RESERVE TAX EXEMPT TRUST, 485BPOS, 2000-07-31

RESERVE TAX EXEMPT TRUST
485BPOS, 2000-07-31

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 2000

Registration Statement Nos. 2-82592
811-3696

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /

Pre-Effective Amendment No. / /
-----

Post-Effective Amendment No. 39 /X/
-----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/

Amendment No. 41
-----

(Check appropriate box or boxes.)
-------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

RESERVE TAX-EXEMPT TRUST
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1250 Broadway, New York, NY 10001-3701
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(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code (212) 401-5500
-----------------------------

-------------------------------------------------------------------------------
(Name and Address of Agent for Service)

MaryKathleen F. Gaza, Esq.
The Reserve Funds
1250 Broadway
New York, NY 10001-3701

Approximate Date of Proposed Public Offering
----------------------------------

It is proposed that this filing will become effective (check appropriate box)

/X / immediately upon filing pursuant to paragraph (b)

/ / on (date) pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a)(1)

/ / on (date) pursuant to paragraph (a)(1)

/ / 75 days after filing pursuant to paragraph (a)(2)

/ / on (date) pursuant to paragraph (a)(2) of rule 485.

if appropriate, check the following box:

/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

The Commission is requested to send copies of all communications to:
MaryKathleen F. Gaza, Esq.
The Reserve Funds
1250 Broadway
New York, NY 10001-3701
<PAGE>

[LOGO]

"TAX-EXEMPT MONEY-MARKET FUNDS FOR RESIDENTS OF:
CALIFORNIA, CONNECTICUT, FLORIDA, MASSACHUSETTS, MICHIGAN,
NEW JERSEY, NEW YORK, OHIO, PENNSYLVANIA AND VIRGINIA"

PROSPECTUS
JULY 31, 2000

The NEW YORK TAX-EXEMPT FUND of Reserve New York Tax-Exempt Trust and the
CALIFORNIA II TAX-EXEMPT, CONNECTICUT TAX-EXEMPT, FLORIDA TAX-EXEMPT,
MASSACHUSETTS TAX-EXEMPT, MICHIGAN TAX-EXEMPT, NEW JERSEY TAX-EXEMPT, OHIO
TAX-EXEMPT, PENNSYLVANIA 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.

---------------

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.

---------------

<PAGE>

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..................................................10
Fund Management...............................................................10

YOUR ACCOUNT
How to buy shares.............................................................12
Selling shares................................................................13

ACCOUNT SERVICES..............................................................15

DIVIDENDS & TAXES.............................................................16

FINANCIAL HIGHLIGHTS..........................................................17

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.

2
<PAGE>

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 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"), the Adviser, 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 RMCI, 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.

3
<PAGE>
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 single state municipal funds offered in this
Prospectus:

- California II Tax-Exempt Fund: There are special risks inherent in the
Fund's investments in California municipal obligations, which result from
statutes that limit the taxing and spending authority of California
governmental agencies, as well as the general financial condition of the
State.

- 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.

4
<PAGE>
ABOUT THE FUNDS

- Florida Tax-Exempt Fund: The revenue of Florida is closely tied to its
tourism business. A decline in tourism revenues could adversely affect
revenues, principally sales tax revenue which is vulnerable to economic
cycles.

- 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.

- Michigan Tax-Exempt Fund: Michigan's fiscal condition continues to be
tested by its dependence on the inherently cyclical auto industry.

- New Jersey Tax-Exempt Fund: From time to time, New Jersey's economic
performance has trailed the rest of the nation. During the economic
downturn of 1992, the State's unemployment rate rose to a peak of 8.5%.

- New York Tax-Exempt Fund: There are the special risks inherent in
investing in New York municipal obligations which result from the
financial condition of New York State, certain of its public bodies and
municipalities, and New York City in particular.

- 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.

- Pennsylvania Tax-Exempt Fund: Many different social, environmental and
economic factors may affect the financial condition of Pennsylvania and
its political subdivisions and, from time to time, Pennsylvania and
certain of its political subdivisions have encountered financial
difficulties which have adversely affected their respective credit
standings.

- 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.

5
<PAGE>
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 California II Tax-Exempt Fund
became effective on June 28, 1999 and the Virginia Tax-Exempt Fund on March 1,
2000. As such, they do 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 New York Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS: Best Quarter: 4Q 1990 1.30% Worst Quarter: 3Q 1993 0.36% Most
Recent Calendar Quarter: 2Q 2000 0.80%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.25% 2.57% 2.75%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Connecticut Tax-Exempt Fund

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%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.15% 2.52% 2.73%
</TABLE>

6
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Florida Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS: Best Quarter: 2Q 1997 0.73% Worst Quarter: 1Q 1999 0.49% Most
Recent Calendar Quarter: 2Q 2000 0.84%

<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.36% 2.52%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Massachusetts Tax-Exempt Fund

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%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS SINCE INCEPTION
2.20% 2.62% 2.94%
</TABLE>

7
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Michigan Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS: Best Quarter: 1Q 1999 0.67% Worst Quarter: 3Q 1999 0.54% Most
Recent Calendar Quarter: 2Q 2000 0.86%

<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.49% 2.48%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for New Jersey Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS: Best Quarter: 2Q 1995 0.75% Worst Quarter: 1Q 1999 0.46% Most
Recent Calendar Quarter: 2Q 2000 0.80%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS SINCE INCEPTION
2.16% 2.48% 2.61%
</TABLE>

8
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Ohio Tax-Exempt Fund

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%

<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.37% 2.42%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Pennsylvania Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS: Best Quarter: 2Q 1998 0.68% Worst Quarter: 1Q 1999 0.49% Most
Recent Calendar Quarter: 2Q 2000 0.87%

<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.37% 2.49%
</TABLE>

For the Funds' current yields, call toll-free (800) 637-1700
or visit our web site at www.reservefunds.com.

9
<PAGE>
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>

------------

(*) 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).

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>
$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 California II Tax-Exempt, Connecticut Tax-Exempt, Florida Tax-Exempt,
Massachusetts Tax-Exempt, Michigan Tax-Exempt, New Jersey Tax-Exempt, New York
Tax-Exempt Fund, Ohio Tax-Exempt, Pennsylvania Tax-Exempt and Virginia
Tax-Exempt Funds paid an

10
<PAGE>
ABOUT THE FUNDS
aggregate fee of $452,687, $420,264, $200,157, $103,426, $11,118, $355,140,
$1,538,209, $16,505, $141,513 and $1,371, respectively. California II and
Virginia Tax-Exempt Funds had fees waived of $24,022 and $73, respectively.

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.

11
<PAGE>

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.

12
<PAGE>
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.

13
<PAGE>
YOUR ACCOUNT

SIGNATURES 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.

14
<PAGE>

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.

15
<PAGE>

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.

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 and, with
respect to the New York Tax-Exempt Fund, local personal income taxes.

Shareholders of the Florida Tax-Exempt Fund that are subject to the Florida
intangibles tax will not be required to include the value of their Fund shares
in their taxable intangible property if 90% of the Fund's investments on the
annual assessment date are obligations that would be exempt from such tax if
held directly by such shareholders, such as Florida and U.S. government
obligations. The Florida Tax-Exempt Fund will normally attempt to invest
substantially all of its assets in securities which are exempt from the Florida
intangibles tax. If more than 10% the Florida Tax-Exempt Fund's portfolio
consists of assets which are not exempt on the annual assessment date, only the
portion of the investment which relates to securities issued by the U.S. and its
possessions and territories will be exempt from the Florida intangibles tax, and
the remaining portions of those shares will be fully subject to the intangibles
tax, even if they partly relate to Florida tax-exempt securities. Shareholders
of the Pennsylvania Tax-Exempt Fund that are subject to the Pennsylvania
personal property tax will not be taxed on distributions derived from interest
on exempt obligations, such as Pennsylvania or U.S. government obligations. The
tax status of dividends and distributions will be detailed in annual tax
statements from the Funds.

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.

16
<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 Reports, which is
available upon request by calling 800-637-1700.

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
-------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NEW YORK TAX-EXEMPT FUND
----------------------------------------------
Net asset value, beginning of year................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income............................. .0258 .0222 .0268 .0247 .0276
Dividends from net investment income.............. (.0258) (.0222) (.0268) (.0247) (.0276)
------- ------- ------- ------- -------
Net asset value, end of year...................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return...................................... 2.58% 2.22% 2.68% 2.47% 2.76%
RATIOS/SUPPLEMENTAL DATA
----------------------------------------------
Net assets end of year (millions)................. $ 228.4 $ 186.0 $ 171.2 $ 153.2 $ 125.5
Ratio of expenses to average net assets........... 1.00% 1.00% .94% 1.04% 1.04%
Ratio of net investment income to average net
assets.......................................... 2.55% 2.19% 2.63% 2.43% 2.72%
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MAY 31, 2000(A)
---------------
<S> <C>

CALIFORNIA II TAX-EXEMPT FUND
--------------------------------------------------
Net asset value, beginning of period.............. $1.0000
-------
Net investment income............................. .0208
Dividends from net investment income.............. (.0208)
-------
Net asset value, end of period.................... $1.0000
=======
Total Return...................................... 2.27%(b)
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------
Net assets end of period (millions)............... $ 91.4
Ratio of expenses to average net assets........... 1.00%(b)(c)
Ratio of net investment income to average net
assets.......................................... 2.27%(b)(c)
</TABLE>

17
<PAGE>
FINANCIAL HIGHLIGHTS

<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(D)
---- ---- ---- -------
<S> <C> <C> <C> <C>

FLORIDA TAX-EXEMPT FUND
--------------------------------------------------
Net asset value, beginning of year................ $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- -------
Net investment income............................. .0272 .0237 .0269 .0228
Dividends from net investment income.............. (.0272) (.0237) (.0269) (.0228)
------- ------- ------- -------
Net asset value, end of year...................... $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= =======
Total Return...................................... 2.72% 2.37% 2.69% 2.42%(b)
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------
Net assets end of year (millions)................. $ 28.9 $ 22.6 $ 10.8 $ 4.1
Ratio of expenses to average net assets........... 1.00% 1.00% .94% 1.04%(b)
Ratio of net investment income to average net
assets.......................................... 2.68% 2.30% 2.62% 2.39%(b)
</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>

18
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MAY 31,
------------------
2000 1999(E)
---- -------
<S> <C> <C>

MICHIGAN TAX-EXEMPT FUND
--------------------------------------------------
Net asset value, beginning of period.............. $1.0000 $1.0000
------- -------
Net investment income............................. .0263 .0118
Dividends from net investment income.............. (.0263) (.0118)
------- -------
Net asset value, end of period.................... $1.0000 $1.0000
======= =======
Total Return...................................... 2.63% 2.55%(b)
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------
Net assets end of period (millions)............... $ 2.2 $ 1.2
Ratio of expenses to average net assets........... 1.00% 1.00%(b)(c)
Ratio of net investment income to average net
assets.......................................... 2.60% 2.02%(b)(c)
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>

NEW JERSEY TAX-EXEMPT FUND
------------------------------------------
Net asset value, beginning of year................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
Net investment income............................. .0249 .0223 .0254 .0236 .0263
Dividends from net investment income.............. (.0249) (.0223) (.0254) (.0236) (.0263)
------- ------- ------- ------- -------
Net asset value, end of year...................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return...................................... 2.49% 2.23% 2.54% 2.36% 2.63%
RATIOS/SUPPLEMENTAL DATA
------------------------------------------
Net assets end of year (millions)................. $ 44.4 $ 41.3 $ 37.6 $ 39.5 $ 41.0
Ratio of expenses to average net assets........... 1.05% 1.00% .99% 1.06% 1.04%
Ratio of net investment income to average net
assets.......................................... 2.46% 2.17% 2.50% 2.33% 2.59%
</TABLE>

<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>

19
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
----------------------------
2000 1999 1998(G)
---- ---- -------
<S> <C> <C> <C>

PENNSYLVANIA TAX-EXEMPT FUND
--------------------------------------------------
Net asset value, beginning of year................ $1.0000 $1.0000 $1.0000
------- ------- -------
Net investment income............................. .0276 .0234 .0189
Dividends from net investment income.............. (.0276) (.0234) (.0189)
------- ------- -------
Net asset value, end of year...................... $1.0000 $1.0000 $1.0000
======= ======= =======
Total Return...................................... 2.76% 2.34% 2.64%(b)
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------
Net assets end of year (millions)................. $ 21.1 $ 16.9 $ 13.2
Ratio of expenses to average net assets........... 1.00% 1.00% 1.00%(b)
Ratio of net investment income to average net
assets.......................................... 2.73% 2.28% 2.62%(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.

20
<PAGE>
FINANCIAL HIGHLIGHTS

---------------------

(c) Due to the voluntary waiver of certain expenses by RMCI for certain funds,
the net expense ratios and net investment income amounted to:

<TABLE>
<CAPTION>
NET
FISCAL EXPENSE INVESTMENT
FUND YEAR RATIO INCOME
---- ---- ----- ------
<S> <C> <C> <C>

California II...................... 2000 96% 2.31%
Massachusetts...................... 1997 .79 2.58
1996 .84 2.71
Michigan........................... 1999 .49 2.53
Ohio............................... 1999 .83 2.32
Virginia........................... 2000 .97 3.23
</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.
---------------

21
<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]
1250 Broadway, New York, NY 10001-3701
(212) 401-5500

GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
800-637-1700--www.reservefunds.com

Distributor--Resrv Partners, Inc.
RTET/states-07/2000

SEC File Numbers
Reserve Tax-Exempt Trust
811-3696
Reserve New York Tax-Exempt Trust
811-3814

[LOGO]

TAX-EXEMPT MONEY-MARKET FUNDS

CALIFORNIA II TAX-EXEMPT FUND
CONNECTICUT TAX-EXEMPT FUND
FLORIDA TAX-EXEMPT FUND
MASSACHUSETTS TAX-EXEMPT FUND
MICHIGAN TAX-EXEMPT FUND
NEW JERSEY TAX-EXEMPT FUND
NEW YORK TAX-EXEMPT FUND
OHIO TAX-EXEMPT FUND
PENNSYLVANIA TAX-EXEMPT FUND
VIRGINIA TAX-EXEMPT FUND

PROSPECTUS
JULY 31, 2000

<PAGE>

[LOGO]

INTERSTATE TAX-EXEMPT FUND
A MONEY-MARKET FUND

PROSPECTUS
JULY 31, 2000

The INTERSTATE 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.

---------------

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.

---------------

<PAGE>

TABLE OF CONTENTS

ABOUT THE FUND
Investment Objective...........................................................2
Investment Strategies..........................................................2
Principal Risks of Investing in the Funds......................................4
Performance....................................................................5
Fees & Expenses of the Funds...................................................6
Fund Management................................................................6

YOUR ACCOUNT
How to buy shares..............................................................7
Selling shares.................................................................8

ACCOUNT SERVICES..............................................................10

DIVIDENDS & TAXES.............................................................11

FINANCIAL HIGHLIGHTS..........................................................12

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 (fascimile)
[email protected]
or visit our web site at www.reservefunds.com

IT PAYS TO KEEP MONEY IN RESERVE-TM-

ABOUT THE FUND

The Fund is designed as a convenient alternative to the direct investment of
temporary cash balances in short-term money-market accounts or instruments. The
Fund seeks 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 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. However, achievement of this objective
cannot be assured.

INVESTMENT STRATEGIES
The Fund seeks to maintain a stable $1.00 share price. The portfolio managers
monitor a range of economic and financial factors. Based on their analysis, the
Fund is principally invested in high quality, tax-exempt obligations 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.

2
<PAGE>

ABOUT THE FUND

The Fund's principal investment strategies include:

- Investing principally in high-quality, tax-exempt municipal money-market
securities issued by the states, counties, authorities or other political
subdivisions. These securities are generally referred to as "municipal
obligations".
- Investing at least 80% of the value of the Fund's net assets in municipal
obligations which are exempt from federal income tax, unless it has adopted a
temporary defensive position. 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 Fund avoids 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 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 their
Boards of Trustees ("Trustees").

The 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. The 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 Fund will at all times as is practicable be invested in accordance with
the investment objective and strategies outlined above. However, from time to
time, the 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 the Fund adopts a temporary
defensive position, the Fund might not be able to attain its objective.

3
<PAGE>
ABOUT THE FUND

PRINCIPAL RISKS OF INVESTING IN THE FUND.
The following factors could reduce a Fund's income level and/or share price:

- INTEREST RATES could rise sharply causing the value of the Fund's securities
and share price to drop. Most of the Fund's performance depends on interest
rates. When interest rates fall, the Fund's yields will typically fall as
well.

- A FUND IS NOT FDIC-INSURED. The Fund is a money-market fund which is 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 the 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, the Fund has maintained a constant share price since inception, and
will strive to continue to do so.

- THE 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.

- NON-DIVERSIFICATION. The Fund is 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 Fund concentrates its investments in municipal
obligations which are volatile and there are 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 can significantly affect the financial condition and credit
quality of issuers of municipal securities. Further, investments that are
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.

