<PAGE>
Registration Statement Nos. 2-36429
811-2033
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
....
Post-Effective Amendment No. 60 [X]
....
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 30 [X]
....
(Check appropriate box or boxes.)
...........................................................................
(Exact Name of Registrant as Specified in Charter)
THE RESERVE FUND
...........................................................................
(Address of Principal Executive Offices) 1250 BROADWAY, NEW YORK, NY 10001-3701
(Zip Code)
Registrant's Telephone Number, including Area Code (212) 401-5500
..........................
.............................................................................
MaryKathleen Foynes, Esq.
The Reserve Funds
1250 Broadway
New York, NY 10001-3701
(Name and Address of Agent for Service)
Approximate date of Proposed Public Offering ................................
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on July 31, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
If approriate, check the following box:
[ ] this post-effective amendment designates a new effective data for a
previously filed post-effective amendment.
The Commission is requested to send copies of all communications to:
MaryKathleen Foynes, Esq.
The Reserve Funds
1250 Broadway
New York, NY 10001-3701
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[THE RESERVE FUNDS LOGO]
The Reserve Fund
Money-Market Funds
Prospectus
July 31, 1999
The Reserve Fund (the "Trust")," is a registered investment company, which
offers three no-load money-market funds in this Prospectus:
o Primary Fund,
o U.S. Government Fund, and
o U.S. Treasury Fund
(collectively "the Funds").
For investors seeking as high a level of current income as is consistent
with preservation of capital and liquidity.
---------------
These Securities Have Not Been Approved Or Disapproved By The Securities And
Exchange Commission Nor Has The Commission Passed Upon The Accuracy Or Adequacy
Of This Prospectus. Any Representation To The Contrary Is A Criminal Offense.
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TABLE OF CONTENTS
Page
----
Investment Objective & Principal
Strategies....................... 2
Performance History................. 3
Fees & Expenses of the Fund......... 5
Management.......................... 6
How to Buy Shares................... 6
Selling Fund Shares................. 7
Tax Consequences.................... 8
General Information................. 9
Financial Highlights................ 9
INVESTMENT OBJECTIVE & PRINCIPAL STRATEGIES
The investment objective of all three Funds 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.
The Funds seek to maintain a stable $1.00 share price. The portfolio
managers monitor a range of economic and financial factors. Based on their
analysis, the Funds are invested in a mix of U.S. dollar denominated
money-market securities that are intended to provide as high a yield as possible
without violating the Fund's credit quality policies or jeopardizing the
stability of its share price.
Primary Fund. The Primary Fund seeks to attain its objective by investing in
instruments issued by the U.S. government, its agencies and instrumentalities
("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
nationally recognized statistical rating organizations non-rated instruments 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 Primary Fund will invest in obligations of U.S. banking institutions
that are insured by the Federal Deposit Insurance Corporation and 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 if rated by another rating agency. The Primary Fund may also invest
in obligations of foreign branches of both U.S. banks and foreign banks
(Eurodollars). Investment in foreign banks will be limited to those located in
Australia, Canada, Western Europe and Japan and 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 the U.S. banks which may be purchased by the Fund. The
Primary Fund may also invest in municipal obligations, the interest on which is
not exempt from federal income taxation.
U.S. Government Fund. The U.S. Government Fund seeks to attain its objective by
investing exclusively in securities backed by full faith and credit of the U.S.
government, such as U.S. Treasury securities, obligations issued or guaranteed
by the U.S. government, its agencies and instrumentalities, and repurchase
agreements supported by such investments.
U.S. Treasury Fund. The U.S. Treasury Fund seeks to attain its objective by
investing exclusively in securities backed by the full faith and credit of the
U.S government which provide interest income exempt in most states from state
and local personal income taxes. Typically, the Fund's assets will be invested
in U.S. Treasury securities.
The "full faith and credit" backing is considered the strongest backing
offered by the U.S. government and to be the highest degree of safety with
respect to the payment of principal and interest.
The Funds may invest in repurchase agreements ("repos") but will limit
them to those banks and securities dealers who are deemed creditworthy pursuant
to the guidelines adopted by the Trust's Board of Trustees ("Trustees"). The
U.S. Government and
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U.S. Treasury Funds will further limit their investment in repos to those whose
underlying obligations are backed by the full faith and credit of the United
States, and, in the case of the U.S. Treasury Fund, repos will not exceed 5% of
its total assets except for temporary or emergency purposes. Securities subject
to repos 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.
Although not a principal strategy, the Funds are allowed to invest all,
or substantially all, of their investable assets in other open-end management
companies having the same investment objective and substantially similar
policies and restrictions.
Principal Risks of Investing in the Funds. The Funds are money-market funds
which are a specific type of fund that seeks to maintain a $1.00 price per
share. An investment in a Fund is not insured or guaranteed by the U.S.
government, Federal Deposit Insurance Corporation or any other government
agency. Although each Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in a Fund.
Additionally, each Fund's yield will vary as the short-term securities in its
portfolio mature and the proceeds are reinvested in securities with different
interest rates.
While each Fund has maintained a constant share price since inception,
and will strive to do so, the following factors could reduce the Fund's income
level and/or share price:
o as to all Funds, interest rates could rise sharply, causing the value
of the Funds' securities, and share price, to drop.
o as to all Funds, repos could involve risks in the event of a default
of the repo counterparty, including possible delays, losses or
restrictions upon a Fund's ability to dispose of the underlying
securities.
o as to the Primary Fund, there are risks generally associated with
investing in the banking industry, such as interest rate risk, credit
risk and regulatory developments relating to the banking industry.
o as to the Primary Fund, Euro and Yankee dollar investments involve
certain risks that are different from investments in domestic
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 banks are not regulated by U.S. banking authorities
and are generally not bound by financial reporting standards
comparable to U.S. banks. Adverse political, regulatory, market or
economic developments in foreign countries can affect entities located
in those countries.
o as to the Primary Fund, investments in municipal obligations are
subject to market volatility and affected by adverse economic or
political changes and the financial condition of the issuers.
Year 2000. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900. Most of the services provided to the Trust depend
on the smooth functioning of computer systems. The Trust could be adversely
affected if the computer systems and 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. In addition, because the Year 2000 issue affects virtually all
organizations, the extent of its impact cannot be predicted.
Other Risks. These risks are discussed in more detail in the Statement of
Additional Information ("SAI"). Most of the Funds' performance depends on
interest rates. When interest rates fall, the Funds' yields will typically fall
as well.
The Reserve Fund's emphasis on the high credit quality of its investments
may mean that its yields are lower than those available from certain other
money-market funds that may invest in commercial paper. Because of the low level
of risk, over time, a money-market fund may produce lower returns than bond or
stock investments which entail higher levels of risk.
PERFORMANCE HISTORY
The bar charts below show the Funds' annual returns for the past ten
years or since the first calendar year since inception, together with the best
and worst quarters. The accompanying "Average Annual Total Return as of December
31, 1998" table gives some indication of risk of an investment in the Funds. The
tables assume reinvestment of dividends and distributions, if any. As with all
mutual funds, the past is not a prediction of the future.
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<TABLE>
<CAPTION>
Primary Fund
Annual Total Returns as of December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.16% 7.88% 5.59% 3.17% 2.39% 3.49% 5.27% 4.67% 4.87% 4.81%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 3rd Q 1989 2.40%
Worst Quarter: 2nd Q 1993 0.58%
Most Recent Calendar Quarter: 2nd Q 1999 3.99%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
4.81% 4.62% 5.11%
<TABLE>
<CAPTION>
U.S. Government Fund
Annual Total Returns as of December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.10% 7.80% 5.32% 3.09% 2.30% 3.42% 5.18% 4.60% 4.76% 4.69%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 3rd Q 1989 2.17%
Worst Quarter: 2nd Q 1993 0.20%
Most Recent Calendar Quarter: 2nd Q 1999 3.89%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
4.69% 4.53% 5.01%
U.S. Treasury Fund
Annual Total Returns as of December 31,
2.19% 3.68% 4.96% 4.53% 4.61% 4.52%
1993 1994 1995 1996 1997 1998
Best Quarter: 3rd Q 1995 1.20%
Worst Quarter: 1st Q 1993 0.19%
Most Recent Calendar Quarter: 2nd Q 1999 3.85%
Average Annual Total Returns as of December 31, 1998
1 5 Since
Year Years Inception
---- ----- ---------
4.52% 4.46% 3.89%
For the Funds' current yields, call toll-free (800) 637-1700 or visit our
web site at www.reservefunds.com.
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FEES & EXPENSES OF THE FUNDS
If you buy and hold shares of the Funds, you may pay certain fees and
expenses which are described in the table below. There are no sales charges
(loads) or exchange fees associated with an investment in the Funds. Annual fund
operating expenses are paid out of the assets of each Fund, so their effect is
included in each Fund's share price. Annual fund operating expenses, indicated
in the table below, reflect expenses for the Funds' fiscal year ended May 31,
1999.
Shareholder Fees for all Funds
(Fees paid directly from your investment)
Sales Load Imposed on Purchases........................... None
Sales Load Imposed on Reinvested Dividends................ None
These are all no-load funds. There are no direct shareholders fees. Please see
the "Annual Fund Operating Expenses for all Funds" table below.
Annual Fund Operating Expenses for all Funds
(Expenses that are deducted from Fund assets)
U.S. U.S.
Primary Government Treasury
Fund Fund Fund
------- ---------- --------
Comprehensive Management Fee (a).......... .80% .80% .80%
Distribution (12b-1) Fees (b)............. .20 .20 .20
---- ---- ----
Total Annual Fund Operating Expenses...... 1.00% 1.00% 1.00%
==== ==== ====
(a) The comprehensive management fee includes advisory and customary operating
expenses. However, the Funds may be charged for certain non-recurring
extraordinary expenses and its allocated or direct share of certain other
expenses. See "Management".
(b) The Funds have adopted a Rule 12b-1 plan which allows the Funds to pay
distribution fees for the sale and distribution of its shares. The maximum
level of distribution expenses is 0.20% per year of each Fund's average net
assets. As these fees are paid out of each Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Example: This example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example should
not be considered indicative of future investment returns and operating expenses
which may be more or less than those shown. This example is based on the annual
fund operating expenses described in the table.
This example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that each Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Primary Fund $102 $318 $552 $1,225
U.S. Government Fund 102 318 552 1,225
U.S. Treasury Fund 102 318 552 1,225
Please note that the above example is an estimate of the expenses to be incurred
by shareholders of the Funds. Actual expenses may be higher or lower than those
reflected above. You would pay the same if you did not redeem your shares.
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MANAGEMENT
Investment Adviser. Since November 15, 1971, Reserve Management Company, Inc.
("RMCI") 1250 Broadway, New York, NY 10001 and its affiliates have provided
investment advice to The Reserve Funds. RMCI serves as the investment adviser to
the Funds under an Investment Management Agreement (the "Agreement") with The
Reserve Fund (the "Trust"). As a result of recent shareholder votes, each of the
Funds has entered into a new Investment Management Agreement with RMCI, which is
substantially similar to the Investment Management Agreement previously in
effect with regard to each Fund, except for a new comprehensive management fee.
The U.S. Treasury Fund, since inception, has been subject to a comprehensive
management fee. The new Investment Management Agreements became effective June
26, 1999. The Agreement provides that RMCI will furnish continuous investment
advisory and management services to the Funds. In addition to the Funds, RMCI
provides investment management services to other mutual funds within the Reserve
family of funds and, as of May 31, 1999, had approximately $5.6 billion under
management.
RMCI manages the investment portfolios of the Funds, subject to policies
adopted by the Trustees. For its services, RMCI receives a fee of 0.80% per year
of the average daily net assets of each Fund. RMCI pays all employee and
customary operating expenses of the Fund. Excluded from the definition of
customary operating expenses are interest, taxes, brokerage fees, extraordinary
legal and accounting fees and expenses, and the fees of the disinterested
Trustees, for which each Fund pays its direct or allocated share. For the fiscal
year ended May 31, 1999, RMCI received management fees under the investment
management agreements previously in effect with regard to each Fund. For the
fiscal year ended May 31, 1999, the Primary, U.S. Government and U.S. Treasury
Fund paid RMCI $13,863,140, $3,530,115, $2,208,713, respectively. However, at
May 31, 1999, RMCI waived $635,127 of the U.S. Treasury Fund's comprehensive
management fee.
HOW TO BUY SHARES
Share Price: Net Asset Value. Investors pay no sales charges to invest in the
Funds. The price you pay for a share of a Fund, and the price you receive upon
selling or redeeming a share of a Fund, is called the Fund's net asset value
("NAV") per share. The NAV is calculated by taking the total value of a Fund's
assets, subtracting its liabilities, and then dividing by the number of shares
that have already been issued. Each Fund uses the amortized cost method of
valuing its securities under Rule 2a-7 of the 1940 Act. This is a standard
calculation, and forms the basis for all transactions involving buying, selling,
exchanging or reinvesting shares. The NAV is generally calculated as of the
close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time)
every day the Exchange is open. NAV is not calculated on days the Exchange is
closed and regional bank holidays. Your order will be priced at the next NAV
calculated after your order is accepted (i. e., converted to federal funds) by
the Funds.
Purchase of Shares. The minimum initial investment is $1,000 (IRA minimum $250)
with no minimum subsequent investment. All investments must be in U.S. dollars.
Third-party, foreign and travellers checks, as well as cash investments will not
be accepted. For clients of certain broker-dealers and financial institutions
("Firms"), shares may be purchased directly through such Firms. However,
purchases may be subject to the Firms' own minimums and purchase requirements.
Purchase orders are not accepted on days the Exchange is closed for trading and
regional bank holidays.
o By check - (drawn on U.S. bank) payable to The Reserve Funds, 1250
Broadway, New York, NY 10001-3701. 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.
o By wire - Prior to calling your bank, call The Reserve Funds at
800-637-1700 for specific instructions 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. 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 Funds must be notified before 2:00 PM (Eastern 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 Fund's offices after
2:00 PM (Eastern time, 11:00 AM for the U.S. Treasury Fund) will be considered
received the next business day. Investors will be charged a fee $15 for any
check that does not clear and will be responsible for any losses suffered by the
Funds as a result.
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Reserve Automatic Asset-Builder Plan. If you have an account, you may purchase
shares of a Fund ($25 suggested minimum) from a checking, NOW, or bank
money-market deposit account or from a U.S. government distribution ($25
suggested minimum) such as social security, federal salary, or certain veterans'
benefits, or other payment from the federal government. You may also purchase
shares automatically by arranging to have your payroll deposited directly into
your Reserve account. Please call the Funds at 800-637-1700 for an application.
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.
Third-party Investments. Investments made through a third party (rather than
directly with Reserve) such as a financial services agent may be subject to
policies and fees different than those described here. Banks, brokers, 401(k)
plans, financial advisers and financial supermarkets may charge transaction fees
and may set different minimum investments or limitations on buying or selling
shares. Investors should consult a representative of the plan or financial
institution if in doubt.
Distributors. The Funds' distributors are GAM Services, Inc. ("GAM"), 135 East
57th Street, New York, NY 10022; The Kaufmann Fund, Inc., ("Kaufmann"), 140 East
45th Street, New York, NY 10017; and Resrv Partners, Inc. ("RESRV"), 1250
Broadway, New York, NY 10001-3701.
Restrictions. Certain other restrictions and conditions for buying shares apply
to the Funds. Please see the SAI for more information.
SELLING FUND SHARES
Investors may sell shares at any time. Shares will be sold at NAV
determined after the redemption request is received by the Fund. Each Fund
usually transmits payments the same day when requests are received before 12:00
noon (Eastern 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. Shares do not earn dividends on the day a
redemption is effected, regardless of the time the order is received. Orders
will be processed promptly and investors will generally receive the proceeds
within a week after receiving your properly completed request. The Funds
strongly suggest (but does not require) that each telephone redemption be at
least $1000, except for redemptions which are intended to liquidate an 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.
Written and telephone requests. Redemption instructions and options should be
specified 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. One
way to redeem shares is to write a letter of instruction which states: the
name(s) and signature(s) of all accountholders (signature(s) guaranteed, if
necessary), account number, Fund name, the dollar amount you want to sell, and
how and where to send the proceeds. If you are redeeming your IRA, please note
the applicable withholding requirements.
To reduce the risk of loss, certain situations require written
instructions along with signature guarantees. These include:
(1) redemptions for more than $5,000; or
(2) redemptions on accounts whose address has been changed within the
past 30 days; or
(3) redemption requests to be sent to someone other than the account
owner or the address of record for the past 30 days.
You may redeem by calling the Funds at 800-637-1700. Unless you decline
telephone privileges on your application and the Funds fail to take reasonable
measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions may be sent to
the bank or brokerage account designated by the shareholder on the application
or in a letter with signature guarantee. 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. The Fund
reserves the right to refuse a telephone redemption if it believes it is
advisable to do so.
Signature guarantees are designed to protect both you and the Funds from
fraud. Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/dealers, national securities exchanges or
clearing agencies. Notaries public cannot provide signature guarantees. For more
information about redemption procedures, please read the SAI.
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Checking, VISA and ATM Access. You may redeem shares of the Fund by using your
Reserve checks and VISA check card. By completing the application or a signature
card (for existing accounts) and certain other documentation, you can write
checks in any amount against your account. A check will be returned (bounced)
and a fee charged if you request a stop payment; the check is postdated;
contains an irregularity in the signature, amount or otherwise; or, is written
against accounts with insufficient or uncollected funds. Please do not postdate
your checks or use them to close your account. 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 some Firms may
establish their own minimum check amount. Shareholders may use their VISA check
card at ATM's to receive cash and may be charged a surcharge by the ATM owner.
Please see the SAI for information including charges, fees, etcetera.
Exchange Privilege. Investors can exchange all or some of their shares offered
for shares in other Reserve money-market and equity funds. Investors can request
an exchange in writing or by telephone. The shares of the other funds are not
offered by this Prospectus. Be sure to read the current prospectus for any fund
into which you are exchanging. Any new account established through an exchange
will have the same privileges as an original account (as long as they are
available). There is currently no fee for exchanges; however, some customers who
exchange shares of the Primary, U.S. Government, and/or U.S. Treasury Funds may
be charged a sales load for exchanging into funds other than Reserve funds,
where a sales load applies. Please see the SAI for more information.
Other Automatic Services. Certain other services and restrictions for selling
shares automatically are offered by the Funds. Please see the SAI for more
information about these services and restrictions.
Redemptions Through Brokers And Financial Institutions. Redemptions through
brokers and financial institutions may involve such Firms' own redemption
minimums, services fees, and other redemption requirements.
Other. The Funds also reserve the right to make a "redemption in kind", (payment
in portfolio securities rather than cash), without notice, if the amount the
investor is redeeming is large enough to affect fund operations (for example, if
it represents more than 1% of the Fund's assets). Further, each Fund reserves
the right to:
o refuse any purchase or exchange request,
o change or discontinue its exchange privilege,
o change its minimum investment amounts, and
o delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions).
TAX CONSEQUENCES
The following discussion is intended as general information only. Because
everyone's tax situation is unique, you should consult your own tax advisor(s)
with regard to the applicability of state and local tax laws on Fund
distributions. The applicable tax laws which affect the Funds and their
shareholders are subject to change and may be retroactive. For more information,
please see the SAI.
Dividends, Distributions and Taxes. Each Fund declares dividends daily and
automatically reinvests them in additional shares except for shareholders who
elect in writing to receive cash dividends, in which case monthly or quarterly
dividend checks are sent to the shareholder. There are no fees or sales charges
on reinvestments.
Dividends and distributions are taxable to most shareholders as ordinary
income (unless an investment is in an IRA or other tax-advantaged account).
Distributions of long-term capital gains, if any, are taxable to shareholders as
long-term capital gains. The tax status of any distribution is the same
regardless of how long an investor has been in the fund and whether
distributions are reinvested or taken in cash. The tax status of dividends and
distributions will be detailed in annual tax statements from the Funds. An
exchange of a Fund's shares for the shares of another fund will be treated as a
sale of The Fund's shares and any gain may be subject to federal income tax.
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 most 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
8
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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.
Backup Withholding. A Fund may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to certain 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. 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 account holders.
GENERAL INFORMATION
Small Balances. Because of the expense of maintaining accounts with small
balances (less than $1,000), the Funds may choose without notice 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 monthly charges if
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 for a variety of
options, which include yields, account balances, check reorders and other
options. 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 Reserve Funds.
Special Shareholder 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.
Account Statements. Shareholders are advised to retain all account statements.
FINANCIAL HIGHLIGHTS
This section provides further details about the Funds' recent financial
history. "Total Return" shows how much an investment in a series would have
increased (or decreased) during each period, assuming reinvestment of all
dividends and distributions, if any. These figures have been audited by
PricewaterhouseCoopers LLP, the Trust's independent accountants, whose report,
along with each Funds' financial statements, is included in the Trust's Annual
Report, which is available upon request by calling 800-637-1700.
9
<PAGE>
<TABLE>
<CAPTION>
For Fiscal Years Ended May 31,
-------------------------------------------------------------------
PRIMARY FUND 1999 1998 1997 1996 1995
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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%
For Fiscal Years Ended May 31,
-------------------------------------------------------------------
U.S. GOVERNMENT FUND 1999 1998 1997 1996 1995
- -------------------- ---- ---- ---- ---- ----
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>
10
<PAGE>
<TABLE>
<CAPTION>
For Fiscal Years Ended May 31,
---------------------------------------------------------------------
U.S.TREASURY FUND 1999 1998 1997 1996 1995
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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:
------------------------- -------------- --------------
Net
Expense Investment
Fiscal Year Ratio Income
------------------------- -------------- --------------
1999 .77% 3.99%
------------------------- -------------- --------------
1998 .77% 4.46%
------------------------- -------------- --------------
1997 .77% 4.33%
------------------------- -------------- --------------
1996 .79% 4.53%
------------------------- -------------- --------------
1995 .68% 4.64%
------------------------- -------------- --------------
--------------
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon. This
Prospectus does not constitute an offering in any jurisdiction in which such
offering may not lawfully be made.
---------------
11
<PAGE>
This Prospectus contains the information about each Fund, which a prospective
investor should know before investing.
The Statement of Additional Information ("SAI") contains additional and more
detailed information about the Funds, and is considered part of this Prospectus.
Our Annual and Semi-Annual Reports list the holdings in each Fund, describe Fund
performance, include financial statements for the Funds, and discuss market
conditions and strategies that significantly affected the Funds' performance.
These documents may be obtained without charge by writing to the address below
or calling The Reserve Funds at 800-637-1700. You can download the documents
from the SEC's web site (http://www.sec.gov) or you can obtain copies by
visiting the SEC's Public Reference Room in Washington, DC (800-SEC-0330) or by
sending your request and duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009.
Investors are advised to read and retain this
prospectus for future reference.
[THE RESERVE FUNDS LOGO]
Founders of
"America's First
Money Fund"
1250 Broadway, New York, NY 10001-3701
(212) 401-5500
General Information and 24-Hour Yield and Balance Information
800-637-1700 - www.reservefunds.com
Distributor - Resrv Partners, Inc.
RF/PG&T-07/99
SEC File Number
The Reserve Fund
811-2033
[THE RESERVE FUNDS LOGO]
Founders of
"America's First
Money Fund"
Primary Fund
U.S. Government Fund
U.S. Treasury Fund
Money-Market Funds
Prospectus
July 31, 1999
12
<PAGE>
THE RESERVE FUND
"AMERICA'S FIRST MONEY FUND"
1250 BROADWAY, NEW YORK, NY 10001-3701
212-401-5500 / / 800-637-1700
--------------------------------------------
24-HOUR YIELD AND BALANCE INFORMATION
Nationwide 800-637-1700 / / www.reservefunds.com
The Reserve Fund Money-Market Funds
Primary, U.S. Government & U.S. Treasury Funds
Statement Of Additional Information
This Statement of Additional Information ("SAI") describes The Reserve
Fund ("Trust") and three of its four money funds: Primary Fund, U.S. Government
Fund and U.S. Treasury Fund (each a "Fund", together the "Funds"). The Reserve
Fund was originally organized as a Maryland corporation on February 1, 1970 and
re-organized on October 28, 1986 as a Massachusetts business trust and is an
open-end investment company, commonly known as a money-market mutual fund. At
the date of the Prospectus and SAI, there were four separate series (funds)
authorized and outstanding: Primary, U.S. Government, U.S. Treasury and
Strategist Funds. Additional series (funds) may be added in the future by the
Board of Trustees. This Statement is not a Prospectus, but provides detailed
information to supplement the Prospectus dated July 31, 1999 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) where you can download the SAI, the Prospectus, material
incorporated by reference & other information regarding the Funds. This
Statement is dated July 31, 1999.
TABLE OF CONTENTS PAGE
----------------- ----
Description of Funds...................................................2
Management of the Trust................................................6
Investment Management, Distribution and Custodian Agreements...........9
Information About the Trust...........................................11
How to Buy and Sell Shares............................................13
Dividends, Distributions and Taxes....................................18
Yield Information.....................................................20
General Information...................................................20
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.
1
<PAGE>
DESCRIPTION OF THE FUNDS
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 is not guaranteed. 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 Funds seek to maintain a stable $1.00 share price.
Investment in the Funds is not insured or guaranteed by the U.S.
government, Federal Deposit Insurance Corporation or any other government
agency. Although each Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money investing in the Funds.
Money-market funds are subject to federal regulations designed to help
maintain liquidity. The regulations set strict standards for credit quality,
diversification and maturity (397 days or less for individual securities, 90
days or less for the average portfolio life).
Investment management companies can be divided into "diversified" and
"non-diversified". Under Section 5(b), a diversified company must have 75% of
the value of its total assets in cash and cash items (including receivables),
U.S. government securities, securities of other investment companies, and other
securities. Any management company other than a diversified company is defined
as a "non-diversified" company pursuant to Section 5(b)(2). The Reserve Fund is
a non-diversified mutual fund. However, each of its separate investment
portfolios (Funds) intends to comply with the diversification requirement of
Rule 2a-7 under the 1940 Act which places certain limits on a Fund's investments
in any one issuer's securities in order to limit investment risk. With few
exceptions, under Rule 2a-7, a Fund may invest no more than 5% of its assets in
securities of any one issuer, except U.S. government securities.
Reserve Management Co., Inc. ("RMCI") serves as the Funds' Investment
Adviser. Resrv Partners, Inc. ("RESRV"), which is a wholly owned subsidiary of
RMCI, is a distributor of the Funds' shares. RESRV is located at 1250 Broadway,
New York, NY 10001-3701. GAM Services, Inc. ("GAM"), 135 East 57th Street, New
York, NY 10022; and The Kaufmann Fund, Inc. ("Kaufmann"), 140 East 45th Street,
New York, NY 10017 are also distributors.
The following information supplements and should be read in conjunction
with the Prospectus.
Supplemental Investment Policies. Each Fund's 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 senior securities except in compliance with the Investment Company
Act of 1940 ("1940 Act");
(3) act as an underwriter with respect to the securities of others to the
extent that, in connection with the disposition of portfolio securities,
it may be deemed to be an underwriter under certain federal securities
laws;
(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; and
(8) make investments on a margin basis.
2
<PAGE>
Notwithstanding the foregoing investment restrictions, each Fund may
invest substantially all of its assets in another open-end investment company
with substantially the same investment objective as the Fund.
Although not currently using a "master/feeder" structure, based upon
shareholder approval, the Trust may use a "master/feeder" structure. Rather than
investing directly in securities, the Fund is a "feeder fund," meaning that it
invests in a corresponding "master fund". The master fund, in turn invests in
securities using the strategies described in this Prospectus. One potential
benefit of this structure is lower costs, because the expenses of the master
fund can be shared with any other feeder funds.
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, on each business day, be at least equal to 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. 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 or Exchange"), which require the borrower, after
notice, to redeliver the securities within the normal settlement time of three
(3) business days.
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. The 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.
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 domestic banking
obligation. 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 repos
collateralized by U.S. government securities). Each Fund has the authority to
borrow money (including reverse repos involving 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) for extraordinary or emergency
purposes but not in an amount exceeding 5% of its total assets.
Risks Of Investing In The Funds. Money-market securities are high-quality,
short-term securities that pay a fixed, variable or floating interest rate.
Securities are often specifically structured so that they are eligible
investments for a money-market fund. For example, in order to satisfy the
maturity restrictions for a money market fund, some money-market securities have
demand or put features which have the effect of shortening the security's
maturity. Further, the principal risk factors associated with investment in each
Fund are the risk of fluctuations in short-term interest rates, the risk of
default among one or more issuers of securities which comprise a Fund's assets;
consequently when you sell (redeem) your shares of a Fund, they could be worth
more or less than what you paid for them. In addition to the general investment
risks of the Funds that are common to and may affect the money-market industry
as a whole, there are risks specific to the types of securities held.
U.S. Government Securities. U.S. government securities include a variety of
instruments which are issued or guaranteed by the U.S. Treasury, various
agencies of the federal government and various instrumentalitites 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 GNMA, are supported by the full faith and credit of the U.S. government.
Other securities, such as obligations issued by FNMA and SLMA, are supported by
the right of the
3
<PAGE>
issuer to borrow from the U.S. Treasury; and others, such as obligations issued
by 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.
Bank Obligations. The Primary Fund may invest in bank obligations that include
certificates of deposit, bankers' acceptances, letters of credit and time
deposits. A certificate of deposit is a negotiable certificate representing a
financial institution's obligation to repay funds deposited with it, earning a
specified rate of interest over a given period. A bankers' acceptance is a
negotiable obligation of a bank to pay a draft which has been drawn on it by a
customer. A time deposit is a non-negotiable deposit in a financial institution
earning a specified interest rate over a given period of time. A letter of
credit is an unconditional guarantee by the issuing bank to pay principal and
interest on a note a corporation has issued.
Domestic banks are subject to extensive but different government
regulations which may limit both the amount and types of loans which may be made
and interest rates which may be charged. In addition, the profitability of the
banking industry is dependent largely upon the availability and cost of funds.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operations of the banking industry. Domestic commercial banks organized under
federal law are supervised and examined by the Controller of the Currency and
are required to be members of the Federal Reserve System and to have their
deposits insured by the Federal Deposit Insurance Corporation. Domestic banks
organized under state law are supervised and examined by state banking
authorities but are members of Federal Reserve System only if they elect to
join. As a result of federal and state laws and regulations, domestic banks are,
among other things, generally required to maintain specified levels of reserves
and are subject to other regulations designed to promote financial soundness.
Foreign Banks. The Primary Fund may invest in obligations of foreign banks and
foreign branches of U.S. and foreign banks. Investment in these securities
involve risks which 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. Furthermore, foreign banks are not regulated by U.S. banking
authorities and are generally not bound by financial reporting standards
comparable to U.S. banks.
Municipal Obligations. The Primary Fund may invest in municipal obligations, the
interest on these municipal obligations is not exempt from federal income tax.
They may be issued to raise money for various public purposes such as
constructing public facilities. Certain types of municipal obligations are
issued to obtain funding for privately operated facilities. General obligation
bonds and notes are backed by the taxing power of the issuer. Revenue bonds and
notes are backed by the revenues of a project or facility such as tolls from a
toll road or, in some cases, from the proceeds of a special excise tax, but not
by the general taxing power. Industrial development revenue bonds and notes are
a specific type of revenue bond or note backed by the credit of a private
issuer. Municipal obligations bear fixed, variable or floating rates of
interest.
The Primary Fund will purchase municipal securities which are rated MIG1
or MIG2 by Moody's Investor Services, Inc. ("Moody's"), SP-1 or SP-2 by Standard
& Poor's Corporation ("S&P") or the equivalent. Municipal obligations which are
not rated may also be purchased provided such securities are determined to be of
comparable quality by RMCI to those rated securities in which the Funds may
invest, pursuant to guidelines established by their Boards of Trustees.
Municipal obligations are sometimes offered on a "when-issued" or delayed
delivery basis. There is no limit on the Primary Fund's ability to purchase
municipal securities on a when-issued basis. At the time a Fund makes the
commitment to purchase a municipal obligation on a when-issued basis, it will
record the transaction and reflect the
4
<PAGE>
value of the security in determining its net asset value ("NAV"). Each Fund will
also maintain readily marketable assets at least equal in value to commitments
for when-issued securities specifically for the settlement of such commitments.
RMCI does not believe that a Fund's NAV or income will be adversely affected by
the purchase of municipal obligations on a when-issued basis.
Municipal securities can be significantly affected by economic and
political changes, as well as uncertainties in the municipal market related to
taxation, legislative changes, or the rights of municipal security holders.
Because many municipal securities are issued to finance similar projects,
especially those relating to education, health care, transportation and various
utilities, conditions in those sectors and the financial condition of an
individual municipal issuer can affect the overall municipal market.
Commercial Paper. The Primary Fund has never purchased commercial paper and has
no current interest of doing so. However, it may purchase commercial paper
consisting only of short-term, unsecured promissory notes issued to finance
short-term credit needs which are direct obligations issued by domestic
entities. The other corporate obligations in which the Primary Fund may invest
consist of high-quality, short-term bonds and notes (including variable amount
master demand notes) issued by domestic corporations, including banks.
Repurchase and Reverse Repurchase Agreements. A repurchase agreement ("repo")
transaction occurs when the Fund purchases and simultaneously contracts to
resell securities at fixed prices. Each Fund will limit repos to those financial
institutions and securities dealers who are deemed credit worthy pursuant to
guidelines established by the Funds' Board of Trustees ("Trustees"). Repos are
considered by the SEC staff to be loans by the Fund that enters into them. Repos
could involve risks in the event of a default of the repo counter-party to the
agreement, including possible delays, losses or restrictions upon the Fund's
ability to dispose of the underlying securities. In an attempt to reduce the
risk of incurring a loss on a repo, RMCI will follow procedures intended to
provide that all repos 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 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.
A Fund will not hold more than 10% of its net assets in illiquid securities,
including repurchase agreements, providing for settlement in more than seven (7)
days after notice.
The Primary and U.S. Government Funds may sell securities in a reverse
repo 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 repo 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 receiving a percentage of its
value. By repaying the repo counterparty the value received plus interest, the
Fund repurchases the transferred security. It is the Fund's policy that entering
into a reverse repo 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.
