<PAGE>
Registration Statement Nos. 2-85406
811-3814
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
....
Post-Effective Amendment No. 25 [X]
....
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 27 [X]
....
(Check appropriate box or boxes.)
RESERVE NEW YORK TAX-EXEMPT TRUST
...........................................................................
(Exact Name of Registrant as Specified in Charter)
...........................................................................
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code
..........................
...............................................................................
(Name and Address of Agent for Service)
MaryKathleen Foynes, 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)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on (July 31, 1999) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on July 31, 1999 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 data for a
previously filed post-effective amendment.
The Commission is requested to send copies of all communications to:
MaryKathleen Foynes, Esq.
The Reserve Funds
1250 Broadway
New York, NY 10001-3701
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[THE RESERVE FUNDS LOGO]
Tax-Exempt Money-Market Funds
For Residents of
California, Connecticut, Florida, Massachusetts, Michigan,
New Jersey, New York, Ohio And Pennsylvania
Prospectus
July 31, 1999
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 and Pennsylvania Tax-Exempt Funds of Reserve Tax-Exempt Trust (each
a Fund, together the "Fund(s)") are money-market funds whose investment
objective is to seek as high a level of short-term interest income exempt from
federal income and state and local personal income and/or property taxes, if
any, for resident holders of the particular state fund as is consistent with
preservation of capital and liquidity.
---------------
These Securities Have Not Been Approved Or Disapproved By The Securities And
Exchange Commission Nor Has The Commission Passed Upon The Accuracy Or Adequacy
Of This Prospectus. Any Representation To The Contrary Is A Criminal Offense.
---------------
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TABLE OF CONTENTS
Page
Investment Objectives & Principal
Strategies....................... 2
Performance History............... 4
Fees & Expenses of the Funds...... 6
Management........................ 7
How to Buy Shares................. 7
Selling Fund Shares............... 8
Tax Consequences.................. 10
General Information............... 10
Financial Highlights.............. 11
INVESTMENT OBJECTIVES & PRINCIPAL STRATEGIES
The investment objective of each Fund is to seek as high a level of
short-term interest income exempt from federal income and state and local
personal income and/or property taxes, if any, for resident holders of the
named state fund as is consistent with preservation of capital and liquidity.
Each Fund seeks to attain its objective by investing principally in tax-exempt
obligations issued by the state for which it is named and the state's
counties, municipalities, authorities or other political subdivisions.
However, achievement of this objective cannot be assured.
The Funds are designed for institutions and individuals as a convenient
alternative to the direct investment of temporary cash balances in short-term
money-market accounts or instruments. The Funds seek to employ idle cash at
yields competitive with yields of other comparable short-term investments, and
are designed to reduce or eliminate for the investor the mechanical problems
of direct investment in money-market instruments such as scheduling
maturities, evaluating the credit of issuers, investing in round lots,
safeguarding receipt and delivery of securities and reinvesting.
The Funds seek to maintain a stable $1.00 share price. The portfolio
managers monitor a range of economic and financial factors. Based on their
analysis, the Funds are principally invested in high quality, tax-exempt
obligations issued by the specific state and its counties, municipalities,
authorities or other political subdivisions that are intended to provide as
high a yield as possible without violating the Fund's credit quality policies
or jeopardizing the stability of its share price.
The Funds' principal investment strategies include:
o Investing primarily in municipal money-market securities. Each of the
Funds invests principally in high-quality, tax-exempt obligations
issued by the specific state and its counties, municipalities,
authorities or other political subdivisions. These securities are
generally referred to as "municipal obligations".
o Investing at least 80% of the value of each Fund's net assets in
municipal obligations which are exempt from federal, income and state
and, with respect to the New York Tax-Exempt Fund, local personal
income taxes and, with respect to the Florida Tax-Exempt Fund, the
Florida intangibles tax, and with respect to the Pennsylvania
Tax-Exempt Fund, the Pennsylvania county personal property tax, unless
it has adopted a temporary defensive position. In addition, during
periods when Reserve Management Co., Inc. ("RMCI") believes that
municipal obligations meeting each respective Fund's quality standards
are not available, a Fund may invest up to 20% of the value of its net
assets, or a greater percentage on a temporary basis, in municipal
obligations exempt only from federal income taxes. Interest received
on certain otherwise tax-exempt securities ("private activity bonds")
is subject to a federal Alternative Minimum Tax ("AMT"). It is the
position of the SEC that in order for a fund to call itself
"tax-free", not more than 20% of its net assets may be invested in
municipal securities subject to the AMT or at least 80% of its income
will be tax-exempt. Income received on such securities is classified
as a "tax preference item," which could subject certain shareholders
of the Fund to AMT.
o Investing in compliance with federal regulations designed to help
maintain liquidity and the strict standards for credit quality,
diversification and maturity.
The interest on securities generally known as municipal obligations is
exempt from federal income tax in the opinion of either bond counsel for the
issuer or, in some instances, the issuer itself. These obligations may be issued
to raise money for various public purposes such as constructing public
facilities, while others are issued to obtain funding for privately operated
facilities. General obligation bonds and notes are backed by the taxing power of
the issuer. Revenue bonds and notes are backed by the revenues of a project or
facility such as tolls from a toll road or, in some cases, from the proceeds of
a special excise tax, but not by the general taxing power. Industrial
development revenue bonds and notes are a specific type of revenue bond or note
backed by the credit of a private issuer. Municipal obligations bear fixed,
variable or floating rates of interest.
Each Fund will purchase tax-exempt securities which are rated MIG1 or
MIG2 by Moody's Investor Services, Inc. ("Moody's"), SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P") or the equivalent. Municipal obligations which are
not rated may also be
2
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purchased provided Reserve Management Co., Inc ("RMCI"), the Adviser, determines
them to be of comparable quality pursuant to guidelines established by their
Boards of Trustees ("Trustees").
Although not a principal strategy, the Funds are allowed to invest all or
substantially all of its investable assets, except to the extent required to
remain uninvested to satisfy cash requirements, in another open-end management
company having the same investment objective and substantially similar
policies and restrictions.
RMCI uses its reasonable business judgment in selecting investments in
addition to considering the ratings of Moody's, S&P and other rating services,
when available.
The investment objective and principal strategies are summarized here. For
more information on the investment objective and strategies, please read the
Statement of Additional Information ("SAI"). A Fund may have to adopt a
temporary defensive position. In that event, the Fund might not be able to
attain its objective.
Principal Risks of Investing in the Funds. The Funds are money-market funds
which are a specific type of fund that seeks to maintain a $1.00 price per
share. An investment in the Funds is not insured or guaranteed by the U.S.
government, Federal Deposit Insurance Corporation or any other government
agency. Although each Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in a Fund.
Additionally, each Fund's yield will vary as the short-term securities in its
portfolio mature and the proceeds are reinvested in securities with different
interest rates.
While each Fund has maintained a constant share price since inception, and
will strive to do so, the following factors and principal investment risks
could reduce the Fund's income level and/or share price:
o Interest rates could rise sharply causing the value of a Fund's securities
and share price to drop.
o The value of municipal securities may be affected by uncertainties and
changes in municipal market-related legislation or litigation.
o As to the Funds which invest in industrial revenue development bonds and
notes secured by letters of credit or guarantees of banks, there are risks
generally associated with investing in the banking industry, such as
interest rate risk, credit risk and regulatory developments relating to
the banking industry.
o Overall, a decline in the credit quality of an issuer or the provider of
credit support or a maturity-shortening structure for a security can cause
the price of a money-market security to decrease.
o The municipal market is volatile and there are risks associated with
investing in a particular state. For example, unfavorable political or
economic conditions within a specific state can significantly affect the
financial condition and credit quality of issuers of municipal securities
located in that state. Please read below, some of the risks particular to
the single state funds offered in this Prospectus:
- As to the California II Tax-Exempt Fund, 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.
- As to the Connecticut Tax-Exempt Fund, the credit quality of the
Connecticut Tax-Exempt Fund will depend on the continued
financial strength of the State of Connecticut and its political
subdivisions. Connecticut's economy relies in part on activities
that may be adversely affected by cyclical change, and recent
declines in defense spending have had a significant impact on
unemployment levels.
- As to the Florida Tax-Exempt Fund, investors should realize that
the revenue of Florida is closely tied to its tourism business. A
decline in tourism revenues could adversely affect revenues,
principally sales tax revenue that is vulnerable to economic
cycles.
- As to the Massachusetts Tax-Exempt Fund, investors should realize
that since 1989, Massachusetts has experienced growth rates
significantly below the national average and an economic
recession in 1990 and 1991 caused negative growth rates.
Massachusetts' economic and fiscal problems in the late 1980s and
early 1990s caused several rating agencies to lower their credit
ratings.
- As to the Michigan Tax-Exempt Fund, investors should realize that
Michigan's fiscal condition continues to be tested by its
dependence on the inherently cyclical auto industry.
- As to the New Jersey Tax-Exempt Fund, investors should be aware
that from time to time, New Jersey's economic performance has
trailed the rest of the nation. Reflecting on such economic
downturn, the State's unemployment rate rose to a peak of 8.5%
during 1992.
- As to the New York Tax-Exempt Fund, investors 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.
- As to the Ohio Tax-Exempt Fund, investors should realize that
Ohio's fiscal condition is closely tied to the State's ability to
minimize its exposure to cyclical downturns in the manufacturing
sector.
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- As to the Pennsylvania Tax-Exempt Fund, investors should be aware
that many different social, environmental and economic factors
may affect the financial condition of Pennsylvania and its
political subdivisions and that, from time to time, Pennsylvania
and certain of its political subdivisions have encountered
financial difficulties which have adversely affected their
respective credit standings.
Year 2000. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900. Most of the services provided to the Trust depend
on the smooth functioning of computer systems. The Trust could be adversely
affected if the computer systems and service providers that interface with it
are unable to process data from January 1, 2000 and after; however, steps are
being taken to reasonably address this issue and to obtain assurance that
comparable efforts are being made by service providers. There can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
Trust. In addition, because the Year 2000 issue affects virtually all
organizations, the extent of its impact cannot be predicted.
Other Risks. These and other risks are discussed in more detail in the SAI.
Most of the Funds' performance depends on interest rates. When interest rates
fall, a Fund's yields will typically fall as well. Yields on municipal
securities depend on a variety of factors, including general economic and
monetary conditions, money-market factors, conditions in the tax-exempt
securities market, size of a particular offering, maturity of the obligation
and rating of the issue.
The Reserve Funds' emphasis on the high credit quality of its investments
may mean that its yields are lower than those available from certain other
money-market funds, which may invest in commercial paper. Because of the low
level of risk, over time, a money-market fund may produce lower returns than
bond or stock investments which entail higher levels of risk.
PERFORMANCE HISTORY
The bar charts below show the Funds' annual returns for the past ten years
or since the first full calendar year since inception, together with the best
and worst quarters. The accompanying "Average Annual Total Return as of
December 31, 1998" table gives some indication of risk of an investment in the
Funds. The tables assume reinvestment of dividends and distributions, if any.
The Reserve Tax-Exempt Trust did not begin offering shares of the Ohio
Tax-Exempt Fund until April 1, 1998; the Michigan Tax-Exempt Fund until
December 14, 1998; and, the California II Tax-Exempt Fund until June 28, 1999.
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.
New York Tax-Exempt Fund
Annual Total Returns as of December 31,
5.50% 5.17% 3.79% 2.26% 1.48% 1.97% 2.96% 2.51% 2.68% 2.48%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best Quarter: 2nd Q 1989 1.41%
Worst Quarter: 2nd Q 1993 0.36%
Most Recent Calendar Quarter: 2nd Q 1999 2.25%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
2.48% 2.52% 3.07%
Connecticut Tax-Exempt Fund
Annual Total Returns as of December 31,
5.77% 5.18% 3.62% 2.25% 1.64% 2.06% 2.85% 2.45% 2.66% 2.50%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best Quarter: 4th Q 1989 1.41%%
Worst Quarter: 1st Q 1993 0.38%
Most Recent Calendar Quarter: 2nd Q 1999 2.16%
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Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
2.50% 2.50% 3.09%
Florida Tax-Exempt Fund
Annual Total Returns as of December 31,
2.66% 2.62%
1997 1998
Best Quarter: 2nd Q 1998 0.73%
Worst Quarter: 1st Q 1997 0.54%
Most Recent Calendar Quarter: 2nd Q 1999 2.38%
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
2.62% 2.59%
Massachusetts Tax-Exempt Fund
Annual Total Returns as of December 31,
4.22% 2.46% 1.83% 2.17% 2.96% 2.57% 2.87% 2.53%
1991 1992 1993 1994 1995 1996 1997 1998
Best Quarter: 4th Q 1990 1.50%
Worst Quarter: 4th Q 1993 0.45%
Most Recent Calendar Quarter: 2nd Q 1999 2.17%
Average Annual Total Returns as of December 31, 1998
1 5 Since
Year Years Inception
2.53% 2.62% 3.93%
New Jersey Tax-Exempt Fund
Annual Total Returns as of December 31,
2.87% 2.41% 2.55% 2.42%
1995 1996 1997 1998
Best Quarter: 1st Q 1995 0.71%
Worst Quarter: 3rd Q 1994 0.48%
Most Recent Calendar Quarter: 2nd Q 1999 2.23%
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
2.42% 2.72%
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Pennsylvania Tax-Exempt Fund
Annual Total Returns as of December 31,
2.53%
98
Best Quarter: 4th Q 1997 0.69%
Worst Quarter: 1st Q 1998 0.59%
Most Recent Calendar Quarter: 2nd Q 1999 2.38%
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
2.53% 2.59%
For the Funds' current yields, call toll-free (800) 637-1700 or visit
our web site at www.reservefunds.com
FEES & EXPENSES OF THE FUNDS
If you buy and hold shares of the Funds, you may pay certain fees and
expenses which are described in the table below. There are no sales charges
(loads) or exchange fees associated with an investment in the Funds. Annual fund
operating expenses are paid out of the assets of each Fund, so their effect is
included in each Fund's share price. Annual fund operating expenses, indicated
in the table below, reflect expenses for the Funds' fiscal year ended May 31,
1999.
Shareholder Fees for all Funds
(Fees paid directly from your investment)
Sales Load Imposed on Purchases................... None
Sales Load Imposed on Reinvested Dividends........ None
These are all no-load funds. There are no direct shareholder fees.
Please see the "Annual Fund Operating Expenses for all Funds" table below.
Annual Fund Operating Expenses for all Funds
(Expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
California II Connecticut Florida Massachusetts Michigan
Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Comprehensive Management Fee (a)........... .80% .80% .80% .80% .80%
Distribution (12b)-1 Fees (b).............. .20 .20 .20 .20 .20
---- ---- ---- ---- ----
Total Annual Fund Operating Expenses....... 1.00% 1.00% 1.00% 1.00% 1.00%
==== ==== ==== ==== ====
<CAPTION>
New Jersey New York Ohio Pennsylvania
Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt
Fund Fund Fund Fund
---- ---- ---- ----
<S> <C> <C> <C> <C>
Comprehensive Management Fee (a)........... .80% .80% .80% .80%
Distribution (12b)-1 Fees (b).............. .20 .20 .20 .20
---- ---- ---- ----
Total Annual Fund Operating Expenses....... 1.00% 1.00% 1.00% 1.00%
==== ==== ==== ====
</TABLE>
(a) The comprehensive management fee includes advisory and customary
operating expenses. However, the Funds may be charged for certain
non-recurring extraordinary expenses and its allocated or direct share
of certain other expenses. See "Management".
(b) The Funds have adopted a Rule 12b-1 plan which allows the Funds to pay
distribution fees for the sale and distribution of its shares. The
maximum level of distribution expenses is 0.20% per year of each Fund's
average net assets. As these fees are paid
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out of each Fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying
other types of sales charges.
Example: This example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example should
not be considered indicative of future investment returns and operating
expenses which may be more or less than those shown. This example is based on
the annual fund operating expenses described in the table.
This example assumes that you invest $10,000 in a fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that each Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
California II Tax-Exempt Fund $102 $318 -- --
Connecticut Tax-Exempt Fund 102 318 $552 $1,225
Florida Tax-Exempt Fund 102 318 552 1,225
Massachusetts Tax-Exempt Fund 102 318 552 1,225
Michigan Tax-Exempt Fund 102 318 552 1,225
New Jersey Tax-Exempt Fund 102 318 552 1,225
New York Tax-Exempt Fund 102 318 552 1,225
Ohio Tax-Exempt Fund 102 318 552 1,225
Pennsylvania Tax-Exempt Fund 102 318 552 1,225
</TABLE>
Please note that the above example is an estimate of the expenses to be
incurred by shareholders of the Funds. Actual expenses may be higher or lower
than those reflected above. You may pay the same if you did not redeem your
shares.
MANAGEMENT
Investment Adviser. Since November 15, 1971, Reserve Management Company, Inc.
("RMCI") 1250 Broadway, New York, NY 10001 and its affiliates have provided
investment advice to The Reserve Funds. RMCI serves as the investment adviser
to the Funds under an Investment Management Agreement (the "Agreement") with
the Reserve Tax-Exempt Trust and Reserve New York Tax-Exempt Trust (the
"Trusts"). As a result of recent shareholder votes, each of the Funds has
entered into a new Investment Management Agreement with RMCI, which is
substantially similar to the Investment Management Agreement previously in
effect with regard to each Fund, except for a new comprehensive management
fee. The California II and Michigan Tax-Exempt Funds, since inception, have been
subject to a comprehensive management fee structure. The new Investment
Management Agreements became effective June 26, 1999. The Agreement provides
that RMCI will furnish continuous investment advisory and management services
to the Funds. In addition to the Funds, RMCI provides investment management
services to other mutual funds within the Reserve family of funds and, as of
May 31, 1999, had approximately $5.6 billion under management.
RMCI manages the investment portfolios of the Funds, subject to policies
adopted by the Trustees. For its services, RMCI receives a fee of 0.80% per
year of the average daily net assets of each Fund. RMCI pays all employee and
customary operating expenses of the Fund. Excluded from the definition of
customary operating expenses are interest, taxes, brokerage fees,
extraordinary legal and accounting fees and expenses, and the fees of the
disinterested Trustees, for which each Fund pays its direct or allocated
share. For the fiscal year ended May 31, 1999, RMCI received management fees
under the investment management agreements previously in effect with regard to
each Fund. For the fiscal year ended May 31, 1999, the Connecticut Tax-Exempt,
Florida Tax-Exempt, Massachusetts Tax-Exempt, Michigan Tax-Exempt, New Jersey
Tax-Exempt, New York Tax-Exempt Fund, Ohio Tax-Exempt and Pennsylvania
Tax-Exempt Funds paid $231,720, $110,877, $131,448, $2,705, $225,279,
$941,347, $8,867 and $94,163, respectively.
HOW TO BUY SHARES
Share Price: Net Asset Value. Investors pay no sales charges to invest in the
Funds. The price you pay for a share of a Fund, and the price you receive upon
selling or redeeming a share of a Fund, is called the Fund's net asset value
("NAV") per share. The NAV is calculated by taking the total value of a Fund's
assets, subtracting its liabilities, and then dividing by the number of shares
that have already been issued. Each Fund uses the amortized cost method of
valuing its securities under Rule 2a-7 of the 1940 Act. This is a standard
calculation, and forms the basis for all transactions involving buying,
selling, exchanging or reinvesting shares. The NAV is generally calculated as
of the close of trading on the New York Stock Exchange (usually 4:00 PM
Eastern time) every day the Exchange is open. NAV is not calculated on days
the Exchange is closed and regional bank holidays. Your order will be priced
at the next NAV calculated after your order is accepted (i.e., converted to
federal funds) by the Funds.
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Purchase of Shares. The minimum initial investment is $1,000 (IRA minimum
$250) with no minimum subsequent investment. All investments must be in U.S.
dollars. Third-party, foreign and travellers checks, as well as cash
investments will not be accepted. For clients of certain broker-dealers and
financial institutions ("Firms"), shares may be purchased directly through
such Firms. However, purchases may be subject to the Firms' own minimums and
purchase requirements. Purchase orders are not accepted on days the Exchange
is closed for trading and regional bank holidays.
o By check - (drawn on U.S. bank) payable to The Reserve Funds, 1250
Broadway, New York, NY 10001-3701. You must include your account
number (or Taxpayer Identification Number) on the "pay to the order
of" line for each check made payable to The Reserve Funds or within
the endorsement for each check endorsed to The Reserve Funds.
o By wire - Prior to calling your bank, call The Reserve Funds at
800-637-1700 for specific instructions or the Firm from which you
received this Prospectus.
Checks and wires which do not correctly identify the account to be
credited may be returned or delay the purchase of shares. Only federal funds
wires and checks drawn on the Fund's bank are eligible for entry as of the
business day received. For federal funds wires to be eligible for same-day
order entry, the Funds must be notified before 11:00 AM (Eastern time), of the
amount to be transmitted and the account to be credited. Payment by check not
immediately convertible into federal funds will be entered as of the business
day when covering federal funds are received or bank checks are converted into
federal funds. This usually occurs within two (2) business days, but may take
longer. Checks delivered to the Fund's offices after 11:00 AM (Eastern time),
will be considered received the next business day. Investors will be charged a
fee $15 for any check that does not clear and will be responsible for any
losses suffered by the Funds as a result.
Reserve Automatic Asset-Builder Plan. If you have an account, you may purchase
shares of a Fund ($25 suggested minimum) from a checking, NOW, or bank
money-market deposit account or from a U.S. government distribution ($25
suggested minimum) such as social security, federal salary, or certain
veterans' benefits, or other payment from the federal government. You may also
purchase shares automatically by arranging to have your payroll deposited
directly into your Reserve account. Please call the Funds at 800-637-1700 for
an application.
Individual Retirement Accounts. Investors may use the Funds as an investment
for Individual Retirement Accounts ("IRAs"). A master IRA plan with
information regarding administration fees and other details is available from
the Funds.
Third-party Investments. Investments made through a third party (rather than
directly with Reserve) such as a financial services agent may be subject to
policies and fees different than those described here. Banks, brokers, 401(k)
plans, financial advisers and financial supermarkets may charge transaction
fees and may set different minimum investments or limitations on buying or
selling shares. Investors should consult a representative of the plan or
financial institution if in doubt.
Distributors. The Funds' distributor is Resrv Partners, Inc. ("RESRV"),
1250 Broadway, New York, NY 10001-3701.
Restrictions. Certain other restrictions and conditions for buying shares
apply to the Funds. Please see the SAI for more information.
SELLING FUND SHARES
Investors may sell shares at any time. Shares will be sold at NAV
determined after the redemption request is received by the Fund. Each Fund
usually transmits payments the same day when requests are received before
11:00 AM (Eastern time) and the next business day for requests received after
the time specified to enable shareholders to receive additional dividends.
Shares do not earn dividends on the day a redemption is effected, regardless
of the time the order is received. Orders will be processed promptly and
investors will generally receive the proceeds within a week after receiving
your properly completed request. The Funds strongly suggest (but does not
require) that each telephone redemption be at least $1000, except for
redemptions which are intended to liquidate an account. A shareholder will be
charged $2 for redemption checks issued for less than $100. Upon request,
redemptions will be made by bank wire; however, wire redemptions of less than
$10,000 will be charged a fee (currently $10). The Funds assume no
responsibility for delays in the receipt of wired or mailed funds.
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.
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To reduce the risk of loss, certain situations require written
instructions along with signature guarantees. These include:
(1) redemptions for more than $5,000; or
(2) redemptions on accounts whose address has been changed within the
past 30 days; or
(3) redemption requests to be sent to someone other than the account
owner or the address of record for the past 30 days.
You may redeem by calling the Funds at 800-637-1700. Unless you decline
telephone privileges on your application and the Funds fail to take reasonable
measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions may be sent
to the bank or brokerage account designated by the shareholder on the
application or in a letter with signature guarantee. To change the designated
brokerage or bank account it is necessary to contact the Firm through which
shares of the Fund were purchased or, if purchased directly from the Funds, it
is necessary to send a written request to the Funds with signature(s)
guaranteed. The Fund reserves the right to refuse a telephone redemption if it
believes it is advisable to do so.
Signature guarantees are designed to protect both you and the Funds from
fraud. Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/dealers, national securities exchanges or
clearing agencies. Notaries public cannot provide signature guarantees. For
more information about redemption procedures, please read the SAI.
Checking, VISA and ATM Access. You may redeem shares of the Fund by using your
Reserve checks and VISA check card. By completing the application or a
signature card (for existing accounts) and certain other documentation, you can
write checks in any amount against your account. A check will be returned
(bounced) and a fee charged if you request a stop payment; the check is
postdated; contains an irregularity in the signature, amount or otherwise; or,
is written against accounts with insufficient or uncollected funds. Please do
not postdate your checks or use them to close your account. Upon proper
notice, the Funds may choose to impose a fee if it deems a shareholder's
actions to be burdensome. Checking may not be available to clients of some
Firms, and some Firms may establish their own minimum check amount.
Shareholders may use their VISA check card at ATM's to receive cash and may be
charged a surcharge by the ATM owner. Please see the SAI for information
including charges, fees, etcetera.
Exchange Privilege. Investors can exchange all or some of their shares offered
for shares in other Reserve money-market and equity funds. Investors can
request an exchange in writing or by telephone. The shares of the other funds
are not offered by this Prospectus. Be sure to read the current prospectus for
any fund into which you are exchanging. Any new account established through an
exchange will have the same privileges as an original account (as long as they
are available). Please see the SAI for more information.
Other Automatic Services. Certain other services and restrictions for selling
shares automatically are offered by the Funds. Please see the SAI for more
information about these services and restrictions.
Redemptions Through Brokers and Financial Institutions. Redemptions through
brokers and financial institutions may involve such Firms' own redemption
minimums, services fees, and other redemption requirements.
Other. The Funds also reserve the right to make a "redemption in kind",
(payment in portfolio securities rather than cash), without notice, if the
amount the investor is redeeming is large enough to affect fund operations
(for example, if it represents more than 1% of the Fund's assets). Further,
each Fund reserves the right to:
o refuse any purchase or exchange request,
o change or discontinue its exchange privilege,
o change its minimum investment amounts, and
o delay sending out redemption proceeds for up to seven days
(generally applies only in cases of very large redemptions,
excessive trading or during unusual market conditions).
9
<PAGE>
TAX CONSEQUENCES
The following discussion is intended as general information only.
Because everyone's tax situation is unique, you should consult your own tax
advisor(s) with regard to the applicability of state and local tax laws on Fund
distributions. For more information, please see the SAI.
Dividends, Distributions and Taxes. The Funds declare dividends daily and
automatically reinvested in as additional shares except for shareholders who
elect in writing to receive cash dividends, in which case monthly or quarterly
dividend checks are sent to the shareholder. There are no fees or sales charges
on reinvestments.
To maintain its regulated investment company status for federal income tax
purposes, each Fund intends to satisfy certain requirements imposed by the
Internal Revenue Code, so as to avoid any federal income or excise tax
liability. Dividends derived from the interest earned on municipal obligations
and designated by a Fund as "exempt interest dividends" are not subject to
federal income taxes. To the extent a Fund invests in municipal obligations
issued by its respective state or political subdivision thereof, exempt-
interest dividends derived from the interest thereon generally is not subject
to state 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 all 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 the portfolio consists of any assets which are not
so exempt on the annual assessment date, only the portion of the shares of the
Fund which relate 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 county
personal property tax will not be taxed on that portion of their Fund shares
that relate to Pennsylvania or U.S. government obligations. The tax status of
dividends and distributions will be detailed in annual tax statements from the
Funds. An exchange of a Fund's shares for the shares of another fund will be
treated as a sale of the Fund's shares and any gain may be subject to federal
income tax.
Backup Withholding. A Fund may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to certain
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.
However, special rules apply for certain accounts. For example, for an account
established under the Uniform Gift to Minors Act, the TIN of the minor should
be furnished. Shareholders should be aware that, under regulations promulgated
by the IRS a Fund may be fined $50 annually for each account for which a
certified TIN is not provided or is incorrect. In the event that such a fine
is imposed with respect to an account in any year, a corresponding charge will
be made against the account. The Funds will not accept purchase orders for
accounts for which a correct and certified TIN is not provided or which is
otherwise subject to backup withholding, except in the case of certain
non-resident alien account holders.
