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[H&R BLOCK LOGO]
H&R BLOCK
FINANCIAL ADVISORS
MONEY MARKET FUNDS
PROSPECTUS
JULY 31, 2000
THE RESERVE FUND, RESERVE TAX-EXEMPT TRUST and RESERVE NEW YORK TAX-EXEMPT
TRUST (the "Trusts") are registered investment companies, which offer
fourteen no-load money-market funds in this Prospectus:
PRIMARY FUND, U.S. GOVERNMENT FUND, U.S. TREASURY FUND, INTERSTATE TAX-EXEMPT
FUND, CALIFORNIA II TAX-EXEMPT FUND, CONNECTICUT TAX-EXEMPT FUND, FLORIDA
TAX-EXEMPT FUND, MASSACHUSETTS TAX-EXEMPT FUND, MICHIGAN TAX-EXEMPT FUND, NEW
JERSEY TAX-EXEMPT FUND, NEW YORK TAX-EXEMPT FUND, OHIO TAX-EXEMPT FUND,
PENNSYLVANIA TAX-EXEMPT FUND, and VIRGINIA TAX-EXEMPT FUND (each a "Fund",
collectively "the Funds").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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TABLE OF CONTENTS
ABOUT THE FUNDS
Investment Objectives..........................................................3
Investment Strategies for the Primary, U.S. Government and U.S. Treasury
Funds..........................................................................4
Principal Risks of Investing in the Funds......................................5
Investment Strategies of Interstate Tax-Exempt Fund............................6
Principal Risks of Investing in the Fund.......................................7
Investment Strategies of State-Specific Municipal Funds........................8
Principal Risks of Investing in the Funds.....................................10
Performance...................................................................12
Fees & Expenses of the Funds..................................................18
Fund Management...............................................................18
YOUR ACCOUNT
How to buy shares.............................................................20
Selling shares................................................................21
ACCOUNT SERVICES..............................................................23
DIVIDENDS & TAXES.............................................................24
FINANCIAL HIGHLIGHTS..........................................................26
QUESTIONS?
Shareholders should direct their inquiries to the Firm from which they received
this Prospectus or to The Reserve Funds.
The Reserve Funds
1250 Broadway - 32nd floor
New York, NY 10001-3701
800-637-1700
212-401-5940 (facsimile)
[email protected]
or visit our web site at www.reservefunds.com
ABOUT THE FUNDS
The Funds are designed as a convenient alternative to the direct investment of
temporary cash balances in short-term money-market accounts or instruments. The
Funds seek to employ idle cash at yields competitive with yields of other
comparable short-term investments, and to reduce or eliminate the mechanical
problems of direct investment, such as scheduling maturities and reinvestment,
as well as, evaluating the credit of issuers, investing in round lots, and
safeguarding receipt and delivery of securities.
INVESTMENT OBJECTIVES
The investment objective of the Primary, U.S. Government and U.S. Treasury
Funds is to seek as high a level of current income as is consistent with
preservation of capital and liquidity.
The investment objective of the Interstate Tax-Exempt Fund is to seek as
high a level of short-term interest income exempt from federal income taxes as
is consistent with preservation of capital and liquidity.
The investment objective of each of the state specific municipal funds is to
seek as high a level of short-term interest income exempt from federal income
and state and local personal income and/or property taxes, if any, for resident
holders of the named state fund as is consistent with preservation of capital
and liquidity.
However, achievement of these objectives cannot be assured.
3
<PAGE>
ABOUT THE FUNDS
INVESTMENT STRATEGIES OF THE PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY
FUNDS. The Funds seek to maintain a stable $1.00 share price. The portfolio
managers monitor a range of economic and financial factors. Based on their
analysis, the Funds are invested in a mix of U.S. dollar denominated
money-market securities that are intended to provide as high a yield as possible
without violating the Fund's credit quality policies or jeopardizing the
stability of its share price.
PRIMARY FUND. The Primary Fund seeks to attain its objective by investing in
instruments issued by the U.S. government, its agencies and instrumentalities
("U.S. government securities"), deposit-type obligations, such as negotiable
certificates of deposit and time deposits, bankers' acceptances and letters of
credit of domestic and foreign banks, savings and loan associations and savings
banks, high-quality domestic and foreign commercial paper as determined by
nationally recognized statistical rating organizations, non-rated instruments of
comparable quality as determined by the Board of Trustees ("Trustees"), other
short-term instruments of similar quality, and instruments fully collateralized
by such obligations.
The Primary Fund will principally invest in obligations of U.S. banking
institutions that are insured by the Federal Deposit Insurance Corporation and
deposit-type obligations of foreign branches of both U.S. banks and foreign
banks (Eurodollars) located in Australia, Canada, Western Europe and Japan and
which, at the time of investment, have more than $25 billion (or the equivalent
in other currencies) in total assets.
U.S. GOVERNMENT FUND. The U.S. Government Fund seeks to attain its objective by
investing exclusively in securities backed by the full faith and credit of the
U.S. government, such as U.S. Treasury securities, obligations issued or
guaranteed by the U.S. government, its agencies and instrumentalities, and
repurchase agreements supported by such investments.
U.S. TREASURY FUND. The U.S. Treasury Fund seeks to attain its objective by
investing exclusively in securities backed by the full faith and credit of the
U.S government which provide interest income exempt in most states from state
and local personal income taxes. Typically, the Fund's assets will be invested
in U.S. Treasury securities.
The "full faith and credit" backing is considered the strongest backing
offered by the U.S. government and to be the highest degree of safety with
respect to the payment of principal and interest.
All of the Funds may invest in repurchase agreements ("repos") but will
limit them to those banks and securities dealers who are deemed creditworthy
pursuant to the guidelines adopted by the Trustees. The U.S. Government and U.S.
Treasury Funds will further limit their investment in repos to those whose
underlying obligations are backed by the full faith and credit of the United
States, and, in the case of the U.S. Treasury Fund, repos will not exceed 5% of
its total assets except for temporary or emergency purposes. Securities subject
to repos will be placed in a segregated account and will be monitored to ensure
that the market value of the securities plus any accrued interest will at least
equal the repurchase price.
The Funds will not concentrate more than 25% of their total assets in the
securities of issuers in a single industry, except that the Primary Fund may
invest more than 25% of its assets in bank obligations.
The Funds will at all times as is practicable be invested in accordance with
the investment objective and strategies outlined above. However, from time to
time, a Fund may take temporary defensive positions that are inconsistent with
the Fund's principal investment strategies in attempting to respond to adverse
market, economic, political or other conditions. If a Fund adopts a temporary
defensive position, the Fund might not be able to attain its objective.
4
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ABOUT THE FUNDS
PRINCIPAL RISKS OF INVESTING IN THE PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY
FUNDS.
The following factors could reduce a Fund's income level and/or share price:
- INTEREST RATES could rise sharply causing the value of the Funds' securities
and share price to drop. Most of the Funds' performance depends on interest
rates. When interest rates fall, the Funds' yields will typically fall as
well.
- A FUND IS NOT FDIC-INSURED. The Funds are money-market funds which are a
specific type of fund that seeks to maintain a $1.00 price per share. An
investment in a Fund is not insured or guaranteed by the U.S. government,
Federal Deposit Insurance Corporation ("FDIC") or any other government
agency. Although each Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in a Fund.
However, each Fund has maintained a constant share price since inception, and
will strive to continue to do so.
