RESERVE FUNDS /NY/, 485BPOS, 1998-07-30

RESERVE FUNDS /NY/
485BPOS, 1998-07-30

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<PAGE> 1
\ 1933 Act File No. 2-36429
1940 Act File No. 811-2033

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
----

Pre-Effective Amendment No.
----- ----

Post-Effective Amendment No. 58 X
----- ----

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
----

Amendment No. 28 X
-------- ----

</TABLE>

(Check appropriate box or boxes.)

THE RESERVE FUND
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

810 Seventh Avenue, New York, NY 10019
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (212) 977-9982
------------------------------

MaryKathleen Foynes, Esq. The Reserve Fund, 810 Seventh Avenue, 17th Floor,
- --------------------------------------------------------------------------------

New York, NY 10019
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)

It is proposed that this filing will become effective (check appropriate box)

immediately upon filing pursuant to paragraph (b) of Rule 485
---

X on July 30, 1998 pursuant to paragraph (b) of Rule 485
---

60 days after filing pursuant to paragraph (a) of Rule 485
---
on (date) pursuant to paragraph (a) of Rule 485
---

---------------

The Commission is requested to send copies of all communications to:

Paul F. Roye, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, DC 20005

Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940 electing to register an indefinite number of shares of
beneficial interest. The notice required by Rule 24f-2 with respect to
Registrant's fiscal year ending May 31, 1998 was filed with the Commission on
July 24, 1998.

This filing contains __ pages.

<PAGE> 2

THE RESERVE FUND

CROSS REFERENCE SHEET PURSUANT TO RULE 404aA
<TABLE>
<CAPTION>
FORM PROSPECTUS AND STATEMENT
N-1A OF ADDITIONAL INFORMATION
ITEM FORM CAPTION CAPTION
- ---- ------------------------- -------
<S> <C> <C>
1. Cover Page Cover Page

2. Synopsis (omitted)

3. Condensed Financial Information Financial Highlights

4. General Description of Registrant Investment Objective and Policies;

5. Management of the Fund Management; How to Buy Shares

6. Capital Stock and Other Securities Shares of Beneficial Interest

7. Purchase of Securities Being Offered How to Buy Shares

8. Redemption or Repurchase Redemptions

9. Legal Proceedings (omitted)

10. Cover Page Statement of Additional Information

11. Table of Contents Table of Contents

12. General Information and History (omitted)

13. Investment Objective and Policies Investment Objective and Policies

14. Management of the Registrant Trustees and Executive Officers

15. Control Persons and Principal Trustees and Executive Officers;
Holders of Securities Shares of Beneficial Interest

16. Investment Advisory and Other Services Investment Management, Distribution,
Service and Custodian Agreements

17. Brokerage Allocation Portfolio Turnover, Transaction
Charges and Allocation

18. Capital Stock and Other Securities Shares of Beneficial Interest

19. Purchase, Redemption, and Pricing Purchase, Redemption and Pricing of
of Securities Being Offered Shares;

20. Tax Status Distributions and Taxes

21. Underwriters Investment Management, Distribution,
Service and Custodian Agreements

22. Calculation of Yield Quotations Fund Yield
Of Money Market Funds

23. Financial Statements Financial Statements
</TABLE>

<PAGE> 3

General Information, Purchases and
Redemptions

---------------------------------------
24-Hour Yield and Balance Information

---------------------------------------

Nationwide
800-637-1700 M www.reservefunds.com

The Reserve Fund, "America's First Money Fund," is a no-load money-market
fund with three investment portfolios: PRIMARY FUND, U.S. GOVERNMENT FUND, and
the U.S. TREASURY FUND (collectively "the Funds").

The primary objective of each Fund is to seek as high a level of current
income as is consistent with preservation of capital and liquidity. However,
achievement of this objective cannot be assured.

The Funds are 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 Funds seek to employ idle cash at
yields competitive with yields of other comparable short-term investments, and
are 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.

- PRIMARY FUND invests in (i) obligations backed by the full faith and
credit of the U.S. government and its agencies or instrumentalities; (ii)
deposit-type obligations, acceptances and letters of credit of FDIC-insured
institutions and foreign banks with assets in excess of $25 billion; (iii)
short-term corporate obligations rated A-1 or the equivalent thereof; (iv)
other similar high-quality short-term instruments; and (v) instruments
fully collateralized by the foregoing instruments.

- U.S. GOVERNMENT FUND invests in obligations backed by the full faith and
credit of the U.S. government or obligations collateralized thereby.

- U.S. TREASURY FUND invests exclusively in obligations back by the full
faith and credit of the U.S. government that provide interest income which
is exempt in many states from state and local personal income taxes.

SHARES OF THE FUNDS ARE NEITHER GUARANTEED NOR INSURED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

This Prospectus sets forth the information about each Fund which a
prospective investor should know before investing. The Statement of Additional
Information ("SAI") dated July 31, 1998, providing further details about the
Funds, has been filed with the Securities and Exchange Commission ("SEC") and is
herein incorporated by reference. It may be obtained without charge by writing
or calling the Funds. The SEC maintains a web site (http://www.sec.gov) that
contains the SAI, the Prospectus material incorporated by reference, and other
information regarding the Funds electronically filed with the SEC.

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, AND 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 July 31, 1998.
Investors are advised to read and retain this Prospectus for future reference.
<PAGE> 4

SHAREHOLDER EXPENSES

The following tables illustrate all expenses and fees that a shareholder of
each of the Funds will incur directly or indirectly. The expenses and fees set
forth in the tables are for the fiscal year ended May 31, 1998.

SHAREHOLDER TRANSACTION EXPENSES FOR ALL FUNDS

<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 FOR ALL FUNDS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
U.S.
PRIMARY GOVERNMENT U.S. TREASURY
FUND FUND FUND
------- ---------- -------------
<S> <C> <C> <C>
Management Fee.............................................. .45% .49% --
Comprehensive Fee........................................... -- -- .60%**
12b-1 Fees.................................................. .18% .18% .17%
Other Operating Expenses
Administration and Operations Expenses.................... .25% .27% None
Equipment................................................. .05% .03% None
Other....................................................... .01% .02% None
---- ---- ----
Total Operating Expenses.................................... .94% .99% .77%
==== ==== ====
</TABLE>

*A $2 fee will be charged on redemption checks issued by the Funds of less
than $100 and a $10 fee will be charged for wire redemptions of less than
$10,000. **The U.S. Treasury Fund is charged a comprehensive management fee of
0.80% per annum of its average net assets for both advisory and ordinary
operating expenses during the year. The Fund's investment adviser voluntarily
waived a portion of its comprehensive fee. However, the U.S. Treasury Fund may
be charged for certain non-recurring extraordinary expenses and its allocated or
direct share of certain other expenses. See "Investment Management Agreement" on
page .

The purpose of these tables is to assist the investor in understanding the
costs and expenses that a shareholder in a Fund will bear directly or
indirectly.

The following examples illustrate the expenses that a shareholder would pay
on a $1,000 investment over various time periods assuming: (1) a 5% annual rate
of return and (2) redemption at the end of each time period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Primary Fund........................................ $10 $30 $52 $115
U.S. Government Fund................................ $10 $32 $55 $121
U.S. Treasury Fund.................................. $ 8 $25 $43 $ 95
</TABLE>

THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

2
<PAGE> 5

FINANCIAL HIGHLIGHTS

The following information applies to a share of the Primary Fund, U.S.
Government Fund and the U.S. Treasury Fund outstanding throughout each period.
It should be read in conjunction with the financial statements and related notes
on page 13. Such information has been audited by PricewaterhouseCoopers LLP, as
indicated in their report on page 13.

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
---------------------------------------------------------------------------------
PRIMARY FUND 1998 1997 1996 1995 1994 1993 1992
------------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year............... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
--------- --------- --------- --------- --------- --------- ---------
Income from
investment
operations......... .0579 .0557 .0591 .0549 .0345 .0361 .0541
Expenses............. .0096 .0100 .0101 .0099 .0099 .0100 .0100
--------- --------- --------- --------- --------- --------- ---------
Net investment
income(1).......... .0483 .0457 .0490 .0450 .0246 .0261 .0441
Dividends from net
investment
income(1).......... (.0483) (.0457) (.0490) (.0450) (.0246) (.0261) (.0441)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end
of year............ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========= ========= ========= ========= ========= ========= =========
Total Return......... 4.83% 4.57% 4.90% 4.50% 2.46% 2.61% 4.41%

<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
---------------------------------
PRIMARY FUND 1991 1990 1989
------------ --------- --------- ---------
<S> <C> <C> <C>
Net asset value,
beginning of
year............... $ 1.0000 $ 1.0000 $ 1.0000
--------- --------- ---------
Income from
investment
operations......... .0794 .0915 .0913
Expenses............. .0100 .0096 .0098
--------- --------- ---------
Net investment
income(1).......... .0694 .0819 .0815
Dividends from net
investment
income(1).......... (.0694) (.0819) (.0815)
--------- --------- ---------
Net asset value, end
of year............ $ 1.0000 $ 1.0000 $ 1.0000
========= ========= =========
Total Return......... 6.94% 8.19% 8.15%
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets in thousands,
end of year......... 2,707,620 2,104,109 1,664,114 1,602,464 1,415,378 1,389,136 1,553,828 1,803,132 1,777,372
Ratio of expenses to
average net assets... .94% .98% .98% .97% .97% .99% .99% .97% .92%
Ratio of net investment
income to average net
assets.............. 4.71% 4.47% 4.79% 4.42% 2.44% 2.58% 4.34% 6.72% 7.85%

<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ------------------------
<S> <C>
Net assets in thousands,
end of year......... 1,698,934
Ratio of expenses to
average net assets... .94%
Ratio of net investment
income to average net
assets.............. 7.84%
</TABLE>

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
-----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT FUND 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- -------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year............... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
investment
operations......... .0572 .0550 .0586 .0542 .0337 .0353 .0533 .0772 .0908 .0921
Expenses............. .0101 .0101 .0102 .0101 .0100 .0100 .0101 .0102 .0098 .0100
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment
income(1).......... .0471 .0449 .0484 .0441 .0237 .0253 .0432 .0670 .0810 .0821
Dividends from net
investment
income(1).......... (.0471) (.0449) (.0484) (.0441) (.0237) (.0253) (.0432) (.0670) (.0810) (.0821)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end
of year............ $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return......... 4.71% 4.49% 4.84% 4.41% 2.37% 2.53% 4.32% 6.70% 8.10% 8.21%
RATIOS/SUPPLEMENTAL
DATA
- ---------------------
Net assets in
thousands, end of
year............... 652,468 611,844 568,497 721,785 740,698 728,138 853,823 817,604 585,023 654,571
Ratio of expenses to
average net
assets............. .99% .99% 1.00% .99% .99% .99% .99% .98% .94% .98%
Ratio of net
investment income
to average net
assets............. 4.60% 4.40% 4.75% 4.31% 2.35% 2.50% 4.21% 6.38% 7.78% 8.01%
</TABLE>

3
<PAGE> 6
FINANCIAL HIGHLIGHTS -- (CONTINUED)

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31, FEBRUARY 3, 1992
-------------------------------------------------------------------- (COMMENCEMENT OF OPERATIONS)
U.S. TREASURY FUND 1998 1997 1996 1995 1994 1993 THROUGH MAY 31, 1992
------------------ ---- ---- ---- ---- ---- ---- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year................. $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- -------
Income from investment
operations.............. .0535 .0521 .0547 .0523 .0313 .0330 .0121
Expenses.................. .0079 .0078 .0081 .0067 .0073 .0092 .0031
------- ------- ------- ------- ------- ------- -------
Net investment
income(1)............... .0456 .0443 .0466 .0456 .0240 .0238 .0090
Dividends from net
investment income(1).... (.0456) (.0443) (.0466) (.0456) (.0240) (.0238) (.0090)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year.................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= =======
Total Return.............. 4.56% 4.43% 4.66% 4.56% 2.40% 2.38% 2.75%(2)
RATIOS/SUPPLEMENTAL DATA
- --------------------------
Net assets in thousands,
end of year............. 239,760 169,178 142,766 95,227 7,350 32,325 512
Ratio of expenses to
average net assets...... .77%(3) .77%(3) .79%(3) .68%(3) .73%(3) .80% .97%(2)
Ratio of net investment
income to average net
assets.................. 4.46% 4.33% 4.53% 4.64% 2.38% 2.07% 2.74%(2)
</TABLE>

- ---------------
(1) Based on compounding of daily dividends. Not indicative of future results.
(2) Annualized.

(3) During this period the manager waived a portion of fees and expenses. If
there were no reductions in expenses, the actual expenses would have been
approximately 0.20%, 0.20%, 0.20%, 0.25% and 0.12% higher, respectively.

YIELD

For the seven calendar days ended May 31, 1998, the current and effective
yields of each Fund were as follows:

<TABLE>
<CAPTION>
CURRENT YIELD EFFECTIVE YIELD
------------- ---------------
<S> <C> <C>
Primary Fund................................................ 4.65% 4.76%
U.S. Government Fund........................................ 4.60% 4.71%
U.S. Treasury Fund.......................................... 4.40% 4.50%
</TABLE>

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.

In reports or other communications to shareholders of the Trust or in
advertising materials, the Trust may compare its performance with that of other
money-market funds listed in the rankings prepared by industry or financial
publications or other relevant indices.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of each Fund is to seek as high a level of current
income as is consistent with preservation of capital and liquidity. However,
achievement of this objective cannot be assured. This investment objective may
not be changed 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 Primary Fund seeks to attain its objective by investing in U.S.
government securities; deposit-type obligations, such as negotiable certificates
of deposit and time deposits, bankers' acceptances and letters of credit of
domestic and foreign banks; savings and loan associations and savings banks;
high-quality domestic and foreign commercial paper as determined by any
nationally recognized statistical rating organization or, in the case of any
instrument that is not rated, it must be of comparable quality as determined by
the Board of Trustees; other short-term instruments of similar quality; and
instruments fully collateralized by such obligations.

The U.S. Government Fund seeks to attain its objective by investing only in
securities backed by the full faith and credit of the U.S. government or
obligations collateralized thereby.

4
<PAGE> 7

The U.S. Treasury Fund seeks to attain its objective by investing in
securities of the U.S. government that provide interest income exempt from state
and local income taxes.

U.S. 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. U.S. 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 ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA"), the Student Loan
Marketing Association ("SLMA") and the Federal Home Loan Bank ("FHLB") are also
considered U.S. government securities. Some obligations of agencies and
instrumentalities of the U.S. government, such as the GNMA, are supported by the
full faith and credit of the U.S.. Other securities, such as obligations issued
by the FNMA and SLMA, are supported by the right of the issuer to borrow from
the U.S. Treasury; and others, such as obligations issued by the FHLB and FHLMC,
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 U.S. the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment.

U.S. Treasury STRIPS permit the separate ownership and trading of the
interest and principal components of direct obligations of the U.S. Treasury.
These obligations may take the form of (i) obligations from which interest
coupons have been stripped; (ii) the interest coupons that are stripped; or
(iii) book-entries at a Federal Reserve member bank representing ownership of
obligation components.

Under federal law, the income derived from obligations issued by the U.S.
Treasury and certain of its agencies and instrumentalities is exempt from state
personal income taxes. A substantial majority of the states that tax personal
income permit mutual funds to pass-through this tax exemption to shareholders.
It is anticipated that a substantial portion of the dividends paid to
shareholders of the U.S. Treasury Fund residing in these states will qualify for
this exemption from state taxation. However, a state or local taxing authority
may, in the future, seek to tax a shareholder on all or a portion of the
interest income of a security held by the U.S. Treasury Fund.

The Primary Fund may invest in obligations of U.S. banking institutions that
are insured by the FDIC; commercial paper which is rated, at the time of
investment, P-1 by Moody's Investors Service, Inc. ("Moody's"), A-1 by Standard
& Poor's Corporation ("S&P") or the equivalent thereof if rated by another
rating agency; 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 Adviser, are of
comparable quality to obligations of U.S. banks which may be purchased by the
Fund. Instruments which are not rated may also be purchased by the Primary Fund
provided such instruments are determined to be of comparable quality by the
Board of Trustees of the Fund to those rated instruments in which the Primary
Fund may invest.

The Primary Fund may also invest in obligations of U.S. banks, foreign
branches of U.S. banks (Eurodollars), U.S. branches of foreign banks (Yankee
dollars) and foreign branches of foreign banks. Euro and Yankee dollar
investments involve certain risks that are different from investments in
obligations of U.S. banks. These risks may include unfavorable political and
economic developments, possible withholding taxes, seizure of foreign deposits,
currency controls or other governmental restrictions which might affect payment
of principal or interest. In addition, foreign branches of foreign banks are not
regulated by U.S. banking authorities and are generally not bound by financial
reporting standards comparable to U.S. banks. The Primary Fund will limit its
investment in foreign branches of foreign banks located in Australia, Canada,
Western Europe and Japan. The Primary Fund may also invest in Municipal
Obligations secured by bank letters of credit, the interest on which is not
exempt from federal income taxation.

OTHER POLICIES. Each Fund may engage in repurchase agreement transactions. A
repurchase agreement is a transaction by which a Fund purchases a security (U.S.
government or other) and simultaneously commits to resell that security to the
seller at an agreed-upon price at a later date. The Fund will limit repurchase
agreements to those banks and securities dealers who are deemed creditworthy
pursuant to guidelines adopted by the Funds' Board of Trustees. The 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 or
possible losses of principal and income upon the exercise of its rights under
the repurchase agreement. The U.S. Treasury Fund will limit its investment in
repurchase agreements with respect to securities backed only by the full faith
and credit of the U.S. government to not more than 5% of its total assets. Such
investment will be for temporary purposes pending the investment of uninvested
cash in U.S. Treasury obligations. Securities subject to repurchase agreements
will be placed in a segregated account and will be monitored to ensure that the
market value of the securities plus any accrued interest will at least equal the
repurchase price.

5
<PAGE> 8

The Primary and U.S. Government Funds may from time to time lend securities
on a short-term basis to banks, brokers and dealers (but not individuals) and
receive as collateral cash or securities issued by the U.S. government or its
agencies or instrumentalities (or any combination thereof), which collateral
will be required to be maintained at all times in an amount equal to at least
100% of the current value of the loaned securities plus accrued interest. During
the time portfolio securities are on loan, the borrower will pay the Fund an
amount equivalent to any interest paid on such securities and the Fund may
invest the cash collateral and earn additional income, or it may receive an
agreed upon amount of interest from the borrower who has delivered equivalent
collateral or secured a letter of credit. The value of the securities loaned
cannot exceed 25% of the Fund's total assets. Loans of securities involve risks
of delay in receiving additional collateral or in recovering the securities lent
or even loss of rights to the collateral in the event of insolvency of the
borrower of the securities. The SAI further explains the Funds' securities
lending policies.

Each Fund may invest, without limitation, in U.S. government securities and
in instruments secured or collateralized by U.S. government securities. A Fund
will not invest more than 10% of its net assets in illiquid securities,
including repurchase agreements providing for settlement in more than seven (7)
days after notice and will not concentrate more than 25% of its total assets in
the securities of issuers in a single industry, except that the Primary Fund may
invest more than 25% of its assets in banking. In addition, a Fund will not
invest more than 5% of its assets in the securities of any single issuer (except
U.S. government securities or repurchase agreements collateralized by U.S.
government securities). Each Fund has the authority to borrow money (including
reverse repurchase agreements) for extraordinary or emergency purposes but not
in an amount exceeding 5% of its total assets. Reverse repurchase agreements
involve sales by a Fund of portfolio securities concurrently with an agreement
by the Fund to repurchase the same securities at a later date at a fixed price.

In order to provide liquidity, each Fund limits its average maturity to 90
days or less; buys securities which mature in 397 days or less; and buys only
high-quality securities.

MANAGEMENT

INVESTMENT MANAGEMENT AGREEMENT. Since November 15, 1971, Reserve Management
Company, Inc. ("Adviser") and its affiliates have provided investment advice to
The Reserve Funds which currently have assets in excess of $4.7 billion. Under
the Investment Management Agreement, the Adviser manages the Funds and invests
in furtherance of its objectives and policies subject to the overall control and
direction of the Funds' Board of Trustees.

