<PAGE> 1
As filed with the Securities and Exchange Commission on December 31, 1996
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File No. 002-70831
811-3141
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 27 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 23 [x]
RESERVE INSTITUTIONAL TRUST
(Exact Name of Registrant as Specified in Charter)
810 Seventh Avenue, New York, New York 10019
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 977-9882
_______________________
Marc C. Cozzolino, Esq.
Reserve Institutional Trust
810 Seventh Avenue, New York, New York 10019
(Name and address of agent for service of process)
_______________________
It is proposed that this filing will become effective (check appropriate box)
____ immediately upon filing pursuant to paragraph (b) of Rule 485
x on January 20, 1997 pursuant to paragraph (b) of Rule 485
----
____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
____ on (date) pursuant to paragraph (a)(1) of Rule 485
____ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
____ on December ___, 1996 pursuant to paragraph (a)(2) of Rule 485.
The Commission is requested to send copies of all communications to:
William Goodwin, Esq.
Dechert, Price & Rhoads
477 Madison Avenue
New York, New York 10022
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, Registrant has registered an indefinite number of shares under the
Securities Act of 1933, and Registrant's Rule 24f-2 Notice for the fiscal year
ended May 31, 1996 was filed on June 17, 1996.
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<PAGE> 2
RESERVE INSTITUTIONAL TRUST
CROSS REFERENCE SHEET PURSUANT TO RULE 404A(a)
<TABLE>
<CAPTION>
PROSPECTUS AND STATEMENT
FORM OF ADDITIONAL INFORMATION
N-1A ITEM FORM CAPTION CAPTION
- ---------- ------------------------------------ ----------------------------------
<S> <C> <C>
1 Cover Page Cover Page
2 Synopsis Shareholder Expenses
3 Condensed Financial Information Not Included
4 General Description of Registrant Investment Objectives and
Policies; Shares of Beneficial
Interest; General Information
5 Management of the Fund Management
6 Capital Stock and Other Securities Daily Dividends; Taxes
7 Purchase of Securities Being Offered How to Buy Shares
8 Redemption or Repurchase Redemptions
9 Legal Proceedings Not Applicable
10 Cover Page Cover Page**
11 Table of Contents Table of Contents**
12 General Information and History Not Applicable
13 Investment Objectives and Policies Investment Objectives, Policies
and Risk**
14 Management of the Registrant Trustees and Officers of the
Trust**
15 Control Persons and Principal Holders Trustees and Officers of the
of Securities Trust**
16 Investment Advisory and Other Investment Management,
Distribution and Custodian
Agreements**; Reserve Cash
Performance Account and Account
Plus**
17 Brokerage Allocation Portfolio Turnover, Transaction
Charges and Allocation**
18 Capital Stock and Other Securities Shares of Beneficial Interest**
19 Purchase, Redemption, and Pricing of Purchase, Redemption and Pricing
Securities Being Offered of Shares**
20 Tax Status Distributions and Taxes**
21 Underwriters Not Applicable
</TABLE>
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<TABLE>
<S> <C> <C>
22 Calculation of Yield Quotations of Fund Yield**; Yield*
Money Market Funds
23 Financial Statements Not Included
</TABLE>
<PAGE> 4
THE
RESERVE
FUNDS GENERAL INFORMATION, PURCHASES AND REDEMPTIONS
24 HOUR YIELD AND BALANCE INFORMATION
NATIONWIDE 1-800-637-1700
PROSPECTUS
JANUARY 2, 1997
The Reserve Institutional Trust is a no-load money market fund with four
investment portfolios: PRIMARY INSTITUTIONAL FUND, U.S. GOVERNMENT INSTITUTIONAL
FUND, U.S. TREASURY INSTITUTIONAL FUND AND INTERSTATE TAX-EXEMPT INSTITUTIONAL
FUND ("Funds"). The Reserve Institutional Trust is designed for institutional
investors as a convenient investment vehicle for short-term funds.
The objective of each Fund, except the Interstate Tax-Exempt Institutional
Fund, is to seek as high a level of current income as is consistent with
preservation of capital and liquidity.
The objective of the Interstate Tax-Exempt Institutional Fund is to seek as
high a level of short term interest income exempt from federal income taxes as
is consistent with preservation of capital and liquidity. There is no assurance
that a Fund will achieve its investment objective.
- - U.S. GOVERNMENT INSTITUTIONAL FUND invests in obligations backed by the full
faith and credit of the United States Government or obligations
collateralized thereby.
- - PRIMARY INSTITUTIONAL FUND invests in (i) obligations backed by the full
faith and credit of the United States Government and its agencies or
instrumentalities; (ii) deposit type obligations, acceptances and letters of
credit of FDIC insured institutions and foreign banks with assets in excess
of $25 billion; (iii) short term corporate obligations rated A-1 or the
equivalent thereof; (iv) other similar high quality short term instruments;
and (v) instruments fully collateralized by the foregoing instruments.
- - U.S. TREASURY INSTITUTIONAL FUND invests in full-faith and credit obligations
of the United States Government that provide interest income exempt from
state and local income taxes.
- - INTERSTATE TAX-EXEMPT INSTITUTIONAL FUND invests principally in obligations
issued by the states, territories, possessions of the United States and their
political subdivisions, duly constituted authorities and corporations.
Each Fund offers four classes of shares to investors, with each class
subject to differing service fees and distribution fees, as follows:
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM MAXIMUM
ANNUAL ANNUAL TOTAL ANNUAL MINIMUM
SERVICE FEE* DISTRIBUTION FEE* OPERATING EXPENSES+ INITIAL INVESTMENT
------------ ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Class A....................................... 0% 0% .25% $10 million
Class B....................................... .25% 0% .50% $ 5 million
Class C....................................... .25% .25% .75% $ 1 million
Class D....................................... .25% .50% 1.00% $250,000
</TABLE>
- ---------------
* As a percentage of average net assets.
+ As a percentage of average net assets (exclusive of interest, taxes, brokerage
fees, extraordinary legal and accounting fees and expenses).
In all other respects, the all classes of shares represent the same
interest in the income and assets of each respective Fund.
SHARES OF THE FUNDS ARE NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth the information about each Fund which a
prospective investor should know before investing. A Statement of Additional
Information dated January 2, 1997, providing further details about the Funds,
has been filed with the Securities and Exchange Commission. It may be obtained
without charge by writing or calling the Funds at (800) 637-1700. The Statement
of Additional Information is hereby incorporated by reference into this
Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Investors are advised to read and retain this Prospectus for future reference.
<PAGE> 5
SHAREHOLDER EXPENSES
The following tables illustrate all expenses and fees that a shareholder of
each of the Funds will bear directly or indirectly. The fees set forth in the
tables are for the fiscal year end May 31, 1996.
SHAREHOLDER TRANSACTION EXPENSES FOR ALL FUNDS
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases.............................................. None
Maximum Sales Load Imposed on Reinvested Dividends................................... None
Redemption Fees*..................................................................... None
Exchange Fees........................................................................ None
</TABLE>
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* A $2.00 fee is charged on redemption checks issued by the Funds of less than
$100 and a $10 fee is charged for wire redemptions of less than $10,000, for
Class D shareholders. A $100 fee is charged for redemption checks and wire
redemptions of less than $100,000 for all other shareholders.
ANNUAL FUND OPERATING EXPENSES FOR ALL FUNDS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Management Fee**................................... .25% .25% .25% .25%
12b-1 Fees......................................... [None] [None] .25% .50%
Other Operating Expenses++
Shareholder Services Fees........................ [None] .25% .25% .25%
Other............................................ [None] [None] [None] [None]
Total Operating Expenses........................... .25% .50% .75% 1.00%
</TABLE>
- ---------------
++ "Other Operating Expenses" are based on an estimated amount for the current
fiscal year. The purpose of this table is to assist the investor in
understanding the costs and expenses that a shareholder in a Fund will bear
directly or indirectly.
** Each Fund is charged a comprehensive management fee of 0.25% per annum of its
average net assets for both advisory and ordinary operating expenses (other
than the Service Fee and Distribution Fee) during the year. However, a Fund
may be charged for certain non-recurring extraordinary expenses. See
"Investment Management Agreement" on page 8.
The following examples illustrate the expenses that a shareholder would pay
on a $1,000 investment over various time periods assuming: (1) a 5% annual rate
of return and (2) redemption at the end of each time period for each Fund.
ALL FUNDS
<TABLE>
<CAPTION>
10
1 YEAR 3 YEARS 5 YEARS YEARS
------ ------- ------- -------
<S> <C> <C> <C> <C>
Class A................................................ $ 2.56 $ 8.05 $ 14.07 $ 31.82
Class B................................................ $ 5.11 $ 16.04 $ 27.97 $ 62.82
Class C................................................ $ 7.66 $ 23.97 $ 41.69 $ 93.03
Class D................................................ $10.20 $ 31.84 $ 55.25 $122.46
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
YIELD
Current yield refers to the income generated by an investment in a Fund
over a seven-day period. This income is then annualized. That is, the amount of
income generated by the investment during that week is
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<PAGE> 6
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned is assumed to be reinvested. The effective
yield will be higher than the current yield because of this compounding effect.
The Interstate Tax-Exempt Institutional Fund may also quote its tax
equivalent yield, which shows the taxable yield an investor would have to earn
before taxes to equal the Fund's tax-free yield. The tax equivalent yield is
calculated by dividing the Fund's current or effective yield by the result of
one minus a stated federal tax rate.
In reports or other communications to shareholders of the Trust or in
advertising materials, the Trust may compare its performance with that of (1)
other money market funds listed in the rankings prepared by Lipper Analytical
Services, Inc., publications such as Barrons, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York Times, The Wall Street Journal and USA Today or other
industry or financial publications or (2) Standard and Poor's Index of 500
Stocks, the Dow Jones Industrial Average and other relevant indices and industry
publications.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each Fund, except the Interstate Tax-Exempt
Institutional Fund, is to seek as high a level of current income as is
consistent with preservation of capital and liquidity. The investment objective
of the Interstate Tax-Exempt Institutional Fund is to seek as high a level of
short term interest income exempt from Federal income taxes as is consistent
with preservation of capital and liquidity. There is no assurance that a Fund
will achieve its investment objective. The investment objective may not be
changed, with respect to a Fund, without the vote of a majority of the
outstanding shares of that fund as defined in the Investment Company Act of
1940(" Act").
The U.S. Government Institutional Fund seeks to attain its objective by
investing only in securities backed by the full faith and credit of the United
States Government or obligations collateralized thereby.
The Primary Institutional Fund seeks to attain its objective by investing
in U.S. Government securities; deposit-type obligations, such as negotiable
certificates of deposit and time deposits, bankers' acceptances and letters of
credit of domestic and foreign banks; savings and loan associations and savings
banks; high quality domestic and foreign commercial paper as determined by any
nationally recognized statistical rating organization or, in the case of any
instrument that is not rated, of comparable quality as determined by the Board
of Trustees; other short term instruments of similar quality; and instruments
fully collateralized by such obligations.
The U.S. Treasury Institutional Fund seeks to attain its objective by
investing only in securities of the United States Government that provide
interest income exempt from state and local income taxes.
The Interstate Tax-Exempt Institutional Fund seeks to attain its objective
by investing principally in obligations issued by states, territories, and
possessions of the United States and their subdivisions, duly constituted
authorities and corporations, or participation interests in such obligations.
United States Government securities include a variety of securities which
are issued or guaranteed by the U.S. Treasury, various agencies of the Federal
Government and various instrumentalities which have been established or
sponsored by the U.S. Government, and certain interests in the foregoing types
of securities such as U.S. Treasury STRIPS. United States Government securities
include direct obligations of the U.S. Treasury (such as Treasury bills,
Treasury notes, and Treasury bonds). Obligations such as securities issued by
the Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Student Loan
Marketing Association and the Federal Home Loan Bank are also considered U.S.
Government securities. Some obligations of agencies and instrumentalities of the
U.S. Government, such as the Government National Mortgage Association, are
supported by the full faith and credit of the United States. Other securities,
such as obligations issued by the Federal National Mortgage Association and
Student Loan Marketing Association, are supported by the right of the issuer to
borrow from the U.S. Treasury; and others, such as obligations issued by the
Federal Home Loan Bank and
3
<PAGE> 7
Federal Home Loan Mortgage Corporation are supported only by the credit of the
agency or instrumentality issuing the obligation. In the case of securities not
backed by the full faith and credit of the United States the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment.
U.S. Treasury STRIPS permit the separate ownership and trading of the
interest and principal components of direct obligations of the U.S. Treasury.
These obligations may take the form of (i) obligations from which interest
coupons have been stripped; (ii) the interest coupons that are stripped; or
(iii) book-entries at a Federal Reserve member bank representing ownership of
obligation components.
Under federal law, the income derived from obligations issued by the U.S.
Treasury and certain of its agencies and instrumentalities is exempt from state
personal income taxes. A substantial majority of the states that tax personal
income permit mutual funds to pass-through this tax exemption to shareholders.
It is anticipated that a substantial portion of the dividends paid to
shareholders of the U.S. Treasury Institutional Fund residing in these states
will qualify for this exemption from state taxation. However, a state or local
taxing authority may seek, in the future, to tax a shareholder on all or a
portion of the interest income of a security held by the U.S. Treasury
Institutional Fund.
The Interstate Tax-Exempt Institutional Fund invests in securities
generally known as "municipal bonds" or "municipal notes" and the interest on
them is exempt from federal income tax in the opinion of either bond counsel for
the issuers or, in some instances, the issuer itself ("Municipal Obligations").
They may be issued to raise money for various public purposes such as
constructing public facilities. Certain types of Municipal Obligations are
issued to obtain funding for privately operated facilities. General obligation
bonds and notes are backed by the taxing power of the issuer. Revenue bonds and
notes are backed by the revenues of a project or facility such as tolls from a
toll road or, in some cases, from the proceeds of a special excise tax, but not
by the general taxing power. Industrial development revenue bonds and notes are
a specific type of revenue bond or note backed by the credit of a private
issuer. The Fund may invest any portion of its assets in industrial revenue
bonds and notes. Municipal Obligations bear fixed, variable or floating rates of
interest. At least 80% of the value of the Fund's assets will be invested in
Municipal Obligations, except that, when business or financial conditions
warrant, the Fund may take a defensive position and invest temporarily without
limit in taxable U.S. Government securities and repurchase agreements pertaining
to U.S. Government securities. See "Other Policies" below for a description of
the characteristics and risks of repurchase agreements.
The Interstate Tax-Exempt Institutional Fund may purchase floating and
variable rate demand notes, which are Municipal Obligations normally having
stated maturities in excess of one year, but which permit the holder to demand
payment of principal and accrued interest at any time, or at specified intervals
not exceeding one year, in each case usually upon not more than seven days'
notice. The interest rates on these floating and variable rate demand notes
fluctuate from time to time. Frequently, such Municipal Obligations are secured
by letters of credit or other credit support arrangements provided by banks. The
Interstate Tax-Exempt Institutional Fund may invest any portion of its assets in
floating and variable rate demand notes secured by bank letters of credit or
other credit support arrangements. Use of letters of credit or other credit
support arrangements will not adversely affect the tax-exempt status of these
Municipal Obligations. The Interstate Tax-Exempt Institutional Fund will not
invest more than 10% of the value of its assets in floating or variable rate
demand notes for which there is no secondary market if the demand feature on
such Municipal Obligations is exercisable on more than seven days' notice.
In view of the investment of the Interstate Tax-Exempt Institutional Fund
in industrial revenue development bonds and notes secured by letters of credit
or guarantees of banks, an investment in Interstate Tax-Exempt Institutional
Fund shares should be made with an understanding of the characteristics of the
banking industry and the risks such an investment may entail. Banks are subject
to extensive government regulations which may limit both the amounts and the
types of loans and other financial commitments which may be made and interest
rates and fees which may be charged. The profitability of the banking industry
is largely dependent upon the availability and cost of capital funds for the
purpose of financing lending operations under prevailing money market
conditions. In addition, general economic conditions play an important part in
the operations of this industry, and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations under a letter of credit.
4
<PAGE> 8
The Interstate Tax-Exempt Institutional Fund will purchase tax-exempt
securities which are rated MIG-1 or MIG-2 by Moody's Investor Services, Inc.
("Moody's"), SP-1 or SP-2 by Standard & Poor's Corporation ("S&P") or the
equivalent thereof. Municipal Obligations which are not rated may also be
purchased provided such securities are determined to be of comparable quality by
the Fund's investment adviser to those rated securities in which the Fund may
invest pursuant to guidelines established by the Board of Trustees.
The Primary Institutional Fund may invest in obligations of U.S. banking
institutions that are insured by the FDIC; commercial paper which is rated, at
the time of investment, P-1 by Moody's Investors Service, Inc. ("Moody's"), A-1
by Standard & Poor's Corporation ("S&P") or the equivalent thereof; and
obligations of foreign banks which, at the time of investment, have more than
$25 billion (or the equivalent in other currencies) in total assets and which,
in the opinion of the Fund's investment adviser, are of comparable quality to
obligations of United States banks which may be purchased by the Primary
Institutional Fund. Instruments which are not rated may also be purchased by the
Primary Institutional Fund provided such instruments are determined to be of
comparable quality by the Board of Trustees of the Fund to those rated
instruments in which the Primary Institutional Fund may invest.
