<PAGE> 1
General Information, Purchases and
Redemptions
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[THE RESERVE FUNDS LOGO] 24 Hour Yield and Balance Information
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Nationwide 800-637-1700
The Reserve Fund, "America's First Money Fund," is a no-load money market
fund with three investment portfolios: PRIMARY FUND, U.S. GOVERNMENT FUND, AND
THE U.S. TREASURY FUND ("Funds").
The primary objective of each 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.
- U.S. GOVERNMENT FUND invests in obligations backed by the full faith and
credit of the United States Government or obligations collateralized
thereby.
- PRIMARY 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 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.
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 September 29, 1995, 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.
------------------
Prospectus dated September 29, 1995.
Investors are advised to read and retain this Prospectus for future reference.
<PAGE> 2
SHAREHOLDER EXPENSES
The following table illustrates all expenses and fees that a shareholder of
the Funds will incur. The expenses and fees set forth in the table are for the
fiscal year ended May 31, 1995.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases........................................................... None
Sales Load Imposed on Reinvested Dividends................................................ None
Redemption Fees*.......................................................................... None
Exchange Fees............................................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
U.S. U.S.
PRIMARY GOVERNMENT TREASURY
FUND FUND FUND
---- ---- -----
<S> <C> <C> <C>
Management Fee.......................................... .48% .49% .55%**
12b-1 Fees.............................................. .17% .19% .13%
Other Operating Expenses
Administration and Operations Expenses................ .28% .27% None
Equipment............................................. .03% .03% None
Other................................................. .01% .01% None
---- ---- -----
Total Operating Expenses................................ .97% .99% .68%
==== ==== ====
</TABLE>
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. *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. **The U.S. Treasury Fund is charged a comprehensive management fee of
0.80% per annum of its average net assets for both advisory and ordinary
operating expenses during the year. The U.S. Treasury Fund voluntarily waived a
portion of its comprehensive fee. However, the U.S. Treasury Fund may be charged
for certain non-recurring extraordinary expenses and its allocated or direct
share of certain other expenses. See "Investment Management Agreements" on page
6.
The following example illustrates 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. *** The example
reflects the maximum allowable expense ratio of up to 1.00% on the U.S. Treasury
Fund.
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
--- --- --- ----
<S> <C> <C> <C> <C>
Primary Fund........................................... $10 $31 $54 $119
U.S. Government Fund................................... $10 $32 $55 $121
U.S. Treasury Fund***.................................. $10 $32 $55 $122
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
FINANCIAL HIGHLIGHTS
The following information applies to a share of the Primary Fund, U.S.
Government Fund and the U.S. Treasury Fund outstanding throughout each period.
It should be read in conjunction with the financial statements and related notes
appearing in the Statement of Additional Information. Such information has been
audited by Coopers & Lybrand, L.L.P. as indicated in their reports appearing in
the Statement of Additional Information.
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
PRIMARY ---------------------------------------------------------------------------------------------------------------------
FUND 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ----------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning
of
year..... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from
investment
operations... .0549 .0345 .0361 .0541 .0794 .0915 .0913 .0735 .0660 .0818
Expenses... .0099 .0099 .0100 .0100 .0100 .0096 .0098 .0101 .0097 .0091
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net
investment
income
(1)...... .0450 .0246 .0261 .0441 .0694 .0819 .0815 .0634 .0563 .0727
Dividends
from net
investment
income
(1)...... (.0450) (.0246) (.0261) (.0441) (.0694) (.0819) (.0815) (.0634) (.0563) (.0727)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset
value,
end of
year..... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total
Return... 4.50% 2.46% 2.61% 4.41% 6.94% 8.19% 8.15% 6.34% 5.63% 7.27%
RATIOS/SUPP-
LEMENTAL
DATA
- -----------
Net assets
in
thousands,
end of
year...... 1,602,464 1,415,378 1,389,136 1,553,828 1,803,132 1,777,372 1,698,934 1,656,050 1,517,508 1,660,594
Ratio of
expenses
to
average
net
assets... .97% .97% .99% .99% .97% .92% .94% .98% .95% .88%
Ratio of
net
investment
income to
average
net
assets... 4.42% 2.44% 2.58% 4.34% 6.72% 7.85% 7.84% 6.14% 5.47% 7.01%
</TABLE>
2
<PAGE> 3
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
-------------------------------------------------------------------------------------------------
U.S. GOVERNMENT FUND 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ------------------------------ ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations.................. .0542 .0337 .0353 .0533 .0772 .0908 .0921 .0721 .0664 .0816
Expenses...................... .0101 .0100 .0100 .0101 .0102 .0098 .0100 .0103 .0099 .0099
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment income (1)..... .0441 .0237 .0253 .0432 .0670 .0810 .0821 .0618 .0565 .0717
Dividends from net investment
income (1).................. (.0441) (.0237) (.0253) (.0432) (.0670) (.0810) (.0821) (.0618) (.0565) (.0717)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year........................ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return.................. 4.41% 2.37% 2.53% 4.32% 6.70% 8.10% 8.21% 6.18% 5.65% 7.17%
RATIOS/SUPPLEMENTAL DATA
- ------------------------------
Net assets in thousands, end
of year..................... 721,785 740,698 728,138 853,823 817,604 585,023 654,571 407,214 378,889 340,692
Ratio of expenses to average
net assets.................. .99% .99% .99% .99% .98% .94% .98% 1.00% .96% .95%
Ratio of net investment income
to average net assets....... 4.31% 2.35% 2.50% 4.21% 6.38% 7.78% 8.01% 5.99% 5.50% 6.89%
</TABLE>
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31, FEBRUARY 3, 1992
----------------------------------- (COMMENCEMENT OF OPERATIONS)
U.S. TREASURY FUND 1995 1994 1993 THROUGH MAY 31, 1992
- ------------------------------------------------------ ------- ------- ------- ----------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year.................... $1.0000 $1.0000 $1.0000 $ 1.0000
------- ------- ------- -------
Income from investment operations..................... .0523 .0313 .0330 .0121
Expenses.............................................. .0067 .0073 .0092 .0031(2)
------- ------- ------- -------
Net investment income (1)............................. .0456 .0240 .0238 .0090
Dividends from net investment income (1).............. (.0456) (.0240) (.0238) (.0090)
------- ------- ------- -------
Net asset value, end of year.......................... $1.0000 $1.0000 $1.0000 $ 1.0000
======= ======= ======= ===========================
Total Return.......................................... 4.56% 2.40% 2.38% 2.75%(2)
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------
Net assets in thousands, end of year.................. 95,227 7,350 32,325 512
Ratio of expenses to average net assets (3)........... .68%(3) .73%(3) .80% .97%(2)(3)
Ratio of net investment income to average net
assets.............................................. 4.64% 2.38% 2.07% 2.74%(2)
</TABLE>
- ---------------
(1) Based on compounding of daily dividends. Not indicative of future results.
(2) Annualized
(3) During this period the manager waived a portion of fees and expenses. If
there were no reductions in expenses, the actual expenses would have been
approximately .80%, .80% and 1.00%, respectively.
YIELD
For the seven calendar days ended May 31, 1995, the current and effective
yields of each Fund were as follows:
<TABLE>
<CAPTION>
CURRENT EFFECTIVE
YIELD YIELD
---- ----
<S> <C> <C>
Primary Fund................................................................... 5.14% 5.28%
U.S. Government Fund........................................................... 5.04% 5.17%
U.S. Treasury Fund............................................................. 4.81%* 4.92%*
</TABLE>
- ---------------
*After voluntary waiver of its comprehensive fee.
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
3
<PAGE> 4
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.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each 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. This 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 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 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 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.
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 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 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 Fund.
The Primary 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 Fund. Instruments which are
not rated may also be purchased by the Primary 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 Fund may invest.
The Primary 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 Fund will limit its investment
in foreign banks to those
4
<PAGE> 5
banks located in Australia, Canada, Western Europe and Japan. The Primary 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. 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 Fund will limit repurchase
agreements to those banks and securities dealers who are deemed creditworthy
pursuant to guidelines adopted by the Fund's 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 Fund 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 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 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 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, 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 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). 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.
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, 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.
The Primary and U.S. Government Funds each pay the Adviser a management fee,
which is a percentage of the average daily net assets of each of the funds,
calculated as follows: (i) .50% per annum of the first $500 million of average
daily net assets; (ii) .475% per annum of the next $500 million of such assets;
(iii) .45% per annum of the next $500 million of such assets; (iv) .425% per
annum of the next $500 million of such assets; and (v) .40% per annum of such
assets in excess of $2 billion. For the fiscal year ended May 31, 1995, the
Adviser received a management fee of .48% of the average daily net assets of the
Primary Fund, and .49% of the average daily net assets of the U.S. Government
Fund.