4
<PAGE>
ABOUT THE FUND

PERFORMANCE
The bar charts below show the Fund's annual returns for the past ten years or
since the first calendar year 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 Fund. The tables
assume reinvestment of dividends and distributions, if any. 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 Interstate Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS: Best Quarter: 4Q 1990 1.41% Worst Quarter: 1Q 1994 0.38% Most
Recent Calendar Quarter: 2Q 2000 0.81%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.39% 2.70% 2.95%
</TABLE>

For the Funds' current yields, call toll-free (800) 637-1700
or visit our web site at WWW.RESERVEFUNDS.COM.

5
<PAGE>
ABOUT THE FUND

FEES & EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

FEE TABLE
SHAREHOLDER FEES* None
(Fees paid directly from your investment)

ANNUAL FUND OPERATING EXPENSES FOR THE FUND
(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>

------------

(*) The Fund 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 Fund 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 the
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>

RMCI manages the investment portfolio of the Fund, subject to policies
adopted by the Trustees. The Fund pays RMCI a comprehensive management fee of
0.80% per year of the average daily net assets of the Fund. RMCI pays all
administration 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.
As of June 26, 1999, the Fund 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. For
the fiscal year ended May 31, 2000, RMCI received management fees under the
investment management agreement previously in effect, as well as the
comprehensive management fee agreement. For the fiscal year ended May 31, 2000,
the Interstate Tax-Exempt Fund paid RMCI an aggregate fee of $2,228,804.

THE FUND'S DISTRIBUTOR is Resrv Partners, Inc. ("Resrv"), 1250 Broadway, New
York, NY 10001-3701.

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.

6
<PAGE>

YOUR ACCOUNT

HOW TO BUY SHARES.
SHARE PRICE: NET ASSET VALUE. Investors pay no sales charges to invest in the
Fund. 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 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 Fund.

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 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.

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.

7
<PAGE>
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 Fund
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 Fund 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. The 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 Fund 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
Fund assumes no responsibility for delays in the receipt of wired or mailed
funds.

TELEPHONE REQUESTS. You may redeem by calling the Fund at 800-637-1700. Unless
you decline telephone privileges on your application and the Fund fails to take
reasonable measures to verify the request, the Fund 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 Fund, it is necessary to
send a written request to the Fund 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.

8
<PAGE>
YOUR ACCOUNT

SIGNATURE GUARANTEED. The following situations require written instructions
along with signatures guaranteed.

Signature guarantees are designed to protect both you and the Fund 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 Fund 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 Fund.

THE FUNDS RESERVE CERTAIN RIGHTS.
The Fund reserves 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, the 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 Fund's 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.

SHAREHOLDER COMMUNICATIONS. The Fund 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.

9
<PAGE>

ACCOUNT SERVICES

INDIVIDUAL RETIREMENT ACCOUNTS. Investors may use the Fund as an investment for
Individual Retirement Accounts ("IRAs"). Information regarding administration
fees and other details is available from the Fund at 800-637-1700.

10
<PAGE>

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 Fund and their shareholders are subject to change and may be
retroactive.

The Fund intends to maintain its regulated investment company status for federal
income tax purposes, so that it will not be liable for federal income taxes to
the extent its 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. Dividends derived from the interest earned on municipal obligations
and designated by the Fund as "exempt-interest dividends" are not subject to
federal income taxes. Any distributions of net short-term capital gains and
taxable interest income, if any, are taxable as ordinary income. Any
distributions of net realized long-term capital gains earned by the Fund, if
any, are taxable to shareholders as long-term capital gains, regardless of the
length of time the Fund's shares have been owned by the shareholder. The tax
status of dividends and distributions will be detailed in an annual tax
statement from the Fund.

The 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 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 Fund.

BACKUP WITHHOLDING. As with all mutual funds, the 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 ("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 the 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.

11
<PAGE>

FINANCIAL HIGHLIGHTS

Contained below is per share operating performance data for a share of
beneficial interest outstanding of the 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 Fund's independent accountants, whose report, along with the Fund's
financial statements, is included in the Fund's Annual Report, which is
available upon request by calling 800-637-1700.

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
-------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment from
investment operations
income................. .0267 .0242 .0279 .0256 .0285
Less dividends from net
investment income...... (.0267) (.0242) (.0279) (.0256) (.0285)
------- ------- ------- ------- -------
Net asset value, end of
year................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return............. 2.67% 2.42% 2.79% 2.56% 2.85%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 271.9 $ 292.6 $ 352.9 $ 306.2 $ 292.1
Ratio of expenses to
average net assets..... 1.00% 1.00% .97% 1.04% 1.04%
Ratio of net investment
income to average net
assets................. 2.60% 2.38% 2.75% 2.52% 2.80%
</TABLE>

---------------

12
<PAGE>

This Prospectus contains the information about the Fund which a prospective
investor should know before investing.

The Statement of Additional Information ("SAI") contains additional and more
detailed information about the Fund, and is considered part of this Prospectus.
Our Annual and Semi-Annual Reports list the holdings in the Fund, describe Fund
performance, include financial statements for the Fund, and discuss market
conditions and strategies that significantly affected the Fund's performance.

INVESTORS ARE ADVISED TO READ AND RETAIN
THIS PROSPECTUS FOR FUTURE REFERENCE.

[LOGO]
1250 Broadway, New York, NY 10001-3701
(212) 401-5500

GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
800-637-1700--www.reservefunds.com

Distributor--Resrv Partners, Inc.
RTET/inter-07/2000

SEC File Number
Reserve Tax-Exempt Trust
811-3696

[LOGO]

INTERSTATE TAX-EXEMPT FUND

PROSPECTUS
JULY 31, 2000

<PAGE>

[LOGO]

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.

---------------

<PAGE>

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

2
<PAGE>

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.

3
<PAGE>
ABOUT THE FUNDS

PRINCIPAL RISKS OF INVESTING IN THE FUNDS.
The following factors could reduce a Fund's income level and/or share price:

- 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.

4
<PAGE>
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.

5
<PAGE>
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

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

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>

6
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Ohio Tax-Exempt Fund

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.

7
<PAGE>
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>

------------

(*) 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.

8
<PAGE>
ABOUT THE FUNDS

THE FUNDS' DISTRIBUTOR is Resrv Partners, Inc. ("Resrv"), 1250 Broadway, New
York, NY 10001-3701.

9
<PAGE>

YOUR ACCOUNT

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.

10
<PAGE>
YOUR ACCOUNT

11
<PAGE>
YOUR ACCOUNT

SIGNATURE GUARANTEED. The following situations require written instructions
along with signatures guaranteed.

12
<PAGE>

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.

13
<PAGE>

DIVIDENDS & TAXES

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>

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>

---------------------

(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>

---------------

17
<PAGE>

This Prospectus contains the information about each Fund which a prospective
investor should know before investing.

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]

Linsco/Private Ledger
155 Federal Street, 8th Floor
Boston, MA 02110

9785 Towne Centre Drive
San Diego, CA 92121

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]

CONNECTICUT TAX-EXEMPT FUND
MASSACHUSETTS TAX-EXEMPT FUND
OHIO TAX-EXEMPT FUND
VIRGINIA TAX-EXEMPT FUND

OFFERED BY THE RESERVE FUNDS

PROSPECTUS
JULY 31, 2000

<PAGE>

RESERVE TAX-EXEMPT TRUST
RESERVE NEW YORK TAX-EXEMPT TRUST

1250 BROADWAY, NEW YORK, NY 10001-3701
212-401-5500 - 800-637-1700

------------------------

24-HOUR YIELD AND BALANCE INFORMATION
NATIONWIDE 800-637-1700 - www.reservefunds.com

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information ("SAI") describes the INTERSTATE,
CALIFORNIA II TAX-EXEMPT, CONNECTICUT TAX-EXEMPT, FLORIDA TAX-EXEMPT,
MASSACHUSETTS TAX-EXEMPT, MICHIGAN TAX-EXEMPT, NEW JERSEY TAX-EXEMPT, OHIO
TAX-EXEMPT, PENNSYLVANIA and VIRGINIA TAX-EXEMPT FUNDS of Reserve Tax-Exempt
Trust and the NEW YORK TAX-EXEMPT FUND of Reserve New York Tax-Exempt Trust
(each a Fund, together the "Funds") (with the exception of the Interstate
Tax-Exempt Fund, each Fund is a "state specific municipal money fund"). At the
date of this SAI, there were ten (10) separate series of Reserve Tax-Exempt
Trust authorized and outstanding (Interstate, California II, Connecticut,
Florida, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania and Virginia
Tax-Exempt Funds) and one (1) separate series of Reserve New York Tax-Exempt
Trust (New York Tax-Exempt Fund) authorized and outstanding. Additional series
(fund) and classes may be added in the future by the Board of Trustees. The
Reserve Tax-Exempt Trust and Reserve New York Tax-Exempt Trust were organized as
Massachusetts business trusts on January 25, 1983, and July 12, 1983,
respectively, and are open-end management investment companies commonly known as
money-market mutual funds. This Statement is not a Prospectus, but provides
detailed information to supplement the Prospectuses dated July 31, 2000 and
should be read in conjunction with it. Copies of the Prospectuses may be
obtained without charge by writing or calling the Fund at the above address or
telephone number. The Securities and Exchange Commission ("SEC") maintains a web
site (http://www.sec.gov) where you can download the SAI, the Prospectus,
material incorporated by reference & other information regarding the Funds. This
Statement is dated July 31, 2000.

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
Description of Funds 2
Investment Strategies and Risks 2
Management of the Trusts 11
Investment Management, Distribution and Custodian Agreements 17
Information About the Trusts 19
How to Buy and Sell Shares 20
Dividends, Distributions and Taxes 26
Yield Information 27
General Information 28
Ratings 29
Financial Statements 29
</TABLE>

SHARES OF THE FUNDS ARE NEITHER GUARANTEED NOR INSURED BY THE U.S. GOVERNMENT
AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.

<PAGE>

DESCRIPTION OF THE FUNDS

The investment objective of all of the state specific municipal money funds
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. 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. The Interstate 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. The Interstate
Tax-Exempt Fund invests principally in short-term obligations issued by the
states, territories and possessions of the United States and their political
subdivisions, duly constituted authorities and corporations. However,
achievement of these objectives cannot be assured. The investment objectives of
the Funds may not be changed without the vote of a majority of the outstanding
shares of the Fund as defined in the Investment Company Act of 1940 ("1940
Act"). The Funds seek to maintain a stable $1.00 share price.

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 investing in the Funds.
Money-market funds are subject to federal regulations designed to help maintain
liquidity. The regulations set strict standards for credit quality,
diversification and maturity (397 days or less for individual securities, 90
days or less for the average portfolio life.)

Investment management companies can be divided into "diversified" and
"non-diversified". Under Section 5(b), a diversified company must have 75% of
the value of its total assets in cash and cash items (including receivables),
U.S. government securities, securities of other investment companies, and other
securities. Any management company other than a diversified company is defined
as a "non-diversified" company pursuant to Section 5(b)(2). The Funds are
non-diversified mutual funds. In addition, each of its separate investment
portfolios (Funds) intends to comply with the diversification requirement of
Rule 2a-7 under the 1940 Act which places certain limits on a Fund's investments
in any one issuer's securities in order to limit investment risk. With few
exceptions, under Rule 2a-7, a Fund may invest no more than 5% of its assets in
securities of any one issuer, except U.S. government securities. A "single
state" tax-exempt fund is also subject to this 5% limitation, but only as to 75%
of its total assets. With respect to the remaining 25% of the Fund's assets,
more than 5% may be invested in securities of a single issuer as long as the
securities are "first-tier" securities (i.e., securities rated in the highest
short-term category for debt by at least two nationally recognized statistical
rating organizations, shares of another money-market fund, or U.S. government
securities).

Reserve Management Co., Inc. ("RMCI") serves as the Funds' Investment
Adviser. Resrv Partners, Inc. ("RESRV"), which is a wholly owned subsidiary of
RMCI, is the distributor of the Funds' shares. RESRV is located at 1250
Broadway, New York, NY 10001-3701.

The following information supplements and should be read in conjunction
with the Prospectus.

INVESTMENT STRATEGIES AND RISKS

FUND POLICIES. Each Fund's investment objective and the following investment
policies may not be changed without the affirmative vote of a majority of the
outstanding shares of a Fund. A majority of the outstanding shares of a Fund
means the vote of the lesser of (i) 67% or more of the shares of a 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. A 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 senior securities except in compliance with the Investment Company
Act of 1940 ("1940 Act);
(4) act as an underwriter with respect to the securities of others except to
the extent that, in connection with the disposition of portfolio
securities, it may be deemed to be an underwriter under certain federal
securities laws;

2
<PAGE>

(5) concentrate investments in any particular industry except to the extent
that its investments are concentrated exclusively in municipal obligations,
U.S. Governments or instruments secured by such obligations; with respect
to not concentrating a Fund's investment in any particular industry, a Fund
may not invest more than 25% of its total assets in securities paying
interest from revenues of similar type projects or industrial development
bonds;
(6) purchase, sell or otherwise invest in real estate or commodities or
commodity contracts; however, a 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 except to the
extent its investments are considered loans;
(8) sell any security short or write, sell or purchase any futures contract or
put or call option; provided, however, a Fund shall have the authority to
purchase municipal obligations subject to a stand-by commitment, at the
Fund's option; and
(9) make investments on a margin basis.

Notwithstanding the foregoing investment restrictions, each Fund may invest
substantially all of its assets in another open-end investment company with
substantially the same investment objective as the Fund.

Although not currently using a "master/feeder" structure, based upon
shareholder approval, the Trust may use a "master/feeder" structure. Rather than
investing directly in securities, the Fund is a "feeder fund," meaning that it
invests in a corresponding "master fund". The master fund, in turn invests in
securities using the strategies described in this Prospectus. One potential
benefit of this structure is lower costs, because the expenses of the master
fund can be shared with any other feeder funds.

FUND STRATEGIES. The following section contains more detailed information about
types of instruments in which a Fund may invest, strategies the Adviser may
employ, and a summary of related risks. The Funds may not buy all of these
instruments or use all of these techniques; they will be utilized if in the
Adviser's opinion it believes that the utilization will help a Fund achieve its
investment objective.

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. 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, each 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.

MUNICIPAL SECURITIES. Municipal securities are issued to raise money for a
variety of public and private purposes, including general financing for state
and local governments, or financing for a specific project or public facility.
Municipal securities may be fully or partially backed by the local government,
by the credit of a private issuer, by the current or anticipated revenues from a
specific project or specific assets, or by domestic or foreign entities
providing credit support such as letters of credit, guarantees or insurance.
Certain types of municipal obligations are issued to obtain funding for
privately operated facilities. Municipal securities generally are classified as
"general obligation" or "revenue" and may be purchased directly or through
participation interests. General obligation securities typically are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Revenue securities typically are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special tax or other specific revenue
source. Private activity bonds and industrial development bonds are, in most
cases, revenue bonds and generally do not constitute the pledge of the credit of
the issuer of such bonds. The credit quality of private activity bonds is
frequently related to the credit standing of private corporations or other
entities. Municipal obligations bear fixed, variable or floating rates of
interest.

The Funds will purchase municipal 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 such securities are determined to be of
comparable quality by RMCI to those rated securities in which the Funds may
invest, pursuant to guidelines established by their Boards of Trustees.

3
<PAGE>

Municipal obligations are sometimes offered on a "when-issued" or delayed
delivery basis. There is no limit on a Fund's ability to purchase municipal
securities 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 a Fund to the issuer and no
interest accrues to a Fund on such securities. To the extent that assets of a
Fund purchasing such securities are not invested prior to the settlement of a
purchase of securities, a Fund will earn no income, however, it is each Fund's
intent to be as fully invested as is practicable. While when-issued securities
may be sold prior to settlement date, the Funds intend to purchase such
securities with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time a 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 ("NAV"). Each 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. RMCI does not believe that a Fund's NAV or
income will be adversely affected by the purchase of municipal obligations on a
when-issued basis.

Municipal securities can be significantly affected by economic and
political changes, as well as uncertainties in the municipal market related to
taxation, legislative changes, or the rights of municipal security holders.
Because many municipal securities are issued to finance similar projects,
especially those relating to education, health care, transportation and various
utilities, conditions in those sectors and the financial condition of an
individual municipal issuer can affect the overall municipal market. Specific
types of municipal obligations and the risks of each are described more fully
below.

There are two types of education-related bonds: (i) those issued to finance
projects for public and private colleges and universities, and (ii) those
representing pooled interests in student loans. Bonds issued to supply
educational institutions with funds are subject to the risk of unanticipated
revenue decline, primarily the result of decreasing student enrollment or
decreasing state and federal funding. Student loan revenue bonds are generally
offered by state authorities or commissions and are backed by pools of student
loans. Underlying student loans may be guaranteed by state guarantee agencies
and may be subject to reimbursement by the U.S. Department of Education through
its guaranteed student loan program. Others may be private, uninsured loans made
to parents or students which are supported by reserves or other forms of credit
enhancement. Recoveries of principal due to loan defaults may be applied to
redemption of bonds or may be used to re-lend, depending on program latitude and
demand for loans. Cash flows supporting student loan revenue bonds are impacted
by numerous factors, including the rate of student loan defaults, seasoning of
the loan portfolio, and student repayment deferral periods of forbearance. Other
risks associated with student loan revenue bonds include potential changes in
federal legislation regarding student loan revenue bonds, state guarantee agency
reimbursement and continued federal interest and other program subsidies
currently in effect.

