at any
time so long as such amendment does not adversely affect the
rights of any Shareholder and so long as such amendment is not in
contravention of applicable law, including the Investment Company
Act of 1940, as amended, by an instrument in writing signed by a
majority of the Trustees of the Trust; and
WHEREAS, the Trustees desire to amend the Agreement to change
the name of the Trust designated as "USAA State Tax-Exempt Trust"
to "USAA State Tax-Free Trust;" and
WHEREAS, the Trustees desire to amend the Agreement to change
the name of the series of shares designated as the "Florida Bond
Fund" and the "Florida Money Market Fund" to the "Florida Tax-
Free Income Fund" and the "Florida Tax-Free Money Market Fund,"
respectively.
NOW, THEREFORE, the undersigned, being a majority of the
Trustees of the Trust, do hereby agree as follows:
1. Section 1.1 of the Agreement is hereby amended in its
entirety to read as follows:
Section 1.1 Name and Principal Office. This Trust
shall be known as "USAA State Tax-Free Trust" and
the Trustees shall conduct the business of the Trust
under that name or any other name or names as they
may from time to time determine. The principal
office of the Trust shall be located at such
location as the Trustees may from time to time determine.
2. The first paragraph of Section 4.2 of the Agreement is hereby
amended in its entirety to read as follows:
Section 4.2 Establishment and Designation of Sub-
Trusts and Classes. Without limiting the authority
of the Trustees set forth in Section 4.1 to
establish and designate any further Sub-Trusts, the
Trustees hereby establish and designate two Sub-
Trusts: "Florida Tax-Free Income Fund" and "Florida
Tax-Free Money Market Fund," each of which shall
consist of a single class of Shares. The Shares of
such Sub-Trusts and any Shares of any further Sub-
Trust or class thereof that may from time to time be
established and designated by the Trustees shall
(unless the Trustees otherwise determine with
respect to some further Sub-Trust at the time of
establishing and designating the same) have the
following relative rights and preferences:
3. Each Trustee is hereby fully authorized to do and perform
each and every act and deed necessary for the implementation
and exchange of this Amendment, including, without
limitation, the filing of an amendment to the Certificate of
Trust of the Trust as required by the Delaware Business Trust Act.
4. This Amendment shall be binding upon, and shall enure to the
benefit of, the parties hereto and their respective
successors and assigns.
5. Except to the extent modified hereby, the Agreement shall
remain in full force and effect.
6. This Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all
parties hereto, notwithstanding that all such parties are not
signatories to the original or same counterpart.
7. This Amendment shall be interpreted in accordance with the
laws of the State of Delaware, all rights and remedies being
governed by such laws.
8. This Amendment shall be effective as of the date first
written above.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands and seals for themselves and their assigns, as of the date
first above written.
/s/ Robert T. Herres
--------------------------
Robert T. Herres
/s/ Michael J. C. Roth
--------------------------
Michael J. C. Roth
/s/ John W. Saunders, Jr.
--------------------------
John W. Saunders, Jr.
/s/ C. Dale Briscoe
--------------------------
C. Dale Briscoe
/s/ George E. Brown
--------------------------
George E. Brown
/s/ Howard L. Freeman, Jr.
--------------------------
Howard L. Freeman, Jr.
/s/ Richard A. Zucker
--------------------------
Richard A. Zucker
STATE OF TEXAS )
)ss
COUNTY OF BEXAR)
On this 8th day of September, 1993, personally before me
appeared the above-named Robert T. Herres, Michael J.C. Roth,
John W. Saunders, Jr., C. Dale Briscoe, George E. Brown, Howard
L. Freeman, Jr. and Richard A. Zucker, each of whom acknowledged
the foregoing instrument to be his free act and deed.
IN WITNESS WHEREOF, I have hereunder set my hand and official
seal.
/s/ Susan A. Anz
---------------------------
NOTARY PUBLIC, Susan A. Anz
(Notarial Seal)
My commission expires: August 18, 1996
EXHIBIT 1(c)
USAA STATE TAX-FREE TRUST
AMENDMENT NO. 2 TO MASTER TRUST AGREEMENT
AMENDMENT NO. 2 to the Master Trust Agreement of USAA STATE
TAX-FREE TRUST, dated June 21, 1993, made at San Antonio, Texas
as of this 3rd day of May, 1994 by the Trustees hereunder.
WHEREAS, Section 7.3 of the Master Trust Agreement dated June
21, 1993, as amended to date (the "Agreement"), of the USAA STATE
TAX-FREE TRUST (the "Trust") provides that the Agreement may be
amended at any time so long as such amendment does not adversely
affect the rights of any Shareholder and so long as such
amendment is not in contravention of applicable law, including
the Investment Company Act of 1940, as amended by an instrument
in writing signed by a majority of the Trustees of the Trust; and
WHEREAS, the Trustees desire to amend the Agreement to
designate and establish two new series of shares (in addition to
the "Florida Tax-Free Income Fund Shares" and "Florida Tax-Free
Money Market Fund Shares," heretofore established and designated)
to be known as the "Texas Tax-Free Income Fund Shares" and "Texas
Tax-Free Money Market Fund Shares."
NOW, THEREFORE, the undersigned, being a majority of the
Trustees of the Trust, do hereby amend the Agreement to establish
and designate the new Sub-Trusts under the Trust to be known as
the "Texas Tax-Free Income Fund" and "Texas Tax-Free Money Market
Fund" and hereby amend the initial paragraph of Section 4.2 of
the Agreement, as heretofore in effect, in its entirety to read
as follows:
"Section 4.2 Establishment and Designation of Sub-
Trusts. Without limiting the authority of the
Trustees set forth in Section 4.1 to establish and
designate any further Sub-Trusts, the Trustees
hereby establish and designate four Sub-Trusts; the
"Florida Tax-Free Income Fund Shares," the "Florida
Tax-Free Money Market Fund Shares," the "Texas Tax-
Free Income Fund Shares," and the "Texas Tax-Free
Money Market Fund Shares." The Florida Tax-Free
Income Fund Shares, Florida Tax-Free Money Market
Fund Shares, Texas Tax-Free Income Fund Shares and
Texas Tax-Free Money Market Fund Shares and any
Shares of any further Sub-Trusts that may from time
to time be established and designated by the
Trustees shall (unless the Trustees otherwise
determine with respect to some further Sub-Trust at
the time of establishing and designating the same)
have the following relative rights and preferences;"
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands and seals for themselves and their assigns, as of the date
first above written.
/s/ Hansford T. Johnson
--------------------------
Hansford T. Johnson
/s/ Michael J. C. Roth
--------------------------
Michael J. C. Roth
/s/ John W. Saunders, Jr.
--------------------------
John W. Saunders, Jr.
/s/ C. Dale Briscoe
--------------------------
C. Dale Briscoe
/s/ George E. Brown
--------------------------
George E. Brown
Not available for signature
---------------------------
Barbara B. Dreeben
/s/ Howard L. Freeman, Jr.
---------------------------
Howard L. Freeman, Jr.
/s/ Richard A. Zucker
---------------------------
Richard A. Zucker
STATE OF TEXAS )
)ss
COUNTY OF BEXAR)
On this 3rd day of May, 1994, personally before me appeared
the above-named Hansford T. Johnson, Michael J.C. Roth, John W.
Saunders, Jr., C. Dale Briscoe, George E. Brown, Howard L.
Freeman, Jr. and Richard A. Zucker, each of whom acknowledged the
foregoing instrument to be his free act and deed.
IN WITNESS WHEREOF, I have hereunder set my hand and official
seal.
/s/ Susan A. Anz
----------------
NOTARY PUBLIC,
(Notarial Seal)
My commission expires: August 18, 1996
EXHIBIT 2
BY-LAWS
OF
USAA STATE TAX-FREE TRUST
Amended November 8, 1993
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall
be subject to the Master Trust Agreement, as from time to time in
effect ("Declaration of Trust"), of USAA State Tax-Free Trust,
the Delaware business trust established by the Declaration of
Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of
the Trust shall be located in San Antonio, Texas.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may
be held without call or notice at such places either within or
without the State of Delaware and at such times as the Trustees
may from time to time determine, provided that notice of the
first regular meeting following any such determination shall be
given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may
be held at any time and at any place designated in the call of
the meeting when called by the Chairman of the Board, the Vice
Chairman of the Board, the President or the Treasurer or by two
or more Trustees, sufficient notice thereof being given to each
Trustee by the Secretary or an Assistant Secretary or by the
officer of the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a
special meeting to send notice by mail at least forty-eight hours
or by telegram at least twenty-four hours before the meeting
addressed to the Trustee at his or her usual or last known
business or residence address or to give notice to him or her in
person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any Trustee if
a written waiver of notice, executed by him or her before or
after the meeting, is filed with the records of the meeting, or
to any Trustee who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him or her.
Neither notice of a meeting nor a waiver of a notice need specify
the purposes of the meeting.
2.4 Quorum; Adjournment; Vote Required for Action. At any
meeting of the Trustees a majority of the Trustees then in office
shall constitute a quorum. Any meeting may be adjourned from
time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting may be held
as adjourned without further notice. At the adjourned meeting,
the Trustees may transact any business which might have been
transacted at the original meeting. Except in cases where the
Declaration of Trust or these By-Laws otherwise provide, the vote
of a majority of the Trustees present at a meeting at which a
quorum is present shall be the act of the Trustees.
2.5 Participation by Telephone. One or more of the Trustees
or of any committee of the Trustees may participate in a meeting
thereof by means of a conference telephone or similar
communications equipment allowing all persons participating in
the meeting to hear each other at the same time. Action to
approve an advisory agreement may not be taken by Trustees at a
telephonic meeting unless otherwise permitted under the
Investment Company Act of 1940. Participation by such means
shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust
shall be a Chairman of the Board, a Vice Chairman of the Board, a
President, a Treasurer, a Secretary and such other officers,
including Vice Presidents, if any, as the Trustees from time to
time may in their discretion elect. The Trust may also have such
agents as the Trustees from time to time may in their discretion
appoint. The Chairman of the Board and Vice Chairman of the
Board shall be Trustees and may but need not be a beneficial
owner of the Trust (a "Shareholder"); and any other officer may
be but none need be a Trustee or Shareholder. Any two or more
offices may be held by the same person.
3.2 Election. The Chairman of the Board, the Vice Chairman
of the Board, the President, the Treasurer, and the Secretary
shall be elected annually by the Trustees at a meeting held
within the first four months of the Trust's fiscal year. The
meeting at which the officers are elected shall be known as the
annual meeting of Trustees. Other officers, if any, may be
elected or appointed by the Trustees at said meeting or at any
other time. Vacancies in any office may be filled at any time.
3.3 Tenure. The Chairman of the Board, the Vice Chairman of
the Board, the President, the Treasurer, and the Secretary shall
hold office until the next annual meeting of the Trustees and
until their respective successors are chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed or
becomes disqualified. Each other officer shall hold office and
each agent shall retain authority at the pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these By-
Laws, each officer shall have, in addition to the duties and
powers herein and in the Declaration of Trust set forth, such
duties and powers as are commonly incident to the office occupied
by him or her as if the Trust were organized as a Delaware
business corporation and such other duties and powers as the
Trustees may from time to time designate.
3.5 Chairman; President. Unless the Trustees otherwise
provide, the Chairman of the Board, or, if there is none, or in
the absence of the Chairman, the Vice Chairman of the Board, or,
if there is none, or in the absence of the Vice Chairman, the
President shall preside at all meetings of the shareholders and
of the Trustees. Unless the Trustees otherwise provide, the Vice
Chairman shall be the chief executive officer and the President
shall be the chief operating officer.
3.6 Vice President. The Vice President, or if there be more
than one Vice President, the Vice Presidents in the order
determined by the Trustees (or if there be no such determination,
then in the order of their election) shall in the absence of the
President or in the event of his or her inability or refusal to
act, perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the
restrictions upon the President. The Vice Presidents shall
perform such other duties and have such other powers as the
Trustees may from time to time prescribe.
3.7 Treasurer. The Treasurer shall be the chief financial
and accounting officer of the Trust, and shall, subject to the
provisions of the Declaration of Trust and to any arrangement
made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be
in charge of the valuable papers, books of account and accounting
records of the Trust, and shall have such other duties and powers
as may be designated from time to time by the Trustees or by the President.
3.8 Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the
order determined by the Trustees (or if there be no such
determination, then in the order of their election), shall, in
the absence of the Treasurer or in the event of his or her
inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Trustees may from time to
time prescribe.
3.9 Secretary. The Secretary shall record all proceedings
of the Shareholders and the Trustees in books to be kept
therefor, which books or a copy thereof shall be kept at the
principal office of the Trust. In the absence of the Secretary
from any meeting of the Shareholders or Trustees, an assistant
secretary, or if there be none or if he or she is absent, a
temporary secretary chosen at such meeting shall record the
proceedings thereof in the aforesaid books.
3.10 Assistant Secretary. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order
determined by the Trustees (or if there be no determination, then
in the order of their election), shall, in the absence of the
Secretary or in the event of his or her inability or refusal to
act, perform the duties and exercise the powers of the Secretary
and shall perform such other duties and have such other powers as
the Board of Trustees may from time to time prescribe.
3.11 Resignations and Removals. Any Trustee or officer may
resign at any time by written instrument signed by him or her and
delivered to the Chairman, the Vice Chairman, the President or
the Secretary or to a meeting of the Trustees. Such resignation
shall be effective upon receipt unless specified to be effective
at some other time. The Trustees may remove any officer elected
by them with or without cause. Except to the extent expressly
provided in a written agreement with the Trust, no Trustee or
officer resigning and no officer removed shall have any right to
any compensation for any period following his or her resignation
or removal, or any right to damages on account of such removal.