The U.S. Treasury Fund pays the Adviser a comprehensive management fee
calculated at .80% of its average daily net assets. Under the terms of the
Investment Management Agreement with the U.S. Treasury Fund, 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
5
<PAGE> 6
legal and accounting fees and expenses, and the fees of the disinterested
Trustees, for which it pays its direct or allocated share. The Investment
Management Agreement with the U.S. Treasury Fund provides that the Adviser shall
not be liable for any error of judgement 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. For the fiscal year ended May 31, 1995, the U.S.
Treasury Fund paid the Adviser a comprehensive management fee of .55% of its
average daily net assets. During the year, the Adviser voluntarily agreed to a
reduction of its comprehensive fee.
SERVICE AGREEMENT. The Adviser furnishes to the Primary and U.S. Government
Funds 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 a Fund, and all other expenses for the conduct of the Funds'
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 Primary and U.S. Government Funds 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.
The Primary, U.S. Government and U.S. Treasury Funds' total expenses for the
fiscal year ended May 31, 1995, were .97%, .99% and .68%, respectively, of the
average daily net assets of each Fund.
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 Fund acts as its own
transfer agent and dividend paying agent.
HOW TO BUY SHARES
METHOD OF PAYMENT. The minimum initial investment is $1,000 and $250 for
subsequent investments ($50 if shares are purchased by Reserve Automatic Asset
Builder Reserve, Automatic Asset Builder for U.S. Government Distributions and
$25 if purchased by Reserve Automatic Asset Builder for Payroll or Pension). An
initial purchase must be accompanied by an investment application or equivalent
information. For clients of certain broker-dealers and financial institutions,
shares may be purchased directly through such firm. You can buy shares of the
Funds each business day at the net asset value next determined after receipt by
the Funds of a properly completed order and payment in Federal Funds (member
bank deposits with a Federal Reserve bank). Payments (denominated in U.S.
dollars) must be made:
- By check (drawn on a U.S. bank) payable to The Reserve Fund, 810 Seventh
Avenue, New York, NY 10019-5868. You must include your account number (or
Taxpayer Identification number) on the "pay to the order of" line for each
check made payable to The Reserve Fund or within the endorsement for each
check endorsed to The Reserve Fund.
- By wire -- Prior to calling your bank, call the Funds for specific
instructions at 800-637-1700 or the broker-dealer or financial institution
("firm") from which you received this Prospectus.
Checks and wires which do not correctly identify the account to be credited
may be returned or delay the purchase of shares. If you have an account in more
than one Fund and do not specify the account number and portfolio, all money
sent will be invested in the U.S. Government Fund. Because the Funds must pay
for their securities purchases on the same day in Federal Funds, only Federal
Funds wires and checks drawn on the Funds' bank are eligible for entry as of the
business day received. For Federal Funds wires to be eligible for same-day order
entry, the Funds must be notified before 2:00 P.M. (New York time) (11:00 A.M.
New York time for the U.S. Treasury Fund) of the amount to be transmitted and
the account to be credited. Payment by check not immediately convertible into
Federal Funds will be entered as of the business day when covering Federal Funds
are received or bank checks are converted into Federal Funds. This usually
occurs within two business days, but may take longer. Checks delivered to the
Funds' offices after 2:00 P.M. (New York time) (11:00 A.M. New York time for the
U.S. Treasury Fund) will be considered received the next business day. A fee
will be charged if any check used for investment in your account does not clear.
Any monies which cannot be credited to an account by the end of the business
day following that on which Federal Funds become available will be returned as
promptly as possible to the sender or, if this cannot be readily determined, to
the bank from which they
6
<PAGE> 7
came or were drawn. The Funds reserve the right, with respect to any person or
class of persons, under certain circumstances to waive investment minimums and
redemption requirements. The Funds also reserve the right to suspend the
offering of shares from time to time and to reject any purchase order for any
reason. The Funds will only accept purchase checks in excess of $100 which are
payable to The Reserve Fund or payable to the shareholder/payee of the check and
endorsed to The Reserve Fund. The Funds do not accept travelers checks.
RESERVE AUTOMATIC ASSET BUILDER. You may purchase shares of a Fund ($50
minimum) at regular intervals selected by you. Shares are purchased monthly,
quarterly or annually by transferring monies from the checking, NOW or bank
money market deposit account (as permitted) designated by you. The account
designated by you will be debited in the specified amount, and shares will be
purchased on either the fifth or twentieth day of a month, or twice a month, on
both days. Only an account maintained in a domestic financial institution which
is an Automatic Clearing House member may be so designated. To establish a
Reserve Automatic Asset Builder account, you must file an authorization form
with the Funds which is available from them. You may cancel this privilege or
change the amount of purchase at any time by mailing written notification to the
Funds, and the notification will be effective fifteen business days following
receipt. The Funds may impose a charge or modify or terminate this privilege at
any time. Shares purchased by this privilege may not be redeemed until the Fund
has assured itself that good payment has been collected which will generally be
up to ten business days. This privilege may not be available to clients of
certain firms or may be available subject to conditions or limitations.
RESERVE AUTOMATIC ASSET BUILDER FOR PAYROLL OR PENSION. You may purchase shares
of a Fund ($25 minimum) automatically on a regular basis. Depending upon your
employer's direct deposit program, you may have all or a part of your paycheck
transferred to your existing Fund account at each period through the Automatic
Clearing House. To establish such an account, you must file an authorization
form, which is available from the Funds, with your employer's payroll
department. Your employer must complete the form and return it to the Funds. You
may change the amount of the purchase or cancel the authorization only by
written notice to your employer. It is the sole responsibility of your employer,
not the Funds or any other person, to arrange for transactions under the Reserve
Automatic Asset Builder for Payroll or Pension plan. The Funds may impose a
charge or modify or terminate this privilege at any time. This privilege may not
be available to clients of certain firms or may be available subject to
conditions or limitations.
RESERVE AUTOMATIC ASSET BUILDER FOR U.S. GOVERNMENT DISTRIBUTIONS. You may
purchase shares of a Fund ($50 minimum) by having federal salary, Social
Security, or certain veteran's benefits or other payments from the federal
government automatically deposited into your Fund account. To enroll in Reserve
Automatic Asset Builder for U.S. Government Distributions, you must file with
the Funds a completed Reserve Automatic Asset Builder Sign-Up Form for each type
of payment to be deposited. The appropriate form may be obtained from the Funds.
Death or legal incapacity will terminate your participation in this privilege
and you may elect at any time to terminate your participation by notifying in
writing the appropriate federal agency. In addition, the Funds may terminate
your participation upon 30 days' notice to you. This privilege may not be
available to clients of certain firms or may be available subject to conditions
or limitations.
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
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' distributors are Resrv Partners, Inc., 810 Seventh
Avenue, New York, NY 10019-5868, which is a wholly-owned subsidiary of the
Advisor; NWNL/Northstar Distributors, Inc., Two Pickwick Plaza, Greenwich, CT
06830; and Pacific Global Fund Distributors, Incorporated, 215 North Marengo
Avenue, Pasadena, CA 91101.
EXCHANGE PRIVILEGE. The shares offered by this Prospectus may be exchanged for
shares in other Reserve money market funds at net asset value. Customers of
certain firms may exchange shares of the Primary and/or U.S. Government Funds
for shares of certain equity and bond funds where a sales load normally applies.
A waiver of the sales load may apply if the shares being exchanged were
acquired: (a) by a previous exchange from shares of a fund purchased with a
sales load, or (b) through investments of dividends or distributions paid with
respect to the foregoing category of shares. 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. Exchanges 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.
INDIVIDUAL RETIREMENT ACCOUNTS. Investors may use the Funds as an investment
for Individual Retirement Accounts ("IRAs"). A master IRA plan, with information
regarding administration fees and other details are available from Resrv
Partners, Inc. or the firm from which you received this Prospectus.
7
<PAGE> 8
DISTRIBUTION 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 Plan of Distribution ("Plan"). The Reserve Fund
maintains the Plan and related agreements, as amended, under Rule 12b-1 of the
1940 Act. Under the Plan, each Fund makes assistance payments at an annual rate
of .20% 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 or administrative services provided the Fund. The
investment adviser is required by the Plan to pay an equivalent amount and may,
at its discretion, 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.