The risks associated with electric utilities include the availability and
cost of fuel and capital, the effects of conservation on energy demand, the
effects of rapidly changing environmental safety, and licensing requirements,
and other federal, state, and local regulations, timely and sufficient rate
increases, increasing competition, opposition to nuclear power and legislative
changes.

A major revenue source for the health care industry is payments from the
Medicare and Medicaid programs and, consequently, the industry is sensitive to
legislative changes and reductions in spending for such programs. Many other
factors may affect health care-related obligations, such as general and local
economic conditions; demand for services; expenses (including malpractice
insurance premiums); legislative and regulatory changes by private and
governmental agencies, as well as competition among health care providers.

Housing revenue bonds are generally issued by a state, county, city, local
housing authority, or other public agency. Generally they are secured by the
revenues derived from mortgages purchased with the proceeds of the bond issue.
It is extremely difficult to predict the supply of available mortgages to be
purchased with the proceeds of an issue or the future cash flow from the
underlying mortgages. Therefore, there are risks that proceeds will exceed
supply, resulting in early retirement of bonds, or that homeowner repayments
will create an irregular cash flow. Many factors may affect the financing of
housing projects, including but not limited to: acceptable completion of

4
<PAGE>

construction, proper management, occupancy and rent levels, economic conditions,
and changes to current laws and regulations.

Transportation-related municipal securities may be issued to finance the
construction of toll roads, highways, airports, or other transit facilities.
Airport bonds are dependent on the stability of the airline industry and a
specific carrier who uses the airport as a hub. Air traffic generally follows
broader economic trends as well as the price and availability of fuel. The cost
and availability of fuel affects toll road bonds as do toll levels, the presence
of competing roads and the general economic health of an area. Fuel costs and
availability generally affect all transportation-related securities, as do the
presence of alternate forms of transportation, such as public transportation.

Water and sewer revenue bonds are often considered to have relatively
secure credit due to their issuer's importance, monopoly status, and generally
unimpeded ability to raise rates. Despite this, lack of water supply due to
insufficient rain, run-off, or snow pack is a concern that has led to past
defaults and could in the future. Further, public resistance to rate increases,
costly environmental litigation, and federal environmental mandates are
challenges faced by issuers.

In view of a Fund's investment in industrial development revenue bonds and
notes secured by letters of credit or guarantees of banks, an investment in a
Fund's 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.

PARTICIPATION INTERESTS. The Funds may purchase participation interests in
municipal obligations from financial institutions, which gives a Fund an
undivided proportional interest in 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. These securities may be subject to greater
credit risks than other municipal money market securities because of their
structure.

REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. A repurchase agreement ("repo")
transaction occurs when a Fund purchases and simultaneously contracts to resell
securities at fixed prices determined by the negotiated yields. Each Fund will
limit repo transactions to those financial institutions and securities dealers
who are deemed creditworthy pursuant to guidelines established by the Funds'
Board of Trustees. Repos are considered by the SEC staff to be loans by the Fund
that enters into them. Repos could involve risks in the event of a default or
insolvency of the repo counter-party to the agreement, including possible delays
or restrictions upon a Fund's ability to dispose of the underlying securities.
In an attempt to reduce the risk of incurring a loss on a repo, RMCI will follow
procedures intended to provide that all repos are at least 100% collateralized
as to principal and interest. A 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, a Fund could incur a loss and may incur costs in disposing of the
underlying security. A Fund will not hold more than 10% of its net assets in
illiquid securities, including repurchase agreements with a term greater than
seven (7) days.

Illiquid securities generally are any securities that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which the fund has valued the instruments. The liquidity of a fund's investments
is monitored under the supervision and direction of the Board of Trustees.
Investments currently not considered liquid include repurchase agreements not
maturing within seven days and certain restricted securities.

The Funds 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, a Fund
repurchases the transferred security. It is the

5
<PAGE>

Funds' policy that entering into a reverse repurchase agreement will be for
temporary purposes only, and, when aggregated with other borrowing, may not
exceed 5% of the value of the total assets of a Fund at the time of the
transaction.

COMMERCIAL PAPER. Although not a principal strategy, the Funds may purchase
commercial paper consisting only of short-term, unsecured promissory notes
issued to finance short-term credit needs which are direct obligations issued by
domestic entities. The other corporate obligations in which the Primary Fund may
invest consist of high-quality, short-term bonds and notes (including variable
amount master demand notes) issued by domestic corporations, including banks.
However, the Funds have never purchased commercial paper and have no current
interest in doing so.

BORROWING. Each Fund has the authority to borrow money (including reverse repos
involving sales by a Fund of portfolio securities concurrently with an agreement
by the Fund to repurchase the same securities at a later date at a fixed price)
for extraordinary or emergency purposes but not in an amount exceeding 5% of its
total assets. Borrowing may subject a Fund to interest costs, which may exceed
the interest received on the securities purchased with the borrowed funds. A
Fund normally may borrow at times to meet redemption requests rather than sell
portfolio securities to raise the necessary cash. Borrowing can involve
leveraging when securities are purchased with the borrowed money. To avoid this,
each Fund will not purchase securities while borrowings are outstanding.

RISKS OF INVESTING IN THE FUNDS. The principal risk factors associated with
investment in each Fund are the risk of fluctuations in short-term interest
rates, the risk of default among one or more issuers of securities which
comprise a Fund's assets; consequently when you sell (redeem) your shares of a
Fund, they could be worth more or less than what you paid for them. In addition
to the general investment risks of the Funds that are common to and may affect
the money-market industry as a whole, there are risks specific to the types of
securities held.

The value of municipal securities may be affected by uncertainties in the
municipal market-related to legislation or litigation involving the taxation of
municipal securities or the rights of municipal securities holders in the event
of a bankruptcy. Proposals to restrict or eliminate the federal income tax
exemption for interest on municipal securities are introduced from time to time.
Proposals also may be introduced before the individual state legislatures that
would affect the state tax treatment of a municipal fund's distributions. This
could have a significant impact on the prices of some or all of the municipal
securities held by a Fund, making it more difficult for a money-market fund to
maintain a stable net asset value ("NAV") per share.

Debt and money-market securities have varying levels of sensitivity to
changes in interest rates. In general, the price of a debt or money-market
security can fall when interest rates rise and can rise when interest rates
fall. Securities with longer maturities can be more sensitive to interest rate
changes. The longer the maturity of a security, the greater the impact a change
in interest rates could have on the security's price. In addition, short-term
and long-term interest rates do not necessarily move in the same amount or the
same direction. Short-term securities tend to react to changes in short-term
interest rates, and long-term securities tend to react to changes in long-term
interest rates. For example, a major increase in interest rates or a decrease in
the credit quality of the issuer of one of a fund's investments could cause that
Fund's share price to decrease.

Changes in the financial condition of an issuer, changes in specific
economic or political conditions that affect a particular type of security or
issuer, and changes in general economic or political conditions can affect the
credit quality or value of an issuer's securities. Lower-quality debt securities
(those of less than investment-grade quality) tend to be more sensitive to these
changes than higher-quality debt securities. Entities providing credit support
or a maturity-shortening structure also can be affected by these types of
changes. Municipal securities backed by current or anticipated revenues from a
specific project or specific assets can be negatively affected by the
discontinuance of the taxation supporting the project or assets or the inability
to collect revenues for the project or from the assets. If

6
<PAGE>

the Internal Revenue Service determines an issuer of a municipal security has
not complied with applicable tax requirements, interest from the security could
become taxable and the security could decline significantly in value. In
addition, if the structure of a security fails to function as intended, interest
from the security could become taxable or the security could decline in value.

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 each 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.

Further, there are additional risks particular to each state for which a
respective state-specific municipal money fund is named. State-specific
municipal money funds invest primarily and generally predominately in municipal
money market securities issued by or on behalf of one state or it's counties,
municipalities, authorities or other subdivisions. These Funds' securities are
subject to the same general risks associated with other municipal money market
funds' securities. In addition, their values will be particularly affected by
economic, political, geographic and demographic conditions and developments
within the appropriate state. A fund that invests primarily in securities issued
by a single state and its political subdivisions provides a greater level of
risk than a fund that is diversified across numerous states and municipal
entities. The ability of the state or its municipalities to meet their
obligations will depend on the availability of tax and other revenues; economic,
political and demographic conditions within the state; and the underlying fiscal
condition of the state and its municipalities. For a better understanding of
these risks, please read below:

RISK FACTORS OF CONCENTRATING IN CALIFORNIA. Investors should consider carefully
the special risks inherent in the Fund's investments in California municipal
obligations, which result from statutes that limit the taxing and spending
authority of California governmental agencies, as well as the general financial
condition of the State. From mid-1990 to late 1993, the State suffered a
recession resulting in the worst economic and budget conditions since the
1930's. The State, plagued by recurring budget deficits, depleted its available
cash resources. A series of external borrowings were necessary to meet the
State's cash needs. As a result, between October 1991 and July 1994, all rating
agencies lowered the ratings on the State's general obligation bonds from AAA
equivalent to A equivalent. These and other factors may have the effect of
impairing the ability of California municipal issuers to make interest and or
principal payments on such obligations. However, since 1993 the State's
financial condition has improved. The General Fund ended fiscal 1998 with a
positive GAAP balance of $547 million, substantially better than the $2.5
billion deficit at the end of 1997. The State's unemployment rate, though
improved, remains above the national average. Recently, California's general
obligation bonds have been upgraded to ratings of AA- by S&P and Aa3 by Moody's.

RISK FACTORS OF CONCENTRATING IN CONNECTICUT. 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 that have had a significant impact on
unemployment levels. Connecticut reported deficits from its General Fund
operations for the fiscal years 1988 through 1991. Together with the deficit
carried forward from the State's 1990 fiscal year, the total General Fund
deficit for the 1991 fiscal year was $965.7 million. The total deficit was
funded by the issuance of General Obligations Economic Recovery Notes. Moreover,
as of June 30, 1995 and 1996, the General Fund had cumulative deficits under
GAAP of $576.9 million and $639.9 million, respectively. As a result of the
recurring budgetary problems, S&P downgraded the State's general obligation
bonds from AA+ to AA in April 1990 and to AA- in September 1991. In April 1990,
Moody's downgraded Connecticut's bonds from Aa1 to Aa (since refined to Aa3 in
March 1997). Recently, the disparity between Connecticut's rate of economic
growth and that of the nation has narrowed. Employment in the year ending August
1998 was up 2.2% versus a national increase of 2.7%. The projected $498 million
in the Budget Reserve Fund for 1998 should bring the accumulated GAAP-basis
General Fund deficit down to $172 million. Currently, the State's general
obligation bonds are rated Aa3 and AA by Moody's and S&P, respectively.

RISK FACTORS OF CONCENTRATING IN FLORIDA. Investors should consider carefully
the special risks inherent in the Fund's investment in Florida municipal
obligations. The revenue of Florida is closely tied to its tourism business. A
decline in tourism could adversely affect revenues, principally sales tax
revenue which is vulnerable to economic

7
<PAGE>

cycles. The Florida Constitution and statutes mandate that the State budget as a
whole, and each separate fund within the State budget, be kept in balance from
currently available revenues each fiscal year. Florida's Constitution permits
issuance of Florida municipal obligations pledging the full faith and credit of
the State, with a vote of the electors, to finance or refinance fixed capital
outlay projects authorized by the legislature provided that the outstanding
principal does not exceed 50% of the total tax revenues of the State for the two
preceding years. Florida's Constitution also provides that the legislature shall
appropriate monies sufficient to pay debt service on State bonds pledging the
full faith and credit of the State as the same becomes due. All State tax
revenues, other than trust funds dedicated by Florida's Constitution for other
purposes, would be available for such an appropriation, if required. Revenue
bonds may be issued by the State or its agencies without a vote of Florida's
electors only to finance or refinance the cost of State fixed capital outlay
projects which may be payable solely from funds derived directly from sources
other than State tax revenues. Fiscal year 1995-96 estimated General Revenue and
Working Capital and Budget Stabilization funds available totaled $15.3 billion,
a 3.3% increase over 1994-95, resulting in unencumbered reserves of
approximately $503 million at the end of fiscal 1995-96. General Revenue and
Working Capital and Budget Stabilization funds available for fiscal 1996-97 are
estimated to total $16 billion, a 5.1% increase over 1995-96, resulting in
unencumbered reserves of approximately $518 million at the end of fiscal
1996-97. Florida's general revenues for 1998 grew 7.6% over 1997 and the State
estimates that the Budget Stabilization Fund will end fiscal 1999 with a balance
of $787 million. At present, the State's general obligation bonds are rated Aa2
and AA+ by Moody's and S&P, respectively.

RISK FACTORS OF CONCENTRATING IN MASSACHUSETTS. The credit quality of the
Massachusetts Tax-Exempt Fund will depend on the continued financial strength of
the Commonwealth of Massachusetts and its political subdivisions. 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. A return of
persistent serious financial difficulties could adversely affect the market
values and marketability of, or result in default in payment on, outstanding
Massachusetts municipal obligations. The Commonwealth's operating losses in
fiscal 1989 and 1990, which totaled $672 million and $1.25 billion,
respectively, were covered primarily through deficit borrowings and a fiscal
1991 operating loss of $21 million was covered by drawing on the adjusted 1990
fund balance of $258 million. However, Massachusetts ended fiscal years 1992
through 1996 with a positive fiscal balance in its general operating funds. The
Commonwealth ended fiscal 1998 with an accumulated GAAP-basis Budgeted Operating
Fund balance of $1.8 billion. At present, Massachusetts' general obligation
bonds are rated by S&P, Fitch and Moody's AA-, AA- and Aa2, respectively.

RISK FACTORS OF CONCENTRATING IN MICHIGAN. The credit quality of the Michigan
Tax-Exempt Fund will depend on the continued financial strength of the State of
Michigan and its political subdivisions. Michigan's fiscal condition continues
to be tested by its dependence on the inherently cyclical auto industry. While
the State's employment base has diversified away from durable goods
manufacturing to trade and services, it remains auto-dependent. Michigan's
unemployment rate of 4.0% remained below the national rate of 4.7% through
January 1998. The State unemployment rate has remained below the national
average for the past 2.5 years. Prior to 1998, the State had exceeded the
national unemployment rate for 15 years. Personal income grew 4.6% in 1997 while
the State maintained its traditionally low debt levels. All debt ratios in the
State are below the medians. Michigan has made significant progress in achieving
a strengthened financial position and long-term structural budget balance
through aggressive management controls and conservative fiscal practices. These
practices are evident in the State's establishment and maintenance of a large
"rainy day" cash reserve. At present, Michigan's general obligation bonds are
rated AA+ and Aa1 by S&P and Moody's, respectively.

RISK FACTORS OF CONCENTRATING IN NEW JERSEY. Investors in the New Jersey
Tax-Exempt Fund should be mindful that the State's economy performed strongly
for much of the 1980s and outpaced national trends. However, from 1989 to 1992,
the State's economic performance trailed the rest of the nation. Reflecting the
economic downturn, the State's unemployment rate rose from 3.6% in the first
quarter of 1989 to a peak of 8.5% during 1992. Since then, the State's
unemployment rate fell to an average of 6.4% during 1995 and 6.1% for the
four-month period from May 1996 through August 1996. The State ended fiscal 1996
with estimated undesignated balances of $873 million and produced employment
gains of 2.3% in 1997 and 2% in 1998. The State's budgetary-basis revenues grew
by 6.1% in fiscal 1998, resulting in a GAAP-basis ending balance of $1.25
billion. Since July 1991, the State's general obligation debt has been rated AA+
by S&P and Aa1 by Fitch and Moody's.

8
<PAGE>

RISK FACTORS OF CONCENTRATING IN NEW YORK. Investors in the New York Tax-Exempt
Fund should consider the special risks inherent in investing in New York
municipal obligations which result from the financial condition of New York
State, certain of its public bodies and municipalities, and New York City.
Beginning in early 1975, New York State, New York City and other State entities
faced serious financial difficulties which jeopardized their credit standing,
impaired the borrowing abilities and contributed to high-interest rates on debt
obligations issued by them. A recurrence of such financial difficulties or a
failure of certain financial recovery programs could result in defaults or
declines in the market values of various New York municipal obligations in which
the Fund may invest. If there should be default or other financial crisis, the
market value and marketability of outstanding New York Municipal Obligations in
the Fund's portfolio and the interest income to the Fund could be adversely
affected. Moreover, the national recession and the significant slowdown in the
New York and regional economies in the early 1990s added substantial uncertainty
to estimates of the State's tax revenues, which, in part, caused the State to
incur cash-basis operating deficits in the General Fund and issue deficit notes
during the fiscal years 1989 through 1992. However, for its fiscal years 1993
through 1996, the State recorded balanced budgets on a cash-basis, with
substantial fund balances in the General Fund in fiscal 1992-93 and 1993-94 and
smaller fund balances in fiscal 1994-95 and 1995-96. The State closed fiscal
1997 and 1998 with surpluses of $1.4 billion and $2 billion, respectively.
Recent financial strength, however, does not significantly limit the State's
exposure to the longer term risks associated with a large debt burden and a
chronic structural budget imbalance. In January 1992, Moody's lowered from A to
Baa1 the ratings on certain appropriation-backed debt of New York State and its
agencies. The State's general obligation, State-guaranteed and New York State
Local Government Assistance Corporation bonds continued to be rated A by Moody's
(since refined to A2 in 1997). The State's general obligation debt is rated A+
by S&P. At present, the general obligation debt of New York City is rated A3 by
Moody's. The City's debt is rated A- by S&P.