ARTICLE 4
Committees
4.1 General. The Trustees, by vote of a majority of the
Trustees then in office, may elect from their number an Executive
Committee or other committees and may delegate thereto some or
all of their powers except those which by law, by the Declaration
of Trust, or by these By-Laws may not be delegated. Except as
the Trustees may otherwise determine, any such committee may make
rules for the conduct of its business, but unless otherwise
provided by the Trustees or in such rules, its business shall be
conducted so far as possible in the same manner as is provided by
these By-Laws for the Trustees themselves. All members of such
committees shall hold such offices at the pleasure of the
Trustees. The Trustees may abolish any such committee at any
time. Any committee to which the Trustees delegate any of their
powers or duties shall keep records of its meetings and shall
report its action to the Trustees. The Trustees shall have power
to rescind any action of any committee, but no such rescission
shall have retroactive effect.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports
at the time and in the manner required by the Declaration of
Trust or any applicable law. Officers and Committees shall
render such additional reports as they may deem desirable or as
may from time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. The fiscal year of the Trust shall be fixed by
resolution of the Trustees.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-
faced die with the word "Delaware," together with the name of the
Trust and the year of its organization cut or engraved thereon,
but, unless otherwise required by the Trustees, the seal shall
not be necessary to be placed on, and its absence shall not
impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other
manner, all deeds, leases, contracts, notes and other obligations
made by the Trustees shall be signed by the President, any Vice
President, or by the Treasurer and need not bear the seal of the Trust.
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates for
shares of the Trust, the Trustees or the transfer agent may
either issue receipts therefor or may keep accounts upon the
books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be
the holders of certificates for such shares as if they had
accepted such certificates and shall be held to have expressly
assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates either in limited cases or to all Shareholders. In
that event, a Shareholder may receive a certificate stating the
number of shares owned by him or her, in such form as shall be
prescribed from time to time by the Trustees. Such certificate
shall be signed by the president or a vice president and by the
treasurer or assistant treasurer. Such signatures may be
facsimiles if the certificate is signed by a transfer agent, or
by a registrar, other than a Trustee, officer or employee of the
Trust. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall cease to be
such officer before such certificate is issued, it may be issued
by the Trust with the same effect as if he were such officer at
the time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or
destruction or the mutilation of a share certificate, a duplicate
certificate may be issued in place thereof, upon such terms as
the Trustees shall prescribe. The Trust may require the owner of
the lost, destroyed or mutilated share certificate, or his or her
legal representative, to give the Trust a bond sufficient to
indemnify it against any claim that may be made against it on
account of the alleged loss, destruction or mutilation of any
such certificate or the issuance of such new certificate.
9.3 Issuance of New Certificate to Pledgee. A pledgee of
shares transferred as collateral security shall be entitled to a
new certificate if the instrument of transfer substantially
describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on its face that it
is held as collateral security, and the name of the pledgor shall
be stated thereon, who alone shall be liable as a Shareholder,
and entitled to vote thereon.
9.4 Discontinuance of Issuance of Certificates. The
Trustees may at any time discontinue the issuance of share
certificates and may, by written notice to each Shareholder,
require the surrender of shares certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect
the ownership of shares in the Trust.
ARTICLE 10
Dealings with Trustees and Officers
10.1 General. Any Trustee, officer or other agent of the
Trust may acquire, own and dispose of shares of the Trust to the
same extent as if he or she were not a Trustee, officer or agent;
and the Trustees may accept subscriptions to shares or repurchase
shares from any firm or company in which any Trustee, officer or
other agent of the Trust may have an interest.
ARTICLE 11
Amendments to the By-Laws
11.1 General. These By-Laws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at
any meeting of the Trustees, or by one or more writings signed by
such a majority.
EXHIBIT 4(a)
Number USAA STATE TAX-FREE TRUST Shares
(A Delaware Business Trust)
FLORIDA TAX-FREE INCOME FUND
Shares of Beneficial Interest
Account No. Alpha Code CUSIP 90328T 10 2
See Reverse Side for
Certain Definitions
THIS CERTIFIES that
is the owner of
fully paid and nonassessable shares (which may be subject to
mandatory contribution back to the Trust as provided in the Trust
Agreement (as defined below)) of beneficial interest ($.001 par
value) of FLORIDA TAX-FREE INCOME FUND, a Series of Shares
established and designated under the Master Trust Agreement of
USAA STATE TAX-FREE TRUST, a Delaware business trust (the
"Trust"), dated June 21, 1993, as amended or restated from time
to time (the "Trust Agreement"). The terms of the Trust Agreement
are hereby incorporated by reference as fully as if set forth
herein in their entirety. As provided in the Trust Agreement, the
beneficial interest in the Trust has been divided into Shares of
such Series as may be established and designated from time to
time, and the Shares evidenced hereby represent the beneficial
interest in an undivided proportionate part of the assets
belonging to the above-designated Series subject to the
liabilities belonging to such Series. Such Series and other
Series have the relative rights and preferences set forth in the
Trust Agreement, the By-Laws of the Trust, as amended or restated
from time to time, and other instruments entered into in
accordance with the Trust Agreement, and the Trust will furnish
to the holder of this certificate upon request and without charge
a statement of such relative rights and preferences. THE SHARES
EVIDENCED HEREBY ARE SUBJECT TO REDEMPTION BY THE TRUST pursuant
to the procedures that may be determined by the Trustees in
accordance with the Trust Agreement. This certificate is issued
by the Trustees of USAA STATE TAX-FREE TRUST not individually or
personally but as Trustees under the Trust Agreement, and
represents Shares of the above-designated Series and does not
bind any of the Shareholders, Trustees, Officers, Employees or
Agents of the Trust personally but only the assets and property
of the Trust. Subject to the provisions of the Trust Agreement,
the Shares represented by this certificate are transferable upon
the books of the Trust by the registered holder hereof in person
or by his duly authorized attorney upon surrender of this
certificate.
WITNESS the facsimile signatures of the President and
Treasurer of the Trust and the signature of its duly authorized agent.
Dated:
/s/ Sherron Kirk PICTURE of /s/ Michael J.C. Roth
TREASURER USAA STATE TAX-FREE TRUST PRESIDENT
SEAL
Countersigned:
USAA SHAREHOLDER ACCOUNT SERVICES
(San Antonio) TRANSFER AGENT
By
-----------------------------
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -. . .Custodian. . .
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with the under Uniform Gifts to Minors
right of survivorship and Act . . . . . . . . . . . .
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/We hereby sell, assign and transfer unto
Please Insert Social Security or Other Taxpayer
Identification Number of Assignee
Please Print or Typewrite Name and Address of Assignee
( ) Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
attorney to transfer the said Shares on the books of
the within named Trust with full power of substitution in the premises.
Dated Signature(s)
Signature Guaranteed By
(The signature(s) to this assignment must correspond with
the name as written upon the face of this certificate, in
every particular, without alteration or enlargement, or any
change whatsoever.)
This certificate is transferable or redeemable at the
offices of the Transfer Agent, USAA Shareholder Account
Services, USAA Building, San Antonio, TX 78288.
The Signature Guarantee must be by an authorized person of a
commercial bank or trust company which is a member of the FDIC, a
savings bank or savings and loan association which is a member of
the FSLIC, a credit union which is a member of the NCUA, or by a
member firm of a domestic stock exchange. A NOTARIZATION BY A
NOTARY PUBLIC IS NOT ACCEPTABLE.
EXHIBIT 4(b)
Number USAA STATE TAX-FREE TRUST Shares
(A Delaware Business Trust)
FLORIDA TAX-FREE MONEY MARKET FUND
Shares of Beneficial Interest
Account No. Alpha Code CUSIP 90328T 20 1
See Reverse Side for
Certain Definitions
THIS CERTIFIES that
is the owner of
fully paid and nonassessable shares (which may be subject to
mandatory contribution back to the Trust as provided in the Trust
Agreement (as defined below)) of beneficial interest ($.001 par
value) of FLORIDA TAX-FREE MONEY MARKET FUND, a Series of Shares
established and designated under the Master Trust Agreement of
USAA STATE TAX-FREE TRUST, a Delaware business trust (the
"Trust"), dated June 21, 1993, as amended or restated from time
to time (the "Trust Agreement"). The terms of the Trust Agreement
are hereby incorporated by reference as fully as if set forth
herein in their entirety. As provided in the Trust Agreement, the
beneficial interest in the Trust has been divided into Shares of
such Series as may be established and designated from time to
time, and the Shares evidenced hereby represent the beneficial
interest in an undivided proportionate part of the assets
belonging to the above-designated Series subject to the
liabilities belonging to such Series. Such Series and other
Series have the relative rights and preferences set forth in the
Trust Agreement, the By-Laws of the Trust, as amended or restated
from time to time, and other instruments entered into in
accordance with the Trust Agreement, and the Trust will furnish
to the holder of this certificate upon request and without charge
a statement of such relative rights and preferences. THE SHARES
EVIDENCED HEREBY ARE SUBJECT TO REDEMPTION BY THE TRUST pursuant
to the procedures that may be determined by the Trustees in
accordance with the Trust Agreement. This certificate is issued
by the Trustees of USAA STATE TAX-FREE TRUST not individually or
personally but as Trustees under the Trust Agreement, and
represents Shares of the above-designated Series and does not
bind any of the Shareholders, Trustees, Officers, Employees or
Agents of the Trust personally but only the assets and property
of the Trust. Subject to the provisions of the Trust Agreement,
the Shares represented by this certificate are transferable upon
the books of the Trust by the registered holder hereof in person
or by his duly authorized attorney upon surrender of this
certificate.
WITNESS the facsimile signatures of the President and
Treasurer of the Trust and the signature of its duly authorized agent.
Dated:
/s/ Sherron Kirk PICTURE of /s/ Michael J.C. Roth
TREASURER USAA STATE TAX-FREE TRUST PRESIDENT
SEAL
Countersigned:
USAA SHAREHOLDER ACCOUNT SERVICES
(San Antonio) TRANSFER AGENT
By
----------------------------
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -. . .Custodian. . .
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with the under Uniform Gifts to Minors
right of survivorship and Act . . . . . . . . . . . .
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/We hereby sell, assign and transfer unto
Please Insert Social Security or Other Taxpayer
Identification Number of Assignee
Please Print or Typewrite Name and Address of Assignee
( ) Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
attorney to transfer the said Shares on the books of
the within named Trust with full power of substitution in the premises.
Dated Signature(s)
Signature Guaranteed By
(The signature(s) to this assignment must correspond with
the name as written upon the face of this certificate, in
every particular, without alteration or enlargement, or any
change whatsoever.)
This certificate is transferable or redeemable at the
offices of the Transfer Agent, USAA Shareholder Account
Services, USAA Building, San Antonio, TX 78288.
The Signature Guarantee must be by an authorized person of a
commercial bank or trust company which is a member of the FDIC, a
savings bank or savings and loan association which is a member of
the FSLIC, a credit union which is a member of the NCUA, or by a
member firm of a domestic stock exchange. A NOTARIZATION BY A
NOTARY PUBLIC IS NOT ACCEPTABLE.
EXHIBIT 4(c)
Number USAA STATE TAX-FREE TRUST Shares
(A Delaware Business Trust)
TEXAS TAX-FREE INCOME FUND
Shares of Beneficial Interest
Account No. Alpha Code CUSIP 90328T 30 0
See Reverse Side for
Certain Definitions
THIS CERTIFIES that
is the owner of
fully paid and nonassessable shares (which may be subject to
mandatory contribution back to the Trust as provided in the Trust
Agreement (as defined below)) of beneficial interest ($.001 par
value) of TEXAS TAX-FREE INCOME FUND, a Series of Shares
established and designated under the Master Trust Agreement of
USAA STATE TAX-FREE TRUST, a Delaware business trust (the
"Trust"), dated June 21, 1993, as amended or restated from time
to time (the "Trust Agreement"). The terms of the Trust Agreement
are hereby incorporated by reference as fully as if set forth
herein in their entirety. As provided in the Trust Agreement, the
beneficial interest in the Trust has been divided into Shares of
such Series as may be established and designated from time to
time, and the Shares evidenced hereby represent the beneficial
interest in an undivided proportionate part of the assets
belonging to the above-designated Series subject to the
liabilities belonging to such Series. Such Series and other
Series have the relative rights and preferences set forth in the
Trust Agreement, the By-Laws of the Trust, as amended or restated
from time to time, and other instruments entered into in
accordance with the Trust Agreement, and the Trust will furnish
to the holder of this certificate upon request and without charge
a statement of such relative rights and preferences. THE SHARES
EVIDENCED HEREBY ARE SUBJECT TO REDEMPTION BY THE TRUST pursuant
to the procedures that may be determined by the Trustees in
accordance with the Trust Agreement. This certificate is issued
by the Trustees of USAA STATE TAX-FREE TRUST not individually or
personally but as Trustees under the Trust Agreement, and
represents Shares of the above-designated Series and does not
bind any of the Shareholders, Trustees, Officers, Employees or
Agents of the Trust personally but only the assets and property
of the Trust. Subject to the provisions of the Trust Agreement,
the Shares represented by this certificate are transferable upon
the books of the Trust by the registered holder hereof in person
or by his duly authorized attorney upon surrender of this
certificate.
WITNESS the facsimile signatures of the President and
Treasurer of the Trust and the signature of its duly authorized agent.
Dated:
/s/ Sherron Kirk PICTURE of /s/ Michael J.C. Roth
TREASURER USAA STATE TAX-FREE TRUST PRESIDENT
SEAL
Countersigned:
USAA SHAREHOLDER ACCOUNT SERVICES
(San Antonio) TRANSFER AGENT
By
-----------------------
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -. . .Custodian. . .
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with the under Uniform Gifts to Minors
right of survivorship and Act . . . . . . . . . . . .
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/We hereby sell, assign and transfer unto
Please Insert Social Security or Other Taxpayer
Identification Number of Assignee
Please Print or Typewrite Name and Address of Assignee
( ) Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
attorney to transfer the said Shares on the books of
the within named Trust with full power of substitution in the premises.
Dated Signature(s)
Signature Guaranteed By
(The signature(s) to this assignment must correspond with
the name as written upon the face of this certificate, in
every particular, without alteration or enlargement, or any
change whatsoever.)
This certificate is transferable or redeemable at the
offices of the Transfer Agent, USAA Shareholder Account
Services, USAA Building, San Antonio, TX 78288.