During the fiscal year ended May 31, 1995, the ratio of expenditures under
the Plan were .17% of average net assets of the Primary Fund, .19% of average
net assets of the U.S. Government Fund and .13% of average net assets of the
U.S. Treasury Fund.
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 Fund was originally incorporated on February 1, 1970 as a
Maryland corporation and was reorganized as a Massachusetts business trust on
October 28, 1986 and is an open-end management investment company commonly known
as a mutual fund. At the date of this Prospectus, there were three separate
series authorized and outstanding. Additional series may be added in the future
by the Board of Trustees. Although The Reserve Fund is a nondiversified 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
Reserve Fund 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
may, in certain circumstances, be personally liable for the trust's obligations
to third parties. However, the Declaration of Trust provides, in substance, that
no shareholder or Trustee shall be personally liable for The Reserve 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 Reserve 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.
8
<PAGE> 9
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. 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 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 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 Fund. Shareholders should consult with
their own tax advisers with respect to the application of their state and local
tax laws to these distributions
Shareholders are advised to retain all statements to maintain accurate
records of their investments. The Fund 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 A.M. New York time for the
U.S. Treasury 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 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 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 Fund).
WRITTEN AND TELEPHONE REDEMPTION REQUESTS. The Funds strongly suggest (but does
not require) that each written redemption be at least $1,000 and requires that
each telephone redemption be at least $1,000, except for redemptions which are
intended to liquidate your account. A shareholder will be charged $2 for
redemption checks issued by the Funds of less than $100. Payments of $10,000 or
more will be wired upon request without charge. A shareholder will be charged
$10 for wires of 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 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 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 below 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
9
<PAGE> 10
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. 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. 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. 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. 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. 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 the 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. 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
JOINT OWNERSHIP. When an account is registered in the name of one person or
another, for example 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.
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
10
<PAGE> 11
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.
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. 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 Fund'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 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 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
the 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 PLUS ACCOUNT
The Funds offer a comprehensive package of services which enhance access to
an investment in the portfolios. The Reserve Cash Performance Plus Account
("CPA") services include: (i) any amount checking; and (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.
In addition, CPA investors with an account balance of $5,000 may, for no
additional fee, apply for a Visa Gold debit card which may be used to access
your CPA investment balances. A Visa Gold cardholder will be provided a
comprehensive package of free travel and emergency assistance services,
including: (i) $150,000 in travel accident insurance when the travel tickets are
paid with the Visa Gold card; (ii) auto rental collision/loss damage insurance
when the rental is paid using your Visa Gold card; (iii) expedited card
replacement and emergency cash; (iv) medical, legal and lost baggage assistance;
and (v) extended retail product guarantees when the purchase is paid with the
Visa Gold card.
------------------------
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.
------------------------
11
<PAGE> 12
[CAPTION]
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PAGE
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<S> <C>
Shareholder Expenses..................... 2
Financial Highlights..................... 2
Yield.................................... 3
Investment Objective and Policies........ 4
Management............................... 5
How to Buy Shares........................ 6
Shares of Beneficial Interest............ 8
Daily Dividends.......................... 8
Taxes.................................... 9
Redemptions.............................. 9
General Information...................... 10
Reserve Cash Performance Plus Account.... 11
Investors are advised to read and retain
this Prospectus for future reference.
</TABLE>
[THE RESERVE FUNDS LOGO]
"America's First
Money Fund"
810 Seventh Avenue, New York, NY 10019-5868
GENERAL INFORMATION AND 24 HOUR YIELD AND BALANCE INFORMATION
800-637-1700
Distribution -- Resrv Partners, Inc.
RF/P G&U-9/95
[THE RESERVE FUNDS LOGO]
"America's First
Money Fund"
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
PRIMARY FUND
U.S. GOVERNMENT FUND
U.S. TREASURY FUND
<PAGE> 13
THE RESERVE FUND
"AMERICA'S FIRST MONEY FUND"
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
This Statement of Additional Information describes The Reserve Fund ("Fund") and
three of its portfolios, the Primary Fund, the U.S. Treasury Fund and the U.S.
Government Fund (hereinafter referred to as the "Portfolio(s)"; the U.S.
Treasury Fund and the U.S. Government Fund are hereinafter referred to as the
"Treasury Portfolio": and "Government Portfolio", respectively). This Statement
is not a Prospectus, but provides detailed information to supplement the
Prospectus. A copy of the Prospectus may be obtained from the Fund at the above
address. This Statement is dated September 29, 1995.
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
Investment Objective and Policies 2
Trustees and Executive Officers 3
Investment Management, Distribution,
and Custodian Agreements 5
Portfolio Turnover, Transaction Charges
and Allocation 7
Shares of Beneficial Interest 8
Purchase, Redemption and Pricing of Shares 9
Distributions and Taxes 11
Fund Yield 12
Reserve Cash Performance Plus Account 13
Ratings 14
Report of Independent Accountants 17
Financial Statements 18
</TABLE>
SHARES OF THE FUND ARE NEITHER GUARANTEED NOR INSURED BY THE U.S. GOVERNMENT AND
THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 14
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each Portfolio of the Fund is to seek as high
a level of current income as is consistent with preservation of capital and
liquidity.
SUPPLEMENTAL INVESTMENT POLICIES. The following investment policies may not be
changed without the affirmative vote of a majority of the outstanding shares of
a Portfolio. A majority of the outstanding shares of a Portfolio means the vote
of the lesser of (i) 67% or more or more of the shares of a Portfolio present at
a meeting, if the holders of more than 50% of the outstanding shares of the
Portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Portfolio. A Portfolio 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 and bank
obligations or repurchase agreements secured by such obligations; (5) purchase,
sell or otherwise invest in real estate or commodities or commodity contracts;
(6) lend more than 33 1/3 of the value of its total assets to the extent its
investments may be considered loans; (7) sell any security short or write, sell
or purchase any futures contract or put or call option; (8) invest in voting
securities or in companies for the purpose of exercising control; (9) invest in
the securities of other investment companies except in compliance with the
Investment Company Act of 1940; (10) make investments on a margin basis; (11)
purchase or sell any securities (other than securities of the Fund) from or to
any officer or Trustee of the Fund, the investment adviser or affiliated person
except in compliance with the Investment Company Act of 1940.
OTHER POLICIES. The Primary and Government Funds may, to increase their income,
lend their securities to brokers, dealers and institutional investors if the
loan is collateralized in accordance with applicable regulatory requirements
(the "Guidelines") and if, after any loan, the value of the securities loaned
does not exceed 25% of the value of its assets. Under the present Guidelines,
the loan collateral must, on each business day, at least equal the value of the
loaned securities plus accrued interest and must consist of cash, or securities
of the U.S. Government (or its agencies or instrumentalities). The Portfolios
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 Portfolios may also pay
reasonable finders, custodian and administrative fees. Loan arrangements made by
a Portfolio 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 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 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.
<PAGE> 15
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. A repurchase agreement transaction
occurs when the Fund purchases and simultaneously contracts to resell in advance
securities at fixed prices determined by the negotiated yields. Each Portfolio
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. A Portfolio will make
payment for such instruments only upon their physical delivery to, or evidence
of their book-entry transfer to, the account of a Fund's Custodian. If the
seller defaults on the repurchase obligation the Portfolio could incur a loss
and may incur costs in disposing of the underlying security. A Portfolio 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 and Government 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 Fund'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 Portfolio at the time of the
transaction.
TRUSTEES AND OFFICERS OF THE TRUST
*BRUCE R. BENT, President, Treasurer and Trustee, 810 Seventh Avenue,
New York, New York 10019.
Mr. Bent is President, Treasurer, and Trustee of The Reserve Fund
("RF"), Reserve Institutional Trust ("RIT"), Reserve Tax-Exempt Trust ("RTET")
and Reserve New York Tax-Exempt Trust ("RNYTET"), Director, Vice President and
Secretary of Reserve Management Company, Inc. ("RMCI") and Reserve Management
Corporation, and Chairman and Director of Resrv Partners, Inc. Before
1968, he was associated with Stone & Webster Securities Corp., and previously,
Teachers Insurance and Annuity Association.
EDWIN EHLERT, JR., Trustee, 125 Elm Street, Westfield, New Jersey 07091.
Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency formerly called Travelong of Westfield, Inc.) and Ehlert Travel
Associates of Florida, Inc. (travel agency), and Trustee of RF, RIT, RNYTET and
RTET.
HENRI W. EMMET, Trustee, 176 East 71st Street, New York, New York 10021.
Mr. Emmet is the Managing Director of Servus Associates, Inc, and U.S.A.
