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[LOGO]
TAX-EXEMPT MONEY-MARKET FUNDS
FOR RESIDENTS OF
CONNECTICUT, MASSACHUSETTS AND OHIO
PROSPECTUS
JULY 31, 1999,
AS SUPPLEMENTED ON AUGUST 18, 1999
The CONNECTICUT TAX-EXEMPT, MASSACHUSETTS TAX-EXEMPT AND OHIO TAX-EXEMPT FUNDS
of Reserve Tax-Exempt Trust (each a Fund, together the "Fund(s)") are
money-market funds whose investment objective is to seek as high a level of
short-term interest income exempt from federal income and state and local
personal income and/or property taxes, if any, for resident holders of the
particular state fund as is consistent with preservation of capital and
liquidity.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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PAGE
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Investment Objectives & Principal Strategies............................. 2
Performance History...................................................... 4
Fees & Expenses of the Funds............................................. 7
Management............................................................... 8
How to Buy Shares........................................................ 8
Selling Fund Shares...................................................... 9
Tax Consequences......................................................... 11
General Information...................................................... 12
Financial Highlights..................................................... 13
</TABLE>
INVESTMENT OBJECTIVES & PRINCIPAL STRATEGIES
The investment objective of each Fund is to seek as high a level of
short-term interest income exempt from federal income and state and local
personal income and/or property taxes, if any, for resident holders of the named
state fund as is consistent with preservation of capital and liquidity. Each
Fund seeks to attain its objective by investing principally in tax-exempt
obligations issued by the state for which it is named and the state's counties,
municipalities, authorities or other political subdivisions. However,
achievement of this objective cannot be assured.
The Funds are designed for institutions and individuals as a convenient
alternative to the direct investment of temporary cash balances in short-term
money-market accounts or instruments. The Funds seek to employ idle cash at
yields competitive with yields of other comparable short-term investments, and
are designed to reduce or eliminate for the investor the mechanical problems of
direct investment in money-market instruments such as scheduling maturities,
evaluating the credit of issuers, investing in round lots, safeguarding receipt
and delivery of securities and reinvesting.
The Funds seek to maintain a stable $1.00 share price. The portfolio
managers monitor a range of economic and financial factors. Based on their
analysis, the Funds are principally invested in high quality, tax-exempt
obligations issued by the specific state and its counties, municipalities,
authorities or other political subdivisions that are intended to provide as high
a yield as possible without violating the Fund's credit quality policies or
jeopardizing the stability of its share price.
The Funds' principal investment strategies include:
o Investing primarily in municipal money-market securities. Each of the
Funds invests principally in high-quality, tax-exempt obligations issued
by the specific state and its counties, municipalities, authorities or
other political subdivisions. These securities are generally referred to
as "municipal obligations".
o Investing at least 80% of the value of each Fund's net assets in
municipal obligations which are exempt from federal, income and state
and, with respect to the New York Tax-Exempt Fund, local personal income
taxes and, with respect to the Florida Tax-Exempt Fund, the Florida
intangibles tax, and with respect to the Pennsylvania Tax-Exempt Fund,
the Pennsylvania county personal property tax, unless it has adopted a
temporary defensive position. In addition, during periods when Reserve
Management Co., Inc. ("RMCI") believes that municipal obligations meeting
each respective Fund's quality standards are not available, a Fund may
invest up to 20% of the value of its net assets, or a greater percentage
on a temporary basis, in municipal obligations exempt only from federal
income taxes. Interest received on certain otherwise tax-exempt
securities ("private activity bonds") is subject to a federal Alternative
Minimum Tax ("AMT"). It is the position of the SEC 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 AMT or at least 80% of
its income will be
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tax-exempt. Income received on such securities is classified as a "tax
preference item," which could subject certain shareholders of the Fund to
AMT.
o Investing in compliance with federal regulations designed to help
maintain liquidity and the strict standards for credit quality,
diversification and maturity.
The interest on securities generally known as municipal obligations is
exempt from federal income tax in the opinion of either bond counsel for the
issuer or, in some instances, the issuer itself. These obligations may be issued
to raise money for various public purposes such as constructing public
facilities, while others 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. Municipal obligations bear fixed,
variable or floating rates of interest.