The Signature Guarantee must be by an authorized person of a
commercial bank or trust company which is a member of the FDIC, a
savings bank or savings and loan association which is a member of
the FSLIC, a credit union which is a member of the NCUA, or by a
member firm of a domestic stock exchange. A NOTARIZATION BY A
NOTARY PUBLIC IS NOT ACCEPTABLE.
EXHIBIT 4(d)
Number USAA STATE TAX-FREE TRUST Shares
(A Delaware Business Trust)
TEXAS TAX-FREE MONEY MARKET FUND
Shares of Beneficial Interest
Account No. Alpha Code CUSIP 90328T 40 9
See Reverse Side for
Certain Definitions
THIS CERTIFIES that
is the owner of
fully paid and nonassessable shares (which may be subject to
mandatory contribution back to the Trust as provided in the Trust
Agreement (as defined below)) of beneficial interest ($.001 par
value) of TEXAS TAX-FREE MONEY MARKET FUND, a Series of Shares
established and designated under the Master Trust Agreement of
USAA STATE TAX-FREE TRUST, a Delaware business trust (the
"Trust"), dated June 21, 1993, as amended or restated from time
to time (the "Trust Agreement"). The terms of the Trust Agreement
are hereby incorporated by reference as fully as if set forth
herein in their entirety. As provided in the Trust Agreement, the
beneficial interest in the Trust has been divided into Shares of
such Series as may be established and designated from time to
time, and the Shares evidenced hereby represent the beneficial
interest in an undivided proportionate part of the assets
belonging to the above-designated Series subject to the
liabilities belonging to such Series. Such Series and other
Series have the relative rights and preferences set forth in the
Trust Agreement, the By-Laws of the Trust, as amended or restated
from time to time, and other instruments entered into in
accordance with the Trust Agreement, and the Trust will furnish
to the holder of this certificate upon request and without charge
a statement of such relative rights and preferences. THE SHARES
EVIDENCED HEREBY ARE SUBJECT TO REDEMPTION BY THE TRUST pursuant
to the procedures that may be determined by the Trustees in
accordance with the Trust Agreement. This certificate is issued
by the Trustees of USAA STATE TAX-FREE TRUST not individually or
personally but as Trustees under the Trust Agreement, and
represents Shares of the above-designated Series and does not
bind any of the Shareholders, Trustees, Officers, Employees or
Agents of the Trust personally but only the assets and property
of the Trust. Subject to the provisions of the Trust Agreement,
the Shares represented by this certificate are transferable upon
the books of the Trust by the registered holder hereof in person
or by his duly authorized attorney upon surrender of this
certificate.
WITNESS the facsimile signatures of the President and
Treasurer of the Trust and the signature of its duly authorized agent.
Dated:
/s/ Sherron Kirk PICTURE of /s/ Michael J.C. Roth
TREASURER USAA STATE TAX-FREE TRUST PRESIDENT
SEAL
Countersigned:
USAA SHAREHOLDER ACCOUNT SERVICES
(San Antonio) TRANSFER AGENT
By
-----------------------
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -. . .Custodian. . .
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with the under Uniform Gifts to Minors
right of survivorship and Act . . . . . . . . . . . .
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/We hereby sell, assign and transfer unto
Please Insert Social Security or Other Taxpayer
Identification Number of Assignee
Please Print or Typewrite Name and Address of Assignee
( ) Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
attorney to transfer the said Shares on the books of
the within named Trust with full power of substitution in the premises.
Dated Signature(s)
Signature Guaranteed By
(The signature(s) to this assignment must correspond with
the name as written upon the face of this certificate, in
every particular, without alteration or enlargement, or any
change whatsoever.)
This certificate is transferable or redeemable at the
offices of the Transfer Agent, USAA Shareholder Account
Services, USAA Building, San Antonio, TX 78288.
The Signature Guarantee must be by an authorized person of a
commercial bank or trust company which is a member of the FDIC, a
savings bank or savings and loan association which is a member of
the FSLIC, a credit union which is a member of the NCUA, or by a
member firm of a domestic stock exchange. A NOTARIZATION BY A
NOTARY PUBLIC IS NOT ACCEPTABLE.
EXHIBIT 5(a)
ADVISORY AGREEMENT
AGREEMENT made as of the 25th day of June, 1993 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-EXEMPT 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 beneficial
interest, with $.001 par value (the "Shares"), in separate series or
Sub-Trusts with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust intends to initially offer Shares in two
series designated as the Florida Bond Fund and the Florida Money
Market Fund (such series, together with all other series 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) Initial Funds. The Trust hereby appoints the Manager
to act as manager and investment adviser to each of the Initial
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 series other than the Initial 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 to each of such series 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
series 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 by 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.
The Manager will also manage, supervise and conduct the other
affairs and business of the Trust and of each Fund thereof and
matters incidental thereto, subject always to the control of the
Board of Trustees of the Trust and to the provisions of the
Trust's Master Trust Agreement and By-Laws and the 1940 Act.
(b) Regulatory Reports. The Manager shall furnish to the
Trust necessary assistance in:
(i) The preparation of all reports now or hereafter
required by Federal or other laws.
(ii) The preparation of Prospectuses, Registration
Statements, and amendments thereto that may be required by
Federal or other laws or by the rules or regulations of any
duly authorized commission or administrative body.
(c) Office Space, Facilities, and Personnel. The Manager
shall furnish to the Trust office space in the offices of the
Manager or in such other place or places as may be agreed upon
from time to time, and all necessary office facilities, simple
business equipment, supplies, utilities, telephone service and
accounting services (in addition to those provided by the
custodian and transfer agent) for managing the affairs and
investments of the Trust. These services are exclusive of the
necessary records of any dividend disbursing agent, transfer
agent, registrar or custodian. The Manager shall compensate all
personnel, officers, and Trustees of the Trust if such persons
are also officers or employees of the Manager or its affiliates.
(d) Fidelity Bond. The Manager shall provide and maintain
a bond issued by a reputable insurance company authorized to do
business in the place where the bond is issued, against larceny
and embezzlement covering each officer and employee of the Trust
who may singly or jointly with others have access to funds or
securities of the Trust, with direct or indirect authority to
draw upon such funds or to direct generally the disposition of
such funds. The bond shall be in such reasonable amount as a
majority of the Board of Trustees of the Trust who are not
officers or employees of the Trust shall determine, with due
consideration to the aggregate assets of the Trust to which any
such officer or employee may have access.
3. 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 Trustees' 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 Trustees 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.
4. ADVISORY FEE.
(a) For the services and facilities to be provided by the
Manager as provided in Paragraph 2 hereof, the Company shall pay
to the Manager a monthly fee with respect to the Florida Bond
Fund and Florida Money Market Fund, computed as a percentage of
aggregate average net assets of both Funds combined and allocated
between both Funds based on the relative net asset values of each
Fund, which on an annual basis is equal to:
(1) one-half of one percent (.50%) of the first $50,000,000
of the Monthly Average Net Assets (defined below) of both
Funds for such calendar month;
(2) two-fifths of one percent (.40%) for that portion of
Monthly Average Net Assets in excess of $50,000,000 and not
over $100,000,000 of both Funds for such calendar month; and
(3) three-tenths of one percent (.30%) of that portion of
such Monthly Average Net Assets of both Funds in excess of
$100,000,000.
(b) The "Monthly Average Net Assets" of any Fund of the
Trust for any calendar 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 in accordance with the Master Trust Agreement, as of the
close of business on each day during such month that such Fund
was open for business, by (ii) the number of such days.
(c) The Manager may from time to time and for such periods
as it deems appropriate voluntarily waive fees or otherwise
reduce its compensation hereunder.
5. EXPENSE LIMITATION.
In the event that expenses of any Fund of the Trust for any
fiscal year should exceed the expense limitation on investment company
expenses imposed by any statute or regulatory authority of any
jurisdiction in which Shares of the Trust are qualified for offer and
sale, the compensation due the Manager for such fiscal year with
respect to such Fund shall be reduced by the amount of such excess by
a reduction or refund thereof. In the event that the expenses of any
Fund exceed any expense limitation which the Manager may, by written
notice to such Fund, voluntarily declare to be effective subject to
such terms and conditions as the Manager may prescribe in such notice,
the compensation due the Manager shall be reduced, and, if necessary,
the Manager shall assume expenses of such Fund, to the extent required
by such expense limitation.
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 the fiscal year
of the Trust, 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 fiscal year.
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 obtain the best available price
and most favorable execution with respect to all such purchases and
sales of portfolio securities for the Trust. 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.
The Manager agrees that neither it nor any of its officers or
directors will take any long or short position in the Shares of the
Trust; provided, however, that such prohibition:
(a) shall not prevent the Manager from purchasing Shares of
the Trust if orders to purchase such Shares are placed upon the
receipt by the Manager of purchase orders for such Shares and are
not in excess of such purchase orders received by the Manager;
and
(b) shall not prevent the purchase of Shares of the Trust
by any of the persons above described for their account and for
investment at the price at which such Shares are available to the
public at the time of purchase or as part of the initial capital
of the Trust.
7. RELATIONS WITH TRUST.
Subject to and in accordance with the Master Trust Agreement and
By-Laws of the Trust and of the Manager, respectively, it is
understood that Trustees, 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 Trustees, 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 By-Laws.
8. LIABILITY OF MANAGER.
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 Initial Fund. This Agreement
shall become effective with respect to any Initial Fund on 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 Initial Fund, and with respect
to any additional Fund on the date of receipt by the Trust of
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
Initial Fund through June 30, 1994 and, with respect to each
additional Fund, through the first June 30 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.
13. LIMITATION OF LIABILITY.
The Master Trust Agreement dated June 21, 1993, as amended from
time to time, establishing the Trust, which is hereby referred to, and
provides that the name USAA State Tax-Exempt Trust means the Trustees
from time to time serving (as Trustees but not personally) under said
Master Trust Agreement. It is expressly acknowledged and agreed that
the obligations of the Trust hereunder shall not be binding upon any
of the shareholders, Trustees, officers, employees or agents of the
Trust, personally, but shall bind only the trust property of the
Trust, as provided in its Master Trust Agreement. The execution and
delivery of this Agreement has been authorized by the Trustees of the
Trust and signed by the President of the Trust, acting as such, and
neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability of any of them
personally, but shall bind only the trust property of the Trust as
provided in its Master Trust Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first set forth above.
USAA STATE TAX-EXEMPT TRUST USAA INVESTMENT MANAGEMENT
COMPANY
By: /s/ Michael J. C. Roth By: /s/ John W. Saunders, Jr.
----------------------------- ----------------------------
MICHAEL J. C. ROTH, President JOHN W. SAUNDERS, JR.,
Sr. Vice President
ATTEST: ATTEST:
/s/ Michael D. Wagner /s/ Michael D. Wagner
- --------------------------------- ----------------------------
MICHAEL D. WAGNER, Secretary MICHAEL D. WAGNER, Secretary
EXHIBIT 5(b)
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, TX 78288
Gentlemen:
Pursuant to Section 1(b) of the Advisory Agreement dated as of
June 25, 1993 between USAA State Tax-Free Trust (the "Trust") and USAA
Investment Management Company (the "Manager"), please be advised that
the Trust has established two new series of its shares, namely, the
Texas Tax-Free Income Fund and the Texas Tax-Free Money Market Fund
(the "Funds"), and please be further advised that the Trust desires to
retain the Manager to render management and investment advisory
services under the Advisory Agreement to the Funds at the fees stated
below:
Advisory Fee Schedule
One-half of one percent (.50%) of the first
$50,000,000 of the Monthly Average Net Assets
of both Funds for such calendar month; two-fifths
of one percent (.40%) for that portion of Monthly
Average Net Assets in excess of $50,000,000
and not over $100,000,000 of both Funds for such
calendar month; and three-tenths of one percent
(.30%) of that portion of such Monthly Average Net
Assets of both Funds in excess of $100,000,000.
Please state below whether you are willing to render such services
at the fees stated above.
USAA STATE TAX-FREE TRUST
Attest: /s/ Michael D. Wagner By: /s/ Michael J. C. Roth
-------------------- ----------------------
Secretary President
Dated: May 10, 1994
We as the sole shareholder of the above named Funds, do hereby
approve the Advisory Service Agreement and are willing to render
management and investment advisory services to the Texas Tax-Free
Income Fund and the Texas Tax-Free Money Market Fund and the fees
stated above.
USAA INVESTMENT MANAGEMENT
COMPANY
Attest: /s/ Alex M. Ciccone By: /s/ John W. Saunders, Jr.
------------------- -------------------------
Assistant Secretary Senior Vice President
Dated: May 10, 1994
EXHIBIT 6(a)
UNDERWRITING AGREEMENT
Underwriting Agreement dated as of the 25th day of June,
1993 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 (sometimes herein
referred to as the "Underwriter"), and USAA STATE TAX-EXEMPT
TRUST, a Delaware business trust organized under the laws of the
State of Delaware and having a principal place of business in San
Antonio, Texas (sometimes herein referred to as the "Trust")
which offers shares of beneficial interest, with $.001 par value
(the "Shares") in different series or Sub-Trusts representing
interests in different portfolios of assets (each series of
Shares (or Sub-Trusts) being referred to herein as a "Fund").
The Underwriter intends to initially offer for sale and
distribution shares in two series designated as the Florida Bond
Fund and the Florida Money Market Fund (the "Initial Funds").
WITNESSETH: In consideration of the agreements herein
contained and for other good and valuable consideration, receipt
of which is hereby acknowledged, it is agreed:
1. APPOINTMENT OF UNDERWRITER.
The Trust hereby appoints the Underwriter as its exclusive
agent to sell and distribute Shares of each Fund of the Trust at
the offering price thereof as from time to time determined in the
manner herein provided. The Underwriter hereby accepts such
appointment and agrees during the term of this Agreement to
provide the services and to assume the obligations herein set
forth without compensation.
2. BASIS OF SALE OF SHARES.
The Underwriter does not agree to sell any specific number
of Shares. Shares will be sold to the Underwriter as agent for
the Trust only against orders therefor. The Underwriter will not
purchase Shares from anyone other than the Trust except as agent
for the Trust.