- EACH FUND'S YIELD WILL VARY as the short-term securities in its portfolio
mature and the proceeds are reinvested in securities with different interest
rates.
- CERTAIN PORTFOLIO HOLDINGS. The risks that the Funds are subject to include
those risks associated with the market in general, as well as the types of
securities held. Repos could involve risks in the event of a default of the
repo counterparty, including possible delays, losses or restrictions upon a
Fund's ability to dispose of the underlying securities. As to the Primary
Fund, the risks are generally associated with investing in the banking
industry, such as interest rate risk, credit risk and regulatory
developments. Further, as to the Primary Fund, Euro and Yankee dollar
investments involve certain risks that are different from investments in
domestic obligations of U.S. banks. These risks may include unfavorable
political and economic developments, possible withholding taxes, seizure of
foreign deposits, currency controls or other governmental restrictions which
might affect payment of principal or interest. In addition, foreign banks are
not regulated by U.S. banking authorities and are generally not bound by
financial reporting standards comparable to U.S. banks. Adverse political,
regulatory, market or economic developments in foreign countries can affect
entities located in those countries.
- CREDIT QUALITY. Overall, a decline in the credit quality of an issuer or the
provider of credit support or a maturity-shortening structure for a security
can cause the price of a money-market security to decrease.
- NON-DIVERSIFICATION. The Funds are non-diversified; therefore, performance is
more dependent upon a smaller number of securities and issuers than in a
diversified portfolio. The change in value of any one security may affect the
overall value of a Fund more than it would in a diversified portfolio.
- MONEY-MARKET FUNDS V. EQUITY INVESTMENTS. Because of the low level of risk,
over time, a money-market fund may produce lower returns than bond or stock
investments, which entail higher levels of risk.
5
<PAGE>
ABOUT THE FUNDS
INVESTMENT STRATEGIES OF THE INTERSTATE TAX-EXEMPT FUND. The Fund seeks to
maintain a stable $1.00 share price. The portfolio managers monitor a range of
economic and financial factors. Based on their analysis, the Fund is principally
invested in high quality, tax-exempt obligations that are intended to provide as
high a yield as possible without violating the Fund's credit quality policies or
jeopardizing the stability of its share price.
The Interstate Tax-Exempt Fund's principal investment strategies include:
- Investing principally in high-quality, tax-exempt municipal money-market
securities issued by the states, counties, authorities or other political
subdivisions. These securities are generally referred to as "municipal
obligations".
- Investing at least 80% of the value of the Fund's net assets in municipal
obligations which are exempt from federal income tax, unless it has adopted a
temporary defensive position. Interest received on certain otherwise
tax-exempt securities ("private activity bonds") may be subject to a federal
Alternative Minimum Tax ("AMT"). It is the position of the SEC that in order
for a fund to call itself "tax-free", not more than 20% of its net assets may
be invested in municipal securities subject to the AMT or at least 80% of its
income will be tax-exempt. Income received on such securities is classified
as a "tax preference item," which could subject certain shareholders of the
Fund to AMT; however, the Fund avoids buying any AMT paper.
- Investing in compliance with federal regulations designed to help maintain
liquidity and the strict standards for credit quality, diversification and
maturity.
The interest on securities generally known as municipal obligations is
exempt from federal income tax in the opinion of either bond counsel for the
issuer or, in some instances, the issuer itself. These obligations may be issued
to raise money for various public purposes such as constructing public
facilities, while others are issued to obtain funding for privately operated
facilities. General obligation bonds and notes are backed by the taxing power of
the issuer. Revenue bonds and notes are backed by the revenues of a project or
facility such as tolls from a toll road or, in some cases, from the proceeds of
a special excise tax, but not by the general taxing power. Industrial
development revenue bonds and notes are a specific type of revenue bond or note
backed by the credit of a private issuer. Municipal obligations bear fixed,
variable or floating rates of interest.
The Fund will purchase tax-exempt securities which are rated MIG1 or MIG2 by
Moody's Investor Services, Inc. ("Moody's"), SP-1 or SP-2 by Standard & Poor's
Corporation ("S&P") or the equivalent. Municipal obligations which are not rated
may also be purchased provided Reserve Management Co., Inc ("RMCI"), the
Adviser, determines them to be of comparable quality pursuant to guidelines
established by the Trustees.
The Fund may purchase floating and variable rate demand bonds, which are
municipal obligations normally having stated maturities in excess of one year,
but which permit the holder to demand payment of principal and accrued interest
at any time, or at specified intervals not exceeding one year, usually upon not
more than seven (7) days' notice. The Fund will not invest more than 10% of the
value of its assets in floating or variable rate demand bonds for which there is
no secondary market if the demand feature on such municipal obligations requires
more than seven (7) days' notice.
The Fund will at all times as is practicable be invested in accordance with
the investment objective and strategies outlined above. However, from time to
time, the Fund may take temporary defensive positions that are inconsistent with
the Fund's principal investment strategies in attempting to respond to adverse
market, economic, political or other conditions. If the Fund adopts a temporary
defensive position, the Fund might not be able to attain its objective.
6
<PAGE>
ABOUT THE FUNDS
PRINCIPAL RISKS OF INVESTING IN THE INTERSTATE TAX-EXEMPT FUND.
The following factors could reduce a Fund's income level and/or share price:
- INTEREST RATES could rise sharply causing the value of the Fund's securities
and share price to drop. Most of the Fund's performance depends on interest
rates. When interest rates fall, the Fund's yields will typically fall as
well.
- A FUND IS NOT FDIC-INSURED. The Fund is a money-market fund which is a
specific type of fund that seeks to maintain a $1.00 price per share. An
investment in a Fund is not insured or guaranteed by the U.S. government,
Federal Deposit Insurance Corporation ("FDIC") or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in a Fund.
However, the Fund has maintained a constant share price since inception, and
will strive to continue to do so.
- THE FUND'S YIELD WILL VARY as the short-term securities in its portfolio
mature and the proceeds are reinvested in securities with different interest
rates.
- CREDIT QUALITY. Overall, a decline in the credit quality of an issuer or the
provider of credit support or a maturity-shortening structure for a security
can cause the price of a money-market security to decrease.
- NON-DIVERSIFICATION. The Fund is non-diversified; therefore, performance is
more dependent upon a smaller number of securities and issuers than in a
diversified portfolio. The change in value of any one security may affect the
overall value of the Fund more than it would in a diversified portfolio.
- CERTAIN PORTFOLIO HOLDINGS. The risks that the Funds are subject to include
those risks associated with the market in general, as well as the types of
securities held. The Fund concentrates its investments in municipal
obligations which are volatile and there are risks associated with investing
in a particular state. For example, unfavorable political or economic
conditions and/or changes in municipal market-related legislation or
litigation can significantly affect the financial condition and credit
quality of issuers of municipal securities. Further, investments secured by
letters of credit or guarantees of banks are subject to the same risks
generally associated with investing in the banking industry, such as interest
rate risk, credit risk and regulatory developments.
- MONEY-MARKET FUNDS V. EQUITY INVESTMENTS. Because of the low level of risk,
over time, a money-market fund may produce lower returns than bond or stock
investments, which entail higher levels of risk.
7
<PAGE>
ABOUT THE FUNDS
INVESTMENT STRATEGIES OF THE STATE-SPECIFIC MUNICIPAL FUNDS. The Funds seek to
maintain a stable $1.00 share price. The portfolio managers monitor a range of
economic and financial factors. Based on their analysis, the Funds are
principally invested in high quality, tax-exempt obligations that are intended
to provide as high a yield as is possible without violating the Fund's credit
quality policies or jeopardizing the stability of its share price.
