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1933 Act File No. 2-82592
1940 Act File No. 811-3696
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 28 X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 30 X
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(Check appropriate box or boxes.)
RESERVE TAX-EXEMPT TRUST
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(Exact Name of Registrant as Specified in Charter)
810 Seventh Avenue, New York, NY 10019
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 977-9882
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Marc C. Cozzolino, Esq., Reserve Tax-Exempt Trust, 810 Seventh Avenue, 17th
Floor,
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New York, NY 10019
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
Immediately upon filing pursuant to paragraph (b) of Rule 485
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on July 31, 1996 pursuant to paragraph (b) of Rule 485
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x 60 days after filing pursuant to paragraph (a) of Rule 485
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on (date) pursuant to paragraph (a) of Rule 485
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The Commission is requested to send copies of all communications to:
Paul F. Roye, Esq.
Dechert Price & Rhoads
1500 K Street, NW
Washington, DC 20005
Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 electing to register an indefinite number of shares of
beneficial interest. The notice required by Rule 24f-2 with respect to
Registrant's fiscal year ending May 31, 1996 was filed with the Commission on
June 17, 1996.
This filing contains 39 pages.
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RESERVE TAX-EXEMPT TRUST
CROSS REFERENCE SHEET PURSUANT TO RULE 495A(a)
<TABLE>
<CAPTION>
FORM PROSPECTUS AND STATEMENT
N-1A OF ADDITIONAL INFORMATION
ITEM FORM CAPTION CAPTION
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<S> <C> <C>
1 Cover Page Cover Page
2 Synopsis (omitted)
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant Investment Objective and Policies;
Shares of Beneficial Interest
5 Management of the Fund Management; How to Buy Shares
6 Capital Stock and Other Securities Shares of Beneficial Interest
7 Purchase of Securities Being Offered How to Buy Shares
8 Redemption or Repurchase Redemptions
9 Legal Proceedings (omitted)
10 Cover Page Statement of Additional Information
11 Table of Contents Table of Contents
12 General Information and History (omitted)
13 Investment Objective and Policies Investment Objective and Policies
14 Management of the Registrant Trustees and Executive Officers
15 Control Persons and Principal Trustees and Executive Officers; Shares of Holders of Securities
Beneficial Interest
16 Investment Advisory and Other Investment Management, Distribution,
Service Services and Custodian Agreements
17 Brokerage Allocation Portfolio Turnover, Transaction
Charges and Allocation
18 Capital Stock and Other Securities Shares of Beneficial Interest
19 Purchase, Redemption, and Pricing Purchase, Redemption and Pricing of
Shares; of Securities Being Offered
20 Tax Status Distributions and Taxes
21 Underwriters Investment Management, Distribution,
Service and Custodian Agreements
22 Calculation of Yield Quotations Fund Yield
Of Money Market Funds
23 Financial Statements Financial Statements
</TABLE>
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[THE RESERVE FUNDS LOGO] General Information, Purchases and
Redemptions
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24 Hour Yield and Balance Information
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Nationwide 800-637-1700
THE INTERSTATE SELECT TAX-EXEMPT FUND
The INTERSTATE SELECT TAX-EXEMPT FUND of Reserve Tax-Exempt Trust (the
"Fund") is a no-load money market fund whose investment objective is to seek as
high a level of short term interest income exempt from federal income taxes as
is consistent with preservation of capital and liquidity.
The INTERSTATE SELECT TAX-EXEMPT FUND invests principally in obligations
issued by the states, territories, possessions of the United States and their
political subdivisions, duly constituted authorities and corporations.
SHARES OF THE FUND ARE NEITHER GUARANTEED NOR INSURED 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.
This Prospectus sets forth the information about the Fund which a
prospective investor should know before investing. A Statement of Additional
Information dated , , providing further details about the Fund,
has been filed with the Securities and Exchange Commission. It may be obtained
without charge by writing or calling the Fund at (800) 637-1700. The Statement
of Additional Information is incorporated by reference into this Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Prospectus dated , .
Investors are advised to read and retain this Prospectus for future reference.
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SHAREHOLDER EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended May 31, 1996.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases................................................ None
Sales Load Imposed on Reinvested Dividends..................................... None
Redemption Fees*............................................................... None
Exchange Fees.................................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fee................................................................ .50%
12b-1 Fees.................................................................... .20%
Other Operating Expenses...................................................... .30%
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Total Operating Expenses...................................................... 1.00%
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</TABLE>
The purpose of this table is to assist the investor in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. * A $2.00 fee is charged on redemption checks issued by the Fund of
less than $100 and a $10 fee is charged for wire redemptions of less than
$10,000.
The following example illustrates the expenses that a shareholder would pay
on a $1,000 investment over various time periods assuming: (1) a 5% annual rate
of return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C>
$11 $33 $57 $127
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
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FINANCIAL HIGHLIGHTS
YIELD
Current yield refers to the income generated by an investment in the Fund
over a seven-day period. This income is then annualized. That is, the amount of
income generated by the investment during that 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 is
assumed to be reinvested. The effective yield will be higher than the current
yield because of this compounding effect.
The Fund may also quote its tax equivalent yield, which shows the taxable
yield an investor would have to earn before taxes to equal the Fund's tax-free
yield. The tax equivalent yield is calculated by dividing the Fund's current or
effective yield by the result of one minus a stated federal tax rate.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek as high a level of short
term interest income exempt from Federal income taxes as is consistent with
preservation of capital and liquidity. The Fund seeks to attain this objective
by investing principally in obligations issued by states, territories, and
possessions of the United States and their subdivisions, duly constituted
authorities and corporations, or participation interests in such obligations.
However, achievement of this objective cannot be assured. This investment
objective cannot be changed without the vote of a majority of the outstanding
shares of the Fund as defined in the Investment Company Act of 1940.
These securities are generally known as "municipal bonds" or "municipal
notes" and the interest on them is exempt from federal income tax in the opinion
of either bond counsel for the issuers or, in some instances, the issuer itself
("Municipal Obligations"). They may be issued to raise money for various public
purposes such as constructing public facilities. Certain types of Municipal
Obligations are issued to obtain funding for privately operated facilities.
General obligation bonds and notes are backed by the taxing power of the issuer.
Revenue bonds and notes are backed by the revenues of a project or facility such
as tolls from a toll road or, in some cases, from the proceeds of a special
excise tax, but not by the general taxing power. Industrial development revenue
bonds and notes are a specific type of revenue bond or note backed by the credit
of a private issuer. The Fund may invest any portion of its assets in industrial
revenue bonds and notes. Municipal Obligations bear fixed, variable or floating
rates of interest. At least 80% of the value of the Fund's assets will be
invested in Municipal Obligations unless the Fund has adopted a temporary
defensive position.
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The Fund may purchase floating and variable rate demand notes, which are
Municipal Obligations normally having stated maturities in excess of one year,
but which permit the holder to demand payment of principal and accrued interest
at any time, or at specified intervals not exceeding one year, in each case
usually upon not more than seven days' notice. The interest rates on these
floating and variable rate demand notes fluctuate from time to time. Frequently,
such Municipal Obligations are secured by letters of credit or other credit
support arrangements provided by banks. The Fund may invest any portion of its
assets in floating and variable rate demand notes secured by bank letters of
credit or other credit support arrangements. Use of letters of credit or other
credit support arrangements will not adversely affect the tax-exempt status of
these Municipal Obligations. The Fund will not invest more than 10% of the value
of its assets in floating or variable rate demand notes for which there is no
secondary market if the demand feature on such Municipal Obligations is
exercisable on more than seven days notice.
In view of the investment of the Fund in industrial revenue development
bonds and notes secured by letters of credit or guarantees of banks, an
investment in Fund shares should be made with an understanding of the
characteristics of the banking industry and the risks such an investment may
entail. Banks are subject to extensive government regulations which may limit
both the amounts and types of loans and other financial commitments which may be
made and interest rates and fees which may be charged. The profitability of the
banking industry is largely dependent upon the availability and cost of capital
funds for the purpose of financing lending operations under prevailing money
market conditions. In addition, general economic conditions play an important
part in the operations of this industry, and exposure to credit losses arising
from possible financial difficulties of borrowers might affect a bank's ability
to meet its obligations under a letter of credit.
The Fund will purchase tax-exempt securities which are rated MIG-1 or MIG-2
by Moody's Investor Services, Inc. ("Moody's"), SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P") or the equivalent thereof. Municipal Obligations
which are not rated may also be purchased provided such securities are
determined to be of comparable quality by the Fund's investment adviser to those
rated securities in which the Fund may invest pursuant to guidelines established
by the Board of Trustees.
OTHER POLICIES. Certain banks and other municipal securities dealers have
indicated a willingness to sell Municipal Obligations to the Fund accompanied by
a commitment to repurchase the securities, at the Fund's option or at a
specified date, at an agreed upon price or yield within a specified period prior
to the maturity date of such securities at the amortized cost thereof. If a bank
or other municipal securities dealer were to default under such stand-by
commitment and fail to pay the exercise price, the Fund could suffer a potential
loss to the extent that the amount paid by the Fund, if any, for the Municipal
Obligation with the stand-by commitment exceeded the current value of the
underlying Municipal Obligations. If a bank or other municipal securities dealer
defaults under its stand-by commitment, the liquidity of the security subject to
such commitment may be adversely affected.
Municipal Obligations are sometimes offered on a "when-issued" or delayed
delivery basis. There is no limit on the Fund's ability to purchase Municipal
Obligations on a when-issued basis. The price of when-issued securities, which
is generally expressed in yield terms, is fixed at the time the commitment to
purchase is made but delivery and payment for the when-issued securities takes
place at a later date. Normally, the settlement date occurs within one month of
the purchase of such Municipal Obligations. During the period between the
purchase and settlement dates, no payment is made by the Fund to the issuer and
no interest accrues to the Fund on such securities. To the extent that assets of
the Fund purchasing such securities are not invested prior to the settlement of
a purchase of securities, the Fund will earn no income, however, it is the
Fund's intent to be as fully invested as is practicable. While when-issued
securities may be sold prior to settlement date, the Fund intends to purchase
such securities with the purpose of actually acquiring them unless a sale
appears desirable for investment reasons. At the time the Fund makes the
commitment to purchase a Municipal Obligation on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The Fund will also maintain readily marketable assets at least
equal in value to commitments for when-issued securities specifically for the
settlement of such commitments. The investment adviser does not believe that the
Fund's net asset value or income will be adversely affected by the purchase of
Municipal Obligations on a when-issued basis.
The Fund may purchase from financial institutions participation interests in
Municipal Obligations. A participation interest gives the Fund an undivided
interest in the Municipal Obligation in the proportion that the Fund's
participation interest bears to the total principal amount of the Municipal
Obligation. These instruments may have fixed, floating or variable rates of
interest. Frequently, such instruments are secured by letters of credit or other
credit support arrangements provided by banks.
The Tax Reform Act of 1986 ("the Act") subjects interest received on certain
otherwise tax-exempt securities ("private activity bonds") to a federal
alternative minimum tax. It is the position of the Securities and Exchange
Commission that in order for a fund to call itself "tax-free" not more than 20%
of its net assets may be invested in municipal securities subject to the federal
alternative minimum tax or at least 80% of its income will be tax-exempt. Income
received on such securities is classified as a "tax preference item" which could
subject certain investors in such securities, including shareholders of the
Fund, to an increased alternative minimum tax. However, as of the date of this
Prospectus the Fund does not purchase such securities, but reserves the right to
do so depending on market conditions in the future.
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Yields on municipal securities depend on a variety of factors, including
general economic and monetary conditions, money market factors, conditions in
the tax-exempt securities market, size of a particular offering, maturity of the
obligation and rating of the issue. The ability of the Fund to achieve its
investment objective is also dependent on the continuing ability of issuers of
municipal securities to meet their obligations for the payment of interest and
principal when due.
From time to time the Fund may invest in taxable short-term investments
("Taxable Investments") consisting of obligations backed by the full faith and
credit of the United States government, its agencies or instrumentalities ("U.S.
