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One World Trade Center
MDG logo New York, New York 10048
212-775-7400 - 888-MAY-DAVIS - Fax: 212-775-8166
www.maydavis.com
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The Reserve Institutional Trust is a no-load money market fund with four
investment portfolios: PRIMARY INSTITUTIONAL FUND, U.S. GOVERNMENT INSTITUTIONAL
FUND, U.S. TREASURY INSTITUTIONAL FUND and INTERSTATE TAX-EXEMPT INSTITUTIONAL
FUND ("Funds"). The Reserve Institutional Trust is designed for institutional
investors as a convenient investment vehicle for short-term funds.
The objective of each Fund, except the Interstate Tax-Exempt Institutional
Fund, is to seek as high a level of current income as is consistent with
preservation of capital and liquidity; however, achievement of this objective
cannot be assured.
The objective of the Interstate Tax-Exempt Institutional Fund is to seek as
high a level of short term interest income exempt from federal income taxes as
is consistent with preservation of capital and liquidity. There is no assurance
that a Fund will achieve its investment objective.
- 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. GOVERNMENT INSTITUTIONAL FUND invests in obligations backed by the
full faith and credit of the United States Government or obligations
collateralized thereby.
- 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.
Each Fund offers four classes of shares to investors, with each class
subject to differing service fees and distribution fees, as follows:
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MAXIMUM MAXIMUM MAXIMUM
ANNUAL ANNUAL TOTAL ANNUAL MINIMUM
SERVICE FEE* DISTRIBUTION FEE* OPERATING EXPENSES+ INITIAL INVESTMENT
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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
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* As a percentage of average net assets.
+ As a percentage of average net assets (exclusive of interest, taxes, brokerage
fees, extraordinary legal and accounting fees and expenses).
In all other respects, all classes of shares represent the same interest in
the income and assets of each respective Fund.
SHARES OF THE FUNDS ARE NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth the information about each Fund which a
prospective investor should know before investing. A Statement of Additional
Information dated January 2, 1997, providing further details about the Funds,
has been filed with the Securities and Exchange Commission. It may be obtained
without charge by writing or calling the Funds at (800) 637-1700. The Statement
of Additional Information is hereby incorporated by reference into this
Prospectus.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Prospectus dated January 2, 1997
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 incur directly or indirectly.
SHAREHOLDER TRANSACTION EXPENSES FOR ALL FUNDS
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Maximum Sales Load Imposed on Purchases.............................................................. None
Maximum Sales Load Imposed on Reinvested Dividends................................................... None
Redemption Fees*..................................................................................... None
Exchange Fees........................................................................................ None
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* A $2.00 fee is charged on redemption checks issued by the Funds of less than
$100 and a $10 fee is charged for wire redemptions of less than $10,000, for
Class D shareholders. A $100 fee is charged for redemption checks and wire
redemptions of less than $100,000 for shareholders of all other classes.
ANNUAL FUND OPERATING EXPENSES FOR ALL FUNDS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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CLASS A CLASS B CLASS C CLASS D
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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%
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++ "Other Operating Expenses" are based on an estimated amount for the current
fiscal year. The purpose of this table is to assist the investor in
understanding the costs and expenses that a shareholder in a Fund will bear
directly or indirectly.
** Each Fund is charged a comprehensive management fee of 0.25% per annum of its
average net assets for both advisory and ordinary operating expenses (other
than the Service Fee and Distribution Fee) during the year. However, a Fund
may be charged for certain non-recurring extraordinary expenses. See
"Investment Management Agreement" on page 6.
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
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10
1 YEAR 3 YEARS 5 YEARS YEARS
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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
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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.
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The Interstate Tax-Exempt Institutional Fund may also quote its tax
equivalent yield, which shows the taxable yield an investor would have to earn
before taxes to equal the Fund's tax-free yield. The tax equivalent yield is
calculated by dividing the Fund's current or effective yield by the result of
one minus a stated federal tax rate.
