<Page>
As filed with the Securities and Exchange Commission on February 24, 2006
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
THE RESERVE FUND
RESERVE TAX-EXEMPT TRUST
RESERVE NEW YORK TAX-EXEMPT TRUST
RESERVE MUNICIPAL MONEY-MARKET TRUST
RESERVE SHORT-TERM INVESTMENT TRUST
HALLMARK EQUITY SERIES TRUST
HALLMARK INVESTMENT SERIES TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<Page>
THE RESERVE FUND
Primary Fund
Primary II Fund
U.S. Government Fund
U.S. Treasury Fund
Reserve Liquid Performance Money Market Fund
RESERVE TAX-EXEMPT TRUST
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
Ohio Tax-Exempt Fund
Pennsylvania Tax-Exempt Fund
Virginia Tax-Exempt Fund
RESERVE NEW YORK TAX-EXEMPT TRUST
New York Tax-Exempt Fund
RESERVE MUNICIPAL MONEY-MARKET TRUST
Louisiana Municipal Money-Market Fund
Minnesota Municipal Money-Market Fund
RESERVE SHORT-TERM INVESTMENT TRUST
Reserve Yield Plus Fund
HALLMARK EQUITY SERIES TRUST
Hallmark Capital Appreciation Fund
Hallmark Informed Investors Growth Fund
Hallmark International Equity Fund
Hallmark International Small-Cap Fund
Hallmark Large-Cap Growth Fund
Hallmark Mid-Cap Growth Fund
Hallmark Small-Cap Growth Fund
Hallmark Strategic Growth Fund
HALLMARK INVESTMENT SERIES TRUST
Hallmark First Mutual Fund
Hallmark Total Return Bond Fund
Hallmark Convertible Securities Fund
<Page>
[LETTERHEAD]
[RESERVE]
1250 BROADWAY
NEW YORK, NY 10001-3701
Dear Shareholder:
We are pleased to enclose a Joint Proxy Statement and notice for the Special
Meeting of Shareholders of the Funds listed above (each, a "Fund" and together,
the "Funds"), which are each a series of the Trusts also listed above (the
"Trusts"), to be held on ______________, 2006 (the "Meeting") at the offices of
the Funds' investment adviser, Reserve Management Company, Inc. ("RMCI"), at
1250 Broadway, New York, NY 10001-3701. Shareholders who cannot attend this
Meeting are strongly encouraged to vote by proxy. The enclosed proxy materials
contain information you should read carefully regarding several important
proposals affecting your Fund.
These proposals are made in connection with the solicitation of proxies by the
Board of Trustees of the Trusts (the "Board," and members of the Board will be
referred to as "Trustees") for use at the Meeting. The Trustees, including a
majority of the independent Trustees, have reviewed the proposals and concluded
they are in the best interests of the Funds and their shareholders. They
recommend that you vote FOR each Trustee nominee and FOR each of the proposals,
which are described in more detail in the enclosed Joint Proxy Statement.
The attached Joint Proxy Statement describes the voting process for
shareholders. We urge you to read it carefully and vote in favor of each Trustee
nominee and of all the proposals. If you have any questions before you vote,
please call RMCI by calling ____________________ at __________. We will provide
you with the answers that you need promptly.
Your vote is important regardless of the number of shares you own and will only
take a brief moment of your time. Not completing the proxy impedes the ability
of the Funds in acting on these important matters and in the opinion of the
independent Trustees is not in your best interests.
The Funds have retained _______________, a professional proxy solicitation firm,
to assist shareholders in the voting process. As the date of the Meeting
approaches, if we have not already heard from you, you may receive a telephone
call from ________________________ reminding you to exercise your right to vote.
However, if you have any questions about the proxy material or need voting
assistance, you may also call ____________________ at _________.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
/s/ Bruce R. Bent
-----------------
Bruce R. Bent
Chairman and President
3
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[RESERVE]
1250 BROADWAY
NEW YORK, NY 10001-3701
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _____________, 2006
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Meeting") of
the funds listed below (each, a "Fund" and together, the "Funds"), which are
each a series of the Trusts also listed below (the "Trusts"), will be held on
_________________, 2006 at _______ p.m., Eastern time, at the offices of Reserve
Management Company, Inc., at 1250 Broadway, New York, NY 10001-3701. The Meeting
is being held to consider and vote on the following matters:
The following proposals are to be voted on by shareholders of record of the
specific Funds (or classes thereof) indicated in the Joint Proxy Statement:
<Table>
Proposal 1: Election of Trustees
Proposal 2: Approval of New "Comprehensive Fee" Investment Management Agreements
Proposal 3: Approval of New Distribution Plans
Proposal 4(a): Approval of the Retention of Payments Made Under the "Comprehensive Fee" Investment Management
Agreements
Proposal 4(b): Approval of the Retention of Payments Made Under Sub-Investment Management Agreements
Proposal 4(c): Approval of the Retention of Payments Made Under Distribution Plans and Distribution Agreements
Proposal 5: Approval of Proposal to Permit Adviser and Hallmark Equity Series Trust to Enter Into,
Terminate or Materially Change Agreements with Sub-Advisers, without Obtaining Shareholder
Approval on behalf of Hallmark Mid-Cap Growth Fund
Proposal 6: Approval of Amendment to Declaration of Trust
Proposal 7: Other Business
</Table>
Shareholders of record at the close of business on ______________, 2006 are
entitled to notice of, and to vote at, the Meeting. Shareholders are invited to
attend in person. If you plan to attend the Meeting, so indicate on the enclosed
proxy card and return it promptly in the enclosed envelope. Whether you will be
able to attend or not, PLEASE VOTE, SIGN AND DATE THE PROXY, AND RETURN IT
PROMPTLY so that a quorum will be present at the Meeting.
By Order of the Boards of Trustees,
/s/ Bruce R. Bent
--------------------------
Bruce R. Bent
Chairman and President
on behalf of The Reserve Fund, Reserve Tax-Exempt
Trust, Reserve New York Tax-Exempt Trust, Reserve
Municipal Money-Market Trust, Hallmark
Investment Series Trust
/s/ Amy W. Bizar
--------------------------
Amy W. Bizar
Secretary and General Counsel
on behalf of Hallmark Equity Series Trust
1
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JOINT PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON _____________, 2006
This Joint Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of each of the Trusts listed above (the
"Board," and members of the Board will be referred to as "Trustees") for use at
the Special Meeting of Shareholders of the Trusts (the "Meeting") to be held on
_______________, 2006 at _______ p.m., Eastern time, at the offices of the
Funds' investment adviser, Reserve Management Company, Inc. ("RMCI" or
"Adviser"), at 1250 Broadway, New York, New York 10001-3701 and at any
adjournment thereof.
This Joint Proxy Statement and the accompanying proxy cards were first mailed to
shareholders on or about __________________, 2006. The close of business on
_______________, 2006 has been fixed as the record date (the "Record Date") for
the determination of shareholders entitled to notice of and to vote at the
Meeting and any adjournments thereof.
All shares represented by the enclosed form of proxy will be voted in accordance
with the instructions indicated on the proxy if it is completed, dated, signed
and returned in time to be voted at the Meeting and is not subsequently revoked.
If the proxy is returned properly signed and dated, but no instructions are
given, the shares represented will be voted in favor of each of the proposals.
As set forth under Other Information -- Solicitation of Proxies, proxies may be
solicited in person or by telephone, telegraph, facsimile, oral communication or
electronic medium. Any proxy may be revoked by the timely submission of a
properly executed subsequent proxy, by a timely written revocation, or by an
oral revocation or vote at the Meeting prior to the finalization of the vote on
a particular proposal. Execution and submission of a proxy does not affect a
shareholder's right to attend the Meeting in person.
An abstention by a shareholder from voting on Proposals 2, 3, 4, 5 and 6, which
require the approval of a specified percentage of the outstanding shares of the
relevant Fund (or class thereof), either by proxy or in person at the Meeting,
will have the same effect as a negative vote as to that matter. An abstention
will not be counted in favor of, but will have no other effect on the vote for
Proposal 1, which requires the approval of a plurality of the shares of each
Trust. Shares that are held by a broker-dealer or other fiduciary as record
owner for the account of a beneficial owner will be counted for purposes of
determining the presence of a quorum and as votes on particular proposals if the
beneficial owner has executed and timely delivered the necessary instructions
for the record owner to attend the Meeting and vote the shares, or if the record
owner has and exercises discretionary voting power. If the record owner does not
have discretionary voting power as to a particular proposal, but grants a proxy
for the shares, those shares will be counted toward the quorum but will have the
effect of a negative vote on Proposals 2, 3, 4, 5 and 6.
The Board may seek one or more adjournments of the Meeting if necessary to
obtain a quorum or to obtain the vote required for approval of one or more
proposals. A vote may be taken at the Meeting, including any adjournment, on any
proposal for which there are sufficient votes for one Trust, Fund or class even
though the Meeting is adjourned as to that same proposal or to other proposals
for other Trusts, Funds or classes.
ALL COSTS ASSOCIATED WITH THE MEETING, INCLUDING THE EXPENSES OF PREPARING,
PRINTING AND DISTRIBUTING THE JOINT PROXY STATEMENT, AND LEGAL EXPENSES, WILL BE
BORNE BY RMCI.
RMCI, a New Jersey corporation, with its principal place of business at 1250
Broadway, New York, NY 10001-3701, serves as investment adviser for the Funds.
RMCI is an investment adviser registered under the Investment Advisers Act of
1940, as amended (the "Advisers Act"). RMCI has provided investment advice to
investment companies within the Reserve family of funds since November 15, 1971.
As of August 31, 2005, RMCI had approximately $21 billion in assets under
management. The Funds' distributor and principal underwriter, Resrv Partners,
Inc. ("Resrv"), is an affiliate of RMCI. Resrv has its principal office at 1250
Broadway, New York, New York 10001-3701.
You can obtain a copy of the Trusts' most recent Annual Reports and Semi-Annual
Reports by writing the Trusts at 1250 Broadway, New York, NY 10001 or by calling
toll-free at (800) 637-1700 or (888) 823-2867. These reports have been
previously mailed to shareholders.
2
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The proposals described in this Joint Proxy Statement and the Trusts or Funds to
which each applies are set forth below:
<Table>
<Caption>
SUMMARY OF PROPOSAL AFFECTED TRUST(S)/FUND(S)
- ----------------------------------------------------------------------------------------------------------------------------------
PROPOSAL 1: Election of Trustees All Trusts
PROPOSAL 2: Approval of New Investment All Funds
Management Agreements
PROPOSAL 3: Approval of New Distribution Plans All Funds except Hallmark First Mutual Fund, Hallmark Total Return Bond Fund and
Hallmark Convertible Securities Fund
PROPOSAL 4(a): Approval of the Retention of Primary Fund, U.S. Government Fund, U.S. Treasury Fund, Interstate Tax-Exempt
Payments Made Under Investment Management Fund, Primary Fund II, California Tax-Exempt Fund, Michigan Tax-Exempt Fund,
Agreements Ohio Tax-Exempt Fund, Hallmark International Small-Cap Fund, Hallmark Mid-Cap
Growth Fund, Hallmark Strategic Growth Fund, Louisiana Municipal Money-Market
Fund, Minnesota Municipal Money-Market Fund
PROPOSAL 4(b): Approval of the Retention of Hallmark Capital Appreciation Fund, Hallmark Small-Cap Growth Fund, Hallmark
Payments Made Under Sub-Investment Management Mid-Cap Growth Fund, Hallmark Large-Cap Growth Fund, Hallmark International
Agreements Equity Fund, Hallmark International Small Cap Fund, Hallmark Informed Investors
Growth Fund and Hallmark Strategic Growth Fund
PROPOSAL 4(c): Approval of the Retention of All Funds except Hallmark First Mutual Fund, Hallmark Total Return Bond Fund and
Payments Made Under Distribution Plans and Hallmark Convertible Securities Fund
Distribution Agreements
PROPOSAL 5: Approval of a Proposal to Permit Hallmark Mid-Cap Growth Fund
Adviser and Hallmark Equity Series Trust to
Enter Into, Terminate or Materially Amend
Agreements with Sub-Advisers on behalf of
Hallmark Mid-Cap Growth Fund Without Obtaining
Shareholder Approval
PROPOSAL 6: Approval of Amendments to Hallmark Investment Series Trust
Declaration of Trust
</Table>
Approval of Proposal 1 requires the affirmative vote of a plurality of the
shares of a Trust voting at the Meeting. Proposals 2, 3 and 4(c) each requires
the affirmative vote of a "majority of the outstanding voting securities" of
each class of each subject Fund, voting separately. Proposals 4(a) and 4(b)
require the affirmative vote of a "majority of the outstanding voting
securities" of each subject Fund, voting in the aggregate without regard to
class. Proposal 5 requires the affirmative vote of a
3
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"majority of the outstanding voting securities" of the Hallmark Mid-Cap Growth
Fund, voting in the aggregate without regard to class. Proposal 6 requires the
affirmative vote of a majority of the shares of the Trust entitled to vote at
the Meeting.