Each Fund will purchase tax-exempt securities which are rated MIG1 or MIG2
by Moody's Investor Services, Inc. ("Moody's"), SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P") or the equivalent. Municipal obligations which are
not rated may also be purchased provided Reserve Management Co., Inc ("RMCI"),
the Adviser, determines them to be of comparable quality pursuant to guidelines
established by their Boards of Trustees ("Trustees").
Although not a principal strategy, the Funds are allowed to invest all or
substantially all of its investable assets, except to the extent required to
remain uninvested to satisfy cash requirements, in another open-end management
company having the same investment objective and substantially similar policies
and restrictions.
RMCI uses its reasonable business judgment in selecting investments in
addition to considering the ratings of Moody's, S&P and other rating services,
when available.
The investment objective and principal strategies are summarized here. For
more information on the investment objective and strategies, please read the
Statement of Additional Information ("SAI"). A Fund may have to adopt a
temporary defensive position. In that event, the Fund might not be able to
attain its objective.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS. The Funds are money-market funds
which are a specific type of fund that seeks to maintain a $1.00 price per
share. An investment in the Funds is not insured or guaranteed by the U.S.
government, Federal Deposit Insurance Corporation or any other government
agency. Although each Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in a Fund.
Additionally, each Fund's yield will vary as the short-term securities in its
portfolio mature and the proceeds are reinvested in securities with different
interest rates.
While each Fund has maintained a constant share price since inception, and
will strive to do so, the following factors and principal investment risks could
reduce the Fund's income level and/or share price:
o Interest rates could rise sharply causing the value of a Fund's
securities and share price to drop.
o The value of municipal securities may be affected by uncertainties and
changes in municipal market-related legislation or litigation.
o As to the Funds which invest in industrial revenue development bonds and
notes secured by letters of credit or guarantees of banks, there are
risks generally associated with investing in the banking industry, such
as interest rate risk, credit risk and regulatory developments relating
to the banking industry.
o Overall, a decline in the credit quality of an issuer or the provider of
credit support or a maturity-shortening structure for a security can
cause the price of a money-market security to decrease.
o The municipal market is volatile and there are risks associated with
investing in a particular state. For example, unfavorable political or
economic conditions within a specific state can significantly affect the
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financial condition and credit quality of issuers of municipal securities
located in that state. Please read below, some of the risks particular to
the single state funds offered in this Prospectus:
-- As to the Connecticut Tax-Exempt Fund, the credit quality of the
Connecticut Tax-Exempt Fund will depend on the continued financial
strength of the State of Connecticut and its political
subdivisions. Connecticut's economy relies in part on activities
that may be adversely affected by cyclical change, and recent
declines in defense spending have had a significant impact on
unemployment levels.
-- As to the Massachusetts Tax-Exempt Fund, investors should realize
that since 1989, Massachusetts has experienced growth rates
significantly below the national average and an economic recession
in 1990 and 1991 caused negative growth rates. Massachusetts'
economic and fiscal problems in the late 1980s and early 1990s
caused several rating agencies to lower their credit ratings.
-- As to the Ohio Tax-Exempt Fund, investors should realize that
Ohio's fiscal condition is closely tied to the State's ability to
minimize its exposure to cyclical downturns in the manufacturing
sector.
YEAR 2000. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900. Most of the services provided to the Trust depend
on the smooth functioning of computer systems. The Trust could be adversely
affected if the computer systems and service providers that interface with it
are unable to process data from January 1, 2000 and after; however, steps are
being taken to reasonably address this issue and to obtain assurance that
comparable efforts are being made by service providers. There can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
Trust. In addition, because the Year 2000 issue affects virtually all
organizations, the extent of its impact cannot be predicted.
OTHER RISKS. These and other risks are discussed in more detail in the SAI.
Most of the Funds' performance depends on interest rates. When interest rates
fall, a Fund's yields will typically fall as well. 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 Reserve Funds' emphasis on the high credit quality of its investments
may mean that its yields are lower than those available from certain other
money-market funds, which may invest in commercial paper. Because of the low
level of risk, over time, a money-market fund may produce lower returns than
bond or stock investments which entail higher levels of risk.
PERFORMANCE HISTORY
The bar charts below show the Funds' annual returns for the past ten years
or the first full calendar years since inception, together with the best and
worst quarters. The accompanying "Average Annual Total Return as of December 31,
1998" table gives some indication of risk of an investment in the Funds. The
tables assume reinvestment of dividends and distributions, if any. The Reserve
Tax-Exempt Trust did not begin offering shares of the Ohio Tax-Exempt Fund until
April 1, 1998. As such, the Ohio Tax-Exempt Fund does not appear in the tables
because a full calendar year does not exist. As with all mutual funds, the past
is not a prediction of the future.