In reports or other communications to shareholders of the Trust or in
advertising materials, the Trust may compare its performance with that of (1)
other money market funds listed in the rankings prepared by Lipper Analytical
Services, Inc., publications such as Barrons, Business Week, Forbes, Fortune,
Institutional Investor, Kiplinger's Personal Finance, Money, Morningstar Mutual
Fund Values, The New York Times, The Wall Street Journal and USA Today or other
industry or financial publications or other relevant indices and industry
publications.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each Fund, except the Interstate Tax-Exempt
Institutional Fund, is to seek as high a level of current income as is
consistent with preservation of capital and liquidity. The investment objective
of the Interstate Tax-Exempt Institutional Fund is to seek as high a level of
short-term interest income exempt from Federal income taxes as is consistent
with preservation of capital and liquidity. There is no assurance that a Fund
will achieve its investment objective. The investment objective may not be
changed, with respect to a Fund, without the vote of a majority of the
outstanding shares of that fund as defined in the Investment Company Act of
1940(" Act").
The 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
collateralized by such obligations.
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 U.S. Treasury Institutional Fund seeks to attain its objective by
investing only in securities of the United States Government that provide
interest income exempt from state and local income taxes.
The Interstate Tax-Exempt Institutional Fund seeks to attain its objective
by investing principally in obligations issued by states, territories, and
possessions of the United States and their subdivisions, duly constituted
authorities and corporations, or participation in such obligations; the interest
on which is exempt from U.S. federal income taxes.
United States Government securities include a variety of securities which
are issued or guaranteed by the U.S. Treasury, various agencies of the Federal
Government and various instrumentalities which have been established or
sponsored by the U.S. Government, and certain interests in the foregoing types
of securities such as U.S. Treasury STRIPS. United States Government securities
include direct obligations of the U.S. Treasury (such as Treasury bills,
Treasury notes, and Treasury bonds). Obligations such as securities issued by
the Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Student Loan
Marketing Association and the Federal Home Loan Bank are also considered U.S.
Government securities. Some obligations of agencies and instrumentalities of the
U.S. Government, such as the Government National Mortgage Association, are
supported by the full faith and credit of the United States. Other securities,
such as obligations issued by the Federal National Mortgage Association and
Student Loan Marketing Association, are supported by the right of the issuer to
borrow from the U.S. Treasury; and others, such as obligations issued by the
Federal Home Loan Bank and 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 passthrough 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
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taxing authority may seek, in the future, to tax a shareholder on all or a
portion of the interest income of a security held by the U.S. Treasury
Institutional Fund.
The Interstate Tax-Exempt Institutional Fund invests in securities generally
known as "municipal bonds" or "municipal notes" and the interest on them is
exempt from federal income tax in the opinion of either bond counsel for the
issuers, or in some instances, the issuer itself ("Municipal Obligations"). They
may be issued to raise money for various public purposes such as constructing
public facilities. Certain types of Municipal Obligations are issued to obtain
funding for privately operated facilities. General obligation bonds and notes
are backed by the taxing power of the issuer. Revenue bonds and notes are backed
by the revenues of a project or facility such as tolls from a toll road, or in
some cases, from the proceeds of a special excise tax, but not by the general
taxing power. Industrial development revenue bonds and notes are a specific type
of revenue bond or note backed by the credit of a private issuer. The Fund may
invest any portion of its assets in industrial revenue bonds and notes.
Municipal Obligations bear fixed, variable or floating rates of interest. At
least 80% of the value of the Fund's assets will be invested in Municipal
Obligations, except that when business or financial conditions warrant, the Fund
may take a defensive position and invest temporarily without limit in taxable
U.S. Government securities and repurchase agreements pertaining to U.S.
Government securities. See "Other Policies" below for a description of the
characteristics and risks of repurchase agreements.