Governments"); deposit-type obligations, acceptances, and letters of credit of
Federal Deposit Insurance Corporation member banks; and instruments fully
collateralized by such obligations. Unless the Fund has adopted a temporary
defensive position, no more than 20% of the net assets of the Fund will be
invested in Taxable Investments at any time. The Fund may enter into repurchase
agreements with regard to the taxable obligations listed above. Although the
Fund is permitted to make taxable temporary investments, there is no current
intention of generating income subject to federal income tax.
The Fund's investment adviser uses its reasonable business judgment in
selecting investments in addition to considering the ratings of Moody's and S&P.
This analysis considers, among other things, the financial condition of the
issuer by taking into account present and future liquidity, cash flow and
capacity to meet debt service requirements. Since the market value of debt
obligations fluctuates as an inverse function of changing interest rates, the
Fund seeks to minimize the effect of such fluctuations by investing in
instruments with remaining maturities of 397 days or less and limiting its
average maturity to 90 days or less.
The principal risk factors associated with investment in the Fund are the
risk of fluctuations in short-term interest rates, the risk of default among one
or more issuers of securities which comprise the Fund's assets and the risk of
non-diversification. As a non-diversified investment company, the Fund is
permitted to have all its assets invested in a limited number of issuers.
Accordingly, since a relatively high percentage of the Fund's assets may be
invested in the securities of a limited number of issuers, the Fund's investment
securities may be more susceptible to any single economic, political or
regulatory occurrence than the investment securities of a diversified investment
company. However, the Fund intends to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code. This limits the aggregate
value of all investments (except United States Government securities, securities
of other regulated investment companies, cash and cash items) so that, with
respect to at least 50% of its total assets, not more than 5% of such assets are
invested in the securities of a single issuer.
MANAGEMENT
INVESTMENT MANAGEMENT AGREEMENT. The Board of Trustees manages the Fund's
business and affairs. Reserve Management Company, Inc. ("Adviser"), 14 Locust
Place, Manhasset, NY 11030, provides the Fund with investment advice pursuant to
an Investment Management Agreement. Since November 15, 1971, the Adviser and its
affiliates have been advising the Reserve Funds, which currently have assets in
excess of $3 billion. Under the Investment Management Agreement, the Adviser
manages the Fund's investments, including effecting purchases and sales thereof,
in furtherance of the Fund's investment objective and policies, subject to
overall control and direction by the Trustees.
As compensation for these services the Adviser receives a management fee,
which is a percentage of the average daily net assets of the Fund, calculated as
follows: (i) .50% per annum of the first $500 million of average daily net
assets; (ii) .475% per annum of the next $500 million of such assets; (iii) .45%
per annum of the next $500 million of such assets; (iv) .425% per annum of the
next $500 million of such assets; and (v) .40% per annum of such assets in
excess of $2 billion. For the fiscal year ended May 31, 1996, the Adviser
received a management fee of .50% of the average net assets of the Fund.
SERVICE AGREEMENT. The Adviser furnishes to the Fund on behalf of the Fund, at
cost, all personnel required for its operations such as executive,
administrative, clerical, recordkeeping, bookkeeping, and shareholder accounting
and servicing, as well as suitable office space and necessary equipment and
supplies used by such personnel in performing these functions. Operating costs
for which the Fund reimburses the Adviser includes salaries and other personnel
expense, rent, depreciation of equipment and facilities, interest and
amortization of loans financing equipment used by the Fund, and all other
expenses for the conduct of Fund affairs. Affiliates of the Adviser may provide
some of these services. The Fund also reimburses the Adviser for: brokerage fees
and commissions; interest charges and taxes; the cost of registering for sale,
issuing and redeeming Fund shares and of printing and mailing all prospectuses,
proxy statements and shareholder reports furnished to current shareholders; and
the fees and expenses of the Fund's custodian, auditors, lawyers and Trustees
who are not "interested persons" of the Fund.
The Adviser has agreed to repay the Fund promptly any amount which a
majority of disinterested Trustees reasonably determines in its discretion is in
excess of or not properly attributable to the cost of operations or expenses of
the Fund. The Service Agreement is nonassignable and continues until terminated
by either party on 120 days notice.
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TRUSTEES. The Trustees serve indefinite terms (subject to certain removal
procedures) and they appoint their own successors, provided that at least a
majority of the Trustees have been elected by shareholders. A Trustee may be
removed at any meeting of shareholders by a vote of a majority of the
shareholders of Reserve Tax-Exempt Trust.
TRANSFER AGENT AND DIVIDEND PAYING AGENT. Reserve Tax-Exempt Trust acts as its
own transfer agent and dividend paying agent.
HOW TO BUY SHARES
METHOD OF PAYMENT. The minimum initial investment is $1,000 and $250 for
subsequent investments ($50 if shares are purchased by Reserve Automatic
Asset-Builder, Reserve Automatic Asset-Builder for U.S. Government Distributions
and $25 if purchased by Reserve Automatic Asset Builder for Payroll or Pension).
An initial purchase must be accompanied by an investment application or
equivalent information. For clients of certain broker-dealers and financial
institutions, shares may be purchased directly through such firm. You can buy
shares of the Funds each business day at the net asset value next determined
after receipt by the Funds of a properly completed order and payment in Federal
Funds (member bank deposits with a Federal Reserve bank). Payments (denominated
in U.S. dollars) must be made:
- By check (drawn on a U.S. bank) payable to The Reserve Funds, 810 Seventh
Avenue, New York, N.Y. 10019-5868. You must include your account number
(or Taxpayer Identification number) on the "pay to the order of" line for
each check made payable to The Reserve Funds or within the endorsement for
each check endorsed to The Reserve Funds.
- By wire -- Prior to calling your bank, call the Fund for specific
instructions at 800-637-1700 or the broker-dealer or financial institution
("firm") from which you received this Prospectus.
Checks and wires which do not correctly identify the account to be credited
may be returned or delay the purchase of shares. Because the Fund must pay for
its securities purchases on the same day in Federal funds, only Federal funds
wires and checks drawn on the Fund's bank are eligible for entry as of the
business day received. For Federal funds wires to be eligible for same-day order
entry, the Fund must be notified before 11:00 A.M. (New York time) of the amount
to be transmitted and the account to be credited. Payment by check not
immediately convertible into Federal funds will be entered as of the business
day when covering Federal funds are received or bank checks are converted into
Federal funds. This usually occurs within two business days, but may take
longer. Checks delivered to the Fund's offices after 11:00 A.M. (New York time)
will be considered received the next business day. A fee will be charged if any
check used for investment in your account does not clear.
Any monies which cannot be credited to an account by the end of the business
day following that on which Federal funds become available will be returned as
promptly as possible to the sender or, if this cannot be readily determined, to
the bank from which they came or were drawn. The Fund reserves the right, with
respect to any person or class of persons, under certain circumstances to waive
investment minimums and redemption requirements. The Fund reserves the right to
suspend the offering of shares from time to time and to reject any purchase
order for any reason. The Fund will only accept purchase checks in excess of
$100 which are payable to The Reserve Fund or payable to the shareholder/payee
of the check and endorsed to The Reserve Funds. The Fund does not accept
travelers checks.
RESERVE AUTOMATIC ASSET-BUILDER PLAN. If you have an account balance of $5,000
or more, you may purchase shares of a Fund ($25 minimum) from a checking, NOW,
or bank money market deposit account or from a U.S. Government distribution ($25
minimum) such as Social Security, federal salary, or certain veteran's benefits,
or other payments from the federal government. Fill out the Reserve Automatic
Asset-Builder form included in the account application or call the Funds at
(800) 637-1700.
NET ASSET VALUE. Shares are sold to the public at net asset value ("NAV"). The
NAV of the Fund is calculated at the close of each business day (normally 4:00
P.M. New York time) by taking the sum of the Fund's investments (amortized cost
value is used for this purpose) and any cash or other assets, subtracting
liabilities, and dividing by the total number of shares outstanding. A "business
day" is Monday through Friday exclusive of days the New York Stock Exchange is
closed for trading and bank holidays in New York State which include Martin
Luther King's Birthday and Columbus Day. It is the policy of the Fund to seek to
maintain a stable NAV per share of $1.00 although this share price is not
guaranteed.
DISTRIBUTORS. The distributors of the Fund are Resrv Partners, Inc., 810
Seventh Avenue, New York, NY 10019-5868, which is a wholly-owned subsidiary of
the Advisor; and Pacific Global Fund Distributors, Incorporated, 250 North
Marengo Avenue, Pasadena, CA 91101.
EXCHANGE PRIVILEGE. The shares offered by this Prospectus may be exchanged for
shares in other Reserve money market funds at net asset value. Customers of
certain firms may exchange shares of the Fund for shares of certain equity and
bond funds where a sales load
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normally applies. A waiver of the sales load may apply if the shares being
exchanged were acquired: (a) by a previous exchange from shares of a fund
purchased with a sales load, or (b) through investments of dividends or
distributions paid with respect to the foregoing category of shares. Exchanges
of shares of one fund for another is a taxable event and may result in a gain or
loss for federal income tax purposes. The exchange privilege may be modified or
terminated at any time, or from time to time, upon 60 days' notice to
shareholders. Shares to be acquired in an exchange must be registered for sale
in the investor's state. The exchange privilege described under this heading may
not be available to clients of certain firms and some firms may impose
conditions on their clients which are different from those described in this
Prospectus.
DISTRIBUTION AND SERVICE PLAN. Purchases may also be made through brokers,
financial intermediaries and financial institutions. Some of these firms
participate in the Fund's Plan of Distribution ("Plan"). Reserve Tax-Exempt
Trust maintains the Plan and related agreements, as amended, under Rule 12b-1 of
the Investment Company Act of 1940 (the "1940" Act). Under the Plan, the Fund
makes assistance payments at an annual rate of .20% of the net asset value of
broker, financial institution, and financial intermediary shareholder accounts
("qualified accounts"). Substantially all such monies are paid to brokers,
financial institutions and financial intermediaries for distribution assistance
or administrative services provided the Fund. The investment adviser is required
by the Plan to pay an equivalent amount and may, at its discretion, pay from its
own resources or from other sources available to it, additional amounts and
incentives, including lump-sum payments, based upon the amount of assets
committed to the Fund by such brokers, financial institutions, financial
intermediaries, and underwriters. The Plan does not permit the carrying over of
payments from year to year. The investment adviser also reimburses firms, from
its own resources or from sources available to it, for a portion of their costs
of advertising and marketing shares of the Fund. All such arrangements are
designed to facilitate the sale of Fund shares. Financial institutions providing
distribution assistance or administrative services for the Fund may be required
to register as securities dealers in certain states.
CLIENTS OF FIRMS. Firms provide varying arrangements for their clients with
respect to the purchase and redemption of the Fund's shares and may arrange with
their clients for other investment or administrative services. Firms are
responsible for the prompt transmission of purchase and redemption orders. Some
firms may independently establish and charge additional fees such as redemption
fees to their clients for their services, which charges would reduce their
clients' yield or return. Firms may also hold the Fund's shares in nominee or
street name as agent for and on behalf of their clients. In such instances, the
Fund's transfer agents will have no information with respect to or control over
the accounts of specific shareholders. Such shareholders may obtain access to
their accounts and information about their accounts only from their firm.
Certain firms may receive compensation for recordkeeping and other services
relating to these nominee accounts. In addition, certain privileges with respect
to the purchase and redemption of shares (such as check writing redemptions) or
the reinvestment of dividends may not be available through such firm or may only
be available subject to certain conditions and limitations. Some firms may
participate in a program allowing them access to their client's accounts for
servicing including, without limitation, transfers of registration and dividend
payee changes; and may perform functions such as generation of confirmation
statements and disbursement of cash dividends. The Prospectus should be read in
connection with such firm's material regarding its fees and services.
SHARES OF BENEFICIAL INTEREST
Reserve Tax-Exempt Trust ("Trust") was organized as a Massachusetts business
trust on January 25,1983 and is an open-end management investment company
commonly known as a mutual fund. At the date of this Prospectus, there were five
separate series authorized and outstanding. Additional series may be added in
the future by the Board of Trustees. The Trust is authorized to issue an
unlimited number of shares of beneficial interest which may be issued in any
number of series. Shares issued will be fully paid and nonassessable and will
have no preemptive conversion or sinking rights. The shareholders of the Trust
are entitled to a full vote for each full share held (and fractional votes for
fractional shares) and have equal rights with respect to earnings, dividends,
redemption and in the net assets of their respective series on liquidation. The
Trustees of the Trust do not intend to hold annual meetings of shareholders. The
Trustees will call such special meetings of shareholders as may be required
under the 1940 Act (e.g. to approve a new investment advisory agreement or
changing the fundamental investment policies of the Fund) or by the Declaration
of Trust.