The Primary Institutional Fund may invest in obligations of U.S. banks,
foreign branches of U.S. banks (Eurodollars), U.S. branches of foreign banks
(Yankee dollars) and foreign branches of foreign banks. Euro and Yankee dollar
investments involve certain risks that are different from investments in
obligations of U.S. banks. These risks may include unfavorable political and
economic developments, possible withholding taxes, seizure of foreign deposits,
currency controls or other governmental restrictions which might affect payment
of principal or interest. In addition, foreign branches of foreign banks are not
regulated by U.S. banking authorities and are generally not bound by financial
reporting standards comparable to U.S. banks. The Primary Institutional Fund
will limit its investment in foreign branches of foreign banks to those banks
located in Australia, Canada, Western Europe and Japan. The Primary
Institutional Fund may also invest in municipal obligations secured by bank
letters of credit, the interest on which is not exempt from federal income
taxation.
Other Policies. Primary Institutional Fund, U.S. Government Institutional
Fund, U.S. Treasury Institutional Fund. Each of these three Funds may engage,
without limitation, in repurchase agreement transactions. A repurchase agreement
is a transaction by which a Fund purchases a security (U.S. Government or other)
and simultaneously commits to resell that security to the seller at the same
price, plus interest at a specified rate. Repurchase agreements usually have a
short duration, often less than one week. The Funds will limit repurchase
agreements to those banks and securities dealers who are deemed creditworthy
pursuant to guidelines adopted by the Funds' Board of Trustees. The investment
adviser will follow procedures to assure that all repurchase agreements are
always fully collateralized as to principal and interest. The instruments held
as collateral are valued daily, and if the value of the instruments declines,
the Funds will require additional collateral. If the other party to the
repurchase agreement defaults on its obligation to repurchase the underlying
securities, a portfolio may incur a loss to the extent that the proceeds from
the sale of the collateral were less than the repurchase price. In the event of
insolvency or bankruptcy of the other party to a repurchase agreement, a Fund
may encounter difficulties and might incur costs or possible losses of principal
and income upon the exercise of its rights under the repurchase agreement. The
U.S. Treasury Institutional Fund will limit its investment in repurchase
agreements with respect to securities backed only by the full faith and credit
of the U.S. Government to not more than 5% of its total assets. Such investment
will be for temporary purposes pending the investment of uninvested cash in U.S.
Treasury obligations. The Primary Institutional Fund may engage in limited
repurchase agreement transactions collateralized by first mortgages conforming
to the lending standards of the Government National Mortgage Association,
Federal Home Loan Mortgage Association or Federal National Mortgage Association.
Securities subject to repurchase agreements will be placed in a segregated
account and the market value will be monitored to ensure that the market value
of the securities plus any accrued interest thereon will at least equal the
repurchase price.
The Primary and U.S. Government Institutional Funds may from time to time
lend securities on a short term basis to banks, brokers and dealers (but not
individuals) and receive as collateral cash or securities issued by the U.S.
Government or its agencies or instrumentalities (or any combination thereof),
which collateral
5
<PAGE> 9
will be required to be maintained at all times in an amount equal to at least
100% of the current value of the loaned securities plus accrued interest. In
determining whether to lend securities to a particular broker-dealer or
financial institution, the Fund will consider all relevant facts and
circumstances, including the creditworthiness of the broker-dealer or financial
institution. A Fund may pay reasonable finders, administrative and custodial
fees in connection with a loan. During the time portfolio securities are on loan
the borrower will pay the Fund an amount equivalent to any interest paid on such
securities and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed upon amount of interest from the borrower
who has delivered equivalent collateral or secured a letter of credit. The value
of the securities loaned cannot exceed 25% of the Fund's total assets. Loans of
securities involve risks of delay in receiving additional collateral or in
recovering the securities lent or even loss of rights in the collateral in the
event of insolvency of the borrower of the securities. The Statement of
Additional Information further explains the Funds' securities lending policies.
The Primary Institutional Fund may invest in commercial paper issued by
major corporations under the Securities Act of 1933 in reliance on the exemption
from registration afforded by 3(a)(3) thereof. Commercial paper represents
short-term (nine-months or less) unsecured promissory notes issued in bearer
form by certain corporations. Trading of such commercial paper is conducted
primarily by institutional investors through investment dealers, and individual
investor participation in the commercial paper market is very limited. In
addition, the Fund may invest in securities that are sold in private placement
transactions between their issuers and their purchasers and that are neither
listed on an exchange nor traded over-the-counter. These factors may have an
adverse effect on the Fund's ability to dispose of particular securities and may
limit the Fund's ability to obtain accurate market quotations for purposes of
valuing securities and calculating net asset value and to sell securities at
fair value. If any privately placed securities held by the Fund are required to
be registered under the securities laws of one or more jurisdictions before
being resold, the Fund may be required to bear the expenses of registration. The
Fund may also purchase securities that are not registered under the Securities
Act of 1933, as amended (the "1933 Act"), but which can be sold to qualified
institutional buyers in accordance with Rule 144A under that Act ("Rule 144A
securities"). Rule 144A securities generally must be sold to other qualified
institutional buyers. The Fund may also invest in commercial obligations issued
in reliance on the so-called "private placement" exemption from registration
afforded by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2)
paper is restricted as to disposition under the federal securities laws, and
generally is sold to institutional investors such as the Fund who agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper is normally resold to other institutional investors like the
Fund through or with the assistance of the issuer or investment dealers who make
a market in the Section 4(2) paper, thus providing liquidity. If a particular
investment in Rule 144A securities, Section 4(2) paper or private placement
securities is not determined to be liquid, that investment will be included
within the 10% limitation on investment in illiquid securities. The investment
adviser will monitor the liquidity of such restricted securities under the
supervision of the Board of Trustees.
The Primary, U.S. Government and U.S. Treasury Funds may invest, without
limitation, in U.S. Government securities and in instruments secured or
collateralized by U.S. Government securities. A Fund will not invest more than
10% of its net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice. A Fund will not
concentrate (i.e., invest 25% of its total assets) in the securities of issuers
in a single industry, except that the Primary Institutional Fund may invest more
than 25% of its assets in the banking industry. In addition, a Fund will not
invest more than 5% of its assets in the securities of any single issuer (except
U.S. Government securities or repurchase agreements collateralized by U.S.
Government securities). Each Fund has the authority to borrow money (including
reverse purchase agreements), for extraordinary or emergency purposes but not in
an amount exceeding 5% of its total assets. Reverse repurchase agreements
involve sales by a Fund of portfolio securities concurrently with an agreement
by the Fund to repurchase the same securities at a later date at a fixed price.
In order to provide liquidity, each Fund utilizes the following practices:
limiting its average maturity to 90 days or less; buying securities which mature
in 397 days or less; and buying only high quality securities.
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<PAGE> 10
INTERSTATE TAX-EXEMPT INSTITUTIONAL FUND. Certain banks and other municipal
securities dealers have indicated a willingness to sell Municipal Obligations to
the Fund accompanied by a commitment to repurchase the securities, at the Fund's
option or at a specified date, at an agreed upon price or yield within a
specified period prior to the maturity date of such securities at the amortized
cost thereof. If a bank or other municipal securities dealer were to default
under such stand-by commitment and fail to pay the exercise price, the Fund
could suffer a potential loss to the extent that the amount paid by the Fund, if
any, for the Municipal Obligation with the stand-by commitment exceeded the
current value of the underlying Municipal Obligations. If a bank or other
municipal securities dealer defaults under its stand-by commitment, the
liquidity of the security subject to such commitment may be adversely affected.
Municipal Obligations are sometimes offered on a "when-issued" or delayed
delivery basis. There is no limit on the Fund's ability to purchase Municipal
Obligations on a when-issued basis. The price of when-issued securities, which
is generally expressed in yield terms, is fixed at the time the commitment to
purchase is made by delivery and payment for the when-issued securities takes
place at a later date. Normally, the settlement date occurs within one month of
the purchase of such Municipal Obligations. During the period between the
purchase and settlement dates, no payment is made by the Fund to the issuer and
no interest accrues to the Fund on such securities. To the extent that assets of
the Fund purchasing such securities are not invested prior to the settlement of
a purchase of securities, the Fund will earn no income, however, it is the
Fund's intent to be as fully invested as is practicable. While when-issued
securities may be sold prior to settlement date, the Fund intends to purchase
such securities with the purpose of actually acquiring them unless a sale
appears desirable for investment reasons. At the time the Fund makes the
commitment to purchase a Municipal Obligation on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The Fund will also maintain readily marketable assets at least
equal in value to commitments for when-issued securities specifically for the
settlement of such commitments. The investment adviser does not believe that the
Fund's net asset value or income will be adversely affected by the purchase of
Municipal Obligations on a when-issued basis.
The Fund may purchase from financial institutions participation interests
in Municipal Obligations. A participation interest gives the Fund an undivided
interest in the Municipal Obligation in the proportion that the Fund's
participation interest bears to the total principal amount of the Municipal
Obligation. These instruments may have fixed, floating or variable rates of
interest. Frequently, such instruments are secured by letters of credit or other
credit support arrangements provided by banks.
The Tax Reform Act of 1986 ("the Act") subjects interest received on
certain otherwise tax exempt securities ("private activity bonds") to a federal
alternative minimum tax. It is the position of the Securities and Exchange
Commission that in order for a fund to call itself "tax-free" not more than 20%
of its net assets may be invested in municipal securities subject to the federal
alternative minimum tax or at least 80% of its income must be free of both
regular income tax and alternative minimum tax. Income received on such
securities is classified as a "tax preference item" which could subject certain
investors in such securities, including shareholders of the Fund, to an
increased alternative minimum tax. However, as of the date of this Prospectus
the Fund does not purchase such securities, but reserves the right to do so
depending on market conditions in the future.
Yields on municipal securities depend on a variety of factors, including
general economic and monetary conditions, money market factors, conditions in
the tax-exempt securities market, size of a particular offering, maturity of the
obligation and rating of the issue. The ability of the Fund to achieve its
investment objective is also dependent on the continuing ability of issuers of
municipal securities to meet their obligations for the payment of interest and
principal when due.
From time to time the Fund may invest in taxable short term investments
("Taxable Investments") consisting of obligations backed by the full faith and
credit of the United States Government, its agencies or instrumentalities ("U.S.
Governments"); deposit-type obligations, acceptances, and letters of credit of
Federal Deposit Insurance Corporation member banks; and instruments fully
collateralized by such obligations. Unless the Fund has adopted a temporary
defensive position, no more than 20% of the net assets of the Fund will be
invested in Taxable Investments at any time. The Fund may enter into repurchase
agreements
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with regard to the taxable obligations listed above. Although the Fund is
permitted to make taxable temporary investments, there is no current intention
of generating income subject to federal income tax.
The Fund's investment adviser uses its reasonable business judgment in
selecting investments in addition to considering the ratings of Moody's and S&P.
This analysis considers, among other things, the financial condition of the
issuer by taking into account present and future liquidity, cash flow and
capacity to meet debt service requirements. Since the market value of debt
obligations fluctuates as an inverse function of changing interest rates, the
Fund seeks to minimize the effect of such fluctuations by investing in
instruments with remaining maturities of 397 days or less and limiting its
average maturity to 90 days or less.
The principal risk factors associated with investment in the Fund are the
risk of fluctuations in short term interest rates, the risk of default among one
or more issuers of securities which comprise the Fund's assets and the risk of
non-diversification. As a non-diversified investment company, the Fund is
permitted to have all its assets invested in a limited number of issuers.
Accordingly, since a relatively high percentage of the Fund's assets may be
invested in the securities of a limited number of issuers, the Fund's investment
securities may be more susceptible to any single economic, political or
regulatory occurrence than the investment securities of a diversified investment
company. However, the Fund intends to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code. This limits the aggregate
value of all investments (except United States Government securities, securities
of other regulated investment companies, cash and cash items) so that, with
respect to at least 50% of its total assets, not more than 5% of such assets are
invested in the securities of a single issuer.
MANAGEMENT
Investment Management Agreement. The Board of Trustees manages each Fund's
business and affairs. Reserve Management Company, Inc. ("Adviser"), 14 Locust
Place, Manhasset, NY 11030, a New Jersey corporation, provides the Funds with
investment advice pursuant to an Investment Management Agreement. Since November
15, 1971, the Adviser and its affiliates have been advising The Reserve Funds,
which currently have assets in excess of $3 billion. Under the Investment
Management Agreement, the Adviser manages each Fund's investments, including
effecting purchases and sales thereof, in furtherance of its investment
objective and policies, subject to overall control and direction by the
Trustees.
Each Fund pays the Adviser a comprehensive management fee calculated at
.25% of its average daily net assets. Under the terms of the Investment
Management Agreement with the Funds, the Adviser pays all employee and ordinary
operating costs of the Fund. Excluded from the definition of ordinary operating
costs are interest, taxes, brokerage fees, extraordinary legal and accounting
fees and expenses and fees under the Distribution Plan and the Service Plan
(discussed below).
The Investment Management Agreement provides that the Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Investment Management
Agreement relates, except a loss resulting from the willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard by it of its duties and obligations
thereunder.
The Adviser may make such advertising and promotional expenditures, using
its own resources, as it from time to time deems appropriate.
Trustees. The Trustees serve indefinite terms (subject to certain removal
procedures) and they appoint their own successors, provided that at least a
majority of the Trustees have been elected by shareholders. A Trustee may be
removed at any meeting of shareholders by a vote of a majority of the Fund's
shareholders.
Transfer Agent and Dividend Paying Agent. The Reserve Institutional Trust
acts as its own transfer agent and dividend paying agent.
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<PAGE> 12
HOW TO BUY SHARES
Shares of a Fund may be purchased by wire only. Shares are sold at the net
asset value next determined after receipt of a purchase order in the manner
described below. Purchase orders are accepted on any day on which the New York
Stock Exchange and the Federal Reserve Bank of New York are open ("Fund Business
Day") between the hours of 9:00 a.m. and 6:00 p.m. (Eastern Time). The Trust
does not determine net asset value, and purchase orders are not accepted, on the
days those institutions observe the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas.
To purchase shares of a Fund by Federal Reserve wire, call the Fund at
1-800-637-1700 or call your sales representative. If the Fund receives a firm
indication of the approximate size of the intended investment before 2:30 p.m.
(Eastern Time) and the completed purchase order before 4:15 p.m. (Eastern Time),
and the Custodian received Federal Funds the same day, purchases of shares of a
Fund begin to earn dividends that day. Completed orders received after 4:15 p.m.
begin to earn dividends the next Fund Business Day upon receipt of Federal
Funds.
To allow the Adviser to manage the Fund most effectively, investors are
encouraged to execute as many trades as possible before 2:30 p.m. To protect a
Fund's performance and shareholders, the Adviser discourages frequent trading in
response to short-term market fluctuations. The Fund reserves the right to
refuse any investment that, in its sole discretion, would disrupt the Fund's
management.
If the Public Securities Association recommends that the government
securities markets close early, the Fund may advance the time at which it must
receive notification of orders for purposes of determining eligibility for
dividends on that day. Investors who notify the Fund after the advanced time
become entitled to dividends on the following Fund Business Day. If the Fund
receives notification of a redemption request after the advanced time, it
ordinarily will wire redemption proceeds on the next Fund Business Day.
If an investor does not remit Federal Funds, such payment must be converted
into Federal Funds. This usually occurs within one Fund Business Day of receipt
of a bank wire. Prior to receipt of Federal Funds, the investor's monies will
not be invested.
The following procedure will help assure prompt receipt of your Federal
Funds wire:
A. Telephone the Fund, toll free at 1-800-637-1700 and provide the
following information:
Your name
Address
Telephone number
Taxpayer ID number
The amount being wired
The identity of the bank wiring funds.
You will then be provided with a Fund account number. (Investors with
existing accounts must also notify the Fund before wiring funds.)
B. Instruct your bank to wire the specified amount to the Fund as follows:
An investor may open an account when placing an initial order by telephone,
provided the investor thereafter submits an Account Registration Form by mail.
An Account Registration Form is included with this Prospectus.
The Fund reserves the right to reject any purchase order for any reason.
Share Certificates. The Fund maintains a share account for each
shareholder. The Trust does not issue share certificates.
Account Statements. Monthly account statements are sent to investors to
report transactions such as purchases and redemptions as well as dividends paid
during the month.
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Minimum Investment Required. The minimum initial investment in each Fund is
$10 million for Class A shares, $5 million for Class B shares, $1 million for
Class C shares, and $250,000 for Class D shares. There is no minimum subsequent
investment for any of the classes of shares. The Fund reserves the right to
waive the minimum investment requirement.
