RESERVE NEW YORK TAX EXEMPT TRUST, 485APOS, 1999-05-25

RESERVE NEW YORK TAX EXEMPT TRUST
485APOS, 1999-05-25

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<PAGE> 1
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. 23 [ ]
....

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

Amendment No. 24 [ ]
....

(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)

[ ] on (date) pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[X] 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

<PAGE> 2
[THE RESERVE FUNDS LOGO] General Information, Purchases and Redemptions
24-Hour Yield and Balance Information

Nationwide 800-637-1700 - www.reservefunds.com

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.

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

1
<PAGE> 3

TABLE OF CONTENTS PAGE
----
Investment Objective & Strategy................. 2
Performance History............................. 4
Expenses........................................ 6
Management...................................... 8
How to Buy Shares............................... 8
Selling Fund Shares............................. 9
Tax Consequences................................ 10
General Information............................. 11
Financial Highlights............................ 11

INVESTMENT OBJECTIVE & STRATEGY

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. 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"). The Funds
seek to maintain a stable $1.00 share price.

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 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.

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.)

The Funds' principal investment strategies include:

- 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".

- 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 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

- Monitoring a range of economic and financial factors and based on
the Fund manager's analysis investing each Fund's assets in a mix
of money-market securities that is 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.

- 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.

2
<PAGE> 4

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 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.

Each Fund will purchase tax-exempt securities which are rated MIG1 or
MIG2 by Moody's Investor Services, Inc. ("Moody's"), SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P") or the equivalent. Municipal obligations which are
not rated may also be purchased provided Reserve Management Co., Inc ("RMCI"),
the Adviser, determines them to be of comparable quality pursuant to guidelines
established by their Boards of Trustees ("Trustees").

OTHER INVESTMENT POLICIES OF THE FUNDS. 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. 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
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 including repurchase agreements invested in taxable investments at any
time.

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.

For more information on the investment objective and strategy, please
read the Statement of Additional Information ("SAI").

3
<PAGE> 5

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:

- Interest rates could rise sharply causing the value of a Fund's
securities and share price to drop.

- The municipal market is volatile and there are risks associated
with concentrating investments in an industry which can be
significantly affected by adverse economic or political changes
and the financial condition of the issuers of municipal
securities.

- The value of municipal securities may be affected by uncertainties
and changes in municipal market-related legislation or litigation.

- As to the Funds which invest in industrial revenue development
bonds and notes secured by letters of credit or guarantees of
banks, the risks generally associated with concentrating
investments in the banking industry, such as interest rate risk,
credit risk and regulatory developments relating to the banking
industry.

- Adverse political, regulatory, market or economic developments in
foreign countries can affect entities located in those countries.

- 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.

- Unfavorable political or economic conditions within a specific
state can affect the credit quality of issuers located in that
state.

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 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, either on a before- or after-tax basis. 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, 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 by comparing each Fund's performance to that of
the [INSERT APPROPRIATE BROAD-BASED MARKET INDEX NAME] index, a widely
recognized index of [INSERT BRIEF DESCRIPTION OF THE INDEX]. The tables assume
reinvestment of dividends and distributions, if any. The Reserve Tax-Exempt
Trust did not begin offering shares of Michigan Tax-Exempt Fund until December
14, 1998 and California II Tax-Exempt Fund until _______, 1999 and they do not
appear in the tables. As with all mutual funds, the past is not a prediction of
the future.

4
<PAGE> 6

NEW YORK TAX-EXEMPT FUND MASSACHUSETTS TAX-EXEMPT FUND
1989 5.50% 1990(2) 5.49%
1990 5.17% 1991 4.22%
1991 3.79% 1992 2.46%
1992 2.26% 1993 1.83%
1993 1.48% 1994 2.17%
1994 1.97% 1995 2.96%
1995 2.96% 1996 2.57%
1996 2.51% 1997 2.87%
1997 2.68% 1998 2.53%
1998 2.48% BEST QUARTER 3rd Q 1995 up______
BEST QUARTER 2nd Q 1989 up 1.41% WORST QUARTER 1st Q 1993 up_____
WORST QUARTER _____Q 19___ up ___ %
MICHIGAN TAX-EXEMPT FUND
CONNECTICUT TAX-EXEMPT FUND 1998(3) 0.11%
1989 5.77% BEST QUARTER ______ Q 19____ up %
1990 5.18% WORST QUARTER _____Q 19___ up ___ %
1991 3.62%
1992 2.25% NEW JERSEY TAX-EXEMPT FUND
1993 1.64% 1994(4) 1.20%
1994 2.06% 1995 2.87%
1995 2.85% 1996 2.41%
1996 2.45% 1997 2.55%
1997 2.66% 1998 2.42%
1998 2.50% BEST QUARTER 1st Q 1995 up 0.71%
BEST QUARTER 4th Q up 1.41% WORST QUARTER 3rd Q 1994 up 0.48%
WORST QUARTER 1st Q up .38%
OHIO TAX-EXEMPT FUND
FLORIDA TAX-EXEMPT FUND 1998(5) 1.86%
1996(1) 1.24% BEST QUARTER ______ Q 19____ up %
1997 2.66% WORST QUARTER _____Q 19___ up ___ %
1998 2.62%
BEST QUARTER 2nd Q 1998 up 0.73% PENNSYLVANIA TAX-EXEMPT FUND
WORST QUARTER 1st Q 1997 up 0.54% 1997(6) 0.84%
1998 2.53%
QUARTER 4th Q 1997 up 0.69%
WORST QUARTER 1st Q 1998 up 0.59%

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

(1)For the period June 24, 1996, (Commencement of Operations) to December
31,1996.

(2)For the period January 22, 1990 (Commencement of Operations) to December
31,1990.

(3)For the period December 14, 1998 (Commencement of Operations) to December
31,1998.

(4)For the period October 17, 1994 (Commencement of Operations) to December
31,1998.

(5)For the period April 1, 1998 (Commencement of Operations) to December 31,
1998.

(6)For the period September 12, 1997 (Commencement of Operations) to December
31, 1997.

5
<PAGE> 7

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>
1 5 SINCE
YEAR YEARS INCEPTION
---- ----- ---------
<S> <C> <C> <C>
Connecticut Tax-Exempt Fund 2.50% 2.50% 3.09%*
[INSERT APPROPRIATE BROAD-BASED MARKET INDEX NAME] [INSERT %]
- -------------------------------------------------- ----------
Florida Tax-Exempt Fund 2.62% -- 2.59%
[INSERT APPROPRIATE BROAD-BASED MARKET INDEX NAME] [INSERT %]
- -------------------------------------------------- ----------
Massachusetts Tax-Exempt Fund 2.53% 2.62% 3.93%
[INSERT APPROPRIATE BROAD-BASED MARKET INDEX NAME] [INSERT %]
- -------------------------------------------------- ----------
New Jersey Tax-Exempt Fund 2.42% -- 2.72%
[INSERT APPROPRIATE BROAD-BASED MARKET INDEX NAME] [INSERT %]
- -------------------------------------------------- ----------
New York Tax-Exempt Fund 2.48% 2.52% 3.07%*
[INSERT APPROPRIATE BROAD-BASED MARKET INDEX NAME] [INSERT %]
- -------------------------------------------------- ----------
Ohio Tax-Exempt Fund 1.86% -- 2.48%
[INSERT APPROPRIATE BROAD-BASED MARKET INDEX NAME] [INSERT %]
- -------------------------------------------------- ----------
Pennsylvania Tax-Exempt Fund 2.53% -- 2.59%
[INSERT APPROPRIATE BROAD-BASED MARKET INDEX NAME] [INSERT %]
- -------------------------------------------------- ----------
</TABLE>

------------
* The returns for the Connecticut and New York Tax-Exempt Funds reflect
10 year average 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 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"). The
Funds seek to maintain a stable $1.00 share price.

annual returns as of December 31, 1998.

THE 7-DAY YIELD AS OF DECEMBER 31, 1998:

<TABLE>
<CAPTION>
CURRENT EFFECTIVE
------- ---------
<S> <C> <C>
Connecticut Tax-Exempt Fund 2.50% 2.54%
Florida Tax-Exempt Fund 2.63% 2.66%
Massachusetts Tax-Exempt Fund 2.62% 2.65%
Michigan Tax-Exempt Fund 2.49% 2.52%
New Jersey Tax-Exempt Fund 2.55% 2.58%
New York Tax-Exempt Fund 2.57% 2.60%
Ohio Tax-Exempt Fund 2.42% 2.45%
Pennsylvania Tax-Exempt Fund 2.72% 2.76%
</TABLE>

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

EXPENSES

As an investor, you pay certain fees and expenses in connection with the
Funds, 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.

