<PAGE> 1
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, (comprising the Primary, U.S. Government and U.S. Treasury Funds) as of
May 31, 1997, and the related statements of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended 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, 1997, by correspondence with the custodian. 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, 1997, 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 27, 1997
THE RESERVE FUND -- PRIMARY FUND
STATEMENT OF NET ASSETS -- MAY 31, 1997
<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
--------- -------- --------------
<S> <C> <C> <C>
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT -- 78.10%
Bankers Trust Company........................................................ 5.72 41 $ 75,631,939
Mellon Bank, N.A............................................................. 5.55-5.60 24-52 100,170,347
Harris Trust and Savings Bank................................................ 5.55 5 75,323,750
Old Kent Bank................................................................ 5.71 66 50,222,762
SouthTrust Bank of Alabama, N.A.............................................. 5.63 10 20,172,028
Union Bank of California, N.A................................................ 5.63 7 50,430,069
Abbey National PLC (a)....................................................... 5.69-5.71 34-55 100,773,094
ABN-AMRO Bank N.V. (b)....................................................... 5.42 11 50,653,252
Bank of Tokyo -- Mitsubishi, Ltd. (b)........................................ 5.81 69 50,209,806
Banque Nationale de Paris (b)................................................ 5.63-5.72 10-73 100,644,676
Barclays Bank PLC (b)........................................................ 5.62-5.63 3-4 85,802,464
Bayerische Landesbank Girozentrale (a)....................................... 5.525 25 50,537,303
Bayerische Hypotheken-und Wechsel Bank AG (b)................................ 5.55 31 50,030,833
BHF Bank AG (a).............................................................. 5.73 38 27,254,652
Caisse Nationale de Credit Agricole (b)...................................... 5.60 53 50,085,556
Canadian Imperial Bank of Commerce (a)....................................... 5.45-5.50 12-42 50,632,299
Canadian Imperial Bank of Commerce (b)....................................... 5.55 24 50,084,792
Deutsche Bank AG (a)......................................................... 5.43-5.61 3-53 75,561,202
Deutsche Bank AG (b)......................................................... 5.57 24 25,282,512
Dresdner Bank AG (b)......................................................... 5.56 31 50,030,889
ING Bank N.V. (a)............................................................ 5.64 47 100,267,544
Landesbank Hessen -- Thueringen Girozentrale (b)............................. 6.01 49 5,267,542
Sanwa Bank, Ltd. (b)......................................................... 5.61 12 50,646,832
Societe Generale (b)......................................................... 5.40 4 45,614,250
Svenska Handelsbanken (a).................................................... 5.445 17 50,612,658
</TABLE>
12
<PAGE> 2
THE RESERVE FUND -- PRIMARY FUND
STATEMENT OF NET ASSETS -- MAY 31, 1997 -- (CONTINUED)
<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
--------- -------- --------------
<S> <C> <C> <C>
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT -- (CONTINUED)
Svenska Handelsbanken (b).................................................... 5.66-5.70 39-70 $ 50,197,222
Toronto -- Dominion Bank (a)................................................. 5.37 5 50,701,083
Westdeutsche Landesbank Girozentrale (b)..................................... 5.60-5.63 3-59 100,515,833
--------------
Total Negotiable Bank Certificates of Deposit.................................. 1,643,357,189
--------------
PROMISSORY NOTES -- 10.89%
ABN Bank Canada (c).......................................................... 5.56 59 49,567,556
Commerzbank U.S. Finance, Inc. (c)........................................... 5.52 20 74,804,500
Societe Generale North America, Inc. (c)..................................... 5.61 34 54,734,304
Toronto Dominion Holdings (U.S.A.), Inc. (c)................................. 5.40 13 49,924,931
--------------
