<PAGE> 1
GENERAL INFORMATION, PURCHASES AND REDEMPTIONS
24 HOUR YIELD AND BALANCE INFORMATION
NATIONWIDE 800-637-1700
STRATEGIST MONEY MARKET FUND
The Strategist Money Market Fund is a no-load money market fund.
The primary objective of the Fund is to seek as high a level of current
income as is consistent with preservation of capital and liquidity. However,
achievement of this objective cannot be assured.
The Fund is designed for institutions and individuals as a convenient
alternative to the direct investment of temporary cash balances in short-term
money market accounts or instruments. The Fund seeks to employ idle cash at
yields competitive with yields of other comparable short-term investments,
and designed to reduce or eliminate for the investor the mechanical
problems of direct investment in money market instruments such as scheduling
maturities, evaluating the credit of issuers, investing in round lots,
safeguarding receipt and delivery of securities and reinvesting.
- -- Strategist Money Market 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.
The minimum investment to open an account is $20,000.
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.
This Prospectus sets forth the information about each Fund which a
prospective investor should know before investing. A Statement of Additional
Information dated __________________, providing further details about the Fund,
has been filed with the Securities and Exchange Commission. It may be obtained
without charge by writing or calling the Fund 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 ________________
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 Fund will incur.
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>
STRATEGIST
MONEY
MARKET
FUND
-------
<S> <C>
Comprehensive Fee.......................... .40%
12b-1 Fees................................. .20%
Other Operating Expenses................... .40%
------
Total Expenses............................. 1.00%+
======
</TABLE>
The purpose of this table is to assist the investor in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. * A $2.00 fee is charged on redemption checks issued by the Fund of
less than $100 and a $10 fee is charged for wire redemptions of less than
$10,000.
+From time to time and in its discretion, the Adviser may waive all or a
portion of its advisory fees and/or assume certain expenses of any Fund. Such
practices will have the effect of increasing that Fund's yield and total
return. The performance of each Fund will vary from time to time and past
results are not necessarily representative of future results.
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.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Strategist Money Market Fund $10 $31 $54 $119
</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.
<PAGE> 3
YIELD
Current yield refers to the income generated by an investment in a Fund
over a seven-day period. This income is then annualized. That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The effective yield is calculated similarly but, when annualized, the income
earned is assumed to be reinvested. The effective yield will be higher than the
current yield because of this compounding effect.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the 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 without the vote of a majority of the outstanding shares of the
fund as defined in the Investment Company Act of 1940 ("1940 Act").
The 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.
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
<PAGE> 4
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.
The 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 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 Fund may invest.
The 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 Fund will limit its investment in
foreign banks to those banks located in Australia, Canada, Western Europe and
Japan. The Fund may also invest in municipal obligations secured by bank
letters of credit, the interest on which is not exempt from federal income
taxation.
OTHER POLICIES. The 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 Fund may engage in limited
repurchase agreement transactions collateralized by
<PAGE> 5
first mortgages conforming to the lending standards of the Government National
Mortgage Association, Federal Home Loan Mortgage Association or Federal
National Mortgage Association.
The Fund 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.
The Fund may invest, without limitation, in U.S. Government securities and
in instruments secured or collateralized by U.S. Government securities. The 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
Fund will invest more than 25% of its assets in
the banking industry. In addition, the Fund will not invest more than 5% of its
assets in the securities of any single issuer (except U.S. Government
Securities). The 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 the 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, the Fund limits its average maturity to
90 days or less and a maximum remaining life of 397 days and only high
quality issuers.
MANAGEMENT
INVESTMENT MANAGEMENT AGREEMENTS. The Board of Trustees manages the
Fund's business and affairs. Reserve Management Company, Inc. ("Adviser"), 14
Locust Place, Manhasset, NY 11030, provides the Fund with investment advice
pursuant to an Investment Management Agreement. Since November 15, 1971, the
Adviser and its affiliates have been advising The Reserve Funds, which
currently have assets in excess of $3 billion. Under the Investment Management
Agreement the Adviser manages the 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.
For its management and advisory services, and for paying the ordinary
operating expenses of the Fund, the Adviser is paid a comprehensive fee by the
Fund calculated at 0.80% per annum of the average daily net assets of the Fund.