6
<PAGE> 8

SHAREHOLDER TRANSACTION EXPENSES FOR ALL FUNDS

<TABLE>
<S> <C>
Sales Load Imposed on Purchases.............................................. None
Sales Load Imposed on Reinvested Dividends................................... None
Redemption Fees*............................................................. None
Exchange Fees................................................................ None
</TABLE>

* A $2 fee will be charged on redemption checks issued by the Funds
of less than $100 and a $10 fee will be charged for wire
redemptions of less than $10,000. If you use your VISA card at an
ATM, the owner of the ATM may charge you a surcharge.

ANNUAL FUND OPERATING EXPENSES FOR ALL FUNDS
(AS A PERCENTAGE OF AVERAGE NET 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%
12b-1 Fees (b)............................... .20% .20% .20% .20% .20%
----- ----- ----- ----- -----
Total Operating Expenses..................... 1.00% 1.00% 1.00% 1.00% 1.00%
===== ===== ===== ===== =====
</TABLE>

<TABLE>
<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%
12b-1 Fees (b).............................. .20% .20% .20% .20%
----- ----- ----- -----
Total 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 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, which do not reflect fee waivers
for the Fund during the fiscal year ended May 31, 1999.

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:

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
California II Tax-Exempt Fund $105 $328 $1,012 1,701
Connecticut Tax-Exempt Fund $105 $328 $1,012 1,701
Florida Tax-Exempt Fund $105 $328 $1,012 1,701
Massachusetts Tax-Exempt Fund $105 $328 $1,012 1,701
Michigan Tax-Exempt Fund $105 $328 $1,012 1,701
New Jersey Tax-Exempt Fund $105 $328 $1,012 1,701
New York Tax-Exempt Fund $105 $328 $1,012 1,701
Ohio Tax-Exempt Fund $105 $328 $1,012 1,701
Pennsylvania Tax-Exempt Fund $105 $328 $1,012 1,701
</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. 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

7
<PAGE> 9

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 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"). The Funds seek to maintain a stable $1.00 share price.

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 proxy 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, been subject to a comprehensive management
fee structure. The new Investment Management Agreements became effective
________, 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 $_____
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
ordinary operating costs of the Fund. Excluded from the definition of ordinary
operating costs are interest, taxes, brokerage fees, extraordinary legal and
accounting fees and expenses, and the fees of the disinterested Trustees, for
which it 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 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
$______, $______, $______, $______, $______, $______, $______, $______ and
$______, 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 by the Funds. The Funds' investments are
valued based on market value, or where market quotations are not readily
available, based on fair value as determined in good faith by the Funds' Board
of Trustees. The Funds may use pricing services to determine market value.

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.

- 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.

- 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.

8
<PAGE> 10

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 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. 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 be able to redeem by telephone, you must select this option on your
application or in writing before you make your first telephone redemption. Once
you have selected this option, you may redeem by calling the Funds at
800-637-1700. The Funds strongly suggest (but do not require) that each
telephone redemption be at least $1000, except for redemptions which are
intended to liquidate an account. Unless you decline telephone privileges on
your application and the Funds fails to take reasonable measures to verify the
request, the Funds will not be liable for any unauthorized telephone order, or
for any loss, cost or expense for acting upon an investor's telephone
instructions. You are only allowed to make one telephone redemption request
within a thirty (30) day period. To further reduce the risk of loss, proceeds of
telephone redemptions may be sent only to (1) the bank or brokerage account
designated by the shareholder on the application or in a letter with the
signature(s) guaranteed or (2) the address of record for the past 30 days. 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 deemed eligible by the Securities and Exchange Commission.
Notaries public cannot provide signature guarantees., Please see the SAI for
more information.

9
<PAGE> 11

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 - 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). Each Fund reserves the right to:

- refuse any purchase or exchange request,

- change or discontinue its exchange privilege,

- change its minimum investment amounts, and

- 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.
Shareholders should consult with their own tax advisors with respect to the
application of their state and local tax laws to these distributions. Because
everyone's tax situation is unique, you should consult your own tax advisor(s)
with regard to the state and local tax laws. For more information, please see
the SAI.

DIVIDENDS, DISTRIBUTIONS AND TAXES. The Funds declare dividends each business
day. Dividends are distributed daily as additional shares to shareholder
accounts except for shareholders who elect in writing to receive cash dividends,
in which case monthly dividend checks are sent to the shareholder. Further, the
Funds distribute any net capital gains that they have realized once a year.
Dividends and distributions will be reinvested in the Funds unless the investor
instructs the Funds otherwise. 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" and 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 and the same is true with respect to the
Pennsylvania Tax-Exempt Fund and the Pennsylvania county personal property tax.

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.

10
<PAGE> 12

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 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 either levy a monthly
charge (currently $5) or redeem the account and remit the proceeds. Some Firms
may establish variations of minimum balances and fee amounts 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

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 Trust did not offer shares of
California II Tax-Exempt Fund until _______, 1999. These figures have been
independently 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.

<TABLE>
<CAPTION>
FOR FISCAL YEAR 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
-------- -------- -------- --------
Income from Investment operations...................... .0363 .0352 .0381 .0352
Expenses............................................... .0095 .0105 .0105 .0099
-------- -------- -------- --------
Net investment income (1).............................. .0268 .0247 .0276 .0253
Dividends from net investment income (1)............... (.0268) (.0247) (.0276) (.0253)
-------- -------- -------- --------
Net asset value, end of year.......................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ========
Total Return........................................... 2.68% 2.47% 2.76% 2.53%

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................. 171,212 153,180 125,454 152,906
Ratio of expenses to average net assets............... .94% 1.04% 1.04% .98%
Ratio of net investment income to average net assets.. 2.63% 2.43% 2.72% 2.48%

<CAPTION>
FOR FISCAL YEAR 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
------- -------- ------- -------
Income from Investment operations...................... .0358 .0341 .0368 .0352
Expenses............................................... .0091 .0098 .0102 .0098(3)
------- -------- ------- -------
Net investment income (1).............................. .0267 .0243 .0266 .0254
Dividends from net investment income (1)............... (.0267) (.0243) (.0266) (.0254)
------- -------- ------ -------
Net asset value, end of year.......................... $1.0000 $ 1.0000 $1.0000 $1.0000
======= ======== ======= =======
Total Return........................................... 2.67% 2.43% 2.66% 2.54%

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................. 36,787 33,497 34,801 26,626
Ratio of expenses to average net assets............... .89% .97% 1.01% .89%(3)
Ratio of net investment income to average net assets.. 2.64% 2.39% 2.61% 2.33%
</TABLE>

11
<PAGE> 13

JUNE 24, 1996
FOR FISCAL YEARS ENDED MAY 31, (COMMENCEMENT OF
------------------------------------ OPERATIONS) THROUGH
FLORIDA TAX-EXEMPT FUND 1999 1998 MAY 31, 1997
- ----------------------- ---- ---- ------------
<S> <C> <C> <C>
Net asset value, beginning of year..................... $ 1.0000 $ 1.0000
-------- --------
Income from investment operations...................... .0366 .0321
Expenses............................................... .0097 .0093
-------- --------
Net investment income (1).............................. .0269 .0228
Dividends from net investment income (1)............... (.0269) (.0228)
-------- --------
Net asset value, end of year........................... $ 1.0000 $ 1.0000
======== ========
Total Return........................................... 2.69% 2.42%(2)
Ratios/Supplemental Data
Net assets in thousands, end of year................... 10,817 4,109
Ratio of expenses to average net assets................ .94% 1.04%(2)
Ratio of net investment income to average net assets... 2.62% 2.39%(2)

<CAPTION>
FOR 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
-------- --------- ---------- ---------
Income from Investment operations...................... .0361 .0338 .0362 .0335
Expenses............................................... .0077 .0079(3) .0086(3) .0070(3)
-------- --------- ---------- ---------
Net investment income (1).............................. .0284 .0259 .0276 .0265

Dividends from net investment income (1)............... (.0284) (.0259) (.0276) (.0285)
-------- --------- ---------- ---------
Net asset value, end of year.......................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ========= ========== =========
Total Return........................................... 2.84% 2.59% 2.76% 2.65%

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................. 25,383 $ 13,035 $ 8,955 10,169
Ratio of expenses to average net assets............... .75% .79%(3) .84%(3) .69%(3)
Ratio of net investment income to average net assets.. 2.78% 2.58% 2.71% 2.80%

<CAPTION>
DECEMBER 14, 1998
(COMMENCEMENT OF OPERATIONS)
THROUGH MAY 31, 1999
------------------------------------
<S> <C>
MICHIGAN TAX-EXEMPT FUND
- ------------------------
Net asset value, beginning of year.........................
Income from Investment operations...........................
Expenses....................................................
Net investment income (1)...................................
Dividends from net investment income (1)....................
Net asset value, end of year...............................
Total Return................................................