The Primary and U.S. Government Funds each pay the Adviser a management fee,
which is a percentage of the average daily net assets of each of the Funds,
calculated as follows: (i) 0.50% per annum of the first $500 million of average
daily net assets; (ii) 0.475% per annum of the next $500 million of such assets;
(iii) 0.45% per annum of the next $500 million of such assets; (iv) 0.425% per
annum of the next $500 million of such assets; and (v) 0.40% per annum of such
assets in excess of $2 billion. For the fiscal year ended May 31, 1998, the
Adviser received a management fee of a 0.45% of the average daily net assets of
the Primary Fund and 0.49% of the average daily net assets of the U.S.
Government Fund. The U.S. Treasury Fund pays the Adviser a comprehensive
management fee calculated at 0.80% per annum of its average daily net assets.
Under the terms of the Investment Management Agreement with the U.S. Treasury
Fund, the Adviser pays all employee and ordinary operating costs of the Fund.
Excluded from the definition of ordinary operating costs are interest, taxes,
brokerage fees, extraordinary legal and accounting fees and expenses, and the
fees of the disinterested Trustees, for which it pays its direct or allocated
share. For the fiscal year ended May 31, 1998, the U.S. Treasury Fund paid the
Adviser a comprehensive management fee of 0.60% of its average daily net assets.
During the year, the Adviser voluntarily agreed to a reduction of its
comprehensive fee.

The Investment Management Agreement provides that the Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by a
Fund in connection with the matters to which the Agreement relates, except a
loss resulting from the willful misfeasance, bad faith or gross negligence on
the part of the Adviser or from reckless disregard by it of its duties and
obligations thereunder. The Adviser may make such advertising and promotional
expenditures, using its own resources, as it from time to time deems
appropriate.

SERVICE AGREEMENT. The Adviser furnishes to the Funds pursuant to a Service
Agreement, at cost, all personnel required for their operations such as
executive, administrative, clerical, recordkeeping, bookkeeping, shareholder
accounting and servicing, as well as suitable office space and necessary
equipment and supplies used by such personnel in performing these functions.
Operating costs for which each Fund reimburses the Adviser includes salaries and
other personnel expense, rent, depreciation of equipment and facilities,
interest and amortization of loans which finance equipment used by the Funds,
and all other expenses incurred in the conduct of the Funds' affairs. Affiliates
of the Adviser may provide some of these services. Each Fund also reimburses the
Adviser for: brokerage fees and commissions, interest charges and taxes, the
cost of registering for sale, issuing and redeeming the Funds' shares and of
printing

6
<PAGE> 9

and mailing all prospectuses, proxy statements and shareholder reports furnished
to current shareholders and the fees and expenses of the Funds' custodians,
auditors, lawyers and disinterested Trustees.

The Adviser has agreed to repay the Funds promptly any amount which a
majority of disinterested Trustees reasonably determines is not properly
attributable to the Funds. The Service Agreement is nonassignable and continues
until terminated by either party on 120 days' notice.

YEAR 2000. The Trust could be adversely affected if the computer systems and
other service providers that interface with it are unable to process data from
January 1, 2000 and after. However, steps are being taken to reasonably address
this issue and to obtain assurance that comparable efforts are being made by
service providers. There can be no assurance that these steps will be sufficient
to avoid any adverse impact to the Trust.

TRUSTEES. The Trustees serve indefinite terms (subject to certain removal
procedures) and they appoint their own successors, provided that at least a
majority of the Trustees have been elected by shareholders. A Trustee may be
removed at any meeting of shareholders by a vote of a majority of the Fund's
shareholders.

TRANSFER AGENT AND DIVIDEND-PAYING AGENT. The Reserve Fund acts as its own
transfer agent and dividend-paying agent.

HOW TO BUY SHARES

METHOD OF PAYMENT. The minimum initial investment is $1,000 with no minimum
subsequent investment (denominated in U.S. dollars). An initial purchase must be
accompanied by an Application or equivalent information. For clients of certain
broker-dealers and financial institutions ("Firms"), shares may be purchased
directly through such Firms. You can buy shares of the Funds each Business Day
at the net asset value determined after receipt by the Funds of a properly
completed order and payment in Federal Funds (member bank deposits with the
Federal Reserve Bank System). Payments must be made:

- By check (drawn on a U.S. bank) payable to The Reserve Funds, 810 Seventh
Avenue, New York, NY 10019-5868. You must include your account number (or
Taxpayer Identification Number) on the "pay to the order of" line for each
check made payable to The Reserve Funds or within the endorsement for each
check endorsed to The Reserve Funds.

- By wire -- Prior to calling your bank, call the Funds for specific
instructions at 800-637-1700 or the Firm from which you received this
Prospectus.

Checks and wires which do not correctly identify the account to be credited
may be returned or delay the purchase of shares. If you do not specify the
account number and portfolio you wish to invest in, all money sent will be
invested in the U.S. Government Fund. Because the Funds must pay for their
securities purchases on the same day in Federal Funds, only Federal Funds wires
and checks drawn on the Funds' bank are eligible for entry as of the Business
Day received. For Federal Funds wires to be eligible for same-day order entry,
the Funds must be notified before 2:00 PM (New York time) (11:00 AM for the U.S.
Treasury Fund) of the amount to be transmitted and the account to be credited.
Payment by check not immediately convertible into Federal Funds will be entered
as of the Business Day when covering Federal Funds are received or bank checks
are converted into Federal Funds. This usually occurs within two (2) Business
Days, but may take longer. Checks delivered to the Funds' offices after 2:00 PM
(New York time) (11:00 AM for the U.S. Treasury Fund) will be considered
received the next Business Day. A fee will be charged if any check used for
investment in your account does not clear. Purchase orders are not accepted on
New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day (observed), Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day and Christmas Day, days the New York Stock Exchange
("NYSE") is closed for trading and regional bank holidays.

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 Funds reserve the right, with
respect to any person or class of persons, under certain circumstances to waive
investment minimums and redemption requirements. The Funds also reserve the
right to suspend the offering of shares from time to time and to reject any
purchase order for any reason. The Funds will only accept purchase checks in
excess of $100 which are payable to The Reserve Funds or payable to the
shareholder/payee of the check and endorsed to The Reserve Funds. The Funds do
not accept travelers checks.

RESERVE AUTOMATIC ASSET-BUILDER PLAN. If you have an account balance of $5,000
or more, you may purchase shares of a Fund ($25 minimum) from a checking, NOW,
or bank money-market deposit account or from a U.S. government distribution ($25
minimum) such as Social Security, federal salary, or certain veterans' benefits,
or other payment from the federal government. Call the Funds at 800-637-1700 for
an application.

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<PAGE> 10

NET ASSET VALUE. Shares are sold to the public at net asset value ("NAV") which
is calculated at the close of each Business Day (normally 4:00 PM New York time)
by taking the sum of the value of each Fund's investments (amortized cost value
is used for this purpose) and any cash or other assets, subtracting liabilities
and dividing by the total number of shares outstanding. A "Business Day" is
Monday through Friday exclusive of New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day, Christmas Day, days the NYSE is
closed for trading and bank holidays in New York State. It is the policy of each
Fund to seek to maintain a stable NAV of $1.00 per share, 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; NWNL/Northstar Distributors, Inc., Two Pickwick Plaza, Greenwich, CT
06830; and Pacific Global Fund Distributors, Incorporated, 206 North Jackson
Street, Suite 201, Glendale, CA 91206.

EXCHANGE PRIVILEGE. The shares offered by this Prospectus may be exchanged for
shares in other Reserve money-market funds at NAV. Customers of some Firms may
exchange shares of the Primary and/or U.S. Treasury Funds for shares of certain
equity and bond funds where a sales load normally applies. A waiver of the sales
load may apply if the shares being exchanged were acquired: (a) by a previous
exchange from shares of a fund purchased with a sales load, or (b) through
investments of dividends or distributions paid with respect to the foregoing
category of shares. The exchange privilege may be modified or terminated at any
time, or from time to time, upon 60 days' notice to shareholders. Shares to be
acquired in an exchange must be registered for sale in the investor's state.
Exchanges of shares of one fund for another is a taxable event and may result in
a gain or loss for federal income tax purposes. The exchange privilege described
under this heading may not be available to clients of some Firms and some Firms
may impose conditions on their clients which are different from those described
in this Prospectus.

INDIVIDUAL RETIREMENT ACCOUNTS. Investors may use the Funds as an investment
for Individual Retirement Accounts ("IRAs"). A master IRA plan with information
regarding administration fees and other details is available from the Funds.

DISTRIBUTION AND SERVICE PLAN. Accounts may be opened through brokers,
financial intermediaries and institutions ("Firms"), some of which participate
in each Fund's Plan of Distribution ("Plan"). Under Rule 12b-1 of the 1940 Act,
each Fund makes assistance payments at an annual rate of 0.20% of net assets,
substantially all of which are paid to those Firms for distribution assistance
and administrative services provided to the Funds. The Adviser is required by
the Plan to pay an equivalent amount and may, at its discretion, pay additional
amounts based upon assets committed to the Funds by such Firms. The Plan does
not permit the carrying over of payments from year to year. The Adviser also
reimburses Firms for a portion of their costs for advertising and marketing 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 which utilize a centralized purchase method for shares, may have an
earlier cut-off for purchase orders than stated above and may establish higher
minimum investment requirements than set forth above. Some Firms may
independently establish and charge additional fees for their services, which
would reduce their clients' yield or return. Firms may also hold shares in
nominee or street name on behalf of their clients. In such instances, the Funds'
transfer agents will have no information with respect to or control over the
accounts of specific shareholders. Such shareholders may obtain access to their
accounts and information about their accounts only from their Firm. Some Firms
may receive compensation for recordkeeping and other services relating to these
nominee accounts. In addition, certain privileges with respect to the purchase
and redemption of shares (such as check writing redemptions) or the reinvestment
of dividends may not be available through such Firms or may only be available
subject to certain conditions or limitations. Some Firms may participate in a
program allowing them access to their clients' accounts for servicing including,
without limitation, changes of registration and dividend-payees and may perform
functions such as generation of confirmations and periodic statements and
disbursement of cash dividends. The Prospectus should be read in connection with
such Firm's material regarding its fees and services.

SHARES OF BENEFICIAL INTEREST

The Reserve Fund was originally organized as a Maryland corporation on
February 1, 1970 and reorganized on October 28, 1986 as a Massachusetts business
trust and is an open-end management investment company commonly known as a
mutual fund. At the date of this Prospectus, there were four separate series
authorized and outstanding. Additional series may be added in the future by the
Board of Trustees. Although The Reserve Fund is a non-diversified mutual fund,
each of its separate investment portfolios intend 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

8
<PAGE> 11

and non-assessable and will have no preemptive 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, redemptions and in the net assets of their series upon liquidation.
The Trustees do not intend to hold annual meetings but 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 change 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 unless, as in this instance, the Declaration of Trust provides,
in substance, that no shareholder or Trustee shall be personally liable for the
Trust's and each investment portfolio's obligations to third parties, and
requires that every written contract made by the Trust or the Funds contain a
provision to that effect. The Declaration of Trust also requires each Fund to
indemnify its shareholders and Trustees against such liabilities and any related
claims or expenses.

DAILY DIVIDENDS

Each Fund declares dividends each Business Day. Dividends are distributed
daily as additional shares to shareholder accounts except for shareholders who
elect in writing to receive cash dividends, in which case monthly dividend
checks are sent to the shareholder.

TAXES

Each Fund intends to maintain its regulated investment company status for
federal income tax purposes. Accordingly, the Funds intend to satisfy certain
requirements imposed by the Internal Revenue Code, so as to avoid any federal
income or excise tax liability.

For federal income tax purposes, distributions out of interest and net
realized short-term capital gains earned by a Fund are taxable as ordinary
income. Because no portion of a Fund's income is expected to consist of
dividends paid by U.S. corporations, no portion of the dividends paid by the
Funds is expected to be eligible for the corporate dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), if any, designated as capital gain
dividends are taxable to individual shareholders at the applicable 20% or 28%
capital gains rate, regardless of how long the shareholder has held the Fund's
shares. Dividends are taxable to shareholders in the same manner whether
received in cash or reinvested in additional Fund shares.

A distribution will be treated as paid on December 31 of the current
calendar year if it is declared by a Fund in October, November or December with
a record date in such a month and paid by the Fund during January of the
following calendar year. Such distributions will be taxable to shareholders in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received.

Each Fund may be required to withhold U.S. federal income tax at the rate of
31% of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability.

The U.S. Treasury Fund intends to invest only in U.S. Treasury securities
and obligations of those agencies and instrumentalities of the U.S. government
that provide interest income exempt in many states from state and local personal
income taxes, except to the extent uninvested cash is invested in repurchase
agreements. Some states have minimum investment requirements that must be met by
the U.S. Treasury Fund. Distributions attributable to net capital gains, if any,
are generally subject to state and local taxes. It is possible that a state or
local taxing authority may in the future seek to tax an investor on a portion of
the interest income of an obligation held by the U.S. Treasury Fund.
Shareholders should consult with their own tax advisers with respect to the
application of their state and local tax laws to these distributions.

Shareholders are advised to retain all statements to maintain accurate
records of their investments. The Funds intend to report to their shareholders
before the end of February each year as to the source of dividends and other
distributions, if any, paid or declared by each Fund during the previous
calendar year which may be exempt from state income taxes. Shareholders should
consult their own tax advisers regarding specific questions as to federal, state
or local taxes.

Further information relating to tax consequences is contained in the SAI.

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<PAGE> 12

REDEMPTIONS

TIME AND METHOD OF REDEMPTION. Shares of each Fund are redeemed at their NAV
determined after receipt by the Fund of a request in proper form. Each Fund
usually transmits payment the same day when requests are received before 12:00
noon (New York time, 11:00 AM for the U.S. Treasury Fund) and the next Business
Day for requests received after the time specified to enable shareholders to
receive additional dividends. This is not always possible and transmission of
redemption proceeds may be delayed up to seven (7) days. Payment will normally
be made by check or bank transfer. Shares do not earn dividends on the day a
redemption is effected, regardless of the time the order is received.

WRITTEN AND TELEPHONE REDEMPTION REQUESTS. The Funds strongly suggest (but do
not require) that each redemption, written or by telephone, be at least $1,000,
except for redemptions which are intended to liquidate the account. A
shareholder will be charged $2 for redemption checks issued for less than $100.
Upon request, redemptions will be made by bank wire, however, wire redemptions
of less than $10,000 will be charged a fee (currently $10). 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 could cause such a delay. If a Fund has previously been advised in
writing of your brokerage or bank account, telephone requests will be accepted
by calling 800-637-1700. The Funds may be liable for any losses caused by their
failure to employ reasonable procedures. To reduce the risk of loss, proceeds of
telephone redemptions may be sent only to (1) the bank or brokerage account
designated by the shareholder on the Application or in a letter with the
signature(s) guaranteed; or (2) the address of record if all the conditions
listed below are met. To change the designated brokerage or bank account it is
necessary to contact the Firm through which shares of the Fund were purchased
or, if purchased directly from the Funds, it is necessary to send a written
request to the Funds with signature(s) guaranteed as described below. Other
redemption orders must be in writing with the necessary signature(s) guaranteed
by a domestic commercial bank; a domestic trust company; a domestic savings
bank, credit union or savings association; or a member firm of a national
securities exchange. Guarantees from notaries public are unacceptable. The Funds
will waive the signature guarantee requirement on a redemption request once
every thirty (30) days if all of the following conditions apply: if the
redemption check is (1) for $5,000 or less; (2) payable to the shareholder(s) of
record; and (3) 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 Funds
by telephone to request a redemption or exchange of a Fund's shares. In such
cases, shareholders should consider using another method of redemption, such as
a written request or a redemption by check.

CHECKING, VISA AND ATM ACCESS. The Funds offer a comprehensive package of
services which enhance access to your account. By completing the Application or
a signature card (for existing accounts) and certain other documentation if the
owner of record is a fiduciary, corporation, partnership, trust or other
organization, you can write checks in any amount against your account.
Redemptions by check lengthen the time your money earns dividends, since
redemptions are not made until the check is processed by the Fund. Because of
this, you cannot write a check to completely liquidate your account, nor may a
check be presented for certification or immediate payment. Otherwise, you may
use your Reserve checking account as you would any checking account. Your checks
will be returned (bounced) and a fee charged if they are postdated, contain an
irregularity in the signature, amount or otherwise, or are written against
accounts with insufficient funds. All transaction activity, including check
redemptions, will be reported on your account statement. A fee will be charged
for providing check copies. Upon proper notice, the Funds may choose to impose a
fee if it deems a shareholder's actions to be burdensome. Checking may not be
available to clients of some Firms and a Firm may establish its own minimum
check amount. Reserve VISA cards provide access to your Reserve balances and
margin line for worldwide purchasing power and cash at over 250,000 ATMs. For
more information, call 800-637-1700.

STOP PAYMENTS. The Funds will honor stop payment requests on unpaid shareholder
checks provided they are advised of the correct check number, payee, check
amount and date. Stop payment requests received by the Funds by 2:00 PM (New
York time) in proper form will be effective the next Business Day. Oral stop
payment requests are effective for fourteen (14) calendar days, at which time
they will be canceled unless confirmed in writing. Written stop payment requests
will remain in effect for one year. A fee will be charged for this service.

AUTOMATIC WITHDRAWAL PLANS. If you have an account with a balance of at least
$5,000, you may elect in writing 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

10
<PAGE> 13

of a fixed amount. Changes to instructions must be in writing with signature(s)
guaranteed. In order for such payments to continue under either Plan, there must
be a minimum of $25 available from reinvested dividends or distributions.
Payments can be made to you or your designee. An application for the Automatic
Withdrawal Plans can be obtained from the Funds. The amount, frequency and
recipient of the payments may be changed by giving proper written notice to the
Funds. The Funds may impose a charge, 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 some Firms or may be available
subject to conditions or limitations.

AUTOMATIC TRANSFER PLANS. You may redeem shares of a Fund (minimum $100)
without charge by telephone if you have filed a separate Reserve Automatic
Transfer application with the Fund. The proceeds will be transferred between
your Fund account and the checking, NOW or bank money-market deposit account (as
permitted) designated in the application. Only such an account maintained in a
domestic financial institution which is an Automated Clearing House member may
be so designated. Redemption proceeds will be on deposit in your account at the
Automated Clearing House member bank ordinarily two (2) Business Days after
receipt of the redemption request. The Funds may impose a charge, modify or
terminate this privilege at any time after the participant has been duly
notified. This privilege may not be available to clients of some Firms or may be
available subject to conditions or limitations.

REDEMPTIONS THROUGH BROKERS AND FINANCIAL INSTITUTIONS. Redemptions through
brokers and financial institutions may involve such Firms' own redemption
minimums, service fees, and other redemption requirements.

RESTRICTIONS. The right of redemption may be suspended or the date of payment
postponed for more than seven (7) days only (a) when the NYSE is closed (other
than for customary closings), (b) when, as determined by the SEC, trading on the
Exchange is restricted or an emergency exists making it not reasonably
practicable to dispose of securities owned by a Fund or for it to determine
fairly the value of its net assets, or (c) for such periods as the SEC may
permit. If shares of a Fund are purchased by check or Reserve Automatic
Transfer, the Fund may delay transmittal of redemption proceeds until such time
as it has assured itself that good payment has been collected for the purchase
of such shares, which may generally take 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 (2) Business Days after the purchase.

GENERAL INFORMATION

JOINT OWNERSHIP. When an account is registered in the name of one person or
another, for example a husband or wife, either person is entitled to redeem
shares in the account. The Funds assume no responsibility to either owner for
actions taken by the other with respect to an account so registered. The
Application provides that persons so registering their account indemnify and
hold the Funds harmless for actions taken by either party.

BACKUP WITHHOLDING. The Funds are required by federal law to withhold 31% of
dividends and other distributions that are subject to federal income tax if (i)
a correct and certified Taxpayer Identification Number ("TIN") is not provided
for your account, (ii) you fail to certify that you have not been notified by
the IRS that you underreported taxable interest or dividend payments or (iii) a
Fund is notified by the IRS (or a broker) that the TIN provided is incorrect or
you are otherwise subject to backup withholding. Amounts withheld and forwarded
to the IRS can be credited as a payment of tax when completing your federal
income tax return. For individual shareholders, the TIN is the social security
number. However, special rules apply for certain accounts. For example, for an
account established under the Uniform Gift to Minors Act, the TIN of the minor
should be furnished. Shareholders should be aware that, under regulations
promulgated by the IRS, a Fund may be fined $50 annually for each account for
which a certified TIN is not provided or is incorrect. In the event that such a
fine is imposed with respect to an account in any year, a corresponding charge
will be made against the account. The Funds will not accept purchase orders for
accounts for which a correct and certified TIN is not provided or which is
otherwise subject to backup withholding, except in the case of certain
non-resident alien accountholders.