The Interstate Tax-Exempt Institutional Fund may purchase floating- and
variable-rate demand notes, which are Municipal Obligations normally having
stated maturities in excess of one year, but which permit the holder to demand
payment of principal and accrued interest at any time, or at specified intervals
not exceeding one year, in each case, usually upon not more than seven days'
notice. The interest rates on these floating and variable rate demand notes
fluctuate from time to time. Frequently, such Municipal Obligations are secured
by letters of credit or other credit-support arrangements provided by banks. The
Interstate Tax-Exempt Institutional Fund may invest any portion of its assets in
floating- and variable-rate demand notes secured by bank letters of credit or
other credit-support arrangements. Use of letters of credit or other
credit-support arrangements will not adversely affect the tax-exempt status of
these Municipal Obligations. The Interstate Tax-Exempt Institutional Fund will
not invest more than 10% of the value of its assets in floating- or
variable-rate demand notes for which there is no secondary market if the demand
feature on such Municipal Obligations is exercisable on more than seven days'
notice.
In view of the investment of the Interstate Tax-Exempt Institutional Fund in
industrial revenue, development bonds and notes secured by letters of credit or
guarantees of banks, an investment in Interstate Tax-Exempt Institutional Fund
shares should be made with an understanding of the characteristics of the
banking industry and the risks such an investment may entail. Banks are subject
to extensive government regulations, which may limit both the amounts and the
types of loans and other financial commitments which may be made and interest
rates and fees which may be charged. The profitability of the banking industry
is largely dependent upon the availability and cost of 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 branches of foreign banks to those banks
located in Australia, Canada, Western Europe and Japan. The Primary
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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. The Primary, U.S. Government and U.S. Treasury Institutional
Funds may engage, without limitation, in repurchase-agreement transactions. A
repurchase agreement is a transaction by which a Fund purchases a security (U.S.
Government or other) and simultaneously commits to resell that security to the
seller at the same price, plus interest at a specified rate. Repurchase
agreements usually have a short duration, often less than one week. The Funds
will limit repurchase agreements to those banks and securities dealers who are
deemed creditworthy pursuant to guidelines adopted by the Funds' Board of
Trustees. The investment adviser will follow procedures to assure that all
repurchase agreements are always fully collateralized as to principal and
interest. The instruments held as collateral are valued daily, and if the value
of the instruments declines, the Funds will require additional collateral. If
the other party to the repurchase agreement defaults on its obligation to
repurchase the underlying securities, a portfolio may incur a loss to the extent
that the proceeds from the sale of the collateral were less than the repurchase
price. In the event of insolvency or bankruptcy of the other party to a
repurchase agreement, a Fund may encounter difficulties and might incur costs or
possible losses of principal and income upon the exercise of its rights under
the repurchase agreement. The U.S. Treasury Institutional Fund will limit its
investment in repurchase agreements with respect to securities backed only by
the full faith and credit of the U.S. Government to not more than 5% of its
total assets. Such investment will be for temporary purposes pending the
investment in U.S. Treasury obligations. The Primary Institutional Fund may
engage in limited repurchase agreement transactions collateralized by first
mortgages conforming to the lending standards of the Government National
Mortgage Association, Federal Home Loan Mortgage Association or Federal National
Mortgage Association. Securities subject to repurchase agreements will be placed
in a segregated account and the market value will be monitored to ensure that
the market value of the securities plus any accrued interest thereon will at
least equal the repurchase price.
The Primary and U.S. Government Institutional Funds may from time to time
lend securities on a short-term basis to banks, brokers and dealers (but not
individuals) and receive as collateral cash or securities issued by the U.S.
Government or its agencies or instrumentalities (or any combination thereof),
which collateral will be required to be maintained at all times in an amount
equal to at least 100% of the current value of the loaned securities plus
accrued interest. In determining whether to lend securities to a particular
broker-dealer or financial institution, the Fund will consider all relevant
facts and circumstances, including the creditworthiness of the broker-dealer or
financial institution. A Fund may pay reasonable finders, administrative and
custodial fees in connection with a loan. During the time portfolio securities
are on loan the borrower will pay the Fund an amount equivalent to any interest
paid on such securities and the Fund may invest the cash collateral and earn
additional income, or it may receive an agreed-upon amount of interest from the
borrower who has delivered equivalent collateral or secured a letter of credit.
