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TAX-EXEMPT MONEY-MARKET FUNDS FOR RESIDENTS OF:
CONNECTICUT, MASSACHUSETTS, OHIO, AND VIRGINIA
PROSPECTUS
JULY 31, 2000
The CONNECTICUT TAX-EXEMPT, MASSACHUSETTS TAX-EXEMPT, OHIO TAX-EXEMPT, and
VIRGINIA TAX-EXEMPT FUNDS of Reserve Tax-Exempt Trust (each a "Fund",
collectively the "Funds") 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
ABOUT THE FUNDS
Investment Objective...........................................................2
Investment Strategies..........................................................2
Principal Risks of Investing in the Funds......................................4
Performance....................................................................6
Fees & Expenses of the Funds...................................................8
Fund Management................................................................8
YOUR ACCOUNT
How to buy shares.............................................................10
Selling shares................................................................11
ACCOUNT SERVICES..............................................................13
DIVIDENDS & TAXES.............................................................14
FINANCIAL HIGHLIGHTS..........................................................15
QUESTIONS?
Shareholders should direct their inquiries to the Firm from which they received
this Prospectus or to The Reserve Funds.
The Reserve Funds
1250 Broadway - 32nd floor
New York, NY 10001-3701
800-637-1700
212-401-5940 (facsimile)
[email protected]
or visit our web site at www.reservefunds.com
IT PAYS TO KEEP MONEY IN RESERVE-TM-
ABOUT THE FUNDS
The Funds are designed 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 to reduce or eliminate the mechanical
problems of direct investment, such as scheduling maturities and reinvestment,
as well as, evaluating the credit of issuers, investing in round lots, and
safeguarding receipt and delivery of securities.
INVESTMENT OBJECTIVE
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. However, achievement
of this objective cannot be assured.
INVESTMENT STRATEGIES
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 that are
intended to provide as high a yield as is possible without violating the Fund's
credit quality policies or jeopardizing the stability of its share price.
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ABOUT THE FUNDS
The Funds' principal investment strategies include:
- Investing principally in high-quality, tax-exempt municipal money-market
securities issued by the specific state and its counties, municipalities,
authorities or other political subdivisions. These securities are generally
referred to as "municipal obligations".
- Investing at least 80% of the value of each Fund's net assets in municipal
obligations which are exempt from federal, income (including federal
Alternative Minimum Tax) and state, 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") may be 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 tax-
exempt. Income received on such securities is classified as a "tax preference
item," which could subject certain shareholders of the Fund to AMT; however,
the Funds' avoid buying any AMT paper.
- 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., SP-1 or SP-2 by Standard & Poor's
Corporation 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 the Funds' Board of Trustees ("Trustees").
Each Fund may purchase floating and variable rate demand bonds, 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, usually upon not
more than seven (7) days' notice. A Fund will not invest more than 10% of the
value of its assets in floating or variable rate demand bonds for which there is
no secondary market if the demand feature on such municipal obligations requires
more than seven (7) days' notice.
The Funds will at all times as is practicable be invested in accordance with
the investment objective and strategies outlined above. However, from time to
time, a Fund may take temporary defensive positions that are inconsistent with
the Fund's principal investment strategies in attempting to respond to adverse
market, economic, political or other conditions. If a Fund adopts a temporary
defensive position, the Fund might not be able to attain its objective.
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ABOUT THE FUNDS
PRINCIPAL RISKS OF INVESTING IN THE FUNDS.
The following factors could reduce a Fund's income level and/or share price:
- INTEREST RATES could rise sharply causing the value of the Funds' securities
and share price to drop. Most of the Funds' performance depends on interest
rates. When interest rates fall, the Funds' yields will typically fall as
well.
- A FUND IS NOT FDIC-INSURED. 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 a Fund is not insured or guaranteed by the U.S. government,
Federal Deposit Insurance Corporation ("FDIC") 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.
However, each Fund has maintained a constant share price since inception, and
will strive to continue to do so.
- 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.
- CREDIT QUALITY. 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.
- NON-DIVERSIFICATION. The Funds are non-diversified; therefore, performance is
more dependent upon a smaller number of securities and issuers than in a
diversified portfolio. The change in value of any one security may affect the
overall value of the Fund more than it would in a diversified portfolio.