GENERAL INFORMATION
Small Balances. Because of the expense of maintaining accounts with small
balances (less than $1,000), the Funds may choose without notice to either
levy a monthly charge (currently $5) or redeem the account and remit the
proceeds. Some Firms may establish variations of minimum balances and monthly
charges, if approved by the Funds.
Reserve Easy Access. Easy Access is The Reserve Funds' 24-hour toll-free
telephone service that lets customers use a touch-tone phone for a variety of
options, which include yields, account balances, check reorders and other
options. To use it, call 800-637-1700 and follow the instructions. Clients may
also access full account activity for the previous six months on the Internet
at www.reservefunds.com.
Inquiries. Shareholders should direct their inquiries to the Firm from which
they received this Prospectus or to The Reserve Funds.
Special Shareholder Services. The Funds reserve the right to charge
shareholder accounts for specific costs incurred in processing unusual
transactions. Such transactions include, but are not limited to, stop payment
requests, copies of Fund redemption or shareholder checks, copies of
statements and special research services.
10
<PAGE>
Account Statements. Shareholders are advised to retain all account statements.
FINANCIAL HIGHLIGHTS
This section provides further details about the Funds' recent financial
history. "Total Return" shows how much an investment in a series would have
increased (or decreased) during each period, assuming reinvestment of all
dividends and distributions, if any. The Trust did not offer shares of
California II Tax-Exempt Fund until June 28, 1999. These figures have been
audited by PricewaterhouseCoopers LLP, the Trust's independent accountants,
whose report, along with each Funds' financial statements, is included in the
Trust's Annual Report, which is available upon request by calling 800-637-1700.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
----------------------------------------------------------------------------
NEW YORK TAX-EXEMPT FUND 1999 1998 1997 1996 1995
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0222 .0268 .0247 .0276 .0253
Dividends from net investment income (.0222) (.0268) (.0247) (.0276) (.0253)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.22% 2.68% 2.47% 2.76% 2.53%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of year (millions) $186.0 $ 171.2 $ 153.2 $125.5 $ 152.9
Ratio of expenses to average net assets 1.00% .94% 1.04% 1.04% .98%
Ratio of net investment income to
average net assets 2.19% 2.63% 2.43% 2.72% 2.48%
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-----------------------------------------------------------------------------
CONNECTICUT TAX-EXEMPT FUND 1999 1998 1997 1996 1995
- --------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0221 .0267 .0243 .0266 .0254
Dividends from net investment income (.0221) (.0267) (.0243) (.0266) (.0254)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.21% 2.67% 2.43% 2.66% 2.54%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of year (millions) $ 55.4 $ 36.8 $ 33.5 $ 34.8 $ 26.6
Ratio of expenses to average net assets 1.00% .89% .97% 1.01% .99%(c)
Ratio of net investment income
to average net assets 2.17% 2.64% 2.39% 2.61% 2.23%(c)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
--------------------------------------------------------------------------------
FLORIDA TAX-EXEMPT FUND 1999 1998 1997 (A)
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000
------- ------- -------
Net investment income .0237 .0269 .0228
Dividends from net investment income (.0237) (.0269) (.0228)
------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000
======= ======= =======
Total Return 2.37% 2.69% 2.42%(b)
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of year (millions) $ 22.6 $ 10.8 $ 4.1
Ratio of expenses to average net assets 1.00% .94% 1.04%(b)
Ratio of net investment income to
average net assets 2.30% 2.62% 2.39%(b)
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-------------------------------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT FUND 1999 1998 1997 1996 1995
- ----------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0220 .0284 .0259 .0276 .0265
Dividends from net investment income (.0220) (.0284) (.0259) (.0276) (.0265)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.20% 2.84% 2.59% 2.76% 2.65%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of year (millions) $ 19.9 $ 25.4 $ 13.0 $ 9.0 $ 10.2
Ratio of expenses to average net assets 1.00% .75% .83%(c) .89%(c) .80%(c)
Ratio of net investment income to
average net assets 2.17% 2.78% 2.54%(c) 2.66%(c) 2.69%(c)
<CAPTION>
PERIOD ENDED
MAY 31,
MICHIGAN TAX-EXEMPT FUND 1999(d)
- ------------------------ ----
<S> <C>
Net asset value, beginning of year $1.0000
-------
Net investment income .0118
Dividends from net investment income (.0118)
-------
Net asset value, end of year $1.0000
=======
Total Return 2.55%(b)
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of year (millions) $ 1.2
Ratio of expenses to average net assets 1.00%(b,c)
Ratio of net investment income to
average net assets 2.02%(b,c)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
---------------------------------------------------------------
NEW JERSEY TAX-EXEMPT FUND 1999 1998 1997 1996 1995(e)
- -------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0223 .0254 .0236 .0263 .0243
Dividends from net investment income (.0223) (.0254) (.0236) (.0263) (.0243)
------- ------- ------- ------- -------
Net asset value, end of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.23% 2.54% 2.36% 2.63% 2.43%(b)
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of period (millions) $ 41.3 $ 37.6 $ 39.5 $ 41.0 $ 21.6
Ratio of expenses to average net assets 1.00% .99% 1.06% 1.04% 1.02%(b,c)
Ratio of net investment income
to average net assets 2.17% 2.50% 2.33% 2.59% 2.81%(b,c)
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-------------------------------------------------
OHIO TAX-EXEMPT FUND 1999 1998(f)
- -------------------- ---- ----
<S> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000
------- -------
Net investment income .0236 .0048
Dividends from net investment income (.0236) (.0048)
------- -------
Net asset value, end of period $1.0000 $1.0000
------- =======
Total Return 2.36% 2.87%(b)
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of period (millions) $ 1.2 $ 2.5
Ratio of expenses to average net assets 1.00%(c) 1.00%(b)
Ratio of net investment income
to average net assets 2.16%(c) 2.86%(b)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED MAY 31,
-----------------------------------------------
PENNSYLVANIA TAX-EXEMPT FUND 1999 1998(g)
- ----------------------------- ---- ----
<S> <C> <C>
Net asset value, beginning of period $ 1.000 $1.0000
-------- -------
Net investment income .0234 .0189
Dividends from net investment income (.0234) (.0189)
------- --------
Net asset value, end of period $1.0000 $1.0000
======= =======
Total Return 2.34% 2.64%(b)
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of period (millions) $ 16.9 $ 13.2
Ratio of expenses to average net assets 1.00% 1.00%(b)
Ratio of net investment income
to average net assets 2.28% 2.62%(b)
</TABLE>
(a) From June 24, 1996 (Commencement of Operations) to May 31, 1997.
(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:
Net
Fiscal Expense Investment
Fund Year Ratio Income
---- ---- ----- --------
Connecticut 1995 .89% 2.33%
Massachusetts 1997 .79% 2.58%
1996 .84% 2.71%
1995 .69% 2.80%
Michigan 1999 .49% 2.53%
New Jersey 1995 1.01% 2.82%
Ohio 1999 .83% 2.32%
(d) From December 14, 1998 (Commencement of Operations) to May 31, 1999.
(e) From October 17, 1994 (Commencement of Operations) to May 31, 1995.
(f) From April 1, 1998 (Commencement of Operations) to May 31, 1998.
(g) From September 12, 1997 (Commencement of Operations) to May 31, 1998.
---------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offering in any jurisdiction in which such
offering may not lawfully be made.
---------------
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
This Prospectus contains the information about
each Fund, which a prospective investor should
know before investing. [THE RESERVE FUNDS LOGO]
Founders of
The Statement of Additional Information ("SAI") "America's First
contains additional and more detailed information Money Fund"
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 Tax-Exempt Money-Market Funds
that significantly affected the Funds'
performance. California II Tax-Exempt Fund
Connecticut Tax-Exempt Fund
These documents may be obtained without charge by Florida Tax-Exempt Fund
writing to the address below or calling The Reserve Massachusetts Tax-Exempt Fund
Funds at 800-637-1700. You can download the documents Michigan Tax-Exempt Fund
from the SEC's web site (http://www.sec.gov) or you can New Jersey Tax-Exempt Fund
obtain copies by visiting the SEC's Public New York Tax-Exempt Fund
Reference Room in Washington, DC (800-SEC-0330) or Ohio Tax-Exempt Fund
by sending your request and duplicating fee to the Pennsylvania Tax-Exempt Fund
SEC's Public Reference Section, Washington, DC
20549-6009.
Investors are advised to read and retain this
prospectus for future reference.
[THE RESERVE FUNDS LOGO]
Founders of "America's
First Money Fund"
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
Prospectus
July 31, 1999
Distributor - Resrv Partners, Inc.
RTET/states-07/99
SEC File Numbers
Reserve Tax-Exempt Trust
811-3696
Reserve New York Tax-Exempt Trust
811-3814
</TABLE>
15
<PAGE>
RESERVE TAX-EXEMPT TRUST
RESERVE NEW YORK TAX-EXEMPT TRUST
1250 BROADWAY, NEW YORK, NY 10001-3701
212-401-5500 o 800-637-1700
--------------------------------------------
24-HOUR YIELD AND BALANCE INFORMATION
Nationwide 800-637-1700 o www.reservefunds.com
Tax-Exempt Money-Market Funds
For Residents Of
California, Connecticut, Florida, Massachusetts, Michigan,
New Jersey, New York, Ohio And Pennsylvania
Statement Of Additional Information
This Statement of Additional Information ("SAI") describes the California
II Tax-Exempt, Connecticut Tax-Exempt, Florida Tax-Exempt, Massachusetts
Tax-Exempt, Michigan Tax-Exempt, New Jersey Tax-Exempt, Ohio Tax-Exempt and
Pennsylvania 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"). At the date of this SAI, there were nine (9) separate series of
Reserve Tax-Exempt Trust authorized and outstanding (Interstate, California
II, Connecticut, Florida, Massachusetts, Michigan, New Jersey, Ohio and
Pennsylvania 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) 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 Prospectus dated July 31, 1999
and should be read in conjunction with it. A copy of the Prospectus 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, 1999.
TABLE OF CONTENTS PAGE
Description of Funds 2
Management of the Trusts 10
Investment Management, Distribution and Custodian Agreements 15
Information About the Trusts 17
How to Buy and Sell Shares 18
Dividends, Distributions and Taxes 24
Yield Information 25
General Information 26
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 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.
Achievement of the Funds' objective cannot be assured. This investment
objective 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"). However, achievement of this objective is not guaranteed.
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.
The Funds are designed for institutions and individuals as a convenient
alternative to the direct investment of temporary cash balances in short-term
money-market accounts or instruments. The Funds seek to employ idle cash at
yields competitive with yields of other comparable short-term investments, and
are designed to reduce or eliminate for the investor the mechanical problems
of direct investment in money-market instruments such as scheduling
maturities, evaluating the credit of issuers, investing in round lots,
safeguarding receipt and delivery of securities and reinvesting.
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. However, 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.
Supplemental Investment 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:
2
<PAGE>
(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 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;
(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.
Other Policies. 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.
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.
The Funds may purchase participation interests in municipal obligations
from financial institutions. A participation interest gives a Fund an
undivided interest in the municipal obligation in the proportion that the
Fund's participation interest bears to the total principal amount of the
municipal obligation. These instruments may have fixed, floating or variable
rates of interest. Frequently, such instruments are secured by letters of
credit or other
3
<PAGE>
credit support arrangements provided by banks.
Interest received on certain otherwise tax-exempt securities ("private
activity bonds") is subject to a federal Alternative Minimum Tax ("AMT"). It
is the position of the SEC that in order for a fund to call itself "tax-free",
not more than 20% of its net assets may be invested in municipal securities
subject to the AMT or at least 80% of its income will be tax-exempt. Income
received on such securities is classified as a "tax preference item," which
could subject certain shareholders of each Fund to the AMT. However, as of the
date of this Prospectus, each Fund has not and does not purchase such
securities, but reserves the right to do so depending on market conditions in
the future.
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 each Fund
will be invested in taxable investments at any time.
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.
Types of Securities. Money-market securities are high-quality, short-term
securities that pay a fixed, variable or floating interest rate. Securities
are often specifically structured so that they are eligible investments for a
money-market fund having demand or put features which have the effect of
shortening the security's maturity. Municipal money-market securities include
variable rate demand bonds, commercial paper, municipal notes and shares of
municipal money-market funds.
Debt securities are used by issuers to borrow money. The issuer usually
pays a fixed, variable or floating rate of interest, and must repay the amount
borrowed at the maturity of the security. Some debt securities, such as zero
coupon bonds, do not pay current interest, but are sold at a discount from
their face values. Municipal debt securities include general obligation bonds
of municipalities, local or state governments, project or revenue-specific
bonds, or pre-refunded or escrowed bonds.
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.
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.
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Risks of Investing in the Funds. The investment risks of the Funds are
specific to the particular type of municipal obligation, as well as general
investment risks that may affect the municipal money-market as a whole.
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
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 the Funds' 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
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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.
Many factors affect each Fund's performance. Because each Fund invests in
a specific state, the Fund's performance is expected to be closely tied to
economic and political conditions within that state and to be more volatile
than the performance of a more geographically diversified fund. The Funds'
yields will change daily based on changes in interest rates and market
conditions. Although each Fund has managed to maintain a stable $1.00 share
price since inception, there is no guarantee that the Fund will be able to
continue to do so.
The principal risk factors associated with investment in each Fund are the
risk of fluctuations in short-term interest rates and 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.
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.
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 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.
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
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may distribute income subject to federal or local or state personal income
tax. A Fund may enter into repurchase and reverse repurchase agreements for
temporary defensive purposes. A repurchase agreement transaction occurs when a
Fund purchases and simultaneously contracts to resell securities at fixed
prices determined by the yields negotiated. Each Fund will limit repurchase
agreement transactions to those financial institutions and securities dealers
who are deemed credit-worthy pursuant to guidelines established by each
Trust's Board of Trustees. The investment adviser will follow procedures
intended to provide that all acquired repurchase agreements 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 a 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. The Funds will not hold
more than 10% of their net assets in illiquid securities, including repurchase
agreements with a term greater than seven (7) days.
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 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.
Certain banks and other municipal securities dealers have indicated a
willingness to sell municipal obligations to the Funds accompanied by a
commitment to repurchase the securities at a Fund's option or at a specified
date, at an agreed upon price or yield within a specified period prior to the
maturity date of such securities at amortized cost. If a bank or other
municipal securities dealer were to default under such standby commitment and
fail to pay the exercise price, a Fund could suffer a potential loss to the
extent that the amount paid by the Fund, if any, for the municipal obligation
with a standby commitment exceeded the current value of the underlying
municipal obligation. If a bank or other municipal securities dealer defaults
under its standby commitment, the liquidity of the security subject to such
commitment may be adversely affected.
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.
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.
Further, there are risks particular to each state for which a respective
Fund is named. 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-
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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
A+ 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 revenues could adversely affect revenues, principally sales
tax revenue which is vulnerable to economic 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
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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 Aa3,
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.
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
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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.
Transaction Charges and Allocation. As investment securities transactions made
by the Fund are normally principal transactions at net prices, the Fund does not
normally incur brokerage commissions. Purchases of securities from underwriters
involve a commission or concession paid by the issuer to the underwriter and
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 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, 62, President, Treasurer and Trustee, 1250 Broadway, New York,
NY 10001-3701. Mr. Bent is President, Treasurer, 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
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Equity Series ("RPES"); Director and President 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, 33, Trustee, Senior Vice President and Assistant Secretary,
1250 Broadway, New York, NY 10001-3701.
Mr. Bent II joined The Reserve Funds in 1992 and is Senior Vice President and
Assistant Secretary of RF, RIT, RTET, RNYTET and RPES. Mr. Bent II is also Vice
President and Secretary of Reserve Management Company, Inc. ("RMCI") and Reserve
Management Corporation ("RMC"); and Secretary and Director of Resrv Partners,
Inc. ("RESRV").
+RICHARD BASSUK, 57 Trustee, c/o The Singer & Bassuk Organization, 767 Third
Avenue, 28th Floor, New York, NY 10017.
From 1995 to present Mr. Bassuk has been a founding principal and President
of Singer & Bassuk Organization. From 1994 to present, Mr. Bassuk served as
Chairman of R.E. Bases Enterprises Corporation. He is currently Trustee of RF,
RIT, RTET, RNYTET and RPES.
+EDWIN EHLERT, JR., 66, 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, 72, 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. Since 1995, Mr. Emmet has served 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.
+DONALD J. HARRINGTON, C.M., 53, Trustee, St. John's University, Grand Central
& Utopia Parkways, Jamaica, NY 11439.
The Reverend Harrington is currently President of St. John's University,
NY, and a Director of the Bear Stearns Companies, Inc. since 1993. He is
currently a Trustee RF, RIT, RTET, RNYTET and RPES.
+DIANA P. HERRMANN, 40, Trustee, 380 Madison Avenue, Suite 2300, New York, NY
10017.
Ms. Herrmann has been President and COO of Aquila Management Corporation
("Aquila"), sponsors of 14 mutual funds with over $32 billion in assets as of
June 30,1999. Ms. Herrmann has been employed with Aquila since 1986. She is
currently Trustee of RF, RIT, RTET, RNYTET and RPES.
+WILLIAM J. MONTGORIS, 52, 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, 58, 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, 31, Vice President and Assistant Secretary, 1250 Broadway,
New York, NY 10001-3701.
11
<PAGE>
Mr. Bent III joined The Reserve Funds in 1997 and is Vice President and
Assistant Secretary of RF, RIT, RTET, RNYTET and RPES. Mr. Bent III is also
Vice President and Treasurer of Reserve Management Company, Inc. ("RMCI") and
Reserve Management Corporation ("RMC"); and Treasurer and Director of Resrv
Partners, Inc. ("RESRV"). Before joining Reserve, he was a private investor.
MARYKATHLEEN FOYNES, 29, Counsel and Secretary, 1250 Broadway, New York, NY
10001-3701.
Ms. Foynes is Counsel and Secretary of RF, RIT, RNYTET, RTET and RPES.
Before joining The Reserve Funds in 1998, Ms. Foynes was a staff attorney at
PaineWebber, Inc. (1997-1998). Prior to that, Ms. Foynes worked for the U.S.
House of Representatives as a District Manager for a Member of Congress
(1995-1997).
JAMES M. FREISEN, 41, 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).
- ------------
+ Messrs. Bassuk, Ehlert, Emmet, Harrington, Montgoris, Viklund and Ms. Herrmann
are members of a Review Committee which performs the functions of an Audit
Committee and reviews compliance procedures and practices.
++ Interested Trustee within the meaning of the 1940 Act. 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 and an annual fee of $16,000
for service to all of the trusts in the complex.
* Mr. Bent is the father of Mr. Bent II and Mr. Bent III.
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 of 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.
As of June 30, 1999, the Trust's records reflect that the Trustees and
officers directly or indirectly as a group owned less than 1% of the
outstanding shares of the Funds. The Trust does not pay any pension or
retirement benefits to its Trustees.
[CAPTION]
<TABLE>
COMPENSATION TABLE
FOR FISCAL YEAR ENDED MAY 31, 1999
AGGREGATE
COMPENSATION TOTAL COMPENSATION
FROM TRUST FROM TRUST AND TRUST COMPLEX
NAME OF TRUSTEE, POSITION (excluding Interstate (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE
Fund)
<S> <C> <C>
Bruce R. Bent, President and Trustee $ 0 $ 0
Bruce R. Bent II, Vice President and Trustee 0 0
Richard Bassuk, Trustee 227 3,500
Edwin Ehlert, Jr., Trustee 1,976 30,500
Henri W. Emmet, Trustee 1,976 30,500
Rev. Donald J. Harrington, Trustee 1,976 30,500
Diana P. Herrmann, Trustee 227 3,500
William J. Montgoris, Trustee 0 0
William E. Viklund, Trustee 1,490 23,000
</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,
1999 for services rendered to the Fund.
12
<PAGE>
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.
As of July 9, 1999, 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>
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. 1,207,703 100.0%
California II Fee Account
1250 Broadway
New York, NY 10001-3701
CONNECTICUT TAX-EXEMPT FUND
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
Chase Manhattan Bank 3,745,149 7.8%
Attn: Client Services
1 Chase Manhattan Plaza, 16th Floor
New York, NY 10017
Fiduciary Trust Co. International 9,654,526 20.3%
Customer Accounts
P. O. Box 3199, Church Street Station
New York, NY
Reserve Management Corporation 13,660,626 28.7%
ATTN: Account No. 51361798
1250 Broadway
New York, NY 10001-3701
FLORIDA TAX-EXEMPT FUND
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
Reserve Management Corporation 1,323,362 6.2%
ATTN: Account No. 50209142
1250 Broadway
New York, NY 10001-3701
Reserve Management Corporation 1,829,417 8.6%
ATTN: Account No. 50342238
1250 Broadway
New York, NY 10001-3701
</TABLE>
13
<PAGE>
MASSACHUSETTS TAX-EXEMPT FUND
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
<S> <C> <C>
Reserve Management Corporation 1,323,362 6.2%
ATTN: Account No. 51972354
1250 Broadway
New York, NY 10001-3701
Reserve Management Corporation 4,442,227 42.2%
ATTN: Account No. 51870434
1250 Broadway
New York, NY 10001-3701
MICHIGAN TAX-EXEMPT FUND
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
Reserve Management Corporation 202,993 16.6%
Attn: Arthur Bent
1250 Broadway
New York, NY 10001-3710
Reserve Management Corporation 1,014,246 83.3%
ATTN: Account No. 52504917
1250 Broadway
New York, NY 10001-3701
NEW YORK TAX-EXEMPT FUND
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
Fiduciary Trust Company International 15,364,110 8.8%
Customer Accounts
P. O. Box 3199, Church Street Station
New York, NY 10008
OHIO TAX-EXEMPT FUND
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
Reserve Management Corporation 1,225,379 99.9%
ATTN: Account No. 51589455
1250 Broadway
New York, NY 10001-3701
</TABLE>
14
<PAGE>
PENNSYLVANIA TAX-EXEMPT FUND
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
<S> <C> <C>
Reserve Management Corporation 787,155 5.2%
ATTN: Account No. 50124742
1250 Broadway
New York, NY 10001-3701
Reserve Management Corporation
ATTN: Account No. 52816378 927,535 6.2%
1250 Broadway
New York, NY 10001-3701
</TABLE>
(1) Fractional shares have been omitted.
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
Michigan and California II 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, 1997, 1998 and 1999, RMCI received
management fees under the Investment Management Agreements previously in
effect. For the fiscal years ended May 31, 1997, 1998 and 1999, RMCI received
management fees of, $166,430, $185,719 and $231,720, respectively from the
Connecticut Tax-Exempt Fund; $51,006, $91,116 and $131,448 from the
Massachusetts Tax-Exempt Fund; $786,904, $889,437 and $941,347 from the New
York Tax-Exempt Fund; for the fiscal years ending May 31, 1997, 1998 and 1999.
RMCI received $194,595, $197,592 and $225,279, respectively in management fees
from the New Jersey Tax-Exempt Fund. For the period of June 24, 1996 to May
31, 1997, fiscal years ending May 31, 1998 and 1999, RMCI received $19,304,
$50,776 and $110,877, respectively in management fees from the Florida
Tax-Exempt Fund. RMCI received $45,755 and $94,163 in management fees from the
Pennsylvania Tax-Exempt Fund for the period September 15, 1997 to May 31, 1998
and fiscal year ending May 31, 1999. RMCI received $1,915 and $8,867 in
management fees from the Ohio Tax-Exempt Fund for the period April 1, 1998 to
May 31, 1998 and fiscal year ending May 31, 1999. RMCI received $2,705 in
management fees from the Michigan Tax-Exempt Fund for the period December 14,
1998 to May 31, 1999.
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 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.
15
<PAGE>
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 and Michigan 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.
A substantially similar Service Agreement was in effect with regard to
each of the other Funds until June 25, 1999. Pursuant to the Service
Agreements during the fiscal years ended May 31, 1997 and 1998, the Funds
reimbursed RMCI $934,359 and $914,100, 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, 1999, 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 Fund maintains a Plan of Distribution ("Plan") and
related agreements, as amended, under Rule 12b-1 of the Investment Company Act
of 1940, which provides that investment companies may pay distribution
expenses, directly or indirectly, pursuant to a Plan adopted by the investment
company's Board and approved by its shareholders. Under the Plan, 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 the Fund by
increasing assets under management, and reducing expense ratios and the cost
to the Fund if such services were provided directly by the Fund or other
authorized persons and RESRV and RMCI will also consider the need to respond
to competitive
16
<PAGE>
offers of others, which could result in assets being withdrawn from the Fund and
an increase in the expense ratio for the Fund. RMCI may elect to retain a
portion of the distribution assistance payments to pay for sales materials or
other promotional activities. The Trustees have determined that there is a
reasonable likelihood the Plan will benefit the Fund and its shareholders.
Under the Plan, the Fund's Controller or Treasurer reports quarterly the
amounts and purposes of assistance payments. During the continuance of the
Plan, the selection and nomination of the disinterested Trustees are at the
discretion of the disinterested Trustees currently in office.
During the fiscal year ended May 31, 1999, $576,256 was paid under the
Plan by the Funds. 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, 1999, substantially
all payments made by the Fund were to brokers or other financial institutions
and intermediaries for share balances in the Fund.
The Plan and related agreements were duly approved by shareholders and may
be terminated at any time by a vote of 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, Independent Accountant and Counsel. 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. Dechert, Price & Rhoads,
1775 Eye Street NW, Washington, DC 20006, is the Funds' outside counsel and
has rendered its opinion as to certain legal matters regarding the due
authorization and valid issuance of the shares being sold pursuant to the
Funds' Prospectus.
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 the Fund. If they deem it advisable and in the best
interests of shareholders, the Trustees may classify or reclassify any
unissued shares of the 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
17
<PAGE>
situation. Upon liquidation of any Fund, shareholders are entitled to share, pro
rata, in the net assets of their 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 9
series (funds) of the Reserve Tax-Exempt Trust (Interstate, California II,
Connecticut, Florida, Massachusetts, Michigan, New Jersey, Ohio and
Pennsylvania 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
18
<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 not calculated on days the Exchange is closed for trading and on
certain regional banking holidays. The holidays (as observed) on which the
Exchange and The Reserve Fund are closed currently are: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. In addition, The Reserve Fund is
closed on Columbus Day and
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Veterans 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.
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:
(1) redemptions for more than $5,000; or
(2) redemptions on accounts whose address has been changed within the
past 30 days; or
(3) redemption requests to be sent to someone other than the account
owner or the address of record for the past 30 days.
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You may redeem by calling the Funds at 800-637-1700. Unless you decline
telephone privileges on your application and the Funds fail to take reasonable
measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions may be sent
to the bank or brokerage account designated by the shareholder on the
application or in a letter with signature guarantee. To change the designated
brokerage or bank account it is necessary to contact the Firm through which
shares of the Fund were purchased or, if purchased directly from the Funds, it
is necessary to send a written request to the Funds with signature(s)
guaranteed. The Fund reserves the right to refuse a telephone redemption if it
believes it is advisable to do so.
Signature guarantees 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 up
to the amount set by governing Federal regulations, currently $50 if the Fund
or the bank is not notified of the theft or loss within two (2) business days.
Participants should refer to the VISA Account Shareholder 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 BankOne
at 614-248-4242 or 800-996-4324, which can be reached 24 hours a day, seven
(7) days a week or the Funds at 800-631-7784 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.
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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.
Touch-Tone Bill Payment Service. In the near future, the Funds will offer its
shareholders touch-tone bill payment which gives 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.
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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) 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 which utilize a centralized purchase method for shares may
have an earlier cut-off for purchase orders than stated above and 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
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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.
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
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shareholders annually as to the portion of the distributions from the Fund which
constituted "exempt-interest dividends."
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, 1999, Connecticut Tax-Exempt
Fund's yield was 2.03% and its effective yield was 2.05%. For the seven-day
period ended May 31, 1999, the Florida Tax-Exempt Fund's yield was 2.27% and
its effective yield was 2.29%. For the seven-day period ended May 31, 1999,
Massachusetts Tax-Exempt Fund's yield was 2.00% and its effective yield was
2.02%. For the seven-day period ended May 31, 1999, Michigan Tax-Exempt Fund's
yield was 2.31% and its effective yield was 2.34%. For the seven-day period
ended May 31, 1999, New Jersey Tax-Exempt Fund's yield was 2.23% and its
effective yield was 2.25%. For the seven-day period ended May 31, 1999, Ohio
Tax-Exempt Fund's yield was 2.25% and its effective yield was 2.28%. For the
seven-day period ended May 31, 1999, Pennsylvania Tax-Exempt Fund's yield was
2.19% and its effective yield was 2.21%.