USE OF JOINT PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION. Although each
Fund is offering only its own shares, it is possible that a Fund might become
liable for any misstatement in the Prospectus and SAI about the other Funds.
However, each Fund has acknowledged that it, and not any of the other Funds, is
liable for any material misstatement or omission about it in the Prospectus or
SAI.

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
some Firms will receive a statement combining transactions in Fund shares with
statements covering other brokerage or mutual fund accounts.

11
<PAGE> 14

SMALL BALANCES. Because of the expense of maintaining accounts with small
balances (less than $1,000), the Funds may choose to either levy a monthly
charge (currently $5) or redeem the account and remit the proceeds. Some Firms
may establish variations of minimum balances and fee amounts if those variations
are approved by the Funds.

RESERVE EASY ACCESS. Easy Access is The Reserve Funds' 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.
Clients may also access full account activity for the previous six months on the
Internet at www.reservefunds.com.

INQUIRIES. Shareholders should direct their inquiries to the Firm from which
they received this Prospectus or to the Funds.

SPECIAL SERVICES. The Funds reserve the right to charge shareholder accounts
for specific costs incurred in processing unusual transactions. Such
transactions include, but are not limited to, stop payment requests, copies of
Fund redemption or shareholder checks, copies of statements and special research
services.

PERFORMANCE. The Funds may compare their performance to other income-producing
alternatives such as (i) money-market funds (based on yields cited by IBC's
Money Fund Report and other industry publications); and (ii) various bank
products (based on average rates of bank and thrift institution certificates of
deposit, money-market deposit accounts and NOW accounts as reported by the
various industry publications). An investment in shares of a Fund is not insured
by the Federal Deposit Insurance Corporation.

Yield information is useful in reviewing each Fund's performance relative to
other funds that hold investments of similar quality. Because yields will
fluctuate, yield information may not provide a basis for comparison with bank
and thrift certificates of deposit which normally pay a fixed rate for a fixed
term and are subject to a penalty for withdrawals prior to maturity which will
reduce their return.

------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.

------------------------

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<PAGE> 15

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and the Board of Trustees of The Reserve Fund:

In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and financial highlights
present fairly, in all material respects, the financial position of The Primary,
U.S. Government and U.S. Treasury Funds (three of the four series constituting
The Reserve Funds) at May 31, 1998, the results of their operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods presented
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

PricewaterhouseCoopers LLP

New York, New York

July 24, 1998

THE RESERVE FUND -- PRIMARY FUND

STATEMENT OF NET ASSETS -- MAY 31, 1998

<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- --------
<S> <C> <C> <C>
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT -- 55.31%
Chase Manhattan Bank...................................... 5.55 4 $ 130,100,208
Crestar Bank.............................................. 5.555 36 125,212,170
Harris Trust and Savings Bank............................. 5.53 11 100,322,583
Mellon Bank, N.A.......................................... 5.57 3 121,114,000
SouthTrust Bank of Alabama, N.A........................... 5.57 36 70,281,595
ABN-AMRO Bank N.V. (a).................................... 5.53 15 130,379,420
Banque Nationale de Paris (b)............................. 5.55 8 90,347,049
BHF Bank AG (b)........................................... 5.55 29 130,100,208
Canadian Imperial Bank of Commerce (b).................... 5.535 23 125,211,406
Deutsche Bank AG (a)...................................... 5.54 19 100,200,056
Deutsche Bank AG (b)...................................... 5.56 9 21,272,329
Dresdner Bank AG (b)...................................... 5.54 29 132,081,253
Svenska Handelsbanken (a)................................. 5.535 15 100,292,319
Westdeutsche Landesbank Girozentrale (b).................. 5.57 36 120,724,100
--------------
Total Negotiable Bank Certificates of Deposit -- (Cost
$1,493,000,852)........................................... 1,497,638,696

PROMISSORY NOTES -- 15.44%
Commerzbank U.S. Finance, Inc. (c)........................ 5.51 22 124,598,229
Hypo U.S. Finance, Inc. (c)............................... 5.505 8-15 123,776,283
Societe Generale North America, Inc. (c).................. 5.50 17 129,682,222
Toronto-Dominion Bank (c)................................. 5.51-5.52 2-8 39,975,506
--------------
Total Promissory Notes -- (Cost $416,915,775)............... 418,032,240

REPURCHASE AGREEMENTS -- 26.53%
GNMA 6.875%-8.50% due from 12/15/22 to 8/15/27 and U.S.
Treasury Bond 6.50% due 11/15/26 (Repo with Bear,
Stearns & Co. Inc. dated May 29, 1998, resale amount
$300,140,750)........................................... 5.63 1 300,140,750
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

13
<PAGE> 16
THE RESERVE FUND -- PRIMARY FUND

STATEMENT OF NET ASSETS -- MAY 31, 1998 -- (CONTINUED)

<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- --------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
FGPC 7%-8.50% due from 6/1/25 to 1/1/28, FMAR due 2/1/37,
FNAR due 7/1/34 and FNMS 6%-8% due from 2/1/12 to
11/1/27 (Repo with DLJ Securities Corporation dated May
29, 1998, resale amount $164,076,943)................... 5.63 1 $ 164,076,943
FNDN due 6/10/98 and TPRN due 5/15/17 (Repo with
Prudential Securities Inc. dated May 29, 1998, resale
amount $14,006,487)..................................... 5.56 1 14,006,487
FRRM 6.50% due 5/15/28 and GNMA 5%-10% due from 10/15/01
to 5/20/28 (Repo with Salomon Smith Barney Inc. dated
May 29, 1998, resale amount $240,112,800)............... 5.64 1 240,112,800
--------------
Total Repurchase Agreements -- (Cost $718,000,000).......... 718,336,980
</TABLE>

<TABLE>
<S> <C> <C> <C>
TAXABLE MUNICIPAL BONDS -- 2.60%
Florida Housing Finance Agency Housing Revenue Bonds 1993
Series A (d)............................................ 5.59 7 40,192,311
Illinois Student Assistance (d)........................... 5.56 7 25,220,027
New Hampshire Business Finance Authority Revenue Bonds
1992 Series B (d)....................................... 5.85 7 5,020,313
--------------
Total Taxable Municipal Bonds -- (Cost $70,100,000)......... 70,432,651
--------------
Total Primary Fund Investments -- (99.88%) (Cost
$2,698,016,627)........................................... 2,704,440,567
Other assets, less liabilities -- ( .12%)................... 3,179,496
--------------
NET ASSETS (100%) equivalent to $1.00 net asset value,
offering and redemption price per share based on
2,707,620,063 shares of beneficial interest $.001 par
value outstanding......................................... $2,707,620,063
==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

14
<PAGE> 17

THE RESERVE FUND -- U.S. GOVERNMENT FUND

STATEMENT OF NET ASSETS -- MAY 31, 1998

<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- --------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS -- 99.72 %
GNMA 5%-8.50% due from 2/15/08 to 3/20/28 (Repos with
Bear, Stearns & Co. Inc. dated May 21, 1998, resale
amount $148,271,333).................................... 5.50 10 $148,248,722
GNMA 5.50%-15% due from 12/15/99 to 4/15/38 (Repo with DLJ
Securities Corporation dated May 29, 1998, resale amount
$177,082,895)........................................... 5.62 1 177,082,895
GNMA 4.50%-8.50% due from 4/15/07 to 5/20/28 (Repos with
Prudential Securities Inc. dated May 29, 1998, resale
amount $170,079,355).................................... 5.55-5.61 1 170,079,355
GNMA 4.50%-10% due from 7/15/01 to 5/15/28 (Repo with
Salomon Smith Barney Inc. dated May 21, 1998, resale
amount $155,284,167).................................... 5.50 1 155,260,486
------------
Total U.S. Government Fund Investments -- (99.72%) (Cost
$650,000,000)............................................. 650,671,458
Other assets, less liabilities -- (.28%).................... 1,796,164
------------
NET ASSETS (100 %) equivalent to $1.00 net asset value,
offering and redemption prices per share based on
652,467,622 shares of beneficial interest $.001 par value
outstanding............................................... $652,467,622
============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 18

THE RESERVE FUND -- U.S. TREASURY FUND

STATEMENT OF NET ASSETS -- MAY 31, 1998

<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- --------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES -- 99.68 %
U.S. Treasury Bills......................................... 4.95-5.15 4-137 $214,974,692
U.S. Treasury Notes......................................... 4.75-5.25 61-92 24,018,004
------------
Total U.S. Treasury Fund Investments (Cost $237,407,250).... 238,992,696
Other assets, less liabilities -- (.32%).................... 767,597
------------
NET ASSETS (100%) equivalent to $1.00 net asset value,
offering and redemption prices per share based on
239,760,293 shares of beneficial interest $.001 par value
outstanding............................................... $239,760,293
============
</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, 1998. 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>
FHLMC Gold Mortgage-Backed Pass-Through Participation
FGPC = Certificates
FNMS = FNMA Mortgage-Backed Pass-Through Securities
Government National Mortgage Association Mortgage-Backed
GNMA = Pass-Through Securities
FHLMC Adjustable Rate Mortgage-Backed Pass-Through
FMAR = Participation Certificates
FNAR = FNMA Adjustable Rate Mortgage-Backed Pass-Through Securities
FNDN = FNMA - Discount Note
FRRM = FHLMC REMIC
TPRN = U.S. Treasury Strip -- Principal
</TABLE>

THE RESERVE FUND -- STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1998
----------------------------------------------
PRIMARY U.S. GOVERNMENT U.S. TREASURY
FUND FUND FUND
------------ --------------- -------------
<S> <C> <C> <C>
INTEREST INCOME (Note 1).................................... $138,103,637 $36,079,602 $11,620,213
------------ ----------- -----------
EXPENSES (Note 2)
Management fee............................................ 10,995,380 3,181,655 --
Comprehensive fee......................................... -- -- 1,772,390
Shareholder servicing, administration and general office
expenses................................................ 4,824,126 1,402,039 --
Distribution assistance (Note 3).......................... 4,365,202 1,188,306 381,997
Equipment expense......................................... 1,312,919 193,605 --
Professional fees......................................... 446,106 116,148 --
Occupancy costs........................................... 222,490 66,069 --
Stationery, printing and supplies......................... 339,379 101,255 --
Trustee fees.............................................. 38,865 11,722 --
Other expenses............................................ 327,669 121,082 --
------------ ----------- -----------
Total Expenses.......................................... 22,872,136 6,381,881 2,154,387
Less: voluntary waiver.................................... -- -- (443,107)
------------ ----------- -----------
Net Expenses.............................................. 22,872,136 6,381,881 1,711,280
------------ ----------- -----------
NET INVESTMENT INCOME....................................... $115,231,501 $29,697,721 $ 9,908,933
============ =========== ===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 19

THE RESERVE FUND -- STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PRIMARY FUND U.S. GOVERNMENT FUND
---------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997 MAY 31, 1998 MAY 31, 1997
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM INVESTMENT
OPERATIONS:
Net investment income paid
to shareholders as
dividends (Note 1)...... $ (115,231,501) $ (86,925,147) $ (29,697,721) $ (25,382,282)
---------------- --------------- --------------- ---------------
FROM CAPITAL SHARE
TRANSACTIONS
(at net asset value of
$1 per share):
Net proceeds from the
sale of shares........ 11,543,024,341 8,848,392,468 3,252,798,210 2,757,510,343
Net asset value of
shares issued on
reinvestment of
dividends............. 115,231,501 86,925,147 29,697,721 25,382,282
---------------- --------------- --------------- ---------------
Subtotal.............. 11,658,255,842 8,935,317,615 3,282,495,931 2,782,892,625
Cost of shares
redeemed............ (11,054,744,831) (8,495,322,653) (3,241,872,625) (2,739,545,482)
---------------- --------------- --------------- ---------------
Net increase derived
from capital share
transactions and from
investment
operations............ 603,511,011 439,994,962 40,623,306 43,347,143
NET ASSETS:
Beginning of year......... 2,104,109,052 1,664,114,090 611,844,316 568,497,173
---------------- --------------- --------------- ---------------
End of year............... $ 2,707,620,063 $ 2,104,109,052 $ 652,467,622 $ 611,844,316
================ =============== =============== ===============

<CAPTION>
U.S. TREASURY FUND
-------------------------------
YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997
--------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM INVESTMENT
OPERATIONS:
Net investment income paid
to shareholders as
dividends (Note 1)...... $ (9,908,933) $ (7,148,426)
--------------- -------------
FROM CAPITAL SHARE
TRANSACTIONS
(at net asset value of
$1 per share):
Net proceeds from the
sale of shares........ 1,135,200,601 682,830,849
Net asset value of
shares issued on
reinvestment of
dividends............. 9,908,933 7,148,426
--------------- -------------
Subtotal.............. 1,145,109,534 689,979,275
Cost of shares
redeemed............ (1,074,527,046) (663,567,636)
--------------- -------------
Net increase derived
from capital share
transactions and from
investment
operations............ 70,582,488 26,411,639
NET ASSETS:
Beginning of year......... 169,177,805 142,766,166
--------------- -------------
End of year............... $ 239,760,293 $ 169,177,805
=============== =============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 20

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 and 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 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 Funds are charged only for their direct
or allocated (in proportion to net assets or number of shareholder accounts)
share of expenses.

H. The Funds may enter into repurchase agreements with financial
institutions deemed to be creditworthy by the Funds' Investment Adviser,
subject to the seller's agreement to repurchase such securities at a
mutually agreed upon price. However, in the event of default or bankruptcy
by the seller, realization and/or retention of the collateral may be subject
to legal proceedings.

(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, 1998, the advisor waived $443,107 of its
comprehensive fee. Also, under the current Service Agreement, RMCI was
reimbursed $7,511,554 (Primary Fund) and $2,011,920 (U.S. Government Fund)
during the year ended May 31, 1998 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, 1998, the Primary, U.S. Government and U.S. Treasury
Funds had accrued expenses of $212,711, $53,294, and $15,168, respectively,
due to RMCI.

18
<PAGE> 21
THE RESERVE FUND (THE "FUND")
PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY FUNDS (THE "FUNDS")

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(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.

(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 May 31, 1998, the following funds had these components of net assets:

<TABLE>
<CAPTION>
PRIMARY U.S. GOVERNMENT U.S. TREASURY
-------------- --------------- -------------
<S> <C> <C> <C>
Par Value........................................ $ 2,707,620 $ 652,468 $ 239,760
Paid-in-Capital.................................. 2,704,912,443 651,815,154 239,520,533
-------------- ------------ ------------
Net Assets....................................... $2,707,620,063 $652,467,622 $239,760,293
============== ============ ============
</TABLE>

---------------------

FEDERAL TAX INFORMATION -- (UNAUDITED)

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.

19
<PAGE> 22

[CAPTION]

<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PAGE
---
<S> <C>
Shareholder Expenses............................ 2
Financial Highlights............................ 3
Yield........................................... 4
Investment Objective and Policies............... 4
Management...................................... 6
How to Buy Shares............................... 7
Shares of Beneficial Interest................... 8
Daily Dividends................................. 9
Taxes........................................... 9
Redemptions..................................... 10
General Information............................. 11
Report of Independent Accountants............... 13
Financial Statements............................ 13

Investors are advised to read and retain
this Prospectus for future reference.
</TABLE>

Founders of

"America's First
Money Fund"
810 Seventh Avenue, New York, NY 10019-5868

GENERAL INFORMATION AND 24 HOUR YIELD AND BALANCE INFORMATION
800-637-1700 M www.reservefunds.com

Distribution -- Resrv Partners, Inc.

RF/P G&U-7/98

LOGO Founders of

"America's First
Money Fund"

-------------------------------------------------------------------------
----------

PRIMARY FUND
U.S. GOVERNMENT FUND
U.S. TREASURY FUND
<PAGE> 23

General Information, Purchases and
Redemptions

---------------------------------------
24-Hour Yield and Balance Information

---------------------------------------

Nationwide 800-297-7378

STRATEGIST MONEY-MARKET FUND PROSPECTUS

Strategist Money-Market Fund (the "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
is 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 U.S. 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 which a prospective investor
should know before investing. A Statement of Additional Information ("SAI")
dated July 31, 1998, providing further details about the Fund, has been filed
with the Securities and Exchange Commission ("SEC") and is incorporated herein
by reference. It may be obtained without charge by writing or calling the Fund.
The SEC maintains a web site (http://www.sec.gov) that contains the SAI, the
Prospectus, material incorporated by reference, and other information regarding
the Funds electronically filed with the SEC.

SHARES OF THE FUND 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.

------------------

Prospectus dated July 31, 1998
Investors are advised to read and retain this Prospectus for future reference.
<PAGE> 24

SHAREHOLDER EXPENSES

The following tables illustrate all expenses and fees that a shareholder of
the Fund will incur directly and indirectly. The expenses and fees set forth in
the table are for the fiscal year ended May 31, 1998.

SHAREHOLDER TRANSACTION EXPENSES

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<S> <C>
Comprehensive Fee........................................... .80%
12b-1 Fees.................................................. .20%
----
Total Operating Expenses.................................... 1.00%+
====
</TABLE>

*A $2 fee will be charged on redemption checks issued by the Fund of less
than $100 and a $10 fee will be charged for wire redemptions of less than
$10,000. +From time to time and at its discretion, the Adviser may waive all or
a portion of its advisory fees and/or assume certain expenses of the Fund. At
May 31, 1998, the Adviser waived 0.40% of its comprehensive fee and 0.20% of the
12b-1 fee. Such practices will have the effect of increasing the Fund's yield
and total return. The performance of the Fund will vary from time to time and
past results are not necessarily representative of future results. See
Investment Management Agreement on page 4.

The purpose of these table are to assist the investor in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Strategist Money-Market Fund................................ $3 $11 $19 $42
</TABLE>

THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.

FINANCIAL HIGHLIGHTS

The following information applies to a share of the Strategist Money-Market
Fund outstanding throughout each period. It should be read in conjunction with
the financial statements and related notes on page 9. Such information has been
audited by PricewaterhouseCoopers LLP, as indicated in their report on page 9.

<TABLE>
<CAPTION>
MAY 1, 1996
YEAR ENDED (COMMENCEMENT OF
YEAR ENDED MAY 31, OPERATIONS) TO
STRATEGIST MONEY-MARKET FUND MAY 31, 1998 1997 MAY 31, 1996
---------------------------- ------------ ----------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of year.......................... $1.0000 $1.0000 $1.0000
------- ------- -------
Income from investment operations........................... .0576 .0552 .0479
Expenses (3)................................................ .0034 .0000 .0017
------- ------- -------
Net investment income (1)................................... .0542 .0552 .0462
Dividends from net investment income (1).................... (.0542) (.0552) (.0462)
------- ------- -------
Net asset value, end of year................................ $1.0000 $1.0000 $1.0000
======= ======= =======
Total Return................................................ 5.42% 5.52% 5.13%(2)
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets in thousands, end of year........................ 56,269 99,704 1,010
Ratio of expenses to average net assets (3)................. .33% .00% .18%(2)
Ratio of net investment income to average net assets........ 5.29% 5.44% 5.12%(2)
</TABLE>

- ---------------
(1) Based on compounding of daily dividends. Not indicative of future results.
(2) Annualized.

(3) For each period the manager waived a portion of fees and expenses. If there
were no reduction in expenses, the actual expenses would have been .80% for
each period.

2
<PAGE> 25

YIELD

For the seven (7) calendar days ended May 31, 1998, the current and
effective yields of the Fund were 5.15% and 5.28%, respectively.

Current yield refers to the income generated by an investment in the 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.

In reports or other communications to shareholders of the Fund or in
advertising materials, the Fund may compare performance with that of other
money-market funds listed in the rankings prepared by industry or financial
publications or other relevant indices and industry publications.

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.

U.S. 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. U.S. 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 ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA"), the Student Loan
Marketing Association ("SLMA") and the Federal Home Loan Bank ("FHLB") are also
considered U.S. government securities. Some obligations of agencies and
instrumentalities of the U.S. government, such as the GNMA, are supported by the
full faith and credit of the U.S. Other securities, such as obligations issued
by the FNMA and SLMA, are supported by the right of the issuer to borrow from
the U.S. Treasury; and others, such as obligations issued by the FHLB and FHLMC,
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 U.S. the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment.

