<PAGE>
[LOGO] THE RESERVE FUNDS
Founders of "America's First Money Fund" Est. 1970
1250 Broadway, New York, NY 10001-3701
(212) 401-5500
GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
800-637-1700
This literature is not authorized for distribution to prospective investors
unless preceded or accompanied by an appropriate current prospectus.
Distributor--Resrv Partners, Inc.
RF/ANNUAL 07/99
[LOGO] THE
RESERVE
FUNDS
Founders of
"America's First Money Fund"
Est. 1970
ANNUAL REPORT
THE RESERVE FUND
PRIMARY FUND
U.S. GOVERNMENT FUND
U.S. TREASURY FUND
MAY 31, 1999
<PAGE>
THE RESERVE FUND--PRIMARY FUND
STATEMENT OF NET ASSETS--MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT NEGOTIABLE BANK CERTIFICATES OF DEPOSIT -- 62.7% (NOTE 1)
- ------------ ------------------------------------------------------------------------------------------- --------------
<S> <C> <C>
DOMESTIC -- 15.6%
$100,000,000 BankBoston, NA, 4.89%, 7/27/99............................................................. $ 100,000,000
100,000,000 Bankers Trust Co., NY, 4.92%, 6/30/99...................................................... 100,000,597
150,000,000 Morgan Guaranty Trust Co., N.Y., 4.88%, 7/12/99............................................ 150,000,000
100,000,000 PNC Bank N.A., 4.79%, 7/27/99 (a).......................................................... 99,988,961
70,000,000 South Trust Bank of Alabama NA, 4.88%, 7/26/99............................................. 70,000,000
--------------
519,989,558
--------------
EURO -- 24.5%
150,000,000 Abbey National PLC, 4.90%, 7/7/99.......................................................... 150,000,989
86,000,000 Credit Agricole Indosuez, 4.89%, 7/12/99................................................... 86,000,000
86,000,000 Dresdner Bank, 4.85%, 6/21/99.............................................................. 86,000,000
45,000,000 Int'l Nederlanden ING Bank, 4.93%, 6/30/99................................................. 44,999,693
150,000,000 Nat'l Westminster Bank PLC, 4.98%, 9/2/99*................................................. 150,000,000
150,000,000 Norddeutsche Landesbank, Girozentrale, 4.88%, 8/16/99...................................... 150,001,564
150,000,000 Svenska Handelsbanken, 4.87%, 6/8/99....................................................... 150,000,144
--------------
817,002,390
--------------
YANKEES -- 22.6%
107,000,000 Banque Nationale de Paris, 4.89%, 6/7/99................................................... 107,000,000
43,000,000 Banque Nationale de Paris, 4.95%, 8/27/99.................................................. 43,000,000
150,000,000 BHF Bank AG, 4.86%, 6/18/99................................................................ 150,000,000
150,000,000 Canadian Imperial Bank of Commerce, 4.82%, 6/28/99......................................... 150,000,000
150,000,000 Lloyds Bank PLC, 4.90%, 7/26/99............................................................ 150,000,000
150,000,000 Westdeutsche Landesbank Girozentrale, 4.88%, 6/16/99....................................... 150,000,000
--------------
Total Negotiable Bank Certificates of Deposit (Cost $2,086,991,948)........................ 2,086,991,948
--------------
COLLATERALIZED PROMISSORY NOTES -- 5.6% (B)
36,000,000 ABN/AMRO, 4.82%, 7/19/99................................................................... 35,768,400
150,000,000 Societe Generale North America, Inc., 4.83%, 6/9/99........................................ 149,838,833
--------------
Total Collateralized Promissory Notes (Cost $185,607,233).................................. 185,607,233
--------------
REPURCHASE AGREEMENTS -- 34.0%
608,000,000 Bear, Stearns & Co. Inc., 4.90%, 6/1/99 (collateralized by FGPC 6.5% to 7.5% due 8/1/09 to
9/1/28 valued at $37,121,128, FGSI 0% due 1/1/29 valued at $329,392, FNMS 6.0% to 9.0% due
7/1/04 to 2/1/29 valued at $299,653,900 and GNMA, 6.0% to 8.5%, due 4/1/09 to 5/15/29
valued at $292,138,983).................................................................... 608,000,000
525,000,000 Salomon Smith Barney, 4.90%, 6/1/99 (collateralized by FNMA 5.5% to 8.07% due 2/1/04 to
5/1/29 valued at $402,133,889 and FHLMC 5.50% - 8.07%, due 2/1/04 to 3/1/33 valued at