The State-Specific Municipal Funds' principal investment strategies include:
- Investing principally in high-quality, tax-exempt municipal money-market
securities issued by the specific state and its counties, municipalities,
authorities or other political subdivisions. These securities are generally
referred to as "municipal obligations".
- Investing at least 80% of the value of each Fund's net assets in municipal
obligations which are exempt from federal, income (including federal
Alternative Minimum Tax) and state and, with respect to the New York
Tax-Exempt Fund, local personal income taxes and, with respect to the Florida
Tax-Exempt Fund, the Florida intangibles tax, and with respect to the
Pennsylvania Tax-Exempt Fund, the Pennsylvania county personal property tax,
unless it has adopted a temporary defensive position. In addition, during
periods when RMCI believes that municipal obligations meeting each respective
Fund's quality standards are not available, a Fund may invest up to 20% of
the value of its net assets, or a greater percentage on a temporary basis, in
municipal obligations exempt only from federal income taxes. Interest
received on certain otherwise tax-exempt securities ("private activity
bonds") may be subject to a federal Alternative Minimum Tax ("AMT"). It is
the position of the SEC that in order for a fund to call itself "tax-free",
not more than 20% of its net assets may be invested in municipal securities
subject to the AMT or at least 80% of its income will be tax-exempt. Income
received on such securities is classified as a "tax preference item," which
could subject certain shareholders of the Fund to AMT; however, the Funds'
avoid buying any AMT paper.
- Investing in compliance with federal regulations designed to help maintain
liquidity and the strict standards for credit quality, diversification and
maturity.
The interest on securities generally known as municipal obligations is
exempt from federal income tax in the opinion of either bond counsel for the
issuer or, in some instances, the issuer itself. These obligations may be issued
to raise money for various public purposes such as constructing public
facilities, while others are issued to obtain funding for privately operated
facilities. General obligation bonds and notes are backed by the taxing power of
the issuer. Revenue bonds and notes are backed by the revenues of a project or
facility such as tolls from a toll road or, in some cases, from the proceeds of
a special excise tax, but not by the general taxing power. Industrial
development revenue bonds and notes are a specific type of revenue bond or note
backed by the credit of a private issuer. Municipal obligations bear fixed,
variable or floating rates of interest.
Each Fund will purchase tax-exempt securities which are rated MIG1 or MIG2
by Moody's, SP-1 or SP-2 by S&P or the equivalent. Municipal obligations which
are not rated may also be purchased provided RMCI determines them to be of
comparable quality pursuant to guidelines established by the Funds' Trustees.
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
8
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ABOUT THE FUNDS
which there is no secondary market if the demand feature on such municipal
obligations requires more than seven (7) days' notice.
The Funds will at all times as is practicable be invested in accordance with
the investment objective and strategies outlined above. However, from time to
time, a Fund may take temporary defensive positions that are inconsistent with
the Fund's principal investment strategies in attempting to respond to adverse
market, economic, political or other conditions. If a Fund adopts a temporary
defensive position, the Fund might not be able to attain its objective.
9
<PAGE>
ABOUT THE FUNDS
PRINCIPAL RISKS OF INVESTING IN THE STATE-SPECIFIC MUNICIPAL FUNDS.
The following factors could reduce a Fund's income level and/or share price:
- INTEREST RATES could rise sharply causing the value of the Funds' securities
and share price to drop. Most of the Funds' performance depends on interest
rates. When interest rates fall, the Funds' yields will typically fall as
well.
- A FUND IS NOT FDIC-INSURED. The Funds are money-market funds which are a
specific type of fund that seeks to maintain a $1.00 price per share. An
investment in a Fund is not insured or guaranteed by the U.S. government,
Federal Deposit Insurance Corporation ("FDIC") or any other government
agency. Although each Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in a Fund.
However, each Fund has maintained a constant share price since inception, and
will strive to continue to do so.
- EACH FUND'S YIELD WILL VARY as the short-term securities in its portfolio
mature and the proceeds are reinvested in securities with different interest
rates.
- CREDIT QUALITY. Overall, a decline in the credit quality of an issuer or the
provider of credit support or a maturity-shortening structure for a security
can cause the price of a money-market security to decrease.
- NON-DIVERSIFICATION. The Funds are non-diversified; therefore, performance is
more dependent upon a smaller number of securities and issuers than in a
diversified portfolio. The change in value of any one security may affect the
overall value of the Fund more than it would in a diversified portfolio.
- CERTAIN PORTFOLIO HOLDINGS. The risks that the Funds are subject to include
those risks associated with the market in general, as well as the types of
securities held. The Funds concentrate their investments in municipal
obligations of issuers located in the state for which they are named. The
municipal market is volatile. Particularly, investments secured by letters of
credit or guarantees of banks are subject to the same risks generally
associated with investing in the banking industry, such as interest rate
risk, credit risk and regulatory developments. Further, there are specific
risks associated with investing in a particular state. For example,
unfavorable political or economic conditions and/or changes in municipal
market-related legislation or litigation within a specific state can
significantly affect the financial condition and credit quality of issuers of
municipal securities located in that state. Please read below, some of the
risks particular to the state-specific municipal funds offered in this
Prospectus:
- California II Tax-Exempt Fund: There are special risks inherent in the
Fund's investments in California municipal obligations, which result from
statutes that limit the taxing and spending authority of California
governmental agencies, as well as the general financial condition of the
State.
- Connecticut Tax-Exempt Fund: The credit quality of the Connecticut
Tax-Exempt Fund will depend on the continued financial strength of the
State and its political subdivisions. Connecticut's economy relies in
part on activities that may be adversely affected by cyclical change, and
recent declines in defense spending have had a significant impact on
unemployment levels.
10
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ABOUT THE FUNDS
- Florida Tax-Exempt Fund: The revenue of Florida is closely tied to its
tourism business. A decline in tourism revenues could adversely affect
revenues, principally sales tax revenue which is vulnerable to economic
cycles.
- Massachusetts Tax-Exempt Fund: Investors should realize that since 1989,
Massachusetts has experienced growth rates significantly below the
national average and an economic recession in 1990 and 1991 caused
negative growth rates. Massachusetts' economic and fiscal problems in the
late 1980s and early 1990s caused several rating agencies to lower their
credit ratings.
- Michigan Tax-Exempt Fund: Michigan's fiscal condition continues to be
tested by its dependence on the inherently cyclical auto industry.
- New Jersey Tax-Exempt Fund: From time to time, New Jersey's economic
performance has trailed the rest of the nation. During the economic
downturn of 1992, the State's unemployment rate rose to a peak of 8.5%.
- New York Tax-Exempt Fund: There are the special risks inherent in
investing in New York municipal obligations which result from the
financial condition of New York State, certain of its public bodies and
municipalities, and New York City in particular.
- Ohio Tax-Exempt Fund: The State's fiscal condition is closely tied to its
ability to minimize its exposure to cyclical downturns in the
manufacturing sector.
- Pennsylvania Tax-Exempt Fund: Many different social, environmental and
economic factors may affect the financial condition of Pennsylvania and
its political subdivisions and, from time to time, Pennsylvania and
certain of its political subdivisions have encountered financial
difficulties which have adversely affected their respective credit
standings.
- Virginia Tax-Exempt Fund: The Commonwealth's low unemployment level is
due in large part to Federal Government jobs available to its residents
in neighboring Washington D.C. Virginia's continued financial strength
rests in its ability to maintain low debt levels and to diversify its
economy.