Total Promissory Notes......................................................... 229,031,291
--------------
REPURCHASE AGREEMENTS -- 5.52%
FGPC 7% due 6/1/24, FNMS 6.50%-7.50% due from 6/1/14 to 2/1/27 (Repo with CS
First Boston Corporation dated May 30, 1997, resale amount $88,041,067).... 5.60 3 88,041,067
GNMA 5.50% due 6/20/26 (Repo with Merrill Lynch GSI dated May 30, 1997,
resale amount $28,012,833)................................................. 5.50 3 28,012,833
--------------
Total Repurchase Agreements.................................................... 116,053,900
--------------
TAXABLE MUNICIPAL BONDS -- 5.43%
Florida Housing Finance Agency Housing Revenue Bonds 1993 Series A (d)....... 5.62 7 40,703,254
Illinois Student Assistance (d).............................................. 5.59 7 25,225,298
Maricopa County Industrial Development Authority Revenue Bonds for Phoenix
Multi-Purpose Arena Project Series 1990 (d)................................ 5.75 7 43,380,660
New Hampshire Business Finance Authority Revenue Bonds 1992 Series B (d)..... 5.75 7 5,025,555
--------------
Total Taxable Municipal Bonds.................................................. 114,334,767
--------------
Total Primary Fund Investments -- (99.94%) (Cost $2,089,617,798)............... 2,102,777,147
Other assets, less liabilities -- (.06%)....................................... 1,331,905
--------------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
price per share based on 2,104,109,052 shares of beneficial interest $.001
par value outstanding........................................................ $2,104,109,052
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 3
THE RESERVE FUND -- U.S. GOVERNMENT FUND
STATEMENT OF NET ASSETS -- MAY 31, 1997
<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 99.70%
- -------------------------------------------------------------------------------
GNMA 6.50%-9.50% due from 1/15/09 to 12/15/29 (Repos with Bear, Stearns & Co,
Inc. dated May 23, 1997, resale amount $100,258,306)....................... 5.47 10 $100,151,944
GNMA 6.50%-13% due from 2/15/98 to 3/15/26 (Repo with CS First Boston
Corporation dated May 7, 1997, resale amount $110,557,608)................. 5.53 10 110,439,328
GNMA 6.50%-12.75% due from 12/15/97 to 4/15/23 (Repo with DLJ Securities
Corporation dated May 30, 1997, resale amount $54,025,200)................. 5.60 3 54,025,200
GNMA 7%-8% due from 5/15/26 to 5/15/27 (Repos with Merrill Lynch GSI dated
March 12, 1997, resale amount $110,346,500)................................ 5.40 3 110,346,500
GNMA 5%-10% due from 1/1/00 to 10/15/30 (Repo with Prudential Securities Inc.
dated May 1, 1997, resale amount $110,541,689)............................. 5.54 3 110,541,689
GNMA 6.875%-16.25% due from 1/1/00 to 2/20/27 (Repo with Smith Barney Inc.
dated May 5, 1997, resale amount $124,533,338)............................. 5.53 3 124,533,338
------------
Total U.S. Government Fund Investments -- (99.70%) (Cost $608,000,000)......... 610,037,999
Other assets, less liabilities -- (.30%)....................................... 1,806,317
------------
NET ASSETS (100% ) equivalent to $1.00 net asset value, offering and redemption
prices per share based on 611,844,316 shares of beneficial interest $.001 par
value outstanding............................................................ $611,844,316
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 4
THE RESERVE FUND -- U.S. TREASURY FUND
STATEMENT OF NET ASSETS -- MAY 31, 1997
<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---------- -------- ------------
<S> <C> <C> <C>
U.S. TREASURY BILLS -- 97.99%
U.S. Treasury Bills (Cost $164,471,729)........................................ 4.96-5.265 6-139 $165,769,769
Other assets, less liabilities -- (2.01%)...................................... 3,408,036
------------
NET ASSETS (100% ) equivalent to $1.00 net asset value, offering and redemption
prices per share based on 169,177,805 shares of beneficial interest $.001 par
value outstanding............................................................ $169,177,805
============
</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, 1997. Securities payable on demand are collateralized by
bank letter of credit, other bank credit agreements or financial guaranty
assurance agencies.