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CONNECTICUT TAX-EXEMPT FUND
ANNUAL TOTAL RETURNS AS OF DECEMBER 31,
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
5.77% 5.18% 3.62% 2.25% 1.64% 2.06% 2.85% 2.45% 2.66% 2.50%
Best Quarter: 2nd Q 1989 1.45%
Worst Quarter: 2nd Q 1993 0.38%
Most Recent Calendar Quarter: 2nd Q 1999 0.54%
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998
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1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------------------------- -------------------------
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2.50% 2.50% 3.09%
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MASSACHUSETTS TAX-EXEMPT FUND
ANNUAL TOTAL RETURNS AS OF DECEMBER 31,
1991 1992 1993 1994 1995 1996 1997 1998
4.22% 2.46% 1.83% 2.17% 2.96% 2.57% 2.87% 2.53%
Best Quarter: 4th Q 1990 1.50%
Worst Quarter: 1st Q 1994 0.42%
Most Recent Calendar Quarter: 2nd Q 1999 0.54%
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998
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SINCE
1 YEAR 5 YEARS INCEPTION
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
2.53% 2.62% 3.93%
</TABLE>
For the Funds' current yields, call toll-free (800) 637-1700 or visit our
web site at www.reservefunds.com
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FEES & EXPENSES OF THE FUNDS
If you buy and hold shares of the Funds, you may pay certain fees and
expenses which are described in the table below. There are no sales charges
(loads) or exchange fees associated with an investment in the Funds. Annual fund
operating expenses are paid out of the assets of each Fund, so their effect is
included in each Fund's share price. Annual fund operating expenses, indicated
in the table below, reflect expenses for the Funds' fiscal year ended May 31,
1999.
SHAREHOLDER FEES FOR ALL FUNDS
(Fees paid directly from your investment)
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Sales Load Imposed on Purchases......................................... None
Sales Load Imposed on Reinvested Dividends.............................. None
</TABLE>
These are all no-load funds. There are no direct shareholder fees. Please
see the "Annual Fund Operating Expenses for all Funds" table below.
ANNUAL FUND OPERATING EXPENSES FOR ALL FUNDS
(Expenses that are deducted from Fund assets)
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CONNECTICUT MASSACHUSETTS OHIO
TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
FUND FUND FUND
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Comprehensive Management Fee (a)........................................... .80% .80% .80%
Distribution (12b)-1 Fees (b).............................................. .20 .20 .20
----- ----- -----
Total Annual Fund Operating Expenses....................................... 1.00% 1.00% 1.00%
----- ----- -----
----- ----- -----
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(a) The comprehensive management fee includes advisory and customary operating
expenses. However, the Funds may be charged for certain non-recurring
extraordinary expenses and its allocated or direct share of certain other
expenses. See "Management".
(b) The Funds have adopted a Rule 12b-1 plan which allows the Funds to pay
distribution fees for the sale and distribution of its shares. The maximum
level of distribution expenses is 0.20% per year of each Fund's average net
assets. As these fees are paid out of each 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.
EXAMPLE: This example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example should
not be considered indicative of future investment returns and operating expenses
which may be more or less than those shown. This example is based on the annual
fund operating expenses described in the table.
This example assumes that you invest $10,000 in a fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
each Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
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ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
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<S> <C> <C> <C> <C>
Connecticut Tax-Exempt Fund.................................. $102 $ 318 $552 $ 1,225
Massachusetts Tax-Exempt Fund................................ 102 318 552 1,225
Ohio Tax-Exempt Fund......................................... 102 318 552 1,225
</TABLE>
PLEASE NOTE THAT THE ABOVE EXAMPLE IS AN ESTIMATE OF THE EXPENSES TO BE INCURRED
BY SHAREHOLDERS OF THE FUNDS. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE
REFLECTED ABOVE. YOU MAY PAY THE SAME IF YOU DID NOT REDEEM YOUR SHARES.