- MONEY-MARKET FUNDS V. EQUITY INVESTMENTS. Because of the low level of risk,
over time, a money-market fund may produce lower returns than bond or stock
investments, which entail higher levels of risk.
11
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ABOUT THE FUNDS
PERFORMANCE
The bar charts below show the Funds' annual returns for the past ten years or
the first full calendar years since inception, together with the best and worst
quarters. The accompanying "Average Annual Total Return as of December 31, 1999"
table gives some indication of risk of an investment in the Funds. The tables
assume reinvestment of dividends and distributions, if any. The Reserve
Tax-Exempt Trust's registration statement for the California II Tax-Exempt Fund
became effective on June 28, 1999 and the Virginia Tax-Exempt Fund on March 1,
2000. As such, they do not appear in the tables because a full calendar year
does not exist. As with all mutual funds, the past is not a prediction of the
future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Primary Fund
<TABLE>
<S> <C>
90 7.88%
91 5.59%
92 3.17%
93 2.39%
94 3.49%
95 5.27%
96 4.67%
97 4.87%
98 4.81%
99 4.42%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 4Q 1990 1.92%
Worst Quarter: 2Q 1993 0.53%
Most Recent Calendar Quarter: 2Q 2000 1.34%
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
4.42% 4.80% 4.64%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for U.S. Government Fund
<TABLE>
<S> <C>
90 7.80%
91 5.32%
92 3.09%
93 2.30%
94 3.42%
95 5.18%
96 4.60%
97 4.76%
98 4.69%
99 4.22%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 3Q 1990 1.89%
Worst Quarter: 2Q 1993 0.56%
Most Recent Calendar Quarter: 2Q 2000 1.32%
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
4.22% 4.69% 4.53%
</TABLE>
12
<PAGE>
ABOUT THE FUNDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for U.S. Treasury Fund
<TABLE>
<S> <C>
92 2.44%
93 2.19%
94 3.68%
95 4.96%
96 4.53%
97 4.61%
98 4.52%
99 4.02%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 2Q 1995 1.25%
Worst Quarter: 1Q 1993 0.52%
Most Recent Calendar Quarter: 2Q 2000 1.23%
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
4.02% 4.53% 3.91%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Interstate Tax-Exempt Fund
<TABLE>
<S> <C>
90 5.52%
91 4.15%
92 2.59%
93 1.73%
94 2.05%
95 3.07%
96 2.61%
97 2.78%
98 2.68%
99 2.39%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 4Q 1990 1.41%
Worst Quarter: 1Q 1994 0.38%
Most Recent Calendar Quarter: 2Q 2000 0.81%
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.39% 2.70% 2.95%
</TABLE>
13
<PAGE>
ABOUT THE FUNDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for New York Tax-Exempt Fund
<TABLE>
<S> <C>
90 5.17%
91 3.79%
92 2.26%
93 1.48%
94 1.97%
95 2.96%
96 2.51%
97 2.68%
98 2.48%
99 2.25%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 4Q 1990 1.30%
Worst Quarter: 3Q 1993 0.36%
Most Recent Calendar Quarter: 2Q 2000 0.80%
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.25% 2.57% 2.75%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Connecticut Tax-Exempt Fund
<TABLE>
<S> <C>
90 5.18%
91 3.62%
92 2.25%
93 1.64%
94 2.06%
95 2.85%
96 2.45%
97 2.66%
98 2.50%
99 2.15%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 4Q 1990 1.29%
Worst Quarter: 2Q 1993 0.38%
Most Recent Calendar Quarter: 2Q 2000 0.77%
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.15% 2.52% 2.73%
</TABLE>
14
<PAGE>
ABOUT THE FUNDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Florida Tax-Exempt Fund
<TABLE>
<S> <C>
97 2.66%
98 2.62%
99 2.36%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 2Q 1997 0.73%
Worst Quarter: 1Q 1999 0.49%
Most Recent Calendar Quarter: 2Q 2000 0.84%
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.36% 2.52%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Massachusetts Tax-Exempt Fund
<TABLE>
<S> <C>
91 4.22%
92 2.46%
93 1.83%
94 2.17%
95 2.96%
96 2.57%
97 2.87%
98 2.53%
99 2.20%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 1Q 1991 1.15%
Worst Quarter: 1Q 1994 0.42%
Most Recent Calendar Quarter: 2Q 2000 0.81%
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS 10 YEARS
2.20% 2.62% 2.94%
</TABLE>
15
<PAGE>
ABOUT THE FUNDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Michigan Tax-Exempt Fund
<TABLE>
<S> <C>
99 2.49%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 1Q 1999 0.67%
Worst Quarter: 3Q 1999 0.54%
Most Recent Calendar Quarter: 2Q 2000 0.86%
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.49% 2.48%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for New Jersey Tax-Exempt Fund
<TABLE>
<S> <C>
95 2.87%
96 2.41%
97 2.55%
98 2.42%
99 2.16%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 2Q 1995 0.75%
Worst Quarter: 1Q 1999 0.46%
Most Recent Calendar Quarter: 2Q 2000 0.80%
<TABLE>
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEARS SINCE INCEPTION
2.16% 2.48% 2.61%
</TABLE>
16
<PAGE>
ABOUT THE FUNDS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Ohio Tax-Exempt Fund
<TABLE>
<S> <C>
99 2.37%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 1Q 1999 0.63%
Worst Quarter: 2Q 1999 0.53%
Most Recent Calendar Quarter: 2Q 2000 0.85%
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.37% 2.42%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return for Pennsylvania Tax-Exempt Fund
<TABLE>
<S> <C>
98 2.53%
99 2.37%
</TABLE>
CALENDAR YEARS ENDED DECEMBER 31
QUARTERLY RETURNS:
Best Quarter: 2Q 1998 0.68%
Worst Quarter: 1Q 1999 0.49%
Most Recent Calendar Quarter: 2Q 2000 0.87%
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR SINCE INCEPTION
2.37% 2.49%
</TABLE>
For the Funds' current yields, call toll-free (800) 637-1700
or visit our web site at www.reservefunds.com.
17
<PAGE>
ABOUT THE FUNDS
FEES & EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if you buy and hold
shares of a Fund.
FEE TABLE
SHAREHOLDER FEES* None
(Fees paid directly from your investment)
ANNUAL FUND OPERATING EXPENSES FOR ALL FUNDS
(Expenses are deducted from Fund assets)
<TABLE>
<S> <C>
Comprehensive Management Fee 0.80%
Distribution (12b-1) Fee 0.20
----
Total Operating Expenses 1.00%
====
</TABLE>
------------
(*) The Funds will without prior notice impose a "Small Balance fee" (currently
$5) or remit the proceeds on those accounts with a monthly average account
balance of less than $1,000 for the past 12 consecutive months and with no
activity other than distributions and dividends. A shareholder will be
charged $2 for redemption checks issued for less than $100. Upon request,
redemptions will be made by bank wire; however, wire redemptions of less
than $10,000 will be charged a fee (currently $10).
EXAMPLE: This example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example should
not be considered indicative of future investment returns and operating expenses
which may be more or less than those shown. This example is based on the annual
fund operating expenses described in the table.