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
after market 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.
Subject to the overall supervision of the officers of the Fund and the
Trustees, RMCI places all orders for the purchase and sale of the Fund's
investment securities. 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
5
<PAGE>
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.
MANAGEMENT OF THE TRUST
The Funds' Trustees are responsible for the management and supervision of
the Trust. The Trustees approve all significant agreements between the Funds and
those companies that furnish services to the Funds.
Trustees and executive officers of the Funds, together with information
as to their principal business occupations during at least the last five years,
are shown below:
*++BRUCE R. BENT, 62, President, Treasurer and Trustee, 1250 Broadway, New York,
NY 10001-3701.
Mr. Bent is President, Treasurer, and Trustee of The Reserve Fund ("RF"),
Reserve Institutional Trust ("RIT"), Reserve Tax-Exempt Trust ("RTET"), Reserve
New York Tax-Exempt Trust ("RNYTET") and Reserve Private Equity Series ("RPES");
Director and President of Reserve Management Company, Inc. ("RMCI") and Reserve
Management Corporation ("RMC"); and Chairman and Director of Resrv Partners,
Inc. ("RESRV").
Mr. Bent co-founded The Reserve Funds in 1970 and has been an executive
officer since then.
*++BRUCE R. BENT II, 33, Trustee, Senior Vice President and Assistant Secretary,
1250 Broadway, New York, NY 10001-3701.
Mr. Bent II joined The Reserve Funds in 1992 and is Senior Vice President
and Assistant Secretary of RF, RIT, RTET, RNYTET and RPES. Mr. Bent II is also
Vice President and Secretary of Reserve Management Company, Inc. ("RMCI") and
Reserve Management Corporation ("RMC"); and Secretary and Director of Resrv
Partners, Inc. ("RESRV").
+RICHARD BASSUK, 57 Trustee, c/o The Singer & Bassuk Organization, 767 Third
Avenue, 28th Floor, New York, NY 10017.
From 1995 to present Mr. Bassuk has been a founding principal and
President of Singer & Bassuk Organization. From 1994 to present, Mr. Bassuk
served as Chairman of R.E. Bases Enterprises Corporation. He is currently
Trustee of RF, RIT, RTET, RNYTET and RPES.
+EDWIN EHLERT, JR., 66, 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 a 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, Grand Central &
Utopia Parkways, Jamaica, NY 11439.
6
<PAGE>
The Reverend Harrington is currently President of St. John's University,
NY, and a Director of the Bear Stearns Companies, Inc. since 1993. He is
currently a Trustee of RF, RIT, RTET, RNYTET and RPES.
+DIANA P. HERRMANN, 40, Trustee, 380 Madison Avenue, Suite 2300, New York, NY
10017.
Ms. Herrmann has been President and COO of Aquila Management Corporation
("Aquila"), sponsors of 14 mutual funds with over $3.2 billion in assets as of
June 30, 1999. Ms. Herrmann has been employed with Aquila since 1986. She is
currently Trustee of RF, RIT, RTET, RNYTET and RPES.
+WILLIAM J. MONTGORIS, 52, Trustee, 286 Gregory Road, Franklin Lakes, NJ 07417.
Mr. Montgoris is formerly Chief Operating Officer of the Bear Stearns
Companies, Inc. (1979-1999). He is currently Trustee of RF, RIT, RTET, RNYTET
and RPES.
+WILLIAM E. VIKLUND, 58, Trustee, 110 Grist Mill Lane, Plandome Manor, NY
11030-1110.
Mr. Viklund is formerly President and COO of Long Island Bankcorp and
President and CEO of Long Island Savings Bank (1980-1996). He is currently
Trustee of RF, RIT, RTET, RNYTET and RPES.
*ARTHUR T. BENT III, 31, Vice President and Assistant Secretary, 1250 Broadway,
New York, NY 10001-3701.
Mr. Bent III joined The Reserve Funds in 1997 and is Vice President and
Assistant Secretary of RF, RIT, RTET, RNYTET and RPES. Mr. Bent III is also Vice
President and Treasurer of Reserve Management Company, Inc. ("RMCI") and Reserve
Management Corporation ("RMC"); and Treasurer and Director of Resrv Partners,
Inc. ("RESRV"). Before joining Reserve, he was a private investor.
MARYKATHLEEN FOYNES, 29, Counsel and Secretary, 1250 Broadway, New York, NY
10001-3701.
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. (1997-1998). Prior to that, Ms. Foynes worked for the U.S.
House of Representatives as a District Manager for a Member of Congress
(1995-1997).
JAMES M. FREISEN, 41, Controller, 1250 Broadway, New York, NY 10001-3701.
Mr. Freisen is Controller. Before joining The Reserve Funds in 1999, Mr.
Freisen was an Assistant Vice President at Paine Webber, Inc. (1998-1999). Prior
to that, he was Assistant Vice President, Bank of New York (1997-1998);
Assistant Vice President, Fifth Third Bank (1995-1997); and Vice President,
Smith Barney (1991-1995).
- ------------
+ Messrs. Bassuk, Ehlert, Emmet, Harrington, Montgoris, Viklund and Ms. Herrmann
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 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.
* Mr. Bent is the father of Mr. Bent II and Mr. Bent III.
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.
7
<PAGE>
As of June 30, 1999, the Trust's records reflect that the 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
to its Trustees.
COMPENSATION TABLE
FOR FISCAL YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION TOTAL COMPENSATION
FROM TRUST FROM TRUST AND TRUST COMPLEX
NAME OF TRUSTEE, POSITION (excluding Strategist Fund) (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE
------------------------- --------------------------- -------------------------------------
<S> <C> <C>
Bruce R. Bent, President and Trustee $ 0 $ 0
Bruce R. Bent II, Vice President and Trustee 0 0
Richard Bassuk, Trustee 2,690 3,500
Edwin Ehlert, Jr., Trustee 23,445 30,500
Henri W. Emmet, Trustee 23,445 30,500
Rev. Donald J. Harrington, Trustee 23,445 30,500
Diana P. Herrmann, Trustee 2,690 3,500
William J. Montgoris, Trustee 0 0
William E. Viklund Trustee 17,680 23,000
</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, 1999 for services
rendered to the Fund:
<TABLE>
<CAPTION>
AGGREGATE ESTIMATED ANNUAL BENEFITS
NAME CAPACITY RENUMERATION UPON RETIREMENT
---- -------- ------------ ---------------
<S> <C> <C> <C>
Bruce R. Bent President $ 96,087 $29,739
Bruce R. Bent II Vice President 101,705 1,347
Arthur T. Bent III Vice President 82,783 37
</TABLE>
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.
As of July 9, 1999, the following persons were known by the Fund to own
of record or beneficially 5% or more of the outstanding shares of the Fund:
PRIMARY FUND
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
------------------------------------ --------- ------------
<S> <C> <C>
Mesirow Financial, Inc. -Special Custody A/C 369,069,626 11.7%
For the Exclusive Benefit of Customers-
Primary Omnibus A/C
350 N. Clark Street
Chicago, IL 60610
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT FUND
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
------------------------------------ --------- ------------
<S> <C> <C>
Mesirow Financial, Inc. -Special Custody A/C 82,668,961 11.0%
For the Exclusive Benefit of Customers-
Government Omnibus A/C
350 N. Clark Street
Chicago, IL 60610
<CAPTION>
U.S. TREASURY FUND
SHARES PERCENT
BENEFICIALLY OUTSTANDING
Name and Address of Beneficial Owner OWNED (1) SHARES OWNED
------------------------------------ --------- ------------
<S> <C> <C>
Reserve Management Corp. 29,233,892 8.7%
Attn: Account No. 50115306
1250 Broadway
New York, NY 10001
Reserve Management Corp. 23,805,554 7.1%
Attn: Account No. 50317701
1250 Broadway
New York, NY 10001
</TABLE>
- ----------
(1) Fractional shares have been omitted.
INVESTMENT MANAGEMENT, DISTRIBUTION
AND CUSTODIAN AGREEMENTS
Investment Management Agreement. Reserve Management Company, Inc. ("RMCI" or
"Adviser"), 1250 Broadway, New York, NY 10001-3701, a registered investment
adviser, manages the Funds and provides them with investment advice. As a result
of recent shareholders votes, each of the Funds has entered into a new
Investment Management Agreement with the Adviser, which is substantially similar
to the Investment Management Agreement previously in effect with regard to each
Fund, except for a new comprehensive management fee for the Primary and U.S.
Government Funds. The U.S. Treasury Fund, since inception, has been subject to a
comprehensive management fee structure. The new Investment Management Agreements
became effective June 26, 1999. Under the Investment Management Agreement, RMCI
manages the Funds' investment in accordance with each Fund's investment
objective and policies, subject to overall approval by the Trustees.
Presently, under the terms of the new Investment Management Agreements
with the Funds, the Funds pay RMCI a comprehensive management fee at an annual
rate of 0.80% of average daily net assets. RMCI pays all employee and customary
operating expenses of the Funds. Excluded from the definition of customary
operating expenses are interest, taxes, brokerage fees, extraordinary legal and
accounting fees and expenses, and fees of the disinterested Trustees, for which
each Fund it pays its direct or allocated share.
For the fiscal years ended May 31, 1997, 1998 and 1999, RMCI received
management fees under the Investment Management Agreements previously in effect.
For the fiscal years ended May 31, 1997, 1998 and 1999, RMCI received management
fees of $8,976,244, $10,995,380, and $13,863,140, respectively, from the Primary
Fund; $2,858,951, $3,181,655, and $3,530,115, respectively, from the U.S.
Government Fund; and, for the fiscal year ended May 31, 1997, 1996 and 1999 RMCI
received a comprehensive management fee of $988,183, $1,329,283 and $2,208,713
respectively, which reflects a waiver of $635,127 from the U.S. Treasury Fund
comprehensive management fee.
9
<PAGE>
From time to time, RMCI may waive receipt of its fees and/or voluntarily
assume certain expenses of a Fund that 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 each of the Funds were duly
approved by shareholders in 1999, and may be renewed annually if specifically
approved by the 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 sixty (60) days' written notice by a vote of the
Trustees or by vote of a majority of outstanding voting shares of a Fund or by
RMCI.
Service Agreement. A Service Agreement was in effect for the Primary and U.S.
Government Funds until June 25, 1999. Pursuant to the Service Agreement, the
Adviser furnished at cost, all personnel required for the maintenance and
operation of the Primary and U.S. Government Funds, including administrative,
clerical, recordkeeping, bookkeeping, shareholder accounting and servicing, as
well as a suitable office space and necessary equipment and supplies used by
such personnel in performing these functions. Operating costs for which the
Primary and U.S. Government Funds reimburse the Adviser includes salaries and
other expenses, rent, depreciation of equipment and facilities. Affiliates of
the Adviser may provide some of these services. The Trust also reimbursed the
Advisor for: brokerage fees and commissions, interest charges, taxes, the cost
of registering for sale, issuing and redeeming the Primary and U.S. Government
Funds' shares and of printing and mailing all prospectuses, proxy statements and
shareholder reports furnished to current shareholders, overhead costs and
expenses, accounting and legal fees and expenses and disinterested Trustees fees
with regard to the Primary and U.S. Government Funds. The Adviser agreed to
repay the Primary and U.S. Government Funds promptly any amount which a majority
of disinterested Trustees reasonably determines in its discretion is in excess
of or not properly attributable to the cost of operations or expenses of the
Fund. The Service Agreement was non-assignable and continued until terminated by
either party on 120 days' notice.
Pursuant to the Service Agreement, during the fiscal year ended May 31,
1999 the Primary Fund reimbursed RMCI $11,804,372 and the U.S. Government Fund
reimbursed RMCI $2,351,952 for expenses. For the fiscal years ended May 31, 1997
and 1998, RMCI was reimbursed $6,616,435 and $7,511,533 by the Primary Fund and
$1,778,491 and $2,011,920 by the U.S. Government Fund for expenses,
respectively.
Distribution Agreement. The Fund's Distributors are RESRV, GAM, and Kaufmann.
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 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. RESRV's, GAM's, and Kaufmann'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, 1999, no distribution
assistance payments were made to RESRV, GAM, and Kaufmann.
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,
10
<PAGE>
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 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.
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, 1999, $5,750,544 was paid under the
Plan by the Primary Fund; $1,300,163 was paid under the Plan by the U.S.
Government Fund; and, $552,300 was paid under the Plan by the U.S. 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, 1999, 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 Fund, 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.
Transfer Agent and Dividend-Paying Agent. The Reserve Fund acts as its own
transfer agent and dividend-paying agent.
Custodian, Independent Accountant and Counsel. The Chase Manhattan Bank, 4 New
York Plaza, New York, NY 10004 is Custodian of the Funds' securities and cash
pursuant to a Custodian Agreement. The Bank of New York, 1 Wall Street, New
York, NY 10286 and Custodial Trust Company, 101 Carnegie Center, Princeton, NJ
08540 are Custodians for the Funds for limited purposes in connection with
certain repurchase agreements. The Custodian has no part in determining the
investment policies of the Fund or which securities are to be purchased or sold
by the Fund. PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York,
NY 10036 is the Funds' independent accountant. Dechert, Price & Rhoads, 1775 Eye
Street NW, Washington, DC 20006, is the Funds' outside counsel and has rendered
its opinion as to certain legal matters regarding the due authorization and
valid issuance of the shares being sold pursuant to the Funds' Prospectus.
INFORMATION ABOUT THE TRUST
The Reserve Funds' Declaration of Trust permits the Trust to issue an
unlimited number of full and fractional shares of beneficial interest that may
be issued in any number of series (funds) and/or classes. Shares issued will be
fully paid and non-assessable and will have no preemptive rights. The
shareholders of each Fund are entitled to a full vote for each full share held
(and fractional votes for fractional shares) and have equal rights to earnings,
dividends, redemptions and in the net assets of their Fund 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
11
<PAGE>
approve a new Investment Advisory Agreement or change the fundamental investment
policies) or by the Declaration of Trust.
Further, the Trust is allowed 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 all applicable state and federal securities
laws. These currently require that each class be preferred over all other
classes in respect to 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 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 non-cumulative
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. The Funds intend to conduct their operations in such a way as
to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
To date, the Board has authorized the creation of four series (funds):
Primary, U.S. Government, U.S. Treasury and Strategist Funds. All consideration
received by the Trust for shares of one of the Fund and all assets in which such
consideration is invested will belong to that Fund (subject only to rights of
creditors of the Fund) and will be subject to the liabilities related thereto.
The income attributable to, and the expenses of, one series are treated
separately from those of the other series. The Trust has the ability to create,
from time to time, new series without shareholder approval.
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 Funds, 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.
12
<PAGE>
HOW TO BUY AND SELL SHARES
Purchases - General. Shares of each Fund are sold without a sales charge. You
may be charged a fee if you effect transactions in shares of a Fund through a
securities dealer, bank or other financial institution. The Fund reserves the
right to reject any purchase order.
The minimum initial investment in each Fund is $1,000, unless you are a
client of a securities dealer, bank or other financial institution, which
maintains an omnibus account in the Fund, or if you are an IRA customer. There
is no minimum subsequent investment. The initial investment must be accompanied
by an Account Application or equivalent information. Checks drawn on foreign
banks are normally not accepted by the Fund. In addition, the Fund does not
accept cash investments or travellers or third party 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. Shares also may be purchased
through Reserve Automatic Asset Builder (see below). In addition, the Funds
reserve the right to change the minimum investment amount at any time.
Each Fund's shares are sold on a continuous basis at the NAV per share.
Checks and wires which do not correctly identify the account to be credited may
be returned or delay the purchase of shares. 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 Funds must
be notified before 2:00 PM (Eastern 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 Fund's offices after 2:00 PM
(Eastern time) (11:00 AM for the U.S. Treasury Fund) will be considered received
the next business day. Investors will be charged a fee for any check that does
not clear. 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 PM (Eastern time) (11:00 AM Eastern time for
the U.S. Treasury Fund) 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 (i.e. receipt of all necessary
information, signatures and documentation), 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 PM (Eastern time) (11:00 AM Eastern time for
the U.S. Treasury Fund) are considered received on the following business day.
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 calendar days from date of purchase.
Share Price: NAV. The valuation of a Fund's portfolio securities is based upon
their amortized cost, which does not take into account unrealized gains or
losses. This involves valuing an instrument at its cost and thereafter assuming
a constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, there may be some periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument.
The Fund's Board has established, as a particular responsibility within
the overall duty of care owed to the Fund's investors, procedures reasonably
designed to stabilize the Fund's price per share as computed for the purpose of
purchases and redemptions at $1.00. Such procedures include review of the Fund's
portfolio holdings by the Board, at such intervals as it may deem appropriate,
to determine whether the Fund's NAV calculated by using available market
quotations or market equivalents deviates from $1.00 per share based on
amortized cost. In such review, investments for which market quotations are
readily available will be valued at the most recent comparable maturity, quality
and type, as obtained from one or more of the major market makers for the
securities to be valued. Other investments and assets will be valued at fair
value as determined in good faith by the Board.
13
<PAGE>
The extent of any deviation between the Fund's NAV based upon available
market quotations or market equivalents and $1.00 per share based on amortized
cost will be examined by the Fund's Board. If such deviation exceeds 1/4 of 1%,
the Board will consider promptly what action, if any, will be initiated (The
Reserve Fund is required by the SEC to contact the Board if the deviation is 1/2
of 1%). In the event the Board determines that a deviation exists which may
result in material dilution or other unfair results to investors or existing
shareholders, it has agreed to take such corrective action as it regards as
necessary and appropriate, including: selling Fund instruments prior to maturity
to realize capital gains or losses or to shorten average Fund maturity;
withholding dividends or paying distributions from capital gains; redeeming
shares in kind; or establishing a NAV per share by using available market
quotations. 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
days the Exchange is closed for trading and on certain regional banking
holidays. The holidays (as observed) on which the Exchange and The Reserve Fund
are closed currently are: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. In addition, The Reserve Fund is closed on Columbus
Day and Veterans Day. The NAV of each Fund is normally maintained at $1.00 per
share. No Fund can guarantee that its NAV will always remain at $1.00 per share
although the Funds have managed to do so since inception.
The NAV per share of each Fund is computed by dividing the value of the
net assets of each Fund (i.e., the value of its assets less liabilities) by the
total number of shares of such Fund 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 money-market
fund's portfolio securities, which does not take into account unrealized gains
and losses. As a result, portfolio securities are valued at their acquisition
cost, adjusted over time based on the discounts or premiums reflected in their
purchase price. This method of valuation is designed to permit a fund to be able
to maintain a stable NAV.
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 whom 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 NAV as computed for the purpose of
sales and redemptions at $1.00 per share.
Share Certificates. Share certificates are not issued by the Funds.
Reserve Automatic Asset-Builder Plan. If you have an account, you may purchase
shares of a Fund ($25 suggested minimum) from a checking, NOW, or bank
money-market deposit account; from a U.S. government distribution ($25 suggested
minimum) such as a social security, federal salary, or certain veterans'
benefits, or other payment from the federal government. You may also make
arrangements for the direct deposit of your payroll into your Fund account.
Please call the Funds at 800-637-1700 for an application.
Redemptions -- General. 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 Fund. 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.
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Written and telephone requests. Redemption instructions and options should be
specified 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. One
way to redeem shares is to write a letter of instruction which states: the
name(s) and signature(s) of all accountholders (signature(s) guaranteed, if
necessary), account number, Fund name, the dollar amount you want to sell, and
how and where to send the proceeds. If you are redeeming your IRA, please note
the applicable withholding requirements.
To reduce the risk of loss, certain situations require written
instructions along with signature guarantees. These include:
(1) redemptions for more than $5,000; or
(2) redemptions on accounts whose address has been changed within the
past 30 days; or
(3) redemption requests to be sent to someone other than the account
owner or the address of record for the past 30 days.
You may redeem by calling the Funds at 800-637-1700. Unless you decline
telephone privileges on your application and the Funds fail to take reasonable
measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions may be sent to
the bank or brokerage account designated by the shareholder on the application
or in a letter with signature guarantee. 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. The Fund
reserves the right to refuse a telephone redemption if it believes it is
advisable to do so.
Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/dealers, national securities exchanges or
clearing agencies deemed eligible by the SEC. Guarantees must be signed by an
authorized signatory of the guarantor and "Signature Guaranteed" must appear
with the signature. Notaries public cannot provide signature guarantees. The
Funds may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular verification.
For more information with respect to signature guarantees, please call
800-637-1700.
Reserve Cash Performance Account. The Reserve Cash Performance Account ("CPA")
and the Reserve Cash Performance Account Plus ("CPA Plus") provide a
comprehensive package of additional services to investors. These packages
provide a check arrangement where checks are issued to Reserve shareholders. By
completing the application or a signature card (for existing accounts) and
certain other documentation, 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. 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 or uncollected funds. All transactions activity,
including check redemptions, will be reported on your account statement.
Checking may not be available to clients of some Firms.
A VISA Check Card (a debit card) is also available with these packages.
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. You may
also use your VISA card to get cash at ATMs. Investors receive a 1% cash rebate
on all VISA purchases which is credited to their Reserve account. As with the
checking facility, VISA charges are paid by liquidating shares in your Reserve
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.
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VISA cardholders may be liable for the unauthorized use of their card up
to the amount set by governing Federal regulations, currently $50 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
Check 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
or 800-996-4324, which can be reached 24 hours a day, seven (7) days a week or
the Funds at 800-631-7784 or 212-401-5500 during normal business hours (Monday
through Friday, 9:00 A.M. to 5:00 P.M., Eastern time).
For the different attributes associated with CPA and CPA Plus packages,
please call The Reserve Funds at 800- 637-1700. 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). CPA and CPA Plus 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 to participants. Upon proper notice, the Funds may
choose to impose a fee if it deems a shareholder's actions to be burdensome. In
addition, Firms in this program may charge their own additional service fees and
may establish their own minimum check amount.
The use of checks and VISA cards by participants will be subject to the
terms of your Reserve CPA Application and VISA Account Shareholder Agreement.
Touch Tone Bill Payment Service. In the near future, the Funds will offer its
shareholders touch-tone bill payment which gives you the flexibility of paying
bills over the telephone on an automatic or variable basis. Terms, conditions
and restrictions will be outlined in the User's Guide and Application.
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 (Eastern
time) will be effective the next business day. Oral stop payment requests are
effective for fourteen (14) calendar days, at which time they will be cancelled
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 of a fixed
amount. Changes to instructions must be in writing with signature(s) guaranteed.
In order for such payments to continue under the 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 notified. This privilege may not be
available to clients of some Firms or may be available subject to conditions or
limitations.
Automatic Transfer Plans (ACH). 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
(must be an Automated Clearing House member bank) designated in your
application. 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 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.
Exchange Privilege. A shareholder may exchange shares at NAV with all Reserve
money-market funds and the Reserve Private Equity Series. A shareholder may also
exchange shares for shares of the GAM Funds, Inc. and The Kaufmann Fund, Inc.
and their respective portfolios. This exchange privilege may not be available to
clients of
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<PAGE>
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. 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 is not available for shares which have been held
for less than fifteen (15) days. Exchanges by telephone are an automatic
privilege unless the shareholder notifies the Fund on the Account Application
that this authorization has been withheld. Unless authorization is withheld, the
Fund will honor requests by any person by telephone at 800-637-1700, that the
Fund deems to be valid. The Funds and their affiliates may be liable for any
losses caused by their failure to employ reasonable procedures to avoid
unauthorized or fraudulent instructions. To reduce such risk, the registration
of the account into which shares are to be exchanged must be identical to the
registration of the originating account and all telephone exchange requests will
be recorded. The Fund may also require the use of a password or other form of
personal identification. In addition, each Fund will provide written
confirmation of exchange transactions. During periods of volatile economic and
market conditions, a shareholder may have difficulty making an exchange request
by telephone, in which case an exchange request would have to be made in
writing.
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 that are different from those
described in this Prospectus or SAI.
The exchange privilege may be modified or terminated at any time, or from
time to time, upon 60 days' notice to shareholders if such notice is required by
the 1940 Act. The notice period may be shorter if applicable law permits. The
Trust reserves the right to reject telephone or written requests submitted in
bulk on behalf of ten (10) or more accounts. A pattern of frequent exchanges may
be deemed by the Adviser to be abusive and contrary to the best interests of the
Fund's other shareholders and, at the Adviser's discretion, may be limited by
the Fund's refusal to accept additional purchases and/or exchanges from the
investor and/or the imposition of fees. The Funds do not have any specific
definition of what constitutes a pattern of frequent exchanges. Any such
restriction will be made on a prospective basis, upon notice to the shareholder
not later than ten (10) days following such shareholder's most recent exchange.
Telephone and written exchange requests must be received by the Funds by 4:00 PM
(Eastern time) on a regular business day to take effect that day. Exchange
requests received after 4:00 PM (Eastern time) will be effected at the next
calculated NAV. Additional information regarding the GAM Funds, Inc. is
available from GAM at 800-426-4685. Additional information regarding The
Kaufmann Fund, Inc. is available from Kaufmann at 800-261-0555.
Suspension of Redemptions. The right of redemption may be suspended or the date
of payment postponed for more than seven (7) days only (a) when the Exchange 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.
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 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
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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.
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 who 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.
Purchases and Redemptions through Others. Share purchases and redemptions may
also be made through brokers and financial institutions ("Firms"), which may
involve such Firms' own redemption minimums, services fees, and other redemption
requirements. 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. 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 Fund's transfer agents will have no
information about their accounts, which will be available only from their Firm.
Some of these firms participate in the Fund's Plan of Distribution ("Plan").
Under the Plan, Firms may receive compensation for recordkeeping and other
services and assistance in distributing Fund shares. 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.
DIVIDENDS, 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. Such
qualification relieves the Fund of any liability for federal income tax to the
extent its earnings are distributed in accordance with applicable provisions of
the Code. If the Fund did not qualify as a regulated investment company, it
would be treated for tax purposes as an ordinary corporation subject to federal
income tax.
Each Fund ordinarily declares dividends from its net investment income on
each day the Exchange and The Reserve Fund is open for business. Each Fund's
earnings for Saturdays, Sundays and holidays are declared as dividends on the
preceding business day. 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
shareholders as long-term capital gains, 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 NAV 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 NAV of those shares.
If you elect to receive dividends and distributions in cash, and your
dividend or distribution check is returned to a Fund as undeliverable or remains
uncashed for six months, the Fund reserves the right to reinvest such dividends
or distributions and all future dividends and distributions payable to you in
additional Fund shares at NAV. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
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Ordinarily, gains and losses realized from portfolio transactions will be
treated as capital gain or loss. However, all or a portion of any gain realized
from the sale or other disposition of certain market discount bonds will be
treated as ordinary income under Section 1276 of the Code. The U.S. Treasury
Fund intends to invest only in the U.S. government securities that provide
interest income exempt in most 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 un- invested 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 tax 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. Investments by a Fund in zero coupons 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.
Upon the sale or other disposition of shares of the 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
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. Furthermore, a loss realized by a
shareholder on the redemption, sale or exchange of shares of the Fund with
respect to which exempt-interest dividends have been paid will, to the extent of
such exempt-interest dividends, be disallowed if such shares have been held by
the shareholder for less than six months.
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. Corporate shareholders and certain
other shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. 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.
The tax consequences to a foreign shareholder of an investment in a Fund
may be different from those described herein.
Investors are advised to consult their own tax advisor(s) with respect to
the particular tax consequences to them of an investment in a Fund.
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YIELD INFORMATION
For the seven-day period ended May 31, 1999, the Primary Fund's yield was
3.92% and its effective yield was 4.00%. For the seven-day period ended May 31,
1999, the U.S. Government Fund's yield was 3.89% and its effective yield was
3.97%. For the seven-day period ended May 31, 1999, the U.S. Treasury Fund's
yield was 3.73% and its effective yield was 3.80%.
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Fund
account having a balance of one share at the beginning of a seven calendar day
period for which the yield is to be quoted, dividing the net change by the value
of the account at the beginning of the period to obtain the base period return,
and annualizing the results (i.e., multiplying the base period return by 365/7).
The net change in the value of the account reflects the value of additional
shares purchased with dividends declared on the original share and any such
additional shares and fees that may be charged to shareholder accounts, in
proportion to the length of the base period and the Fund's average account size,
but does not include realized gains and losses or unrealized appreciation and
depreciation. Effective yield is computed by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365 divided
by 7, and subtracting 1 from the result.
Yields will fluctuate and are not necessarily representative of future
results. You should remember that yield is a function of the type and quality of
the instruments in the portfolio, portfolio maturity and operating expenses.
Your principal in the Fund is not guaranteed. See above "Share Price: NAV" for a
discussion of the manner in which the Fund's price per share is determined.
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.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data various industry
publications. From time to time, the Funds in its advertising and sales
literature may refer to the growth of assets managed or administered by RMCI
over certain time periods.
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 who register their account indemnify and hold
the Funds harmless for actions taken by either party.
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. An account statement
is sent to each shareholder at least quarterly. Shareholders who are clients of
some Firms will receive an account statement combining transactions in Fund
shares with account statements covering other brokerage or mutual fund accounts.
Shareholders have a duty to examine their account statement(s) and report any
discrepancies to The Reserve Funds immediately. Failure to do so could result in
the shareholder suffering a loss. Further, shareholders are advised to retain
account statements.
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Reserve Easy Access. Easy Access is The Reserve Funds' 24-hour toll-free
telephone service that lets customers use a touch-tone phone for a variety of
options including yields, account balances, check reorders, touch tone bill
payment and other options. 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 Reserve Funds, 1250 Broadway, New York,
NY 10001-3701 or 800-637-1700.
RATINGS
The following are the rating designations of short-term instruments and their
respective meanings.
STANDARD & POOR'S CORPORATION. A-1: This designation is the highest category of
S&P and indicates that the degree of safety regarding timely payment is strong.
Those short-term obligations that are extremely strong characteristics will be
denoted with a plus (+).
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.
There are three categories for short-term obligations that define an investment
grade situation designated Moody's Investment Grade as MIG1 (best) through MIG3.
MIG1 denotes best quality, i.e., there is a strong protection by established
cash flows, superior liquidity support or demonstrated broad-based market access
for re-financing. MIG2 denotes high quality, the margins of protection are ample
but not as large as MIG1.
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 the strongest credit quality. Issues
assigned this rating reflect an assurance of timely payment. Those obligations
with an exceptionally strong credit quality will be denoted with a plus (+)
sign. Issues assigned the rating of F1+ are regarded as having the strongest
degree assurance for timely payment.
FINANCIAL STATEMENTS
Financial Statements (audited) for The Reserve Fund - Primary, U.S.
Government and U.S. Treasury Funds for the fiscal year ended May 31, 1999,
including notes thereto, are incorporated by reference in the SAI from the
Trust's Annual Report to Shareholders dated May 31, 1999 filed with the SEC on
July 30, 1999.
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[AMERICAN EXPRESS LOGO]
Strategist Money-Market Fund
Prospectus
July 31, 1999
The Strategist Money-Market Fund (the "Strategist Fund")," is a no-load
money-market fund.
For investors seeking as high a level of current income as is consistent with
preservation of capital and liquidity.
---------------
These Securities Have Not Been Approved Or Disapproved By The Securities and
Exchange Commission Nor Has The Commission Passed Upon The Accuracy Or Adequacy
Of This Prospectus. Any Representation To The Contrary Is A Criminal Offense.
---------------
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TABLE OF CONTENTS
Page
----
Investment Objective & Principal
Strategies....................... 2
Performance History................. 3
Fees & Expenses of the Fund......... 4
Management.......................... 5
How to Buy Shares................... 5
Selling Fund Shares................. 6
Tax Consequences.................... 7
General Information................. 8
Financial Highlights................ 9
INVESTMENT OBJECTIVE & PRINCIPAL STRATEGIES
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.
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.
The Fund seeks to maintain a stable $1.00 share price. The portfolio
managers monitor a range of economic and financial factors. Based on their
analysis, the Fund is invested in a mix of U.S. dollar denominated money-market
securities that are intended to provide as high a yield as possible without
violating the Fund's credit quality policies or jeopardizing the stability of
its share price.
The Strategist Fund seeks to attain its objective by investing in
instruments issued by the U.S. government, its agencies and instrumentalities
("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
nationally recognized statistical rating organizations, non-rated instruments 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 Strategist Fund will invest in obligations of U.S. banking
institutions that are insured by the Federal Deposit Insurance Corporation and
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 if rated by another rating agency. The Strategist Fund
may also invest in obligations of foreign branches of both U.S. banks and
foreign banks (Eurodollars). Investment in foreign banks will be limited to
those located in Australia, Canada, Western Europe and Japan and 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 the U.S. banks which may be purchased by the Fund. The
Strategist Fund may also invest in municipal obligations, the interest on which
is not exempt from federal income taxation.
The Fund may invest in repurchase agreements ("repos") but will limit
them to those banks and securities dealers who are deemed creditworthy pursuant
to the guidelines adopted by the Trust's Board of Trustees ("Trustees").
Securities subject to repos 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.
Although not a principal strategy, the Fund is allowed to invest all, or
substantially all, of their investable assets in other open-end management
companies having the same investment objective and substantially similar
policies and restrictions.
2
<PAGE>
Principal Risks of Investing in the Fund. The Fund is money-market fund which is
a specific type of fund that seeks to maintain a $1.00 price per share. An
investment in the Fund is not insured or guaranteed by the U.S. government,
Federal Deposit Insurance Corporation or any other government agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the Fund. Additionally, the Fund's
yield will vary as the short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest rates.
While the Fund has maintained a constant share price since inception, and
will strive to do so, the following factors could reduce the Fund's income level
and/or share price:
o Interest rates could rise sharply, causing the value of the Fund's
securities, and share price, to drop.
o Repos could involve risks in the event of a default of the repo
counterparty, including possible delays, losses or restrictions upon a
Fund's ability to dispose of the underlying securities.
o There are risks generally associated with investing in the banking
industry, such as interest rate risk, credit risk and regulatory
developments relating to the banking industry.
o Euro and Yankee dollar investments involve certain risks that are
different from investments in domestic 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 banks
are not regulated by U.S. banking authorities and are generally not
bound by financial reporting standards comparable to U.S. banks.