3. OFFERING PRICE.
The offering price for Shares of any Fund of the Trust shall
be determined according to the terms of the then current
Prospectus of the Fund. The net asset value per share for each
Fund shall be determined at such time each day as is established
by the Board of Trustees of the Trust from time to time.
4. MANNER OF OFFERING.
The Underwriter will conform to the securities laws of any
jurisdiction in which it sells, directly or indirectly, any
Shares. The Underwriter also agrees to furnish to the Trust
sufficient copies of any agreements, plans or sales literature it
intends to use in connection with any sales of Shares in adequate
time for the Trust to file and clear them with the proper
authorities before they are put in use, and not to use them until
so filed and cleared.
5. RESERVATION OF RIGHTS BY THE TRUST.
The Trust reserves the right to issue Shares at any time
directly to existing shareholders and to sell Shares to such
shareholders or to other persons approved by the Underwriter at
not less than net asset value. The Trust reserves the right to
suspend the sale of Shares of any or all Funds without prior
notice for any reason deemed adequate by it.
6. ALLOCATION OF EXPENSES.
(a) The Trust, either directly or through its manager
and investment adviser, will be responsible for, and shall
pay the expenses of:
(i) providing all necessary services, including
fees and disbursements of counsel, related to the
preparation, setting in type, printing and filing of
any Registration Statement and/or Prospectus required
under the Securities Act of 1933, as amended, or under
state securities laws, covering its Shares, and all
amendments and supplements thereto, and preparing,
setting in type, printing and mailing periodic reports
to existing shareholders;
(ii) the cost of all registration or qualification
fees;
(iii) the cost of preparing temporary and
permanent share certificates for Shares of the Trust;
(iv) all the federal and state (if any) issue
and/or transfer taxes payable upon the issue by or (in
the case of treasury shares) transfer from the Trust to
the Underwriter of any and all Shares distributed
hereunder.
(b) The Underwriter agrees that, after the Prospectus
and periodic reports have been set in type, it will bear the
expense of printing and distributing any copies thereof
which are to be used in connection with the offering of
Shares to dealers or prospective investors. The Underwriter
further agrees that it will bear the expenses of preparing,
printing and distributing any other literature used by the
Underwriter or furnished by it for use by dealers in
connection with the offering of the Shares for sale to the
public, and any expense of advertising in connection with
such offering. The Underwriter will also pay fees for
services rendered by the transfer agent on behalf of the
Underwriter.
7. INDEPENDENT CONTRACTOR.
The Underwriter shall be an independent contractor and
neither the Underwriter nor any of its officers or employees, as
such, is or shall be an employee of the Trust. The Underwriter
is responsible for its own conduct, for the employment, control
and conduct of its agents and employees and for injury to such
agents or employees or to others through its agents or employees.
The Underwriter assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all
employer taxes thereunder.
8. INDEMNIFICATION BY UNDERWRITER.
The Underwriter agrees to indemnify and hold harmless the
Trust or any such person who has been, is, or may hereafter be,
an officer, trustee or employee of the Trust against any loss,
damage or expense reasonably incurred by any of them in
connection with any claim or in connection with any action, suit
or proceeding to which any of them may be a party, which arises
out of or is alleged to arise out of or is based upon any untrue
statement or alleged untrue statement of a material fact, or the
omission or alleged omission to state a material fact necessary
to make the statements made not misleading, on the part of the
Underwriter or any agent or employee of the Underwriter or any
other person for whose acts the Underwriter is responsible or is
alleged to be responsible, unless such statement or omission was
made in reliance upon written information furnished by the Trust.
The Underwriter likewise agrees to indemnify and hold harmless
the Trust and each such person in connection with any claim or in
connection with any action, suit or proceeding which arises out
of or is alleged to arise out of the Underwriter's failure to
exercise reasonable care and diligence with respect to its
services, if any, rendered in connection with investment,
reinvestment, automatic withdrawal and other plans for Shares.
The term "expenses" for purposes of this and the next paragraph
includes amounts paid in satisfaction of judgments or in
settlements which are made with the Underwriter's consent. The
foregoing rights of indemnification shall be in addition to any
other rights to which the Trust or a trustee may be entitled as a
matter of law.
9. INDEMNIFICATION BY TRUST.
The Trust agrees to indemnify and hold harmless the
Underwriter and each person who has been, is, or may hereafter be
an officer, director, employee or agent of the Underwriter
against any loss, damage or expense reasonably incurred by any of
them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party,
which arises out of or is alleged to arise out of or is based
upon any untrue or alleged untrue statement of material fact, or
the omission or alleged omission to state a material fact
necessary to make the statements therein not misleading,
contained in a Registration Statement or Prospectus, or any
amendment or supplement thereto, unless such statement or
omission was made in reliance upon written information furnished
by the Underwriter. The foregoing rights of indemnification
shall be in addition to any other rights to which the Underwriter
may be entitled as a matter of law.
10. TERM OF AGREEMENT.
This Agreement shall be executed and become effective with
respect to all Initial Funds on June 25, 1993, and, with respect
to any additional Fund, on the date of receipt by the Trust of
notice from the Underwriter in accordance with Paragraph 12 hereof
that the Underwriter is willing to serve as Underwriter with respect
to such Fund. Unless terminated as herein provided, this Agreement
shall remain in full force and effect through June 30, 1994, and,
with respect to each additional Fund, through the first June 30
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 Investment Company Act of 1940, as amended) 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 Investment Company Act of 1940, as
amended) of any such party, cast in person at a meeting called
for the purpose of voting on such approval. Written notice of
discontinuance of this Underwriting Agreement may be given by one
party hereto to the other not less than sixty (60) days before
expiration of its initial term or before the expiration of any
succeeding annual period. This Agreement supersedes any prior
agreement relating to the subject matter hereof between the parties.
11. ASSIGNMENT.
This Agreement may not be assigned by the Underwriter and
shall automatically terminate in the event of an attempted
assignment by the Underwriter; provided, however, that the
Underwriter may employ such other person, persons, corporation,
or corporations, as it shall determine, in order to assist it in
carrying out this Agreement.
12. AMENDMENT.
This Agreement may be amended at any time by mutual
agreement in writing of the parties hereto, provided that any
such amendment is approved by a majority of the trustees of the
Trust who are not "interested persons" of the Underwriter or by
the holders of a majority of the Shares of the Trust.
13. LIMITATION OF LIABILITY.
The Master Trust Agreement dated June 21, 1993, as amended
from time to time, establishing the Trust, which is hereby
referred to, and provides that the name USAA State Tax-Exempt
Trust means the Trustees from time to time serving (as Trustees
but not personally) under said Master Trust Agreement. It is
expressly acknowledged and agreed that the obligations of the
Trust hereunder shall not be binding upon any of the
shareholders, Trustees, officers, employees or agents of the
Trust, personally, but shall bind only the trust property of the
Trust, as provided in its Master Trust Agreement. The execution
and delivery of this Agreement has been authorized by the
Trustees of the Trust and signed by the President of the Trust,
acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed
to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the
trust property of the Trust as provided in its Master Trust Agreement.
IN WITNESS WHEREOF, this Agreement has been executed for the
Underwriter and the Trust by their duly authorized officers as of
the date first set forth above.
USAA STATE TAX-EXEMPT TRUST USAA INVESTMENT MANAGEMENT
COMPANY
By:/s/ Michael J. C. Roth BY:/s/ John W. Saunders, Jr.
----------------------------- --------------------------
MICHAEL J. C. ROTH, President JOHN W. SAUNDERS, JR.,
Sr. Vice President
ATTEST: ATTEST:
/s/ Michael D. Wagner /s/ Michael D. Wagner
- ---------------------------- ----------------------------
MICHAEL D. WAGNER, Secretary MICHAEL D. WAGNER, Secretary
EXHIBIT 6(b)
USAA Investment Management Company
9800 Fredericksburg Road
San Antonio, TX 78288
Gentlemen:
Pursuant to paragraph 12 of the Underwriting Agreement dated
as of June 25, 1993 between USAA State Tax-Free Trust (the
"Trust") and USAA Investment Management Company (the
"Underwriter"), please be advised that the Trust has established
two new series of its shares, namely, the Texas Tax-Free Income
Fund and the Texas Tax-Free Money Market Fund (the "Funds"), and
please be further advised that the Trust desires to retain the
Underwriter to sell and distribute shares of the Funds and to
render other services to the Funds as provided in the
Underwriting Agreement.
Please state below whether you are willing to render such
services as provided in the Underwriting Agreement.
USAA STATE TAX-FREE TRUST
Attest:/s/ Michael D. Wagner By:/s/ Michael J. C. Roth
--------------------- ----------------------
Secretary President
Dated: May 10, 1994
We as the sole shareholder of the above named Funds, do
hereby approve and are willing to render services to the Texas
Tax-Free Income Fund and the Texas Tax-Free Money Market Fund as
set forth in the Underwriting Agreement.
USAA INVESTMENT MANAGEMENT COMPANY
Attest:/s/ Alex M. Ciccone By:/s/ John W. Saunders, Jr.
------------------- -------------------------
Assistant Secretary Senior Vice President
Dated: May 10, 1994
EXHIBIT 8(a)
CUSTODIAN CONTRACT
Between
USAA STATE TAX-EXEMPT TRUST
and
STATE STREET BANK AND TRUST COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By It . . . .1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian . . . . . . . . . . . . . .2
2.1 Holding Securities . . . . . . . . . . . . . . . . . .2
2.2 Delivery of Securities . . . . . . . . . . . . . . . .3
2.3 Registration of Securities . . . . . . . . . . . . . .8
2.4 Bank Accounts. . . . . . . . . . . . . . . . . . . . .9
2.5 Payment for Shares . . . . . . . . . . . . . . . . . 10
2.6 Availability of Federal Funds. . . . . . . . . . . . 10
2.7 Collection of Income . . . . . . . . . . . . . . . . 10
2.8 Payment of Fund Monies . . . . . . . . . . . . . . . 11
2.9 Liability for Payment in Advance of Receipt of
Securities Purchased . . . . . . . . . . . . . . . . 14
2.10 Payments for Repurchases or Redemptions
of Shares of the Fund. . . . . . . . . . . . . . . . 15
2.11 Appointment of Agents. . . . . . . . . . . . . . . . 15
2.12 Deposit of Fund Assets in Securities System. . . . .16
2.12A Fund Assets Held in the Custodian's
Direct Paper System. . . . . . . . . . . . . . . . . 19
2.13 Segregated Account . . . . . . . . . . . . . . . . . 21
2.14 Ownership Certificates for Tax Purposes. . . . . . . 22
2.15 Proxies. . . . . . . . . . . . . . . . . . . . . . . 22
2.16 Communications Relating to Portfolio Securities. . . 23
2.17 Proper Instructions. . . . . . . . . . . . . . . . . 23
2.18 Actions Permitted Without Express Authority. . . . . 24
2.19 Evidence of Authority. . . . . . . . . . . . . . . . 25
3. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income . . . . . 26
4. Records . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5. Opinion of Fund's Independent Accountants . . . . . . . . . 27
6. Reports to Fund by Independent Public Accountants . . . . . 27
7. Compensation of Custodian . . . . . . . . . . . . . . . . . 28
8. Responsibility of Custodian . . . . . . . . . . . . . . . . 28
9. Effective Period, Termination and Amendment . . . . . . . . 30
10. Successor Custodian . . . . . . . . . . . . . . . . . . . . 31
11. Interpretive and Additional Provisions. . . . . . . . . . . 33
12. Additional Funds. . . . . . . . . . . . . . . . . . . . . . 33
13. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . 34
14. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . 34
15. Shareholder Communications. . . . . . . . . . . . . . . . . 34
CUSTODIAN CONTRACT
This Contract between USAA State Tax-Exempt Trust, a business
trust organized and existing under the laws of the State of
Delaware, having its principal place of business at 9800
Fredricksburg Road, San Antonio, Texas 78288, hereinafter called
the "Fund," and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts, 02110,
hereinafter called the "Custodian,"
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate
series, with each such series representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Fund intends to initially offer Shares of two
series, Florida Bond Fund and Florida Money Market Fund (such
series, together with all other series subsequently established
by the Fund and made subject to this Contract in accordance with
paragraph 12, being herein referred to as the "Portfolio(s)");
NOW THEREFORE: in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the Custodian of the
assets of the Portfolios of the Fund pursuant to the provisions
of the Declaration of Trust. The Fund on behalf of the
Portfolio(s) agrees to deliver to the Custodian all securities
and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect
to all securities owned by the Portfolio(s) from time to time,
and the cash consideration received by it for such new or
treasury Shares of beneficial interest of the Fund representing
interests in the Portfolios, ("Shares") as may be issued or sold
from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and
not delivered to the Custodian.
Upon receipt of "Proper Instructions," (within the meaning of
Section 2.17), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians,
but only in accordance with an applicable vote by the Board of
Trustees of the Fund on behalf of the applicable Portfolio(s),
and provided that the Custodian shall have no more or less
responsibility or liability to the Fund on account of any actions
or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund
Held By the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash
property, including all securities owned by such Portfolio,
other than (a) securities which are maintained pursuant to
Section 2.12 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein
as "Securities System" and (b) commercial paper of an issuer
for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian
pursuant to Section 2.12A.