RISK FACTORS OF CONCENTRATING IN OHIO. The credit quality of the Ohio Tax-Exempt
Fund will depend on the continued financial strength of the State of Ohio and
its political subdivisions. Ohio is an industrialized state with a diverse
economy. While manufacturing jobs in the state have been declining steadily,
Ohio remains a leading exporter of manufactured goods. In an effort to minimize
the State's exposure to cyclical downturns in the manufacturing sector, Ohio has
diversified. The State has made productivity improvements and has expanded into
the high-tech and business services industries. The 1997 operating surplus of
the General Fund was $155 million, down from $548 million in 1996. As of June
1998 the State's Budget Stabilization Fund balance was $862 million, up from
$828 million at the end of the 1997 fiscal year. The State's reserves have been
restored to levels which now exceed those seen before the last recession. At
present, Ohio's general obligation bonds are rated Aa1, AA+ and AA+ by Moody's,
S&P, and Fitch, respectively.

RISK FACTORS OF CONCENTRATING IN PENNSYLVANIA. Many different social,
environmental and economic factors may affect the financial condition of
Pennsylvania and its political subdivisions and the Pennsylvania Tax-Exempt
Fund. From time to time, Pennsylvania and certain of its political subdivisions
have encountered financial difficulties which have adversely affected their
respective credit standings. For example, the financial condition of the City of
Philadelphia had impaired its ability to borrow and resulted in its obligations
generally being downgraded below investment grade by the major rating services.
Other factors which may negatively affect economic conditions in Pennsylvania
include adverse changes in employment rates, Federal revenue sharing or laws
governing tax-exempt financing. The State experienced 1.2% employment growth in
1998 and finished the year with an unemployment rate of 4.5%. Pennsylvania's
General Fund recorded strong increases in the unreserved-undesignated balance,
which by June 1998 was $497 million. The State's 1998 year-end General Fund
balance represents a GAAP-basis reserve cushion equal to roughly 6.4% of General
Fund revenues. Currently, Pennsylvania's general obligation bonds are rated AA,
AA and Aa3 by S&P, Fitch and Moody's, respectively.

RISK FACTORS OF CONCENTRATING IN VIRGINIA. Specifically, the credit quality of
the Virginia Tax-Exempt Fund will depend on the continued financial strength of
the Commonwealth of Virginia and its political subdivisions. Historically, the
Commonwealth has maintained low debt levels allowing the State to carry a AAA
rating since 1938. The Commonwealth's economy has benefited from its proximity
to Washington D.C. and the resulting high number of federal government jobs. The
Commonwealth has experienced an explosion in population in recent years
increasing the need for infrastructure spending. This spending will add to
Virginia's moderate debt load. Moreover, Virginia will have to contend with the
revenue loss caused by the elimination of its vehicle tax. While these issues
present challenges to the Commonwealth of Virginia, continued conservative
management and their successful economic diversification in the last decade
should enable the Commonwealth to remain stable. Currently, Virginia's general
obligation bonds are rated AAA by both Moody's and S&P.

9
<PAGE>

Another risk factor associated with investment in the Funds is
"non-diversification". As a non-diversified investment company, the Funds are
permitted to have all their assets invested in a limited number of issuers.
Further, each Fund's investment in securities issued by that particular state
and its political subdivisions provides a greater level of risk than a fund
which is invested across numerous states and municipal entities because a Fund's
investment securities may be more susceptible to any single economic, political
or regulatory occurrence. The ability of a state or its municipalities to meet
their obligations will depend on the availability of tax and other revenues;
economic, political, and demographic conditions within the state; as well as the
underlying condition of the state, and its municipalities, etceteras. However,
each Fund intends to qualify as a "regulated investment company" for purposes of
the "Subchapter M" 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.

However, the Funds follow regulations set forth by the SEC that dictate the
quality requirements for money market mutual funds. These require the funds to
invest exclusively in high-quality securities. Generally, high-quality
securities are securities that present minimal credit risks and are rated in one
of the two highest rating categories by two nationally recognized statistical
rating organizations (NRSROs), or by one if only one NRSRO has rated the
securities, or, if unrated, determined to be of comparable quality by the
investment adviser pursuant to guidelines adopted by the board of trustees.
High-quality securities may be "first tier" or "second tier" securities. First
tier securities may be rated within the highest category or determined to be of
comparable quality by the investment manager. Money market fund shares and U.S.
government securities also are first tier securities. Second tier securities
generally are rated within the second-highest category.. Should a security's
high-quality rating change after purchase by a fund, the investment adviser
would take such action, including no action, as determined to be in the best
interest of the Fund by the Board of Trustees. For more information about the
ratings assigned by some NRSROs, refer to the Appendix section of the SAI.

TEMPORARY DEFENSIVE POSITION. The Funds will at all times as is practicable be
invested in accordance with the investment objective and strategies outlined in
the Prospectus and SAI. 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.

In response to market, economic, political or other conditions, RMCI may
temporarily use a different investment strategy for defensive purposes. If RMCI
does so, different factors could affect a Fund's performance, and a Fund may
distribute income subject to federal or local or state personal income tax.
Although it is not the current intention, from time to time a Fund may invest in
taxable short-term investments ("taxable investments") consisting of obligations
backed by the full faith and credit of the U.S. government, its agencies or
instrumentalities ("U.S. Government Securities"), deposit-type obligations,
acceptances, letters of credit of Federal Deposit Insurance Corporation member
banks and instruments fully collateralized by such obligations, including
repurchase agreements. Unless a Fund has adopted a temporary defensive position,
no more than 20% of the net assets of a Fund will be invested in taxable
investments at any time.

TRANSACTION CHARGES AND ALLOCATION. As investment securities transactions made
by a 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
after market transactions with dealers involve a spread between the bid and
asked prices. The Fund has not paid any brokerage commissions during the past
three fiscal years.

Subject to the overall supervision of the officers of the Fund and the
Trustees, RMCI places all orders for the purchase and sale of the Fund's
investment securities. 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

10
<PAGE>

by RMCI. Brokers or dealers who execute investment securities transactions may
also sell shares of the Fund; however, any such sales will be neither a
qualifying nor 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 Fund. However, RMCI may not always be able to purchase or sell
the same security on identical terms for all investment companies affected.

MANAGEMENT OF THE TRUSTS

The Funds' Trustees are responsible for the management and supervision of
the Trusts. The Trustees approve all significant agreements between the Funds
and those companies that furnish services to the Funds.

Trustees and executive officers of the Funds, together with information as
to their principal business occupations during at least the last five years, are
shown below:

*++BRUCE R. BENT, 63, Chairman/Chief Executive Officer and Trustee, 1250
Broadway, New York, NY 10001-3701.

Mr. Bent is Chairman/Chief Executive Officer and Trustee of The Reserve
Fund ("RF"), Reserve Institutional Trust ("RIT"), Reserve Tax-Exempt Trust
("RTET"), Reserve New York Tax-Exempt Trust ("RNYTET") and Reserve Private
Equity Series ("RPES"); Director and Chairman/Chief Executive Officer of Reserve
Management Company, Inc. ("RMCI") and Reserve Management Corporation ("RMC");
and Chairman and Director of Resrv Partners, Inc. ("RESRV").

Mr. Bent co-founded The Reserve Funds in 1970 and has been an executive
officer since then.

*++BRUCE R. BENT II, 34, President, Assistant Treasurer and Trustee, 1250
Broadway, New York, NY 10001-3701.

Mr. Bent II joined The Reserve Funds in 1992 and is President and Assistant
Secretary and Trustee of RF, RIT, RTET, RNYTET and RPES. Mr. Bent II is also
President, Secretary and Assistant Treasurer of RMCI; Senior Vice President,
Secretary and Assistant Treasurer of RMC; and, Secretary and Director of RESRV.

+EDWIN EHLERT, JR., 69, Trustee, 125 Elm Street, Westfield, NJ 07091.

Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency) and Ehlert Travel Associates of Florida, Inc. (travel agency),
and Trustee of RF, RIT, RTET, RNYTET and RPES.

+HENRI W. EMMET, 74, Trustee, 1535 Presidential Drive, Apt. 4A, Columbus, OH
43212.

Mr. Emmet retired as the Managing Director of Servus Associates, Inc. in
1994 and U.S.A. Representative of the First National Bank of Southern Africa in
1996. In 1999, Mr. Emmet retired as a principal of Global Interaction, which
provides consulting services to international banking interests. He is currently
Trustee of RF, RIT, RTET, RNYTET and RPES.

+PATRICK J. FOYE, 43, Trustee, c/o AIMCO, 2000 S. Colorado Blvd., Tower Two,
Suite 2-1000, Denver, CO 80222.

From 1995 to present, Mr. Foye has been the Deputy Chairman of Long Island
Power Authority. In addition, Mr. Foye is Executive Vice President of Apartment
Investment and Management Company ("AIMCO"), a real estate investment trust and
the nation's largest owner and manager of multi-family apartment properties. He
was a partner from 1989 through 1998 in the law firm of Skadden, Arps, Slate,
Meagher & Folm LLP, as well as a managing partner in the firm's offices in
Moscow, Budapest, and Brussels from 1992 through 1994. Mr. Foye is a member of
Governor Pataki's New York State Privatization Research Council. He is currently
a Trustee of RF, RIT, RTET,

11
<PAGE>

RNYTET and RPES.

+DONALD J. HARRINGTON, C.M., 55, Trustee, St. John's University, Grand Central &
Utopia Parkways, Jamaica, NY 11439.

The Reverend Harrington is President of St. John's University, NY, and a
Director of the Bear Stearns Companies, Inc. (financial institution) since 1993.
He is currently a Trustee of RF, RIT, RTET, RNYTET and RPES.

+WILLIAM J. MONTGORIS, 53, Trustee, 286 Gregory Road, Franklin Lakes, NJ 07417.

Mr. Montgoris is formerly Chief Operating Officer of the Bear Stearns
Companies, Inc. (1979-1999). He is currently Trustee of RF, RIT, RTET, RNYTET
and RPES.

+WILLIAM E. VIKLUND, 60, Trustee, 110 Grist Mill Lane, Plandome Manor, NY
11030-1110.

Mr. Viklund is formerly President and COO of Long Island Bankcorp and
President and CEO of Long Island Savings Bank (1980-1996). He is currently
Trustee of RF, RIT, RTET, RNYTET and RPES.

*ARTHUR T. BENT III, 32, Chief Operating Officer/Treasurer, Senior Vice
President and Assistant Secretary, 1250 Broadway, New York, NY 10001-3701.

Mr. Bent III joined The Reserve Funds in 1997 and is Chief Operating
Officer/Treasurer, Senior Vice President and Assistant Secretary of RF, RIT,
RTET, RNYTET and RPES. Mr. Bent III is also Chief Operating Officer/Treasurer,
Senior Vice President and Assistant Secretary of RMCI; President, Treasurer and
Assistant Secretary of RMC; and, Treasurer and Director of Resrv Partners, Inc.
("RESRV"). Before joining Reserve, he was a private investor.

MARYKATHLEEN FOYNES GAZA, 30, Director of Compliance and Legal Affairs (Counsel)
and Secretary, 1250 Broadway, New York, NY 10001-3701.

Ms. Gaza is Director of Compliance and Legal Affairs (Counsel) and
Secretary of RF, RIT, RNYTET, RTET and RPES, as well as Director of Compliance
and Legal Affairs for RMCI and RMC and Counsel to RESRV. Before joining The
Reserve Funds in 1998, Ms. Gaza was a staff attorney at PaineWebber, Inc.
(1997-1998). Prior to that, Ms. Gaza worked for the U.S. House of
Representatives as a District Manager for a Member of Congress (1995-1997).

JAMES M. FREISEN, 42, Controller, 1250 Broadway, New York, NY 10001-3701.

Mr. Freisen is Controller. Before joining The Reserve Funds in 1999, Mr.
Freisen was an Assistant Vice President at Paine Webber, Inc. (1998-1999). Prior
to that, he was Assistant Vice President, Bank of New York (1997-1998);
Assistant Vice President, Fifth Third Bank (1995-1997); and Vice President,
Smith Barney (1991-1995).

------------

*Mr. Bent is the father of Mr. Bent II and Mr. Bent III.

+ Messrs. Ehlert, Emmet, Foye, Harrington, Montgoris, and Viklund are members of
a Review Committee which performs the functions of an Audit Committee and
reviews compliance procedures and practices. The Audit Committee members receive
an annual committee fee of $2,000.

++ Interested Trustee within the meaning of the 1940 Act. As of June 1, 2000,
the members of the Board of Trustees who are not "Interested Trustees" will be
paid a stipend of $3,500 for each joint Board meeting they attend in person, a
stipend of $1,000 for each joint telephonic meeting they participate in, and an
annual fee of $24,000 for service to all of the trusts in the complex.

12
<PAGE>

Under the Declaration of Trust, the Trustees and officers are entitled to
be indemnified by the Trust to the fullest extent permitted by law against all
liabilities and expenses reasonably incurred by them in connection with any
claim, suit or judgment or other liability or obligation of any kind in which
they become involved by virtue of their service as a Trustee or officer of the
Trust, except liabilities incurred by reason of their willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office.

The Trust does not pay any pension or retirement benefits to the Trustees.

COMPENSATION TABLE
FOR FISCAL YEAR ENDED MAY 31, 2000
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM TRUST AND TRUST COMPLEX
NAME OF TRUSTEE, POSITION FROM TRUSTS (3 ADDITIONAL TRUSTS) PAID TO TRUSTEE
------------------------------------------ ---------------- -----------------------------------------
<S> <C> <C>
Bruce R. Bent, Chairman/CEO and Trustee $0 $ 0
Bruce R. Bent II, President and Trustee 0 0
Edwin Ehlert, Jr., Trustee 3,586 30,500
Patrick J. Foye, Trustee 361 3,068
Henri W. Emmet, Trustee 3.586 30,500
Rev. Donald J. Harrington, Trustee 3,175 27,000
William J. Montgoris, Trustee 3,018 25,667
William E. Viklund, Trustee 3,586 30,500
</TABLE>

None of the executive officers of the Funds had allocated cash remuneration
in excess of $60,000 during the last fiscal year ending May 31, 2000 for
services rendered to the Fund.

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 Fund's shareholders.

CODE OF ETHICS. The Trusts, its Adviser and RESRV have adopted Code of Ethics,
respectively, conforming to the requirements of Rule 17j-1 under the Investment
Company Act of 1940. The purpose of the Code is to establish guidelines and
procedures to identify and prevent persons who may have knowledge of Reserve's
investments and investment intentions from breaching their fiduciary duties and
to deal with other situations that may pose a conflict of interest or a
potential conflict of interest. Additionally, federal securities laws require
money managers and others to adopt policies and procedures to identify and
prevent the misuse of material, non-public information. Therefore, Reserve has
developed and adopted an Insider Trading Policy that applies to all employees,
affiliates and subsidiaries. As per the Codes, an Access person may only engage
in Personal Securities Transactions in accordance with the procedures and
guidelines established.