Under federal law, the income derived from obligations issued by the U.S.
Treasury and certain of its agencies and instrumentalities is exempt in many
states 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 U.S. 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.

3
<PAGE> 26

OTHER POLICIES. The Fund may engage in repurchase agreement transactions. A
repurchase agreement is a transaction by which the 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, the Fund may encounter
difficulties and might incur costs or possible losses of principal or income
upon the exercise of its rights under the repurchase agreement. Securities
subject to repurchase agreements will be placed in a segregated account and will
be monitored to ensure the market value of the securities plus any accrued
interest and will at least be equal to the repurchase price.

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 to the collateral in
the event of insolvency of the borrower of the securities. The SAI further
explains the Fund's 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 (7)
days after notice and will not concentrate more than 25% of its total assets in
the securities of issuers in a single industry, except that the Fund may 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 repurchase 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; buys securities which mature in 397 days or less, and buys only
high-quality securities.

MANAGEMENT

INVESTMENT MANAGEMENT AGREEMENT. Since November 15, 1971, Reserve Management
Company, Inc. ("Adviser") and its affiliates have provided investment advice to
The Reserve Funds which currently has assets in excess of $4.7 billion Under the
Investment Management Agreement, the Adviser manages the Fund and invests in
furtherance of its objectives and policies subject to the overall control and
direction of the Fund's Board of 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.
However, at May 31, 1998, the Adviser waived 0.40% of the comprehensive fee.

The Investment Management Agreement provides that the Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters as to which the Agreement relates,
except a loss resulting from the willful misfeasance, bad faith or gross
negligence on the part of the Adviser.

YEAR 2000. The Fund could be adversely affected if the computer systems and
other service providers that interface with it are unable to process data from
January 1, 2000 and after. However, steps are being taken to reasonably address
this issue and to obtain assurance that comparable effort is being made by
service providers. There can be no assurance that these steps will be sufficient
to avoid any adverse impact to the Fund.

TRANSFER AGENT AND DIVIDEND-PAYING AGENT. The Fund acts as its own transfer
agent and dividend-paying agent.

4
<PAGE> 27

HOW TO BUY SHARES

METHOD OF PAYMENT. The minimum initial investment is $20,000 and $1,000 for
subsequent investments (denominated in U.S. dollars). An initial purchase must
be accompanied by an Application or equivalent information. You can buy shares
of the Fund each Business Day at the net asset value ("NAV") determined after
receipt by the Fund of a properly completed order and payment in Federal Funds
(member bank deposits with the Federal Reserve Bank System). Payments must be
made:

- By check (drawn on a U.S. bank) payable to the American Express Service
Corporation, P.O. Box 59196, Minneapolis, MN 55459-9801. You must include
your Investment Management 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 800-297-7378.

Checks and wires which do not correctly identify the account to be credited
may be returned or delay the purchase of shares. 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 Fund's 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 PM (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 (2) Business Days, but may take longer.
Checks delivered to the Fund's offices after 2:00 PM (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. Purchase orders are not
accepted on New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day, Christmas Day, on days the New York Stock
Exchange ("NYSE") is closed for trading and regional bank holidays.

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 Fund also reserves 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. Call the Fund at 800-637-1700 for an Application or consult your
Financial Advisor.

NET ASSET VALUE. Shares are sold to the public at NAV which is calculated at
the close of each Business Day (normally 4:00 PM New York time) by taking the
sum of the value of the 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 NYSE is closed for trading and regional
bank holidays. It is the policy of the Fund to seek to maintain a stable NAV of
$1.00 per share, although this share price is not guaranteed.

DISTRIBUTORS. The Fund's distributor is Resrv Partners, Inc., 810 Seventh
Avenue, New York, NY 10019-5868, which is a wholly-owned subsidiary of the
Adviser.

DISTRIBUTION AND SERVICE PLAN. Accounts may be opened through brokers,
financial intermediaries and institutions ("Firms"), some of which participate
in the Fund's Plan of Distribution ("Plan"). Under Rule 12b-1 of the 1940 Act,
the Fund makes assistance payments at an annual rate of 0.20% of net assets,
substantially all of which are paid to those Firms for distribution assistance
and administrative services provided to the Fund. The Adviser is required by the
Plan to pay an equivalent amount and may, at its discretion, pay additional
amounts based upon assets committed to the Fund by such Firms. The Plan does not
permit the carrying over of payments from year to year. The Adviser also
reimburses Firms for a portion of their costs for advertising and marketing of
the Fund. All such arrangements are designed to facilitate the sale of the
Fund's shares.

CLIENTS OF FIRMS. Some Firms may receive compensation for recordkeeping and
other services relating to their clients' accounts. These Firms may participate
in a program allowing them access to their clients' accounts for servicing
including, without limitation, changes of registration and dividend-payees and
may perform functions such as generation of confirmations and periodic
statements and disbursement of cash dividends.

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

5
<PAGE> 28

Board of Trustees. Although the 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 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 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, redemptions and in the net assets of their series upon liquidation.
The Trustees do not intend to hold annual meetings but 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 unless, as in this instance, the Declaration of Trust provides,
in substance, that no shareholder or Trustee shall be personally liable for the
Fund's and each investment portfolio's obligations to third parties, and
requires that every written contract made by the Trust or the Fund contain a
provision to that effect. The Declaration of Trust also requires the Fund to
indemnify its shareholders and Trustees against such liabilities and any related
claims or expenses.

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.

TAXES

To maintain its regulated investment company status for federal income tax
purposes, the Fund intends to satisfy certain requirements imposed by the
Internal Revenue Code, so as to avoid any federal income or excise tax
liability.

For federal income tax purposes, distributions out of interest and net
realized short-term capital gains earned by the Fund are taxable as ordinary
income. Because no portion of a Fund's income is expected to consist of
dividends paid by U.S. corporations, no portion of the dividends paid by the
Funds is expected to be eligible for the corporate dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), if any, designated as capital gain
dividends are taxable to individual shareholders at the applicable 20% or 28%
capital gains rate, regardless of how long the shareholder has held the Fund's
shares. Dividends are taxable to shareholders in the same manner whether
received in cash or reinvested in additional Fund shares.

Upon the sale or other disposition of shares of the Fund, in the event that
the Fund fails to maintain a constant net asset value per share, a shareholder
may realize a capital gain or loss which will be long-term or short-term,
generally depending upon the shareholder's holding period for the shares.

Shareholders are advised to retain all statements to maintain accurate
records of their investments. The Fund intends to report to their shareholders
before the end of February 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 in many states from state personal income taxes.
Shareholders should consult their own tax advisers regarding specific questions
as to federal, state or local taxes.

Further information relating to tax consequences is contained in the SAI.

REDEMPTIONS

TIME AND METHOD OF REDEMPTION. Shares of the Fund are redeemed at the NAV
determined after receipt by the Fund of a request in proper form. The Fund
usually transmits payment the same day when requests are received before 12:00
noon (New York time) and the next day for requests received after the specified
time to enable shareholders to receive additional dividends. This is not always
possible, and transmission of redemption proceeds may be delayed. Payment will
normally be made by check or bank transfer. Shares do not earn dividends on the
day a redemption is effected regardless of the time the order is received.

6
<PAGE> 29

WRITTEN AND TELEPHONE REDEMPTION REQUESTS. The Fund strongly suggests (but does
not require) that each redemption, written or by telephone, be at least $1,000,
except for redemptions which are intended to liquidate the account. A
shareholder will be charged $2 for redemption checks issued for less than $100.
Upon request, redemptions will be made by bank wire, however, wire redemptions
of less than $10,000 will be charged a fee (currently $10). The Fund assumes 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 could cause such a delay. If the Fund has previously been advised in
writing of your brokerage or bank account, telephone requests will be accepted
by calling 800-297-7378. 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 on the 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 send a written request to the Firm with signature(s) guaranteed as
described below. Other redemption orders must be in writing with the necessary
signature(s) guaranteed by a domestic commercial bank; a domestic trust company;
a domestic savings bank, credit union or savings association; or a member firm
of a national securities exchange. Guarantees from notaries public are
unacceptable. The Fund will waive the signature guarantee requirement on a
redemption request once every thirty (30) days if ALL of the following
conditions apply: if the redemption check is (1) for $5,000 or less; (2) payable
to the shareholder(s) of record; and (3) 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.

CHECKING. The Funds offer a comprehensive package of services which enhance
access to your account. By completing the Application or a signature card (for
existing accounts) and certain other documentation if the owner of record is a
fiduciary, corporation, partnership, trust or other organization, you can write
checks in any amount against your account. Redemptions by check lengthen the
time your money earns dividends, since redemptions are not made until the check
is processed by the Fund. Because of this, you cannot write a check to
completely liquidate your account, nor may a check be presented for
certification or immediate payment. Otherwise, you may use your Reserve checking
account as you would any checking account. Your checks will be returned
(bounced) and a fee charged if they are postdated, contain an irregularity in
the signature, amount or otherwise, or are written against accounts with
insufficient funds. All transaction activity, including check redemptions, will
be reported on your account statement. A fee will be charged for providing check
copies. Upon proper notice, the Fund may choose to impose a fee if it deems a
shareholder's actions to be burdensome. Checking may not be available to clients
of some Firms and a Firm may establish its own minimum check amount. For more
information call 800-637-1700.

STOP PAYMENTS. The Fund will honor stop payment requests on unpaid shareholder
checks provided it is advised of the correct check number, payee, check amount
and date. Stop payment requests received by the Fund by 2:00 PM (New York time)
in proper form will be effective the next Business Day. Oral stop payment
requests are effective for fourteen (14) calendar days, at which time they will
be canceled unless confirmed in writing. Written stop payment requests remain in
effect for one year. A fee will be charged for this service.

AUTOMATIC WITHDRAWAL PLANS. If you have an account with a balance of at least
$15,000, you may, upon written notice, 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, modify or terminate any Automatic Withdrawal Plan at any
time after the participant has been duly notified. This privilege may be
available subject to conditions or limitations.

AUTOMATIC TRANSFER PLANS. You may redeem shares of the Fund (minimum $100)
without charge by telephone if you have filed a separate 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 (2) Business Days after
receipt of the redemption

7
<PAGE> 30

request. The Fund may, in the future, impose a charge, 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 (7) days only (a) when the NYSE is closed (other
than for customary closings), (b) when, as determined by the 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
permit. If shares of the Fund are purchased by check or 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 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 (2) Business Days after the purchase.

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 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, a corresponding charge will be made against the account. The
Funds will not accept purchase orders for accounts for which a correct and
certified TIN is not provided or which is not otherwise subject to backup
withholding, except in the case of certain non-resident alien accountholders.

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 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.

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 800-297-7378 and follow the instructions. Clients may also access
full account activity for the previous six months on the Internet at
www.reservefunds.com; however, Internet access may not be available to some
clients of some Firms.

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, copies
of Fund redemption or shareholder checks and special research services.

PERFORMANCE. The Fund may compare its performance to other income-producing
alternatives such as (i) money-market funds (based on yields cited by IBC's
Money Fund Report and other industry publications); and (ii) various bank
products (based on average rates of bank and thrift institution certificates of
deposit, money-market deposit accounts and NOW accounts as reported by the Bank
Rate Monitor and other industry publications). An investment in shares of the
Fund is not insured by the Federal Deposit Insurance Corporation.

Yield information is useful in reviewing the 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.
------------------------

------------------------

8
<PAGE> 31

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and the Board of Trustees of Strategist Money-Market
Fund:

In our opinion, the accompanying statement of net assets and the related
statements of operations and changes in net assets and financial highlights
present fairly, in all material respects, the financial position of Strategist
Money-Market Fund (one of the four series constituting The Reserve Fund) at May
31, 1998, the results of its operations for the year then ended, the changes in
each of its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

PricewaterhouseCoopers LLP

New York, New York

July 24, 1998

THE RESERVE FUND -- STRATEGIST MONEY-MARKET FUND

STATEMENT OF NET ASSETS -- MAY 31, 1998

<TABLE>
<CAPTION>
% DAYS TO VALUE
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT -- 42.80% RATE MATURITY (NOTE 1)
------------------------------------------------- ---- -------- --------
<S> <C> <C> <C>
Crestar Bank................................................ 5.555 36 $ 2,003,394
Chase Manhattan Bank........................................ 5.55 4 2,001,541
Harris Trust and Savings Bank............................... 5.53 11 2,006,452
Mellon Bank, N.A. .......................................... 5.57 3 3,027,850
SouthTrust Bank of Alabama, N.A. ........................... 5.57 36 2,008,046
ABN-AMRO Bank N.V. (a)...................................... 5.53 15 2,005,837
BHF Bank AG (b)............................................. 5.55 29 2,001,542
Canadian Imperial Bank of Commerce (b)...................... 5.535 23 2,003,382
Deutsche Bank AG (a)........................................ 5.54 19 2,004,001
Dresdner Bank AG (b)........................................ 5.54 29 2,001,231
Westdeutsche Landesbank Girozentrale (b).................... 5.57 36 3,018,103
-----------
Total Negotiable Bank Certificates of Deposit -- (Cost
$24,000,000).............................................. 24,081,379
PROMISSORY NOTES -- 10.64%
- ------------------------------------------------------------
Commerzbank U.S. Finance, Inc. (c).......................... 5.51 22 1,993,572
Hypo U.S. Finance, Inc. (c)................................. 5.505 8 1,997,859
Societe Generale North America, Inc. (c).................... 5.50 17 1,995,111
-----------
Total Promissory Notes -- (Cost $5,971,253)................. 5,986,542
REPURCHASE AGREEMENTS -- 45.34%
- ------------------------------------------------------------
GNMA 6.875%-8% due from 3/20/21 to 1/15/36 (Repo with Bear,
Stearns & Co. Inc. dated May 29, 1998, resale amount
$13,006,099).............................................. 5.63 1 13,006,099
FNAR due 4/1/34 (Repo with DLJ Securities Corporation dated
May 29, 1998, resale amount $12,505,865).................. 5.63 1 12,505,865
-----------
Total Repurchase Agreements -- (Cost $25,500,000)........... 25,511,964
-----------
Total Strategist Fund Investments -- (98.78%) (Cost
$55,471,253).............................................. 55,579,885
Other assets, less liabilities -- (1.22%)................... 688,903
-----------
NET ASSETS (100%) equivalent to $1.00 net asset value,
offering and redemption prices per share based on
56,268,788 shares of beneficial interest $.001 par value
outstanding............................................... $56,268,788
===========
</TABLE>

- ---------------
(a) Eurodollar Certificates of Deposit -- London Branch, United Kingdom.
(b) Yankee Certificates of Deposit.
(c) Collateralized by Bank Letter of Credit.

FNAR -- FNMA Adjustable Rate Mortgage-Backed Pass-Through Securities

GNMA -- Government National Mortgage Association Mortgage-Backed
Pass-Through Securities

SEE NOTES TO FINANCIAL STATEMENTS.

9
<PAGE> 32

THE RESERVE FUND -- STRATEGIST MONEY-MARKET FUND

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
MAY 31, 1998
------------
<S> <C>
INTEREST INCOME (Note 1).................................... $4,264,971
----------
EXPENSES (Note 2)
Comprehensive fee......................................... 605,330
Less: voluntary waiver.................................... (354,118)
----------
Net Expenses.............................................. 251,212
----------
NET INVESTMENT INCOME....................................... $4,013,759
==========
</TABLE>

THE RESERVE FUND -- STRATEGIST MONEY-MARKET FUND

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT
OPERATIONS:
Net investment income paid to shareholders as dividends
(Note 1)................................................ $ (4,013,759) $ (2,656,398)
------------- ------------
FROM CAPITAL SHARE TRANSACTIONS (at net asset value of $1
per share):
Net proceeds from the sale of shares.................... 129,839,697 185,017,047
Net asset value of shares issued on reinvestment of
dividends.............................................. 4,013,759 2,656,398
------------- ------------
Subtotal.............................................. 133,853,456 187,673,445
Cost of shares redeemed............................... (177,288,649) (88,979,109)
------------- ------------
Net increase (decrease) in net assets derived from
capital share transactions and from investment
operations............................................. (43,435,193) 98,694,336
NET ASSETS:
Beginning of year......................................... 99,703,981 1,009,645
------------- ------------
End of year............................................... $ 56,268,788 $ 99,703,981
============= ============
</TABLE>

10
<PAGE> 33

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.

F. The Fund may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Fund Investment Adviser, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. However, in the event of default or bankruptcy by the seller,
realization and/or retention of the collateral may be subject to legal
proceedings.

G. 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.

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, 1998 RMCI waived
$354,118 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, 1998, all distribution fees were waived which amounted to
$151,808.

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 May 31, 1998, the Strategist Money Market Fund's net assets consisted of
$56,269 par value and $56,212,518 paid-in-capital.

---------------------

FEDERAL TAX INFORMATION - (UNAUDITED)

The dividends distributed by Strategist Money Market Fund are treated for
Federal tax purposes as ordinary income.

11
<PAGE> 34

[CAPTION]

<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PAGE
---
<S> <C>
Shareholder Expenses............................ 2
Yield........................................... 3
Investment Objective and Policies............... 3
Management...................................... 4
How to Buy Shares............................... 5
Shares of Beneficial Interest................... 5
Daily Dividends................................. 6
Taxes........................................... 6
Redemptions..................................... 6
General Information............................. 8
Report of Independent Accountants............... 9
Financial Statements............................ 9

Investors are advised to read and retain
this Prospectus for future reference.
</TABLE>

GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
800-297-7378 M www.reservefunds.com

Distribution -- Resrv Partners, Inc.

RF/STR 7/98

(logo)
American Express
Financial Direct

American Express
Money Market Acocunts
- ------------------------

Strategist
Money Market
Fund

offered by
The Reserve Funds

<PAGE> 35
THE RESERVE FUND
"AMERICA'S FIRST MONEY FUND"
810 SEVENTH AVENUE - NEW YORK, NY 10019-5868
212-977-9982 - 800-637-1700

--------------------------------------------

24-HOUR YIELD AND BALANCE INFORMATION
NATIONWIDE 800-637-1700 - www.reservefunds.com

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information ("SAI") describes The Reserve
Fund ("Fund") and three of its four Funds: the Primary Fund, the U.S. Government
Fund, and the U.S. Treasury Fund (each a "Fund", together the "Funds". The
Primary, U.S. Government, and the U.S. Treasury Funds are hereinafter referred
to as the "Primary, Government and Treasury Fund", respectively). This Statement
is not a Prospectus, but provides detailed information to supplement the
Prospectus dated July 31, 1998 and should be read in conjunction with it. A copy
of the Prospectus may be obtained without charge by writing or calling the Fund
at the above address or telephone number. The Securities and Exchange Commission
("SEC") maintains a web site (http://www.sec.gov) that contains the SAI, the
Prospectus, material incorporated by reference & other information regarding the
Fund electronically filed with the SEC. This Statement is dated July 31, 1998.

TABLE OF CONTENTS PAGE

Investment Objective and Policies...................
Trustees and Executive Officers.....................
Investment Management, Distribution, and Custodian
Agreements........................................
Portfolio Turnover, Transaction Charges and
Allocation........................................
Shares of Beneficial Interest.......................
Purchase, Redemption and Pricing of Shares..........
Distributions and Taxes.............................
Fund Yield..........................................
Reserve Cash Performance Account....................
Ratings.............................................
Financial Statements................................
Report of Independent Accountants...................

SHARES OF THE FUNDS ARE NEITHER GUARANTEED NOR INSURED BY THE U.S. GOVERNMENT
AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
<PAGE> 36
INVESTMENT OBJECTIVE AND POLICIES

The primary investment objective of each Fund is to seek as high a level
of current income as is consistent with preservation of capital and liquidity.

SUPPLEMENTAL INVESTMENT POLICIES. Each Funds investment objective and the
following investment policies may not be changed without the affirmative vote of
a majority of the outstanding shares of a Fund. A majority of the outstanding
shares of a Fund means the vote of the lesser of (i) 67% or more of the shares
of a Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. A Fund cannot:

(1) borrow money except as a temporary or emergency measure and not in an
amount to exceed 5% of the market value of its total assets;

(2) issue securities senior to its capital stock;

(3) act as an underwriter with respect to the securities of others;

(4) concentrate investments in any particular industry except to the extent
that its investments are concentrated exclusively in U.S. government
securities 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 except 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 ("1940 Act");

(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 1940 Act.