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
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of the period to obtain the base period return, and annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the value
of the account reflects the value of additional shares purchased with dividends
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 365 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. 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. 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 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.
RATINGS
The following are the rating designations of short-term instruments and
their respective meanings.
26
<PAGE>
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 are extremely strong characteristics
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 repayment 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 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, 1999,
including notes thereto, are incorporated by reference in the SAI from the
Trusts' Annual Report to Shareholders dated May 31, 1999 filed with the SEC on
July 30, 1999.
27
<PAGE>
[AMERICAN EXPRESS LOGO]
American Express Money-Market Accounts
Prospectus
July 31, 1999
The Reserve Fund, Reserve Tax-Exempt Trust and Reserve New York Tax-Exempt Trust
(the "Trusts"), are registered investment companies, which offer thirteen
no-load money-market funds in this Prospectus:
o Primary Fund,
o U.S. Government Fund,
o U.S. Treasury Fund,
o Interstate Tax-Exempt Fund,
o California II Tax-Exempt Fund
o Connecticut Tax-Exempt Fund,
o Florida Tax-Exempt Fund,
o Massachusetts Tax-Exempt Fund,
o Michigan Tax-Exempt Fund,
o New Jersey Tax-Exempt Fund,
o New York Tax-Exempt Fund,
o Ohio Tax-Exempt Fund, and
o Pennsylvania Tax-Exempt Fund,
(each a "Fund", collectively "the Funds")
---------------
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
Page
----
Investment Objectives & Principal
Strategies........................ 2
Performance History................. 5
Fees & Expenses of the Fund......... 9
Management.......................... 9
How to Buy Shares................... 10
Selling Fund Shares................. 11
Tax Consequences.................... 12
General Information................. 13
Financial Highlights................ 13
INVESTMENT OBJECTIVES & PRINCIPAL STRATEGIES
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
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 and Pennsylvania Tax-Exempt 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. 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. However,
achievement of the objectives cannot be assured.
The Funds are designed for institutions and individuals as a convenient
alternative to the direct investment of temporary cash balances in short-term
money-market accounts or instruments. The Funds seek to employ idle cash at
yields competitive with yields of other comparable short-term investments, and
are designed to reduce or eliminate for the investor the mechanical problems of
direct investment in money-market instruments such as scheduling maturities,
evaluating the credit of issuers, investing in round lots, safeguarding receipt
and delivery of securities and reinvesting.
The Funds seek to maintain a stable $1.00 share price. The portfolio
managers monitor a range of economic and financial factors. Based on their
analysis, the Funds are 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, other short-term
instruments of similar quality, and instruments fully collateralized by such
obligations.
The Primary Fund will invest in obligations of U.S. banking institutions
that are insured by the Federal Deposit Insurance Corporation and commercial
paper, which is rated at the time of investment, P-1 by Moody's Investors
Service, Inc. ("Moody's"), A-1 by Standard & Poor's Corporation ("S&P") or the
equivalent if rated by another rating agency. The Primary Fund may also invest
in obligations of foreign branches of both U.S. banks and foreign banks
(Eurodollars). Investment in foreign banks will be limited to those 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 and which, in the opinion of the Fund's Adviser, are of
comparable quality to the U.S. banks which may be purchased by the Fund. The
Primary Fund may also invest in municipal obligations, the interest on which is
not exempt from federal income taxation.
U.S. Government Fund. The U.S. Government Fund seeks to attain its objective by
investing exclusively in securities backed by 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
agreement 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.
2
<PAGE>
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.
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 Trust's Board of Trustees ("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.
Tax-Exempt Funds (California II, Connecticut, Florida, Massachusetts, Michigan,
New Jersey, New York, Ohio, Pennsylvania and Interstate Tax-Exempt Funds). A
principal investment strategy of the Tax-Exempt Funds, with the exception of the
Interstate Tax-Exempt Fund, is investing at least 80% of the value of each
Fund's net assets in municipal obligations which are exempt from federal, income
and state and, with respect to the New York Tax-Exempt Fund, local personal
income taxes and, with respect to the Florida Tax-Exempt Fund, the Florida
intangibles tax, and with respect to the Pennsylvania Tax-Exempt Fund, the
Pennsylvania county personal property tax, unless it has adopted a temporary
defensive position. In addition, during periods when Reserve Management Co.,
Inc. ("RMCI") believes that municipal obligations meeting each respective Fund's
quality standards are not available, a Fund may invest up to 20% of the value of
its net assets, or a greater percentage on a temporary basis, in municipal
obligations exempt only from federal income taxes.
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 The Fund intends to invest 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.
The Tax-Exempt Funds' investment strategies include investing primarily in
municipal money-market securities. The Funds invest principally in high-quality,
tax-exempt obligations issued by states, counties, municipalities, authorities
or other political subdivisions. These securities are generally referred to as
"municipal obligations."
The interest on securities generally known as municipal obligations is
exempt from federal income tax in the opinion of either bond counsel for the
issuers or, in some instances, the issuer itself. These securities 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.
The Funds 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 Company Inc.
("RMCI"), the Adviser determines them to be of comparable quality pursuant to
guidelines established by the Board of Trustees ("Trustees").
Interest received on certain otherwise tax-exempt securities ("private
activity bonds") is subject to a federal Alternative Minimum Tax ("AMT"). It is
the position of the SEC that in order for a fund to call itself "tax-free", not
more than 20% of its net assets may be invested in municipal securities subject
to the AMT or at least 80% of its income will be tax-exempt. Income received on
such securities is classified as a "tax preference item," which could subject
certain shareholders of each Fund to the AMT.
Although not a principal strategy, all the Funds are allowed to invest
all or substantially all of its investable assets, except to the extent
required to remain uninvested to satisfy cash requirements, in another open-end
management company having the same investment objective and substantially
similar policies and restriction.
RMCI uses its reasonable business judgment in selecting investments in
addition to considering the ratings of Moody's, S&P and other rating services,
when available.
The investment objective and principal strategies are summarized here. For
more information on the investment objective and strategies, please read each
Fund's Statement of Additional Information ("SAI"). A Fund may have to adopt a
temporary defensive position. In that event, the Fund might not be able to
attain its objective.
3
<PAGE>
Principal Risks of Investing in the Funds. The Funds are money-market funds
which are a specific type of fund that seeks to maintain a $1.00 price per
share. An investment in a Fund is not insured or guaranteed by the U.S.
government, Federal Deposit Insurance Corporation or any other government
agency. Although each Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in a Fund.
Additionally, each Fund's yield will vary as the short-term securities in its
portfolio mature and the proceeds are reinvested in securities with different
interest rates.
While each Fund has maintained a constant share price since inception, and
will strive to do so, the following factors could reduce the Fund's income level
and/or share price:
o as to all Funds, interest rates could rise sharply, causing the value
of the Funds' securities, and share price, to drop.
o as to all Funds, 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.
o as to the Primary Fund, there are risks generally associated with
investing in the banking industry, such as interest rate risk, credit
risk and regulatory developments relating to the banking industry.
o 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. Further, adverse political, regulatory,
market or economic developments in foreign countries can affect
entities located in those countries.
o as to the Tax-Exempt Funds, the value of municipal securities may be
affected by uncertainties and changes in municipal market-related
legislation or litigation.
o as to the Tax-Exempt Funds, which invest in industrial revenue
development bonds and notes secured by letters of credit or guarantees
of banks, the risks generally associated with investing in the banking
industry, such as interest rate risk, credit risk and regulatory
developments relating to the banking industry.
o overall, a decline in the credit quality of an issuer or the provider
of credit support or a maturity-shortening structure for a security
can cause the price of a money-market security to decrease.
o as to the "Single State" Tax-Exempt Funds, the municipal market is
volatile and there are risks associated with investing in a particular
state. For example, adverse economic or political conditions within a
specific state can significantly affect the financial condition and
credit quality of the issuers of municipal securities located in that
state. Please read below some of the risks particular to the "Single
State" Tax-Exempt Funds offered in this Prospectus.
- as to the California II Tax-Exempt Fund, 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.
- as to the Connecticut Tax-Exempt Fund, the credit quality of the
Connecticut Tax-Exempt Fund will depend on the continued financial
strength of the State of Connecticut and its political
subdivisions. Connecticut's economy relies in part on activities
that may be adversely affected by cyclical change, and recent
declines in defense spending have had a significant impact on
unemployment levels.
- as to the Florida Tax-Exempt Fund, investors should realize that
the revenue of Florida is closely tied to its tourism business. A
decline in tourism revenues could adversely affect revenues,
principally sales tax revenue that is vulnerable to economic
cycles.
- as to the Massachusetts Tax-Exempt Fund, investors should realize
that since 1989, Massachusetts has experienced growth rates
significantly below the national average and an economic recession
in 1990 and 1991 caused negative growth rates. Massachusetts'
economic and fiscal problems in the late 1980s and early 1990s
caused several rating agencies to lower their credit ratings.
- as to the Michigan Tax-Exempt Fund, investors should realize that
Michigan's fiscal condition continues to be tested by its
dependence on the inherently cyclical auto industry.
- as to the New Jersey Tax-Exempt Fund, investors should be aware
that from time to time, New Jersey's economic performance has
trailed the rest of the nation. Reflecting on such economic
downturn, the State's unemployment rate rose to a peak of 8.5%
during 1992.
- as to the New York Tax-Exempt Fund, investors 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.
- as to the Ohio Tax-Exempt Fund, investors should realize that
Ohio's fiscal condition is closely tied to the State's ability to
minimize its exposure to cyclical downturns in the manufacturing
sector.
-as to the Pennsylvania Tax-Exempt Fund, investors should be aware
that many different social, environmental and economic factors may
affect the financial condition of Pennsylvania and its political
subdivisions and that, from time to time, Pennsylvania and certain
of its political subdivisions have encountered financial
difficulties which have adversely affected their respective credit
standings.
4
<PAGE>
Year 2000. Many computer software systems in use today cannot distinguish year
2000 from the year 1900. Most of the services provided to the Trust depend on
the smooth functioning of computer systems. The Trust could be adversely
affected if the computer systems and service providers that interface with it
are unable to process data from January 1, 2000 and after; however, steps are
being taken to reasonably address this issue and to obtain assurance that
comparable efforts are being made by service providers. There can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
Trust. In addition, because the Year 2000 issue affects virtually all
organizations, the extent of its impact cannot be predicted.
Other Risks. These risks are discussed in more detail in the SAI of each Fund.
Most of the Funds' performance depends on interest rates. When interest rates
fall, the Funds' yields will typically fall as well.
The Reserve Fund's emphasis on the high credit quality of its investments
may mean that its yields are lower than those available from certain other
money-market funds which may invest in commercial paper. Because of the low
level of risk, over time, a money-market fund may produce lower returns than
bond or stock investments which entail higher levels of risk.
PERFORMANCE HISTORY
The bar charts below show the Funds' annual returns for the past ten years
or since the first calendar year since inception, together with the best and
worst quarters. The California II, Michigan and Ohio Tax-Exempt Funds did not
begin offering shares until June 28, 1999; December 14, 1998; and April 1, 1998,
respectively. As such, they do not appear in the tables because a full calendar
year does not exist. The accompanying "Average Annual Total Return as of
December 31, 1998" table gives some indication of risk of an investment in the
Funds. The tables assume reinvestment of dividends and distributions, if any. As
with all mutual funds, the past is not a prediction of the future.
Primary Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.16% 7.88% 5.59% 3.17% 2.39% 3.49% 5.27% 4.67% 4.87% 4.81%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 3rd Q 1989 2.40%
Worst Quarter: 2nd Q 1993 0.58%
Most Recent Calendar Quarter: 2nd Q 1999 3.99%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
4.81% 4.62% 5.11%
U.S. Government Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.10% 7.80% 5.32% 3.09% 2.30% 3.42% 5.18% 4.60% 4.76% 4.69%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 3rd Q 1989 2.17%
Worst Quarter: 2nd Q 1993 0.20%
Most Recent Calendar Quarter: 2nd Q 1999 3.89%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
4.69% 4.53% 5.01%
5
<PAGE>
U.S. Treasury Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
2.19% 3.68% 4.96% 4.53% 4.61% 4.52%
1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 3rd Q 1995 1.20%
Worst Quarter: 1st Q 1993 0.19%
Most Recent Calendar Quarter: 2nd Q 1999 3.85%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
4.52% 4.46% 3.89%
Interstate Tax-Exempt Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.03% 5.52% 4.15% 2.59% 1.73% 2.05% 3.07% 2.61% 2.78% 2.68%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter : 2nd Q 1989 1.55%
Worst Quarter: 1st Q 1994 0.38%
Most Recent Calendar Quarter: 2nd Q 1999 2.41%
Average Annual Total Returns as of December 31, 1998
1 Year 5 Years 10 Years
------ ------- --------
2.68% 2.64% 3.31%
6
<PAGE>
New York Tax-Exempt Fund
Average Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.50% 5.17% 3.79% 2.26% 1.48% 1.97% 2.96% 2.51% 2.68% 2.48%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 2nd Q 1989 1.41%
Worst Quarter: 2nd Q 1993 0.36%
Most Recent Calendar Quarter: 2nd Q 1999 2.25%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
2.48% 2.52% 3.07%
Connecticut Tax-Exempt Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.77% 5.18% 3.62% 2.25% 1.64% 2.06% 2.85% 2.45% 2.66% 2.50%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 4th Q 1989 1.41%%
Worst Quarter: 1st Q 1993 0.38%
Most Recent Calendar Quarter: 2nd Q 1999 2.16%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
2.50% 2.50% 3.09%
Florida Tax-Exempt Fund
Annual Total Returns as of December 31,
2.66% 2.62%
1997 1998
Best Quarter: 2nd Q 1998 0.73%
Worst Quarter: 1st Q 1997 0.54%
Most Recent Calendar Quarter: 2nd Q 1999 2.38%
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
---- ---------
2.62% 2.59%
7
<PAGE>
Massachusetts Tax-Exempt Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
4.22% 2.46% 1.83% 2.17% 2.96% 2.57% 2.87% 2.53%
1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 4th Q 1990 1.50%
Worst Quarter: 4th Q 1993 0.45%
Most Recent Calendar Quarter: 2nd Q 1999 2.17%
Average Annual Total Returns as of December 31, 1998
1 5 Since
Year Years Years
---- ----- -----
2.53% 2.62% 3.93%
New Jersey Tax-Exempt Fund
Annual Total Returns as of December 31,
2.87% 2.41% 2.55% 2.42%
1995 1996 1997 1998
Best Quarter: 1st Q 1995 0.71%
Worst Quarter: 3rd Q 1994 0.48%
Most Recent Calendar Quarter: 2nd Q 1999 2.23%
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
---- ---------
2.42% 2.72%
Pennsylvania Tax-Exempt Fund
Annual Total Returns as of December 31,
2.53%
1998
Best Quarter: 4th Q 1997 0.69%
Worst Quarter: 1st Q 1998 0.59%
Most Recent Calendar Quarter: 2nd Q 1999 2.38%
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
---- ---------
2.53% 2.59%
For the Funds' current yield, call toll-free (800) 637-1700 or visit our
web site at www.reservefunds.com.
8
<PAGE>
FEES & EXPENSES OF THE FUNDS
If you buy and hold shares of the Funds, you may pay certain fees and
expenses which are described in the table below. There are no sales charges
(loads) or exchange fees associated with an investment in the Funds. Annual fund
operating expenses are paid out of the assets of each Fund, so their effect is
included in each Fund's share price. Annual fund operating expenses, indicated
in the table below, reflect expenses for the Funds' fiscal year ended May 31,
1999.
Shareholder Fees for all Funds
(Fees paid directly from your investment)
Sales Load Imposed on Purchases......................... None
Sales Load Imposed on Reinvested Dividends.............. None
These are all no-load funds. There are no direct shareholders fees. Please see
the "Annual Fund Operating Expenses for all Funds" table below.
Annual Fund Operating Expenses for all Funds
(Expenses that are deducted from Fund assets)
Comprehensive Management Fee (a)........... .80%
Distribution (12b-1) Fees (b).............. .20
----
Total Annual Fund Operating Expenses....... 1.00%
====
(a) The comprehensive management fee includes advisory and customary operating
expenses. However, the Funds may be charged for certain non-recurring
extraordinary expenses and its allocated or direct share of certain other
expenses. See "Management".
(b) The Funds have adopted a Rule 12b-1 plan which allows the Funds to pay
distribution fees for the sale and distribution of its shares. The maximum
level of distribution expenses is 0.20% per year of each Fund's average
net assets. As these fees are paid out of each Fund's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Example: This example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example should
not be considered indicative of future investment returns and operating expenses
which may be more or less than those shown. This example is based on the annual
fund operating expenses described in the table.
This example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that each Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$102 $318 $552 $1,225
Please note that the above example is an estimate of the
expenses to be incurred by shareholders of the Funds. Actual
expenses may be higher or lower than those reflected above.
You would pay the same if you did not redeem your shares.
MANAGEMENT
Investment Adviser. Since November 15, 1971, Reserve Management Company, Inc.
("RMCI") 1250 Broadway, New York, NY 10001 and its affiliates have provided
investment advice to The Reserve Funds. RMCI serves as the investment adviser to
the Funds under an Investment Management Agreement (the "Agreement") with the
Funds (the "Trust"). As a result of recent shareholder votes, each of the Funds
has entered into a new Investment Management Agreement with RMCI, which is
substantially similar to the Investment Management Agreement previously in
effect with regard to each Fund, except for a new comprehensive management fee.
The U.S. Treasury, California II Tax-Exempt and Michigan Tax-Exempt Funds, since
inception, have been subject to a comprehensive management fee. The new
Investment Management Agreements became effective June 26, 1999. The Agreement
provides that RMCI will furnish continuous investment advisory and management
services to the Funds. In addition to the Funds, RMCI provides investment
management services to other mutual funds within the Reserve family of funds
and, as of May 31, 1999, had approximately $5.6 billion under management.
9
<PAGE>
RMCI manages the investment portfolios of the Funds, subject to policies
adopted by the Trustees. For its services, RMCI receives a fee of 0.80% per year
of the average daily net assets of each Fund. RMCI pays all employee and
customary operating expenses of the Fund. Excluded from the definition of
customary operating expenses are interest, taxes, brokerage fees, extraordinary
legal and accounting fees and expenses, and the fees of the disinterested
Trustees, for which each Fund pays its direct or allocated share. For the fiscal
year ended May 31, 1999, RMCI received management fees under the investment
management agreements previously in effect with regard to each Fund. For the
fiscal year ended May 31, 1999, the Primary, U.S. Government and U.S. Treasury
Fund paid RMCI $13,863,140, $3,530,115 and $2,208,713, respectively. For the
fiscal year ended May 31, 1999, the Interstate Tax-Exempt, 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 and Pennsylvania Tax-Exempt Funds paid RMCI $1,801,995,
$0, $231,720, $110,877 $131,448, $2,705, $225,279, $941,347, $8,867 and $94,163,
respectively.
HOW TO BUY SHARES
Share Price: Net Asset Value. Investors pay no sales charges to invest in the
Funds. The price you pay for a share of a Fund, and the price you receive upon
selling or redeeming a share of a Fund, is called the Fund's net asset value
("NAV") per share. The NAV is calculated by taking the total value of a Fund's
assets, subtracting its liabilities, and then dividing by the number of shares
that have already been issued. Each Fund uses the amortized cost method of
valuing its securities under Rule 2a-7 of the 1940 Act. This is a standard
calculation, and forms the basis for all transactions involving buying, selling,
exchanging or reinvesting shares. The NAV is generally calculated as of the
close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time)
every day the Exchange is open. NAV is not calculated on days the Exchange is
closed and regional bank holidays. Your order will be priced at the next NAV
calculated after your order is accepted (i.e., converted to federal funds) by
the Funds.
Purchase of Shares. The minimum initial investment is $1,000 (IRA minimum $250)
with no minimum subsequent investment. All investments must be in U.S. dollars.
Third-party, foreign and travellers checks, as well as cash investments will not
be accepted. For clients of certain broker-dealers and financial institutions
("Firms"), shares may be purchased directly through such Firms. However,
purchases may be subject to the Firms' own minimums and purchase requirements.
Purchase orders are not accepted on days the Exchange is closed for trading and
regional bank holidays.
o By check - (drawn on U.S. bank) payable to The Reserve Funds, 1250
Broadway, New York, NY 10001-3701. You must include your account
number (or Taxpayer Identification Number) on the "pay to the order
of" line for each check made payable to The Reserve Funds or within
the endorsement for each check endorsed to The Reserve Funds.
o By wire - Prior to calling your bank, call The Reserve Funds at
800-637-1700 for specific instructions or the Firm from which you
received this Prospectus.
Checks and wires which do not correctly identify the account to be
credited may be returned or delay the purchase of shares. Only federal funds
wires and checks drawn on the Fund's bank are eligible for entry as of the
business day received. For federal funds wires to be eligible for same-day order
entry, the Funds must be notified before 2:00 PM (Eastern time, 11:00 AM for the
U.S. Treasury and Interstate Tax-Exempt Funds) 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 2:00 PM (Eastern time, 11:00 AM for the U.S. Treasury,
"Single State" Tax-Exempt and Interstate Tax-Exempt Funds) will be considered
received the next business day. Investors will be charged a fee $ 15 for any
check that does not clear and will be responsible for any losses suffered by the
Funds as a result.
Reserve Automatic Asset-Builder Plan. If you have an account, you may purchase
shares of a Fund ($25 suggested minimum) from a checking, NOW, or bank
money-market deposit account or from a U.S. government distribution ($25
suggested minimum) such as social security, federal salary, or certain veterans'
benefits, or other payment from the federal government. You may also purchase
shares automatically by arranging to have your payroll deposited directly into
your Reserve account. Please call the Funds at 800-637-1700 for an application.
Individual Retirement Accounts. Investors may use the Funds as an investment for
Individual Retirement Accounts ("IRAs"). A master IRA plan with information
regarding administration fees and other details is available from the Funds.
Third-party Investments. Investments made through a third party (rather than
directly with Reserve) such as a financial services agent may be subject to
policies and fees different than those described here. Banks, brokers, 401(k)
plans, financial advisers and financial supermarkets may charge transaction fees
and may set different minimum investments or limitations on buying or selling
shares. Investors should consult a representative of the plan or financial
institution if in doubt.
Distributors. The Fund's' distributor is Resrv Partners, Inc. ("RESRV"), 1250
Broadway, New York, NY 10001-3701.
10
<PAGE>
Restrictions. Certain other restrictions and conditions for buying shares apply
to the Funds. Please see the SAI for more information.
SELLING FUND SHARES
Investors may sell shares at any time. Shares will be sold at NAV
determined after the redemption request is received by the Fund. Each Fund
usually transmits payments the same day when requests are received before 12:00
noon (Eastern time, 11:00 AM for the U.S. Treasury, "Single State" Tax-Exempt
and Interstate Tax-Exempt 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 properly
completed request. The Funds strongly suggest (but does not require) that each
telephone redemption be at least $1000, except for redemptions which are
intended to liquidate an account. A shareholder will be charged $2 for
redemption checks issued for less than $100. Upon request, redemptions will be
made by bank wire; however, wire redemptions of less than $10,000 will be
charged a fee (currently $10). The Funds assume no responsibility for delays in
the receipt of wired or mailed funds.
Written and telephone requests. Redemption instructions and options should be
specified when your account is opened. Subsequent elections and changes in
instructions must be in writing with the signature(s) guaranteed. Changes in
registration or authorized signatories may require additional documentation. One
way to redeem shares is to write a letter of instruction which states: the
name(s) and signature(s) of all accountholders (signature(s) guaranteed, if
necessary), account number, Fund name, the dollar amount you want to sell, and
how and where to send the proceeds. If you are redeeming your IRA, please note
the applicable withholding requirements.
To reduce the risk of loss, certain situations require written
instructions along with signature guarantees. These include:
(1) redemptions for more than $5,000; or
(2) redemptions on accounts whose address has been changed within the
past 30 days; or
(3) redemption requests to be sent to someone other than the account
owner or the address of record for the past 30 days.
You may redeem by calling the Funds at 800-637-1700. Unless you decline
telephone privileges on your application and the Funds fail to take reasonable
measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions may be sent to
the bank or brokerage account designated by the shareholder on the application
or in a letter with signature guarantee. To change the designated brokerage or
bank account it is necessary to contact the Firm through which shares of the
Fund were purchased or, if purchased directly from the Funds, it is necessary to
send a written request to the Funds with signature(s) guaranteed. The Fund
reserves the right to refuse a telephone redemption if it believes it is
advisable to do so.
Signature guarantees are designed to protect both you and the Funds from
fraud. Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/dealers, national securities exchanges or
clearing agencies. Notaries public cannot provide signature guarantees. For
more information about redemption procedures, please read the SAI.
Checking, and ATM Access. You may redeem shares of the Fund by using your
Reserve checks. By completing the application or a signature card (for existing
accounts) and certain other documentation you can write checks in any amount
against your account. A check will be returned (bounced) and a fee charged if
you request a stop payment; the check is postdated; contains an irregularity in
the signature, amount or otherwise; or, is written against accounts with
insufficient or uncollected funds. Please do not postdate your checks or use
them to close your account. Upon proper notice, the Funds may choose to impose a
fee if it deems a shareholder's actions to be burdensome. Checking may not be
available to clients of some Firms and some Firms may establish their own
minimum check amount. Please see the SAI for each Fund for information including
charges, fees, etcetera.
Exchange Privilege. Investors can exchange all or some of their shares offered
for shares in other Reserve money-market and equity funds. Investors can request
an exchange in writing or by telephone. The shares of the other funds are not
offered by this Prospectus. Be sure to read the current prospectus for any fund
into which you are exchanging. Any new account established through an exchange
will have the same privileges as an original account (as long as they are
available). Please see the SAI for more information.
Other Automatic Services. Certain other services and restrictions for selling
shares automatically are offered by the Funds. Please see the SAI for more
information about these services and restrictions.
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.
11
<PAGE>
Other. The Funds also reserve the right to make a "redemption in kind" payment
in portfolio securities rather than cash, without notice, if the amount the
investor is redeeming is large enough to affect fund operations (for example, if
it represents more than 1% of the Fund's assets). Further, each Fund reserves
the right to:
o refuse any purchase or exchange request,
o change or discontinue its exchange privilege,
o change its minimum investment amounts, and
o delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions).
TAX CONSEQUENCES
The following discussion is intended as general information only. Because
everyone's tax situation is unique, you should consult your own tax advisor(s)
with regard to the applicability of state and local tax laws on Fund
distributions. The applicable tax laws which affect the Funds and their
shareholders are subject to change and may be retroactive. For more information,
please see the SAI.
Dividends, Distributions and Taxes. Each Fund declares dividends daily and
automatically reinvests them in additional shares except for shareholders who
elect in writing to receive cash dividends, in which case monthly or quarterly
dividend checks are sent to the shareholder. There are no fees or sales charges
on reinvestments.
Dividends and distributions are taxable to most shareholders as ordinary
income (unless an investment is in an IRA or other tax-advantaged account).
Distributions of long-term capital gains, if any, are taxable to shareholders as
long-term capital gains. The tax status of any distribution is the same
regardless of how long an investor has been in the fund and whether
distributions are reinvested or taken in cash. The tax status of dividends and
distributions will be detailed in annual tax statements from the Funds. An
exchange of a Fund's shares for the shares of another fund will be treated as a
sale of The Fund's shares and any gain may be subject to federal income tax.
The U.S. Treasury Fund intends to invest only in U.S. Treasury securities
and obligations of those agencies and instrumentalities of the U.S. government
that provide interest income exempt in most states from state and local personal
income taxes, except to the extent uninvested cash is invested in repurchase
agreements. Some states have minimum investment requirements that must be met by
the U.S. Treasury Fund. Distributions attributable to net capital gains, if any,
are generally subject to state and local taxes. It is possible that a state or
local taxing authority may in the future seek to tax an investor on a portion of
the interest income of an obligation held by the U.S. Treasury Fund.
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 all 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. As described earlier, the Fund will normally attempt to invest
substantially all of its assets in securities which are exempt from the Florida
intangibles tax. If the portfolio consists of any assets which are not so exempt
on the annual assessment date, only the portion of the shares of the Fund which
relate 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 and the Pennsylvania county personal property tax will not be taxable on
that portion of their Fund shares that relate to Pennsylvania or U.S. government
obligations.