Further, adverse political, regulatory, market or economic
developments in foreign countries can affect entities located in those
countries.
o Investments in municipal obligations are subject to market volatility
and affected by adverse economic or political changes and the
financial condition of the issuers.
Year 2000. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900. Most of the services provided to the Fund depend
on the smooth functioning of computer systems. The Fund could be adversely
affected if the computer systems and 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
Fund. In addition, because the Year 2000 issue affects virtually all
organizations, the extent of its impact cannot be predicted.
Other Risks. These and other risks are discussed in more detail in the Statement
of Additional Information ("SAI"). Most of the Fund's performance depends on
interest rates. When interest rates fall, the Fund's yields will typically fall
as well.
The Reserve Funds' emphasis on the high credit quality of its investments
may mean that its yields are lower than those available from certain other
money-market funds which may invest in commercial paper. Because of the low
level of risk, over time, a money-market fund may produce lower returns than
bond or stock investments which entail higher levels of risk.
PERFORMANCE HISTORY
The bar charts below show the Fund's annual returns for the full
calendar years since inception, together with the best and worst quarters. The
accompanying "Average Annual Total Return as of December 31, 1998" table gives
some indication of risk of an investment in the Fund. The tables assume
reinvestment of dividends and distributions, if any. As with all mutual funds,
the past is not a prediction of the future.
Annual Total Returns as of December 31,
4.61% 4.52%
1997 1998
Best Quarter: 1st Q 1997 1.42%
Worst Quarter: 4th Q 1998 1.29%
Most Recent Calendar Quarter: 2nd Q 1999 4.59%
3
<PAGE>
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
---- ---------
4.52% 5.12%
For the Fund's current yield, call toll-free (800) 297-7378.
FEES & EXPENSES OF THE FUND
If you buy and hold shares of the Fund you may pay certain fees and
expenses which are described in the table below. There are no sales charges
(loads) or exchange fees associated with an investment in the Fund. Annual fund
operating expenses are paid out of the assets of the Fund, so their effect is
included in the Fund's share price. Annual fund operating expenses, indicated in
the table below, reflect expenses for the Fund's fiscal year ended May 31, 1999.
Shareholder Fees for the Fund
(Fees paid directly from your investment)
Sales Load Imposed on Purchases......................... None
Sales Load Imposed on Reinvested Dividends.............. None
This is a no-load fund. There are no direct shareholder fees. Please read the
"Annual Fund Operating Expenses for the Fund" table below.
Annual Fund Operating Expenses for the Fund
(Expenses that are deducted from Fund assets)
Comprehensive Management Fee (a)........... .80%
Distribution (12b-1) Fees (b).............. .20
----
Total Annual Fund Operating Expenses....... 1.00%
====
(a) The comprehensive management fee includes advisory and customary operating
expenses. However, the Fund may be charged for certain non-recurring
extraordinary expenses and its allocated or direct share of certain other
expenses. See "Management".
(b) The Fund has adopted a Rule 12b-1 plan which allows the Fund to pay
distribution fees for the sale and distribution of its shares. The maximum
level of distribution expenses is 0.20% per year of the Fund's average net
assets. As these fees are paid out of the Fund's assets on an on-going
basis, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Example: This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example should
not be considered indicative of future investment returns and operating expenses
which may be more or less than those shown. This example is based on the annual
fund operating expenses described in the table.
This example assumes that you invest $10,000 in a fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$102 $318 $552 $1,225
4
<PAGE>
Please note that the above example is an estimate of the expenses to be incurred
by shareholders of the Fund. Actual expenses may be higher or lower than those
reflected above. You would pay the same if you did not redeem your shares.
MANAGEMENT
Investment Adviser. Since November 15, 1971, Reserve Management Company, Inc.
("RMCI") 1250 Broadway, New York, NY 10001 and its affiliates have provided
investment advice to The Reserve Funds. RMCI serves as the investment adviser to
the Fund under an Investment Management Agreement (the "Agreement") with The
Reserve Fund (the "Trust"). The Agreement provides that RMCI will furnish
continuous investment advisory and management services to the Fund. In addition
to the Funds, RMCI provides investment management services to other mutual funds
within the Reserve family of funds and, as of May 31, 1999, had approximately
$5.6 billion under management.
RMCI manages the investment portfolios of the Fund, subject to policies
adopted by the Trustees. For its services, RMCI receives a fee of 0.80% per year
of the average daily net assets of the Fund. RMCI pays all employee and
customary operating expenses of the Fund. Excluded from the definition of
customary operating expenses are interest, taxes, brokerage fees, extraordinary
legal and accounting fees and expenses, and the fees of the disinterested
Trustees, for which the Fund pays its direct or allocated share. For the fiscal
year ended May 31, 1999, RMCI received management fees under the investment
management agreements previously in effect with regard to the Fund. For the
fiscal year ended May 31, 1999, the Strategist Fund paid RMCI $443,201. However,
at May 31, 1999, RMCI waived $330,015 of the comprehensive management fee.
HOW TO BUY SHARES
Share Price: Net Asset Value. Investors pay no sales charges to invest in the
Fund. The price you pay for a share of the Fund, and the price you receive upon
selling or redeeming a share of the Fund, is called the Fund's net asset value
("NAV") per share. The NAV is calculated by taking the total value of the Fund's
assets, subtracting its liabilities, and then dividing by the number of shares
that have already been issued. The Fund uses the amortized cost method of
valuing its securities under Rule 2a-7 of the 1940 Act. This is a standard
calculation, and forms the basis for all transactions involving buying, selling,
exchanging or reinvesting shares. The NAV is generally calculated as of the
close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time)
every day the Exchange is open. NAV is not calculated on days the Exchange is
closed and regional bank holidays. Your order will be priced at the next NAV
calculated after your order is accepted (i.e., converted to federal funds) by
the Fund.
Purchase of Shares. The minimum initial investment is $20,000 with a minimum
subsequent investment of $1,000. All investments must be in U.S. dollars.
Third-party, foreign and travellers checks, as well as cash investments will not
be accepted. Purchase orders are not accepted on days the Exchange is closed for
trading and regional bank holidays.
o By check - (drawn on 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.
o By wire - Prior to calling your bank, call American Express at
800-297-7378 for specific instructions 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. 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 (Eastern time) of the amount to
be transmitted and the account to be credited. Payment by check not immediately
convertible into federal
5
<PAGE>
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 (Eastern time) will be considered received the next
business day. Investors will be charged a fee $15 for any check that does not
clear and will be responsible for any losses suffered by the Fund as a result.
Reserve Automatic Asset-Builder Plan. If you have an account, you may purchase
shares of the Fund ($25 suggested minimum) from a checking, NOW, or bank
money-market deposit account or from a U.S. government distribution ($25
suggested minimum) such as social security, federal salary, or certain veterans'
benefits, or other payment from the federal government. You may also purchase
shares automatically by arranging to have your payroll (full or partial)
deposited directly into your Reserve account. Please call the Fund at
800-297-7378 for an application or consult your Financial Advisor.
Individual Retirement Accounts. Investors may use the Fund as an investment for
Individual Retirement Accounts ("IRAs"). A master IRA plan with information
regarding administration fees and other details is available from the Fund.
Distributors. The Fund's distributor is Resrv Partners, Inc. ("RESRV"), 1250
Broadway, New York, NY 10001-3701.
Restrictions. Certain other restrictions and conditions for buying shares apply
to the Funds. Please see the SAI for more information.
SELLING FUND SHARES
Investors may sell shares at any time. Shares will be sold at NAV
determined after the redemption request is received by the Fund. The Fund
usually transmits payments the same day when requests are received before 12:00
noon (Eastern time) and the next business day for requests received after the
time specified to enable shareholders to receive additional dividends. Shares do
not earn dividends on the day a redemption is effected, regardless of the time
the order is received. Orders will be processed promptly and investors will
generally receive the proceeds within a week after receiving your properly
completed request. The Fund strongly suggests (but does not require) that each
telephone redemption be at least $1000, except for redemptions which are
intended to liquidate an 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 delay in
the receipt of wired or mailed funds.
Written and telephone requests. Redemption instructions and options should be
specified 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. One
way to redeem shares is to write a letter of instruction which states: the
name(s) and signature(s) of all accountholders (signature(s) guaranteed, if
necessary), account number, Fund name, the dollar amount you want to sell, and
how and where to send the proceeds. If you are redeeming your IRA, please note
the applicable withholding requirements.
To reduce the risk of loss, certain situations require written
instructions along with signature guarantees. These include:
(1) redemptions for more than $5,000; or
(2) redemptions on accounts whose address has been changed within
the past 30 days; or
(3) redemption requests to be sent to someone other than the
account owner or the address of record for the past 30
days.
You may redeem by calling the Funds at 800-297-7378. Unless you decline
telephone privileges on your application and the Funds fail to take reasonable
measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions may be sent to
the bank or brokerage account designated by the shareholder on the application
or in a letter with signature guarantee. 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
6
<PAGE>
to the Funds with signature(s) guaranteed. The Fund reserves the right to refuse
a telephone redemption if it believes it is advisable to do so.
Signature guarantees are designed to protect both you and the Funds from
fraud. Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/dealers, national securities exchanges or
clearing agencies. Notaries public cannot provide signature guarantees. For more
information about redemption procedures, please read the SAI.
Redemption by Check. You may redeem shares of the Fund by using your checks. By
completing the application or a signature card (for existing accounts) and
certain other documentation, you can write checks in any amount against your
account. A check will be returned (bounced) and a fee charged if you request a
stop payment; the check is postdated; contains an irregularity in the signature,
amount or otherwise; or, is written against accounts with insufficient or
uncollected funds. Please do not postdate your checks or use them to close your
account. 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 some Firms may establish their own minimum check amount.
Please see the SAI for more information including charges, fee, etcetera.
Exchange Privilege. Investors can exchange all or some of their shares offered
for shares in other Reserve money-market and equity funds. Investors can request
an exchange in writing or by telephone. The shares of the other funds are not
offered by this Prospectus. Be sure to read the current prospectus for any fund
into which you are exchanging. Any new account established through an exchange
will have the same privileges as an original account (as long as they are
available). Please see the SAI for more information.
Other Automatic Services. Certain other services and restrictions for selling
shares automatically are offered by the Fund. Please see the SAI for more
information about these services and restrictions.
Redemptions Through Brokers and Financial Institutions. Redemptions through
brokers and financial institutions may involve such Firms' own redemption
minimums, services fees, and other redemption requirements.
Other. The Fund also reserves the right to make a "redemption in kind" (payment
in portfolio securities rather than cash), without notice, if the amount the
investor is redeeming is large enough to affect fund operations (for example, if
it represents more than 1% of the Fund's assets). Further, the Fund reserves the
right to:
o refuse any purchase or exchange request,
o change or discontinue its exchange privilege,
o change its minimum investment amounts, and
o delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions).
TAX CONSEQUENCES
The following discussion is intended as general information only. Because
everyone's tax situation is unique, you should consult your own tax advisor(s)
with regard to the applicability of state and local tax laws on Fund
distributions. The applicable tax laws which affect the Fund and their
shareholders are subject to change and may be retroactive. For more information,
please see the SAI.
Dividends, Distributions and Taxes. The Fund declares dividends daily and
automatically reinvests them in additional shares except for shareholders who
elect in writing to receive cash dividends, in which case monthly or quarterly
dividend checks are sent to the shareholder. There are no fees or sales charges
on reinvestments.
7
<PAGE>
Dividends and distributions are taxable to most shareholders as ordinary
income (unless an investment is in an IRA or other tax-advantaged account). The
tax status of any distribution is the same regardless of how long an investor
has been in the fund and whether distributions are reinvested or taken in cash.
The tax status of dividends and distributions will be detailed in annual tax
statements from the Fund. An exchange of a Fund's shares for the shares of
another fund will be treated as a sale of the Fund's shares and any gain may be
subject to federal income tax.
Backup Withholding. A Fund may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to certain 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. 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 promulaged 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 Fund 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 account holders.
GENERAL INFORMATION
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 (3) consecutive months, the account may be
automatically transferred to the Reserve Primary Fund.
Easy Access. Easy Access is American Express' 24-hour toll-free telephone
service that lets customers use a touch-tone phone for a variety of options,
which include yields, account balances, check reorders and other options. To use
it, call 800-297-7378 and follow the instructions.
Inquiries. Shareholders should direct their inquiries to the Firm from which
they received this Prospectus or to
The Reserve Funds.
Special Shareholder Services. The Fund reserves 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.
Account Statements. Shareholders are advised to retain all account statements.
8
<PAGE>
FINANCIAL HIGHLIGHTS
This section provides further details about the Fund's recent financial
history. The following tables describe the Fund's performance for the fiscal
periods indicated. "Total Return" shows how much an investment in a series would
have increased (or decreased) during each period, assuming reinvestment of all
dividends and distributions, if any. These figures have been audited by
PricewaterhouseCoopers LLP, the Trust's independent accountants, whose report,
along with the Fund's financial statements, is included in the Fund's Annual
Report, which is available upon request by calling 800-637-1700.
<TABLE>
<CAPTION>
For Fiscal Years Ended May 31,
-----------------------------------------------------------
1999 1998 1997 1996(a)
---- ---- ---- -------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $1.0000 $1.0000 $1.0000 $1.0000
-------- -------- -------- -------
Net investment income from investment operations .0496 .0542 .0552 .0462
Less dividends from net investment income (.0496) (.0542) (.0552) (.0462)
-------- -------- -------- -------
Net asset value at end of period $1.0000 $1.0000 $1.0000 $1.0000
======== ======== ======== =======
Total Return 4.96% 5.42% 5.52% 5.13% (b)
Ratios/Supplemental Data
- ------------------------
Net assets end of period (millions) $ 52.6 $ 56.3 $ 99.7 $ 1.0
Ratio of expenses to average net assets (c) 1.00% 1.00% 1.00% 1.00% (b)
Ratio of net investment income to average net assets (c) 4.24% 4.62% 4.44% 4.30% (b)
- ----------------------------------------------------------
(a) For the period from May 1, 1996 (Commencement of Operations) to May 31, 1996.
(b) Annualized.
(c) Due to the voluntary waiver of certain expenses by RMCI, the net expense ratios and net
investment income amounted to:
</TABLE>
----------------------------- --------------- -----------------
Net
Expenses Investment
Fiscal Year Ratio Income
----------------------------- --------------- -----------------
1999 .40% 4.84%
----------------------------- --------------- -----------------
1998 .33% 5.29%
----------------------------- --------------- -----------------
1997 .00% 5.44%
----------------------------- --------------- -----------------
1996 .18% 5.12%
----------------------------- --------------- -----------------
---------------
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.
---------------
9
<PAGE>
This Prospectus contains the information about each Fund, which a prospective
investor should know before investing.
The Statement of Additional Information ("SAI") contains additional and more
detailed information about the Funds, and is considered part of this Prospectus.
Our Annual and Semi-Annual Reports list the holdings in each Fund, describe Fund
performance, include financial statements for the Funds, and discuss market
conditions and strategies that significantly affected the Funds' performance.
These documents may be obtained without charge by writing to the address below
or calling The Reserve Fund at 800-297-7378. You can download the documents from
the SEC's web site (http://www.sec.gov) or you can obtain copies by visiting the
SEC's Public Reference Room in Washington, DC (800-SEC-0330) or by sending your
request and duplicating fee to the SEC's Public Reference Section, Washington,
DC 20549-6009.
Investors are advised to read and retain this prospectus for future
reference.
[INSERT AMEX LOGO]
General Information and 24-Hour Yield and Balance Information
800-297-7378
Distributor - Resrv Partners, Inc.
RF/STRAT-07/99
SEC File Number
The Reserve Fund
811-2033
Strategist
Money-Market
Fund
Prospectus
July 31, 1999
10
<PAGE>
STRATEGIST MONEY-MARKET FUND
1250 BROADWAY, NEW YORK, NY 10001-3701
212-401-5500 / / 800-637-1700
-------------------------
Strategist Money-Market Fund
Statement Of Additional Information
This Statement of Additional Information ("SAI") describes the Strategist
Money-Market Fund ("the Strategist Fund" or "the Fund") which is one series
(fund) of The Reserve Fund ("Trust"). The Reserve Fund was originally organized
as a Maryland corporation on February 1, 1970 and re-organized on October 28,
1986 as a Massachusetts business trust and is an open-end investment company,
commonly known as a money-market mutual fund. At the date of the Prospectus and
SAI, there were four separate series (funds) authorized and outstanding:
Primary, U.S. Government, U.S. Treasury and Strategist Funds. Additional series
(funds) may be added in the future by the Board of Trustees. This Statement is
not a Prospectus, but provides detailed information to supplement the Prospectus
dated July 31, 1999 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) where you can download the
SAI, the Prospectus, material incorporated by reference & other information
regarding the Fund. This Statement is dated July 31, 1999.
TABLE OF CONTENTS PAGE
----------------- ----
Description of Fund................................................2
Management of the Trust............................................6
Investment Management, Distribution and Custodian Agreements.......8
Information About the Trust.......................................10
How to Buy and Sell Shares........................................11
Dividends, Distributions and Taxes................................16
Yield Information.................................................18
General Information...............................................18
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>
DESCRIPTION OF THE FUND
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 is not guaranteed. 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").
Investment in the Fund is not insured or guaranteed by the U.S.
government, Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money investing in the Fund.
Money-market funds are subject to federal regulations designed to help maintain
liquidity. The regulations set strict standards for credit quality,
diversification and maturity (397 days or less for individual securities, 90
days or less for the average portfolio life).
Investment management companies can be divided into "diversified" and
"non-diversified". Under Section 5(b), a diversified company must have 75% of
the value of its total assets in cash and cash items (including receivables),
U.S. government securities, securities of other investment companies, and other
securities. Any management company other than a diversified company is defined
as a "non-diversified" company pursuant to Section 5(b)(2). The Reserve Fund is
a non-diversified mutual fund. However, the Fund 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
securities of any one issuer, except U.S. government securities, as defined
below.
Reserve Management Co., Inc. ("RMCI") serves as the Fund's Investment
Adviser. Resrv Partners, Inc. ("RESRV"), which is a wholly owned subsidiary of
RMCI, is the distributor of the Fund's shares. RESRV is located at 1250
Broadway, New York, NY 10001-3701.
The following information supplements and should be read in conjunction
with the Prospectus.
Supplemental Investment Policies. The Fund's 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 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 senior securities except in compliance with the Investment Company
Act of 1940 ("1940 Act");
(3) act as an underwriter with respect to the securities of others to the
extent that, in connection with the disposition of portfolio securities,
it may be deemed to be an underwriter under certain securities laws;
(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; and
(8) make investments on a margin basis.
Notwithstanding the foregoing investment restrictions, the Fund may invest
substantially all of its assets in another open-end investment company with
substantially the same investment objective as the Fund.
2
<PAGE>
Although not currently using a "master/feeder" structure, based upon
shareholder approval, the Trust may use a "master/feeder" structure. Rather than
investing directly in securities, the Fund is a "feeder fund," meaning that it
invests in a corresponding "master fund". The master fund, in turn invests in
securities using the strategies described in this Prospectus. One potential
benefit of this structure is lower costs, because the expenses of the master
fund can be shared with any other feeder funds.
Other Policies. The Strategist 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. The 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. The Strategist Fund may, to increase their
income, lend their securities to brokers, dealers and institutional investors if
the loan is collateralized in accordance with applicable regulatory requirements
(the "Guidelines") and if, after any loan, the value of the securities loaned
does not exceed 25% of the value of its assets. Under the present Guidelines,
the loan collateral must, on each business day, be at least equal to 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
receive negotiated loan fees. 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 or Exchange"), which require the borrower,
after notice, to redeliver the securities within the normal settlement time of
three (3) business days.
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 domestic banking obligations. 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 repos collateralized by
U.S. government securities). The Fund has the authority to borrow money
(including reverse repos involving 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) for extraordinary or emergency purposes but not
in an amount exceeding 5% of its total assets.
Risks Of Investing In The Fund. Money-market securities are high-quality,
short-term securities that pay a fixed, variable or floating interest rate.
Securities are often specifically structured so that they are eligible
investments for a money-market fund. For example, in order to satisfy the
maturity restrictions for a money market fund, some money-market securities have
demand or put features which have the effect of shortening the security's
maturity. Further, the principal risk factors associated with investment in the
Fund are the risk of fluctuations in short-term interest rates, the risk of
default among one or more issuers of securities which comprise the Fund's
assets; consequently when you sell (redeem) your shares of the Fund, they could
be worth more or less than what you paid for them. In addition to the general
investment risks of the Fund that are common to and may affect the money-market
industry as a whole, there are risks specific to the types of securities held.
U.S. Government Securities. U.S. government securities include a variety of
instruments which are issued or guaranteed by the U.S. Treasury, various
agencies of the federal government and various instrumentalitites 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 GNMA, are supported by the full faith and credit of the U.S. government.
Other securities, such as obligations issued by 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 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.
3
<PAGE>
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.
Bank Obligations. The Strategist Fund may invest in bank obligations that
include certificates of deposit, bankers' acceptances, letters of credit and
time deposits. A certificate of deposit is a negotiable certificate representing
a financial institution's obligation to repay funds deposited with it, earning a
specified rate of interest over a given period. A bankers' acceptance is a
negotiable obligation of a bank to pay a draft which has been drawn on it by a
customer. A time deposit is a non-negotiable deposit in a financial institution
earning a specified interest rate over a given period of time. A letter of
credit is an unconditional guarantee by the issuing bank to pay principal and
interest on a note a corporation has issued.
Domestic banks are subject to extensive but different government
regulations which may limit both the amount and types of loans which may be made
and interest rates which may be charged. In addition, the profitability of the
banking industry is dependent largely upon the availability and cost of funds.
General economic conditions as well as exposure to credit losses arising from
possible financial difficulties of borrowers play an important part in the
operations of the banking industry. Domestic commercial banks organized under
federal law are supervised and examined by the Controller of the Currency and
are required to be members of the Federal Reserve System and to have their
deposits insured by the Federal Deposit Insurance Corporation. Domestic banks
organized under state law are supervised and examined by state banking
authorities but are members of Federal Reserve System only if they elect to
join. As a result of federal and state laws and regulations, domestic banks are,
among other things, generally required to maintain specified levels of reserves
and are subject to other regulations designed to promote financial soundness.
Foreign Banks. The Strategist Fund may invest in obligations of foreign banks
and foreign branches of U.S. and foreign banks. Investment in these securities
involve risks which 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. Furthermore, foreign banks are not regulated by U.S. banking
authorities and are generally not bound by financial reporting standards
comparable to U.S. banks.
Municipal Obligations. The Strategist Fund may invest in municipal obligations,
the interest on these municipal obligations is not exempt from federal income
tax. They may be issued to raise money for various public purposes such as
constructing public facilities. Certain types of municipal obligations are
issued to obtain funding for privately operated facilities. General obligation
bonds and notes are backed by the taxing power of the issuer. Revenue bonds and
notes are backed by the revenues of a project or facility such as tolls from a
toll road or, in some cases, from the proceeds of a special excise tax, but not
by the general taxing power. Industrial development revenue bonds and notes are
a specific type of revenue bond or note backed by the credit of a private
issuer. Municipal obligations bear fixed, variable or floating rates of
interest.
The Strategist Fund will purchase municipal securities which are rated
MIG1 or MIG2 by Moody's Investor Services, Inc. ("Moody's"), SP-1 or SP-2 by
Standard & Poor's Corporation ("S&P") or the equivalent. Municipal obligations
which are not rated may also be purchased provided such securities are
determined to be of comparable quality by RMCI to those rated securities in
which the Fund may invest, pursuant to guidelines established by their Boards of
Trustees.
Municipal obligations are sometimes offered on a "when-issued" or delayed
delivery basis. There is no limit on the Strategist Fund's ability to purchase
municipal securities on a when-issued basis. At the time the Fund makes the
commitment to purchase a municipal obligation on a when-issued basis, it will
record the transaction and reflect the value of the security in determining its
net asset value ("NAV"). The Fund will also maintain readily marketable assets
at least equal in value to commitments for when-issued securities specifically
for the settlement of such commitments. RMCI does not believe that the Fund's
NAV or income will be adversely affected by the purchase of municipal
obligations on a when-issued basis.
4
<PAGE>
Municipal securities can be significantly affected by economic and
political changes, as well as uncertainties in the municipal market related to
taxation, legislative changes, or the rights of municipal security holders.
Because many municipal securities are issued to finance similar projects,
especially those relating to education, health care, transportation and various
utilities, conditions in those sectors and the financial condition of an
individual municipal issuer can affect the overall municipal market.
Commercial Paper. The Strategist Fund has never purchased commercial paper and
has no current interest of doing so. However, it may purchase commercial paper
consisting only of short-term, unsecured promissory notes issued to finance
short-term credit needs which are direct obligations issued by domestic
entities. The other corporate obligations in which the Strategist Fund may
invest consist of high-quality, short-term bonds and notes (including variable
amount master demand notes) issued by domestic corporations, including banks.
Repurchase and Reverse Repurchase Agreements. A repurchase agreement ("repo")
transaction occurs when the Fund purchases and simultaneously contracts to
resell securities at fixed prices. The Fund will limit repos to those financial
institutions and securities dealers who are deemed credit worthy pursuant to
guidelines established by the Fund's Board of Trustees ("Trustees"). Repos are
considered by the SEC staff to be loans by the Fund that enters into them. Repos
could involve risks in the event of a default of the repo counter-party to the
agreement, including possible delays, losses or restrictions upon the Fund's
ability to dispose of the underlying securities. In an attempt to reduce the
risk of incurring a loss on a repo, RMCI will follow procedures intended to
provide that all repos 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 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 (7)
days after notice.
The Strategist Fund may sell securities in a reverse repo 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 repo
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 receiving a percentage of its value. By repaying
the repo counterparty the value received plus interest, the Fund repurchases the
transferred security. It is the Fund's policy that entering into a reverse repo
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.
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
after market 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.
Subject to the overall supervision of the officers of the Fund and the
Trustees, RMCI places all orders for the purchase and sale of the Fund's
investment securities. 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
5
<PAGE>
order placed for the Fund. However, RMCI may not always be able to purchase or
sell the same security on identical terms for all investment companies affected.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the management and supervision of the
Trust. The Trustees approve all significant agreements between the Fund and
those companies that furnish services to the Fund.
Trustees and executive officers of the Fund, together with information as
to their principal business occupations during at least the last five years, are
shown below:
*++BRUCE R. BENT, 62, President, Treasurer and Trustee, 1250 Broadway, New York,
NY 10001-3701.
Mr. Bent is President, Treasurer, and Trustee of The Reserve Fund ("RF"),
Reserve Institutional Trust ("RIT"), Reserve Tax-Exempt Trust ("RTET"), Reserve
New York Tax-Exempt Trust ("RNYTET") and Reserve Private Equity Series ("RPES");
Director and President of Reserve Management Company, Inc. ("RMCI") and Reserve
Management Corporation ("RMC"); and Chairman and Director of Resrv Partners,
Inc. ("RESRV").
Mr. Bent co-founded The Reserve Funds in 1970 and has been an executive
officer since then.
*++BRUCE R. BENT II, 33, Trustee, Senior Vice President and Assistant Secretary,
1250 Broadway, New York, NY 10001-3701.
Mr. Bent II joined The Reserve Funds in 1992 and is Senior Vice President
and Assistant Secretary of RF, RIT, RTET, RNYTET and RPES. Mr. Bent II is also
Vice President and Secretary of Reserve Management Company, Inc. ("RMCI") and
Reserve Management Corporation ("RMC"); and Secretary and Director of Resrv
Partners, Inc. ("RESRV").
+RICHARD BASSUK, 57 Trustee, c/o The Singer & Bassuk Organization, 767 Third
Avenue, 28th Floor, New York, NY 10017.
From 1995 to present Mr. Bassuk has been a founding principal and
President of Singer & Bassuk Organization. From 1994 to present, Mr. Bassuk
served as Chairman of R.E. Bases Enterprises Corporation. He is currently
Trustee of RF, RIT, RTET, RNYTET and RPES.
+EDWIN EHLERT, JR., 66, 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 a 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, Grand Central &
Utopia Parkways, Jamaica, NY 11439.
The Reverend Harrington is currently President of St. John's University,
NY and a Director of the Bear Stearns Companies, Inc. since 1993. He is
currently a Trustee of RF, RIT, RTET, RNYTET and RPES.
+DIANA P. HERRMANN, 40, Trustee, 380 Madison Avenue, Suite 2300, New York, NY
10017.
6
<PAGE>
Ms. Herrmann has been President and COO of Aquila Management Corporation
("Aquila"), sponsors of 14 mutual funds with over $3.2 billion in assets as of
June 30, 1999. Ms. Herrmann has been employed with Aquila since 1986. She is
currently Trustee of RF, RIT, RTET, RNYTET and RPES.
+WILLIAM J. MONTGORIS, 52, Trustee, 286 Gregory Road, Franklin Lakes, NJ 07417.
Mr. Montgoris is formerly Chief Operating Officer of the Bear Stearns
Companies, Inc. (1979-1999). He is currently Trustee of RF, RIT, RTET, RNYTET
and RPES.
+WILLIAM E. VIKLUND, 58, Trustee, 110 Grist Mill Lane, Plandome Manor, NY
11030-1110.
Mr. Viklund is formerly President and COO of Long Island Bankcorp and
President and CEO of Long Island Savings Bank (1980-1996). He is currently
Trustee of RF, RIT, RTET, RNYTET and RPES.
*ARTHUR T. BENT III, 31, Vice President and Assistant Secretary, 1250 Broadway,
New York, NY 10001-3701.
Mr. Bent III joined The Reserve Funds in 1997 and is Vice President and
Assistant Secretary of RF, RIT, RTET, RNYTET and RPES. Mr. Bent III is also Vice
President and Treasurer of Reserve Management Company, Inc. ("RMCI") and Reserve
Management Corporation ("RMC"); and Treasurer and Director of Resrv Partners,
Inc. ("RESRV"). Before joining Reserve, he was a private investor.
MARYKATHLEEN FOYNES, 29, Counsel and Secretary, 1250 Broadway, New York, NY
10001-3701.
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. (1997-1998). Prior to that, Ms. Foynes worked for the U.S.
House of Representatives as a District Manager for a Member of Congress
(1995-1997).
JAMES M. FREISEN, 41, Controller, 1250 Broadway, New York, NY 10001-3701.
Mr. Freisen is Controller. Before joining The Reserve Funds in 1999, Mr.
Freisen was an Assistant Vice President at Paine Webber, Inc. (1998-1999). Prior
to that, he was Assistant Vice President, Bank of New York (1997-1998);
Assistant Vice President, Fifth Third Bank (1995-1997); and Vice President,
Smith Barney (1991-1995).
- ------------
+ Messrs. Bassuk, Ehlert, Emmet, Harrington, Montgoris, Viklund and Ms. Herrmann
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 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.
*Mr. Bent is the father of Mr. Bent II and Mr. Bent III.
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 June 30, 1999, the Trust's records reflect that the Trustees and
officers directly or indirectly as a group owned less than 1% of the outstanding
shares of the Fund. The Trust does not pay any pension or retirement benefits to
its Trustees.
7
<PAGE>
COMPENSATION TABLE
FOR FISCAL YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM TRUST AND TRUST COMPLEX
COMPENSATION (4 ADDITIONAL TRUSTS) PAID TO
NAME OF TRUSTEE, POSITION FROM THE FUND TRUSTEE
- ------------------------- ------------ ----------------------------
<S> <C> <C>
Bruce R. Bent, President and Trustee $ 0 $ 0
Bruce R. Bent II, Vice President and Trustee 0 0
Richard Bassuk, Trustee 36 3,500
Edwin Ehlert, Jr., Trustee 314 30,500
Henri W. Emmet, Trustee 314 30,500
Rev. Donald J. Harrington, Trustee 314 30,500
Diana P. Herrmann, Trustee 36 3,500
William J. Montgoris, Trustee 0 0
William E. Viklund, Trustee 237 23,000
</TABLE>
None of the executive officers of the Fund had allocated cash remuneration in
excess of $60,000 during the last fiscal year ending May 31, 1999 for services
rendered to the Fund.
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.
As of July 9, 1999, the following person were known by the Fund to own of
record or beneficially 5% or more of the outstanding shares of the Fund:
SHARES PERCENT
Name and Address of BENEFICIALLY OUTSTANDING
Beneficial Owner OWNED (1) SHARES OWNED
---------------- ------------ ------------
Reserve Management Corporation 3,599,638 7.1%
Attn: Account No. 50410337
1250 Broadway
New York, NY 10001
Reserve Management Corporation 5,227,047 10.3%
Attn: Account No. 30039648
1250 Broadway
New York, NY 10001
- ----------
(1) Fractional shares have been omitted.
INVESTMENT MANAGEMENT, DISTRIBUTION
AND CUSTODIAN AGREEMENTS
Investment Management Agreement. Reserve Management Company, Inc. ("RMCI" or
"Adviser"), 1250 Broadway, New York, NY 10001-3701, a registered investment
adviser, manages the Fund and provides them with investment advice. As a result
of recent shareholder votes, the Fund has entered into a new Investment
Management Agreement with the Adviser, which is substantially similar to the
Investment Management Agreement
8
<PAGE>
previously in effect. The new Investment Management Agreements became effective
June 26, 1999. Under the Investment Management Agreement, RMCI manages the
Fund's investment in accordance with the Fund's investment objective and
policies, subject to overall approval by the Trustees.
Presently, under the terms of the Investment Management Agreements with
the Fund, the Fund pays RMCI a comprehensive management fee at an annual rate of
0.80% of average daily net assets. RMCI pays all employee and customary
operating expenses of the Fund. Excluded from the definition of customary
operating expenses are interest, taxes, brokerage fees, extraordinary legal and
accounting fees and expenses, and fees of the disinterested Trustees, for which
each Fund in the fund complex it pays its direct or allocated share.
For the fiscal years ended May 31, 1997, 1998 and 1999, RMCI received
management fees under the Investment Management Agreements previously in effect.