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year......................
Ratio of expenses to average net assets....................
Ratio of net investment income to average net assets.......

OCTOBER 17, 1994
FOR FISCAL YEARS ENDED MAY 31, (COMMENCEMENT OF
------------------------------------------------- OPERATIONS) THROUGH
NEW JERSEY TAX-EXEMPT FUND 1999 1998 1997 1996 MAY 31, 1995
- -------------------------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- --------
Income from investment operations...................... .0354 .0343 .0369 .0330
Expenses............................................... .0100 .0107 .0106 .0087 (3)
-------- -------- -------- --------
Net investment income (1).............................. .0254 .0236 .0263 .0243
Dividends from net investment income (1)............... (.0254) (.0236) (.0263) (.0243)
-------- -------- -------- --------
Net asset value, end of year........................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== --------
Total Return........................................... 2.54% 2.36% 2.63% 2.43%(2)

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................... 37,600 39,452 41,026 21,607
Ratio of expenses to average net assets................ .99% 1.06% 1.04% 1.01%(2)(3)
Ratio of net investment income to average net assets.. 2.50% 2.33% 2.59% 2.82%(2)

<CAPTION>
APRIL 1, 1998
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OHIO TAX-EXEMPT FUND MAY 31, 1999 MAY 31, 1998
- -------------------- ------------ ------------
<S> <C> <C>
Net asset value, beginning of year..................... $ 1.0000
--------
Income from investment operations...................... .0065
Expenses............................................... .0017
--------
Net investment income (1).............................. .0048
Dividends from net investment income (1)............... (.0048)
--------
Net asset value, end of year........................... $ 1.0000
========
Total Return........................................... 2.87%(2)

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................... 2,507
Ratio of expenses to average net assets................ 1.00%(2)
Ratio of net investment income to average net assets... 2.86%(2)
</TABLE>

12
<PAGE> 14

<TABLE>
<CAPTION>
SEPTEMBER 12, 1997
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
PENNSYLVANIA TAX-EXEMPT FUND MAY 31, 1999 MAY 31, 1998
- ---------------------------- ------------ ------------
<S> <C> <C>
Net asset value, beginning of year..................... $ 1.0000
--------
Income from investment operations...................... .0261
Expenses............................................... .0072
--------
Net investment income (1).............................. .0189
Dividends from net investment income (1)............... (.0189)
--------
Net asset value, end of year........................... $ 1.0000
========
Total Return........................................... 2.64%(2)

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................... 13,187
Ratio of expenses to average net assets................ 1.00%(2)
Ratio of net investment income to average net assets... 2.62%(2)
</TABLE>

- ----------

(1) Based on compounding of daily dividends. Not indicative of future results.

(2) Annualized.

(3) During these periods the Manager waived all or a portion of fees and
expenses. If there were no reductions in expenses, the actual expenses for
the Connecticut Fund would have been 0.10% higher; the actual expenses for
the Massachusetts Fund would have been 0.04%, 0.05%, and 0.11%, higher;
and, 0.01% higher for the New Jersey Fund.

(4) The .01 cents per share represents distributions of taxable income.

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

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.

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

13
<PAGE> 15

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

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.
The Annual and Semi-Annual Reports list the holdings in each Fund, describe Fund
performance, include financial statements for the Funds, and discuss market
conditions and strategies that significantly affected the Funds' performance.
These documents may be obtained without charge by writing or calling the Funds
at 800-637-1700. You can also download the documents from the SEC's web site
(http://www.sec.gov).

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

Distributor - Resrv Partners, Inc.
RTET/states-07/99

[THE RESERVE FUNDS LOGO]
Founders of
"America's First
Money 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

14
<PAGE> 16
[THE RESERVE FUNDS LOGO] General Information, Purchases and Redemptions
----------------------------------------------
24-Hour Yield and Balance Information
-------------------------------------

Nationwide 800-637-1700 - www.reservefunds.com

AMERICAN EXPRESS MONEY-MARKET FUNDS
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:

- PRIMARY FUND,
- U.S. GOVERNMENT FUND,
- U.S. TREASURY FUND,
- INTERSTATE TAX-EXEMPT FUND,
- CALIFORNIA 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, and
- PENNSYLVANIA TAX-EXEMPT FUND,
(each a "Fund", collectively "the Funds")

For investors seeking as high a level of current income as is consistent with
preservation of capital and liquidity.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

---------------
<PAGE> 17
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
Investment Objective & Strategy..... 2
Performance History................. 5
Expenses............................ 5
Management.......................... 10
How to Buy Shares................... 10
Selling Fund Shares................. 11
Tax Consequences.................... 12
General Information................. 13
Financial Highlights................ 13
</TABLE>

INVESTMENT OBJECTIVE & STRATEGY

The investment objective of all 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 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. 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"). 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 may 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 in instruments issued or collateralized by full faith and credit
obligations of the U.S. government, its agencies and instrumentalities.

2
<PAGE> 18
U.S. TREASURY FUND. The U.S. Treasury Fund seeks to attain its objective by
investing in full faith and credit obligations of the U.S government, its
agencies and instrumentalities that provide interest income exempt in most
states from state and local personal income taxes.

OTHER INVESTMENT POLICIES OF THE PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY
FUNDS. 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.

The Primary and U.S. Government Funds may from time to time lend
securities on a short-term basis to banks, brokers and dealers (but not
individuals) and receive as collateral cash or securities issued by the U.S.
government or its agencies or instrumentalities. The collateral will be required
to be maintained at all times in an amount equal to at least 100% of the current
value of the loaned securities plus accrued interest. The Statement of
Additional Information ("SAI") further explains the Funds' securities lending
policies.

A Fund will not invest more than 10% of its net assets in illiquid
securities, including repurchase agreements providing for settlement in more
than seven (7) days after notice and will not concentrate more than 25% of its
total assets in the securities of issuers in a single industry, except that the
Primary Fund may invest more than 25% of its assets in banking. In addition, a
Fund will not invest more than 5% of its assets in the securities of any single
issuer (except U.S. government securities or repos collateralized by U.S.
government securities). Each Fund has the authority to borrow money (including
reverse repos involving sales by a Fund of portfolio securities concurrently
with an agreement by the Fund to repurchase the same securities at a later date
at a fixed price) for extraordinary or emergency purposes but not in an amount
exceeding 5% of its total assets.

All the Funds are allowed to invest all, or substantially all, of their
inevitable assets in other open-end management companies having the same
investment objective and substantially similar policies and restrictions.

TAX-EXEMPT FUNDS (CALIFORNIA II, CONNECTICUT, FLORIDA, MASSACHUSETTS, MICHIGAN,
NEW JERSEY, NEW YORK, OHIO, PENNSYLVANIA AND INTERSTATE TAX-EXEMPT FUNDS). 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. A principal investment strategy of the
Funds 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 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's investment objective is to seek as high
a level of short-term interest income exempt from federal income taxes as is
consistent with preservation of capital and liquidity. The 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 Fund invests 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 Funds may purchase floating and variable rate demand bonds, which are
municipal obligations normally having stated maturities in excess of one year,
but which permit the holder to demand payment of principal and accrued interest
at any time, or at specified intervals not exceeding one year, usually upon not
more than seven (7) days' notice. The Funds will not invest more than

3
<PAGE> 19
10% of the value of its assets in floating or variable rate demand bonds for
which there is no secondary market if the demand feature on such municipal
obligations requires more than seven (7) days' notice.

The 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").

OTHER INVESTMENT POLICIES OF THE TAX-EXEMPT FUNDS. 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. 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.

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.

For more information on the investment objective and strategy, please
read the Statement of Additional Information ("SAI").

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.

4
<PAGE> 20

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:

- as to all Funds, interest rates could rise sharply, causing the
value of the Funds' securities, and share price, to drop.

- 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.

- as to the Primary Fund, 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.

- 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.

- as to the Primary and Tax-Exempt Funds, the municipal market is
volatile and there are risks associated with concentrating
investments in an industry which can be significantly affected by
adverse economic or political changes and the financial condition
of the issuers of municipal securities.

- 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.

- 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
concentrating investments in the banking industry, such as
interest rate risk, credit risk and regulatory developments
relating to the banking industry.

- as to the Tax-Exempt Funds, adverse political, regulatory, market
or economic developments in foreign countries can affect entities
located in those countries.

- 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.

- as to the Tax-Exempt Funds named for a particular state,
unfavorable political or economic conditions within a specific
state can affect the credit quality of issuers located in that
state.

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, either on a before- or after-tax basis. 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, 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 by comparing each Fund's performance to that of
the [INSERT APPROPRIATE BROAD-BASED MARKET INDEX NAME] index, a widely
recognized index of [INSERT BRIEF DESCRIPTION OF THE INDEX]. The tables assume
reinvestment of dividends and distributions, if any. As with all mutual funds,
the past is not a prediction of the future.