$139,705,433).............................................................................. 525,000,000
--------------
Total Repurchase Agreements (Cost $1,133,000,000).......................................... 1,133,000,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
THE RESERVE FUND--PRIMARY FUND
STATEMENT OF NET ASSETS--MAY 31, 1999 (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT REPURCHASE AGREEMENTS -- 34.0% (NOTE 1)
- ------------ ------------------------------------------------------------------------------------------- --------------
<S> <C> <C>
TAXABLE MUNICIPAL BONDS -- 1.9% (A) (NOTE 1)
$ 39,400,000 Florida Housing Finance Agency Housing Revenue Bonds 1993 Series A (LOC UBS AG), 4.88%,
1/1/34..................................................................................... $ 39,400,000
25,100,000 Illinois Student Assistance, 4.85% (LOC Sallie Mae), 12/1/22............................... 25,100,000
--------------
Total Taxable Municipal Bonds (Cost $64,500,000)........................................... 64,500,000
--------------
TOTAL INVESTMENTS (COST $3,470,099,181)...................................... 104.2% 3,470,099,181
LIABILITIES, LESS OTHER ASSETS............................................... (4.2) (140,036,090)
------ --------------
NET ASSETS................................................................... 100.0% $3,330,063,091
------ --------------
------ --------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE BASED ON 3,330,063,091 SHARES OF
BENEFICIAL INTEREST $.001 PAR VALUE OUTSTANDING............................................ $ 1.00
------
------
</TABLE>
- ---------------
(a) The interest rates, as reported May 31, 1999, are subject to change
periodically. Securities are payable on demand and are collateralized by
letters of credit, other bank credit agreements or financial guaranty
assurance agencies.
(b) Collateralized by bank letters of credit.
* Represents a when-issued security.
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
THE RESERVE FUND--U.S. GOVERNMENT FUND
STATEMENT OF NET ASSETS--MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT REPURCHASE AGREEMENTS--99.7% (NOTE 1)
- ------------ ----------------------------------------------------------------------------------- ------------
<S> <C> <C>
$224,000,000 Bear, Stearns & Co. Inc., 4.88%, 6/1/99 (collateralized by GNMA, 4.50%--7.00%, due from
12/15/08 to 4/15/29 valued at $231,821,502).................................................... $224,000,000
177,000,000 DLJ Securities Corporation, 4.875%, 6/1/99 (collateralized by GNMA, 5.00%--9.30%, due from
3/15/01 to 5/15/34 valued at $182,310,504)..................................................... 177,000,000
213,000,000 Salomon Smith Barney, 4.90%, 6/1/99 (collateralized by GNMA, 6.00%--8.00%, due from 1/20/26 to
1/15/29 value at $219,390,000)................................................................. 213,000,000
100,000,000 Lehman Brothers, 4.84%, 6/1/99 (collateralized by GNMA, 6.00%--10.50% due from 1/20/16 to
3/15/29 valued at $102,988,383) 100,000,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $714,000,000).................................... 99.7% 714,000,000
OTHER ASSETS, LESS LIABILITIES..................................................... .3 2,193,928
------ ------------
NET ASSETS......................................................................... 100.0% $716,193,928
------ ------------
------ ------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICES PER SHARE BASED ON 716,193,928
SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE OUTSTANDING.................................... $1.00
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
THE RESERVE FUND--U.S. TREASURY FUND
STATEMENT OF NET ASSETS--MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT U.S. TREASURY BILLS--99.0% (NOTE 1)
- ------------ ----------------------------------------------------------------------------------- ------------
<S> <C> <C>
$ 28,500,000 4.30%--4.37%, 6/3/99........................................................................... $ 28,493,087
33,700,000 4.32%--4.49%, 6/10/99.......................................................................... 33,662,516