As to the Interstate Tax-Exempt Fund, 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 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.
Backup Withholding. A Fund may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to certain shareholders
who fail to provide the Fund with their correct taxpayer identification number
or to make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability. However, special rules apply
for certain accounts. For example, for an account established under the Uniform
Gift to Minors Act, the TIN of the minor should be furnished. Shareholders
should be aware that, under regulations promulaged by the IRS a Fund may be
fined $50 annually for each account for which a certified TIN is not provided or
is incorrect. In the event that such a fine is imposed with respect to an
account in any year, a corresponding charge will be made against the account.
The Funds will not
12
<PAGE>
accept purchase orders for accounts for which a correct and certified TIN is not
provided or which is otherwise subject to backup withholding, except in the case
of certain non-resident alien account holders.
GENERAL INFORMATION
Small Balances. Because of the expense of maintaining accounts with small
balances (less than $1,000), the Funds may choose to without notice either levy
a monthly charge (currently $5) or redeem the account and remit the proceeds.
Some Firms may establish variations of minimum balances and monthly charges if
those variations are approved by the Funds.
Reserve Easy Access. Easy Access is The Reserve Funds' 24-hour toll-free
telephone service that lets customers use a touch-tone phone for a variety of
options, which include yields, account balances, check reorders and other
options. To use it, call 800-637-1700 and follow the instructions. Clients may
also access full account activity for the previous six months on the Internet at
www.reservefunds.com.
Inquiries. Shareholders should direct their inquiries to the Firm from which
they received this Prospectus or to The Reserve Funds.
Special Shareholder Services. The Funds reserve the right to charge shareholder
accounts for specific costs incurred in processing unusual transactions. Such
transactions include, but are not limited to, stop payment requests, copies of
Fund redemption or shareholder checks, copies of statements and special research
services.
Account Statements. Shareholders are advised to retain all account statements.
FINANCIAL HIGHLIGHTS
This section provides further details about the Funds' recent financial
history. The following tables describe each Fund's performance for the fiscal
periods 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. The Reserve Tax-Exempt Trust did not offer
shares of California II Tax-Exempt Fund until June 28, 1999. These figures have
been audited by PricewaterhouseCoopers LLP, the Trust's independent accountants,
whose report, along with each Funds' financial statements, is included in the
Trust's Annual Report, which is available upon request by calling 800-637-1700.
<TABLE>
<CAPTION>
For Fiscal Years Ended May 31,
-------------------------------------------------------------------
PRIMARY FUND 1999 1998 1997 1996 1995
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment operations .0438 .0483 .0457 .0490 .0450
Less dividends from
net investment income (.0438) (.0483) (.0457) (.0490) (.0450)
-------- -------- -------- -------- --------
Net asset value at
end of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- ======== ======== ======== ========
Total Return 4.38% 4.83% 4.57% 4.90% 4.50%
Ratios/Supplemental Data
- ------------------------
Net assets end of
year (millions) $3,330.1 $2,707.6 $2,104.1 $1,664.1 $1,602.5
Ratio of expenses to
average net assets 1.00% .94% .98% .98% .97%
Ratio of net investment
income to average
net assets 4.26% 4.71% 4.47% 4.79% 4.42%
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
For Fiscal Years Ended May 31,
-------------------------------------------------------------
U.S. GOVERNMENT FUND 1999 1998 1997 1996 1995
- -------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment
operations .0426 .0471 .0449 .0484 .0441
Less dividends from
net investment income (.0426) (.0471) (.0449) (.0484) (.0441)
-------- -------- -------- -------- --------
Net asset value at
end of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return 4.26% 4.71% 4.49% 4.84% 4.41%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of
year (millions) $ 716.2 $ 652.5 $611.8 $ 568.5 $ 721.8
Ratio of expenses to
average net assets 1.00% .99% .99% 1.00% .99%
Ratio of net investment
income to average
net assets 4.16% 4.63% 4.40% 4.75% 4.31%
<CAPTION>
For Fiscal Years Ended May 31,
-------------------------------------------------------------
U.S. TREASURY FUND 1999 1998 1997 1996 1995
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value
beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income
from investment
operations .0410 .0456 .0443 .0466 .0456
Less dividends from
net investment income (.0410) (.0456) (.0443) (.0466) (.0456)
------- ------- ------- ------- -------
Net asset value at
end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 4.10% 4.56% 4.43% 4.66% 4.56%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of
year (millions) $ 286.7 $239.8 $ 169.2 $ 142.8 $ 95.2
Ratio of expenses to
average net assets (a) 1.00% .97% .97% .99% .93%
Ratio of net investment
income to average
net assets 3.76% 4.26% 4.13% 4.33% 4.44%
</TABLE>
<TABLE>
<CAPTION>
Interstate Tax-Exempt Fund
- --------------------------
For Fiscal Years Ended May 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income from investment operations............. .0242 .0279 .0256 .0285 .0265
Dividends from net investment income......................... (.0242) (.0279) (.0256) (.0285) (.0265)
-------- -------- -------- -------- --------
Net asset value, end of year................................. $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return................................................. 2.42% 2.79% 2.56% 2.85% 2.65%
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions)............................ $ 292.6 $ 352.9 $ 306.2 $ 292.1 $ 315.2
Ratio of expenses to average net assets...................... 1.00% .97% 1.04% 1.04% 1.00%
Ratio of net investment income to average net assets......... 2.38% 2.75% 2.52% 2.80% 2.59%
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended May 31,
----------------------------------------------------------------------
NEW YORK TAX-EXEMPT FUND 1999 1998 1997 1996 1995
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0222 .0268 .0247 .0276 .0253
Dividends from net investment income (.0222) (.0268) (.0247) (.0276) (.0253)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.22% 2.68% 2.47% 2.76% 2.53%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets end of year (millions) $ 186.0 $ 171.2 $ 153.2 $ 125.5 $ 152.9
Ratio of expenses to average
net assets 1.00% .94% 1.04% 1.04% .98%
Ratio of net investment income
to average net assets 2.19% 2.63% 2.43% 2.72% 2.48%
<CAPTION>
Fiscal Years Ended May 31,
----------------------------------------------------------------------
Connecticut Tax-Exempt Fund 1999 1998 1997 1996 1995
- --------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0221 .0267 .0243 .0266 .0254
Dividends from net investment income (.0221) (.0267) (.0243) (.0266) (.0254)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.21% 2.67% 2.43% 2.66% 2.54%
Ratios/Supplemental Data
Net assets end of year (millions) $ 55.4 $ 36.8 $ 33.5 $ 34.8 $ 26.6
Ratio of expenses to average net assets 1.00% .89% .97% 1.01% .99% (d)
Ratio of net investment income
to average net assets 2.17% 2.64% 2.39% 2.61% 2.23% (d)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended May 31,
--------------------------------------------------------------------
FLORIDA TAX-EXEMPT FUND 1999 1998 1997 (a)
- ----------------------- ---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000
------- ------- -------
Net investment income .0237 .0269 .0228
Dividends from net investment income (.0237) (.0269) (.0228)
------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000
======= ======= =======
Total Return 2.37% 2.69% 2.42% (c)
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions) $ 22.6 $ 10.8 $ 4.1
Ratio of expenses to average net assets 1.00% .94% 1.04% (c)
Ratio of net investment income to
average net assets 2.30% 2.62% 2.39% (c)
<CAPTION>
Fiscal Years Ended May 31,
-----------------------------------------------------------------
Massachusetts Tax-Exempt Fund 1999 1998 1997 1996 1995
- ----------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0220 .0284 .0259 .0276 .0265
Dividends from net investment income (.0220) (.0284) (.0259) (.0276) (.0265)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.20% 2.84% 2.59% 2.76% 2.65%
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions) $ 19.9 $ 25.4 $ 13.0 $ 9.0 $ 10.2
Ratio of expenses to average net assets 1.00% .75% .83% (d) .89% (d) .80% (d)
Ratio of net investment income to
average net assets 2.17% 2.78% 2.54% (d) 2.66% (d) 2.69% (d)
<CAPTION>
Period Ended
May 31,
------------
Michigan Tax-Exempt Fund 1999 (d)
- ------------------------ ----
<S> <C>
Net asset value, beginning of year $1.0000
-------
Net investment income .0118
Dividends from net investment income (.0118)
-------
Net asset value, end of year $1.0000
=======
Total Return 2.55%(c)
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions) $ 1.2
Ratio of expenses to average net assets 1.00% (c,d)
Ratio of net investment income to $ 2.02% (c,d)
average net assets
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended May 31,
-------------------------------------------------------
New Jersey Tax-Exempt Fund 1999 1998 1997 1996 1995 (e)
- -------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0223 .0254 .0236 .0263 .0243
Dividends from net investment income (.0223) (.0254) (.0236) (.0263) (.0243)
------- ------- ------- ------- -------
Net asset value, end of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.23% 2.54% 2.36% 2.63% 2.43%(c)
Ratios/Supplemental Data
- ------------------------
Net assets end of period (millions) $ 41.3 $ 37.6 $ 39.5 $ 41.0 $ 21.6
Ratio of expenses to average net assets 1.00% .99% 1.06% 1.04% 1.02% (b,c)
Ratio of net investment income to
to average net assets 2.17% 2.50% 2.33% 2.59% 2.81% (b,c)
</TABLE>
<TABLE>
<CAPTION>
Fiscal Years Ended May 31,
---------------------------------
Ohio Tax-Exempt Fund 1999 1998 (g)
- -------------------- ---- --------
<S> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000
------- -------
Net investment income .0236 .0048
Dividends from net investment income (.0236) (.0048)
------ ------
Net asset value, end of period $1.0000 $1.0000
======= =======
Total Return 2.36% 2.87% (c)
Ratios/Supplemental Data
- ------------------------
Net assets end of period (millions) $ 1.2 $ 2.5
Ratio of Expenses to average net assets 1.00% (d) 1.00% (c)
Ratio of net investment income
to average net assets 2.16% (d) 2.86% (c)
<CAPTION>
Period Ended May 31,
---------------------------------
Pennsylvania Tax-Exempt Fund 1999 1998 (h)
- ---------------------------- ---- ----
<S> <C> <C>
Net asset value, beginning of period $ 1.000 $1.0000
-------- -------
Net investment income .0234 .0189
Dividends from net investment income (.0234) (.0189)
-------- -------
Net asset value, end of period $ 1.0000 $1.0000
======== =======
Total Return 2.34% 2.64% (c)
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (millions) $ 16.9 $ 13.2
Ratio of expenses to average net assets 1.00% 1.00% (c)
Ratio of net investment income
to average net assets 2.28% 2.62% (c)
</TABLE>
(a) Net of fees and other expenses. Had RMCI not undertaken to reduce expenses,
the actual expense ratios would have amounted to 1.00%, .97%, .99% and.93%
for the years ended May 31,1999, 1998, 1997, 1996 and 1995, respectively.
(b) From June 24, 1996 (Commencement of Operations) to May 31, 1997.
(c) Annualized.
(d) Due to the voluntary waiver of certain expenses by RMCI for certain funds,
the actual expense ratios and net investment income amounted to:
Fiscal Expense Net Investment
Fund Year Ratio Income
---- ---- ----- ------
U.S. Treasury 1999 .77% 3.99%
1998 .77% 4.46%
1997 .77% 4.33%
1996 .79% 4.53%
1995 .68% 4.64%
Connecticut 1995 .89% 2.33%
Massachusetts 1997 .79% 2.58%
1996 .84% 2.71%
1995 .69% 2.80%
Michigan 1999 .49% 2.53%
New Jersey 1995 1.01% 2.82%
Ohio 1999 .83% 2.32%
(e) From December 14, 1998 (Commencement of Operations) to May 31, 1999.
(f) From October 17, 1994 (Commencement of Operations) to May 31, 1995.
(g) From April 1, 1998 (Commencement of Operations) to May 31, 1998.
(h) From September 12, 1997 (Commencement of Operations) to May 31, 1998.
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0245 .0279 .0256 .0285 .0265
from investment operations (.0245) (.0279) (.0256) (.0285) (.0265)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.45% 2.79% 2.56% 2.85% 2.65%
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions) $292.6 $352.9 $306.2 $292.1 $315.2
Ratio of expenses to average
net assets 1.00% .97% 1.04% 1.04% 1.00%
Ratio of net investment income
to average net assets 2.38% 2.75% 2.52% 2.80% 2.59%
</TABLE>
-----------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offering in any jurisdiction in which such
offering may not lawfully be made.
-----------------
17
<PAGE>
This Prospectus contains the information about each Fund, which a prospective
investor should know before investing.
The Statement of Additional Information ("SAI") contains additional and more
detailed information about the Funds, and is considered part of this Prospectus.
Our Annual and Semi-Annual Reports list the holdings in each Fund, describe Fund
performance, include financial statements for the Funds, and discuss market
conditions and strategies that significantly affected the Funds' performance.
These documents may be obtained without charge by writing to the address below
or calling The Reserve Funds at 800-637-1700. You can download the documents
from the SEC's web site (http://www.sec.gov) or you can obtain copies by
visiting the SEC's Public Reference Room in Washington, DC (800-SEC-0330) or by
sending your request and duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009.
Investors are advised to read and retain this
prospectus for future reference.
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
IDS Tower 10
Minneapolis, MN 55440
www.americanexpress.com
Distributor - Resrv Partners, Inc.
AMEX 07/99
SEC File Number
The Reserve Fund
811-2033
Reserve Tax-Exempt Trust
811-3696
Reserve New York Tax-Exempt Trust
811-3814
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
Prospectus
July 31, 1999
18
<PAGE>
PART C
Item 23. Exhibits
(a) Declaration of Trust and Amendments*
(b) Bylaws and Amendments*
(c) Not Applicable
(d) Form of Investment Management Agreement for the Funds*
(e) Form of Distribution Agreement and Plan of Distribution filed as an
exhibit to Registrant's Initial Registration Statement dated July 22, 1983.
Amendment to Plan of Distribution filed as exhibit to Post-Effective
Amendment No. 9 dated July 31, 1988.
(f) Pension Plan of Reserve Management Corp. filed as an exhibit to
Post-Effective Amendment No. 9 dated September 30, 1986; Amendments to
Pension Plan filed as an exhibit to Post-Effective Amendment No. 45 of The
Reserve Fund (File No. 811-2033) dated July 31, 1989 and is incorporated by
reference.
(g) Custodian Agreement with Chase Manhattan Bank*
(h) Not Applicable
(i) Opinion of Counsel*
(j) Consent of Auditors*
(k) Not applicable
(l) Not applicable
(m) Form of Registered Dealer Agreement*
(n) Financial Data Schedules*
(o) Not applicable
----------
*Filed herewith
Item 24. Persons Controlled by or Under Common Control with Registrant
Not Applicable
1
<PAGE>
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
<TABLE>
<CAPTION>
Name Position with Adviser Other Businesses
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bruce R. Bent President President and Director of Reserve Management
Corporation and Chairman and Director of
Resrv Partners, Inc. both of the same address
as the Trust.
- ---------------------------------------------------------------------------------------------------------------------
Bruce R. Bent II Vice President and Secretary Vice President, Secretary and 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 Vice President and Treasurer Vice President, Treasurer and Director of
Reserve Management Corporation and Treasurer
and Director of Resrv Partners, Inc. both of
the same address as 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 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 Foynes 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 at 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
2
<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 under the Securities Act
of 1933 and Registrant has duly caused this Post-Effective Amendment No. 25 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 30th
day of July, 1999.
RESERVE NEW YORK TAX-EXEMPT TRUST
By: /s/ Bruce R. Bent
--------------------------------
Bruce R. Bent, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 23 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 President, Treasurer and Trustee (principal July 30, 1999
- ----------------------------------------- executive operating and financial officer)
Bruce R. Bent
* Trustee July 30, 1999
- -----------------------------------------
Edwin Ehlert Jr.
* Trustee July 30, 1999
- -----------------------------------------
Henri W. Emmet
* Trustee July 30, 1999
- -----------------------------------------
Donald J. Harrington
* Trustee July 30, 1999
- -----------------------------------------
Bruce R. Bent II
* Trustee July 30, 1999
- -----------------------------------------
William E. Viklund
* Trustee July 30, 1999
- -----------------------------------------
Diana P. Hermann
* Trustee July 30, 1999
- -----------------------------------------
Richard Bassuk
/s/ MaryKathleen Foynes Counsel and Secretary July 30, 1999
- -----------------------------------------
MaryKathleen Foynes
*Attorney-in-Fact
</TABLE>
3
<PAGE>
Ex-99(a)
RESERVE NEW YORK TAX-EXEMPT TRUST
September 26, 1985 Amendment to the
Declaration of Trust
WHEREAS, the Declaration of Trust of Reserve New York Tax-Exempt Trust (the
"NY Trust") dated July 5, 1983, provides for annual meetings of shareholders,
and
WHEREAS, the Board of Trustees of the NY Trust determined on July 24, 1985
that annual meetings of shareholders are not necessary because special
meetings of shareholders may be held whenever it is appropriate for the
shareholders to vote on any matter and annual meetings of shareholders create
unnecessary expenses for the NY Trust, and
WHEREAS, the Board of Trustees of the NY Trust voted to submit to shareholders
the amendments to the Declaration of Trust and Bylaws, to eliminate the
requirement for annual meetings of shareholders, and
WHEREAS, the shareholders of the NY Trust voted on September 26, 1985 to amend
the Declaration of Trust and Bylaws to eliminate the requirement for annual
meetings of shareholders,
NOW THEREFORE, the Trustees declare that the Declaration of Trust is amended
as set forth below:
(1) The first sentence of Article Sixth is restated as: "Each Trustee
shall hold office until he resigns, is removed or until his successor
is duly elected and qualified.
(2) Paragraph 7 of Article Seventh is deleted in its entirety.
IN WITNESS WHEREOF, the undersigned have executed this instrument this 26th
day of September, 1985.
- --------------------- ----------------------
Bruce R. Bent Peter D. Falk
- --------------------- ----------------------
Edwin Ehlert, Jr. Niels W Johnsen
- --------------------- ----------------------
Henri W. Emmet Walter H. Saunders
<PAGE>
RESERVE NEW YORK TAX-EXEMPT TRUST
DECLARATION OF TRUST
DECLARATION OF TRUST, made July 5th, 1983, among the
individuals executing this Declaration of Trust as the initial Trustees:
WHEREAS, the Trustees desire to establish a trust fund
under the laws of the Commonwealth of Massachusetts, for the investment and
reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustees declare that all money and
property contributed to the trust fund hereunder shall be held and managed
under this Declaration of Trust IN TRUST as herein set forth below.
FIRST: This Trust shall be known as RESERVE NEW YORK
TAX-EXEMPT TRUST.
SECOND: Whenever used herein, unless otherwise
required by the context or specifically provided:
1. All terms used in this Declaration of Trust which
are defined in the 1940 Act shall have the meaning given to them in the 1940
Act.
2. The "Trust" refers to RESERVE NEW YORK
TAX-EXEMPT-TRUST.
3. "Shareholder" means a record owner of Shares of the
Trust.
4. The "Trustees" refer to the individual trustees in
their capacity as trustees hereunder of the Trust and their successor or
successors for the time being in office in office as such trustees.
5. "Shares" means the equal proportionate units of
interest into which the beneficial interest in the Trust shall be divided from
time to time and includes fractions of Shares as well as whole Shares.
6. The "1940 Act" refers to the Investment Company Act
of 1940, as amended from time to time.
7. "Commission" means the Securities and Exchange
Commission.
8. "Board" means the Board of Trustees of the Trust.
2
<PAGE>
THIRD: The purpose or purposes for which the Trust is
formed and the business or objects to be transacted, carried on and promoted by
it are as follows:
1. To hold, invest and reinvest its funds, and in
connection therewith to hold part or all of its funds in cash, and to purchase
or otherwise acquire, hold for investment or otherwise, sell, sell short,
assign, negotiate, transfer, exchange or otherwise dispose of or turn to account
or realize upon, securities (which term "securities" shall for the purposes of
this Declaration of Trust, without limitation of the generality thereof, be
deemed to include any stocks, shares, bonds, debentures, notes, mortgages or
other obligations, and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein, or in any
property or assets) created or issued by any issuer (which term "Issuer" shall
for the purposes of this Declaration of Trust, without limitation of the
generality thereof be deemed to include any persons, firms, associations,
corporations, syndicates, combinations, organizations, governments, or
subdivisions thereof); and to exercise, as owner or holder of any securities,
all rights, powers and privileges in respect thereof and to do any and all acts
and things for the preservation, protection, improvement and enhancement in
value of any or all such securities.
2. To borrow money and pledge assets in connection with
any of the objects or purposes of the Trust, and to issue notes or other
obligations evidencing such borrowings, to the extent permitted by the 1940 Act
and by the Trust's fundamental investment policies under the 1940 Act.
3. To issue and sell its Shares in such amounts and on
such terms and conditions, for such purposes and for such amount or kind of
consideration (including without limitation thereto, securities) now or
hereafter permitted by the laws of the Commonwealth of Massachusetts and by this
Declaration of Trust, as the Trustees may determine.
4. To purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
Shareholders of the Trust) its Shares, in any manner and to the extent now or
hereafter permitted by the laws of said State and by this Declaration of Trust.
5. To conduct its business in all its branches at one or
more offices in Massachusetts and elsewhere in any part of the world, without
restriction or limit as to extent.
6. To carry out all or any of the foregoing objects
and purposes as principal or agent, and along or with associates or, to the
extent now or hereafter permitted by
3
<PAGE>
the laws of Massachusetts, as a member of, or as the owner or holder of any
stock of, or share of interest in, any issuer, and in connection therewith to
make or enter into such deeds or contracts with any issuers and to do such acts
and things and to exercise such powers, as a natural person could lawfully make,
enter into, do or excercise.
7. To do any and all such further acts and things and to
exercise any and all such further powers as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment, carrying
out or attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as
otherwise expressly provided, be in no way limited or restricted by reference
to, or inference from, the terms of any other clause of this or any other
Articles of this Declaration of Trust, and shall each be regarded as independent
and construed as powers as well as objects and purposes, and the enumeration of
specific purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the general powers of the
Trust now or hereafter conferred by the laws of the Commonwealth of
Massachusetts nor shall the expression of one thing be deemed to exclude
another, though it be of like nature, not expressed; provided, however, that the
Trust shall not carry on any business, or exercise any powers, in any state,
territory, district or country except to the extent that the same may lawfully
be carried on or exercised under the laws thereof.
FOURTH: The beneficial interest in the Trust shall at all
times be divided into an unlimited number of transferrable Shares, par value of
$.001 per share, each of which shall represent an equal proportionate interest
in the Trust with each other Share outstanding, none having priority or
preference over another. The Trustees may from time to time divide or combine
the Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust. Contributions to the Trust may
be accepted for, and Shares shall be redeemed, whole Shares and/or 1/100ths of a
Share or multiples thereof. The Board of Trustees of the Trust may classify
unissued Shares into one or more additional classes which shall, together with
the issued Shares of beneficial interest of the Trust have such designations as
the Board shall determine, and which shall be treated for all purposes other
than as to dividends as if all Shares were Shares of one class. The dividends
payable to the holders of each such class shall, subject to any applicable rule,
regulation or order of the Securities and Exchange Commission or other
applicable law or regulation, be determined by the Board and
4
<PAGE>
need not be individually declared but may be declared and paid in accordance
with a formula adopted by the Board. The Board of Trustees of the Trust may in
the alternative classify unissued Shares into one or more additional classes
which shall, together with the issued Shares of beneficial interest of the
Trust, have such designations as the Board may determine and shall, subject to
any applicable rule, regulation or order of the Securities and Exchange
Commission or other applicable law or regulation, have the following
characteristics.
(a) All consideration received by the Trust for the issue
or sale of Shares of each such class, together with all income,
earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and any
funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to the
class of Shares with respect to which such assets, payments, or
funds were received by the Trust for all purposes, subject only to
the rights of creditors, and shall be so handled upon the books of
account of the Trust. Such assets, income, earnings, profits and
proceeds thereof, any asset derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to
as "assets belonging to" such class.
(b) Dividends or distributions on Shares of any such
class, whether payable in Shares or cash, shall be paid only out
of earnings, surplus or other assets belonging to such class.
(c) In the event of the liquidation or dissolution of the
Trust Shareholders of each such class shall be entitled to
receive, as a class, out of the assets of the Trust available for
distribution to shareholders, but other than general assets not
belonging to any particular class, the assets belonging to such
class; and the assets so distributable to the shareholders of any
such class shall be distributed among such shareholders in
proportion to the number of shares of such class held by them and
recorded on the books of the Trust. In the event that there are
any general assets not belonging to any particular class of Shares
and available for distribution, such distribution shall be made to
the holders of Shares of all classes in proportion to the asset
value of the respective classes.
(d) The assets belonging to any such class of Shares
shall be charged with the liabilities in respect to such class and
shall be charged with their share of the general liabilities of the
Trust, in proportion to the asset value of the respective classes.
5
<PAGE>
The determination of the Board of Trustees shall be conclusive as to
the amount of liabilities, including accrued expenses and reserves,
and as to the allocation of the same as to a given class, and as to
whether the same, or general assets of the Trust, are allocable to
one or more classes. The liabilities so allocated to a class are
herein referred to as "liabilities belonging to" such class.
(e) At all meetings of shareholders, each shareholder of
each Share of each such class of the Trust shall be entitled to one
vote for each Share, irrespective of the class, standing in his name
on the books of the Trust, except that where a vote of the holders
of the Shares of any class, or of more than one class, voting by
class, is required by the Investment Company Act of 1940 and/or
Massachusetts law as to any proposal, only the holders of such class
or classes, voting by class, shall be entitled to vote upon such
proposal and the holders of any other class or classes shall not be
entitled to vote thereon. Any fractional Share, if any such
fractional Shares are outstanding, shall carry proportionately all
the rights of a whole Share, including the right to vote and the
right to receive dividends. There shall be no cumulative voting
rights with respect to any Shares or class of Shares of the Trust.
(f) The provision of Article FIFTH relating to voting
shall apply when the Trust has only one class of Shares outstanding
or when the Trust has more than one class of Shares outstanding
which differ only as to their dividend rights.
(g) When the Trust has more than one class of Shares
outstanding having separate assets and liabilities: (i) the
redemption rights provided to the holders of the Trust's Shares
shall be deemed to apply only to the assets belonging to the class
of stock in question; and (ii) the net asset value per share
computation as provided for in Article SEVENTH, Section 13, shall
be applied as if each such class of Shares were the Trust as
referred to in such computation, but with its assets limited to the
assets belonging to such class and its liabilities limited to the
liabilities belonging to such class.
(h) The ownership of Shares shall be recorded in the
books of the Trust or a transfer agent. The Trustees may make such
rules as they consider appropriate for the transfer of Shares and
similar matters. The record books of the Trust or any transfer
agent, as the case may be, shall be conclusive as to who are the
holders of Shares and as to the number of Shares held from time to
time by each.
6
<PAGE>
Anything in this Declaration of Trust to the contrary
notwithstanding, when Shares of the Trust are registered in the
name of one Shareholder or another, either Shareholder is entitled
to act regarding the Shares so registered and such Shareholders
will indemnify and hold the Trust, its investment adviser,
principal underwriter, custodian or affiliates thereof, harmless
for such actions.
(i) The Trustees shall accept investments in the Trust
from such persons and on such terms as they may from time to time
authorize. After the date of the initial contribution of capital
(which shall occur prior to the initial public offering of Shares
of the Trust), the number of Shares to represent the initial
contribution shall be considered as outstanding and the amount
received by the Trustees on account of, the contribution shall be
treated as an asset of the Trust. Subsequent to such initial
contribution of capital, shares (including Shares which may have
been redeemed or repurchased by the Trust) may be issued or sold
at a price which will net the Trust, before paying any taxes in
connection with such issue or sale, not less than the net asset
value (as defined in Article SEVENTH, Section 13) thereof;
provided, however, that the Trustees may in their discretion
impose a sales charge upon investments in the Trust.
(j) Shareholders shall have no pre-emptive or other right
to subscribe to any additional Shares or other securities issued
by the Trust or the Trustees.