5
<PAGE> 21
PRIMARY FUND NEW YORK TAX-EXEMPT FUND
1989 9.16% 1989 5.50%
1990 7.88% 1990 5.17%
1991 5.59% 1991 3.79%
1992 3.17% 1992 2.26%
1993 2.39% 1993 1.48%
1994 3.49% 1994 1.97%
1995 5.27% 1995 2.96%
1996 4.67% 1996 2.51%
1997 4.87% 1997 2.68%
1998 4.81% 1998 2.48%
BEST QUARTER 3rd Q 1989 up 2.40% BEST QUARTER 2nd Q 1989 up 1.41%
WORST QUARTER 2nd Q 1993 up 0.58% WORST QUARTER _____Q 19___ up ___ %

U.S. GOVERNMENT FUND CONNECTICUT TAX-EXEMPT FUND
1989 9.10% 1989 5.77%
1990 7.80% 1990 5.18%
1991 5.32% 1991 3.62%
1992 3.09% 1992 2.25%
1993 2.30% 1993 1.64%
1994 3.42% 1994 2.06%
1995 5.18% 1995 2.85%
1996 4.60% 1996 2.45%
1997 4.76% 1997 2.66%
1998 4.69% 1998 2.50%
BEST QUARTER 3rd Q 1989 up 2.17% BEST QUARTER 4th Q up 1.41%
WORST QUARTER 2nd Q 1993 up 0.20% WORST QUARTER 1st Q up .38%

U.S. TREASURY FUND FLORIDA TAX-EXEMPT FUND
1992* 2.44 % 1996(1) 1.24%
1993 2.19% 1997 2.66%
1994 3.68% 1998 2.62%
1995 4.96% BEST QUARTER 2nd Q 1998 up 0.73%
1996 4.53% WORST QUARTER 1st Q 1997 up 0.54%
1997 4.61%
1998 4.52% MASSACHUSETTS TAX-EXEMPT FUND
BEST QUARTER 3rd Q 1995 up 1.20% 1990(2) 5.49%
WORST QUARTER 1st Q 1993 up 0.19% 1991 4.22%
1992 2.46%
INTERSTATE TAX-EXEMPT FUND 1993 1.83%
1989 6.03% 1994 2.17%
1990 5.52% 1995 2.96%
1991 4.15% 1996 2.57%
1992 2.59% 1997 2.87%
1993 1.73% 1998 2.53%
1994 2.05% BEST QUARTER 3rd Q 1995 up______
1995 3.07% WORST QUARTER 1st Q 1993 up_____
1996 2.61%
1997 2.78% MICHIGAN TAX-EXEMPT FUND
1998 2.68% 1998(3) 0.11%
BEST QUARTER_Q up __% BEST QUARTER ______ Q 19____ up %
WORST QUARTER __Q up __% WORST QUARTER _____Q 19___ up ___ %

- --------------------------
* For the period February 3, 1992 (Commencement of Operations) to
December 31, 1992.
(1) For the period June 24, 1996, (Commencement of Operations) to
December 31,1996.
(2) For the period January 22, 1990 (Commencement of Operations) to
December 31,1990.
(3) For the period December 14, 1998 (Commencement of Operations) to
December 31,1998.

6
<PAGE> 22
NEW JERSEY TAX-EXEMPT FUND
1994(4) 1.20%
1995 2.87%
1996 2.41%
1997 2.55%
1998 2.42%
BEST QUARTER 1st Q 1995 up 0.71%
WORST QUARTER 3rd Q 1994 up 0.48%

OHIO TAX-EXEMPT FUND
1998(5) 1.86%
BEST QUARTER ______ Q 19____ up %
WORST QUARTER _____Q 19___ up ___ %

PENNSYLVANIA TAX-EXEMPT FUND
1997(6) 0.84%
1998 2.53%
QUARTER 4th Q 1997 up 0.69%
WORST QUARTER 1st Q 1998 up 0.59%

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

(4) For the period October 17, 1994 (Commencement of Operations) to December
31,1998.

(5) For the period April 1, 1998 (Commencement of Operations) to December
31, 1998

(6) For the period September 12, 1997 (Commencement of Operations) to December
31, 1997.

AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>
1 5 10 15 20 25 SINCE
YEAR YEARS YEARS YEARS YEARS YEARS INCEPTION
---- ----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Primary Fund 4.81% 4.62% 5.11% ____% ____% ____% ____%
[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------ ----------
U.S. Government Fund 4.69% 4.53% 5.01% ____% ____% ____% ____%

[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------ ----------
U.S. Treasury Fund 4.52% 4.46% 3.89% ____% ____% ____% ____%

[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------ ----------
New York Tax-Exempt Fund
</TABLE>

<TABLE>
<CAPTION>
1 5 SINCE
YEAR YEARS INCEPTION
---- ----- ---------
<S> <C> <C> <C>
Connecticut Tax-Exempt Fund 2.50% 2.50% 3.09%*
[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------ ----------
Florida Tax-Exempt Fund 2.62% -- 2.59%
[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------ ----------
Massachusetts Tax-Exempt Fund 2.53% 2.62% 3.93%
[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------ ----------
New Jersey Tax-Exempt Fund 2.42% -- 2.72%
[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------ ----------
New York Tax-Exempt Fund 2.48% 2.52% 3.07%*
</TABLE>

7
<PAGE> 23

<TABLE>
<S> <C> <C> <C>
[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------ ----------
Ohio Tax-Exempt Fund 1.86% -- 2.48%
[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------
Pennsylvania Tax-Exempt Fund 2.53% -- 2.59%
[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME] [INSERT %]
- ------------------------ ----------
</TABLE>

<TABLE>
<CAPTION>
1 5 10
YEAR YEARS YEARS
---- ----- -----
<S> <C> <C> <C>
Interstate Tax-Exempt Fund 2.68% 2.64% 3.31%
[INSERT APPROPRIATE BROAD-
- --------------------------
BASED MARKET INDEX NAME]
- ------------------------
[INSERT %]
- ----------
</TABLE>

* The returns for the Connecticut and New York Tax-Exempt Funds reflect
10 year average annual returns as of December 31, 1998.

<TABLE>
<CAPTION>
THE 7-DAY YIELD AS OF DECEMBER 31, 1998:

CURRENT EFFECTIVE
------- ---------
<S> <C> <C>
Primary Fund 4.29% 4.39%
U.S. Government Fund 4.10% 4.18%
U.S. Treasury Fund 3.77% 3.84%
Connecticut Tax-Exempt Fund 2.50% 2.54%
Florida Tax-Exempt Fund 2.63% 2.66%
Massachusetts Tax-Exempt Fund 2.62% 2.65%
Michigan Tax-Exempt Fund 2.49% 2.52%
New Jersey Tax-Exempt Fund 2.55% 2.58%
New York Tax-Exempt Fund 2.57% 2.60%
Ohio Tax-Exempt Fund 2.42% 2.45%
Pennsylvania Tax-Exempt Fund 2.72% 2.76%
Interstate Tax-Exempt Funds 2.79% 2.83%
</TABLE>

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

EXPENSES

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES FOR ALL FUNDS

<S> <C>
Sales Load Imposed on Purchases...................... None
Sales Load Imposed on Reinvested Dividends........... None
Redemption Fees*..................................... None
Exchange Fees........................................ None
</TABLE>

* A $2 fee will be charged on redemption checks issued by the Funds of
less than $100 and a $10 fee will be charged for wire redemptions of
less than $10,000. If you use your VISA card at an ATM, the owner of
the ATM may charge you a surcharge.

8
<PAGE> 24

ANNUAL FUND OPERATING EXPENSES FOR ALL FUNDS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
<S> <C>
Comprehensive Management Fee (a)..... .80%
12b-1 Fees (b)....................... .20%
-----
Total Operating Expenses............. 1.00%
=====
</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>
SHAREHOLDER TRANSACTION EXPENSES
--------------------------------

ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C>
$105 $328 $1,012 $1,701
</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 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 proxy 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, has been subject to a comprehensive management fee. The new
Investment Management Agreements became effective ________, 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 $_____ 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
ordinary operating costs of the Fund. Excluded from the definition of ordinary
operating costs are interest, taxes, brokerage fees, extraordinary legal and
accounting fees and expenses, and the fees of the disinterested Trustees, for
which it 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 $______,
$______, $______, $______, 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 $______, $_______, $______, $______, $______,
$______, $______, $______, $______ and $______, respectively.

9
<PAGE> 25

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 by the Funds. The Funds' investments are
valued based on market value, or where market quotations are not readily
available, based on fair value as determined in good faith by the Funds' Board
of Trustees. The Funds may use pricing services to determine market value.

- 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
and Interstate Tax-Exempt Funds) will be considered received the next business
day. Investors will be charged a fee $ ______ for any check that does not clear
and will be responsible for any losses suffered by the Funds as a result.