25,200,000 4.445%--4.48%, 6/24/99......................................................................... 25,127,936
38,500,000 4.315%--4.48%, 8/5/99.......................................................................... 38,197,597
22,500,000 4.455%--4.475%, 8/12/99........................................................................ 22,298,725
37,000,000 4.41%--4.485%, 8/19/99......................................................................... 36,636,830
38,000,000 4.515%, 8/26/99................................................................................ 37,590,138
36,700,000 4.29%--4.36%, 9/2/99........................................................................... 36,291,141
22,000,000 4.48%--4.51%, 9/9/99........................................................................... 21,726,139
4,000,000 4.48%,--4.56% 9/16/99.......................................................................... 3,946,381
------------
TOTAL U.S. TREASURY BILLS (COST $283,970,490)...................................... 99.0% $283,970,490
OTHER ASSETS, LESS LIABILITIES..................................................... 1.0 2,731,575
------ ------------
NET ASSETS......................................................................... 100.0% $286,702,065
------ ------------
------ ------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICES PER SHARE BASED ON 286,702,065 SHARES OF
BENEFICIAL INTEREST, $.001 PAR VALUE OUTSTANDING............................................... $1.00
------
------
</TABLE>
GLOSSARY
FGPC -- FHLMC Gold Mortgage-Backed Pass-Through Participation Certificates
FGSI -- Freddie MAC Gold Strip Interest Portion
FNMS -- FNMA Mortgage-Backed Pass-Through Securities
FNMA -- Federal National Mortgage Association
FHLMC -- Federal Home Loan Mortgage Corporation
GNMA -- Government National Mortgage Association
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
THE RESERVE FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
U.S. U.S.
PRIMARY GOVERNMENT TREASURY
FUND FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME (Note 1)..................................................... $165,783,965 $36,980,516 $13,142,886
------------ ----------- -----------
EXPENSES (Note 2)
Management fee............................................................. 13,863,140 3,530,115 --
Comprehensive fee.......................................................... -- -- 2,208,713
Shareholder servicing, administration
and general office expenses.............................................. 6,948,679 1,610,476 --
Distribution assistance.................................................... 5,750,544 1,300,163 552,300
Equipment expense.......................................................... 1,262,419 195,013 --
Occupancy costs............................................................ 1,513,097 142,472 --
Professional fees.......................................................... 777,312 167,588 --
Stationery, printing and supplies.......................................... 753,602 168,522 --
Custody fees............................................................... 157,092 35,198 --
Trustee fees............................................................... 65,255 14,626 --
Other...................................................................... 326,856 18,057 --
------------ ----------- -----------
Total Expenses before waiver............................................. 31,417,996 7,182,230 2,761,013
Less: expenses waived (Note 2)........................................... -- -- (635,127)
------------ ----------- -----------
Net Expenses............................................................. 31,417,996 7,182,230 2,125,886
------------ ----------- -----------
NET INVESTMENT INCOME, representing net increase in Net
Assets from Investment Operations.......................................... $134,365,969 $29,798,286 $11,017,000
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
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, 1999 MAY 31, 1998 MAY 31, 1999 MAY 31, 1998
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM
INVESTMENT OPERATIONS:
Net investment income........ $ 134,365,969 $ 115,231,501 $ 29,798,286 $ 29,697,721