The value of the securities loaned cannot exceed 25% of the Fund's total assets.
Loans of securities involve risks of delay in receiving additional collateral or
in recovering the securities lent or even loss of rights in the collateral in
the event of insolvency of the borrower of the securities. The Statement of
Additional Information further explains the Funds' securities-lending policies.
The Primary, U.S. Government and U.S. Treasury Institutional Funds may
invest, without limitation, in U.S. Government securities and in instruments
secured or collateralized by U.S. Government securities. A Fund will not invest
more than 10% of its net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after notice. A Fund
will not concentrate (i.e., invest 25% of its total assets) in the securities of
issuers in a single industry, except that the Primary Institutional Fund may
invest more than 25% of its assets in the banking industry. In addition, a Fund
will not invest more than 5% of its assets in the securities of any single
issuer (except U.S. Government securities or repurchase agreements
collateralized by U.S. Government securities). Each Fund has the authority to
borrow money (including reverse purchase agreements), for extraordinary or
emergency purposes but not in an amount exceeding 5% of its total assets.
Reverse repurchase agreements involve sales by a Fund of portfolio securities
concurrently with an agreement by the Fund to repurchase the same securities at
a later date at a fixed price.
In order to provide liquidity, each Fund utilizes the following practices:
limiting its average maturity to 90 days or less; buying securities which mature
in 397 days or less; and buying only high-quality securities.
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 but delivery and payment for the when-issued securities takes
place at a
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later date. Normally, the settlement date occurs within one month of the
purchase of such Municipal Obligations. During the period between the purchase
and settlement dates, no payment is made by the Fund to the issuer and no
interest accrues to the Fund on such securities. To the extent that assets of
the Fund purchasing such securities are not invested prior to the settlement of
a purchase of securities, the Fund will earn no income; however, it is the
Fund's intent to be as fully invested as is practicable. While when-issued
securities may be sold prior to settlement date, the Fund intends to purchase
such securities with the purpose of actually acquiring them unless a sale
appears desirable for investment reasons. At the time the Fund makes the
commitment to purchase a Municipal Obligation on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value. The Fund will also maintain readily marketable assets at least
equal in value to commitments for when-issued securities specifically for the
settlement of such commitments. The investment adviser does not believe that the
Fund's net asset value or income will be adversely affected by the purchase of
Municipal Obligations on a when-issued basis.
The Fund may purchase from financial institutions participation interests in
Municipal Obligations. A participation interest gives the Fund an undivided
interest in the Municipal Obligation in the proportion that the Fund's
participation interest bears to the total principal amount of the Municipal
Obligation. These instruments may have fixed, floating or variable rates of
interest. Frequently, such instruments are secured by letters of credit or other
credit support-arrangements provided by banks.
The Tax Reform Act of 1986 ("the Act") subjects interest received on certain
otherwise tax-exempt securities ("private activity bonds") to a federal
alternative minimum tax. It is the position of the Securities and Exchange
Commission that in order for a fund to call itself "tax-free," not more than 20%
of its net assets may be invested in municipal securities subject to the federal
alternative minimum tax or at least 80% of its income must be free of both
regular income tax and alternative minimum tax. Income received on such
securities is classified as a "tax preference item" which could subject certain
investors in such securities, including shareholders of the Fund, to an
increased alternative minimum tax. However, as of the date of this Prospectus,
the Fund does not purchase such securities, but reserves the right to do so
depending on market conditions in the future.