The terms "majority of the outstanding voting securities" of a Fund (or class of
a Fund) as defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and as used in this Joint Proxy Statement, means: the
affirmative vote of the lesser of (1) 67% of the voting securities of each Fund
(or class of a Fund, as applicable) present at the meeting if more than 50% of
the outstanding shares of the Fund are present in person or by proxy or (2) more
than 50% of the outstanding shares of each Fund (or class of a Fund, as
applicable).
The following table summarizes the voting requirements for each of the
proposals:
<Table>
<Caption>
PROPOSALS SHAREHOLDERS ENTITLED TO VOTE VOTE REQUIRED FOR APPROVAL
- ---------------------------------------------------------------------------------------------------------------------------
Proposal 1 - Election of Trustees Shareholders of each Trust vote Each nominee must be elected by a
together for each nominee plurality of the Trust voting at
(shareholders of all Funds of a the Meeting
Trust vote together as a single
class)
Proposal 2 - Approval of New Shareholders of each class of each Approved by a "majority of the
"Comprehensive Fee" Investment Fund vote separately outstanding voting securities" of
Management Agreements each class of each Fund
Proposal 3 - Approval of New Shareholders of each class of each Approved by a "majority of the
Distribution Plans Fund vote separately outstanding voting securities" of
each class of each Fund
Proposal 4(a) - Approval of Retention Shareholders of each class of each Approved by a "majority of the
of Payments made under the Fund vote separately outstanding voting securities" of
"Comprehensive Fee" Investment each Fund
Management Agreement
Proposal 4(b) - Approval of Retention Shareholders of each Fund vote Approved by a "majority of the
of Payments made under the separately, without regard to class outstanding voting securities" of
Sub-Investment Management Agreements each Fund
Proposal 4(c) - Approval of Retention Shareholders of each class of each Approved by a "majority of the
of Payments made under the Fund vote separately outstanding voting securities" of
Distribution Plans and Distribution each class of each Fund
Agreements
Proposal 5 - Approval to allow Shareholders of the Fund vote Approved by a "majority of the
Adviser to enter into, terminate or separately, without regard to class outstanding voting securities" of
materially change Sub-Investment the Fund
Management Agreements on behalf of
Hallmark Mid-Cap Growth Fund without
obtaining Shareholder Approval
Proposal 6 - Approval of Amendment to Shareholders of the Trust vote Approved by a majority of the
Declaration of Trust together (shareholders of all Funds shares of the Trust entitled to
of the Trust vote together as a vote at the Meeting
single class)
</Table>
Unless otherwise stated, where an approval is being considered by more than one
Trust, Fund or class, the approval of any one Trust, Fund or class is not
contingent on the approval of any other Trust, Fund or class, and a proposal
will be implemented for a Trust, Fund or class where the requisite approval is
obtained even if one or more other Trusts, Funds or classes do not approve the
proposal.
4
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Broker "non-votes" (that is, proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owner or other
persons entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will have the same effect
as abstentions in determining whether an issue has received the requisite
approval. Where the broker or nominee has no discretion to vote the shares as to
one or more proposals before the Meeting, the non-voted shares will be excluded
from the pool of shares voted on such issues. Thus, abstentions and non-votes
will have the same effect as a negative vote on issues requiring the affirmative
vote of a specified portion of the Fund's outstanding shares, but will not be
considered votes cast and thus will have no effect on matters requiring approval
of a specified percentage of votes cast. In the event that at the time any
session of the Meeting is called to order a quorum is not present in person or
by proxy, the persons named as proxies may vote those proxies that have been
received to adjourn the Meeting to a later date. In the event that a quorum is
present but sufficient votes in favor of any of the proposals set forth in the
Notice of Meeting have not been received, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitations
of proxies with respect to those items. Any such adjournment will require the
affirmative vote of a majority of the shares present in person or by proxy at
the session of the Meeting to be adjourned. The persons named as proxy holders
will vote those proxies that they are entitled to vote for any such item in
favor of such an adjournment, and will vote those proxies required to be voted
against any such item against any such adjournment. A shareholder vote may be
taken on one or more of the items in this Joint Proxy Statement prior to such
adjournment if sufficient votes for its approval have been received and it is
otherwise appropriate.
The Board knows of no business other than that specifically mentioned in the
Notice of Special Meeting of Shareholders that will be presented for
consideration at the Meeting. If other business should properly come before the
Meeting, the proxy holders will vote thereon in accordance with their best
judgment.
Holders of record of the shares of beneficial interest of each Fund at the close
of business on ________________, 2006 (the "Record Date"), as to any matter on
which they are entitled to vote, will be entitled to one vote per share (all
Funds except Hallmark Equity Series Trust ("HEST") which will be entitled to one
vote per $1.00 of net asset value on all business of the Meeting). The table in
Exhibit A sets forth the number of shares for each Fund as of ___________, 2006.
Exhibit B attached hereto sets forth information as of _________, 2006 regarding
the persons known by each Fund to beneficially own more than 5% of the
outstanding shares of each class of such Fund.
5
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BACKGROUND
LEGAL AND REGULATORY STRUCTURE
The Investment Company Act vests special responsibilities with the trustees of a
fund for reviewing fund contracts and distribution plans and for compliance with
certain exemptive rules. Section 15 of the Investment Company Act requires a
fund's investment management agreement to be approved initially by both (i) the
fund's board (including a majority of its trustees who are not "interested
persons" of the fund (as defined in the Investment Company Act)) and (ii) the
fund's shareholders. Each agreement may have an initial term of two years, but
must be approved annually thereafter at an in-person meeting by a majority of
the board, including a majority of its independent trustees. In the event that a
properly constituted board fails to approve a fund's investment management
agreement initially, and at least annually, the agreement will automatically
lapse. As a result, the fund would no longer have a valid management agreement
and must arrange for a new agreement to be adopted by the board and
shareholders, as required by Section 15.
The Investment Company Act contains specific rules concerning the composition of
a fund's board of trustees. Section 10(a) requires that at least 40% of the
trustees be persons who are not "interested persons" (as defined in Section
2(a)(19) of the Investment Company Act) of the fund. (This proxy refers to
trustees who are not "interested persons" as "Independent Trustees.") However, a
higher percentage of Independent Trustees is required if a fund wishes to use a
principal underwriter that is an affiliated person of the fund. Section 10(b)(2)
of the Investment Company Act prohibits a fund from entering into or renewing a
distribution agreement with an affiliated entity unless the board has a majority
of Independent Trustees. Resrv Partners, Inc., the Trust's principal
underwriter, is an affiliated person of the Trusts. In addition, Rule 12b-1
under the Investment Company Act requires that a board have a majority of
Independent Trustees "who have no direct or indirect interest in the operation
of the plan or in any agreements related to the plan" in order to approve a plan
of distribution and related agreements, as well as to renew the plans and
agreements annually. Under a Rule 12b-1 plan of distribution, fund assets may be
used to facilitate distribution of fund shares and pay for other shareholder
services. If a fund board that is properly constituted with Independent Trustees
who do not have an interest in the plan fails to approve the plan of
distribution, the distribution plan automatically terminates.
A majority of Independent Trustees is also required to utilize certain exemptive
rules on which funds typically rely and on which the Trusts have relied.
Recently, the Securities and Exchange Commission (the "SEC") amended certain
exemptive rules to require that funds that rely on these rules are governed by
boards having at least 75% of their members consisting of Independent Trustees.
As discussed below, a majority of Independent Trustees is also required under an
exemptive order affecting certain Funds sub-investment management agreements.
INFORMATION ABOUT THE FUNDS' MANAGEMENT AGREEMENTS, DISTRIBUTION AGREEMENTS AND
DISTRIBUTION PLANS
In the course of preparing documents for a new fund, management became aware
that two trustees it believed qualified as Independent Trustees, based on advice
from prior outside counsel, were, in fact, not independent. Both of these
persons were directors of different companies that sold shares of one or more
Reserve funds and, as a result, were technically "interested persons" of the
Trusts under Section 2(a)(19) of the Investment Company Act. This conclusion was
promptly confirmed by counsel.
Management immediately undertook a thorough review, with the assistance of
counsel, to ascertain whether the reclassification of these Trustees as
"interested persons" resulted in the Board of Trustees of any Reserve and
Hallmark fund not being properly constituted, and if so, what impact this error
had on the Funds.
Management determined that, except for the Louisiana Municipal Money-Market Fund
and the Minnesota Municipal Money-Market Fund, each relevant Board met the
applicable requirements at the time each "Comprehensive Fee" Investment
Management Agreement was initially approved and annually renewed. For the
Louisiana Municipal Money-Market Fund and the Minnesota Municipal Money-Market
Fund, the "Comprehensive Fee" Investment Management Agreements were never
properly approved in accordance with Section 15 of the Investment Company Act.
In addition, in conducting its review, management discovered that initial Board
approval of "Comprehensive Fee" Investment Management Agreements for certain
other Funds or share classes was not obtained. In order to assure that all
required approvals are properly and completely documented, these agreements have
been treated as having not been properly approved.
Board composition also had implications for the sub-investment management
agreements for various Hallmark funds ("Previous Sub-Investment Management
Agreements"). The Trusts have obtained exemptive relief (the "Exemption") from
the SEC to permit a Trust's Board to appoint a sub-investment adviser without
shareholder approval, provided certain
6
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conditions are met. One of those conditions is that a majority of the Board that
approves a sub-investment management agreement or amendment be Independent
Trustees. Beginning on March 22, 2000, the Board of the Hallmark Equity Series
Trust (the "Hallmark Fund") failed to meet this requirement. Consequently, from
that date until March 22, 2005, all approvals of new sub-investment management
agreements or amendments (except in those cases where shareholder approval was
obtained) failed to comply with the Exemption and, thus, the agreements
terminated or were not properly entered into. In addition, the failure of the
Board to be properly composed meant that, beginning on March 22, 2000, the
Funds' distribution agreements and Rule 12b-1 plans were not properly approved
or had lapsed.
Finally, the failure to have a majority of Independent Trustees affected the
Funds' ability to rely on various exemptive rules under the Investment Company
Act.
AT ALL TIMES, BOTH MANAGEMENT AND THE TRUSTEES BELIEVED THAT THE BOARDS WERE
COMPOSED IN A WAY THAT MET APPLICABLE REGULATORY REQUIREMENTS AND THAT
COMPREHENSIVE FEE INVESTMENT MANAGEMENT AGREEMENTS, SUB-INVESTMENT MANAGEMENT
AGREEMENTS, DISTRIBUTION AGREEMENTS AND RULE 12b-1 PLANS AND TRANSACTIONS
PURSUANT TO EXEMPTIVE RULES HAD BEEN APPROVED AND, IF APPLICABLE, RENEWED IN THE
MANNER REQUIRED BY THE INVESTMENT COMPANY ACT.
BOARD ACTIONS
Once management had reached preliminary conclusions concerning the impact of the
failure of the Trusts' Boards to be properly composed, it notified the Board of
each Trust, the Trusts' independent auditors and the SEC. A Board meeting was
held on March 22, 2005, at which management presented the Boards with a
memorandum outlining the nature of the problem and the recommended corrective
steps. Immediately prior to that meeting, certain Trustees resigned so that the
remaining Independent Trustees represented a majority of each Board. At
management's recommendation, the Independent Trustees retained their own counsel
to assist them in reviewing and approving any course of action. Management of
RMCI assured the Boards that the costs of correcting this problem, including the
costs of any proxy solicitation related to this problem, would be borne by RMCI
or its affiliates, and not by the Trusts.