Representative of the First National Bank of Southern Africa and Trustee of RF,
RET, RNYTET and RTET. Until 1989, he was Senior Vice President of the New York
branch of Banque Nationale de Paris.
<PAGE> 16
*DONALD J. HARRINGTON, C.M, Trustee, St. John's University, Jamaica, New
York 11439.
The Reverend Harrington is President of St. John's University (NY) and a
Trustee of RF, RIT, RNYTET and RTET. The Reverend Harrington served as President
of Niagara University from 1984 to 1989 and was Executive Vice President of
Niagara University from 1981 to 1984.
NIELS W. JOHNSEN, Trustee, 1 Whitehall Street, New York, New York 10004.
Mr. Johnsen is Chairman of the Board of International Shipholding Corp.
and Central Gulf Lines, Inc. (ship cargo carrier), Director of Centennial
Insurance Co. and Trustee of The
Atlantic companies (insurance), RF, RIT, RNYTET and RTET.
MARC C. COZZOLINO, Counsel and Secretary, 810 Seventh Avenue, New York,
NY 10019.
Mr. Cozzolino is Counsel and Secretary of RF, RIT, RTET, and RNYTET.
Before joining The Reserve Funds in 1994, Mr. Cozzolino was a staff attorney at
the New Jersey Bureau of Securities.
PAT A. COLLETTI, Controller, 810 Seventh Avenue, New York, New York
10019.
Mr. Colletti is Controller of RF, RIT, RTET and RNYTET. Prior to joining
The Reserve Funds in 1985, Mr. Colletti was Supervisor of Accounting of Money
Market Funds for the Dreyfus Corporation.
- ---------------
*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.
During the fiscal year ended May 31, 1995, the Trustees received fees of
$50,084 allocated to the Primary and Government Funds. As of June 30, 1995,
Trustees and officers directly or indirectly as a group owned less than 1% of
the outstanding shares of the Primary and Government Funds and shares of the
Treasury Fund. During the year ended May 31, 1995, the Fund held four Board
meetings and one Review Committee meeting.
<TABLE>
<CAPTION>
COMPENSATION TABLE
------------------
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND FUND COMPLEX
NAME OF TRUSTEE FROM FUND* (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE*
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Edwin Ehlert, Jr. $12,708 $16,500
Henri W. Emmet $12,708 $16,500
Rev. Donald J. Harrington $12,708 $16,500
Niels W. Johnsen $12,708 $16,500
</TABLE>
<PAGE> 17
*Amount shown are for the Fund's fiscal year ending.
The following executive officers of the Fund had allocated cash
remuneration in excess of $60,000 during the last fiscal year for services
rendered to the Fund.
<TABLE>
<CAPTION>
ESTIMATED
AGGREGATE ANNUAL BENEFITS
NAME CAPACITY REMUNERATION UPON RETIREMENT
---- -------- ------------ ---------------
<S> <C> <C>
Bruce R. Bent President $281,800 $150,000
Pat A. Colletti Controller $108,400 $ 60,000
</TABLE>
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 Portfolios
investments, including effecting purchases and sales thereof, in furtherance of
each Portfolio's investment objective and policies, subject to overall control
and direction of the Trustees.
For these services, the Primary and Government Funds periodically pay
RMCI a management fee at an annual rate not to exceed .50% of the first $500
million of average daily net assets, .475% of the next $500 million of such
assets, .45% of the next $500 million of such assets, .425% per annum of the
next $500 million of such assets, and .40% of such assets in excess of $2
billion. RMCI also pays the promotional expenses related to the sale of shares
of the Primary and Government Funds such as paying for prospectuses distributed
to potential shareholders, sales literature and advertising. For the fiscal
years ended May 31, 1992, 1993, 1994 and 1995 RMCI received management fees of
$8,032,190, $6,861,830, $6,727,538, and $6,870,9694, respectively, from the
Primary Fund and $4,032,887, $3,979,381, $3,602,352 and $3,613,156,
respectively, from the Government Fund.
Under the terms of the Investment Management Agreement with the Treasury
Fund, RMCI also pays all employee costs and ordinary operating costs of the
Portfolio. For these services the Treasury Portfolio periodically pays RMCI a
comprehensive management fee at an annual rate of .80% of average daily net
assets. For the fiscal year ended May 31, 1992, 1993, 1994, and 1995 RMCI
received a comprehensive management fee of $2,060, $115,678, $44,392, and
$298,645 respectively.
From time to time, RMCI may waive receipt of its fees and or voluntarily
assume certain expenses of a Portfolio which would have the effect of lowering
the Portfolio'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 Primary and Government Fund
were duly approved by shareholders in 1986, 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 Investment Management Agreement for the Treasury Fund was duly approved by
shareholders in 1993 and may be renewed annually
<PAGE> 18
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 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 of the Fund or by vote of a
majority of outstanding voting shares of a Portfolio or by RMCI.
Pursuant to the Service Agreement (see Service Agreement in the
Prospectus), during the fiscal year ended May 31, 1995 the Primary Fund
reimbursed RMCI $4,673,942 and the Government Fund reimbursed RMCI $2,260,985
for expenses. For the fiscal years ended May 31, 1992, 1993, and 1994, RMCI was
reimbursed $6,335,501, $5,224,212, and $4,728,032 by the Primary Fund and
$2,680,611, $2,646,257, and $2,331,132 by the Government Fund for expenses,
respectively.
EXPENSE LIMITATION. The Investment Management Agreements for the Primary and
Government Portfolios provide that RMCI will reimburse either Portfolio for the
amount by which the Portfolio's costs and expenses paid RMCI (exclusive of
brokerage fees and commissions, interest, taxes and extraordinary legal fees and
expenses) exceed 1% of its average daily closing net assets.
DISTRIBUTION AGREEMENT. The Fund's Distributors are Mesirow Financial, Inc.
("Mesirow"), 350 N. Clark Street, Chicago, Illinois 60610; Pacific Global Fund
Distributors, Incorporated ("PGFDI") 215 North Marengo Avenue, Pasadena,
California 91101; NWNL Northstar Distributors ("NWNL") Two Pickwick Plaza,
Greenwich, Connecticut 06830 and Resrv Partners, Inc. ("RESRV"), 810 Seventh
Avenue, New York, N.Y. 10019. The Fund has authorized the Distributors, 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 Distributors may offer
and sell shares of the Fund pursuant to a separate Prospectus applicable to such
Distributor. The Distributors are "principal underwriters" for the Fund within
the meaning of the Investment Company Act of 1940, and as such act as agent in
arranging for the continuous offering of Fund shares. The Distributors have the
right to enter into selected dealer agreements with brokers or other persons of
their 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. Mesirow's principal business is as a
broker-dealer and distributor of mutual fund shares. RESRV's, NWNL's and PGFDI's
principal business is the distribution of mutual fund shares. No Distributor has
retained underwriting commissions on the sale of Fund shares during the last
three fiscal years. During the fiscal year ended May 31, 1995, Mesirow received
distribution assistance payments of $839,046 from the Primary Fund and $311,512
from the Government Fund, respectively. During the fiscal year ended May 31,
1995, NWNL received distribution assistance payments of $10,754 from the Primary
Fund. No distribution assistance payments were made to RESRV or PGFDI.
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.
PLAN OF DISTRIBUTION. The Fund maintains a Plan of Distribution ("Plan") and
related agreements, as amended, under Rule 12b-1 of the Investment Company Act
of 1940, which provides that investment companies may pay distribution expenses,
directly or indirectly, pursuant to a Plan adopted by the investment company's
Board and approved by its shareholders. Under the Plan, each Portfolio 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 at an annual rate
of .20% of the average net asset value of the qualified accounts. Such
distribution assistance may include, but may not limited to, establishment of
shareholder accounts, delivering prospectuses to prospective investors and
processing automatic investment in Fund shares of client account balances.
Substantially all such monies (together with significant amounts from RMCI's own
resources) are paid by RMCI to payees for their distribution assistance or
administrative services with any remaining amounts being used to partially
defray other expenses incurred by RMCI in distributing Fund shares. In addition
to the
<PAGE> 19
amounts required by the Plan, RMCI may, in its discretion, pay additional
amounts from its resources. The rate of any additional amounts that may be paid
will be based upon RESRV's and RMCI's analysis of the contribution that a payee
makes to the Fund by increasing assets under management and reducing expense
ratios and the cost to the Fund if such services were provided directly by the
Fund or other authorized persons. RMCI and RESRV will also consider the need to
respond to competitive offers of others, which could result in assets being
withdrawn from the Fund and an increase in the expense ratio for the Fund. RMCI
may elect to retain a portion of the distribution assistance payments to pay for
sales materials or other promotional activities. The Trustees have determined
that there is a reasonable likelihood the 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 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 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 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 Plan, the Fund's Controller or Treasurer reports quarterly the
amounts and purposes of assistance payments. During the continuance of the Plan
the selection and nomination of the disinterested Trustees are at the discretion
of the disinterested Trustees currently in office.