---------------- ---------------- --------------- ---------------
DIVIDENDS PAID TO SHAREHOLDERS
FROM:
Net investment income
(Note 1)................... (134,365,969) (115,231,501) (29,798,286) (29,697,721)
---------------- ---------------- --------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS
(at net asset value of $1.00
per share):
Net proceeds from sale of
shares..................... 16,224,681,639 11,543,024,341 3,450,382,930 3,252,798,210
Dividends reinvested......... 134,365,969 115,231,501 29,798,286 29,697,721
Cost of shares redeemed...... (15,736,604,580) (11,054,744,831) (3,416,454,910) (3,241,872,625)
---------------- ---------------- --------------- ---------------
Net increase derived from
capital share transactions and
from investment operations..... 622,443,028 603,511,011 63,726,306 40,623,306
NET ASSETS:
Beginning of year.............. 2,707,620,063 2,104,109,052 652,467,622 611,844,316
---------------- ---------------- --------------- ---------------
End of year.................... $ 3,330,063,091 $ 2,707,620,063 $ 716,193,928 $ 652,467,622
---------------- ---------------- --------------- ---------------
---------------- ---------------- --------------- ---------------
<CAPTION>
U.S. TREASURY FUND
-----------------------------------
YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM
INVESTMENT OPERATIONS:
Net investment income........ $ 11,017,000 $ 9,908,933
--------------- ---------------
DIVIDENDS PAID TO SHAREHOLDERS
FROM:
Net investment income
(Note 1)................... (11,017,000) (9,908,933)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS
(at net asset value of $1.00
per share):
Net proceeds from sale of
shares..................... 1,315,560,422 1,135,200,601
Dividends reinvested......... 11,017,000 9,908,933
Cost of shares redeemed...... (1,279,635,650) (1,074,527,046)
--------------- ---------------
Net increase derived from
capital share transactions and
from investment operations..... 46,941,772 70,582,488
NET ASSETS:
Beginning of year.............. 239,760,293 169,177,805
--------------- ---------------
End of year.................... $ 286,702,065 $ 239,760,293
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES:
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 (4) series: Primary Fund, U.S. Government Fund, U.S.
Treasury Fund and the Strategist Money Market Fund (collectively, the
"Funds"). The financial statements and notes apply only to Primary, U.S.
Government and U.S. Treasury Funds.
B. Securities are valued at amortized cost, which approximates market
value. The amortized cost method values a security at cost plus accrued
interest at the time of purchase, and thereafter assumes a constant
amortization to maturity of any discount or premium, irrespective of
intervening changes in interest rates or market values. The maturity of
floating or variable rate instruments in which the Fund may invest will be
deemed to be, for floating rate instruments (1) the notice period required
before the Fund is entitled to receive payment of the principal amount of
the instrument; and for variable rate instruments the longer of (1) above
or (2) the period remaining until the instrument's next rate adjustment,
for purpose 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. Security transactions are recorded on a trade date basis; interest
income is accrued daily and security premium or discount is amortized or
accreted daily. Net investment income is distributed to shareholders daily
and automatically reinvested in additional Fund shares.
E. Primary and U.S. Government Funds are charged only for their direct
and/or allocated share of expenses (in proportion to each Fund's net
assets or number of shareholder accounts). Please read Note 7 "Subsequent
Events" for more detail.
F. Funds may enter into repurchase agreements with financial institutions
and securities dealers who are deemed creditworthy 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. However, in the
event of default or bankruptcy by the seller, realization and/or retention
of the collateral may be subject to legal proceedings. The Funds'
custodian holds the securities subject to repurchase agreements.