DISTRIBUTORS. The Fund's' 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.

10
<PAGE> 26

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 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. 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.

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 each Fund for information including charges, fees,
etcetera.

11
<PAGE> 27

- refuse any purchase or exchange request,
- change or discontinue its exchange privilege,
- change its minimum investment amounts, and
- 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

DIVIDENDS, DISTRIBUTIONS AND TAXES. Each Fund declares dividends each business
day. Dividends are distributed daily as additional shares to shareholder
accounts except for shareholders who elect in writing to receive cash dividends,
in which case monthly dividend checks are sent to the shareholder. Further, The
Funds distributes any net capital gains that it has realized once a year.
Dividends and distributions will be reinvested in the fund unless the investor
instructs the Fund otherwise. 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). 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 and the same is true with respect to the
Pennsylvania Tax-Exempt Fund and the Pennsylvania county personal property tax.

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 individual shareholders at the applicable
mid-term or long-term capital gains rate regardless of the length of time the
Fund's shares have been owned by the shareholder.

12
<PAGE> 28

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 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

INQUIRIES. Shareholders should direct their inquiries to the Firm from which
they received this Prospectus or to The Reserve Funds.

ACCOUNT STATEMENTS. Shareholders are advised to retain all account statements.

FINANCIAL HIGHLIGHTS

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. These figures have been independently
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.

<TABLE>
<CAPTION>
FOR FISCAL YEAR 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
---------- ---------- ---------- ----------
Income from investment operations..................... .0579 .0557 .0591 .0549
Expenses.............................................. .0096 .0100 .0101 .0099
---------- ---------- ---------- ----------
Net investment income(1).............................. .0483 .0457 .0490 .0450
Dividends from net investment income(1)............... (.0483) (.0457) (.0490) (.0450)
---------- ---------- ---------- ----------
Net asset value, end of year.......................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ========== ==========

Total Return.......................................... 4.83% 4.57% 4.90% 4.50%

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands ,end of year.................. 2,707,620 2,104,109 1,664,114 1,602,464
Ratio of expenses to average net assets............... .94% .98% .98% .97%
Ratio of net investment income to average net assets 4.71% 4.47% 4.79% 4.42%
</TABLE>

<TABLE>
<CAPTION>
FOR FISCAL YEAR 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
----------- ----------- ----------- -----------
Income from investment operations......................... .0572 .0550 .0586 .0542
Expenses.................................................. .0101 .0101 .0102 .0101
----------- ----------- ----------- -----------
Net investment income(1).................................. .0471 .0449 .0484 .0441
Dividends from net investment income(1)................... (.0471) (.0449) (.0484) (.0441)
----------- ----------- -----------
Net asset value, end of year.............................. $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
=========== =========== =========== ===========

Total Return.............................................. 4.71% 4.49% 4.84% 4.41%
-----------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
</TABLE>

13
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C>
Net assets in thousands ,end of year................... 652,468 611,844 568,497 721,785
Ratio of expenses to average net assets................ .99% .99% 1.00% .99%
Ratio of net investment income to average net assets 4.60% 4.40% 4.75% 4.31%
-----
</TABLE>

<TABLE>
<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
---------- ---------- ---------- ----------
Income from investment operations.................... .0535 .0521 .0547 .0523
Expenses............................................. .0079 .0078 .0081 .0067
---------- ---------- ----------
Net investment income(1)............................. .0456 .0443 .0466 .0456
Dividends from net investment income(1).............. (.0456) (.0443) (.0466) (.0456)
---------- ---------- ----------
Net asset value, end of year......................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------- ========== ========== ==========

Total Return......................................... 4.56% 4.43% 4.66% 4.56%

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands ,end of year................. 239,760 169,178 142,766 95,227
Ratio of expenses to average net assets.............. .77%(3) .77%(3) .79%(3) .68%(3)
Ratio of net investment income to average net assets. 4.46% 4.33% 4.53% 4.64%
</TABLE>

- ----------
(1) Based on compounding of daily dividends. Not indicative of future results.
(2) Annualized.
(3) During this period the manager waived a portion of fees and expenses. If
there were no reductions in expenses, the actual expenses would have been
approximately 0.20%, 0.20%, 0.20%, 0.25% and 0.12% higher, respectively.

14
<PAGE> 30
<TABLE>
<CAPTION>
FOR 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
---------- ---------- ---------- ----------
Income from Investment operations..................... .0363 .0352 .0381 .0352
Expenses.............................................. .0095 .0105 .0105 .0099
---------- ---------- ---------- ----------
Net investment income (1)............................. .0268 .0247 .0276 .0253
Dividends from net investment income (1).............. (.0268) (.0247) (.0276) (.0253)
---------- ---------- ---------- ----------
Net asset value, end of year......................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ========== ==========
Total Return.......................................... 2.68% 2.47% 2.76% 2.53%

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................ 171,212 153,180 125,454 152,906
Ratio of expenses to average net assets.............. .94% 1.04% 1.04% .98%
Ratio of net investment income to average net assets. 2.63% 2.43% 2.72% 2.48%
</TABLE>

<TABLE>
<CAPTION>
FOR 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
---------- ---------- ---------- ----------
Income from Investment operations..................... .0358 .0341 .0368 .0352
Expenses.............................................. .0091 .0098 .0102 .0098(3)
---------- ---------- ---------- ----------
Net investment income (1)............................. .0267 .0243 .0266 .0254
Dividends from net investment income (1).............. (.0267) (.0243) (.0266) (.0254)
---------- ---------- ---------- ----------
Net asset value, end of year......................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ========== ==========
Total Return.......................................... 2.67% 2.43% 2.66% 2.54%

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................ 36,787 33,497 34,801 26,626
Ratio of expenses to average net assets.............. .89% .97% 1.01% .89%(3)
Ratio of net investment income to average net assets. 2.64% 2.39% 2.61% 2.33%
</TABLE>

JUNE 24, 1996
FOR FISCAL YEARS ENDED MAY 31, (COMMENCEMENT OF
----------------------------- OPERATIONS) THROUGH
FLORIDA TAX-EXEMPT FUND 1999 1998 MAY 31, 1997
- ----------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Net asset value, beginning of year.................... $ 1.0000 $ 1.0000
---------- ----------
Income from investment operations..................... .0366 .0321
Expenses.............................................. .0097 .0093
---------- ----------
Net investment income (1)............................. .0269 .0228
Dividends from net investment income (1).............. (.0269) (.0228)
---------- ----------
Net asset value, end of year.......................... $ 1.0000 $1.0000
========== ==========
Total Return.......................................... 2.69% 2.42%(2)

Ratios/Supplemental Data
- ------------------------
Net assets in thousands, end of year.................. 10,817 4,109
Ratio of expenses to average net assets............... .94% 1.04%(2)
Ratio of net investment income to average net assets.. 2.62% 2.39%(2)
</TABLE>

<TABLE>
<CAPTION>
FOR 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
---------- ---------- ---------- ----------
Income from Investment operations..................... .0361 .0338 .0362 .0335
Expenses.............................................. .0077 .0079(3) .0086(3) .0070(3)
---------- ---------- ---------- ----------
Net investment income (1)............................. .0284 .0259 .0276 .0265
Dividends from net investment income (1).............. (.0284) (.0259) (.0276) (.0285)
---------- ---------- ---------- ----------
Net asset value, end of year......................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ========== ==========
Total Return......................................... 2.84% 2.59% 2.76% 2.65%

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................ $ 25,383 $ 13,035 $ 8,955 $ 10,169
Ratio of expenses to average net assets.............. .75% .79%(3) .84%(3) .69%(3)
Ratio of net investment income to average net assets. 2.78% 2.58% 2.71% 2.80%
</TABLE>

15
<PAGE> 31
<TABLE>
<CAPTION>
DECEMBER 14, 1998
(COMMENCEMENT OF OPERATIONS)
THROUGH MAY 31, 1999
-----------------------------------------------
MICHIGAN TAX-EXEMPT FUND
- ------------------------
<S> <C>
Net asset value, beginning of year...................
Income from Investment operations.....................
Expenses..............................................

Net investment income (1).............................

Dividends from net investment income (1)..............
Net asset value, end of year.........................
Total Return..........................................