GLOSSARY
<TABLE>
<S> <C> <C>
FGPC = FHLMC Gold Mortgage-Backed Pass-Through Participation Certificates
FNMS = FNMA Mortgage-Backed Pass-Through Securities
GNMA = Government National Mortgage Association Mortgage-Backed Pass-Through Securities
</TABLE>
THE RESERVE FUND -- STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1997
------------------------------------------------
PRIMARY U.S. GOVERNMENT U.S. TREASURY
FUND FUND FUND
------------ --------------- -------------
<S> <C> <C> <C>
INTEREST INCOME (Note 1).......................................... $105,936,477 $31,073,509 $ 8,412,863
------------ --------------- -------------
EXPENSES (Note 2)
Management fee.................................................. 8,976,244 2,858,951 --
Comprehensive fee............................................... -- -- 1,317,868
Shareholder servicing, administration and general office
expenses...................................................... 4,530,412 1,205,154 --
Distribution assistance (Note 3)................................ 3,418,651 1,053,785 276,253
Equipment expense............................................... 669,057 177,758 --
Professional fees............................................... 502,936 120,463 --
Occupancy costs................................................. 259,671 69,287 --
Stationery, printing and supplies............................... 364,568 97,310
Trustee fees.................................................... 71,802 20,257 --
Other expenses.................................................. 217,989 88,262 --
------------ --------------- -------------
Total Expenses................................................ 19,011,330 5,691,227 1,594,121
Less: voluntary waiver.......................................... -- -- (329,684)
------------ --------------- -------------
Net Expenses.................................................... 19,011,330 5,691,227 1,264,437
------------ --------------- -------------
NET INVESTMENT INCOME............................................. $ 86,925,147 $25,382,282 $ 7,148,426
============= ============== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 5
THE RESERVE FUND -- STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PRIMARY FUND U.S. GOVERNMENT FUND U.S. TREASURY FUND
---------------------------------- ---------------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1997 MAY 31, 1996 MAY 31, 1997 MAY 31, 1996 MAY 31, 1997 MAY 31, 1996
--------------- --------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET
ASSETS FROM
INVESTMENT
OPERATIONS:
Net investment
income paid to
shareholders as
dividends (Note
1).............. $ (86,925,147) $ (82,535,957) $ (25,382,282) $ (33,256,499) $ (7,148,426) $ (5,400,705)
-------------- -------------- -------------- ------------ ------------
FROM CAPITAL SHARE
TRANSACTIONS
(at net asset
value of $1
per share):
Net proceeds
from the sale
of shares..... 8,848,392,468 7,548,966,022 2,757,510,343 3,341,970,451 682,830,849 595,400,649
Net asset value
of shares
issued on
reinvestment
of
dividends..... 86,925,147 82,535,957 25,382,282 33,256,499 7,148,426 5,400,705
-------------- -------------- -------------- ------------ ------------
Subtotal...... 8,935,317,615 7,631,501,979 2,782,892,625 3,375,226,950 689,979,275 600,801,354
Cost of shares
redeemed.... (8,495,322,653) (7,569,851,461) (2,739,545,482) (3,528,514,569) (663,567,636) (553,261,868)
-------------- -------------- -------------- ------------ ------------
Net increase
(decrease)
derived from
capital share
transactions
and from
investment
operations.... 439,994,962 61,650,518 43,347,143 (153,287,619) 26,411,639 47,539,486
NET ASSETS:
Beginning of
year............ 1,664,114,090 1,602,463,572 568,497,173 721,784,792 142,766,166 95,226,680
-------------- -------------- -------------- ------------ ------------
End of year....... $ 2,104,109,052 $ 1,664,114,090 $ 611,844,316 $ 568,497,173 $ 169,177,805 $ 142,766,166
============== ============== ============== ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 6
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 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 four series, Primary Fund, U.S. Government
Fund, U.S. Treasury Fund and the Strategist Money Market Fund. These
financial statements and notes apply only to the Primary, U.S. Government
and U.S. Treasury Funds.
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 days to maturity irrespective of intervening changes in
interest rates or market value 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 Fund 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 average weighted life to maturity.
C. It is the Fund's policy to comply with Subchapter M of the Internal
Revenue Code and to distribute all of its taxable income to its
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 custodian holds the securities owned subject to repurchase
agreements. The Fund's investment adviser determines that the resale amount
of the repurchase agreement is fully collateralized.
F. Net investment income on investments is distributed to shareholders daily
and automatically reinvested in additional Fund shares.
G. The Primary and U.S. Government Fund's are charged only for their direct
or allocated (in proportion to net assets or number of shareholder accounts)
share of expenses.