This example uses the same assumptions other funds use in their
prospectuses. It assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that
each Fund's operating expenses remain the same. The costs would be the same
whether you stayed in a Fund or sold your shares at the end of each period. Your
actual costs may be higher or lower.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
$102 $318 $552 $1,225
</TABLE>
FUND MANAGEMENT
THE INVESTMENT ADVISER FOR THE RESERVE FUNDS is Reserve Management Company, Inc.
("RMCI"), 1250 Broadway, New York, NY 10001. Since November 15, 1971, RMCI and
its affiliates have provided investment advice to other mutual funds within the
Reserve family of funds which as of May 31, 2000, had approximately $7 billion
in assets under management.
RMCI manages the investment portfolios of the Funds, subject to policies
adopted by the Trustees. The Funds pay RMCI a comprehensive management fee of
0.80% per year of the average daily net assets of each Fund. RMCI pays all
administration and customary operating expenses of the Funds. Excluded from the
definition of customary operating expenses are interest, taxes, brokerage fees,
extraordinary legal and accounting fees and expenses, and the fees of the
disinterested Trustees, for which each Fund pays its direct or allocated share.
As of June 26, 1999, each of the Funds entered into a Investment Management
Agreement with RMCI, which is substantially similar to the Investment Management
Agreement previously in effect, except for the comprehensive management fee
structure; however, the U.S. Treasury Fund, , the California II, Michigan, Ohio
and Virginia Tax-Exempt Funds since inception, has been subject to a
comprehensive management fee. For the fiscal year ended May 31, 2000, RMCI
received management fees under the investment management agreements previously
in effect, as well as the comprehensive management fee agreements. For the
fiscal year ended May 31, 2000, the Primary, U.S. Government and U.S. Treasury
Fund paid RMCI an aggregate fee of $29,323,207, $5,738,286, and $2,549,541,
respectively; the Interstate Tax-Exempt Fund paid RMCI an aggregate fee of
$2,228,804; and, the California II
18
<PAGE>
ABOUT THE FUNDS
Tax-Exempt, Connecticut Tax-Exempt, Florida Tax-Exempt, Massachusetts
Tax-Exempt, Michigan Tax-Exempt, New Jersey Tax-Exempt, New York Tax-Exempt
Fund, Ohio Tax-Exempt, Pennsylvania Tax-Exempt and Virginia Tax-Exempt Funds
paid an aggregate fee of $452,687, $420,264, $200,157, $103,426, $11,118,
$355,140, $1,538,209, $16,505, $141,513 and $1,371, respectively. California II
Tax-Exempt and Virginia Tax-Exempt Funds had fees waived of $24,022 and $73,
respectively.
THE FUNDS' DISTRIBUTOR is Resrv Partners, Inc. ("Resrv"), 1250 Broadway, New
York, NY 10001-3701.
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.
19
<PAGE>
YOUR ACCOUNT
HOW TO BUY SHARES.
SHARE PRICE: NET ASSET VALUE. Investors pay no sales charges to invest in the
Funds. The price you pay for a share of a Fund, and the price you receive upon
selling or redeeming a share of a Fund, is called the Fund's net asset value
("NAV") per share. Each Fund uses the amortized cost method of valuing its
securities which does not take into account unrealized gains or losses. This is
a standard calculation. The NAV is calculated as of the close of trading on the
New York Stock Exchange (usually 4:00 PM Eastern time). However, NAV is not
calculated and purchase orders are not accepted on days the Exchange is closed
for holidays (New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day) or on regional bank holidays (Columbus Day and Veteran's Day).
Your order will be priced at the next NAV calculated after your order is
accepted (i.e., converted to federal funds) by the Funds.
MINIMUM INITIAL INVESTMENT
<TABLE>
<C> <C> <S>
REGULAR ACCOUNTS - $1,000 with no minimum subsequent investment
ALL IRA ACCOUNTS - $1,000 with $250 minimum subsequent investment
</TABLE>
HOW TO PURCHASE
- BY CHECK. (drawn on U.S. bank). Please mail or visit us at
1250 Broadway, New York, NY 10001-3701. You must include
your account number (or Taxpayer Identification Number) on
the "Pay to the order of" line and make the check payable
to The Reserve Funds.
- BY WIRE. Prior to calling your bank, call The Reserve
Funds at 800-637-1700 for specific instructions or the
Firm from which you received this Prospectus.
- THIRD PARTY INVESTMENTS. Investments made through a third
party (rather than directly with Reserve) such as a
financial services agent may be subject to policies and
fees different than those described here. Banks, brokers,
401(k) plans, financial advisers and financial
supermarkets may charge transaction fees and may set
different minimum investments or limitations on buying or
selling shares. Investors should consult a representative
of the plan or financial institution if in doubt.
- AUTOMATIC ASSET BUILDER. You may purchase shares of a Fund
($25 suggested minimum) from a checking, NOW, or bank
money-market deposit account or from a U.S. government
distribution ($25 suggested minimum) such as social
security, federal salary, or certain veterans' benefits,
or other payment from the federal government. You may also
purchase shares automatically by arranging to have your
payroll deposited directly into your Reserve account.
Please call the Funds at 800-637-1700 for an application.
ALL INVESTMENTS MUST BE IN U.S. DOLLARS. THIRD PARTY, FOREIGN AND TRAVELERS
CHECKS, AS WELL AS CASH INVESTMENTS WILL NOT BE ACCEPTED.
PURCHASE ORDERS ARE NOT ACCEPTED ON DAYS THE EXCHANGE IS CLOSED FOR TRADING AND
REGIONAL BANK HOLIDAYS.
20
<PAGE>
YOUR ACCOUNT
When purchasing shares, please keep in mind:
- All checks and wires which do not correctly identify the account to be
credited may be returned or delay the purchase of shares. If you do not
specify the account number and the Fund you wish to invest in, all money
will be invested in the U.S. Government Fund under the sender's name
until the correct information can be determined.
- Only federal funds wires and checks drawn on the Fund's bank are eligible
for entry as of the business day received.
- For federal funds wires to be eligible for same-day order entry, the
Funds must be notified before 11:00 AM (Eastern Time, 3:00 PM for the
Primary and U.S. Government Fund) of the amount to be transmitted and the
account to be credited.
- Payment by check not immediately convertible into federal funds will be
entered as of the business day when covering federal funds are received
or bank checks are converted into federal funds. Checks delivered to the
Fund's offices 11:00 AM (Eastern Time, 3:00 PM for the Primary and U.S.
Government Fund) will be considered received the next business day.
- Investors will be charged a fee (currently $15) for any check that does
not clear and will be responsible for any losses suffered by the Funds as
a result.
SELLING SHARES. Investors may sell (redeem) shares at any time. Shares will be
sold at the NAV next determined after the redemption request is received by a
Fund. Each Fund usually transmits payments the same day when requests are
received before 11:00 AM (Eastern Time, 3:00 PM for the Primary and U.S.
Government Fund) and the next business day for requests received after the time
specified to enable shareholders to receive additional dividends. Shares do not
earn dividends on the day a redemption is effected, regardless of the time the
order is received. Orders will be processed promptly and investors will
generally receive the proceeds within a week after receiving your request. You
may sell shares by calling the Funds or with a letter of instruction. A
shareholder will be charged $2 for redemption checks issued for less than $100.
Upon request, redemptions will be made by bank wire; however, wire redemptions
of less than $10,000 will be charged a fee (currently $10). The Funds assume no
responsibility for delays in the receipt of wired or mailed funds.