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year................
Ratio of expenses to average net assets..............
Ratio of net investment income to average net assets.
</TABLE>

OCTOBER 17, 1994
FOR FISCAL YEARS ENDED MAY 31, (COMMENCEMENT OF
--------------------------------------------------- OPERATIONS) THROUGH
NEW JERSEY TAX-EXEMPT FUND 1999 1998 1997 1996 MAY 31, 1995
- -------------------------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------- ---------- ---------- ---------
Income from investment operations..................... .0354 .0343 .0369 .0330
Expenses.............................................. .0100 .0107 .0106 .0087 (3)
---------- ---------- ---------- ---------
Net investment income (1)............................. .0254 .0236 .0263 .0243
Dividends from net investment income (1).............. (.0254) (.0236) (.0263) (.0243)
---------- ---------- ---------- ---------
Net asset value, end of year.......................... $ 1.0000 $ 1.0000 $1.0000 $ 1.0000
========== ========== ========== =========
Total Return.......................................... 2.54% 2.36% 2.63% 2.43%(2)

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year.................. 37,600 39,452 41,026 21,607
Ratio of expenses to average net assets............... .99% 1.06% 1.04% 1.01%(2)(3)
Ratio of net investment income to average net assets. 2.50% 2.33% 2.59% 2.82%(2)
</TABLE>

<TABLE>
<CAPTION>
APRIL 1, 1998
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OHIO TAX-EXEMPT FUND MAY 31, 1999 MAY 31, 1998
- -------------------- ------------ ------------
<S> <C> <C>
Net asset value, beginning of year.................... $ 1.0000
----------
Income from investment operations..................... .0065
Expenses.............................................. .0017
----------
Net investment income (1)............................. .0048
Dividends from net investment income (1).............. (.0048)
----------
Net asset value, end of year.......................... $ 1.0000
==========
Total Return.......................................... 2.87%(2)

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year.................. 2,507
Ratio of expenses to average net assets............... 1.00%(2)
Ratio of net investment income to average net assets.. 2.86%(2)
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 12, 1997
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
PENNSYLVANIA TAX-EXEMPT FUND MAY 31, 1999 MAY 31, 1998
- ---------------------------- ------------ ------------
<S> <C> <C>
Net asset value, beginning of year.................... $ 1.0000
----------
Income from investment operations..................... .0261
Expenses.............................................. .0072
----------
Net investment income (1)............................. .0189
Dividends from net investment income (1).............. (.0189)
----------
Net asset value, end of year.......................... $1.0000
==========
Total Return.......................................... 2.64%(2)

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year.................. 13,187
Ratio of expenses to average net assets............... 1.00%(2)
Ratio of net investment income to average net assets.. 2.62%(2)
</TABLE>

16
<PAGE> 32

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
----------------------------------------------------------------------
INTERSTATE 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
---------- ---------- ---------- ----------
Income from investment operations..................... .0378 .0361 .0390 .0368
Expenses.............................................. .0099 .0105 .0105 .0103
---------- ---------- ---------- ----------
Net investment income (1)............................. .0279 .0256 .0285 .0265
Dividends from net investment income (1).............. (.0279) (.0256) (.0285) (.0265)
---------- ---------- ---------- ----------
Net asset value, end of year.......................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========== ========== ========= ==========
Total return.......................................... 2.79% 2.56% 2.85% 2.65%

RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year.................. $ 352,869 $ 306,152 $ 292,067 $ 315,232
Ratio of expenses to average net assets............... .97% 1.04% 1.04% 1.00%
Ratio of net investment income to average net assets.. 2.75% 2.52% 2.80% 2.59%
</TABLE>

- ----------
(1) Based on compounding of daily dividends. Not indicative of future results.
(2) Annualized.
(3) During these periods the Manager waived all or a portion of fees and
expenses. If there were no reductions in expenses, the actual expenses
for the Connecticut Fund would have been 0.10% higher; the actual
expenses for the Massachusetts Fund would have been 0.04%, 0.05%, and
0.11%, higher; and, 0.01% higher for the New Jersey Fund.
(4) The .01cents per share represents distributions of taxable income.

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

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

17
<PAGE> 33

SEC File 811-2033
SEC File 811-3696
SEC File 811-3814

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. The Annual and Semi-Annual Reports list the holdings in each Fund,
describe Fund performance, include financial statements for the Funds, and
discuss market conditions and strategies that significantly affected the Funds'
performance. These documents may be obtained without charge by writing or
calling the Funds at 800-637-1700. You can also download the documents from the
SEC's web site (http://www.sec.gov).

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

Distributor - Resrv Partners, Inc.

RF/PG&T-07/99

INSERT
AMEX
ARTWORK

Prospectus
July 31, 1999
<PAGE> 34

RESERVE TAX-EXEMPT TRUST:
CALIFORNIA II TAX-EXEMPT FUND
CONNECTICUT TAX-EXEMPT FUND
FLORIDA TAX-EXEMPT TRUST
MASSACHUSETTS TAX-EXEMPT FUND
MICHIGAN TAX-EXEMPT FUND
NEW JERSEY TAX-EXEMPT FUND
OHIO TAX-EXEMPT FUND
PENNSYLVANIA TAX-EXEMPT FUND

RESERVE NEW YORK TAX-EXEMPT TRUST:
NEW YORK TAX-EXEMPT FUND

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

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

24-HOUR YIELD AND BALANCE INFORMATION
NATIONWIDE 800-637-1700 - WWW.RESERVEFUNDS.COM

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information ("SAI") describes the 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 ten (10) separate series of
Reserve Tax-Exempt Trust authorized and outstanding (Interstate, California,
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 12
Information About the Trusts 15
How to Buy and Sell Shares 16
Dividends, Distributions and Taxes 21
Yield Information 23
General Information 24

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.

1
<PAGE> 35

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 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 generally limits a
money-market fund to investing no more than 5% of its total assets in securities
of any one issuer, except U.S. government securities, as defined below.

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:

(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 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 as defined
under 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;

(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;

(9) invest in the securities of other investment companies except in compliance
with 1940 Act; and

(10) make investments on a margin basis.

2
<PAGE> 36

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.

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. 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.

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

3
<PAGE> 37

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 domestic financial institutions and securities dealers who are deemed
credit-worthy pursuant to guidelines established by the 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.

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

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<PAGE> 38

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 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 RMCI concentrates each
Fund's investments 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.

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<PAGE> 39

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.

Entities located in foreign countries that provide credit support or a
maturity-shortening structure can involve increased risks. Extensive public
information about the provider may not be available and unfavorable political,
economic or governmental developments could affect the value of the security.

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 may distribute income subject to
federal or local or state personal income tax.

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 concentration in securities issued by that particular state
and its political subdivisions provides

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<PAGE> 40

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-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 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

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<PAGE> 41

may be payable solely from funds derived directly from sources other than State
tax revenues. Fiscal year 1995-96 estimated General Revenue and Working Capital
and Budget Stabilization funds available totaled $15.3 billion, a 3.3% increase
over 1994-95, resulting in unencumbered reserves of approximately $503 million
at the end of fiscal 1995-96. General Revenue and Working Capital and Budget
Stabilization funds available for fiscal 1996-97 are estimated to total $16
billion, a 5.1% increase over 1995-96, resulting in unencumbered reserves of
approximately $518 million at the end of fiscal 1996-97. Florida's general
revenues for 1998 grew 7.6% over 1997 and the State estimates that the Budget
Stabilization Fund will end fiscal 1999 with a balance of $787 million. At
present, the State's general obligation bonds are rated Aa2 and AA+ by Moody's
and S&P, respectively.

RISK FACTORS OF CONCENTRATING IN MASSACHUSETTS. The credit quality of the
Massachusetts Tax-Exempt Fund will depend on the continued financial strength of
the Commonwealth of Massachusetts and its political subdivisions. Since 1989,
Massachusetts has experienced growth rates significantly below the national
average and an economic recession in 1990 and 1991 caused negative growth rates.
Massachusetts' economic and fiscal problems in the late 1980s and early 1990s
caused several rating agencies to lower their credit ratings. A return of
persistent serious financial difficulties could adversely affect the market
values and marketability of, or result in default in payment on, outstanding
Massachusetts municipal obligations. The Commonwealth's operating losses in
fiscal 1989 and 1990, which totaled $672 million and $1.25 billion,
respectively, were covered primarily through deficit borrowings and a fiscal
1991 operating loss of $21 million was covered by drawing on the adjusted 1990
fund balance of $258 million. However, Massachusetts ended fiscal years 1992
through 1996 with a positive fiscal balance in its general operating funds. The
Commonwealth ended fiscal 1998 with an accumulated GAAP-basis Budgeted Operating
Fund balance of $1.8 billion. At present, Massachusetts' general obligation
bonds are rated by S&P, Fitch and Moody's AA-, AA- and 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 a default or other financial crisis, the
market value and marketability of outstanding New York Municipal

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<PAGE> 42

Obligations in the Fund's portfolio and the interest income to the Fund could be
adversely affected. Moreover, the national recession and the significant
slowdown in the New York and regional economies in the early 1990s added
substantial uncertainty to estimates of the State's tax revenues, which, in
part, caused the State to incur cash-basis operating deficits in the General
Fund and issue deficit notes during the fiscal years 1989 through 1992. However,
for its fiscal years 1993 through 1996, the State recorded balanced budgets on a
cash-basis, with substantial fund balances in the General Fund in fiscal 1992-93
and 1993-94 and smaller fund balances in fiscal 1994-95 and 1995-96. The State
closed fiscal 1997 and 1998 with surpluses of $1.4 billion and $2 billion,
respectively. Recent financial strength, however, does not significantly limit
the State's exposure to the longer term risks associated with a large debt
burden and a chronic structural budget imbalance. In January 1992, Moody's
lowered from A to Baa1 the ratings on certain appropriation-backed debt of New
York State and its agencies. The State's general obligation, State-guaranteed
and New York State Local Government Assistance Corporation bonds continued to be
rated A by Moody's (since refined to A2 in 1997). The State's general obligation
debt is rated A by S&P. At present, the general obligation debt of New York City
is rated A3 by Moody's. The City's debt is rated A- by S&P.