For the fiscal year ended May 31, 1997, RMCI waived all of its comprehensive fee
and for fiscal year ended May 31, 1998, RMCI waived 0.40% of its comprehensive
fee. For the fiscal year ended May 31, 1999, RMCI received management fees of
$443,201, respectively, from the Strategist Fund. However, at May 31, 1999, RMCI
waived $330,015 of the comprehensive management fee.
From time to time, RMCI may waive receipt of its fees and/or voluntarily
assume certain expenses of the Fund that 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 Fund was duly approved by
shareholders in 1999, and may be renewed annually if specifically approved by
the 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 sixty (60) days' written notice by a vote of the Trustees
or by vote of a majority of outstanding voting shares of the Fund or by RMCI.
Distribution Agreement. The Fund's Distributor is RESRV. The Fund has authorized
the Distributor, 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
Distributor is "principal underwriters" for the Fund within the meaning of the
Investment Company Act of 1940, and as such act as agent in arranging for the
continuous offering of Fund shares. The Distributor has the right to enter into
selected dealer agreements with brokers or other persons of their choice for the
sale of Fund shares. Parties to selected dealer agreements may receive
assistance payments if they qualify for such payments under the Plan of
Distribution described below. RESRV's principal business is the distribution of
mutual fund shares. No Distributor has retained underwriting commissions on the
sale of Fund shares during the last four fiscal years. During the fiscal year
ended May 31, 1999, no distribution assistance payments were made to RESRV.
The Distribution Agreement may be renewed annually if specifically
approved by the Board of Trustees, and by the vote of a majority of the
disinterested Trustees cast in person at a meeting called for the purpose of
voting on such approval or by the vote of a majority of the outstanding voting
securities of the Fund.
Plan of Distribution. The Fund maintains a Plan of Distribution ("Plan") and
related agreements, as amended, under Rule 12b-1 of the Investment Company Act
of 1940, which provides that investment companies may pay distribution expenses,
directly or indirectly, pursuant to a Plan adopted by the investment company's
Board and approved by its shareholders. Under the Plan, the Fund makes
assistance payments to brokers, financial institutions and other financial
intermediaries ("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
9
<PAGE>
RESRV 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.
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, 1999, $0 was paid under the Plan by
the Strategist 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.
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 the Fund, 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.
Transfer Agent and Dividend-Paying Agent. The Reserve Fund acts as its own
transfer agent and dividend-paying agent.
Custodian, Independent Accountant and Counsel. 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, 1 Wall Street, New
York, NY 10286 and Custodial Trust Company, 101 Carnegie Center, Princeton, NJ
08540 are Custodians for the Fund for limited purposes in connection with
certain repurchase agreements. The Custodian has no part in determining the
investment policies of the Fund or which securities are to be purchased or sold
by the Fund. PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York,
NY 10036 is the Fund's independent accountant. Dechert, Price & Rhoads, 1775 Eye
Street NW, Washington, DC 20006, is the Fund's outside counsel and has rendered
its opinion as to certain legal matters regarding the due authorization and
valid issuance of the shares being sold pursuant to the Fund's Prospectus.
INFORMATION ABOUT THE TRUST
The Reserve Funds' Declaration of Trust permits the Trust to issue an
unlimited number of full and fractional shares of beneficial interest that may
be issued in any number of series (funds) and/or classes. Shares issued will be
fully paid and non-assessable and will have no preemptive rights. The
shareholders of the Fund are entitled to a full vote for each full share held
(and fractional votes for fractional shares) and have equal rights to earnings,
dividends, redemptions and in the net assets of their Fund 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.
Further, the Trust is allowed 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,
10
<PAGE>
qualifications, or terms and conditions of redemption of the stock. Any changes
would be required to comply with all applicable state and federal securities
laws. These currently require that each class be preferred over all other
classes in respect to 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 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 non-cumulative
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. The Fund intends to conduct their operations in such a way as
to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
As stated previously, to date, the Board has authorized the creation of
four series (funds): Primary, U.S. Government, U.S. Treasury and Strategist
Funds. All consideration received by the Trust for shares of one of the Fund and
all assets in which such consideration is invested will belong to that Fund
(subject only to rights of creditors of the Fund) and will be subject to the
liabilities related thereto. The income attributable to, and the expenses of,
one series are treated separately from those of the other series. The Trust has
the ability to create, from time to time, new series without shareholder
approval.
Under Massachusetts law, the shareholders and trustees of a business
trust can be personally liable for the Fund's obligations unless, as in this
instance, the Declaration of Trust provides, in substance, that no shareholder
or trustee shall be personally liable for the Funds and each investment
portfolio's, obligations to third parties, and requires that every written
contract made by 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.
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.
HOW TO BUY AND SELL SHARES
Purchases - General. Shares of the Fund are sold without a sales charge. You may
be charged a fee if you effect transactions in shares of the Fund through a
securities dealer, bank or other financial institution. The Fund reserves the
right to reject any purchase order.
The minimum initial investment in the Fund is $20,000 with minimum
subsequent investment of $1,000. The initial investment must be accompanied by
an Account Application or equivalent information. Checks drawn on
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foreign banks are normally not accepted by the Fund. In addition, the Fund does
not accept cash investments or travellers or third party 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. Shares also may be
purchased through Reserve Automatic Asset Builder (see below). In addition, the
Fund reserves the right to change the minimum investment amount at any time.
Each Fund's shares are sold on a continuous basis at the NAV per share.
Checks and wires which do not correctly identify the account to be credited may
be returned or delay the purchase of shares. 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 (Eastern 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 (Eastern time) will be considered received the
next business day. Investors will be charged a fee for any check that does not
clear. 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 PM (Eastern 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 (i.e.,
receipt of all necessary information, signatures and documentation), 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 PM (Eastern time) are
considered received on the following business day.
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 may be up to 10 calendar days from date of purchase.
Share Price: NAV. The valuation of the Fund's portfolio securities is based upon
their amortized cost, which does not take into account unrealized gains or
losses. This involves valuing an instrument at its cost and thereafter assuming
a constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, there may be some periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument.
The Fund's Board has established, as a particular responsibility within
the overall duty of care owed to the Fund's investors, procedures reasonably
designed to stabilize the Fund's price per share as computed for the purpose of
purchases and redemptions at $1.00. Such procedures include review of the Fund's
portfolio holdings by the Board, at such intervals as it may deem appropriate,
to determine whether the Fund's NAV calculated by using available market
quotations or market equivalents deviates from $1.00 per share based on
amortized cost. In such review, investments for which market quotations are
readily available will be valued at the most recent comparable maturity, quality
and type, as obtained from one or more of the major market makers for the
securities to be valued. Other investments and assets will be valued at fair
value as determined in good faith by the Board.
The extent of any deviation between the Fund's NAV based upon available
market quotations or market equivalents and $1.00 per share based on amortized
cost will be examined by the Fund's Board. If such deviation exceeds 1/4 of 1%,
the Board will consider promptly what action, if any, will be initiated (The
Trust is required by the SEC to contact the Board if the deviation is 1/2 of
1%). In the event the Board determines that a deviation exists which may result
in material dilution or other unfair results to investors or existing
shareholders, it has agreed to take such corrective action as it regards as
necessary and appropriate, including: selling Fund instruments prior to maturity
to realize capital gains or losses or to shorten average Fund maturity;
withholding dividends or paying distributions from capital gains; redeeming
shares in kind; or establishing a NAV per share by using available market
quotations. 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
days the Exchange is closed for trading and on certain regional
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banking holidays. The holidays (as observed) on which the Exchange and the Fund
are closed currently are: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. In addition, The Reserve Fund is closed on Columbus
Day and Veterans Day. The NAV of the Fund is normally maintained at $1.00 per
share. No Fund can guarantee that its NAV will always remain at $1.00 per share
although the Fund has managed to do so since inception.
The NAV per share of the Fund is computed by dividing the value of the
net assets of the Fund (i.e., the value of its assets less liabilities) by the
total number of shares of such Fund 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 money-market
fund's portfolio securities, which does not take into account unrealized gains
and losses. As a result, portfolio securities are valued at their acquisition
cost, adjusted over time based on the discounts or premiums reflected in their
purchase price. This method of valuation is designed to permit a fund to be able
to maintain a stable NAV.
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 whom 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 NAV as computed for the purpose of
sales and redemptions at $1.00 per share.
Share Certificates. Share certificates are not issued by the Fund.
Automatic Asset-Builder Plan. If you have an account, you may purchase shares of
the Fund ($25 suggested minimum) from a checking, NOW, or bank money-market
deposit account; from a U.S. government distribution ($25 suggested minimum)
such as a social security, federal salary, or certain veterans' benefits, or
other payment from the federal government. You may also make arrangements for
the direct deposit of your payroll into your Fund account. Please call American
Express at 800-297-7378 for an application.
Redemptions -- General. 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 Fund. 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.
Written and telephone requests. Redemption instructions and options should be
specified 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. One
way to redeem shares is to write a letter of instruction which states: the
name(s) and signature(s) of all accountholders (signature(s) guaranteed, if
necessary), account number, Fund name, the dollar amount you want to sell, and
how and where to send the proceeds. If you are redeeming your IRA, please note
the applicable withholding requirements.
To reduce the risk of loss, certain situations require written
instructions along with signature guarantees. These include:
(1) redemptions for more than $5,000; or
(2) redemptions on accounts whose address has been changed within
the past 30 days; or
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(3) redemption requests to be sent to someone other than the
account owner or the address of record for the past 30 days.
You may redeem by calling the Fund at 800-297-7378. Unless you decline
telephone privileges on your application and the Funds fail to take reasonable
measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions may be sent to
the bank or brokerage account designated by the shareholder on the application
or in a letter with signature guarantee. 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. The Fund
reserves the right to refuse a telephone redemption if it believes it is
advisable to do so.
Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/dealers, national securities exchanges or
clearing agencies deemed eligible by the SEC. Guarantees must be signed by an
authorized signatory of the guarantor and "Signature Guaranteed" must appear
with the signature. Notaries public cannot provide signature guarantees. The
Funds may request additional documentation from corporations, executors,
administrators, trustees or guardians, and may accept other suitable
verification arrangements from foreign investors, such as consular verification.
For more information with respect to signature guarantees, please call.
Redemption by Checking. By completing the application or a signature card (for
existing accounts) and certain other documentation, 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.
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 or uncollected funds. All transactions
activity, including check redemptions, will be reported on your account
statement. Checking may not be available to clients of some Firms.
Please call American Express at 800-297-7378 for more information about
charges, fees and the application process. The Fund will charge a nonrefundable
annual service fee (currently $60 which may be charged to the account at the
rate of $5 monthly). CPA and CPA Plus 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 to participants. Upon proper notice, the Fund may choose to impose
a fee if it deems a shareholder's actions to be burdensome. In addition, Firms
in this program may charge their own additional service fees and may establish
their own minimum check amount.
The use of checks by participants will be subject to the terms of your
application.
Stop Payments. The Fund 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 Fund by 2:00 PM (Eastern
time) will be effective the next business day. Oral stop payment requests are
effective for fourteen (14) calendar days, at which time they will be cancelled
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
$15,000, 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 of a fixed
amount. Changes to instructions must be in writing with signature(s) guaranteed.
In order for such payments to continue under the 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
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Fund. The Fund may impose a charge, modify or terminate any Automatic Withdrawal
Plan at any time after the participant has been notified. This privilege may not
be available to clients of some Firms or may be available subject to conditions
or limitations.
Automatic Transfer Plans (ACH). You may redeem shares of the Fund (minimum $100)
without charge by telephone if you have filed a separate Reserve Automatic
Transfer application with the Fund. The proceeds will be transferred between
your Fund account and the checking, NOW or bank money-market deposit account
(must be an Automated Clearing House member bank) designated in your
application. 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 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.
Exchange Privilege. A shareholder may exchange shares at NAV with all Reserve
money-market funds and the Reserve Private Equity Series. 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 is not available for shares which have been held
for less than fifteen (15) days. Exchanges by telephone are an automatic
privilege unless the shareholder notifies the Fund on the Account Application
that this authorization has been withheld. Unless authorization is withheld, the
Fund will honor requests by any person by telephone at 800-637-1700, that the
Fund deems to be valid. The Fund and its affiliates may be liable for any losses
caused by their failure to employ reasonable procedures to avoid unauthorized or
fraudulent instructions. To reduce such risk, the registration of the account
into which shares are to be exchanged must be identical to the registration of
the originating account and all telephone exchange requests will be recorded.
The Fund may also require the use of a password or other form of personal
identification. In addition, the Fund will provide written confirmation of
exchange transactions. During periods of volatile economic and market
conditions, a shareholder may have difficulty making an exchange request by
telephone, in which case an exchange request would have to be made in writing.
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 that are different from those
described in the Prospectus or SAI.
The exchange privilege may be modified or terminated at any time, or from
time to time, upon 60 days' notice to shareholders if such notice is required by
the 1940 Act. The notice period may be shorter if applicable law permits. The
Trust reserves the right to reject telephone or written requests submitted in
bulk on behalf of ten (10) or more accounts. A pattern of frequent exchanges may
be deemed by the Adviser to be abusive and contrary to the best interests of the
Fund's other shareholders and, at the Adviser's discretion, may be limited by
the Fund's refusal to accept additional purchases and/or exchanges from the
investor and/or the imposition of fees. The Funds do not have any specific
definition of what constitutes a pattern of frequent exchanges. Any such
restriction will be made on a prospective basis, upon notice to the shareholder
not later than ten (10) days following such shareholder's most recent exchange.
Telephone and written exchange requests must be received by the Funds by 4:00 PM
(Eastern time) on a regular business day to take effect that day. Exchange
requests received after 4:00 PM (Eastern time) will be effected at the next
calculated NAV.
Suspension of Redemptions. The right of redemption may be suspended or the date
of payment postponed for more than seven (7) days only (a) when the Exchange 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 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
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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.
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 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.
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 who 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.
Purchases and Redemptions through Others. Share purchases and redemptions may
also be made through brokers and financial institutions ("Firms"), which may
involve such Firms' own redemption minimums, services fees, and other redemption
requirements. 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. 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 Fund's transfer agents will have no
information about their accounts, which will be available only from their Firm.
Some of these firms participate in the Fund's Plan of Distribution ("Plan").
Under the Plan, Firms may receive compensation for recordkeeping and other
services and assistance in distributing Fund shares. 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
DIVIDENDS, 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. Such
qualification relieves the Fund of any liability for federal income tax to the
extent its earnings are distributed in accordance with applicable provisions of
the Code. If the Fund did not qualify as a regulated investment company, it
would be treated for tax purposes as an ordinary corporation subject to federal
income tax.
The Fund ordinarily declares dividends from its net investment income on
each day the Exchange and The Reserve Fund is open for business. The Fund's
earnings for Saturdays, Sundays and holidays are declared as dividends on the
preceding business day. Dividends paid out of the Fund's investment company
taxable income will be taxable to a U.S. shareholder as ordinary income. Because
no portion of the Fund's income is expected to consist of dividends paid by U.S.
corporations, no portion of the dividends paid by the Fund 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
shareholders as long-term capital gains, 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 NAV of a
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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 NAV of those shares.
If you elect to receive dividends and distributions in cash, and your
dividend or distribution check is returned to the Fund as undeliverable or
remains uncashed for six months, the Fund reserves the right to reinvest such
dividends or distributions and all future dividends and distributions payable to
you in additional Fund shares at NAV. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
Gain derived by the 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 Strategist Fund accrues receivables or liabilities
denominated in a foreign currency, and the time the Strategist 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 Strategist Fund's investment company
taxable income to be distributed to its shareholders as ordinary income.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.
Upon the sale or other disposition of shares of the 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
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. Furthermore, a loss realized by a
shareholder on the redemption, sale or exchange of shares of the Fund with
respect to which exempt-interest dividends have been paid will, to the extent of
such exempt-interest dividends, be disallowed if such shares have been held by
the shareholder for less than six months.
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. Corporate shareholders and certain
other shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Amounts
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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.
The tax consequences to a foreign shareholder of an investment in the
Fund may be different from those described herein.
Investors are advised to consult their own tax advisor(s) with respect to
the particular tax consequences to them of an investment in the Fund.
YIELD INFORMATION
For the seven-day period ended May 31, 1999, the Strategist Fund's yield
was 4.48% and its effective yield was 4.58%.
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Fund
account having a balance of one share at the beginning of a seven calendar day
period for which the yield is to be quoted, dividing the net change by the value
of the account at the beginning of the period to obtain the base period return,
and annualizing the results (i.e., multiplying the base period return by 365/7).
The net change in the value of the account reflects the value of additional
shares purchased with dividends declared on the original share and any such
additional shares and fees that may be charged to shareholder accounts, in
proportion to the length of the base period and the Fund's average account size,
but does not include realized gains and losses or unrealized appreciation and
depreciation. Effective yield is computed by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365 divided
by 7, and subtracting 1 from the result.
Yields will fluctuate and are not necessarily representative of future
results. You should remember that yield is a function of the type and quality of
the instruments in the portfolio, portfolio maturity and operating expenses.
Your principal in the Fund is not guaranteed. See above "Share Price: NAV" for a
discussion of the manner in which the Fund's price per share is determined.
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.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data various industry
publications. From time to time, the Fund in its advertising and sales
literature may refer to the growth of assets managed or administered by RMCI
over certain time periods.
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 Fund assumes no responsibility to either owner for
actions taken by the other with respect to an account so registered. The
Application provides that persons who register their account indemnify and hold
the Fund harmless for actions taken by either party.
Reports and Statements. Shareholders receive an Annual Report containing audited
financial statements and an unaudited Semi-Annual Report. An account statement
is sent to each shareholder at least quarterly. Shareholders who are clients of
some Firms will receive an account statement combining transactions in Fund
shares with account statements covering other brokerage or mutual fund accounts.
Shareholders have a duty to examine their account statement(s) and report any
discrepancies to the Fund or your financial advisor immediately. Failure to do
so could result in the shareholder suffering a loss. Further, shareholders are
advised to retain account statements.
18
<PAGE>
Easy Access. Easy Access is the Fund's 24-hour toll-free telephone service that
lets customers use a touch-tone phone for a variety of options including yields,
account balances, check reorders, touch tone bill payment and other options. To
use it, call 800-297-7378 and follow the instructions.
Inquiries. Shareholders should direct their inquiries to the firm from which
they received this Prospectus or directly to The Reserve Funds, 1250 Broadway,
New York, NY 10001-3701 or 800-637-1700.
RATINGS
The following are the rating designations of short-term instruments and their
respective meanings.
STANDARD & POOR'S CORPORATION. A-1: This designation is the highest category of
S&P and indicates that the degree of safety regarding timely payment is strong.
Those short-term obligations that are extremely strong characteristics will be
denoted with a plus (+).
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.
There are three categories for short-term obligations that define an investment
grade situation designated Moody's Investment Grade as MIG1 (best) through MIG3.
MIG1 denotes best quality, i.e., there is a strong protection by established
cash flows, superior liquidity support or demonstrated broad-based market access
for re-financing. MIG2 denotes high quality, the margins of protection are ample
but not as large as MIG1.
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 the strongest credit quality. Issues
assigned this rating reflect an assurance of timely payment. Those obligations
with an exceptionally strong credit quality will be denoted with a plus (+)
sign. Issues assigned the rating of F1+ are regarded as having the strongest
degree assurance for timely payment.
FINANCIAL STATEMENTS
Financial Statements (audited) for the Strategist Money-Market Fund for the
fiscal year ended May 31, 1999, including notes thereto, are incorporated by
reference in the SAI from the Trust's Annual Report to Shareholders dated May
31, 1999 filed with the SEC on July 30, 1999.
19
<PAGE>
[AMERICAN EXPRESS LOGO]
American Express Money-Market Accounts
Prospectus
July 31, 1999
The Reserve Fund, Reserve Tax-Exempt Trust and Reserve New York Tax-Exempt Trust
(the "Trusts"), are registered investment companies, which offer thirteen
no-load money-market funds in this Prospectus:
o Primary Fund,
o U.S. Government Fund,
o U.S. Treasury Fund,
o Interstate Tax-Exempt Fund,
o California II Tax-Exempt Fund
o Connecticut Tax-Exempt Fund,
o Florida Tax-Exempt Fund,
o Massachusetts Tax-Exempt Fund,
o Michigan Tax-Exempt Fund,
o New Jersey Tax-Exempt Fund,
o New York Tax-Exempt Fund,
o Ohio Tax-Exempt Fund, and
o Pennsylvania Tax-Exempt Fund,
(each a "Fund", collectively "the Funds")
---------------
These Securities Have Not Been Approved Or Disapproved By The Securities And
Exchange Commission Nor Has The Commission Passed Upon The Accuracy Or Adequacy
Of This Prospectus. Any Representation To The Contrary Is A Criminal Offense.
---------------
<PAGE>
TABLE OF CONTENTS
Page
----
Investment Objectives & Principal
Strategies........................ 2
Performance History................. 5
Fees & Expenses of the Fund......... 9
Management.......................... 9
How to Buy Shares................... 10
Selling Fund Shares................. 11
Tax Consequences.................... 12
General Information................. 13
Financial Highlights................ 13
INVESTMENT OBJECTIVES & PRINCIPAL STRATEGIES
The investment objective of the Primary, U.S. Government and U.S. Treasury
Funds is to seek as high a level of current income as is consistent with
preservation of capital and liquidity. The investment objective of the
California II Tax-Exempt, Connecticut Tax-Exempt, Florida Tax-Exempt,
Massachusetts Tax-Exempt, Michigan Tax-Exempt, New Jersey Tax-Exempt, New York
Tax-Exempt Fund, Ohio Tax-Exempt and Pennsylvania Tax-Exempt Funds is to seek as
high a level of short-term interest income exempt from federal income and state
and local personal income and/or property taxes, if any, for resident holders of
the particular state fund as is consistent with preservation of capital and
liquidity. The investment objective of the Interstate Tax-Exempt Fund is to seek
as high a level of short-term interest income exempt from federal income taxes
as is consistent with preservation of capital and liquidity. However,
achievement of the objectives 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.
The Funds seek to maintain a stable $1.00 share price. The portfolio
managers monitor a range of economic and financial factors. Based on their
analysis, the Funds are invested in a mix of U.S. dollar denominated
money-market securities that are intended to provide as high a yield as possible
without violating the Fund's credit quality policies or jeopardizing the
stability of its share price.
Primary Fund. The Primary Fund seeks to attain its objective by investing in
instruments issued by the U.S. government, its agencies and instrumentalities
("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
nationally recognized statistical rating organizations non-rated instruments 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 Primary Fund will invest in obligations of U.S. banking institutions
that are insured by the Federal Deposit Insurance Corporation and 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 if rated by another rating agency. The Primary Fund may also invest
in obligations of foreign branches of both U.S. banks and foreign banks
(Eurodollars). Investment in foreign banks will be limited to those located in
Australia, Canada, Western Europe and Japan and 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 the U.S. banks which may be purchased by the Fund. The
Primary Fund may also invest in municipal obligations, the interest on which is
not exempt from federal income taxation.
U.S. Government Fund. The U.S. Government Fund seeks to attain its objective by
investing exclusively in securities backed by full faith and credit of the U.S.
government, such as U.S. Treasury securities, obligations issued or guaranteed
by the U.S. government, its agencies and instrumentalities, and repurchase
agreement supported by such investments.
U.S. Treasury Fund. The U.S. Treasury Fund seeks to attain its objective by
investing exclusively in securities backed by the full faith and credit of the
U.S government which provide interest income exempt in most states from state
and local personal income taxes. Typically, the Fund's assets will be invested
in U.S. Treasury securities.
2
<PAGE>
The "full faith and credit" backing is considered the strongest backing
offered by the U.S. government and to be the highest degree of safety with
respect to the payment of principal and interest.
The Funds may invest in repurchase agreements ("repos") but will limit
them to those banks and securities dealers who are deemed creditworthy pursuant
to the guidelines adopted by the Trust's Board of Trustees ("Trustees"). The
U.S. Government and U.S. Treasury Funds will further limit their investment in
repos to those whose underlying obligations are backed by the full faith and
credit of the United States, and, in the case of the U.S. Treasury Fund, repos
will not exceed 5% of its total assets except for temporary or emergency
purposes. Securities subject to repos 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.
Tax-Exempt Funds (California II, Connecticut, Florida, Massachusetts, Michigan,
New Jersey, New York, Ohio, Pennsylvania and Interstate Tax-Exempt Funds). A
principal investment strategy of the Tax-Exempt Funds, with the exception of the
Interstate Tax-Exempt Fund, is investing at least 80% of the value of each
Fund's net assets in municipal obligations which are exempt from federal, income
and state and, with respect to the New York Tax-Exempt Fund, local personal
income taxes and, with respect to the Florida Tax-Exempt Fund, the Florida
intangibles tax, and with respect to the Pennsylvania Tax-Exempt Fund, the
Pennsylvania county personal property tax, unless it has adopted a temporary
defensive position. In addition, during periods when Reserve Management Company
Inc. ("RMCI") believes that municipal obligations meeting each respective Fund's
quality standards are not available, a Fund may invest up to 20% of the value of
its net assets, or a greater percentage on a temporary basis, in municipal
obligations exempt only from federal income taxes.
The Interstate Tax-Exempt Fund invests principally in short-term
obligations issued by the states, territories and possessions of the United
States and their political subdivisions, duly constituted authorities and
corporations The Fund intends to invest at least 80% of the value of the Fund's
net assets in municipal obligations which are exempt from federal income tax,
unless it has adopted a temporary defensive position.
The Tax-Exempt Funds' investment strategies include investing primarily in
municipal money-market securities. The Funds invest principally in high-quality,
tax-exempt obligations issued by states, counties, municipalities, authorities
or other political subdivisions. These securities are generally referred to as
"municipal obligations."
The interest on securities generally known as municipal obligations is
exempt from federal income tax in the opinion of either bond counsel for the
issuers or, in some instances, the issuer itself. These securities may be issued
to raise money for various public purposes such as constructing public
facilities, while others are issued to obtain funding for privately operated
facilities. General obligation bonds and notes are backed by the taxing power of
the issuer. Revenue bonds and notes are backed by the revenues of a project or
facility such as tolls from a toll road or, in some cases, from the proceeds of
a special excise tax, but not by the general taxing power. Industrial
development revenue bonds and notes are a specific type of revenue bond or note
backed by the credit of a private issuer. Municipal obligations bear fixed,
variable or floating rates of interest.
The Funds will purchase tax-exempt securities which are rated MIG1 or MIG2
by Moody's Investor Services, Inc. ("Moody's"), SP-1 or SP-2 by Standard &
Poor's Corporation ("S&P") or the equivalent. Municipal obligations which are
not rated may also be purchased provided Reserve Management Company Inc.
("RMCI"), the Adviser determines them to be of comparable quality pursuant to
guidelines established by the Board of Trustees ("Trustees").
Interest received on certain otherwise tax-exempt securities ("private
activity bonds") is subject to a federal Alternative Minimum Tax ("AMT"). It is
the position of the SEC that in order for a fund to call itself "tax-free", not
more than 20% of its net assets may be invested in municipal securities subject
to the AMT or at least 80% of its income will be tax-exempt. Income received on
such securities is classified as a "tax preference item," which could subject
certain shareholders of each Fund to the AMT.
Although not a principal strategy, all the Funds are allowed to invest all
or substantially all of its investable assets, except to the extent required to
remain uninvested to satisfy cash requirements, in another open-end management
company having the same investment objective and substantially similar policies
and restriction.
RMCI uses its reasonable business judgment in selecting investments in
addition to considering the ratings of Moody's, S&P and other rating services,
when available.
The investment objective and principal strategies are summarized here. For
more information on the investment objective and strategies, please read each
Fund's Statement of Additional Information ("SAI"). A Fund may have to adopt a
temporary defensive position. In that event, the Fund might not be able to
attain its objective.
3
<PAGE>
Principal Risks of Investing in the Funds. The Funds are money-market funds
which are a specific type of fund that seeks to maintain a $1.00 price per
share. An investment in a Fund is not insured or guaranteed by the U.S.
government, Federal Deposit Insurance Corporation or any other government
agency. Although each Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in a Fund.
Additionally, each Fund's yield will vary as the short-term securities in its
portfolio mature and the proceeds are reinvested in securities with different
interest rates.
While each Fund has maintained a constant share price since inception, and
will strive to do so, the following factors could reduce the Fund's income level
and/or share price:
o as to all Funds, interest rates could rise sharply, causing the value
of the Funds' securities, and share price, to drop.
o as to all Funds, repos could involve risks in the event of a default
of the repo counterparty, including possible delays, losses or
restrictions upon a Fund's ability to dispose of the underlying
securities.
o as to the Primary Fund, there are risks generally associated with
investing in the banking industry, such as interest rate risk, credit
risk and regulatory developments relating to the banking industry.
o as to the Primary Fund, Euro and Yankee dollar investments involve
certain risks that are different from investments in domestic
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 banks are not regulated by U.S. banking authorities
and are generally not bound by financial reporting standards
comparable to U.S. banks. Further, adverse political, regulatory,
market or economic developments in foreign countries can affect
entities located in those countries.
o as to the Tax-Exempt Funds, the value of municipal securities may be
affected by uncertainties and changes in municipal market-related
legislation or litigation.
o as to the Tax-Exempt Funds, which invest in industrial revenue
development bonds and notes secured by letters of credit or guarantees
of banks, the risks generally associated with investing in the banking
industry, such as interest rate risk, credit risk and regulatory
developments relating to the banking industry.
o overall, a decline in the credit quality of an issuer or the provider
of credit support or a maturity-shortening structure for a security
can cause the price of a money-market security to decrease.
o as to the "Single State" Tax-Exempt Funds, the municipal market is
volatile and there are risks associated with investing in a particular
state. For example, adverse economic or political conditions within a
specific state can significantly affect the financial condition and
credit quality of the issuers of municipal securities located in that
state. Please read below some of the risks particular to the "Single
State" Tax-Exempt Funds offered in this Prospectus.
- as to the California II Tax-Exempt Fund, investors should consider
carefully the special risks inherent in the Fund's investments in
California municipal obligations, which result from statutes that
limit the taxing and spending authority of California governmental
agencies, as well as the general financial condition of the State.
- as to the Connecticut Tax-Exempt Fund, the credit quality of the
Connecticut Tax-Exempt Fund will depend on the continued financial
strength of the State of Connecticut and its political
subdivisions. Connecticut's economy relies in part on activities
that may be adversely affected by cyclical change, and recent
declines in defense spending have had a significant impact on
unemployment levels.
- as to the Florida Tax-Exempt Fund, investors should realize that
the revenue of Florida is closely tied to its tourism business. A
decline in tourism revenues could adversely affect revenues,
principally sales tax revenue that is vulnerable to economic
cycles.
- as to the Massachusetts Tax-Exempt Fund, investors should realize
that since 1989, Massachusetts has experienced growth rates
significantly below the national average and an economic recession
in 1990 and 1991 caused negative growth rates. Massachusetts'
economic and fiscal problems in the late 1980s and early 1990s
caused several rating agencies to lower their credit ratings.
- as to the Michigan Tax-Exempt Fund, investors should realize that
Michigan's fiscal condition continues to be tested by its
dependence on the inherently cyclical auto industry.
- as to the New Jersey Tax-Exempt Fund, investors should be aware
that from time to time, New Jersey's economic performance has
trailed the rest of the nation. Reflecting on such economic
downturn, the State's unemployment rate rose to a peak of 8.5%
during 1992.
- as to the New York Tax-Exempt Fund, investors should consider the
special risks inherent in investing in New York municipal
obligations which result from the financial condition of New York
State, certain of its public bodies and municipalities, and New
York City.
- as to the Ohio Tax-Exempt Fund, investors should realize that
Ohio's fiscal condition is closely tied to the State's ability to
minimize its exposure to cyclical downturns in the manufacturing
sector.
-as to the Pennsylvania Tax-Exempt Fund, investors should be aware
that many different social, environmental and economic factors may
affect the financial condition of Pennsylvania and its political
subdivisions and, that from time to time, Pennsylvania and certain
of its political subdivisions have encountered financial
difficulties which have adversely affected their respective credit
standings.
4
<PAGE>
Year 2000. Many computer software systems in use today cannot distinguish year
2000 from the year 1900. Most of the services provided to the Trust depend on
the smooth functioning of computer systems. The Trust could be adversely
affected if the computer systems and 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. In addition, because the Year 2000 issue affects virtually all
organizations, the extent of its impact cannot be predicted.
Other Risks. These risks are discussed in more detail in the SAI of each Fund.
Most of the Funds' performance depends on interest rates. When interest rates
fall, the Funds' yields will typically fall as well.
The Reserve Fund's emphasis on the high credit quality of its investments
may mean that its yields are lower than those available from certain other
money-market funds which may invest in commercial paper. Because of the low
level of risk, over time, a money-market fund may produce lower returns than
bond or stock investments which entail higher levels of risk.
PERFORMANCE HISTORY
The bar charts below show the Funds' annual returns for the past ten years
or since the first calendar year since inception, together with the best and
worst quarters. The California II, Michigan and Ohio Tax-Exempt Funds did not
begin offering shares until June 28, 1999; December 14, 1998; and April 1, 1998,
respectively. As such, they do not appear in the tables because a full calendar
year does not exist. The accompanying "Average Annual Total Return as of
December 31, 1998" table gives some indication of risk of an investment in the
Funds. The tables assume reinvestment of dividends and distributions, if any. As
with all mutual funds, the past is not a prediction of the future.