FIFTH: The following provisions are hereby adopted
with respect to voting Shares of the Trust and certain other rights:
1. The Shareholders shall have power to vote (i) for the
election of Trustees, (ii) with respect to the amendment of this Declaration of
Trust, (iii) to the same extent as the shareholders of a Massachusetts business
corporation, as to whether or not a court action, proceeding or claim should be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, and (iv) with respect to such additional matters relating
to the Trust as may be required by the 1940 Act or authorized by law, by this
Declaration of Trust, or the By-Laws of the Trust or any registration statement
of the Trust with the Commission or any State, or as the Trustees may consider
desirable.
2. At all meetings of Shareholders each Shareholder shall
be entitled to one vote for each Share standing in his name on the books of the
Trust on the date, fixed in accordance with the By-Laws, for determination of
Shareholders entitled to vote at such
7
<PAGE>
meeting except for Shares redeemed prior to the meeting. Any fractional Share
shall carry proportionately all the rights of a whole Share, including the right
to vote and the right to receive dividends. The presence in person or by proxy
of the holders of one-third of the Shares outstanding and entitled to vote
thereat shall constitute a quorum at any meeting of the Shareholders. If at any
meeting of the Shareholders there shall be less than a quorum present, the
Shareholders present at such meeting may, without further notice, adjourn the
same from time to time until a quorum shall attend, but no business shall be
transacted at any such adjourned meeting except such as might have been lawfully
transacted had the meeting not been adjourned.
3. Each Shareholder, upon request to the Trust in proper
form determined by the Trust, shall be entitled to require the Trust to redeem
all or any part of the Shares standing in the name of such Shareholder. The
method of computing such net asset value, the time at which such net asset value
shall be computed and the time within which the Trust shall make payment
therefor, shall be determined as hereinafter provided in Article SEVENTH of this
Declaration of Trust. Notwithstanding the foregoing, the Trustees, when
permitted or required to do so by the 1940 Act, may suspend the right of
Shareholders to require the Trust to redeem Shares.
4. No Shareholder shall, as such have any right to
purchase or subscribe for any security of the Trust which it may issue or sell,
other than such right, if any, as the Trustees, in their discretion, may
determine.
5. All persons who shall acquire Shares shall acquire the
same subject to the provisions of the Declaration of Trust.
SIXTH: Each Trustee shall hold office until the
annual meeting of Shareholders next succeeding his election or until his
successor is duly elected and qualifies. The initial number of Trustees shall be
three and the persons who shall act as such until the annual meeting or until
their successors are duly chosen and qualify are the initial trustees executing
this Declaration of Trust or any counterpart thereof.
However, the By-Laws of the Trust may fix the number of
Trustees at a number greater than that named in this Declaration of Trust and
may authorize the Trustees, by the vote of a majority of the entire number of
Trustees, to increase or decrease the number of Trustees fixed by this
Declaration of Trust or by the By-Laws within limits specified in the By-Laws,
provided that in no case shall the number of Trustees be less then three, and to
fill the
8
<PAGE>
vacancies created by any such increase in the number of Trustees. Unless
otherwise provided by the By-Laws of the Trust, the Trustees need not be
Shareholders.
SEVENTH: The following provisions are hereby adopted
for the purpose of defining, limiting and regulating the powers of the Trust and
of the Trustees and Shareholders.
1. As soon as any Trustee is duly elected by the Shareholders
or the Trustees and shall have accepted this trust, the Trust estate shall vest
in the new Trustee or Trustees, together with the continuing Trustees, without
any further act or conveyance, and he shall be deemed a Trustee hereunder.
2. The death, declination, resignation, retirement, removal,
or incapacity of the Trustees, or any one of them, shall not operate to annul
the Trust or to revoke any existing agency created pursuant to the terms of
this Declaration of Trust.
3. The assets of the Trust shall be held separate and apart
from any assets now or hereafter held in any capacity other than as Trustee
hereunder by the Trustees or any successor Trustees. All of the assets of the
Trust shall at all times be considered as vested in the Trustees. Except as
provided in this Declaration of Trust, no Shareholder shall have, as such
holder of beneficial interest in the Trust, (a) any authority, power or right
whatsoever to transact business for or on behalf of the Trust, or on behalf of
the Trustees, in connection with the property or assets of the Trust, nor (b)
any interest in the specific property or assets of the Trust, or in any part
thereof, except the rights to receive the income and distributable amounts
arising therefrom as set forth herein.
4. The Trustees in all instances shall act as principals, and
are and shall be free from the control of the Shareholders. The Trustees shall
have full power and authority to do any and all acts and to make and execute
any and all contracts and instruments that they may consider necessary or
appropriate in connection with the management of the Trust. The Trustees shall
not in any way be bound or limited by present or future laws or customs in
regard to Trust investments, but shall have full authority and power to make
any and all investments which they, in their uncontrolled discretion, shall
deem proper to accomplish the purpose of this Trust. Subject to any applicable
limitation in this Declaration of Trust or by the By-Laws of the Trust, the
Trustees shall have power and authority:
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(a) to adopt By-Laws not inconsistent with this Declaration
of Trust providing for the conduct of the business of the Trust and
to amend and repeal them to the extent that they do not reserve that
right to the Shareholders;
(b) to elect and remove such officers and appoint and
terminate such officers as they consider appropriate with or without
cause;
(c) to employ a bank or trust company as custodian of any
assets of the Trust subject to any conditions set forth in this.
Declaration of Trust or in the By-Laws;
(d) to retain a transfer agent and Shareholder servicing
agent, or both;
(e) to provide for the distribution of Shares either through
a principal underwriter or by the Trust itself;
(f) to set record dates in the manner provided for in the
By-Laws of the Trust;
(g) to delegate such authority as they consider desirable to
any officers of the Trust and to any agent, custodian or underwriter;
(h) to vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property held
in trust hereunder; and to execute and deliver powers of attorney to
such person or persons as the Trustees shall deem proper, granting to
such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(i) to exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities
held in trust hereunder;
(j) to hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or either in its own name or in the name of a
custodian or a nominee or nominees, subject in either case to proper
safeguards according to the usual practice of Massachusetts Business
trusts or investment companies;
(k) to consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
concern, any security of which is held in the Trust; to consent to
any contract, lease, mortgage, purchase, or sale of property by such
corporation or concern, and to pay calls or subscriptions with
respect to any security held in the Trust;
(l) to compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust or any matter in controversy including,
but not limited to claims for taxes;
10
<PAGE>
(m) to make, in the manner provided in the By-Laws,
distributions of income and of capital gains to Shareholders;
(n) to borrow money to the extent and in the manner permitted
by the 1940 Act and the Trust's fundamental policy thereunder as to
borrowing; and
(o) to enter into investment advisory or management
contracts, subject to the 1940 Act, with any one or more corporations,
partnerships, trusts, associations or other persons; if the other
party or parties to any such contract are authorized to enter into
securities transactions on behalf of the Trust, such transactions
shall be deemed to have been authorized by all of the Trustees.
5. No one dealing with the Trustees shall be under any
obligation to make any inquiry concerning the authority of the
Trustees, or to see to the application of any payments made or
property transferred to the Trustees or upon their order.
6. (a) The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum
of money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay by way of subscription to any
Shares or otherwise. Every note, bond, contract or other undertaking
issued by or on behalf of the Trust or the Trustees relating to the
Trust shall include a recitation limiting the obligation represented
thereby to the Trust and its assets (but the omission of such a
recitation shall not operate to bind any Shareholder).
(b) Whenever this Declaration of Trust calls for or permits
any action to be taken by the Trustees hereunder, such action shall
mean that taken by the Board of Trustees by vote of the majority of
trustees as set forth from time to time in the By-Laws of the Trust
or as required pursuant to the provisions of the 1940 Act and the
rules and regulations promulgated thereunder.
(c) The Trustees shall possess and exercise any and all such
additional powers as are reasonably implied from the powers herein
contained such as may be necessary or convenient in the conduct of any
business or enterprise of the Trust, to do and perform anything
necessary, suitable, or proper for the accomplishment of any of the
purposes, or the attainment of any one or more of the objects, herein
enumerated, or which shall at any time appear conducive to or
expedient for the protection or benefit of the Trust, and to do and
perform all other acts or things necessary or incidental to the
purposes herein before set forth, or that may be deemed necessary by
the Trustees.
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(d) The Trustees shall have the power to determine
conclusively whether any moneys, securities, or other properties of
the Trust property are, for the purpose of this Trust, to be
considered as capital or income and in what manner any expenses or
disbursements are to be borne as between capital and income whether or
not in the absence of this provision such moneys, securities or other
properties would be regarded as capital or income and whether or not
in the absence of this provision such expenses or disbursements would
ordinarily be charged to capital or to income.
7. The By-Laws of the Trust may divide the Trustees into classes
and prescribe the tenure of office of the several classes, but no class shall
be elected for a period shorter than that from the time of the election
following the division into classes until the next annual meeting and
thereafter for a period shorter than the interval between annual meetings or
for a period longer than five years, and the term of office of at least one
class shall expire each year.
8. The Shareholders shall have the right to inspect the records,
documents, accounts and books of the Trust, subject to reasonable regulations
of the Trustees, not contrary to Massachusetts law, as to whether and to what
extent, and at what times and places, and under what conditions and
regulations, such right shall be exercised..
9. Any Trustee, or any officer elected or appointed by the Trustees
or by any committee of the Trustees or by the Shareholders or otherwise, may
be removed at any time, with or without cause, in such lawful manner as may be
provided in the By-Laws of the Trust.
10. If the By-Laws so provide, the Trustees shall have power to hold
their meetings, to have an office or offices and, subject to the provisions of
the laws of Massachusetts, to keep the books of the Trust outside of said
11. Securities held by the Trust shall be voted in person or by proxy
by the Chairman, President or Vice-President, or such officer or officers of
the Trust as the Trustees shall designate for the purpose, or by a proxy or
proxies thereunto duly authorized by the Trustees, except as otherwise ordered
by vote of the holders of a majority of the Shares outstanding and entitled to
vote in respect thereto.
12. (a) Subject to the provisions on the 1940 Act, any Trustee,
officer of employee individually, or any partnership of which any
Trustee, officer of employee may be a member, or any corporation or.
association of which any Trustee, officer or employee may be an
officer, director, trustee, employee or stockholder, may be a party
to, or may be pecuniarily or otherwise interested in, any contract
or transaction of the Trust, and in
12
<PAGE>
the absence of fraud no contract or other transaction shall be thereby
affected or invalidated; provided that in case a Trustee, or a
partnership, corporation or association of which a Trustee is a member,
officer, director, trustee, employee or stockholder is so interested,
such fact shall be disclosed or shall have been known to the Trustees
or a majority thereof; and any Trustee who is so interested, or who is
also a director, officer, trustee, employee or stockholder of such
other corporation or association or a member of such partnership which
is so interested, may be counted in determining the existence of a
quorum at any meeting of the Trustees which shall authorize any such
contract or transaction, and may vote thereat to authorize any such
contract or transaction, with like force and effect as if he were not
such director, officer, trustee, employee or stockholder of such other
trust or corporation or association or a member of a partnership so
interested.
(b) Specifically, but without limitation of the foregoing,
theTrust may enter into a management or investment advisory contract
or underwriting contract and other contracts with, and may otherwise
do business with any manager or investment adviser for the Trust
and/or principal underwriter of the Shares of the Trust or any
subsidiary or affiliate of any such manager or investment adviser
and/or principal underwriter and may permit any such firm or
corporation to enter into any contracts or other arrangements with
any other firm or corporation relating to the Trust notwithstanding
that the Trustees of the Trust may be composed in part of partners,
directors, officers or employees of any such firm or corporation, and
in the absence of fraud the Trust and any such firm or corporation
may deal freely with each other, and no such contract or transaction
between the Trust and any such firm or corporation shall be
invalidated or in any wise affected thereby, nor shall any Trustee or
officer of the Trust be liable to the Trust or to any shareholder or
creditor thereof or to any other person for any loss incurred by it
or him solely because of the existence of any such contract or
transaction; provided that nothing herein shall protect any director
or officer of the Trust against any liability to the Trust or to its
security holders 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.
(c) (1) As used in this paragraph the following terms shall
have the meanings set forth below: (i) the term
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"Indemnitee" shall mean any present or former Trustee or
officer of the Trust, any present or former Trustee or officer
of another Trust whose securities are or were owned by the
Trust or of which the Trust is or was a creditor and who
served or serves in such capacity at the request of the Trust
and the heirs, executors and administrators of any of the
foregoing; however, whenever conduct by an indemnitee is
referred to, the conduct shall be that of the original
indemnitee rather than that of the heir, executor or
administrator:
(ii) the term "covered proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, to which an
indemnitee is or was a party or is threatened to be made a
party by reason of the fact or facts under which he is an
indemnitee as defined above;
(iii) the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office in
question;
(iv) the term "covered expenses" shall mean expenses
(including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by an
indemnitee in connection with a covered proceeding; and
(v) the term "adjudication of liability" shall mean, as to any
covered proceeding and as to any indemnitee, an adverse
determination as to the indemnitee whether by judgment, order,
settlement, conviction or upon a plea of nolo contendere or
its equivalent.
(d) The Trust shall not indemnify any indemnitee for any
covered expenses in any covered proceeding if there has been
adjudication of liability against such indemnitee expressly based on
finding of disabling conduct.
(e) Except as set forth in (d) above, the Trust shall
indemnify any indemnitee for covered expenses in any covered
proceeding, whether or not there is an adjudication of liability as
to such indemnitee, if a determination has been made that the
indemnitee was not liable by reason of disabling conduct by (i) a
final decision of the court or other body before which the covered
proceeding was brought; or (ii) in the absence of such
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<PAGE>
decision, a reasonable determination, based on a review of the facts,
by either (a) the vote of a majority of a quorum of trustees who are
neither "interested persons", as defined in the Investment Company Act
of 1940 (the "1940 Act") nor parties to the covered proceeding or (b)
an independent legal counsel in a written opinion; provided that such
trustees or counsel, in reaching such determination, may but need not
presume the absence of disabling conduct on the part of the indemnitee
by reason of the manner in which the covered proceeding was terminated.
(f) Covered expenses incurred by an indemnitee in
connection with a covered proceeding shall be advanced by the Trust
to an indemnitee prior to the final disposition of a covered
proceeding upon the request of the indemnitee for such advance and
the undertaking by or on behalf of the indemnitee to repay the
advance unless it is ultimately determined that the indemnitee is
entitled to indemnification hereunder, but only if one or more of the
following is the case: (i) the indemnitee shall provide a security
for such undertaking: (ii) the Trust shall be insured against losses
arising out of any lawful advances: or (iii) there shall have been a
determination, based on a review of the readily available facts (as
opposed to a full trial-type inquiry) that there is a reason to
believe that the indemnitee ultimately will be found entitled to
indemnification by either independent legal counsel in a written
opinion or by the vote of a majority of a quorum of trustees who are
neither "interested persons" as defined in the 1940 Act nor parties
to the covered proceeding.
(g) Nothing herein shall be deemed to affect the right of
the Trust and/or any indemnitee to acquire and pay for any insurance
covering any or all indemnitees to the extent permitted by the 1940
Act or to affect any other indemnification rights to which any
indemnitee may be entitled to the extent permitted by the 1940 Act.
13. For purposes of the computation of net asset value, as in
this Declaration of Trust referred to, the following rules shall apply:
(a) Net asset value of Shares of the Trust shall be
calculated at such time or times as the Trustees may deem
advisable on each Business Day for each class of Shares. A
"Business Day" is a day when the Trust must be open because there
is a sufficient degree of trading in the instruments held in one
of its portfolios to materially offset such portfolio's net asset
value. The Trust will usually be closed on
15
<PAGE>
bank holidays in New York State and the Commonwealth of Pennsylvania
and when the New York Stock Exchange is closed;
(b) Shares will be redeemed at their net asset value
next determined after receipt by the Trust of a request in proper
form; unless otherwise specified, redemption requests received
after noon are not entered until the next Business Day to enable
Shareholders to receive additional dividends;
(c) Shares will be purchased each Business Day at the net
asset value next determined after receipt by the Trust of a
properly completed order and payment in Federal Funds (members
bank deposits with the Federal Reserve Bank);
(d) The net asset value of each Share of the Trust is
determined by adding the fair value of all the Trust's securities,
cash and other assets, subtracting its liabilities, and dividing
the result by the number of Shares outstanding.
(e) The Trustees are empowered, in their absolute
discretion, to establish bases or times or both, for determining
the net asset value of each Share of the Trust in accordance with
the 1940 Act and to authorize the voluntary purchase by the Trust,
either directly or through an agent, of Shares of the Trust upon
such terms and conditions and for such consideration as the
Trustees shall deem advisable in accordance with any such
provision, rule or regulation.
(f) Payment of the net asset value of Shares of the Trust
properly surrendered to it for redemption shall be made by the
Trust within seven days after tender of such stock to the Trust
for such purpose plus any period of time during which the right of
the holders of the shares of the Trust to require the Trust to
redeem such shares has been suspended. Any such payment may be
made in portfolio securities of the Trust and/or in cash, as the
Trustees shall deem advisable, and no Shareholder shall have a
right, other than as determined by the Trustees, to have his
Shares redeemed in kind.
EIGHTH: The name "Reserve" included in the name of the Trust
and the "Reserve" logo shall be used pursuant to a royalty-free,
nonexclusive license from Reserve Management Company, incidental to and
as part of an advisory, management or supervisory contract which may be
entered into by the Trust with, Reserve Management Company. The license
may be terminated by Reserve Management Company upon termination of such
advisory management or supervisory contract or without cause upon 60
days' notice, in which case the Trust shall have no further right to use
the "Reserve" logo or the name "Reserve" in
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<PAGE>
its name or otherwise and the Trust, the Shareholders and its officers and
Trustees shall promptly take whatever action may be necessary to change its name
and logo accordingly.
NINTH:
1. In case any Shareholder or former Shareholder shall be
held to be personally liable solely by reason of his being or having been a
Shareholder and not because of his acts or omissions or for some other reason,
the Shareholder or former Shareholder (or his heirs, executors, administrators
or other legal representatives or in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled out of the Trust
estate to be held harmless from and indemnified against all loss and expense
arising from such liability. This Trust shall, upon request by the Shareholder,
assume the defense of any claim made against any Shareholder for any act or
obligation of the Trust and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and not a
partnership is created hereby. No Trustee hereunder shall have any power to bind
personally either the Trust's officers or any Shareholder. All persons extending
credit to, contracting with or having any claim against the Trust or the
Trustees shall look to the assets of the Trust for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor any of
their --------whether past present or future shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect a Trustee against
any liability to which such Trustee would otherwise be subject by reason of
willfull misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee hereunder.
3. The exercise by the Trustees of their powers and
discretion hereunder in good faith and with reasonable care under the
circumstances then prevailing, shall be binding upon everyone interested.
Subject to the provisions of paragraph 2 of this Article NINTH, the Trustees
shall not be liable for errors of judgments or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operations of this Declaration of Trust, and subject to the provisions of
paragraph 2 of this Article NINTH, shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.
4. This Trust shall continue without limitation of time but
subject to the provisions of sub-sections (a),(b), and (c) of this
paragraph 4.
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(a) The Trustees, with the favorable vote of the holders of
more than 50% of the outstanding Shares entitled to vote may sell
and convey the assets of the Trust (which sale may be subject to the
retention of assets for the payment of liabilities and expenses) to
another issuer. Upon making provision for the payment of liabilities,
by assumption by such issuer or otherwise, the Trustees shall
distribute the remaining proceeds ratably among the holders of the
Shares of the Trust then outstanding.
(b) The Trustees with the favorable vote of the holders of
more than 50% of the outstanding Shares entitled to vote, may at any
time sell and convert into money all the assets of the Trust. Upon
making provision for the payment of all outstanding obligations,
taxes and other liabilities, accrued or contingent, of the Trust, the
Trustees shall distribute the remaining assets of the Trust ratably
among the holders of the outstanding Shares.
(c) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in subsections (a) and
(b), the Trust shall terminate and the Trustees shall be discharged
of any and all further liabilities and duties hereunder and the right,
title and interest of all parties shall be cancelled and discharged.
5. The original or a copy of this instrument and of each
declaration of trust supplemental hereto shall be kept at the office of the
Trust where it may be inspected by any Shareholder. A copy of this instrument
and of each supplemental declaration of trust shall be filed by the Trustees
with the Massachusetts Secretary of State, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing
with the Trust may rely on a certificate by an officer of the Trust as to
whether or not any such supplemental declarations of trust have been made and
as to any matters in connection with the Trust hereunder, and with the same
affect as if it were the original, may rely on a copy certified by an officer
of the Trust to be a copy of this instrument or of any such supplemental
declaration of trust. In this instrument or in any such supplemental
declaration of trust, references to this instrument, and all expressions like
"herein", "hereof" and "hereunder" shall be deemed to refer to this instrument
as amended or affected by any such supplemental declaration of trust. This
instrument may be executed in any number of counterparts, each of which shall
be deemed an original
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6. The Trust set forth in this instrument is created
under and is to be governed by and construed and administered according to the
laws of the Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
7. If authorized by vote of the Trustees and the
favorable vote of the holders of more than 50% of the outstanding Shares
entitled to vote, or by any larger vote which may be required by applicable law
in any particular case, the Trustees shall amend or otherwise supplement this
instrument, by making a Declaration of Trust supplemental hereto, which
thereafter shall form a part hereof.
IN WITNESS WHEREOF, the undersigned have executed this
instrument this 5th day of July, 1983.
- ----------------------------- --------------------------------
Henry B.R. Brown, Trustee Thomas F. Konop, Trustee
810 Seventh Avenue 810 Seventh Avenue
New York, NY 10019 New York, NY 10019
- -----------------------------
Bruce R. Bent, Trustee
810 Seventh Avenue
New York, NY 10019
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Addendum
to the
Reserve New York Tax-Exempt Trust
Declaration of Trust
(hereinafter the "Trust")
The name and address of the resident agent for service of
process for the Trust is Herbert N. Goodwin, 47 Manchester Road, Brookline,
Massachusetts 02146.
--------------------------------
Thomas F. Konop, Trustee
810 Seventh Avenue
New York, New York 10019
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
DECLARATION OF TRUST
OF RESERVE NEW YORK TAX-EXEMPT TRUST
DATED JULY 17, 1999
WHEREAS, a majority of the Board of Trustees including a majority of
Independent Trustees determined on October 7, 1998 to consider and approve
various amendments to the Declaration of Trust as amended (the "Declaration of
Trust") of Reserve New York Tax-Exempt Trust (the "Trust"), and
WHEREAS, the Board of Trustees voted to submit to Shareholders
amendments to the Declaration of Trust to permit issuance of multiple classes
of shares; and
WHEREAS, the Board of Trustees voted to submit to Shareholders
amendments to the Declaration of Trust to eliminate the policy pricing
securities in its portfolio; and
WHEREAS, the Board of Trustees voted to submit to Shareholders
amendments to the Declaration of Trust to permit: (i) Shareholder approval of
amendments to the Declaration of Trust, except as may be necessary to conform
the Declaration to provisions of federal or state regulation and provisions of
the Internal Revenue Service; and (ii) Trustee amendments to the Declaration
of Trust with out Shareholder approval if the Trustees deem it necessary to
change the name of the Trust or make changes which do not materially adversely
affect rights of Shareholders; and
WHEREAS, the Board of Trustees voted to submit to Shareholders
amendments to the Declaration of Trust to vest exclusive power to vote the
portfolio securities of the Trust in the Trustees or their delegates; and
WHEREAS, the Shareholders of the Trust held several meetings from
January 15 through June 17, 1999; and
WHEREAS, the Shareholders voted to amend the Declaration of Trust
to permit issuance of multiple classes of shares; and
WHEREAS, the Shareholders voted to amend to the Declaration of
Trust to eliminate the policy pricing securities in its portfolio; and
WHEREAS, the Shareholders voted to amend the Declaration of Trust to
permit: (i) Shareholder approval of amendments to the Declaration of Trust,
except as may be necessary to conform the Declaration to provisions of federal
or state regulation and provisions of the Internal Revenue Service; and (ii)
Trustee amendments to the Declaration of Trust with out Shareholder approval
if the Trustees deem it necessary to change the name of the Trust or make
changes which do not materially adversely affect rights of Shareholders; and
WHEREAS, the Shareholders voted to amend the Declaration of Trust to
vest exclusive power to vote the portfolio securities of the Trust in the
Trustees or their delegates; and
NOW THEREFORE, the Trustees hereby adopt the following amendments to
the Declaration of Trust as set forth below:
Article FOURTH is deleted and the following text is inserted in its
place:
<PAGE>
1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial
interest, all of one class, except as provided in Sections 2 and 3 of
this Article Fourth, par value $.001 per share. The number of Shares
of beneficial interest authorized hereunder is unlimited. All Shares
issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be
fully paid and nonassessable. The Trustees may from time to time
divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and/or 1/100ths of a Share or integral
multiples thereof.
2. Series Designation. The Trustees, at their discretion,
may authorize the division of Shares into two or more Series, and the
different Series shall be established and designated, and the
variations in the relative rights and preferences between the
different Series shall be fixed and determined by the Trustees;
provided that all Shares shall be identical except that there may be
variations so fixed and determined between different Series as to
investment objective, purchase price, allocation of expenses, right
of redemption, special and relative rights as to dividends and on
liquidation, conversion rights, and conditions under which the
several Series shall have separate voting rights. All references to
Shares in this Declaration shall be deemed to be Shares of any or all
series as the context may require.
If the Trustees shall divide the Shares of the Trust into
two or more Series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply
equally to each Series of the Trust except as the context requires
otherwise.
(b) The number of authorized Shares and the number of Shares
of each Series that may be issued shall be unlimited. The Trustees
may classify or reclassify any unissued Shares or any Shares
previously issued and reacquired of any Series into one or more
Series that may be established and designated from time to time. The
Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Series reacquired by the Trust
at their discretion from time to time.
(c) All consideration received by the Trust for the issue or
sale of Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that
Series for all purposes, subject only to the rights of creditors of
such Series and except as may otherwise be required by applicable
laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Series, the
Trustees shall allocate them among any one or more of the Series
established and designated from time to time in such manner and on
such basis as they, at their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive
and binding upon the shareholders of all Series for all purposes.
<PAGE>
(d) The assets belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that Series
and all expenses, costs, charges and reserves attributable to that
Series, and any general liabilities, expenses, costs, charges or
reserves of the Trust which are not readily identifiable as belonging
to any particular Series shall be allocated and charged by the
Trustees to and among any one or more of the Series established and
designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. Each
allocation of liabilities, expenses, costs, charges and reserves by
the Trustees shall be conclusive and binding upon the Shareholders of
all Series for all purposes. The Trustees shall have full discretion,
to the extent not inconsistent with the 1940 Act, to determine which
items are capital; and each such determination and allocation shall
be conclusive and binding upon the Shareholders. The assets of a
particular Series of the Trust shall, under no circumstances, be
charged with liabilities attributable to any other Series of the
Trust. All persons extending credit to, or contracting with or having
any claim against a particular Series of the Trust shall look only to
the assets of that particular Series for payment of such credit,
contract or claim. No Shareholder or former Shareholder of any Series
shall have any claim on or right to any assets allocated or belonging
to any other series.
(e) Each Share of a Series of the Trust shall represent a
beneficial interest in the net assets of such Series. Each holder of
Shares of a Series shall be entitled to receive his prorata share of
distributions of income and capital gains made with respect to such
Series. Upon redemption of his Shares or indemnification for
liabilities incurred by reason of his being or having been a
Shareholder of a Series, such shareholder shall be paid solely out of
the funds and property of such Series of the Trust. Upon liquidation
or termination of a Series of the Trust, Shareholders of such Series
shall be entitled to receive a pro rata share of the net assets of
such Series. A Shareholder of a particular Series of the Trust shall
not be entitled to participate in a derivative or class action on
behalf of any other Series or the Shareholders of any other Series of
the Trust.
(f) The establishment and designation of any Series of
Shares shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such Series,
or as otherwise provided in such instrument. The Trustees may by an
instrument executed by a majority of their number abolish any Series
and the establishment and designation thereof. Except as otherwise
provided in this Article Fourth, the Trustees shall have the power to
determine the designations, preferences, privileges, limitations and
rights of each class and Series of Shares. Each instrument referred
to in this paragraph shall have the status of an amendment to this
Declaration.