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

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

PORTFOLIO TURNOVER, 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.

The Fund's policy of investing in debt securities maturing within 13 months
results in high portfolio turnover. However, because the cost of these
transactions is minimal, high turnover does not have a material, adverse effect
upon the NAV or yield of the Fund.

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

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<PAGE> 43

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, 61, President, Treasurer and Trustee, 1250 Broadway, New
York, NY 10001-3701.

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

++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, RNYTET, RTET and RPES.

+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 The Singer & Bassuk Organization. From 1994 to present, Mr. Bassuk
served as Chairman of R.E. Bases Enterprises Corporation. Previously, Mr. Bassuk
joined Starrett Housing Corporation in 1973 and was President and COO from 1981
to 1993. He is currently Trustee of RF, RIT, RTET, RNYTET and RPES.

+EDWIN EHLERT, JR., 67, Trustee, 125 Elm Street, Westfield, NJ 07091.

Until his retirement, he was President of Premier Resources Inc. (a meeting
and planning company from October 1989 to December 31, 1996 and CEO of Ehlert
Travel Associates, Inc. (a travel agency) from November 1978 to December 31,
1996. He is a Trustee of RF, RIT, RTET, RNYTET and RPES.

+HENRI W. EMMET, 72, Trustee, 1535 Presidential Drive, Apt. 4A, Columbus,
OH 43212.

From January 1995 to December 1995, Mr. Emmet served as Principal of Global
Interaction, which provides consulting services to international banking
interests. 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. He is currently Trustee of RF, RIT, RTET, RNYTET, and RPES.

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+DONALD J. HARRINGTON, C.M., 53, Trustee, St. John's University, Jamaica,
NY 11439.

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

+DIANA P. HERRMANN, 40, Trustee, 380 Madison Avenue, Suite 2300, New York,
NY 10017.

Ms. Herrmann is President and COO of Aquila Management Corporation, sponsor
of 14 mutual funds with over $3 billion in assets, as of October 5, 1998. Prior
to joining Aquila in 1986, Ms. Herrmann was employed with European American Bank
in New York and was board member and Secretary of Bank Credit Association. She
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 Bancorp and President and CEO
of Long Island Savings (1980-1996); Senior Vice President/Department Head of
Bankers Trust Corp. (1972-1980); and Vice President and Mortgage Officer of
Anchor Savings Bank (1967-1972). He is currently Trustee of RF, RIT, RTET,
RNYTET and RPES.

ARTHUR T. BENT III, 30, Vice President and Assistant Secretary, 1250
Broadway, New York, NY 10001-3701.

Mr. Bent III joined The Reserve Funds in 1997 and is Vice President and
Assistant Secretary of RF, RIT, RTET, RNYTET and RPES. Before joining Reserve,
he was a private investor.

JAMES M. FREISEN, 41, Controller, 1250 Broadway, New York, NY 10001-3701.

Mr. Freisen joined The Reserve Funds in 1999 and is Controller of RF, RIT,
RTET RNYTET, RPES. Before joining The Reserve Funds in 1999, Mr. Freisen was an
Assistant Vice President at Paine Webber from August 1998 until February 1999.
Prior to that, he was Assistant Vice President, Bank of New York; Assistant Vice
President, Fifth Third Bank; Vice President, Smith Barney; and, Assistant Vice
President, Drexel Burnham Lambert.

MARYKATHLEEN FOYNES, 29, Counsel and Secretary, 1250 Broadway, New York, NY
10001-3701.

Ms. Foynes is Counsel and Secretary of RF, RIT, RTET, RNYTET, and RPES.
Before joining The Reserve Funds in 1998, Ms. Foynes was a staff attorney at
PaineWebber, Inc. Prior to that, Ms. Foynes was the District Manager for a
Member of the House of Representatives.

- ------------
+Messrs. Bassuk, Ehlert, Emmet, Harrington, 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 Investment Company Act of 1940.

The members of the Board of Trustees who are not interested persons
("disinterested Trustees") will be paid a stipend of $3,500 for each joint Board
meeting that they attend and an annual fee of $16,000 for service to all of the
Trusts in the complex.

Under the Declaration of Trusts, the Trustees and officers are entitled to be
indemnified by the Trusts 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
Trusts, 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.

11
<PAGE> 45

[As of June 30, 1999, the Trusts' 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.]

COMPENSATION TABLE
FOR FISCAL YEAR ENDED MAY 31, 1999

<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM TRUSTS AND FUND COMPLEX
COMPENSATION (3 ADDITIONAL TRUSTS)
NAME OF TRUSTEE, POSITION FROM FUNDS PAID TO TRUSTEE
- ------------------------- ---------- ---------------

<S> <C> <C>
Bruce R. Bent, President and Trustee $ 0 $ 0
Bruce R. Bent II, SVP and Trustee $ 0 $ 0
Richard Bassuk, Trustee $ $
----------------- -----------------
Edwin Ehlert, Jr., Trustee $ $
----------------- -----------------
Henri W. Emmet, Trustee $ $
----------------- -----------------
Rev. Donald J. Harrington, Trustee $ $
----------------- -----------------
Diana P. Herrmann $ $
----------------- -----------------
William E. Viklund $ $
----------------- -----------------
</TABLE>

[The following executive officers of the Trusts had allocated cash remuneration
in excess of $60,000 during the last fiscal year ending May 31, 1999 for
services rendered to the Fund:]

<TABLE>
<CAPTION>
ESTIMATED ANNUAL
AGGREGATE BENEFITS UPON
NAME CAPACITY REMUNERATION RETIREMENT
- ---- -------- ------------------------ ----------

<S> <C> <C> <C>
Bruce R. Bent President $ $
-------------- --------------
Bruce R. Bent II Sr. Vice President $ $
--------------- ---------------
Arthur T. Bent III Vice President $ $
-------------- --------------
MaryKathleen Foynes Counsel $ $
-------------- --------------
James M. Freisen Controller $ $
-------------- --------------
</TABLE>

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 June 30, 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:]

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 proxy 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
__________, 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 ordinary operating
costs of the Funds. Excluded from the definition of ordinary operating costs 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.

12
<PAGE> 46

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 $_________ respectively from the Connecticut
Tax-Exempt Fund; $51,006, $91,116 and $_________ from the Massachusetts
Tax-Exempt Fund; $786,904, $889,437 and $_________ 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 $_________ 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
$_________, respectively in management fees from the Florida Tax-Exempt Fund.
RMCI received $45,755 and $_________ 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 $_________ 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 $______________ 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.

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 __________,
1999. Pursuant to the Service Agreement, the Adviser furnished at cost, all
personnel required for the maintenance and operation of the Funds, including
administrative, clerical, recordkeeping, bookkeeping, shareholder accounting and
servicing, as well as a suitable office space and necessary equipment and
supplies used by such personnel in performing these functions. Operating costs
for which the Funds reimburse the Adviser includes salaries and other expenses,
rent, depreciation of equipment and facilities. Affiliates of the Adviser may
provide some of these services. The Trusts also reimbursed the Adviser for:
brokerage fees and commissions, interest charges, taxes, the cost of registering
for sale, issuing and redeeming the Funds' shares and of printing and mailing
all prospectuses, proxy statements and shareholder reports furnished to current
shareholders, overhead costs and expenses accounting and legal fees and expenses
and disinterested Trustees fees with regard to the Funds. The Adviser agreed to
repay the Funds promptly any amount which a majority of disinterested Trustees
reasonably determines in its discretion is in excess of or not properly
attributable to the cost of operations or expenses of the Fund. The Service
Agreement was non-assignable and continued until terminated by either party on
120 days' notice.

Pursuant to the Service Agreement, during the fiscal year ended May 31,
1999 the Primary Fund reimbursed RMCI $________ and the U.S. Government Fund
reimbursed RMCI $________ for expenses. For the fiscal years ended May 31, 1997
and 1998, RMCI was reimbursed $6,616,435 and $7,511,533 by the Primary Fund and
$1,778,491 and $2,011,920 by the U.S. Government Fund for expenses,
respectively.