- CERTAIN PORTFOLIO HOLDINGS. The risks that the Funds are subject to include
those risks associated with the market in general, as well as the types of
securities held. The Funds concentrate their investments in municipal
obligations of issuers located in the state for which they are named. The
municipal market is volatile. Particularly, investments secured by letters of
credit or guarantees of banks are subject to the same risks generally
associated with investing in the banking industry, such as interest rate
risk, credit risk and regulatory developments. Further, there are specific
risks associated with investing in a particular state. For example,
unfavorable political or economic conditions and/or changes in municipal
market-related legislation or litigation within a specific state can
significantly affect the financial condition and credit quality of issuers of
municipal securities located in that state. Please read below, some of the
risks particular to the state-specific municipal funds offered in this
Prospectus:
- Connecticut Tax-Exempt Fund: The credit quality of the Connecticut
Tax-Exempt Fund will depend on the continued financial strength of the
State 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.
- 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.
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ABOUT THE FUNDS
- Ohio Tax-Exempt Fund: The State's fiscal condition is closely tied to its
ability to minimize its exposure to cyclical downturns in the
manufacturing sector.
- Virginia Tax-Exempt Fund: The Commonwealth's low unemployment level is
due in large part to Federal Government jobs available to its residents
in neighboring Washington D.C. Virginia's continued financial strength
rests in its ability to maintain low debt levels and to diversify its
economy.
- MONEY-MARKET FUNDS V. EQUITY INVESTMENTS. 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.
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ABOUT THE FUNDS
PERFORMANCE
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, 1999"
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's registration statement for the Virginia Tax-Exempt Fund
became effective on March 1, 2000. As such, it 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Connecticut Tax-Exempt Fund
<TABLE>
<S> <C>
90 5.18%
91 3.62%
92 2.25%
93 1.64%
94 2.06%
95 2.85%
96 2.45%
97 2.66%
98 2.50%
99 2.15%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 4Q 1990 1.29%
Worst Quarter: 2Q 1993 0.38%
Most Recent Calendar Quarter: 2Q 2000 0.77%
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
1 YEAR 5 YEARS 10 YEARS
2.15% 2.52% 2.73%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Massachusetts Tax-Exempt Fund
<TABLE>
<S> <C>
91 4.22%
92 2.46%
93 1.83%
94 2.17%
95 2.96%
96 2.57%
97 2.87%
98 2.53%
99 2.20%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 1Q 1991 1.15%
Worst Quarter: 1Q 1994 0.42%
Most Recent Calendar Quarter: 2Q 2000 0.81%
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
1 YEAR 5 YEARS SINCE INCEPTION
2.20% 2.62% 2.94%
</TABLE>
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ABOUT THE FUNDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Ohio Tax-Exempt Fund
<TABLE>
<S> <C>
99 2.37%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 1Q 1999 0.63%
Worst Quarter: 2Q 1999 0.53%
Most Recent Calendar Quarter: 2Q 2000 0.85%
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
<TABLE>
<S> <C>
1 YEAR SINCE INCEPTION
2.37% 2.42%
</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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ABOUT THE FUNDS
FEES & EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if you buy and hold
shares of a Fund.
FEE TABLE
SHAREHOLDER FEES * None
(Fees paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES FOR ALL FUNDS
(Expenses that are deducted from Fund assets)
<TABLE>
<S> <C>
Comprehensive Management Fee 0.80%
Distribution (12b-1) Fee 0.20
----
Total Operating Expenses 1.00%
====
</TABLE>
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(*) The Funds will without prior notice impose a "Small Balance fee" (currently
$5) or remit the proceeds on those accounts with a monthly average account
balance of less than $1,000 for the past 12 consecutive months and with no
activity other than distributions and dividends. 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).
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 uses the same assumptions other funds use in their
prospectuses. It 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. The costs would be the same
whether you stayed in the Fund or sold your shares at the end of each period.
Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
$102 $318 $552 $1,225
</TABLE>
FUND MANAGEMENT
THE INVESTMENT ADVISER FOR THE RESERVE FUNDS is Reserve Management
Company, Inc. ("RMCI") 1250 Broadway, New York, NY 10001. Since November 15,
1971, RMCI and its affiliates have provided investment advice to other mutual
funds within the Reserve family of funds which as of May 31, 2000, had
approximately $7 billion in assets under management.
RMCI manages the investment portfolios of the Funds, subject to policies
adopted by the Trustees. The Funds pay RMCI a comprehensive management fee of
0.80% per year of the average daily net assets of each Fund. RMCI pays all
administration and customary operating expenses of the Funds. 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.