TELEPHONE REQUESTS. You may redeem by calling the Funds at 800-637-1700. Unless
you decline telephone privileges on your application and the Funds fail to take
reasonable measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions will be sent to
the bank or brokerage account designated by the shareholder on the application
or in a letter with the signature guaranteed. To change the designated brokerage
or bank account, it is necessary to contact the Firm through which shares of a
Fund were purchased or, if purchased directly from the Funds, it is necessary to
send a written request to the Funds with signature(s) guaranteed. The Fund
reserves the right to refuse a telephone redemption if it reasonably believes
that the instructions are not genuine and/or it is advisable to do so.
WRITTEN REQUESTS. When writing a letter of instruction, please include the
name(s) and signature(s) of all account holders (signature(s) guaranteed, if
necessary), account number, Fund name, the dollar amount you want to redeem, and
how and where to send the proceeds. If you are redeeming your IRA, please call
for the applicable withholding requirements.
21
<PAGE>
YOUR ACCOUNT
SIGNATURE GUARANTEED. The following situations require written instructions
along with signatures guaranteed.
(1) redemptions for more than $5,000, if redemption proceeds are not being
sent to the shareholder's designated bank or brokerage account; or
(2) redemptions on accounts whose address has been changed within the past
30 days; or
(3) redemption requests to be sent to someone other than the account owner
or the address of record.
Signature guarantees are designed to protect both you and the Funds from
fraud by reducing the risk of loss. Signature guarantees can be obtained from
most banks, credit unions or savings associations, or from broker/ dealers,
national securities exchanges or clearing agencies deemed eligible by the
Securities and Exchange Commission. Notaries public cannot provide signature
guarantees.
SMALL BALANCES. Because of the expense of maintaining accounts with small
balances, the Funds will without prior notice either levy a monthly charge
(currently $5) or redeem the account and remit the proceeds on those accounts
with a monthly average account balance of less than $1,000 for the past 12
consecutive months and with no activity (i.e., other than dividends and
distributions). Some Firms may establish variations of minimum balances and fee
amounts if those variations are approved by the Funds.
THE FUNDS RESERVE CERTAIN RIGHTS.
The Funds reserve the right to make a "redemption in kind", (payment in
portfolio securities rather than cash), without notice, if the amount the
investor is redeeming is large enough to affect fund operations (for example, if
it represents more than 1% of the Fund's assets). Further, each Fund reserves
the right to:
- refuse any purchase or exchange request,
- change or discontinue its exchange privilege,
- change its minimum investment amounts,
- to liquidate an account without notice and remit the proceeds, if an
account becomes burdensome within the Funds' discretion,
- delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions); and
- to charge shareholder accounts for specific costs incurred in processing
unusual transactions. Such transactions include, but are not limited to,
stop payment requests, copies of Fund redemption checks or shareholder
checks, copies of statements and special research services.
REDEMPTIONS THROUGH BROKERS AND FINANCIAL INSTITUTIONS. Redemptions through
brokers and financial institutions may involve such Firms' own redemption
minimums, services fees, and other redemption requirements.
ACCOUNT STATEMENTS. Shareholders are advised to retain all account statements.
You must notify us no later than sixty (60) days after Reserve sent you the
statement on which a problem or error first appeared.
SHAREHOLDER COMMUNICATIONS. The Funds will not send duplicate shareholder
communications, such as the Prospectus and Annual Report, to related accounts at
a common address, unless instructed to the contrary by you.
22
<PAGE>
ACCOUNT SERVICES
CHECKING, VISA AND ATM ACCESS. You may redeem shares of the Fund by using your
Reserve checks and VISA Check Card. Once you complete an application or a
signature card (for existing accounts) and certain other documentation, you can
write checks in any amount against your account. A check will be returned
(bounced) and a fee charged if you request a stop payment; the check is
postdated; contains an irregularity in the signature, amount or otherwise;
signature or payee is missing; or, is written against accounts with insufficient
or uncollected funds. Please do not use your checks to close your account.
Checking may not be available to clients of some Firms and some Firms may
establish their own minimum check amount. Shareholders may use their VISA Check
Card at ATM's to receive cash; shareholders will not be charged by The Reserve
Funds to use an ATM, but may be charged a surcharge by the ATM owner.
EXCHANGE PRIVILEGE. Investors can exchange all or some of the shares offered for
shares in other Reserve money market and equity funds. Investors can request an
exchange in writing or by telephone. Be sure to read the current prospectus for
any fund into which you are exchanging. Any new account established through an
exchange will have the same privileges as an original account (provided they are
available). There is currently no fee for exchanges; however, some customers who
exchange shares of the Primary, U.S. Government, and/or U.S. Treasury Funds for
non-Reserve Fund may be charged a sales load if a sales load applies.
INDIVIDUAL RETIREMENT ACCOUNTS. Investors may use the Funds as an investment for
Individual Retirement Accounts ("IRAs"). Information regarding administration
fees and other details is available from the Funds at 800-637-1700.
RESERVE EASY ACCESS AND ON-LINE ACCESS. Easy Access is The Reserve Funds'
24-hour toll-free telephone service that lets shareholders use a touch-tone
phone for a variety of options, which include obtaining yields, account
balances, check reorders. To use it, call 800-637-1700 and follow the
instructions. Clients may also access full account activity through On-Line
Access for the previous six months on the Internet at www.reservefunds.com. You
must call The Reserve Funds to activate the Internet access.
23
<PAGE>
DIVIDENDS & TAXES
An investment in any mutual fund generally involves tax considerations. The
following discussion is intended as general information for U.S. citizens and
residents only. Because everyone's tax situation is unique, you should consult
your own tax advisor(s) with regard to the tax consequences of the purchase,
ownership or disposition of Fund shares. Any tax liabilities generated by your
transactions are your responsibility. Further, the applicable tax laws which
affect the Funds and their shareholders are subject to change and may be
retroactive.
The Funds intend to maintain their regulated investment company status for
federal income tax purposes, so that they will not be liable for federal income
taxes to the extent their taxable income and net capital gains are distributed.
However, it is possible that events could occur which could cause a Fund to
incur some U.S. taxes. Dividends and distributions are taxable to most
shareholders as ordinary income (unless an investment is in an IRA or other
tax-advantaged account) in the tax year they are declared. The tax status of any
distribution is the same regardless of how long an investor has been in a fund
and whether distributions are reinvested or taken in cash. The tax status of
dividends and distributions will be detailed in an annual tax statement from the
Funds.
Each Fund declares dividends each day the Exchange is open. Dividends are
distributed daily as additional shares to shareholder accounts except for
shareholders who elect in writing to receive cash dividends, in which case
monthly dividend checks are sent to the shareholder. Any net capital gains
realized will be distributed once a year. All dividends and capital gains
distributions, if any, are paid in the form of additional shares credited to an
investor's account at NAV unless the shareholder has requested otherwise on the
Account Application or in writing to the Funds.
Dividends paid to shareholders of the U.S. Treasury Fund are subject to federal
income tax but generally are exempt from state and local personal income taxes.
As to the state specific municipal funds and the Interstate Tax-Exempt Fund,
dividends derived from the interest earned on municipal obligations and
designated by a Fund as "exempt-interest dividends" are not subject to federal
income taxes. Any distributions of net short-term capital gains and taxable
interest income, if any, are taxable as ordinary income. Any distributions of
net realized long-term capital gains earned by the Fund are taxable to
shareholders as long-term capital gains, regardless of the length of time the
Fund's shares have been owned by the shareholder.