Yields on municipal securities depend on a variety of factors, including
general economic and monetary conditions, money-market factors, conditions in
the tax-exempt securities market, size of a particular offering, maturity of the
obligation and rating of the issue. The ability of the Fund to achieve its
investment objective is also dependent on the continuing ability of issuers of
municipal securities to meet their obligations for the payment of interest and
principal when due.
From time to time the Fund may invest in taxable short-term investments
("Taxable Investments") consisting of obligations backed by the full faith and
credit of the United States Government, its agencies or instrumentalities ("U.S.
Governments"); deposit-type obligations, acceptances, and letters of credit of
Federal Deposit Insurance Corporation member banks; and instruments fully
collateralized by such obligations. Unless the Fund has adopted a temporary
defensive position, no more than 20% of the net assets of the Fund will be
invested in Taxable Investments at any time. The Fund may enter into repurchase
agreements with regard to the taxable obligations listed above. Although the
Fund is permitted to make taxable temporary investments, there is no current
intention of generating income subject to federal income tax.
The Fund's investment adviser uses its reasonable business judgment in
selecting investments in addition to considering the ratings of Moody's and S&P.
This analysis considers, among other things, the financial condition of the
issuer by taking into account present and future liquidity, cash flow and
capacity to meet debt service requirements. Since the market value of debt
obligations fluctuates as an inverse function of changing interest rates, the
Fund seeks to minimize the effect of such fluctuations by investing in
instruments with remaining maturities of 397 days or less and limiting its
average maturity to 90 days or less.
The principal risk factors associated with investment in the Fund are the
risk of fluctuations in short-term interest rates, the risk of default among one
or more issuers of securities which comprise the Fund's assets and the risk of
non-diversification. As a non-diversified investment company, the Fund is
permitted to have all its assets invested in a limited number of issuers.
Accordingly, since a relatively high percentage of the Fund's assets may be
invested in the securities of a limited number of issuers, the Fund's investment
securities may be more susceptible to any single economic, political or
regulatory occurrence than the investment securities of a diversified investment
company. However, the Fund intends to qualify as a "regulated investment
company" for purposes of the Internal Revenue Code. This limits the aggregate
value of all investments (except United States Government securities, securities
of other regulated investment companies, cash and cash items) so that, with
respect to at least 50% of its total assets, not more than 5% of such assets are
invested in the securities of a single issuer.
MANAGEMENT
INVESTMENT MANAGEMENT AGREEMENT. The Board of Trustees manages each Fund's
business and affairs. Reserve Management Company, Inc. ("Adviser"), 14 Locust
Place, Manhasset, NY 11030, a New Jersey corporation, provides the Funds with
investment
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advice pursuant to an Investment Management Agreement. Since November 15, 1971,
the Adviser and its affiliates have been advising The Reserve Funds, which
currently have assets in excess of $3 billion. Under the Investment Management
Agreement, the Adviser manages each Fund's investments, including effecting
purchases and sales thereof, in furtherance of its investment objective and
policies, subject to overall control and direction by the Trustees.
Each Fund pays the Adviser a comprehensive management fee calculated at .25%
of its average daily net assets. Under the terms of the Investment Management
Agreement with the Funds, the Adviser pays all employee and ordinary operating
costs of the Funds. Excluded from the definition of ordinary operating costs are
interest, taxes, brokerage fees, extraordinary legal and accounting fees and
expenses and fees under the Distribution Plan and the Service Plan (discussed
below).
The Investment Management Agreement provides that the Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Investment Management
Agreement relates, except a loss resulting from the willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
duties or from reckless disregard by it of its duties and obligations
thereunder.
The Adviser may make such advertising and promotional expenditures, using
its own resources, as it from time to time deems appropriate.