(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, 1997, the advisor waived a portion of its
comprehensive fee. Also, under the current Service Agreement, RMCI was
reimbursed $6,616,435 (Primary Fund) and $1,778,491 (U.S. Government Fund)
during the year ended May 31, 1997 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, 1997, the Primary, U.S. Government and U.S. Treasury
Funds had accrued expenses of $167,589, $50,040, and $10,981, 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.
17
<PAGE> 7
THE RESERVE FUND (THE "FUND")
PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY FUNDS (THE "FUNDS")
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) MANAGEMENT'S USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the dates of the financial statements and the reported amounts of income and
expenses during the reporting periods. Actual results could differ from
those estimates.
(5) COMPONENTS OF NET ASSETS:
At 5/31/97, the following funds had these components of net assets:
<TABLE>
<CAPTION>
PRIMARY U.S. GOVERNMENT U.S. TREASURY
-------------- --------------- -------------
<S> <C> <C> <C>
Par Value................................................ $ 2,104,109 $ 611,844 $ 169,178
Paid-in-Capital.......................................... 2,102,004,943 611,232,472 169,008,627
-------------- ------------ ------------
Net Assets............................................... $2,104,109,052 $ 611,844,316 $ 169,177,805
============== ============ ============
</TABLE>
---------------------
FEDERAL TAX INFORMATION
The dividends distributed by the Primary, U.S. Government and U.S. Treasury
Funds in each of the periods are treated for Federal tax purposes as ordinary
income.
18
<PAGE> 8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Trustees of The Reserve
Fund -- Strategist Money Market Fund:
We have audited the accompanying statement of net assets of Strategist Money
Market Fund (one of the series constituting The Reserve Fund) as of May 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets and the financial highlights for the year
ended May 31, 1997, and for the period from May 1, 1996 (commencement of
operations) to May 31, 1996. 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, 1997, by correspondence with the custodian. 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
Strategist Money Market Fund of The Reserve Fund as of May 31, 1997, the results
of its operations for the year then ended, the changes in its net assets and its
financial highlights for the year ended May 31, 1997, and for the period May 1,
1996 (commencement of operations) to May 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
June 27, 1997
8
<PAGE> 9
THE RESERVE FUND -- STRATEGIST MONEY MARKET FUND
STATEMENT OF NET ASSETS -- MAY 31, 1997
<TABLE>
<CAPTION>
% DAYS TO VALUE
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT -- 82.92% RATE MATURITY (NOTE 1)
- ------------------------------------------------------------------------------- ----- -------- -----------
<S> <C> <C> <C>
Bankers Trust Company.......................................................... 5.72 41 $ 5,042,129
Mellon Bank, N.A. ............................................................. 5.60 52 5,008,556
Harris Trust and Savings Bank.................................................. 5.55 5 5,021,583
SouthTrust Bank of Alabama, N.A. .............................................. 5.63 10 5,043,007
Union Bank of California, N.A. ................................................ 5.63 7 5,043,007
Bank of Tokyo -- Mitsubishi, Ltd. (b).......................................... 5.81 69 5,020,981
Banque Nationale de Paris (b).................................................. 5.63 10 5,043,007
Barclays Bank PLC (b).......................................................... 5.62 3 5,047,614
Bayerische Landesbank Girozentrale (a)......................................... 5.525 25 5,053,730
BHF Bank AG (a)................................................................ 5.73 38 5,047,158
Caisse Nationale de Credit Agricole (b)........................................ 5.60 53 5,008,557
Canadian Imperial Bank of Commerce (a)......................................... 5.45 12 5,062,826
Deutsche Bank AG (b)........................................................... 5.57 24 5,056,502
ING Bank N.V. (a).............................................................. 5.64 47 5,013,377
Societe Generale (b)........................................................... 5.40 4 2,027,300
Svenska Handelsbanken (a)...................................................... 5.445 17 5,061,267
Toronto-Dominion Bank (a)...................................................... 5.37 5 5,070,108
-----------
Total Negotiable Bank Certificates of Deposit.................................. $82,670,709
-----------
<CAPTION>
PROMISSORY NOTES -- 10.97%
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ABN Bank Canada (c)............................................................ 5.56 59 $ 3,965,404
Commerzbank U.S. Finance, Inc. (c)............................................. 5.52 20 3,989,573
Societe Generale North America, Inc. (c)....................................... 5.61 34 2,985,507
-----------
Total Promissory Notes......................................................... $10,940,484
-----------
<CAPTION>
REPURCHASE AGREEMENTS -- 5.02%
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMS 7.50% due 2/1/27 (Repo with CS First Boston Corporation dated May 30,
1997, resale amount $5,002,333).............................................. 5.60 3 $ 5,002,333
-----------
Total Strategist Fund Investments -- (98.91%) (Cost $97,908,057)............... 98,613,526
Other assets, less liabilities -- (1.09%)...................................... 1,090,455
-----------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
prices per share based on 99,703,981 shares of beneficial interest $.001 par
value outstanding............................................................ $99,703,981
===========
</TABLE>
- ---------------
(a) Eurodollar Certificates of Deposit -- London Branch, United Kingdom.