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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 Funds under an Investment Management Agreement (the "Agreement") with the
Reserve Tax-Exempt Trust (the "Trust"). As a result of recent shareholder votes,
each of the Funds has entered into a new Investment Management Agreement with
RMCI, which is substantially similar to the Investment Management Agreement
previously in effect with regard to each Fund, except for a new comprehensive
management fee. The new Investment Management Agreements became effective June
26, 1999. The Agreement provides that RMCI will furnish continuous investment
advisory and management services to the Funds. In addition to the Funds, RMCI
provides investment management services to other mutual funds within the Reserve
family of funds and, as of May 31, 1999, had approximately $5.6 billion under
management.
RMCI manages the investment portfolios of the Funds, 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 each 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 each Fund pays its direct or allocated share. For the fiscal
year ended May 31, 1999, RMCI received management fees under the investment
management agreements previously in effect with regard to each Fund. For the
fiscal year ended May 31, 1999, the Connecticut Tax-Exempt Massachusetts Tax-
Exempt and Ohio Tax-Exempt Funds paid $231,720, $131,448 and $8,867,
respectively.
HOW TO BUY SHARES
SHARE PRICE: NET ASSET VALUE. Investors pay no sales charges to invest in the
Funds. The price you pay for a share of a Fund, and the price you receive upon
selling or redeeming a share of a Fund, is called the Fund's net asset value
("NAV") per share. The NAV is calculated by taking the total value of a Fund's
assets, subtracting its liabilities, and then dividing by the number of shares
that have already been issued. Each Fund uses the amortized cost method of
valuing its securities under Rule 2a-7 of the 1940 Act. This is a standard
calculation, and forms the basis for all transactions involving buying, selling,
exchanging or reinvesting shares. The NAV is generally calculated as of the
close of trading on the New York Stock Exchange (usually 4:00 PM Eastern time)
every day the Exchange is open. NAV is not calculated on days the Exchange is
closed and regional bank holidays. Your order will be priced at the next NAV
calculated after your order is accepted (i.e., converted to federal funds) by
the Funds.
PURCHASE OF SHARES. The minimum initial investment is $1,000 (IRA minimum $250)
with no minimum subsequent investment. All investments must be in U.S. dollars.
Third-party, foreign and travellers checks, as well as cash investments will not
be accepted. For clients of certain broker-dealers and financial institutions
("Firms"), shares may be purchased directly through such Firms. However,
purchases may be subject to the Firms' own minimums and purchase requirements.
Purchase orders are not accepted on days the Exchange is closed for trading and
regional bank holidays.
o By check--(drawn on U.S. bank) payable to The Reserve Funds, 1250
Broadway, New York, NY 10001-3701. 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.
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o By wire--Prior to calling your bank, call The Reserve Funds at
800-637-1700 for specific instructions or the 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. 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
Funds must be notified before 11:00 AM (Eastern 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 (2) business days, but may take longer.
Checks delivered to the Fund's offices after 11:00 AM (Eastern time), will be
considered received the next business day. Investors will be charged a fee $15
for any check that does not clear and will be responsible for any losses
suffered by the Funds as a result.
RESERVE AUTOMATIC ASSET-BUILDER PLAN. If you have an account, you may purchase
shares of a Fund ($25 suggested minimum) from a checking, NOW, or bank
money-market deposit account or from a U.S. government distribution ($25
suggested minimum) such as social security, federal salary, or certain veterans'
benefits, or other payment from the federal government. You may also purchase
shares automatically by arranging to have your payroll deposited directly into
your Reserve account. Please call the Funds at 800-637-1700 for an application.
INDIVIDUAL RETIREMENT ACCOUNTS. Investors may use the Funds as an investment
for Individual Retirement Accounts ("IRAs"). A master IRA plan with information
regarding administration fees and other details is available from the Funds.
THIRD-PARTY INVESTMENTS. Investments made through a third party (rather than
directly with Reserve) such as a financial services agent may be subject to
policies and fees different than those described here. Banks, brokers, 401(k)
plans, financial advisers and financial supermarkets may charge transaction fees
and may set different minimum investments or limitations on buying or selling
shares. Investors should consult a representative of the plan or financial
institution if in doubt.
DISTRIBUTORS. The Funds' distributor is Resrv Partners, Inc. ("RESRV"), 1250
Broadway, New York, NY 10001-3701.
RESTRICTIONS. Certain other restrictions and conditions for buying shares apply
to the Funds. Please see the SAI for more information.