An in-person meeting was held on June 30, 2005 to consider various corrective
actions to be taken to address the effects of the Board composition matters. The
Independent Trustees were advised by separate independent counsel throughout
this meeting.
At the meeting, the Boards ratified all actions improperly taken in reliance on
exemptive rules and the Exemption. In doing so, the Trustees recognized that the
actions had previously been approved at a time when the Boards and management
believed that the Boards were composed in the manner required by the Investment
Company Act and that no subsequent information caused them to think that those
actions were not appropriate and consistent in all material respects with
applicable legal requirements.
At the June 30, 2005 meeting, the Boards, including a majority of Independent
Trustees, also approved new distribution agreements ("New Distribution
Agreements") for all Trusts (except the Hallmark Investment Series Trust, the
distribution agreement for which had not terminated). The New Distribution
Agreements were substantially identical to the agreements that had inadvertently
terminated. The New Distribution Agreements do not require shareholder approval.
The Board of Hallmark Equity Series Trust, including a majority of Independent
Trustees, approved new sub-investment management agreements (the "New
Sub-Investment Management Agreements") for each relevant Fund on substantially
the same terms as the terminated agreements. Pursuant to the Exemption, the New
Sub-Investment Management Agreements need not be presented to shareholders for
ratification or approval.
The Boards, including a majority of Independent Trustees, also approved new
"Comprehensive Fee" Investment Management Agreements with RMCI to replace those
that had lapsed or not been properly approved initially (as described in
Proposal 2) and new Rule 12b-1 Plans for affected Funds and classes (as
described in Proposal 3). The new agreements and plans are substantially
identical to the previous agreements and plans, including the amounts to be paid
by the Funds and the services to be provided thereunder. Finally, the Boards
considered and approved the retention of fees paid or payable under lapsed or
improperly approved comprehensive fee investment management, sub-investment
management and distribution agreements and Rule 12b-1 plans (Proposals 4(a), (b)
and (c)). The reasons supporting the Boards' approval of these matters are more
fully set forth under the relevant proposals.
The Boards then directed that a meeting of shareholders be called to consider
the new "Comprehensive Fee" Investment Management Agreements and Rule 12b-1
Plans for affected Funds and classes and to consider the ratification of the
Boards'
7
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approval of the retention of payments made under lapsed or improperly approved
agreements and Plans to RMCI, Resrv and all sub-investment managers.
Notwithstanding its good faith belief that the Trusts' Boards had at all times
met applicable regulatory requirements, RMCI agreed that it or its affiliates
would bear all costs associated with this proxy solicitation.
PROPOSAL 1 - ELECTION OF TRUSTEES: ALL TRUSTS
In order to conform the size and composition of all Boards and to ensure that at
least 75% of the members of the Board are Independent Trustees, it is proposed,
and each Board recommends, that shareholders elect the nominees listed below
(the "Trustee Nominees"), three of whom - Messrs. Bent, Ehlert and Montgoris -
are currently Trustees of each Trust. The same group of individuals will serve
as Trustees for each of the Trusts.
If elected, the terms of the six Trustee Nominees will begin on the date of the
Meeting or, in the event of an adjournment or adjournments of the Meeting, such
later date as shareholder approval is obtained. It is also anticipated that Mr.
Bruce R. Bent will remain Chairman of the Board of each Trust if Proposal 1 is
approved, until any successor is elected.
The Trustee Nominees have had distinguished careers in finance, marketing and
other areas and will bring a wide range of expertise to the Boards. Five of the
nominees, if elected, would be Trustees who are Independent Trustees. Mr. Bent
is an interested Trustee. Independent Trustees are charged with special
responsibilities to provide an independent check on management and to approve
advisory, distribution and similar agreements for the Trusts. If the Trustee
Nominees are not elected, Messrs. Bent, Ehlert and Montgoris will continue to
serve as Trustees and the Board will consider what additional action, if any, is
appropriate based on the interests of the Trusts' shareholders.
Each of the Trustee Nominees has agreed to serve if elected at the Meeting. It
is the intention of the persons designated as proxy holders in the Proxy, unless
otherwise directed therein, to vote at the Meeting FOR the election of the
Trustee Nominees named below. If any Trustee Nominee is unable or unavailable to
serve, the persons named in the Proxy will vote the subject shares for such
other person(s) as the Board may recommend. Proxies that do not contain specific
instructions to the contrary will be voted in favor of the election of each of
the nominees shown below.
The following table sets forth certain information concerning the Trustee
Nominees.
INTERESTED TRUSTEE NOMINEE
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION(S) TERM OF OFFICE* FUND COMPLEX
HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
NAME, ADDRESS AND AGE TRUSTS TIME SERVED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
- ------------------------- -------------- ---------------- ------------------------ ---------------- -----------------------
Bruce R. Bent+** Chairman, Trustee since President of RMCI, 30 None
Age: 68 Trustee, inception Director and
Reserve Management President, Chairman/Chief
Company, Inc. Treasurer and Chairman since Executive Officer of
1250 Broadway Chief 2000 Reserve Management
New York, NY 10001 Financial Corporation ("RMC") and
Officer President, Chairman and Director
Treasurer and of Resrv since 2000;
Chief Financial Chairman and Director
Officer since of Reserve International
2005 Liquidity Fund Ltd.
since 1990.
Former Chief Executive
Officer of the Trusts.
Co-founder of The
Reserve Fund.
William E. Viklund Trustee N/A Retired since 30 None
Age: _____ Nominee 1996; Trustee prior to
110 Grist Mill Lane May 12, 2005.
Plandome Manor, NY 11030
</Table>
INDEPENDENT TRUSTEE NOMINEES
8
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION(S) TERM OF OFFICE* FUND COMPLEX
HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
NAME, ADDRESS AND AGE TRUSTS TIME SERVED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
- ------------------------- -------------- ---------------- ------------------------ ---------------- -----------------------
Joseph D. Donnelly Trustee Trustee of Retired; Managing 1 None
Age: 58 Nominee of Reserve Director and General
5 Beacon Boulevard Trusts; Short-Term Counsel to the Pershing
Sea Girt, NJ 08750 Trustee of Investment Division of Donaldson,
Reserve Trust since 2005 Lufkin and Jenrette
Short-Term Securities Corporation
Investment from 1984 to 2002;
Trust Member of Pershing
Executive Committee
from 1986 to 2002.
Co-chair of Pershing
Credit Policy
Committee from 1986 to
2002.
Edwin Ehlert, Jr. Trustee Trustee of all Retired. President, 30 None
Age: 74 Trusts since Premier Resources, Inc.
2517 Highway #35, Bldg. J inception (meeting management
Manasquan, NJ 08736 firm) since 1987.
William J. Montgoris Trustee Trustee of all Chief Operating Officer 30 Stage Stores, Inc.
Age: 58 Trusts since of The Bear Stearns (retailing)
286 Gregory Road 1999 Companies, Inc. from
Franklin Lakes, NJ 07417 1979 to 1999; Retired
since 1999.
James P. Pellow Trustee N/A Executive Vice N/A SAVVIS
Age: 44 Nominee President and Chief Communications
232 Highbrook Avenue Operating Officer of Corp. and
Pelham, New York 10803 St. John's University Centennial
since 2000. Communications
Frank J. Stalzer Trustee Trustee of Vice President and 1 None
Age: 48 Nominee Reserve General Manager of
5 Meadowridge Drive Short-Term Arrow/Zeus since 2004;
New Fairfield, CT 06812 Investment Vice President of
Trust since 2005 Marketing for Arrow/Zeus
from 2002 to 2004; Vice
President of Sales for
Arrow/Zeus from 2000
to 2002; Regional Vice
President of
Arrow/Richey from 1999
to 2000.
Ronald J. Artinian Trustee N/A National Sales Manager N/A First Real Estate
Age: 57 Nominee T.F.I, Executive V.P., Investment Trust
5 Bristol Drive Senior Managing of New Jersey
Manhasset, NY 11030 Director for Smith
Barney from 1989-1998;
Private Investor from
1998 to Present.
Santa Albicocco Trustee N/A Treasurer - County of N/A None
Age: 55 Nominee Nassau, NY from 1993 to
31 Derby Court 2000; Board Member of
Oyster Bay, NY 11771 the New York State
Banking Board from
1998 to 2004; Deputy
County Executive for
Finance - County of
Nassau, NY
</Table>
9
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION(S) TERM OF OFFICE* FUND COMPLEX
HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS
NAME, ADDRESS AND AGE TRUSTS TIME SERVED DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE
- ------------------------- -------------- ---------------- ------------------------ ---------------- -----------------------
from 2000 to 2001;
Deputy Director, Interim
Finance Authority -
County of Nassau, NY
from 1981 to Present.
<Caption>
TERM OF OFFICE*
POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH TRUST TIME SERVED DURING PAST 5 YEARS
- ------------------------- ----------------- ------------------------ ----------------------------------------------
OFFICERS:
Arthur T. Bent III+ Co-Chief Senior Vice Chief Operating Officer, Treasurer,
Age: 37 Executive President and Senior Vice President and Assistant
1250 Broadway Officer, Senior Assistant Secretary of RMCI; President, Treasurer
New York, NY 10001 Vice President Secretary since and Assistant Secretary of RMC;
and Assistant 2000 Treasurer, Assistant Secretary and
Secretary Director of Resrv since 2000; Vice
Co-Chief President RMC, RMCI and Resrv from 1997
Executive Officer to 2000; Vice President RMC, RMCI and
since 2005. Resrv from 1997 to 2000.
Former Treasurer and Chief Financial
Officer of the Trusts
Bruce R. Bent II+ Co-Chief Assistant Senior Vice President, Secretary and
Age: 38 Executive Treasurer Since Assistant Treasurer of RMCI; Senior Vice
1250 Broadway Officer, Senior 2000 Co-Chief President, Secretary and Assistant
New York, NY 10001 Vice President Executive Officer Treasurer of RMC; and Secretary,
and Assistant and Senior Vice Assistant Treasurer and Director of Resrv
Treasurer President since since 2000; Vice President of RMC, RMCI
2005. and Resrv from 1992 to 2000; Former
Trustee of Trusts in the Reserve/Hallmark
complex.
Former President of the Trusts.
Amy W. Bizar Secretary and Since 2003 Vice President and Senior Counsel,
Age: 59 General Counsel Banking and Regulatory Affairs, GE
1250 Broadway Consumer Finance - Americas, from 1998 to
New York, NY 10001 2003.
</Table>
- ----------
* Each Trustee shall hold office until he resigns, is removed or until his
successor is duly elected and qualified. A Trustee shall retire upon attaining
the age of seventy-five (75) years, unless extended by a vote of the Independent
Trustees. Trustees need not be shareholders. Officers hold their positions with
the Trusts until a successor has been duly elected and qualified.
** Mr. Bruce Bent is an "interested person" of each Fund as defined in
Section 2(a) (19) of the Investment Company Act due to his positions with RMC,
RMCI and Resrv.
+ Mr. Bruce R. Bent is the father of Mr. Bruce R. Bent II and
Mr. Arthur T. Bent III.
10
<Page>
The table in Exhibit C sets forth the dollar range of equity securities
beneficially owned by each Trustee in each Fund and in all registered investment
companies in the Reserve and Hallmark funds as of July 30, 2005
As of July 30, 2005, the Independent Trustee Nominees and their immediate family
members did not own, beneficially or of record, any securities in RMCI, Resrv or
in any persons (other than a registered investment company) directly or
indirectly controlling, controlled by or under common control with RMCI.
REMUNERATION OF TRUSTEES
No employee of RMCI or Reserve or any of their affiliates receives any
compensation from a Fund for acting as an officer or Trustee of a Trust. The
Independent Trustees are paid a fee of $3,500 for each Board meeting of the
Trust that they attend in person, a fee of $1,000 for each telephonic meeting of
the Trust that they participate in, and an annual fee of $40,000 for service to
all of the Trusts in the Reserve/Hallmark family of funds. The Audit Committee
members receive an annual committee fee of $2,000 and a per meeting fee of
$1,000 for each Audit Committee meeting that is held separately from any full
Board meeting. The Trustees do not receive any pension or retirement benefits.