During the fiscal year ended May 31, 1995, $2,444,177 was paid under the
Plan by the Primary Fund, $1,374,513 was paid under the Plan by the Government
Fund and $57,860 was paid under the Plan by the Treasury Fund. Any such payments
are intended to benefit the Fund by maintaining or increasing net assets to
permit economies of scale in providing services to shareholders and to
contribute to the stability of such shareholder services. During the fiscal year
ended May 31, 1995, substantially all payments made by the Fund were to brokers
or other financial institutions and intermediaries for share balances in the
Fund.
The 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 series or by vote of the disinterested Trustees The 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 Plan may not be amended to increase materially the
amount to be spent for distribution without shareholder approval. All material
amendments to the 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 Plan, recommending its modification or discontinuance, or taking
any other action.
<PAGE> 20
CUSTODIAL SERVICES AND INDEPENDENT ACCOUNTANT. Chemical Bank, 4 New York
Plaza, New York, N.Y. 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, N.Y. 10015; Morgan Guaranty Trust Co., 60 Wall Street, New York, N.Y.
10260; and Custodial Trust Company, 28 West State Street, Trenton, N.J. 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, N.Y. 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 Fund has not
paid any brokerage commissions during the past three fiscal years.
The 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 operation of mutual funds,
that should the assets of another class of shares be insufficient to satisfy its
liabilities, the assets of
<PAGE> 21
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 Portfolio,
equal rights to all dividends and other distributions from the Portfolio, 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, shareholders of a business trust may, under
certain circumstances, be held personally liable for the obligations of the
Fund. The Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Fund and requires that notices of such
disclaimer be given in each agreement, obligation, or instrument entered into or
executed by the Fund or the Trustees. The Declaration of Trust provides for the
indemnification out of the Fund property of any shareholder held personally
liable for the obligations of the Fund. The Declaration of Trust also provides
that the Fund shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on account of
status as a shareholder is limited to circumstances in which the Fund itself
would be unable to meet its obligations.
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 September 6, 1995 no person was known by the Fund to own of record
or beneficially 5% or more of the outstanding shares of the Primary and U.S.
Government Funds. As of September 6, 1995, the following persons were known to
own beneficially or of record 5 percent of the U.S. Treasury Fund: Gilbert P.
Hyatt, P.O. Box 81230, Las Vegas, Nevada 89180 (7.2%)
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 Portfolio. The election is
irrevocable pursuant to rules and regulations under the Investment Company Act
of 1940 unless withdrawal is permitted by order of the Securities and Exchange
Commission. Redemptions in kind are further limited by the Fund's practice of
holding instruments typically with a minimum value of $1,000,000 and its
intention to redeem in kind only when necessary to reduce a disparity between
amortized cost and market
<PAGE> 22
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 Portfolio is normally maintained at $1.00 per share. Each Portfolio cannot
guarantee that its net asset value will always remain at $1.00 per share.
The net asset value per share of each Portfolio is determined by adding
the value of all of the Portfolio'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 Portfolio
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 Portfolio's
assets prior to maturity to realize capital gains or losses or to shorten the
average maturity of the Portfolio, withholding dividends, redemption of shares
of the Portfolio in kind, or reverting to valuation based upon market prices and
estimates.
EXCHANGE PRIVILEGE. A shareholder of the Fund may exchange his shares at the net
asset value for shares of the Pacific Advisors Fund Inc. and the NWNL Northstar
Series Trust and their respective portfolios. This exchange privilege may not be
available to clients of certain firms. A sales load will be charged on such an
exchange to the Pacific Advisors Fund, Inc. and the NWNL Northstar Series Trust
unless a waiver of the sales load applies. A shareholder may qualify for waiver
of the sales load if the shares of the Fund which are
<PAGE> 23
being exchanged were acquired: (a) by a previous exchange from shares of
Pacific Advisors Fund Inc. or NWNL Northstar Series Trust purchased with a
sales load, or (b) through reinvestment of dividends or distributions paid
with respect to the foregoing category of shares. A shareholder of the Pacific
Advisors Fund Inc. or the NWNL Northstar Series Trust may exchange, at net
asset value, shares for shares of the Primary Portfolio of the Fund only.
Shares to be acquired in an exchange must be registered for sale in the
investor's state. The Fund reserves the right to record all exchange requests.
The exchange privilege may be modified or terminated at any time, or from
time to time, upon 60 days' notice to shareholders. Additional information
regarding the Pacific Advisors Fund exchange privilege is available from the
Pacific Advisors Fund at (800) 282-6693 or any authorized firm. Additional
information regarding the NWNL Northstar Series Trust is available from the NWNL
Northstar Series Trust at (203)863-6200 or (800)595-7827 or any authorized firm.
SHAREHOLDER SERVICE POLICIES. The Fund's policies concerning the shareholder
services are subject to change from time to time. The Fund reserves the right to
change the $1,000 minimum account size subject to the $5 monthly service charge
or involuntary redemption. 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 Portfolio) of the amount to be transmitted and the account to be
credited. Checks and other items submitted to the Fund for investment are only
accepted when submitted in proper form, denominated in United States dollars,
and are credited to shareholder accounts only upon their conversion into federal
funds, which normally takes one or two business days following receipt. Checks
delivered to the Fund after 2:00 P.M. (New York time) (11:00 A.M. New York time
for the Treasury Portfolio) are considered received on the following business
day.
Checks drawn on foreign banks are normally not accepted by the Fund. In
addition, the Fund does not accept cash investments or travelers checks.
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 SHARES PURCHASED ARE TO BE PAID FOR BY WIRE AND THE WIRE IS NOT
RECEIVED BY THE FUND OR IF SHARES ARE PURCHASED BY CHECK WHICH, AFTER DEPOSIT,
IS RETURNED UNPAID OR PROVES UNCOLLECTIBLE, THE SHARE PURCHASE MAY BE CANCELLED
OR REDEEMED IMMEDIATELY. THE INVESTOR THAT GAVE NOTICE OF THE INTENDED WIRE OR
SUBMITTED THE CHECK 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 Fund.
<PAGE> 24
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 Portfolios 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 Portfolio's income will be comprised of dividends from domestic
corporations, none of the income distributions from a Portfolio will be eligible
for the 70% deduction for dividends received by corporations. Under the tax rate
structure enacted by the Tax Reform Act of 1986, the distinction between
ordinary income and capital gain and between long-term capital gain and
short-term capital gain is less relevant because the tax rates on ordinary
income and short-term capital gains are the same. However, the designation or
short-term capital gain is relevant for purposes of the tax rules governing the
offsetting of gains and losses and use of capital loss carryover.
The Treasury Portfolio 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 Portfolios 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
Portfolio.
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.
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.
<PAGE> 25
FUND YIELD
The current yield of a Fund may differ from its effective yield and
annualized dividends.
Current yield is calculated by determining the net change (exclusive of
capital changes) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by a
fraction having 365 in the numerator and the number of days in the base period
in the denominator. The current yield stated in the prospectus utilizes a seven
day base period. Net change in account value must reflect (i) the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares; and (ii) any
recurring fees charged to all shareholder accounts, in proportion to the length
of the base period and the Fund's average or median account size. Net change
in account value must exclude realized gains or losses and unrealized
appreciation or depreciation.
Effective yield is computed by adding one to current yield, raising the
sum to a power equal to 365 divided by the number of days in the base period
(seven days), and subtracting one from the result according to the following
formula: Effective Yield = [(Base Period Return +1) 365 /7] -1. Effective annual
yields are a representation of the effective annual rate of return produced by
the monthly compounding of Fund dividends.
Yield information may be useful in reviewing the performance of the Fund,
but because of fluctuations, it may or may not provide a basis for comparison
with bank deposits, other money market funds or bank accounts which have
fluctuating share values, or other investments which pay a fixed yield for a
stated period of time, such as Treasury bills, bank certificates of deposit,
savings certificates and NOW accounts. When making comparisons, the investor
should also consider the quality and maturity of the portfolio securities of the
various money market funds. An investor's principal is not guaranteed by the
Fund, nor is it insured by a governmental agency.