SERVICE AGREEMENT. The Adviser furnishes to the Fund pursuant to a Service
Agreement, at cost, all personnel required for the operations of the funds such
as executive, administrative, clerical, recordkeeping, bookkeeping, and
shareholder accounting and servicing, as well as suitable office space and
necessary equipment and supplies used by such personnel in performing these
functions. Operating costs for which the Adviser is reimbursed include salaries
and other personnel expense, rent, depreciation of equipment and facilities,
interest and amortization of loans financing equipment used by the Fund, and all
other expenses for the conduct of the Fund affairs. Affiliates of the Adviser
may provide some of these services. The Adviser is also reimbursed for; interest
charges and taxes; the cost of registering for sale, issuing and redeeming Fund
shares and of printing and mailing all prospectuses, proxy statements and
shareholder reports furnished to current shareholders; and the fees and expenses
of the Fund's custodian, auditors, lawyers and disinterested Trustees. The
Adviser has agreed to repay the Fund promptly any amount which a majority of
disinterested Trustees reasonably determines in its discretion is in excess of
or not properly attributable to the cost of operations or expenses of the Fund.
The Service Agreement is nonassignable and continues until terminated by either
party on 120 days' notice.
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"). For Federal Fund wires to be eligible for same-day order entry, the Fund
must be notified before 2:00 PM (New York time for Primary and U.S. Government
Funds) (11:00 AM New York time for Interstate and U.S. Treasury Funds) of the
amount to be transmitted and the account to be credited, and the Fund must
receive the credit at its bank by 3:00 PM (New York time). Orders received by
the Fund after the times specified above will be priced at the public offering
price in effect at 3:00 PM (New York time) on the next business day. The Fund
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. 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.
7
<PAGE> 8
If an investor does not remit Federal Funds, such payment must be converted
into Federal Funds. This usually occurs within one Fund Business Day of receipt
of a bank wire. Prior to receipt of Federal Funds, the investor's monies will
not be invested.
The following procedure will help assure prompt receipt of your Federal
Funds wire:
A. Telephone the Fund, toll free at 1-800-637-1700 and provide the following
information:
Your name
Address
Telephone number
Taxpayer ID number
The amount being wired
The identity of the bank wiring funds.
You will then be provided with a Fund account number. (Investors with
existing accounts must also notify the Fund before wiring funds.)
B. Instruct your bank to wire the specified amount to the Fund as follows:
An investor may open an account when placing an initial order by telephone,
provided the investor thereafter submits an Account Registration Form by mail.
An Account Registration Form is included with this Prospectus.
The Fund reserves the right to reject any purchase order for any reason.
SHARE CERTIFICATES. The Fund maintains a share account for each shareholder. The
Trust does not issue share certificates.
ACCOUNT STATEMENTS. Monthly account statements are sent to investors to report
transactions such as purchases and redemptions as well as dividends paid during
the month.
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 to the public at net asset value ("NAV"). The
NAV of each Fund is calculated at the close of each business day (normally 4:00
PM New York time) by taking the sum of the value of each Fund's investments
(amortized cost value is used for this purpose) and any cash or other assets,
subtracting liabilities, and dividing by the total number of shares outstanding.
A "business day" is Monday through Friday exclusive of days the New York Stock
Exchange is closed for trading and bank holidays in New York State which include
Martin Luther King's Birthday and Columbus Day. It is the policy of each Fund to
seek to maintain a stable NAV per share of $1.00, although this share price is
not guaranteed.
DISTRIBUTOR. The Funds' distributor is Resrv Partners, Inc., 810 Seventh Avenue,
New York, NY 10019-5868, which is a wholly-owned subsidiary of the Adviser.
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.
8
<PAGE> 9
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 fees 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 fees and services.
SHARES OF BENEFICIAL INTEREST
The Reserve Institutional Trust was originally organized as a Maryland
corporation on February 5, 1981 and reorganized on September 16, 1986 as a
Massachusetts business trust, and is an open-end management investment company
commonly known as a mutual fund. At the date of this Prospectus, there were four
separate series authorized and outstanding. Additional series may be added in
the future by the Board of Trustees. Although the Trust is a non-diversified
mutual fund, each of its separate investment portfolios intends to comply with
the diversification requirement of Rule 2a-7 under the 1940 Act which generally
limits a money market fund to investing no more than 5% of its total assets in
the securities, except U.S. Government Securities, of any one issuer. The Trust
is authorized to issue an unlimited number of shares of beneficial interest
which may be issued in any number of series. Shares issued will be fully paid
and nonassessable 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.