Under Massachusetts law, the shareholders and trustees of a business trust
may, in certain circumstances, be personally liable for the trust's obligations
to third parties. However, the Declaration of Trust provides, in substance, that
no shareholder or Trustee shall be personally liable for the Trust's, and each
separate investment portfolio's, obligations to third parties, and that every
written contract made by the Trust or the Fund contain a provision to that
effect. The Declaration of Trust also requires the Trust to indemnify
shareholders and Trustees against such liabilities and any related claims or
expenses.
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DAILY DIVIDENDS
The Fund declares dividends each business day. Dividends are distributed
daily as additional shares to shareholder accounts except for shareholders who
elect in writing to receive cash dividends, in which case monthly dividend
checks are sent to the shareholder. Although none are anticipated, any net
realized long term capital gains will be distributed at least annually.
TAXES
The Fund intends to maintain its regulated investment company status for
federal income tax purposes. Accordingly, the Fund intends to satisfy certain
requirements imposed by the Internal Revenue Code, so as to avoid any federal
income or excise tax to it. Dividends derived from the interest earned on
Municipal Obligations constitute "tax-exempt interest dividends" and are not
subject to federal income taxes. Any distributions of net realized long-term
capital gains earned by the Fund are taxable to shareholders as such regardless
of the length of time the Fund's shares have been owned by the shareholder.
Shareholders are advised to retain all statements from the Fund to maintain
accurate records of their investments. If any dividends are not exempt from
federal income taxes, shareholders will be advised of such percentage by January
31, of the following year. Shareholders should consult their tax advisers
regarding specific questions as to federal, state or local taxes.
REDEMPTIONS
TIME AND METHOD OF REDEMPTION. Fund shares are redeemed at their net asset
value next determined after receipt by the Fund of a request in proper form.
Although the Fund has seven days to transmit payment for share redemptions, it
usually transmits payment the same day when redemption requests are received
before 11:00 A.M. (New York time) and the next day for requests received after
11:00 A.M. (New York time). This is not always possible, however, and
transmission of redemption proceeds may be delayed. Unless otherwise specified,
orders received after 11:00 A.M. (New York time) are not entered until the next
business day to enable shareholders to receive additional dividends. Payment
will normally be made by check or bank transfer. Shares do not earn dividends on
the day a redemption is effected regardless of whether the redemption order is
received before or after 11:00 A.M.
WRITTEN AND TELEPHONE REDEMPTION REQUESTS. The Fund strongly suggests (but does
not require) that each written redemption be at least $1,000 and requires that
each telephone redemption be at least $1,000, except for redemptions which are
intended to liquidate your account. A shareholder will be charged $2 for
redemption checks issued by the Fund of less than $100. Payments of $10,000 or
more will be wired upon request without charge. A shareholder will be charged
$10 for wires of less than $10,000. The Fund assumes no responsibility for
delays in the receipt of wired or mailed funds. The use of a predesignated
financial institution, such as a savings bank, credit union or savings and loan
association, which is not a member of the Federal Reserve wire system to receive
your wire could cause such a delay. If the Fund has previously been advised in
writing of your brokerage or bank account, telephone requests by any person are
accepted for payment to such account by calling 800-637-1700. The Fund may be
liable for any losses caused by its failure to employ reasonable procedures. To
reduce the risk of loss, proceeds of a telephone redemption may be sent only to
(1) the bank or brokerage account designated by the shareholder, in writing, on
the investment application or in a letter with the signature(s) guaranteed; or
(2) to the address of record if all the conditions listed below are met. To
change the designated brokerage or bank account it is necessary to contact the
firm through which shares of the Fund were purchased or, if purchased directly
from the Fund it is necessary to send a written request to the Fund with
signature(s) guaranteed as described below. Other redemption orders must be in
writing with the necessary signature(s) guaranteed by a domestic commercial
bank, a domestic trust company; a domestic savings bank, credit union or savings
association; or a member firm of a national securities exchange. Guarantees from
notaries public are unacceptable. The Fund will waive the signature guarantee
requirement on a redemption request once every thirty (30) days if all of the
following conditions apply: (1) the redemption is for $5,000 or less; (2) the
redemption check is payable to the shareholder(s) of record; and (3) the
redemption check is mailed to the shareholder(s) at the address of record. The
requirement of a guaranteed signature protects against an unauthorized person
redeeming shares and obtaining the redemption proceeds. Redemption instructions
and election of the plans described below may be made when your account is
opened. Subsequent elections and changes in instructions must be in writing with
the signature(s) guaranteed. Changes in registration or authorized signatories
may require additional documentation.
The Fund reserves the right to refuse a telephone redemption if it believes
it is advisable to do so. Procedures for telephone redemptions may be modified
or terminated by the Fund at any time. During times of drastic economic or
market conditions, share holders may experience difficulty in contacting the
Fund by telephone to request a redemption or exchange of the Fund's shares. In
such cases shareholders should consider using another method of redemption, such
as a written request or a redemption by check.
8
<PAGE> 11
REDEMPTION BY CHECK. By completing a signature card (and certain other
documentation if the record owner is a fiduciary, corporation, partnership,
trust or other organization) which is available from the Fund or the firm
through which shares of the Fund were purchased, you can write checks against
your account. This privilege may not be available to clients of certain firms.
There is no minimum amount for check redemptions, however, the Fund, upon proper
notice to the shareholder may choose to impose a fee if it deems a shareholder s
actions to be burdensome to the Fund. A firm may establish variations of minimum
check amounts for their customers if such variations are approved by the Fund.
This procedure lengthens the time your money earns dividends, since redemptions
are not made until the check is processed by the Fund. Because of this, a check
cannot completely liquidate your account, nor may a check be presented for
certification or be presented for immediate payment. Otherwise, you may deposit
a check in your bank account or use it to pay any third party obligation not
requiring certification. Shareholder checks written against accounts with
insufficient funds, postdated checks and checks which contain an irregularity in
the signature, amount or otherwise will be returned by the Fund and a fee
charged against the account. Because check redemptions are reported on account
statements, they will not be confirmed separately. A fee is charged for
providing checks copies.
STOP PAYMENTS. The Fund will honor stop payment requests on unpaid shareholder
checks provided the Fund is advised of the correct check number, payee, check
amount, and date. Stop payment requests received by the Fund by 2:00 P.M. (New
York time) in proper form will be effective the next business day. Oral stop
payment requests are effective for fourteen (14) calendar days, at which time
they will be canceled unless confirmed in writing. Written stop payment orders
are effective for one year. A fee is charged for this service.
AUTOMATIC WITHDRAWAL PLANS. If you have an account with a balance of at least
$5,000, you may make a written election to participate in either of the
following: (i) an Income Distribution Plan providing for monthly, quarterly or
annual payments by redemption of shares from reinvested dividends or
distributions paid to your account during the preceding period; or (ii) a Fixed
Amount Withdrawal Plan providing for the automatic redemption of a sufficient
number of shares of your account to make a specified monthly, quarterly or
annual payment of a fixed amount. Changes in instructions must be in writing
with signature(s) guaranteed. In order for such payments to continue under
either Plan, there must be a minimum of $25 available from reinvested dividends
or distributions. Payments can be made to you or your designee. An application
for the Automatic Withdrawal Plans can be obtained from the Fund. The amount,
frequency and recipient of the payments may be changed by giving proper written
notice to the Fund. The Fund may impose a charge or modify or terminate any
Automatic Withdrawal Plan at any time after the participant has been duly
notified. This privilege may not be available to clients of certain firms or may
be available subject to conditions or limitations.
RESERVE AUTOMATIC TRANSFER PLAN. You may redeem Fund shares (minimum $100)
without charge by telephone if you have filed a separate Reserve Automatic
Transfer application with the Fund. The proceeds will be transferred between
your Fund account and the checking, NOW or bank money market deposit account (as
permitted) designated in the application. Only such an account maintained in a
domestic financial institution which is an Automated Clearing House member may
be so designated. Redemption proceeds will be on deposit in your account at the
Automated Clearing House member bank ordinarily two (2) business days after
receipt of the redemption request. The Fund may impose a charge or modify or
terminate this privilege at any time after the participant has been duly
notified. This privilege may not be available to clients of certain firms or may
be available subject to conditions or limitations.
RESTRICTIONS. The right of redemption may be suspended or the date of payment
postponed for more than seven (7) days only (a) when the New York Stock Exchange
is closed (other than for customary closings), (b) when, as determined by the
Securities and Exchange Commission ("SEC"), trading on the Exchange is
restricted or an emergency exists making it not reasonably practicable to
dispose of securities owned by the Fund or for it to determine fairly the value
of its net assets, or (c) for such periods as the SEC may by order permit. If
shares of the Fund are purchased by check or Reserve Automatic Transfer, the
Fund may delay transmittal of redemption proceeds until such time as it has
assured itself that good payment has been collected for the purchase of such
shares, which will generally be up to ten (10) business days. Shareholder checks
written against funds which are not yet considered collected will be returned
and a fee charged against the account. When a purchase is made by wire and
subsequently redeemed, the proceeds from such redemptions normally will not be
transmitted until two (2) business days after the purchase by wire. Bank
acknowledgment of payment initiated by you may shorten delays.
GENERAL INFORMATION
JOINT OWNERSHIP. When an account is registered in the name of one person or
another, for example a husband or wife, either person is entitled to redeem
shares in the account. The Fund assumes no responsibility to either person for
actions taken by the other person with respect to an account so registered. The
Fund application provides that persons so registering their account indemnify
and hold the Fund harmless for actions taken by either party.
9
<PAGE> 12
BACKUP WITHHOLDING. The Fund is required by federal law to withhold 31% of
dividends and other distributions that are subject to federal income tax (i) a
correct and certified Taxpayer Identification Number (TIN) is not provided for
your account, (ii) you fail to certify that you have not been notified by the
IRS that you underreported taxable interest or dividend payments or (iii) the
Funds are notified by the IRS (or a broker) that the TIN provided is incorrect
or you are otherwise subject to backup withholding. Amounts withheld and
forwarded to the IRS can be credited as a payment of tax when completing your
federal income tax return. For individual shareholders, the TIN is the social
security number. However, special rules apply for certain accounts. For example,
for an account established under the Uniform Gift to Minors Act, the TIN of the
minor should be furnished. Shareholders should be aware that, under regulations
promulgated by the IRS, the Fund may be fined $50 annually for each account for
which a certified TIN is not provided. In the event that such a fine is imposed
with respect to an uncertified account in any year, a corresponding charge will
be made against the account.
REPORTS AND STATEMENTS. Shareholders receive an annual report containing
audited financial statements and an unaudited semi-annual report. A statement is
sent to each shareholder at least quarterly. Shareholders who are clients of
certain firms will receive a statement combining transactions in Fund shares
with statements covering other brokerage or mutual fund accounts.
SMALL BALANCES. Because of the expense of maintaining accounts with small
balances (less than $1,000), the Fund will either levy a monthly charge
(currently $5) or redeem the account and remit the proceeds. A firm may
establish variations of minimum balances and fee amounts if such variations are
approved by the Fund.
RESERVE EASY ACCESS. Easy Access is The Reserve Funds' 24 hour toll-free
telephone service that lets customers use a touch-tone phone to obtain yields
and account balances. To use it, call 800-637-1700 and follow the instructions
you will receive.
INQUIRIES. Shareholders should direct their inquiries to the firm from which
they received this Prospectus or the Fund.
SPECIAL SERVICES. The Fund reserves the right to charge shareholder accounts
for specific costs incurred in processing unusual transactions for shareholders.
Such transactions include, but are not limited to, stop payment requests on or
copies of Fund redemption checks or shareholder checks and special research
services.