Primary Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.16% 7.88% 5.59% 3.17% 2.39% 3.49% 5.27% 4.67% 4.87% 4.81%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 3rd Q 1989 2.40%
Worst Quarter: 2nd Q 1993 0.58%
Most Recent Calendar Quarter: 2nd Q 1999 3.99%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
4.81% 4.62% 5.11%
U.S. Government Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.10% 7.80% 5.32% 3.09% 2.30% 3.42% 5.18% 4.60% 4.76% 4.69%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 3rd Q 1989 2.17%
Worst Quarter: 2nd Q 1993 0.20%
Most Recent Calendar Quarter: 2nd Q 1999 3.89%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
4.69% 4.53% 5.01%
5
<PAGE>
U.S. Treasury Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C>
2.19% 3.68% 4.96% 4.53% 4.61% 4.52%
1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 3rd Q 1995 1.20%
Worst Quarter: 1st Q 1993 0.19%
Most Recent Calendar Quarter: 2nd Q 1999 3.85%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
4.52% 4.46% 3.89%
Interstate Tax-Exempt Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.03% 5.52% 4.15% 2.59% 1.73% 2.05% 3.07% 2.61% 2.78% 2.68%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter : 2nd Q 1989 1.55%
Worst Quarter: 1st Q 1994 0.38%
Most Recent Calendar Quarter: 2nd Q 1999 2.41%
Average Annual Total Returns as of December 31, 1998
1 Year 5 Years 10 Years
------ ------- --------
2.68% 2.64% 3.31%
6
<PAGE>
New York Tax-Exempt Fund
Average Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.50% 5.17% 3.79% 2.26% 1.48% 1.97% 2.96% 2.51% 2.68% 2.48%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 2nd Q 1989 1.41%
Worst Quarter: 2nd Q 1993 0.36%
Most Recent Calendar Quarter: 2nd Q 1999 2.25%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
2.48% 2.52% 3.07%
Connecticut Tax-Exempt Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.77% 5.18% 3.62% 2.25% 1.64% 2.06% 2.85% 2.45% 2.66% 2.50%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 4th Q 1989 1.41%%
Worst Quarter: 1st Q 1993 0.38%
Most Recent Calendar Quarter: 2nd Q 1999 2.16%
Average Annual Total Returns as of December 31, 1998
1 5 10
Year Years Years
---- ----- -----
2.50% 2.50% 3.09%
Florida Tax-Exempt Fund
Annual Total Returns as of December 31,
2.66% 2.62%
1997 1998
Best Quarter: 2nd Q 1998 0.73%
Worst Quarter: 1st Q 1997 0.54%
Most Recent Calendar Quarter: 2nd Q 1999 2.38%
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
---- ---------
2.62% 2.59%
7
<PAGE>
Massachusetts Tax-Exempt Fund
Annual Total Returns as of December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
4.22% 2.46% 1.83% 2.17% 2.96% 2.57% 2.87% 2.53%
1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
Best Quarter: 4th Q 1990 1.50%
Worst Quarter: 4th Q 1993 0.45%
Most Recent Calendar Quarter: 2nd Q 1999 2.17%
Average Annual Total Returns as of December 31, 1998
1 5 Since
Year Years Years
---- ----- -----
2.53% 2.62% 3.93%
New Jersey Tax-Exempt Fund
Annual Total Returns as of December 31,
2.87% 2.41% 2.55% 2.42%
1995 1996 1997 1998
Best Quarter: 1st Q 1995 0.71%
Worst Quarter: 3rd Q 1994 0.48%
Most Recent Calendar Quarter: 2nd Q 1999 2.23%
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
---- ---------
2.42% 2.72%
Pennsylvania Tax-Exempt Fund
Annual Total Returns as of December 31,
2.53%
1998
Best Quarter: 4th Q 1997 0.69%
Worst Quarter: 1st Q 1998 0.59%
Most Recent Calendar Quarter: 2nd Q 1999 2.38%
Average Annual Total Returns as of December 31, 1998
1 Since
Year Inception
---- ---------
2.53% 2.59%
For the Funds' current yield, call toll-free (800) 637-1700 or visit our
web site at www.reservefunds.com.
8
<PAGE>
FEES & EXPENSES OF THE FUNDS
If you buy and hold shares of the Funds you may pay certain fees and
expenses which are described in the table below. There are no sales charges
(loads) or exchange fees associated with an investment in the Funds. Annual fund
operating expenses are paid out of the assets of each Fund, so their effect is
included in each Fund's share price. Annual fund operating expenses, indicated
in the table below, reflect expenses for the Funds' fiscal year ended May 31,
1999.
Shareholder Fees for all Funds
(Fees paid directly from your investment)
Sales Load Imposed on Purchases......................... None
Sales Load Imposed on Reinvested Dividends.............. None
These are all no-load funds. There are no direct shareholders fees. Please see
the "Annual Fund Operating Expenses for all Funds" table below.
Annual Fund Operating Expenses for all Funds
(Expenses that are deducted from Fund assets)
Comprehensive Management Fee (a)........... .80%
Distribution (12b-1) Fees (b).............. .20
----
Total Annual Fund Operating Expenses....... 1.00%
====
(a) The comprehensive management fee includes advisory and customary operating
expenses. However, the Funds may be charged for certain non-recurring
extraordinary expenses and its allocated or direct share of certain other
expenses. See "Management".
(b) The Funds have adopted a Rule 12b-1 plan which allows the Funds to pay
distribution fees for the sale and distribution of its shares. The maximum
level of distribution expenses is 0.20% per year of each Fund's average
net assets. As these fees are paid out of each Fund's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Example: This example is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example should
not be considered indicative of future investment returns and operating expenses
which may be more or less than those shown. This example is based on the annual
fund operating expenses described in the table.
This example assumes that you invest $10,000 in a Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that each Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$102 $318 $552 $1,225
Please note that the above example is an estimate of the
expenses to be incurred by shareholders of the Funds. Actual
expenses may be higher or lower than those reflected above.
You would pay the same if you did not redeem your shares.
MANAGEMENT
Investment Adviser. Since November 15, 1971, Reserve Management Company, Inc.
("RMCI") 1250 Broadway, New York, NY 10001 and its affiliates have provided
investment advice to The Reserve Funds. RMCI serves as the investment adviser to
the Funds under an Investment Management Agreement (the "Agreement") with the
Funds (the "Trust"). As a result of recent shareholder votes, each of the Funds
has entered into a new Investment Management Agreement with RMCI, which is
substantially similar to the Investment Management Agreement previously in
effect with regard to each Fund, except for a new comprehensive management fee.
The U.S. Treasury, California II Tax-Exempt and Michigan Tax-Exempt Funds, since
inception, have been subject to a comprehensive management fee. The new
Investment Management Agreements became effective June 26, 1999. The Agreement
provides that RMCI will furnish continuous investment advisory and management
services to the Funds. In addition to the Funds, RMCI provides investment
management services to other mutual funds within the Reserve family of funds
and, as of May 31, 1999, had approximately $5.6 billion under management.
9
<PAGE>
RMCI manages the investment portfolios of the Funds, subject to policies
adopted by the Trustees. For its services, RMCI receives a fee of 0.80% per year
of the average daily net assets of each Fund. RMCI pays all employee and
customary operating expenses of the Fund. Excluded from the definition of
customary operating expenses are interest, taxes, brokerage fees, extraordinary
legal and accounting fees and expenses, and the fees of the disinterested
Trustees, for which each Fund pays its direct or allocated share. For the fiscal
year ended May 31, 1999, RMCI received management fees under the investment
management agreements previously in effect with regard to each Fund. For the
fiscal year ended May 31, 1999, the Primary, U.S. Government and U.S. Treasury
Fund paid RMCI $13,863,140, $3,530,115 and $2,208,713, respectively. For the
fiscal year ended May 31, 1999, the Interstate Tax-Exempt, California II
Tax-Exempt, Connecticut Tax-Exempt, Florida Tax-Exempt, Massachusetts
Tax-Exempt, Michigan Tax-Exempt, New Jersey Tax-Exempt, New York Tax-Exempt
Fund, Ohio Tax-Exempt and Pennsylvania Tax-Exempt Funds paid RMCI $1,801,995,
$0, $231,720, $110,877 $131,448, $2,705, $225,279, $941,347, $8,867 and $94,163,
respectively.
HOW TO BUY SHARES
Share Price: Net Asset Value. Investors pay no sales charges to invest in the
Funds. The price you pay for a share of a Fund, and the price you receive upon
selling or redeeming a share of a Fund, is called the Fund's net asset value
("NAV") per share. The NAV is calculated by taking the total value of a Fund's
assets, subtracting its liabilities, and then dividing by the number of shares
that have already been issued. Each Fund uses the amortized cost method of
valuing its securities under Rule 2a-7 of the 1940 Act. This is a standard
calculation, and forms the basis for all transactions involving buying, selling,
exchanging or reinvesting shares. The NAV is generally calculated as of the
close of trading on the New York Stock Exchange (usually 4:00 p.m. Eastern time)
every day the Exchange is open. NAV is not calculated on days the Exchange is
closed and regional bank holidays. Your order will be priced at the next NAV
calculated after your order is accepted (i.e., converted to federal funds) by
the Funds.
Purchase of Shares. The minimum initial investment is $1,000 (IRA minimum $250)
with no minimum subsequent investment. All investments must be in U.S. dollars.
Third-party, foreign and travellers checks, as well as cash investments will not
be accepted. For clients of certain broker-dealers and financial institutions
("Firms"), shares may be purchased directly through such Firms. However,
purchases may be subject to the Firms' own minimums and purchase requirements.
Purchase orders are not accepted on days the Exchange is closed for trading and
regional bank holidays.
o By check - (drawn on U.S. bank) payable to The Reserve Funds, 1250
Broadway, New York, NY 10001-3701. 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.
o By wire - Prior to calling your bank, call The Reserve Funds at
800-637-1700 for specific instructions 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. 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 Funds must be notified before 2:00 PM (Eastern time, 11:00 AM for the
U.S. Treasury and Interstate Tax-Exempt Funds) 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 (Eastern time, 11:00 AM for the U.S. Treasury,
"Single State" Tax-Exempt and Interstate Tax-Exempt Funds) will be considered
received the next business day. Investors will be charged a fee $15 for any
check that does not clear and will be responsible for any losses suffered by the
Funds as a result.
Reserve Automatic Asset-Builder Plan. If you have an account, you may purchase
shares of a Fund ($25 suggested minimum) from a checking, NOW, or bank
money-market deposit account or from a U.S. government distribution ($25
suggested minimum) such as social security, federal salary, or certain veterans'
benefits, or other payment from the federal government. You may also purchase
shares automatically by arranging to have your payroll deposited directly into
your Reserve account. Please call the Funds at 800-637-1700 for an application.
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.
Third-party Investments. Investments made through a third party (rather than
directly with Reserve) such as a financial services agent may be subject to
policies and fees different than those described here. Banks, brokers, 401(k)
plans, financial advisers and financial supermarkets may charge transaction fees
and may set different minimum investments or limitations on buying or selling
shares. Investors should consult a representative of the plan or financial
institution if in doubt.
Distributors. The Fund's' distributor is Resrv Partners, Inc. ("RESRV"), 1250
Broadway, New York, NY 10001-3701.
10
<PAGE>
Restrictions. Certain other restrictions and conditions for buying shares apply
to the Funds. Please see the SAI for more information.
SELLING FUND SHARES
Investors may sell shares at any time. Shares will be sold at NAV
determined after the redemption request is received by the Fund. Each Fund
usually transmits payments the same day when requests are received before 12:00
noon (Eastern time, 11:00 AM for the U.S. Treasury "Single State" Tax-Exempt
and Interstate Tax-Exempt Funds) and the next business day for requests received
after the time specified to enable shareholders to receive additional dividends.
Shares do not earn dividends on the day a redemption is effected, regardless of
the time the order is received. Orders will be processed promptly and investors
will generally receive the proceeds within a week after receiving your properly
completed request. The Funds strongly suggest (but does not require) that each
telephone redemption be at least $1000, except for redemptions which are
intended to liquidate an 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.
Written and telephone requests. Redemption instructions and options should be
specified 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. One
way to redeem shares is to write a letter of instruction which states: the
name(s) and signature(s) of all accountholders (signature(s) guaranteed, if
necessary), account number, Fund name, the dollar amount you want to sell, and
how and where to send the proceeds. If you are redeeming your IRA, please note
the applicable withholding requirements.
To reduce the risk of loss, certain situations require written
instructions along with signature guarantees. These include:
(1) redemptions for more than $5,000; or
(2) redemptions on accounts whose address has been changed within the
past 30 days; or
(3) redemption requests to be sent to someone other than the account
owner or the address of record for the past 30 days.
You may redeem by calling the Funds at 800-637-1700. Unless you decline
telephone privileges on your application and the Funds fail to take reasonable
measures to verify the request, the Funds will not be liable for any
unauthorized telephone redemption, or for any loss, cost or expense for acting
upon an investor's telephone instructions. Telephone redemptions may be sent to
the bank or brokerage account designated by the shareholder on the application
or in a letter with signature guarantee. 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. The Fund
reserves the right to refuse a telephone redemption if it believes it is
advisable to do so.
Signature guarantees are designed to protect both you and the Funds from
fraud. Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/dealers, national securities exchanges or
clearing agencies. Notaries public cannot provide signature guarantees. For more
information about redemption procedures, please read the SAI.
Checking, and ATM Access. You may redeem shares of the Fund by using your
Reserve checks. By completing the application or a signature card (for existing
accounts) and certain other documentation you can write checks in any amount
against your account. A check will be returned (bounced) and a fee charged if
you request a stop payment; the check is postdated; contains an irregularity in
the signature, amount or otherwise; or, is written against accounts with
insufficient or uncollected funds. Please do not postdate your checks or use
them to close your account. 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 some Firms may establish their own
minimum check amount. Please see the SAI for each Fund for information including
charges, fees, etcetera.
Exchange Privilege. Investors can exchange all or some of their shares offered
for shares in other Reserve money-market and equity funds. Investors can request
an exchange in writing or by telephone. The shares of the other funds are not
offered by this Prospectus. Be sure to read the current prospectus for any fund
into which you are exchanging. Any new account established through an exchange
will have the same privileges as an original account (as long as they are
available). Please see the SAI for more information.
Other Automatic Services. Certain other services and restrictions for selling
shares automatically are offered by the Funds. Please see the SAI for more
information about these services and restrictions.
Redemptions Through Brokers And Financial Institutions. Redemptions through
brokers and financial institutions may involve such Firms' own redemption
minimums, services fees, and other redemption requirements.
11
<PAGE>
Other. The Funds also reserve the right to make a "redemption in kind" payment
in portfolio securities rather than cash, without notice, if the amount the
investor is redeeming is large enough to affect fund operations (for example, if
it represents more than 1% of the Fund's assets). Further, each Fund reserves
the right to:
o refuse any purchase or exchange request,
o change or discontinue its exchange privilege,
o change its minimum investment amounts, and
o delay sending out redemption proceeds for up to seven days (generally
applies only in cases of very large redemptions, excessive trading or
during unusual market conditions).
TAX CONSEQUENCES
The following discussion is intended as general information only. Because
everyone's tax situation is unique, you should consult your own tax advisor(s)
with regard to the applicability of state and local tax laws on Fund
distributions. The applicable tax laws which affect the Funds and their
shareholders are subject to change and may be retroactive. For more information,
please see the SAI.
Dividends, Distributions and Taxes. Each Fund declares dividends daily and
automatically reinvests them in additional shares except for shareholders who
elect in writing to receive cash dividends, in which case monthly or quarterly
dividend checks are sent to the shareholder. There are no fees or sales charges
on reinvestments.
Dividends and distributions are taxable to most shareholders as ordinary
income (unless an investment is in an IRA or other tax-advantaged account).
Distributions of long-term capital gains, if any, are taxable to shareholders as
long-term capital gains. The tax status of any distribution is the same
regardless of how long an investor has been in the fund and whether
distributions are reinvested or taken in cash. The tax status of dividends and
distributions will be detailed in annual tax statements from the Funds. An
exchange of a Fund's shares for the shares of another fund will be treated as a
sale of The Fund's shares and any gain may be subject to federal income tax.
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 most 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 of the Florida Tax-Exempt Fund that are subject to the
Florida intangibles tax will not be required to include the value of their Fund
shares in their taxable intangible property if all of the Fund's investments on
the annual assessment date are obligations that would be exempt from such tax if
held directly by such shareholders, such as Florida and U.S. government
obligations. As described earlier, the Fund will normally attempt to invest
substantially all of its assets in securities which are exempt from the Florida
intangibles tax. If the portfolio consists of any assets which are not so exempt
on the annual assessment date, only the portion of the shares of the Fund which
relate to securities issued by the U.S. and its possessions and territories will
be exempt from the Florida intangibles tax, and the remaining portions of those
shares will be fully subject to the intangibles tax, even if they partly relate
to Florida tax-exempt securities. Shareholders of the Pennsylvania Tax-Exempt
Fund and the Pennsylvania county personal property tax will not be taxable on
that portion of their Fund shares that relate to Pennsylvania or U.S. government
obligations.
As to the Interstate Tax-Exempt Fund, dividends derived from the interest
earned on municipal obligations and designated by the Fund as "exempt-interest
dividends" are not subject to federal income taxes. Any distributions of net
short-term capital gains and taxable interest income, if any, are taxable as
ordinary income. Any distributions of net realized long-term capital gains
earned by the Fund are taxable to shareholders as long-term capital gains,
regardless of the length of time the Fund's shares have been owned by the
shareholder.
Backup Withholding. A Fund may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to certain 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. 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 promulaged 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
12
<PAGE>
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 account holders.
GENERAL INFORMATION
Small Balances. Because of the expense of maintaining accounts with small
balances (less than $1,000), the Funds may choose to without notice either levy
a monthly charge (currently $5) or redeem the account and remit the proceeds.
Some Firms may establish variations of minimum balances and monthly charges if
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 for a variety of
options, which include yields, account balances, check reorders and other
options. 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 Reserve Funds.
Special Shareholder 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.
Account Statements. Shareholders are advised to retain all account statements.
FINANCIAL HIGHLIGHTS
This section provides further details about the Funds' recent financial
history. The following tables describe each Fund's performance for the fiscal
periods indicated. "Total Return" shows how much an investment in a series would
have increased (or decreased) during each period, assuming reinvestment of all
dividends and distributions, if any. The Reserve Tax-Exempt Trust did not offer
shares of California II Tax-Exempt Fund until June 28, 1999. These figures have
been audited by PricewaterhouseCoopers LLP, the Trust's independent accountants,
whose report, along with each Funds' financial statements, is included in the
Trust's Annual Report, which is available upon request by calling 800-637-1700.
<TABLE>
<CAPTION>
For Fiscal Years Ended May 31,
--------------------------------------------------------------
PRIMARY FUND 1999 1998 1997 1996 1995
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
For Fiscal Years Ended May 31,
-------------------------------------------------------------
U.S. GOVERNMENT FUND 1999 1998 1997 1996 1995
- -------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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%
<CAPTION>
For Fiscal Years Ended May 31,
-------------------------------------------------------------
U.S.TREASURY FUND 1999 1998 1997 1996 1995
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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>
<TABLE>
<CAPTION>
Interstate Tax-Exempt Fund
- --------------------------
For Fiscal Years Ended May 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year........................... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Net investment income from investment operations............. .0242 .0279 .0256 .0285 .0265
Dividends from net investment income......................... (.0242) (.0279) (.0256) (.0285) (.0265)
-------- -------- -------- -------- --------
Net asset value, end of year................................. $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return................................................. 2.42% 2.79% 2.56% 2.85% 2.65%
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions)............................ $ 292.6 $ 352.9 $ 306.2 $ 292.1 $ 315.2
Ratio of expenses to average net assets...................... 1.00% .97% 1.04% 1.04% 1.00%
Ratio of net investment income to average net assets......... 2.38% 2.75% 2.52% 2.80% 2.59%
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended May 31,
----------------------------------------------------------------------
NEW YORK TAX-EXEMPT FUND 1999 1998 1997 1996 1995
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0222 .0268 .0247 .0276 .0253
Dividends from net investment income (.0222) (.0268) (.0247) (.0276) (.0253)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.22% 2.68% 2.47% 2.76% 2.53%
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions) $ 186.0 $ 171.2 $ 153.2 $ 125.5 $ 152.9
Ratio of expenses to average
net assets 1.00% .94% 1.04% 1.04% .98%
Ratio of net investment income
to average net assets 2.19% 2.63% 2.43% 2.72% 2.48%
<CAPTION>
Fiscal Years Ended May 31,
----------------------------------------------------------------------
Connecticut Tax-Exempt Fund 1999 1998 1997 1996 1995
- --------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0221 .0267 .0243 .0266 .0254
Dividends from net investment income (.0221) (.0267) (.0243) (.0266) (.0254)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.21% 2.67% 2.43% 2.66% 2.54%
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions) $ 55.4 $ 36.8 $ 33.5 $ 34.8 $ 26.6
Ratio of expenses to average net assets 1.00% .89% .97% 1.01% .99% (d)
Ratio of net investment income
to average net assets 2.17% 2.64% 2.39% 2.61% 2.23% (d)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended May 31,
--------------------------------------------------------------------
FLORIDA TAX-EXEMPT FUND 1999 1998 1997 (a)
- ----------------------- ---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of yeat $1.0000 $1.0000 $1.0000
------- ------- -------
Net investment income .0237 .0269 .0228
Dividends from net investment income (.0237) (.0269) (.0228)
------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000
======= ======= =======
Total Return 2.37% 2.69% 2.42% (c)
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions) $ 22.6 $ 10.8 $ 4.1
Ratio of expenses to average net assets 1.00% .94% 1.04% (c)
Ratio of net investment income to
average net assets 2.30% 2.62% 2.39% (c)
<CAPTION>
Fiscal Years Ended May 31,
-----------------------------------------------------------------
MASSACHUSETTS TAX-EXEMPT FUND 1999 1998 1997 1996 1995
- ----------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0220 .0284 .0259 .0276 .0265
Dividends from net investment income (.0220) (.0284) (.0259) (.0276) (.0265)
------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.20% 2.84% 2.59% 2.76% 2.65%
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions) $ 19.9 $ 25.4 $ 13.0 $ 9.0 $ 10.2
Ratio of expenses to average net assets 1.00% .75% .83% (d) .89% (d) .80% (d)
Ratio of net investment income to
average net assets 2.17% 2.78% 2.54% (d) 2.66% (d) 2.69% (d)
<CAPTION>
Period Ended
May 31,
MICHIGAN TAX-EXEMPT FUND 1999 (d)
- ------------------------ ----
<S> <C>
Net asset value, beginning of year $1.0000
-------
Net investment income .0118
Dividends from net investment income (.0118)
-------
Net asset value, end of year $1.0000
=======
Total Return 2.55%(c)
Ratios/Supplemental Data
- ------------------------
Net assets end of year (millions) $ 1.2
Ratio of expenses to average net assets 1.00% (c,d)
Ratio of net investment income to
average net assets 2.02% (c,d)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
New Jersey Tax-Exempt Fund
- --------------------------
Fiscal Years Ended May 31,
-------------------------------------------------------
1999 1998 1997 1996 1995 (e)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income .0223 .0254 .0236 .0263 .0243
Dividends from net investment income (.0223) (.0254) (.0236) (.0263) (.0243)
------- ------- ------- ------- -------
Net asset value, end of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return 2.23% 2.54% 2.36% 2.63% 2.43%(c)
Ratios/Supplemental Data
- ------------------------
Net assets end of period (millions) $ 41.3 $ 37.6 $ 39.5 $ 41.0 $ 21.6
Ratio of expenses to average net assets 1.00% .99% 1.06% 1.04% 1.02% (b,c)
Ratio of net investment income
to average net assets 2.17% 2.50% 2.33% 2.59% 2.81% (b,c)
</TABLE>
<TABLE>
<CAPTION>
Fiscal Years Ended May 31,
---------------------------------
Ohio Tax-Exempt Fund 1999 1998 (g)
- -------------------- ---- --------
<S> <C> <C>
Net asset value, beginning of period $1.0000 $1.0000
------- -------
Net investment income .0236 .0048
Dividends from net investment income (.0236) (.0048)
------ ------
Net asset value, end of period $1.0000 $1.0000
======= =======
Total Return 2.36% 2.87% (c)
Ratios/Supplemental Data
- ------------------------
Net assets end of period (millions) $ 1.2 $ 2.5
Ratio of expenses to average net assets 1.00% (d) 1.00% (c)
Ratio of net investment income
to average net assets 2.16% (d) 2.86% (c)
<CAPTION>
Period Ended May 31,
---------------------------------
Pennsylvania Tax-Exempt Fund 1999 1998 (h)
- ---------------------------- ---- ----
<S> <C> <C>
Net asset value, beginning of period $ 1.000 $1.0000
-------- -------
Net investment income .0234 .0189
Dividends from net investment income (.0234) (.0189)
-------- -------
Net asset value, end of period $ 1.0000 $1.0000
======== =======
Total Return 2.34% 2.64% (c)
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (millions) $ 16.9 $ 13.2
Ratio of expenses to average net assets 1.00% 1.00% (c)
Ratio of net investment income
to average net assets 2.28% 2.62% (c)
</TABLE>
(a) Net of fees and other expenses. Had RMCI not undertaken to reduce expenses,
the actual expense ratios would have amounted to 1.00%, .97%, .99% and.93%
for the years ended May 31,1999, 1998, 1997, 1996 and 1995, respectively.
(b) From June 24, 1996 (Commencement of Operations) to May 31, 1997.
(c) Annualized.
(d) Due to the voluntary waiver of certain expenses by RMCI for certain funds,
the actual expense ratios and net investment income amounted to:
Fiscal Expense Net Investment
Fund Year Ratio Income
---- ---- ----- ------
U.S. Treasury 1999 .77% 3.99%
1998 .77% 4.46%
1997 .77% 4.33%
1996 .79% 4.53%
1995 .68% 4.64%
Connecticut 1995 .89% 2.33%
Massachusetts 1997 .79% 2.58%
1996 .84% 2.71%
1995 .69% 2.80%
Michigan 1999 .49% 2.53%
New Jersey 1995 1.01% 2.82%
Ohio 1999 .83% 2.32%
(e) From December 14, 1998 (Commencement of Operations) to May 31, 1999.
(f) From October 17, 1994 (Commencement of Operations) to May 31, 1995.
(g) From April 1, 1998 (Commencement of Operations) to May 31, 1998.
(h) From September 12, 1997 (Commencement of Operations) to May 31, 1998.
------------
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.
------------
17
<PAGE>
This Prospectus contains the information about each Fund, which a prospective
investor should know before investing.
The Statement of Additional Information ("SAI") contains additional and more
detailed information about the Funds, and is considered part of this Prospectus.
Our Annual and Semi-Annual Reports list the holdings in each Fund, describe Fund
performance, include financial statements for the Funds, and discuss market
conditions and strategies that significantly affected the Funds' performance.
These documents may be obtained without charge by writing to the address below
or calling The Reserve Funds at 800-637-1700. You can download the documents
from the SEC's web site (http://www.sec.gov) or you can obtain copies by
visiting the SEC's Public Reference Room in Washington, DC (800-SEC-0330) or by
sending your request and duplicating fee to the SEC's Public Reference Section,
Washington, DC 20549-6009.
Investors are advised to read and retain this
prospectus for future reference.
American Express Money Market Account is a cash management service offered by
the Reserve Funds through American Express Financial Corporation. Shares offered
are shares of The Reserve Funds.
American Express Investment Services Inc.
A subsidiary of American Express Financial Corporation
IDS Tower 10
Minneapolis, MN 55440
www.americanexpress.com
Distributor - Resrv Partners, Inc.
AMEX 07/99
SEC File Number
The Reserve Fund
811-2033
Reserve Tax-Exempt Trust
811-3696
Reserve New York Tax-Exempt Trust
811-3814
Primary Fund
U.S. Government Fund
U.S. Treasury Fund
Interstate Tax-Exempt Fund
California II Tax-Exempt Fund
Connecticut Tax-Exempt Fund
Florida Tax-Exempt Fund
Massachusetts Tax-Exempt Fund
Michigan Tax-Exempt Fund
New Jersey Tax-Exempt Fund
New York Tax-Exempt Fund
Ohio Tax-Exempt Fund
Pennsylvania Tax-Exempt Fund
Prospectus
July 31, 1999
18
<PAGE>
PART C
Item 23. Exhibits
(a) Declaration of Trust and Amendments*
(b) Bylaws and Amendments*
(c) Not applicable
(d) Form of Investment Management Agreement for the Funds*
(e) Form of Distribution Agreement and Plan of Distribution filed as an
exhibit to Registrant's Post-Effective Amendment No. 42 dated November
24, 1986.
(f) Pension Plan of Reserve Management Corporation was filed as an
exhibit to Effective Amendment No. 32; Amendments to Pension Plan
filed as an exhibit to Post-Effective Amendment No. 45 dated July 31,
1989.
(g) Custodian Agreement with Chase Manhattan Bank*
(h) Not applicable
(i) Opinion of Counsel*
(j) Consent of Independent Auditors*
(k) Not applicable
(l) Not applicable
(m) Form of Registered Dealer Agreement*
(n) Financial Data Schedules*
(o) Not applicable
----------------
*Filed herewith.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
Not Applicable
Item 25. 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 26. Business and Other Connections of Investment Adviser
<TABLE>
<CAPTION>
Name Position with the Adviser Other Businesses
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bruce R. Bent President President and Director of Reserve
Management Corporation and Chairman
and Director and of Resrv Partners, Inc.
both of the same address as the Trust.
- ------------------------------------------------------------------------------------------------------------------
Bruce R. Bent II Vice President and Vice President, Secretary and
Secretary Director of Reserve Management
Corporation and Secretary and
Director of Resrv Partners, Inc.
both of the same address as the
Trust.
- ------------------------------------------------------------------------------------------------------------------
Arthur T. Bent III Vice President and Vice President, Treasurer and
Treasurer Director of Reserve Management
Corporation and Treasurer
and Director of Resrv Partners, Inc.
both of the same address as the
Trust.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 27. 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.
Name and Principal Positions and Offices Positions and Offices Business
Address with Resrv Partners, Inc. with Registrant
<TABLE>
- ----------------------------------------------------------------------------------
<S> <C>
Bruce R. Bent Chairman and Director
1250 Broadway
New York, New York 10001-3701
- ----------------------------------------------------------------------------------
Mary A. Belmonte President
1250 Broadway
New York, New York 10001-3701
- ----------------------------------------------------------------------------------
Bruce R. Bent II Secretary and Director
1250 Broadway
New York, New York 10001-3701
- ----------------------------------------------------------------------------------
Arthur Bent III Treasurer and Director
1250 Broadway
New York, New York 10001-3701
- ----------------------------------------------------------------------------------
MaryKathleen Foynes Counsel & Assistant Secretary
1250 Broadway
New York, New York 10001-3701
- ----------------------------------------------------------------------------------
James Freisen Controller
1250 Broadway
New York, New York 10001-3701
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
(b) The Kaufmann Fund, Inc. ("Kaufmann") also acts as a principal underwriter
of The Reserve Fund and The Kaufmann Fund, Inc.
<TABLE>
- ----------------------------------------------------------------------------------
<S> <C>
Hans Utsch Chairman, Secretary & Director
The Kaufmann Fund, Inc.
140 East 45th Street
New York, NY 10017
- ----------------------------------------------------------------------------------
Laurence Aurianan President, Treasurer & Director
The Kaufmann Fund, Inc.
140 East 45th Street
New York, NY 10017
- ----------------------------------------------------------------------------------
</TABLE>
(c) GAM Services, Inc. also acts as a principal underwriter of The Reserve Fund
and the Global Asset Management Funds, Inc.
<TABLE>
- ----------------------------------------------------------------------------------
<S> <C>
Kevin Blanchfield CCO & Director
GAM Services, Inc.
135 East 57th Street
Suite 2500
New York, NY 10022
- ----------------------------------------------------------------------------------
David A. Andersen Managing Director & Director
GAM Services, Inc.
135 East 57th Street
Suite 2500
New York, NY 10022
- ----------------------------------------------------------------------------------
Joseph J. Allessie Vice President, Secretary & General
GAM Services, Inc. Counsel
135 East 57th Street
Suite 2500
New York, NY 10022
- ----------------------------------------------------------------------------------
</TABLE>
Item 28. 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 1250 Broadway, New York, NY 10001-3701 except those relating to
receipts and deliveries of securities, which are maintained by the Registrant's
Custodian.
Item 29. Management Services
See "Investment Management, Distribution, Service and Custodian
Agreements" in Part B.
Item 32. Undertakings
Not Applicable
<PAGE>
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. 60
to its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York, and State of New York, on the
30th day of July, 1999.
THE RESERVE FUND
By: /s/ Bruce R. Bent
------------------------------------
Bruce R. Bent, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 34 to Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Bruce R. Bent President, Treasurer and July 30, 1999
- --------------------------- Trustee (principal
Bruce R. Bent executive operating and
financial officer)
* Trustee July 30, 1999
- ---------------------------
Edwin Ehlert Jr.
* Trustee July 30, 1999
- ---------------------------
Henri W. Emmet
* Trustee July 30, 1999
- ---------------------------
Donald J. Harrington
* Trustee July 30, 1999
- --------------------------
Bruce R. Bent II
* Trustee July 30, 1999
- ---------------------------
William E. Viklund
* Trustee July 30, 1999
- ---------------------------
Diana P Hermann
* Trustee July 30, 1999
- ---------------------------
Richard Bassuk
/s/ MaryKathleen Foynes Counsel and Secretary July 30, 1999
- ---------------------------
MaryKathleen Foynes
*Attorney-in-Fact
</TABLE>
<PAGE>
Exhibit 99.(a)
THE RESERVE FUND
AMENDMENT NUMBER TWO TO
AND RESTATEMENT OF
THE DECLARATION OF TRUST
AMENDMENT NUMBER TWO TO, AND RESTATEMENT OF, THE DECLARATION OF TRUST,
made December 10, 1986, by and among the individuals who executed the
Declaration of Trust on June 10, 1986, as amended October 6, 1986, as the
initial Trustees:
WHEREAS, the Trustees desire to amend and restate in its entirety the
Trust's Declaration of Trust dated June 10, 1986, as amended October 6, 1986,
formed to establish a trust fund under the laws, of the Commonwealth of
Massachusetts for the investment and reinvestment of funds contributed thereto;
WHEREAS, no Shares of such Trust have been issued or are outstanding;
NOW THEREFORE, the Trustees declare that (i) such Declaration of Trust
dated June 10, 1986, as amended October 6, 1986, is hereby amended and restated
in its entirety by substituting the following for the text thereof, and (ii) all
money and property contributed to the trust fund hereunder shall be held and
managed under this amended and restated Declaration of Trust (hereinafter
referred to as the "Declaration of Trust") IN TRUST as herein set forth below.