As of June 30, 2000, the following persons were known by the Trusts to own
of record or beneficially 5% or more of the outstanding shares of a Fund:

<TABLE>
<CAPTION>
INTERSTATE TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Ferris Baker Watts, Inc. 52,890,077 19.1%
Interstate Omnibus Account
8403 Colesville Road, #900
Silver Springs, MD 20910

13
<PAGE>

Mesirow Financial, Inc. 50,692,358 18.3%
Special Custody Account
for the Exclusive Benefit of Customer
350 N. Clark Street
Chicago, IL 60610

<CAPTION>
CALIFORNIA II TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Reserve Mgmt. Corp. 4,692,658 5.1%
ATTN: Account No. 0274866545413
1250 Broadway
New York, NY 10001-3701

Reserve Mgmt. Corp. 8,190,584 8.9%
ATTN: Account No. 0276450030413
1250 Broadway
New York, NY 10001-3701

<CAPTION>
CONNECTICUT TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Chase Manhattan Bank 6,190,562 11.0%
ATTN: Client Services
1 Chase Manhattan Plaza, 16th Floor
New York, NY 10017

Fiduciary Trust Co. International 15,535,066 27.6%
Customer Accounts
P. O. Box 3199, Church Street Station
New York, NY

Karkiden, LLC 4,140,924 7.3%
13 Partridge Hollow Road
Greenwich, CT 06831-2662

Kemper Distributors Inc. 3,465,674 6.1%
FBO LINSCP/Private Ledger Financial Ser.
222 South Riverside Plaza
Chicago, IL 60606-5808

Reserve Mgmt. Corp. 5,131,499 9.1%
ATTN: Account No. 0271761526910
1250 Broadway
New York, NY 10001-3701

14
<PAGE>

<CAPTION>
FLORIDA TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Reserve Mgmt. Corp. 2,300,319 7.4%
ATTN: Account No. 14406110
1250 Broadway
New York, NY 10001-3701

Reserve Mgmt. Corp. 671,133 5.3%
ATTN: Account No. 0279811409417
1250 Broadway
New York, NY 10001-3701

<CAPTION>
MASSACHUSETTS TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Reserve Mgmt. Corp. 4,080,457 21.2%
ATTN: Account 0276580073119
1250 Broadway
New York, NY 10001-3701

Kemper Distributors Inc. 1,208,405 6.3%
FBO LINSCO/Private Ledger Financial Ser.
222 South Riverside Plaza
Chicago, IL 60606-5808

Reserve Mgmt. Corp. 1,582,339 8.2%
ATTN: Account No. 0278952310517
1250 Broadway
New York, NY 10001-3701

Reserve Mgmt. Corp. 1,024,984 5.3%
ATTN: Account No. 35076835
1250 Broadway
New York, NY 10001-3701

<CAPTION>
MICHIGAN TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Reserve Mgmt. Corp. 713,045 29.3%
For A/C of Philadelphia Trust Co.
1250 Broadway
New York, NY 10001-3710

15
<PAGE>

Reserve Mgmt. Corp. 307,008 12.6%
ATTN: Account No. 14427041
1250 Broadway
New York, NY 10001-3701

Reserve Mgmt. Corp. 146,714 6.0%
ATTN: Account No. 3534937
1250 Broadway
New York, NY 10001-3701

Reserve Mgmt. Corp. 123,392 5.0%
ATTN: Account No. 15933575
1250 Broadway
New York, NY 10001-3701

Reserve Mgmt. Corp. 251,069 10.3%
ATTN: Account No. 16024176
1250 Broadway
New York, NY 10001-3701

<CAPTION>
NEW YORK TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Fiduciary Trust Company International 28,451,222 12.9%
Customer Accounts
P. O. Box 3199, Church Street Station
New York, NY 10008

<CAPTION>
OHIO TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Harson Investments II Ltd. Partnership 4,952,699 48.2%
One Citizens Federal Centre, Suite 1330
Dayton, OH 45402-1795

Reserve Mgmt. Corp. 2,399,132 23.3%
ATTN: Account No. 0275920180519
1250 Broadway
New York, NY 10001-3701

<CAPTION>
PENNSYLVANIA TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Reserve Mgmt. Corp. 2,617,146 12.4%
ATTN: Account No. 54582929
1250 Broadway
New York, NY 10001-3701

16
<PAGE>

<CAPTION>
VIRGINIA TAX-EXEMPT FUND

SHARES PERCENT
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) SHARES OWNED
<S> <C> <C>
Kemper Distributors Inc. 1,910,086 63.2%
FBO LINSCP/Private Ledger Financial Ser.
222 South Riverside Plaza
Chicago, IL 60606-5808

Reserve Mgmt. Corp. 1,107,503 36.7%
ATTN: Account No. 54420526
1250 Broadway
New York, NY 10001-3701
</TABLE>

INVESTMENT MANAGEMENT, DISTRIBUTION
AND CUSTODIAN AGREEMENTS

INVESTMENT MANAGEMENT AGREEMENT. Reserve Management Company, Inc. ("RMCI" or
"Adviser"), 1250 Broadway, New York, NY 10001-3701, a registered investment
adviser, manages the Funds and provides them with investment advice. As a result
of recent shareholder votes, each of the Funds has entered into a new Investment
Management Agreement with the Adviser, 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 California II, Michigan, Ohio
and Virginia Tax-Exempt Funds, since inception, have been subject to a
comprehensive management fee. The new Investment Management Agreements became
effective June 26, 1999. Under the Investment Management Agreement, RMCI manages
the Funds' investment in accordance with each Fund's investment objective and
policies, subject to overall approval by the Trustees.

Presently, under the terms of the Investment Management Agreements with the
Funds, the Funds pay RMCI a comprehensive management fee at an annual rate of
0.80% of average daily net assets. RMCI pays all employee 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 fees of the disinterested Trustees, for which
each Fund it pays its direct or allocated share.

For the fiscal years ended May 31, 1998 and 1999, RMCI received management fees
under the Investment Management Agreements previously in effect. 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 years ended May 31, 1998, and 1999, as
well as June 1, 1999 to June 26, 1999, RMCI received management fees under the
Investment Management Agreements previously in effect.

For the fiscal years ended May 31, 1998 and 1999, RMCI received management fees
under the Investment Management Agreements previously in effect. For the fiscal
years ended May 31, 1998, 1999 and 2000, RMCI received aggregate management fees
of $1,676,809, $1,801,995, and of $2,228,804 respectively, from the Interstate
Tax-Exempt Fund. For the fiscal years ended May 31, 1998, 1999 and 2000, RMCI
received aggregate management fees of, $185,719, $231,720, and $420,264,
respectively, from the Connecticut Tax-Exempt Fund; $91,116, $131,448 and
$103,426, respectively, from the Massachusetts Tax-Exempt Fund; $889,437,
$941,347 and $1,538,209, respectively, from the New York Tax-Exempt Fund;
$197,592, $225,279, and $355,140, respectively, from the New Jersey Tax-Exempt
Fund; $50,776, $110,877, and $200,157 respectively, from the Florida
Tax-Exempt Fund. RMCI received $45,755 in management fees from the
Pennsylvania Tax-Exempt Fund for the period September 15, 1997 to May 31,
1998 and $94,163 and $141,513 fiscal years ending May 31, 1999 and 2000,
respectively. RMCI received $1,915 in management fees from the Ohio
Tax-Exempt Fund for the period April 1, 1998 to May 31, 1998 and $8,867 and
$16,505 fiscal years ending May 31, 1999 and 2000, respectively. RMCI
received $2,705 and $11,118 in management fees from the Michigan Tax-Exempt
Fund for the period December 14, 1998 to May 31, 1999 and fiscal year ended
May 31, 2000, respectively. RMCI received $1,371 in management fees from the
Virginia Tax-Exempt Fund for the period March 3, 2000 to May 31, 2000. RMCI
received $452,687 in management fees from the California II Tax-Exempt Fund
for the period July 2, 1999 to May 31, 2000. California II and Virginia
Tax-Exempt Funds had fees waived of $24,022 and $73, respectively.

From time to time, RMCI may waive receipt of its fees and/or voluntarily
assume certain expenses of a Fund that would have the effect of lowering the
Fund expense ratio and increasing yield to investors at the time such

17
<PAGE>

amounts are assumed or waived, as the case may be. RMCI may also make such
advertising and promotional expenditures, using its own resources, as it from
time to time deems appropriate.

The Investment Management Agreements for each of the Funds were duly
approved by shareholders in 1999, and may be renewed annually if specifically
approved by the 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
renewal. The Agreements terminate automatically upon their assignment and may be
terminated without penalty upon sixty (60) days' written notice by a vote of the
Trustees or by vote of a majority of outstanding voting shares of a Fund or by
RMCI.

SERVICE AGREEMENT. A Service Agreement was in effect for the Funds, with the
exception of California II, Michigan, Ohio and Virginia Tax-Exempt Funds, until
June 25, 1999. Pursuant to the Service Agreement, the Adviser furnished at
cost, all personnel required for the maintenance and operation of the Funds,
including administrative, clerical, recordkeeping, bookkeeping, shareholder
accounting and servicing, as well as a suitable office space and necessary
equipment and supplies used by such personnel in performing these functions.
Operating costs for which the Funds reimburse the Adviser includes salaries
and other expenses, rent, depreciation of equipment and facilities.
Affiliates of the Adviser may provide some of these services. The Trusts also
reimbursed the Adviser for: brokerage fees and commissions, interest charges,
taxes, the cost of registering for sale, issuing and redeeming the Funds'
shares and of printing and mailing all prospectuses, proxy statements and
shareholder reports furnished to current shareholders, overhead costs and
expenses accounting and legal fees and expenses and disinterested Trustees
fees with regard to the Funds. The Adviser agreed to repay the Funds 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 was non-assignable
and continued until terminated by either party on 120 days' notice.

Pursuant to the Service Agreements during the fiscal years ended May 31, 1998,
1999, and 2000 the Funds reimbursed RMCI $1,868,365, $2,271,896 and $130,389
respectively, for combined expenses.

DISTRIBUTION AGREEMENT. The Fund's Distributors is RESRV. 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 is the "principal underwriter" for the Funds 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 Plan of
Distribution described below. RESRV's principal business is the distribution of
mutual fund shares. No Distributor has retained underwriting commissions on the
sale of Fund shares during the last four fiscal years. During the fiscal year
ended May 31, 2000, no distribution assistance payments were made to RESRV.

The Distribution Agreement 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 Funds maintain 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, each Fund makes
assistance payments to brokers, financial institutions and other financial
intermediaries ("Firms") for shareholder accounts ("qualified accounts") at an
annual rate of 0.20% of the average daily NAV of all Firms' qualified accounts.
Such distribution assistance may include, but is not 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 to partially
defray other expenses incurred by RMCI in distributing Fund shares. In addition
to the amounts required by the Plan, RMCI may, at its discretion, pay additional
amounts from its resources. The rate of any additional amounts that may be paid
will be based upon RESRV and RMCI's analysis of the contribution that a Firm
makes to a Fund by increasing assets under

18
<PAGE>

management, and reducing expense ratios and the cost to the Fund if such
services were provided directly by the Fund or other authorized persons and
RESRV and RMCI will also consider the need to respond to competitive offers of
others, which could result in assets being withdrawn from a 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 Funds and its shareholders.

Under the Plan, the Funds' 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 are at the discretion
of the disinterested Trustees currently in office.

During the fiscal year ended May 31, 2000, $1,399,485 was paid under the
Plan by the Trusts. Any such payments are intended to benefit the Funds by
maintaining or increasing net assets to permit economies of scale in providing
services to shareholders and to contribute to the stability of such shareholder
services. During the fiscal year ended May 31, 2000, substantially all payments
made by the Funds were to brokers or other financial institutions and
intermediaries for share balances in the Funds.

The Plan and related agreements were duly approved by shareholders and may
be terminated at any time by a vote of the majority of the outstanding voting
securities of each Fund, or by vote of the disinterested Trustees. The Plan and
related agreements may be renewed from year to year, if approved by the vote of
a majority 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 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.

TRANSFER AGENT AND DIVIDEND-PAYING AGENT. The Reserve Tax-Exempt Trust and
Reserve New York Tax-Exempt Trust, respectively, act as their own transfer agent
and dividend-paying agent.

CUSTODIAN AND INDEPENDENT ACCOUNTANT. The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004 is Custodian of the Funds' securities and cash
pursuant to a Custodian Agreement. The Bank of New York, 1 Wall Street, New
York, NY 10286 and Custodial Trust Company, 101 Carnegie Center, Princeton, NJ
08540 are Custodians for the Funds for limited purposes in connection with
certain repurchase agreements. The Custodian has no part in determining the
investment policies of the Fund or which securities are to be purchased or sold
by the Fund. PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York,
NY 10036 is the Funds' independent accountant.

INFORMATION ABOUT THE TRUSTS

The Reserve Tax-Exempt Trust's and Reserve New York Tax-Exempt Trust's
Declaration of Trusts permits the Trust to issue an unlimited number of full and
fractional shares of beneficial interest that may be issued in any number of
series (funds) and/or classes. Shares issued will be fully paid and
non-assessable and will have no preemptive rights. The shareholders of each Fund
are entitled to a full vote for each full share held (and fractional votes for
fractional shares) and have equal rights to earnings, dividends, redemptions and
in the net assets of their Fund upon liquidation. The Trustees do not intend to
hold annual meetings but 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 change the fundamental investment policies) or by the Declaration
of Trust.

Further, the Trusts are allowed to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interests in a Fund. If they deem it advisable and in the best
interests of shareholders, the Trustees may classify or reclassify any unissued
shares of a Fund 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 all applicable state and federal securities
laws. These currently require that each class be preferred over all other
classes in respect to assets specifically allocated to such class. It is
anticipated that, under most circumstances, the rights of any additional classes
would be comparable, unless otherwise required, to respond to the particular
situation. Upon liquidation of any Fund, shareholders are entitled to share, pro
rata, in the net assets of their

19
<PAGE>

respective Funds 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 subject to
claims arising from the operations of the first class of shares. No changes can
be made to the Fund's issued shares without shareholder approval.

Each Fund share, when issued, is fully paid, non-assessable and fully
transferable or redeemable at the shareholder's option. Each share has an equal
interest in the net assets of the respective Funds, equal rights to all
dividends and other distributions, and one vote for all purposes. Shares of all
classes vote together for the election of Trustees and have non-cumulative
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. The Funds intend to conduct their operations in such a way as
to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.

As stated previously, to date, the Board has authorized the creation of
(10) series (funds) of the Reserve Tax-Exempt Trust (Interstate, California II,
Connecticut, Florida, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania
and Virginia Tax-Exempt Funds) and one (1) separate series (fund) of Reserve New
York Tax-Exempt Trust (New York Tax-Exempt Fund). All consideration received by
the Trust for shares of one of the Funds and all assets in which such
consideration is invested will belong to that Fund (subject only to rights of
creditors of the Fund) and will be subject to the liabilities related thereto.
The income attributable to, and the expenses of, one series are treated
separately from those of the other series. The Trusts have the ability to
create, from time to time, new series without shareholder approval.

Under Massachusetts law, the shareholders and trustees of a business trust
can be personally liable for the Funds' obligations unless, as in this instance,
the Declaration of Trusts provide, in substance, that no shareholder or trustee
shall be personally liable for the Funds, and each investment portfolio's
obligations to third parties, and requires that every written contract made by a
Fund contain a provision to that effect. The Declaration of Trusts also require
the Fund to indemnify its shareholders and Trustees against such liabilities and
any related claims or expenses.

The Declaration of Trusts further provide 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.

SEC regulations provide that if a class is separately affected by a matter
requiring shareholder 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 the shareholders of the
Fund as a whole), each class will vote 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.

HOW TO BUY AND SELL SHARES

PURCHASES -- GENERAL. Shares of each Fund are sold without a sales charge. You
may be charged a fee if you effect transactions in shares of a Fund through a
securities dealer, bank or other financial institution. The Fund reserves the
right to reject any purchase order.

The minimum initial investment in each Fund is $1,000, unless you are a
client of a securities dealer, bank or other financial institution, which
maintains an omnibus account in the Fund, or if you are an IRA customer. There
is no minimum subsequent investment. The initial investment must be accompanied
by an Account Application or equivalent information. Checks drawn on foreign
banks are normally not accepted by the Fund. In addition, the Fund does not
accept cash investments or travellers or third party 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. Shares also

20
<PAGE>

may be purchased through Reserve Automatic Asset Builder (see below). In
addition, the Funds reserve the right to change the minimum investment amount at
any time.

Each Fund's shares are sold on a continuous basis at the NAV per share.
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 for any check that does
not clear. The Fund will only give credit for investments in the Fund on the day
they become available in federal funds. 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 (Eastern 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 (i.e.,
receipt of all necessary information, signatures and documentation), denominated
in U.S. dollars, and are credited to shareholder accounts only upon their
conversion into federal funds, which normally takes one or two business days
following receipt. Checks delivered to the Fund after 11:00 AM (Eastern time)
are considered received on the following business day.

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 MAY BE UP TO 10 CALENDAR DAYS FROM DATE OF PURCHASE.

SHARE PRICE: NAV. The valuation of a Fund's portfolio securities is based upon
their amortized cost, which does not take into account unrealized gains or
losses. This involves valuing an instrument at its cost and thereafter assuming
a constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, there may be some periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument.

The Fund's Board has established, as a particular responsibility within the
overall duty of care owed to the Fund's investors, procedures reasonably
designed to stabilize the Fund's price per share as computed for the purpose of
purchases and redemptions at $1.00. Such procedures include review of the Fund's
portfolio holdings by the Board, at such intervals as it may deem appropriate,
to determine whether the Fund's NAV calculated by using available market
quotations or market equivalents deviates from $1.00 per share based on
amortized cost. In such review, investments for which market quotations are
readily available will be valued at the most recent comparable maturity, quality
and type, as obtained from one or more of the major market makers for the
securities to be valued. Other investments and assets will be valued at fair
value as determined in good faith by the Board.