Net Asset Value. Shares are sold at net asset value ("NAV"). The NAV of
each Fund is calculated at the close of each business day (normally 4:00 P.M.
New York time) by taking the sum of the value of each Fund's investments
(amortized cost value is used for this purpose) and any cash or other assets,
subtracting liabilities, and dividing by the total number of shares outstanding.
A "business day" is Monday through Friday exclusive of days the New York Stock
Exchange is closed for trading and bank holidays in New York State which include
Martin Luther King's Birthday and Columbus Day. It is the policy of each Fund to
seek to maintain a stable NAV per share of $1.00, although this share price is
not guaranteed.
Distributor. The Funds' distributor is Resrv Partners, Inc., 810 Seventh
Avenue, New York, NY 10019-5868, which is a wholly-owned subsidiary of the
Adviser.
Exchange Privileges. (Class D shareholders only) The shares of each Fund
offered by this Prospectus may be exchanged for shares in the equivalent Class
of any other Fund offered by this Prospectus at net asset value. The exchange
privileges may be modified or terminated at any time, or from time to time, upon
60 days' notice to shareholders. Shares to be acquired in an exchange must be
registered for sale in the investor's state. An exchange of shares of one fund
for another is a taxable event and may result in a gain or loss for federal
income tax purposes. The exchange privileges described under this heading may
not be available to clients of certain broker-dealers or financial institutions
("firm(s)") and some firms may impose conditions on their clients which are
different from those described in this Prospectus.
Distribution Plan and Service Plan. Purchases may also be made through
brokers, financial intermediaries, and financial institutions. Financial
institutions providing distribution assistance or administrative services for
the Fund may be required to register as securities dealers in certain states.
Some of these firms participate in the Fund's Distribution Plan and Service
Plan.
The Reserve Institutional Trust maintains the Distribution Plan and related
agreements pursuant to Rule 12b-1 under the 1940 Act. Under the Distribution
Plan, the Class C and D shares of each Fund make assistance payments at annual
rates of .25% and .50%, respectively, of the net asset value of broker,
financial institution, and financial intermediary shareholder accounts
("qualified accounts"). Substantially all such monies are paid to brokers,
financial institutions and financial intermediaries for distribution assistance
provided to the Fund. The investment adviser, at its discretion, may pay from
its own resources or from other sources available to it, additional amounts and
incentives, including lump-sum payments, based upon the amount of assets
committed to the Fund by such brokers, financial institutions, financial
intermediaries and underwriters. The Plan does not permit the carrying over of
payments from year to year. The investment adviser also reimburses firms, from
its own resources or from other sources available to it for a portion of their
costs of advertising and marketing shares of a Fund. All such arrangements are
designed to facilitate the sale of a Fund's shares. Class A and B shares do not
participate in a 12b-1 distribution plan.
Under the Service Plan, each Fund may pay a service fee of 0.25% of the net
asset value of qualified accounts to brokers or other financial intermediaries
as compensation for personal services provided to investors, including
maintaining shareholder accounts and responding to inquiries and providing
information about investments. Class A shares do not participate in the Service
Plan.
Clients of Firms. Firms provide varying arrangements for their clients with
respect to the purchase and redemption of Fund shares and may arrange with their
clients for other investment or administrative services. Certain firms which
utilize a centralized purchase method for Fund shares, may have an earlier cut
off for purchase orders than stated above in order to facilitate the
transmission of purchase orders by bulk wire. Firms are responsible for the
prompt transmission of purchase and redemption orders. Some firms may establish
higher minimum investment requirements than set forth above. Some firms may
independently establish and charge additional amounts such as redemption fees to
their clients for their services, which charges would reduce their clients'
yield or return. Firms may also hold Fund shares in nominee or street name as
agent for
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<PAGE> 14
and on behalf of their clients. In such instances, the Funds' transfer agents
will have no information with respect to or control over the accounts of
specific shareholders. Such shareholders may obtain access to their accounts and
information about their accounts only from their firm. Certain firms may receive
compensation for recordkeeping and other services relating to these nominee
accounts. In addition, certain privileges with respect to the purchase and
redemption of shares (such as check writing redemptions) or the reinvestment of
dividends may not be available through such firms or may only be available
subject to certain conditions or limitations. Some firms may participate in a
program allowing them access to their clients' accounts for servicing including,
without limitation, transfers of registration and dividend payee changes; and
may perform functions such as generation of confirmation statements and
disbursement of cash dividends. The Prospectus should be read in connection with
such firm's material regarding its services.
SHARES OF BENEFICIAL INTEREST
The Reserve Institutional Trust was originally organized as a Maryland
corporation on February 5, 1981 and reorganized on September 16, 1986 as a
Massachusetts business trust, and is an open-end management investment company
commonly known as a mutual fund. At the date of this Prospectus, there were four
separate series authorized and outstanding. Additional series may be added in
the future by the Board of Trustees. Although the Trust is a non-diversified
mutual fund, each of its separate investment portfolios intends to comply with
the diversification requirement of Rule 2a-7 under the 1940 Act which generally
limits a money market fund to investing no more than 5% of its total assets in
the securities, except U.S. Government Securities, of any one issuer. The Trust
is authorized to issue an unlimited number of shares of beneficial interest
which may be issued in any number of series. Shares issued will be fully paid
and non-assessable and will have no preemptive, conversion or sinking rights.
The shareholders of each series are entitled to a full vote for each full share
held (and fractional votes for fractional shares) and have equal rights with
respect to earnings, dividends, redemption and in the net assets of their series
on liquidation. The Trustees do not intend to hold annual meetings of
shareholders. The Trustees will call such special meetings of shareholders as
may be required under the 1940 Act (e.g., to approve a new investment advisory
agreement or changing the fundamental investment policies) or by the Declaration
of Trust.
Under Massachusetts law, the shareholders and trustees of a business trust
can be personally liable for the trust's obligations to third parties unless, as
in this instance, the Declaration of Trust provides, in substance, that no
shareholder or Trustee shall be personally liable for the Trust's and each
investment portfolio's obligations to third parties, and requires that every
written contract made by a Fund contain a provision to that effect. The
Declaration of Trust also requires each Fund to indemnify its shareholders and
Trustees against such liabilities and any related claims or expenses.
DAILY DIVIDENDS
Each Fund declares dividends each business day. Dividends are distributed
daily as additional shares to shareholder accounts except for shareholders who
elect in writing to receive cash dividends, in which case monthly dividend
checks are sent to the shareholder. Although none are anticipated, any net
realized long term capital gains will be distributed at least annually.
TAXES
Each Fund intends to maintain its regulated investment company status for
federal income tax purposes. Accordingly, the Funds intend to satisfy certain
requirements imposed by the Internal Revenue Code so as to avoid any federal
income or excise tax to them.
Primary Institutional Fund, U.S. Government Institutional Fund, U.S.
Treasury Institutional Fund. For federal income tax purposes, distributions out
of interest earned by a Fund and net realized short term capital gains are
taxable as ordinary income. Any distributions of net long term capital gains are
taxable to shareholders as such, regardless of the length of time shares have
been owned by the shareholder. Whether a
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<PAGE> 15
shareholder receives such distribution in cash or reinvests them in additional
shares, they will be taxable as either ordinary income or long term capital
gains.
The U.S. Treasury Institutional Fund intends to invest only in U.S.
Treasury securities and obligations of those agencies and instrumentalities of
the U.S. Government that provide interest income exempt from state and local
income taxes except to the extent uninvested cash is invested in repurchase
agreements. Some states have minimum investment requirements that must be met by
the U.S. Treasury Institutional Fund. Distributions attributable to net capital
gains, if any, are generally subject to state and local taxes. It is possible
that a state or local taxing authority may in the future seek to tax an investor
on a portion of the interest income of an obligation held by the U.S. Treasury
Institutional Fund. Shareholders should consult with their own tax advisers with
respect to the application of their state and local tax laws to these
distributions.
Shareholders are advised to retain all statements to maintain accurate
records of their investments. The Reserve Institutional Trust will report to its
shareholders before the end of February of each year as to the source of
dividends and other distributions, if any, paid or declared by each Fund during
the previous calendar year which may be exempt from state income taxes.
Shareholders should consult their own tax advisers regarding specific questions
as to federal, state or local taxes.
Interstate Tax-Exempt Institutional Fund. Dividends derived from the
interest earned on Municipal Obligations constitute "tax-exempt interest
dividends" and are not subject to federal income taxes. Any distributions of net
realized long-term capital gains earned by the Fund are taxable to shareholders
as such regardless of the length of time the Fund's shares have been owned by
the shareholder.
Shareholders are advised to retain all statements from the Fund to maintain
accurate records of their investments. If any dividends are not exempt from
federal income taxes, shareholders will be advised of such percentage by January
31, of the following year. Shareholders should consult their tax advisers
regarding specific questions as to the federal, state or local taxes.
REDEMPTIONS
Time and Method of Redemption. Shares of each Fund are redeemed at their
net asset value next determined after receipt by the Fund of a request in proper
form. Although the Funds have seven days to transmit payment for share
redemptions, they usually transmit payment the same day when redemption requests
are received before 12:00 noon (New York time) (11:00 A.M. New York time for the
U.S. Treasury Institutional Fund and Interstate Tax-Exempt Institutional Fund)
and the next day for requests received after 12:00 noon (New York time) (11:00 A
M. New York time for the U.S. Treasury Institutional Fund and Interstate
Tax-Exempt Institutional Fund). This is not always possible, however, and
transmission of redemption proceeds may be delayed. Unless otherwise specified,
orders received after 12:00 noon (New York time) (11:00 A.M. New York time for
the U.S. Treasury Institutional Fund and Interstate Tax-Exempt Institutional
Fund) are not entered until the next business day to enable shareholders to
receive additional dividends. Payment will normally be made by check or bank
transfer. Shares do not earn dividends on the day a redemption is effected
regardless of whether the redemption order is received before or after 12:00
noon (11:00 A.M. for the U.S. Treasury Institutional Fund and Interstate
Tax-Exempt Institutional Fund).
Written and Telephone Redemption Requests. The Funds strongly suggest (but
not require) that each written redemption be at least $100,000 and requires that
each telephone redemption be at least $100,000, except for redemptions which are
intended to liquidate your account. A shareholder will be charged $100 for
redemption checks issued by the Funds of less than $100,000, except for Class D
shareholders who will be charged $2.00 for redemption checks of less than $100.
Payments of $100,000 or more will be wired upon request without charge, except
for Class D shareholders who can have payments of $10,000 or more. A shareholder
will be charged $100 for wires of less than $100,000, except for Class D
shareholders who will be charged $10 for wires less than $10,000. The Funds
assume no responsibility for delays in the receipt of wired or mailed funds. The
use of a predesignated financial institution, such as a savings bank, credit
union or savings and loan association, which is not a member of the Federal
Reserve wire system to receive your wire could cause such a delay. If a Fund has
previously been advised in writing of your brokerage or bank account,
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<PAGE> 16
telephone requests by any person are accepted for payment to such account by
calling 1-800-637-1700. The Funds may be liable for any losses caused by their
failure to employ reasonable procedures. To reduce the risk of loss, proceeds of
telephone redemptions may be sent only (1) to the bank or brokerage account
designated by the shareholder, in writing, on the investment application or in a
letter with the signature(s) guaranteed; or (2) to the address of record if all
the conditions listed below are met. To change the designated brokerage or bank
account it is necessary to contact the firm through which shares of the Fund
were purchased or if purchased directly from the Funds, it is necessary to send
a written request to the Funds with signature(s) guaranteed as described below.
Other redemption orders must be in writing with the necessary signature(s)
guaranteed by a domestic commercial bank; a domestic trust company; a domestic
savings bank, credit union or savings association; or a member firm of a
national securities exchange. Guarantees from notaries public are unacceptable.
The Funds will waive the signature guarantee requirement for Class D
shareholders on a redemption request once every thirty (30) days if ALL of the
following conditions apply: (1) the redemption is for $5,000 or less; (2) the
redemption check is payable to the shareholder(s) of record; and (3) the
redemption check is mailed to the shareholder(s) at the address of record. The
requirement of a guaranteed signature protects against an unauthorized person
redeeming shares and obtaining the redemption proceeds. Redemption instructions
and election of the plans described may be made when your account is opened.
Subsequent elections and changes in instructions must be in writing with the
signature(s) guaranteed. Changes in registration or authorized signatories may
require additional documentation.
The Funds reserve the right to refuse a telephone redemption if it believes
it is advisable to do so. Procedures for telephone redemptions may be modified
or terminated by the Fund at any time. During times of drastic economic or
market conditions shareholders may experience difficulty in contacting the Funds
by telephone to request a redemption or exchange of a Fund's shares. In such
cases shareholders should consider using another method of redemption, such as a
written request or a redemption by check.
Redemption by Check. (Class D shareholders only) By completing a signature
card (and certain other documentation if the record owner is a fiduciary,
corporation, partnership, trust or other organization) which is available from
the Funds or the firm through which shares of the Funds were purchased, you can
write checks against your account. This privilege may not be available to
clients of certain firms. There is no minimum amount for check redemptions,
however, the Fund, upon proper notice to the shareholder may choose to impose a
fee if it deems a shareholder's actions to be burdensome to the Funds. A firm
may establish variations of minimum check amounts for their customers if such
variations are approved by the Funds. This procedure lengthens the time your
money earns dividends, since redemptions are not made until the check is
processed by the funds. Because of this, a check cannot completely liquidate
your account, nor may a check be presented for certification or immediate
payment. Otherwise, you may deposit a check in your bank account or use it to
pay any third party obligation not requiring certification. Shareholder checks
written against accounts with insufficient funds, postdated checks and checks
which contain an irregularity in the signature, amount or otherwise will be
returned by the Funds and a fee charged against the account. Because check
redemptions are reported on account statements, they will not be confirmed
separately. A fee is charged for providing check copies.
Stop Payments. (Class D shareholders only) The Funds will honor stop
payment requests on unpaid shareholder checks provided the Funds are advised of
the correct check number, payee, check amount and date. Stop payment requests
received by the Funds by 2:00 P.M. (New York time) in proper form will be
effective the next business day. Oral stop payment requests are effective for 14
calendar days, at which time they will be canceled unless confirmed in writing.
Written stop payment orders are effective for one year. A fee Is charged for
this service.
Automatic Withdrawal Plans. (Class D shareholders only ) If you have an
account with a balance of at least $5,000 you may make a written election to
participate in either of the following: (i) an Income Distribution Plan
providing for monthly, quarterly or annual payments by redemption of shares from
reinvested dividends or distributions paid to your account during the preceding
period; or (ii) a Fixed Amount Withdrawal Plan providing for the automatic
redemption of a sufficient number of shares of your account to make a specified
monthly, quarterly or annual payment of a fixed amount. Changes to instructions
must be in writing with signature(s) guaranteed. In order for such payments to
continue under either Plan, there must be
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<PAGE> 17
a minimum of $25 available from reinvested dividends or distributions. Payments
can be made to you or your designee. An application for the Automatic Withdrawal
Plans can be obtained from the Funds. The amount, frequency and recipient of the
payments may be changed by giving proper written notice to the Funds. The Funds
may impose a charge or modify or terminate any Automatic Withdrawal Plan at any
time after the participant has been duly notified. This privilege may not be
available to clients of certain firms or may be available subject to conditions
or limitations.
Reserve Automatic Transfer. (Class D shareholders only) You may redeem
shares of a Fund (minimum $100) without charge by telephone if you have filed a
separate Reserve Automatic Transfer application with the Fund for Class D
shareholders only. The proceeds will be transferred between your Fund account
and the checking, NOW or bank money market deposit account (as permitted)
designated in the application. Only such an account maintained in a domestic
financial institution which is an Automated Clearing House member may be so
designated. Redemption proceeds will be on deposit in your account at the
Automated Clearing House member bank ordinarily two business days after receipt
of the redemption request. The Funds may impose a charge or modify or terminate
this privilege at any time after the participant has been duly notified. This
privilege may not be available to clients of certain firms or may be available
subject to conditions or limitations.
Restrictions. The right of redemption may be suspended or the date of
payment postponed for more than seven days only (a) when the New York Stock
Exchange is closed (other than for customary closings), (b) when, as determined
by the Securities and Exchange Commission ("SEC"), trading on the Exchange is
restricted or an emergency exists making it not reasonably practicable to
dispose of securities owned by a Fund or for it to determine fairly the value of
its net assets, or (c) for such periods as the SEC may by order permit. If
shares of a Fund are purchased by check or Reserve Automatic Transfer, the Fund
may delay transmittal of redemption proceeds until such time as it has assured
itself that good payment has been collected for the purchase of such shares,
which will generally be up to ten (10) business days. Shareholder checks written
against Funds which are not yet considered collected will be returned and a fee
charged against the account (for Class D shareholders only). When a purchase is
made by wire and subsequently redeemed, the proceeds from such redemptions
normally will not be transmitted until two business days after the purchase by
wire.