SELLING FUND SHARES
Investors may sell shares at any time. Shares will be sold at NAV
determined after the redemption request is received by the Fund. Each Fund
usually transmits payments the same day when requests are received before 11:00
AM (Eastern time) and the next business day for requests received after the time
specified to enable shareholders to receive additional dividends. Shares do not
earn dividends on the day a redemption is effected, regardless of the time the
order is received. Orders will be processed promptly and investors will
generally receive the proceeds within a week after receiving your properly
completed request. The Funds strongly suggest (but does not require) that each
telephone redemption be at least $1000, except for redemptions which are
intended to liquidate an account. A shareholder will be charged $2 for
redemption checks issued for less than $100. Upon request, redemptions will be
made by bank wire; however, wire redemptions of less than $10,000 will be
charged a fee (currently $10). The Funds assume no responsibility for delays in
the receipt of wired or mailed funds.
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WRITTEN AND TELEPHONE REQUESTS. Redemption instructions and options should be
specified 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. One
way to redeem shares is to write a letter of instruction which states: the
name(s) and signature(s) of all accountholders (signature(s) guaranteed, if
necessary), account number, Fund name, the dollar amount you want to sell, and
how and where to send the proceeds. If you are redeeming your IRA, please note
the applicable withholding requirements.
To reduce the risk of loss, certain situations require written instructions
along with signature guarantees. These include:
(1) redemptions for more than $5,000; or
(2) redemptions on accounts whose address has been changed within the past
30 days; or
(3) redemption requests to be sent to someone other than the account owner
or the address of record for the past 30 days.
You may redeem by calling the Funds at 800-637-1700. Unless you decline
telephone privileges on your application and the Funds fail to take reasonable
measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions may be sent to
the bank or brokerage account designated by the shareholder on the application
or in a letter with signature guarantee. 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 Funds, it is necessary to
send a written request to the Funds with signature(s) guaranteed. The Fund
reserves the right to refuse a telephone redemption if it believes it is
advisable to do so.
Signature guarantees are designed to protect both you and the Funds from
fraud. Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/dealers, national securities exchanges or
clearing agencies. Notaries public cannot provide signature guarantees. For more
information about redemption procedures, please read the SAI.
CHECKING, VISA AND ATM ACCESS. You may redeem shares of the Fund by using your
Reserve checks and VISA check card. By completing the application or a signature
card (for existing accounts) and certain other documentation, you can write
checks in any amount against your account. A check will be returned (bounced)
and a fee charged if you request a stop payment; the check is postdated;
contains an irregularity in the signature, amount or otherwise; or, is written
against accounts with insufficient or uncollected funds. Please do not postdate
your checks or use them to close your account. Upon proper notice, the Funds may
choose to impose a fee if it deems a shareholder's actions to be burdensome.
Checking may not be available to clients of some Firms, and some Firms may
establish their own minimum check amount. Shareholders may use their VISA check
card at ATM's to receive cash and may be charged a surcharge by the ATM owner.
Please see the SAI for information including charges, fees, etcetera.
EXCHANGE PRIVILEGE. Investors can exchange all or some of their shares offered
for shares in other Reserve money-market and equity funds. Investors can request
an exchange in writing or by telephone. The shares of the other funds are not
offered by this Prospectus. Be sure to read the current prospectus for any fund
into which you are exchanging. Any new account established through an exchange
will have the same privileges as an original account (as long as they are
available). Please see the SAI for more information.
OTHER AUTOMATIC SERVICES. Certain other services and restrictions for selling
shares automatically are offered by the Funds. Please see the SAI for more
information about these services and restrictions.
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REDEMPTIONS THROUGH BROKERS AND FINANCIAL INSTITUTIONS. Redemptions through
brokers and financial institutions may involve such Firms' own redemption
minimums, services fees, and other redemption requirements.
OTHER. The Funds also reserve the right to make a "redemption in kind",
(payment in portfolio securities rather than cash), without notice, if the
amount the investor is redeeming is large enough to affect fund operations (for
example, if it represents more than 1% of the Fund's assets). Further, each Fund
reserves the right to:
o refuse any purchase or exchange request,
o change or discontinue its exchange privilege,
o change its minimum investment amounts, and
o delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions).
TAX CONSEQUENCES
The following discussion is intended as general information only. Because
everyone's tax situation is unique, you should consult your own tax advisor(s)
with regard to the applicability of state and local tax laws on Fund
distributions. For more information, please see the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES. The Funds declare dividends daily and
automatically reinvests them in additional shares except for shareholders who
elect in writing to receive cash dividends, in which case monthly or quarterly
dividend checks are sent to the shareholder. There are no fees or sales charges
on reinvestments.