2.2 Delivery of Securities. The Custodian shall release and
deliver securities owned by a Portfolio held by the Custodian
or in a Securities System account of the Custodian or in the
Custodian's Direct Paper book entry system account ("Direct
Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the
Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Portfolio;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section
2.12 hereof;
4) To the depository agent in connection with tender or
other similar offers for securities of the Portfolio;
5) To the Issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise
become payable; provided that, in any such case, the
cash or other consideration is to be delivered to the
Custodian;
6) To the Issuer thereof, or its agent, for transfer into
the name of the Portfolio or into the name of any nominee
or nominees of the Custodian or into the name or nominee
name of any agent appointed pursuant to Section 2.11 or
into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number
of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of
the Portfolio, to the broker or its clearing agent,
against a receipt, for examination in accordance with
"street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of
such securities prior to receiving payment for such
securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities
and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such warrants,
rights or similar securities or the surrender of interim
receipts or temporary securities for definitive securities;
provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities
made by the Portfolio, but only against receipt of
adequate collateral as agreed upon from time to time by
the Custodian and the Fund on behalf of the Portfolio,
which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any
loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized
by the U.S. Department of the Treasury, the Custodian
will not be held liable or responsible for the delivery
of securities owned by the Portfolio prior to the receipt
of such collateral;
11) For delivery as security in connection with any borrowings
by the Fund on behalf of the Portfolio requiring a pledge
of assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and
a member of the National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of
the Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization
or organizations, regarding escrow or other arrangements
in connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions
by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or
to the holders of shares in connection with distributions in
kind, as may be described from time to time in the currently
effective prospectus and statement of additional information
of the Fund, related to the Portfolio ("Prospectus"), in
satisfaction of requests by holders of Shares for repurchase
or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or
an Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other
than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.11 or in the name or nominee name of any sub-
custodian appointed pursuant to Article 1. All securities accepted by
the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name," the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify
the Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender
or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Portfolio of the Fund, subject
only to draft or order by the Custodian acting pursuant to the terms
of this Contract, and shall hold in such account or accounts, subject
to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio
in a bank account established and used in accordance with Rule 17f-3
under the Investment Company Act of 1940. Funds held by the Custodian
for a Portfolio may be deposited by it to its credit as Custodian in
the Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees of the Fund. Such funds shall be deposited by the Custodian
in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Payments for Shares. The Custodian shall receive from the distributor
for the Shares or from the Transfer Agent of the Fund and deposit
into the account of the appropriate Portfolio such payments as are
received for Shares of that Portfolio issued or sold from time to
time by the Fund. The Custodian will provide timely notification to
the Fund on behalf of each such Portfolio and the Transfer Agent of
any receipt by it of payments for Shares of such Portfolio.
2.6 Availability of Federal Funds. Upon mutual agreement between
the Fund on behalf of each applicable Portfolio and the Custodian,
the Custodian shall, upon the receipt of Proper Instructions from the
Fund on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.7 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income
and other payments with respect to bearer securities if, on the date
of payment by the issuer, such securities are held by the Custodian or
its agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when
they become due and shall collect interest when due on securities
held hereunder. Income due each Portfolio on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Fund with such information or data as may be necessary to assist the
Fund in arranging for the timely delivery to the Custodian of the
income to which the Portfolio is properly entitled.
2.8 Payment of Fund Monies. Upon receipt of Proper Instructions
from the Fund on behalf of the applicable Portfolio, which may be
continuing instructions when deemed appropriate by the parties,
the Custodian shall pay out monies of a Portfolio in the following
cases only:
1) Upon the purchase of securities, options, futures contracts
or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian
(or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set
forth in Section 2.12 hereof or (c) in the case of purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.12A; (d) in the case of
repurchase agreements entered into between the Fund on
behalf of the Portfolio and the Custodian, or another bank,
or a broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio
of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase
such securities from the Portfolio or (e) for transfer to
a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as defined
in Section 2.17;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Section 2.10 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of securities for the account of
a Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions
from the Fund on behalf of such Portfolio to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities
to the same extent as if the securities had been received by the
Custodian.
2.10 Payments for Repurchases or Redemptions of Shares of the Fund. From
such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of
the Board of Trustees of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make funds
available for payment to holders of Shares who have delivered to the
Transfer Agent a request for redemption or repurchase of their Shares.
In connection with the redemption or repurchase of Shares of a
Portfolio, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial bank
designated by the redeeming shareholders. In connection with the
redemption or repurchase of Shares of the Fund, the Custodian shall
honor checks drawn on the Custodian by a holder of Shares, which checks
have been furnished by the Fund to the holder of Shares, when presented
to the Custodian in accordance with such procedures and controls as are
mutually agreed upon from time to time between the Fund and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time
to time direct; provided, however, that the appointment of any agent
shall not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.12 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the account
of the Portfolio upon (i) receipt of advice from the Securities
System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of the Portfolio. The Custodian shall transfer securities sold
for the account of the Portfolio upon (i) receipt of advice
from the Securities System that payment for such securities has
been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such transfer
and payment for the account of the Portfolio. Copies of all
advices from the Securities System of transfers of securities
for the account of the Portfolio shall identify the Portfolio,
be maintained for the Portfolio by the Custodian and be provided
to the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of
each transfer to or from the account of the Portfolio in the
form of a written advice or notice and shall furnish to the
Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the Securities
System for the account of the Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 9 hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for the benefit of
the Portfolio for any loss or damage to the Portfolio resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights
as it may have against the Securities System; at the election
of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such
loss or damage.
2.12A Fund Assets Held in the Custodian's Direct Paper System.
The Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of
the Custodian to reflect such payment and transfer of securities
to the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of an entry on the records of the Custodian to reflect such
transfer and receipt of payment for the account of the
Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably request from time to time.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.12 hereof, (i) in
accordance with the provisions of any agreement among the Fund on behalf
of the Portfolio, the Custodian and a broker-dealer registered under
the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of the Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Portfolio, (ii) for purposes of
segregating cash or government securities in connection with options
purchased, sold or written by the Portfolio or commodity futures
contracts or options thereon purchased or sold by the Portfolio, (iii)
for the purposes of compliance by the Portfolio with the procedures
required by Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission relating
to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in
the case of clause (iv), upon receipt of, in addition to Proper
Instructions from the Fund on behalf of the applicable Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.14 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to securities of each Portfolio held by it and
in connection with transfers or securities.
2.15 Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.16 Communications Relating to Fund Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the Portfolio)
received by the Custodian from issuers of the securities being held for
the Portfolio. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Portfolio all written information received
by the Custodian from issuers of the securities whose tender or exchange
is sought and from the party (or his agents) making the tender or
exchange offer. If the Portfolio desires to take action with respect
to any tender offer, exchange offer or any other similar transaction,
the Portfolio shall notify the Custodian at least three business days
prior to the date on which the Custodian is to take such action.
2.17 Proper Instructions. Proper Instructions as used throughout this Article
2 means a writing signed or initialled by one or more person or persons
as the Board of Trustees shall have from time to time authorized. Each
such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered
Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by the Board
of Trustees of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper Instructions may
include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees and the Custodian
are satisfied that such procedures afford adequate safeguards for the
Portfolio's assets. For purposes of this Section, Proper Instructions
shall include instructions received by the Custodian pursuant to any
three-party agreement which requires a segregated asset account in
accordance with Section 2.13.
2.18 Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, provided that all such payments shall be
accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
2.19 Evidence of Authority. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been
properly executed by or on behalf of the Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of Trustees
of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the Declaration of
Trust as described in such vote, and such vote may be considered as in
full force and effect until receipt by the Custodian of written notice
to the contrary.
3. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to
keep the books of account of each Portfolio and/or compute the net asset
value per share of the outstanding shares of each Portfolio or, if directed
in writing to do so by the Fund on behalf of the Portfolio, shall itself
keep such books of account and/or compute such net asset value per share.
If so directed, the Custodian shall also calculate daily the net income of
the Portfolio as described in the Fund's currently effective prospectus
related to such Portfolio and shall advise the Fund and the Transfer Agent
daily of the total amounts of such net income and, if instructed in writing
by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the daily income of
each Portfolio shall be made at the time or times described from time to
time in the Fund's currently effective prospectus related to such Portfolio.
4. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract
in such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of
the Fund and shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by each Portfolio and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
5. Opinion of Fund's Independent Accountant.
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from
year to year favorable opinions from the Fund's independent accountants with
respect to its activities hereunder in connection with the preparation of
the Fund's Form N-1A, and Form N-SAR or other annual reports to the
Securities and Exchange Commission and with respect to any other requirements
of such Commission.
6. Reports to Fund by Independent Public Accountants.
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on
futures contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian under
this Contract; such reports, which shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by
such examination, and, if there are no such inadequacies, the reports shall
so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
8. Responsibility of Custodian.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper
party or parties, including any futures commission merchant acting pursuant
to the terms of a three-party futures or options agreement. The Custodian
shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and
shall be without liability for any action reasonably taken or omitted
pursuant to such advice.
If the Fund on behalf of the Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable
for the payment of money or incurring liability of some other form, the Fund
on behalf of the Portfolio, as a prerequisite to requiring the Custodian to
take such action, shall provide indemnity to the Custodian in an amount and
form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumes
settlement) for the benefit of a Portfolio or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any
time held for the account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
9. Effective Period, Termination and Amendment. This Contract shall become
effective as of its execution, shall continue in full force and effect until
terminated as hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by
an instrument in writing delivered or mailed, postage prepaid to the other
party, such termination to take effect not sooner than thirty (30) days
after the date of such delivery or mailing; provided, however that the
Custodian shall not with respect to a Portfolio act under Section 2.12
hereof in the absence of receipt of an initial certificate of the Secretary
or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio
and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has reviewed the use by such Portfolio
of such Securities System, as required in each case by Rule 17f-4 under the
Investment Company Act of 1940, as amended and that the Custodian shall
not with respect to a Portfolio act under Section 2.12A hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has approved the initial use of the
Direct Paper System by such Portfolio and the receipt of an annual certificate
of the Secretary or an Assistant Secretary that the Board of Trustees has
reviewed the use by such Portfolio of the Direct Paper System; provided
further, however, that the Fund shall not amend or terminate this Contract
in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund
on behalf of one or more of the Portfolios may at any time by action of its
Board of Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of
the date of such termination and shall likewise reimburse the Custodian for
its costs, expenses and disbursements.
10. Successor Custodian.
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an
account of the successor custodian all of the securities of each such
Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act
of 1940, doing business in Boston, Massachusetts, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $25,000,000, all securities, funds
and other properties held by the Custodian on behalf of each applicable
Portfolio and all instruments held by the Custodian relative thereto and all
other property held by it under this Contract on behalf of each applicable
Portfolio and to transfer to an account of such successor custodian all of
the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or
of the Board of Trustees to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period
as the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree
on such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor
of this Contract. Any such interpretive or additional provisions shall be
in a writing signed by both parties and shall be annexed hereto, provided
that no such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the Declaration
of Trust the Fund. No interpretive or additional provisions made as provided
in the preceding sentence shall be deemed to be an amendment of this Contract.
12. Additional Funds.
In the event that the Fund establishes one or more series of Shares in
addition to Florida Bond Fund and Florida Money Market Fund with respect to
which it desires to have the Custodian render services as custodian under the
terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
13. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
14. Prior Contracts.
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
15. Shareholder Communications.
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply
with the rule, the Custodian needs the Fund to indicate whether it authorizes
the Custodian to provide the Fund's name, address and share position to
requesting companies whose securities that Fund owns. If the Fund tells the
Custodian "no," the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund
as consenting to disclosure of this information for all securities owned by
the Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company for using the Fund's
name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one
of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [X] The Custodian is not authorized to release the Fund's
name, address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument
to be executed in its name and behalf by its duly authorized representative
and its seal to be hereunder affixed as of the 29th day of June, 1993.
ATTEST USAA STATE TAX-EXEMPT FUND, INC.
/s/ Michael D. Wagner By /s/ Michael J. C. Roth
- --------------------- ----------------------
Secretary President
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ James E. Collins By /s/ Ronald E. Logue
- -------------------- ------------------------
Assistant Secretary Executive Vice President
EXHIBIT 8(b)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Gentlemen:
Pursuant to Section 12 of the Custodian Agreement dated as of June 29,
1993 between USAA State Tax-Free Trust (the "Trust") and State Street Bank
and Trust Company (the "Custodian"), please be advised that the Trust has
established two new series of its shares, namely, the Texas Tax-Free Income
Fund and the Texas Tax-Free Money Market Fund (the "Funds"), and please be
further advised that the Trust desires to retain the Custodian to render
custody services under the Custodian Agreement to the Funds in accordance
with the fee schedule attached hereto as Exhibit A.
Please state below whether you are willing to render such services
in accordance with the fee schedule.
USAA STATE TAX-FREE TRUST
Attest: /s/ Michael D. Wagner By: /s/ Michael J.C. Roth
--------------------- ---------------------
Secretary President
Dated: May 10, 1994
We are willing to render custody services to the Texas Tax-Free Income
Fund and the Texas Tax-Free Money Market Fund in accordance with the fee
schedules.
STATE STREET BANK AND TRUST COMPANY
Attest: /s/ Paul Kaminski By: /s/ Marguerite Summers
------------------- ----------------------
Assistant Secretary Vice President
Dated: May 31, 1994
STATE STREET
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
USAA TAX-EXEMPT FUND, INC.
USAA INVESTMENT TRUST
USAA MUTUAL FUND, INC.
USAA STATE TAX-FREE TRUST
- -------------------------------------------------------------------
I. Custody, Portfolio and Fund Accounting Services - Maintain
investment ledgers, provide selected portfolio transactions,
position and income reports. Maintain general ledger, and
capital stock accounts. Prepare daily trial balance.
Calculate net asset value daily. Provide selected general
ledger reports. Securities yield or market value quotations
will be provided to State Street by the fund or via State
Streets Automated Pricing service.
The administration fee shown below is an annual charge, in
basis points, billed and payable monthly, based on average
monthly net assets.
ANNUAL FEES PER PORTFOLIO
Annual Full Service Fees
------------------------
First 50 Million 3.50 Basis Points
Next 50 Million 2.50 Basis Points
Next 100 Million 1.50 Basis Points
Excess 0.85 Basis Points
Minimum Monthly Charge $2,000.00
II. Portfolio Trades - For Each Line Item Processed
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $12.00
Boston/New York Physical $25.00
PTC Buy/Sell $20.00
All Other Trades $16.00
Maturity Collections (NY Physical) $ 8.00
Option Charge for each option written or
closing contract, per issue, per broker $25.00
Option expiration/Option exercised $15.00
Interest Rate Futures -- no security movement $ 8.00
Monitoring for calls and processing coupons --
for each coupon issue held -- monthly charge $ 5.00
Principal Reduction Payments Per Paydown $10.00
Interest/Dividend Claim Charges
(For items held at the Request of Traders
over record date in street form) $50.00
III. Holdings Charge
Per Security per Month (Domestic Securities
Only) $ 5.00
STATE STREET
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
USAA TAX-EXEMPT FUND, INC.