GENERAL INFORMATION
Backup Withholding. The Funds are required by federal law to withhold 31%
of dividends and other distributions that are subject to federal income tax if
(i) a correct and certified Taxpayer Identification Number (TIN) is not provided
for your account, (ii) you fail to certify that you have not been notified by
the IRS that you underreported taxable interest or dividend payments or (iii) a
Fund is notified by the IRS (or a broker) that the TIN provided is incorrect or
you are otherwise subject to backup withholding. Amounts withheld and forwarded
to the IRS can be credited as a payment of tax when completing your federal
income tax return. For individual shareholders, the TIN is the social security
number. However, special rules apply for certain accounts. For example, for an
account established under the Uniform Gift to Minors Act, the TIN of the minor
should be furnished. Shareholders should be aware that, under regulations
promulgated by the IRS, a Fund may be fined $50 annually for each account for
which a certified TIN is not provided or is incorrect. In the event that such a
fine is imposed with respect to an account in any year, a corresponding charge
will be made against the account. The Funds will not accept purchase orders for
accounts which a correct and certified TIN is not provided or otherwise subject
to backup withholding unless the accountholder is a non-resident alien.
Reports and Statements. Shareholders receive an annual report containing
audited financial statements and an unaudited semi-annual report. A statement is
sent to each shareholder at least quarterly. Shareholders who are clients of
certain firms will receive a statement combining transactions in Fund shares
with statements covering other brokerage or mutual fund accounts.
Small Balances. (Class D shareholders only) Because of the expense of
maintaining accounts with small balances (less than $1,000), the Funds will
either levy a monthly charge (currently $5) or redeem the account
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<PAGE> 18
and remit the proceeds. A firm may establish variations of minimum balances and
fee amounts if such variations are approved by the Funds.
Reserve Easy Access. Easy Access is The Reserve Institutional Trust's 24
hour toll-free, telephone service that lets customers use a touch-tone phone to
obtain yields and account balances. To use it, call 1-800-637-1700 and follow
the instructions you will receive.
Inquiries. Shareholders should direct their inquiries to the firm from
which they received this Prospectus or the Funds.
Special Services. The Funds reserve the right to charge shareholder
accounts for specific costs incurred in processing unusual transactions for
shareholders. Such transactions include, but are not limited to, stop payment
requests on or copies of Fund redemption checks or shareholder checks, copies of
statements and special research services.
Performance. The Funds may compare their performance to other income
producing alternatives such as (i) money market Funds (based on yields cited by
Donoghue's Money Fund Report and other industry publications); and (ii) various
bank products (based on average rates of bank and thrift institution
certificates of deposit, money market deposit accounts and N.O.W. accounts as
reported by the Bank Rate Monitor and other industry publications). An
investment in shares of Funds is not insured by the Federal Deposit Insurance
Corporation.
Yield information is useful in reviewing a Fund's performance relative to
other Funds that hold investments of similar quality. Because yields will
fluctuate, yield information may not provide a basis for comparison with bank
and thrift certificates of deposit which normally pay a fixed rate for a fixed
term and are subject to a penalty for withdrawals prior to maturity which will
reduce their return.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
------------------------
15
<PAGE> 19
THE RESERVE INSTITUTIONAL TRUST
810 SEVENTH AVENUE -- NEW YORK, N.Y. 10019
(212) 977-9982
(800) 637-1700
YIELD AND BALANCE INFORMATION
(800) 637-1700 - (TOUCH TONE PHONE)
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 2, 1997
This Statement of Additional Information describes The Reserve
Institutional Trust ("Trust"). The Trust is presently comprised of four separate
Funds -- the Primary Institutional Fund, the U.S. Treasury Institutional Fund,
the U.S. Government Institutional Fund and the Interstate Tax-Exempt
Institutional Fund (hereinafter referred to as the "Fund(s)"; the U.S. Treasury
Institutional Fund, the U.S. Government Institutional Fund and the Interstate
Tax-Exempt Institutional Fund are hereinafter referred to as the "Treasury
Fund", "Government Fund", and "Interstate Fund", respectively). Each Fund offers
four classes of shares.
This Statement of Additional Information is not a Prospectus and is only
authorized for distribution when preceded or accompanied by the Trust's
prospectus dated January 2, 1997 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus, additional copies of which may be obtained without charge from the
Trust at the above address.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies..................................................... 2
Trustees and Officers of the Trust.................................................... 6
Investment Management, Distribution, and Custodian Agreements......................... 7
Portfolio Turnover, Transaction Charges and Allocation................................ 9
Shares of Beneficial Interest......................................................... 9
Purchase, Redemption and Pricing of Shares............................................ 10
Distributions and Taxes............................................................... 12
Fund Yield............................................................................ 14
Reserve Cash Performance Account and Account Plus..................................... 14
Ratings............................................................................... 16
</TABLE>
SHARES OF THE FUNDS ARE NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 20
INVESTMENT OBJECTIVES, POLICIES AND RISK
The investment objective of each Fund, with the exception of the Interstate
Fund, is to seek as high a level of current income as is consistent with
preservation of capital and liquidity.
The Interstate Fund's investment objective is to seek as high a level of
short-term interest income exempt from federal income taxes as is consistent
with preservation of capital and liquidity, by investing principally in
obligations issued by states, territories, and possessions of the United States
and by their political subdivisions, duly constituted authorities and
corporations.
Supplemental Investment Policies. Each Fund's investment objective and the
following investment policies may not be changed without the affirmative vote of
a majority of the outstanding shares of a Fund. A majority of the outstanding
shares of a Fund means the vote of the lesser of (i) 67% or more of the shares
of a Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. A Fund cannot:
(1) borrow money except as a temporary or emergency measure and not in an
amount to exceed 5% of the market value of its total assets;
(2) issue securities senior to its capital stock;
(3) act as an underwriter with respect to the securities of others;
(4) concentrate investments in any particular industry except to the
extent that its investments are concentrated exclusively in U.S.
Government securities, bank obligations, including obligations of
foreign branches of domestic banks where the domestic parent would be
unconditionally liable in the event that the foreign branch failed to
pay on its instruments for any reason, and Municipal Obligations or
instruments secured by such obligations;
(5) purchase, sell or otherwise invest in real estate or commodities or
commodity contracts; however, the Interstate Fund may purchase
Municipal Obligations secured by interests in real estate;
(6) lend more than 33 1/3% of the value of its total assets to the extent
its investments may be considered loans;
(7) sell any security short or write, sell or purchase any futures
contract or put or call option;
(8) invest in voting securities or in companies for the purpose of
exercising control;
(9) invest in the securities of other investment companies except in
compliance with the Investment Company Act of 1940;
(10) make investments on a margin basis;
(11) purchase or sell any securities (other than securities of the Fund)
from or to any officer or Trustee of the Fund, the investment adviser
or affiliated person except in compliance with the Investment Company
Act of 1940.
Other Policies. The Primary and Government Funds may, to increase their
income, lend their securities to brokers, dealers and institutional investors if
the loan is collateralized in accordance with applicable regulatory requirements
(the "Guidelines") and if, after any loan, the value of the securities loaned
does not exceed 25% of the value of its assets. Under the present Guidelines,
the loan collateral must, on each business day, at least equal the value of the
loaned securities plus accrued interest and must consist of cash, or securities
of the U.S. Government (or its agencies or instrumentalities). The Funds receive
an amount equal to the interest on loaned securities and also receive negotiated
loan fees, interest on securities used as collateral or interest on short-term
debt securities purchased with such collateral, either of which type of interest
may be shared with the borrower. The Funds may also pay reasonable finders,
custodian and administrative fees. Loan arrangements made by a Fund will comply
with all other applicable regulatory requirements including the rules of the New
York Stock Exchange, which require the borrower, after notice, to redeliver the
securities within the normal settlement time of five business days. While voting
rights may pass with the loaned
2
<PAGE> 21
securities, if a material event will occur affecting an investment on loan, the
loan must be called and the securities voted.
The Primary Institutional Fund may purchase corporate notes collateralized
by a bank letter of credit or securities of the U.S. Government, its agencies or
instrumentalities. Collateralized commercial paper purchased by the Fund is
rated A-1 and P-1 by Standard & Poor's Corporation and Moody's Investors
Service, Inc., respectively, or the equivalent thereof if rated by another
ratings agency. The collateral consists of U.S. Government securities having a
current market value in excess of the collateralized commercial paper
outstanding. A Trustee is usually appointed by the collateralized commercial
paper issuer to hold the collateral and administer the credit agreement for the
benefit of the holders.
The Primary Institutional Fund may invest in bank obligations which include
certificates of deposit, bankers' acceptances, letters of credit and time
deposits. A certificate of deposit is a negotiable certificate representing a
financial institution's obligation to repay funds deposited with it, earning a
specified rate of interest over a given period. A bankers' acceptance is a
negotiable obligation of a bank to pay a draft which has been drawn on it by a
customer. A time deposit is a non-negotiable deposit in a financial institution
earning a specified interest rate over a given period of time. A letter of
credit is an unconditional guarantee by the issuing bank to pay principal and
interest on a note a corporation has issued.
From time to time, on a temporary basis other than for temporary defensive
purposes, the Interstate Fund may invest in taxable short term investments
("Taxable Investments") consisting of obligations backed by the full faith and
credit of the United States Government, its agencies and instrumentalities
("U.S. Governments"); deposit-type obligations, acceptances and letters of
credit of Federal Deposit Insurance Corporation member banks; or instruments
fully secured or collateralized by such obligations. The Fund will not invest in
foreign securities or in taxable commercial paper. Interest earned on Taxable
Investments will be taxable income to investors. Unless the Fund has adopted a
temporary defensive position, no more than 20% of its net assets will be
invested in Taxable Investments at any time.
Certain banks and other municipal securities dealers have indicated a
willingness to sell Municipal Obligations to the Interstate Fund accompanied by
a commitment to repurchase the securities, at the Interstate Fund's option or on
a specified date, at an agreed-upon price or yield within a specified period
prior to the maturity date of such securities.
Repurchase and Reverse Repurchase Agreements. A repurchase agreement
transaction occurs when a Fund purchases and simultaneously contracts to resell
in advance securities at fixed prices determined by the negotiated yields. Each
Fund will limit repurchase agreement transactions to those domestic financial
institutions and securities dealers who are deemed credit worthy pursuant to
guidelines established by the Fund's Board of Trustees. The investment adviser
will follow procedures intended to provide that all repurchase agreements are at
least 100% collateralized as to principal and interest.
The Fund will make payment for such instruments only upon their physical
delivery to, or evidence of their book-entry transfer to, the account of the
Fund's Custodian. If the seller defaults on the repurchase obligation the Fund
could incur a loss and may incur costs in disposing of the underlying security.
A Fund will not hold more than 10% of its net assets in illiquid securities,
including repurchase agreements providing for settlement in more than seven days
after notice.
The Primary, Government and Interstate Funds may sell securities in a
reverse repurchase agreement when it is considered advantageous, such as to
cover net redemptions or to avoid a premature outright sale of its portfolio
securities. In a typical reverse repurchase agreement transaction, the seller
(Fund) retains the right to receive interest and principal payments on the
security, but transfers title to and possession of it to a second party in
return for a percentage of its value. By paying back to this party the value
received plus interest, the seller repurchases the transferred security. It is
the Trust's policy that entering into a reverse repurchase agreement transaction
will be for temporary purposes only and, when aggregated with other borrowings,
may not exceed 5% of the value of the total assets of the Fund at the time of
the transaction.
Municipal Obligations (Interstate Fund only). Municipal bonds and municipal
notes are the two major classifications of Municipal Obligations. Such
obligations are generally issued to obtain funds for various
3
<PAGE> 22
public purposes, including the construction of public facilities such as
airports, bridges, highways, houses, hospitals, mass transportation, schools,
streets, and water and sewer works. In addition, Municipal Obligations may be
issues to refund outstanding debt and obtain funds for general operating
expenses.
Municipal bonds, which are long term instruments and generally have
maturities longer than one year when issued, may be either "general obligation"
or "revenue" issues. General obligation bonds are secured by the issuer's pledge
of its full faith, credit, and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities, as, in some cases, from the proceeds
of a special excise tax or other specific revenue source but not from the
general taxing power.
Certain kinds of industrial development bonds ("IDBs") are issued by or on
behalf of the public authorities to provide funding for various privately
operated industrial facilities such as warehouse, office, plant, and store
facilities. IDBs are, in most cases, revenue bonds and do not generally
constitute the pledge of the credit of the issuer of such bonds. The payment of
the principal and interest on IDBs usually depends solely on the ability of the
user of the facilities financed by the bonds or other guarantor to meet its
financial obligations, and in certain instances, the pledge of real and personal
property as security for payment. If there is no established secondary market
for the IDBs, the IDBs or the participation interests purchased by the
Interstate Fund will be supported by repurchase commitments and bank letters of
credit or guarantees of banks that meet the quality criteria of the Fund and
which may be exercised by the Fund to provide liquidity.
Municipal notes are usually issued to obtain funds in anticipation of
receipt of taxes, receipt of proceeds of issuances of municipal bonds or other
revenue which will provide funds to repay the notes, and generally have
maturities of one year or less.
On April 20, 1988, the United States Supreme Court in South Carolina v.
Baker, overruled an 1895 case, Pollack v. Farmers' Loan & Company which held
that interest on Municipal Obligations was immune from federal taxation. As a
result, proposals may be introduced before the Congress to eliminate or restrict
the federal income tax exemption for interest on certain Municipal Obligations.
The Interstate Fund may purchase securities affected by these proposals. If
such proposals are enacted, the availability of Municipal Obligations by the
Fund would be adversely affected. In such event, the Interstate Fund would
reevaluate its investment objective and policies and submit possible changes in
the structure of the Fund for the consideration of shareholders. Investors
should be aware that the quantity of Municipal Obligations available for
purchase by the Fund may be limited, and that factor may affect the amount of
tax-exempt income which can be obtained from an investment in the Interstate
Fund. Substantial reductions in the availability of tax exempt securities might
also cause a reevaluation of Fund's investment objective and policies.
Subsequent to its purchase by the Interstate Fund, an issue of rated
Municipal Obligations may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Fund. In the event a Municipal
Obligation's rating falls below the second highest rating category of a
nationally recognized statistical rating agency, the Municipal Obligation will
be disposed of within five business days of the date the investment adviser
becomes aware of the new rating. Should a rated Municipal Obligation cease to be
rated, the investment adviser will promptly reassess the credit risk of the
Municipal Obligation. The ratings of Moody's and S&P represent their opinions as
to the quality of the Municipal Obligations they rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality.
Variable Rate Demand Instruments (Interstate Fund only). Variable rate
demand instruments that the Interstate Fund may purchase are tax-exempt
Municipal Obligations or participation interests therein that provide for a
periodic adjustments in the interest rate paid on the instrument and permit the
holder to demand payment of the unpaid principal balance plus accrued interest
upon a specified number of days' notice either from the issuer or by drawing on
a bank letter of credit or guarantee issued with respect to such instrument. The
issuer of the Municipal Obligation may have a corresponding right to prepay in
its discretion the outstanding principal of the instrument plus accrued interest
upon notice comparable to that required for the holder to demand payment.
4
<PAGE> 23
The variable rate demand instruments in which the Fund may invest will
comply with Rule 2a-7 under the Investment Company Act of 1940. The Fund will
determine the variable rate demand instruments it will purchase in accordance
with procedures prescribed by the Fund's Board to minimize credit risks. The
Fund's investment adviser may determine that an unrated variable rate demand
instrument meets the Fund's high quality criteria if it is backed by a suitable
bank letter of credit or guarantee.
The variable rate demand instruments that the Interstate Fund may invest in
include participation interests purchased from banks in variable rate tax exempt
Municipal Obligations owned by banks or affiliated organizations. A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation interest bears to the
total principal amount of the Municipal Obligation and provides the repurchase
feature described above. Each participation is backed by an irrevocable letter
of credit or guarantee of an appropriately rated bank. The Fund has the right to
sell the instrument back to the bank and draw on the letter of credit on demand,
after seven days' notice, for all or any part of the full principal amount of
the Fund's participation interest in the bond plus accrued notice, for all or
any part of the full principal amount of the Fund's participation interest in
the bond plus accrued interest. Banks usually retain a service fee, a letter of
credit fee and a fee for issuing repurchase commitments in an amount equal to
the excess of the interest paid on the Municipal Obligations over the negotiated
yield at which the instrument was purchased by the Fund.
5
<PAGE> 24
TRUSTEES AND OFFICERS OF THE TRUST
<TABLE>
<CAPTION>
TRUSTEE'S NAME,
ADDRESS AND AGE POSITION HELD DIRECTOR BIOGRAPHIES
- ----------------------- ----------------------- ---------------------------------------
<S> <C> <C>
BRUCE R. BENT* President, Treasurer Mr. Bent is President, Treasurer and
810 Seventh Avenue and Trustee Trustee of each Trust and of Reserve
New York, NY 10019 Private Equity Series. Mr. Bent is also
Age: 59 Vice President, Secretary and Director
of both Reserve Management Company Inc.
and Reserve Management Corporation, and
he is Chairman and Director of RESRV
Partners, Inc.