The extent of any deviation between the Fund's NAV based upon available
market quotations or market equivalents and $1.00 per share based on amortized
cost will be examined by the Fund's Board. If such deviation exceeds 1/4 of 1%,
the Board will consider promptly what action, if any, will be initiated (The
Trusts are required by the SEC to contact the Board if the deviation is 1/2 of
1%). In the event the Board determines that a deviation exists which may result
in material dilution or other unfair results to investors or existing
shareholders, it has agreed to take such corrective action as it regards as
necessary and appropriate, including: selling Fund instruments prior to maturity
to realize capital gains or losses or to shorten average Fund maturity;
withholding dividends or paying distributions from capital gains; redeeming
shares in kind; or establishing a NAV per share by using available market
quotations. Shares are offered at their NAV, which is calculated at the close of
each business day as defined in the Prospectus. 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). The NAV of each Fund is normally maintained at $1.00 per
share. No Fund can guarantee that its NAV will always remain at $1.00 per share
although the Funds have managed to do so since inception.

21
<PAGE>

The NAV per share of each Fund is computed by dividing the value of the net
assets of each Fund (i.e., the value of its assets less liabilities) by the
total number of shares of such Fund outstanding. The Board of Trustees have
determined the most practical method currently available for valuing investment
securities is the amortized cost method. This procedure values a money-market
fund's portfolio securities, which does not take into account unrealized gains
and losses. As a result, portfolio securities are valued at their acquisition
cost, adjusted over time based on the discounts or premiums reflected in their
purchase price. This method of valuation is designed to permit a fund to be able
to maintain a stable NAV.

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 have
established guidelines and monitor the creditworthiness of all entities,
including banks and broker-dealers, with whom the Fund proposes to enter into
repurchase agreements. In addition, such procedures are reasonably designed,
taking into account current market conditions and the investment objective of
the Fund, to attempt to maintain the Fund's NAV as computed for the purpose of
sales and redemptions at $1.00 per share.

SHARE CERTIFICATES. Share certificates are not issued by the Funds.

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; from a U.S. government distribution ($25 suggested
minimum) such as a social security, federal salary, or certain veterans'
benefits, or other payment from the federal government. You may also make
arrangements for the direct deposit of your payroll into your Fund account.
Please call The Reserve Funds at 800-637-1700 for an application.

REDEMPTIONS -- GENERAL. 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 NAV 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 respective Fund. The election is
irrevocable pursuant to rules and regulations under the 1940 Act unless
withdrawal is permitted by order of the SEC. Redemptions in kind are further
limited by the Fund's practice of holding instruments typically with a minimum
value of $1,000,000 and its 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 NAV of the redemption.

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:

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

22
<PAGE>

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
reasonably believes that the instructions are not genuine and/or it is advisable
to do so.

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 SEC. Guarantees must be signed by an
authorized signatory of the guarantor and "Signature Guaranteed" must appear
with the signature. Notaries public cannot provide signature guarantees. The
Funds may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular verification.
For more information with respect to signature guarantees, please call
800-637-1700.

RESERVE CASH PERFORMANCE ACCOUNT. The Reserve Cash Performance Account ("CPA")
and the Reserve Cash Performance Account Plus ("CPA Plus") provide a
comprehensive package of additional services to investors. These packages
provide a check arrangement where checks are issued to Reserve shareholders. 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. Redemptions by check lengthen the time your money earns dividends,
since redemptions are not made until the check is processed by the Fund. Because
of this, you cannot write a check to completely liquidate your account, nor may
a check be presented for certification or immediate payment. Your checks will be
returned (bounced) and a fee charged if they are postdated, contain an
irregularity in the signature, amount or otherwise, or are written against
accounts with insufficient or uncollected funds. All transactions activity,
including check redemptions, will be reported on your account statement.
Checking may not be available to clients of some Firms.

A VISA Check Card (a debit card) is also available with these packages. The
VISA card functions exactly as does a conventional VISA credit card except that
the cardholder's Reserve account is automatically charged for all purchases and
cash advances, thus eliminating the usual monthly finance charges. You may also
use your VISA card to get cash at ATMs. Investors receive a 1% cash rebate on
all VISA purchases which is credited to their Reserve account. As with the
checking facility, VISA charges are paid by liquidating shares in your Reserve
account, but any charges that exceed the balance will be rejected. VISA card
issuance is subject to credit approval. Reserve, VISA or the bank may reject any
application for checks or cards and may terminate an account at any time.
Conditions for obtaining a VISA Check Card may be altered or waived by the Funds
either generally or in specific instances. The checks and VISA cards are
intended to provide investors with easy access to their account balances.

VISA cardholders may be liable for the unauthorized use of their card if
the Fund or the bank is not notified of the theft or loss within two (2)
business days. If the Fund or the bank is notified of the theft or loss within
the specified time period, the cardholder is only liable for that amount set by
governing Federal regulations, currently $50. Participants should refer to the
VISA Account Agreement for complete information regarding responsibilities and
liabilities with respect to the VISA Check Card. If a card is lost or stolen,
the cardholder should report the loss immediately by telephoning the issuing
bank, currently First Data at 402-331-5152 or 800-996-4324, which can be reached
24 hours a day, seven (7) days a week or the Fund at 800-637-1700 or
212-401-5500 during normal business hours (Monday through Friday, 9:00 AM to
5:00 PM, Eastern time).

For the different attributes associated with CPA and CPA Plus packages,
please call The Reserve Funds at 800-637-1700. The Funds will charge a
nonrefundable annual CPA Plus service fee (currently $60 which may be charged to
the account at the rate of $5 monthly). CPA and CPA Plus participants will be
charged for specific costs incurred in placing stop payment orders, obtaining
check copies and in processing returned checks. These charges may be changed at
any time upon 30 days' notice to participants. Upon proper notice, the Funds may
choose to impose a fee if it deems a shareholder's actions to be burdensome. In
addition, Firms in this program may charge their own additional service fees and
may establish their own minimum check amount.

The use of checks and VISA cards by participants will be subject to the
terms of your Reserve CPA Application and VISA Account Shareholder Agreement.

23
<PAGE>

TOUCH-TONE AND INTERNET BILL PAYMENT SERVICE. In the near future, the Funds will
offer its shareholders touch-tone and Internet bill payment which will give you
the flexibility of paying bills over the telephone on an automatic or variable
basis. Terms, conditions and restrictions will be outlined in the User's Guide
and Application.

STOP PAYMENTS. The Funds will honor stop payment requests on unpaid shareholder
checks provided they are advised of the correct check number, payee, check
amount and date. Stop payment requests received by the Funds by 2:00 PM (Eastern
time) will be effective the next business day. Oral stop payment requests are
effective for fourteen (14) calendar days, at which time they will be cancelled
unless confirmed in writing. Written stop payment requests will remain in effect
for one year. A fee will be charged for this service.

AUTOMATIC WITHDRAWAL PLANS. If you have an account with a balance of at least
$5,000, you may elect in writing 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 to instructions must be in writing with signature(s) guaranteed.
In order for such payments to continue under the 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 Funds. The amount, frequency and recipient of the
payments may be changed by giving proper written notice to the Funds. The Funds
may impose a charge, modify or terminate any Automatic Withdrawal Plan at any
time after the participant has been notified. This privilege may not be
available to clients of some Firms or may be available subject to conditions or
limitations.

AUTOMATIC TRANSFER PLANS (ACH). You may redeem shares of a Fund (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
(must be an Automated Clearing House member bank) designated in your
application. 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 request. The Funds may impose a charge, modify or terminate this
privilege at any time after the participant has been duly notified. This
privilege may not be available to clients of some Firms or may be available
subject to conditions or limitations.

EXCHANGE PRIVILEGE. A shareholder may exchange shares at NAV with all Reserve
money-market funds and the Reserve Private Equity Series. Shares to be acquired
in an exchange must be registered for sale in the investor's state. The Fund
reserves the right to record all exchange requests.

The exchange privilege is not available for shares which have been held for
less than fifteen (15) days. Exchanges by telephone are an automatic privilege
unless the shareholder notifies the Fund on the Account Application that this
authorization has been withheld. Unless authorization is withheld, the Fund will
honor requests by any person by telephone at 800-637-1700, that the Fund deems
to be valid. The Funds and their affiliates may be liable for any losses caused
by their failure to employ reasonable procedures to avoid unauthorized or
fraudulent instructions. To reduce such risk, the registration of the account
into which shares are to be exchanged must be identical to the registration of
the originating account and all telephone exchange requests will be recorded.
The Fund may also require the use of a password or other form of personal
identification. In addition, each Fund will provide written confirmation of
exchange transactions. During periods of volatile economic and market
conditions, a shareholder may have difficulty making an exchange request by
telephone, in which case an exchange request would have to be made in writing.

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
described under this heading may not be available to clients of some Firms and
some Firms may impose conditions on their clients that are different from those
described in the Prospectus or SAI.

The exchange privilege may be modified or terminated at any time, or from
time to time, upon 60 days' notice to shareholders if such notice is required by
the 1940 Act. The notice period may be shorter if applicable law permits. The
Trust reserves the right to reject telephone or written requests submitted in
bulk on behalf of ten (10)

24
<PAGE>

or more accounts. A pattern of frequent exchanges may be deemed by the Adviser
to be abusive and contrary to the best interests of the Fund's other
shareholders and, at the Adviser's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor and/or
the imposition of fees. The Funds do not have any specific definition of what
constitutes a pattern of frequent exchanges. Any such restriction will be made
on a prospective basis, upon notice to the shareholder not later than ten (10)
days following such shareholder's most recent exchange. Telephone and written
exchange requests must be received by the Funds by 4:00 PM (Eastern time) on a
regular business day to take effect that day. Exchange requests received after
4:00 PM (Eastern time) will be effected at the next calculated NAV.

SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the date
of payment postponed for more than seven (7) days only (a) when the Exchange is
closed (other than for customary closings), (b) when, as determined by the SEC,
trading on the Exchange is restricted or an emergency exists making it not
reasonably practicable to dispose of securities owned by a Fund or for it to
determine fairly the value of its net assets, or (c) for such periods as the SEC
may permit. IF SHARES OF A 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 MAY GENERALLY TAKE 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.

SHAREHOLDER SERVICE POLICIES. The Fund's policies concerning the shareholder
services are subject to change from time to time. The Fund reserves the right to
change the 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.

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 check, which, after deposit,
is returned unpaid or proves uncollectible, the purchase may be canceled or
redeemed immediately. The investor who 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 apply the proceeds
therefrom to the payment of any amounts due the fund, the investment adviser or
the distributor.

PURCHASES AND REDEMPTIONS THROUGH OTHERS. Share purchases and redemptions may
also be made through brokers and financial institutions ("Firms"), which may
involve such Firms' own redemption minimums, services fees, and other redemption
requirements. 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 investment or administrative services. Firms are responsible
for the prompt transmission of purchase and redemption orders. Some Firms may
establish higher minimum investment requirements than set forth above. Some
Firms may independently establish and charge additional fees for their services,
which would reduce their clients' yield or return. Firms may also hold shares in
nominee or street name on behalf of their clients. In such instances, the Fund's
transfer agents will have no information about their accounts, which will be
available only from their Firm. Some of these firms participate in the Fund's
Plan of Distribution ("Plan"). Under the Plan, Firms may receive compensation
for recordkeeping and other services and assistance in distributing Fund shares.
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 Firms or may only be available subject to certain
conditions or limitations. Some Firms may participate in a program allowing them
access to their clients' accounts for servicing including, without limitation,
changes of registration and dividend-payees and may perform functions such as
generation of confirmations and periodic statements and disbursement of cash
dividends. The Prospectus should be read in connection with such Firm's material
regarding its fees and services.

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<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended ("the Code"), so
long as such qualification is in the best interests of shareholders. Such
qualification relieves the Fund of any liability for federal income tax to the
extent its earnings are distributed in accordance with applicable provisions of
the Code. If a Fund did not qualify as a regulated investment company, it would
be treated for tax purposes as an ordinary corporation subject to federal income
tax.

Each Fund ordinarily declares dividends from its net investment income on
each day the Exchange and The Reserve Fund is open for business. Each Fund's
earnings for Saturdays, Sundays and holidays are declared as dividends on the
preceding business day. Dividends paid out of a Fund's investment company
taxable income will be taxable to a U.S. shareholder as ordinary income. Because
no portion of a Fund's income is expected to consist of dividends paid by U.S.
corporations, no portion of the dividends paid by the Funds is expected to be
eligible for the corporate dividends-received deduction. Distributions of net
capital gains, if any, designated as capital gain dividends are taxable to
shareholders as long-term capital gains, regardless of how long the shareholder
has held the Fund's shares, and are not eligible for the dividends-received
deduction. Shareholders receiving distributions in the form of additional
shares, rather than cash, generally will have a cost basis in each such share
equal to the NAV of a share of the Fund on the reinvestment date. Shareholders
will be notified annually as to the U.S. federal tax status of distributions,
and shareholders receiving distributions in the form of additional shares will
receive a report as to the NAV of those shares.

If you elect to receive dividends and distributions in cash, and your
dividend or distribution check is returned to a Fund as undeliverable or remains
uncashed for six months, the Fund reserves the right to reinvest such dividends
or distributions and all future dividends and distributions payable to you in
additional Fund shares at NAV. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.

As a regulated investment company, the Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income and net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to shareholders. Each Fund intends
to distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts, other than
tax-exempt interest, not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To prevent imposition of the excise tax, each Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (not taking into account any capital gains or losses) for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses for the one-year period ending on October 31 of the calendar year, and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution, including an "exempt-interest
dividend," will be treated as paid on December 31 of the current calendar year
if it is declared by a Fund in October, November or December with a record date
in such a month and paid by the Fund during January of the following calendar
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, the Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.

The Fund intends to qualify under the Code to pay "exempt-interest
dividends" to its shareholders. The Fund will be so qualified if, at the close
of each quarter of its taxable year, at least 50% of the value of its total
assets consists of securities on which the interest payments are exempt from
federal income tax. To the extent that dividends distributed by the Fund to its
shareholders are derived from interest income exempt from federal income tax and
are designated as "exempt-interest dividends" by the Fund, they will be
excludable from the gross incomes of the shareholders for federal income tax
purposes. "Exempt-interest dividends," however, must be taken into account by
shareholders in determining whether their total incomes are large enough to
result in taxation of up to 85% of their social security benefits and certain
railroad retirement benefits. It should also be noted that tax-exempt interest
on private activity bonds in which the Fund may invest generally is treated as a
tax preference item for purposes of the alternative minimum tax for corporate
and individual shareholders. The Fund will inform shareholders annually as to
the portion of the distributions from the Fund which constituted
"exempt-interest dividends."

26
<PAGE>

Upon the sale or other disposition of shares of the Fund, in the event that
the Fund fails to maintain a constant NAV per share, a shareholder may realize a
capital gain or loss which will be long-term or short-term, generally depending
upon the shareholder's holding period for the shares. Any loss realized on a
sale or exchange will be disallowed to the extent the shares disposed of are
replaced (including shares acquired pursuant to a dividend reinvestment plan)
within a period of 61 days beginning 30 days before and ending 30 days after
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on a disposition of Fund shares held by the shareholder for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of net capital gains received by the shareholder with respect to such shares.
Furthermore, a loss realized by a shareholder on the redemption, sale or
exchange of shares of the Fund with respect to which exempt-interest dividends
have been paid will, to the extent of such exempt-interest dividends, be
disallowed if such shares have been held by the shareholder for less than six
months.
Under the Code, a shareholder may not deduct that portion of interest on
indebtedness incurred or continued to purchase or carry shares of an investment
company paying exempt-interest dividends (such as those of the Fund) which bears
the same ratio to the total of such interest as the exempt-interest dividends
bear to the total dividends (excluding net capital gain dividends) received by
the shareholder. In addition, under rules issued by the Internal Revenue Service
for determining when borrowed funds are considered to be used to purchase or
carry particular assets, the purchase of shares may be considered to have been
made with borrowed funds even though the borrowed funds are not directly
traceable to such purchase.
The exemption from federal income tax of dividends derived from interest on
municipal obligations does not necessarily result in exemption under the tax
laws of any state or local taxing authority.
Shareholders are advised to consult their own tax advisors with respect to
the particular tax consequences to them of an investment in the Fund. Persons
who may be "substantial users" (or "related persons" of substantial users) of
facilities financed by industrial development bonds should consult their tax
advisers before purchasing shares of the Fund. The term "substantial user"
generally includes any "non-exempt person" who regularly uses in his or her
trade or business a part of a facility financed by industrial development bonds.
Generally, an individual will not be a "related person" of a substantial user
under the Code unless the person or his or her immediate family owns directly or
indirectly in the aggregate more than a 50% equity interest in the substantial
user. Further, shareholders are advised to consult with their tax advisers
regarding the applicability of state and local taxes to an investment or income
therefrom in a Fund which may differ from the federal income tax consequences
described above.
The tax consequences to a foreign shareholder of an investment in a Fund
may be different from those described herein.