3. Class Designation. The Trustees, at their discretion, may
authorize the division of the Shares of the Trust, or, if any Series
be established, the Shares of any Series, into two or more Classes,
and the different Classes shall be established and designated, and
the variations in the relative rights and preferences between the
different Classes shall be fixed and determined by the Trustees;
provided that all Shares of the Trust or of any Series shall be
identical to all other Shares of the Trust or the same Series, as the
case may be, except that there may be variations between different
classes as to allocation of expenses, right of redemption, special
and relative rights as to dividends and on liquidation, conversion
rights, and conditions under which the several Classes shall have
separate voting rights. All references to Shares in this Declaration
shall be deemed to be Shares of any or all Classes as the context may
require.
<PAGE>
If the Trustees shall divide the Shares of the Trust or any Series
into two or more Classes, the following provisions shall be
applicable:
(a) All provisions herein relating to the Trust, or any Series of the
Trust, shall apply equally to each Class of Shares of the Trust or of
any Series of the Trust, except as the context requires otherwise.
(b) The number of Shares of each Class that may be issued shall be
unlimited. The Trustees may classify or reclassify any unissued
Shares of the Trust or any Series or any Shares previously issued and
reacquired of any Class of the Trust or of any Series into one or
more Classes that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some
other Class), reissue for such consideration and on such terms as
they may determine, or cancel any Shares of any Class reacquired by
the Trust at their discretion from time to time.
(c) Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly
be allocated to, the Shares of a particular Class may be charged to
and borne solely by such Class and the bearing of expenses solely by
a Class of Shares may be appropriately reflected (in a manner
determined by the Trustees) and cause differences in the net asset
value attributable to, and the dividend, redemption and liquidation
rights of, the Shares of different Classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees
shall be conclusive and binding upon the Shareholders of all Classes
for all purposes.
(d) The establishment and designation of any Class of Shares shall be
effective upon the execution of a majority of the then Trustees of an
instrument setting forth such establishment and designation and the
relative rights and preferences of such Class, or as otherwise
provided in such instrument. The Trustees may, by an instrument
executed by a majority of their number, abolish any Class and the
establishment and designation thereof. Each instrument referred to in
this paragraph shall have the status of an amendment to this
Declaration.
4. The ownership of Shares shall be recorded in the books of the
Trust or a transfer agent. The Trustees may make such rules as they
consider appropriate for the transfer of Shares and similar matters.
The record books of the Trust or any transfer agent, as the case may
be, shall be conclusive as to who are the holders of Shares and as to
the number of Shares held from time to time by each. Anything in this
Declaration of Trust to the contrary notwithstanding, when Shares of
the Trust are registered in the name of one Shareholder or another,
either Shareholder is entitled to act regarding the Shares so
registered and such Shareholders will indemnify and hold the Trust,
its investment adviser, principal underwriter, custodian or
affiliates thereof, harmless for such actions.
5. The Trustees shall accept investments in the Trust from such
persons and on such terms as they may from time to time authorize.
After the date of the initial contribution of capital (which shall
occur prior to the initial public offering of Shares of the Trust),
the number of Shares to represent the initial contribution shall be
considered as outstanding and the amount received by the Trustees on
account of the contribution shall be treated as an asset of the
Trust. Subsequent to such initial contribution of capital, Shares
(including Shares which may have been redeemed or repurchased by the
Trust) may be issued or sold at a price which will net the Trust,
before paying any taxes in connection with such issue or sale, not
less than the net asset value (as defined in Article SEVENTH, Section
<PAGE>
12) thereof; provided, however, that the Trustees may, at their
discretion, impose a sales charge upon investments in the Trust.
6. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the
Trust or the Trustees.
*********
Article FIFTH, Section 2 is amended as follows:
2. Except as provided herein, at all meetings of
Shareholders each Shareholder shall be entitled to one vote
for each Share standing in his name on the books of the
Trust on the date, fixed in accordance with the By-Laws, for
determination of Shareholders entitled to vote at such meeting
except for Shares redeemed prior to the meeting], and
any fractional Share shall carry proportionately all the
rights of a whole Share, including the right to vote and
the right to receive dividends. Notwithstanding the foregoing,
the Trustees may, in conjunction with the establishment of any
Series or Class of Shares, establish or reserve the right to
establish conditions under which the several Series or Classes
shall have separate voting rights or, if a Series or Class
would not, in the sole judgment of the Trustees, be
materially affected by a proposal, no voting rights. The
presence in person or by proxy of the holders of one-third of
the Shares outstanding and entitled to vote thereat shall
constitute a quorum at any meeting of the Shareholders. If at
any meeting of the Shareholders there shall be less than a
quorum present, the Shareholders present at such meeting may,
without further notice, adjourn the same from time to time
until a quorum shall attend, but no business shall be
transacted at any such adjourned meeting except such as might
have been lawfully transacted had the meeting not been
adjourned.
**********
Article SEVENTH (13) is deleted in its entirety.
**********
Article FIFTH (3) is amended to read:
The method of computing such net asset value, the time at which such
net asset value shall be computed and the time within which the Trust
shall make payments therefore, shall be determined in accordance with
procedures set forth in each Fund's currently effective prospectus
and statement of additional information.
**********
The following sentence is added to the end of Article FIFTH (1):
The Trustees may also amend this Declaration with out the vote or
consent of shareholders if they deem it necessary or desirable to (i)
conform the Declaration to provisions of federal or state law or
regulations, or to the provision of the Internal
<PAGE>
Revenue Code; (ii) change the name of the Trust; or (iii) make any
other changes in the Declaration which do not materially adversely
affect the rights of Shareholders here under.
Article EIGHTH is amended to read:
The license may be terminated by Reserve Management Company upon
termination of such advisory management or supervisory contract or
without cause upon 60 days notice, in which case the Trust shall have
no further right to use the name of Reserve in its name or otherwise
and the Trust, its officers and Trustees shall promptly take whatever
action may be necessary to change its name accordingly.
**********
Article SEVENTH (11) is amended as follows:
Securities held by the Trust shall be voted in person or by proxy by
the Chairman, President, or Vice President, or such officer or
officers of the Trust as the Trustees shall designate for the
purpose, or by a proxy or proxies thereunto duly authorized by the
Trustees.
**********
Article NINTH (4) is amended as follows:
(a) The Trustees, with the favorable vote of the holders of
more than 50% of the outstanding Shares entitled to vote may merge,
consolidate, sell, lease, exchange, or convey all or substantially
all of the assets, including its goodwill, of the Trust, or any
series thereof, (which transaction may be subject to the retention of
assets for the payment of liabilities and expenses) to any other
corporation, association, trust, or other organization. Upon making
provision for the payment of liabilities, by assumption by such other
organization or otherwise, the Trustees shall distribute the
remaining proceeds ratably among the holders of the Shares of the
Trust or series then outstanding.
(b) The Trustees, by execution of an instrument in writing
signed by a majority of the Trustees, or by the favorable vote of the
holders of more than 50% of the outstanding Shares entitled to vote,
may at any time sell and convert into money all or substantially all
of the assets of the Trust, or any series thereof. Upon making
provision for the payment of all outstanding obligations, taxes and
other liabilities, accrued or contingent, of the Trust, the Trustees
shall distribute the remaining assets of the Trust or series ratably
among the holders of the outstanding Shares.
(c) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in sub-sections (a) and
(b), the Trust or series shall terminate and the Trustees shall be
discharged of any and all further liabilities and duties hereunder
with respect to the Trust or such series, and the right, title and
interest of all parties shall be canceled and discharged.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Secretary of the Trust, duly
authorized and having power of attorney for the Trustees, has executed this
instrument this day of July 17, 1999.
__________________________________
MaryKathleen Foynes
<PAGE>
THIRD AMENDMENT OF BY-LAWS
OF RESERVE NEW YORK TAX-EXEMPT TRUST
DATED JULY 17, 1999
Article VIII "Amendments of By-laws" is hereby deleted in its entirety
and replaced with the following:
ARTICLE VIII
The Bylaws of the Trust may be altered, amended, added to or replaced
by the Shareholders or a majority vote of the entire Board of
Trustees. This Article VIII may be altered, amended or repealed only
by the vote of the holders of a majority of the Shareholders present
at a meeting of the Shareholders provided that a quorum is present in
person or by proxy at such meeting.
<PAGE>
AMENDMENT TO BY-LAWS
OF
RESERVE NEW YORK TAX-EXEMPT TRUST
Article II ("The Trustees"), Section 1 (Number and Tenure of Office) is deleted
in its entirety and the following is substituted in its entirety:
Section 1. Number and Tenure of Office.
---------------------------
The business and property of the Trust shall be conducted and managed by the
Board of Trustees, consisting of that number of Trustees specified in the
Declaration of Trust, which number may be increased or decreased as provided in
the Declaration of Trust as amended from time to time and in Section 2 of this
Article. Each Trustee shall hold office until he resigns, is removed, retires or
until his successor is duly elected and qualified. A Trustee shall retire upon
attaining the age of seventy-five (75) years. Trustees need not be Shareholders.
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<PAGE>
RESERVE NEW YORK TAX-EXEMPT TRUST
September 26, 1985 Amendment to the
Bylaws
The Trustees of Reserve New York Tax-Exempt Trust (the "Trust") voted on July
24, 1985 to amend the Bylaws of the Trust and the shareholders of the Trust
approved this amendment on September 26, 1985. Therefore, the Bylaws are amended
as follows:
(1) Article I, Section 2 is deleted in its entirety.
(2) The second sentence of Article II, Section 1 is amended to state: "Each
Trustee shall hold office until he resigns, is removed or until his
successor is duly elected and qualified."
(3) The first sentence of Article II, Section 2 is amended to state: "The
Trustees, by the vote of a majority of the entire Board of Trustees, may
increase the number of Trustees to a number not exceeding fifteen, and
may elect Trustees to fill the vacancies created by any such increase in
the number of Trustees until the next meeting of shareholders or until
their successors are duly elected and qualified."
(4) Article II, Section 4(b) is amended to state: "The annual meeting of the
Trustees shall be held annually at such time and on such notice, if any,
as the Trustees may determine."
(5) The first sentence of Article III, Section 1 is amended to state: "The
executive officers of the Trust shall be chosen by the Board annually at
such time as the Trustees may determine".
3
<PAGE>
AMENDED 1985
RESERVE NEW YORK TAX-EXEMPT TRUST
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the Shareholders (which
term as used herein shall, together with all other terms defined in the
Declaration of Trust, have the same meaning as in the Declaration of Trust)
shall be held at the principal office of the Trust in the State of Massachusetts
or at such other place within or without the State of Massachusetts as may from
time to time be designated by the Trustees and stated in the notice of meeting.
Section 2. Special or Extraordinary Meeting, Special or extraordinary
meetings of the Shareholders for any purpose or purposes may be called for by
the Chairman of the Trustees, if any, or by the President or by the Trustees and
shall be called by the Secretary upon receipt of the request in writing signed
by Shareholders holding not less than one third in amount of the entire number
of shares issued and outstanding and entitled to vote thereat. Such request
shall state the purpose or purposes of the proposed meeting.
Section 3. Notice of meetings of Shareholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
Shareholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each Shareholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Trust. No notice of the time, place or purpose of any meeting of
shareholder need be given to any Shareholder who
4
<PAGE>
attends in person or by proxy or to any Shareholder who, in writing executed and
filed with the records of the meeting, either before or after the holding
thereof, waives such notice.
Section 4. Record Dates. The Trustees may fix in advance, a date, not
exceeding sixty days and not less than ten days preceding the date of any
meeting of Shareholders and not exceeding sixty days preceding any dividend
payment date or any date for the allotment of rights, as a record date for the
determination of the Shareholders entitled to notice of and to vote at such
meeting, or entitled to receive such dividends or rights, as the case may be.
Section 5. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of one-third of the Shares of the Trust issued
and outstanding and entitled to vote thereat, shall constitute a quorum at all
meetings of the Shareholders. The Shareholders present at any such meeting may,
without further notice, and whether or not a quorum is present, adjourn the same
from time to time (and until a quorum shall attend, in the case of meetings
adjourned without the presence of a quorum), but no business shall be transacted
at any such adjourned meeting except such as might have been lawfully transacted
had the meeting not been adjourned.
Section 6. Voting and Inspectors. At all meetings of Shareholders every
Shareholder of record entitled to vote thereat shall be entitled to vote at such
meeting either in person or by proxy appointed by instrument in writing
subscribed by such Shareholder or his duly authorized attorney-in-fact. No proxy
which is dated more than three months before the meeting at which it is offered
shall be accepted, unless such proxy shall, on its face, name a longer period
for which it is to remain in force.
All elections shall be had and all questions decided by a majority of
the votes cast at a duly constituted meeting, except as otherwise provided in
the Declaration of Trust or in these By-
5
<PAGE>
Laws or by specific statutory provision superseding the restriction and
limitation contained in the Declaration of Trust or in these By-Laws.
At any election of Trustees, the Trustees prior thereto may or, if they
have not so acted, the Chairman of the meeting may, and upon the request of the
holders of ten per cent (10%) of the Shares entitled to vote at such election
shall, appoint two inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at such election with
strict impartiality and according to the best of their ability, and shall after
the election make a certificate of the result of the vote taken. No candidate
for the office of Trustee shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon
any election or matter, and such vote shall be taken upon the request of the
holders of ten per cent (10%) of the Shares entitled to vote on such election or
matter.
Section 7. Conduct of Shareholders' Meeting. The meeting of the Shareholders
shall be presided over by the Chairman of the Trustees, if any, or if he shall
not be present, by the President, or if he shall not be present, by a
Vice-President, or if neither the Chairman of the Trustees, the President nor
any Vice-President is present, by a chairman to be elected at the meeting. The
Secretary of the Trust, if present, shall act as Secretary of such meetings, or
if he is not present, an Assistant Secretary shall so act, if neither the
Secretary nor an Assistant Secretary is present, then the meeting shall elect
its secretary.
Section 8. Concerning Validity of Proxies, Ballots, Etc. At every
meeting of the Shareholders, all proxies shall be received and taken in charge
of and all ballots shall be received, tabulated and canvassed by the secretary
of the meeting, who shall decide all questions touching the existence of a
quorum, the qualification of voters, the validity and effect of the
6
<PAGE>
proxies, and the acceptance or rejection of votes, unless inspectors of election
shall have been appointed in Section 6, in which event such inspectors of
election shall decide all such questions.
ARTICLE II
THE TRUSTEES
Section 1. Number and Tenure of Office. The business and property of
the Trust shall be conducted and managed by the Board of Trustees, consisting of
that number of Trustees specified in the Declaration of Trust, which number may
be increased or decreased as provided in the Declaration of Trust as amended
from time to time and in Section 2 of this Article. Each Trustee shall hold
office until he resigns, is removed or until his successor is duly elected and
qualified. Trustees need not be Shareholders.
Section 2. Increase or Decrease in Number of Trustees; Removal. The
Trustees, by the vote of a majority of the entire Board of Trustees, may
increase the number of Trustees to a number not exceeding fifteen, and may elect
Trustees to fill the vacancies created by any such increase in the number of
Trustees until the next meeting of shareholders or until their successors are
duly elected and qualified. Vacancies occurring other than by the reason of any
such increase shall be filled in the manner provided for a Massachusetts
business corporation. The Trustees, by the vote of a majority of the entire
Board of Trustees, may likewise decrease the number of Trustees to a number not
less than three, but the tenure of office shall not be affected by any such
decrease effected by the Board. Any Trustee at any time may be removed either
with or without cause by resolution duly adopted by the affirmative votes of the
holders of the majority of the shares of the Trust present in person or by proxy
at any meeting of Shareholders at which such vote may be taken, provided that a
quorum is present, or by such larger vote as may be required by Massachusetts
law. Any Trustee at any time may be removed for cause by
7
<PAGE>
resolution duly adopted at any meeting of the Board of Trustees provided that
notice thereof is contained in the notice of such meeting and that such
resolution is adopted by the vote of at least two thirds of the Trustees whose
removal is not proposed. As used herein, "for cause" shall mean any cause which
under Massachusetts law would permit the removal of a Trustee of a business
trust.
Section 3. Place of Meeting. The Trustees may hold their meetings within
or outside the Commonwealth of Massachusetts, at any office or offices of the
Trust or at any other place as they may from time to time by resolution
determine, or, in the case of telephonic meetings, as they may from time to time
by resolution determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
Section 4. (a) Regular Meetings. Regular meetings of the Trustees shall
be held at such time and on such notice, if any, as the Trustees may from time
to time determine.
(b) Annual Meetings. The annual meeting of the Trustees
shall be held annually at such time and on such notice, if any, as the Trustees
may determine.
Section 5. Special Meetings. Special meetings of the Trustees may be
held from time to time upon call of the Chairman of the Trustees, if any, the
President or two or more of the Trustees, by oral or telegraphic or written
notice duly served on or sent or mailed to each Trustee not less than one day
before such meeting. No notice need be given to any Trustee who attends in
person or to any Trustee who, in writing executed and filed with the records of
the meeting either before or after the holding thereof, waives such notice. Such
notice or waiver of notice need not state the purpose or purposes of such
meeting.
8
<PAGE>
Section 6. Quorum. One third of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Trustees. If at any meeting of the Trustees
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Trustees present at any meeting at which there is
a quorum shall be the act of the Trustees, except as may be otherwise
specifically provided by statute, by the Declaration of Trust or by these
By-Laws.
Section 7. Executive Committee. The Trustees may, in each year, by the
affirmative vote of a majority of the entire number of Trustees, elect from the
Trustees an Executive Committee to consist of such number of Trustees as the
Trustees may from time to time determine. The Trustees by such
affirmative----------shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the Trustees.
When the Trustees are not in session, the Executive Committee shall have and may
exercise any or all of the powers of the Board in the management of the business
and affairs of the Trust (including the power to authorize the seal of the trust
to be affixed to all papers which may require it) except as provided by law and
except the power to increase or decrease the size of, or fill vacancies as to
the Board of Trustees. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board, but in every case the presence of a majority shall be necessary to
constitute a quorum. In the absence of any member of the Executive Committee,
the members thereof present at any meeting, whether or not they constitute a
quorum, may appoint a Trustee to act in the place of such absent member.
Section 8. Other Committees. The Trustees, by the affirmative vote of a
majority of the entire Board of Trustees, may appoint other committees which
shall in each case consist of such number of members (not less than two) and
shall have and may exercise such powers as the
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<PAGE>
Board may determine in the resolution appointing them. A majority of all members
of any such committee may determine its action, and fix the time and place of
its meetings, unless the Trustees shall otherwise provide. The Trustees shall
have power at any time to change the members and powers of any such committee,
to fill vacancies, and to discharge any such committee.
Section 9. Informal Action by Trustees and Committees. Any action
required or permitted to be taken at any meeting of the Trustees or any
committee thereof may be taken at any meeting of the Trustees or committee
thereof may be taken without a meeting, if each Trustee or all members of such
committee, as the case may be, signs a written consent to such action.
Section 10. Compensation of Trustees. No Trustee shall receive any
stated salary or fees from the Trust for his services as Trustee if such Trustee
is, otherwise than by reason of being such Trustee, affiliated (as such term is
defined in the 1940 Act) with the Trust or with any investment adviser of the
Trust. Except as provided in the preceding sentence, Trustees shall be entitled
to receive such compensation from the Trust for their services as may from time
to time be voted by the Trustees.
Section 11. Dividends. Dividends or distributions payable on the Shares
may, but need not be, declared by specified resolution of the Board as to each
dividend or distribution; in lieu of such specific resolutions, the Board may,
by general resolution, determine the method of computation thereof, the method
of determining the Shareholders to which they are payable and the methods of
determining whether and to which Shareholders they are to be paid in cash or in
additional shares.
ARTICLE III
OFFICERS
10
<PAGE>
Section 1. Executive Officers. The Executive Officers of the Trust shall
be chosen by the board annually at such time as the Trustees may determine.
These may include a Chairman of the Board of Trustees, and shall include a
President, one or more Vice Presidents (the number thereof to be determined by
the Board), a Secretary and a Treasurer. The Chairman of the Board, if any, and
the President shall be selected from among the Trustees. The Trustees may also
in its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board may fill
any vacancy which may occur in any office. Any two offices, except those of
President and Secretary, may be held by the same person, but no officers shall
execute, acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law or these By-Laws to be executed, acknowledged or
verified by two or more officers.
Section 2. Term of Office. Each officer shall hold office until the
annual meeting of the Board of Trustees next succeeding his election or until
his successor is duly elected and qualifies, subject, however, to any provision
for removal contained in the Declaration of Trust and these By-Laws. Any officer
may be removed from office at any time with or without cause by the vote of a
majority of the Board of Trustees.
Section 3. Powers of Duties. The officers of the Trust shall have such
powers and duties as generally pertain to their respective offices, as well as
such powers and duties as may from time to time be conferred by the Board or the
Executive Committee.
11
<PAGE>
ARTICLE IV
SHARES
Section 1. Certificate of Shares. Certificates representing Trust shares
will not be physically issued. Shares will be maintained on the books of the
Trust's transfer agent and Shareholders will have the same rights of ownership
with respect to such shares as if certificates had been issued.
Section 2. Transfer of Shares. Shares of the Trust shall be transferable
on the books of the Trust by the holder thereof in person or by his duly
authorized attorney or legal representative for the same number of shares,
accompanied by proper instruments of assignment and transfer, with such proof of
the authenticity of the signature as the Trust or its agents may reasonably
require.
Section 3. Stock Ledgers; Books and Records. The stock ledgers of the
Trust containing the name and address of the Shareholders and the number of
shares held by them respectively, and all books and records of the Trust shall
be kept at the principal offices of the Trust within or without the Commonwealth
of Massachusetts or, if the Trust employs a transfer agent, at the offices of
the transfer agent of the Trust or without said Commonwealth.
ARTICLE V
SEAL
The Board of Trustees may authorize a suitable seal of the Trust, in
such form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Trust shall be fixed from time to time by the
Board of Trustees.
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<PAGE>
ARTICLE VII
CUSTODIANSHIP
All cash and securities owned by the Trust shall be held in accordance
with the requirements of the 1940 Act as in effect from time to time, by a bank
or trust company of good standing, having a capital, surplus and undivided
profits aggregating not less than two million ($2,000,000), provided such a bank
or trust company can be found ready and willing to so act. Upon the resignation
or inability to serve of any such bank or trust company the Trust shall (i) use
its best efforts to obtain a qualified successor, (ii) require the cash and
securities of the Trust held by such bank or trust company to be delivered
directly to the successor, and (iii) in the event that no qualified successor
can be found, submit to the holders of the Shares of the Trust at the time
outstanding and entitled to vote, before permitting delivery of such cash and
securities to anyone other than a qualified successor, the question whether the
Trust shall be dissolved and liquidated or shall function without a qualified
bank or trust company to hold such cash and securities. Upon such resignation or
inability to serve, such bank or trust company may deliver any assets of the
Trust held by it to a qualified bank or trust company selected by it, such
assets to be held subject to the terms of the agreement which governed such
retiring bank or trust company, pending action by the Trust as set forth in this
Article VII. Nothing herein contained, however, shall prevent the termination of
any agreement between the Trust and any such bank or trust company by the Trust
at the discretion of the Board, and any such agreement shall be terminated upon
the affirmative vote of the holders of a majority of all the Shares of the Trust
at the time outstanding and entitled to vote.
13
<PAGE>
ARTICLE VIII
AMENDMENTS OF BY-LAWS
Except as set forth below, the By-Laws of the Trust may be altered,
amended, added to or replaced by the Shareholders or by majority vote of the
entire Board of Trustees; but any such alteration, amendment, addition or repeal
of the By-Laws by action of the Board may be altered or repealed by the
Shareholders. Article VII and Article VIII may be altered, amended or repealed
only by the vote of the holders of a majority of the Shareholders present at a
meeting of Shareholders provided that a quorum is present in person or by proxy
at such meeting.
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Exhibit 99.(d)
"COMPREHENSIVE FEE"
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT ("Agreement'), dated the ____ day of June, 1999, made and
entered into by and between RESERVE ___________, a Massachusetts business trust
(the "Trust"), on behalf of the ______________ Fund (the "Portfolio"), and
RESERVE MANAGEMENT COMPANY, INC., a New Jersey corporation having its principal
place of business in New York (the "Manager").
WHEREAS, the Trust is a non-diversified management investment company and
is registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares
of beneficial interest, par value of $.001 per share, in separate series or
classes of series, with each such separate series representing an interest in a
separate portfolio of investment securities and other assets;
The parties agree as follows:
1. Investment Services. The Manager shall select and manage the
Portfolio's investments and shall determine what investments shall be made or
disposed of by the Portfolio and shall effect such acquisitions and
dispositions, all in furtherance of the Portfolio's investment objective and
policies, subject to the overall control and direction of the Trust's Board of
Trustees. The Manager shall report on such activities to the Board of Trustees
of the Trust and shall submit such reports and other information thereon as the
Board of Trustees shall from time to time request. Notwithstanding any other
provision hereof, the Manager, with the approval of the Board of Trustees, may
contract with one or more Sub-Investment Managers to perform any of the
investment management services; provided, however, any compensation paid will be
the sole responsibility of the Manager.
2. Other Services and Assumption of Certain Expenses. The Manager shall
furnish to the Trust, on behalf of the Portfolio: (i) the services of a
President and such other executive officers as may be requested by the
Portfolio, (ii) office space and customary office facilities to the extent that
the Portfolio's activities occur in New York, (iii) maintain Portfolio records
not otherwise maintained by the Portfolio's custodian, distributor or
sub-investment managers, and (iv) all accounting, administrative, clerical,
secretarial and statistical services as may be required by the Portfolio for the
operation of its business and compliance with applicable laws. The Manager shall
pay the compensation of all officers of the Trust on behalf of the Portfolio and
all operating and other expenses of the Portfolio except interest charges,
taxes, brokerage fees and commissions, extraordinary legal and accounting fees
and other extraordinary expenses including expenses incurred in connection with
litigation proceedings, other claims and the legal obligations of the Trust to
indemnify its trustees, officers, employees, shareholders, distributors and
other agents of the Trust, payments made pursuant to the Trust's Distribution
Plan, and the fees of the disinterested Trustees. The Manager may contract with
other parties to
<PAGE>
perform any of the ordinary administrative services required of the Manager;
provided, however any such compensation will be the responsibility of the
Manager.
3. Compensation of the Manager. The Portfolio shall pay to the Manager as
compensation for the services rendered hereunder and as full reimbursement for
all officers compensation and ordinary operating expenses of the Portfolio paid
by the Manager under paragraph 2 hereof, a management fee at an annual rate of
0.80% of the average daily net asset value of the Portfolio (the "Management
Fee").
The Management Fee shall be computed and accrued daily and shall be paid
by the Portfolio to the Manager monthly.
4. Compliance with Applicable Requirements. This Agreement will be
performed in accordance with the requirements of the 1940 Act and the Investment
Advisers Act of 1940, as amended, and the rules and regulations under such acts,
to the extent that the subject matter of the Agreement is within the purview of
such acts and such rules and regulations. The Manager will assist the Trust on
behalf of the Portfolio in complying with the requirements of the 1940 Act, and
the Securities Act of 1933, as amended (the "1933 Act'), and the rules and
regulations under such acts and in qualifying as a regulated investment company
under the Internal Revenue Code of 1986, as amended, and applicable regulations
of the Internal Revenue Service thereunder. In carrying out its obligations
under this Agreement the Manager shall at all times conform to the provisions of
the Declaration of Trust and By-Laws, the provisions of the currently effective
Registration Statement of the Trust under the 1940 Act and the 1933 Act, and any
other applicable provisions of state or Federal law.
5. Termination. This Agreement shall be in effect until the close of
business on June 30, 2000 and shall continue in effect from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually by (i) either the Board of Trustees of the Trust or a majority
vote of the outstanding voting securities of the Portfolio, provided, however,
that if the shareholders of the Portfolio fail to approve the Agreement, as
provided herein, the Manager may continue to serve in such capacity in the
manner and to the extent permitted by the 1940 Act, and the rules thereunder,
and (ii) the vote of a majority of the Trustees of the Trust who are not parties
to this Agreement or interested persons (as defined in the 1940 Act) of either
party of this Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
Notwithstanding anything herein to the contrary, this Agreement may be
terminated at any time, without payment of any penalty, by the Board of Trustees
of the Trust or by vote of a majority of the outstanding voting securities of
the Portfolio, on 60 days' written notice to the Manager, or by the Manager on
like notice to the Trust.
