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MANAGEMENT
INVESTMENT ADVISER. Since November 15, 1971, Reserve Management Company, Inc.
("RMCI") 1250 Broadway, New York, NY 10001 and its affiliates have provided
investment advice to The Reserve Funds. RMCI serves as the investment adviser to
the Reserve Tax-Exempt Trust (the "Trust"). As a result of recent shareholder
votes, the Fund has entered into a new Investment Management Agreement
("Agreement") with RMCI effective June 26, 1999, which is substantially similar
to the Investment Management Agreement previously in effect with regard to the
Fund, except for a new comprehensive management fee. The Agreement provides that
RMCI provides continuous investment advisory and management services to the
Fund.
RMCI manages the investment portfolios of the Fund, subject to policies
adopted by the Trustees. For its services, RMCI receives a fee of 0.80% per year
of the average daily net assets of the Fund. RMCI pays all employee and
customary operating expenses of the Fund. Excluded from the definition of
customary operating expenses are interest, taxes, brokerage fees, extraordinary
legal and accounting fees and expenses, and the fees of the disinterested
Trustees, for which the Fund pays its direct or allocated share.
ANNUAL FUND OPERATING EXPENSES FOR THE FUND
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Comprehensive Management Fee (a)................. .80%
12b-1 Fees (b)................................... .20%
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Total Operating Expenses......................... 1.00%
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(a) The comprehensive management fee includes advisory and customary
operating expenses. However, the Fund may be charged for certain
non-recurring extraordinary expenses and its allocated or direct
share of certain other expenses.
(b) The Fund has adopted a Rule 12b-1 plan which allows the Fund to
pay distribution fees for the sale and distribution of its shares.
The maximum level of distribution expenses is 0.20% per year of
the Fund's average net assets. As these fees are paid out of the
Fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than
paying other types of sales charges.
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RESERVE INTERSTATE TAX-EXEMPT FUND SUPPLEMENT DATED JULY 1, 1999.
SUPPLEMENT TO RESERVE INTERSTATE TAX-EXEMPT FUND PROSPECTUS DATED JULY 31, 1998.
Investors are advised to update their records and retain this information for
future reference.