YIELD INFORMATION

For the seven-day period ended May 31, 2000, the Interstate Tax-Exempt
Fund's yield was 3.22% and its effective yield was 3.27%. For the seven-day
period ended May 31, 2000, Connecticut Tax-Exempt Fund's yield was 2.98% and its
effective yield was 3.03%. For the seven-day period ended May 31, 2000, the
Florida Tax-Exempt Fund's yield was 3.26% and its effective yield was 3.32%. For
the seven-day period ended May 31, 2000, Massachusetts Tax-Exempt Fund's yield
was 3.07% and its effective yield was 3.11%. For the seven-day period ended May
31, 2000, Michigan Tax-Exempt Fund's yield was 3.45% and its effective yield was
3.51%. For the seven-day period ended May 31, 2000, New Jersey Tax-Exempt Fund's
yield was 3.11% and its effective yield was 3.16%. For the seven-day period
ended May 31, 2000, New York Tax-Exempt Fund's yield was 3.07% and its
effective yield was 3.12%. For the seven-day period ended May 31, 2000,
Ohio Tax-Exempt Fund's yield was 3.18% and its effective yield was 3.23%.
For the seven-day period ended May 31, 2000, Pennsylvania Tax-Exempt Fund's
yield was 3.25% and its effective yield was 3.31%. For the seven-day period
ended May 31, 2000, Virginia Tax-Exempt Fund's yield was 3.36% and its
effective yield was 3.41%.
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Fund
account having a balance of one share at the beginning of a seven calendar day
period for which the yield is to be quoted, dividing the net change by the value
of the account at the beginning of the period to obtain the base period return,
and annualizing the results (i.e., multiplying the base period return by 366/7).
The net change in the value of the account reflects the value of additional
shares purchased with dividends

<PAGE>

declared on the original share and any such additional shares and fees that may
be charged to shareholder accounts, in proportion to the length of the base
period and the Fund's average account size, but does not include realized gains
and losses or unrealized appreciation and depreciation. Effective yield is
computed by adding 1 to the base period return (calculated as described above),
raising the sum to a power equal to 366 divided by 7, and subtracting 1 from the
result.

Yields will fluctuate and are not necessarily representative of future
results. You should remember that yield is a function of the type and quality of
the instruments in the portfolio, portfolio maturity and operating expenses.
Your principal in the Fund is not guaranteed. See above "Share Price: NAV" for a
discussion of the manner in which the Fund's price per share is determined.

Yield information is useful in reviewing each 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 a fixed
term and are subject to a penalty for withdrawals prior to maturity which will
reduce their return.

Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data various industry
publications. From time to time, the Funds in its advertising and sales
literature may refer to the growth of assets managed or administered by RMCI
over certain time periods.

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 Funds assume no responsibility to either owner for
actions taken by the other with respect to an account so registered. The
Application provides that persons who register their account indemnify and hold
the Funds harmless for actions taken by either party.

USE OF JOINT PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION. Although each
Fund is offering only its own shares, it is possible that a Fund might become
liable for any misstatement in the Prospectus and SAI about the other Funds.
However, each Fund has acknowledged that it, and not any of the other Funds, is
liable for any material misstatement or omission about it in the Prospectus or
SAI.

REPORTS AND STATEMENTS. Shareholders receive an Annual Report containing audited
financial statements and an unaudited Semi-Annual Report. Duplicate shareholder
communications, such as the Prospectus, Annual Report, Semi-Annual Report, will
not be sent to related accounts at a common address, unless instructed to the
contrary by you. An account statement is sent to each shareholder at least
quarterly. Shareholders who are clients of some Firms will receive an account
statement combining transactions in Fund shares with account statements covering
other brokerage or mutual fund accounts. Shareholders have a duty to examine
their account statement(s) and report any discrepancies to The Reserve Funds
immediately. Failure to do so could result in the shareholder suffering a loss.
Further, shareholders are advised to retain account statements.

RESERVE EASY ACCESS AND ON-LINE 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 including yields, account balances, check reorders,
touch tone bill payment 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 through On-line Access at
www.reservefunds.com.

INQUIRIES. Shareholders should direct their inquiries to the firm from which
they received this Prospectus or to The Reserve Funds, 1250 Broadway, New York,
NY 10001-3701 or 800-637-1700.

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<PAGE>

RATINGS

The following are the rating designations of short-term instruments and
their respective meanings.

STANDARD & POOR'S CORPORATION. A-1: This designation is the highest category of
S&P and indicates that the degree of safety regarding timely payment is strong.
Those short-term obligations that have extremely strong repayment capacity will
be denoted with a plus (+).

MOODY'S INVESTORS SERVICE, INC. Prime-1 (P-1): Issuers rated P-1 (or supporting
institutions) have a superior ability for repayment of senior short-term debt
obligations. P-1 ratings will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternative liquidity.

There are three categories for short-term obligations that define an
investment grade situation designated Moody's Investment Grade as MIG1 (best)
through MIG3. MIG1 denotes best quality, i.e., there is a strong protection by
established cash flows, superior liquidity support or demonstrated broad-based
market access for re-financing. MIG2 denotes high quality, the margins of
protection are ample but not as large as MIG1.

DUFF & PHELPS CREDIT RATING CO. Duff-1: Very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor. Those issues determined to have the highest
certainty of timely payment and whose safety is just below risk-free U.S.
Treasury short-term obligations will be denoted with a plus (+) sign
designation. Those issues determined to have a high certainty of timely payment
and whose risk factors are very small will be denoted with a minus (-) sign
designation.

FITCH IBCA. F1: This designation indicates the strongest credit quality. Issues
assigned this rating reflect an assurance of timely payment. Those obligations
with an exceptionally strong credit quality will be denoted with a plus (+)
sign. Issues assigned the rating of F1+ are regarded as having the strongest
degree of assurance for timely payment.

FINANCIAL STATEMENTS

Financial Statements (audited) for the Reserve Tax-Exempt Trust and the
Reserve New York Tax-Exempt Trust for the fiscal year ended May 31, 2000,
including notes thereto, are incorporated by reference in the SAI from the
Trusts' Annual Report to Shareholders dated May 31, 2000 filed with the SEC.

29
<PAGE>

[LOGO]

AMERICAN EXPRESS
MONEY-MARKET ACCOUNTS

PROSPECTUS
JULY 31, 2000

THE RESERVE FUND, RESERVE TAX-EXEMPT TRUST and RESERVE NEW YORK TAX-EXEMPT TRUST
(the "Trusts") are registered investment companies, which offer fourteen no-load
money-market funds in this Prospectus:

- PRIMARY FUND,
- U.S. GOVERNMENT FUND,
- U.S. TREASURY FUND,
- INTERSTATE TAX-EXEMPT FUND,
- CALIFORNIA II TAX-EXEMPT FUND
- CONNECTICUT TAX-EXEMPT FUND,
- FLORIDA TAX-EXEMPT FUND,
- MASSACHUSETTS TAX-EXEMPT FUND,
- MICHIGAN TAX-EXEMPT FUND,
- NEW JERSEY TAX-EXEMPT FUND,
- NEW YORK TAX-EXEMPT FUND,
- OHIO TAX-EXEMPT FUND,
- PENNSYLVANIA TAX-EXEMPT FUND, and
- VIRGINIA TAX-EXEMPT FUND
(each a "Fund", collectively "the Funds").

---------------

<PAGE>

[This page intentionally left blank]

2
<PAGE>
TABLE OF CONTENTS

ABOUT THE FUNDS
Investment Objectives..........................................................3
Investment Strategies for the Primary, U.S. Government and U.S. Treasury
Funds..........................................................................4
Principal Risks of Investing in the Funds......................................5
Investment Strategies of Interstate Tax-Exempt Fund............................6
Principal Risks of Investing in the Fund.......................................7
Investment Strategies of State Specific Municipal Funds........................8
Principal Risks of Investing in the Funds.....................................10
Performance...................................................................12
Fees & Expenses of the Funds..................................................18
Fund Management...............................................................18

YOUR ACCOUNT
How to buy shares.............................................................20
Selling shares................................................................21

ACCOUNT SERVICES..............................................................23

DIVIDENDS & TAXES.............................................................24

FINANCIAL HIGHLIGHTS..........................................................26

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

ABOUT THE FUNDS

INVESTMENT OBJECTIVES
The investment objective of the Primary, U.S. Government and U.S. Treasury
Funds is to seek as high a level of current income as is consistent with
preservation of capital and liquidity.

The investment objective of the Interstate Tax-Exempt 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 investment objective of each of the state specific municipal funds 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 these objectives cannot be assured.

3
<PAGE>

ABOUT THE FUNDS

INVESTMENT STRATEGIES OF THE PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY
FUNDS. 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 invested in a mix of U.S. dollar denominated
money-market securities 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.

PRIMARY FUND. The Primary Fund seeks to attain its objective by investing in
instruments issued by the U.S. government, its agencies and instrumentalities
("U.S. government securities"), deposit-type obligations, such as negotiable
certificates of deposit and time deposits, bankers' acceptances and letters of
credit of domestic and foreign banks, savings and loan associations and savings
banks, high-quality domestic and foreign commercial paper as determined by
nationally recognized statistical rating organizations, non-rated instruments of
comparable quality as determined by the Board of Trustees ("Trustees"), other
short-term instruments of similar quality, and instruments fully collateralized
by such obligations.

The Primary Fund will principally invest in obligations of U.S. banking
institutions that are insured by the Federal Deposit Insurance Corporation and
deposit-type obligations of foreign branches of both U.S. banks and foreign
banks (Eurodollars) located in Australia, Canada, Western Europe and Japan and
which, at the time of investment, have more than $25 billion (or the equivalent
in other currencies) in total assets.

U.S. GOVERNMENT FUND. The U.S. Government Fund seeks to attain its objective by
investing exclusively in securities backed by the full faith and credit of the
U.S. government, such as U.S. Treasury securities, obligations issued or
guaranteed by the U.S. government, its agencies and instrumentalities, and
repurchase agreements supported by such investments.

U.S. TREASURY FUND. The U.S. Treasury Fund seeks to attain its objective by
investing exclusively in securities backed by the full faith and credit of the
U.S government which provide interest income exempt in most states from state
and local personal income taxes. Typically, the Fund's assets will be invested
in U.S. Treasury securities.

The "full faith and credit" backing is considered the strongest backing
offered by the U.S. government and to be the highest degree of safety with
respect to the payment of principal and interest.

All of the Funds may invest in repurchase agreements ("repos") but will
limit them to those banks and securities dealers who are deemed creditworthy
pursuant to the guidelines adopted by the Trustees. The U.S. Government and U.S.
Treasury Funds will further limit their investment in repos to those whose
underlying obligations are backed by the full faith and credit of the United
States, and, in the case of the U.S. Treasury Fund, repos will not exceed 5% of
its total assets except for temporary or emergency purposes. Securities subject
to repos will be placed in a segregated account and will be monitored to ensure
that the market value of the securities plus any accrued interest will at least
equal the repurchase price.

The Funds will not concentrate more than 25% of their total assets in the
securities of issuers in a single industry, except that the Primary Fund may
invest more than 25% of its assets in bank obligations.

4
<PAGE>
ABOUT THE FUNDS

PRINCIPAL RISKS OF INVESTING IN THE PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY
FUNDS.
The following factors could reduce a Fund's income level and/or share price:

- 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.

- 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. Repos could involve risks in the event of a default of the
repo counterparty, including possible delays, losses or restrictions upon a
Fund's ability to dispose of the underlying securities. As to the Primary
Fund, the risks are generally associated with investing in the banking
industry, such as interest rate risk, credit risk and regulatory
developments. Further, as to the Primary Fund, Euro and Yankee dollar
investments involve certain risks that are different from investments in
domestic obligations of U.S. banks. These risks may include unfavorable
political and economic developments, possible withholding taxes, seizure of
foreign deposits, currency controls or other governmental restrictions which
might affect payment of principal or interest. In addition, foreign banks are
not regulated by U.S. banking authorities and are generally not bound by
financial reporting standards comparable to U.S. banks. Adverse political,
regulatory, market or economic developments in foreign countries can affect
entities located in those countries.

- 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 a Fund more than it would in a diversified portfolio.

5
<PAGE>
ABOUT THE FUNDS

INVESTMENT STRATEGIES OF THE INTERSTATE TAX-EXEMPT FUND. The Fund seeks to
maintain a stable $1.00 share price. The portfolio managers monitor a range of
economic and financial factors. Based on their analysis, the Fund is principally
invested in high quality, tax-exempt obligations 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 Interstate Tax-Exempt Fund's principal investment strategies include:

- Investing at least 80% of the value of the Fund's net assets in municipal
obligations which are exempt from federal income tax, unless it has adopted a
temporary defensive position. 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 Fund avoids 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 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 the Trustees.

6
<PAGE>
ABOUT THE FUNDS

PRINCIPAL RISKS OF INVESTING IN THE INTERSTATE TAX-EXEMPT FUND.
The following factors could reduce a Fund's income level and/or share price:

- THE 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.

- 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 Fund concentrates its investments in municipal
obligations which are volatile and there are 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 can significantly affect the financial condition and credit
quality of issuers of municipal securities. Further, 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.

7
<PAGE>
ABOUT THE FUNDS

INVESTMENT STRATEGIES OF THE STATE-SPECIFIC MUNICIPAL FUNDS. 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.

The State-Specific Municipal Funds' principal investment strategies include:

- 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 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 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.

Each Fund will purchase tax-exempt securities which are rated MIG1 or MIG2
by Moody's, SP-1 or SP-2 by S&P or the equivalent. Municipal obligations which
are not rated may also be purchased provided RMCI determines them to be of
comparable quality pursuant to guidelines established by the Funds' Trustees.

8
<PAGE>
ABOUT THE FUNDS
which there is no secondary market if the demand feature on such municipal
obligations requires more than seven (7) days' notice.

9
<PAGE>
ABOUT THE FUNDS

PRINCIPAL RISKS OF INVESTING IN THE STATE-SPECIFIC MUNICIPAL FUNDS.
The following factors could reduce a Fund's income level and/or share price:

- 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.

10
<PAGE>
ABOUT THE FUNDS

- Michigan Tax-Exempt Fund: Michigan's fiscal condition continues to be
tested by its dependence on the inherently cyclical auto industry.

- 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.

11
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Primary Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 4Q 1990 1.92%
Worst Quarter: 2Q 1993 0.53%
Most Recent Calendar Quarter: 2Q 2000 1.34%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
4.42% 4.80% 4.64%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for U.S. Government Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 3Q 1990 1.89%
Worst Quarter: 2Q 1993 0.56%
Most Recent Calendar Quarter: 2Q 2000 1.32%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
4.22% 4.69% 4.53%
</TABLE>

12
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for U.S. Treasury Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 2Q 1995 1.25%
Worst Quarter: 1Q 1993 0.52%
Most Recent Calendar Quarter: 2Q 2000 1.23%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
4.02% 4.53% 3.91%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Interstate Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 4Q 1990 1.41%
Worst Quarter: 1Q 1994 0.38%
Most Recent Calendar Quarter: 2Q 2000 0.81%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.39% 2.70% 2.95%
</TABLE>

13
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for New York Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 4Q 1990 1.30%
Worst Quarter: 3Q 1993 0.36%
Most Recent Calendar Quarter: 2Q 2000 0.80%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.25% 2.57% 2.75%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Connecticut Tax-Exempt Fund

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%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.15% 2.52% 2.73%
</TABLE>

14
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Florida Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 2Q 1997 0.73%
Worst Quarter: 1Q 1999 0.49%
Most Recent Calendar Quarter: 2Q 2000 0.84%

<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.36% 2.52%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Massachusetts Tax-Exempt Fund

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%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.20% 2.62% 2.94%
</TABLE>

15
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Michigan Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 1Q 1999 0.67%
Worst Quarter: 3Q 1999 0.54%
Most Recent Calendar Quarter: 2Q 2000 0.86%

<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.49% 2.48%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for New Jersey Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 2Q 1995 0.75%
Worst Quarter: 1Q 1999 0.46%
Most Recent Calendar Quarter: 2Q 2000 0.80%

<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS SINCE INCEPTION
2.16% 2.48% 2.61%
</TABLE>

16
<PAGE>
ABOUT THE FUNDS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Ohio Tax-Exempt Fund

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%

<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.37% 2.42%
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Total Return for Pennsylvania Tax-Exempt Fund

CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 2Q 1998 0.68%
Worst Quarter: 1Q 1999 0.49%
Most Recent Calendar Quarter: 2Q 2000 0.87%

<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.37% 2.49%
</TABLE>

For the Funds' current yields, call toll-free (800) 637-1700
or visit our web site at WWW.RESERVEFUNDS.COM.

17
<PAGE>
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 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>

------------

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 a 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>

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 U.S. Treasury Fund, , the California II, Michigan, Ohio
and Virginia Tax-Exempt Funds since inception, has 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 Primary, U.S. Government and U.S. Treasury
Fund paid RMCI an aggregate fee of $29,323,207, $5,738,286, and $2,549,541,
respectively; the Interstate Tax-Exempt Fund paid RMCI an aggregate fee of
$2,228,804; and, the California II

18
<PAGE>
ABOUT THE FUNDS

Tax-Exempt, Connecticut Tax-Exempt, Florida Tax-Exempt, Massachusetts
Tax-Exempt, Michigan Tax-Exempt, New Jersey Tax-Exempt, New York Tax-Exempt
Fund, Ohio Tax-Exempt, Pennsylvania Tax-Exempt and Virginia Tax-Exempt Funds
paid an aggregate fee of $452,687, $420,264, $200,157, $103,426, $11,118,
$355,140, $1,538,209, $16,505, $141,513 and $1,371, respectively. California II
Tax-Exempt and Virginia Tax-Exempt Funds had fees waived of $24,022 and $73,
respectively.