FIRST: This Trust shall be known as THE RESERVE FUND.
SECOND: Whenever used herein, unless otherwise required by the context or
specifically provided:
1. All terms used in this Declaration of Trust which are defined in the
1940 Act shall have the meaning given to them in the 1940 Act.
2. The "Trust" refers to THE RESERVE FUND.
3. "Shareholder" means a record owner of Shares of the Trust.
4. The "Trustees" refer to the individual trust capacity as trustees
hereunder of the Trust and their successor or their successors for the time
being in office as such trustees.
1
<PAGE>
5. "Shares" means the equal proportionate unit into which the beneficial
interest in the Trust shall be divided from and includes fractions of Shares as
well as whole Shares.
6. The "1940 Act" refers to the Investment Company Act of 1940, as
amended from time to time.
7. "Commission" means the Securities and Exchange Commission.
8. "Board" means the Board of Trustees of the Trust.
THIRD: The purpose or purposes for which the Trust is formed and the
business or objects to be transacted, carried on and promoted by it are as
follows:
1. To hold, invest and reinvest its funds, and in connection therewith to
hold part or all of its funds in cash, and to purchase or otherwise acquire,
hold for investment or otherwise, sell, sell short, assign, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize upon, securities
(which term "securities" shall for the purposes of this Declaration of Trust,
without limitation of the generality thereof, be deemed to include any stocks,
shares, bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase or subscribe for the same, or evidencing or representing any
other rights or interests therein, or in any property or assets) created or
issued by any issuer (which term "issuer" shall for the purposes of this
Declaration of Trust, without limitation of the generality thereof be deemed to
include any persons, firms, associations, corporations, syndicates,
combinations, organizations, governments, or subdivisions thereof); and to
exercise, as owner or holder of any securities, all rights, powers and
privileges in respect thereof and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value of any or all
such securities.
2. To borrow money and pledge assets in connection with any of the
objects or purposes of the Trust, and to issue notes or other obligations
evidencing such borrowings, to the extent permitted by the 1940 Act and by the
Trust's fundamental investment policies under the 1940 Act.
3. To issue and sell its Shares in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities) now or hereafter permitted by
the laws of the Commonwealth of Massachusetts and by this Declaration of Trust,
as the Trustees may determine.
2
<PAGE>
4. To purchase or otherwise acquire, hold, dispose of, resell, transfer,
reissue or cancel (all without the vote or consent of the Shareholders of the
Trust) its Shares, in any manner and to the extent now or hereafter permitted by
the laws of said Commonwealth and by this Declaration of Trust.
5. To conduct its business in all its branches at one or more offices in
Massachusetts and elsewhere in any part of the world, without restriction or
limit as to extent.
6. To carry out all or any of the foregoing objects and purposes as
principal or agent, and along or with associates or, to the extent now or
hereafter permitted by the laws of Massachusetts, as a member of, or as the
owner or holder of any stock of, or share of interest in, any issuer, and in
connection therewith to make or enter into such deeds or contracts with any
issuers and to do such acts and things and to exercise such powers, as a natural
person could lawfully make, enter into, do or exercise.
7. To do any and all such further acts and things and to exercise any and
all such further powers as may be necessary, incidental, relative, conducive,
appropriate or desirable for the accomplishment, carrying out or attainment of
all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Articles of this Declaration
of Trust, and shall each be regarded as independent and construed as powers as
well as objects and purposes, and the enumeration of specific purposes, objects
and powers shall not be construed to limit or restrict in any manner the meaning
of general terms or the general powers of the Trust now or hereafter conferred
by the laws of the Commonwealth of Massachusetts nor shall the expression of one
thing be deemed to exclude another, though it be of like nature, not expressed;
provided, however, that the Trust shall not carry on any business, or exercise
any powers, in any state, territory, district or country except to the extent
that the same may lawfully be carried on or exercised under the laws thereof.
FOURTH: The beneficial interest in the Trust shall at all times be
divided into an unlimited number of transferrable Shares, par value of $.001 per
share, each of which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or preference over
another. The Trustees may from time to time divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall
3
<PAGE>
be redeemed, whole Shares and/or 1/100ths of a Share or multiples thereof. The
Board of Trustees of the Trust may classify unissued Shares into one or more
additional classes which shall, together with the issued Shares of beneficial
interest of the Trust have such designations as the Board shall determine, and
which shall be treated for all purposes other than as to dividends as if all
Shares were Shares of one class. The dividends payable to the holders of each
such class shall, subject to any applicable rule, regulation or order of the
Securities and Exchange Commission or other applicable law or regulation, be
determined by the Board and need not be individually declared but may be
declared and paid in accordance with a formula adopted by the Board. The Board
of Trustees of the Trust may in the alternative classify unissued Shares into
one or more additional classes which shall, together with the issued Shares of
beneficial interest of the Trust, have such designations as the Board may
determine and shall, subject to any applicable rule, regulation or order of the
Securities and Exchange Commission or other applicable law or regulation, have
the following characteristics.
(a) All consideration received by the Trust for the issue or sale
of Shares of each such class, together with all income, earnings, profits
and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to the class of Shares with respect to which such
assets, payments, or funds were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled upon the
books of account of the Trust. Such assets, income, earnings, profits and
proceeds thereof, any asset derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as
"assets belonging to" such class.
(b) Dividends or distributions on Shares of any such class,
whether payable in Shares or cash, shall be paid only out of earnings,
surplus or other assets belonging to such class.
(c) In the event of the liquidation or dissolution of the Trust
Shareholders of each such class shall be entitled to receive, as a class,
out of the assets of the Trust available for distribution to
shareholders, but other than general assets not belonging to any
particular class, the assets belonging to such class; and the assets so
distributable to the shareholders of any such class shall be distributed
among such shareholders in proportion to the number of shares of such
class held by them and recorded on the books
4
<PAGE>
of the Trust. In the event that there are any general assets not
belonging to any particular class of Shares and, available for
distribution, such distribution shall be made to the holders of Shares of
all classes in proportion to the asset value of the respective classes.
(d) The assets belonging to any such class of Shares shall be
charged with the liabilities in respect to such class and shall be
charged with their share of the general liabilities of the Trust, in
proportion to the asset value of the respective classes. The
determination of the Board of Trustees shall be conclusive as to the
amount of liabilities, including accrued expenses and reserves, and as to
the allocation of the same as to a given class, and as to whether the
same, or general assets of the Trust, are allocable to one or more
classes. The liabilities so allocated to a class are herein referred to
as "liabilities belonging to" such class.
(e) At all meetings of shareholders, each shareholder of each
Share of each such class of the Trust shall be entitled to one vote for
each Share, irrespective of the class, standing in his name on the books
of the Trust, except that where a vote of the holders of the Shares of
any class, or of more than one class, voting by class, is required by the
Investment Company Act of 1940 and/or Massachusetts law as to any
proposal, only the holders of such class or classes, voting by class,
shall be entitled to vote upon such proposal and the holders of any other
class or classes shall not be entitled to vote thereon. Any fractional
Share, if any such fractional Shares are outstanding, shall carry
proportionately all the rights of a whole Share, including the right to
vote and the right to receive dividends. There shall be no cumulative
voting rights with respect to any Shares or class of Shares of the Trust.
(f) The provision of Article FIFTH relating to voting shall apply
when the Trust has only one class of Shares outstanding or when the Trust
has more than one class of Shares outstanding which differ only as to
their dividend rights.
(g) When the Trust has more than one class of Shares outstanding
having separate assets and liabilities: (i) the redemption rights
provided to the holders of the Trust's Shares shall be deemed to apply
only to the assets belonging to the class of stock in question; and (ii)
the net asset value per share computation as provided for in Article
SEVENTH, Section 12, shall be applied as if each such class of Shares
were the Trust as referred to in such computation, but with its assets
limited to the assets belonging to such class and its liabilities limited
to the liabilities belonging to such class.
5
<PAGE>
(h) The ownership of Shares shall be recorded in the books of the
Trust or a transfer agent. The Trustees may make such rules as they
consider appropriate for the transfer of Shares and similar matters. The
record books of the Trust or any transfer agent, as the case may be,
shall be conclusive as to who are the holders of Shares and as to the
number of Shares held from time to time by each. Anything in this
Declaration of Trust to the contrary notwithstanding, when Shares of the
Trust are registered in the name of one Shareholder or another, either
Shareholder is entitled to act regarding the Shares so registered and
such Shareholders will indemnify and hold the Trust, its investment
adviser, principal underwriter, custodian or affiliates thereof, harmless
for such actions.
(i) The Trustees shall accept investments in the Trust from such
persons and on such terms as they may from time to time authorize. After
the date of the initial contribution of capital (which shall occur prior
to the initial public offering of Shares of the Trust), the number of
Shares to represent the initial contribution shall be considered as
outstanding and the amount received by the Trustees on account of the
contribution shall be treated as an asset of the Trust. Subsequent to
such initial contribution of capital, shares (including Shares which may
have been redeemed or repurchased by the Trust) may be issued or sold at
a price which will net the Trust, before paying any taxes in connection
with such issue or sale, not less than the net asset value (as defined in
Article SEVENTH, Section 12) thereof; provided, however, that the
Trustees may in their discretion impose a sales charge upon investments
in the Trust.
(j) Shareholders shall have no pre-emptive or other right to
subscribe to any additional Shares or other securities issued by the
Trust or the Trustees.
FIFTH: The following provisions are hereby adopted with respect to voting
Shares of the Trust and certain other rights:
1. The Shareholders shall have power to vote (i) for the election of
Trustees, (ii) with respect to the amendment of this Declaration of Trust, (iii)
to the same extent as the shareholders of a Massachusetts business corporation,
as to whether or not a court action, proceeding or claim should be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (iv) with respect to such additional matters relating to the
Trust as may be required by the 1940 Act or authorized by law, by this
Declaration of Trust, or the By-Laws of the Trust or any registration statement
of the Trust with the Commission or any State, or as the Trustees may consider
desirable.
6
<PAGE>
2. At all meetings of Shareholders each Shareholder shall be entitled to
one vote for each Share standing in his name on the books of the Trust on the
date, fixed in accordance with the By-Laws, for determination of Shareholders
entitled to vote at such meeting except for Shares redeemed prior to the
meeting. Any fractional Share shall carry proportionately all the rights of a
whole Share, including the right to vote and the right to receive dividends. The
presence in person or by proxy of the holders of one-third of the Shares
outstanding and entitled to vote thereat shall constitute a quorum at any
meeting of the Shareholders. If at any meeting of the Shareholders there shall
be less than a quorum present, the Shareholders present at such meeting may,
without further notice, adjourn the same from time to time until a quorum shall
attend, but no business shall be transacted at any such adjourned meeting except
such as might have been lawfully transacted had the meeting not been adjourned.
3. Each Shareholder, upon request to the Trust in proper form determined
by the Trust, shall be entitled to require the Trust to redeem all or any part
of the Shares standing in the name of such Shareholder. The method of computing
such net asset value, the time at which such net asset value shall be computed
and the time within which the Trust shall make payment therefor, shall be
determined as hereinafter provided in Article SEVENTH of this Declaration of
Trust. Notwithstanding the foregoing, the Trustees, when permitted or required
to do so by the 1940 Act, may suspend the right of Shareholders to require the
Trust to redeem Shares.
4. No Shareholder shall, as such have any right to purchase or subscribe
for any security of the Trust which it may issue or sell, other than such right,
if any, as the Trustees, in their discretion, may determine. 5. All persons who
shall acquire Shares shall acquire the same subject to the provisions of the
Declaration of Trust.
SIXTH: Each Trustee shall hold office until he resigns, is removed or
until his successor is duly elected and qualified. The initial number of
Trustees shall be six and the persons who shall act as such to execute this
Declaration of Trust or any counterpart thereof are the initial trustees until
their successors are duly chosen and qualified.
However, the By-Laws of the Trust may fix the number of Trustees at a
number greater than that named in this Declaration of Trust and may authorize
the Trustees, by the vote of a majority of the entire number of Trustees, to
increase or decrease the number of Trustees fixed by this Declaration of Trust
or by the By-Laws within limits specified in the By-
7
<PAGE>
Laws, provided that in no case shall the number of Trustees be less then three,
and to fill the vacancies created by any such increase in the number of
Trustees. Unless otherwise provided by the By-Laws of the Trust, the Trustees
need not be Shareholders.
A meeting of shareholders shall be called for the purpose of removing a
Trustee upon receipt by the Trust of the request in writing signed by
Shareholders holding not less than ten percent of the outstanding Shares of the
Trust.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Trust and of the Trustees
and Shareholders.
1. As soon as any Trustee is duly elected by the Shareholders or the
Trustees and shall have accepted this trust, the Trust estate shall vest in the
new Trustee or Trustees, together with the continuing Trustees, without any
further act or conveyance, and he shall be deemed a Trustee hereunder.
2. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
3. The assets of the Trust shall be held separate and apart from any
assets now or hereafter held in any capacity other than as Trustee hereunder by
the Trustees or any successor Trustees. All of the assets of the Trust shall at
all times be considered as vested in the Trustees. Except as provided in this
Declaration of Trust, no Shareholder shall have, as such holder of beneficial
interest in the Trust, (a) any authority, power or right whatsoever to transact
business for or on behalf of the Trust, or on behalf of the Trustees, in
connection with the property or assets of the Trust, nor (b) any interest in the
specific property or assets of the Trust, or in any part thereof, except the
rights to receive the income and distributable amounts arising therefrom as set
forth herein.
4. The Trustees in all instances shall act as principals, and are and
shall be free from the control of the Shareholders. The Trustees shall have full
power and authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The Trustees shall not in any way
be bound or limited by present or future laws or customs in regard to Trust
investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purpose of this Trust.
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Subject to any applicable limitation in this Declaration of Trust or by the
By-Laws of the Trust, the Trustees shall have power and authority:
(a) to adopt By-Laws not inconsistent with this Declaration of
Trust providing for the conduct of the business of the Trust and to amend
and repeal them to the extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint and terminate
such officers as they consider appropriate with or without cause;
(c) to employ a bank or trust company as custodian of any assets
of the Trust subject to any conditions set forth in this Declaration of
Trust or in the By-Laws;
(d) to retain a transfer agent and Shareholder servicing agent, or
both;
(e) to provide for the distribution of Shares either through a
principal underwriter or by the Trust itself;
(f) to set record dates in the manner provided for in the By-Laws
of the Trust;
(g) to delegate such authority as they consider desirable to any
officers of the Trust and to any agent, custodian or underwriter;
(h) to vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property held in trust
hereunder; and to execute and deliver powers of attorney to such person
or persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or property
as the Trustees shall deem proper;
(i) to exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities held in trust
hereunder;
(j) to hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or
either in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the
usual practice of Massachusetts Business trusts or investment companies;
(k) to consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern,
any security of which is held in the Trust; to consent to any contract,
lease, mortgage, purchase, or sale of property by
9
<PAGE>
such corporation or concern, and to pay calls or subscriptions with
respect to any security held in the Trust;
(1) to compromise, arbitrate, or otherwise adjust claims in favor
of or against the Trust or any matter in controversy including, but not
limited to claims for taxes;
(m) to make, in the manner provided in the By-Laws, distributions
of income and of capital gains to Shareholders;
(n) to borrow money to the extent and in the manner permitted by
the 1940 Act and the Trust's fundamental policy thereunder as to
borrowing; and
(o) to enter into investment advisory or management contracts,
subject to the 1940 Act, with any one or more corporations, partnerships,
trusts, associations or other persons; if the other party or parties to
any such contract are authorized to enter into securities transactions on
behalf of the Trust, such transactions shall be deemed to have been
authorized by all of the Trustees.
5. No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
6. (a) No Shareholder, officer, trustee, employee, or agent of the Trust
shall be subject to any personal liability for acts or obligations of the
Trust and every written agreement, obligation or other undertaking made
or issued by the Trust shall contain a provision to the effect that
Shareholders, officers, trustees, employees, or agents of the Trust are
not personally liable thereunder (but the omission of such a provision
shall not operate to bind any Shareholder, officer, trustee, employee, or
agent of the Trust). The Trustees shall have no power to call upon any
Shareholder, officer, trustee, employee, or agent of the Trust for the
payment of any sum of money or assessment whatsoever other than such as
the Shareholder, officer, trustee, employee, or agent of the Trust may be
obligated by under applicable laws, rules or regulations, or may at any
time personally agree to pay by way of subscription to any Shares or
otherwise.
(b) Whenever this Declaration of Trust calls for or permits any
action to be taken by the Trustees hereunder, such action shall mean that
taken by the Board of Trustees by vote of the majority of trustees as set
forth from time to time in the By-Laws
10
<PAGE>
of the Trust or as required pursuant to the provisions of the 1940 Act
and the rules and regulations promulgated thereunder.
(c) The Trustees shall possess and exercise any and all such
additional powers as are reasonably implied from the powers herein
contained such as may be necessary or convenient in the conduct of any
business or enterprise of the Trust, to do and perform anything
necessary, suitable, or proper for the accomplishment of any of the
purposes, or the attainment of any one or more of the objects, herein
enumerated, or which shall at any time appear conducive to or expedient
for the protection or benefit of the Trust, and to do and perform all
other acts or things necessary or incidental to the purposes herein
before set forth, or that may be deemed necessary by the Trustees.
(d) The Trustees shall have the power to determine conclusively
whether any moneys, securities, or other properties of the Trust property
are, for the purpose of this Trust, to be considered as capital or income
and in what manner any expenses or disbursements are to be borne as
between capital and income whether or not in the absence of this
provision such moneys, securities or other properties would be regarded
as capital or income and whether or not in the absence of this provision
such expenses or disbursements would ordinarily be charged to capital or
to income.
7. The Shareholders shall have the right to inspect the records,
documents, accounts and books of the Trust, subject to reasonable regulations of
the Trustees, not contrary to Massachusetts law, as to whether and to what
extent, and at what times and places, and under what conditions and regulations,
such right shall be exercised.
8. Any Trustee, or any officer elected or appointed by the Trustees or by
any committee of the Trustees or by the Shareholders or otherwise, may be
removed at any time, with or without cause, in such lawful manner as may be
provided in the By-Laws of the Trust.
9. If the By-Laws so provide, the Trustees shall have power to hold their
meetings, to have an office or offices and, subject to the provisions of the
laws of Massachusetts, to keep the books of the Trust outside of said
Commonwealth at such places as may from time to time be designated by them.
10. Securities held by the Trust shall be voted in person or by proxy by
the Chairman, President or Vice-President, or such officer or officers of the
Trust as the Trustees shall designate for the purpose, or by a proxy or proxies
thereunto duly authorized by the
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<PAGE>
Trustees, except as otherwise ordered by vote of the holders of a majority of
the Shares outstanding and entitled to vote in respect thereto.
11. (a) Subject to the provisions on the 1940 Act, any Trustee, officer
or employee individually, or any partnership of which any Trustee,
officer or employee may be a member, or any corporation or association of
which any Trustee, officer or employee may be an officer, director,
trustee, employee or stockholder, may be a party to, or may be pecuniary
or otherwise interested in, any contract or transaction of the Trust, and
in the absence of fraud no contract or other transaction shall be thereby
affected or invalidated; provided that in case a Trustee, or a
partnership, corporation or association of which a Trustee is a member,
officer, director, trustee, employee or stockholder is so interested,
such fact shall be disclosed or shall have been known to the Trustees or
a majority thereof; and any Trustee who is so interested, or who is also
a director, officer, trustee, employee or stockholder of such other
corporation or association or a member of such partnership which is so
interested, may be counted in determining the existence of a quorum at
any meeting of the Trustees which shall authorize any such contract or
transaction, and may vote thereat to authorize any such contract or
transaction, with like force and effect as if he were not such director,
officer, trustee, employee or stockholder of such other trust or
corporation or association or a member of a partnership so interested.
(b) Specifically, but without limitation of the foregoing, the
Trust may enter into a management or investment advisory contract or
underwriting contract and other contracts with, and may otherwise do
business with any manager or investment adviser for the Trust and/or
principal underwriter of the Shares of the Trust or any subsidiary or
affiliate of any such manager or investment adviser and/or principal
underwriter and may permit any such firm or corporation to enter into any
contracts or other arrangements with any other firm or corporation
relating to the Trust notwithstanding that the Trustees of the Trust may
be composed in part of partners, directors, officers or employees of any
such firm or corporation, and in the absence of fraud the Trust and any
such firm or corporation may deal freely with each other, and no such
contract or transaction between the Trust and any such firm or
corporation shall be invalidated or in any wise affected thereby, nor
shall any Trustee or officer of the Trust be liable to the Trust or to
any shareholder or creditor thereof or to any other
12
<PAGE>
person for any loss incurred by it or him solely because of the existence
of any such contract or transaction; provided that nothing herein shall
protect any director or officer of the Trust against any liability to the
Trust or to its security holders 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.
(c) (1) As used in this paragraph the following terms shall have
the meanings set forth below:
(i) the term "indemnitee" shall mean any present or former
Trustee or officer of the Trust, any present or former
Trustee or officer of another Trust whose securities are or
were owned by the Trust or of which the Trust is or was a
creditor and who served or serves in such capacity at the
request of the Trust and the heirs, executors and
administrators of any of the foregoing; however, whenever
conduct by an indemnitee is referred to, the conduct shall
be that of the original indemnitee rather than that of the
heir, executor or administrator:
(ii) the term "covered proceeding" shall mean any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, to
which an indemnitee is or was a party or is threatened to be
made a party by reason of the fact or facts under which he
is an indemnitee as defined above;
(iii) the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the
office in question;
(iv) the term "covered expenses" shall mean expenses
(including attorney's fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by an
indemnitee in connection with a covered proceeding; and
(v) the term "adjudication of liability" shall mean, as to
any covered proceeding and as to any indemnitee, an adverse
determination as to the indemnitee whether by judgment,
order, settlement, conviction or upon a plea of nolo
contendere or its equivalent.
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<PAGE>
(d) The Trust shall not indemnify any indemnitee for any covered
expenses in any covered proceeding if there has been adjudication of
liability against such indemnitee expressly based on a finding of
disabling conduct.
(e) Except as set forth in (d) above, the Trust shall indemnify
any indemnitee for covered expenses in any covered proceeding, whether or
not there is an adjudication of liability as to such indemnitee, if a
determination has been made that the indemnitee was not liable by reason
of disabling conduct by (i) a final decision of the court or other body
before which the covered proceeding was brought; or (ii) in the absence
of such decision, a reasonable determination, based on a review of the
facts, by either (a) the vote of a majority of a quorum of trustees who
are neither "interested persons", as defined in the Investment Company
Act of 1940 (the "1940 Act") nor parties to the covered proceeding or (b)
an independent legal counsel in a written opinion; provided that such
trustees or counsel, in reaching such determination, may but need not
presume the absence of disabling conduct on the part of the indemnitee by
reason of the manner in which the covered proceeding was terminated.
(f) Covered expenses incurred by an indemnitee in connection with
a covered proceeding shall be advanced by the Trust to an indemnitee
prior to the final disposition of a covered proceeding upon the request
of the indemnitee for such advance and the undertaking by or on behalf of
the indemnitee to repay the advance unless it is ultimately determined
that the indemnitee is entitled to indemnification hereunder, but only if
one or more of the following is the case: (i)the indemnitee shall provide
a security for such undertaking: (ii) the Trust shall be insured against
losses arising out of any lawful advances: or (iii) there shall have been
a determination, based on a review of the readily available facts (as
opposed to a full trial-type inquiry) that there is a reason to believe
that the indemnitee ultimately will be found entitled to indemnification
by either independent legal counsel in a written opinion or by the vote
of a majority of a quorum of trustees who are neither "interested
persons" as defined in the 1940 Act nor parties to the covered
proceeding.
(g) Nothing herein shall be deemed to affect the right of the
Trust and/or any indemnitee to acquire and pay for any insurance covering
any or all indemnitees to the extent permitted by the 1940 Act or to
affect any other indemnification rights to which any indemnitee may be
entitled to the extent permitted by the 1940 Act.
12. For purposes of the computation of net asset value, as in this
Declaration of Trust referred to, the following rules shall apply:
14
<PAGE>
(a) Net asset value of Shares of the Trust shall be calculated at
such time or times as the Trustees may deem advisable on each Business
Day for each class of Shares. A "Business Day" is a day when the Trust
must be open as disclosed in its current prospectus and/or statement of
additional information pursuant to the 1940 Act and the Securities Act of
1933.
(b) Shares will be redeemed at their net asset value next
determined after receipt by the Trust of a request in proper form; unless
otherwise specified, redemption requests received after noon are not
entered until the next Business Day to enable Shareholders to receive
additional dividends;
(c) Shares will be purchased each Business Day at the net asset
value next determined after receipt by the Trust of a properly completed
order and payment in Federal Funds (members bank deposits with the
Federal Reserve Bank);
(d) The net asset value of each Share of the Trust is determined
by adding the fair value of all the Trust's securities, cash and other
assets, subtracting its liabilities, and dividing the result by the
number of Shares outstanding.
(e) The Trustees are empowered, in their absolute discretion, to
establish bases or times or both, for determining the net asset value of
each Share of the Trust in accordance with the 1940 Act and to authorize
the voluntary purchase by the Trust, either directly or through an agent,
of Shares of the Trust upon such terms and conditions and for such
consideration as the Trustees shall deem advisable in accordance with any
such provision, rule or regulation.
(f) Payment of the net asset value of Shares of the Trust properly
surrendered to it for redemption shall be made by the Trust within seven
days after tender of such stock to the Trust for such purpose plus any
period of time during which the right of the holders of the shares of the
Trust to require the Trust to redeem such shares has been suspended. Any
such payment may be made in portfolio securities of the Trust and/or in
cash, as the Trustees shall deem advisable, and no Shareholder shall have
a right, other than as determined by the Trustees, to have his Shares
redeemed in kind.
EIGHTH: The name "Reserve" included in the name of the Trust shall be
used pursuant to a royalty-free, non-exclusive license from Reserve Management
Company, Inc., incidental to and as part of an advisory, management or
supervisory contract which may be entered into by the Trust with Reserve
Management Company, Inc. The license may be terminated by Reserve Management
Company upon termination of such advisory management or supervisory contract
15
<PAGE>
or without cause upon 60 days' notice, in which case the Trust shall have no
further right to use the name "Reserve" in its name or otherwise and the Trust,
the Shareholders and its officers and Trustees shall promptly take whatever
action may be necessary to change its name accordingly.
NINTH:
1. In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his being or having been a Shareholder and
not because of his acts or omissions or for some other reason, the Shareholder
or former Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the Trust estate to be held
harmless from, and indemnified against all loss and expense arising from such
liability. This Trust shall, upon request by the Shareholder, assume the defense
of any claim made against any Shareholder for any act or obligation of the Trust
and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and not a partnership
is created hereby. No Trustee hereunder shall have any power to bind personally
either the Trust's officers or any Shareholder. All persons extending credit to,
contracting with or having any claim against the Trust or the Trustees shall
look to the assets of the Trust for payment under such credit, contract or
claim; and neither the Shareholders nor the Trustess, nor any of their agents,
whether past, present or future, shall be personally liable therefor. Nothing in
this Declaration of Trust shall protect a Trustee against any liability to which
such Trustee would otherwise be subject by reason of willfull misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee hereunder.
3. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances then
prevailing, shall be binding upon everyone interested. Subject to the provisions
of paragraph 2 of this Article NINTH, the Trustees shall not be liable for
errors of judgments or mistakes of fact or law. The Trustees may take advice of
counsel or other experts with respect to the meaning and operations of this
Declaration of Trust, and subject to the provisions of paragraph 2 of this
Article NINTH, shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is required.
4. This Trust shall continue without limitation of time but subject
to the provisions of sub-sections (a), (b), and (c) of this paragraph 4.
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<PAGE>
(a) The Trustees, with the favorable vote of the holders of more
than 50% of the outstanding Shares entitled to vote may sell and convey
the assets of the Trust (which sale may be subject to the retention of
assets for the payment of liabilities and expenses) to another issuer.
Upon making provision for the payment of liabilities, by assumption by
such issuer or otherwise, the Trustees shall distribute the remaining
proceeds ratably among the holders of the Shares of the Trust then
outstanding.
(b) The Trustees with the favorable vote of the holders of more
than 50% of the outstanding Shares entitled to vote, may at any time sell
and convert into money all the assets of the Trust. Upon making provision
for the payment of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the, Trust, the Trustees shall
distribute the remaining assets of the Trust ratably among the holders of
the outstanding Shares.
(c) Upon completion of the distribution of the remaining proceeds
or the remaining assets as provided in sub-sections (a) and (b), the
Trust shall terminate and the Trustees shall be discharged of any and all
further liabilities and duties hereunder and the right, title and
interest of all parties shall be cancelled and discharged.
5. The original or a copy of this instrument and of each declaration
of trust supplemental hereto shall be kept at the office of the Trust where it
may be inspected by any Shareholder. A copy of this instrument and of each
supplemental declaration of trust shall be filed by the Trustees with the
Massachusetts Secretary of State, as well as any other governmental office where
such filing may from time to time be required. Anyone dealing with the Trust may
rely on a certificate by an officer of the Trust as to whether or not any such
supplemental declarations of trust have been made and as to any matters in
connection with the Trust hereunder, and with the same affect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such supplemental declaration of trust. In this
instrument or in any such supplemental declaration of trust, references to this
instrument, and all expressions like "herein", "hereof" and "hereunder" shall be
deemed to refer to this instrument as amended or affected by any such
supplemental declaration of trust. This instrument may be executed in any number
of counterparts, each of which shall be deemed an original.
17
<PAGE>
6. The Trust set forth in this instrument is created under and is to be
governed by and construed and administered according to the laws of the
Commonwealth of Massachusetts. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a trust.
7. If authorized by vote of the Trustees and the favorable vote of the
holders of more than 50% of the outstanding Shares entitled to vote or by any
larger vote which may be required by applicable law in any particular case, the
Trustees shall amend or otherwise supplement this instrument, by making a
Declaration of Trust supplemental hereto, which thereafter shall form a part
hereof.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
day of December, 1986.
/s/ /s/
- --------------------------- ------------------------------
Bruce R. Bent, Trustee Edwin Ehlert, Jr., Trustee
8 10 Seventh Avenue 223 Baker Avenue
New York, NY 100 19 Westfield, NJ 07090
/s/ /s/
- --------------------------- ------------------------------
Henri W. Emmet, Trustee Peter D. Falk, Trustee
499 Park Avenue 800 East Gulf Drive
New York, NY 10002 Sanibel, FL 33957
/s/ /s/
- --------------------------- ------------------------------
Niels W. Johnsen, Trustee Walter H. Saunders, Trustee
1 Whitehall Street 580 Park Avenue
New York, NY 10004 New York, NY 10021
18
<PAGE>
TRUSTEES
Bruce R. Bent 810 Seventh Avenue, New York, NY 10019
Edwin Ehlert, Jr. 223 Baker Street, Westfield, NY 07090
Henri W. Emmet Banque Nationale de Paris
Peter D. Falk 8 Cowperthawaite Square, Westfield, NY 07090
Niels W. Johnson Central Gulf Lines, Inc.
Walter H. Saunders 580 Park Avenue, New York, NY 10021
19
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
DECLARATION OF TRUST
OF THE RESERVE FUND
DATED JULY 17, 1999
WHEREAS, a majority of the Board of Trustees, including a majority of
Independent Trustees determined on October 7, 1998 to consider and approve
various amendments to the Declaration of Trust, as amended (the "Declaration of
Trust") of The Reserve Fund (the "Trust"); and
WHEREAS, the Board of Trustees voted to submit to Shareholders amendments
to the Declaration of Trust to permit issuance of multiple classes of shares;
and
WHEREAS, the Board of Trustees voted to submit to Shareholders amendments
to the Declaration of Trust to eliminate the policy pricing securities in its
portfolio; and
WHEREAS, the Board of Trustees voted to submit to Shareholders amendments
to the Declaration of Trust to permit: (i) Shareholder approval of amendments to
the Declaration of Trust, except as may be necessary to conform the Declaration
to provisions of federal or state regulation and provisions of the Internal
Revenue Service; and (ii) Trustee amendments to the Declaration of Trust with
out Shareholder approval if the Trustees deem it necessary to change the name of
the Trust or make changes which do not materially adversely affect rights of
Shareholders; and
WHEREAS, the Board of Trustees voted to submit to Shareholders amendments
to the Declaration of Trust to vest exclusive power to vote the portfolio
securities of the Trust in the Trustees or their delegates; and
WHEREAS, the Shareholders of the Trust held several special meetings from
January 15 through June 17, 1999; and
WHEREAS, the Shareholders voted to amend the Declaration of Trust to
permit issuance of multiple classes of shares; and
WHEREAS, the Shareholders voted to amend to the Declaration of Trust to
eliminate the policy of pricing securities in its portfolio stated in the
Declaration of Trust; and
WHEREAS, the Shareholders voted to amend the Declaration of Trust to
permit: (i) Shareholder approval of amendments to the Declaration of Trust,
except as may be necessary to conform the Declaration to provisions of federal
or state regulation and provisions of the Internal Revenue Service; and (ii)
Trustee amendments to the Declaration of Trust with out Shareholder approval if
the Trustees deem it necessary to change the name of the Trust or make changes
which do not materially adversely affect rights of Shareholders; and
WHEREAS, the Shareholders voted to amend the Declaration of Trust to vest
exclusive power to vote the portfolio securities of the Trust in the Trustees or
their delegates; and
NOW THEREFORE, the Trustees hereby adopt the following amendments to the
Declaration of Trust as set forth below:
<PAGE>
Article FOURTH is deleted and the following text is inserted in its
place:
1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial
interest, all of one class, except as provided in Sections 2 and 3 of
this Article Fourth, par value $.001 per share. The number of Shares of
beneficial interest authorized hereunder is unlimited. All Shares issued
hereunder including, without limitation, Shares issued in connection with
a dividend in Shares or a split of Shares, shall be fully paid and
nonassessable. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust. Contributions to the
Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or 1/100ths of a Share or integral multiples thereof.