PERFORMANCE. The Fund may compare its performance to other income producing
alternatives such as (i) money market funds (based on yields cited by Donoghue's
Money Fund Report and other industry publications); and (ii) various bank
products (based on average rates of bank and thrift institution certificates of
deposit, money market deposit accounts and N.O.W. accounts as reported by the
Bank Rate Monitor and other industry publications). An investment in shares of
the fund is not insured by the Federal Deposit Insurance Corporation.
Yield information is useful in reviewing the Fund's performance relative to
other funds that hold investments of similar quality. Because yields will
fluctuate, yield information may not provide a basis for comparison with bank
and thrift certificates of deposit which normally pay a fixed rate for fixed
term and are subject to a penalty for withdrawals prior to maturity which will
reduce their return.
10
<PAGE> 13
RESERVE CASH PERFORMANCE ACCOUNT PLUS
The Fund offers a comprehensive package of services which enhance access to
an investment in the Fund. The Reserve Cash Performance Account Plus ("CPA")
services include: (i) any amount checking; and (ii) a comprehensive monthly and
annual statement which summarizes your CPA activity by payee and expense
category and simplifies budget and tax recordkeeping. These CPA services are
provided for a fee and transaction charges may apply. Participating firms may
also charge their own service fees.
------------------------
NO PERSON HAS BEEN AUTHORIZE TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
------------------------
11
<PAGE> 14
RESERVE TAX-EXEMPT TRUST
INTERSTATE SELECT TAX-EXEMPT FUND
810 SEVENTH AVENUE, NEW YORK, N.Y. 10019
(212) 977-9982
(800) 637-1700
--------------------------------------------
YIELD AND BALANCE INFORMATION
TOLL FREE (800) 637-1700 -- TOUCH TONE PHONE
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information describes the Interstate Select
Tax-Exempt Fund of the Reserve Tax-Exempt Trust (the "Fund"). This Statement
is not a Prospectus, but provides detailed information to supplement the
Prospectus and should be read in conjunction with the Prospectus. A copy of
the Prospectus may be obtained from the Fund at the above address. This
Statement is dated _______________.
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
Investment Objective and Policies 2
Trustees and Executive Officers 3
Investment Management, Distribution,
Service and Custodian Agreements 4
Portfolio Turnover, Transaction
Charges and Allocation 6
Shares of Beneficial Interest 7
Purchase, Redemption and Pricing
of Shares 8
Distributions and Taxes 10
Fund Yield 11
Reserve Cash Performance Plus Account 12
Municipal Obligations 13
Ratings 14
</TABLE>
SHARES OF THE FUND ARE NEITHER GUARANTEED NOR INSURED 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.
<PAGE> 15
INVESTMENT OBJECTIVE AND POLICIES
The following information provides additional details about the
Interstate Select Fund's investment objective and policies discussed in the
Prospectus.
The INTERSTATE SELECT TAX-EXEMPT FUND'S investment objective is to seek
as high a level of short term interest income exempt from federal income taxes
as is consistent with preservation of capital and liquidity, by investing
principally in obligations issued by states, territories, and possessions of
the United States and by their political subdivisions, duly constituted
authorities and corporations.
These securities are generally known as "municipal bonds" or "municipal
notes" and the interest on them is exempt from Federal income tax in the
opinion of bond counsel for the issuers ("Municipal Obligations"). Municipal
Obligations generally include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets, water and sewer works. Other public purposes
for which Municipal Obligations may be issued include refunding outstanding
obligations, obtaining funds for general operating expenses and lending such
funds to other public institutions and facilities. In addition, certain types
of industrial development bonds are issued by or on behalf of public
authorities to obtain funds to provide for the construction, equipment, repair
or improvement of privately operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, industrial, port or
parking facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity or sewage or solid waste
disposal; the interest paid on such obligations may be exempt from Federal
income tax. At least 80% of the Interstate Fund's ("Fund") assets will be
invested in Municipal Obligations unless the Fund has adopted a defensive
position.
The Fund will purchase tax exempt securities which are rated MIG-1 or
MIG-2 by Moody's Investor Services, Inc. ("Moody's"); SP-1 or SP-2 by Standard
& Poor's Corporation ("S&P") or rated the equivalent thereof. Municipal
Obligations which are not rated may be purchased provided such securities are
determined to be of comparable quality by the Fund's investment adviser
pursuant to guidelines adopted by the Board of Trustees to those rated
securities in which the Fund may invest.
Subsequent to its purchase by the Fund, an issue of rated Municipal
Obligations may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. In the event a Municipal
Obligation's rating falls below the second highest rating category of a
nationally recognized statistical rating agency, the Municipal Obligation will
be disposed of within five business days of the date the investment adviser
becomes aware of the new rating. Should a rated Municipal Obligation cease to
be rated, the investment adviser will promptly reassess the credit risk of the
Municipal Obligation. The ratings of Moody's and S&P represent their opinions
as to the quality of the Municipal Obligations they rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality.
From time to time, on a temporary basis other than for temporary
defensive purposes, the Fund may invest in taxable short term investments
("Taxable Investments") consisting of obligations backed by the full faith and
credit of the United States Government, its agencies and instrumentalities
("U.S. Governments"); deposit-type obligations, acceptances and letters of
credit of Federal Deposit Insurance Corporation member banks; or instruments
fully secured or collateralized by such obligations. The Fund will not invest
in foreign securities or in taxable commercial paper. Interest earned on
Taxable Investments will be taxable income to investors. Unless the Fund has
adopted a temporary defensive position, no more than 20% of its net assets will
be invested in Taxable Investments at any time.
SUPPLEMENTAL INVESTMENT POLICIES. The investment objective, and the following
supplemental policies may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. A majority of the outstanding
shares of the Fund means the vote of the lesser of (i) 67% or more of the
shares of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. The Fund cannot (1)
invest in any security other than those discussed herein or in the Prospectus;
(2) borrow money except as a temporary or emergency measure (but not for the
purpose of purchasing investment securities), and not in an amount to exceed 5%
of the value of its total assets; (3) issue securities senior to its capital
stock; (4) act as an underwriter with respect to the securities of others; (5)
concentrate investments in any particular industry
<PAGE> 16
except to the extent that its investments are concentrated exclusively in
Municipal Obligations, in U.S. Governments, or instruments secured by such
obligations; (6) purchase, sell or otherwise invest in real estate or
commodities or commodity contracts; however, the Fund may purchase Municipal
Obligations secured by interests in real estate; (7) lend more than 33 1/3% of
the value of its total assets to the extent its investments may be considered
loans; (8) sell any security short or write, sell or purchase any futures
contract or put or call option; provided, however, that the Fund shall have the
authority to purchase Municipal Obligations subject to a stand-by commitment,
at the Fund's option; (9) invest in voting securities or in companies for the
purpose of exercising control; (10) invest in the securities of other
investment companies except in compliance with the Investment Company Act of
1940; (11) make investments on a margin basis; and (12) purchase or sell any
securities (other than securities of the Fund) from or to any officer or
Trustee, the investment adviser, or affiliated person except in compliance with
the Investment Company Act of 1940.
OTHER POLICIES. Certain banks and other municipal securities dealers have
indicated a willingness to sell Municipal Obligations to the Fund accompanied
by a commitment to repurchase the securities, at the Fund's option or on a
specified date, at an agreed-upon price or yield within a specified period
prior to the maturity date of such securities.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. A repurchase agreement
transaction occurs when the Fund purchases and simultaneously contracts to
resell in advance securities at fixed prices determined by the yields
negotiated. The Fund will limit repurchase agreement transactions to those
financial institutions and securities dealers who are deemed credit worthy
pursuant to guidelines established by the Fund's Board of Trustees. The
investment manager will follow procedures intended to provide that all acquired
repurchase agreements are at least 100% collateralized as to principal and
interest. The Fund will make payment for such instruments only upon their
physical delivery to, or evidence of their book-entry transfer to, the account
of the Fund's custodian. If the seller defaults on the repurchase obligation,
the Fund could incur a loss, and may incur costs in disposing of the underlying
security. The Fund will not hold more than 10% of its net assets in illiquid
securities, including repurchase agreements with a term greater than seven
days.
The Fund may sell securities in a reverse repurchase agreement when it is
considered advantageous, such as to cover net redemptions or to avoid a
premature outright sale of its portfolio securities. In a typical reverse
repurchase agreement transaction, the seller (Fund) retains the right to
receive interest and principal payments on the security, but transfers title to
and possession of the security to a second party in return for a percentage of
its value. By paying back to this party the value received plus interest, the
seller repurchases the transferred security. It is the Fund's policy that
entering into a reverse repurchase agreement will be for temporary purposes
only and, when aggregated with other borrowings may not exceed 5% of the value
of the total assets of the Fund at the time of the transaction.
TRUSTEES AND EXECUTIVE OFFICERS
*BRUCE R. BENT, President, Treasurer and Trustee, 810 Seventh Avenue, New
York, New York 10019.
Mr. Bent is President, Treasurer, and Trustee of The Reserve Fund ("RF"),
Reserve Institutional Trust ("RIT"), Reserve Tax-Exempt Trust ("RTET") and
Reserve New York Tax-Exempt Trust ("RNYTET") and Reserve Private Equity Series
("RPES"), Director, Vice President and Secretary of Reserve Management Company,
Inc. ("RMCI") and Reserve Management Corporation, and Chairman and Director of
Resrv Partners, Inc. Before 1968, he was associated with Stone & Webster
Securities Corp., and previously, Teachers Insurance and Annuity Association.
EDWIN EHLERT, JR., Trustee, 125 Elm Street, Westfield, New Jersey 07091.
Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency formerly called Travelong of Westfield, Inc.) and Ehlert Travel
Associates of Florida, Inc. (travel agency), and Trustee of RF, RIT, RNYTET,
RTET and RPES.
<PAGE> 17
HENRI W. EMMET, Trustee, 176 East 71st Street, New York, New York 10021.
Mr. Emmet is the Managing Director of Servus Associates, Inc, and U.S.A.
Representative of the First National Bank of Southern Africa and Trustee of RF,
RET, RNYTET, RTET and RPES. Until 1989, he was Senior Vice President of the
New York branch of Banque Nationale de Paris.
*DONALD J. HARRINGTON, C.M, Trustee, St. John's University, Jamaica, New
York 11439.
The Reverend Harrington is President of St. John's University (NY) and a
Trustee of RF, RIT, RNYTET, RTET and RPES. The Reverend Harrington served as
President of Niagara University from 1984 to 1989 and was Executive Vice
President of Niagara University from 1981 to 1984.
NIELS W. JOHNSEN, Trustee, 1 Whitehall Street, New York, New York 10004.
Mr. Johnsen is Chairman of the Board of International Shipholding Corp.
and Central Gulf Lines, Inc. (ship cargo carrier), Director of Centennial
Insurance Co. and Trustee of The Atlantic companies (insurance), RF, RIT,
RNYTET, RTET and RPES.
MARC C. COZZOLINO, Counsel and Secretary, 810 Seventh Avenue, New York,
NY 10019.
Mr. Cozzolino is Counsel and Secretary of RF, RIT, RTET, RNYTET and
RPES. Before joining The Reserve Funds in 1994, Mr. Cozzolino was a staff
attorney at the New Jersey Bureau of Securities.
PAT A. COLLETTI, Controller, 810 Seventh Avenue, New York, New York 10019.
Mr. Colletti is Controller of RF, RIT, RTET, RNYTET and RPES. Prior to
joining The Reserve Funds in 1985, Mr. Colletti was Supervisor of Accounting of
Money Market Funds for the Dreyfus Corporation.
- --------------------------------------------
*Interested Trustee within the meaning of the Act. Messrs. Ehlert, Emmet,
Harrington, and Johnsen are members of a Review Committee which performs the
functions of an Audit Committee and reviews compliance procedures and
practices.
During the year ended May 31, 1996, the Trustees received fees of $9,206
from the Fund. As of June 30, 1996, Trustees and officers as a group owned
less than 1% of the outstanding shares of the Trust. During the year ended May
31, 1996, Reserve Tax-Exempt Trust held four Board meetings and one Review
Committee meeting.