(2) MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
Pursuant to an Investment Management Agreement (the "Agreement") between
Reserve Management Company, Inc. ("RMCI") and the Fund, RMCI serves as the
Fund's Investment Adviser subject to the direction of the Board of
Trustees. Under the Agreement, RMCI is responsible for the supervision of
the day-to-day operations, manages the Fund's investments, effects
purchases and sales thereof, and absorbs certain promotional expenses. For
its services as Investment Adviser, RMCI receives a management fee
calculated 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% in excess of $2 billion of average daily net assets
of both Primary Fund and U.S. Government Fund. For its services as
Investment Adviser to U.S. Treasury Fund, RMCI receives a comprehensive
fee calculated at an annual rate of .80% of the Fund's average daily net
assets. The operating expenses charged the Funds are limited to an annual
rate of 1.00% (excluding brokerage fees and commissions, interest charges,
taxes and extraordinary legal fees and expenses) of each Fund's average
daily net assets. However, RMCI has voluntarily agreed to reduce the
comprehensive fee of U.S. Treasury Fund to an annual rate of .60% of
average net assets. During the year ended May 31, 1999, RMCI voluntarily
reduced its fee by $551,812. Please read Note 7 "Subsequent Events" for
more detail.
DISTRIBUTION ASSISTANCE:
Pursuant to a Plan of Distribution, each Fund may make assistance
payments, at a rate of .20% per annum of the average net asset value, to
firms for distribution assistance and administrative services provided to
Fund shareholders. The Plan requires RMCI to pay an equivalent amount from
its own resources. RMCI also has voluntarily agreed to reduce the payments
made by U.S. Treasury Fund to an annual rate of .17%. During the year
ended May 31, 1999, RMCI voluntarily reimbursed the Fund a total of
$83,315 pursuant to the undertaking.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) 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.
(4) COMPOSITION OF NET ASSETS:
At May 31, 1999, the composition of each Fund's net assets was as follows:
<TABLE>
<CAPTION>
PRIMARY U.S. GOVERNMENT U.S. TREASURY
-------------- --------------- -------------
<S> <C> <C> <C>
Par Value......................................................... $ 3,330,063 $ 716,194 $ 286,702
Paid-in-Capital................................................... 3,326,733,028 715,477,734 286,415,363
-------------- ------------- -------------
Net Assets........................................................ $3,330,063,091 $ 716,193,928 $ 286,702,065
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
(5) FINANCIAL HIGHLIGHTS:
Contained below is per share operating performance data for a share of
beneficial interest outstanding of each Fund for the periods as indicated.
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRIMARY FUND
Net asset value beginning of year............................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income from investment operations............. .0438 .0483 .0457 .0490 .0450
Less dividends from net investment income.................... (.0438) (.0483) (.0457) (.0490) (.0450)
-------- -------- -------- -------- --------
Net asset value at end of year............................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return................................................. 4.38% 4.83% 4.57% 4.90% 4.50%
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets end of year (millions)............................ $3,330.1 $2,707.6 $2,104.1 $1,664.1 $1,602.5
Ratio of expenses to average net assets...................... 1.00% .94% .98% .98% .97%
Ratio of net investment income to average net assets......... 4.26% 4.71% 4.47% 4.79% 4.42%
U.S. GOVERNMENT FUND
Net asset value beginning of year............................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income from investment operations............. .0426 .0471 .0449 .0484 .0441
Less dividends from net investment income.................... (.0426) (.0471) (.0449) (.0484) (.0441)
-------- -------- -------- -------- --------
Net asset value at end of year............................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return................................................. 4.26% 4.71% 4.49% 4.84% 4.41%
RATIOS/SUPPLEMENTAL DATA
Net assets end of year (millions)............................ $ 716.2 $ 652.5 $ 611.8 $ 568.5 $ 721.8
Ratio of expenses to average net assets...................... 1.00% .99% .99% 1.00% .99%
Ratio of net investment income to average net assets......... 4.16% 4.63% 4.40% 4.75% 4.31%
</TABLE>
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY FUND
Net asset value beginning of year............................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income from investment operations............. .0410 .0456 .0443 .0466 .0456