OTHER POLICIES. The Primary and U.S. Government Funds may, to increase their
income, lend their securities to brokers, dealers and institutional investors if
the loan is collateralized in accordance with applicable regulatory requirements
(the "Guidelines") and if, after any loan, the value of the securities loaned
does not exceed 25% of the value of its assets. Under the present Guidelines,
the loan collateral must be, on each Business Day, at least equal the value of
the loaned securities plus accrued interest and must consist of cash, or
securities of the U.S. government (or its agencies or instrumentalities). The
Funds receive an amount equal to the interest on loaned securities and also
receive negotiated loan fees, interest on securities used as collateral or
interest on short-term debt securities purchased with such collateral, either of
which type of interest may be shared with the borrower. The Funds may also pay
reasonable finders, custodian and administrative fees. Loan arrangements made by
a Fund will comply with all other applicable regulatory requirements including
the rules of the New York Stock Exchange ("NYSE"), which require the borrower,
after notice, to redeliver the securities within the normal settlement time of
three (3) Business Days. While voting rights may pass with the loaned
securities, if a material event occurs affecting an investment on loan, the loan
must be called and the securities voted.

The Primary Fund may purchase corporate notes collateralized by a bank
letter of credit or securities of the U.S. government, its agencies or
instrumentalities and if rated A-1 and P-1 by Standard & Poor's Corporation
("S&P") and Moody's Investors Service, Inc. Moody's, respectively, or the
equivalent thereof if rated by another ratings agency. The collateral consists
of U.S. government securities having a current market value in excess of the
collateralized commercial paper outstanding. A Trustee is usually appointed by
the collateralized commercial paper issuer to hold the collateral and administer
the credit agreement for the benefit of the holders.

The Primary Fund may invest in bank obligations which include certificates
of deposit, bankers' acceptances, letters of credit and time deposits. A
certificate of deposit is a negotiable certificate representing a financial
institution's obligation to repay funds deposited with it, earning a specified
rate of interest over a given period. A bankers' acceptance is a negotiable
obligation of a bank to pay a draft which has been drawn on it by a
<PAGE> 37
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.

REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. A repurchase agreement transaction
occurs when the Fund purchases and simultaneously contracts to resell securities
at fixed prices determined by the negotiated yields. Each Fund will limit
repurchase agreement transactions to those domestic financial institutions and
securities dealers who are deemed credit-worthy pursuant to guidelines
established by the Funds' 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 Fund 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 Fund 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 with a term greater than seven (7) days.

The Primary Fund and U.S. Government 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 EXECUTIVE OFFICERS

++BRUCE R. BENT, 61, President, Treasurer and Trustee, 810 Seventh Avenue,
New York, NY 10019-5868.

Mr. Bent is President, Treasurer, and Trustee of The Reserve Funds ("RF"),
Reserve Institutional Trust ("RIT"), Reserve Tax-Exempt Trust ("RTET"), Reserve
New York Tax-Exempt Trust ("RNYTET") and Reserve Private Equity Series ("RPES");
Director, Vice President and Secretary of Reserve Management Company, Inc.
("RMCI") and Reserve Management Corporation ("RMC"); and Chairman and Director
of Resrv Partners, Inc. ("RESRV").

+EDWIN EHLERT, JR., 67, Trustee, 125 Elm Street, Westfield, NJ 07091.

Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency) and Ehlert Travel Associates of Florida, Inc. (travel agency),
and Trustee of RF, RIT, RTET, RNYTET, and RPES.

+HENRI W. EMMET, 72, Trustee, 1535 Presidential Drive, Apt. 4A, Columbus,
OH 43212.

Mr. Emmet retired as the Managing Director of Servus Associates, Inc. in
1994, and U.S.A. Representative of the First National Bank of Southern Africa in
1996. Since 1995, Mr. Emmet has served as Principal of Global Interaction, which
provides consulting services to international banking interests. He is currently
Trustee of RF, RIT, RTET, RNYTET, and RPES.

+DONALD J. HARRINGTON, C.M., 53, Trustee, St. John's University, Jamaica,
NY 11439.

The Reverend Harrington is President of St. John's University, NY, a
Trustee of RF, RIT, RTET, RNYTET and RPES and a Director of Bear Stearns
Companies, Inc. since 1993.
<PAGE> 38
BRUCE R. BENT II, 32, Senior Vice President and Assistant Secretary, 810
Seventh Avenue, New York, NY 10019-5868.

Mr. Bent II joined The Reserve Funds in 1992 and is Senior Vice President
and Assistant Secretary of RF, RIT, RNYTET, RTET and RPES.

MARYKATHLEEN FOYNES, 28, Counsel and Secretary, 810 Seventh Avenue, New
York, NY 10019-5858.

Ms. Foynes is Counsel and Secretary of RF, RIT, RTET, RNYTET, and RPES.
Before joining The Reserve Funds in 1998, Ms. Foynes was a staff attorney at
PaineWebber, Inc.

PAT A. COLLETTI, 39, Controller, 810 Seventh Avenue, New York, NY
10019-5868.

Mr. Colletti has been Controller of RF, RIT, RTET, RNYTET since 1989 and
RPES since 1994.
- ------------
+Messrs. Ehlert, Emmet and Harrington are members of a Review Committee which
performs the functions of an Audit Committee and reviews compliance procedures
and practices.

++Interested Trustee within the meaning of the Investment Company Act of 1940.
The members of the Board of Trustees who are not Interested Trustees will be
paid a stipend of $3,500 for each joint Board meeting that they attend and an
annual fee of $16,000 for service to all of the trusts in the complex.

Under the Declaration of Trust, the Trustees and officers are entitled to be
indemnified by the Trust to the fullest extent permitted by law against all
liabilities and expenses reasonably incurred by them in connection with any
claim, suit or judgment or other liability of obligation of any kind in which
they become involved by virtue of their service as a Trustee or officer of the
Trust, except liabilities incurred by reason of their willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office.

As of May 31, 1998, Trustees and officers directly or indirectly as a group
owned less than 1% of the outstanding shares of the Funds. The Trust does not
pay any pension or retirement benefits.

COMPENSATION TABLE
FOR FISCAL YEAR ENDED MAY 31, 1998

<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND FUND COMPLEX
NAME OF TRUSTEE, POSITION FROM FUNDS (4 ADDITIONAL TRUSTS) PAID
TO TRUSTEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Bruce R. Bent, President and Trustee $0 $0
Edwin Ehlert, Jr., Trustee $14,498 $30,000
Henri W. Emmet, Trustee $14,498 $30,000
Rev. Donald J. Harrington, Trustee $14,498 $30,000
</TABLE>

The following executive officers of the Fund had allocated cash remuneration in
excess of $60,000 during the last fiscal year ending May 31, 1998 for services
rendered to the Fund.

<TABLE>
<CAPTION>
ESTIMATED ANNUAL
AGGREGATE BENEFITS UPON
NAME CAPACITY REMUNERATION RETIREMENT
- ---- -------- ------------ ----------
<S> <C> <C> <C>
Bruce R. Bent President $256,555 $150,000
Pat A. Colletti Controller $ 98,675 $ 60,000
</TABLE>
<PAGE> 39
INVESTMENT MANAGEMENT, DISTRIBUTION
AND CUSTODIAN AGREEMENTS

INVESTMENT MANAGEMENT AGREEMENT. Reserve Management Company, Inc. ("RMCI" or
"Adviser"), 14 Locust Place, Manhasset, NY 11030, a registered investment
adviser, manages the Funds and provides them with investment advice. Under the
Investment Management Agreement, RMCI manages the Funds' investments, including
effecting purchases and sales thereof, in furtherance of each Funds' investment
objective and policies, subject to overall control and direction of the
Trustees. RMCI also makes promotional and advertising expenditures related to
the sale of the Funds' shares (paying for prospectuses distributed to potential
investors and for other sales literature, but not paying for prospectuses
distributed to current shareholders, distribution assistance payments paid by
the Funds, or registration fees and expenses).

For these services, the Primary and Government Funds periodically pay RMCI
a management fee at the annual rate of 0.50% of the first $500 million of
average daily net assets, 0.475% of the next $500 million of such assets, 0.45%
of the next $500 million of such assets, 0.425% per annum of the next $500
million of such assets, and 0.40% of such assets in excess of $2 billion. For
the fiscal years ended May 31, 1996, 1997 and 1998, RMCI received management
fees of $8,120,156, $8,976,244 and $10,995,380 respectively, from the Primary
Fund and $3,471,243, $2,858,951 and $3,181,655, respectively, from the U.S.
Government Fund.

Under the terms of the Investment Management Agreement with the Treasury
Fund, RMCI also pays all employee costs and ordinary operating costs of the
Fund. For these services the Treasury Fund periodically pays RMCI a
comprehensive management fee at an annual rate of 0.80% of average daily net
assets. For the fiscal year ended May 31, 1996, 1997 and 1998 RMCI received a
comprehensive management fee of $719,287, $988,183 and $1,329,283, respectively
which reflects a waiver of 0.20% of average daily net assets.

From time to time, RMCI may waive receipt of its fees and/or voluntarily
assume certain expenses of a fund which would have the effect of lowering the
Fund expense ratio and increasing yield to investors at the time such amounts
are assumed or waived, as the case may be. RMCI may also make such advertising
and promotional expenditures, using its own resources, as it from time to time
deems appropriate.

The Investment Management Agreements for the Primary and U.S. Government
Funds were duly approved by shareholders in 1986, and may be renewed annually if
specifically approved by the Board of Trustees and by the vote of a majority of
the Trustees who are not "interested persons" ("disinterested Trustees") cast in
person at a meeting called for the purpose of voting on such renewal. The
Investment Management Agreement for the Treasury Fund was duly approved by
shareholders in 1993 and may be renewed annually if specifically approved by the
Board of Trustees and by the vote of a majority of the disinterested Trustees
cast in person at a meeting called for the purpose of voting on such renewal.
The Agreements terminate automatically upon their assignment and may be
terminated without penalty upon 60 days' written notice by a vote of the Board
of Trustees or by vote of a majority of outstanding voting shares of a Fund or
by RMCI.

Pursuant to the Service Agreement (see Service Agreement in the
Prospectus), during the fiscal year ended May 31, 1998 the Primary Fund
reimbursed RMCI $7,511,553 and the U.S. Government Fund reimbursed RMCI
$2,011,920 for expenses. For the fiscal years ended May 31, 1996 and 1997, RMCI
was reimbursed $5,794,060 and 6,616,435 by the Primary Fund and $2,210,243 and
1,778,491 by the U.S. Government Fund for expenses, respectively.

EXPENSE LIMITATION. The Investment Management Agreements for the Primary and
U.S. Government Funds provide that RMCI will reimburse the Funds for the amount
by which their costs and expenses paid by RMCI (exclusive of brokerage fees and
commissions, interest, taxes and extraordinary legal fees and expenses) exceed
1% of its average daily closing net assets.

DISTRIBUTION AGREEMENT. The Fund's Distributors are Pacific Global Fund
Distributors, Incorporated ("PGFDI"); 206 North Jackson Street, Suite 201,
Glendale, California 91206; NWNL Northstar Distributors ("NWNL") Two Pickwick
Plaza, Greenwich, Connecticut 06830 and Resrv Partners, Inc. ("RESRV"), 810
Seventh
<PAGE> 40
Avenue, New York, NY 10019-5968. The Fund has authorized the Distributors, in
connection with their sale of Fund shares, to give only such information and to
make only such statements and representations as are contained in the
Prospectus. Sales may be made only by the Prospectus. The Distributors may offer
and sell shares of the Fund pursuant to a separate Prospectus applicable to such
Distributor. The Distributors are "principal underwriters" for the Funds within
the meaning of the Investment Company Act of 1940, and as such act as agent in
arranging for the continuous offering of Fund shares. The Distributors have the
right to enter into selected dealer agreements with brokers or other persons of
their choice for the sale of Fund shares. Parties to selected dealer agreements
may receive assistance payments, if they qualify for such payments, under the
Plan of Distribution described below. PGFDI's NWNL's and 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 four fiscal
years. During the fiscal year ended May 31, 1998, no distribution assistance
payments were made to PGFDI, NWNL or RESRV.

The Distribution Agreements may be renewed annually if specifically
approved by the Board of Trustees, and by the vote of a majority of the
disinterested Trustees cast in person at a meeting called for the purpose of
voting on such approval or by the vote of a majority of the outstanding voting
securities of the Fund.

PLAN OF DISTRIBUTION. The Fund maintains a Plan of Distribution ("Plan") and
related agreements, as amended, under Rule 12b-1 of the Investment Company Act
of 1940, which provides that investment companies may pay distribution expenses,
directly or indirectly, pursuant to a Plan adopted by the investment company's
Board and approved by its shareholders. Under the Plan, each Fund makes
assistance payments to brokers, financial institutions and other financial
intermediaries ("Firms") for shareholder accounts ("qualified accounts") at an
annual rate of 0.20 % of the average daily NAV of all Firms' qualified accounts.
Such distribution assistance may include, but is 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 amounts required by the Plan, RMCI may, at 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 Firm
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 and RESRV and RMCI 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.
<PAGE> 41
Under the Plan, the Fund's Controller or Treasurer reports quarterly the
amounts and purposes of assistance payments. During the continuance of the Plan
the selection and nomination of the disinterested Trustees are at the discretion
of the disinterested Trustees currently in office.

During the fiscal year ended May 31, 1998, $4,365,202 was paid under the
Plan by the Primary Fund, $1,188,306 was paid under the Plan by the U.S.
Government Fund and $ 381,997 was paid under the Plan by the Treasury Fund. Any
such payments are intended to benefit the Fund by maintaining or increasing net
assets to permit economies of scale in providing services to shareholders and to
contribute to the stability of such shareholder services. During the fiscal year
ended May 31, 1998, substantially all payments made by the Fund were to brokers
or other financial institutions and intermediaries for share balances in the
Fund.

The Plan and related agreements were duly approved by shareholders and may
be terminated at any time by a vote of the 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 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.

CUSTODIAL SERVICES AND INDEPENDENT ACCOUNTANT. The Chase Manhattan Bank, 4 New
York Plaza, New York, NY 10004 is Custodian of the Fund's securities and cash
pursuant to a Custodian Agreement. The Bank of New York, 48 Wall Street, New
York, NY 10015; and Custodial Trust Company, 28 West State Street, Trenton, NJ
08608 are Custodians for the Fund for limited purposes in connection with
certain repurchase agreements. PricewaterhouseCoopers, LLP, 1301 Avenue of the
Americas, New York, NY 10019 is the Fund's independent accountant.

PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION

As investment securities transactions made by the Fund are normally
principal transactions at net prices, the Fund does not normally incur brokerage
commissions. Purchases of securities from underwriters involve a commission or
concession paid by the issuer to the underwriter and aftermarket transactions
with dealers involve a spread between the bid and asked prices. The 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 ("NAV") 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 be neither a qualifying nor 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.
<PAGE> 42
SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trust 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 classes
would be comparable, unless otherwise required, to respond to the particular
situation. Upon liquidation of any Fund, shareholders are entitled to share, pro
rata, in the net assets of their respective Funds 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 one class
of shares be insufficient to satisfy its liabilities, the assets of another
class could be subject 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, non-assessable (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 Funds,
equal rights to all dividends and other distributions, and one vote for all
purposes. Shares of all classes vote together for the election of Trustees and
have noncumulative voting rights, meaning that the holders of more than 50% of
the shares voting for the election of Trustees could elect all Trustees if they
so choose, and in such event the holders of the remaining shares could not elect
any person to the Board of Trustees.

Under Massachusetts law, the shareholders and trustees of a business trust
can be personally liable for the Funds' obligations unless, as in this instance,
the Declaration of Trust provides, in substance, that no shareholder or trustee
shall be personally liable for the Fund's, and each investment portfolio's,
obligations to third parties, and requires that every written contract made by a
Fund contain a provision to that effect. The Declaration of Trust also requires
the Fund to indemnify its shareholders and Trustees against such liabilities and
any related claims or expenses.

The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law; but nothing in the
Declaration protects a Trustee against any liability to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.

SEC regulations 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 on such matters as approval of
the Investment Management Agreement, material amendments to the Plan of
Distribution, and changes in the fundamental policies of the Fund. These items
require approval by a majority of the affected shareholders. For this purpose a
"majority" is constituted by either 50 percent of all shares voting as a group
or 67 percent of the shares voted as a group at an annual meeting of
shareholders at which at least 50 percent of the shares of each group are
represented.

As of June 30, 1998, no person was known by the Fund to own of record or
beneficially 5% or more of the outstanding shares of the Fund.
<PAGE> 43
PURCHASE, REDEMPTION AND PRICING OF SHARES

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.

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 MAY BE UP TO 10 BUSINESS DAYS.

NET ASSET VALUE. Shares are offered at their NAV which is calculated at the
close of each Business Day as defined in the Prospectus. The NAV is not
calculated on New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Columbus Day,
Veterans Day, Thanksgiving Day, Christmas Day, on other days the New York Stock
Exchange ("NYSE") is closed for trading, and on certain regional banking
holidays. The NAV of each Fund is normally maintained at $1.00 per share. Each
Fund cannot guarantee that its net asset value will always remain at $1.00 per
share.

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 NAV 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 1940 Act unless withdrawal is permitted by
order of the SEC. 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 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 NAV of the redemption.

The NAV per share of each Fund is determined by adding the value of all
of the Fund's securities, cash and other assets, subtracting its liabilities,
and dividing the result by the number of its shares outstanding. The Board
of Trustees have 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 the Fund's 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 NAV of a Fund from
$1.00 a share determined by valuing its assets at amortized cost as opposed to
valuing them based on market factors. If the deviation exceeds 1/2 of one
percent, the Trustees will promptly consider what action if any should be
initiated. If they believe that the deviation may result in material dilution or
other unfair results to shareholders, the Trustees have undertaken to apply
appropriate corrective remedies which may include the sale of a Fund asset prior
to maturity to realize capital gains or losses or to shorten the average
maturity of the Fund, withholding dividends, redemption of shares of the Fund in
kind, or reverting to valuation based upon market prices and estimates.
<PAGE> 44
EXCHANGE PRIVILEGE. A shareholder of the Funds may exchange shares at net asset
value with all Reserve Money-Market Funds. A shareholder of the Funds may also
exchange shares for shares of The Reserve Private Equity Series, the Pacific
Advisors Fund Inc. and the NWNL/Northstar Series Trust and their respective
portfolios. This exchange privilege may not be available to clients of certain
firms. A sales load will be charged on such an exchange unless a waiver of the
sales load applies. A shareholder may qualify for waiver of the sales load if
the shares of the Fund which are being exchanged were acquired: (a) by a
previous exchange for shares purchased with a sales load, or (b) through
reinvestment of dividends or distributions paid with respect to the foregoing
category of shares. A shareholder of Pacific Advisors or the Northstar Series
may exchange, shares for shares of the Primary Portfolio of the Fund only.
Shares to be acquired in an exchange must be registered for sale in the
investor's state. The Fund reserves the right to record all exchange requests.

The exchange privilege may be modified or terminated at any time, or from
time to time, upon 60 days' notice to shareholders. Additional information
regarding the Pacific Advisors Fund exchange privilege is available from the
Pacific Advisors Fund at 800-282-6693 or any authorized firm. Additional
information regarding the NWNL/Northstar Series Trust is available from the
NWNL/Northstar Series Trust at 203-863-6200 or 800-595-7827 or any authorized
firm.

SHAREHOLDER SERVICE POLICIES. The Fund's policies concerning the shareholder
services are subject to change from time to time. The Fund reserves the right to
change the $1,000 minimum account size subject to the $5 monthly service charge
or involuntary redemption. The Fund further reserves the right to impose special
service charges for services provided to individual shareholders generally
including, but not limited to, fees for returned checks, stop payment orders on
official checks and shareholder checks, and special research services. The
Fund's standard service charges as described in the Prospectus are also subject
to adjustment from time to time. In addition, the Fund reserves the right to
increase its minimum initial investment amount at any time.

CREDITING OF INVESTMENTS. The Fund will only give credit for investments in the
Fund on the day they become available in federal funds. A Federal Reserve wire
system transfer ("Fed wire") is the only type of wire transfer that is reliably
available in federal funds on the day sent. For a Fed wire to receive same day
credit, the Fund must be notified before 2:00 P.M. (New York time) (11:00 A.M.
New York time for the Treasury Portfolio) of the amount to be transmitted and
the account to be credited. Checks and other items submitted to the Fund for
investment are only accepted when submitted in proper form, denominated in U.S.
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 Fund) 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 PURCHASE MAY BE CANCELED 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, THE INVESTMENT ADVISER OR
THE DISTRIBUTOR.