2. Series Designation. The Trustees, at their discretion, may
authorize the division of Shares into two or more Series, and the
different Series shall be established and designated, and the variations
in the relative rights and preferences between the different Series shall
be fixed and determined by the Trustees; provided that all Shares shall
be identical except that there may be variations so fixed and determined
between different Series as to investment objective, purchase price,
allocation of expenses, right of redemption, special and relative rights
as to dividends and on liquidation, conversion rights, and conditions
under which the several Series shall have separate voting rights. All
references to Shares in this Declaration shall be deemed to be Shares of
any or all series as the context may require.
If the Trustees shall divide the Shares of the Trust into two or
more Series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply
equally to each Series of the Trust except as the context requires
otherwise.
(b) The number of authorized Shares and the number of Shares of
each Series that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously
issued and reacquired of any Series into one or more Series that may be
established and designated from time to time. The Trustees may hold as
treasury Shares (of the same or some other Series), reissue for such
consideration and on such terms as they may determine, or cancel any
Shares of any Series reacquired by the Trust at their discretion from
time to time.
(c) All consideration received by the Trust for the issue or sale
of Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits,
and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be,
shall irrevocably belong to that Series for all purposes, subject only to
the rights of creditors of such Series and except as may otherwise be
required by applicable laws, and shall be so recorded upon the books of
account of the Trust. In the event that there are any assets, income,
earnings, profits, and proceeds thereof, funds, or payments which are not
readily identifiable as belonging to any particular Series, the Trustees
shall allocate them among any one or more of the Series established and
designated from time to time in such manner and on such basis as they, at
their sole discretion, deem fair and equitable. Each
<PAGE>
such allocation by the Trustees shall be conclusive and binding upon the
shareholders of all Series for all purposes.
(d) The assets belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that Series and
all expenses, costs, charges and reserves attributable to that Series,
and any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular
Series shall be allocated and charged by the Trustees to and among any
one or more of the Series established and designated from time to time in
such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon
the Shareholders of all Series for all purposes. The Trustees shall have
full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items are capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders. The
assets of a particular Series of the Trust shall, under no circumstances,
be charged with liabilities attributable to any other Series of the
Trust. All persons extending credit to, or contracting with or having any
claim against a particular Series of the Trust shall look only to the
assets of that particular Series for payment of such credit, contract or
claim. No Shareholder or former Shareholder of any Series shall have any
claim on or right to any assets allocated or belonging to any other
series.
(e) Each Share of a Series of the Trust shall represent a
beneficial interest in the net assets of such Series. Each holder of
Shares of a Series shall be entitled to receive his prorata share of
distributions of income and capital gains made with respect to such
Series. Upon redemption of his Shares or indemnification for liabilities
incurred by reason of his being or having been a Shareholder of a Series,
such shareholder shall be paid solely out of the funds and property of
such Series of the Trust. Upon liquidation or termination of a Series of
the Trust, Shareholders of such Series shall be entitled to receive a pro
rata share of the net assets of such Series. A Shareholder of a
particular Series of the Trust shall not be entitled to participate in a
derivative or class action on behalf of any other Series or the
Shareholders of any other Series of the Trust.
(f) The establishment and designation of any Series of Shares
shall be effective upon the execution by a majority of the then Trustees
of an instrument setting forth such establishment and designation and the
relative rights and preferences of such Series, or as otherwise provided
in such instrument. The Trustees may by an instrument executed by a
majority of their number abolish any Series and the establishment and
designation thereof. Except as otherwise provided in this Article Fourth,
the Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights of each class and Series
of Shares. Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
3. Class Designation. The Trustees, at their discretion, may
authorize the division of the Shares of the Trust, or, if any Series be
established, the Shares of any Series, into two or more Classes, and the
different Classes shall be established and designated, and the variations
in the relative rights and preferences between the different Classes
shall be fixed and determined by the Trustees; provided that all Shares
of the Trust or of any Series shall be identical to all other Shares of
the Trust or the same Series, as the case may be, except that there may
be variations between different classes as to allocation of expenses,
right of redemption, special and relative rights as to dividends and on
liquidation, conversion rights, and conditions under which the several
Classes shall have
<PAGE>
separate voting rights. All references to Shares in this Declaration
shall be deemed to be Shares of any or all Classes as the context may
require.
If the Trustees shall divide the Shares of the Trust or any Series into
two or more Classes, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust, or any Series of the
Trust, shall apply equally to each Class of Shares of the Trust or of any
Series of the Trust, except as the context requires otherwise.
(b) The number of Shares of each Class that may be issued shall be
unlimited. The Trustees may classify or reclassify any unissued Shares of
the Trust or any Series or any Shares previously issued and reacquired of
any Class of the Trust or of any Series into one or more Classes that may
be established and designated from time to time. The Trustees may hold as
treasury Shares (of the same or some other Class), reissue for such
consideration and on such terms as they may determine, or cancel any
Shares of any Class reacquired by the Trust at their discretion from time
to time.
(c) Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly be
allocated to, the Shares of a particular Class may be charged to and
borne solely by such Class and the bearing of expenses solely by a Class
of Shares may be appropriately reflected (in a manner determined by the
Trustees) and cause differences in the net asset value attributable to,
and the dividend, redemption and liquidation rights of, the Shares of
different Classes. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon
the Shareholders of all Classes for all purposes.
(d) The establishment and designation of any Class of Shares shall be
effective upon the execution of a majority of the then Trustees of an
instrument setting forth such establishment and designation and the
relative rights and preferences of such Class, or as otherwise provided
in such instrument. The Trustees may, by an instrument executed by a
majority of their number, abolish any Class and the establishment and
designation thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration.
4. The ownership of Shares shall be recorded in the books of the
Trust or a transfer agent. The Trustees may make such rules as they
consider appropriate for the transfer of Shares and similar matters. The
record books of the Trust or any transfer agent, as the case may be,
shall be conclusive as to who are the holders of Shares and as to the
number of Shares held from time to time by each. Anything in this
Declaration of Trust to the contrary notwithstanding, when Shares of the
Trust are registered in the name of one Shareholder or another, either
Shareholder is entitled to act regarding the Shares so registered and
such Shareholders will indemnify and hold the Trust, its investment
adviser, principal underwriter, custodian or affiliates thereof, harmless
for such actions.
5. The Trustees shall accept investments in the Trust from such
persons and on such terms as they may from time to time authorize. After
the date of the initial contribution of capital (which shall occur prior
to the initial public offering of Shares of the Trust), the number of
Shares to represent the initial contribution shall be considered as
outstanding and the amount received by the Trustees on account of the
contribution shall be treated as an asset of the Trust. Subsequent to
such initial contribution of capital, Shares (including
<PAGE>
Shares which may have been redeemed or repurchased by the Trust) may be
issued or sold at a price which will net the Trust, before paying any
taxes in connection with such issue or sale, not less than the net asset
value (as defined in Article SEVENTH, Section 12) thereof; provided,
however, that the Trustees may, at their discretion, impose a sales
charge upon investments in the Trust.
6. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the
Trust or the Trustees.
**********
Article FIFTH, Section 2 is amended as follows:
2. Except as provided herein, at all meetings of Shareholders each
Shareholder shall be entitled to one vote for each Share standing
in his name on the books of the Trust on the date, fixed in
accordance with the By-Laws, for determination of Shareholders
entitled to vote at such meeting except for Shares redeemed prior
to the meeting], and any fractional Share shall carry
proportionately all the rights of a whole Share, including the
right to vote and the right to receive dividends. Notwithstanding
the foregoing, the Trustees may, in conjunction with the
establishment of any Series or Class of Shares, establish or
reserve the right to establish conditions under which the several
Series or Classes shall have separate voting rights or, if a
Series or Class would not, in the sole judgment of the Trustees,
be materially affected by a proposal, no voting rights. The
presence in person or by proxy of the holders of one-third of the
Shares outstanding and entitled to vote thereat shall constitute a
quorum at any meeting of the Shareholders. If at any meeting of
the Shareholders there shall be less than a quorum present, the
Shareholders present at such meeting may, without further notice,
adjourn the same from time to time until a quorum shall attend,
but no business shall be transacted at any such adjourned meeting
except such as might have been lawfully transacted had the meeting
not been adjourned.
**********
Article SEVENTH (12) is deleted in its entirety.
**********
Article FIFTH (3) is amended to read:
The method of computing such net asset value, the time at which such net
asset value shall be computed and the time within which the Trust shall
make payments therefore, shall be determined in accordance with
procedures set forth in each Fund's currently effective prospectus and
statement of additional information.
**********
<PAGE>
The following sentence is added to the end of Article FIFTH (1):
The Trustees may also amend this Declaration with out the vote or consent
of shareholders if they deem it necessary or desirable to (i) conform the
Declaration to provisions of federal or state law or regulations, or to
the provision of the Internal Revenue Code; (ii) change the name of the
Trust; or (iii) make any other changes in the Declaration which do not
materially adversely affect the rights of shareholders here under.
**********
Article EIGHTH is amended to read:
The license may be terminated by Reserve Management Company upon
termination of such advisory management or supervisory contract or
without cause upon 60 days notice, in which case the Trust shall have no
further right to use the name of Reserve in its name or otherwise and the
Trust, its officers and Trustees shall promptly take whatever action may
be necessary to change its name accordingly.
**********
Article SEVENTH (10) is amended as follows:
Securities held by the Trust shall be voted in person or by proxy by the
Chairman, President, or Vice President, or such officer or officers of
the Trust as the Trustees shall designate for the purpose, or by a proxy
or proxies thereunto duly authorized by the Trustees.
**********
Article NINTH (4) is amended as follows:
(a) The Trustees, with the favorable vote of the holders of more
than 50% of the outstanding Shares entitled to vote may merge,
consolidate, sell, lease, exchange, or convey all or substantially all of
the assets, including its goodwill, of the Trust, or any series thereof,
(which transaction may be subject to the retention of assets for the
payment of liabilities and expenses) to any other corporation,
association, trust, or other organization. Upon making provision for the
payment of liabilities, by assumption by such other organization or
otherwise, the Trustees shall distribute the remaining proceeds ratably
among the holders of the Shares of the Trust or series then outstanding.
<PAGE>
(b) The Trustees, by execution of an instrument in writing signed
by a majority of the Trustees, or by the favorable vote of the holders of
more than 50% of the outstanding Shares entitled to vote, may at any time
sell and convert into money all or substantially all of the assets of the
Trust, or any series thereof. Upon making provision for the payment of
all outstanding obligations, taxes and other liabilities, accrued or
contingent, of the Trust, the Trustees shall distribute the remaining
assets of the Trust or series ratably among the holders of the
outstanding Shares.
(c) Upon completion of the distribution of the remaining proceeds
or the remaining assets as provided in sub-sections (a) and (b), the
Trust or series shall terminate and the Trustees shall be discharged of
any and all further liabilities and duties hereunder with respect to the
Trust or such series, and the right, title and interest of all parties
shall be canceled and discharged.
IN WITNESS WHEREOF, the undersigned, the Secretary of the Trust, duly authorized
and having power of attorney for the Trustees, has executed this instrument this
day of July 17, 1999.
---------------------
MaryKathleen Foynes
<PAGE>
Exhibit 99.(b)
ARTICLE VIII
THIRD AMENDMENT OF BY-LAWS
OF THE RESERVE FUNDS
DATED JULY 17, 1999
Article VIII "Amendments of By-laws" is hereby deleted in its entirety
and replaced with the following:
ARTICLE VIII
The Bylaws of the Trust may be altered, amended, added to or
replaced by the Shareholders or a majority vote of the entire
Board of Trustees. This Article VIII may be altered, amended
or repealed only by the vote of the holders of a majority of
the Shareholders present at a meeting of the Shareholders
provided that a quorum is present in person or by proxy at
such meeting.
1
<PAGE>
AMENDMENT TO BY-LAWS
OF
THE RESERVE FUND
Article II ("The Trustees"), Section 1 (Number and Tenure of Office) is deleted
in its entirety and the following is substituted in its entirety:
Section 1. Number and Tenure of Office.
The business and property of the Trust shall be conducted and managed by the
Board of Trustees, consisting of that number of Trustees specified in the
Declaration of Trust, which number may be increased or decreased as provided in
the Declaration of Trust as amended from time to time and in Section 2 of this
Article. Each Trustee shall hold office until he resigns, is removed, retires or
until his successor is duly elected and qualified. A Trustee shall retire upon
attaining the age of seventy-five (75) years. Trustees need not be Shareholders.
2
<PAGE>
THE RESERVE FUND
BY-LAWS
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the Shareholders (which
term as used herein shall, together with all other terms defined in the
Declaration of Trust, have the same meaning as in the Declaration of Trust)
shall be held at the principal office of the Trust in the State of Massachusetts
or at such other place within or without the State of Massachusetts as may from
time to time be designated by the Trustees and stated in the notice of meeting.
Section 2. Special or Extraordinary Meeting. Special or extraordinary
meetings of the Shareholders for any purpose or purposes may be called for by
the Chairman of the Trustees, if any, or by the President or by the Trustees and
shall be called by the Secretary upon receipt of the request in writing signed
by Shareholders holding not less than one third (ten percent in the event the
purpose of the meeting is to vote on the removal of a trustee) in amount of the
entire number of shares issued and outstanding and entitled to vote thereat.
Such request shall state the purpose or purposes of the proposed meeting.
Section 3. Notice of Meetings of Shareholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of'
Shareholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each Shareholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Trust. No notice of the time, place or purpose of any meeting of
shareholders need be given to any Shareholder who attends in person or by proxy
or to any Shareholder who, in writing executed and filed with the records of the
meeting, either before or after the holding thereof, waives such notice.
Section 4. Record Dates. The Trustees may fix in advance, a date, not
exceeding sixty days and not less than ten days preceding the date of any
meeting of Shareholders and not exceeding sixty days preceding any dividend
payment date or any date for the allotment of rights, as a record date for the
determination of the Shareholders entitled to notice of and to vote at such
meeting, or entitled to receive such dividends or rights, as the case may be.
3
<PAGE>
Section 5. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of one-third of the Shares of the Trust issued
and outstanding and entitled to vote thereat, shall constitute a quorum at all
meetings of the Shareholders. The Shareholders present at any such meeting may,
without further notice, and whether or not a quorum is present, adjourn the same
from time to time (and until a quorum shall attend, in the case of meetings
adjourned without the presence of a quorum), but no business shall be transacted
at any such adjourned meeting except such as might have been lawfully transacted
had the meeting not been adjourned.
Section 6. Voting and Inspectors. At all meetings of Shareholders every
Shareholder of record entitled to vote thereat shall be entitled to vote at such
meeting either in person or by proxy appointed by instrument in writing
subscribed by such Shareholder or his duly authorized attorney-in-fact. No proxy
which is dated more than three months before the meeting at which it is offered
shall be accepted, unless such proxy shall, on its face, name a longer period
for which it is to remain in force.
All elections shall be had and all questions decided by a majority of
the votes, as defined in the Investment Company Act of 1940, cast at a duly
constituted meeting, except as otherwise provided in the Declaration of Trust or
in these By-Laws.
At any election of Trustees, the Trustees prior thereto may or, if they
have not so acted, the Chairman of the meeting may, and upon the request of the
holders of ten per cent (10%) of the Shares entitled to vote at such election
shall, appoint two inspectors of election who shall first subscribe an oath or
affirmation to execute faithfully the duties of inspectors at such election with
strict impartiality and according to the best of their ability, and shall after
the election make a certificate of the result of the vote taken. No candidate
for the office of Trustee shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon
any election or matter, and such vote shall be taken upon the request of the
holders of ten per cent (10%) of the Shares entitled to vote on such election or
matter.
Section 7. Conduct of Shareholders Meetings. The meeting of the
Shareholders shall be presided over by the Chairman of the Trustees, if any, or
if he shall not be present, by the President, or if he shall not be present, by
a Vice-President, or if neither the Chairman of the Trustees, the President nor
any Vice-President is present, by a chairman to be elected at the meeting. The
Secretary of the Trust, if present, shall act as Secretary of such meetings, or
if he is
4
<PAGE>
not present, an Assistant Secretary shall so act, if neither the Secretary nor
an Assistant Secretary is present, then the meeting shall elect its secretary.
Section 8. Concerning Validity of Proxies, Ballots, Etc. At every
meeting of the Shareholders, all proxies shall be received and taken in charge
of and an ballots shall be received, tabulated and canvassed by the secretary of
the meeting, who shall decide all questions touching the existence of a quorum,
the qualification of voters, the validity and effect of the proxies, and the
acceptance or rejection of votes, unless inspectors of election shall have been
appointed in Section 6, in which event such inspectors of election shall decide
all such questions.
ARTICLE II
THE TRUSTEES
Section 1. Number and Tenure of Office. The business and property of the
Trust shall be conducted and managed by the Board of Trustees, consisting of
that number of Trustees specified in the Declaration of Trust, which number may
be increased or decreased as provided in the Declaration of Trust as amended
from time to time and in Section 2 of this Article. Each Trustee shall hold
office until he resigns, is removed or until his successor is duly elected and
qualified. Trustees need not be Shareholders.
Section 2. Increase or Decrease in Number of Trustees; Removal. The
Trustees, by the vote of a majority of the entire Board of Trustees, may
increase the number of Trustees to a number not exceeding fifteen, and may elect
Trustees to fill the vacancies created by any such increase in the number of
Trustees until the next meeting of shareholders or until their successors are
duly elected and qualified. Vacancies occurring other than by the reason of any
such increase shall be filled in the manner provided for a Massachusetts
business trust. The Trustees, by the vote of a majority of the entire Board of
Trustees, may likewise decrease the number of Trustees to a number not less than
three, but the tenure of office shall not be affected by any such decrease
effected by the Board. Any Trustee at any time may be removed either with or
without cause by resolution duly adopted by the affirmative votes of the holders
of the majority of the shares of the Trust present in person or by proxy at any
meeting of Shareholders at which such vote may be taken, provided that a quorum
is present, or by such larger vote as may be required by Massachusetts law. Any
Trustee at any time may be removed for cause by resolution duly adopted at any
meeting of the Board of Trustees provided that notice thereof is contained in
the notice of such meeting and that such resolution is adopted by the vote of at
least two thirds of the
5
<PAGE>
Trustees whose removal is not proposed. As used herein, "for cause" shall mean
any cause which under Massachusetts law would permit the removal of a Trustee of
a business trust.
Section 3. Place of Meeting. The Trustees may hold their meetings within
or outside the Commonwealth of Massachusetts, at any office or offices of the
Trust or at any other place as they may from time to time by resolution
determine, or, in the case of telephonic meetings, as they may from time to time
by resolution determine or as shall be specified or fixed in the respective
notices or waivers of notice thereof.
Section 4. (a) Regular Meetings. Regular meetings of the Trustees shall
be held at such time and on such notice, if any, as the Trustees may from time
to time determine.
(b) Annual Meetings. The annual meeting of the Trustees
shall be held annually at such time and on such notice, if any, as the Trustees
may determine.
Section 5. Special Meetings. Special meetings of the Trustees may be
held from time to time upon call of the Chairman of the Trustees, if any, the
President or two or more of the Trustees, by oral or telegraphic or written
notice duly served on or sent or mailed to each Trustee not less than one day
before such meeting. No notice need be given to any Trustee who attends in
person or to any Trustee who, in writing executed and filed with the records of
the meeting either before or after the holding thereof, waives such notice. Such
notice or waiver of notice need not state the purpose or purposes of such
meeting.
Section 6. Quorum. One third of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Trustees. If at any meeting of the Trustees
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Trustees present at any meeting at which there is
a quorum shall be the act of the Trustees, except as may be otherwise
specifically provided by statute, by the Declaration of Trust or by these
By-Laws.
Section 7. Executive Committee. The Trustees may, in each year, by the
affirmative vote of a majority of the entire number of Trustees, elect from the
Trustees an Executive Committee to consist of such number of Trustees as the
Trustees may from time to time determine. The Trustees by such affirmative vote
shall have power at any time to change the members of such Committee and may
fill vacancies in the Committee by election from the Trustees. When the Trustees
are not in session, the Executive Committee shall have and may exercise any or
all of the powers of the Board in the management of the business and affairs of
the Trust (including the power to authorize the seal of the trust to be affixed
to all papers which may require it) except as
6
<PAGE>
provided by law and except the power to increase or decrease the size of, or
fill vacancies as to the Board of Trustees. The Executive Committee may fix its
own rules of procedure, and may meet, when and as provided by such rules or by
resolution of the Board, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a Trustee to act in the place of such absent
member.
Section 8. Other Committees. The Trustees, by the affirmative vote of a
majority of the entire Board of Trustees, may appoint other committees which
shall in each case consist of such number of members (not less than two) and
shall have and may exercise such powers as the Board may determine in the
resolution appointing them. A majority of all members of any such committee may
determine its action, and fix the time and place of its meetings, unless the
Trustees shall otherwise provide. The Trustees shall have power at any time to
change the members and powers of any such committee, to fill vacancies, and to
discharge any such committee.
Section 9. Informal Action by Trustees and Committees. Any action
required or permitted to be taken at any meeting of the Trustees or any
committee thereof may be taken at any meeting of the Trustees or any committee
thereof may be taken without a meeting, if each Trustee or all members of such
committee, as the case may be, signs a written consent to such action.
Section 10. Compensation of Trustees. No Trustee shall receive any
stated salary or fees from the Trust for his services as Trustee if such Trustee
is, otherwise than by reason of being such Trustee, affiliated (as such term is
defined in the 1940 Act) with the Trust or with any investment adviser of the
Trust. Except as provided in the preceding sentence, Trustees shall be entitled
to receive such compensation from the Trust for their services as may from time
to time be voted by the Trustees.
Section 11. Dividends. Dividends or distributions payable on the Shares
may, but need not be, declared by specified resolution of the Board as to each
dividend or distribution; in lieu of such specific resolutions, the Board may,
by general resolution, determine the method of computation thereof, the method
of determining the Shareholders to which they are payable and the methods of
determining whether and to which Shareholders they are to be paid in cash or in
additional shares.
ARTICLE III
OFFICERS
7
<PAGE>
Section 1. Executive Officers. The executive officers of the Trust shall
be chosen by the Board annually at such time as the Trustees may determine.
These may include a Chairman of the Board of Trustees, and shall include a
President, one or more Vice Presidents (the number thereof to be determined by
the Board), a Secretary and a Treasurer. The Chairman of the Board, if any, and
the President shall be selected from among the Trustees. The Trustees may also
in its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board may fill
any vacancy which may occur in any office. Any two offices, except those of
President and Secretary, may be held by the same person, but no officers shall
execute, acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law or these By-Laws to be executed, acknowledged or
verified by two or more officers.
Section 2. Term of Office. Each officer shall hold office until the
annual meeting of the Board of Trustees next succeeding his election or until
his successor is duly elected and qualifies, subject, however, to any provision
for removal contained in the Declaration of Trust and these By-Laws. Any officer
may be removed from office at any time with or without cause by the vote of a
majority of the Board of Trustees.
Section 3. Powers of Duties. The officers of the Trust shall have such
powers and duties as generally pertain to their respective offices, as well as
such powers and duties as may from time to time be conferred by the Board or the
Executive Committee.
ARTICLE IV
SHARES
Section 1. Certificate of Shares. Certificates representing Trust shares
will not be physically issued. Shares will be maintained on the books of the
Trust's transfer agent and Shareholders will have the same rights of ownership
with respect to such shares as if certificates had been issued.
Section 2. Transfer of Shares. Shares of the Trust shall be transferable
on the books of the Trust by the holder thereof in person or by his duly
authorized attorney or legal representative for the same number of shares,
accompanied by proper instruments of assignment and transfer, with such proof of
the authenticity of the signature as the Trust or its agents may reasonably
require.
8
<PAGE>
Section 3. Stock Ledgers; Books and Records. The stock ledgers of the
Trust containing the name and address of the Shareholders and the number of
shares held by them respectively, and all books and records of the Trust shall
be kept at the principal offices of the Trust within or without the Commonwealth
of Massachusetts or, if the Trust employs a transfer agent, at the offices of
the transfer agent of the Trust or without said Commonwealth.
ARTICLE V
SEAL
The Board of Trustees may authorize a suitable seal of the Trust, in
such form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Trust shall be fixed from time to time by
resolution of the Board of Trustees.
ARTICLE VII
CUSTODIANSHIP
All cash and securities owned by the Trust shall be held in accordance
with the requirements of the 1940 Act as in effect from time to time, by a bank
or trust company of good standing, having a capital, surplus and undivided
profits aggregating not less than two million ($2,000,000), provided such a bank
or trust company can be found ready and willing to so act. Upon the resignation
or inability to serve of any such bank or trust company the Trust shall (i) use
its best efforts to obtain a qualified successor, (ii) require the cash and
securities of the Trust held by such bank or trust company to be delivered
directly to the successor, and (iii) in the event that no qualified successor
can be found, submit to the holders of the Shares of the Trust at the time
outstanding and entitled to vote, before permitting delivery of such cash and
securities to anyone other than a qualified successor, the question whether the
Trust shall be dissolved and liquidated or shall function without a qualified
bank or trust company to hold such cash and securities. Upon such resignation or
inability to serve, such bank or trust company may deliver any assets of the
Trust held by it to a qualified bank or trust company selected by it, such
assets to be held subject to the terms of the agreement which governed such
retiring bank or trust company, pending action by the Trust as set forth in this
Article VIII. Nothing herein contained, however, shall prevent the termination
of any agreement between the Trust and any such bank or
9
<PAGE>
trust company by the Trust at the discretion of the Board, and any such
agreement shall be terminated upon the affirmative vote of the holders of a
majority of all the Shares of the Trust at the time outstanding and entitled to
vote.
10
<PAGE>
ARTICLE VIII
AMENDMENTS OF BY-LAWS
Except as set forth below, the By-Laws of the Trust may be altered,
amended, added to or replaced by the Shareholders or by majority vote of the
entire Board of Trustees; but any such alteration, amendment, addition or repeal
of the By-Laws by action of the Board may be altered or repealed by the
Shareholders. Article VII and Article VIII may be altered, amended or repealed
only by the vote of the holders of a majority of the Shareholders present at a
meeting of Shareholders provided that a quorum is present in person or by proxy
at such meeting.
11
<PAGE>
Exhibit 99.(d)
"COMPREHENSIVE FEE"
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT ("Agreement'), dated the ____ day of June, 1999, made and
entered into by and between RESERVE ___________, a Massachusetts business trust
(the "Trust"), on behalf of the ______________ Fund (the "Portfolio"), and
RESERVE MANAGEMENT COMPANY, INC., a New Jersey corporation having its principal
place of business in New York (the "Manager").
WHEREAS, the Trust is a non-diversified management investment company and
is registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares
of beneficial interest, par value of $.001 per share, in separate series or
classes of series, with each such separate series representing an interest in a
separate portfolio of investment securities and other assets;
The parties agree as follows:
1. Investment Services. The Manager shall select and manage the
Portfolio's investments and shall determine what investments shall be made or
disposed of by the Portfolio and shall effect such acquisitions and
dispositions, all in furtherance of the Portfolio's investment objective and
policies, subject to the overall control and direction of the Trust's Board of
Trustees. The Manager shall report on such activities to the Board of Trustees
of the Trust and shall submit such reports and other information thereon as the
Board of Trustees shall from time to time request. Notwithstanding any other
provision hereof, the Manager, with the approval of the Board of Trustees, may
contract with one or more Sub-Investment Managers to perform any of the
investment management services; provided, however, any compensation paid will be
the sole responsibility of the Manager.
2. Other Services and Assumption of Certain Expenses. The Manager shall
furnish to the Trust, on behalf of the Portfolio: (i) the services of a
President and such other executive officers as may be requested by the
Portfolio, (ii) office space and customary office facilities to the extent that
the Portfolio's activities occur in New York, (iii) maintain Portfolio records
not otherwise maintained by the Portfolio's custodian, distributor or
sub-investment managers, and (iv) all accounting, administrative, clerical,
secretarial and statistical services as may be required by the Portfolio for the
operation of its business and compliance with applicable laws. The Manager shall
pay the compensation of all officers of the Trust on behalf of the Portfolio and
all operating and other expenses of the Portfolio except interest charges,
taxes, brokerage fees and commissions, extraordinary legal and accounting fees
and other extraordinary expenses including expenses incurred in connection with
litigation proceedings, other claims and the legal obligations of the Trust to
indemnify its trustees, officers, employees, shareholders, distributors and
other agents of the Trust, payments made pursuant to the Trust's Distribution
Plan, and the fees of the disinterested Trustees. The Manager may contract with
other parties to
<PAGE>
perform any of the ordinary administrative services required of the Manager;
provided, however any such compensation will be the responsibility of the
Manager.
3. Compensation of the Manager. The Portfolio shall pay to the Manager as
compensation for the services rendered hereunder and as full reimbursement for
all officers compensation and ordinary operating expenses of the Portfolio paid
by the Manager under paragraph 2 hereof, a management fee at an annual rate of
0.80% of the average daily net asset value of the Portfolio (the "Management
Fee").
The Management Fee shall be computed and accrued daily and shall be paid
by the Portfolio to the Manager monthly.
4. Compliance with Applicable Requirements. This Agreement will be
performed in accordance with the requirements of the 1940 Act and the Investment
Advisers Act of 1940, as amended, and the rules and regulations under such acts,
to the extent that the subject matter of the Agreement is within the purview of
such acts and such rules and regulations. The Manager will assist the Trust on
behalf of the Portfolio in complying with the requirements of the 1940 Act, and
the Securities Act of 1933, as amended (the "1933 Act'), and the rules and
regulations under such acts and in qualifying as a regulated investment company
under the Internal Revenue Code of 1986, as amended, and applicable regulations
of the Internal Revenue Service thereunder. In carrying out its obligations
under this Agreement the Manager shall at all times conform to the provisions of
the Declaration of Trust and By-Laws, the provisions of the currently effective
Registration Statement of the Trust under the 1940 Act and the 1933 Act, and any
other applicable provisions of state or Federal law.
5. Termination. This Agreement shall be in effect until the close of
business on June 30, 2000 and shall continue in effect from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually by (i) either the Board of Trustees of the Trust or a majority
vote of the outstanding voting securities of the Portfolio, provided, however,
that if the shareholders of the Portfolio fail to approve the Agreement, as
provided herein, the Manager may continue to serve in such capacity in the
manner and to the extent permitted by the 1940 Act, and the rules thereunder,
and (ii) the vote of a majority of the Trustees of the Trust who are not parties
to this Agreement or interested persons (as defined in the 1940 Act) of either
party of this Agreement, cast in person at a meeting called for the purpose of
voting on such approval.
Notwithstanding anything herein to the contrary, this Agreement may be
terminated at any time, without payment of any penalty, by the Board of Trustees
of the Trust or by vote of a majority of the outstanding voting securities of
the Portfolio, on 60 days' written notice to the Manager, or by the Manager on
like notice to the Trust.
The name "Reserve" shall be deemed to have been licensed to the Trust by
the Manager. In the event of termination of this Agreement, the Manager may
terminate or revoke such license
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on 90 days' written notice to the Trust. On or before the date of such
revocation or termination, the Trust will change its name to another name which
does not include the word "Reserve."
6. Non-Assignability. This Agreement shall not be assignable by either
party hereto and shall automatically terminate forthwith in the event of such
assignment (within the meaning of the 1940 Act).
7. Approval of Agreement and Amendments. This Agreement and any material
amendments hereto shall be approved by vote of the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Portfolio;
provided, however, that if the shareholders of the Portfolio fail to approve the
Agreement as provided herein, the Manager may continue to serve in such capacity
in the manner and to the extent permitted by the 1940 Act and the rules
thereunder.
8. Non-Exclusivity. The services of the Manager to the Trust are not to
be deemed exclusive and the Trust agrees that the Manager is free to act as
investment manager to various investment companies and other managed accounts.
For purposes of this Agreement and the undertakings provided for herein, the
Manager shall at all times be considered as an independent contractor, and shall
not be considered as an agent of the Trust and shall have no authority to act
for or represent the Trust in any way.
9. Liability of the Manager. In performing its duties hereunder, the
Manager may rely on all documentation and information furnished it by the Trust.
Except as may otherwise be provided by the 1940 Act, neither the Manager nor its
officers, directors, employees or agents shall be subject to any liability for
any act or omission in the course of, connected with or arising out of any
services to be rendered hereunder, except by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Manager's duties or by
reason of reckless disregard of the Manager's obligations and duties under this
Agreement.
10. Notices. Any notices and communications required hereunder shall be
in writing and shall be deemed given when delivered in person or when sent by
first-class, registered or certified mail to the Manager or to the Trust at 1250
Broadway, 32nd Floor, New York, New York 10001, or at such addresses as either
party may from time to time specify by notice to the other.
11. Definitions. The terms "assignment," "interested person," and
"majority of the outstanding voting securities," when used in this Agreement,
shall have the respective meanings specified under the 1940 Act and the rules
thereunder.
12. Governing Law. The terms and provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the 1940 Act. To the
extent that the applicable law of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the 1940 Act, the
latter shall control.
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13. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall be deemed to be severable.
14. Shareholder Liability. The Manager understands and agrees that the
obligations of the Trust under this Agreement are not binding upon any
shareholder of the Trust personally, but bind only the Portfolio and the
property of the Portfolio. The Manager represents that it has notice of the
provisions of the Declaration of Trust of the Trust disclaiming shareholder
liability for acts or obligations of the Trust.
15. Enforcement Limited to Portfolio. The Manager understands and agrees
that any debts, liabilities, obligations, and expenses incurred, contracted for
or otherwise existing under this Agreement shall be enforceable against the
assets of the Portfolio only, and not against the assets of the Trust,
generally, or the assets of any other separate series of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed on the day and year first above written.
RESERVE _____________, on behalf of
____________________ Fund
By ________________________________
President
ATTEST:
_________________________
Secretary
RESERVE MANAGEMENT COMPANY, INC.
By ________________________________
President
ATTEST
_________________________
Secretary
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Exhibit 99.(g)
CHASE
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective January 6, 1998, and is between THE CHASE
MANHATTAN BANK ("Bank") and each of the funds set forth in Schedule A hereto
(with each fund a "Customer").