EDWIN EHLERT, JR.+ Trustee Mr. Ehlert is President of Premier
125 Elm Street Resources Inc., a meeting planning and
Westfield, NJ 07091 management organization. Mr. Ehlert is
Age: 65 also a Trustee of Reserve Private
Equity Series.
HENRI W. EMMET+ Trustee Since January 1, 1995, Mr. Emmet has
176 E. 71st Street served as a Principal of Global
New York, NY 10021 Interaction, which provides consulting
Age: 70 services to international banking
interests. From December 1, 1989
through December 31, 1994, Mr. Emmet
served as a Director of Servus
Associates Inc. Mr. Emmet is also a
Trustee of Reserve Private Equity
Series.
DONALD J. HARRINGTON, Trustee Reverend Harrington is President of St.
CM*+ John's University (NY) and serves as a
St. John's University Director of the Bear Stearns Companies,
Jamaica, NY 11439 Inc. Reverend Harrington is also a
Age: 51 Trustee of Reserve Private Equity
Series.
NIELS W. JOHNSEN+ Trustee Mr. Johnsen is Chairman of the Board of
1 Whitehall Street International Shipholding Corp. and of
New York, NY 10004 Central Gulf Lines, Inc., each of which
Age: 74 are involved in the ship cargo
business. Mr. Johnsen is also a Trustee
of Reserve Private Equity Series.
MARC C. COZZOLINO Counsel and Secretary Prior to becoming Secretary and Counsel
810 Seventh Avenue of each Trust in 1994, Mr. Cozzolino
New York, NY 10019 was an attorney with the New Jersey
Age: 28 Bureau of Securities.
PAT A. COLLETTI Controller Mr. Colletti has served as Controller
810 Seventh Avenue of each of the Trusts since 1989.
New York, NY 10019
Age: 38
</TABLE>
- ---------------
* Interested Trustee within the meaning of the Investment Company Act of
1940.
++ Messrs. Ehlert, Emmet, Harrington, and Johnsen are members of a Review
Committee which performs the functions of Audit Committee and reviews
compliance procedures and practices.
The members of the Board of Trustees will be paid a stipend of $3,500 for
each Board meeting that they attend.
6
<PAGE> 25
As of May 31, 1996, Trustees and officers directly or indirectly as a group
owned less than 1% of the outstanding shares of the Funds.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM FUND AND FUND
COMPENSATION COMPLEX (5 ADDITIONAL
NAME OF PERSON, POSITION FROM FUND* TRUSTS) PAID TO TRUSTEE*
- ----------------------------------------------------------- ------------ ------------------------
<S> <C> <C>
Edwin Ehlert, Jr........................................... $0 $ 22,197
Henri W. Emmet............................................. $0 $ 22,197
Rev. Donald J. Harrington.................................. $0 $ 22,197
Niels W. Johnsen........................................... $0 $ 22,197
</TABLE>
- ---------------
* Amounts shown include estimated future payments from the Fund for the Fund's
fiscal year ending May 31, 1996.
INVESTMENT MANAGEMENT, DISTRIBUTION
AND CUSTODIAN AGREEMENTS
Investment Management Agreement. Reserve Management Company, Inc. ("RMCI"),
14 Locust Place, Manhasset, NY 11030, of which Messrs. Henry B.R. Brown and
Bruce R. Bent are the Directors, manages the Fund and provides it with
investment advice pursuant to a separate Investment Management Agreement for
each portfolio. Messrs. Brown and Bent together with their children own RMCI.
Under the Investment Management Agreements, RMCI manages the Funds' investments,
including effecting purchases and sales thereof, in furtherance of each Fund's
investment objective and policies, subject to overall control and direction of
the Trustees.
Under the terms of the Investment Management Agreements with the Funds,
RMCI also pays all employee costs and ordinary operating costs of the Funds. For
these services the Funds periodically pay RMCI a comprehensive management fee at
an annual rate of .25% of each Fund's average daily net assets. Excluded from
ordinary operating costs are interest charges, taxes, brokerage fees and
commissions, extraordinary legal and accounting fees and expenses.
From time to time, RMCI may waive receipt of its fees and/or voluntarily
assume certain expenses of a Fund which would have the effect of lowering the
Fund's expense ratio and increasing yield to investors at the time such amounts
are assumed or waived, as the case may be. RMCI may also make such advertising
and promotional expenditures, using its own resources, as it from time to time
deems appropriate.
The Investment Management Agreements for the Funds were duly approved by
the sole shareholder on December 18, 1996, and may be renewed annually if
specifically approved by the Board of Trustees and by the vote of a majority of
the Trustees who are not "interested persons" ("disinterested Trustees") cast in
person at a meeting called for the purpose of voting on such renewal. The
agreements terminate automatically upon their assignment and may be terminated
without penalty upon 60 days written notice by a vote of the Board of Trustees
or by vote of a majority of outstanding voting shares of a Fund or by RMCI.
Distribution Agreement. The Funds' Distributor is Resrv Partners, Inc.
("RESRV"), 810 Seventh Avenue, New York, NY 10019. The Fund has authorized the
Distributor, in connection with their sale of Fund shares, to give only such
information and to make only such statements and representations as are
contained in the Prospectus. Sales may be made only by the Prospectus. The
Distributor may offer and sell shares of the Fund pursuant to a separate
Prospectus applicable to such Distributor. The Distributor is the "principal
underwriter" for the Fund within the meaning of the Investment Company Act of
1940, and as such acts as agent in arranging for the continuous offering of Fund
shares. The Distributor has the right to enter into selected dealer agreements
with brokers or other persons of its choice for the sale of Fund shares. Parties
to selected dealer agreements may receive assistance payments, if they qualify
for such payments, under the Plan of Distribution described below. RESRV's
principal business is the distribution of mutual fund shares. The Distributor
has retained no underwriting commissions on the sale of Fund shares during the
last three fiscal years. No distribution assistance payments were made to RESRV.
7
<PAGE> 26
The Distribution Agreements may be renewed annually if specifically
approved by the Board of Trustees and by the vote of a majority of the
disinterested Trustees cast in person at a meeting called for the purpose of
voting on such approval or by the vote of a majority of the outstanding voting
securities of the Fund.
Distribution Plan and Service Plan. The Funds each maintain a Distribution
Plan and related agreements pursuant to Rule 12b-1 under the Investment Company
Act of 1940, which provides that investment companies may pay distribution
expenses, directly or indirectly, pursuant to a Distribution Plan adopted by the
investment company's Board and approved by its shareholders. Under the
Distribution Plan, each Fund makes assistance payments to brokers, financial
institutions and other financial intermediaries ("payee(s)") for shareholder
accounts ("qualified accounts") as to which a payee has rendered distribution
assistance services to the Class C and D shares at an annual rate of .25% and
.50%, respectively, of the average net asset value of the qualified accounts.
Substantially all such monies (together with significant amounts from RMCI's own
resources) are paid by RMCI to payees for their distribution assistance with any
remaining amounts being used to partially defray other expenses incurred by RMCI
in distributing Fund shares. In addition to the amounts required by the
Distribution Plan, RMCI may, in its discretion, pay additional amounts from its
resources. The rate of any additional amounts that may be paid will be based
upon RESRV's and RMCI's analysis of the contribution that a payee makes to the
Fund by increasing assets under management and reducing expense ratios and the
cost to the Fund if such services were provided directly by the Fund or other
authorized persons. RMCI and RESRV will also consider the need to respond to
competitive offers of others, which could result in assets being withdrawn from
the Fund and an increase in the expense ratio for the Fund. RMCI may elect to
retain a portion of the distribution assistance payments to pay for sales
materials or other promotional activities. The Trustees have determined that
there is a reasonable likelihood the Distribution Plan will benefit the Fund and
its shareholders.
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling, or
distributing securities, although national and state chartered banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. Those persons who wish to provide assistance in the form of
activities not primarily intended to result in the sale of Fund shares (such as
administrative and account maintenance services) may include banks, upon advice
of counsel that they are permitted to do so under applicable laws and
regulations, including the Glass-Steagall Act. In such event, no preference will
be given to securities issued by such banks as investments and the assistance
payments received by such banks under the Distribution Plan may or may not
compensate the banks for their administrative and account maintenance services
for which the banks may also receive compensation from the bank accounts they
service. It is Fund management's position that payments to banks pursuant to the
Distribution Plan for activities not primarily intended to result in the sale of
Fund shares, such as administrative and account maintenance services, do not
violate the Glass-Steagall Act. However, this is an unsettled area of the law
and if a determination contrary to management's position is made by a bank
regulatory agency or court concerning payments to banks contemplated by the
Distribution Plan, any such payments will be terminated and any shares
registered in the bank's name, for its underlying customer, will be registered
in the name of that customer. Financial institutions providing distribution
assistance or administrative services for the Fund may be required to register
as securities dealers in certain states.
Under the Distribution Plan, the Fund's Controller or Treasurer reports
quarterly the amounts and purposes of assistance payments. During the
continuance of the Distribution Plan the selection and nomination of the
disinterested Trustees are at the discretion of the disinterested Trustees
currently in office.
The Distribution Plan and related agreements were duly approved by
shareholders and may be terminated at any time by a vote of a majority of the
outstanding voting securities of each portfolio or by vote of the disinterested
Trustees The Distribution Plan and related agreements may be renewed from year
to year if approved by a vote of the majority of the Board of Trustees, and by
the vote of a majority of the disinterested Trustees cast in person at a meeting
called for the purpose of voting on such renewal. The Distribution Plan may not
be amended to increase materially the amount to be spent for distribution
without shareholder approval. All material amendments to the Distribution Plan
must be approved by a vote of the Board of Trustees and of the disinterested
Trustees, cast in person at a meeting called for the purpose of such vote.
8
<PAGE> 27
The Securities and Exchange Commission had proposed to amend Rule 12b-1
under the Investment Company Act of 1940 in a manner which, among other things,
would effectively prohibit the implementation of compensation plans or any other
plans that do not tie payments by a fund to specific distribution activities. If
such a proposal were implemented, the Board of Trustees would determine, at such
time and in light of the existing circumstances, the appropriateness of
continuing the Distribution Plan, recommending its modification or
discontinuance, or taking any other action.
Under the Service Plan, each Fund may pay a service fee of 0.25% of the net
asset value of qualified accounts to brokers or other financial intermediaries
as compensation for personal services provided to investors, including
maintaining shareholder accounts and responding to inquiries and providing
information about investments. Class A shares do not participate in the Service
Plan.
Custodial Services and Independent Accountant. The Chase Manhattan Bank, 4
New York Plaza, New York, NY 10004 is Custodian of the Fund's securities and
cash pursuant to a Custodian Agreement. The Bank of New York, 48 Wall Street,
New York, NY 10015 is a Custodian for the Fund for limited purposes in
connection with certain repurchase agreements. Coopers & Lybrand, L.L.P., 1301
Avenue of the Americas, New York, NY 10019 is the Fund's independent accountant.
PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION
As investment securities transactions made by the Fund are normally
principal transactions at net prices, the Fund does not normally incur brokerage
commissions. Purchases of securities from underwriters involve a commission or
concession paid by the issuer to the underwriter and aftermarket transactions
with dealers involve a spread between the bid and asked prices.
The Primary, Treasury and Government Funds' policy of investing in debt
securities maturing within one year, and the Interstate Fund's policy of
investing in debt securities maturing within 13 months, results in high
portfolio turnover. However, because the cost of these transactions is minimal,
high turnover does not have a material adverse effect upon the net asset value
or yield of the Fund.
Subject to the overall supervision of the officers of the Fund and the
Board of Trustees, RMCI places all orders for the purchase and sale of the
Fund's investment securities. In general, in the purchase and sale of investment
securities RMCI will seek to obtain prompt and reliable execution of orders at
the most favorable prices and yields. In determining best price and execution,
RMCI may take into account a dealer's operational and financial capabilities,
the type of transaction involved, the dealer's general relationship with RMCI,
and any statistical, research, or other services provided by the dealer to RMCI.
To the extent such non-price factors are taken into account the execution price
paid may be increased, but only in reasonable relation to the benefit of such
non-price factors to the Fund as determined by RMCI. Brokers or dealers who
execute investment securities transactions may also sell shares of the Fund;
however, any such sales will not be either a qualifying or disqualifying factor
in the selection of brokers or dealers.
When orders to purchase or sell the same security on identical terms are
simultaneously placed for the Fund and other investment companies managed by
RMCI, the transactions are allocated as to amount in accordance with each order
placed for each fund. However, RMCI may not always be able to purchase or sell
the same security on identical terms for all investment companies affected.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest, and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Fund. If they deem it advisable
and in the best interests of shareholders, the Trustees may classify or
reclassify any unissued shares of the Fund by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms and conditions of
redemption of the stock. Any changes would be required to comply with any
applicable state and Federal securities laws. These currently require that each
class be preferred over
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<PAGE> 28
all other classes in respect of assets specifically allocated to such class. It
is anticipated that under most circumstances, the rights of any additional class
would be comparable unless otherwise required to respond to the particular
situation. Upon liquidation of the Fund, shareholders are entitled to share pro
rata in the net assets of their respective portfolios available for distribution
to such shareholders. It is possible, although considered highly unlikely in
view of the method of operation of mutual funds, that should the assets of
another class of shares be insufficient to satisfy its liabilities, the assets
of another class could be subjected to claims arising from the operations of the
first class of shares. No changes can be made to the Fund's issued shares
without shareholder approval.
Each Fund share, when issued, is fully paid, nonassessable (except as set
forth below), and fully transferable or redeemable at the shareholder's option.
Each share has an equal interest in the net assets of the respective Fund, equal
rights to all dividends and other distributions from the Fund, and one vote for
all purposes. Shares of all classes vote together for the election of Trustees
and have noncumulative voting rights, meaning that the holders of more than 50%
of the shares voting for the election of Trustees could elect all Trustees if
they so choose, and in such event the holders of the remaining shares could not
elect any person to the Board of Trustees.
Under Massachusetts law, the shareholders and trustees of a business trust
can be personally liable for the trust's obligations to third parties unless, as
in this instance, the Declaration of Trust provides, in substance, that no
shareholder or trustee shall be personally liable for the Fund's, and each
investment portfolio's, obligations to third parties, and requires that every
written contract made by a Fund contain a provision to that effect. The
Declaration of Trust also requires the Fund to indemnify its shareholders and
Trustees against such liabilities and any related claims or expenses.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration protects a Trustee against any liability to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
Regulations of the Securities and Exchange Commission provide that if a
class is separately affected by a matter requiring shareholder vote (election of
Trustees, ratification of independent auditor selection, and approval of an
underwriting agreement are not considered to have such separate effect and may
be voted upon by the shareholders of the Fund as a whole), each class will vote
separately. Each class votes separately on such matters as approval of the
Investment Management Agreement, material amendments to the Plan of
Distribution, and changes in the fundamental policies of the Fund. These items
require approval by a majority of the affected shareholders. For this purpose a
"majority" is constituted by either 50 percent of all shares voting as a group
or 67 percent of the shares voted as a group at an annual meeting of
shareholders at which at least 50 percent of the shares of each group are
represented.
As of December 30, 1996 no person was known by the Fund to own of record or
beneficially 5% or more of the outstanding shares of the Funds.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Redemption payments will normally be made by check or wire transfer but the
Fund is authorized to make payment of redemptions partly or wholly in kind (that
is, by delivery of investment securities valued at the same time as the
redemption net asset value is determined). The Fund has elected to permit any
shareholder of record to make redemptions wholly in cash to the extent the
shareholder's redemptions in any 90 day period do not exceed the lesser of
$250,000 or 1% of the net assets of the respective Fund. The election is
irrevocable pursuant to rules and regulations under the Investment Company Act
of 1940 unless withdrawal is permitted by order of the Securities and Exchange
Commission. Redemptions in kind are further limited by the Fund's practice of
holding instruments typically with a minimum value of $1,000,000 and its
intention to redeem in kind only when necessary to reduce a disparity between
amortized cost and market value. In disposing of such securities, an investor
might incur transaction costs and on the date of disposition might receive an
amount less than the net asset value of the redemption.
10
<PAGE> 29
IF SHARES OF THE FUND ARE PURCHASED BY CHECK OR RESERVE AUTOMATIC TRANSFER,
THE FUND MAY DELAY TRANSMITTAL OF REDEMPTION PROCEEDS UNTIL SUCH TIME AS IT HAS
ASSURED ITSELF THAT GOOD PAYMENT HAS BEEN COLLECTED FOR THE PURCHASE OF SUCH
SHARES, WHICH WILL GENERALLY BE UP TO 10 BUSINESS DAYS.
Purchases and Redemptions Through Others. Share purchases and redemptions
may also be made through brokers and financial institutions ("firms"). Firms may
provide varying arrangements for their clients with respect to the purchase and
redemption of Fund shares and may arrange with their clients for other
investment or administrative services. Some of these firms participate in the
Fund's Plan of Distribution ("Plan"). Under the Plan, payments are made to
persons who provide assistance in distributing Fund shares or other assistance
to the Fund.