RESERVE CASH PERFORMANCE PLUS ACCOUNT
The Reserve Cash Performance Plus Account ("CPA") is a comprehensive
package of additional services offered to investors in the Primary and
Government Portfolios for an additional fee.
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.
<PAGE> 26
A Fund will charge a non-refundable annual CPA service fee (currently $75
which may be charged to the account monthly) and a transaction fee of $0.50 for
each additional check in excess of five presented for payment within the
statement period. Participants will also be charged for specific costs incurred
in placing stop payment orders, obtaining check copies and in processing
returned checks. The annual service fee and other charges may be changed at any
time upon 30 days notice to participants. In addition, broker/dealers or other
financial institutions in the CPA Program may charge their own service fees in
addition to the annual fee.
CUSTOM PLAN. A CUSTOM PLAN is a CHECK PLAN plus a VISA Gold card issued to the
participant. The VISA Gold card is a debit card, not a credit card. The Custom
Plan and VISA Gold card are available only to customers of participating
broker/dealers or other financial institutions. Use of the debit card will
provide automatic common carrier travel insurance, auto rental/loss damage
insurance and extended retail product guarantees. In addition, VISA Gold
cardholders will be provided a comprehensive package of free travel and
emergency assistance services, including: emergency cash; emergency card
replacement; medical, legal and lost baggage assistance; and emergency ticket
replacement.
Bank One will process new debits to a CUSTOM PLAN in the order of receipt
against Bank One's determination of the CUSTOM PLAN "open-to-buy value" (the sum
of the participant's account value minus previous CUSTOM PLAN net debits which
have not been applied against net asset value). These debits include outstanding
VISA Gold card charges, unpaid check charges, cash advances authorized by Bank
One against the CUSTOM PLAN open-to-buy value and redemptions from the
participant's account determined and reported to Bank One. A Fund will redeem
shares on behalf of the participant on the business day it receives notice of
these debits from Bank One and send the proceeds to Bank One to cover such
debits.
The conditions for establishing a CPA account 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 Program are intended to provide participants with easy
access to their account assets. The CPA Program is not intended to be a
substitute for a bank transaction account. The Funds may reject any application
to open a CPA account and may terminate a CPA account 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) 631-7784 or (212) 977-9880
during normal business hours (9:00 A.M. to 5:00 P.M., New York time).
<PAGE> 27
RATINGS
The following are the rating designations of short term instruments and
their respective meanings.
STANDARD & POOR'S CORPORATION
A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
MOODY'S INVESTORS SERVICE, INC.
Prime-1 (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.
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Trustees of The Reserve Fund:
We have audited the accompanying statements of net assets of The
Reserve Fund-Primary, U.S. Government and U.S. Treasury Funds as of May 31,
1995, and the related statements of operations, the statements of changes in
net assets and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 1995 by correspondence with the custodians and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Primary, U.S. Government and U.S. Treasury Funds of The Reserve
Fund as of May 31, 1995, the results of their operations, the changes in their
net assets and their financial highlights for the periods referred to above, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
June 23, 1995
<PAGE> 29
THE RESERVE FUND-PRIMARY FUND
STATEMENT OF NET ASSETS - MAY 31, 1995
<TABLE>
<CAPTION>
% DAYS TO VALUE
COLLATERALIZED PROMISSORY NOTES - 7.77% RATE MATURITY (NOTE 1)
- --------------------------------------- ---- -------- --------
<S> <C> <C> <C>
Los Angeles Metropolitan Transportation Authority
Sales Tax Revenue Notes Series A, (c) 6.18 12 $27,176,287
Michigan Underground Storage Tank Financial
Assurance Authority State of Michigan Notes
Series 1 (c) 6.12 40 72,516,010
Toronto - Dominion Holdings (U.S.A.), Inc. (c) 6.65 35 24,842,986
------------
Total Collateralized Promissory Notes $124,535,283
------------
NEGOTIABLE BANK
CERTIFICATES OF
DEPOSIT - 13.91%
- ----------------
Abbey National PLC (a) 6.87 16 $ 25,796,729
Deutsche Bank AG (a) 6.84 15 15,478,856
Harris Trust and Savings Bank (a) 6.00 8 25,095,833
Rabobank Nederland N.V. (b) 6.42 1 27,881,145
Sanwa Bank, Ltd (b) 6.04 26 40,054,323
Skandinaviska Enskilda Banken (b) 6.16 5 45,438,949
Societe Generale (b) 6.02 - 6.08 16 - 54 43,151,779
------------
Total Negotiable Bank Certificates of Deposit $222,897,614
------------
REPURCHASE AGREEMENTS - 74.73%
- ------------------------------
FGPC 6%-7.50% due from 3/1/03 to 12/1/23,
FMPC 9% due 12/1/01 and FNMS 6%-6.50% due
from 11/1/00 to 11/1/23 (Repo with Bear,
Stearns & Co. Inc. dated May 31, 1995,
resale amount $100,017,056) 6.14 1 $ 100,017,056
FGRM 7.50% due 9/15/06, FMAR 5.839% due 4/1/31
and FNRM 5.50% due 2/25/03 (Repo with Dean
Witter Reynolds Inc. dated May 31, 1995,
resale amount $100,017,083) 6.15 1 100,017,083
FGPC 5.50%-11.50% due from 10/1/95 to 11/1/24,
FMPC 7.50%-13% due from 7/1/99 to 11/1/19,
FNMS 6%-10% due from 12/1/00 to 3/1/25 and
GNMA 6.80% -11.50% due from 4/15/96 to 9/15/30
(Repos with Donaldson, Lufkin & Jenrette Securities
Corp. dated May 16 to May 31, 1995, resale
amount $211,859,395) 6.05 - 6.20 1 - 35 211,288,006
USTN 6.125%-8.625% due from 2/28/97 to
10/31/99 (Repo with CS First Boston
Corporation dated May 31, 1995, resale
amount $205,034,878) 6.125 1 205,034,878
FGPC 6%-8% due from 2/1/99 to 5/1/25, FMAR
5.555%-7.78% due from 8/1/20 to 1/1/25,
FNAR 5.839%-11.11% due from 11/1/20 to 6/1/28
and FNMS 6%-8.50% due from 1/1/01 to 6/1/25
(Repo with Merrill Lynch Government Securities
Inc. dated May 31, 1995, resale amount $293,050,217) 6.17 1 293,050,217
</TABLE>
<PAGE> 30
THE RESERVE FUND-PRIMARY FUND
STATEMENT OF NET ASSETS - MAY 31, 1995 - (CONTINUED)
<TABLE>
<CAPTION>
% DAYS TO VALUE
REPURCHASE AGREEMENTS - CONTINUED RATE MATURITY (NOTE 1)
- --------------------------------- ---- -------- --------
<S> <C> <C> <C>
FGPC 7%-10% due from 11/1/08 to 1/1/25,
FGRM 5%-7.30% from 2/15/08 to 4/15/21,
FMAR 6.273% due 4/1/19, FMDN due 7/3/95,
FNAR 6% due 8/1/18, FNMS 7%-8.50% due from
6/1/08 to 5/1/25, FNNT 7.57% due 5/1/00, FNRA
5.425% due 11/25/07, FNRM 4.75%-6% due from
6/25/98 to 2/25/08, FRRA 6.525% due 8/25/23,
FRRM 7% due 3/25/24, GNMA 6.50%-9.125% due from
5/15/17 to 5/20/25, MCDB 8.07% due 4/12/02,
RFIN due 10/15/95, USTB due 9/21/95, USTN 4.75%-
5.75% due from 2/15/97 to 8/15/03 and USTS due from
5/15/99 to 8/15/21 (Repo with Smith Barney Inc.