Mr. Montgoris receives an annual fee of $25,000 for his service as an audit
committee financial expert for the Trusts for which he serves as such.
The Compensation Table in Exhibit D provides in tabular form the following data:
Column (1) Name of each Fund from which each Trustee receives compensation.
Column (2) Aggregate compensation received by each Trustee of each Fund and
total compensation received by each Trustee from the 30 investment companies
comprising the Reserve and Hallmark fund complex (collectively, the "Fund
Complex"), in each case during the most recently completed fiscal year for each
Fund. The Trustees do not receive any pension or retirement benefits from any
Trust in the Fund Complex.
11
<Page>
BOARD COMMITTEES
AUDIT COMMITTEE
The Board has established an Audit Committee to review each Fund's compliance
procedures and practices, oversee its accounting and financial reporting
policies and practices, oversee the quality and objectivity of its financial
statements and the independent audit thereof, and appoint and approve the
compensation for the Funds' independent accountants and other issues referred to
the Audit Committee by the full Board. The Audit Committee is comprised of
Messrs. Montgoris and Ehlert, both of whom are Independent Trustees. The Audit
Committee for each Trust met two times during the Trusts' last completed fiscal
year. The Audit Committee operates pursuant to a Charter that was most recently
approved by the Board on June 30, 2005.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including with respect to auditor independence. Members
of the Audit Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent registered public accounting firm. Accordingly, the Audit
Committee's oversight does not provide an independent basis to determine that
management has maintained appropriate accounting and financial reporting
principles or appropriate internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's considerations and discussions referred to
above do not assure that the audit of the Funds' financial statements has been
carried out in accordance with generally accepted auditing standards, that the
financial statements are presented in accordance with generally accepted
accounting principles or that the Funds' independent registered public
accounting firm is in fact "independent."
At meetings held on March 22, 2005 and June 30, 2005, upon the recommendation of
the Audit Committee, a majority of the Independent Trustees selected
PricewaterhouseCoopers LLP ("PWC") as independent registered public accounting
firm for the Funds for the fiscal years ending March 31, 2005, May 31, 2005 and
June 30, 2005, as applicable. PWC has advised the Funds that, to the best of its
knowledge and belief, as of the record date, no PWC professional had any direct
or material indirect ownership interest in the Funds inconsistent with
independent professional standards pertaining to accountants.
It is expected that representatives of PWC will not be present at the Meeting,
but will be available by telephone to answer any questions that may arise.
RESIGNATION OF AUDITORS
On September 29, 2005, PricewaterhouseCoopers LLP resigned as independent
registered public accountant for the Funds. PricewaterhouseCoopers LLP was
previously engaged as the independent registered public accounting firm to audit
the Funds' financial statements.
PricewaterhouseCoopers LLP issued reports on the Funds' financial statements
for the fiscal years ending March 31, 2004 and 2005, May 31, 2004 and 2005
and June 30, 2004 and 2005, as applicable. Such reports did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope, or accounting principles.
PricewaterhouseCoopers LLP's resignation was accepted by the Funds' Audit
Committees and the Funds' Boards of Trustees.
At no time during the Funds' two most recent fiscal years preceding the
resignation of PricewaterhouseCoopers LLP were there any disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statements disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused it to make reference to the
subject matter of the disagreements in connection with its report.
The Board of Trustees has selected KPMG LLP as the independent registered
public accountant for the Funds.
AUDIT FEES
Set forth in Exhibit E is a table of all fees billed to the Trusts by PWC for
professional services rendered to the Trusts for the most recent two fiscal
years.
The Audit Committee has adopted a policy to preapprove all audit services and
permitted non-audit services to be performed for the Funds by PWC. This policy
sets forth the understanding of the Audit Committee regarding the retention of
PWC to provide (1) audit and permissible audit related, tax and other services
to the Trusts; (2) non-audit services to the Adviser, or any "control
affiliates" of such Adviser, that relate directly to the Trusts' operations and
financial reporting; and (3) certain other audit and non-audit services to the
Adviser and its control affiliates.
NOMINATING COMMITTEE
The Board has established a Nominating Committee comprised of Messrs. Montgoris
and Ehlert. The duties and functions of the Nominating Committee include (i)
recommending to the Board nominees for election as Trustees, (ii) performing
periodic evaluations of the effectiveness of the Board as a whole and individual
Trustees, (iii) reviewing and recommending to the Board policies and practices
to be followed in carrying out the Trustees' duties and responsibilities and
(iv) reviewing and making recommendations to the Board at least annually
regarding compensation of the Independent Trustees. Exhibit F contains the
Nominating Committee Charter for the Trust. During each Trust's most recent
fiscal year, the Nominating Committee met once. The Nominating Committee met on
June 30, 2005, to select the Trustee Nominees.
While the Nominating Committee is solely responsible for the selection and
nomination of the Funds' Independent Trustees, the Nominating Committee may
consider nominations for the office of Trustee made by shareholders or by
management in the same manner, as it deems appropriate. Shareholders who wish to
recommend a nominee should send nominations to the Secretary of the Funds,
include all appropriate biographical information and set forth the
qualifications of the proposed nominee. The Secretary of the Funds will forward
all nominations received to the Nominating Committee.
12
<Page>
VALUATION COMMITTEE
The Board has established a Valuation Committee comprised of Messrs. Montgoris
and Ehlert. The Valuation Committee oversees the implementation of the Funds'
valuation procedures.
FUND CLOSURE
Effective as of the close of business on October 28, 2005, Hallmark
Convertible Securities Fund closed to all new investments. Additionally,
reinvestments of dividends are no longer permitted. The Hallmark Convertible
Securities Fund will continue to process all redemption requests made by
current shareholders. The Hallmark Convertible Securities Fund took this
action because it is still in the process of completing its financial
statements for the year ended June 30, 2005 and reserves the right to resume
sales at any time.
REQUIRED VOTE
Election of each of the Trustee Nominees for a Trust requires the affirmative
vote of a plurality of the votes of that Trust cast at the Meeting in person or
by proxy. This means that the six nominees receiving the largest number of votes
will be elected.
THE BOARD OF EACH TRUST, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF EACH TRUST VOTE "FOR" THE ELECTION OF EACH
OF THE TRUSTEE NOMINEES.
PROPOSAL 2: APPROVAL OF NEW "COMPREHENSIVE FEE" INVESTMENT MANAGEMENT
AGREEMENTS: ALL FUNDS
Due to the reasons discussed above under "Background", the Board is proposing
that shareholders of the Affected Funds listed immediately above approve new
"Comprehensive Fee" Investment Management Agreements (the "New Management
Agreements") to be entered into between each affected Fund and RMCI. The
Affected Funds are: Primary Fund, Primary II Fund, U.S. Government Fund, U.S.
Treasury Fund, Interstate Tax-Exempt Fund, California Tax-Exempt Fund,
Michigan Tax-Exempt Fund, Ohio Tax-Exempt Fund, Louisiana Municipal Money
Market Fund, Minnesota Municipal Money Market Fund, Hallmark International
Small Cap Fund, Hallmark Mid-Cap Growth Fund and Hallmark Strategist Fund.
The remaining Funds (the "Unaffected Funds") are being asked to approve New
Management Agreements so that all management agreements for funds in the
Reserve/Hallmark complex contain uniform terms. A form of the New Management
Agreement is attached hereto as Exhibit G.
RMCI manages each Fund and, except for the Hallmark Funds, provides them with
day-to-day investment advisory service. For the Hallmark Funds, RMCI selects
sub-investment managers, which provide day-to-day investment advisory services,
and monitors the services provided by those sub-investment advisers. Under the
previous "Comprehensive Fee" Investment Management Agreements (the "Previous
Management Agreements") and the New Management Agreements, RMCI is responsible
for the day-to-day oversight of the Funds' operations and otherwise administers
the affairs of the Funds, as it deems advisable subject to the overall control
and direction of the Trustees and the investment policies and limitations of the
Funds. Presently, the voting stock of RMCI is owned solely by Bruce R. Bent,
Bruce R. Bent II and Arthur T. Bent III. The address of each such person is c/o
Reserve Management Company, Inc., 1250 Broadway, New York, NY 10001. Mr. Bent
founded RMCI, which is a successor of Reserve Management Company, which was
founded in 1970. The directors and officers of RMCI are:
<Table>
<Caption>
NAME TITLE
- ---- -----
Bruce R. Bent President
Bruce R. Bent II Vice Chairman, Secretary and Assistant Treasurer
Arthur T. Bent III Vice Chairman, Treasurer and Assistant Secretary
Amy W. Bizar Secretary and General Counsel
</Table>
Shown below is the date of each Previous Management Agreement, the date each
Previous Management Agreement was last submitted to a vote of the shareholders
and the purpose of such submission.