9
<PAGE> 10
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.
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 of each series 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.
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 AM 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
AM 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 AM 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 AM
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 require 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 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.
10
<PAGE> 11
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 PM (New York time) in proper form will be
effective the next business day. Oral stop payment requests are effective for 14
calendar days, at which time they will be canceled unless confirmed in writing.
Written stop payment orders are effective for one year. A fee Is charged for
this service.
AUTOMATIC WITHDRAWAL PLANS. (Class D shareholders only ) If you have an account
with a balance of at least $5,000 you may make a written election to participate
in either of the following: (i) an Income Distribution Plan providing for
monthly, quarterly or annual payments by redemption of shares from reinvested
dividends or distributions paid to your account during the preceding period; or
(ii) a Fixed Amount Withdrawal Plan providing for the automatic redemption of a
sufficient number of shares of your account to make a specified monthly,
quarterly or annual payment of a fixed amount. Changes to instructions must be
in writing with signature(s) guaranteed. In order for such payments to continue
under either Plan, there must be 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.
11
<PAGE> 12
GENERAL INFORMATION
JOINT OWNERSHIP. (Class D shareholders only) When an account is registered in
the name of one person or another, for example a husband or wife, either person
is entitled to redeem shares in the account. The Funds assume no responsibility
to either person for actions taken by the other person with respect to an
account so registered. The investment application provides that persons so
registering their account indemnify and hold the Fund harmless for actions taken
by either party.
SMALL BALANCES. Because of the expense of maintaining accounts with small
balances (less than $1,000 for Class D and less than $100,000 for Class A, B and
C), the Funds will either levy a monthly charge (currently $5 for Class D and
$100 for Class A, B and C). A firm may establish variations of minimum balances
and fee amounts if such variations are approved by the Funds.
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.
USE OF JOINT PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION. Although each
Fund is offering only its own shares, it is possible that a Fund might become
liable for any misstatement in the Prospectus and Statement of Additional
Information about the other Fund. However, each Fund has acknowledged that it,
and not the other Fund, is liable for any material misstatement or omission
about it in the Prospectus or Statement of Additional Information.
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.
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 NOW 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.
RESERVE CASH PERFORMANCE ACCOUNT AND ACCOUNT PLUS
The Fund offers a comprehensive package of services which enhance access to
an investment in the portfolios (Class D shareholders only). The Reserve Cash
Performance Account and Account Plus ("CPA") services include: (i) any amount
checking; and
12
<PAGE> 13
(ii) a comprehensive monthly statement which summarizes your CPA activity by
payee and expense category and simplifies budget and tax recordkeeping. These
CPA services are provided for a fee and transaction charges may apply.
Participating firms may also charge their own service fees.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
------------------------
13
<PAGE> 14
November 18, 1997
RESERVE INSTITUTIONAL TRUST
SUPPLEMENT TO PROSPECTUS DATED JANUARY 2, 1997
1. The following information supplements and should be read in conjunction with
the section of the Trust's prospectus entitled, "Annual Fund Operating
Expenses For All Funds."
Reserve Management Company, Inc., the Fund's investment adviser, has
agreed to permanently lower the shareholder services fee applicable to
Class B shares to .45%. Reserve Management Company, Inc., has also agreed
to waive .15% of the shareholder services fee applicable to the Primary
Institutional Fund Class C shares only, through January 15, 1998. Such
shares are not available to all investors.
Example
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class B................................... 4.60 14.44 25.20 56.69
</TABLE>
2. The following information supplements and should be read in conjunction with
the Trust's prospectus.