Net Asset Value. Shares are offered at their net asset value. The net asset
value of the Fund is calculated at the close of each business day as defined in
the Prospectus. The net asset value is not calculated on New Year's Day,
Presidents' Day, Good Friday, Memorial Day observed, Independence Day, Labor
Day, Thanksgiving Day, Christmas Day, on other days the New York Stock Exchange
is closed for trading, and on certain regional banking holidays which may
include Martin Luther King's Birthday and Columbus Day. The net asset value of
each Fund is normally maintained at $1.00 per share. Each Fund cannot guarantee
that its net asset value will always remain at $1.00 per share.
The net asset value per share of each Fund is determined by adding the
value of all of the Fund's securities, cash and other assets, subtracting its
liabilities, and dividing the result by the number of its shares outstanding.
The Board of Trustees has determined the most practical method currently
available for valuing investment securities is the amortized cost method. This
procedure values a purchased security at cost at the time of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium and accrual of interest income, irrespective of intervening changes in
interest rates or security market values.
In order to maintain a $1.00 share price the Fund will utilize the
following practices: maintain a dollar-weighted average portfolio maturity of 90
days or less; purchase only instruments having remaining maturities of 397 days
or less; and invest only in securities determined by the Board of Trustees to be
of high quality with minimal credit risk. To assess whether repurchase agreement
transactions present more than minimal credit risk, the Trustees have
established guidelines and monitor the creditworthiness of all entities,
including banks and broker-dealers, with which the Fund proposes to enter into
repurchase agreements. In addition, such procedures are reasonably designed,
taking into account current market conditions and the investment objective of
the Fund, to attempt to maintain its net asset value as computed for the purpose
of sales and redemptions at $1.00 per share. Such procedures will include review
by the Trustees, at such intervals as they may determine reasonable, to
ascertain the extent of any difference in the net asset value of a Fund from
$1.00 a share determined by valuing its assets at amortized cost as opposed to
valuing them based on market factors. If the deviation exceeds 1/2 of one
percent, the Trustees will promptly consider what action if any should be
initiated. If they believe that the deviation may result in material dilution or
other unfair results to shareholders, the Trustees have undertaken to apply
appropriate corrective remedies which may include the sale of a Fund's assets
prior to maturity to realize capital gains or losses or to shorten the average
maturity of the Fund, withholding dividends, redemption of shares of the Fund in
kind, or reverting to valuation based upon market prices and estimates.
Shareholder Service Policies. The Fund's policies concerning the
shareholder services are subject to change from time to time. The Fund further
reserves the right to impose special service charges for services provided to
individual shareholders generally including, but not limited to, fees for
returned checks, stop payment orders on official checks and shareholder checks,
and special research services. The Fund's standard service charges as described
in the Prospectus are also subject to adjustment from time to time. In addition,
the Fund reserves the right to increase its minimum initial investment amount at
any time.
Crediting of Investments. The Fund will only give credit for investments in
the Fund on the day they become available in federal funds which is normally
within one or two days of receipt. A Federal Reserve wire system transfer ("Fed
wire") is the only type of wire transfer that is reliably available in federal
funds on the
11
<PAGE> 30
day sent. For a Fed wire to receive same day credit, the Fund must be notified
before 2:00 P.M. (New York time) (11:00 A.M. New York time for the Treasury and
Interstate Funds) of the amount to be transmitted and the account to be
credited. Shares of the Fund may be purchased by wire only.
The Fund reserves the right to reject any investment in the Fund for any
reason and may at any time suspend all new investment in the Fund.
IF THE WIRE FOR PURCHASE OF SHARES IS NOT RECEIVED BY THE FUND, THE SHARE
PURCHASE MAY BE CANCELED OR REDEEMED IMMEDIATELY. THE INVESTOR THAT GAVE NOTICE
OF THE INTENDED WIRE WILL BE HELD FULLY RESPONSIBLE FOR ANY LOSSES INCURRED BY
THE FUND, THE INVESTMENT ADVISER OR THE DISTRIBUTOR. THE FUND MAY REDEEM SHARES
FROM ANY ACCOUNT REGISTERED IN THAT PURCHASER'S NAME AND APPLY THE PROCEEDS
THEREFROM TO THE PAYMENT OF ANY AMOUNTS DUE THE FUND.
Share Certificates. Share certificates are not issued by the Trust.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 ("Code") so long as such
qualification is in the best interests of shareholders. The status of the Fund
as a regulated investment company does not involve government supervision of
management or of investment practices or policies. If it so qualifies, in any
fiscal year in which it distributes at least 90 percent of its net income, the
Fund will not be subjected to Federal income tax on such distributed amounts.
In order to qualify as a regulated investment company under the Code, the
Fund must, among other things, in each fiscal year distribute at least 90
percent of its investment company taxable income to shareholders; derive at
least 90 percent of its gross income from dividends, interest and gains from the
sale or disposition of securities; meet certain diversification requirements;
and derive less than 30 percent of its gross income from the sale or disposition
of securities held for less than three months.
The Funds intend to distribute all of their net investment income and net
capital gains, if any, and, therefore, do not expect to pay federal income tax.
Net investment income is made up of interest, less expenses. Because no portion
of a Fund's income will be comprised of dividends from domestic corporations,
none of the income distributions from a Fund will be eligible for the 70%
deduction for dividends received by corporations. Under the tax rate structure
enacted by the Tax Reform Act of 1986, the distinction between ordinary income
and capital gain and between long-term capital gain and short-term capital gain
is less relevant because the tax rates on ordinary income and short-term capital
gains are the same. However, the designation or short-term capital gain is
relevant for purposes of the tax rules governing the offsetting of gains and
losses and use of capital loss carryover.
The Treasury Fund intends to invest only in the U.S. Government securities
that provide interest income exempt from state and local income taxes, but may
invest up to 5 percent of its assets in repurchase agreements pending the
investment of uninvested cash. The Commonwealth of Pennsylvania requires that
for a mutual fund to pay exempt-interest dividends, it must have no power to
vary its portfolio investments except under five identified circumstances.
Because the Fund and each of its Funds may dispose of an investment under
circumstances other than the five specified instances, there can be no assurance
that dividends paid by the Fund will be eligible for pass-through status in
Pennsylvania. Distributions attributable to net capital gains, if any, are
generally subject to state and local taxes. It is possible that a state or local
taxing authority may in the future seek to tax an investor on a portion of the
interest income of an obligation held by the Treasury Fund.
Dividends derived from net investment income and distributions from net
realized short-term securities gains paid by the Fund with respect to Fund
shares beneficially owned by a foreign person generally are subject to U.S.
nonresident withholding taxes at a rate of 30%, unless the foreign person claims
the benefit of a
12
<PAGE> 31
lower rate specified in a tax treaty. Distributions from net realized long-term
securities gains paid by the Fund with respect to Fund shares beneficially owned
by a foreign person generally will not be subject to any U.S. withholding tax.
However, such distributions may be subject to 31% backup withholdings, as
described in Prospectus, unless the foreign person certifies his non-U.S.
residency status.
The Interstate Fund. Exempt interest dividends distributed to shareholders
are not includable in the shareholder's gross income for federal income tax
purposes. The percentage of income that is tax exempt will be determined for
each year and will be applied uniformly to all dividends declared during that
year. This percentage may differ from the actual tax exempt percentage for any
particular day. Distributions of net investment income received by the Fund from
investments in debt securities other than Municipal Obligations and any net
realized capital gains distributed by the Fund will be taxable as ordinary
income. Shareholders will be advised annually as to the federal income tax
consequences of distributions made during the year.
Statements as to the tax status of each investor's dividends and other
distributions will be mailed annually. The annual statements will set forth the
dollar amount of income subject to federal tax, if any. Distributions will be
reported under more than one identification number only if a separate account is
established for each number. If the Fund has both tax exempt and taxable
interest income, it will use the "actual earned method" for determining the
percentage that is taxable income. Under this methods, the ratio of taxable
income earned during the period, for which a distribution was made, to total
income earned during the period determines the percentage of the distribution
designated taxable and, as a result, the percentage of the distribution that is
tax-exempt may vary from distribution to distribution.
The identification of the issuer of Municipal Obligations depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority,instrumentality, or other political subdivision are separate from
those of the government creating the subdivision, such subdivision would be
deemed to be the sole issuer. Similarly, in the case of an industrial
development bond, if that bond is backed only by the assets and revenues of the
nongovernmental user, then such nongovernmental user would be deemed to be the
sole issuer. However, in either case, if the creating government or some entity
guarantees a security, such guarantee would be considered a separate security
and is to be treated as an issue of such government or other agency.
The Tax Reform Act of 1986 (the "Act") provides that in the event the Fund
should hold certain private activity bonds issued after August 7, 1986,
shareholders must include as an item of tax preference, the portion of dividends
paid by the fund that is attributable to interest on such bonds in their federal
alternative minimum taxable income for purposes of determining any liability for
the alternative minimum tax applicable to individuals and the alternative
minimum tax and the environmental tax applicable to corporations. In the case of
corporations, federal alternative minimum taxable income will also include
one-half of the excess of the corporation's pre-tax book income (including all
exempt-interest dividends) over the corporation's other federal alternative
minimum taxable income. Shareholders receiving Social Security benefits should
note that all exempt-interest dividends will be taken into account in
determining the taxability of such benefits.
The Act also provides that, for taxable years beginning after December 31,
1986, every person required to file a tax return must report solely for
informational purposes on such return the amount of exempt interest dividends
received from the Fund during the taxable year. In addition, with respect to a
shareholder who received exempt interest dividends on shares held for less than
six months, any loss on the sale or exchange of such shares will, to the extent
of the amount of such exempt interest dividends, be disallowed.
The exemption from federal income tax of dividends derived from interest on
Municipal Obligations does not necessarily result in exemption under the other
tax laws of the United States or any state or local taxing authority.
All Funds. Statements as to the tax status of each investor's dividends and
other distributions will be mailed annually. The annual statements will set
forth the dollar amount of income subject to federal tax. Distributions will be
reported under more than one tax identification number only if a separate
account is established for each number.
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<PAGE> 32
Shareholders are advised to consult with their tax advisers regarding the
applicability of state and local taxes to an investment or income therefrom in
the Fund which may differ from the Federal income tax consequences described
above.
FUND YIELD
The current yield of a Fund may differ from its effective yield and
annualized dividends.
Current yield is calculated by determining the net change (exclusive of
capital changes) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by a
fraction having 365 in the numerator and the number of days in the base period
in the denominator. The current yield stated in the prospectus utilizes a seven
day base period. Net change in account value must reflect (i) the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares; and (ii) any
recurring fees charged to all shareholder accounts, in proportion to the length
of the base period and the Fund's average or median account size. Net change in
account value must exclude realized gains or losses and unrealized appreciation
or depreciation.
Effective yield is computed by adding one to current yield, raising the sum
to a power equal to 365 divided by the number of days in the base period (seven
days), and subtracting one from the result according to the following formula:
Effective Yield = [(Base Period Return +1) 365 /7] -1. Effective annual yields
are a representation of the effective annual rate of return produced by the
monthly compounding of Fund dividends.
Yield information may be useful in reviewing the performance of the Fund,
but because of fluctuations, it may or may not provide a basis for comparison
with bank deposits, other money market funds or bank accounts which have
fluctuating share values, or other investments which pay a fixed yield for a
stated period of time, such as Treasury bills, bank certificates of deposit,
savings certificates and NOW accounts. When making comparisons, the investor
should also consider the quality and maturity of the portfolio securities of the
various money market funds. An investor's principal is not guaranteed by the
Fund, nor is it insured by a governmental agency.
RESERVE CASH PERFORMANCE ACCOUNT AND ACCOUNT PLUS
The Reserve Cash Performance Account and Reserve Cash Performance Account
Plus ("CPA") is a comprehensive package of additional services offered to
investors in the Funds for an additional fee, for Class D shareholders only.
Check Plan. A Check Plan is an arrangement with Bank One, Columbus, NA
("Bank One") whereby checks are issued to the participant which may be used to
redeem shares in any amount in a participant's Fund account. If Bank One accepts
a check for final payment, it will be paid by redemption of shares from your
account. Bank One will process new debits to a CHECK PLAN in order of receipt
against Bank One's determination of the CHECK PLAN "open-to-buy value" (the sum
of the value of the participant's shares transmitted before noon to Bank One
excluding (i) dividends which are accrued daily but including dividends paid
monthly and (ii) checks and wires for the purchase of shares which have not been
verified as described under "Restrictions" below, hereinafter referred to as the
participant's account "liquidity value," minus previous CHECK PLAN net debits
which have not been applied against the account's value). These debits include
outstanding unpaid checks authorized against the CHECK PLAN open-to-buy value
and redemptions from the participant's account determined and reported to Bank
One. Any check in an amount exceeding the participant's CHECK PLAN open-to-buy
value for that business day will not be paid but will be returned by Bank One to
the payee in such manner as Bank One may select. Checks may be used in the same
manner as other bank checks and may be written in any amount. Checks will be
received by Bank One through the Federal Reserve System or other clearing
channels which Bank One may establish from time to time. Checks will not be
returned to the participant but complete information on such checks, including
the payee, will be
14
<PAGE> 33
supplied to the participant on a monthly basis. Bank One will supply checks to
each participant which will be subject to the terms of your Reserve CPA Account
Agreement in the application for a CHECK PLAN.
A Fund will charge a non-refundable annual CPA Plus service fee (currently
$60 which may be charged to the account monthly) and a transaction fee of $0.50
for each additional check in excess of five presented for payment within the
statement period. Participants will also be charged for specific costs incurred
in placing stop payment orders, obtaining check copies and in processing
returned checks. The annual service fee and other charges may be changed at any
time upon 30 days notice to participants. In addition, broker/dealers or other
financial institutions in the CPA Program may charge their own service fees in
addition to the annual fee.
Custom Plan. A CUSTOM PLAN is a CHECK PLAN plus a VISA Gold card issued to
the participant. The VISA Gold card is a debit card, not a credit card. The
Custom Plan and VISA Gold card are available only to customers of participating
broker/dealers or other financial institutions. Use of the debit card will
provide automatic common carrier travel insurance, auto rental/loss damage
insurance and extended retail product guarantees. In addition, VISA Gold
cardholders will be provided a comprehensive package of free travel and
emergency assistance services, including: emergency cash; emergency card
replacement; medical, legal and lost baggage assistance; and emergency ticket
replacement.
Bank One will process new debits to a CUSTOM PLAN in the order of receipt
against Bank One's determination of the CUSTOM PLAN "open-to-buy value" (the sum
of the participant's account value minus previous CUSTOM PLAN net debits which
have not been applied against net asset value). These debits include outstanding
VISA Gold card charges, unpaid check charges, cash advances authorized by Bank
One against the CUSTOM PLAN open-to-buy value and redemptions from the
participant's account determined and reported to Bank One. A Fund will redeem
shares on behalf of the participant on the business day it receives notice of
these debits from Bank One and send the proceeds to Bank One to cover such
debits.
The conditions for establishing a CPA and CPA Plus may be altered or waived
by the Funds, either with respect to services generally or with respect to
special groups or limited categories of individuals. The checks and VISA Gold
card features of the CPA Programs are intended to provide participants with easy
access to their account assets. The CPA Programs are not intended to be a
substitute for a bank transaction account. The Funds may reject any application
to open a CPA and CPA Plus and may terminate a CPA and CPA Plus for any reason.
Bank One may reject any application for checks or cards.
Travel Insurance. Use of cards to pay the full travel fares for you, your
spouse, and your dependent children under the age of 25 years on any air or land
or water conveyance operated by a common carrier licensed to carry passengers
for hire will insure each automatically against accidental bodily injuries which
are the sole cause of death or dismemberment while riding in, boarding, or
getting out of such aircraft or conveyance. Your name must appear in an account
registration or you must be an associate cardholder for this travel insurance to
cover you, your spouse, and your dependent children.
VISA Gold Card. Upon approval of an application for participation in the
CUSTOM PLAN, Bank One will issue one or more VISA Gold cards to the participant.
Bank One will not give authorizations for cash advances exceeding on any
business day the CUSTOM PLAN open-to-buy value.
Participants subscribing to the CUSTOM PLAN service may be liable for the
unauthorized use of their card up to the amount set by the governing Federal
regulations which is currently $500 if the Fund or Bank One is not notified of
the theft or loss within 2 business days. Participants should refer to the VISA
Account Shareholder Agreement for complete information regarding
responsibilities and liabilities with respect to the VISA Gold card. If a card
is lost or stolen, the CUSTOM PLAN participant should report the loss
immediately by telephoning Bank One at (614) 248-4242 which can be reached 24
hours a day, seven days a week or the Funds at (800) 637-1700 during normal
business hours (9:00 A.M. to 5:00 P.M., New York time).
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<PAGE> 34
RATINGS
The following are the rating designations of short term instruments and
their respective meanings.