SHARE CERTIFICATES. Share certificates are not issued by the Fund.
<PAGE> 45
DISTRIBUTIONS AND TAXES

Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended ("the Code"), so
long as such qualification is in the best interests of shareholders. To qualify
as a regulated investment company, each Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income each taxable year.

As a regulated investment company, each Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income and net
capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to shareholders. Each Fund intends
to distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, each Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses for the one-year period ending on
October 31 of the calendar year, and (3) any ordinary income and capital gains
for previous years that was not distributed during those years. A distribution
will be treated as paid on December 31 of the current calendar year if it is
declared by a Fund in October, November or December with a record date in such a
month and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, each Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.

The Treasury Fund intends to invest only in the U.S. Government securities
that provide interest income exempt in many states from state and local personal
income taxes, but may invest up to 5 percent of its assets in repurchase
agreements pending the investment of uninvested cash. Distributions attributable
to net capital gains, if any, are generally subject to state and local taxes. It
is possible that a state or local taxing authority may in the future seek to tax
an investor on a portion of the interest income of an obligation held by the
Treasury Fund.

Dividends paid out of a Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Because no portion of a Fund's
income is expected to consist of dividends paid by U.S. corporations, no portion
of the dividends paid by the Funds is expected to be eligible for the corporate
dividends-received deduction. Distributions of net capital gains, if any,
designated as capital gain dividends are taxable to individual shareholders at
the applicable 20% or 28% capital gains rate, regardless of how long the
shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date. Shareholders will be notified annually as to the U.S. federal
tax status of distributions, and shareholders receiving distributions in the
form of additional shares will receive a report as to the net asset value of
those shares.

Upon the sale or other disposition of shares of a Fund, in the event that the
Fund fails to maintain a constant NAV per share, a shareholder may realize a
capital gain or loss which will be long-term or short-term, generally depending
upon the shareholder's holding period for the shares. Any loss realized on a
sale or exchange will be disallowed to the extent the shares disposed of are
replaced (including shares acquired pursuant to a dividend
<PAGE> 46
reinvestment plan) within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.

Investments by a Fund in zero coupon securities generally will result in
income to the Fund equal to a portion of the excess of the face value of the
securities over their issue price (the "original issue discount") each year that
the securities are held, even though the Fund receives no cash interest
payments.

Gain derived by a Fund from the disposition of any market discount bonds
(i.e., bonds purchased other than at original issue, where the face value of the
bonds exceeds their purchase price) held by the Fund generally will be taxed as
ordinary income to the extent of the accrued market discount on the bonds,
unless the Fund elects to include the market discount in income as it accrues.

Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Primary Fund accrues receivables or liabilities denominated
in a foreign currency, and the time the Primary Fund actually collects such
receivables or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of the Primary Fund's investment company taxable income to
be distributed to its shareholders as ordinary income.

Income received by the Primary Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.

Each Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.

Shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.

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
<PAGE> 47
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 the 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 which have fluctuating share
values, or other investments which pay a fixed yield for a stated period of
time, such as Treasury bills, bank certificates of deposit, savings certificates
and NOW accounts. When making comparisons, the investor should also consider the
quality and maturity of the portfolio securities of the various money-market
funds. An investor's principal is not guaranteed by the Fund, nor is it insured
by a governmental agency.

RESERVE CASH PERFORMANCE ACCOUNT

The Reserve Cash Performance Account ("CPA") provides a comprehensive
package of additional services to investors. Reserve CPA is a check arrangement
where checks are issued to Reserve shareholders which may be used to redeem
shares in the account in any amount. If a bank accepts a check, it will be paid
in the order received by redemption of shares from the investor's Reserve
account. Any check in an amount exceeding the Reserve account balance will be
returned to the payee. Reserve CPA checks can be used in the same manner as any
other bank checks. Paid checks will not be returned but complete information on
such paid checks will be provided monthly.

A VISA Gold Check Card (a debit card) is also available. The VISA card
functions exactly as does a conventional VISA credit card except that the
cardholder's Reserve account is automatically charged for all purchases and cash
advances, thus eliminating the usual monthly finance charges. As with the
checking facility, VISA charges are paid by liquidating shares in The Reserve
Fund account, but any charges that exceed the balance will be rejected. VISA
card issuance is subject to credit approval. Reserve, VISA or the bank may
reject any application for checks or cards and may terminate an account at any
time. Conditions for obtaining a VISA check card may be altered or waived by the
Funds either generally or in specific instances. The checks and VISA cards are
intended to provide investors with easy access to their account balances.

The Funds will charge a nonrefundable annual CPA Plus Service fee
(currently $60 which may be charged to the account at the rate of $5 monthly).
Participants will be charged for specific costs incurred in placing stop payment
orders, obtaining check copies and in processing returned checks. These charges
may be changed at any time upon 30 days' notice. In addition, broker/dealers or
other financial institutions in the CPA program may charge their own service
fees.

VISA cardholders may be liable for the unauthorized use of their card up
to the amount set by governing Federal regulations, currently $500 if the Fund
or the bank is not notified of the theft or loss within two (2) Business Days.
Participants should refer to the VISA Account Shareholder Agreement for complete
information regarding responsibilities and liabilities with respect to the VISA
Gold card. If a card is lost or stolen, the cardholder should report the loss
immediately by telephoning the issuing bank, currently BankOne at 614-248-4242,
which can be reached 24 hours a day, seven (7) 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).

The use of checks and cards by participants will be subject to the terms
of your Reserve CPA Application and VISA Account Shareholder Agreement.
<PAGE> 48
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.

FITCH IBCA. F1: 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 "F1+". Those issues determined to possess and
exceptionally strong credit quality will be denoted with a plus (+) sign
designation. Issues assigned the rating of F1+ are regarded as having the
strongest degree assurance for timely payment.
<PAGE> 49
THE RESERVE FUND-PRIMARY FUND
STATEMENT OF NET ASSETS - MAY 31, 1998

<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- --------
<S> <C> <C> <C>
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT - 55.31%

Chase Manhattan Bank 5.55 4 $130,100,208
Crestar Bank 5.555 36 125,212,170
Harris Trust and Savings Bank 5.53 11 100,322,583
Mellon Bank, N.A. 5.57 3 121,114,000
SouthTrust Bank of Alabama, N.A. 5.57 36 70,281,595
ABN-AMRO Bank N.V. (a) 5.53 15 130,379,420
Banque Nationale de Paris (b) 5.55 8 90,347,049
BHF Bank AG (b) 5.55 29 130,100,208
Canadian Imperial Bank of Commerce (b) 5.535 23 125,211,406
Deutsche Bank AG (a) 5.54 19 100,200,056
Deutsche Bank AG (b) 5.56 9 21,272,329
Dresdner Bank AG (b) 5.54 29 132,081,253
Svenska Handelsbanken (a) 5.535 15 100,292,319
Westdeutsche Landesbank Girozentrale (b) 5.57 36 20,724,100
--------------

Total Negotiable Bank Certificates of Deposit 1,497,638,696

PROMISSORY NOTES 15.44%

Commerzbank U.S. Finance, Inc. (c) 5.51 22 124,598,229
Hypo U.S. Finance, Inc. (c) 5.505 8-15 123,776,283
Societe Generale North America, Inc. (c) 5.50 17 129,682,222
Toronto-Dominion Bank (c) 5.51-5.52 2-8 39,975,506
--------------

Total Promissory Notes 418,032,240

REPURCHASE AGREEMENTS 26.53%

GNMA 6.875%-8.50% due from 12/15/22 to 8/15/27 and U.S.
Treasury Bond 6.50% due 11/15/26 (Repo with Bear, Stearns &
Co. Inc. dated May 29, 1998, resale amount $300,140,750) 5.63 1 300,140,750

FGPC 7%-8.50% due from 6/1/25 to 1/1/28, FMAR due 2/1/37, FNAR
due 7/1/34 and FNMS 6%-8% due from 2/1/12 to 11/1/27 (Repo
with DLJ Securities Corporation dated May 29, 1998, resale
amount $164,076,943) 5.63 1 164,076,943

FNDN due 6/10/98 and TPRN due 5/15/17 (Repo with Prudential
Securities Inc. dated May 29, 1998, resale amount $14,006,487) 5.56 1 14,006,487

FRRM 6.50% due 5/15/28 and GNMA 5%-10% due from
10/15/01 to 5/20/28 (Repo with Salomon Smith Barney
Inc. dated May 29, 1998, resale amount $240,112,800) 5.64 1 240,112,800
--------------

Total Repurchase Agreements 718,336,980

</TABLE>
<PAGE> 50

THE RESERVE FUND-PRIMARY FUND
STATEMENT OF NET ASSETS - MAY 31, 1998 - (CONTINUED)

<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- --------
<S> <C> <C> <C>
TAXABLE MUNICIPAL BONDS - 2.60%

Florida Housing Finance Agency Housing Revenue
Bonds 1993 Series A (d) 5.59 7 $ 40,192,311
Illinois Student Assistance (d) 5.56 7 25,220,027
New Hampshire Business Finance Authority
Revenue Bonds 1992 Series B (d) 5.85 7 5,020,313
-----------------

Total Taxable Municipal Bonds 70,432,651
-----------------

Total Primary Fund Investments -
(99.88%) (Cost $2,698,016,627) 2,704,440,567
Other assets, less liabilities - (.12%) 3,179,496
-----------------

NET ASSETS (100%) equivalent to $1.00 net
asset value, offering and redemption price
per share based on 2,707,620,063 shares of
beneficial interest $.001 par value
outstanding $2,707,620,063
=================
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 51
THE RESERVE FUND - U.S. GOVERNMENT FUND
STATEMENT OF NET ASSETS - MAY 31, 1998

<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- --------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS - 99.72%

GNMA 5%-8.50% due from 2/15/08 to
3/20/28 (Repos with Bear, Stearns &
Co. Inc. dated May 21, 1998,
resale amount $148,271,333) 5.50 10 $148,248,722

GNMA 5.50%-15% due from 12/15/99 to
4/15/38 (Repo with DLJ Securities
Corporation dated May 29, 1988,
resale amount $177,082,895) 5.62 1 177,082,895

GNMA 4.50%-8.50% due from 4/15/07 to
5/20/28 (Repos with Prudential Securities Inc.
dated May 29, 1998, resale amount $170,079,355) 5.55-5.61 1 170,079,355

GNMA 4.50%-10% due from 7/15/01 to
5/15/28 (Repo with Salomon Smith Barney
Inc. dated May 21, 1998, resale amount
$155,284,167) 5.50 1 155,260,486
-----------

Total U.S. Government Fund Investments -
(99.72%) (Cost $650,000,000) 650,671,458

Other assets, less liabilities - (.28%) 1,796,164
---------
NET ASSETS (100%) equivalent to $1.00
net asset value, offering and redemption
prices per share based on 652,467,622
shares of beneficial interest $.001 par
value outstanding $652,467,622
============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 52
THE RESERVE FUND - U.S. TREASURY FUND
STATEMENT OF NET ASSETS - MAY 31, 1998

<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- --------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES - 99.68%

U.S. Treasury Bills 4.95 - 5.15 4 - 137 $214,974,692
U.S. Treasury Notes 4.75 - 5.25 61 - 92 24,018,004
------------
Total U.S. Treasury Fund Investments
Cost $237,407,250) 238,992,696

Other assets, less liabilities - (.32%) 767,597
------------
Net assets (100%) equivalent to $1.00 net
asset value, offering and redemption
prices per share based on 239,760,293 shares of
beneficial interest $.001 par value
outstanding $239,760,293
============
</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, 1998. Securities payable on demand are collateralized
by bank letter of credit, other bank credit agreements or financial
guaranty assurance agencies.

GLOSSARY

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
FMAR = FHLMC Adjustable Rate Mortgage-Backed Pass-Through
Participation Certificates
FNAR = FNMA Adjustable Rate Mortgage-Backed Pass-Through Securities
FNDN = FNMA - Discount Note
FRRM = FHLMC REMIC
TPRN = U.S. Treasury Strip - Principal

SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 53
THE RESERVE FUND - STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31, 1998

<TABLE>
<CAPTION>
U.S.
PRIMARY GOVERNMENT U.S. TREASURY
FUND FUND FUND
------------- ------------- -------------

<S> <C> <C> <C>
INTEREST INCOME (Note 1) $ 138,103,637 $ 36,079,602 $ 11,620,213
------------- ------------- -------------

EXPENSES (Note 2)
Management fee 10,995,380 3,181,655 --
Comprehensive fee -- -- 1,772,390
Shareholder servicing, administration
and general office expenses 4,824,126 1,402,039 --
Distribution assistance (Note 3) 4,365,202 1,188,306 381,997
Equipment expense 1,312,919 193,605 --
Professional fees 446,106 116,148 --
Occupancy costs 222,490 66,069 --
Stationery, printing and supplies 339,379 101,255 --
Trustee fees 38,865 11,722 --
Other expenses 327,669 121,082 --
------------- ------------- -------------
Total Expenses 22,872,136 6,381,881 2,154,387
Less: voluntary waiver -- -- (443,107)
------------- ------------- -------------
Net Expenses 22,872,136 6,381,881 1,711,280
------------- ------------- -------------

NET INVESTMENT INCOME $ 115,231,501 $ 29,697,721 $ 9,908,933
============= ============= =============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 54
THE RESERVE FUND - STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
PRIMARY FUND U.S. GOVERNMENT FUND
------------------------------------- -----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997 MAY 31, 1998 MAY 31, 1997
---------------- ----------------- --------------- ----------------

<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income paid to
shareholders as dividends (Note 1) $ (115,231,501) $ (86,925,147) $ (29,697,721) $ (25,382,282)
---------------- ----------------- --------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS
(at net asset value of $1 per share):
Net proceeds from the sale of shares 11,543,024,341 8,848,392,468 3,252,798,210 2,757,510,343
Net asset value of shares issued
on reinvestment of dividends 115,231,501 86,925,147 29,697,721 25,382,282
--------------- ----------------- -------------- ---------------

Subtotal 11,658,255,842 8,935,317,615 3,282,495,931 2,782,892,625
Cost of shares redeemed (11,054,744,831) (8,495,322,653) (3,241,872,625) (2,739,545,482)
--------------- -------------- -------------- --------------
Net increase derived from capital
share transactions and from investment operations 603,511,011 439,994,962 40,623,306 43,347,143

NET ASSETS:
Beginning of year 2,104,109,052 1,664,114,090 611,844,316 568,497,173
--------------- ----------------- --------------- ----------------
End of year $2,707,620,063 $ 2,104,109,052 $ 652,467,622 $ 611,844,316
============== ================ ============== ===============
</TABLE>

<TABLE>
<CAPTION>
U.S. TREASURY FUND
-----------------------------------------
YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997
-------------- --------------

<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income paid to
shareholders as dividends (Note 1) $ (9,908,933) $ (7,148,426)
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
(at net asset value of $1 per share):
Net proceeds from the sale of shares 1,135,200,601 682,830,849
Net asset value of shares issued
on reinvestment of dividends 9,908,933 7,148,426
--------------- ---------------

Subtotal 1,145,109,534 689,979,275
Cost of shares redeemed (1,074,527,046) (663,567,636)
--------------- --------------
Net increase derived from capital
share transactions and from investment operations 70,582,488 26,411,639

NET ASSETS:
Beginning of year 169,177,805 142,766,166
-------------- ---------------
End of year $ 239,760,293 $ 169,177,805
============== ==============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 55
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 and 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 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 Funds are charged only for their
direct or allocated (in proportion to net assets or number of
shareholder accounts) share of expenses.

H. The Funds may enter into repurchase agreements with financial
institutions deemed to be creditworthy by the Funds' Investment
Advisor, subject to the seller's agreement to repurchase such
securities at a mutually agreed upon price. However, in the event of
default or bankruptcy by the seller, realization and/or retention of
the collateral may be subject to legal proceedings.
<PAGE> 56
THE RESERVE FUND (THE "FUND")
PRIMARY, U.S. GOVERNMENT AND U.S. TREASURY FUNDS (THE "FUNDS")
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

(2) MANAGEMENT FEE, SHAREHOLDER SERVICING COST AND TRANSACTIONS WITH
AFFILIATES:

Under the Management Agreement, Reserve Management Company, Inc. ("RMCI"),
manages the Fund's investments, effects purchases and sales thereof, and
absorbs certain promotional expenses. RMCI receives management fees from
the Primary and U.S. Government Funds at an annual rate of .50% of the
first $500 million, .475% of the next $500 million, .45% of the next $500
million, .425% of the next $500 million and .40% of any excess over $2
billion of the average daily net assets of Primary and U.S. Government
Funds, subject to reimbursement of Fund expenses (excluding brokerage fees
and commissions, interest charges, taxes and extraordinary legal fees and
expenses) exceeding 1% of average daily closing net assets. For the U.S.
Treasury Fund, RMCI receives a comprehensive fee at an annual rate of .80%
of the average daily net assets. At May 31, 1998, the advisor waived
$443,107 of its comprehensive fee. Also, under the current Service
Agreement, RMCI was reimbursed $7,511,554 (Primary Fund) and $2,011,920
(U.S. Government Fund) during the year ended May 31, 1998 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, 1998, the Primary,
U.S. Government and U.S. Treasury Funds had accrued expenses of $212,711,
$53,294, and $15,168, respectively, due to RMCI.