Less dividends from net investment income.................... (.0410) (.0456) (.0443) (.0466) (.0456)
-------- -------- -------- -------- --------
Net asset value at end of year............................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return................................................. 4.10% 4.56% 4.43% 4.66% 4.56%
RATIOS/SUPPLEMENTAL DATA
Net assets end of year (millions)............................ $ 286.7 $ 239.8 $ 169.2 $ 142.8 $ 95.2
Ratio of expenses to average net assets (a).................. 1.00% .97% .97% .99% .93%
Ratio of net investment income to average net assets......... 3.76% 4.26% 4.13% 4.33% 4.44%
</TABLE>
- ---------------
(a) Due to the voluntary waiver of certain expenses by RMCI, the net expense
ratios and net investment income amounted to:
<TABLE>
<CAPTION>
NET
EXPENSE INVESTMENT
FISCAL YEAR RATIO INCOME
- ------------------- ------------------- -------------------
<S> <C> <C>
1999 .77% 3.99%
1998 .77% 4.46%
1997 .77% 4.33%
1996 .79% 4.53%
1995 .68% 4.64%
</TABLE>
(7) SUBSEQUENT EVENTS (UNAUDITED):
On June 26, 1999, new Investment Management Agreements between RMCI and
the Funds went into effect. Under the new Agreement RMCI will charge each
Fund a comprehensive management fee at an annual rate of .80% of each
Fund's average daily net assets. Primary and U.S. Government Funds will no
longer be charged for all other expenses, as described in Note 1 E, on
page 8. The comprehensive fee is an inclusive fee, but will not include
brokerage fees and commissions, interest charges, taxes and extraordinary
legal fees and expenses, and the fees of the disinterested Trustees.
10
<PAGE>
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 Fund) (the "Fund") at May 31, 1999, and the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, 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 audit 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, 1999 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 23, 1999
11
<PAGE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Special Meeting of Shareholders of The Reserve Fund (consisting of four
Funds: Primary Fund, U.S. Government Fund, U.S. Treasury Fund, and Strategist
Money-Market Fund); was held on January 15, 1999 at the offices of The Reserve
Funds, 810 Seventh Avenue, New York, NY. The meeting was adjourned until
February 17, 1999, at which time it was held. The meeting was held for the
following purposes:
<TABLE>
<CAPTION>
PROPOSAL WHO WILL VOTE
- --------------------------------------------------------------------------------------------------------- -------------
<S> <C>
PROPOSAL 1
To provide for the election of Trustees Trust Vote
PROPOSAL 2
To approve new Investment Management Agreements All Funds
PROPOSAL 3
To approve amendments to the Trusts' Declaration of Trust to permit the issuance of multiple classes of
shares Trust Vote
PROPOSAL 4
To approve the following proposed amendments:
A. To amend the Declaration of Trust to eliminate the policy on pricing securities; Trust Vote
B. To amend the Declaration of Trust to permit non-material amendments; Trust Vote
C. To amend the Declaration of Trust concerning the right to vote portfolio securities; Trust Vote
D. To amend the Declaration of Trust concerning termination or reorganization of the Trust; Trust Vote
E. To amend the Trusts' fundamental investment policy on the issuance of senior securities; All Funds
F. To amend the Trusts' fundamental investment policy regarding underwriting; All Funds
G. To change the designation of the Trusts' fundamental investment policy on investing for control of
portfolio companies; All Funds
H. To eliminate the Trusts' fundamental investment policies regarding certain portfolio transactions; All Funds
I. To eliminate the Trusts' fundamental investment policy on investing in the securities of other
investment companies; All Funds
J. To amend the Trusts' By-Laws concerning amendments thereto Trust Vote
PROPOSAL 5
To approve changes to the Trusts' Fundamental Investment Policies to Permit a Master Fund/Feeder Fund
Structure All Funds
PROPOSAL 6
To approve the authorization of the Board of Trustees to appoint, replace or terminate sub-advisers
recommended by the adviser or amend the terms of any sub-advisory agreement for the Funds without
shareholder approval All Funds
PROPOSAL 7
To ratify the selection of PricewaterhouseCoopers LLP as independent public accountants for the fiscal
year ending May 31, 1999; and Trust Vote
PROPOSAL 8
To transact such other business as may properly come before the Meeting Such Funds
as Necessary
</TABLE>
12
<PAGE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED) (CONTINUED)
A Quorum of the shares of the Trust and the Funds was present at the
Meeting.