USAA INVESTMENT TRUST
USAA MUTUAL FUND, INC.
USAA STATE TAX-FREE TRUST
- ------------------------------------------------------------------------
IV. Affirmation Charge
Per Affirmation per Month $ 1.00
V. Global Custody
U.S. Equivalent Market Value 13.75 Basis Points
Euroclear 5.00 Basis Points
VI. Automated Pricing Via NAVigator
Monthly Base Fee:
Funds with International Holdings $375.00
All other Funds $300.00
Monthly Quote Charge:
- Municipal Bonds via Muller Data $10.00
- Municipal Bonds via Kenny Information
Systems $16.00
- Government, Corporate and Convertible
Bonds via Merrill Lynch $11.00
- Corporate and Government Bonds via
Muller Data $11.00
- Options, Futures and Private Placements $ 6.00
- Foreign Equities and Bonds via Extel Ltd. $ 6.00
- Listed Equities, OTC Equities, and Bonds $ 6.00
- Corporate, Municipal, Convertible and
Government Bonds, Adjustable Rate
Preferred Stocks via IDSI $12.00
VII. Shareholder Check-Writing Service
Per check presented for payment
(excluding postage) $ .65
VIII. Advertised Yield Service
Annual Maintenance Fee:
For each portfolio maintained, monthly charge is based on the
number of holdings as followed:
STATE STREET
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
USAA TAX-EXEMPT FUND, INC.
USAA INVESTMENT TRUST
USAA MUTUAL FUND, INC.
USAA STATE TAX-FREE TRUST
- ----------------------------------------------------------------------
Holding per Portfolio Monthly Charge
--------------------- --------------
0 to 50 $250.00
50 to 100 $300.00
over 100 $350.00
IX. Special Services
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security
shipments and the preparation of special reports will be subject
to negotiation. Fees for yield calculation, securities lending,
and other special items will be negotiated separately.
X. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses
will be made as of the end of each month. Out-of-pocket expenses
include, but are not limited to the following:
Telephone/Telex
Wire Charges ($5.25 per wire and $5.00 out)
Postage and Insurance (includes check writing postage)
Courier Service
Duplicating
Legal Fees
Supplies Related to Fund Records
Rush Transfer -- $8.00 Each
Transfer Fees
Sub-Custodian Charges
Price Waterhouse Audit Letter
Federal Reserve Fee for Return Check items over
$2,500 - $4.25
(Bill directly to USAA Transfer Agency Company)
GNMA Transfer - $15 each
PTC Deposit/Withdrawal for same day turnarounds - $50.00
STATE STREET
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
USAA TAX-EXEMPT FUND, INC.
USAA INVESTMENT TRUST
USAA MUTUAL FUND, INC.
USAA STATE TAX-FREE TRUST
USAA TAX EXEMPT FUND, INC.
USAA INVESTMENT TRUST
USAA MUTUAL FUND, INC.
USAA TAX EXEMPT TRUST (name struckout)
USAA TAX FREE TRUST STATE STREET BANK & TRUST CO.
BY: /s/ Sherron Kirk BY: /s/ Marguerite Summers
---------------- ----------------------
Sherron Kirk Marguerite Summers
TITLE: TREASURER TITLE: VICE PRESIDENT
------------ ------------------
DATE: 10-4-94 DATE: 9/28/94
------------ ------------------
EXHIBIT 9(a)
TRANSFER AGENCY AGREEMENT
AGREEMENT made as of this 25th day of June, 1993, by and
between USAA TRANSFER AGENCY COMPANY, a corporation organized
under the laws of the State of Delaware and having a place of
business in San Antonio, Texas (the "USAA Transfer Agency"), and
USAA STATE TAX-EXEMPT 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"). The Trust intends to initially
offer shares in two separate series designated as the Florida
Bond Fund and the Florida Money Market Fund ("Initial Funds")
(such series together with all other series subsequently
established by the Trust with respect to which the Trust desires
to retain the USAA Transfer Agency to render transfer agency
services hereunder and with respect to which the USAA Transfer
Agency is willing to do, being herein collectively referred to as
the "Funds").
WITNESS THAT: USAA Transfer Agency is hereby appointed
Transfer Agent for the Shares of Beneficial Interest, with $.001
par value (the "Shares") of the Trust and Dividend Disbursing
Agent for the Trust and shall act as Plan Agent for shareholders
of the Trust under the following terms and conditions:
1. DOCUMENTS.
In connection with the appointment of USAA Transfer Agency as
Transfer Agent, the Trust shall file with USAA Transfer Agency
the following documents:
(a) Certified copies of the Master Trust Agreement of the
Trust (sometimes referred to as the Agreement and Declaration
of Trust) and all amendments thereto;
(b) A certified copy of the By-Laws of the Trust as
amended to date;
(c) A copy of the resolution of the Board of Trustees of
the Trust authorizing this Agreement;
(d) Specimens of all forms of outstanding and new share
certificates in the forms approved by the Board of Trustees
of the Trust with a certificate of the Secretary of the Trust
as to such approval.
(e) All account application forms and other documents
relating to record holders' accounts;
(f) A certified list of record holders of the Trust with
the name, address and tax identification number of each
record holder, the number of Shares held by each record
holder, certificate numbers and denominations (if any have
been issued), the plan account number of each record holder
having a plan, lists of any accounts against which stops have
been placed, together with the reasons for said stops, and
the number of Shares redeemed by the Trust.
(g) An opinion of counsel for the Trust with respect to
the validity of the Shares, the number of Shares authorized,
the status of redeemed Shares and the number of Shares with
respect to which a Registration Statement has been filed and
is in effect.
2. FURTHER DOCUMENTATION.
The Trust shall also furnish from time to time the following
documents:
(a) Each resolution of the Board of Trustees of the Trust
authorizing the original issue of its Shares;
(b) Each Registration Statement filed with the Securities
and Exchange Commission and amendments thereof and orders
relating thereto in effect with respect to the sale of the
Shares of the Trust;
(c) A certified copy of each amendment to the Master
Trust Agreement and the By-Laws of the Trust;
(d) Certified copies of each vote of the Board of
Trustees authorizing officers to give instructions to the
Transfer Agent;
(e) Specimens of all new share certificates accompanied
by the Board of Trustees' resolutions approving such forms;
(f) Such other certificates, documents or opinions which
USAA Transfer Agency may, in its discretion, deem necessary
or appropriate in the proper performance of its duties.
3. AUTHORIZED SHARES.
The Trust certifies to USAA Transfer Agency that as of the
close of business on the date of the Agreement, it has authorized
an unlimited number of Shares.
4. TRANSFER AGENT TO REGISTER SHARES.
USAA Transfer Agency shall record issues of Shares of the
Trust. Except as specifically agreed in writing between USAA
Transfer Agency and the Trust, USAA Transfer Agency shall have no
obligation, when crediting Shares or countersigning and issuing
certificates for Shares, to take cognizance of any other laws
relating to the issue and sale of such Shares.
5. TRANSFER AGENT TO RECORD TRANSFERS.
USAA Transfer Agency, upon receipt of proper request for
transfer and surrender to it of certificates, if any, in proper
form for transfer is authorized to transfer on the records of the
Trust maintained by it from time to time, Shares of the Trust,
and upon cancellation of surrendered certificates, if any, to
credit a like amount of Shares to the transferee and to
countersign, issue and deliver new certificates if requested.
6. SHARE CERTIFICATES.
The Trust shall supply USAA Transfer Agency with a sufficient
supply of blank share certificates and from time to time shall
renew such supply upon request of USAA Transfer Agency. Such
blank share certificates shall be properly signed, manually or by
facsimile, if authorized by the Trust, and shall bear the Trust
seal or facsimile thereof; and notwithstanding the death,
resignation or removal of any officers of the Trust authorized to
sign share certificates, USAA Transfer Agency may continue to
countersign certificates which bear the manual or facsimile
signature of such officer until otherwise directed by the Trust.
7. RECEIPT OF FUNDS.
Upon receipt at the office designated by USAA Transfer Agency
of any check or other order drawn or endorsed to it as Transfer
Agent for the Trust or as Plan Agent for any shareholder of the
Trust or otherwise identified as being for the account of the
Trust and in the case of a new account accompanied by a new
account application or sufficient information to establish an
account, USAA Transfer Agency shall stamp the check or other
order with the date of receipt, shall forthwith process the same
for collection, and compute the number of Shares to be purchased
according to the price of Shares in effect for such purchases as
set forth in the Trust's then current Prospectus. USAA Transfer
Agency shall credit the Share account of the investor with the
number of Shares so purchased and shall promptly mail the
investor a notice of such credit and mail a copy to the
Distributor. All such actions are subject to any instructions
which the Trust may give to USAA Transfer Agency with respect to
acceptance of orders for Shares so received by it. USAA Transfer
Agency shall deposit the net amount due the Trust in the bank
account of the Trust maintained by the Trust's custodian bank
(the "Custodian") and shall, on a daily basis, notify the
Custodian of the total amount deposited.
8. ISSUE OF SHARE CERTIFICATES.
If an investor requests a share certificate, USAA Transfer
Agency as Transfer Agent, shall countersign and mail by first
class mail, a share certificate to the investor at his address as
set forth on the transfer books of the Trust, subject to any
instructions for delivery of certificates which the Trust may
give to USAA Transfer Agency with respect to certificates
representing newly purchased Shares, and subject to the
limitation that no certificates representing newly purchased
Shares shall be mailed until the cash purchase price of such
Shares has been deposited in the bank account of the Trust
maintained by the Custodian.
9. RETURNED CHECKS.
In the event that any check or other order for the payment of
money is returned unpaid for any reason, USAA Transfer Agency
shall:
(a) Give prompt notification to the Trust of the
nonpayment of said check.
(b) In the absence of other instructions from the Trust
take such steps as may be necessary to cancel promptly any
Shares purchased on the basis of such returned check and
shall cancel accumulated dividends for such account, which
are due to that specific purchase.
10. NOTICE OF DISTRIBUTION.
The Trust shall promptly inform USAA Transfer Agency of the
declaration of any dividend or distribution on account of its
Shares.
11. DISTRIBUTIONS.
USAA Transfer Agency shall act as Dividend Disbursing Agent
for the Trust, and, as such in accordance with the provisions of
the Master Trust Agreement and then current Prospectus, shall
prepare and mail or credit income and capital gain payments to
investors. As the Dividend Disbursing Agent it shall, on or
before the payment date of any such dividend or distribution,
notify the Custodian of the estimated amount required to pay any
portion of said dividend or distribution which is payable in
cash, and the Trust agrees that on or before the payment date of
such distribution, it shall instruct the Custodian to make
available to the Dividend Disbursing Agent sufficient funds for
the cash amount to be paid out. If an investor is entitled to
receive additional Shares by virtue of any such distribution or
dividend, appropriate credits will be made to his account and/or
certificates delivered where required.
12. REDEMPTIONS.
USAA Transfer Agency shall receive and shall stamp with the
date of receipt, all certificates delivered to it for redemption
or repurchase as well as all requests for redemptions or
repurchase of Shares and shall process said certificates and
redemption and repurchase requests as follows:
(a) If such certificates, redemption or repurchase
requests comply with the standards for redemption or
repurchase as approved by the Trust, USAA Transfer Agency
shall notify the Trust of the total number of Shares
presented and covered by such requests received by USAA
Transfer Agency on said date;
(b) On or prior to the seventh calendar day succeeding
any such receipt of certificates or request for redemption or
repurchase, USAA Transfer Agency shall from cash available in
the bank account maintained by the Custodian, pay the
applicable redemption or repurchase price, as the case may
be, to the investor as set forth in the Master Trust
Agreement and then current Prospectus of the Trust;
(c) If any such certificate or request for redemption or
repurchase does not comply with the standards for redemption
approved by the Trust, USAA Transfer Agency shall promptly
notify the investor of such fact, together with the reason
therefor, and shall effect such redemption or repurchase at
the price applicable to the date and time of receipt of
documents complying with said standards, or in the case of a
repurchase, at such other time as the Distributor, as agent
for the Trust, shall so direct.
13. WITHDRAWAL PLANS.
USAA Transfer Agency shall process withdrawal orders in
accordance with the terms of any withdrawal plans instituted by
the Trust and duly executed by investors. Payments upon such
withdrawal orders and redemptions of Shares held in withdrawal
plan accounts for the payment of the amounts required shall be
made at such times as the Trust may determine with the approval
of USAA Transfer Agency.
14. TAX RETURNS.
USAA Transfer Agency shall prepare, file with the Internal
Revenue Service and with the appropriate State Agencies, and, if
required, mail to investors such returns for reporting dividends
and distributions paid as are required to be so filed and mailed,
and shall withhold such sums as are required to be withheld under
applicable Federal and State income tax laws, rules and
regulations.
15. BOOKS AND RECORDS.
USAA Transfer Agency shall maintain records showing for each
investor's account the following:
(a) Names, addresses and tax identifying numbers;
(b) Number of Shares held;
(c) Historical information regarding the account of each
shareholder, including dividends paid and date and price for
all transactions;
(d) Any stop or restraining order placed against the
account;
(e) Information with respect to withholdings in the case
of a foreign account;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for any
shareholder holding certificates;
(h) Any information required in order for USAA Transfer
Agency to perform the calculations contemplated or required
by this Agreement.