<PAGE> 6
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 Fund acts as its own transfer
agent and dividend paying agent.
HOW TO BUY SHARES
METHOD OF PAYMENT. The minimum initial investment is $20,000 and $1000
for subsequent investments. An initial purchase must be accompanied by an
investment application or equivalent information. You can buy shares of the
Fund each business day at the net asset value next determined after receipt by
the Fund 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 Strategist Money Market
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
Strategist Money Market Fund or within the endorsement for each check
endorsed to The Fund.
-- By wire - Prior to calling your bank, call the Fund for specific
instructions at 800-637-1700.
Checks and wires which do not correctly identify the account to be credited
may be returned or delay the purchase of shares.
<PAGE> 7
Because the Fund must pay for its 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 Fund must be notified before 2:00
P.M. (New York time) 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) 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 came or were drawn. The Fund reserves
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 Fund will only accept
purchase checks in excess of $250 which are payable to the Fund or payable to
the shareholder/payee of the check and endorsed to the Fund. The Fund does not
accept travelers checks.
AUTOMATIC ASSET BUILDER PLANS. We can arrange to have your bank, paycheck (full
or partial), pension, Social Security, and other government payments
automatically transferred directly to your Fund account monthly, quarterly or
annually. See the application for details or consult your Financial Advisor.
<PAGE> 8
NET ASSET VALUE. Shares are sold to the public at net asset value ("NAV"). The
NAV of the 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
Adviser.
DISTRIBUTION AND SERVICE PLAN. Purchases may also be made through American
Express Service Corporation and American Express Financial Advisors, Inc, who
participate in the Fund's Plan of Distribution ("Plan"). The Fund maintains
the Plan and related agreements, as amended, under Rule 12b-1 of the 1940 Act.
Under the Plan, the 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 the brokers 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. The Plan does not permit the carrying
over of payments from year to year. The investment adviser also reimburses 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.
CLIENTS OF FIRMS. Firms provide varying arrangements for their clients with
respect to the purchase and redemption of a Fund's shares and may arrange with
their clients for other investment or administrative services. Firms are
responsible for the prompt transmission of purchase and redemption orders.
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 a Fund's shares in
nominee or street name as agent for and on behalf of their clients. In such
instances, the Fund's transfer agent 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
firm or may only be available subject to certain conditions and limitations.
Some firms may participate in a program allowing them access to their client's
accounts for servicing including, without limitation, transfers of registration
and dividend payee changes, and may perform functions such as generation of
confirmation statements and disbursement of cash dividends. The Prospectus
should be read in connection with such firm's material regarding its fees and
services.
<PAGE> 9
SHARES OF BENEFICIAL INTEREST
The 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 four separate
series authorized and outstanding. Additional series may be added in the future
by the Board of Trustees. Although The Reserve Fund is a non-diversified mutual
fund, each of its separate investment portfolios intends to comply with the
diversification requirement of Rule 2a-7 under the 1940 Act which generally
limits a money market fund to investing no more than 5% of its total assets in
the securities, except U.S. Government Securities, of any one issuer. The
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
The Fund declares dividends each business day. Dividends are distributed
daily as additional shares to shareholder accounts except for shareholders who
elect in writing to receive cash dividends, in which case monthly dividend
checks are sent to the shareholder. Although none are anticipated, any net
realized long term capital gains will be distributed at least annually.
TAXES
The 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
<PAGE> 10
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.
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 the 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 Fund has 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) and the next day for
requests received after 12:00 noon (New York time). 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)
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.
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 the 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 Fund 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
Fund, it is necessary to send a written request to the Fund with signature(s)
guaranteed as described below. Other redemption orders must be in writing with
the necessary signature(s) guaranteed by a domestic
<PAGE> 11
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 Fund 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 Fund reserves the right to refuse a telephone redemption if it believes
it is advisable to do so. Procedures for telephone redemptions may be modified
or terminated by the Fund at any time. During times of drastic economic or
market conditions shareholders may experience difficulty in contacting the Fund
by telephone to request a redemption of the 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 Fund or the broker
through which shares of the Funds were purchased, you can write checks against
your account. 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 Fund. This procedure
lengthens the time your money earns dividends, since redemptions are not made
until the check is processed by the fund. 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 Fund 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 Fund will honor stop payment requests on unpaid shareholder
checks provided the Fund is advised of the correct check number, payee, check
amount and date. Stop payment requests received by the Fund 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
$15,000, 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 Fund. The amount,
frequency and recipient of the payments may be changed by giving proper written
notice to the Fund. The Fund 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.