The name "Reserve" shall be deemed to have been licensed to the Trust by
the Manager. In the event of termination of this Agreement, the Manager may
terminate or revoke such license
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on 90 days' written notice to the Trust. On or before the date of such
revocation or termination, the Trust will change its name to another name which
does not include the word "Reserve."
6. Non-Assignability. This Agreement shall not be assignable by either
party hereto and shall automatically terminate forthwith in the event of such
assignment (within the meaning of the 1940 Act).
7. Approval of Agreement and Amendments. This Agreement and any material
amendments hereto shall be approved by vote of the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Portfolio;
provided, however, that if the shareholders of the Portfolio fail to approve the
Agreement as provided herein, the Manager may continue to serve in such capacity
in the manner and to the extent permitted by the 1940 Act and the rules
thereunder.
8. Non-Exclusivity. The services of the Manager to the Trust are not to
be deemed exclusive and the Trust agrees that the Manager is free to act as
investment manager to various investment companies and other managed accounts.
For purposes of this Agreement and the undertakings provided for herein, the
Manager shall at all times be considered as an independent contractor, and shall
not be considered as an agent of the Trust and shall have no authority to act
for or represent the Trust in any way.
9. Liability of the Manager. In performing its duties hereunder, the
Manager may rely on all documentation and information furnished it by the Trust.
Except as may otherwise be provided by the 1940 Act, neither the Manager nor its
officers, directors, employees or agents shall be subject to any liability for
any act or omission in the course of, connected with or arising out of any
services to be rendered hereunder, except by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Manager's duties or by
reason of reckless disregard of the Manager's obligations and duties under this
Agreement.
10. Notices. Any notices and communications required hereunder shall be
in writing and shall be deemed given when delivered in person or when sent by
first-class, registered or certified mail to the Manager or to the Trust at 1250
Broadway, 32nd Floor, New York, New York 10001, or at such addresses as either
party may from time to time specify by notice to the other.
11. Definitions. The terms "assignment," "interested person," and
"majority of the outstanding voting securities," when used in this Agreement,
shall have the respective meanings specified under the 1940 Act and the rules
thereunder.
12. Governing Law. The terms and provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the 1940 Act. To the
extent that the applicable law of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act, the
latter shall control.
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<PAGE>
13. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall be deemed to be severable.
14. Shareholder Liability. The Manager understands and agrees that the
obligations of the Trust under this Agreement are not binding upon any
shareholder of the Trust personally, but bind only the Portfolio and the
property of the Portfolio. The Manager represents that it has notice of the
provisions of the Declaration of Trust of the Trust disclaiming shareholder
liability for acts or obligations of the Trust.
15. Enforcement Limited to Portfolio. The Manager understands and agrees
that any debts, liabilities, obligations, and expenses incurred, contracted for
or otherwise existing under this Agreement shall be enforceable against the
assets of the Portfolio only, and not against the assets of the Trust,
generally, or the assets of any other separate series of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed on the day and year first above written.
RESERVE _____________, on behalf of
____________________ Fund
By ________________________________
President
ATTEST:
_________________________
Secretary
RESERVE MANAGEMENT COMPANY, INC.
By ________________________________
President
ATTEST
_________________________
Secretary
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<PAGE>
Exhibit 99.(g)
CHASE
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective January 6, 1998, and is between THE CHASE
MANHATTAN BANK ("Bank") and each of the funds set forth in Schedule A hereto
(with each fund a "Customer").
It is hereby agreed as follows:
1. Customer Accounts.
Bank shall establish and maintain the following accounts ("Accounts"):
(a) A custody account in the name of Customer ("Custody Account") for any
and all stocks, shares, bonds, debentures, notes, mortgages or other obligations
for the payment of money, bullion, coin and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase or subscribe for
the same or evidencing or representing any other rights or interests therein and
other similar property whether certificated or uncertificated as may be received
by Bank or its Subcustodian (as defined in Section 3) for the account of
Customer ("Securities"); and
(b) A deposit account in the name of Customer ("Deposit Account") for any
and all cash in any currency received by Bank or its Subcustodian for the
account of Customer, which cash shall not be subject to withdrawal by draft or
check.
Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between Bank and Customer, additional Accounts may
be established and separately accounted for as additional Accounts hereunder.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
Bank:
(a) Securities shall be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and Bank can comply with such
Instructions, Bank is authorized to maintain cash balances on deposit for
Customer with itself or one of its "Affiliates" at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as Customer may direct, if acceptable to Bank. For purposes
hereof, the term "Affiliate" shall mean an entity controlling, controlled by, or
under common control with, Bank.
If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by Bank and Customer.
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3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians listed in Schedule B
hereof with which Bank has entered into subcustodial agreements
("Subcustodians"). Customer authorizes Bank to hold Assets in the Accounts in
accounts which Bank has established with one or more of its branches or
Subcustodians. Bank and Subcustodians are authorized to hold any of the
Securities in their account with any securities depository in which they
participate.
Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to Schedule
B. Upon request by Customer, Bank shall identify the name, address and principal
place of business of any Subcustodian of Customer's Assets and the name and
address of the governmental agency or other regulatory authority that supervises
or regulates such Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books as belonging to Customer.
(b) A Subcustodian shall hold such Assets together with assets belonging
to other customers of Bank in accounts identified on such subcustodian's books
as custody accounts for the exclusive benefit of customers of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject
only to the instructions of Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian shall be subject only to
the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding Bank's
customers' assets shall provide that such assets shall not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets shall be freely transferable without the payment of
money or value other than for safe custody or administration or, in the case of
cash deposits, except for liens or rights in favor of creditors of the
Subcustodian arising under bankruptcy, insolvency or similar laws. Where
Securities are deposited by a Subcustodian with a securities depository, Bank
shall cause the Subcustodian to identify on its books as belonging to Bank, as
agent, the Securities shown on the Subcustodian's account on the books of such
securities depository. The foregoing shall not apply to the extent of any
special agreement or arrangement made by Customer with any particular
Subcustodian.
5. Deposit Account Transactions.
(a) Bank or its Subcustodians shall make payments from the Deposit
Account upon receipt of Instructions which include all information required by
Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, Bank, in its discretion, may advance
Customer such excess amount which shall be deemed a loan payable on demand,
bearing interest at the rate customarily charged by Bank on similar loans.
(c) If Bank credits the Deposit Account on a payable date, or at any time
prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If Customer does not promptly return any
amount upon such notification, Bank shall be entitled, upon oral or written
notification to Customer, to reverse such credit by debiting the Deposit Account
for the amount previously credited. Bank or its Subcustodian shall have no duty
or obligation to institute legal proceedings, file a claim or a proof of claim
in any insolvency proceeding or take any other action with respect to the
collection of such amount, but may act for Customer upon Instructions after
consultation with Customer.
6. Custody Account Transactions.
(a) Securities shall be transferred, exchanged or delivered by Bank or
its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Securities received
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<PAGE>
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions shall be
credited or debited to the Accounts on the date cash or Securities are actually
received by Bank and reconciled to the Account.
(i) Bank, upon oral or written notice to Customer, may reverse
credits or debits made to the Accounts in its discretion if the related
transaction fails to settle within a reasonable period, determined by
Bank in its discretion, after the contractual settlement date for the
related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, Bank may reverse the credits and
debits of the particular transaction at any time.
7. Actions of Bank.
Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank shall:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that Bank or Subcustodian is
actually aware of such opportunities.
(b) Execute in the name of Customer such ownership and other certificates
as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction for which Bank has
received Instructions involving the Securities, including, without limitation,
Affiliates of Bank or any Subcustodian.
(e) Issue statements to Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, Customer shall be deemed to have approved
such statement. In such event, or where Customer has otherwise approved any such
statement, Bank shall, to the extent permitted by law, be released, relieved and
discharged with respect to all matters set forth in such statement or reasonably
implied therefrom and based on information which Customer knew or reasonably
should have known as though it had been settled by the decree of a court of
competent jurisdiction in an action where Customer and all persons having or
claiming an interest in Customer or Customer's Accounts were parties.
Provided that Bank has acted in accordance with the standard of care in
Section 12 (a) hereof, all collections of funds or other property paid or
distributed in respect of Securities in the Custody Account shall be made at the
risk of Customer. Provided that Bank has acted in accordance with the standard
of care in Section 12(a) hereof, Bank shall have no liability for any loss
occasioned by delay in the actual receipt of notice by Bank or by its
Subcustodians of any payment, redemption or other transaction regarding
Securities in the Custody Account in respect of which Bank has agreed to take
any action hereunder.
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<PAGE>
8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives information concerning the
Securities which requires discretionary action by the beneficial owner of the
Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), Bank
shall give Customer prompt notice of such Corporate Actions to the extent that
Bank has received actual notice of the Corporate Action from the relevant issuer
or issuer's agent or as to which notice is published in publications routinely
utilized by Bank for this purpose.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split is received which bears an expiration
date, Bank shall endeavor to obtain Instructions from Customer or its Authorized
Person (as defined in Section 10 hereof), but if Instructions are not received
in time for Bank to take timely action, or actual notice of such Corporate
Action was received too late to seek Instructions, Bank is authorized but need
not sell such rights entitlement or fractional interest and to credit the
Deposit Account with the proceeds, if Bank, in good faith, deems such action to
be appropriate in which case it shall be held harmless for any such action.
(b) Proxy Voting. Bank shall provide proxy voting services, if elected by
Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in part,
by one or more third parties appointed by Bank (which may be Affiliates of
Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, Bank shall apply for a
reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income
payments on Securities for the benefit of Customer which Bank believes
may be available to such Customer.
(ii) The provision of tax reclaim services by Bank is conditional
upon Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from Bank).
Customer acknowledges that, if Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation shall
be deducted from all income received in respect of Securities issued
outside the United Kingdom and that U.S. non-resident alien tax or U.S.
backup withholding tax shall be deducted from U.S. source income.
Customer shall provide to Bank such documentation and information as it
may require in connection with taxation, and warrants that, when given,
this information shall be true and correct in every respect, not
misleading in any way, and contain all material information. Customer
undertakes to notify Bank immediately if any such information requires
updating or amendment.
(iii) Provided that Bank has acted in accordance with the standard
of care in Section 12(a) hereof, Bank shall not be liable to Customer or
any third party for any taxes, fines or penalties payable by Bank or
Customer, and shall be indemnified accordingly, whether these result from
the inaccurate completion of documents by Customer or any third party
acting as agent for Customer, or as a result of the provision to Bank or
any third party of inaccurate or misleading information or the
withholding of material information by Customer or any other third party,
or as a result of any delay of any revenue authority or any other matter
beyond the control of Bank.
(iv) Customer confirms that Bank is authorized to deduct from any
cash received or credited to the Deposit Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to
Customer from time to time and Bank may, by notification in writing, at
its absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in this
sub-clause, Bank shall have no responsibility with regard to Customer's
tax position or status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body
in relation to Customer or the Securities and/or Cash held for Customer.
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(vii) Tax reclaim services may be provided by Bank or, in whole or
in part, by one or more third parties appointed by Bank (which may be
Affiliates of Bank); provided that. Bank shall be liable for the
performance of any such third party to the same extent as Bank would have
been if it performed such services itself
9. Nominees.
Securities which are ordinarily held in registered form may be registered
in a nominee name of Bank, Subcustodian or securities depository, as the case
may be. Bank may without notice to Customer cause any such Securities to cease
to be registered in the name of any such nominee and to be registered in the
name of Customer. In the event that any Securities registered in a nominee name
are called for partial redemption by the issuer, Bank may allot the called
portion to the respective beneficial holders of such class of security in any
manner Bank deems to be fair and equitable. Customer shall hold Bank,
Subcustodians, and their respective nominees harmless from any liability arising
directly or indirectly from their status as a mere record holder of Securities
in the Custody Account.
10. Authorized Persons.
As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank receives
Instructions from Customer or its designated agent that any such employee or
agent is no longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify. Unless
otherwise expressly provided, all Instructions shall continue in full force and
effect until canceled or superseded. I
Any Instructions delivered to Bank by telephone shall promptly thereafter
be confirmed in writing by an Authorized Person (which confirmation may bear the
facsimile signature of such Person), but Customer shall hold Bank harmless for
the failure of an Authorized Person to send such confirmation in writing, the
failure of such confirmation to conform to the telephone instructions received
or Bank's failure to produce such confirmation at any subsequent time. Bank may
electronically record any Instructions given by telephone, and any other
telephone discussions with respect to the Custody Account. Customer shall be
responsible for safeguarding any testkeys, identification codes or other
security devices which Bank shall make available to Customer or its Authorized
Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance of only such duties as
are set forth herein or expressly contained in Instructions which are consistent
with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its obligations
hereunder and the safekeeping of Assets. Bank shall be liable to Customer
for any loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping
of such Assets to the same extent that Bank would be liable to Customer
if Bank were holding such Assets in New York. In the event of any loss to
Customer by reason of the failure of Bank or its Subcustodian to utilize
reasonable care (including, but not limited to, as respects corporate
actions), Bank shall be liable to Customer only to the extent of
Customer's direct damages, to be determined based on the market value of
the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or
circumstances. Bank shall have no liability whatsoever for any
consequential, special, indirect or speculative loss or damages
(including, but not limited to, lost profits) suffered by Customer in
connection with the transactions contemplated hereby
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and the relationship established hereby even if Bank has been advised as
to the possibility of the same and regardless of the form of the action.
(ii) Bank shall not be responsible for the insolvency of any
Subcustodian which is not a branch or Affiliate of Bank. Bank shall not
be responsible for any act, omission, default or the solvency of any
broker or agent which it or a Subcustodian appoints unless such
appointment was made negligently or in bad faith.
(iii) Bank shall be indemnified by, and without liability to
Customer for any action taken or omitted by Bank whether pursuant to
Instructions or otherwise within the scope hereof if such act or omission
was in good faith, without negligence. In performing its obligations
hereunder, Bank may rely on the genuineness of any document which it
believes in good faith to have been validly executed.
(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the advice
of counsel (who may be counsel for Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) Bank need not maintain any insurance for the benefit of
Customer.
(vii) Without limiting the foregoing, Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from malfunction, interruption of or error
in the transmission of information caused by any machines or system or
interruption of communication facilities, abnormal operating conditions,
nationalization, expropriation or other governmental actions; regulation
of the banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions which prevent the
orderly execution of securities transactions or affect the value of
Assets; except that, with respect to the failure of machines, systems,
interruption of communication facilities or abnormal operating conditions
on Bank or a Subcustodian's premises or otherwise within the control of
Bank or a Subcustodian, Bank shall not be so excused to the extent that
such failure was on account of Bank's or the Subcustodian's (as the case
may be) negligence (such as a failure to have had routine maintenance
performed or to have selected equipment reasonably suitable for the
purposes contemplated hereby given, in the case of Subcustodians, local
market practices with respect to such matters). Bank confirms that it has
in place backup procedures, periodically tested by it, that would permit
continued operation of its Brooklyn, New York and Bournemouth, England
data centers in the event of a failure of its systems or equipment.
(viii) Neither party shall be liable to the other for any loss due
to forces beyond their control including, but not limited to strikes or
work stoppages, acts of war (whether declared or undeclared) or
terrorism, insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to Customer or
an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments
or the retention of Securities;
(iii) advise Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than
as provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to
which Securities are delivered or payments are made pursuant hereto; and
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(v) review or reconcile trade confirmations received from brokers.
Customer or its Authorized Persons issuing Instructions shall bear any
responsibility to review such confirmations against Instructions issued
to and statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that Bank
or any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to other customers, act as financial advisor to the
issuer of Securities, act as a lender to the issuer of Securities, act in the
same transaction as agent for more than one customer, have a material interest
in the issue of Securities, or earn profits from any of the activities listed
herein.
13. Fees and Expenses.
Customer shall pay Bank for its services hereunder the fees set forth in
Schedule C hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses, such as,
but not limited to, scrip and stamp fees, legal fees registration fees, and
other costs that Bank pays on behalf of Customer. Bank shall have a lien on and
is authorized to charge any Accounts of Customer for any amount owing to Bank
under any provision hereof upon oral or written notice to Customer.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
Customer's trading and investment activity, subject to Instructions (which may
be standing Instructions) Bank is authorized to enter into spot or forward
foreign exchange contracts with Customer and may also provide foreign exchange
through its subsidiaries, Affiliates or Subcustodians. Instructions, including
standing instructions, may be issued with respect to such contracts but Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where Bank, its subsidiaries, Affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of Bank, its
subsidiary, Affiliate or Subcustodian and, to the extent not inconsistent, this
Agreement shall apply to such transaction.
(b) Certification of Residency, etc. Customer certifies that it is a
resident of the United States and shall notify Bank of any changes in residency.
Bank may rely upon this certification or the certification of such other facts
as may be required to administer Bank's obligations hereunder. Customer shall
indemnify Bank against all losses, liability, claims or demands arising directly
or indirectly from any such certifications.
(c) Access to Records. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as is
required in connection with their examination of books and records pertaining to
Customer's affairs. Subject to restrictions under applicable law, Bank shall
also obtain an undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of Customer's books and records.
(d) Governing Law Successors and Assigns, Captions THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN NEW YORK and shall not be assignable by either party, but
shall bind the successors in interest of Customer and Bank. The captions given
to the sections and subsections of this Agreement are for convenience of
reference only and are not to be used to interpret this Agreement.
(e) Entire Agreement: Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
- Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
7
<PAGE>
X Investment Company assets subject to certain U.S. Securities and
Exchange Commission rules and regulations;
___ Neither of the above.
This Agreement consists exclusively of this document together with
Schedules A-C, and the following Rider(s) [Check applicable rider(s)]:
___ ERISA
X INVESTMENT COMPANY.
X PROXY VOTING
X SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes any
other agreements, whether written or oral, between the parties. Any amendment
hereto must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions hereof are
held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions shall not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided herein, no failure or delay on
the part of either party in exercising any power or right hereunder operates as
a waiver, nor does any single or partial exercise of any power or right preclude
any other or further exercise, or the exercise of any other power or right. No
waiver by a party of any provision hereof, or waiver of any breach or default,
is effective unless in writing and signed by the parry against whom the waiver
is to be enforced.
(h) Representations and Warranties. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Securities and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement constitutes
its legal, valid and binding obligation, enforceable in accordance with its
terms; (D) it shall have full authority and power to borrow moneys and enter
into foreign exchange transactions; and (E) it has not relied on any oral or
written representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the duties of
Bank. (ii) Bank hereby represents and warrants to Customer that: (A) it has the
full power and authority to perform its obligations hereunder, (B) this
Agreement constitutes its legal, valid and binding obligation; enforceable in
accordance with its terms; (C) that it has taken all necessary action to
authorize the execution and delivery hereof.
(i) Notices. All notices hereunder shall be effective when actually
received. Any notices other communications which may be required hereunder are
to be sent to the parties at the following address or such other addresses as
may subsequently be given to the other party in writing: (a) Bank: The Chase
Manhattan Bank, 4 Chase MetroTech Center, l8th Floor, Brooklyn, N.Y. 11245,
Attention: Global Investor Services, Investment Management Group (Reserve Funds
Relationship Manager) and to The Chase Manhattan Bank, 3 Chase MetroTech Center,
8th floor, Brooklyn, N.Y. 11245, Attention: Reserve Funds Service Manager; and
(b) Customer: [Fund name) c/o The Reserve Funds, 810 Seventh Avenue, New York,
10019-5868. Attn: Operations Manager.
(j) Termination. This Agreement may be terminated by Customer or Bank by
giving ninety (90) days written notice to the other, provided that such notice
to Bank shall specify the names of the persons whom Bank shall deliver the
Assets in the Accounts. If notice of termination is given by Bank, Customer
shall within ninety (90) days following receipt of the notice, deliver to Bank
Instructions specifying the name of the persons to whom Bank shall deliver the
Assets. In either case Bank shall deliver the Assets to persons so specified,
after deducting any amounts which Bank determines in good faith to be owed to it
under Section 13, an explanation for any such deductions shall be furnished to
Customer. If within ninety (90) days following receipt of a notice of
termination by Bank, Bank does not receive Instructions from Customer specifying
the names of the persons to whom Bank shall deliver the Assets, Bank, at its
8
<PAGE>
election, may deliver the Assets to a bank or trust company doing business in
the State of New York to be held and disposed pursuant to the provisions hereof,
or to Authorized Persons, or may continue to hold the Assets Instructions are
provided to Bank.
(k) Imputation of certain information. Bank shall not be held responsible
for and shall not required to have regard to information held by any person by
imputation or information of which Bank not aware by virtue of a "Chinese Wall"
arrangement. If Bank becomes aware of confidential information which in good
faith it feels inhibits it from effecting a transaction hereunder Bank may
refrain from effecting it.
(l) Year 2000. Bank confirms that it is aware of the problem that may be
presented for certain computer systems by use of date fields and the like on and
after January 1, 2000 and that Bank has developed and is implementing a plan to
help assure that Bank's systems as the same relate to services provided
hereunder will be unaffected by such problems.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first-above written.
THE RESERVE FUNDS THE CHASE MANHATTAN BANK
By:_______________ ____________________________
Title:____________ Title:
Date______________ Date:
9
<PAGE>
STATE OF NY )
: ss
COUNTY OF NY )
On this 9th day of January 1998 before me personally came Michelle L.
Neufield, to me known, who being by me duly sworn, did depose and say that
he/she resides in Fairfield, Ct. at 325 Romanock Rd., that her/she is General
Counsel & Secy of The Reserve Funds & all affiliates, the entity described in
and which executed the foregoing instrument; that he/she knows the seal of said
entity, that the seal affixed to said instrument is such seal, that it was so
affixed by order of said entity, and that he/she signed his/her name thereto by
like order.
Sworn to before me this 9th
Day of January, 1998.
Notary
/s/ PATRICIA Maldonado
Notary Public, State of New York
No. 01MA5014011
Qualified in Bronx County
Commission Expires July 6, 1999.
10
<PAGE>
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
The Reserve Funds
Effective January 6, 1998
The following modifications are made to the Agreement:
The following modifications are made to the Agreement:
A. Add a new Section 15 to the Agreement as follows:
15. Compliance with SEC rule 17f-5.
(a) Customer's board of directors (or equivalent body) (hereinafter
'Board') hereby delegates to Bank, and, except as to the country or countries as
to which Bank may, from time to time, advise Customer that it does not accept
such delegation, Bank hereby accepts the delegation to it, of the obligation to
perform as Customer's 'Foreign Custody Manager' (as that term is defined in SEC
rule l7f-5 (a)(2)), both for the purpose of selecting Eligible Foreign
Custodians (as that term is defined in SEC rule l7f-5(a)(1), and as the same may
be amended from time to time, or that have otherwise been made exempt pursuant
to an SEC exemptive order) to hold Assets and of evaluating the contractual
arrangements with such Eligible Foreign Custodians (as set forth in SEC rule
17f-5(c)(2)); provided that, the term Eligible Foreign Custodian shall not
include any 'Compulsory Depository. A Compulsory Depository shall mean a
securities depository or clearing agency the use of which is compulsory because:
(1) its use is required by law or regulation, (2) securities cannot be withdrawn
from the depository, or (3) maintaining securities outside the depository is not
consistent with prevailing custodial practices in the country which the
depository serves. Compulsory Depositories used by Chase as of the date hereof
are set forth in Appendix 1-A hereto, and as the same may be amended on notice
to Customer from time to time.
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's Board of the
placement of Assets with particular Eligible Foreign Custodians
and of any material change in the arrangements with such Eligible
Foreign Custodians, with such reports to be provided to Customer's
Board at such times as the Board deems reasonable and appropriate
based on the circumstances of Customer's foreign custody
arrangements (and until further notice from Customer such reports
shall be provided not less than quarterly with respect to the
placement of Assets with particular Eligible Foreign Custodians
and with reasonable promptness upon the occurrence of any material
change in the arrangements with such Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in
performing as Customer's Foreign Custody Manager as a person
having responsibility for the safekeeping of Assets would
exercise;
(iii) in selecting an Eligible Foreign Custodian, first have
determined that Assets placed and in the safekeeping of such
Eligible Foreign Custodian shall be subject to reasonable care,
based on the standards applicable to custodians in the relevant
market, after having considered all factors relevant to the
safekeeping of such Assets, including, without limitation, those
factors set forth in SEC rule l7f-5(c)(l)(i)-(iv);
(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodians that
is a securities depository or clearing agency, such contract, the
rules or established practices or procedures of the depository, or
any combination of the foregoing) requires that the Eligible
Foreign Custodian will provide reasonable care for Assets based on
the standards applicable to custodians in the relevant market. In
making this determination, Bank shall consider the provisions of
Rule l7f-5(c)(2),
11
<PAGE>
together with whether Bank shall be liable to Customer for any
loss which shall occur as the result of the failure of the
Eligible Foreign Custodian to exercise reasonable ca with respect
to the safekeeping of such Assets to the same extent that Bank
would be liable to Customer if Bank were holding such Assets in
New York; and
(v) have established a system to monitor the continued
appropriateness of maintaining Assets with particular Eligible
Foreign Custodians and of the governing contractual arrangements;
it being understood, however, that in the event that Bank shall
have determined that the existing Eligible Foreign Custodian in a
given country would no longer afford Assets reasonable care and
that no other Eligible Foreign Custodian in that country would
afford reasonable care, Bank shall promptly so advise Customer and
shall then act in accordance with the Instructions of Customer
with respect to the disposition of the affected Assets.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Assets on behalf of Customer with Eligible Foreign Custodians pursuant to a
written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Assets hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined in Rule
l7f-5(a)(7). Customer represents to Bank that: (1) the Assets being placed and
maintained in Bank's custody are subject to the Investment Company Act of 1940,
as amended (the '1940 Act'), as the same may be amended from time to time; (2)
its Board: (i) has determined that it is reasonable to rely on Bank to perform
as Customer's Foreign Custody Manager (ii) or its investment advisor shall have
determined that Customer may maintain Assets in each country in which Customer's
Assets shall be held hereunder and determined to accept the risks arising
therefrom (including, but not limited to, a country's financial infrastructure
(and including any Compulsory Depository operating in such country), prevailing
custody and settlement practices, laws applicable to the safekeeping and
recovery of Assets held in custody, and the likelihood of nationalization,
currency controls and the like)."
B. Add the following after the first sentence of Section 3 of the
Agreement: "At the request of Customer, Bank may, but need not, add to Schedule
B an Eligible Foreign Custodian that is either a bank or a non-Compulsory
Depository where Bank has not acted as Foreign Custody Manager with respect to
the selection thereof. Bank shall notify Customer in the event that it elects
not to add any such entity."
C. Add the following language to the end of Section 3 of the Agreement:
The term Subcustodian as used herein shall mean the following:
(a) a U.S. Bank, which shall mean a U.S. bank as defined in SEC rule
l7f-5(a)(7);
(b) an 'Eligible Foreign Custodian,' which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws of
a country other than the United States, that is regulated as such by that
country's government or an agency thereof, (ii) a majority-owned direct
or indirect subsidiary of a U.S. bank or bank holding company which
subsidiary is incorporated or organized under the laws of a country other
than the United States; (iii) a securities depository or clearing agency,
incorporated or organized under the laws of a country other than the
United States, that acts as a system for the central handling of
securities or equivalent book-entries in that country and that is
regulated by a foreign financial regulatory authority as defined under
section 2(a)(5) of the 1940 Act, (iv) a securities depository or clearing
agency organized under the laws of a country other than the United States
to the extent acting as a transnational system for the central handling
of securities or equivalent book-entries, and (v) any other entity that
shall have been so qualified by exemptive order, rule or other
appropriate action of the SEC.
12
<PAGE>
For purposes of clarity, it is agreed that as used in Section 12(a)(i), the term
Subcustodian shall include neither any Eligible Foreign Custodian as to which
Bank has not acted as Foreign Custody Manager nor any Compulsory Depository."
D. Insert the following language at the beginning of the second sentence
of Section 12(a)(i):
"Except with respect to those countries as to which the parties may from
time to time agree in writing otherwise".