Any such records required to be maintained by Rule 31a-1 of
the General Rules and Regulations under the Investment Company
Act of 1940, as amended (the "1940 Act") shall be preserved for
the periods prescribed in Rule 31a-2 of said rules as
specifically noted below. Such record retention shall be at the
expense of the Trust and records may be inspected by the Trust at
reasonable times. USAA Transfer Agency, may at its option at any
time, and shall forthwith upon the Trust's demand, turn over to
the Trust and cease to retain in USAA Transfer Agency files,
records and documents created and maintained by USAA Transfer
Agency pursuant to this Agreement, which are no longer needed by
USAA Transfer Agency in performance of its services or for its
protection. If not so turned over to the Trust, such records and
documents will be retained by USAA Transfer Agency for six years
from the year of creation, during the first two of which such
documents will be in readily accessible form. At the end of the
six year period, such records and documents will either be turned
over to the Trust, or destroyed in accordance with the Trust's
authorization.
16. INFORMATION TO BE FURNISHED TO TRUST.
USAA Transfer Agency shall furnish to the Trust periodically
as agreed upon the following information:
(a) A copy of the daily transaction register;
(b) Dividend and reinvestment amounts;
(c) The total number of Shares distributed in each state
for "blue sky" purposes as determined according to
instructions delivered from time to time by the Trust to USAA
Transfer Agency.
17. OTHER INFORMATION TO THE TRUST.
USAA Transfer Agency shall furnish to the Trust such other
information, including shareholder lists, and statistical
information as may be agreed upon from time to time.
18. CORRESPONDENCE.
USAA Transfer Agency shall answer that correspondence from
shareholders relating to their Share accounts and such other
correspondence as may from time to time be mutually agreed upon.
19. PROXIES.
USAA Transfer Agency shall mail such proxy cards and other
material supplied to it by the Trust in connection with
shareholder meetings of the Trust and shall receive, examine and
tabulate returned proxies and certify the vote of the Trust.
20. FEES AND CHARGES.
USAA Transfer Agency shall receive such compensation from the
Trust for its services as the Trust's Transfer and Dividend
Disbursing Agent, as Plan Agent for shareholders of the Trust,
and for its other duties pursuant hereto as may be agreed from
time to time, and shall be reimbursed for the cost of any and all
forms, including blank checks and proxies, used by it in
communicating with shareholders of the Trust, or especially
prepared for use in connection with its actions hereunder, as
well as the cost of postage, telephone (including facsimile
transmission) and telegraph used in communicating with
shareholders of the Trust, it being agreed that USAA Transfer
Agency, prior to ordering any forms in such supply as it
estimates will be adequate for more than two years' use, shall
obtain the written consent of the Trust. All forms for which
USAA Transfer Agency has received reimbursement from the Trust
shall be and remain the property of the Trust until used. The
cost of microfilm and microfiche for record retention shall be
reimbursed by the Trust. USAA Transfer Agency shall also receive
from the Trust reimbursement for all counsel fees incurred by
USAA Transfer Agency in connection with the performance of its
duties under this Agreement, unless such fees are incurred on a
matter involving USAA Transfer Agency's willful misconduct or
gross negligence.
21. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The Trust assumes full responsibility for the preparation,
contents and distribution of each Prospectus of the Trust for
complying with all applicable requirements of the Securities Act
of 1933, as amended, the Investment Company Act of 1940, as
amended, and any laws, rules and regulations of governmental
authorities having jurisdiction.
22. REFERENCES TO USAA TRANSFER AGENCY COMPANY.
The Trust shall not circulate any printed matter which
contains any reference to USAA Transfer Agency without the prior
written approval of USAA Transfer Agency, excepting solely such
printed matter as merely identifies USAA Transfer Agency as
Transfer Agent and Dividend Disbursing Agent for the Trust and
Plan Agent for the shareholders of the Trust. The Trust shall
submit printed matter requiring approval to USAA Transfer Agency
in draft form, allowing sufficient time for review by USAA
Transfer Agency and its counsel prior to any deadline for
printing.
23. FORCE MAJEURE.
USAA Transfer Agency shall not be liable for loss of data,
occurring by reason of circumstance beyond its control, including
but not limited to acts of civil or military authority, national
emergencies, fire, flood or catastrophe, acts of God, insurrection,
war, riots, or failure of transportation, communication or power
supply. USAA Transfer Agency shall use its best efforts to minimize
the likelihood of all damage, loss of data, delays and errors
resulting from uncontrollable events, and if such damage, loss of
data, delays or errors occur, USAA Transfer Agency shall use its
best efforts to mitigate the effects of such occurrence.
24. STANDARD OF CARE.
USAA Transfer Agency shall at all times act in good faith and
agrees to use its best efforts within reasonable limits to insure
the accuracy of all services performed under this Agreement, but
assumes no responsibility and shall not be liable for loss or
damage due to errors unless said error is caused by its gross
negligence, bad faith or willful misconduct or that of its
employees.
25. INDEMNIFICATION.
The Trust shall indemnify and hold USAA Transfer Agency
harmless from all loss, cost, damage and expense, including
reasonable expenses for counsel, incurred by it resulting from
any claim, demand, action or suit in connection with its
acceptance of this Agreement, any action or omission by it in the
performance of its duties hereunder, or the functions of Transfer
and Dividend Disbursing Agent and Plan Agent, or as a result of
acting upon any instruction believed by it to have been executed
by a duly authorized officer of the Trust, or upon any
information, data, records or documents provided USAA Transfer
Agency or its agents by computer tape, telex, CRT data entry or
other similar means authorized by the Trust, provided that this
indemnification shall not apply to actions or omissions of USAA
Transfer Agency in cases of its own willful misconduct or gross
negligence, and further provided, that prior to confessing any
claim against it which may be the subject of this
indemnification, USAA Transfer Agency shall give the Trust
reasonable opportunity to defend against said claim in its own
name or in the name of USAA Transfer Agency.
26. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the
purposes hereof.
27. AMENDMENT AND TERMINATION.
This Agreement shall be executed and become effective with
respect to the Initial Funds on June 25, 1993, and, with respect
to any additional Fund, on the date of receipt by the Trust of
notice from the USAA Transfer Agency in accordance with this
paragraph that the USAA Transfer Agency is willing to serve as
Transfer Agent with respect to such Fund. Unless terminated as
herein provided, this Agreement shall remain in full force and
effect through June 30, 1994, and, with respect to each additional
Fund, through the first June 30 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. This Agreement may be modified or
amended from time to time by mutual agreement between the parties
hereto. The Agreement may be terminated at any time after the
expiration of such one year by sixty (60) days' written notice
given by one party to the other. Upon termination hereof, the
Trust shall pay to USAA Transfer Agency such compensation as may
be due as of the date of such termination, and shall likewise
reimburse USAA Transfer Agency for its costs, expenses and
disbursements. This Agreement supersedes any prior agreement
relating to the subject matter hereof between the parties.
28. LIMITATION OF LIABILITY.
The Master Trust Agreement dated June 21, 1993, as amended
from time to time, establishing the Trust, which is hereby
referred to, and provides that the name USAA State Tax-Exempt
Trust means the Trustees from time to time serving (as Trustees
but not personally) under said Master Trust Agreement. It is
expressly acknowledged and agreed that the obligations of the
Trust hereunder shall not be binding upon any of the
shareholders, Trustees, officers, employees or agents of the
Trust, personally, but shall bind only the trust property of the
Trust, as provided in its Master Trust Agreement. The execution
and delivery of this Agreement has been authorized by the
Trustees of the Trust and signed by the President of the Trust,
acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed
to have been made by any of them individually or to impose any
liability of any of them personally, but shall bind only the
trust property of the Trust as provided in its Master Trust
Agreement.
EXECUTED under seal as of the day and year first above written.
USAA STATE TAX-EXEMPT TRUST USAA TRANSFER AGENCY COMPANY
By: /s/ Michael J. C. Roth BY: /s/ Joseph H. L. Jimenez
---------------------- ------------------------
MICHAEL J. C. ROTH JOSEPH H. L. JIMENEZ
President Vice President
ATTEST: ATTEST:
/s/ Michael D. Wagner /s/ Michael D. Wagner
- ---------------------------- ----------------------------
MICHAEL D. WAGNER, Secretary MICHAEL D. WAGNER, Secretary
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA STATE TAX-EXEMPT TRUST
Florida Bond Fund
- -----------------------------------------------------------------
General - Fees are based on an annual per shareholder account
charge for account maintenance plus out-of pocket expenses.
There is a minimum charge of $2,000 per month applicable to the
entire fund complex.
Annual Maintenance Charges - The annual maintenance charge
includes the processing of all transactions and correspondence.
The fee is billable on a monthly basis at the rate of 1/12 of the
annual fee. USAA Transfer Agency Company will charge for each
open account from the month the account is opened through January
of the year following the year all funds are redeemed from the
account.
Florida Bond Fund - charge per account $26.00
USAA STATE TAX-EXEMPT TRUST USAA TRANSFER AGENCY COMPANY
Florida Bond Fund
By: /s/ Michael J. C. Roth By: /s/ Joseph H. L. Jimenez
---------------------- ------------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: June 25, 1993 Date: June 25, 1993
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA STATE TAX-EXEMPT TRUST
Florida Money Market Fund
- ------------------------------------------------------------------
General - Fees are based on an annual per shareholder account
charge for account maintenance plus out-of pocket expenses.
There is a minimum charge of $2,000 per month applicable to the
entire fund complex.
Annual Maintenance Charges - The annual maintenance charge
includes the processing of all transactions and correspondence.
The fee is billable on a monthly basis at the rate of 1/12 of the
annual fee. USAA Transfer Agency Company will charge for each
open account from the month the account is opened through January
of the year following the year all funds are redeemed from the
account.
Florida Money Market Fund - charge per account $22.64
USAA STATE TAX-EXEMPT TRUST USAA TRANSFER AGENCY COMPANY
Florida Money Market Fund
By: /s/ Michael J. C. Roth By: /s/ Joseph H. L. Jimenez
---------------------- ------------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: June 25, 1993 Date:June 25, 1993
EXHIBIT 9(b)
USAA Transfer Agency Company
9800 Fredericksburg Road
San Antonio, TX 78288
Gentlemen:
Pursuant to Section 27 of the Transfer Agency Agreement dated
as of June 25, 1993 between USAA State Tax-Free Trust (the
"Trust") and USAA Transfer Agency Company, (the "Transfer Agent")
please be advised that the Trust has established two new series
of its shares, namely, the Texas Tax-Free Income Fund and the
Texas Tax-Free Money Market Fund (the "Funds"), and please be
further advised that the Trust desires to retain the Transfer
Agent to render transfer agency services under the Transfer
Agency Agreement to the Funds in accordance with the fee
schedules attached hereto as Exhibit A.
Please state below whether you are willing to render such
services in accordance with the fee schedules.
USAA STATE TAX-FREE TRUST
Attest: /s/ Michael D. Wagner By: /s/ Michael J. C. Roth
---------------------- ----------------------
Secretary President
Dated: May 10, 1994
We are willing to render transfer agency services to the Texas
Tax-Free Income Fund and the Texas Tax-Free Money Market Fund in
accordance with the fee schedules.
USAA TRANSFER AGENCY COMPANY
Attest: /s/ Alex M. Ciccone By: /s/ Joseph H. L. Jimenez
------------------- ------------------------
Assistant Secretary Vice President
Dated: May 10, 1994
Exhibit A
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA STATE TAX-FREE TRUST
Texas Tax-Free Income Fund
- ------------------------------------------------------------------
General - Fees are based on an annual per shareholder account
charge for account maintenance plus out-of pocket expenses.
There is a minimum charge of $2,000 per month applicable to the
entire fund complex.
Annual Maintenance Charges - The annual maintenance charge
includes the processing of all transactions and correspondence.
The fee is billable on a monthly basis at the rate of 1/12 of the
annual fee. USAA Transfer Agency Company will charge for each
open account from the month the account is opened through January
of the year following the year all funds are redeemed from the
account.
Texas Tax-Free Income Fund - charge per account $26.00
USAA STATE TAX-FREE TRUST USAA TRANSFER AGENCY COMPANY
Texas Tax-Free Income Fund
By: /s/ Michael J. C. Roth By: /s/ Joseph H. L. Jimenez
---------------------- ------------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: May 10, 1994 Date: May 10, 1994
Exhibit A
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA STATE TAX-FREE TRUST
Texas Tax-Free Money Market Fund
- -----------------------------------------------------------------
General - Fees are based on an annual per shareholder account
charge for account maintenance plus out-of pocket expenses.
There is a minimum charge of $2,000 per month applicable to the
entire fund complex.
Annual Maintenance Charges - The annual maintenance charge
includes the processing of all transactions and correspondence.
The fee is billable on a monthly basis at the rate of 1/12 of the
annual fee. USAA Transfer Agency Company will charge for each
open account from the month the account is opened through January
of the year following the year all funds are redeemed from the
account.
Texas Tax-Free Money Market Fund - charge per account $22.64
USAA STATE TAX-FREE TRUST USAA TRANSFER AGENCY COMPANY
Texas Tax-Free Money Market Fund
By: /s/ Michael J. C. Roth By: /s/ Joseph H. L. Jimenez
----------------------- ------------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: May 10, 1994 Date:May 10, 1994
EXHIBIT 9(c)
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA STATE TAX-FREE TRUST
Florida Tax-Free Money Market Fund
- ------------------------------------------------------------------
General - Fees are based on an annual per shareholder account
charge for account maintenance plus out-of pocket expenses.
There is a minimum charge of $2,000 per month applicable to the
entire fund complex.
Annual Maintenance Charges - The annual maintenance charge
includes the processing of all transactions and correspondence.
The fee is billable on a monthly basis at the rate of 1/12 of the
annual fee. USAA Transfer Agency Company will charge for each
open account from the month the account is opened through January
of the year following the year all funds are redeemed from the
account.
Florida Tax-Free Money Market Fund - charge per account $26.00
USAA STATE TAX-FREE TRUST USAA TRANSFER AGENCY COMPANY
Florida Tax-Free Money Market Fund
By: /s/ Michael J. C. Roth By: /s/ Joseph H. L. Jimenez
---------------------- ------------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: May 3, 1995 Date: May 3, 1995
EXHIBIT 9(d)
USAA Transfer Agency Company
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
USAA STATE TAX-FREE TRUST
Texas Tax-Free Money Market Fund
- ------------------------------------------------------------------
General - Fees are based on an annual per shareholder account
charge for account maintenance plus out-of pocket expenses.