<PAGE> 12
AUTOMATIC TRANSFER. You may redeem shares of the 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 Fund may impose a charge or modify or
terminate this privilege at any time after the participant has been duly
notified. This privilege 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 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 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 Fund assumes 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 Fund is required by federal law to withhold 31% of
dividends and other distributions that are subject to federal income tax if (i)
a correct and certified Taxpayer Identification Number (TIN) is not provided for
your account, (ii) you fail to certify that you have not been notified by the
IRS that you underreported taxable interest or dividend payments or (iii) the
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, the 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, when the average daily balance on an account drops below $15,000
in any month, a $5 fee will be charged. In the event that the average balance
remains below $15,000 for three consecutive months, the account may be
automatically transferred to The Reserve Primary Fund.
<PAGE> 13
EASY ACCESS. Easy Access is The 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 their broker or
the Fund.
SPECIAL SERVICES. The Fund reserves 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 Fund may compare their performance to other income producing
alternatives such as (i) money market Funds (based on yields cited by Donoghue's
Money Fund Report and other industry publications); and (ii) various bank
products (based on average rates of bank and thrift institution certificates of
deposit, money market deposit accounts and N.O.W. accounts as reported by the
Bank Rate Monitor and other industry publications). An investment in shares of
Funds is not insured by the Federal Deposit Insurance Corporation.
Yield information is useful in reviewing a Fund's performance relative to
other Funds that hold investments of similar quality. Because yields will
fluctuate, yield information may not provide a basis for comparison with bank
and thrift certificates of deposit which normally pay a fixed rate for a fixed
term and are subject to a penalty for withdrawals prior to maturity which will
reduce their return.
AMERICAN EXPRESS GOLD CARD SERVICE
Investors may apply for an American Express Gold debit card
which may be used to access your Fund investment balances. An American Express
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 Card; (ii) auto rental
collision/loss damage insurance when the rental is paid using the 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 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.
---------------
<PAGE> 14
STRATEGIST MONEY MARKET 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 Strategist Money Market
Fund ("Fund"). 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
_________________________.
<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 8
Shares of Beneficial Interest 8
Purchase, Redemption and Pricing of Shares 9
Distributions and Taxes 12
Fund Yield 13
American Express Gold Card Service 13
Ratings 15
</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> 15
INVESTMENT OBJECTIVE AND POLICIES
The investment objective 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 Fund 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 Portfolio
receives 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 Portfolio may also pay
reasonable finders, custodian and administrative fees. Loan arrangements made
by the 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 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 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> 16
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 Fund 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> 17
*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.
<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> 18
*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 its management and advisory services, and for paying the ordinary operating
expenses of the Fund, the Adviser is paid a comprehensive fee by the Fund
calculated at 0.80% per annum of the average daily net assets of the Fund.
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.
<PAGE> 19
EXPENSE LIMITATION. The Investment Management Agreement for the Fund
provides that RMCI will reimburse the Fund 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 Distributor is 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 Distributor is a "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 Distributor has 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. RESRV'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.
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, the Fund makes
assistance payments to brokers, financial institutions and other financial
intermediaries ("payee(s)") for shareholder accounts ("qualified accounts") as
to which a payee has rendered distribution assistance services 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> 20
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.
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> 21
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> 22
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.
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> 23
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.
<PAGE> 24
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 $15,000 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) 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> 25
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 Portfolio intends to distribute all of its 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.
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> 26
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.
<PAGE> 27
AMERICAN EXPRESS GOLD CARD SERVICE
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.
AMERICAN EXPRESS GOLD CARD. Upon approval of an application for participation
in the CUSTOM PLAN, American Express will issue one or more American Express
Gold cards to the participant.
Participants subscribing to the 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 American Express is not
notified of the theft or loss within 2 business days. Participants should
refer to the American Express Account Shareholder Agreement for complete
information regarding responsibilities and liabilities with respect to the
card. If a card is lost or stolen, the participant should report the loss
immediately by telephoning American Express at (800)-AXP-SERV (800-297-7378)
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> 28
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.