dated May 31, 1995, resale amount $288,049,600) 6.20 1 288,049,600
--------------
Total Repurchase Agreements $1,197,456,840
--------------
TAXABLE MUNICIPAL BONDS - 3.57%
- -------------------------------
Florida Housing Finance Agency Housing
Revenue Bonds 1993 Series A (d) 6.08 7 $ 8,343,467
Maricopa County Industrial Development
Authority Revenue Bonds for Phoenix
Multi-Purpose Arena Project Series 1990 (d) 6.25 7 43,819,514
New Hampshire Business Finance Authority
Revenue Bonds 1992 Series B (d) 6.25 1 5,024,306
--------------
Total Taxable Municipal Bonds $ 57,187,287
--------------
Total Primary Fund Investments - (99.98%)
(Cost $1,597,374,674) 1,602,077,024
Other assets, less liabilities - (.02%) 386,548
--------------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering
and redemption price per share based on 1,602,463,572 shares of
beneficial interest $.001 par value outstanding $1,602,463,572
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 31
THE RESERVE FUND - U.S. GOVERNMENT FUND
STATEMENT OF NET ASSETS - MAY 31, 1995
<TABLE>
<CAPTION>
% DAYS TO VALUE
REPURCHASE AGREEMENTS - 97.85% RATE MATURITY (NOTE 1)
- ------------------------------ ---- -------- --------
<S> <C> <C> <C>
GNMA 4.5%-12.50% due from 11/15/96 to
4/15/30 (Repos with Bear, Stearns &
Co. Inc. dated May 23 to May 26, 1995
resale amount $100,464,333) 5.97 21 - 22 $100,124,375
USTN 7.25%-7.875% due from 4/15/98 to
5/15/04 and USTS due from 8/15/00 to
8/15/22 (Repo with Donaldson, Lufkin &
Jenrette Securities Corp. dated May 31,
1995 resale amount $142,024,258) 6.15 1 142,024,258
GNMA 6%-11.50% due from 1/5/15 to 12/23/20
(Repos with Goldman Sachs & Co. dated May 31,
1995 resale amount $96,016,396) 6.08 - 6.15 1 96,016,396
GNMA 6%-9% due from 11/15/17 to 4/20/25
(Repo with Merrill Lynch Government Securities
Inc. dated May 31, 1995 resale amount
$109,018,621) 6.15 1 109,018,621
GNMA 5.50%-11% due from 6/15/09 to 5/20/25
(Repo with Prudential Securities Inc. dated
May 31, 1995, resale amount $134,022,892) 6.15 1 134,022,892
GNMA 5.50%-8% due from 6/15/09 to 9/15/24,
USTB due 2/8/96 and USTN 5% due 1/31/99
(Repo with Smith Barney Inc. dated
May 31, 1995, resale amount $125,021,354) 6.15 1 125,021,354
-------------
Total Repurchase Agreements $ 706,227,896
-------------
U.S. TREASURY BILLS - 2.07%
- ---------------------------
U.S. Treasury Bills (e) 6.385 15 $ 14,962,754
-------------
Total U.S. Government Fund Investments - (99.92%) (Cost $720,515,804) 721,190,650
SECURITIES HELD AS COLLATERAL FOR SECURITIES LOANED - 2.12%
- -----------------------------------------------------------
GNMA 6% due 7/20/24 (f) 15,318,972
-------------
Total Investments and Securities held as
collateral for securities loaned - (102.04%) 736,509,622
Deposit for Securities Loaned - (-2.12%) (15,318,972)
Other assets, less liabilities - (.08%) 594,142
-------------
NET ASSETS (100%) equivalent to $1.00 net
asset value, offering and redemption prices
per share based on 721,784,792 shares of
beneficial interest $.001 par value
outstanding $ 721,784,792
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 32
THE RESERVE FUND - U.S. TREASURY FUND
STATEMENT OF NET ASSETS - MAY 31, 1995
<TABLE>
<CAPTION>
% DAYS TO VALUE
U.S. TREASURY BILLS - 109.06% RATE MATURITY (NOTE 1)
- ----------------------------- ---- -------- --------
<S> <C> <C> <C>
U.S. Treasury Bills (Cost $103,334,558) 5.50 - 5.79 1 - 57 $103,854,366
Other liabilities, less assets - (-9.06%) (8,627,686)
------------
NET ASSETS (100%) equivalent to $1.00 net
asset value, offering and redemption prices
per share based on 95,226,680 shares of
beneficial interest $.001 par value
outstanding $ 95,226,680
============
</TABLE>
(a) Eurodollar Certificates of Deposit - London Branch, United Kingdom.
(b) Yankee Certificates of Deposit.
(c) Collateralized by Bank Letter of Credit.
(d) The interest rate is subject to change periodically. The rates shown
were in effect at May 31, 1995. Securities payable on demand are
collateralized by bank letter of credit, other bank credit agreements
and financial guaranty assurance agencies.
(e) Securities loaned.
(f) Collateral for securities loaned with a value of $14,962,754.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 33
GLOSSARY
<TABLE>
<S> <C>
FGPC = FHLMC Gold Mortgage-Backed Pass-Through Participation Certificates
FGRM = FHLMC Gold REMIC Mortgage-Backed Pass-Through Participation Certificates
FMAR = FHLMC Adjustable Rate Mortgage-Backed Pass-Through Participation Certificates
FMDN = FHLMC Discount Notes
FMPC = Federal Home Loan Mortgage Corporation ("FHLMC") Mortgage-Backed Pass-Through Participation Certificates
FNAR = FNMA Adjustable Rate Mortgage-Backed Pass-Through Securities
FNMS = FNMA Mortgage-Backed Pass-Through Securities
FNNT = FNMA Medium Term Note
FNRA = FNMA REMIC Adjustable Rate Mortgage-Backed Pass-Through Securities
FNRM = Federal National Mortgage Association ("FNMA") REMIC Mortgage-Backed Pass-Through Securities
FRRA = FHLMC REMIC Adjustable Rate
FRRM = FHLMC REMIC
GNMA = Government National Mortgage Association Mortgage-Backed Pass-Through Securities
MCDB = FHLMC Debenture Bond
RFIN = Resolution Funding Corp, STRIPS
USTB = U.S. Treasury Bills
USTN = U.S. Treasury Notes
USTS = U.S. Treasury STRIPS
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 34
THE RESERVE FUND - STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1995
------------------------------------------------------------------------
PRIMARY U.S. GOVERNMENT U.S. TREASURY
FUND FUND FUND
------- --------------- -------------
<S> <C> <C> <C>
INTEREST INCOME (Note 1) $ 77,838,178 $38,871,090 $2,410,422
------------ ----------- ----------
EXPENSES (Note 2)
Management fee 6,870,964 3,613,156 ----
Comprehensive fee ---- ---- 298,645
Shareholder servicing, administration and
general office expenses 3,303,352 1,565,059 ----
Distribution assistance (Note 3) 2,444,177 1,374,513 57,860
Occupancy costs 354,172 178,689 ----
Professional fees 272,769 136,052 ----
Equipment expense 375,663 187,474 ----
Stationery, printing and supplies 215,881 106,331 ----
Trustee fee 33,192 16,892 ----
Other expenses 118,913 70,488 ----
------------ ----------- ----------
Total Expenses 13,989,083 7,248,654 356,505
Less: voluntary waiver ---- ---- (47,096)
------------ ----------- ----------
Net Expenses 13,989,083 7,248,654 309,409
------------ ----------- ----------
NET INVESTMENT INCOME $ 63,849,095 $31,622,436 $2,101,013
============ =========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 35
THE RESERVE FUND - STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PRIMARY FUND U.S. GOVERNMENT FUND
------------------------------- --------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1995 MAY 31, 1994 MAY 31, 1995 MAY 31, 1994
------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income (Note 1) $ 63,849,095 $ 34,379,027 $ 31,622,436 $ 17,196,464
Dividends to shareholders (63,849,095) (34,379,027) (31,622,436) (17,196,464)
-------------- -------------- -------------- -----------
FROM CAPITAL SHARE TRANSACTIONS (at net
asset value of $1 per share):
Net proceeds from the sale
of shares 5,517,915,950 5,177,251,711 3,357,034,315 3,677,513,168
Net asset value of shares issued
on reinvestment of dividends 63,849,095 34,379,027 31,622,436 17,196,464
-------------- -------------- -------------- --------------
Subtotal 5,581,765,045 5,211,630,738 3,388,656,751 3,694,709,632
Cost of shares redeemed (5,394,679,426) (5,185,388,879) (3,407,569,981) (3,682,150,085)
-------------- -------------- -------------- --------------
Net increase (decrease) from share
transactions and from investment
operations 187,085,619 26,241,859 (18,913,230) 12,559,547
NET ASSETS:
Beginning of year 1,415,377,953 1,389,136,094 740,698,022 728,138,475
-------------- --------------- -------------- --------------
End of year $1,602,463,572 $1,415,377,953 $ 721,784,792 $ 740,698,022
============== =============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
U.S. TREASURY FUND
-----------------------------
YEAR ENDED YEAR ENDED
MAY 31, 1995 MAY 31, 1994
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income (Note 1) $ 2,101,013 $ 156,671
Dividends to shareholders (2,101,013) (156,671)
------------ -------------
FROM CAPITAL SHARE TRANSACTIONS (at net
asset value of $1 per share):
Net proceeds from the sale
of shares 275,724,588 23,079,634
Net asset value of shares issued
on reinvestment of dividends 2,101,013 156,671
------------ -------------
Subtotal 277,825,601 23,236,305
Cost of shares redeemed (189,949,285) (48,210,744)
------------ -------------
Net increase (decrease) from share
transactions and from investment
operations 87,876,316 (24,974,439)
NET ASSETS:
Beginning of year 7,350,364 32,324,803
------------ -------------
End of year $ 95,226,680 $ 7,350,364
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 36
THE RESERVE FUND (THE "FUND")
PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY FUNDS (THE "FUNDS")
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES:
The Fund is registered under the Investment Company Act of 1940 as a
non-diversified, open-end management investment company. The policies
summarized below are consistently followed in the preparation of its
financial statements in conformity with generally accepted accounting
principles.