13
<Page>
<Table>
<Caption>
PURPOSE OF LAST
DATE OF PREVIOUS DATE LAST APPROVED BY SUBMISSION TO
FUND MANAGEMENT AGREEMENT SHAREHOLDERS SHAREHOLDERS
---- -------------------- ------------ -------------
Primary Fund June 26, 1999; amended January 15, 1999 Approval of new Management
September 24, 2003 Agreement following change in
control of the Adviser
Primary II Fund December 13, 2001 December 13, 2001 Initial Approval of
Management Agreement
U.S. Government Fund June 26, 1999; amended January 15, 1999 Approval of new Management
September 24, 2003 Agreement following change in
control of the Adviser
U.S. Treasury Fund June 26, 1999; amended January 15, 1999 Approval of new Management
September 24, 2003 Agreement following change in
control of the Adviser
Reserve Liquid Performance September 29, 2005 January 9, 2006 Initial Approval of
Money Market Fund Management Agreement
Interstate Tax-Exempt Fund June 26, 1999; amended March 1, 1999 Approval of new Management
September 24, 2003 Agreement following change in
control of the Adviser
California Tax-Exempt Fund June 26, 1999; amended March 1, 1999 Approval of new Management
September 24, 2003 Agreement following change in
control of the Adviser
Connecticut Tax-Exempt Fund
Florida Tax-Exempt Fund
Massachusetts Tax-Exempt Fund
Michigan Tax-Exempt Fund June 26, 1999; amended December 16, 1998 Initial Approval of
September 24, 2003 Management Agreement
New Jersey Tax-Exempt Fund
Ohio Tax-Exempt Fund June 26, 1999; amended December 16, 1998 Initial Approval of
September 24, 2003 Management Agreement
Pennsylvania Tax-Exempt Fund
Virginia Tax-Exempt Fund
New York Tax-Exempt Fund
Louisiana Municipal June 20, 2002; amended June 20, 2002 Initial Approval of
Money-Market Fund September 24, 2003 Management Agreement
Minnesota Municipal June 20, 2002; amended June 20, 2002 Initial Approval of
Money-Market Fund September 24, 2003 Management Agreement
Reserve Yield Plus Fund May 6, 2005 March 22, 2005 Initial Approval of
Management Agreement
Hallmark Capital
Appreciation Fund
Hallmark Informed Investors
Growth Fund
Hallmark International Equity
Fund
Hallmark International August 1, 2000; amended August 1, 2000 Initial Approval of
Small-Cap Fund September 24, 2003 Management Agreement
Hallmark Large Cap
Growth Fund
Hallmark Mid-Cap Growth Fund November 11, 2004 Not Previously Approved Not Applicable
Hallmark Small Cap Growth Fund
</Table>
14
<Page>
<Table>
<Caption>
PURPOSE OF LAST
DATE OF PREVIOUS DATE LAST APPROVED BY SUBMISSION TO
FUND MANAGEMENT AGREEMENT SHAREHOLDERS SHAREHOLDERS
---- -------------------- ------------ -------------
Hallmark Strategic Growth Fund June 26, 1999 amended June 2, 1999 Initial Approval of
September 24, 2003 Management Agreement
Hallmark First Mutual Fund
Hallmark Total Return
Bond Fund
Hallmark Convertible
Securities Fund
</Table>
For each Fund's most recent fiscal year, the investment advisory fees paid and
applicable fee waivers and/or reimbursements of expenses were as follows:
<Table>
<Caption>
FEES PAID (AFTER
WAIVERS AND
FUND FISCAL YEAR END REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
---- --------------- ---------------- ------- --------------
Primary Fund May 31
Primary II Fund May 31
U.S. Government Fund May 31
U.S. Treasury Fund May 31
Reserve Liquid May 31
Performance
Money Market Fund
Interstate Tax- Exempt May 31
Fund
California Tax-Exempt May 31
Fund
Connecticut Tax-Exempt May 31
Fund
Florida Tax-Exempt May 31
Fund
Massachusetts Tax-Exempt May 31
Fund
Michigan Tax-Exempt Fund May 31
New Jersey Tax-Exempt May 31
Fund
Ohio Tax-Exempt Fund May 31
Pennsylvania Tax-Exempt May 31
Fund
Virginia Tax-Exempt May 31
Fund
New York Tax-Exempt May 31
Fund
Louisiana Municipal May 31
Money-Market Fund
Minnesota Municipal May 31
Money-Market Fund
Reserve Yield March 31
Plus Fund
Hallmark Capital March 31
Appreciation Fund
Hallmark Informed March 31
Investors Growth Fund
Hallmark International March 31
Equity Fund
Hallmark International March 31
Small-Cap Fund
Hallmark Large Cap March 31
Growth Fund
Hallmark Mid-Cap Growth March 31
Fund
Hallmark Small Cap March 31
Growth Fund
Hallmark Strategic March 31
Growth Fund
Hallmark First Mutual March 31
Fund
Hallmark Total Return March 31
Bond Fund
Hallmark Convertible March 31
Securities Fund
</Table>
15
<Page>
Pursuant to a New Management Agreement, each Fund will pay RMCI a comprehensive
management fee for its services. THE MANAGEMENT FEES ARE IDENTICAL TO THOSE
UNDER THE PREVIOUS MANAGEMENT AGREEMENTS. The comprehensive management fee will
be paid based on the average daily net assets of each Fund at the following
annual rates:
<Table>
<Caption>
COMPREHENSIVE
MANAGEMENT
TRUST FUND CLASS FEE (%)
----- ---- ----- -------
The Reserve Fund Primary Fund, U.S. Government Fund, and U.S
Treasury Fund 8 0.08
12 0.12
15 0.15
20 0.20
25 0.25
35 0.35
45 0.45
TT 0.60
70 0.50
75 0.55
95 0.75
R 0.80
Primary II Fund QR I 0.80
QR II 0.80
Reserve Liquid Performance Money Market Fund 10 0.10
15 0.15
20 0.20
25 0.25
35 0.35
45 0.45
Reserve Short Term Reserve Yield Plus Fund 8 0.08
Investment Trust 10 0.10
12 0.12
13 0.13
15 0.15
20 0.20
25 0.25
35 0.35
45 0.45
TT 0.60
85 0.80
S 0.80
R 0.75
Reserve Tax-Exempt Trust
Interstate Tax-Exempt Fund 8 0.08
12 0.12
15 0.15
20 0.20
25 0.25
35 0.35
45 0.45
TT 0.60
70 0.50
75 0.55
95 0.75
R 0.80
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,
Ohio Tax-Exempt Fund,
Pennsylvania Tax-Exempt Fund, and
Virginia Tax-Exempt Fund Single 0.80
Reserve New York New York Tax-Exempt Trust Single 0.80
Tax-Exempt Trust
Reserve Municipal Minnesota Municipal Money-Market Fund and Louisiana
Money-Market Trust Municipal Money Market Fund Single 0.80
Hallmark Equity Series Hallmark Capital Appreciation Fund R 1.20
Trust I 0.90
Hallmark Informed Investors Growth Fund R 1.30
I 1.00
Hallmark International Equity Fund R 1.55
I 1.25
Hallmark Large Cap Growth R 1.20
I 0.90
Hallmark Small Cap Growth R 1.30
I 1.00
Strategic Growth Fund R 1.20
I 0.90
International Small-Cap Fund R 1.55
I 1.25
Mid-Cap Growth Fund R 1.25%
I 1.00%
Hallmark Investment Hallmark First Mutual Fund R 1.30
Series Trust I 1.00
Hallmark Total Return Bond Fund R 1.05
I 1.00
Hallmark Convertible Securities Fund R 1.25
I 1.00
</Table>
RMCI also furnishes (or arranges for affiliates to furnish) to each Trust, on
behalf of each Fund: (i) the services of a President and such other executive
officers as may be requested by each Fund, (ii) office space and customary
office facilities to the extent that a Fund's activities occur in New York,
(iii) maintenance of Fund records not otherwise maintained by each Fund's
16
<Page>
custodian, distributor or sub-investment managers, and (iv) all accounting,
administrative, clerical, secretarial and statistical services as may be
required by each Fund for the operation of its business and compliance with
applicable laws. The fees paid to sub-investment managers are paid out of the
comprehensive management fee paid to the RMCI and are not additional expenses of
each Fund. RMCI pays the compensation of all officers of each Trust on behalf
of each Fund and all operating and other expenses of each Fund except
interest charges, taxes, brokerage fees and commissions, extraordinary legal
and accounting fees and other extraordinary expenses including expenses
incurred in connection with litigation proceedings, other claims and the
legal obligations of each Trust to indemnify its trustees, officers,
employees, shareholders, distributors and other agents of each Trust,
payments made pursuant to the Trust's distribution plan, the compensation of
the chief compliance officer and related expenses, and the fees of the
Independent Trustees and of independent counsel to the Independent Trustees.
With the exceptions set forth below, the New Management Agreements are
similar in all material respects to the Previous Management Agreement for the
Funds.
For all Funds, except Reserve Liquid Performance Money Market Fund and Reserve
Yield Plus Fund, the only material differences between the two are as follows:
(i) their effective dates and termination provisions, (ii) the provisions
requiring the Funds to pay insurance, state (blue sky) and SEC registration fees
and other government imposed fees and expenses and all costs associated with the
implementation and maintenance thereof, the costs of shareholder meetings
including proxy solicitations, the compensation of each Fund's Chief Compliance
Officer and related expenses and the expenses of the Trustees who are not
interested persons of RMCI, including the fees of the independent counsel to
such Trustees, (iii) providing that the management fee be calculated on a
365-day basis, (iv) providing that the Trustees shall determine the portion of
the comprehensive management fee attributable to investment advisory services
and (v) allowing RMCI to recoup any fee waivers or expense reimbursements over a
course of a three year period.
For Reserve Liquid Performance Money Market Fund and Reserve Yield Plus Fund,
the only material differences between the two are as follows: (i) the
provisions requiring each of these Funds to pay all costs associated with the
implementation and maintenance of government imposed fees and expenses and the
expenses of the Trustees who are not interested persons of RMCI, including the
fees of the independent counsel to such Trustees and (ii) providing that the
Trustees shall determine the portion of the comprehensive management fee
attributable to investment advisory services. Additionally, the New Management
Agreement for Reserve Yield Plus Fund provides that the management fee be
calculated on a 365-day basis and Schedule A of the New Management Agreement for
Reserve Yield Plus Fund has been updated to reflect the new, lower comprehensive
management fee for Class Treasurer's Trust and Class R.
The New Management Agreements for all Funds also provide (i) that RMCI may waive
all or a portion of the management fee; and (ii) the Manager will reimburse each
Fund a portion of the Excluded Expenses (as defined in the New Management
Agreements) to limit the impact on each Fund's daily yield or Net Asset Value
per share.
Each New Management Agreement will run for an initial term of two years and
annually thereafter so long as it is approved by a vote of a majority of the
Trustees, including a majority of the Independent Trustees, cast in person at
a meeting called for the purpose of voting on such renewal. Each New
Management Agreement terminates automatically upon its assignment and may be
terminated without penalty upon sixty (60) days' written notice by vote of
the Trustees, by vote of a majority of outstanding voting shares of the Fund
or by RMCI.
BOARD APPROVAL OF "COMPREHENSIVE FEE" INVESTMENT MANAGEMENT AGREEMENT
INTRODUCTION
The Board met on June 30, 2005, to consider the approval of the proposed New
Management Agreements with RMCI. At that meeting, the Board had the opportunity
to meet with the representatives of RMCI to determine whether each proposed
agreement is in the best interests of the respective Fund and its shareholders.
The Board, including a majority of the Independent Trustees, so concluded and
voted to recommend each New Management Agreement to the respective Fund's
shareholders for their approval. The Independent Trustees were advised by
independent counsel throughout the process.
NATURE, EXTENT AND QUALITY OF SERVICE
The Board received and considered information regarding the nature, extent and
quality of the advisory and other services provided to each Fund by RMCI under
the Previous Management Agreement and expected to be provided under the New
Management Agreement. The Board considered the background and experience of
RMCI's management and the expertise of personnel of RMCI with regard to
investing in the type of securities in which the Funds invest. The Trustees
concluded that the nature and extent of the services provided by RMCI under each
Management Agreement were necessary and appropriate for the conduct and the
business and investment activities of each Fund. The Trustees also concluded
that the quality of the advisory and administrative services was satisfactory.
COMPARATIVE FEE AND EXPENSES
RESERVE FUNDS - The comprehensive management fee charged under each Management
Agreement encompasses all of the services necessary for the operation of the
relevant Reserve Fund. Therefore, in evaluating the fee relative to other funds
the Trustees thought the most appropriate comparison was to the respective
expense ratios of the Funds. The Trustees compared each Fund's expense ratio to
(i) the average expense ratio of all money market funds with similar investment
objectives and policies; and (ii) the expense ratios of money market funds which
are believed to be direct competitors of the Reserve Funds ("peer funds"), i.e.,
money market funds which are distributed through third-party broker/dealers and
other financial institutions which do not have their own proprietary money
market funds. The Trustees noted that the expense ratio of the institutional
classes of shares of each Reserve Fund was comparable to or lower than the
average expense ratio of other money market funds as well as those of peer
funds. They also noted that the expense ratios of the retail classes of shares
were higher than the average of other money market funds but comparable to the
expense ratios of peer funds. Based upon their review, the Trustees concluded
that the fee payable under each Management Agreement is competitive.
HALLMARK FUNDS - The Trustees compared the expense ratios of the Funds to funds
with similar investment objectives and policies and of comparable size. The
Trustees noted that:
17
<Page>
(a) in the case of Mid-Cap Growth; and Strategic Growth, the expense ratio
of the institutional class of shares was lower than that of comparable
funds, and the expense ratios of the retail class of shares was comparable
to or slightly higher than that of comparable funds;; and (b) the expense
ratio of International Small Cap Fund was higher than that of comparable
funds.
The Trustees took into consideration the small size of the Funds and their
correspondingly high administrative and operating costs, particularly in the
case of the retail classes of shares. The Trustees also considered the extent to
which RMCI waived fees and/or assumed expenses in order to maintain expense
ratios at prescribed levels. Upon consideration, the Trustees concluded that the
comprehensive management fee for each Hallmark Fund was not excessive relative
to that of comparable funds.
COMPARATIVE PERFORMANCE
RESERVE FUNDS - The Trustees noted that each of the Reserve Funds slightly
underperformed relative to other money market funds with similar objectives and
policies. In this regard, the Trustees noted that the Funds generally invest in
a more conservative and risk averse manner than their peers. For example, the
Funds do not invest in commercial paper and typically have a shorter average
maturity than many other money market funds. The Trustees concluded that, under
the circumstances, the performance of the Funds was satisfactory.
HALLMARK FUNDS - The Trustees evaluated the performance of the Funds for one-,
three-, five- and ten-year periods, as applicable, relative to funds with
similar objectives and comparable size. The Trustees noted that (i) Mid-Cap
Growth and Strategic Growth generally outperformed comparable funds, and (ii)
International Small-Cap Fund generally underperformed comparable funds.
The Trustees expressed concerns with respect to the underperforming funds. RMCI
discussed with the Board its approach towards selection and oversight of
sub-advisers and potential ways to address performance concerns. The Trustees
found RMCI's approach in this regard satisfactory.
PROFITABILITY
The Trustees received, analyzed and considered a profitability analysis of RMCI
based on the fees paid under the Previous Management Agreement and payable under
the New Management Agreement, including any fee waivers or fee caps, and the
costs incurred to provide required services, as well as other relationships
between the Fund on the one hand and RMCI affiliates on the other. The Trustees
concluded, with respect to each Fund, that RMCI's profitability was not
excessive in light of the nature, extent and quality of the services provided
under the Previous Management Agreements and expected to be provided under the
New Management Agreements.