<PAGE> 18
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND FUND COMPLEX
NAME OF TRUSTEE FROM FUND* (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Edwin Ehlert, Jr. $2,293 $22,197
Henri W. Emmet $2,293 $22,197
Rev. Donald J. Harrington $2,293 $22,197
Niels W. Johnsen $2,293 $22,197
</TABLE>
INVESTMENT MANAGEMENT, DISTRIBUTION, SERVICE
AND CUSTODIAN AGREEMENTS
INVESTMENT MANAGEMENT AGREEMENT. Reserve Management Company, Inc. ("RMCI"), 14
Locust Place, Manhasset, NY 11030, of which Messrs. Henry B.R. Brown and Bruce
R. Bent are the Directors, manages the Fund and provides it with investment
advice pursuant to an Investment Management Agreement. Messrs. Brown and Bent
together with their children own RMCI. Under the Investment Management
Agreement, RMCI manages the Fund's investments, including effecting purchases
and sales thereof, in furtherance of its investment objective and policies,
subject to overall control and direction of the Trustees. RMCI also makes
promotional and advertising expenditures related to the sale of Fund shares
(paying for prospectuses distributed to potential investors and for other sales
literature, but not paying for prospectuses distributed to current
shareholders, distribution assistance payments paid by the Fund, or
registration fees and expenses).
For these services, the Fund periodically pays RMCI a management fee at
the annual rate of .50% of the first $500 million of average daily net assets,
.475% of the next $500 million of such assets, .45% of the next $500 million of
such assets, .425% per annum of the next $500 million of such assets, and .40%
of such assets in excess of $2 billion. For the fiscal years ended May 31,
1992, 1993, 1994, 1995 and 1996, RMCI received management fees of $1,797,084,
$1,826,877, $1,876,890, $1,702,033 and $1,602,360 respectively, from the Fund.
From time to time, RMCI may waive receipt of its fees and or voluntarily
assume certain expenses of the Fund which would have the effect of lowering the
Fund's expense ratio and increasing yield to investors at the time such amounts
are assumed or waived as the case may be.
The Investment Management Agreement was approved by shareholders in
1986, and may be renewed annually if specifically approved by the Board of
Trustees and by the vote of a majority of the Trustees who are not "interested
persons" ("disinterested Trustees") cast in person at a meeting called for the
purpose of voting on such renewal. The agreement terminates automatically upon
its assignment and may be terminated without penalty upon 60 days written
notice by a vote of the Board of Trustees of the Fund or by vote of a majority
of outstanding voting shares of the Fund or by RMCI.
SERVICE AGREEMENT. Under a Service Agreement, RMCI furnishes to the Fund all
personnel required for administrative, clerical, recordkeeping, bookkeeping,
shareholder accounting, and shareholder servicing functions. In addition, RMCI
provides at cost, office space, office equipment (including computers), office
supplies, and direct expenditures which include brokerage fees and commissions,
interest, taxes, issuing and redemption costs, registration fees, disinterested
Trustees' fees, custodial fees, extraordinary legal expenses, costs of
preparing and printing prospectuses and statements of additional information
for regulatory purposes and for distribution to existing shareholders, costs of
shareholder reports and meetings, and independent accountants' fees. For all
of these items, each portfolio reimburses RMCI for its costs. However, RMCI
has agreed to repay promptly any amount reimbursed which a majority of the
disinterested Trustees reasonably
<PAGE> 19
determines is in excess of, or not properly attributable to, the cost of
operations or expenses of the Fund. The Service Agreement is non-assignable
and continues until terminated by either party on 120 days written notice.
Reserve Management Corporation, an affiliate of RMCI, may provide some of these
services.
Pursuant to the Service Agreement, during the fiscal year ended May 31,
1996 the Fund reimbursed RMCI $1,081,664 for expenses. For the fiscal years
ended May 31, 1994 and 1995 RMCI was reimbursed $1,256,945 and $1,062,207 for
expenses, respectively.
DISTRIBUTION AGREEMENT. The Fund's Distributor is Resrv Partners, Inc.
("RESRV"), 810 Seventh Avenue, New York, N.Y. 10019. The Fund has authorized
the Distributor, in connection with their sale of Fund shares, to give only
such information and to make only such statements and representations as are
contained in the Prospectus. Sales may be made only by the Prospectus. The
Distributor may offer and sell shares of the Fund pursuant to a separate
Prospectus applicable to such Distributor. The Distributor is "principal
underwriter" for the Fund within the meaning of the Investment Company Act of
1940, and as such act as agent in arranging for the continuous offering of Fund
shares. The Distributor has the right to enter into selected dealer
agreements with brokers or other persons of their choice for the sale of Fund
shares. Parties to selected dealer agreements may receive assistance payments,
if they qualify for such payments, under the Distribution Plan described below.
RESRV's and PGFDI's principal business is the distribution of mutual fund
shares. No Distributor has retained any underwriting commissions on the sale
of Fund shares during the last three fiscal years. The Distributors do not
have the exclusive right to distribute Fund shares and the Fund may,
therefore, continue to distribute its own shares.
The Distribution Agreements may be renewed annually if specifically
approved by the Board of Trustees and by the vote of a majority of the
disinterested Trustees cast in person at a meeting called for the purpose of
voting on such approval or by the vote of a majority of the outstanding voting
securities of the Fund.
PLAN OF DISTRIBUTION. The Fund maintains a Plan of Distribution ("Plan") and
related agreements, as amended, under Rule 12b-1 of the Investment Company Act
of 1940, which provides that investment companies may pay distribution
expenses, directly or indirectly, pursuant to a Plan adopted by the investment
company's Board and approved by its shareholders. Under the Plan, the Fund
makes assistance payments to brokers, financial institutions and other
financial intermediaries ("payee(s)") for shareholder accounts ("qualified
accounts") as to which the payee has rendered distribution assistance services
at an annual rate of .20% of the average net asset value of qualified accounts.
Such distribution assistance may include, but may not be limited to,
establishment of shareholder accounts, delivering prospectuses to prospective
investors and processing automatic investment in Fund shares of client account
balances. Substantially all such monies (together with significant amounts
from RMCI's own resources) are paid by RMCI to payees for their distribution
assistance or administrative services with any remaining amounts being used by
RMCI to partially defray other expenses incurred by RMCI in distributing Fund
shares. In addition to the amounts required by the Plan, RMCI may, in its
discretion, pay additional amounts. The rate of any additional amounts that
may be paid will be based upon RESRV's and RMCI's analysis of the contribution
that the payee makes to the Fund by increasing assets under management and
reducing expense ratios and the cost to the Fund if such services were provided
directly by the Fund or other authorized persons. RMCI and RESRV will also
consider the need to respond to competitive offers of others, which could
result in assets being withdrawn from the Fund and an increase in the expense
ratio for the Fund. RMCI may elect to retain a portion of the distribution
assistance payments to pay for sales materials or other promotional activities.
The Trustees have determined that there is a reasonable likelihood the Plan
will benefit the Fund and its shareholders.
The Glass-Steagall Act prohibits all entities which receive deposits
from engaging to any extent in the business of issuing, underwriting, selling,
or distributing securities, although national and state chartered banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. Those persons who wish to provide assistance in the form of
activities not primarily intended to result in the sale of Fund shares (such as
administrative and account maintenance services) may include banks, upon
<PAGE> 20
advice of counsel that they are permitted to do so under applicable laws and
regulations, including the Glass-Steagall Act. In such event, no preference
will be given to securities issued by such banks as investment and the
assistance payments received by such banks under the Plan may or may not
compensate the banks for their administrative and account maintenance services
for which the banks may also receive compensation from the bank accounts they
service. It is Fund management's position that payments to banks pursuant to
the plan for activities not primarily intended to result in the sale of Fund
shares, such as administrative and account maintenance services, do not violate
the Glass-Steagall Act. However, this is an unsettled area of the law and if a
determination contrary to management's position is made by a bank regulatory
agency or court concerning payments to banks contemplated by the Plan, any such
payments will be terminated and any shares registered in the bank's name, for
its underlying customer, will be registered in the name of that customer.
Financial institutions providing distribution assistance or administrative
services for the Fund may be required to register as securities dealers in
certain states.
Under the Plan, the Fund's Controller or Treasurer reports quarterly the
amounts and purposes of assistance payments. During the continuance of the
Plan the selection and nomination of the disinterested Trustees is at the
discretion of the disinterested Trustees currently in office.
During the fiscal year ended May 31, 1996, $616,837 was paid under the
Plan by the Fund. Any such payments are intended to benefit the Fund by
maintaining or increasing net assets to permit economies of scale in providing
services to shareholders and to contribute to the stability of shareholder
services. During the fiscal year ended May 31, 1996 substantially all payments
made by the Fund were to brokers or other financial institutions and
intermediaries for share balances in the Fund.
The Plan and related agreements were duly approved by shareholders and
may be terminated at any time by a vote of a majority of the outstanding voting
securities of the Fund or by vote of the disinterested trustees. The Plan and
related agreements may be renewed from year to year if approved by a vote of a
majority of the Board of Trustees and by a vote of the disinterested trustees
cast in person at a meeting called for the purpose of voting on such renewal.
The Plan may not be amended to increase materially the amount to be spent for
distribution without shareholder approval. All material amendments to the Plan
must also be approved by a vote of the Board of Trustees and of the
disinterested Trustees, cast in person at a meeting called for the purpose of
such vote.
The Securities and Exchange Commission had proposed to amend Rule 12b-1
under the Investment Company Act of 1940 in a manner which, among other things,
would effectively prohibit the implementation of compensation plans or any
other plans that do not tie payments by a fund to specific distribution
activities. If such a proposal were implemented, the Board of Trustees would
determine, at such time and in light of the existing circumstances, the
appropriateness of continuing the Plan, recommending its modification or
discontinuance, or taking any other action.
CUSTODIAL SERVICES AND INDEPENDENT ACCOUNTANT. The Chase Manhattan Bank, 4 New
York Plaza, New York, N.Y. 10004 and Bankers Company, One Bankers Plaza, New
York, N.Y. 10015 are Custodians of the Fund's securities and cash pursuant to
Custodian Agreements. Coopers & Lybrand L.L.P., 1301 Avenue of the Americas,
New York, N.Y. 10019 is the Fund's independent accountant.
PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION
As investment securities transactions made by the Fund are normally
principal transactions at net prices, the Fund does not normally incur
brokerage commissions. Purchases of securities from underwriters involve a
commission or concession paid by the issuer to the underwriter and aftermarket
transactions with dealers involve a spread between the bid and asked prices.
During the past three fiscal years, the Fund has not paid any brokerage
commissions.
The Fund's policy of investing in debt securities maturing within one
year results in high portfolio turnover. However, because the cost of these
transactions is minimal, high turnover does not have a material adverse effect
upon the net asset value or yield of the Fund.
<PAGE> 21
Subject to the overall supervision of the officers of the Fund and the
Board of Trustees, RMCI places all orders for the purchase and sale of the
Fund's investment securities. In general, in the purchase and sale of
investment securities RMCI will seek to obtain prompt and reliable execution of
orders at the most favorable prices and yields. In determining best price and
execution, RMCI may take into account a dealer's operational and financial
capabilities, the type of transaction involved, the dealer's general
relationship with RMCI, and any statistical, research, or other services
provided by the dealer to RMCI. To the extent such non-price factors are taken
into account the execution price paid may be increased, but only in reasonable
relation to the benefit of such non-price factors to the Fund as determined by
RMCI. Brokers or dealers who execute investment securities transactions may
also sell shares of the Fund; however, any such sales will not be either a
qualifying or disqualifying factor in the selection of brokers or dealers.
When orders to purchase or sell the same security on identical terms are
simultaneously placed for the Fund and other investment companies managed by
RMCI, the transactions are allocated as to amount in accordance with each order
placed for each portfolio. However, RMCI may not always be able to purchase or
sell the same security on identical terms for all investment companies
affected.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest, and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in Reserve Tax-Exempt Trust
("Trust"). The Trust consists of three separate portfolios. Each share
represents an interest in the respective portfolios of the Trust
proportionately equal to the interest of each other share. If they deem it
advisable and in the best interests of shareholders, the trustees may classify
or reclassify any unissued shares of the Trust by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms and conditions of
redemption of the stock. Any changes would be required to comply with any
applicable state and federal securities laws. These currently require that
each class be preferred over all other classes in respect of assets
specifically allocated to such class. It is anticipated that under most
circumstances, the rights of any additional class would be comparable unless
otherwise required to respond to the particular situation. Upon liquidation of
the Trust, shareholders are entitled to share pro rata in the net assets of
their respective portfolios available for distribution to such shareholders.