To maintain its regulated investment company status for federal income tax
purposes, each Fund intends to satisfy certain requirements imposed by the
Internal Revenue Code, so as to avoid any federal income or excise tax
liability. Dividends derived from the interest earned on municipal obligations
and designated by a Fund as "exempt interest dividends" are not subject to
federal income taxes. To the extent a Fund invests in municipal obligations
issued by its respective state or political subdivision thereof, exempt-interest
dividends derived from the interest thereon generally is not subject to state
income taxes.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to certain shareholders
who fail to provide the Fund with their correct taxpayer identification number
or to make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability. 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 a Fund may be
fined $50 annually for each account for which a certified TIN is not provided or
is incorrect. In the event that such a fine is imposed with respect to an
account in any year, a corresponding charge will be made against the account.
The Funds will not accept purchase orders for accounts for which a correct and
certified TIN is not provided or which is otherwise subject to backup
withholding, except in the case of certain non-resident alien account holders.
11
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GENERAL INFORMATION
SMALL BALANCES. Because of the expense of maintaining accounts with small
balances (less than $1,000), the Funds may choose without notice to either levy
a monthly charge (currently $5) or redeem the account and remit the proceeds.
Some Firms may establish variations of minimum balances and monthly charges if
approved by the Funds.
RESERVE EASY ACCESS. Easy Access is The Reserve Funds' 24-hour toll-free
telephone service that lets customers use a touch-tone phone for a variety of
options, which include yields, account balances, check reorders and other
options. To use it, call 800-637-1700 and follow the instructions. Clients may
also access full account activity for the previous six months on the Internet at
www.reservefunds.com.
INQUIRIES. Shareholders should direct their inquiries to the Firm from which
they received this Prospectus or to The Reserve Funds.
SPECIAL SHAREHOLDER SERVICES. The Funds reserve the right to charge shareholder
accounts for specific costs incurred in processing unusual transactions. Such
transactions include, but are not limited to, stop payment requests, copies of
Fund redemption or shareholder checks, copies of statements and special research
services.
ACCOUNT STATEMENTS. Shareholders are advised to retain all account statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
This section provides further details about the Funds' recent financial
history. "Total Return" shows how much an investment in a series would have
increased (or decreased) during each period, assuming reinvestment of all
dividends and distributions, if any. These figures have been audited by
PricewaterhouseCoopers LLP, the Trust's independent accountants, whose report,
along with each Funds' financial statements, is included in the Trust's Annual
Report, which is available upon request by calling 800-637-1700.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-------------------------------------------------------
CONNECTICUT TAX-EXEMPT FUND 1999 1998 1997 1996 1995
- --------------------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income.................................... .0221 .0267 .0243 .0266 .0254
Less dividends from net investment income................ (.0221) (.0267) (.0243) (.0266) (.0254)
------- ------- ------- ------- -------
Net asset value, end of year............................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return............................................. 2.21% 2.67% 2.43% 2.66% 2.54%
RATIOS/SUPPLEMENTAL DATA
Net assets end of year (millions)........................ $ 55.4 $ 36.8 $ 33.5 $ 34.8 $ 26.6
Ratio of expenses to average net assets.................. 1.00% .89% .97% 1.01% .99%(c)
Ratio of net investment income to average net assets..... 2.17% 2.64% 2.39% 2.61% 2.23%(c)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT FUND 1999 1998 1997 1996 1995
- --------------------------------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year....................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income.................................... .0220 .0284 .0259 .0276 .0265
Less dividends from net investment income................ (.0220) (.0284) (.0259) (.0276) (.0265)
------- ------- ------- ------- -------
Net asset value, end of year............................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total Return............................................. 2.20% 2.84% 2.59% 2.76% 2.65%
RATIOS/SUPPLEMENTAL DATA
Net assets end of year (millions)........................ $ 19.9 $ 25.4 $ 13.0 $ 9.0 $ 10.2
Ratio of expenses to average net assets.................. 1.00% .75% .83%(c) .89%(c) .80%(c)
Ratio of net investment income to average
net assets............................................. 2.17% 2.78% 2.54%(c) 2.66%(c) 2.69%(c)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MAY 31,
-------------------
OHIO TAX-EXEMPT FUND 1999 1998(F)
- ------------------------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
Net asset value, beginning of period............................................................. $1.0000 $1.0000
------- -------
Net investment income............................................................................ .0236 .0048
Less dividends from net investment income........................................................ (.0236) (.0048)
------- -------
Net asset value, end of period................................................................... $1.0000 $1.0000
------- -------
------- -------
Total Return..................................................................................... 2.36% 2.87%(b)
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (millions).............................................................. $ 1.2 $ 2.5
Ratio of expenses to average net assets.......................................................... 1.00%(c) 1.00%(b)
Ratio of net investment income to average net assets............................................. 2.16%(c) 2.86%(b)
</TABLE>
- ------------------
(b) Annualized.