BREAKPOINTS AND ECONOMIES OF SCALE
As the comprehensive management fee is currently structured, fee levels do not
reflect economies of scale that potentially could be realized as the Funds grow.
The Trustees noted the potential benefits to shareholders of a comprehensive fee
which would tend to limit increases in the Funds' expense ratios even if the
costs of providing services increase and the related entrepreneurial risk
assumed by RMCI through such an approach. Based on the foregoing, the Trustees
concluded that the absence of breakpoints was reasonable.
OTHER BENEFITS
The Trustees concluded that RMCI does not realize any other quantifiable
material benefits from its relationship with the Funds.
No single factor reviewed by the Board was identified as the principal factor in
determining whether to approve the New Management Agreements with respect to
each Fund.
SUBSEQUENT DEVELOPMENTS
The Independent Trustees met on September 22, 2005 to reconsider their previous
determinations respecting the New Management Agreements in light of certain
deficiencies in internal controls identified by RMCI related to reconciling bank
18
<Page>
statements, monitoring compliance with certain Internal Revenue Code
requirements and identifying and collecting amounts due certain of the Funds.
The Independent Trustees were advised that these matters had previously been
discussed with the Audit Committee and the Funds' independent auditors and that
RMCI has instituted additional procedures to enhance its internal controls for
the Funds and committed to continue to strengthen the Funds' overall control
environment. The Independent Trustees were further advised that the identified
deficiencies had no material impact to shareholders, fund net asset value or
Fund performance.
The Independent Trustees also met on March 1, 2006 to consider additional
proposed changes to the New Agreements. At that meeting _____________.
Based on consideration of all factors they deemed relevant, including the steps
taken by RMCI and RMCI's commitment to continue to strengthen the overall
control environment, the Independent Trustees reaffirmed their previous
determinations to approve the New Management Agreements.
THE BOARD OF EACH AFFECTED FUND, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF EACH AFFECTED FUND VOTE "FOR" APPROVAL OF
THE NEW MANAGEMENT AGREEMENT.
PROPOSAL 3: APPROVAL OF NEW DISTRIBUTION PLANS: ALL FUNDS EXCEPT HALLMARK FIRST
MUTUAL FUND, HALLMARK TOTAL RETURN BOND FUND AND HALLMARK CONVERTIBLE SECURITIES
FUND.
As described above under "Background", the Board is proposing that shareholders
of each class of each affected Fund approve a new 12b-1 distribution plan
(together, the "New Plans") to be entered into for each Fund. The New Plans are
similar in all material respects to the previous Rule 12b-1 distribution plans
(the "Previous Plans"), a form of which is attached hereto as Exhibit H.
The Trusts, on behalf of their respective Funds, entered into the Previous Plans
pursuant to Rule 12b-1 under the Investment Company Act. Under the Plans, the
relevant classes of a Fund pay Resrv distribution fees on the average daily net
assets of those classes at the annual rate of 0.20% (0.25% for HEST and 1.00%
for the QR II class of the Primary II Fund), regardless of the amount of
distribution expenses incurred. Pursuant to the Plans, Resrv or its affiliates
make payments ("assistance payments") to brokers, financial institutions and
financial intermediaries ("Intermediaries") in respect to certain of their
shareholder accounts ("qualified accounts") to which the Intermediaries have
rendered distribution assistance or other shareholder services. Substantially
all such payments are paid to Intermediaries for distribution and administrative
services. Resrv may also retain amounts to pay for advertising and marketing
expenses. Under the Plans, each Trust's officers will report quarterly the
amounts and purposes of assistance payments to the Trustees.
In addition to amounts received under the Plans, RMCI or Resrv may, at their
discretion, pay an Intermediary amounts from its own resources. The rate of any
additional amounts that may be paid will be based on an analysis by RMCI of the
contribution that the Intermediary makes to the Fund by increasing assets under
management and reducing expense ratios, the costs that the Fund might bear if
such services were provided directly by the Fund or by another entity, and the
possibility of assets being withdrawn from the Fund with a corresponding
increase in the Fund's expense ratio. Each New Plan will continue in effect for
so long as its continuance is specifically approved at least annually by the
Board, including a majority of the Independent Trustees who have no direct or
indirect financial interest in the operation of the New Plan. Any material
amendment of any New Plan would require the approval of the Board in the same
manner.
CONSIDERATIONS
The Board, including a majority of the Independent Trustees (each of whom has no
direct or indirect financial interest in the operation of the Previous Plans,
the New Plans or any agreements related to the Plans), unanimously approved the
New Plans on June 30, 2005, subject to the approval of the holders of shares of
the applicable class(es) of each Fund. The terms of the New Plans will be
essentially identical to those of the Previous Plans that were adopted by the
shareholders of each class on the dates listed below.
At the June 30, 2005, meeting, the Board had the opportunity to meet with the
representatives of Resrv. The Independent Trustees were advised by independent
legal counsel throughout the process. In approving each New Plan the Board
considered various factors, including (i) whether the New Plan will result or
the Previous Plan has resulted in a benefit to the Funds' shareholders by
resolving or alleviating existing problems or circumstances of the Funds, (ii)
the merits of alternative distribution methods, (iii) the interrelationship
between the New Plans and the activities of other persons financing the
distribution of Fund shares and (iv) the extent to which third parties may
benefit from the New Plan and how these benefits compare to the benefits
experienced by the Funds from the New Plan. The Trustees have determined that
there is a
19
<Page>
reasonable likelihood that the New Plan, like the Previous Plan, will benefit
each Fund and its shareholders and that its costs are primarily intended to
result in the sale of the Fund's shares. Based on these and other factors, the
Board determined that there is a reasonable likelihood that each of the New
Plans will benefit the relevant classes of the Funds and their shareholders.
Pursuant to the New Plans, the Funds will pay Resrv a fee for its services. The
fee will be paid based on the average daily net assets of the relevant class of
the Fund at the following rates:
<Table>
<Caption>
DISTRIBUTION
TRUST FUND CLASS (12b-1 FEE)(%)
----- ---- ----- --------------
The Reserve Fund Primary, U.S. Government and U.S.
Treasury 70 0.20
75 0.20
95 0.20
R 0.20
Primary II QR I 0.25
QR II 1.00
Reserve Tax-Exempt Trust Interstate Tax-Exempt 70 0.20
75 0.20
95 0.20
R 0.20
California Tax-Exempt, Connecticut Tax-Exempt, Florida
Tax-Exempt, Michigan Tax-Exempt, New Jersey
Tax-Exempt, Pennsylvania Tax-Exempt, Virginia
Tax-Exempt, Massachusetts Tax-Exempt, and Ohio
Tax-Exempt Single 0.20
Reserve New York Tax-Exempt
Trust New York Tax-Exempt Single 0.20
Reserve Municipal Money- Minnesota Municipal Money-Market, Louisiana Municipal
Market Trust Money-Market Single 0.20
Hallmark Equity Series Trust Capital Appreciation, Small-Cap Growth, Mid-Cap
Growth, Large-Cap Growth, International Equity,
Strategic Growth, International Small-Cap and Informed
Investors Growth R 0.25
</Table>
The amounts of fees and expenses each Fund actually has paid under its Previous
Plan during its most recent fiscal year are shown below. All payments have been,
or would be, made to Resrv. Substantially all of the amounts paid to Resrv were
paid by Resrv to Intermediaries for providing shareholder and distribution
services. For the most recent fiscal year of each Fund, the distribution
expenses have equaled or exceeded the distribution revenues for each Fund.
<Table>
<Caption>
FUND PAYMENT UNDER PREVIOUS PLAN
- ---- ---------------------------
Primary Fund
Primary Fund II
U.S. Government Fund
</Table>
20
<Page>
<Table>
<Caption>
FUND PAYMENT UNDER PREVIOUS PLAN
- ---- ---------------------------
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
Ohio Tax-Exempt Fund
Pennsylvania Tax-Exempt Fund
Virginia Tax-Exempt Fund
New York Tax-Exempt Fund
Louisiana Municipal Money-Market Fund
Minnesota Municipal Money-Market Fund
Hallmark Capital Appreciation Fund
Hallmark Informed Investors Growth Fund
Hallmark International Equity Fund
Hallmark International Small-Cap Fund
Hallmark Large-Cap Growth Fund
Hallmark Mid-Cap Growth Fund
Hallmark Small-Cap Growth Fund
Hallmark Strategic Growth Fund
</Table>
THE BOARD OF EACH TRUST, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF EACH RELEVANT CLASS OF EACH FUND VOTE "FOR"
APPROVAL OF THE NEW PLAN.
PROPOSAL 4(A): APPROVAL OF THE RETENTION OF PAYMENTS MADE UNDER THE
"COMPREHENSIVE FEE" INVESTMENT MANAGEMENT AGREEMENTS: PRIMARY FUND, U.S.
GOVERNMENT FUND, U.S. TREASURY FUND, INTERSTATE TAX- EXEMPT FUND, PRIMARY FUND
II, CALIFORNIA TAX-EXEMPT FUND, MICHIGAN TAX-EXEMPT FUND, OHIO TAX-EXEMPT FUND,
HALLMARK INTERNATIONAL SMALL-CAP FUND, HALLMARK MID-CAP GROWTH FUND, HALLMARK
STRATEGIC GROWTH FUND, LOUISIANA MUNICIPAL MONEY-MARKET FUND AND MINNESOTA
MUNICIPAL MONEY-MARKET FUND.
21
<Page>
Despite the inadvertent expiration or lack of initial approval of the Previous
Management Agreements (see "Background" above), RMCI has continued to provide
uninterrupted investment advisory services called for under the Previous
Management Agreements which include, but are not limited to, regularly providing
investment advice and continuously supervising the investment and reinvestment
of cash, securities and other assets or, in the case of the Hallmark Funds, the
selection and monitoring of sub-investment managers that provide investment
advisory services.
From the expiration of the applicable Previous Management Agreement to the
present, each Fund has compensated RMCI for these services in an amount equal to
the percentage of each Fund's average daily net assets stated in the Previous
Management Agreements as set forth in the table above in Proposal 2.
From the inception (or from the time since the Previous Management Agreement
lapsed) of each relevant Fund to the Record Date, the investment advisory fees
paid or payable by each Fund, and applicable fee waivers and/or reimbursements
were as follows:
<Table>
<Caption>
FEES PAID OR PAYABLE (AFTER
WAIVERS AND
FUND REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---- --------------- ------- --------------
THE RESERVE FUND
Primary Fund
Primary II Fund
U.S. Government Fund
U.S. Treasury Fund
RESERVE TAX-EXEMPT TRUST
Interstate Tax-Exempt Fund
California Tax-Exempt Fund
Michigan Tax-Exempt Fund
Ohio Tax-Exempt Fund
RESERVE MUNICIPAL
MONEY-MARKET TRUST
Louisiana Municipal Money-Market Fund
Minnesota Municipal Money-Market Fund
HALLMARK EQUITY SERIES TRUST
Hallmark International Small-Cap Fund
Hallmark Mid-Cap Growth Fund
Hallmark Strategic Growth Fund
</Table>
RMCI, relying on equitable principles, sought Board approval to allow it to
avoid an economic burden and retain all payments, and be paid all unpaid
amounts, as compensation for services provided, and to be provided, since the
lapsing of (or failure to appropriately adopt) the Previous Management
Agreements through the effective date of the New Management Agreements. In
granting their unanimous approval, the Trustees, who were represented by
independent counsel (as defined in the Investment Company Act) who reviewed the
legal issues presented to the Board in connection with the termination of the
Funds' management arrangements, considered the nature of the continuing
relationship between RMCI and the Funds, RMCI's willingness to subsidize the
Funds' operations, and the nature and the quality of the services it has
performed for the Funds since the lapsing of (or failure to appropriately adopt)
the Previous Management Agreements. The Trustees also considered that:
- the Funds and their shareholders have experienced no economic harm during
the applicable period as a result of the inadvertent failure to properly
adopt or inadvertent termination of the Previous Management Agreements, and
22
<Page>
the amounts that were paid and are payable would have been no more than
what the Funds would have paid had the Previous Management Agreements
remained in effect;
- but for failing to meet the technical requirements of the Investment
Company Act, the Board had intended that the Previous Management Agreements
be entered into and/or continue uninterrupted;
- RMCI has agreed to pay for the costs of soliciting shareholder approval
of the New Management Agreements and the ratification of the retention of
its management fees;
- services were provided by RMCI during the term of the Previous Management
Agreements, and RMCI incurred actual expenses;
- the Investment Company Act permits a court to enforce a contract that
otherwise violates the Investment Company Act or rules thereunder should a
court determine that such enforcement would produce a more equitable result
than non-enforcement and would not be inconsistent with the underlying
purposes of the Investment Company Act; and
- should Board or shareholder approval be withheld, RMCI could seek to
obtain some or all of these payments through legal action on the grounds
that it would be unjust to withhold payments for services rendered under
the Previous Management Agreements, the unintended lapse of which had
resulted from events as described above (see "Background").