It is possible, although considered highly unlikely in view of the method of
operation of mutual funds, that should the assets of one class of shares be
insufficient to satisfy its liabilities, the assets of another class could be
subjected to claims arising from the operations of the first class of shares.
No changes can be made to the Trust's issued shares without shareholder
approval.
Only Interstate Select Fund shares are offered by the Prospectus which
accompanied or preceded this Statement of Additional Information. Each Fund
share, when issued, is fully paid, nonassessable (except as set forth below),
and fully transferable or redeemable at the shareholder's option. Each Fund
share has an equal interest in the net assets of the Fund, equal rights to all
dividends and other distributions from the Fund, and one vote for all purposes.
Shares of all classes vote together for the election of Trustees and have
noncumulative voting rights, meaning that the holders of more than 50% of the
shares voting for the election of trustees could elect all trustees if they so
choose, and in such event the holders of the remaining shares could not elect
any person to the Board of Trustees.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable for the obligations of the
Fund. The Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Fund and requires that notices of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by the Fund or the trustees. The Declaration of Trust provides for
the indemnification out of the Fund property of any shareholder held personally
liable for the obligations of the Trust. The Declaration of Trust also
provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, the risk of a shareholder incurring financial loss
on account of status as a shareholder is limited to circumstances in which the
Fund itself would be unable to meet its obligations.
<PAGE> 22
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration protects a trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
Regulations of the Securities and Exchange Commission provide that if a
class is separately affected by a matter requiring a vote (election of
trustees, ratification of independent auditor selection, and approval of an
underwriting agreement are not considered to have such separate effect and may
be voted upon by shareholders of the Trust as a whole), each such class will
vote separately. Each class votes separately on such matters as approval of
the Investment Management Agreement, material amendments to the Plan of
Distribution, and changes in the fundamental policies of the Fund. These items
require approval by a majority of the affected shareholders. For this purpose
a "majority" is constituted by either 50 percent of all shares voting as a
group or 67 percent of the shares voted as a group at an annual meeting of
shareholders at which at least 50 percent of the shares of each group are
represented.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Redemption payments will normally be made by check or wire transfer but
the Fund is authorized to make payment of redemptions partly or wholly in kind
(that is, by delivery of investment securities valued at the same time as the
redemption net asset value is determined). The Fund has elected to permit any
shareholder of record to make redemptions wholly in cash to the extent the
shareholder's redemptions in any 90-day period do not exceed the lesser of
$250,000 or 1% of the net assets of the Fund. The election is irrevocable
pursuant to rules and regulations under the Investment Company Act of 1940
unless withdrawal is permitted by order of the Securities and Exchange
Commission. Redemptions in kind are further limited by the Fund's intention to
redeem in kind only when necessary to reduce a disparity between amortized cost
and market value. In disposing of such securities, an investor might incur
transaction costs and on the date of disposition might receive an amount less
than the net asset value of the redemption.
IF SHARES OF THE FUND ARE PURCHASED BY CHECK OR RESERVE AUTOMATIC
TRANSFER THE FUND MAY DELAY TRANSMITTAL OF REDEMPTION PROCEEDS UNTIL SUCH TIME
AS IT HAS ASSURED ITSELF THAT GOOD PAYMENT HAS BEEN COLLECTED FOR THE PURCHASE
OF SUCH SHARES, WHICH WILL GENERALLY BE UP TO 10 BUSINESS DAYS.
PURCHASES AND REDEMPTIONS THROUGH OTHERS. Share purchases and redemptions may
also be made through brokers and financial institutions ("firms"). Firms may
provide varying arrangements for their clients with respect to the purchase and
redemption of Fund shares and may arrange with their clients for other
investments or administrative services. Some of these participate in the
Fund's Plan of Distribution ("Plan"). Under the Plan, payments are made to
persons who provide assistance in distributing Fund shares or other assistance
to the Fund.
NET ASSET VALUE. Shares are offered at net asset value. The net asset value
of the Fund is calculated at the close of each business day as defined in the
Prospectus. The net asset value is not calculated on New Year's Day,
Washington's Birthday observed, Good Friday, Memorial Day observed,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day, on other days the
New York Stock Exchange is closed for trading, and on regional banking holidays
which may include Martin Luther King's Birthday and Columbus Day. The net
asset value of the Fund is normally maintained at $1.00 per share. The Fund
cannot guarantee that its net asset value will always remain at $1.00 per
share.
The net asset value per share of the Fund is determined by adding the
fair value of all of the Fund's securities, cash and other assets, subtracting
its liabilities, and dividing the result by the number of its shares
outstanding. The Board of Trustees has determined the most practical method
currently available for valuing portfolio instruments is the amortized cost
method. This procedure values a purchased security at cost at the time of
purchase and thereafter assumes a constant amortization to maturity of any
discount or premium and accrual of interest income, irrespective of intervening
changes in interest rates or security market values.
<PAGE> 23
In order to maintain a $1.00 share price the Fund will utilize the
following practices: maintain a dollar-weighted average portfolio maturity of
90 days or less; purchase only instruments having remaining maturities of 397
days or less; and invest only in securities determined by the Board of Trustees
to be of high quality with minimal credit risk. To assess whether repurchase
agreement transactions present more than minimal credit risk, the trustees
periodically review RMCI's evaluation of the creditworthiness of all entities,
including banks and broker-dealers, with which the Fund proposes to enter into
repurchase agreements. In addition, the Fund has adopted procedures taking
into account current market conditions and the investment objective of the
Fund, to attempt to maintain its net asset value as computed for the purpose of
sales and redemptions at $1.00 per share. Such procedures will include review
by the Trustees, at such intervals as they may determine reasonable, to
ascertain the extent of any difference in the net asset value of the Fund from
$1.00 a share determined by valuing its assets at amortized cost as opposed to
valuing them based on market factors. If the deviation exceeds 1/2 of one
percent, the Trustees will promptly consider what action if any should be
initiated. If they believe that the deviation may result in material dilution
or other unfair results to shareholders, the trustees have undertaken to apply
appropriate corrective remedies which may include the sale of the Fund's assets
prior to maturity to realize capital gains or losses or to shorten the average
maturity of the Fund, withholding dividends, redemption of shares of the Fund
in kind, or reverting to valuation based upon market prices and estimates.
SHAREHOLDER SERVICE POLICIES. The Fund's policies concerning shareholder
services are subject to change from time to time. The Fund reserves the right
to change the $1,000 minimum account size subject to the $5 monthly service
charge or involuntary redemption. The Fund further reserves the right to
impose special service charges for services provided to individual shareholders
generally including, but not limited to, fees for returned checks, stop payment
orders on official checks and shareholder checks, and special research
services. The Fund's standard service charges as described in the Prospectus
are also subject to adjustment from time to time. In addition, the Fund
reserves the right to increase its minimum initial investment amount at any
time.
CREDITING OF INVESTMENTS. The Fund will only give credit for investments in
the Fund on the day they become available in federal funds which is normally
within one or two days of receipt. A Federal Reserve wire system transfer
("Fed wire") is the only type of wire transfer that is reliably available in
federal funds on the day sent. For a Fed wire to receive same day credit, the
Fund must be notified before 11:00 AM (New York time) of the amount to be
transmitted and the account to be credited. Checks and other items submitted
to the Fund for investment are only accepted when submitted in proper form,
denominated in United States dollars, and are credited to shareholder accounts
only upon their conversion into federal funds, which normally takes one or two
business days following receipt. Physical items delivered to the Fund after
11:00 AM (New York time) are considered received on the following business day.
Checks drawn on foreign banks are normally not accepted by the Fund. In
addition, the Fund does not accept cash investments or travelers checks.
The Fund reserves the right to reject any investment in the Fund for any
reason and may at any time suspend all new investment in the Fund.
<PAGE> 24
IF SHARES PURCHASED ARE TO BE PAID FOR BY WIRE AND THE WIRE IS NOT
RECEIVED BY THE FUND OR IF SHARES ARE PURCHASED BY A CHECK WHICH, AFTER
DEPOSIT, IS RETURNED UNPAID OR PROVES UNCOLLECTABLE, THE SHARE PURCHASE MAY BE
CANCELLED OR REDEEMED IMMEDIATELY. THE INVESTOR THAT GAVE NOTICE OF THE
INTENDED WIRE OR SUBMITTED THE CHECK WILL BE HELD FULLY RESPONSIBLE FOR ANY
LOSSES INCURRED BY THE FUND, THE INVESTMENT ADVISER OR THE DISTRIBUTOR. THE
FUND MAY REDEEM SHARES FROM ANY ACCOUNT REGISTERED IN THAT PURCHASER'S NAME AND
MAY APPLY THE PROCEEDS THEREFROM TO THE PAYMENT OF ANY AMOUNTS DUE THE FUND.
SHARE CERTIFICATES. Share certificates are not issued by the Fund.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 ("Code") so long as such
qualification is in the best interests of shareholders. The status of the Fund
as a regulated investment company does not involve government supervision of
management or of investment practices or policies. If it so qualifies, in any
fiscal year in which it distributes at least 90 percent of its net income, the
Fund will not be subjected to federal income tax on such distributed amounts.
Although interest derived from Municipal Obligations is not subject to federal
income taxation, any net capital gains realized by the Fund and distributed to
shareholders as regular or capital gains dividends, whether distributed in cash
or in the form of additional shares will be taxable to shareholders.
In order to qualify as a regulated investment company under the Code,
the Fund must, among other things, in each fiscal year distribute at least 90
percent of its investment company taxable income to shareholders; derive at
least 90 percent of its gross income from dividends, interest and gains from
the sale or disposition of securities; meet certain diversification
requirements; and derive less than 30 percent of the gross income from the sale
or disposition of securities held for less than three months.
Exempt interest dividends distributed to shareholders are not includable
in the shareholder's gross income for federal income tax purposes. The
percentage of income that is tax exempt will be determined for each year and
will be applied uniformly to all dividends declared during that year. This
percentage may differ from the actual tax exempt percentage for any particular
day. Distributions of net investment income received by the Fund from
investments in debt securities other than Municipal Obligations and any net
realized capital gains distributed by the Fund will be taxable as ordinary
income. Shareholders will be advised annually as to the federal income tax
consequences of distributions made during the year.
Statements as to the tax status of each investor's dividends and other
distributions will be mailed annually. The annual statements will set forth
the dollar amount of income subject to federal tax, if any. Distributions will
be reported under more than one identification number only if a separate
account is established for each number. If the Fund has both tax exempt and
taxable interest income, it will use the "actual earned method" for determining
the percentage that is taxable income. Under this method, the ratio of taxable
income earned during the period, for which a distribution was made, to total
income earned during the period determines the percentage of the distribution
designated taxable and, as a result, the percentage of the distribution that is
tax-exempt may vary from distribution to distribution.
The identification of the issuer of Municipal Obligations depends on the
terms and conditions of the security. When the assets and revenues of an
agency, authority, instrumentality, or other political subdivision are separate
from those of the government creating the subdivision, such subdivision would
be deemed to be the sole issuer. Similarly, in the case of an industrial
development bond, if that bond is backed only by the assets and revenues of the
nongovernmental user, then such nongovernmental user would be deemed to be the
sole issuer. However, in either case, if the creating government or some
entity guarantees a security, such guarantee would be considered a separate
security and is to be treated as an issue of such government or other agency.