To the extent a Fund invests in municipal obligations issued by its respective
state or political subdivision thereof, exempt-interest dividends derived from
the interest thereon generally is not subject to state and, with respect to the
New York Tax-Exempt Fund, local personal income taxes. Shareholders of the
Florida Tax-Exempt Fund that are subject to the Florida intangibles tax will not
be required to include the value of their Fund shares in their taxable
intangible property if 90% of the Fund's investments on the annual assessment
date are obligations that would be exempt from such tax if held directly by such
shareholders, such as Florida and U.S. government obligations. The Florida
Tax-Exempt Fund will normally attempt to invest substantially all of its assets
in securities which are exempt from the Florida intangibles tax. If more than
10% the Florida Tax-Exempt Fund's portfolio consists of assets which are not
exempt on the annual assessment date, only the portion of the investment which
relates to securities issued by the U.S. and its possessions and territories
will be exempt from the Florida intangibles tax, and the remaining portions of
those shares will be fully subject to the intangibles tax, even if they partly
relate to Florida tax-exempt securities. Shareholders of the Pennsylvania
Tax-Exempt Fund that are subject to the Pennsylvania personal property tax will
not be taxed on distributions derived from interest on exempt obligations, such
as Pennsylvania or U.S. government obligations. The tax status of dividends and
distributions will be detailed in annual tax statements from the Funds.
24
<PAGE>
DIVIDENDS & TAXES
BACKUP WITHHOLDING. As with all mutual funds, a Fund may be required to withhold
U.S. federal income tax at the rate of 31% of all taxable distributions payable
to certain shareholders who fail to provide a Fund with their correct taxpayer
identification number ("TIN") or to make required certifications, or who have
been notified by the Internal Revenue Service that they are subject to backup
withholding. However, special rules apply for certain accounts. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. federal income tax liability. Shareholders should
be aware that a Fund may be fined $50 annually by the IRS for each account for
which a certified TIN is not provided or is incorrect. In the event that such a
fine is imposed with respect to an account in any year, a corresponding charge
will be made against the account.
25
<PAGE>
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
beneficial interest outstanding of each Fund for the periods as indicated.
"Total Return" shows how much an investment in a series would have increased (or
decreased) during each period, assuming reinvestment of all dividends and
distributions, if any. These figures have been audited by PricewaterhouseCoopers
LLP, the Funds' independent accountants, whose report, along with each Funds'
financial statements, is included in the Funds' Annual Report, which is
available upon request by calling 800-637-1700.
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PRIMARY FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment
operations............. .0492 .0438 .0483 .0457 .0490
Less dividends from net
investment income...... (.0492) (.0438) (.0483) (.0457) (.0490)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 4.92% 4.38% 4.83% 4.57% 4.90%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $4,355.9 $3,330.1 $2,707.6 $2,104.1 $1,664.1
Ratio of expenses to
average net assets..... 1.00% 1.00% .94% .98% .98%
Ratio of net investment
income to average net
assets................. 4.74% 4.26% 4.71% 4.47% 4.79%
U.S. GOVERNMENT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment
operations............. .0471 .0426 .0471 .0449 .0484
Less dividends from net
investment income...... (.0471) (.0426) (.0471) (.0449) (.0484)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 4.71% 4.26% 4.71% 4.49% 4.84%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 667.7 $ 716.2 $ 652.5 $ 611.8 $ 568.5
Ratio of expenses to
average net assets..... 1.00% 1.00% .99% .99% 1.00%
Ratio of net investment
income to average net
assets................. 4.12% 4.16% 4.63% 4.40% 4.75%
</TABLE>
26
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. TREASURY FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment
operations............. .0443 .0410 .0456 .0443 .0466
Less dividends from net
investment income...... (.0443) (.0410) (.0456) (.0443) (.0466)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 4.43% 4.10% 4.56% 4.43% 4.66%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 397.2 $ 286.7 $ 239.8 $ 169.2 $ 142.8
Ratio of expenses to
average net assets
(c).................... 1.00% 1.00% .97% .97% .99%
Ratio of net investment
income to average net
assets (c)............. 4.12% 3.76% 4.26% 4.13% 4.33%
INTERSTATE TAX-EXEMPT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income
from investment
operations............. .0267 .0242 .0279 .0256 .0285
Less dividends from net
investment income...... (.0267) (.0242) (.0279) (.0256) (.0285)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 2.67% 2.42% 2.79% 2.56% 2.85%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 271.9 $ 292.6 $ 352.9 $ 306.2 $ 292.1
Ratio of expenses to
average net assets..... 1.00% 1.00% .97% 1.04% 1.04%
Ratio of net investment
income to average net
assets................. 2.60% 2.38% 2.75% 2.52% 2.80%
NEW YORK TAX-EXEMPT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income.... .0258 .0222 .0268 .0247 .0276
Dividends from net
investment income...... (.0258) (.0222) (.0268) (.0247) (.0276)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 2.58% 2.22% 2.68% 2.47% 2.76%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 228.4 $ 186.0 $ 171.2 $ 153.2 $ 125.5
Ratio of expenses to
average net assets..... 1.00% 1.00% .94% 1.04% 1.04%
Ratio of net investment
income to average net
assets................. 2.55% 2.19% 2.63% 2.43% 2.72%
</TABLE>
27
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MAY 31, 2000(A)
---------------
<S> <C>
CALIFORNIA II TAX-EXEMPT FUND
------------------------------------------------
Net asset value, beginning of period.............. $1.0000
-------
Net investment income............................. .0208
Dividends from net investment income.............. (.0208)
-------
Net asset value, end of period.................... $1.0000
=======
Total Return...................................... 2.27%(b)
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------
Net assets end of period (millions)............... $ 91.4
Ratio of expenses to average net assets........... 1.00%(b)(c)
Ratio of net investment income to average net
assets.......................................... 2.27%(b)(c)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONNECTICUT TAX-EXEMPT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income.... .0248 .0221 .0267 .0243 .0266
Dividends from net
investment income...... (.0248) (.0221) (.0267) (0243) (.0266)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 2.48% 2.21% 2.67% 2.43% 2.66%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 51.1 $ 55.4 $ 36.8 $ 33.5 $ 34.8
Ratio of expenses to
average net assets..... 1.00% 1.00% .89% .97% 1.01%
Ratio of net investment
income to average net
assets................. 2.42% 2.17% 2.64% 2.39% 2.61%
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
--------------------------------------
2000 1999 1998 1997(D)
---- ---- ---- -------
<S> <C> <C> <C> <C>
FLORIDA TAX-EXEMPT FUND
------------------------------
Net asset value, beginning of
year........................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- --------
Net investment income......... .0272 .0237 .0269 .0228
Dividends from net investment
income...................... (.0272) (.0237) (.0269) (.0228)
-------- -------- -------- --------
Net asset value, end of
year........................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ========
Total Return.................. 2.72% 2.37% 2.69% 2.42%(b)
RATIOS/SUPPLEMENTAL DATA
------------------------------
Net assets end of year