Having been advised of the equitable standard to be applied under Section 47(b)
of the Investment Company Act should the Funds seek to rescind the terminated
contracts and the cost likely to be involved in such litigation and having
considered the absence of harm to Fund shareholders and the windfall that would
result to shareholders from a rescission of the terminated contracts, the Board
of each Trust unanimously approved RMCI's request that it be permitted to retain
all fees paid, and all fees payable, to RMCI from the applicable expiration date
through the effective date of the New Management Agreements. The Board of each
Trust then determined to submit the matter for approval by each relevant Fund's
shareholders.
THE BOARD OF EACH TRUST, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF EACH FUND VOTE "FOR" APPROVAL OF THE
RETENTION OF ALL PAYMENTS MADE OR TO BE MADE UNDER THE PREVIOUS MANAGEMENT
AGREEMENTS.
PROPOSAL 4(B): APPROVAL OF THE RETENTION OF PAYMENTS MADE UNDER THE
SUB-INVESTMENT MANAGEMENT AGREEMENTS: HALLMARK CAPITAL APPRECIATION FUND,
HALLMARK SMALL-CAP GROWTH FUND, HALLMARK MID-CAP GROWTH FUND, HALLMARK LARGE-CAP
GROWTH FUND, HALLMARK INTERNATIONAL EQUITY FUND, HALLMARK INTERNATIONAL
SMALL-CAP FUND, HALLMARK INFORMED INVESTORS GROWTH FUND AND HALLMARK STRATEGIC
GROWTH FUND.
Despite the inadvertent expiration or lack of initial approval of the Previous
Sub-Investment Management Agreements (see "Background" above), each
sub-investment manager ("Sub-Adviser") has continued to provide uninterrupted
sub-investment management services called for under the Previous Sub-Investment
Management Agreements which include, but are not limited to, regularly providing
investment advice and continuously supervising the investment and reinvestment
of cash, securities and other assets.
From the expiration of the applicable Previous Sub-Investment Management
Agreement to the present, RMCI has compensated each Sub-Adviser for these
services in an amount equal to the percentage of each Fund's average daily net
assets stated in the Previous Sub-Investment Management Agreements as set forth
below.
<Table>
<Caption>
COMPENSATION (AS PERCENTAGE OF FUND'S
AVERAGE DAILY NET ASSETS UNLESS OTHERWISE
FUND EXPIRATION DATE CLASS INDICATED
- ---- --------------- ----- -----------------------------------------
Hallmark International Equity Fund September 21, 2000 R and I One-half of the "net profit" before taxes
Hallmark Large-Cap Growth Fund December 13, 2000 R and I 0.25%
Hallmark International Small-Cap Fund June 20, 2001 R and I One-half of the "net profit" before taxes*
</Table>
23
<Page>
<Table>
<Caption>
COMPENSATION (AS PERCENTAGE OF FUND'S
AVERAGE DAILY NET ASSETS UNLESS OTHERWISE
FUND EXPIRATION DATE CLASS INDICATED
- ---- --------------- ----- -----------------------------------------
Hallmark Informed Investors Growth Fund March 19, 2003 R 0.30%
I 0.20%
Hallmark Small-Cap Growth Fund June 23, 2004 R and I 0.25%
Hallmark Capital Appreciation Fund December 14, 2004 R 0.30%
I 0.20%
Hallmark Mid-Cap Growth Fund Inception R and I 0.35%
Hallmark Strategic Growth Fund June 2002 R and I One-half of the "net profit" before taxes*
</Table>
*Net profit is deemed to be the comprehensive management fee paid
to the Adviser with respect to the Fund less fund expenses and less all
applicable sales and marketing costs of both the Adviser and Condor Capital
Management, Inc.
From the expiration of the applicable Sub-Investment Management Agreement to
June 30, 2005, the fees paid by RMCI to each Sub-Adviser, and applicable fee
waivers and/or reimbursements were as follows:
<Table>
<Caption>
FEES PAID OR
PAYABLE (AFTER
WAIVERS AND
FUND EXPIRATION DATE REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---- --------------- --------------- ------- --------------
Hallmark International Equity Fund September 21, 2000 $ 0
Hallmark Large-Cap Growth Fund December 13, 2000 $ 0
Hallmark International Small-Cap Fund June 20, 2001 $ 0
Hallmark Informed Investors Growth Fund March 19, 2003
Hallmark Small-Cap Growth Fund June 23, 2004
Hallmark Capital Appreciation Fund December 14, 2004 $ 0
Hallmark Mid-Cap Growth Fund Inception $ 0
Hallmark Strategic Growth Fund June 2002
</Table>
RMCI, relying on equitable principles, sought Board approval to allow each
Sub-Adviser to avoid an economic burden and retain all payments as compensation
for services provided, and to be provided, since the lapsing of (or failure to
appropriately adopt) the Previous Sub-Investment Management Agreements through
the effective date of the New Sub-Investment Management Agreements. In granting
their unanimous approval, the Trustees, who were represented by independent
counsel (as defined in the Investment Company Act) who reviewed the legal issues
presented to the Board in connection with the termination of the Funds'
sub-investment management arrangements, considered the nature of the continuing
relationship between each Sub-Adviser and the relevant Fund, and the nature and
the quality of the services it has performed for the Fund since the lapsing of
(or failure to appropriately adopt) the Previous Sub-Investment Management
Agreement. The Trustees also considered the same factors noted in Proposal 4(a)
above and that the Sub-Advisers had no responsibility to monitor Board
composition and the inequity of penalizing them for an error over which they had
no influence.
Having been advised of the equitable standard to be applied under Section 47(b)
of the Investment Company Act should the Funds seek to rescind the terminated
contracts and the cost likely to be involved in such litigation and having
considered the absence of harm to Fund shareholders and the windfall that would
result to shareholders from a rescission of the terminated contracts, the Board
of each Trust unanimously approved RMCI's request that the Sub-Advisers be
permitted to retain all
24
<Page>
fees paid to them from the applicable expiration date through the effective date
of the New Sub-Investment Management Agreements. The Board of each Trust then
determined to submit the matter for approval by the Fund's shareholders.
THE BOARD OF EACH TRUST, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF EACH FUND VOTE "FOR" APPROVAL OF THE
RETENTION OF ALL PAYMENTS MADE UNDER THE PREVIOUS SUB-INVESTMENT MANAGEMENT
AGREEMENTS.
PROPOSAL 4(C): APPROVAL OF THE RETENTION OF PAYMENTS MADE UNDER THE DISTRIBUTION
PLANS AND DISTRIBUTION AGREEMENTS: ALL FUNDS EXCEPT HALLMARK FIRST MUTUAL FUND,
HALLMARK TOTAL RETURN BOND FUND AND HALLMARK CONVERTIBLE SECURITIES FUND.
Resrv acted as principal underwriter of each Fund pursuant to separate
distribution agreements (the "Previous Distribution Agreements") with each
Trust, which inadvertently terminated (see "Background" above). New Distribution
Agreements were approved on June 30, 2005, on substantially the same terms as
the Previous Distribution Agreements. Under the Investment Company Act,
shareholder approval of a distribution agreement is not required. Under the
Previous and the New Distribution Agreements, each Trust and RMCI or its
affiliates may make distribution assistance payments to third parties pursuant
to a Trust's Rule 12b-1 Plan. The Previous Plans, like the New Plans (see
Proposal 3 above), provide for specified payments to broker-dealers and other
entities that provide distribution and/or other services.
Despite the inadvertent expiration or lack of approval of the Previous Plans
(see "Background" above), Resrv has continued to provide uninterrupted
distribution services as called for under the Previous Plans and the
Distribution Agreements and has continued to make distribution assistance
payments to Intermediaries.
Each Fund has compensated Resrv for these services in an amount equal to the
percentage of each Fund's average daily net assets stated in the Previous Plans
as set forth in the table above in Proposal 3.
From the expiration or lack of approval of the Previous Plans to the Record
Date, the distribution fees paid or payable by the relevant class of each Fund
to Resrv and applicable fee waivers and/or reimbursements were as follows:
<Table>
<Caption>
FEES PAID OR PAYABLE
(AFTER WAIVERS AND
FUND/CLASS EXPIRATION DATE REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- --------------- ------- --------------
THE RESERVE FUND
Primary Fund June 18, 1997
Primary Fund II December 13, 2001
U.S. Government Fund June 18, 1997
U.S. Treasury Fund June 18, 1997
RESERVE TAX-EXEMPT TRUST
Interstate Tax-Exempt Fund June 18, 1997
California Tax-Exempt Fund June 18, 1997
Connecticut Tax-Exempt Fund June 18, 1997
Florida Tax-Exempt Fund June 18, 1997
Massachusetts Tax-Exempt Fund June 18, 1997
</Table>
25
<Page>
<Table>
<Caption>
FEES PAID OR PAYABLE
(AFTER WAIVERS AND
FUND/CLASS EXPIRATION DATE REIMBURSEMENTS) WAIVERS REIMBURSEMENTS
- ---------- --------------- --------------- ------- --------------
Michigan Tax-Exempt Fund June 18, 1997
New Jersey Tax-Exempt Fund June 18, 1997
Ohio Tax-Exempt Fund June 18, 1997
Pennsylvania Tax-Exempt Fund September 13, 1997
Virginia Tax-Exempt Fund March 1, 2000
RESERVE NEW YORK TAX-EXEMPT TRUST
New York Tax-Exempt Fund June 18, 1997
RESERVE MUNICIPAL MONEY-MARKET TRUST
Louisiana Municipal Money-Market Fund July 2, 1999
Minnesota Municipal Money-Market Fund July 2, 1999
HALLMARK EQUITY SERIES TRUST
Hallmark Capital Appreciation Fund June 18, 1997
Hallmark Informed Investors Growth Fund June 18, 1997
Hallmark International Equity Fund June 18, 1997
Hallmark International Small-Cap Fund August 1, 2000
Hallmark Large-Cap Growth Fund June 18, 1997
Hallmark Mid-Cap Growth Fund Since Inception
Hallmark Small-Cap Growth Fund June 18, 1997
Hallmark Strategic Growth Fund June 2, 1999
</Table>
Resrv, relying on equitable principles, sought Board approval to allow it to
avoid an economic burden and retain all payments as compensation for services
provided, and to be provided, from the expiration or lack of approval of the
Previous Plans and Previous Distribution Agreements through the effective date
of the New Plans and New Distribution Agreements. In granting their unanimous
approval, the Trustees, who were represented by independent counsel (as defined
in the Investment Company Act) who reviewed the legal issues presented to the
Board in connection with the termination of the Funds' Previous Plans and
Previous Distribution Agreements, considered the nature of the continuing
relationship between Resrv and the Funds, and the nature and the quality of the
services it has performed for the Funds since the expiration or failure to
approve the Previous Plans and Previous Distribution Agreements. The Trustees
also considered the same factors noted in
26
<Page>
Proposal 4(a) above and, in particular, that Resrv had paid out to
Intermediaries substantially all of the amounts it had received under the
Previous Plans for services rendered.
Having been advised of the equitable standard to be applied under Section 47(b)
of the Investment Company Act should the Funds seek to recover amounts paid out
under the Previous Plans and the cost likely to be involved in such litigation
and having considered the absence of harm to Fund shareholders and the windfall
that would result to shareholders from a recovery of payments made to Resrv
under the Previous Plans, the Board of each Fund unanimously approved Resrv's
request that it be permitted to retain all fees paid, and all fees payable, to
Resrv from the expiration or lack of approval of the Previous Plans and Previous
Distribution Agreements through the effective date of the New Plans and New
Distribution Agreements. The Board of each Fund then determined to submit the
matter for approval by the Fund's shareholders.