The Tax Reform Act of 1986 (the "Act) provides that in the event the
Fund should hold certain private activity bonds issued after August 7, 1986,
shareholders must include as an item of tax preference, the
<PAGE> 25
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their federal alternative minimum taxable income for purposes of
determining any liability for the alternative minimum tax applicable to
individuals and the alternative minimum tax and the environmental tax
applicable to corporations. In the case of corporations, federal alternative
minimum taxable income will also include one-half if the excess of the
corporation's pre-tax book income (including all exempt-interest dividends)
over the corporation's other federal alternative minimum taxable income
Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
The Act also provides that, for taxable years beginning after December
31, 1986, every person required to file a tax return must report solely for
informational purposes on such return the amount of exempt interest dividends
received from the Fund during the taxable year. In addition, with respect to a
shareholder who receives exempt interest dividends on shares held for less than
six months, any loss on the sale or exchange of such shares will, to the extent
of the amount of such exempt interest dividends, be disallowed.
The exemption from federal income tax of dividends derived from interest
on Municipal Obligations does not necessarily result in exemption under the
other tax laws of the United States or any state or local taxing authority.
Shareholders are advised to consult with their tax advisers concerning
the application of state and local taxes to an investment or income there from
in the Fund which may differ from the Federal income tax consequences described
above.
FUND YIELD
The current yield of the Fund may differ from its effective yield and
annualized dividends.
Current yield is calculated by determining the net change (exclusive of
capital changes) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period
to obtain the base period return, and multiplying the base period return by a
fraction having 365 in the numerator and the number of days in the base period
in the denominator. The current yield stated in the prospectus utilizes a
seven day base period. Net change in account value must reflect (i) the value
of additional shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares;
and (ii) any recurring fees charged to all shareholder accounts, in proportion
to the length of the base period and the Fund's average or median account size.
Net change in account value must exclude realized gains or losses and
unrealized appreciation or depreciation.
Effective yield is computed adding one to current yield, raising the sum to a
power equal to 365 divided by the number of days in the base period (seven
days), and subtracting one from the result according to the following formula:
Effective Yield = [(Base Period Return + 1) /7] 365 - 1. Effective annual
yields are a representation of the effective annual rate of return produced by
the monthly compounding of Fund dividends.
Taxable equivalent yield is computed by dividing either current yield or
effective yield by a denominator equal to one minus a stated income tax rate
according to the following formula: Taxable Equivalent Yield = Current or
Effective Yield - (1 - Income Tax Rate).
Yield information may be useful in reviewing the performance of the
Fund, but because of fluctuations, it may or may not provide a basis for
comparison with bank deposits, other money market funds or bank accounts which
have fluctuating share values, or other investments which pay a fixed yield for
a stated period of time, such as Treasury bills, bank certificates of deposit,
savings certificates and NOW accounts. When making comparisons, the investor
should also consider the quality and maturity of the portfolio securities of
the various money market funds. An investor's principal is not guaranteed by
the Fund, nor is it insured by a governmental agency.
<PAGE> 26
RESERVE CASH PERFORMANCE ACCOUNT PLUS
The Reserve Cash Performance Account Plus ("CPA") is a comprehensive
package of additional services offered to investors in the Fund for an
additional fee.
Check Plan. A Check Plan is an arrangement with Bank One, Columbus, NA
("Bank One") whereby checks are issued to the participant which may be used to
redeem shares in any amount in a participant's Fund account. If Bank One
accepts a check for final payment, it will be paid by redemption of shares from
your account. Bank One will process new debits to a Check Plan in order of
receipt against Bank One's determination of the Check Plan "open-to-buy value"
(the sum of the value of the participant's shares transmitted before noon to
Bank One excluding (i) dividends which are accrued daily but including
dividends paid monthly and (ii) checks and wires for the purchase of shares
which have not been verified as described under "Restrictions" below,
hereinafter referred to as the participant's account "liquidity value," minus
previous Check Plan net debits which have not been applied against the
account's value). These debits include outstanding unpaid checks authorized
against the Check Plan open-to-buy value and redemptions from the participant's
account determined and reported to Bank One. Any check in an amount exceeding
the participant's Check Plan open-to-buy value for that business day will not
be paid but will be returned by Bank One to the payee in such manner as Bank
One may select. Checks may be used in the same manner as other bank checks and
may be written in any amount. Checks will be received by Bank One through the
Federal Reserve System or other clearing channels which Bank One may establish
from time to time. Checks will not be returned to the participant but complete
information on such checks, including the payee, will be supplied to the
participant on a monthly basis. Bank One will supply checks to each participant
which will be subject to the terms of your Reserve CPA Account Agreement in the
application for a Check Plan.
The Fund will charge a non-refundable annual CPA service fee (currently
$75 which may be charged to the account monthly) and a transaction fee of $0.50
for each additional check in excess of five presented for payment within the
statement period. Participants will also be charged for specific costs
incurred in placing stop payment orders, obtaining check copies and in
processing returned checks. The annual service fee and other charges may be
changed at any time upon 30 days notice to participants. In addition,
broker/dealers or other financial institutions in the CPA Program may charge
their own service fees in addition to the annual fee.
CUSTOM PLAN. A CUSTOM PLAN is a CHECK PLAN plus a VISA Gold card issued to the
participant. The VISA Gold card is a debit card, not a credit card. The Custom
Plan and VISA Gold card are available only to customers of participating
broker/dealers or other financial institutions. Use of the debit card will
provide automatic common carrier travel insurance, auto rental/loss damage
insurance and extended retail product guarantees. In addition, VISA Gold card
holders will be provided a comprehensive package of free travel and emergency
assistance services, including: emergency cash; emergency card replacement;
medical, legal and lost baggage assistance; and emergency ticket replacement.
Bank One will process new debits to a Custom Plan in the order of
receipt against Bank One's determination of the Custom Plan "open-to-buy value"
(the sum of the participant's account value minus previous Custom Plan net
debits which have not been applied against net asset value). These debits
include outstanding VISA Gold card charges, unpaid check charges, cash advances
authorized by Bank One against the Custom Plan open-to-buy value and
redemptions from the participant's account determined and reported to Bank One.
The Fund will redeem shares on behalf of the participant on the business day it
receives notice of these debits from Bank One and send the proceeds to Bank One
to cover such debits.
The conditions for establishing a CPA account may be altered or waived
by the Fund, either with respect to services generally or with respect to
special groups or limited categories of individuals. The checks and VISA Gold
card features of the CPA Program are intended to provide participants with easy
access to their account assets. The CPA Program is not intended to be a
substitute for a bank transaction account. The Fund may reject any application
to open a CPA account and may terminate a CPA account for any reason. Bank One
may reject any application for checks or cards.
TRAVEL INSURANCE. Use of cards to pay the full travel fares for you, your
spouse, and your dependent children under the age of 25 years on any air or
land or water conveyance operated by a common carrier licensed to carry
passengers for hire will insure each automatically against accidental bodily
injuries which
<PAGE> 27
are the sole cause of death or dismemberment while riding in, boarding, or
getting out of such aircraft or conveyance. Your name must appear in an
account registration or you must be an associate cardholder for this travel
insurance to cover you, your spouse, and your dependent children.
VISA GOLD CARD. Upon approval of an application for participation in the
CUSTOM PLAN, Bank One will issue one or more VISA Gold cards to the
participant. Bank One will not give authorizations for cash advances exceeding
on any business day the CUSTOM PLAN open-to-buy value.
Participants subscribing to the CUSTOM PLAN service may be liable for
the unauthorized use of their card up to the amount set by the governing
federal regulations which is currently $500 if the Fund or Bank One is not
notified of the theft or loss within 2 business days. Participants should
refer to the VISA Account Shareholder Agreement for complete information
regarding responsibilities and liabilities with respect to the VISA Gold card.
If a card is lost or stolen, the Custom Plan participant should report the loss
immediately by telephoning Bank One at (614) 248-4242 which can be reached 24
hours a day, seven days a week or the Fund at (800) 631-7784 or (212) 977-9880
during normal business hours (9:00 A.M. to 5:00 P.M., New York time).
MUNICIPAL OBLIGATIONS
Municipal bonds and municipal notes are the two major classifications of
Municipal Obligations. Such obligations are generally issued to obtain funds
for various public purposes, including the construction of public facilities
such as airports, bridges highways, houses, hospitals, mass transportation,
schools, streets, and water and sewer works. In addition, Municipal
Obligations may be issued to refund outstanding debt and obtain funds for
general operating expenses.
Municipal bonds, which are long term instruments and generally have
maturities longer than one year when issued, may be either "general obligation"
or "revenue" issues. 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 bonds are payable only from the revenues derived from a
particular facility or class of facilities, as, in some cases, from the
proceeds of a special excise tax or other specific revenue source but not from
the general taxing power.
Certain kinds of industrial development bonds ("IDBs") are issued by or
on behalf of public authorities to provide funding for various privately
operated industrial facilities such as warehouse, office, plant, and store
facilities. IDBs are, in most cases, revenue bonds and do not generally
constitute the pledge of the credit of the issuer of such bonds. The payment
of the principal and interest on IDBs usually depends solely on the ability of
the user of the facilities financed by the bonds or other guarantor to meet its
financial obligations and, in certain instances, the pledge of real and
personal property as security for payment. If there is no established
secondary market for the IDBs, the IDBs or the participation interests
purchased by the Fund will be supported by repurchase commitments and bank
letters of credit or guarantees of banks that meet the quality criteria of the
Fund and which may be exercised by the Fund to provide liquidity.
Municipal notes are usually issued to obtain funds in anticipation of
receipt of taxes, receipt of proceeds of issuances of municipal bonds or other
revenue which will provide funds to repay the notes, and generally have
maturities of one year or less.
On April 20, 1988, the United States Supreme Court in South Carolina v.
Baker, overruled an 1895 case, Pollock v. Farmers' Loan & Company which held
that interest on Municipal Obligations was immune from federal taxation. As a
result, proposals may be introduced before the Congress to eliminate or
restrict the federal income tax exemption for interest on certain Municipal
Obligations.
The Fund may purchase securities affected by these proposals. If such
proposals are enacted, the availability of Municipal Obligations by the Fund
would be adversely affected. In such event, the Fund would reevaluate its
investment objective and policies and submit possible changes in the structure
of the Fund for the consideration of shareholders. Investors should be aware
that the quantity of Municipal Obligations available for purchase by the Fund
may be limited, and that factor may affect the amount of tax-exempt
<PAGE> 28
income which can be obtained from an investment in the Fund. Substantial
reductions in the availability of tax-exempt securities might also cause a
reevaluation of the Fund's investment objective and policies.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand instruments that the
Fund may purchase are tax-exempt Municipal Obligations or participation
interests therein that provide for a periodic adjustments in the interest rate
paid on the instrument and permit the holder to demand payment of the unpaid
principal balance plus accrued interest upon a specified number of days' notice
either from the issuer or by drawing on a bank letter of credit or guarantee
issued with respect to such instrument. The issuer of the Municipal Obligation
may have a corresponding right to prepay in its discretion the outstanding
principal of the instrument plus accrued interest upon notice comparable to the
required for the holder to demand payment.
The variable rate demand instruments in which the Fund may invest will
comply with Rule 2a-7 under the Investment Company Act of 1940. The Fund will
determine the variable rate demand instruments it will purchase in accordance
with procedures prescribed by its Board to minimize credit risks. The Fund's
investment adviser may determine that an unrated variable rate demand
instruments meets the Fund's high quality criteria if it is backed by a
suitable bank letter of credit or guarantee.
The variable rate demand instruments that the Fund may invest in include
participation interests purchased from banks in variable rate tax exempt
Municipal Obligations owned by banks or affiliated organizations. A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears to
the total principal amount of the Municipal Obligation and provides the
repurchase feature described above. Each participation is backed by an
irrevocable letter of credit or guarantee of an appropriately rated bank. The
Fund has the right to sell the instrument back to the bank and draw on the
letter of credit on demand, after seven days' notice, for all or any part of
the full principal amount of the Fund's participation interest in the bond plus
accrued interest. Banks usually retain a service fee, a letter of credit fee
and a fee for issuing repurchase commitments in an amount equal to the excess
of the interest paid on the Municipal Obligations over the negotiated yield at
which the instrument was purchased by the Fund.
