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As filed with the Securities and Exchange Commission on November 6, 1996
File No. 332-70831
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. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 22 [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
----
on _______, 1996 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
----
x 75 days after filing pursuant to paragraph (a)(2) of Rule 485
----
on (date) 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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RESERVE INSTITUTIONAL TRUST
Cross Reference Sheet pursuant to Rule 404A(a)
Form Prospectus and Statement
N-1A of Additional Information
ITEM Form Caption Caption
- ---- ------------ -------------------------
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, Redmption and Pricing
Securities Being Offered of Shares**
20 Tax Status Distributions and Taxes**
21 Underwriters Not Applicable
2
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22 Calculation of Yield Quotations of Fund Yield**; Yield*
Money Market Funds
23 Financial Statements Not Included
3
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THE
RESERVE General Information, Purchases and Redemptions
FUNDS 24 Hour Yield and Balance Information
Nationwide 1-800-637-1700
PROSPECTUS
_______________, 1996
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 primary 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 primary 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 exclusively 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.
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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, and the
fees of disinterested Trustees).
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 _, 1996, 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.
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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
Maximum Sales Load Imposed on Purchases . . . . . . . . . . . None
Maximum Sales Load Imposed on Reinvested Dividends . . . . . . None
Redemption Fees* . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . None
- ------------------
* 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 Agreements" on page 11.
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>
1 Year 3 Years 5 Years 10 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>
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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 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.
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 ("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 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
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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 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 unless the Fund has adopted a
temporary defensive position.
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
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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.
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 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 Fund may engage 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 an agreed upon price at a
later date. The Funds will limit repurchase agreements to those banks and
securities dealers who
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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 upon
disposition of them if the value of those securities has declined. In the event
of insolvency or bankruptcy of the other party to a repurchase agreement, a
Fund may encounter difficulties and might incur costs 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.
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 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. 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.
Each 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 Such commercial paper may be issued only to finance
current transactions and must mature in nine months or less. 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. The Fund also may invest in commercial paper with
legal or contractual restrictions on resale (restricted securities) and
commercial paper that is not readily marketable. The fact that there are
contractual or legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such investments.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 that have a readily available market are not considered
illiquid for purposes of this limitation. The investment adviser will monitor
the liquidity of such restricted securities under the supervision of the Board
of Trustees.
Each Fund 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, and will not concentrate more than 25% of the its
total assets in the securities of issuers in a single industry, except that the
Primary Institutional Fund will 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
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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.
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 will be
tax-exempt. 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.
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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 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 Agreements. 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 a separate Investment Management Agreement
with each. 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 Agreements, 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 Agreements 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).
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The Investment Management Agreement with the U.S. Treasury
Institutional Fund 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.
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:
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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 identify 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.
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.
Distributors. 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.
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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 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
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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 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.
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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, 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
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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,
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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 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.
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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 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.
______________________
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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
_____________, 1996
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 November ___, 1996 (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
Page
----
Investment Objective and Policies 22
Trustees and Executive Officers 26
Investment Management, Distribution,
and Custodian Agreements 30
Portfolio Turnover, Transaction Charges
and Allocation 30
Shares of Beneficial Interest 31
Purchase, Redemption and Pricing of Shares 33
Distributions and Taxes 35
Fund Yield 36
Reserve Cash Performance Plus Account 36
Ratings 37
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.
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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 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
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<PAGE> 23
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 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.
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<PAGE> 24
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 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.
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<PAGE> 25
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.
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.
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<PAGE> 26
TRUSTEES AND OFFICERS OF THE TRUST
Trustee's Name,
Address and Age Position Held Director Biographies
--------------- ------------- --------------------
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
Age: 59 also 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
Westfield, NJ 07091 and management organization. Mr.
Age: 65 Ehlert is 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
Age: 70 consulting services to international
banking interests. From December 1,
1989 through December 31, 1994, Mr.
Emmett 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
CM*+ St. John's University (NY) and
St. John's University serves as a Director of the Bear
Jamaica, NY 11439 Stearns Companies, Inc. Reverend
Age: 51 Harrington is also a Trustee of
Reserve Private Equity Series.
NIELS W. JOHNSEN+ Trustee Mr. Johnsen is Chairman of the Board
1 Whitehall Street of International Shipholding Corp.
New York, NY 10004 and of Central Gulf Lines, Inc.,
Age: 74 each of which are involved in the
ship cargo business. Mr. Johnsen is
also a Trustee of Reserve Private
Equity Series.
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<PAGE> 27
MARC C. COZZOLINO Counsel and Secretary Prior to becoming Secretary and
810 Seventh Avenue Counsel of each Trust in 1994, Mr.
New York, NY 10019 Cozzolino was an attorney with the
Age: 28 New Jersey Bureau of Securities.
PAT A COLLETTI Controller Mr. Colletti has served as
810 Seventh Avenue Controller of each of the Trusts
New York, NY 10019 since 1989.
Age: 38
_____________________________
* 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.
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
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<PAGE> 28
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 _______________, 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.
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
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<PAGE> 29
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.
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.
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<PAGE> 30
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; Morgan Guaranty Trust Co., 60 Wall Street, New
York, NY 10260; and Custodial Trust Company, 28 West State Street, Trenton, NJ
08608 are Custodians 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 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
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<PAGE> 31
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 November __, 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
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<PAGE> 32
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.
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.
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<PAGE> 33
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 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
33
<PAGE> 34
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 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.
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<PAGE> 35
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.
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.
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<PAGE> 36
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 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.
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<PAGE> 37
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).
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.
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<PAGE> 38
Moody's Investors Service, Inc.
Prime-1 (P-1): Issuers rated P-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structure with moderate reliance
on debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established
access to a range of financial markets and assured sources of alternative
liquidity.
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 based access to
the market for
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<PAGE> 39
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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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. Filed as an exhibit to Post-Effective Amendment No. 23 dated
April 7, 1993.*
6. Distribution Agreement Post-Effective Amendment No. 9 dated
August 31, 1986.*
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
__________________________________
* Incorporated by reference.
** To be filed by subsequent amendment.
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<PAGE> 41
14. Not Applicable
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.
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<PAGE> 42
Item 31. Not Applicable
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.
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<PAGE> 43
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, Registrant 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 6th day of November, 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 (principal 11/6/96
- ----------------------------- executive, financial and
Bruce R. Bent accounting officer)
* Director 11/6/96
- -----------------------------
Edwin Ehlert, Jr.
* Director 11/6/96
- -----------------------------
Henry W. Emmet
* Director 11/6/96
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Donald J. Harrington, CM
* Director 11/6/96
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Neils W. Johnsen
*By: /s/ Marc C. Cozzolino Secretary 11/6/96
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Marc C. Cozzolino
as Attorney-in-Fact
43