THE BOARD OF EACH TRUST, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS OF EACH RELEVANT CLASS OF EACH FUND VOTE "FOR"
APPROVAL OF THE RETENTION OF THE PAYMENT OF ALL FEES PAID AND PAYABLE TO RESRV
UNDER THE PREVIOUS PLANS AND PREVIOUS DISTRIBUTION AGREEMENTS.
PROPOSAL 5: APPROVAL OF PROPOSAL TO PERMIT RMCI AND HALLMARK EQUITY SERIES TRUST
TO ENTER INTO, TERMINATE OR MATERIALLY CHANGE AGREEMENTS WITH SUB-ADVISERS ON
BEHALF OF THE HALLMARK MID-CAP GROWTH FUND WITHOUT OBTAINING SHAREHOLDER
APPROVAL: HALLMARK MID-CAP GROWTH FUND.
The Board of HEST is proposing that shareholders approve, pursuant to an
exemptive order as described below, allowing RMCI and HEST, on behalf of its
series, Hallmark Mid-Cap Growth Fund, to enter into, terminate or materially
change agreements with sub-advisers without obtaining shareholder approval.
Submission of this Proposal is required under the terms of an exemptive order
that RMCI received from the SEC dated October 8, 1997 (the "Order").
CONDITIONS ORDER
This Proposal is designed to satisfy one condition of the Order, which is that
shareholder approval for each fund be obtained before RMCI and the Trust
implement the arrangement described above that permits them to enter into and
materially amend sub-investment management agreements. Any fund relying on the
requested relief must disclose in its prospectus the existence, substance and
effect of the Order. In addition, the fund must hold itself out to the public as
employing the sub-adviser structure described above, and the prospectus will
prominently disclose that RMCI has ultimate responsibility to oversee the
sub-advisers and recommend their hiring, termination and replacement. While the
Fund had intended the sole shareholder prior to the offering of shares to the
public to provide the required approval, the approval was not obtained. Thus,
while RMCI has retained Segall Bryant & Hamill Investment Counsel as sub-adviser
to the Fund, approval of Proposal 5 will assure that each aspect of the Order
has been complied with and that the Fund can rely on the Order in the future.
Also, RMCI must provide management and administrative services to the Fund and,
subject to the review and approval of the Board, set the overall investment
strategies of the Fund; recommend sub-advisers; where appropriate, allocate and
reallocate the assets of the Fund among sub-advisers; and monitor and evaluate
the investment performance of the sub-advisers, including their compliance with
the Fund's investment objectives, policies and restrictions. Another condition
of the Order requires that a majority of the Board consist of Independent
Trustees and that the nomination of new or additional Independent Trustees be at
the discretion of the then existing Independent Trustees.
When a change of sub-adviser is proposed for a Fund with an affiliated
sub-adviser, the Board, including a majority of the Independent Trustees, must
make a separate finding, reflected in the minutes of the Board meeting, that the
change is in the best interest of the Fund and its shareholders and does not
involve a conflict of interest from which the investment adviser or and an
affiliated sub-adviser derives an inappropriate advantage. Furthermore, within
90 days of any change to a Fund's sub-investment management agreement, the
affected Fund must provide shareholders with an information statement that
contains information about the sub-adviser, the sub-investment management
agreement, and the sub-investment management fee.
Under the terms of the Order, a shareholder vote will not be required to approve
sub-investment management agreements or any material changes or terminations
thereof. The proposal would only apply to entering into any sub-investment
management agreement with a sub-adviser that is not an "affiliated person" (as
defined in Section 2(a)(3) of the Investment Company Act) of RMCI or the
applicable Fund, other than by reason of serving as sub-adviser to such Fund.
Since all sub-advisory fees are paid out of the RMCI comprehensive management
fee, there would be no increase in Fund expenses as a result of any such change.
Approval by the Board, including a majority of the Independent Trustees, would
continue to be
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required prior to entering into a new sub-investment management agreement or
amending or terminating an existing sub-investment management agreement with
respect to the Fund.
REASONS FOR THE PROPOSAL AND TRUSTEES' RECOMMENDATION
The Board believes that it is appropriate and in the best interests of the
Fund's shareholders to provide RMCI and the Board with maximum flexibility to
recommend, supervise and evaluate sub-advisers without incurring the unnecessary
delay or expense of obtaining shareholder approval.
This process will allow the Fund to operate more efficiently. Absent the ability
to rely on the Order, to appoint a sub-adviser or to terminate or materially
amend a sub-investment management agreement, HEST would be required to call and
hold a shareholder meeting of the Fund, create and distribute proxy materials,
and solicit proxy votes from the Fund's shareholders. This process is often
time-consuming and costly, and those costs are generally borne entirely by the
respective Fund. Without this delay, RMCI and the Board would be able to act
more quickly and with less expense to appoint a sub-adviser when the Board and
RMCI believe that the appointment would benefit the Fund.
RMCI will be responsible for overseeing and monitoring the performance of the
Fund's sub-advisers. RMCI will also be responsible for determining whether to
recommend to the Board that a particular sub-investment management agreement be
entered into or terminated. A determination of whether to recommend the
termination of a sub-investment management agreement depends on a number of
factors, including, but not limited to, the sub-adviser's performance record
while managing the Fund.
The Board will continue to provide oversight of the sub-investment management
selection and engagement process. The Board, including a majority of the
Independent Trustees, will continue to evaluate and consider for approval all
new or amended sub-investment management agreements. In addition, under the
Investment Company Act and the terms of the sub-investment management
agreements, the Board, including a majority of the Independent Trustees, are
required to annually review and consider for renewal each of these agreements
after the initial term. Upon entering into, renewing or amending a
sub-investment management agreement, RMCI and the sub-advisers must provide
information to the Board for evaluation, and the Board must document its reasons
for approving or renewing such agreements.
In addition, shareholder approval of this proposal will not result in an
increase or decrease in the total amount of fees paid by the Funds to RMCI. When
engaging sub-advisers and entering into and amending sub-investment management
agreements, RMCI will negotiate fees with these sub-advisers. Because these fees
are paid by RMCI, and not directly by each Fund, any fee reduction negotiated by
RMCI may benefit RMCI, and any increase will be a detriment to RMCI. The fees
paid to RMCI by the Funds and the fees paid to sub-advisers by RMCI are
considered by the Board in approving and renewing the investment management and
sub-investment management agreements. Any increase in fees paid by the Fund to
RMCI would continue to require shareholder approval.
THE BOARD OF HEST, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS OF HALLMARK MID-CAP GROWTH FUND VOTE "FOR" APPROVAL OF THIS
PROPOSAL.
PROPOSAL 6 - APPROVAL OF AMENDMENT TO DECLARATION OF TRUST: HALLMARK INVESTMENT
SERIES TRUST
Hallmark Investment Series Trust ("HIST"), like other mutual funds, is subject
to comprehensive federal regulation, particularly under the Investment Company
Act. Additionally, HIST is organized as a Delaware statutory trust, and
therefore is subject to Delaware law.
Under Delaware law, a statutory trust generally operates under an organizational
document known as a declaration of trust, which sets forth various provisions
related to governance of the trust and the authority of the trust to conduct its
business (the "Declaration of Trust"). Shareholder approval is required to amend
the existing Declaration of Trust in the manner proposed. Having determined that
the proposed amendment to the Declaration of Trust is advisable, the Board
approved such amendment and unanimously recommends that the shareholders approve
the amendment.
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The amendment to the Declaration of Trust provides the Trustees with more
flexibility and broader authority than under the current Declaration of Trust.
Changes to the Declaration of Trust consist of the following:
- Under the Declaration of Trust, although the Board has the power to
increase its size, it is not clear from the text whether the Board has
the power to appoint trustees to fill the vacancies in the expanded
Board without shareholder approval. The amendment to the Declaration
of Trust is intended to clarify that Trustees may react quickly and
appoint Trustees to fill vacancies on the Board as the need arises.
THE BOARD OF HIST, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AMENDMENTS TO THE DECLARATION OF
TRUST.
OTHER INFORMATION
All proxies received by the management of the Funds will be voted on all matters
presented at the Meeting, and if not limited to the contrary, will be voted FOR
all Trustee nominees and FOR Proposals 2 through 6. Management knows of no other
matters to be brought before the Meeting. If, however, any other matters
properly come before the Meeting, it is management's intention that proxies not
limited to the contrary will be voted in accordance with the judgment of the
persons named in the enclosed form of proxy.
SOLICITATION PROXIES
The cost of preparing, printing and mailing the enclosed proxy, accompanying
notice and proxy statement and all other costs incurred in connection with the
solicitation of proxies, including any additional solicitation made by letter or
telephone, will be paid by RMCI. In addition to solicitation by mail, certain
officers and representatives of each Trust, officers and employees of RMCI and
certain financial services firms and their representatives, who will receive no
extra compensation for their services, may solicit proxies in person or by
telephone.
_________________________________ (the "Agent") has been engaged to assist in
the solicitation of proxies, at an estimated fee of $____. As the Meeting date
approaches, certain shareholders of each Fund may receive a telephone call from
a representative of the Agent if their vote has not yet been received.
Authorization to permit the Agent to execute proxies may be obtained by
telephonic or electronic transmitted instructions from shareholders of each
Fund. Proxies that are obtained telephonically will be recorded in accordance
with the procedures set forth below. The Trustees believe that these procedures
are reasonably designed to ensure that the identity of the shareholder casting
the vote and the shareholder's voting instructions are accurately determined.
In all cases where a telephonic proxy is solicited, the Agent's representative
is required to ask for each shareholder's full name, address, last four digits
of the shareholder's social security or tax identification number, title of the
person and whether such person is authorized to direct the voting of such shares
(if an entity), the number of shares owned, if known, and to confirm that the
shareholder has received the proxy statement and proxy card in the mail. If the
information solicited agrees with the information provided to the Agent, then
the Agent representative has the responsibility to explain the process, read the
proposals listed on the proxy card, and ask for the shareholder's instructions
on each proposal. The Agent's representative, although he or she is permitted to
answer questions about the process, is not permitted to recommend to the
shareholder how to vote, other than to read any recommendation set forth in the
proxy statement. The Agent will record the shareholder's instructions on the
card. Within 72 hours, the shareholder will be sent a letter by first class mail
to confirm his or her vote and asking the shareholder to call the Agent
immediately if his or her votes are not correctly reflected in the confirmation.
If the shareholder wishes to participate in the Meeting, but does not wish to
give his or her proxy by telephone or by the Internet, the shareholder may still
submit the proxy card originally sent with the proxy statement or attend in
person. Should shareholders require additional information regarding the proxy
or replacement proxy cards, they may contact the Agent toll-free at ___________.
Any proxy given by a shareholder, whether in writing, by telephone or by the
Internet, is revocable.
SUBMISSION CERTAIN PROPOSALS
Proposals of shareholders which are intended to be presented at a future
shareholders' meeting must be received by the Fund by a reasonable time prior to
the Fund's solicitation of proxies relating to such future meeting. Shareholder
proposals must meet certain requirements, and there is no guarantee that any
proposal will be presented at a Shareholder meeting.
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DELIVERY OF JOINT PROXY STATEMENT
The SEC has adopted rules that permit investment companies and intermediaries
(e.g., brokers) to satisfy the delivery requirements for Joint Proxy Statements
with respect to two or more shareholders sharing the same address by delivering
a single Joint Proxy Statement addressed to those shareholders. This process,
which is commonly referred to as "householding," potentially means extra
convenience for shareholders and cost savings for companies. If, at any time,
you no longer wish to participate in "householding" and would prefer to receive
a separate Joint Proxy Statement, please direct a written request to RMCI or
call toll-free (XXX) XXX-XXXX. Shareholders who currently receive multiple
copies of the Joint Proxy Statement at their address and would like to request
"householding" of their communications should contact their broker or RMCI at
(XXX) XXX-XXXX.
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
/s/ Bruce R. Bent
----------------------------
Bruce R. Bent
Chairman and President
/s/ Amy W. Bizar
----------------------------
Amy W. Bizar
General Counsel and Secretary
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