RATINGS
TAX-EXEMPT BOND RATINGS. The highest ratings for municipal bonds are Aaa or Aa
if rated by Moody's Investor Services, Inc. ("Moody's") and AAA or AA if rated
by Standard & Poor's Corporation ("S&P"). Such bonds are judged to be a high
quality and are not considered speculative. Bonds rated A by Moody's are
considered to possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Such bonds have factors giving
security to principal and interest that are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future. Debt rated A by S&P is considered to have a strong capacity to pay
interest and repay principal although it is more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
TAX-EXEMPT PAPER RATINGS. Moody's tax-exempt paper rating are opinions of the
ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. Moody's employs the following two
designations all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers: MIG-1/VMIG-1, Best Quality and
MIG-1/VMIG-1, High Quality. The designation of MIG-1/VMIG-1 indicates there is
strong protection by established cash flows, superior liquidity support of
demonstrated broad based access to the market for refinancing. The designation
of MIG-2/VMIG-2 indicates margins of protection ample although not so large in
MIG-1/VMIG-1.
Standard & Poor's tax-exempt paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The highest quality obligations are rated "A". Issues assigned
A rating are regarded as having the greatest capacity for timely payment.
Issues in this category are further refined with designations to indicate the
relative degree of safety. The two top such designations are 1 and 2. The
"A-1" designation indicates that the degree of safety regarding timely payment
is strong. The "A-2" designation indicates that capacity for timely payment is
satisfactory. Municipal note ratings by Standard & Poor's are preceded by the
designation SP. Those issues determined to possess overwhelming safety
characteristics are designated SP-1+. Municipal notes designated SP-1 are
considered
<PAGE> 29
to have a very strong or strong capacity to pay principal and interest.
Municipal notes designated SP-2 are considered to have a satisfactory capacity
to pay principal and interest.
<PAGE> 30
RESERVE TAX-EXEMPT TRUST
PART C
Item 24. Financial Statements and Exhibits
(a) Financial Statements Included in Part A
(1) Financial Highlights
Not Applicable
Financial Statements Included in Part A and Part B
Not Applicable
(b) Exhibits
(1) Declaration of Trust was filed as an exhibit to Registrant's
Initial Registration Statement dated March 23, 1983*
(2) Bylaws were filed as an exhibit to Registrant's Initial
Registration Statement dated March 23, 1983.
Amendment No. 2 filed as an exhibit to Post-Effective
Amendment No. 15 dated July 31, 1990*
(3) Not Applicable
(4) Not Applicable
(5) Form of Investment Management Agreement filed as an Exhibit
to Post-Effective Amendment No. 14 dated November 1, 1989*
(6) Form of Distribution Agreement and Plan of Distribution
filed as an exhibit to Registrant's Pre-Effective
Amendment No. 1 dated July 22, 1983. Amendment to
Plan of Distribution filed as exhibit to
Post-Effective Amendment No. 11 dated August 1, 1988*
(7) Pension Plan of Reserve Management Corporation was filed as
an exhibit to Post-Effective Amendment No. 9 dated
September 30, 1986; Amendments to Pension Plan filed
as an exhibit to Post-Effective Amendment No. 45 of
The Reserve Fund (File No. 811-2033) dated July 31,
1989*
(8) Custodian Agreement with Chemical Bank filed as an exhibit
to Registrant's Initial Registration Statement dated
March 23, 1983*
(9) (a) Form of Service Agreement filed as an exhibit to
Post-Effective Amendment No. 14 dated November 1,
1989; Transfer Agent Agreement with First Wisconsin
Trust Company filed as an exhibit to Post-Effective
Amendment No. 15 dated July 31, 1990*
(10) Opinion of counsel**
(11) Not applicable
(12) Not Applicable
(14) Not Applicable
(15) See item No. 6*
(16) Not applicable
(17) Powers of Attorney**
(18) Not Applicable
- -----------------------
* Incorporated by reference
**Filed herewith
<PAGE> 31
Item 25. Persons Controlled by or Under Common Control with Registrant
Not Applicable
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders
Title of Class at June 30, 1996
-------------- ------------------------
<S> <C>
Interstate Fund 50,923
Connecticut Tax-Exempt Fund 4,202
California Tax-Exempt Fund 778
Massachusetts Tax-Exempt Fund 674
New Jersey Tax-Exempt Fund 4,186
</TABLE>
Item 27. Indemnification
Each Trustee, officer, employee or agent of the Registrant, and any
person who has served at its request as a Director, Trustee, officer or
employee of another business entity, shall be entitled to be indemnified
by the Registrant to the fullest extent permitted by the laws of the
Commonwealth of Massachusetts, subject to the provisions of the
Investment Company Act of 1940 and the rules and regulations thereunder.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the Declaration of 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 any 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, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
<TABLE>
<CAPTION>
Name Position with the Adviser Other Businesses
- ---- ------------------------- ----------------
<S> <C> <C>
Henry B.R. Brown President, Treasurer and President, Treasurer and Director of
Director Director of Reserve Management
Corporation of the same address as the
Trust; Director and Treasurer of Transfer
Agent Inc. 5 Cornwall St., N.W., Leesburg,
Virginia 22075.
Bruce R. Bent Vice President, Secretary Vice President, Secretary and Director of
and Director Reserve Management Corporation and
Director of Resrv Partners, Inc. both of the
same address as the Trust.
</TABLE>
Item 29. Principal Underwriters
(a) Resrv Partners, Inc., a principal underwriter of the Registrant,
also acts as principal underwriter to The Reserve Fund, Reserve
Institutional Trust, Reserve New York Tax-Exempt Trust and Reserve
Private Equity Series.
<PAGE> 32
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Resrv Partners, Inc. with Registrant
- ------------------ -------------------------- ---------------------
<S> <C> <C>
Bruce R. Bent Chairman and Director President, Treasurer
810 Seventh Avenue & Trustee
New York, NY 10019
</TABLE>
<PAGE> 33
Item 30. Location of Accounts and Records
All records required to be maintained by Section 31(a) of the 1940
Act and the Rules promulgated thereunder are maintained at 810 Seventh Avenue,
New York, NY 10019 except those relating to receipts and deliveries of
securities, which are maintained by the Registrant's Custodian.
Item 31. Management Services
See "Investment Management, Distribution, Service and Custodian
Agreements" in Part B.
Item 32. Undertakings
Not Applicable
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment to its Registration Statement meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933 and Registrant has duly caused this Post-Effective Amendment No.28 to
its Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of New York and State of New York, on
the 8th day of October, 1996.
/s/ Bruce R. Bent
----------------------------------------
Bruce R. Bent, President
Attest:
/s/ Marc C. Cozzolino
- -----------------------------------------
Marc C. Cozzolino, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 28 to its Registration Statement has been below
signed by the following persons in the capacities and on the dates indicated.
/s/ Bruce R. Bent Date 10/8/96
- ----------------------------------------------- ----------------
Bruce R. Bent, President, Treasurer
and Board Member (principal executive,
operating and financial officer)
* Date
---------------------------------------------- -----------------
Edwin Ehlert Jr., Board Member
* Date
---------------------------------------------- -----------------
Henri W. Emmet, Board Member
* Date
---------------------------------------------- -----------------
Donald J. Harrington, Board Member
* Date
---------------------------------------------- -----------------
Niels W. Johnsen, Board Member
/s/ Marc C. Cozzolino Date 10/8/96
- ---------------------------------------------------- -----------------
Marc C. Cozzolino, *Attorney-in-Fact
General Counsel
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description
- ----------- -----------
<S> <C>
1. Declaration of Trust of Registrant**
2. By-Laws of Registrant**
3. Not Applicable
4. Not Applicable
5. (a) Form of Investment Management Agreement
between the Registrant and Reserve Management Company Inc.**
6. (a) Form of Distribution Agreement between the
Registrant and Resrv Partners, Inc.**
(b) Form of Selected Dealer Agreement.**
7. Pension Plan of Reserve Management Corp. filed
as an exhibit to Post-Effective Amendment No., 32
of The Reserve Fund (File No. 2-36429);
amendments thereto filed as an exhibit to
Post-Effective Amendment No. 45 and all are
incorporated by reference
8. Form of Custodian Agreements between Registrant and
Custodial Trust Company**
9. Not Applicable
10. Opinion of Counsel
11. Not Applicable
12. Not Applicable
13. Form of Subscription Agreement between the Registrant
and Reserve Management Company, Inc. **
14. Not Applicable
15. Form of Service Plan **
16. Not Applicable
17. Powers of Attorney
18. Not Applicable
</TABLE>
* To be filed by amendment
**Previously filed
<PAGE> 1
(THE RESERVE FUNDS LETTERHEAD)
Exhibit 10
October 8, 1996
Board of Trustees
Reserve Tax-Exempt Trust
810 Seventh Avenue
New York, New York 10019
Gentlemen:
I have acted as counsel to Reserve Tax-Exempt Trust a Massachusetts
business trust (the "Fund"), in connection with the registration of shares of
the California Tax-Exempt, Connectiuct Tax-Exempt, Florida Tax-Exempt,
Massachusetts Tax-Exempt, New Jersey Tax-Exempt Interstate and Interstate
Select Funds ("Portfolios") with the Securities and Exchange Commission.
As counsel to the Fund, I have made such investigations and have examined
and relied upon the originals or copies, certified or otherwise identified to
my satisfaction, of such records, instruments, certificates, memoranda and
other documents as I have deemed necessary or advisable for the purposes of
this opinion.
1. The Fund has been duly incorporated and is validly existing under the
laws of Massachusetts.
2. To the best of my knowledge, no further approval, consent or other
order of the Board of Trustees is legally required in connection with
the organization of the Portfolios and the registration of their
shares.
3. To the best of my knowledge, the shares of the Portfolios, when
issued, will be legally issued, non-assessable and, when subscribed
to, fully paid.
I consent to the filing of this opinion as an exhibit to the Fund's
registration statement under the Securities Act of 1933.
Very truly yours,
/s/ Marc C. Cozzolino
------------------------
Marc C. Cozzolino
Counsel
<PAGE> 1
Exhibit 17
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of
RESERVE TAX-EXEMPT TRUST, a Massachusetts business trust, does hereby
constitute and appoint Marc C. Cozzolino and William Goodwin, and each of them,
his true and lawful attorney and agent to do any and all acts and things and to
execute any and all instruments which said attorney and agent may deem
necessary or advisable; (i) to enable the said Trust to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, in connection
with the registration under said Securities Act of the shares of beneficial
interest of said Trust (the "Securities"), including specifically, but without
limiting the generality of the foregoing, the power and authority to sign for
and on behalf of the undersigned the name of the undersigned as trustee of said
Trust to a Registration Statement or to any amendment thereto filed with the
Securities and Exchange Commission in respect of said Securities and to any
instrument or document filed as part of, as an exhibit to or in connection with
said Registration Statement or amendment; (ii) to enable said Trust to comply
with the Investment Company act of 1940, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission in respect thereof,
in connection with the registration under said Investment Company Act of the
Trust, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign for and on behalf of the undersigned
the name of the undersigned as trustee of said Trust to a Registration
Statement or to any amendment thereto filed with the Securities and Exchange
Commission in respect of said Trust and to any instrument or document filed as
part of, as an exhibit to or in connection with said Registration Statement or
amendment; and (iii) to register or qualify said Securities for sale and to
register or license said Trust as a broker or dealer in said Securities under
the securities or Blue Sky laws of all such states as may be necessary or
appropriate to permit therein the offering and sale of said Securities as
contemplated by said Registration Statement, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign for and on behalf of the undersigned the name of the undersigned as
trustee of said Trust to any application, statement, petition, prospectus,
notice or other instrument or document, or to any amendment thereto, or to any
exhibit filed as a part thereof or in connection therewith, which is required
to be signed by the undersigned and to be filed with the public authority or
authorities administering said securities or Blue Sky laws for the purpose of
so registering or qualifying said Securities or registering or licensing said
Trust, and the undersigned does hereby ratify and confirm as his own act and
deed all that said attorney and agent shall do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
21st day of September , 1994.
/s/ Edwin Ehlert Jr.
-----------------------------------------
Edwin Ehlert Jr., Board Member
/s/ Henri W. Emmet
-----------------------------------------
Henri W. Emmet, Board Member
/s/ Donald J. Harrington
-----------------------------------------
Donald J. Harrington, Board Member
/s/ Niels W. Johnsen
-----------------------------------------
Niels W. Johnsen, Board Member