As of June 26, 1999, each of the Funds entered into a Investment Management
Agreement with RMCI, which is substantially similar to the Investment Management
Agreement previously in effect, except for the comprehensive management fee
structure; however, the California II, Michigan, Ohio and Virginia Tax-Exempt
Funds since inception, have been subject to a comprehensive management fee. For
the fiscal year ended May 31, 2000, RMCI received management fees under the
investment management agreements previously in effect , as well as the
comprehensive management fee agreements. For the fiscal year ended May 31, 2000,
the, Connecticut Tax-Exempt, Massachusetts Tax-Exempt, Ohio Tax-Exempt and
Virginia Tax-Exempt Funds paid an aggregate fee of $420,264, $103,426, $16,505,
and $1,371, respectively. The Virginia Tax-Exempt Fund had fees waived of $73.
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ABOUT THE FUNDS
THE FUNDS' DISTRIBUTOR is Resrv Partners, Inc. ("Resrv"), 1250 Broadway, New
York, NY 10001-3701.
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.
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YOUR ACCOUNT
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. Each Fund uses the amortized cost method of valuing its
securities which does not take into account unrealized gains or losses. This is
a standard calculation. The NAV is calculated as of the close of trading on the
New York Stock Exchange (usually 4:00 PM Eastern time). However, NAV is not
calculated and purchase orders are not accepted on days the Exchange is closed
for holidays (New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day) or on regional bank holidays (Columbus Day and Veteran's Day).
Your order will be priced at the next NAV calculated after your order is
accepted (i.e., converted to federal funds) by the Funds.
MINIMUM INITIAL INVESTMENT
<TABLE>
<C> <C> <S>
REGULAR ACCOUNTS - $1,000 with no minimum subsequent investment
ALL IRA ACCOUNTS - $1,000 with $250 minimum subsequent investment
</TABLE>
HOW TO PURCHASE
- BY CHECK. (drawn on U.S. bank). Please mail or visit us at 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 and
make the check payable to The Reserve Funds.
- 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.
- 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.
- AUTOMATIC ASSET BUILDER. 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.
ALL INVESTMENTS MUST BE IN U.S. DOLLARS. THIRD PARTY, FOREIGN AND TRAVELERS
CHECKS, AS WELL AS CASH INVESTMENTS WILL NOT BE ACCEPTED. PURCHASE ORDERS ARE
NOT ACCEPTED ON DAYS THE EXCHANGE IS CLOSED FOR TRADING AND REGIONAL BANK
HOLIDAYS.
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YOUR ACCOUNT
When purchasing shares, please keep in mind:
- All checks and wires which do not correctly identify the account to be
credited may be returned or delay the purchase of shares. If you do not
specify the account number and the Fund you wish to invest in, all money
will be invested in the U.S. Government Fund under the sender's name
until the correct information can be determined.
- 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. 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 (currently $15) for any check that does
not clear and will be responsible for any losses suffered by the Funds as
a result.
SELLING SHARES. Investors may sell (redeem) shares at any time. Shares will be
sold at the NAV next 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 request. You may sell shares by calling the Funds or with a letter of
instruction. 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.
TELEPHONE REQUESTS. 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 will be sent to
the bank or brokerage account designated by the shareholder on the application
or in a letter with the signature guaranteed. 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 reasonably believes
that the instructions are not genuine and/or it is advisable to do so.
WRITTEN REQUESTS. When writing a letter of instruction, please include the
name(s) and signature(s) of all account holders (signature(s) guaranteed, if
necessary), account number, Fund name, the dollar amount you want to redeem, and
how and where to send the proceeds. If you are redeeming your IRA, please call
for the applicable withholding requirements.
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YOUR ACCOUNT
SIGNATURE GUARANTEED. The following situations require written instructions
along with signatures guaranteed.
(1) redemptions for more than $5,000, if redemption proceeds are not being
sent to the shareholder's designated bank or brokerage account; 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.
Signature guarantees are designed to protect both you and the Funds from fraud
by reducing the risk of loss. Signature guarantees can be obtained from most
banks, credit unions or savings associations, or from broker/ dealers, national
securities exchanges or clearing agencies deemed eligible by the Securities and
Exchange Commission. Notaries public cannot provide signature guarantees.