A. The Fund's authorized shares of beneficial interest are
unlimited. The Fund's shares are divided into three series, Primary
Fund, U.S. Government Fund and the U.S. Treasury Fund.
B. Securities are stated at value which represents amortized cost
plus interest accrued to date. Under Securities and Exchange
Commission Rule 2a-7, the Fund uses amortized cost to value the
portfolios, by which investments are valued at cost and the difference
between the cost of each instrument and its value at maturity is
accrued into income on a straight line basis over the number of days to
maturity, irrespective of intervening changes in interest rates or
market values of investments. The maturity of floating or variable
rate instruments in which the Fund may invest will be deemed to be, for
floating rate instruments (1) following, and for variable rate
instruments the longer of (1) or (2) following: (1) the notice period
required before the Portfolio is entitled to receive payment of the
principal amount of the instrument; (2) the period remaining until the
instrument's next rate adjustment, for purposes of Rule 2a-7 and for
computing the portfolio's weighted average life.
C. It is each of the Fund's policy to comply with Subchapter M of
the Internal Revenue Code and to distribute all of their taxable income
to their shareholders. Accordingly, no Federal income tax provision is
required.
D. Investments are recorded as of the date of their purchase and
sale. Interest income is determined on the basis of interest accrued,
premium amortized and discount accreted.
E. The Fund's custodians hold the securities owned subject to
repurchase agreements. In the event of counterparty default, the Fund
has the right to use the collateral to offset losses incurred. There
is potential loss to the Fund in the event that the Fund is delayed or
prevented from exercising its rights to dispose of the collateral
securities including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert
its rights. The Fund's investment adviser determines that the resale
amount of the repurchase agreement is fully collateralized and reviews
the value of the collateral and the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to
evaluate potential risks.
F. Net investment income on investments is distributed to
shareholders daily and automatically reinvested in additional Fund
shares.
G. Each Fund is charged only for its direct or allocated (in
proportion to net assets or number of shareholder accounts) share of
expenses.
H. As of May 31, 1995, the U.S. Government Fund loaned U.S. Treasury
Bills to Lehman Government Securities, Inc., having an amortized cost
value of $14,962,754.
I. The U.S. Treasury Fund had payables of $9,913,044 for securities
purchased but not received at May 31, 1995.
<PAGE> 37
THE RESERVE FUND (THE "FUND")
PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY FUNDS (THE "FUNDS")
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(2) MANAGEMENT FEE, SHAREHOLDER SERVICING COST AND TRANSACTIONS WITH
AFFILIATES:
Under the Management Agreement, Reserve Management Company, Inc.
("RMCI"), manages the Fund's investments, effects purchases and sales
thereof, and absorbs certain promotional expenses. RMCI receives
management fees from the Primary and U.S. Government Funds at an
annual rate of .50% of the first $500 million, .475% of the next $500
million, .45% of the next $500 million, .425% of the next $500 million
and .40% of any excess over $2 billion of the average daily net assets
of Primary and U.S. Government Funds, subject to reimbursement of Fund
expenses (excluding brokerage fees and commissions, interest charges,
taxes and extraordinary legal fees and expenses) exceeding 1% of
average daily closing net assets. For the U.S. Treasury Fund, RMCI
receives a comprehensive fee at an annual rate of .80% of the average
daily net assets. At May 31, 1995, the advisor waived a portion of its
comprehensive fee. Also, under the current Service Agreement, RMCI was
reimbursed $4,673,942 (Primary Fund) and $2,260,985 (U.S. Government
Fund) during the year ended May 31, 1995 for expenditures made on
behalf of the Fund's respective Portfolios for personnel, office space
and equipment and shareholder accounting and administrative services,
to carry out the Fund's business. At May 31, 1995, the Primary, U.S.
Government and U.S. Treasury Funds had accrued expenses of $43,098,
$20,016, and $2,087 respectively, due to RMCI.
(3) DISTRIBUTION ASSISTANCE
Pursuant to a Plan of Distribution, subject to the Fund's expense
limitations, the Fund will make payments of up to .20% per annum of the
average net asset value of shareholder accounts as to which the payee
has rendered assistance in distributing shares of the portfolios. The
Plan requires RMCI to pay an equivalent amount from its own resources.
<PAGE> 38
THE RESERVE FUND
PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY FUNDS
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
4. FINANCIAL HIGHLIGHTS (FOR ONE SHARE OUTSTANDING THROUGHOUT EACH YEAR):
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
--------------------------------------------------------------------------------
PRIMARY FUND 1995 1994 1993 1992 1991
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Income from investment operations .0549 .0345 .0361 .0541 .0794
Expenses .0099 .0099 .0100 .0100 .0100
------- ------- ------- ------- -------
Net investment income (1) .0450 .0246 .0261 .0441 .0694
Dividends from net investment income (1) (.0450) (.0246) (.0261) (.0441) (.0694)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 4.50% 2.46% 2.61% 4.41% 6.94%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year 1,602,464 1,415,378 1,389,136 1,553,828 1,803,132
Ratio of expenses to average net
assets .97% .97% .99% .99% .97%
Ratio of net investment income
to average net assets 4.42% 2.44% 2.58% 4.34% 6.72%
</TABLE>
<PAGE> 39
THE RESERVE FUND
PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY FUNDS
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FINANCIAL HIGHLIGHTS (FOR ONE SHARE OUTSTANDING THROUGHOUT EACH YEAR):
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
----------------------------------------------------------------------------------
U.S. GOVERNMENT FUND 1995 1994 1993 1992 1991
- -------------------- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Income from investment operations .0542 .0337 .0353 .0533 .0772
Expenses .0101 .0100 .0100 .0101 .0102
------- ------- ------- ------- -------
Net investment income (1) .0441 .0237 .0253 .0432 .0670
Dividends from net investment income (1) (.0441) (.0237) (.0253) (.0432) (.0670)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 4.41% 2.37% 2.53% 4.32% 6.70%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of year 721,785 740,698 728,138 853,823 817,604
Ratio of expenses to average net
assets .99% .99% .99% .99% .98%
Ratio of net investment income to
average net assets 4.31% 2.35% 2.50% 4.21% 6.38%
</TABLE>
<PAGE> 40
THE RESERVE FUND
PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY FUND
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
FINANCIAL HIGHLIGHTS (FOR ONE SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
<TABLE>
<CAPTION>
FEBRUARY 3, 1992
YEAR ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT OF OPERATIONS)
U.S. TREASURY FUND 1995 1994 1993 THROUGH MAY 31, 1992
- ------------------ ---------- ---------- ---------- ---------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- -------
Income from investment operations .0523 .0313 .0330 .0121
Expenses .0067 .0073 .0092 .0031
------- ------- ------- -------
Net investment income (1) .0456 .0240 .0238 .0090
Dividends from net investment income (1) (.0456) (.0240) (.0238) (.0090)
------- ------- ------- -------
Net asset value, end of period $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= =======
Total Return 4.56% 2.40% 2.38% 2.75%(2)
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets in thousands, end of period 95,227 7,350 32,325 512
Ratio of expenses to average net assets .68%(3) .73%(3) .80% .97%(2)(3)
Ratio of net investment income to
average net assets 4.64% 2.38% 2.07% 2.74%(2)
</TABLE>
1) Based on compounding of daily dividends. Not indicative of future
results.
2) Annualized.
3) During this period the manager waived a portion of fees and expenses. If
there were no reduction in expenses, the actual expenses would have been
.80%, .80% and 1.00%, respectively.
-------------------------------
FEDERAL TAX INFORMATION
The dividends distributed by the Primary, U.S. Government and U.S.
Treasury Funds in each of the years presented are treated for Federal tax
purposes as ordinary income.