(millions).................. $ 28.9 $ 22.6 $ 10.8 $ 4.1
Ratio of expenses to average
net assets.................. 1.00% 1.00% .94% 1.04%(b)
Ratio of net investment income
to average net assets....... 2.68% 2.30% 2.62% 2.39%(b)
</TABLE>
28
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MASSACHUSETTS TAX-EXEMPT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income.... .0256 .0220 .0284 .0259 .0276
Dividends from net
investment income...... (.0256) (.0220) (.0284) (.0259) (.0276)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 2.56% 2.20% 2.84% 2.59% 2.76%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 16.1 $ 19.9 $ 25.4 $ 13.0 $ 9.0
Ratio of expenses to
average net assets..... 1.00% 1.00% .75% .83%(c) .90%(c)
Ratio of net investment
income to average net
assets................. 2.55% 2.17% 2.78% 2.54%(c) 2.66%(c)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MAY 31,
------------------
2000 1999(E)
---- -------
<S> <C> <C>
MICHIGAN TAX-EXEMPT FUND
----------------------------------------
Net asset value, beginning of period.... $ 1.0000 $ 1.0000
-------- --------
Net investment income................... .0263 .0118
Dividends from net investment income.... (.0263) (.0118)
-------- --------
Net asset value, end of period.......... $ 1.0000 $ 1.0000
======== ========
Total Return............................ 2.63% 2.55%(b)
RATIOS/SUPPLEMENTAL DATA
----------------------------------------
Net assets end of period (millions)..... $ 2.2 $ 1.2
Ratio of expenses to average net
assets................................ 1.00% 1.00%(b)(c)
Ratio of net investment income to
average net assets.................... 2.60% 2.02%(b)(c)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NEW JERSEY TAX-EXEMPT FUND
-------------------------
Net asset value,
beginning of year...... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income.... .0249 .0223 .0254 .0236 .0263
Dividends from net
investment income...... (.0249) (.0223) (.0254) (.0236) (.0263)
-------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total Return............. 2.49% 2.23% 2.54% 2.36% 2.63%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 44.4 $ 41.3 $ 37.6 $ 39.5 $ 41.0
Ratio of expenses to
average net assets..... 1.05% 1.00% .99% 1.06% 1.04%
Ratio of net investment
income to average net
assets................. 2.46% 2.17% 2.50% 2.33% 2.59%
</TABLE>
29
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
----------------------------
2000 1999 1998(F)
---- ---- -------
<S> <C> <C> <C>
OHIO TAX-EXEMPT FUND
-----------------------------------
Net asset value, beginning of
year............................. $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- --------
Net investment income.............. .0256 .0236 .0048
Dividends from net investment
income........................... (.0256) (.0236) (.0048)
-------- -------- --------
Net asset value, end of year....... $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ========
Total Return....................... 2.56% 2.36% 2.87%(b)
RATIOS/SUPPLEMENTAL DATA
-----------------------------------
Net assets end of year
(millions)....................... $ 8.9 $ 1.2 $ 2.5
Ratio of expenses to average net
assets........................... 1.00% 1.00%(c) 1.00%(b)
Ratio of net investment income to
average net assets............... 2.95% 2.16%(c) 2.86%(b)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
----------------------------
2000 1999 1998(G)
---- ---- -------
<S> <C> <C> <C>
PENNSYLVANIA TAX-EXEMPT FUND
-----------------------------------
Net asset value, beginning of
year............................. $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- --------
Net investment income.............. .0276 .0234 .0189
Dividends from net investment
income........................... (.0276) (.0234) (.0189)
-------- -------- --------
Net asset value, end of year....... $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ========
Total Return....................... 2.76% 2.34% 2.64%(b)
RATIOS/SUPPLEMENTAL DATA
-----------------------------------
Net assets end of year
(millions)....................... $ 21.1 $ 16.9 $ 13.2
Ratio of expenses to average net
assets........................... 1.00% 1.00% 1.00%(b)
Ratio of net investment income to
average net assets............... 2.73% 2.28% 2.62%(b)
</TABLE>
30
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MAY 31, 2000(H)
---------------
<S> <C>
VIRGINIA TAX-EXEMPT FUND
------------------------------------------------
Net asset value, beginning of period.............. $ 1.0000
--------
Net investment income............................. .0075
Dividends from net investment income.............. (.0075)
--------
Net asset value, end of period.................... $ 1.0000
========
Total Return...................................... 3.08%(b)
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------
Net assets end of period (millions)............... $ 2.1
Ratio of expenses to average net assets........... 1.01%(b)(c)
Ratio of net investment income to average net
assets.......................................... 3.19%(b)(c)
</TABLE>
---------------------
(a) From July 2, 1999 (Commencement of Operations) to May 31, 2000.
(b) Annualized.
(c) Due to the voluntary waiver of certain expenses by RMCI for certain funds,
the net expense ratios and net investment income amounted to:
<TABLE>
<CAPTION>
NET
FISCAL EXPENSE INVESTMENT
FUND YEAR RATIO INCOME
---- -------- -------- ----------
<S> <C> <C> <C>
U.S. Treasury Fund................ 2000 .86% 4.26%
1999 .77 3.99
1998 .77 4.46
1997 .77 4.33
1996 .79 4.53
California II..................... 2000 96 2.31
Massachusetts..................... 1997 .79 2.58
1996 .84 2.71
Michigan.......................... 1999 .49 2.53
Ohio.............................. 1999 .83 2.32
Virginia.......................... 2000 .97 3.23
</TABLE>
(d) From June 24, 1996 (Commencement of Operations) to May 31, 1997.
(e) From December 14, 1998 (Commencement of Operations) to May 31, 1999.
(f) From April 1, 1998 (Commencement of Operations) to May 31, 1998.
(g) From September 12, 1997 (Commencement of Operations) to May 31, 1998.
(h) From March 3, 2000 (Commencement of Operations) to May 31, 2000.
---------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
---------------
31
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
This Prospectus contains the information about each Fund, which a prospective
investor should know before investing.
The Statement of Additional Information ("SAI") contains additional and more
detailed information about the Funds, and is considered part of this
Prospectus. Our Annual and Semi-Annual Reports list the holdings in each
Fund, describe Fund performance, include financial statements for the Funds,
and discuss market conditions and strategies that significantly affected the
Funds' performance.
These documents may be obtained without charge by writing or calling The
Reserve Funds at 800-637-1700. You can download the documents from the Edgar
database of the SEC's web site (http://www.sec.gov) or you can obtain copies
by visiting the SEC's Public Reference Room in Washington, DC
(1-202-942-8090) or by electronic mail request at [email protected] or by
sending your request and duplicating fee to the SEC's Public Reference
Section, Washington, DC 20549-6009.
INVESTORS ARE ADVISED TO READ AND RETAIN
THIS PROSPECTUS FOR FUTURE REFERENCE.
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H&R BLOCK
financial advisors
H&R BLOCK FINANCIAL ADVISORS, INC.
751 GRISWOLD STREET, DETROIT, MI 48226-3274
MEMBER NYSE & SIPC
Distributor -- Resrv Partners, Inc.
HRCOMBO 07/00
SEC File Number
The Reserve Fund
811-2033
Reserve Tax-Exempt Trust
811-3696
Reserve New York Tax-Exempt Trust
811-3814
[H&R BLOCK LOGO]
H&R BLOCK
financial advisors
MONEY MARKET FUNDS
OFFERED BY THE RESERVE FUNDS
Primary Fund
U.S. Government Fund
U.S. Treasury Fund
Interstate Tax-Exempt Fund
California II Tax-Exempt Fund
Connecticut Tax-Exempt Fund
Florida Tax-Exempt Fund
Massachusetts Tax-Exempt Fund
Michigan Tax-Exempt Fund
New Jersey Tax-Exempt Fund
New York Tax-Exempt Fund
Ohio Tax-Exempt Fund
Pennsylvania Tax-Exempt Fund
Virginia Tax-Exempt Fund
Prospectus
July 31, 2000