(3) DISTRIBUTION ASSISTANCE

(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 May 31, 1998 the following funds had these components of net assets:

<TABLE>
<CAPTION>
Primary U.S. Government U.S. Treasury
-------------- -------------- -------------

<S> <C> <C> <C>
Par Value $ 2,707,620 $ 652,468 $ 239,760
Paid-in-Capital 2,704,912,443 651,815,154 239,520,533
-------------- -------------- -------------

Net Assets $ 2,707,620,063 $ 652,467,622 $239,760,293
=============== ============= ============
</TABLE>

------------------

FEDERAL TAX INFORMATION - (UNAUDITED)

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.
<PAGE> 57
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
----------------------------------------------------------------------------

PRIMARY FUND 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------

<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------ ------------ ------------
Income from investment operations .0579 .0557 .0591 .0549 .0345
Expenses .0096 .0100 .0101 .0099 .0099
------------ ------------ ------------ ------------ ------------
Net investment income(1) .0483 .0457 .0490 .0450 .0246
Dividends from net investment income(1) (.0483) (.0457) (.0490) (.0450) (.0246)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
============ ============ ============ ============ ============
Total Return 4.83% 4.57% 4.90% 4.50% 2.46%

RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of year 2,707,620 2,104,109 1,664,114 1 ,602,464 1 ,415,378
Ratio of expenses to average net assets .94% .98% .98% .97% .97%
Ratio of net investment income to average
net assets 4.71% 4.47% 4.79% 4.42% 2.44%
</TABLE>

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
----------------------------------------------------------------------------------------
PRIMARY FUND 1993 1992 1991 1990 1989
------------ --------------- --------------- --------------- ---------------

<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------------ --------------- --------------- --------------- ---------------
Income from investment operations .0361 .0541 .0794 .0915 .0913
Expenses .0100 .0100 .0100 .0096 .0098
------------ --------------- --------------- --------------- ---------------
Net investment income(1) .0261 .0441 .0694 .0819 .0815
Dividends from net investment income(1) (.0261) (.0441) (.0694) (.0819) (.0815)
------------ --------------- --------------- --------------- ---------------
Net asset value, end of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
============ =============== =============== =============== ===============
Total Return 2.61% 4.41% 6.94% 8.19% 8.15%

RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of year 1,389,136 1,553,828 1,803,132 1,777,372 1,698,934
Ratio of expenses to average net assets .99% .99% .97% .92% .94%
Ratio of net investment income to average
net assets 2.58% 4.34% 6.72% 7.85% 7.84%
</TABLE>

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
-------------------------------------------------------------------------------

U.S. GOVERNMENT FUND 1998 1997 1996 1995 1994 1993
---------- --------- ---------- ---------- ---------- ----------

<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
---------- --------- ---------- ---------- ---------- ----------
Income from investment operations .0572 .0550 .0586 .0542 .0337 .0353
Expenses .0101 .0101 .0102 .0101 .0100 .0100
---------- --------- ---------- ---------- ---------- ----------
Net investment income(1) .0471 .0449 .0484 .0441 .0237 .0253
Dividends from net investment income(1) (.0471) (.0449) (.0484) (.0441) (.0237) (.0253)
---------- --------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========== ========= ========== ========== ========== ==========
Total Return 4.71% 4.49% 4.84% 4.41% 2.37% 2.53%

RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of year 652,468 611,844 568,497 721,785 740,698 728,138
Ratio of expenses to average net assets .99% .99% 1.00% .99% .99% .99%
Ratio of net investment income to average
net assets 4.60% 4.40% 4.75% 4.31% 2.35% 2.50%
</TABLE>

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
-------------------------------------------------
U.S. GOVERNMENT FUND 1992 1991 1990 1989
--------- --------- --------- ----------

<S> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
--------- --------- --------- ----------
Income from investment operations .0533 .0772 .0908 .0921
Expenses .0101 .0102 .0098 .0100
--------- --------- --------- ----------
Net investment income(1) .0432 .0670 .0810 .0821
Dividends from net investment income(1) (.0432) (.0670) (.0810) (.0821)
--------- --------- --------- ----------
Net asset value, end of year $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
========= ========= ========= ==========
Total Return 4.32% 6.70% 8.10% 8.21%

RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of year 853,823 817,604 585,023 654,571
Ratio of expenses to average net assets .99% .98% .94% .98%
Ratio of net investment income to average
net assets 4.21% 6.38% 7.78% 8.01%
</TABLE>

<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
----------------------------------------------------------------------------
U.S. TREASURY FUND 1998 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- --------

<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 1.0000
------- ------- ------- ------- ------- --------
Income from investment operations .0535 .0521 .0547 .0523 .0313 .0330
Expenses .0079 .0078 .0081 .0067 .0073 .0092
------- ------- ------- ------- ------- --------
Net investment income(1) .0456 .0443 .0466 .0456 .0240 .0238
Dividends from net investment income(1) (.0456) (.0443) (.0466) (.0456) (.0240) (.0238)
------- ------- ------- ------- ------- --------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ========
Total Return 4.56% 4.43% 4.66% 4.56% 2.40% 2.38%

RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of year 239,760 169,178 142,766 95,227 7,350 32,325
Ratio of expenses to average net assets .77%(3) .77%(3) .79%(3) .68%(3) .73%(3) .80%
Ratio of net investment income to average net assets 4.46% 4.33% 4.63% 4.64% 2.38% 2.07%
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 3, 1992
(COMMENCEMENT OF
OPERATIONS) THROUGH
U.S. TREASURY FUND MAY 31, 1992
-------

<S> <C>
Net asset value, beginning of year $1.0000
-------
Income from investment operations .0121
Expenses .0031
-------
Net investment income(1) .0090
Dividends from net investment income(1) (.0090)
-------
Net asset value, end of year $1.0000
=======
Total Return 2.75%(2)

RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of year 512
Ratio of expenses to average net assets .97%(2)
Ratio of net investment income to average net assets 2.74%(2)
</TABLE>
- ------------

(1) Based on compounding of daily dividends. Not indicative of future
results.
(2) Annualized.
(3) During this period the manager waived a portion of fees and expenses. If
there were no reductions in expenses, the actual expenses would have been
approximately 0.20%, 0.20%, 0.20%, 0.25% and 0.12% higher, respectively.
<PAGE> 58
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and the Board of Trustees of The Reserve Fund:

In our opinion, the accompanying statements of net assets and the
related statement of operations and the statements of changes in net assets and
financial highlights present fairly, in all material respects, the financial
position of The Primary, U.S. Government and U.S. Treasury Funds (three of the
four series constituting The Reserve Funds) Fund at May 31, 1998, the results
of their operations for the year then ended, the changes in each of its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at May 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

New York, N.Y.
July 24, 1998

<PAGE> 59
STRATEGIST MONEY-MARKET FUND
P.O. BOX 59196
MINNEAPOLIS, MN 55459-9801
800-297-7378

24-HOUR YIELD AND BALANCE INFORMATION
NATIONWIDE 800-297-7378 - www.reservefunds.com

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information ("SAI") describes the Strategist
Money-Market Fund (the "Fund"). This SAI is not a Prospectus, but provides
detailed information to supplement the Prospectus dated July 31, 1998 and should
be read in conjunction with it. A copy of the Prospectus may be obtained by
writing or calling the Fund at the above address or telephone number. The
Securities and Exchange Commission ("SEC") maintains a web site
(http://www.sec.gov) that contains this SAI, the Prospectus, material
incorporated by reference, and other information regarding the Fund
electronically filed with the SEC. This SAI is dated July 31, 1998.

TABLE OF CONTENTS PAGE

Investment Objective and Policies...................................
Trustees and Executive Officers.....................................
Investment Management, Distribution and Custodian Agreements........
Portfolio Turnover, Transaction Charges and Allocation..............
Shares of Beneficial Interest.......................................
Purchase, Redemption and Pricing of Shares..........................
Distributions and Taxes.............................................
Fund Yield..........................................................
Ratings.............................................................
Financial Statements................................................
Report of Independent Accountants...................................

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> 60
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
the Fund. A majority of the outstanding shares of the Fund means the vote of the
lesser of (i) 67% or more of the shares of the Fund present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The Fund cannot:

(1) borrow money except as a temporary or emergency measure and not in an
amount to exceed 5% of the market value of its total assets;

(2) issue securities senior to its capital stock;

(3) act as an underwriter with respect to the securities of others;

(4) concentrate investments in any particular industry except to the extent
that its investments are concentrated exclusively in U.S. Government
securities 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 except 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 ("1940 Act"),

(10) make investments on a margin basis; (11)

(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 of 1940 Act.

OTHER POLICIES. The Fund may, to increase its income, lend 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 Fund receives an amount equal to the
interest on loaned securities and also receives 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 Fund may also pay reasonable finders, custodian and
administrative fees. Loan arrangements made by the Fund will comply with all
other applicable regulatory requirements including the rules of the New York
Stock Exchange ("NYSE"), which require the borrower, after notice, to redeliver
the securities within the normal settlement time of three (3) 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 ("S&P") and Moody's Investors Service, Inc.,
("Moody's") respectively, or the equivalent 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.

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<PAGE> 61
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.

REPURCHASE AND REVERSE REPURCHASE AGREEMENTS. A repurchase agreement transaction
occurs when the Fund purchases and simultaneously contracts to resell securities
at fixed prices determined by the negotiated yields. The Fund will limit
repurchase agreement transactions to those domestic financial institutions and
securities dealers who are deemed credit-worthy pursuant to guidelines
established by the Fund's Board of Trustees. The investment adviser will follow
procedures intended to provide that all repurchase agreements are at least 100%
collateralized as to principal and interest. The Fund will make payment for such
instruments only upon their physical delivery to, or evidence of their
book-entry transfer to, the account of the Fund's Custodian. If the seller
defaults on the repurchase obligation the Fund could incur a loss and may incur
costs in disposing of the underlying security. The Fund will not hold more than
10% of its net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice.

The 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 Fund 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 Fund at the time of the transaction.

TRUSTEES AND EXECUTIVE OFFICERS

++BRUCE R. BENT, 61, President, Treasurer and Trustee, 810 Seventh
Avenue, New York, NY 10019-5968.

Mr. Bent is President, Treasurer, and Trustee of The Reserve Funds
("RF"), Reserve Institutional Trust ("RIT"), Reserve Tax-Exempt Trust ("RTET"),
Reserve New York Tax-Exempt Trust ("RNYTET") and Reserve Private Equity Series
("RPES"); Director, Vice President and Secretary of Reserve Management Company,
Inc. ("RMCI") and Reserve Management Corporation ("RMC"); and Chairman and
Director of Resrv Partners, Inc. ("RESRV").

+EDWIN EHLERT, JR., 67, Trustee, 125 Elm Street, Westfield, NJ 07091.

Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency) and Ehlert Travel Associates of Florida, Inc. (travel agency),
and Trustee of RF, RIT, RNYTET, RTET and RPES.

+HENRI W. EMMET, 72, Trustee, 1535 Presidential Drive, Apt. 4A,
Columbus, OH 43212.

Mr. Emmet retired as the Managing Director of Servus Associates, Inc.
in 1994, and U.S.A. Representative of the First National Bank of Southern Africa
in 1996. Since 1995, Mr. Emmet has served as Principal of Global Interaction,
which provides consulting services to international banking interests. He is
currently Trustee of RF, RIT, RNYTET, RTET and RPES.

+DONALD J. HARRINGTON, C.M., 53, Trustee, St. John's University,
Jamaica, NY 11439.

The Reverend Harrington is President of St. John's University (NY), a
Trustee of RF, RIT, RNYTET, RTET and RPES and a Director of Bear Stearns
Companies, Inc. since 1993.

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<PAGE> 62
BRUCE R. BENT II, 32, Senior Vice President and Assistant Secretary,
810 Seventh Avenue, New York, NY 10019.

Mr. Bent II joined The Reserve Funds in 1992 and is Senior Vice
President and Assistant Secretary of RF, RIT, RNYTET, RTET and RPES.

MARYKATHLEEN FOYNES, 28, Counsel and Secretary, 810 Seventh Avenue, New
York, NY 10019.

Ms. Foynes is Counsel and Secretary of RF, RIT, RNYTET, RTET, and RPES.
Before joining The Reserve Funds in 1998, Ms. Foynes was a staff attorney at
PaineWebber, Inc.

PAT A. COLLETTI, 39, Controller, 810 Seventh Avenue, New York, NY
10019.

Mr. Colletti has been Controller of RF, RIT, RNYTET, RTET since 1989
and RPES since 1994.

- --------------------

++Interested Trustee within the meaning of the 1940 Act. The members of the
Board of Trustees who are not Interested Trustees will be paid a stipend of
$3,500 for each joint Board meeting they attend and an annual fee of $16,000 for
service to all of the trusts in the complex.

+Messrs. Ehlert, Emmet and Harrington are members of a Review Committee which
performs the functions of an Audit Committee and reviews compliance procedures
and practices.

As of June 30, 1998, Trustees and officers as a group owned less than 1%
of the outstanding shares of the Fund. During the year ended May 31, 1998, the
Fund held four Board meetings and one Review Committee meeting.

COMPENSATION TABLE
For fiscal year ending May 31, 1998

<TABLE>
<CAPTION>
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. $464 $30,000
Henri W. Emmet $464 $30,000
Rev. Donald J. Harrington $464 $30,000
</TABLE>

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<PAGE> 63
INVESTMENT MANAGEMENT, DISTRIBUTION
AND CUSTODIAN AGREEMENTS

INVESTMENT MANAGEMENT AGREEMENT. Reserve Management Company, Inc. ("RMCI or
Adviser"), 14 Locust Place, Manhasset, NY 11030, a registered investment
adviser, manages the Fund and provide it with investment advice. Since November
15, 1971, the Adviser and its affiliates have been advising The Reserve Funds,
which currently have assets in excess of $4.7 billion. Under the Investment
Management Agreement, RMCI manages the Fund's investments, including effecting
purchases and sales thereof, in furtherance of each the Fund'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.
For the fiscal years ended May 31, 1996 and 1997, RMCI waived all of its
comprehensive fee and for fiscal year ended May 31, 1998, RMCI waived 0.40% of
its comprehensive fee.

From time to time, RMCI may waive receipt of its fees and/or voluntarily
assume certain expenses of the Fund which would have the effect of lowering the
Fund's 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.

EXPENSE LIMITATION. The Investment Management Agreement for the Fund provide
that RMCI will reimburse the Fund for the amount by which the Fund'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, NY 10019. The Fund has authorized the
Distributor, in connection with its sale of Fund shares, to give only such
information and to make only such statements and representations as are
contained in the Prospectus dated July 31, 1998. Sales may be made only by the
Prospectus. The Distributors may offer and sell shares of the Fund pursuant to a
separate Prospectus applicable to such Distributor. The Distributors are
"principal underwriters" for the Fund within the meaning of the 1940 Act, and as
such, act as agent in arranging for the continuous offering of Fund shares. The
Distributors have the right to enter into selected dealer agreements with
brokers or other persons of their choice for the sale of Fund shares. Parties to
selected dealer agreements may receive assistance payments, if they qualify for
such payments, under the Plan of Distribution described below. 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 two 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 1940 Act , 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") at an annual rate
of 0.20% of the average net asset value of the qualified accounts. Such
distribution assistance may include, but is 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

5
<PAGE> 64
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 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, 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. For the fiscal years ended
May 31, 1996, 1997 and 1998, no payments were made under the Plan.

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 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.

CUSTODIAL SERVICES AND INDEPENDENT ACCOUNTANT. The Chase Manhattan Bank, 4 New
York Plaza, New York, NY 10004 is Custodian of the Fund's securities and cash
pursuant to a Custodian Agreement. The Bank of New York, 48 Wall Street, New
York, NY 10015; Morgan Guaranty Trust Co., 60 Wall Street, New York, NY 10260;
and Custodial Trust Company, 28 West State Street, Trenton, NJ 08608; are
Custodians for the Fund for limited purposes in connection with certain
repurchase agreements. PricewaterhouseCoopers LLP, 1301 Avenue of the Americas,
New York, NY 10019 is the Fund's independent accountant.

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<PAGE> 65
PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION

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 materially 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 classes 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 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 chose, and in such event the holders of the
remaining shares could not elect any person to the Board of Trustees.

7
<PAGE> 66
Under Massachusetts law, the shareholders and trustees of a business
trust can be personally liable for the Funds' obligations unless, as in this
instance, the Declaration of Trust provides, in substance, that no shareholder
or trustee shall be personally liable for the Fund's , and each investment
portfolio's, obligations to third parties, and requires that every written
contract made by a Fund contain a provision to that effect. The Declaration of
Trust also requires the Fund to indemnify its shareholders and Trustees against
such liabilities and any related claims or expenses.

Regulations of the SEC 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 1940 Act unless
withdrawal is permitted by order of the SEC. 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 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.

NET ASSET VALUE. Shares are offered at their net asset value ("NAV") which is
calculated at the close of each Business Day as defined in the Prospectus. The
NAV is not calculated on New Year's Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Martin Luther King Jr. Day,
Thanksgiving Day, Christmas Day, on other days the NYSE is closed for trading,
and on certain regional

8
<PAGE> 67
banking holidays. The NAV of the Fund is normally maintained at $1.00 per share.
The Fund cannot guarantee that its net asset value will always remain at $1.00
per share.

The NAV per share of the Fund 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.

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 $20,000 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. 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 U.S. 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) 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.

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<PAGE> 68
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 CANCELED
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, THE INVESTMENT ADVISER OR
THE DISTRIBUTOR.

Share Certificates. Share certificates are not issued by the Fund.

DISTRIBUTIONS AND TAXES

The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended ("the 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.

To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) diversify its holdings so that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items (including receivables), U.S.
Government securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the value
of the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income each taxable year.

As a regulated investment company, the Fund generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, that it distributes to shareholders. Each Fund intends
to distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and net capital gains. Amounts not distributed
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To prevent imposition of the
excise tax, each Fund must distribute during each calendar year an amount equal
to the sum of (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses for the one-year period ending on
October 31 of the calendar year, and (3) any ordinary income and capital gains
for previous years that was not distributed during those years. A distribution
will be treated as paid on December 31 of the current calendar year if it is
declared by a Fund in October, November or December with a record date in such a
month and paid by the Fund during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received. To prevent application of the excise tax, each Fund
intends to make its distributions in accordance with the calendar year
distribution requirement.

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<PAGE> 69
Dividends paid out of a Fund's investment company taxable income will be taxable
to a U.S. shareholder as ordinary income. Because no portion of a Fund's income
is expected to consist of dividends paid by U.S. corporations, no portion of the
dividends paid by the Funds is expected to be eligible for the corporate
dividends-received deduction. Distributions of net capital gains, if any,
designated as capital gain dividends are taxable to individual shareholders at
the applicable 20% or 28% capital gains rate, regardless of how long the
shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date. Shareholders will be notified annually as to the U.S. federal
tax status of distributions, and shareholders receiving distributions in the
form of additional shares will receive a report as to the net asset value of
those shares.

Upon the sale or other disposition of shares of a Fund, in the event that the
Fund fails to maintain a constant net asset value per share, a shareholder may
realize a capital gain or loss which will be long-term or short-term, generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including shares acquired pursuant to a dividend
reinvestment plan) within a period of 61 days beginning 30 days before and
ending 30 days after disposition of the shares. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such shares.

Income received by the Strategist Fund from sources within foreign countries may
be subject to withholding and other taxes imposed by such countries.

The Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal income tax liability.

The tax consequences to a foreign shareholder of an investment in a Fund may be
different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in the Fund. Shareholders are advised to consult their
own tax advisers with respect to the particular tax consequences to them of an
investment in a Fund.

FUND YIELD

The current yield of the 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.

11
<PAGE> 70
Effective yield is computed by adding one to the 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 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.

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.

Fitch IBCA

F1: 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 "F1+". 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.

12
<PAGE> 71
THE RESERVE FUND - STRATEGIST MONEY-MARKET FUND

STATEMENT OF NET ASSETS - MAY 31, 1998

<TABLE>
<CAPTION>
% DAYS TO VALUE
RATE MATURITY (NOTE 1)
---- -------- -----------
<S> <C> <C> <C>
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT - 42.80%

Crestar Bank 5.555 36 $ 2,003,394
Chase Manhattan Bank 5.55 4 2,001,541
Harris Trust and Savings Bank 5.53 11 2,006,452
Mellon Bank, N.A. 5.57 3 3,027,850
SouthTrust Bank of Alabama, N.A. 5.57 36 2,008,046
ABN-AMRO Bank N.V. (a) 5.53 15 2,005,837
BHF Bank AG (b) 5.55 29 2,001,542
Canadian Imperial Bank of Commerce (b) 5.535 23 2,003,382
Deutsche Bank AG (a) 5.54 19 2,004,001
Dresdner Bank AG (b) 5.54 29 2,001,231
Westdeutsche Landesbank Girozentrale (b) 5.57 36 3,018,103
------------
Total Negotiable Bank Certificates of Deposit 24,081,379

PROMISSORY NOTES 10.64%

Commerzbank U.S. Finance, Inc. (c) 5.51 22 1,993,572
Hypo U.S. Finance, Inc.(c) 5.505 8 1,997,859
Societe Generale North America, Inc. (c) 5.50 17 1,995,111
------------

Total Promissory Notes 5,986,542

REPURCHASE AGREEMENTS 45.34%

GNMA 6.875%-8% due from 3/20/21 to 1/15/36 (Repo with
Bear, Stearns & Co. Inc. dated May 29, 1998, resale
amount $13,006,099) 5.63 3 13,006,099

FNAR due 4/1/34 (Repo with DLJ Securities Corporation 5.63 3 12,505,865
dated May 29, 1998, resale amount $12,505,865)

Total Repurchase Agreements 25,511,964
-----------
Total Strategist Fund Investments - (98.78%)
(Cost $55,471,253) 55,579,885

Other assets, less liabilities - (1.22%) 688,903
------------
NET ASSETS (100%) equivalent to $1.00 net
asset value, offering and redemption prices
per share based on 56,268,788 shares of
beneficial interest $.001 par value
outstanding $56,268,788
===========
</TABLE>

(a) Eurodollar Certificates of Deposit - London Branch, United Kingdom.

(b) Yankee Certificates of Deposit.

(d) FNAR - FNMA Adjustable Rate Mortgage-Backed Pass-Through Securities

(e) GNMA - Government National Mortgage Association Mortgage-Backed Pass-
Through Securities

SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 72
THE RESERVE FUND
STRATEGIST MONEY-MARKET FUND
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
MAY 31, 1998
------------
<S> <C>
INTEREST INCOME (NOTE 1) $ 4,264,971
------------

EXPENSES (Note 2)
Comprehensive fee 605,330
Less: voluntary waiver (354,118)
------------
Net Expenses 251,212
------------
NET INVESTMENT INCOME $ 4,013,759
============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 73
THE RESERVE FUND
STRATEGIST MONEY-MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1998 MAY 31, 1997
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income paid to
shareholders as dividends (Note 1) $ (4,013,759) $ (2,656,398)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
(at net asset value of $1 per share):
Net proceeds from the sale of shares 129,839,697 185,017,047
Net asset value of shares issued
on reinvestment of dividends 4,013,759 2,656,398
------------- -------------
Subtotal 133,853,456 187,673,445
Cost of shares redeemed (177,288,649) (88,979,109)
------------- -------------
Net increase (decrease) in net assets derived from
capital share transactions and from
investment operations (43,435,193) 98,694,336

NET ASSETS:
Beginning of year 99,703,981 1,009,645
------------- -------------
End of year $ 56,268,788 $ 99,703,981
============= =============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 74
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.