STANDARD & POOR'S CORPORATION
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
MOODY'S INVESTORS SERVICE, INC.
Prime-1 (P1): Issuers rated P1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. P1 repayment will
often be evidenced by many of the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternative liquidity.
DUFF & PHELPS CREDIT RATING CO.
Duff-1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor. Those issues determined to have the highest certainty of timely payment
and whose safety is just below risk-free U.S. Treasury short-term obligations
will be denoted with a plus (+) sign designation. Those issues determined to
have a high certainty of timely payment and whose risk factors are very small
will be denoted with a minus (-) sign designation.
IBCA LTD.
A-1: Obligations supported a very strong capacity for timely repayment.
Those obligations supported by the highest capacity for timely repayment will be
denoted with a plus (+) sign designation.
FITCH INVESTORS SERVICE, INC.
F-1: This designation indicates a very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1 +". Those issues determined to possess and
exceptionally strong credit quality will be denoted with a plus (+) sign
designation. Issues assigned the rating of F-1+ are regarded as having the
strongest degree assurance for timely payment.
TAX-EXEMPT BOND RATINGS
The highest ratings for municipal bonds are Aaa or Aa if rated by Moody's
Investor Services, Inc. ("Moody's") and AAA or AA if rated by Standard & Poor's
Corporation ("S&P"). Such bonds are judged to be of high quality and are not
considered speculative. Bonds rated A by Moody's are considered to possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Such bonds have factors giving security to principal and interest
that are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future. Debt rated A by S&P is
considered to have a strong capacity to pay interest and repay principal
although it is more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
TAX-EXEMPT PAPER RATINGS
Moody's tax-exempt paper rating are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following two designations all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: MIG-1/VMIG-1, Best Quality and MIG-1/VMIG-1, High Quality. The
designation of MIG-1/VMIG-1 indicates there is strong protection by established
cash flows, superior liquidity support or demonstrated broad
16
<PAGE> 35
based access to the market for refinancing. The designation of MIG-2/VMIG-2
indicates margins of protection ample although not so large as in MIG-1/VMIG-1.
Standard & Poor's tax-exempt paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The highest quality obligations are rated "A". Issues assigned an A
rating are regarded as having the greatest capacity for timely payment. Issues
in this category are further refined with designations to indicate the relative
degree of safety. The two top such designations are 1 and 2. The "A-1"
designation indicates that the degree of safety regarding timely payment is
strong. The "A-2" designation indicates that capacity for timely payment is
satisfactory. Municipal note ratings by Standard & Poor's are preceded by the
designation SP. Those issues determined to possess overwhelming safety
characteristics are designated SP-1+. Municipal notes designated SP-1 are
considered to have a very strong or strong capacity to pay principal and
interest. Municipal notes designated SP-2 are considered to have a satisfactory
capacity to pay principal and interest.
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<PAGE> 36
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
No financial statements are included in this Registration
Statement since, on the date of filing, the Portfolios being
registered by this Registration Statement are new Portfolios
and none of such Portfolios has assets or known liabilities
and have sold no shares of common stock.
(b) EXHIBITS
1. Declaration of Trust was filed as an exhibit to
Registrant's Post-Effective Amendment No. 11 dated October
1, 1987.*
2. By-Laws were filed as an exhibit to Registrant's
Post-Effective Amendment No. 9 dated August 31, 1986.
Amendment No. 1 filed as an exhibit to Post-Effective
Amendment No. 15 dated September 28, 1990.*
3. Not Applicable
4. Not Applicable
5. Investment Management Agreement dated as of December 18,
1996.
6. Distribution Agreement was filed as an exhibit to
Post-Effective Amendment No. 9 dated August 31, 1986.*
Notice pursuant to such Agreement filed as an exhibit
hereto.
7. Pension Plan of Reserve Management Corporation was filed as
an exhibit to Post-Effective Amendment No. 32 of The
Reserve Fund, File No. 811-2033; Amendments to Pension Plan
filed as an exhibit to Post-Effective Amendment No. 45 of
The Reserve Fund (File No. 811-2033) dated July 31, 1989.*
8. Form of Custodian Agreement with Chemical Bank filed as an
exhibit to Registrant's Post-Effective Amendment No. 1
dated July 29, 1982. Custodian Agreement with the Bank of
New York filed as an exhibit to Post-Effective Amendment
No. 19 dated May 28, 1992.*
9. Form of Service Plan
10. Opinion and Consent of Dechert Price & Rhoads
11. Not Applicable
12. Not Applicable
13. Not Applicable
14. Not Applicable
__________________________________
* Incorporated by reference.
C-1
<PAGE> 37
15. Distribution Plan
16. Not Applicable
17. Not Applicable
18. Form of Multi-Class Plan
19. Powers of Attorney filed as an exhibit to Post-Effective
Amendment No. 24 filed July 29, 1993.*
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Not Applicable
ITEM 27. INDEMNIFICATION.
Each Trustee, officer, employee or agent of the Registrant, and any
person who has served at its request as a Director, Trustee,
officer or employee of another business entity, shall be entitled
to be indemnified by the Registrant to the fullest extent permitted
by the laws of the Commonwealth of Massachusetts, subject to the
provisions of the Investment Company Act of 1940 and the rules and
regulations thereunder.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the Declaration
of Trust, investment management agreement or otherwise, the
Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of any
expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to court appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed the final adjudication of such issue.
ITEM 28. NOT APPLICABLE
ITEM 29. NOT APPLICABLE
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All records required to be maintained by Section 31(a) of the 1940
Act and the Rules promulgated thereunder are maintained at 810
Seventh Avenue, New York, New York 10019 except those relating to
receipts and deliveries of securities, which are maintained by the
Registrant's Custodian.
ITEM 31. NOT APPLICABLE
C-2
<PAGE> 38
ITEM 32. The Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a director, if
requested to do so by the holders of at least 10% of the Fund's
outstanding shares, and that it will assist communication with
other shareholders as required by Section 16(c) of the Investment
Company Act of 1940.
The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to
six months from the effective date of this post-effective amendment
to the Registrant's 1933 Act Registration Statement.
C-3
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York on the 30th day of December, 1996.
RESERVE INSTITUTIONAL TRUST
By: *
--------------------------------
Bruce R. Bent
President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
*
- --------------------------- Director and President 12/30/96
Bruce R. Bent (principal executive, financial
and accounting officer)
* Director 12/30/96
- ---------------------------
Edwin Ehlert, Jr.
* Director 12/30/96
- ---------------------------
Henry W. Emmet
* Director 12/30/96
- ---------------------------
Donald J. Harrington, CM
* Director 12/30/96
- ---------------------------
Niels W. Johnsen
*By: /s/ Marc C. Cozzolino Secretary 12/30/96
-------------------------
Marc C. Cozzolino
as Attorney-in-Fact
C-4
<PAGE> 40
EXHIBITS
(attached hereto)
5. Investment Management Agreement dated as of December 18, 1996.
6. Notice pursuant to Distribution Agreement dated August 31, 1986.
9. Form of Service Plan
10. Opinion and Consent of Dechert Price & Rhoads
15. Distribution Plan
18. Form of Multi-Class Plan dated December 18, 1996.
<PAGE> 1
RESERVE INSTITUTIONAL TRUST
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT, dated the 18th day of December, 1996, made and
entered into by and between Reserve Institutional Trust, organized as an
unincorporated business trust under the laws of the Commonwealth of
Massachusetts having its principal place of business in New York, New York,
("Trust") and RESERVE MANAGEMENT COMPANY, INC., a New Jersey corporation having
its principal place of business in Manhasset, New York ("Manager").
The parties agree as follows:
1. INVESTMENT SERVICES. The Manager shall select and
manage the Trust's investments and shall determine what investments shall be
made or disposed of by the Trust and shall effect such acquisitions and
dispositions, all in furtherance of the Trust's investment objective and
policies, subject to the overall control and direction of the Trust's Board of
Trustees. The Manager shall report on such activities to the Board of Trustees
of the Trust and shall submit such reports and other information thereon as the
Board of Trustees shall from time to time request.
2. OTHER SERVICES AND ASSUMPTION OF CERTAIN EXPENSES.
The manager shall furnish to the Trust, (i) office space and customary office
facilities to the extent that the Trust's activities occur in New York, and
(ii) all accounting, clerical and statistical services as may be required by
the Trust for the operation of its business and compliance with applicable
laws. The Manager shall pay all operating and other expenses of the Trust
except interest charges, taxes, brokerage fees and commissions, extraordinary
legal and accounting fees and expenses, and amounts payable under the Trust's
distribution plan and service plan.
3. COMPENSATION OF THE MANAGER. The Trust shall pay to
the Manager as compensation for the services rendered hereunder and as for full
reimbursement for all officers compensation and expenses of the Trust paid by
the Manager under paragraph 2 hereof, a Management fee computed on the basis of
the average closing value of the net assets of the Trust of 0.25% per annum of
such assets of each portfolio of the Trust.
The Management fee shall be computed and accrued daily and
shall be paid by the Trust to the Manager promptly after receipt of periodic
billings therefor.
4. COMPLIANCE WITH APPLICABLE REQUIREMENTS. This
Agreement will be performed in accordance with the requirements of the
Investment Company Act of 1940 (the "Act") and the Investment Advisers Act of
1940 and the rules and regulations under such acts, to the extent that the
subject matter of the Agreement is within the purview of such acts and such
rules and regulations. The Manager will assist the Trust in complying with the
requirements of the Act, and the Securities Act of 1933, and the rules and
regulations under such acts and in qualifying as a regulated investment company
under the Internal Revenue Code and applicable regulations of the Internal
Revenue Service thereunder. In carrying out its obligations under this
Agreement, the Manager shall at all times conform to the provisions of the
Declaration of Trust and By- Laws, the provisions of the currently effective
Registration Statement of the Trust under the Act and the Securities Act of
1933, and any other applicable provisions or state or Federal law.
5. TERMINATION. This Agreement shall be in effect until
the close of business on June 30, 1998 and shall continue in effect from year
to year thereafter but only
<PAGE> 2
so long as such continuance is specifically approved at least annually by (i)
either the Board of Trustees of the Trust or a majority vote of the outstanding
voting securities of the Trust, provided, however, that if the holders of the
Trust fail to approve the Agreement, as provided herein, the Manager may
continue to serve in such capacity in the manner and to the extent permitted by
the Investment Company Act of 1940, and the rules thereunder, and (ii) the vote
of a majority of the Trustees of the Trust who are not parties to this
Agreement or interested persons (as defined in the Act) of either party of this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval.
Notwithstanding anything herein to the contrary, this
Agreement may be terminated at any time, without payment of any penalty, by the
Board of Trustees of the Trust or by vote of majority of the outstanding voting
securities of the Trust, on 60 days' written notice to the Manager, or by the
Manager on like notice to the Trust.
The name Reserve Institutional Trust shall be deemed to have
been licensed to the Trust by the Manager. In the event of termination of this
Agreement, the Manager may terminate or revoke such license on 90 days' written
notice to the Trust. On or before the date of such revocation or termination,
the Trust will change its name to another name which does not include the word
"Reserve".
6. NON-ASSIGNABILITY. This Agreement shall not be
assignable by either party hereto and shall automatically terminate forthwith
in the event of such assignment (within the meaning of the Act).
7. APPROVAL OF AGREEMENT AND AMENDMENTS. This Agreement
and any amendments hereto shall be approved by vote of the holders of a
majority (as defined in the Act) of the outstanding voting securities of the
Trust, provided, however, that if the holders of the Trust fail to approve the
Agreement as provided herein, the Manager may continue to serve in such
capacity in the manner and to the extent permitted by the Investment Company
Act of 1940 and the rules thereunder, and no amendment to this Agreement become
effective until so approved.
8. NON-EXCLUSIVITY. The services of the Manager to the
Trust are not to be deemed exclusive and the Trust agrees that the Manager is
free to render services to others and engage in other activities. For purposes
of this Agreement and the undertakings provided for herein, the Manager shall
at all times be considered as an independent contractor, and shall not be
considered as an agent of the Trust.
9. LIABILITY OF THE MANAGER. In performing its duties
hereunder, the Manager may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be provided by the Act, neither
the Manager nor its officers, directors, employees or agents shall be subject
to any liability for any act or omission in the course of, connected with or
arising out of any services to be rendered hereunder, except by reason of
willful misfeasance, bad faith or gross negligence in the performance of the
Manager's duties or by reason of reckless disregard of the Manager's
obligations and duties under this Agreement.
10. NOTICES. Any notices and communications required
hereunder shall be in writing and shall be deemed given when delivered in
person or when sent by first-class, registered or certified mail to the Manager
at 14 Locust Place, Manhasset, New York 11030, to the Trust at 810 Seventh
Avenue, New York, New York 10019, or at such addresses as either party may from
time to time specify by notice to the other.
2
<PAGE> 3
11. GOVERNING LAW. The terms and provisions of this
Agreement shall be interpreted under and governed by the law of the State of
New York.
12. SEVERABILITY. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall be deemed to be severable.
13. SHAREHOLDER LIABILITY. The Manager understands and
agrees that the obligations of the Trust under this Agreement are not binding
upon any shareholder of the Trust personally, but bind only the Trust and the
Trust's property. The Manager represents that it has notice of the provisions
of the Declaration of Trust of the Trust disclaiming shareholder liability for
acts or obligations of the Trust.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed on the day and year first above written.
RESERVE INSTITUTIONAL TRUST
By: \s\ Bruce R. Bent
----------------------------
President
ATTEST:
\s\ Marc C. Cozzolino
- ----------------------------
Secretary
RESERVE MANAGEMENT COMPANY, INC.
By: \s\ Bruce R. Bent
----------------------------
Vice President
ATTEST:
\s\ Marc C. Cozzolino
- ----------------------------
General Counsel
4
<PAGE> 1
NOTICE
TO DEALERS PURSUANT TO THE
DEALER AGREEMENT WITH
RESRV PARTNERS, INC.
RESERVE INSTITUTIONAL TRUST:
Subject to the limit of the Plan of each Fund comprising the Reserve
Institutional Trust (hereinafter called an "Institutional Fund"), assistance
payments to a selected dealer will be at an annual rate determined and paid
monthly not to exceed 0.25% of the average daily net asset value of the Class C
shares and 0.50% of the average daily net asset value of the Class D shares of
each Institutional Fund's Qualified Accounts, provided any such payment is
preceded by a calendar month in which there was an average daily net asset
value of each Institutional Fund's Qualified Accounts in accordance with any
subsequent Notice which may be provided by Resrv Partners, Inc., pursuant to
the Dealer Agreement.
<PAGE> 1
RESERVE INSTITUTIONAL TRUST
SHAREHOLDER SERVICE PLAN
December 18, 1996
This Shareholder Service Plan (the "Plan") is adopted by Reserve
Institutional Trust (the "Trust") with respect to the shares of beneficial
interest of each of the series of the Trust identified in Appendix A hereto
(individually a "Fund" and collectively the "Funds").
SECTION 1. MANAGEMENT
The Trust has entered into an Investment Management Agreement with
Reserve Management Company, Inc. ("RMCI") whereby RMCI provides certain
management services for the Trust and for each Fund.
SECTION 2. SERVICE AGREEMENTS; PAYMENTS
(a) RMCI is authorized to enter into Shareholder Service
Agreements (the "Agreements"), the form of which shall be approved by the Board
of Trustees of the Trust (the "Board"), with financial institutions and other
persons who provide services for and maintain shareholder accounts ("Service
Providers") as set forth in this Plan.
(b) Pursuant to the Agreements, as compensation for the services
described in Section 4 below, RMCI may pay the Service Provider, on behalf of
the Trust, a fee at an annual rate of up to 0.25% of the average daily net
assets of each Fund represented by the shareholder accounts for which the
Service Provider maintains a service relationship.
Provided, however, that no Fund shall directly or indirectly pay any
amounts, whether Payments (as defined in the Agreements) or otherwise, that
exceed any applicable limits imposed by law or the National Association of
Securities Dealers, Inc.
(c) Each Agreement shall contain a representation by the Service
Provider that any compensation payable to the Service Provider in connection
with an investment in a Fund of the assets of its customers (i) will be
disclosed by the Service Provider to its customers, (ii) will be authorized by
its customers, and (iii) will not result in an excessive fee to the Service
Provider.
SECTION 3. SHAREHOLDER SERVICE FEE.
Pursuant to this Plan, the Trust shall daily accrue and monthly pay
RMCI a Shareholder Service Fee not to exceed (i) 0.25% of the average daily net
assets of each Fund or (ii) the combined Payments made by RMCI with respect to
each Fund for the month.