THE FUNDS' DISTRIBUTOR is Resrv Partners, Inc. ("Resrv"), 1250 Broadway, New
York, NY 10001-3701.

19
<PAGE>

YOUR ACCOUNT

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 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.

20
<PAGE>
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, 3:00 PM for the
Primary and U.S. Government Fund) 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 11:00 AM (Eastern Time, 3:00 PM for the Primary and U.S.
Government Fund) 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 a
Fund. Each Fund usually transmits payments the same day when requests are
received before 11:00 AM (Eastern Time, 3:00 PM for the Primary and U.S.
Government Fund) 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 a
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.

21
<PAGE>
YOUR ACCOUNT

SIGNATURE GUARANTEED. The following situations require written instructions
along with signatures guaranteed.

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.

22
<PAGE>

ACCOUNT SERVICES

CHECKING. You may redeem shares of the Fund by using your Reserve checks. 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.

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.

23
<PAGE>

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 a Fund to
incur some U.S. taxes. Dividends and distributions are taxable to most
shareholders as ordinary income (unless an investment is in an IRA or other
tax-advantaged account) in the tax year they are declared. The tax status of any
distribution is the same regardless of how long an investor has been in a fund
and whether distributions are reinvested or taken in cash. The tax status of
dividends and distributions will be detailed in an annual tax statement from the
Funds.

Dividends paid to shareholders of the U.S. Treasury Fund are subject to federal
income tax but generally are exempt from state and local personal income taxes.
As to the state specific municipal funds and the Interstate Tax-Exempt Fund,
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. Any distributions of net short-term capital gains and taxable
interest income, if any, are taxable as ordinary income. Any distributions of
net realized long-term capital gains earned by the Fund are taxable to
shareholders as long-term capital gains, regardless of the length of time the
Fund's shares have been owned by the shareholder.

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 and, with respect to the
New York Tax-Exempt Fund, local personal income taxes. Shareholders of the
Florida Tax-Exempt Fund that are subject to the Florida intangibles tax will not
be required to include the value of their Fund shares in their taxable
intangible property if 90% of the Fund's investments on the annual assessment
date are obligations that would be exempt from such tax if held directly by such
shareholders, such as Florida and U.S. government obligations. The Florida
Tax-Exempt Fund will normally attempt to invest substantially all of its assets
in securities which are exempt from the Florida intangibles tax. If more than
10% the Florida Tax-Exempt Fund's portfolio consists of assets which are not
exempt on the annual assessment date, only the portion of the investment which
relates to securities issued by the U.S. and its possessions and territories
will be exempt from the Florida intangibles tax, and the remaining portions of
those shares will be fully subject to the intangibles tax, even if they partly
relate to Florida tax-exempt securities. Shareholders of the Pennsylvania
Tax-Exempt Fund that are subject to the Pennsylvania personal property tax will
not be taxed on distributions derived from interest on exempt obligations, such
as Pennsylvania or U.S. government obligations. The tax status of dividends and
distributions will be detailed in annual tax statements from the Funds.

24
<PAGE>
DIVIDENDS & TAXES

25
<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>
FOR FISCAL YEARS ENDED MAY 31,
------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PRIMARY FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment
operations............. .0492 .0438 .0483 .0457 .0490
Less dividends from net
investment income...... (.0492) (.0438) (.0483) (.0457) (.0490)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 4.92% 4.38% 4.83% 4.57% 4.90%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $4,355.9 $3,330.1 $2,707.6 $2,104.1 $1,664.1
Ratio of expenses to
average net assets..... 1.00% 1.00% .94% .98% .98%
Ratio of net investment
income to average net
assets................. 4.74% 4.26% 4.71% 4.47% 4.79%
U.S. GOVERNMENT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment
operations............. .0471 .0426 .0471 .0449 .0484
Less dividends from net
investment income...... (.0471) (.0426) (.0471) (.0449) (.0484)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 4.71% 4.26% 4.71% 4.49% 4.84%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 667.7 $ 716.2 $ 652.5 $ 611.8 $ 568.5
Ratio of expenses to
average net assets..... 1.00% 1.00% .99% .99% 1.00%
Ratio of net investment
income to average net
assets................. 4.12% 4.16% 4.63% 4.40% 4.75%
</TABLE>

26
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. TREASURY FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment
operations............. .0443 .0410 .0456 .0443 .0466
Less dividends from net
investment income...... (.0443) (.0410) (.0456) (.0443) (.0466)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 4.43% 4.10% 4.56% 4.43% 4.66%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 397.2 $ 286.7 $ 239.8 $ 169.2 $ 142.8
Ratio of expenses to
average net
assets (c)............. 1.00% 1.00% .97% .97% .99%
Ratio of net investment
income to average net
assets (c)............. 4.12% 3.76% 4.26% 4.13% 4.33%
INTERSTATE TAX-EXEMPT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment
operations............. .0267 .0242 .0279 .0256 .0285
Less dividends from net
investment income...... (.0267) (.0242) (.0279) (.0256) (.0285)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 2.67% 2.42% 2.79% 2.56% 2.85%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 271.9 $ 292.6 $ 352.9 $ 306.2 $ 292.1
Ratio of expenses to
average net assets..... 1.00% 1.00% .97% 1.04% 1.04%
Ratio of net investment
income to average net
assets................. 2.60% 2.38% 2.75% 2.52% 2.80%
NEW YORK TAX-EXEMPT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income.... .0258 .0222 .0268 .0247 .0276
Dividends from net
investment income...... (.0258) (.0222) (.0268) (.0247) (.0276)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 2.58% 2.22% 2.68% 2.47% 2.76%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 228.4 $ 186.0 $ 171.2 $ 153.2 $ 125.5
Ratio of expenses to
average net assets..... 1.00% 1.00% .94% 1.04% 1.04%
Ratio of net investment
income to average net
assets................. 2.55% 2.19% 2.63% 2.43% 2.72%
</TABLE>

27
<PAGE>
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MAY 31, 2000(A)
---------------
<S> <C>

CALIFORNIA II TAX-EXEMPT FUND
------------------------------------------------
Net asset value, beginning of period.............. $1.0000
-------
Net investment income............................. .0208
Dividends from net investment income.............. (.0208)
-------
Net asset value, end of period.................... $1.0000
=======
Total Return...................................... 2.27%(b)
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------
Net assets end of period (millions)............... $ 91.4
Ratio of expenses to average net assets........... 1.00%(b)(c)
Ratio of net investment income to average net
assets.......................................... 2.27%(b)(c)
</TABLE>

<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(D)
---- ---- ---- -------
<S> <C> <C> <C> <C>

FLORIDA TAX-EXEMPT FUND
------------------------------
Net asset value, beginning of
year........................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- --------
Net investment income......... .0272 .0237 .0269 .0228
Dividends from net investment
income...................... (.0272) (.0237) (.0269) (.0228)
-------- -------- -------- --------
Net asset value, end of
year........................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ========
Total Return.................. 2.72% 2.37% 2.69% 2.42%(b)
RATIOS/SUPPLEMENTAL DATA
------------------------------
Net assets end of year
(millions).................. $ 28.9 $ 22.6 $ 10.8 $ 4.1
Ratio of expenses to average
net assets.................. 1.00% 1.00% .94% 1.04%(b)
Ratio of net investment income
to average net assets....... 2.68% 2.30% 2.62% 2.39%(b)
</TABLE>

28
<PAGE>
FINANCIAL HIGHLIGHTS

<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>

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MAY 31,
------------------
2000 1999(E)
---- -------
<S> <C> <C>

MICHIGAN TAX-EXEMPT FUND
----------------------------------------
Net asset value, beginning of period.... $ 1.0000 $ 1.0000
-------- --------
Net investment income................... .0263 .0118
Dividends from net investment income.... (.0263) (.0118)
-------- --------
Net asset value, end of period.......... $ 1.0000 $ 1.0000
======== ========
Total Return............................ 2.63% 2.55%(b)
RATIOS/SUPPLEMENTAL DATA
----------------------------------------
Net assets end of period (millions)..... $ 2.2 $ 1.2
Ratio of expenses to average net
assets................................ 1.00% 1.00%(b)(c)
Ratio of net investment income to
average net assets.................... 2.60% 2.02%(b)(c)
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>

NEW JERSEY TAX-EXEMPT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income.... .0249 .0223 .0254 .0236 .0263
Dividends from net
investment income...... (.0249) (.0223) (.0254) (.0236) (.0263)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 2.49% 2.23% 2.54% 2.36% 2.63%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 44.4 $ 41.3 $ 37.6 $ 39.5 $ 41.0
Ratio of expenses to
average net assets..... 1.05% 1.00% .99% 1.06% 1.04%
Ratio of net investment
income to average net
assets................. 2.46% 2.17% 2.50% 2.33% 2.59%
</TABLE>

29
<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 YEARS ENDED MAY 31,
----------------------------
2000 1999 1998(G)
---- ---- -------
<S> <C> <C> <C>

PENNSYLVANIA TAX-EXEMPT FUND
-----------------------------------
Net asset value, beginning of
year............................. $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- --------
Net investment income.............. .0276 .0234 .0189
Dividends from net investment
income........................... (.0276) (.0234) (.0189)
-------- -------- --------
Net asset value, end of year....... $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ========
Total Return....................... 2.76% 2.34% 2.64%(b)
RATIOS/SUPPLEMENTAL DATA
-----------------------------------
Net assets end of year
(millions)....................... $ 21.1 $ 16.9 $ 13.2
Ratio of expenses to average net
assets........................... 1.00% 1.00% 1.00%(b)
Ratio of net investment income to
average net assets............... 2.73% 2.28% 2.62%(b)
</TABLE>

30
<PAGE>
FINANCIAL HIGHLIGHTS

<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 net expense ratios and net investment income amounted to:

<TABLE>
<CAPTION>
NET
FISCAL EXPENSE INVESTMENT
FUND YEAR RATIO INCOME
---- -------- -------- ----------
<S> <C> <C> <C>
U.S. Treasury Fund................ 2000 .86% 4.26%
1999 .77 3.99
1998 .77 4.46
1997 .77 4.33
1996 .79 4.53
California II..................... 2000 96 2.31
Massachusetts..................... 1997 .79 2.58
1996 .84 2.71
Michigan.......................... 1999 .49 2.53
Ohio.............................. 1999 .83 2.32
Virginia.......................... 2000 .97 3.23
</TABLE>

31
<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 callimg 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.

American Express Money Market Account is a cash management service offered by
the Reserve Funds through American Express Financial Corporation. Shares
offered are shares of The Reserve Funds.

American Express Investment Services Inc.
A SUBSIDIARY OF AMERICAN EXPRESS FINANCIAL CORPORATION

70100 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
www.americanexpress.com
DISTRIBUTOR -- RESRV PARTNERS, INC.
AMEX 07/00

SEC File Number
The Reserve Fund
811-2033
Reserve Tax-Exempt Trust
811-3696
Reserve New York Tax-Exempt Trust
811-3814
8023 C 7/00

AMERICAN EXPRESS
MONEY MARKET ACCOUNTS

OFFERED BY
THE RESERVE FUNDS

PRIMARY FUND
U.S. GOVERNMENT FUND
U.S. TREASURY FUND

INTERSTATE TAX-EXEMPT FUND

PROSPECTUS
July 31, 2000

[LOGO]

<PAGE>

PART C

Item 23. Exhibits

(a) Declaration of Trust and Amendments filed as an exhibit to
Registrant's Post-Effective Amendment No. 36 dated July 31, 1999, and
incorporated by reference.

(b) Bylaws and Amendments filed as an exhibit to Registrant's
Post-Effective Amendment No. 36 dated July 31, 1999, and incorporated by
reference.

(c) Declaration of Trust and Amendments filed as an exhibit to
registrant's Post-Effective Amendment No. 36, dated July 31, 1999, and
incorporated by reference.

(d) Form of Investment Management Agreement for the Funds filed as an
exhibit to Registrant's Post-Effective Amendment No. 36, dated July 31,
1999, and incorporated by reference.

(e) Form of Distribution Agreement and Plan of Distribution filed as an
exhibit to Registrant's Pre-Effective Amendment No. 1 dated July 22, 1983
and incorporated by reference. Amendment to Plan of Distribution filed as
exhibit to Post-Effective Amendment No. 11 dated August 1, 1988 and
incorporated by reference.

(f) 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 incorporated by reference.

(g) Custodian Agreement with Chase Manhattan Bank filed as exhibit to
Registrant's Post-Effective Amendment No. 36 dated July 31, 1999 and
incorporated by reference.

(h) Not applicable

(i) Opinion of Counsel*

(j) Consent of Auditors*

(k) Not applicable

(l) Not applicable

(m) Form of Registered Dealer Agreement filed as exhibit to registrants
Post-Effective Amendment No. 36 dated July 31, 1999 and incorporated by
reference.

(n) Not applicable

(o) Reserved

(p) Code of Ethics*

---------

* Filed herewith

Item 24. Persons Controlled by or Under Common Control with Registrant
Not Applicable

Item 25. 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 26. Business and Other Connections of Investment Adviser

Name Position with the Adviser Other Businesses

<TABLE>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------
Bruce R. Bent Chairman and CEO Chairman and CEO and Director of Reserve
Management Corporation and Chairman
and Director and of Resrv Partners, Inc.
both of the same address as the Trust.
-------------------------------------------------------------------------------------------------------------------
Bruce R. Bent II President and Senior Vice President, Secretary and
Secretary Director of Reserve Management
Corporation and Secretary and
Director of Resrv Partners, Inc.
both of the same address as the
Trust.
-------------------------------------------------------------------------------------------------------------------
Arthur T. Bent III Senior Vice President and President, Treasurer and Treasurer
COO/Treasurer Director of Reserve Management
Corporation and Treasurer and Director
of Resrv Partners, Inc. both of the same
address as the Trust.
-------------------------------------------------------------------------------------------------------------------
MaryKathleen F. Gaza Director of Compliance Director of Compliance and Legal Affairs
and Legal Affairs for Reserve Management Corporation and
General Counsel of Resrv Partners, Inc.
both of the same address of the Trust.
-------------------------------------------------------------------------------------------------------------------
James Freisen Controller Controller of Reserve Management
Corporation and Resrv Partners, Inc.
both of the same address of the Trust.
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Item 27. 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.

Name and Principal Positions and Offices Positions and Offices Business Address
with Resrv Partners, Inc. with Registrant

<TABLE>
<S> <C>
---------------------------------------------------------------------------
Bruce R. Bent Chairman and Director
1250 Broadway
New York, New York 10001-3701
---------------------------------------------------------------------------
Mary A. Belmonte President
1250 Broadway
New York, New York 10001-3701
---------------------------------------------------------------------------
Bruce R. Bent II Secretary and Director
1250 Broadway
New York, New York 10001-3701
---------------------------------------------------------------------------
Arthur Bent III Treasurer and Director
1250 Broadway
New York, New York 10001-3701
---------------------------------------------------------------------------
MaryKathleen F. Gaza Counsel & Assistant Secretary
1250 Broadway
New York, New York 10001-3701
---------------------------------------------------------------------------
James Freisen Controller
1250 Broadway
New York, New York 10001-3701
----------------------------------------------------------------------------
</TABLE>

Item 28. 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 1250 Broadway, New York, NY 10001-3701 except those relating to
receipts and deliveries of securities, which are maintained by the Registrant's
Custodian.

Item 29. Management Services

See "Investment Management, Distribution, Service and Custodian
Agreements" in Part B.

Item 32. Undertakings

Not Applicable

<PAGE>

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.
39 its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York, and State of New York, on
the 28th day of July, 2000.

RESERVE TAX-EXEMPT TRUST

By: /s/ Bruce R. Bent
-------------------------
Bruce R. Bent, Chairman/CEO

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 39 to Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Bruce R. Bent Chairman/CEO and Trustee (principal July 28, 2000
- ------------------------------ executive operating and financial officer)
Bruce R. Bent

/s/ Bruce R. Bent II President and Trustee July 28, 2000
- ------------------------------
Bruce R. Bent II

* Trustee July 28, 2000
- ------------------------------
Edwin Ehlert Jr.

* Trustee July 28, 2000
- ------------------------------
Henri W. Emmet

* Trustee July 28, 2000
- ------------------------------
Donald J. Harrington

* Trustee July 28, 2000
- ------------------------------
William E. Viklund

* Trustee July 28, 2000
- ------------------------------
William Montgoris

* Trustee July 28, 2000
- ------------------------------
Patrick Foye

/s/ Arthur T. Bent III COO/Treasurer and July 28, 2000
- ------------------------------ Senior Vice President
Arthur T. Bent III

/s/ MaryKathleen F. Gaza Secretary July 28, 2000
- ------------------------------
MaryKathleen F. Gaza
*Attorney-in-Fact
</TABLE>