There is a minimum charge of $2,000 per month applicable to the
entire fund complex.
Annual Maintenance Charges - The annual maintenance charge
includes the processing of all transactions and correspondence.
The fee is billable on a monthly basis at the rate of 1/12 of the
annual fee. USAA Transfer Agency Company will charge for each
open account from the month the account is opened through January
of the year following the year all funds are redeemed from the
account.
Texas Tax-Free Money Market Fund - charge per account $26.00
USAA STATE TAX-FREE TRUST USAA TRANSFER AGENCY COMPANY
Texas Tax-Free Money Market Fund
By: /s/ Michael J. C. Roth By: /s/ Joseph H. L. Jimenez
---------------------- ------------------------
Michael J. C. Roth Joseph H. L. Jimenez
President Vice President
Date: May 3, 1995 Date: May 3, 1995
EXHIBIT 10
GOODWIN, PROCTER & HOAR
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
CABLE GOODPROCT, BOSTON
July 17, 1995
USAA State Tax-Free Trust
USAA Building
San Antonio, TX 78288-0227
Gentlemen:
As counsel to USAA State Tax-Free Trust (the "Trust"), a
Delaware business trust, we have been asked to render our opinion
with respect to the issuance of an indefinite number of shares of
beneficial interest, par value $.001 per share, of the Trust
(the "Shares") representing interests in the USAA Florida Tax-
Free Income Fund, USAA Florida Tax-Free Money Market Fund, USAA
Texas Tax-Free Income Fund and the USAA Texas Tax-Free Money
Market Fund, four series of the Trust, as more fully described
in the prospectuses and statements of additional information
relating to the Shares contained in Post-Effective Amendment
No. 4 (the "Amendment") to the Trust's Registration Statement
No. 33-65572 on Form N-1A.
We have examined the Master Trust Agreement of the Trust
dated June 21, 1993, as amended, the By-laws of the Trust, as
amended, the records of certain meetings and written consents
of the Trustees of the Trust, the prospectuses and statements
of additional information relating to the Shares contained in
the Amendment, and such other documents, records and
certificates as we have deemed necessary for the purposes of
this opinion.
Based upon the foregoing, we are of the opinion that the
Trust has been duly organized and is validly existing pursuant
to the laws of the State of Delaware, with authority to issue
the Shares, and that the Shares, when sold in accordance with
the terms of the prospectuses and statements of additional
information relating to the Shares in effect at the time of
sale, will be legally issued, fully paid and non-assessable
by the Trust.
We hereby consent to being named in the prospectuses and
statements of additional information relating to the Shares
contained in the Amendment and to the filing of this opinion
as an exhibit to the Amendment.
Very truly yours,
/s/ Goodwin, Procter & Hoar
---------------------------
GOODWIN, PROCTER & HOAR
EXHIBIT 11
The Shareholders and Board of Trustees
USAA State Tax-Free Trust:
We consent to the use of our reports dated May 3, 1995 on the
financial statements of the Florida Tax-Free Income, Florida Tax-
Free Money Market, Texas Tax-Free Income, and Texas Tax-Free
Money Market Funds, separate Funds of USAA State Tax-Free Trust
(the Trust), as of and for the period ended March 31, 1995
included in the Trust's Annual Reports to Shareholders for the
period ended March 31, 1995 incorporated herein by reference and
to the references to our firm under the headings "Financial
Highlights" and "Independent Auditors" as part of Post-Effective
Amendment No. 4 under the Securities Act of 1933, as amended, and
Amendement No. 5 under the Investment Company Act of 1940, as
amended, to the Trust's Registration Statement on Form N-1A.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
San Antonio, Texas
July 19, 1995
EXHIBIT 13(a)
SUBSCRIPTION
June 25, 1993
TO: Board of Trustees
USAA State Tax-Exempt Trust
USAA Building
San Antonio, TX 78288
Dear Sir:
The undersigned hereby subscribes to 10 shares of the Florida
Bond Fund series, with $.001 par value, of USAA State Tax-Exempt
Trust at a price of $10.00 per share and agrees to pay therefore
upon demand, cash in the amount of $100.
The undersigned hereby further subscribes to 100 shares of the
Florida Money Market Fund series, with $.001 par value, of USAA
State Tax-Exempt Trust at a price of $1.00 per share and agrees to
pay therefore upon demand, cash in the amount of $100.
Very truly yours,
USAA INVESTMENT MANAGEMENT COMPANY
/s/ Michael J. C. Roth
----------------------
By: MICHAEL J. C. ROTH
President
June 25, 1993
USAA State Tax-Exempt Trust
USAA Building
San Antonio, TX 78288
Gentlemen:
In connection with your sale to us today of ten (10) shares
of capital stock representing interests in the Florida Bond Fund
and one hundred (100) shares of capital stock representing
interests in the Florida Money Market Fund (collectively, the
"Shares"), we understand that: (i) the Shares have not been
registered under the Securities Act of 1933, as amended (the
"1933 Act"); (ii) your sale of the Shares to us is made in
reliance on such sale being exempt under Section 4(2) of the 1933
Act as not involving any public offering; and (iii) in part, your
reliance on such exemption is predicated on our representation,
which we hereby confirm, that we are acquiring the Shares for
investment for our own account as the sole beneficial owner
thereof, and not with a view to or in connection with any resale
or distribution of the shares or of any interest therein. We
hereby agree that we will not sell, assign or transfer the Shares
or any interest therein, except upon repurchase or redemption by
the Company, unless and until the Shares have been registered
under the 1933 Act or you have received an opinion of your
counsel indicting to your satisfaction that said sale, assignment
or transfer will not violate the provisions of the 1933 Act or
any rules or regulations promulgated thereunder.
Very truly yours,
USAA INVESTMENT MANAGEMENT COMPANY
By: /s/ Michael J. C. Roth
----------------------
MICHAEL J. C. ROTH
President
SUBSCRIPTION
June 25, 1993
TO: Board of Trustees
USAA State Tax-Exempt Trust
USAA Building
San Antonio, TX 78288
Dear Sir:
The undersigned hereby subscribes to 5,000 shares of the
Florida Bond Fund series, with $.001 par value, of USAA State
Tax-Exempt Trust at a price of $10.00 per share and agrees to pay
therefore upon demand, cash in the amount of $50,000.
The undersigned hereby subscribes to 50,000 shares of the
Florida Money Market Fund series, with $.001 par value, of USAA
State Tax-Exempt Trust at a price of $1.00 per share and agrees
to pay therefore upon demand, cash in the amount of $50,000.
Very truly yours,
USAA INVESTMENT MANAGEMENT COMPANY
/s/ Michael J. C. Roth
By: MICHAEL J. C. ROTH
----------------------
President
June 25, 1993
USAA State Tax-Exempt Trust
USAA Building
San Antonio, TX 78288
Gentlemen:
In connection with your sale to us today of five thousand
(5,000) shares of capital stock representing interests in the
Florida Bond Fund and fifty thousand (50,000) shares of capital
stock representing interests in the Florida Money market Fund
(collectively the "Shares"), we understand that: (i) the Shares
have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"); (ii) your sale of the Shares to us is
made in reliance on such sale being exempt under Section 4(2) of
the 1933 Act as not involving any public offering; and (iii) in
part, your reliance on such exemption is predicated on our
representation, which we hereby confirm, that we are acquiring
the Shares for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection
with any resale or distribution of the shares or of any interest
therein. We hereby agree that we will not sell, assign or
transfer the Shares or any interest therein, except upon
repurchase or redemption by the Company, unless and until the
Shares have been registered under the 1933 Act or you have
received an opinion of your counsel indicting to your
satisfaction that said sale, assignment or transfer will not
violate the provisions of the 1933 Act or any rules or
regulations promulgated thereunder.
Very truly yours,
USAA INVESTMENT MANAGEMENT COMPANY
By: /s/ Michael J. C. Roth
----------------------
MICHAEL J. C. ROTH
President
EXHIBIT 13(b)
SUBSCRIPTION
May 3, 1994
TO: Board of Trustees
USAA State Tax-Free Trust
9800 Fredericksburg Road
San Antonio, TX 78288
Dear Sir:
The undersigned hereby subscribes to 10 shares of the Texas
Tax-Free Income Fund series, with $.001 par value, of USAA State
Tax-Free Trust at a price of $10.00 per share and agrees to pay
therefore upon demand, cash in the amount of $100.
The undersigned hereby further subscribes to 100 shares of
the Texas Tax-Free Money Market Fund series, with $.001 par
value, of USAA State Tax-Free Trust at a price of $1.00 per share
and agrees to pay therefore upon demand, cash in the amount of
$100.
Very truly yours,
USAA INVESTMENT MANAGEMENT COMPANY
/s/ Michael J. C. Roth
----------------------
By: MICHAEL J. C. ROTH
President
May 3, 1994
USAA State Tax-Free Trust
9800 Fredericksburg Road
San Antonio, TX 78288
Gentlemen:
In connection with your sale to us today of ten (10) shares
of capital stock representing interests in the Texas Tax-Free
Income Fund and one hundred (100) shares of capital stock
representing interests in the Texas Tax-Free Money Market Fund
(collectively, the "Shares"), we understand that: (i) the Shares
have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"); (ii) your sale of the Shares to us is
made in reliance on such sale being exempt under Section 4(2) of
the 1933 Act as not involving any public offering; and (iii) in
part, your reliance on such exemption is predicated on our
representation, which we hereby confirm, that we are acquiring
the Shares for investment for our own account as the sole
beneficial owner thereof, and not with a view to or in connection
with any resale or distribution of the shares or of any interest
therein. We hereby agree that we will not sell, assign or
transfer the Shares or any interest therein, except upon
repurchase or redemption by the Trust, unless and until the
Shares have been registered under the 1933 Act or you have
received an opinion of your counsel indicting to your
satisfaction that said sale, assignment or transfer will not
violate the provisions of the 1933 Act or any rules or
regulations promulgated thereunder.
Very truly yours,
USAA INVESTMENT MANAGEMENT COMPANY
By: /s/ Michael J. C. Roth
----------------------
MICHAEL J. C. ROTH
President
EXHIBIT 16
Schedule for Computation of Performance Quotation
TOTAL RETURN CALCULATION
Formula used for the calculation of average annual total return:
P(1+T) ^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the 1,
5 or 10 year periods at the end of the year or period.
The ERV assumes all charges are deducted from the initial
$1,000 payment and assumes all dividends and distributions
are reinvested at the net asset value on the reinvestment
dates during the year or period, and includes all recurring
fees that are charged to all shareholder accounts.
YIELD CALCULATION
Formula used for the calculation of a 30-day yield quotation:
YIELD = 2 times [((((a-b) divided by (cd)) +1) to the 6th power) -1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day of
the period
Tax Equivalent Yield
The tax equivalent yield is computed by dividing that portion of
the yield of a Fund (computed as described above) which is tax-
exempt, by the complement of the federal income tax rate of 28%
(or other relevant rate) and adding the result to that portion,
if any, of the yield of such Fund that is not tax-exempt.
EXHIBIT 19(a)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of San
Antonio and State of Texas on the 25th day of June, 1993.
USAA STATE TAX-EXEMPT TRUST
/s/ Michael J.C. Roth
----------------------
Michael J.C. Roth
President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Know all men by these presents that each person whose
signature appears below constitutes and appoints Michael J.C.
Roth, John W. Saunders, Jr. and Michael D. Wagner, and each of
them, as his true and lawful attorney-in-fact and agent, with
full power of substitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments
to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
(Signature) (Title) (Date)
/s/ Robert T. Herres Chairman of the Board June 25, 1993
Robert T. Herres of Trustees
/s/ Michael J.C. Roth Vice Chairman of the Board June 25, 1993
Michael J.C. Roth of Trustees and President
(Principal Executive Officer)
/s/ Sherron A. Kirk Treasurer (Principal Financial June 25, 1993
Sherron A. Kirk and Accounting Officer)
/s/ John W. Saunders, Jr. Trustee June 25, 1993
John W. Saunders, Jr.
/s/ C. Dale Briscoe Trustee June 25, 1993
C. Dale Briscoe
/s/ George E. Brown Trustee June 25, 1993
George E. Brown
/s/ Howard L. Freeman, Jr. Trustee June 25, 1993
Howard L. Freeman, Jr.
/s/ Richard A. Zucker Trustee June 25, 1993
Richard A. Zucker
EXHIBIT 19(b)
POWER OF ATTORNEY
Know all men by these presents that the undersigned Trustee
of USAA STATE TAX-FREE TRUST, a Delaware business trust (the
"Trust"), constitutes and appoints Michael J.C. Roth, John W.
Saunders, Jr. and Michael D. Wagner, and each of them, as his
true and lawful attorney-in-fact and agent, with full power or
substitution, for him and in his name, place and stead, in any
and all capacities to sign registration statements on any form or
forms filed under the Securities Act of 1933 and the Investment
Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or
appropriate in connection therewith and to file them with the
Securities and Exchange Commission or any other regulatory
authority as may be necessary or desirable, hereby ratifying and
confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Hansford T. Johnson July 12, 1995
- ------------------------------- --------------------
Hansford T. Johnson, Trustee Date
POWER OF ATTORNEY
Know all men by these presents that the undersigned Trustee
of USAA STATE TAX-FREE TRUST, a Delaware business trust (the
"Trust"), constitutes and appoints Michael J.C. Roth, John W.
Saunders, Jr. and Michael D. Wagner, and each of them, as her
true and lawful attorney-in-fact and agent, with full power or
substitution, for her and in her name, place and stead, in any
and all capacities to sign registration statements on any form or
forms filed under the Securities Act of 1933 and the Investment
Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or
appropriate in connection therewith and to file them with the
Securities and Exchange Commission or any other regulatory
authority as may be necessary or desirable, hereby ratifying and
confirming all that said attorney-in-fact and agent or her
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Barbara B. Dreeben July 12, 1995
- --------------------------------- ---------------------
Barbara B. Dreeben, Trustee Date
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