SECTION 4. SERVICE ACTIVITIES
Service activities shall include activities in connection with the
provision of personal, continuing services to investors in each Fund, excluding
transfer agent and subtransfer agent services for beneficial owners of shares
of a Fund, aggregating and processing purchase and redemption orders, providing
beneficial owners with account statements, processing dividend payments,
providing subaccounting services for Fund shares held beneficially, forwarding
shareholder communications to beneficial owners and receiving, tabulating and
transmitting proxies executed by beneficial owners; provided, however, that if
the National Association of Securities Dealers Inc. ("NASD") adopts a
definition of "service fee" for purposes of Section 2830 of the Rules of
Conduct of the NASD that differs from the definition of "service activities"
hereunder, or if the NASD adopts a related definition intended to define
<PAGE> 2
the same concept, the definition of "service activities" in this Paragraph
shall be automatically amended, without further action of the Board of
Directors, to conform to such NASD definition. Overhead and other expenses of
Distributor related to its "service activities," including telephone and other
communications expenses, may be included in the information regarding amounts
expended for such activities.
SECTION 5. AMENDMENT AND TERMINATION
(a) Any material amendment to the Plan shall be effective only
upon approval of the Board, including a majority of the trustees who are not
interested persons of the Trust as defined in the Investment Company Act of
1940 (the "Disinterested Trustees"), pursuant to a vote cast in person at a
meeting called for the purpose of voting on the amendment to the Plan.
(b) The Plan may be terminated without penalty at any time by a
vote of a majority of the Disinterested Trustees.
SECTION 6. LIMITATION OF SHAREHOLDER AND TRUSTEE LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not
be liable for any obligations of the Trust or of the Funds under the Plan, and
RMCI agrees that, in asserting any rights or claims under this Plan, it shall
look only to the assets and property of the Trust or the Fund to which RMCI's
rights or claims relate in settlement of such rights or claims, and not to the
Trustees of the Trust or the shareholders of the Funds.
2
<PAGE> 3
RESERVE INSTITUTIONAL TRUST
SHAREHOLDER SERVICE PLAN
APPENDIX A:
FUNDS TO WHICH SHAREHOLDER SERVICE PLAN APPLIES
December 18, 1996
Primary Institutional Fund
U.S. Government Institutional Fund
U.S. Treasury Institutional Fund
Interstate Tax-Exempt Institutional Fund
3
<PAGE> 1
December 30, 1996
Reserve Institutional Trust
810 Seventh Avenue
New York, New York 10019
Dear Sirs:
We have acted as counsel for Reserve Institutional Trust, a
Massachusetts business trust (the "Company"), in connection with the
preparation of post-effective amendment number 27 to the Company's registration
statement on Form N-1A (file no. 332-70831) under the Investment Company Act of
1940 and the Securities Act of 1933.
As counsel for the Company, we have assisted in the preparation of
said post-effective amendment relating to shares of beneficial interest of the
Company and have examined and relied upon such records of the Company and such
other documents we have deemed to be necessary to render the opinion expressed
herein. Based on such examination, we are of the opinion that:
(i) The Company is a business trust duly organized and
existing under the laws of the State of Massachusetts;
(ii) The Company is authorized to issue an unlimited
number of full and fractional shares of beneficial
interest, which shares are divided among the four
series referred to in said post-effective amendment,
and that such shares have been duly and validly
authorized by all requisite action of the Directors
of the Company, and no action of the shareholders is
required in such connection; and
(iii) Assuming that the Company or its agent receives
consideration for such shares in accordance with the
terms of the prospectus forming a part of the
Company's registration statement and the provisions
of its Declaration of Trust, the shares will be
legally and validly issued and will be fully paid and
non-assessable by the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Company's registration statement for the registration under the Securities Act
of 1933 of an indefinite number of shares of the Company, and to the use of our
name in the prospectus and statement of additional information contained
therein, and any amendments thereto. In giving such consent, we do not hereby
admit that we are within the category of persons whose consent is required by
Section 7 of the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
Very truly yours,
Dechert Price & Rhoads
<PAGE> 1
THE RESERVE INSTITUTIONAL TRUST
DISTRIBUTION PLAN
Distribution Plan ("Plan") of The Reserve Institutional Trust
(the "Trust"), a Massachusetts business trust, Reserve Management Company, Inc.
and/or affiliates ("RMCI"), a New Jersey corporation, and RESRV Partners, Inc.
("RESRV"), a New York corporation, which acts as the principal underwriter for
the Fund.
WHEREAS, it is expected that a substantial percentage of the
Trust's assets attributable to the Class C shares and Class D shares of each
Portfolio of the Trust will be derived through the efforts of such brokers or
other persons receiving assistance (as defined herein) payments under this
Plan. The likelihood is that such assets would not remain invested in the
Trust should such assistance cease and the Trust's ratio of expenses to average
net assets would thus increase with a corresponding decrease in the yield to
Trust shareholders.
NOW THEREFORE, in consideration of the foregoing and in
consideration of the mutual covenants herein contained the Trust, RMCI on
behalf of itself and its affiliates, and RESRV agree that the following Plan is
hereby adopted under Rule 12b-1 under the Investment Company Act of 1940
("Act"):
(i) RESRV shall act as the principal underwriter of the
Trust pursuant to a distribution agreement.
(ii) The Trust shall make payments to RMCI for
distribution assistance or other distribution services
("assistance") at a rate not to exceed an annual rate of 0.25%
of the average net assets attributable to the Class C shares
of each Portfolio and 0.50% of the average net assets
attributable to the Class D shares of each Portfolio. RMCI
may use such amounts to make payments to brokers (if qualified
in RESRV's sole discretion) or other persons (if qualified in
RMCI's sole discretion) who have rendered assistance. RMCI
will make such payments (i) in the case of brokers, through
the Trust and RESRV, pursuant to the same distribution and
selected dealer agreements and (ii) in the case other persons,
through the Trust, pursuant to the terms of written agreements
or agreements complying with Rule 12b-1 ("Rule 12b-1
Agreement"). Such brokers or other persons may be invited to
become non-voting shareholders and/or their representatives
may be invited to become directors of RESRV in RESRV's sole
discretion. Notwithstanding anything stated herein to the
contrary, any payments made pursuant to this Plan shall cover
any class of shares of the Trust subject to the rules and
regulations of the Act.
(iii) Quarterly in each year that this Plan remains in
effect the Trust's Controller or Treasurer shall prepare and
furnish to the Board of Trustees of the Trust a written
report, complying with the requirements of Rule 12b-1, of the
amounts expended under the Plan and purposes for which such
expenditures were made.
(iv) This Plan shall become effective upon approval by
majority votes of (a) the Trust's Board of Trustees and the
Qualified Trustees (as defined in Section 6), cast in person
at a meeting called for the purpose of voting hereon
<PAGE> 2
and (b) the outstanding voting securities of the Trust, as
defined in Section 2(a)(42) of the Act.
(v) This Plan shall remain in effect for one year from
its adoption date and may be continued thereafter if this Plan
and any related agreement are approved at least annually by a
majority vote of the Trustees of the Trust, including a
majority of the Qualified Trustees, cast in person at a
meeting called for the purpose of voting on such Plan and
agreement. This Plan may not be amended in order to increase
materially the amount to be spent for distribution assistance
without Trust shareholder approval in accordance with Section
4 hereof. All material amendments to this Plan must be
approved by a vote of the Board of Trustees of the Trust, and
of the Qualified Trustees, cast in person at a meeting called
for the purpose of voting thereon.
(vi) This Plan may be terminated at any time by a majority
vote of the Trustees who are not interested persons (as
defined in Section 2(a)(19) of the Act) of the Trust and have
no direct or indirect financial interest in the operation of
the Plan or in any agreements related to the Plan ("Qualified
Trustees") or by vote of a majority of the outstanding voting
securities of the Trust, as defined in Section 2(a)(42) of the
Act.
(vii) While this Plan shall be in effect, the selection and
nomination of the "Disinterested" Trustees of the Trust shall
be committed to the discretion of the "Disinterested" Trustees
then in office.
(viii) Any termination or non-continuance of (i) a selected
dealer agreement by RESRV with a particular broker or (ii) a
Rule 12b-1 Agreement with a particular person shall have no
effect on similar agreements between (i) other brokers and
RESRV or (ii) other persons and the Trust pursuant to this
Plan.
(ix) Neither RESRV nor the Trust is obligated by this Plan
to execute a selected dealer agreement with a qualifying
broker or a Rule 12b-1 Agreement with a qualifying person,
respectively.
(x) All agreements with any person relating to the
implementation of this Plan shall be in writing and any
agreement related to this Plan shall be subject to
termination, without penalty, pursuant to the provisions of
Section 6 hereof.
2
<PAGE> 1
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
FOR
RESERVE INSTITUTIONAL TRUST
Primary Institutional Fund
U.S. Government Institutional Fund
U.S. Treasury Institutional Fund
Interstate Tax-Exempt Institutional Fund
WHEREAS, Reserve Institutional Trust (the "Trust") engages in business
as an open-end management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of beneficial interest of the Trust are currently
divided into four series: the Primary Institutional Fund ("Primary Fund"), U.S.
Government Institutional Fund ("Government Fund"), U.S. Treasury Institutional
Fund ("Treasury Fund"), Interstate Tax-Exempt Institutional Fund ("Interstate
Fund") (the "Funds");
WHEREAS, the Trust desires to adopt, on behalf of each of the Funds, a
Multiple Class Plan pursuant to Rule 18f-3 under the Act (the "Plan") with
respect to each of the Funds; and
WHEREAS, the Trust employs Reserve Management Company Inc. (the
"Adviser") as its investment manager and adviser and Resrv Partners, Inc., a
wholly-owned subsidiary of the Adviser ("Distributor"), as distributor of the
securities of which it is the issuer.
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Funds, the
Plan, in accordance with Rule 18f-3 under the Act on the following terms and
conditions:
1. Features of the Classes. Each of the Funds issues its shares
of beneficial interest in four classes: "Class A Shares," "Class B Shares,"
"Class C Shares" and "Class D Shares." Shares of each class of a Fund shall
represent an equal pro rata interest in such Fund and, generally, shall have
identical voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications, and terms and conditions, except
that: (a) each class shall have a different designation; (b) each class of
shares shall bear any Class Expenses, as defined in Section 5 below; and (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relates solely to its distribution arrangement and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
In addition, shares of each Class of a Fund shall have the features described
in Sections 2,3,4 and 5 below.
2. Service Plan. The Trust has adopted a Service Plan with
respect to the Class B shares, Class C shares and Class D shares of each Fund,
which provides that the Trust may pay a service fee at an annual rate of up to
0.25% of the average net asset value of qualified accounts of each such Class
to brokers or other financial intermediaries as compensation for service
activities. The Class A shares of each fund do not participate in the Service
Plan.
As used herein, the term "service activities" shall mean activities in
connection with the provision of personal, continuing services to investors in
each Fund, excluding transfer
<PAGE> 2
agent and subtransfer agent services for beneficial owners of shares of a Fund,
aggregating and processing purchase and redemption orders, providing beneficial
owners with account statements, processing dividend payments, providing
subaccounting services for Fund shares held beneficially, forwarding
shareholder communications to beneficial owners and receiving, tabulating and
transmitting proxies executed by beneficial owners; provided, however, that if
the National Association of Securities Dealers Inc. ("NASD") adopts a
definition of "service fee" for purposes of Section 2830 of the Rules of
Conduct of the NASD that differs from the definition of "service activities"
hereunder, or if the NASD adopts a related definition intended to define the
same concept, the definition of "service activities" in this Paragraph shall be
automatically amended, without further action of the Board of Directors, to
conform to such NASD definition. Overhead and other expenses of Distributor
related to its "service activities," including telephone and other
communications expenses, may be included in the information regarding amounts
expended for such activities.
3. Distribution Plan. The Trust has adopted a Distribution Plan
with respect to the Class C shares and the Class D shares of each Fund pursuant
to Rule 12b-1 promulgated under the Securities Exchange Act of 1934. The
Distribution Plan authorizes the Trust to make assistance payments to the
Adviser for distribution services at an annual rate of up to .25% of the
average net asset value of the Class C shares and .50% of the average net asset
value of the Class D shares and further authorizes the Adviser to make
assistance payments to brokers, financial institutions and other financial
intermediaries for shareholder accounts as to which a payee has rendered
distribution services to the Trust. The Class A and Class B shares do not
participate in the Distribution Plan.
As used herein, the term "distribution services" shall include
services rendered by Distributor as distributor of the shares of a Fund in
connection with any activities or expense primarily intended to result in the
sale of shares of a Fund, including, but not limited to, compensation to
registered representatives or other employees of Distributor or to other
broker-dealers that have entered into an Authorized Dealer Agreement with
Distributor, compensation to and expenses of employees of Distributor who
engage in or support distribution of the Funds' shares; telephone expenses;
interest expenses; printing of prospectuses and reports for other than existing
shareholders; preparation, printing and distribution of sales literature and
advertising materials; and profit and overhead on the foregoing.
4. Allocation of Income and Expenses. (a) The gross income of
each Fund shall, generally, be allocated to each class on the basis of net
assets. To the extent practicable, certain expenses (other than Class Expenses
as defined below which shall be allocated more specifically) shall be
subtracted from the gross income on the basis of the net assets of each class
of the Fund. These expenses include:
(1) Expenses incurred by the Trust (for example, fees of
Directors, auditors and legal counsel) not attributable to a
particular Fund or to a particular class of shares of a Fund ("Trust
Level Expenses"); and
(2) Expenses incurred by a Fund not attributable to any
particular class of the Fund's shares (for example, advisory fees,
custodial fees, or other expenses relating to the management of the
Fund's assets) ("Fund Expenses").
(b) Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (i) payments made pursuant to a distribution plan and/or a
service plan; (ii) transfer agent fees attributable to a specific class; (iii)
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders
of a specific class; (iv) Blue Sky registration fees incurred by a class;
2
<PAGE> 3
(v) SEC registration fees incurred by a class; (vi) the expense of
administrative personnel and services to support the shareholders of a specific
class; (vii) litigation or other legal expenses relating solely to one class;
and (viii) directors' fees incurred as a result of issues relating to one
class. Expenses in category (i) above must be allocated to the class for which
such expenses are incurred. All other "Class Expenses" listed in categories
(ii)-(viii) above may be allocated to a class but only if the President and
Chief Financial Officer have determined, subject to Board approval or
ratification, which of such categories of expenses will be treated as Class
Expenses consistent with applicable legal principles under the Act and the
Internal Revenue Code of 1986, as amended.
Therefore, expenses of a Fund shall be apportioned to each class of
shares depending on the nature of the expense item. Trust Level Expenses and
Fund Expenses will be allocated among the classes of shares based on their
relative net asset values. Approved Class Expenses shall be allocated to the
particular class to which they are attributable. In addition, certain expenses
may be allocated differently if their method of imposition changes. Thus, if a
Class Expense can no longer be attributed to a class, it shall be charged to a
Fund for allocation among classes, as determined by the Board of Directors.
Any additional Class Expenses not specifically identified above which are
subsequently identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the Board of Directors of
the Company in light of the requirements of the Act and the Internal Revenue
code of 1986, as amended.
5. Exchange Privileges. The Class D shares of each Fund may be
exchanged for the Class D shares of each of the other Funds. The exchange
privileges may be modified or terminated at any time, or from time to time,
upon 60 days notice to shareholders.
6. Conversion Features. There shall be no conversion features
associated with any of the classes of shares of any Fund.
7. Quarterly and Annual Reports. The Directors shall receive
quarterly and annual statements concerning all allocated Class Expenses and
distribution and servicing expenditures complying with paragraph (b)(3)(ii) of
Rule 12b-1, as it may be amended from time to time. In the statements, only
expenditures properly attributable to the sale or servicing of a particular
class of shares will be used to justify any distribution or servicing fee or
other expenses charged to that class. Expenditures not related to the sale or
servicing of a particular class shall not be presented to the Directors to
justify any fee attributable to that class. The statements, including the
allocations upon which they are based, shall be subject to the review and
approval of the independent Directors in the exercise of their fiduciary
duties.
8. Waiver or Reimbursement of Expenses. Expenses may be waived
or reimbursed by any adviser to the Trust or any other provider of services to
the Trust without the prior approval of the Trust's Board of Directors.
9. Effectiveness of Plan. The Plan shall not take effect until
it has been approved by votes of a majority of both (a) the Directors of the
Trust and (b) those Directors of the Trust who are not "interested persons" of
the Trust (as defined in the Act) and who have no direct or indirect financial
interest in the operation of this Plan, cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan.
10. Material Modifications. This Plan may not be amended to
modify materially its terms unless such amendment is approved in the manner
provided for initial approval in Paragraph 9 hereof.
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11. Limitation of Liability. The Directors of the Trust and the
shareholders of each Fund shall not be liable for any obligations of the Trust
or any Fund under this Plan, and Distributor or any other person, in asserting
any rights or claims under this Plan, shall look only to the assets and
property of the Trust or such Funds in settlement of such right or claim, and
not to such Funds in settlement of such right or claim, and not to such
Directors or shareholders.
IN WITNESS WHEREOF, the Trust, on behalf of the Funds, has adopted
this Multiple Class Plan as of the 18th day of December, 1996, to be effective
_____________, 1997.
RESERVE INSTITUTIONAL TRUST
By: \s\ Bruce R. Bent
----------------------------
Name: Bruce R. Bent
Title: President
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