F. The Fund may enter into repurchase agreements with financial
institutions deemed to be creditworthy by the Fund Investment
Advisor, subject to the seller's agreement to repurchase such
securities at a mutually agreed upon price. However, in the
event of default or bankruptcy by the seller, realization
and/or retention of the collateral may be subject to legal
proceedings.

G. The Fund may enter into repurchase agreements with financial
institutions deemed to be creditworthy by the Fund Investment
Advisor, subject to the seller's agreement to repurchase such
securities at a mutually agreed upon price. However, in the
event of default or bankruptcy by the seller, realization
and/or retention of the collateral may be subject to legal
proceedings.
<PAGE> 75
THE RESERVE FUND
STRATEGIST MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

(2) MANAGEMENT FEE, SHAREHOLDER SERVICING COST AND TRANSACTIONS WITH
AFFILIATES:

Under the Management Agreement, Reserve Management Company, Inc.
("RMCI"), manages the Fund's investments, effects purchases and sales
thereof. 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, 1998 RMCI waived $354,118 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, 1998, 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 5/31/98, the Strategist Money Market Fund's net assets consisted of
$56,269 par value and $56,212,518 paid-in-capital.

FEDERAL TAX INFORMATION - (UNAUDITED)

The dividends distributed by Strategist Money Market Fund are treated
for Federal tax purposes as ordinary income.
<PAGE> 76
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
MAY 1, 1996
(COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
MAY 31, 1998 MAY 31, 1997 MAY 31, 1996
------------ ------------ ------------
<S> <C> <C> <C>
STRATEGIST MONEY MARKET FUND

Net asset value, beginning of year $ 1.0000 $ 1.0000 $ 1.0000
------------ ------------ ------------
Income from investment operations .0576 .0552 .0479
Expenses .0034 .0000 .0017
------------ ------------ ------------
Net investment income (1) .0542 .0552 .0462
Dividends from net investment income (1) (.0542) (.0552) (.0462)
------------ ------------ ------------

Net asset value, end of year $ 1.0000 $ 1.0000 $ 1.0000
============ ============ ============
Total Return 5.42% 5.52% 5.13%(2)

RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of year 56,269 99,704 1,010
Ratio of expenses to average net assets (3) .33% .00% .18%(2)
Ratio of net investment income
to average net assets 5.29% 5.44% 5.12%(2)
</TABLE>

1) Based on compounding of daily dividends. Not indicative of future
results.

2) Annualized.

3) During these periods the manager waived a portion of fees and expenses.
If there were no reduction in expenses, the actual expenses would have
been .80%.
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and the Board of Trustees of Strategist Money Market Fund:

In our opinion, the accompanying statement of net assets and the
related statement of operations and the statements of changes in net assets and
financial highlights present fairly, in all material respects, the financial
position of Strategist Money Market (one of the four series constituting The
Reserve Fund) at May 31, 1998, the results of its operations, the changes in
each of its net assets and the financial highlights for each of the periods
presented in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds management; our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

New York, NY PRICEWATERHOUSECOOPERS LLP
July 24, 1998

<PAGE> 78

THE RESERVE FUND

PART C

<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits Page
--------------------------------- ----
<S> <C>
(a) Financial Statements Included in Part A for the Primary,
U.S. Government, U.S. Treasury and Strategist Money Market Funds

(1) Financial Highlights

(b) Financial Statements Included in Part A and Part B
for the Primary, U.S. Government and Strategist Money Market Funds

(1) Statements of Net Assets at May 31, 1998

(2) Statements of Operations for the year ended
May 31, 1998

(3) Statements of Changes in Net Assets for the
years ended May 31, 1997 and 1998

(4) Notes to Financial Statements

(5) Report of Independent Accountants.

(1) Statements of Net Assets at May 31, 1998

(2) Statements of Operations for year ended May 31, 1998

(3) Statements of Changes in Net Assets for the years
ended May 31, 1997 and 1998

(4) Notes to Financial Statements

(5) Report of Independent Accountants

(d) Exhibits

(1)* Declaration of Trust was filed as an exhibit
to Registrant's Post-Effective Amendment No.
43 dated July 31, 1987.

(2)* Bylaws were filed as an exhibit to Registrant's Post-
Effective Amendment No. 42 dated November 24, 1986.
Amendment No. 1 filed as an exhibit to Post-Effective
Amendment No. 46 dated July 31, 1990.

(3) Not Applicable.
</TABLE>

- ---------------
*Incorporated by reference

<PAGE> 79

<TABLE>
<S> <C>
(4) Not Applicable.

(5)* Form of Investment Management Agreement for the
Primary and U.S. Government Funds filed as an Exhibit
to Post-Effective Amendment No. 42 dated November 24,
1986. Form of Investment Management Agreement for
the U.S. Treasury and Federal Government Funds filed
as an Exhibit to Post-Effective Amendment No. 48 dated
October 31, 1991.

(6)* Form of Distribution Agreement and Plan of Distribution
filed as an exhibit to Registrant's Post-Effective Amendment
No. 42 dated November 24, 1986.

(7)* Pension Plan of Reserve Management Corporation was
filed as an exhibit to Post-Effective Amendment No. 32;
Amendments to Pension Plan filed as an exhibit to Post-
Effective Amendment No. 45 dated July 31, 1989.

(8)* (a) Custodian Agreement with Chemical Bank filed as
an exhibit to Registrant's Post-Effective Amendment
No.1; Amendments thereto filed as to Post Effective
Amendment No. 35.

(b) Custodian Agreement with Custodial Trust Company
filed as an Exhibit to Post-Effective Amendment No. 43
filed July 31, 1987.

(9)* (a) Form of Service Agreement filed as an exhibit to Post-
Effective Amendment No. 42 dated November 24, 1986.
Transfer Agent Agreement with First Wisconsin Trust
Company filed as an exhibit to Post-Effective Amendment
No. 46 dated July 31, 1990.

(10) Opinion of Counsel filed herewith.

(11) Consent of Auditors filed herewith

(12) Not Applicable

(13)* Form of Subscription Agreement between the Registrant
and Reserve Management Company, Inc.

(14) Not Applicable

(15)* Form of Service Plan

(16)* Schedule for computation of each performance
quotation provided in Registration Statement

(17) Powers of Attorney filed herewith.

(18) Not Applicable
</TABLE>
- ---------------
*Incorporated by reference

<PAGE> 80
Item 25. Persons Controlled by or Under Common Control with Registrant

Not Applicable

Item 26. Number of Holders of Securities

Title Number of Record
of Holders
Class at June 30, 1998
----- ----------------
<S> <C>
Primary Fund 170,271
U.S. Government Fund 45,018
U.S. Treasury Fund 6,425
Strategist Money Market Fund 797
</TABLE>

Item 27. Indemnification

Each Trustee, officer, employee or agent of the Registrant, and any
person who has served at its request as a Director, Trustee,
officer or employee of another business entity, shall be entitled
to be indemnified by the Registrant to the fullest extent permitted
by the laws of the Commonwealth of Massachusetts, subject to the
provisions of the Investment Company Act of 1940 and the rules and
regulations thereunder.

Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the Declaration
of Trust or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of any expenses incurred or paid by a Trustee,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed the final
adjudication of such issue.

Item 28. Business and Other Connections of Investment Adviser

<TABLE>
<CAPTION>
Name Position with the Adviser Other Businesses
- ---- ------------------------- ----------------
<S> <C> <C>
Henry B.R. Brown President, Treasurer and President, Treasurer and
Director Director of Reserve
Management Corporation
of the same address as
the Trust; Director
and Treasurer of
Transfer Agent Inc., 5
Cornwall St., N.W.,
Leesburg, Virginia
22075.

Bruce R. Bent Vice President, Secretary Vice President, Secretary
and Director and Director of Reserve
Management Corporation and
Director of Resrv Partners,
Inc. both of the same
address as the Trust.
</TABLE>
<PAGE> 81

Item 29. Principal Underwriters

(a) Resrv Partners, Inc., a principal underwriter of the Registrant, also acts
as principal underwriter to Reserve Tax-Exempt Trust, Reserve Institutional
Trust, Reserve New York Tax-Exempt Trust and Reserve Private Equity Series.

<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Resrv Partners, Inc. with Registrant
- ------------------ ------------------------- ---------------------
<S> <C> <C>
Bruce R. Bent Chairman and Director President, Treasurer
810 Seventh Avenue & Trustee
New York, NY 10019
</TABLE>

<PAGE> 82

(b) Pacific Global Fund Distributors, Inc. ("Pacific Global") also acts
as a principal underwriter of Reserve Fund Tax-Exempt Trust and Pacific Advisors
Fund Inc.

<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with,Pacific Global with Registrant
- ------------------ --------------------- ---------------------

<S> <C> <C>
George A. Henning Chairman None
206 North Jackson Street
Suite 201
Glendale, CA 91206

Thomas H. Hanson President None
206 North Jackson Street
Suite 201
Glendale, CA 91206

Eileen P. Hannemann Financial Principal None
206 North Jackson Street
Suite 201
Glendale, CA 91206
</TABLE>

(c) NWNL Northstar Distributors, Inc. ("Northstar") also acts as a
principal underwriter for NWNL Northstar Series Trust.

<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Northstar with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Mark L. Lipson Chairman & Director None
Two Greenwich Plaza
Greenwich, CT 06830

Robert J. Adler President & Director None
Two Greenwich Plaza
Greenwich, CT 06830

Agnes Mullady Treasurer None
Two Greenwich Plaza
Greenwich, CT 06830

Lisa Hurley Secretary None
Two Greenwich Plaza
Greenwich, CT 06830
</TABLE>
<PAGE> 83
Item 30. Location of Accounts and Records

All records required to be maintained by Section 31(a)
of the 1940 Act and the Rules promulgated thereunder are
maintained at 810 Seventh Avenue, New York, NY 10019 except
those relating to receipts and deliveries of securities, which
are maintained by the Registrant's Custodian.

Item 31. Management Services

See "Investment Management, Distribution, Service and Custodian
Agreements" in Part B.

Item 32. Undertakings

Not Applicable

<PAGE> 84

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
Post-Effective Amendment to its Registration Statement meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933 and Registrant has duly caused this Post-Effective Amendment No. 58 to
its Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of New York and State of New York, on the
31st day of July 1998.

/s/ Bruce R. Bent
--------------------------
Bruce R. Bent, President

Attest:

/s/ MaryKathleen Foynes
- ---------------------------
MaryKathleen Foynes, Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 58 to its Registration Statement has been below
signed by the following persons in the capacities and on the dates indicated.

* Date 7/30/98
- -------------------------------------------------- --------------------
Bruce R. Bent, President, Treasurer
and Board Member (principal executive,
operating and financial officer)

* Date 7/30/98
- ------------------------------------------------- -------------------
Edwin Ehlert Jr., Board Member

* Date 7/30/98
- ------------------------------------------------- -------------------
Henri W. Emmet, Board Member

* Date 7/30/98
- ------------------------------------------------- -------------------
Donald J. Harrington, Board Member

/s/ MaryKathleen Foynes Date 7/30/98
- ------------------------------------------------- -------------------
MaryKathleen Foynes, *Attorney-in-Fact
General Counsel
</TABLE>

<PAGE> 85

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description
- ----------- -----------
<S> <C>
1. Declaration of Trust of Registrant*

2. By-Laws of Registrant*

3. Not Applicable

4. Not Applicable

5. (a) Form of Investment Management Agree-
ment between the Registrant and Reserve
Management Company Inc.*

(b) Form of Sub-Investment Management Agreement
between Registrant, Reserve Management Company, Inc.
and Pinnacle Associates Ltd.

6. (a) Form of Distribution Agreement between the Registrant
and Resrv Partners, Inc.*

(b) Form of Selected Dealer Agreement*

7. Pension Plan of Reserve Management Corp. filed
as an exhibit to Post-Effective Amendment No., 32
of The Reserve Fund (File No. 2-36429);
amendments thereto filed as an exhibit to
Post-Effective Amendment No. 45 and all are
incorporated by reference*

8. Form of Custodian Agreements between Registrant and
Custodial Trust Company*

9. Not Applicable*

10. Opinion of Counsel

11. Consent of Auditors

12. Not Applicable

13. Form of Subscription Agreement between the Registrant
and Reserve Management Company, Inc.*

14. Not Applicable

15. Form of Service Plan*

16. Schedule for computation of each performance quotation
provided in Registration Statement*

17. Powers of Attorney

18. Not Applicable

27(a) Financial Data Schedule

27(b) Financial Data Schedule

27(c) Financial Data Schedule

27(d) Financial Data Schedule

</TABLE>

- ---------------
*Previously filed

<PAGE> 1
[The Reserve Funds letterhead] EXHIBIT 10

July 30, 1998

Board of Trustees
The Reserve Fund
810 Seventh Avenue

New York, New York 10019

Gentlemen:

I have acted as counsel to The Reserve Fund, a Massachusetts business trust
(the "Fund"), in connection with the registration of shares of the Primary,
U.S. Government, U.S. Treasury and Strategist Money Market Fund
("Portfolios") with the Securities and Exchange Commission.

As counsel to the Fund, I have made such investigations and have examined
and relied upon the originals or copies, certified or otherwise identified to my
satisfaction, of such records, instruments, certificates, memoranda and other
documents as I have deemed necessary or advisable for the purposes of this
opinion.

1. The Fund has been duly incorporated and is validly existing under the
laws of Massachusetts.

2. To the best of my knowledge, no further approval, consent or other
order of the Board of Trustees is legally required in connection with the
organization of the Portfolios and the registration of their shares.

3. To the best of my knowledge, the shares of the Portfolios, when
issued, will be legally issued, non-assessable and, when subscribed to, fully
paid.

I consent to the filing of this opinion as an exhibit to the Fund's
registration statement under the Securities Act of 1933.

Very truly yours,

/s/ MaryKathleen Foynes
MaryKathleen Foynes
Counsel

<PAGE> 1
Exhibit 11

[PRICEWATERHOUSECOOPERS LETTERHEAD]

CONSENT OF INDEPENDENT ACCOUNTANTS

---------------

We consent to the inclusion in this registration statement on Form N-1A
(File No. 2-36429) of our report dated July 24, 1998, on our audit of the
financial statements and financial highlights of The Reserve Fund. We also
consent to the reference to our firm under the captions "Financial Highlights"
and "Custodial Services and Independent Accountants".

/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP

New York, New York
July 30, 1998

<PAGE> 1

POWER OF ATTORNEY EXHIBIT 17

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of THE
RESERVE FUND, a Massachusetts business trust, does hereby constitute and appoint
MaryKathleen Foynes, his true and lawful attorney and agent to do any and all
acts and things and to execute any and all instruments which said attorney and
agent may deem necessary or advisable; (i) to enable the said Trust to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under said Securities Act of the shares of
beneficial interest of said Trust (the "Securities"), including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign for and on behalf of the undersigned the name of the undersigned as trustee
of said Trust to a Registration Statement or to any amendment thereto filed with
the Securities and Exchange Commission in respect of said Securities and to any
instrument or document filed as part of, as an exhibit to or in connection with
said Registration Statement or amendment; (ii) to enable said Trust to comply
with the Investment Company act of 1940, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission in respect thereof,
in connection with the registration under said Investment Company Act of the
Trust, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign for and on behalf of the undersigned
the name of the undersigned as trustee of said Trust to a Registration Statement
or to any amendment thereto filed with the Securities and Exchange Commission in
respect of said Trust and to any instrument or document filed as part of, as an
exhibit to or in connection with said Registration Statement or amendment; and
(iii) to register or qualify said Securities for sale and to register or license
said Trust as a broker or dealer in said Securities under the securities or Blue
Sky laws of all such states as may be necessary or appropriate to permit therein
the offering and sale of said Securities as contemplated by said Registration
Statement, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign for and on behalf of the undersigned
the name of the undersigned as trustee of said Trust to any application,
statement, petition, prospectus, notice or other instrument or document, or to
any amendment thereto, or to any exhibit filed as a part thereof or in
connection therewith, which is required to be signed by the undersigned and to
be filed with the public authority or authorities administering said securities
or Blue Sky laws for the purpose of so registering or qualifying said Securities
or registering or licensing said Trust, and the undersigned does hereby ratify
and confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 28th
day of May, 1998.
/s/ Edwin Ehlert, Jr.
----------------------------------
Edwin Ehlert Jr., Board Member

/s/ Donald J. Harrington
----------------------------------
Donald J. Harrington, Board Member

IN WITNESS WHEREOF, The undersigned has subscribed these presents this 29th day
of May, 1998

/s/ Henri W. Emmet
----------------------------------
Henri W. Emmet, Board Member

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS, FISCAL YEAR ENDED 5/31/98 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 4856 POST-EFFECTIVE AMENDMENT.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> PRIMARY FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 2,699,132,497
<INVESTMENTS-AT-VALUE> 2,698,016,627
<RECEIVABLES> 5,308,069
<ASSETS-OTHER> 3,392,208
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,707,832,774
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 212,711
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 2,707,620,063
<SHARES-COMMON-PRIOR> 2,104,109,052
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,707,620,063
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 138,103,637
<OTHER-INCOME> 0
<EXPENSES-NET> 22,872,136
<NET-INVESTMENT-INCOME> 115,231,501
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 603,511,011
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,658,255,842
<NUMBER-OF-SHARES-REDEEMED> 11,054,744,831
<SHARES-REINVESTED> 115,231,501
<NET-CHANGE-IN-ASSETS> 603,511,011
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,995,380
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 22,872,136
<AVERAGE-NET-ASSETS> 2,444,558,941
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .048
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.048)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS, FISCAL YEAR ENDED 5/31/98 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 4856 POST-EFFECTIVE AMENDMENT.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> U.S. GOVERNMENT FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 650,000,000
<INVESTMENTS-AT-VALUE> 650,000,000
<RECEIVABLES> 671,458
<ASSETS-OTHER> 1,849,458
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 652,520,916
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 53,294
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 652,467,622
<SHARES-COMMON-PRIOR> 611,844,316
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 652,467,622
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,079,602
<OTHER-INCOME> 0
<EXPENSES-NET> 6,381,881
<NET-INVESTMENT-INCOME> 29,697,721
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 40,623,306
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,282,495,931
<NUMBER-OF-SHARES-REDEEMED> 3,241,872,626
<SHARES-REINVESTED> 29,697,721
<NET-CHANGE-IN-ASSETS> 40,623,306
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,181,655
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,381,881
<AVERAGE-NET-ASSETS> 645,555,436
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .047
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.047)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 55,486,542
<INVESTMENTS-AT-VALUE> 55,471,253
<RECEIVABLES> 93,343
<ASSETS-OTHER> 690,752
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56,270,637
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 56,268,788
<SHARES-COMMON-PRIOR> 99,703,981
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 56,268,788
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,264,971
<OTHER-INCOME> 0
<EXPENSES-NET> 251,212
<NET-INVESTMENT-INCOME> 4,013,759
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (43,435,193)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 133,853,456
<NUMBER-OF-SHARES-REDEEMED> 177,288,649
<SHARES-REINVESTED> 4,013,759
<NET-CHANGE-IN-ASSETS> (43,435,193)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 251,212
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 75,904,224
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .054
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.054)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS, FISCAL YEAR ENDED 5/31/98 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 4856 POST EFFECTIVE AMENDMENT.
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> U.S. TREASURY FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 238,643,023
<INVESTMENTS-AT-VALUE> 237,407,250
<RECEIVABLES> 349,673
<ASSETS-OTHER> 782,765
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 239,775,461
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 15,168
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 239,760,293
<SHARES-COMMON-PRIOR> 169,177,805
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 239,760,239
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,620,213
<OTHER-INCOME> 0
<EXPENSES-NET> 1,711,280
<NET-INVESTMENT-INCOME> 9,908,933
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 70,582,488
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,908,933
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,145,109,534
<NUMBER-OF-SHARES-REDEEMED> 1,074,527,046
<SHARES-REINVESTED> 9,908,933
<NET-CHANGE-IN-ASSETS> 70,582,488
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,329,283
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,711,280
<AVERAGE-NET-ASSETS> 222,209,974
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .045
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.045)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>