The results of the proxy solicitation as to the Trust and The Primary, U.S.
Government and U.S. Treasury Fund on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
(1) Board of Trustees VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Bruce R. Bent 2,157,168,944 -- 273,121,130 --
Edwin Ehlert, Jr. 2,157,908,386 -- 272,381,688 --
Henri Emmet 2,156,748,779 -- 273,541,295 --
Donald Harrington 2,158,437,954 -- 271,852,115 --
Bruce R. Bent II 2.153,825,061 -- 276,465,013 --
William Viklund 2,159,301,036 -- 270,989,038 --
Vincent Mattone 2,158,780,203 -- 271,509,871 --
Diana Herrmann 2,159,085,758 -- 271,204,316 --
Richard Bassuk 2,159,173,949 -- 271,116,125 --
<CAPTION>
(2) Investment Management VOTES WITHHELD/
Agreement VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Primary 1,604,808,472 68,171,930 -- 161,974,078
US Government 360,660,023 16,996,987 -- 40,276,469
US Treasury 136,201,955 7,551,831 -- 13,767,425
<CAPTION>
VOTES WITHHELD/
(3) Multiple Classes VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
2,087,080,963 124,909,797 218,597,617
<CAPTION>
VOTES WITHHELD/
(4) VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
(A) Pricing Securities 2,075,483,285 122,649,986 -- 232,156,799
(B) Non-material amendments 2,089,106,337 112,300,977 -- 228,882,757
(C) Vote portfolio securities 2,088,403,109 113,567,557 -- 228,319,405
(D) Termination or Reorganization 2,082,163,331 117,347,013 -- 230,779,727
(E) Senior securities
Primary 1,580,014,877 84,086,027 -- 170,853,576
US Government 352,465,782 24,498,809 -- 40,968,889
US Treasury 129,472,288 12,789,456 -- 15,259,467
(F) Underwriting
Primary 1,583,695,564 79,462,169 -- 171,796,746
US Government 355,568,542 21,075,551 -- 41,289,386
US Treasury 130,063,604 12,453,267 -- 15,004,340
(G) Control of portfolio companies
Primary 1,574,878,683 87,875,537 -- 172,200,260
US Government 353,159,744 23,984,303 -- 40,789,433
US Treasury 129,803,466 12,967,953 -- 14,749,793
</TABLE>
13
<PAGE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
(H) Portfolio transactions
<S> <C> <C> <C> <C>
Primary 1,572,525,764 88,364,189 -- 174,064,526
US Government 352,009,599 22,601,559 -- 43,322,322
US Treasury 129,008,482 14,054,112 -- 14,458,618
<CAPTION>
(I) Investing in investment
companies
<S> <C> <C> <C> <C>
Primary 1,579,829,716 84,339,418 -- 170,785,346
US Government 353,340,847 22,845,789 -- 41,746,843
U.S. Treasury 129,424,162 13,284,020 -- 14,813,030
(J) By-Law amendments 2,079,207,738 119,805,924 -- 231,276,407
<CAPTION>
VOTES WITHHELD/
(5) Master Fund/Feeder Fund VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Primary 1,582,066,524 83,934,117 -- 168,953,838
US Government 353,209,844 24,311,158 -- 40,412,478
US Treasury 131,446,069 11,751,525 -- 14,323,617
<CAPTION>
VOTES WITHHELD/
(6) Trustee Authorization VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Primary 1,596,686,127 77,815,840 -- 160,452,513
US Government 354,645,885 23,402,956 -- 39,884,639
US Treasury 131,306,265 12,418,166 -- 13,796,781
<CAPTION>
VOTES WITHHELD/
(7) PricewaterhouseCoopers LLP VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
2,175,082,027 51,660,848 -- 203,547,195
</TABLE>
14
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