PRIMARY INSTITUTIONAL FUND
(CLASS B SHARES ONLY)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNE 2, 1997 JANUARY 21, 1997
THROUGH THROUGH
SEPTEMBER 30, 1997(1) MAY 31, 1997(2)
--------------------- ----------------
<S> <C> <C>
Net asset value, beginning of period................................................. $ 1.00 $ 1.00
Income from investment operations:
Net investment income............................................................ $ 0.0186 $ 0.0179
Net realized and unrealized gains on securities.................................. -- --
-------- --------
Total from investment operations................................................. $ 0.0186 $ 0.0179
Less distributions
Dividends from net investment income................................................. $ (0.0186) $(0.0179)
Distributions from capital gains..................................................... -- --
-------- --------
Total distributions.................................................................. $ (0.0186) $(0.0179)
Net asset value, end of period....................................................... $ 1.00 $ 1.00
================= =============
Total Return(3)...................................................................... 5.16% 4.95%
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA AND RATIOS:
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net assets, end of period............................................................ $ 2,013 $ 2,008
Ratio of expenses to average net assets(3)........................................... .45% 0.48%
Ratio of net income to average net assets(3)......................................... 5.12% 5.18%
</TABLE>
- ---------------
(1) Unaudited.
(2) The Primary Institutional Fund commenced operations on January 21, 1997. The
figures for the period January 21, 1997 through May 31, 1997 have been
audited.
(3) Annualized for the perod January 21, 1997 through May 31, 1997.
14
<PAGE> 15
U.S. GOVERNMENT INSTITUTIONAL FUND
(CLASSES B AND C ONLY)
FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 13, 1997
THROUGH
SEPTEMBER 30, 1997
------------------
<S> <C>
Net asset value, beginning of period................................................................... $ 1.00
Income from investment operations:
Net investment income.............................................................................. $ 0.0025
Net realized and unrealized gains on securities.................................................... --
--------
Total from investment operations................................................................... $ 0.0025
Less distributions:
Dividends from new investment income................................................................... $(0.0025)
Distributions from capital gains....................................................................... --
--------
Total distributions.................................................................................... $(0.0025)
Net asset value, end of period......................................................................... $ 1.00
===============
Total Return(2)........................................................................................ 4.60%
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA AND RATIOS:
- -------------------------------------------------------------------------------------------------------
<S> <C>
Net assets, end of period.............................................................................. $ 2,012
Ratio of expenses to average new assets(2,3)........................................................... 0.60%
Ratio of new income to average net assets(2)........................................................... 4.56%
</TABLE>
- ---------------
(1) The U.S. Government Institutional Fund commenced operations on September 13,
1997.
(2) Annualized for the period September 13, 1997 through September 30, 1997.
(3) Manager waived .15% of its expenses. If there was no waiver, the actual
expenses would have been .75%.
15
<PAGE> 16
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
<CAPTION>
PAGE
----
<S> <C>
Shareholder Expenses..................... 2
Yield.................................... 2
Investment Objective and Policies........ 3
Management............................... 6
How to Buy Shares........................ 7
Shares of Beneficial Interest............ 9
Daily Dividends.......................... 9
Taxes.................................... 9
Redemptions.............................. 10
General Information...................... 12
Reserve Cash Performance Account and
Account Plus........................... 12
Investors are advised to read and retain
this Prospectus for future reference.
</TABLE>
MDG logo
One World Trade Center
New York, New York 10048
212-775-7400 - 888-MAY-DAVIS - Fax: 212-775-8166
www.maydavis.com
BALTIMORE - NEW YORK
Distributor -- Reserv Partners, Inc.
MDG logo
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PRIMARY INSTITUTIONAL FUND
U.S. GOVERNMENT INSTITUTIONAL FUND
U.S. TREASURY INSTITUTIONAL FUND
INTERSTATE TAX-EXEMPT
INSTITUTIONAL FUND
BALTIMORE - NEW YORK