SMALL BALANCES. Because of the expense of maintaining accounts with small
balances, the Funds will without prior notice either levy a monthly charge
(currently $5) or redeem the account and remit the proceeds on those accounts
with a monthly average account balance of less than $1,000 for the past 12
consecutive months and with no activity (i.e., other than dividends and
distributions). Some Firms may establish variations of minimum balances and fee
amounts if those variations are approved by the Funds.
THE FUNDS RESERVE CERTAIN RIGHTS.
The Funds 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:
- refuse any purchase or exchange request,
- change or discontinue its exchange privilege,
- change its minimum investment amounts,
- to liquidate an account without notice and remit the proceeds, if an
account becomes burdensome within the Funds' discretion,
- 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); and
- 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 checks or shareholder
checks, copies of statements and special research services.
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.
ACCOUNT STATEMENTS. Shareholders are advised to retain all account statements.
You must notify us no later than sixty (60) days after Reserve sent you the
statement on which a problem or error first appeared.
SHAREHOLDER COMMUNICATIONS. The Funds will not send duplicate shareholder
communications, such as the Prospectus and Annual Report, to related accounts at
a common address, unless instructed to the contrary by you.
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ACCOUNT SERVICES
CHECKING, VISA AND ATM ACCESS. You may redeem shares of the Fund by using your
Reserve checks and VISA Check Card. Once you complete an 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;
signature or payee is missing;or, is written against accounts with insufficient
or uncollected funds. Please do not use your checks to close your account.
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; shareholders will not be charged by The Reserve
Funds to use an ATM, but may be charged a surcharge by the ATM owner.
EXCHANGE PRIVILEGE. Investors can exchange all or some of the shares offered for
shares in other Reserve money market and equity funds. Investors can request an
exchange in writing or by telephone. 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 (provided they are
available). There is currently no fee for exchanges.
INDIVIDUAL RETIREMENT ACCOUNTS. Investors may use the Funds as an investment for
Individual Retirement Accounts ("IRAs"). Information regarding administration
fees and other details is available from the Funds at 800-637-1700.
RESERVE EASY ACCESS AND ON-LINE ACCESS. Easy Access is The Reserve Funds'
24-hour toll-free telephone service that lets shareholders use a touch-tone
phone for a variety of options, which include obtaining yields, account
balances, check reorders. To use it, call 800-637-1700 and follow the
instructions. Clients may also access full account activity through On-line
Access for the previous six months on the Internet at www.reservefunds.com. You
must call The Reserve Funds to activate the Internet access.
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DIVIDENDS & TAXES
An investment in any mutual fund, generally involves tax considerations. The
following discussion is intended as general information for U.S. citizens and
residents only. Because everyone's tax situation is unique, you should consult
your own tax advisor(s) with regard to the tax consequences of the purchase,
ownership or disposition of Fund shares. Any tax liabilities generated by your
transactions are your responsibility. Further, the applicable tax laws which
affect the Funds and their shareholders are subject to change and may be
retroactive.
The Funds intend to maintain their regulated investment company status for
federal income tax purposes, so that they will not be liable for federal income
taxes to the extent their taxable income and net capital gains are distributed.
However, it is possible that events could occur which could cause the Fund to
incur some U.S. taxes. The tax status of dividends and distributions will be
detailed in an annual tax statement from the Funds.
Each Fund declares dividends each day the Exchange is open. 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. Any net capital gains
realized will be distributed once a year. All dividends and capital gains
distributions, if any, are paid in the form of additional shares credited to an
investor's account at NAV unless the shareholder has requested otherwise on the
Account Application or in writing to the Funds.
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. As with all mutual funds, 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 a Fund with their correct taxpayer
identification number ("TIN") or to make required certifications, or who have
been notified by the Internal Revenue Service that they are subject to backup
withholding. However, special rules apply for certain accounts. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability. Shareholders should
be aware that a Fund may be fined $50 annually by the IRS 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.
14
<PAGE>
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
beneficial interest outstanding of each Fund for the periods as indicated.