E. In recognition of the fact that compliance with amended Rule l7f-5 is
in an early stage of development and of the importance to Bank of the
relationship between Bank and Customer, Bank hereby agrees that, if prior to
June 15, 1998, Bank makes any material change to this rider for its mutual fund
customers, Customer shall be given the option of continuing to operate under
this rider or pursuant to the changed rider. Customer shall promptly notify Bank
of whether or not it elects to operate pursuant to the changed rider, and if it
does so elect, such election shall be effective on and after the date that Bank
receives such notice.
13
<PAGE>
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
THE RESERVE FUNDS
January 6, 1998
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures")
furnished to Customer, as the same may be amended by Bank from time to
time on prior notice to Customer. The Procedures are incorporated by
reference herein and form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by Bank
to Customer of the dates of pending shareholder meetings, resolutions to
be voted upon and the return dates as may be received by Bank or provided
to Bank by its Subcustodians or third parties, and (b) voting by Bank of
proxies based on Customer directions. Original proxy materials or copies
thereof shall not be provided. Notifications shall generally be in
English and, where necessary, shall be summarized and translated from
such non-English materials as have been made available to Bank or its
Subcustodian. In this respect Bank's only obligation is to provide
information from sources it believes to be reliable and/or to provide
materials summarized and/or translated in good faith. Bank reserves the
right to provide Notifications, or parts thereof, in the language
received. Upon reasonable advance request by Customer, backup information
relative to Notifications, such as annual reports, explanatory material
concerning resolutions, management recommendations or other material
relevant to the exercise of proxy voting rights shall be provided as
available, but without translation.
3. While Bank shall attempt to provide accurate and complete Notifications,
whether or not translated, Bank shall not be liable for any losses or
other consequences that may result from reliance by Customer upon
Notifications where Bank prepared the same in good faith.
4. Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as
the agent of Customer, and shall not exercise any discretion with regard
to such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the relevant
Securities are: (i) on loan; (ii) at registrar for registration or
reregistration; (iii) the subject of a conversion or other corporate
action; (iv) not held in a name subject to the control of Bank or its
Subcustodian or are otherwise held in a manner which precludes voting;
(v) not capable of being voted on account of local market regulations or
practices or restrictions by the issuer; or (vi) held in a margin or
collateral account.
6. Customer acknowledges that in certain countries Bank may be unable to
vote individual proxies but shall only be able to vote proxies on a net
basis (e.g. a net yes or no vote given the voting instructions received
from all customers).
7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall in
no event sell, license, give or otherwise make the information provided
hereunder available, to any third party, and shall not directly or
indirectly compete with Bank or diminish the market for Proxy Services by
provision of such information, in whole or in part, for compensation or
otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be furnished to
Bank in accordance with (Section)10 of the Agreement. Proxy Services fees
shall be as set forth in (Section)13 of the Agreement or as separately
agreed.
14
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Appendix 1-A
Compulsory Depositories
As of January 6,1998
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Argentina Caja de Valores Equity Corporate & Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Australia Austraclear Ltd. Corporate Debt, Money Market & Semi
Government Debt
- ----------------------------------------------------------------------------------------------------------------------
CHESS Equity
(Clearing House Electronic Sub-register
- ----------------------------------------------------------------------------------------------------------------------
RITS Government Debt
(Reserve Bank Information and Transfer
- ----------------------------------------------------------------------------------------------------------------------
Austria Oesterreichischer Kontrolbank AG Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Belgium CIK Equity + Corporate Debt
(Caiss Interprofessionnelle de Deposits de
- ----------------------------------------------------------------------------------------------------------------------
Bank Nationale de Belgique Treasury Bills + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Brazil BOVESPA Equity
(Bolsa de Valores de Sao Paolo)
- ----------------------------------------------------------------------------------------------------------------------
BVRJ Equity
(Bolsa de Valores de Rio de Janeiro)
- ----------------------------------------------------------------------------------------------------------------------
Bulgaria BNB Government Debt
(Bulgaria National Bank)
- ----------------------------------------------------------------------------------------------------------------------
Canada CDS Equity, Corporate + Government Debt
(Canadian Depository for Securities)
- ----------------------------------------------------------------------------------------------------------------------
China, SSCCRC Equity
Shanghai (Shanghai Securities Central Clearing and
- ----------------------------------------------------------------------------------------------------------------------
China, SSCC Equity
Shenzhen (Shenzhen Securities Registration Co.,
- ----------------------------------------------------------------------------------------------------------------------
Czech SCP Equity + Long-Term Government Debt
Republic (Securities Center)
- ----------------------------------------------------------------------------------------------------------------------
TKD Treasury Bills + Money Market
(Trh Kratkododich Dlluhopisu or Short-
- ----------------------------------------------------------------------------------------------------------------------
Denmark VP Equity, Corporate + Government Debt
(Vaerdipapircentralen)
- ----------------------------------------------------------------------------------------------------------------------
Egypt Misr Clearing & Sec. Dep. Equity
- ----------------------------------------------------------------------------------------------------------------------
Estonia EVK Equity
(Estonian Central Depository for
- ----------------------------------------------------------------------------------------------------------------------
Euromarket Cedel & Euroclear Euro-Debt
- ----------------------------------------------------------------------------------------------------------------------
Finland CSR Equity + Government Debt
(Central Share Registry Finland)
- ----------------------------------------------------------------------------------------------------------------------
Helsinki Money Market Center Ltd. Money Market
- ----------------------------------------------------------------------------------------------------------------------
France SICOVAM Equity + Corporate Debt.
(Banque de France)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Appendix 1-A
Compulsory Depositories
As of January 6,1998
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
France SATURNE Government Debt
(Banque de France)
- ----------------------------------------------------------------------------------------------------------------------
Germany DKV Equity, Corporate + Government Debt
(Deutscheer Kassenverein)
- ----------------------------------------------------------------------------------------------------------------------
Greece Apothetirio Titlon A.E. Equity
- ----------------------------------------------------------------------------------------------------------------------
Bank of Greece Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Hong Kong CCASS Equity
(Central Clearing and Settlement System)
- ----------------------------------------------------------------------------------------------------------------------
CMU Corporate + Government Debt
(Central Money-markets Units)
- ----------------------------------------------------------------------------------------------------------------------
Hungary Keler Ltd. Equity + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
India NSDL Equity + Corporate Debt
(National Securities Depository Ltd)
- ----------------------------------------------------------------------------------------------------------------------
Ireland CREST Equity
- ----------------------------------------------------------------------------------------------------------------------
GSO Government Debt
(Gilt Settlement Office)
- ----------------------------------------------------------------------------------------------------------------------
Israel TASE Clearing House Equity, Corporate + Government Debt
(Tel Aviv Stock Exchange Clearing
- ----------------------------------------------------------------------------------------------------------------------
Italy Monte Titoli Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------
Bank of Italy Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Japan Bank of Japan Registered Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Latvia LCD Equity + Government Debt
(Latvian Central Depository)
- ----------------------------------------------------------------------------------------------------------------------
Lebanon Midclear Equity
(Custodian and Clearing Center of
- ----------------------------------------------------------------------------------------------------------------------
Luxenbourg Cedel Equity
- ----------------------------------------------------------------------------------------------------------------------
Malaysia MCD Equity
(Malaysian Central Depository Snd Bhd)
- ----------------------------------------------------------------------------------------------------------------------
Mauritius CDS Equity
(Central Depository System)
- ----------------------------------------------------------------------------------------------------------------------
Mexico Indeval Equity, Corporate + Government Debt.
(Institucion para el Deposito de Valores
- ----------------------------------------------------------------------------------------------------------------------
Morocco Maroclear Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------
Morroco, cont. Bank Al'Maghrib Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Netherlands NECIGEF/KAS Associate NV Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Appendix 1-A
Compulsory Depositories
As of January 6,1998
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
De Nederlandsche Bank N.V. Money-Market
- ----------------------------------------------------------------------------------------------------------------------
NIEC Premium Bonds
(Netherlands Interprofessioneel
- ----------------------------------------------------------------------------------------------------------------------
New Zealand Austraclear New Zealand Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Norway VPS Equity, Corporate + Government Debt
(Verdipapiresentralen)
- ----------------------------------------------------------------------------------------------------------------------
Pakistan CDC Equity
(Central Depository Company of Pakistan)
- ----------------------------------------------------------------------------------------------------------------------
Peru CAVALI Equity
(Caja de Valores)
- ----------------------------------------------------------------------------------------------------------------------
Philippines PCD Equity
(Phillippine Central Depository)
- ----------------------------------------------------------------------------------------------------------------------
Poland NDS Equity, Long-Term Government Debt + Vouchers
(National Securities Depository) Vouchers
- ----------------------------------------------------------------------------------------------------------------------
CRT Treasury Bills
(Central Registry of Treasury Bills)
- ----------------------------------------------------------------------------------------------------------------------
Portugal Interbolsa Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Romania SNCDD - RASDAQ Equity
(National Company for Clearing,
- ----------------------------------------------------------------------------------------------------------------------
Bucharest Stock Exchange Registry Equity
- ----------------------------------------------------------------------------------------------------------------------
National Bank of Romania Treasury Bills
- ----------------------------------------------------------------------------------------------------------------------
Russia MICEX GKO's
(Moscow Interbank Currency Exchange) (Gosudarstvennye Kratkosrochnye
- ----------------------------------------------------------------------------------------------------------------------
Singapore CDP Equity + Corporate Debt and Malaysian
(Central Depository Pte. Ltd.) equities traded on CLOB
- ----------------------------------------------------------------------------------------------------------------------
Monetary Authority of Singapore Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Slovak SCP Equity + Government Debt
Republic (Stredisko Cennych Papiru)
- ----------------------------------------------------------------------------------------------------------------------
National Bank of Slovakia Treasury Bills
- ----------------------------------------------------------------------------------------------------------------------
So. Africa CD Corporate + Government Debt
(Central Depository)
- ----------------------------------------------------------------------------------------------------------------------
So. Korea KSD Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Spain SCLV Equity, + Corporate Debt
(Servicio de Compensacion y Liquidacion)
- ----------------------------------------------------------------------------------------------------------------------
Spain CBEO Government Debt
(Central Book Entry Office)
- ----------------------------------------------------------------------------------------------------------------------
Sri Lanka CDS Equity
(Central Depository System (Private))
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Appendix 1-A
Compulsory Depositories
As of January 6,1998
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Sweden VPC Equity, Corporate + Government Debt
(Vardepapperscentralen AB)
- ----------------------------------------------------------------------------------------------------------------------
Switzerland SEGA Equity, Corporate + Government Debt
(Schweizerische Effekten-Giro AG)
- ----------------------------------------------------------------------------------------------------------------------
Taiwan TSCD Equity + Government Debt
(Taiwan Securities Central Depository)
- ----------------------------------------------------------------------------------------------------------------------
Thailand TSDC Equity, Corporate + Government Debt
(Thailand Securities Depository Company)
- ----------------------------------------------------------------------------------------------------------------------
Tunisia STICODEVAM Equity
(Societe Tunisienne Interprofessionnelle
- ----------------------------------------------------------------------------------------------------------------------
Ministry of Finance Government Debt tradable on the stock
exchange (BTNBs)
- ----------------------------------------------------------------------------------------------------------------------
Central Bank of Tunisia Government Debt tradable on the stock
exchange (BTCs)
- ----------------------------------------------------------------------------------------------------------------------
Turkey Takas Bank Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------
Central Bank of Turkey Government Debt
- ----------------------------------------------------------------------------------------------------------------------
United CREST Equity + Corporate Debt
(Clearing & settlement system)
- ----------------------------------------------------------------------------------------------------------------------
CMO Sterling CD's & CP
(Central Money-market Office)
- ----------------------------------------------------------------------------------------------------------------------
CGO Gilts
(Central Gilts Office)
- ----------------------------------------------------------------------------------------------------------------------
United States DTC Equity + Corporate Debt
(Depository Trust Company)
- ----------------------------------------------------------------------------------------------------------------------
PTC Mortgage Back Debt
(Participants Trust Company)
- ----------------------------------------------------------------------------------------------------------------------
Fed Book-Entry Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Zambia LuSE Equity + Government Debt
(LuSE Central Shares Depository Ltd.)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions shall apply rather than the pertinent provisions
of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Securities in the Custody Account as call for voting or
relate to legal proceedings within a reasonable time after sufficient
copies are received by Bank for forwarding to its customers. In
addition, Bank shall follow coupon payments, redemptions, exchanges or
similar matters with respect to Securities in the Custody Account and
advise Customer or the Authorized Person for such Account of rights
issued, tender offers or any other discretionary rights with respect to
such Securities, in each case, of which Bank has received notice from
the issuer of the Securities, or as to which notice is published in
publications routinely utilized by Bank for this purpose
19
<PAGE>
Schedule A
Portfolios of the Reserve Funds:
Reserve Primary Fund
Reserve Government Fund
Reserve Interstate Fund
Reserve New York Tax-Exempt Fund
Reserve Connecticut Tax-Exempt Fund
Reserve Massachusetts Tax-Exempt Fund
Reserve New Jersey Tax-Exempt Fund
Reserve U.S. Treasury Fund
Reserve Convertible Securities Fund
Reserve Florida Tax-Exempt Fund
Reserve Offshore Fund
Reserve Mid-Cap Growth Fund
Reserve Large-Cap Value Fund
Reserve Strategist Money-Market Fund
Reserve Small-Cap Growth Fund
Reserve California Tax-Exempt Fund
Reserve, Blue Chip Growth Fund
Reserve Informed Investor Growth Fund
Reserve Pennsylvania Tax-Exempt Fund
Reserve International Equity Fund
Reserve Primary Institution Fund
Reserve U.S. Government Institutional Fund
Reserve U.S. Treasury Institutional Fund
Reserve Interstate Tax-Exempt Institutional Fund
Reserve Ohio Tax-Exempt Fund
Reserve Michigan Tax-Exempt Fund
The InterVest Fund
- InverVest Fixed-Rate Fund
- InterVest Variable-Rate Fund
20
<PAGE>
July 30, 1999
Reserve New York Tax-Exempt Trust
1250 Broadway
New York, NY 10001
Ladies and Gentlemen:
I have acted as counsel to Reserve New York Tax-Exempt Trust ("Trust"), a
Massachusetts business trusts, in connection with the preparation and filing of
its Registration Statement on Form N-1A (the "Registration Statement") covering
shares of beneficial interest, no par value per share, of the Trust, on behalf
of the New York Tax-Exempt Fund of Reserve New York Tax-Exempt Trust.
I have examined copies of the Declaration of Trust and By-Laws of the Trust,
the Registration Statement, and such other records, proceedings and
documents, as I have deemed necessary for the purpose of this opinion. I have
also examined such other documents, papers, statutes and authorities as I
deemed necessary to form a basis for the opinion hereinafter expressed. In my
examination of such material, I have assumed the genuineness of all signatures
and the conformity to original documents of all copies.
Based upon the foregoing, I am of the opinion that the shares of beneficial
interest, no par value per share, of the Trust to be issued in accordance
with the terms of the offering, as set forth in the Registration Statements,
when so issued and paid for will constitute validly authorized and legally
issued shares of beneficial interest, fully paid and non-assessable by the
Trust.
Very truly yours,
\s\ MaryKathleen Foynes
- -----------------------
MaryKathleen Foynes
General Counsel
Reserve Funds
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this registration
statement on Form N-1A (Securities Act File No. 2-85406 and Investment Company
Act File No. 811-3814) of our report dated July 23, 1999 on our audit of the
financial statements and financial highlights of the Reserve New York Tax-Exempt
Trust. We also consent to the reference to our firm under the captions
"Financial Highlights" and "Custodian, Independent Accountant and Counsel".
PricewaterhouseCoopers LLP
New York, New York
July 29, 1999
<PAGE>
Exhibit 99.(m)
REGISTERED DEALER AGREEMENT
Resrv Partners, Inc. ("RESRV") is the Principal Underwriter for the
shares (the "Shares") of The Reserve Funds (the "Funds"), which are registered
under the Investment Company Act of 1940 as open-end investment companies. The
Shares are offered for sale under the terms specified in the Fund's prospectus
in effect from time to time (the "Prospectus").
The terms of mutual agreement ("Agreement") between RESRV ("Distributor")
and the undersigned brokerage firm, financial planner, bank, trust company and
other qualified entities, as well as Successor firms (the "Dealer") concerning
the sale of Shares are as follows:
1. Appointment: The Dealer is hereby appointed by RESRV as a non-exclusive
distributor for the sale of the Shares in those states and jurisdictions of the
United States in which the Dealer and the Shares of the Fund are qualified for
sale. RESRV will notify Dealer in writing as to the states in which the shares
of the Fund have qualified for sale under, or are exempt from the requirements
of the respective securities laws of such states.
2. Sale of Fund Shares: The Dealer agrees to use its best efforts to solicit
qualified investors for orders to purchase shares and to determine suitability.
The Dealer shall place orders for sale of Shares only at their public offering
price and under terms as specified in the Prospectus and Statement of Additional
Information then in effect (collectively referred to as the "Prospectus").
Dealer agrees to provide, or cause to be provided, prospective investors with a
Fund Prospectus. The Dealer agrees not to make any representations about such
Shares not included in said Prospectus or in any authorized supplemental
materials supplied or authorized by RESRV. Dealer represents that the Shares
will be offered and sold in accordance with the terms and conditions of this
Agreement and all applicable laws, rules and regulations and agrees to hold
RESRV harmless and to indemnify RESRV in the event that the Dealer, or any of
its representatives, employees or agents should violate any law, rule or
regulation, or provisions of this Agreement, which violation may result in any
loss or liability (including costs of investigation and counsel fees) to RESRV
or the Fund or any of its portfolios. If RESRV determines to refund any amounts
paid by an investor by reason of such violation by the Dealer, the Dealer shall
promptly return on demand any commissions previously paid or discounts allowed
by RESRV with respect to the transaction for which the refund is made. RESRV
agrees to indemnify and hold harmless Dealer and Dealer's affiliates, officers,
directors and employees from and against any and all losses, liabilities, claims
and costs (including reasonable attorneys' fees) resulting from RESRV's failure
to fulfill its obligations hereunder or from any alleged inaccuracy, omission or
misrepresentation contained in any prospectus, statement of additional
information, any printed information issued by RESRV as information supplemental
to such prospectuses and statements of additional information, or any
advertising or sales materials prepared by RESRV. All expenses, which the Dealer
incurs in connection with activities under this Agreement, shall be borne by the
Dealer.
3. Dealer Relationship: The Dealer shall act in a dealer capacity with respect
to investors and the Dealer shall not have any authority to act as agent of the
Fund, RESRV, or any affiliate of RESRV (including, but not limited to, Reserve
Management Company, Inc. ("RMCI") and any mutual fund managed by RMCI (such
affiliates being "RESRV Affiliates"). The Dealer and its employees are not
authorized to make any representation concerning the Fund, RESRV, or RESRV
Affiliates except those contained in the Prospectus. Dealer may include the name
of any Fund in any printed list of funds which it makes available.
4. Dealer Commissions: During the term of this Agreement, the Dealer shall
receive from RESRV a commission with respect to all accounts accepted by RESRV
in which the executed account application form on file with the Fund is marked
or designated to show that it was provided to the investor by the Dealer (each
such marked account being a "Dealer Account"). The commission to be paid to the
Dealer with respect to each Dealer Account shall be an amount equal to the
dealer commission specified from time to time in the Prospectus.
<PAGE>
Any assistance payments and/or administrative service fees for
distribution pursuant to a distribution plan ("Plan") adopted by the Fund in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended,
due to the Dealer hereunder shall be paid at the end of the month. RESRV will
pay Dealer a monthly fee as set forth in the Plan and current Fund prospectus
based on the net asset value of Fund shares, which are held in accounts which
are designated as a Dealer Account. Payment shall be made within 30 days after
the close of each month for which such fee(s) is payable. No such monthly
payment will be paid if the average net asset value of all Dealer Accounts upon
which the fee is based is less than $25,000.
5. Purchase Orders: Payments for purchases of Shares made by telephone or wire
order by the Dealer shall be made to the order of RESRV or the Fund
(collectively, "Dealer") and received by Dealer, and all necessary applications
and other documents required by Dealer to establish an account or to settle a
redemption order, within five business days after Dealer's acceptance of our
order or such shorter time as may be required by law. If such payments or other
settlement documents are not timely received by Dealer, we understand that
Dealer reserve the right, without notice, to cancel the purchase or redemption
order, or, at Dealer's option in the case of a purchase order, to sell the
Shares ordered by us back to the Fund, and in either case we shall promptly
reimburse Dealer for any loss to Dealer or the Fund, including without
limitation loss of Dealer's profit, suffered by Dealer resulting from our
failure to make the aforesaid timely payment or settlement. If sales of any
Fund's Shares are contingent upon the Funds receipt of Federal Funds in payment
therefore, we will forward promptly to Dealer any purchase orders and/or
payments received by us for Shares from our customers.
6. Redemption Orders: Dealer may place redemption orders with Dealer for Shares
owned by Dealer's customers, but only in accordance with the terms of the
applicable Fund Prospectus. Dealer understands and agrees that by placing a
redemption order with the Fund or RESRV (collectively "Dealer") by wire or
telephone, it represents that a request for the redemption of the Shares covered
by the redemption order has been delivered to the Dealer by the registered
owner(s) of such Shares, and that such request has been executed in the manner
and with the signature(s) of such registered owners guaranteed as required by
the then current Prospectus of the applicable Fund. Such redemption orders shall
be subject to the following additional conditions:
(a) Dealer shall furnish Dealer with exact registration and account number for
the Shares to be redeemed at the time we place a redemption order by wire or
telephone and shall tender to Dealer, within five business days of our placing
such a redemption order: (i) a stock power or letter, duly signed by the
registered owner(s) of the Shares which are the subject of the order, duly
guaranteed, (ii) any Share certificates required for such redemption, and (iii)
any additional documents which may be required by the applicable fund or its
transfer agent, in accordance with the terms of the then current Prospectus of
the applicable Fund and the policies of the transfer agent. In the alternative,
Dealer shall provide a letter of indemnity in a form approved by the Fund and
RESRV stating that all necessary authorizations have been received from the
registered owner(s) of the Shares.
(b) The redemption price will be the next net asset value per share of the
Shares computed after Dealer receipt, prior the close of the New York Stock
Exchange ("NYSE"), of an order placed by us to redeem such Shares, except that
orders placed by us after the close of the NYSE on a business day will be based
on the Fund's net asset value per share determined that day, but only if such
orders were received by us from our customer prior to the close of business of
the NYSE that day and if we place our redemption order with Dealer prior to
Dealer's normal close of business that day.
(c) In connection with a redemption order we have placed, if Dealer fails to
make delivery of all required certificates and documents in a timely manner as
stated above, Dealer have the right to cancel our redemption order. If any
cancellation of a redemption order or if any error in the timing of the
acceptance of a redemption order placed by Dealer shall result in a loss to
Dealer or the Fund, we shall promptly reimburse Dealer for such loss.
<PAGE>
If any Shares sold by us under the terms of this Agreement are redeemed
by any of the Funds (including without limitation redemptions resulting from an
exchange for Shares of another fund) or are purchased by Dealer as an agent for
the Fund or are tendered to the Fund for redemption within seven business days
after Dealer's confirmation to us of our original purchase order for such
Shares, we shall promptly repay to Dealer the full amount of the commission
allowed to us on the original sales, provided Dealer notify us of such
repurchase or redemption.
7. Representations: The Dealer represents and warrants that it is a registered
securities dealer and is a member in good standing with the National Association
of Securities Dealers, Inc. ("NASD") or in the alternative, it is a foreign
dealer not eligible for membership in the NASD, and is fully licensed and
legally empowered to act as a securities broker-dealer under the laws of each
jurisdiction in which it conducts business or in the alternative, it is a
financial planner, bank, trust company and other qualified entity governed by
applicable laws and regulations. Dealer agrees to abide by the rules and
regulations of the Securities and Exchange Commission and the NASD, where
applicable, relating to the performance of its obligations hereunder, including,
without limitation, Section 26 of Articles III of the NASD Rules of Fair
Practice, and all other applicable laws and regulations, all of which are
incorporated herein by reference.
8. Compensation: Dealer will be paid in accordance with Schedule A (attached and
incorporated herein).
9. Termination: This Agreement may be terminated by either party upon fifteen
(15) days' written notice to the other and will be automatically terminated upon
the Dealer expulsion form. Dealer's suspension from the NASD for the violation
of any law, rule or regulation relating to the performance of Dealer's
obligations hereunder will terminate this Agreement effective immediately upon
our written notice of termination to the Dealer.
10. Arbitration: Dealer and RESRV agree that all disputes between the parties of
whatever subject matter, whether existing on the date thereof or arising
hereafter, shall be submitted to arbitration in accordance with the code of
Arbitration Procedure of the NASD or the New York Stock Exchange, or similar
rules or code, in effect at the time of the submission of any such dispute.
11. Notices: All communications shall be sent to RESRV to our offices at 1250
Broadway, 32nd Floor, New York, NY 10001. Any notice to Dealer shall be duly
given if mailed or telegraphed to Dealer at the address shown on this Agreement.
12. Governing Law: This Agreement shall be effective as of the date it is
executed and dated by Dealer below. This Agreement and all the rights and
obligations of the parties hereunder shall be governed by and construed under
the laws of the State of New York.
RESRV PARTNERS, INC.
By: _____________________________
Name & Title (print): _____________________________
Date: _____________________________
Dealer: ____________________________________
By: ____________________________________
(Authorized Signature)
<PAGE>
<TABLE>
<S> <C>
Name: ____________________________________ Dealer Code: ______________________
Title: ____________________________________ Phone: ______________________
Address: ____________________________________ NASD B/D No: ______________________
____________________________________
Date: ____________________________________
</TABLE>
<PAGE>
SCHEDULE A
Effective March 11, 1999
MONEY-MARKET FUNDS
A. Money-market funds with the exception of the Reserve Institutional Trust
Subject to the limit of the Plan of each Money-Market Fund, assistance payments
to a selected dealer with an automated interface will be at an annual rate
determined and paid monthly at a rate not less than 0.40% of the average daily
net asset value of each Fund's Qualified Accounts, or in accordance with any
subsequent Notice which may be provided by Resrv Partners, Inc., pursuant to the
Dealer Agreement.
For a Dealer who, in the opinion of Resrv Partners, is making a "good faith"
effort toward economical centralized purchases and sales to facilitate expedited
processing, such as an "automatic sweep," such assistance payments may be at an
annual rate so determined and paid not less than 0.40% of such net asset value
regardless of the schedules above in the discretion of Resrv but for a period
not to exceed 90 days. An "automatic sweep" requires the dealer's computer to
effect the daily movement of purchases, redemptions, and account maintenance
transactions directly to the Fund's computer to the satisfaction of the
management of the Fund which, in turn, will return acknowledgments and account
balances.
For all other Dealers, such assistance payments will be at an annual rate
determined and paid monthly as follows: average daily net asset of less than $2
million, 0.10%; $2 million but less than $5 million, 0.15%; $5 million but less
than $10 million, 0.20% and $10 million or more, 0.30%.
B. Reserve Institutional Trust
With regard to the Reserve Institutional Trust, assistance payments to a
selected dealer will be at an annual rate determined and paid monthly at a rate
not to exceed 0.10%, 0.20%, 0.30% and 0.45% of the average daily net asset value
of the Institutional Funds Class A, Class B, Treasurer's Trust and Class C
Qualified Accounts, respectively.
EQUITY FUNDS
A Dealer, who is responsible for the sale of shares shall be compensated in
accordance with the 0.25% annual 12b-1 fee, paid monthly.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> New York Tax-Exempt Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<INVESTMENTS-AT-COST> 184,222,702
<INVESTMENTS-AT-VALUE> 184,222,702
<RECEIVABLES> 1,555,377
<ASSETS-OTHER> 223,656
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 186,001,735
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,377
<TOTAL-LIABILITIES> 20,377
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185,981,358
<SHARES-COMMON-STOCK> 185,981,358
<SHARES-COMMON-PRIOR> 171,212,239
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 185,981,358
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,004,656
<OTHER-INCOME> 0
<EXPENSES-NET> 1,882,695
<NET-INVESTMENT-INCOME> 4,121,961
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,121,961
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,121,961
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 727,809,717
<NUMBER-OF-SHARES-REDEEMED> 717,162,559
<SHARES-REINVESTED> 4,121,961
<NET-CHANGE-IN-ASSETS> 14,769,119
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 941,347
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,882,695
<AVERAGE-NET-ASSETS> 188,288,614
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.022
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.022)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 1.00
</TABLE>