(b) Yankee Certificates of Deposit.
(c) Collateralized by Bank Letter of Credit.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
THE RESERVE FUND -- STRATEGIST MONEY MARKET FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
MAY 31, 1997
------------
<S> <C>
INTEREST INCOME (Note 1)....................................................................... $ 2,656,437
----------
EXPENSES (Note 2)
Comprehensive fee............................................................................ 389,485
Distribution assistance (Note 3)............................................................. 97,381
----------
Total Expenses............................................................................. 486,866
Less: voluntary waiver....................................................................... (486,827)
----------
Net Expenses................................................................................. 39
----------
NET INVESTMENT INCOME.......................................................................... $ 2,656,398
==========
</TABLE>
THE RESERVE FUND -- STRATEGIST MONEY MARKET FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MAY 1, 1996
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
MAY 31, 1997 MAY 31, 1996
------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS:
Net investment income paid to shareholders as dividends (Note 1).............. $ (2,656,398) $ (4,642)
------------ ----------
FROM CAPITAL SHARE TRANSACTIONS (at net asset value of $1 per share):
Net proceeds from the sale of shares........................................ 185,017,047 1,005,037
Net asset value of shares issued on reinvestment of dividends............... 2,656,398 4,642
------------ ----------
Subtotal.................................................................. 187,673,445 1,009,679
Cost of shares redeemed................................................... (88,979,109) (34)
------------ ----------
Net increase in net assets derived from capital share transactions and from
investment operations...................................................... 98,694,336 1,009,645
NET ASSETS:
Beginning of year............................................................. 1,009,645 0
------------ ----------
End of year................................................................... $ 99,703,981 $ 1,009,645
============ ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
THE RESERVE FUND
STRATEGIST MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Strategist Money Market Fund, a series of The Reserve Fund, (the "Fund")
is registered under the Investment Company Act of 1940 as a non-diversified,
open-end 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 and
divided into four series, Primary, U.S. Government, U.S. Treasury and
Strategist Funds. These financial statements and notes apply only to the
Strategist 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 portfolio, 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
days to maturity irrespective of intervening changes in interest rates or
market value 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 Fund 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 average weighted life
to maturity.
C. It is the Fund's policy to comply with Subchapter M of the Internal
Revenue Code and to distribute all of its taxable income to its 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. Net investment income on investments is distributed to shareholders daily
and automatically reinvested in additional Fund shares.
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. RMCI
receives a comprehensive fee from the Fund at an annual rate of .80% of the
average daily net assets. For the year ended May 31, 1997, RMCI waived all
but $39 of its comprehensive fee.
3. DISTRIBUTION ASSISTANCE:
Pursuant to a Plan of Distribution under Rule 12b-1, 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 portfolio. The Plan
requires RMCI to pay an equivalent amount from its own resources. For the
year ended May 31, 1997, all distribution fees were waived.
4. MANAGEMENT'S USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
5. COMPONENTS OF NET ASSETS:
At 5/31/97, the Strategist Money Market Fund's net assets consisted of
$99,704 par value and $99,604,277 paid-in-capital.
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FEDERAL TAX INFORMATION
The dividends distributed by Strategist Money Market Fund are treated for
Federal tax purposes as ordinary income.
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