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 may offer and sell shares of the Fund pursuant to a separate
Prospectus applicable to such Distributor. 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

13
<PAGE> 47

has retained underwriting commissions on the sale of Fund shares during the last
four fiscal years. During the fiscal year ended May 31, 1999, distribution
assistance payments were made to RESRV, in the amount of $____.

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 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, $_________ 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, 1301 Avenue of the Americas, New York,
NY 10019 is the

14
<PAGE> 48

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 TRUST

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
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 10
series (funds) of the Reserve Tax-Exempt Trust (Interstate, California,
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 Fund 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.

15
<PAGE> 49

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 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. If you do not specify the account
number and Fund you wish to invest in, all money sent will be invested in the
U.S. Government Fund. 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.

16
<PAGE> 50

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 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.

17
<PAGE> 51

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 REDEMPTION REQUESTS. Redemption instructions and election
of the plans described below may be made when your account is opened. Subsequent
elections and changes in instructions must be in writing with signature(s)
guaranteed. Changes in registration or authorized signatories may require
additional documentation. Write a letter of instruction which states: the
name(s) and signature(s) of all account holders, account number, Fund name, the
dollar amount you want to sell, how and where to send the proceeds, necessary
signature(s) guaranteed, and if you are redeeming your IRA, please note the
applicable withholding requirements.

The Funds will waive the signature requirement on a redemption request once
every thirty (30) days if all of the following conditions apply: if the
redemption check is (1) for $5,000 or less; (2) payable to the shareholder(s) of
record; and (3) mailed to the shareholder(s) at the address of record for the
previous 30 days. 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 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.

To be able to redeem by telephone, you must select this option on your
application or in writing before you make your first telephone redemption. Once
you have selected this option, you may redeem by calling the Funds at
800-637-1700. Unless you decline telephone privileges on your application and
the Funds take reasonable measures to verify the request, the Funds will not be
liable for any unauthorized telephone order, or for any loss, cost or expense
for acting upon an investor's telephone instructions. As stated in the
Prospectus, you are only allowed to make one telephone redemption request within
a thirty (30) day period. To further reduce the risk of loss, proceeds of
telephone redemptions may be sent only to (1) the bank or brokerage account
designated by the shareholder on the application or in a letter with the
signature(s) guaranteed; or (2) the address of record for the past 30 days. 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.

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

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<PAGE> 52

activity, including check redemptions, will be reported on your account
statement. Checking may not be available to clients of some Firms.

A VISA Gold 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 Gold 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
Gold 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, 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 A.M. to 5:00 P.M., Eastern time).

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

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

[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

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<PAGE> 53
participant has been notified. This privilege may not be available to clients
of some Firms or may be available subject to conditions or limitations.

AUTOMATIC TRANSFER PLANS (ACH). You may redeem shares of a Fund (minimum $100)
without charge by telephone if you have filed a separate Reserve Automatic
Transfer application with the Fund. The proceeds will be transferred between
your Fund account and the checking, NOW or bank money-market deposit account
(must be an Automated Clearing House member bank) designated in your
application. Redemption proceeds will be on deposit in your account at the
Automated Clearing House member bank ordinarily two (2) business days after
receipt of the request. The Funds may impose a charge, modify or terminate this
privilege at any time after the participant has been duly notified. This
privilege may not be available to clients of some Firms or may be available
subject to conditions or limitations.

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

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

Exchanges of shares of one fund for another is a taxable event and may
result in a gain or loss for federal income tax purposes. The exchange privilege
described under this heading may not be available to clients of some Firms and
some Firms may impose conditions on their clients that are different from those
described in the Prospectus or SAI.

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

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<PAGE> 54

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 $1,000 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 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 the 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.

The Fund ordinarily declares dividends from each Fund's 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

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<PAGE> 55

dividends are taxable to individual shareholders, 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 the 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. The 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, the 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 the Fund in October, November or December with a record
date in such a month and paid by the Fund during January of the following
calendar year. Such distributions will be taxable to shareholders in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received. To prevent application of the
excise tax, the Fund intends to make its distributions in accordance with the
calendar year distribution requirement.

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

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

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<PAGE> 56

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 _____% and its effective yield was ______%. For the seven-day period
ended May 31, 1999, the Florida Tax-Exempt Fund's yield was ____% and its
effective yield was ____%. For the seven-day period ended May 31, 1999,
Massachusetts Tax-Exempt Fund's yield was ____% and its effective yield was
_____%. For the seven-day period ended May 31, 1999, Michigan Tax-Exempt Fund's
yield was ____% and its effective yield was _____%. For the seven-day period
ended May 31, 1999, New Jersey Tax-Exempt Fund's yield was ____% and its
effective yield was _____%. For the seven-day period ended May 31, 1999, Ohio
Tax-Exempt Fund's yield was ____% and its effective yield was _____%. For the
seven-day period ended May 31, 1999, Pennsylvania Tax-Exempt Fund's yield was
____% and its effective yield was _____%.

Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Fund
account having a balance of one share at the beginning of a seven calendar day
period for which the yield is to be quoted, dividing the net change by the value
of the account at the beginning of the period to obtain the base period return,
and annualizing the results (i.e., multiplying the base period return by 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.

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<PAGE> 57

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.

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

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<PAGE> 58

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 HIGHLIGHTS

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, ____ 1999.

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<PAGE> 59

PART C
Item 23. Exhibits

(a) Declaration of Trust was filed as an exhibit to Registrant's Initial
Registration Statement dated July 22, 1983 and is incorporated by
reference.

(b) Bylaws were filed as an exhibit to Registrant's Initial Registration
Statement dated July 22, 1983 Amendment No. 2 filed as an exhibit to
Post-Effective Amendment No. 10 dated July 31, 1990 and is incorporated by
reference.

(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 filed as an exhibit to
Registrant's Post-Effective Amendment No. 22 and incorporated by reference.

(h) Form of Service Agreement filed as an exhibit to Post-Effective
Amendment No. 3 dated May 31, 1985 and is incorporated by reference.

(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

----------
*To be filed with later Post-Effective Amendment

Item 24. Persons Controlled by or Under Common Control with Registrant

Not Applicable

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Item 25. Indemnification

Each Trustee, officer, employee or agent of the Registrant, and any person who
has served at its request as a Director, Trustee, officer or employee of another
business entity, shall be entitled to be indemnified by the Registrant to the
fullest extent permitted by the laws of the Commonwealth of Massachusetts,
subject to the provisions of the Investment Company Act of 1940 and the rules
and regulations thereunder. Insofar as indemnification for liability arising
under the Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of any expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed the final adjudication of such issue.

Item 26. Business and Other Connections of Investment Adviser

Name Position with the Adviser Other Businesses
Henry B.R. Brown President, Treasurer and President, Treasurer and Director
Director of Reserve Management Corporation of the same address as the Trust;
Director and Treasurer of Transfer Agent Inc., 5 Cornwall St., N.W., Leesburg,
Virginia 22075.

Bruce R. Bent Vice President, Secretary Vice President, Secretary and Director
and Director of Reserve Management Corporation and Director of Resrv Partners,
Inc. both of the same address as the Trust

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, Director and Treasurer
1250 Broadway
New York, New York 10001-3701
- ------------------------------------------------------------------------------
Mary A. Belmonte President
1250 Broadway
New York, New York 10001-3701
- ------------------------------------------------------------------------------
Bruce R. Bent II Assistant Secretary
1250 Broadway
New York, New York 10001-3701
- ------------------------------------------------------------------------------
Arthur Bent III Assistant Treasurer
1250 Broadway
New York, New York 10001-3701
- ------------------------------------------------------------------------------
MaryKathleen Foynes Counsel & Secretary
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> 61

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 (a) under the Securities Act
of 1933 and Registrant has duly caused this Post-Effective Amendment No. 23 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 25th
day of May, 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 May 25, 1999
- --------------------------------------- executive operating and financial officer)
Bruce R. Bent

* Trustee May 25, 1999
- ---------------------------------------
Edwin Ehlert Jr.

* Trustee May 25, 1999
- ---------------------------------------
Henri W. Emmet

* Trustee May 25, 1999
- ---------------------------------------
Donald J. Harrington

/s/ Bruce R. Bent II Trustee May 25, 1999
- ---------------------------------------
Bruce R. Bent II

* Trustee May 25, 1999
- ---------------------------------------
William E. Viklund

* Trustee May 25, 1999
- ---------------------------------------
Diana P Hermann

* Trustee May 25, 1999
- ---------------------------------------
Richard Bassuk

/s/ MaryKathleen Foynes Counsel and Secretary May 25, 1999
- ---------------------------------------
MaryKathleen Foynes
*Attorney-in-Fact
</TABLE>