"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 Funds' independent accountants, whose report, along with each Funds'
financial statements, is included in the Funds' Annual Report, which is
available upon request by calling 800-637-1700.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONNECTICUT TAX-EXEMPT FUND
----------------------------------------------
Net asset value, beginning of year................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income............................. 0248 .0221 .0267 .0243 .0266
Dividends from net investment income.............. (.0248) (.0221) (.0267) (0243) (.0266)
------- ------- ------- ------- -------
Net asset value, end of year...................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return...................................... 2.48% 2.21% 2.67% 2.43% 2.66%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------
Net assets end of year (millions)................. $ 51.1 $ 55.4 $ 36.8 $ 33.5 $ 34.8
Ratio of expenses to average net assets........... 1.00% 1.00% .89% .97% 1.01%
Ratio of net investment income to average net
assets.......................................... 2.42% 2.17% 2.64% 2.39% 2.61%
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MASSACHUSETTS TAX-EXEMPT FUND
----------------------------------------------
Net asset value, beginning of year................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income............................. .0256 .0220 .0284 .0259 .0276
Dividends from net investment income.............. (.0256) (.0220) (.0284) (.0259) (.0276)
------- ------- ------- ------- -------
Net asset value, end of year...................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return...................................... 2.56% 2.20% 2.84% 2.59% 2.76%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------
Net assets end of year (millions)................. $ 16.1 $ 19.9 $ 25.4 $ 13.0 $ 9.0
Ratio of expenses to average net assets........... 1.00% 1.00% .75% .83%(c) .90%(c)
Ratio of net investment income to average net
assets.......................................... 2.55% 2.17% 2.78% 2.54%(c) 2.66%(c)
</TABLE>
15
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
----------------------------
2000 1999 1998(F)
---- ---- -------
<S> <C> <C> <C>
OHIO TAX-EXEMPT FUND
--------------------------------------------------
Net asset value, beginning of year................ $1.0000 $1.0000 $1.0000
------- ------- -------
Net investment income............................. .0256 .0236 .0048
Dividends from net investment income.............. (.0256) (.0236) (.0048)
------- ------- -------
Net asset value, end of year...................... $1.0000 $1.0000 $1.0000
======= ======= =======
Total Return...................................... 2.56% 2.36% 2.87%(b)
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------
Net assets end of year (millions)................. $ 8.9 $ 1.2 $ 2.5
Ratio of expenses to average net assets........... 1.00% 1.00%(c) 1.00%(b)
Ratio of net investment income to average net
assets.......................................... 2.95% 2.16%(c) 2.86%(b)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
MAY 31,
2000(H)
-------
<S> <C>
VIRGINIA TAX-EXEMPT FUND
--------------------------------------------------
Net asset value, beginning of period.............. $1.0000
-------
Net investment income............................. .0075
Dividends from net investment income.............. (.0075)
-------
Net asset value, end of period.................... $1.0000
=======
Total Return...................................... 3.08%(b)
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------
Net assets end of period (millions)............... $ 2.1
Ratio of expenses to average net assets........... 1.01%(b)(c)
Ratio of net investment income to average net
assets.......................................... 3.19%(b)(c)
</TABLE>
---------------------
(a) From July 2, 1999 (Commencement of Operations) to May 31, 2000.
(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:
16
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NET
FISCAL EXPENSE INVESTMENT
FUND YEAR RATIO INCOME
---- ---- ----- ------
<S> <C> <C> <C>
Massachusetts...................... 1997 .79% 2.58%
1996 .84 2.71
Ohio............................... 1999 .83 2.32
Virginia........................... 2000 .96 3.24
</TABLE>
(d) From June 24, 1996 (Commencement of Operations) to May 31, 1997.
(e) From December 14, 1998 (Commencement of Operations) to May 31, 1999.
(f) From April 1, 1998 (Commencement of Operations) to May 31, 1998.
(g) From September 12, 1997 (Commencement of Operations) to May 31, 1998.
(h) From March 3, 2000 (Commencement of Operations) to May 31, 2000.
---------------
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.
---------------
17
<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 or calling The Reserve
Funds at 800-637-1700. You can download the documents from the Edgar database of
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 (1-202-942-8090) or by
electronic mail request at [email protected] 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.
[LOGO]
The Reserve Funds
Founders of
"America's First Money Fund"
Est. 1970
GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
800-637-1700-www.reservefunds.com
Distributor--Resrv Partners, Inc.
RTET/states-07/2000 SK
SEC File Numbers
Reserve Tax-Exempt Trust
811-3696
[LOGO]
The Reserve Funds
Founders of
"America's First Money Fund"
Est. 1970
CONNECTICUT TAX-EXEMPT FUND
MASSACHUSETTS TAX-EXEMPT FUND
OHIO TAX-EXEMPT FUND
VIRGINIA TAX-EXEMPT FUND
PROSPECTUS
JULY 31, 2000