(c) Due to the voluntary waiver of certain expenses by RMCI for certain funds,
the actual expense ratios and net investment income amounted to:
<TABLE>
<CAPTION>
NET
FISCAL EXPENSE INVESTMENT
FUND YEAR RATIO INCOME
- ----------------------------- ------ ------- ----------
<S> <C> <C> <C>
Connecticut 1995 .89% 2.33%
Massachusetts 1997 .79% 2.58%
1996 .84% 2.71%
1995 .69% 2.80%
Ohio 1999 .83% 2.32%
</TABLE>
(f) From April 1, 1998 (Commencement of Operations) to May 31, 1998.
-------------
NO PERSON HAS BEEN AUTHORIZED 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.
-------------
14
<PAGE>
This Prospectus contains the information about each Fund, which a prospective
investor should know before investing.
The Statement of Additional Information ("SAI") contains additional and more
detailed information about the Funds, and is considered part of this Prospectus.
Our Annual and Semi-Annual Reports list the holdings in each Fund, describe Fund
performance, include financial statements for the Funds, and discuss market
conditions and strategies that significantly affected the Funds' performance.
These documents may be obtained without charge by writing to the address below
or calling The Reserve Funds at 800-637-1700. You can download the documents
from the SEC's web site (http://www.sec.gov) or you can obtain copies by
visiting the SEC's Public Reference Room in Washington, DC (800-SEC-0330) or by
sending your request and duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009.
Investors are advised to read and retain this prospectus for future reference.
RESERVE FUNDS
LOGO
GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
800-637-1700 o www.reservefunds.com
Distributor -- Resrv Partners, Inc.
RTET/states-08/99--
SEC File Numbers
Reserve Tax-Exempt Trust
811-3696
RESERVE FUNDS
LOGO
TAX-EXEMPT MONEY-MARKET FUNDS
CONNECTICUT TAX-EXEMPT FUND
MASSACHUSETTS TAX-EXEMPT FUND
OHIO TAX-EXEMPT FUND
PROSPECTUS
JULY 31, 1999,
AS SUPPLEMENTED ON
AUGUST 18, 1999
<PAGE>
This Prospectus contains the information about each Fund, which a prospective
investor should know before investing.
The Statement of Additional Information ("SAI") contains additional and more
detailed information about the Funds, and is considered part of this Prospectus.
Our Annual and Semi-Annual Reports list the holdings in each Fund, describe Fund
performance, include financial statements for the Funds, and discuss market
conditions and strategies that significantly affected the Funds' performance.
These documents may be obtained without charge by writing to the address below
or calling The Reserve Funds at 800-637-1700. You can download the documents
from the SEC's web site (http://www.sec.gov) or you can obtain copies by
visiting the SEC's Public Reference Room in Washington, DC (800-SEC-0330) or by
sending your request and duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009.
Investors are advised to read and retain this prospectus for future reference.
[LPL LOGO]
Linsco/Private Ledger
155 Federal Street, 8th Floor
Boston, MA 02110
9785 TowneCentre Drive
San Diego, CA 92121
GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
800-637-1700 o www.reservefunds.com
Distributor -- Resrv Partners, Inc.
RTET/states-08/99--
SEC File Numbers
Reserve Tax-Exempt Trust
811-3696
[LPL LOGO]
TAX-EXEMPT MONEY-MARKET FUNDS
CONNECTICUT TAX-EXEMPT FUND
MASSACHUSETTS TAX-EXEMPT FUND
OHIO TAX-EXEMPT FUND
offered by The Reserve Funds
PROSPECTUS
JULY 31, 1999,
AS SUPPLEMENTED ON
AUGUST 18, 1999