It is hereby agreed as follows:
1. Customer Accounts.
Bank shall establish and maintain the following accounts ("Accounts"):
(a) A custody account in the name of Customer ("Custody Account") for any
and all stocks, shares, bonds, debentures, notes, mortgages or other obligations
for the payment of money, bullion, coin and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase or subscribe for
the same or evidencing or representing any other rights or interests therein and
other similar property whether certificated or uncertificated as may be received
by Bank or its Subcustodian (as defined in Section 3) for the account of
Customer ("Securities"); and
(b) A deposit account in the name of Customer ("Deposit Account") for any
and all cash in any currency received by Bank or its Subcustodian for the
account of Customer, which cash shall not be subject to withdrawal by draft or
check.
Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between Bank and Customer, additional Accounts may
be established and separately accounted for as additional Accounts hereunder.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
Bank:
(a) Securities shall be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash shall be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and Bank can comply with such
Instructions, Bank is authorized to maintain cash balances on deposit for
Customer with itself or one of its "Affiliates" at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as Customer may direct, if acceptable to Bank. For purposes
hereof, the term "Affiliate" shall mean an entity controlling, controlled by, or
under common control with, Bank.
If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by Bank and Customer.
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3. Subcustodians and Securities Depositories.
Bank may act hereunder through the subcustodians listed in Schedule B
hereof with which Bank has entered into subcustodial agreements
("Subcustodians"). Customer authorizes Bank to hold Assets in the Accounts in
accounts which Bank has established with one or more of its branches or
Subcustodians. Bank and Subcustodians are authorized to hold any of the
Securities in their account with any securities depository in which they
participate.
Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to Schedule
B. Upon request by Customer, Bank shall identify the name, address and principal
place of business of any Subcustodian of Customer's Assets and the name and
address of the governmental agency or other regulatory authority that supervises
or regulates such Subcustodian.
4. Use of Subcustodian.
(a) Bank shall identify the Assets on its books as belonging to Customer.
(b) A Subcustodian shall hold such Assets together with assets belonging
to other customers of Bank in accounts identified on such subcustodian's books
as custody accounts for the exclusive benefit of customers of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject
only to the instructions of Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian shall be subject only to
the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding Bank's
customers' assets shall provide that such assets shall not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets shall be freely transferable without the payment of
money or value other than for safe custody or administration or, in the case of
cash deposits, except for liens or rights in favor of creditors of the
Subcustodian arising under bankruptcy, insolvency or similar laws. Where
Securities are deposited by a Subcustodian with a securities depository, Bank
shall cause the Subcustodian to identify on its books as belonging to Bank, as
agent, the Securities shown on the Subcustodian's account on the books of such
securities depository. The foregoing shall not apply to the extent of any
special agreement or arrangement made by Customer with any particular
Subcustodian.
5. Deposit Account Transactions.
(a) Bank or its Subcustodians shall make payments from the Deposit
Account upon receipt of Instructions which include all information required by
Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, Bank, in its discretion, may advance
Customer such excess amount which shall be deemed a loan payable on demand,
bearing interest at the rate customarily charged by Bank on similar loans.
(c) If Bank credits the Deposit Account on a payable date, or at any time
prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If Customer does not promptly return any
amount upon such notification, Bank shall be entitled, upon oral or written
notification to Customer, to reverse such credit by debiting the Deposit Account
for the amount previously credited. Bank or its Subcustodian shall have no duty
or obligation to institute legal proceedings, file a claim or a proof of claim
in any insolvency proceeding or take any other action with respect to the
collection of such amount, but may act for Customer upon Instructions after
consultation with Customer.
6. Custody Account Transactions.
(a) Securities shall be transferred, exchanged or delivered by Bank or
its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Securities received
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for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions shall be
credited or debited to the Accounts on the date cash or Securities are actually
received by Bank and reconciled to the Account.
(i) Bank, upon oral or written notice to Customer, may reverse
credits or debits made to the Accounts in its discretion if the related
transaction fails to settle within a reasonable period, determined by
Bank in its discretion, after the contractual settlement date for the
related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, Bank may reverse the credits and
debits of the particular transaction at any time.
7. Actions of Bank.
Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank shall:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that Bank or Subcustodian is
actually aware of such opportunities.
(b) Execute in the name of Customer such ownership and other certificates
as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction for which Bank has
received Instructions involving the Securities, including, without limitation,
Affiliates of Bank or any Subcustodian.
(e) Issue statements to Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, Customer shall be deemed to have approved
such statement. In such event, or where Customer has otherwise approved any such
statement, Bank shall, to the extent permitted by law, be released, relieved and
discharged with respect to all matters set forth in such statement or reasonably
implied therefrom and based on information which Customer knew or reasonably
should have known as though it had been settled by the decree of a court of
competent jurisdiction in an action where Customer and all persons having or
claiming an interest in Customer or Customer's Accounts were parties.
Provided that Bank has acted in accordance with the standard of care in
Section 12 (a) hereof, all collections of funds or other property paid or
distributed in respect of Securities in the Custody Account shall be made at the
risk of Customer. Provided that Bank has acted in accordance with the standard
of care in Section 12(a) hereof, Bank shall have no liability for any loss
occasioned by delay in the actual receipt of notice by Bank or by its
Subcustodians of any payment, redemption or other transaction regarding
Securities in the Custody Account in respect of which Bank has agreed to take
any action hereunder.
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8. Corporate Actions; Proxies; Tax Reclaims.
(a) Corporate Actions. Whenever Bank receives information concerning the
Securities which requires discretionary action by the beneficial owner of the
Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), Bank
shall give Customer prompt notice of such Corporate Actions to the extent that
Bank has received actual notice of the Corporate Action from the relevant issuer
or issuer's agent or as to which notice is published in publications routinely
utilized by Bank for this purpose.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split is received which bears an expiration
date, Bank shall endeavor to obtain Instructions from Customer or its Authorized
Person (as defined in Section 10 hereof), but if Instructions are not received
in time for Bank to take timely action, or actual notice of such Corporate
Action was received too late to seek Instructions, Bank is authorized but need
not sell such rights entitlement or fractional interest and to credit the
Deposit Account with the proceeds, if Bank, in good faith, deems such action to
be appropriate in which case it shall be held harmless for any such action.
(b) Proxy Voting. Bank shall provide proxy voting services, if elected by
Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in part,
by one or more third parties appointed by Bank (which may be Affiliates of
Bank).
(c) Tax Reclaims.
(i) Subject to the provisions hereof, Bank shall apply for a
reduction of withholding tax and any refund of any tax paid or tax
credits which apply in each applicable market in respect of income
payments on Securities for the benefit of Customer which Bank believes
may be available to such Customer.
(ii) The provision of tax reclaim services by Bank is conditional
upon Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from Bank).
Customer acknowledges that, if Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation shall
be deducted from all income received in respect of Securities issued
outside the United Kingdom and that U.S. non-resident alien tax or U.S.
backup withholding tax shall be deducted from U.S. source income.
Customer shall provide to Bank such documentation and information as it
may require in connection with taxation, and warrants that, when given,
this information shall be true and correct in every respect, not
misleading in any way, and contain all material information. Customer
undertakes to notify Bank immediately if any such information requires
updating or amendment.
(iii) Provided that Bank has acted in accordance with the standard
of care in Section 12(a) hereof, Bank shall not be liable to Customer or
any third party for any taxes, fines or penalties payable by Bank or
Customer, and shall be indemnified accordingly, whether these result from
the inaccurate completion of documents by Customer or any third party
acting as agent for Customer, or as a result of the provision to Bank or
any third party of inaccurate or misleading information or the
withholding of material information by Customer or any other third party,
or as a result of any delay of any revenue authority or any other matter
beyond the control of Bank.
(iv) Customer confirms that Bank is authorized to deduct from any
cash received or credited to the Deposit Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to
Customer from time to time and Bank may, by notification in writing, at
its absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in this
sub-clause, Bank shall have no responsibility with regard to Customer's
tax position or status in any jurisdiction.
(vi) Customer confirms that Bank is authorized to disclose any
information requested by any revenue authority or any governmental body
in relation to Customer or the Securities and/or Cash held for Customer.
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(vii) Tax reclaim services may be provided by Bank or, in whole or
in part, by one or more third parties appointed by Bank (which may be
Affiliates of Bank); provided that. Bank shall be liable for the
performance of any such third party to the same extent as Bank would have
been if it performed such services itself
9. Nominees.
Securities which are ordinarily held in registered form may be registered
in a nominee name of Bank, Subcustodian or securities depository, as the case
may be. Bank may without notice to Customer cause any such Securities to cease
to be registered in the name of any such nominee and to be registered in the
name of Customer. In the event that any Securities registered in a nominee name
are called for partial redemption by the issuer, Bank may allot the called
portion to the respective beneficial holders of such class of security in any
manner Bank deems to be fair and equitable. Customer shall hold Bank,
Subcustodians, and their respective nominees harmless from any liability arising
directly or indirectly from their status as a mere record holder of Securities
in the Custody Account.
10. Authorized Persons.
As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank receives
Instructions from Customer or its designated agent that any such employee or
agent is no longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by Bank, via telephone, telex, facsimile transmission, bank wire or
other teleprocess or electronic instruction or trade information system
acceptable to Bank which Bank believes in good faith to have been given by
Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Bank may specify. Unless
otherwise expressly provided, all Instructions shall continue in full force and
effect until canceled or superseded.
Any Instructions delivered to Bank by telephone shall promptly thereafter
be confirmed in writing by an Authorized Person (which confirmation may bear the
facsimile signature of such Person), but Customer shall hold Bank harmless for
the failure of an Authorized Person to send such confirmation in writing, the
failure of such confirmation to conform to the telephone instructions received
or Bank's failure to produce such confirmation at any subsequent time. Bank may
electronically record any Instructions given by telephone, and any other
telephone discussions with respect to the Custody Account. Customer shall be
responsible for safeguarding any testkeys, identification codes or other
security devices which Bank shall make available to Customer or its Authorized
Persons.
12. Standard of Care; Liabilities.
(a) Bank shall be responsible for the performance of only such duties as
are set forth herein or expressly contained in Instructions which are consistent
with the provisions hereof as follows:
(i) Bank shall use reasonable care with respect to its obligations
hereunder and the safekeeping of Assets. Bank shall be liable to Customer
for any loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping
of such Assets to the same extent that Bank would be liable to Customer
if Bank were holding such Assets in New York. In the event of any loss to
Customer by reason of the failure of Bank or its Subcustodian to utilize
reasonable care (including, but not limited to, as respects corporate
actions), Bank shall be liable to Customer only to the extent of
Customer's direct damages, to be determined based on the market value of
the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or
circumstances. Bank shall have no liability whatsoever for any
consequential, special, indirect or speculative loss or damages
(including, but not limited to, lost profits) suffered by Customer in
connection with the transactions contemplated hereby
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and the relationship established hereby even if Bank has been advised as
to the possibility of the same and regardless of the form of the action.
(ii) Bank shall not be responsible for the insolvency of any
Subcustodian which is not a branch or Affiliate of Bank. Bank shall not
be responsible for any act, omission, default or the solvency of any
broker or agent which it or a Subcustodian appoints unless such
appointment was made negligently or in bad faith.
(iii) Bank shall be indemnified by, and without liability to
Customer for any action taken or omitted by Bank whether pursuant to
Instructions or otherwise within the scope hereof if such act or omission
was in good faith, without negligence. In performing its obligations
hereunder, Bank may rely on the genuineness of any document which it
believes in good faith to have been validly executed.
(iv) Customer shall pay for and hold Bank harmless from any
liability or loss resulting from the imposition or assessment of any
taxes or other governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the advice
of counsel (who may be counsel for Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) Bank need not maintain any insurance for the benefit of
Customer.
(vii) Without limiting the foregoing, Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from malfunction, interruption of or error
in the transmission of information caused by any machines or system or
interruption of communication facilities, abnormal operating conditions,
nationalization, expropriation or other governmental actions; regulation
of the banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions which prevent the
orderly execution of securities transactions or affect the value of
Assets; except that, with respect to the failure of machines, systems,
interruption of communication facilities or abnormal operating conditions
on Bank or a Subcustodian's premises or otherwise within the control of
Bank or a Subcustodian, Bank shall not be so excused to the extent that
such failure was on account of Bank's or the Subcustodian's (as the case
may be) negligence (such as a failure to have had routine maintenance
performed or to have selected equipment reasonably suitable for the
purposes contemplated hereby given, in the case of Subcustodians, local
market practices with respect to such matters). Bank confirms that it has
in place backup procedures, periodically tested by it, that would permit
continued operation of its Brooklyn, New York and Bournemouth, England
data centers in the event of a failure of its systems or equipment.
(viii) Neither party shall be liable to the other for any loss due
to forces beyond their control including, but not limited to strikes or
work stoppages, acts of war (whether declared or undeclared) or
terrorism, insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to Customer or
an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments
or the retention of Securities;
(iii) advise Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than
as provided in Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to
which Securities are delivered or payments are made pursuant hereto; and
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(v) review or reconcile trade confirmations received from brokers.
Customer or its Authorized Persons issuing Instructions shall bear any
responsibility to review such confirmations against Instructions issued
to and statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that Bank
or any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to other customers, act as financial advisor to the
issuer of Securities, act as a lender to the issuer of Securities, act in the
same transaction as agent for more than one customer, have a material interest
in the issue of Securities, or earn profits from any of the activities listed
herein.
13. Fees and Expenses.
Customer shall pay Bank for its services hereunder the fees set forth in
Schedule C hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses, such as,
but not limited to, scrip and stamp fees, legal fees registration fees, and
other costs that Bank pays on behalf of Customer. Bank shall have a lien on and
is authorized to charge any Accounts of Customer for any amount owing to Bank
under any provision hereof upon oral or written notice to Customer.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
Customer's trading and investment activity, subject to Instructions (which may
be standing Instructions) Bank is authorized to enter into spot or forward
foreign exchange contracts with Customer and may also provide foreign exchange
through its subsidiaries, Affiliates or Subcustodians. Instructions, including
standing instructions, may be issued with respect to such contracts but Bank may
establish rules or limitations concerning any foreign exchange facility made
available. In all cases where Bank, its subsidiaries, Affiliates or
Subcustodians enter into a foreign exchange contract related to Accounts, the
terms and conditions of the then current foreign exchange contract of Bank, its
subsidiary, Affiliate or Subcustodian and, to the extent not inconsistent, this
Agreement shall apply to such transaction.
(b) Certification of Residency, etc. Customer certifies that it is a
resident of the United States and shall notify Bank of any changes in residency.
Bank may rely upon this certification or the certification of such other facts
as may be required to administer Bank's obligations hereunder. Customer shall
indemnify Bank against all losses, liability, claims or demands arising directly
or indirectly from any such certifications.
(c) Access to Records. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as is
required in connection with their examination of books and records pertaining to
Customer's affairs. Subject to restrictions under applicable law, Bank shall
also obtain an undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of Customer's books and records.
(d) Governing Law Successors and Assigns, Captions THIS AGREEMENT SHALL
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN NEW YORK and shall not be assignable by either party, but
shall bind the successors in interest of Customer and Bank. The captions given
to the sections and subsections of this Agreement are for convenience of
reference only and are not to be used to interpret this Agreement.
(e) Entire Agreement: Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
- Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
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X Investment Company assets subject to certain U.S. Securities and
Exchange Commission rules and regulations;
___ Neither of the above.
This Agreement consists exclusively of this document together with
Schedules A-C, and the following Rider(s) [Check applicable rider(s)]:
___ ERISA
X INVESTMENT COMPANY.
X PROXY VOTING
X SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes any
other agreements, whether written or oral, between the parties. Any amendment
hereto must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions hereof are
held invalid, illegal or unenforceable in any respect on the basis of any
particular circumstances or in any jurisdiction, the validity, legality and
enforceability of such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions shall not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided herein, no failure or delay on
the part of either party in exercising any power or right hereunder operates as
a waiver, nor does any single or partial exercise of any power or right preclude
any other or further exercise, or the exercise of any other power or right. No
waiver by a party of any provision hereof, or waiver of any breach or default,
is effective unless in writing and signed by the parry against whom the waiver
is to be enforced.
(h) Representations and Warranties. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Securities and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement constitutes
its legal, valid and binding obligation, enforceable in accordance with its
terms; (D) it shall have full authority and power to borrow moneys and enter
into foreign exchange transactions; and (E) it has not relied on any oral or
written representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the duties of
Bank. (ii) Bank hereby represents and warrants to Customer that: (A) it has the
full power and authority to perform its obligations hereunder, (B) this
Agreement constitutes its legal, valid and binding obligation; enforceable in
accordance with its terms; (C) that it has taken all necessary action to
authorize the execution and delivery hereof.
(i) Notices. All notices hereunder shall be effective when actually
received. Any notices other communications which may be required hereunder are
to be sent to the parties at the following address or such other addresses as
may subsequently be given to the other party in writing: (a) Bank: The Chase
Manhattan Bank, 4 Chase MetroTech Center, l8th Floor, Brooklyn, N.Y. 11245,
Attention: Global Investor Services, Investment Management Group (Reserve Funds
Relationship Manager) and to The Chase Manhattan Bank, 3 Chase MetroTech Center,
8th floor, Brooklyn, N.Y. 11245, Attention: Reserve Funds Service Manager; and
(b) Customer: [Fund name) c/o The Reserve Funds, 810 Seventh Avenue, New York,
10019-5868. Attn: Operations Manager.
(j) Termination. This Agreement may be terminated by Customer or Bank by
giving ninety (90) days written notice to the other, provided that such notice
to Bank shall specify the names of the persons whom Bank shall deliver the
Assets in the Accounts. If notice of termination is given by Bank, Customer
shall within ninety (90) days following receipt of the notice, deliver to Bank
Instructions specifying the name of the persons to whom Bank shall deliver the
Assets. In either case Bank shall deliver the Assets to persons so specified,
after deducting any amounts which Bank determines in good faith to be owed to it
under Section 13, an explanation for any such deductions shall be furnished to
Customer. If within ninety (90) days following receipt of a notice of
termination by Bank, Bank does not receive Instructions from Customer specifying
the names of the persons to whom Bank shall deliver the Assets, Bank, at its
8
<PAGE>
election, may deliver the Assets to a bank or trust company doing business in
the State of New York to be held and disposed pursuant to the provisions hereof,
or to Authorized Persons, or may continue to hold the Assets Instructions are
provided to Bank.
(k) Imputation of certain information. Bank shall not be held responsible
for and shall not required to have regard to information held by any person by
imputation or information of which Bank not aware by virtue of a "Chinese Wall"
arrangement. If Bank becomes aware of confidential information which in good
faith it feels inhibits it from effecting a transaction hereunder Bank may
refrain from effecting it.
(l) Year 2000. Bank confirms that it is aware of the problem that may be
presented for certain computer systems by use of date fields and the like on and
after January 1, 2000 and that Bank has developed and is implementing a plan to
help assure that Bank's systems as the same relate to services provided
hereunder will be unaffected by such problems.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first-above written.
THE RESERVE FUNDS THE CHASE MANHATTAN BANK
By:_______________ ____________________________
Title:____________ Title:
Date______________ Date:
9
<PAGE>
STATE OF NY )
: ss
COUNTY OF NY )
On this 9th day of January 1998 before me personally came Michelle L.
Neufield, to me known, who being by me duly sworn, did depose and say that
he/she resides in Fairfield, Ct. at 325 Romanock Rd., that her/she is General
Counsel & Secy of The Reserve Funds & all affiliates, the entity described in
and which executed the foregoing instrument; that he/she knows the seal of said
entity, that the seal affixed to said instrument is such seal, that it was so
affixed by order of said entity, and that he/she signed his/her name thereto by
like order.
Sworn to before me this 9th
Day of January, 1998.
Notary
/s/ PATRICIA Maldonado
Notary Public, State of New York
No. 01MA5014011
Qualified in Bronx County
Commission Expires July 6, 1999.
10
<PAGE>
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
The Reserve Funds
Effective January 6, 1998
The following modifications are made to the Agreement:
The following modifications are made to the Agreement:
A. Add a new Section 15 to the Agreement as follows:
15. Compliance with SEC rule 17f-5.
(a) Customer's board of directors (or equivalent body) (hereinafter
'Board') hereby delegates to Bank, and, except as to the country or countries as
to which Bank may, from time to time, advise Customer that it does not accept
such delegation, Bank hereby accepts the delegation to it, of the obligation to
perform as Customer's 'Foreign Custody Manager' (as that term is defined in SEC
rule l7f-5 (a)(2)), both for the purpose of selecting Eligible Foreign
Custodians (as that term is defined in SEC rule l7f-5(a)(1), and as the same may
be amended from time to time, or that have otherwise been made exempt pursuant
to an SEC exemptive order) to hold Assets and of evaluating the contractual
arrangements with such Eligible Foreign Custodians (as set forth in SEC rule
17f-5(c)(2)); provided that, the term Eligible Foreign Custodian shall not
include any 'Compulsory Depository. A Compulsory Depository shall mean a
securities depository or clearing agency the use of which is compulsory because:
(1) its use is required by law or regulation, (2) securities cannot be withdrawn
from the depository, or (3) maintaining securities outside the depository is not
consistent with prevailing custodial practices in the country which the
depository serves. Compulsory Depositories used by Chase as of the date hereof
are set forth in Appendix 1-A hereto, and as the same may be amended on notice
to Customer from time to time.
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's Board of the
placement of Assets with particular Eligible Foreign Custodians
and of any material change in the arrangements with such Eligible
Foreign Custodians, with such reports to be provided to Customer's
Board at such times as the Board deems reasonable and appropriate
based on the circumstances of Customer's foreign custody
arrangements (and until further notice from Customer such reports
shall be provided not less than quarterly with respect to the
placement of Assets with particular Eligible Foreign Custodians
and with reasonable promptness upon the occurrence of any material
change in the arrangements with such Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in
performing as Customer's Foreign Custody Manager as a person
having responsibility for the safekeeping of Assets would
exercise;
(iii) in selecting an Eligible Foreign Custodian, first have
determined that Assets placed and in the safekeeping of such
Eligible Foreign Custodian shall be subject to reasonable care,
based on the standards applicable to custodians in the relevant
market, after having considered all factors relevant to the
safekeeping of such Assets, including, without limitation, those
factors set forth in SEC rule l7f-5(c)(l)(i)-(iv);
(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodians that
is a securities depository or clearing agency, such contract, the
rules or established practices or procedures of the depository, or
any combination of the foregoing) requires that the Eligible
Foreign Custodian will provide reasonable care for Assets based on
the standards applicable to custodians in the relevant market. In
making this determination, Bank shall consider the provisions of
Rule l7f-5(c)(2),
11
<PAGE>
together with whether Bank shall be liable to Customer for any
loss which shall occur as the result of the failure of the
Eligible Foreign Custodian to exercise reasonable ca with respect
to the safekeeping of such Assets to the same extent that Bank
would be liable to Customer if Bank were holding such Assets in
New York; and
(v) have established a system to monitor the continued
appropriateness of maintaining Assets with particular Eligible
Foreign Custodians and of the governing contractual arrangements;
it being understood, however, that in the event that Bank shall
have determined that the existing Eligible Foreign Custodian in a
given country would no longer afford Assets reasonable care and
that no other Eligible Foreign Custodian in that country would
afford reasonable care, Bank shall promptly so advise Customer and
shall then act in accordance with the Instructions of Customer
with respect to the disposition of the affected Assets.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Assets on behalf of Customer with Eligible Foreign Custodians pursuant to a
written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Assets hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined in Rule
l7f-5(a)(7). Customer represents to Bank that: (1) the Assets being placed and
maintained in Bank's custody are subject to the Investment Company Act of 1940,
as amended (the '1940 Act'), as the same may be amended from time to time; (2)
its Board: (i) has determined that it is reasonable to rely on Bank to perform
as Customer's Foreign Custody Manager (ii) or its investment advisor shall have
determined that Customer may maintain Assets in each country in which Customer's
Assets shall be held hereunder and determined to accept the risks arising
therefrom (including, but not limited to, a country's financial infrastructure
(and including any Compulsory Depository operating in such country), prevailing
custody and settlement practices, laws applicable to the safekeeping and
recovery of Assets held in custody, and the likelihood of nationalization,
currency controls and the like)."
B. Add the following after the first sentence of Section 3 of the
Agreement: "At the request of Customer, Bank may, but need not, add to Schedule
B an Eligible Foreign Custodian that is either a bank or a non-Compulsory
Depository where Bank has not acted as Foreign Custody Manager with respect to
the selection thereof. Bank shall notify Customer in the event that it elects
not to add any such entity."
C. Add the following language to the end of Section 3 of the Agreement:
The term Subcustodian as used herein shall mean the following:
(a) a U.S. Bank, which shall mean a U.S. bank as defined in SEC rule
l7f-5(a)(7);
(b) an 'Eligible Foreign Custodian,' which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws of
a country other than the United States, that is regulated as such by that
country's government or an agency thereof, (ii) a majority-owned direct
or indirect subsidiary of a U.S. bank or bank holding company which
subsidiary is incorporated or organized under the laws of a country other
than the United States; (iii) a securities depository or clearing agency,
incorporated or organized under the laws of a country other than the
United States, that acts as a system for the central handling of
securities or equivalent book-entries in that country and that is
regulated by a foreign financial regulatory authority as defined under
section 2(a)(5) of the 1940 Act, (iv) a securities depository or clearing
agency organized under the laws of a country other than the United States
to the extent acting as a transnational system for the central handling
of securities or equivalent book-entries, and (v) any other entity that
shall have been so qualified by exemptive order, rule or other
appropriate action of the SEC.
12
<PAGE>
For purposes of clarity, it is agreed that as used in Section 12(a)(i), the term
Subcustodian shall include neither any Eligible Foreign Custodian as to which
Bank has not acted as Foreign Custody Manager nor any Compulsory Depository."
D. Insert the following language at the beginning of the second sentence
of Section 12(a)(i):
"Except with respect to those countries as to which the parties may from
time to time agree in writing otherwise".
E. In recognition of the fact that compliance with amended Rule l7f-5 is
in an early stage of development and of the importance to Bank of the
relationship between Bank and Customer, Bank hereby agrees that, if prior to
June 15, 1998, Bank makes any material change to this rider for its mutual fund
customers, Customer shall be given the option of continuing to operate under
this rider or pursuant to the changed rider. Customer shall promptly notify Bank
of whether or not it elects to operate pursuant to the changed rider, and if it
does so elect, such election shall be effective on and after the date that Bank
receives such notice.
13
<PAGE>
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
THE RESERVE FUNDS
January 6, 1998
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures")
furnished to Customer, as the same may be amended by Bank from time to
time on prior notice to Customer. The Procedures are incorporated by
reference herein and form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by Bank
to Customer of the dates of pending shareholder meetings, resolutions to
be voted upon and the return dates as may be received by Bank or provided
to Bank by its Subcustodians or third parties, and (b) voting by Bank of
proxies based on Customer directions. Original proxy materials or copies
thereof shall not be provided. Notifications shall generally be in
English and, where necessary, shall be summarized and translated from
such non-English materials as have been made available to Bank or its
Subcustodian. In this respect Bank's only obligation is to provide
information from sources it believes to be reliable and/or to provide
materials summarized and/or translated in good faith. Bank reserves the
right to provide Notifications, or parts thereof, in the language
received. Upon reasonable advance request by Customer, backup information
relative to Notifications, such as annual reports, explanatory material
concerning resolutions, management recommendations or other material
relevant to the exercise of proxy voting rights shall be provided as
available, but without translation.
3. While Bank shall attempt to provide accurate and complete Notifications,
whether or not translated, Bank shall not be liable for any losses or
other consequences that may result from reliance by Customer upon
Notifications where Bank prepared the same in good faith.
4. Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as
the agent of Customer, and shall not exercise any discretion with regard
to such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of
circumstances, including, without limitation, where the relevant
Securities are: (i) on loan; (ii) at registrar for registration or
reregistration; (iii) the subject of a conversion or other corporate
action; (iv) not held in a name subject to the control of Bank or its
Subcustodian or are otherwise held in a manner which precludes voting;
(v) not capable of being voted on account of local market regulations or
practices or restrictions by the issuer; or (vi) held in a margin or
collateral account.
6. Customer acknowledges that in certain countries Bank may be unable to
vote individual proxies but shall only be able to vote proxies on a net
basis (e.g. a net yes or no vote given the voting instructions received
from all customers).
7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall in
no event sell, license, give or otherwise make the information provided
hereunder available, to any third party, and shall not directly or
indirectly compete with Bank or diminish the market for Proxy Services by
provision of such information, in whole or in part, for compensation or
otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be furnished to
Bank in accordance with (Section)10 of the Agreement. Proxy Services fees
shall be as set forth in (Section)13 of the Agreement or as separately
agreed.
14
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Appendix 1-A
Compulsory Depositories
As of January 6,1998
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Argentina Caja de Valores Equity Corporate & Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Australia Austraclear Ltd. Corporate Debt, Money Market & Semi
Government Debt
- ----------------------------------------------------------------------------------------------------------------------
CHESS Equity
(Clearing House Electronic Sub-register
- ----------------------------------------------------------------------------------------------------------------------
RITS Government Debt
(Reserve Bank Information and Transfer
- ----------------------------------------------------------------------------------------------------------------------
Austria Oesterreichischer Kontrolbank AG Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Belgium CIK Equity + Corporate Debt
(Caiss Interprofessionnelle de Deposits de
- ----------------------------------------------------------------------------------------------------------------------
Bank Nationale de Belgique Treasury Bills + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Brazil BOVESPA Equity
(Bolsa de Valores de Sao Paolo)
- ----------------------------------------------------------------------------------------------------------------------
BVRJ Equity
(Bolsa de Valores de Rio de Janeiro)
- ----------------------------------------------------------------------------------------------------------------------
Bulgaria BNB Government Debt
(Bulgaria National Bank)
- ----------------------------------------------------------------------------------------------------------------------
Canada CDS Equity, Corporate + Government Debt
(Canadian Depository for Securities)
- ----------------------------------------------------------------------------------------------------------------------
China, SSCCRC Equity
Shanghai (Shanghai Securities Central Clearing and
- ----------------------------------------------------------------------------------------------------------------------
China, SSCC Equity
Shenzhen (Shenzhen Securities Registration Co.,
- ----------------------------------------------------------------------------------------------------------------------
Czech SCP Equity + Long-Term Government Debt
Republic (Securities Center)
- ----------------------------------------------------------------------------------------------------------------------
TKD Treasury Bills + Money Market
(Trh Kratkododich Dlluhopisu or Short-
- ----------------------------------------------------------------------------------------------------------------------
Denmark VP Equity, Corporate + Government Debt
(Vaerdipapircentralen)
- ----------------------------------------------------------------------------------------------------------------------
Egypt Misr Clearing & Sec. Dep. Equity
- ----------------------------------------------------------------------------------------------------------------------
Estonia EVK Equity
(Estonian Central Depository for
- ----------------------------------------------------------------------------------------------------------------------
Euromarket Cedel & Euroclear Euro-Debt
- ----------------------------------------------------------------------------------------------------------------------
Finland CSR Equity + Government Debt
(Central Share Registry Finland)
- ----------------------------------------------------------------------------------------------------------------------
Helsinki Money Market Center Ltd. Money Market
- ----------------------------------------------------------------------------------------------------------------------
France SICOVAM Equity + Corporate Debt.
(Banque de France)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Appendix 1-A
Compulsory Depositories
As of January 6,1998
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
France SATURNE Government Debt
(Banque de France)
- ----------------------------------------------------------------------------------------------------------------------
Germany DKV Equity, Corporate + Government Debt
(Deutscheer Kassenverein)
- ----------------------------------------------------------------------------------------------------------------------
Greece Apothetirio Titlon A.E. Equity
- ----------------------------------------------------------------------------------------------------------------------
Bank of Greece Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Hong Kong CCASS Equity
(Central Clearing and Settlement System)
- ----------------------------------------------------------------------------------------------------------------------
CMU Corporate + Government Debt
(Central Money-markets Units)
- ----------------------------------------------------------------------------------------------------------------------
Hungary Keler Ltd. Equity + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
India NSDL Equity + Corporate Debt
(National Securities Depository Ltd)
- ----------------------------------------------------------------------------------------------------------------------
Ireland CREST Equity
- ----------------------------------------------------------------------------------------------------------------------
GSO Government Debt
(Gilt Settlement Office)
- ----------------------------------------------------------------------------------------------------------------------
Israel TASE Clearing House Equity, Corporate + Government Debt
(Tel Aviv Stock Exchange Clearing
- ----------------------------------------------------------------------------------------------------------------------
Italy Monte Titoli Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------
Bank of Italy Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Japan Bank of Japan Registered Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Latvia LCD Equity + Government Debt
(Latvian Central Depository)
- ----------------------------------------------------------------------------------------------------------------------
Lebanon Midclear Equity
(Custodian and Clearing Center of
- ----------------------------------------------------------------------------------------------------------------------
Luxenbourg Cedel Equity
- ----------------------------------------------------------------------------------------------------------------------
Malaysia MCD Equity
(Malaysian Central Depository Snd Bhd)
- ----------------------------------------------------------------------------------------------------------------------
Mauritius CDS Equity
(Central Depository System)
- ----------------------------------------------------------------------------------------------------------------------
Mexico Indeval Equity, Corporate + Government Debt.
(Institucion para el Deposito de Valores
- ----------------------------------------------------------------------------------------------------------------------
Morocco Maroclear Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------
Morroco, cont. Bank Al'Maghrib Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Netherlands NECIGEF/KAS Associate NV Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Appendix 1-A
Compulsory Depositories
As of January 6,1998
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
De Nederlandsche Bank N.V. Money-Market
- ----------------------------------------------------------------------------------------------------------------------
NIEC Premium Bonds
(Netherlands Interprofessioneel
- ----------------------------------------------------------------------------------------------------------------------
New Zealand Austraclear New Zealand Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Norway VPS Equity, Corporate + Government Debt
(Verdipapiresentralen)
- ----------------------------------------------------------------------------------------------------------------------
Pakistan CDC Equity
(Central Depository Company of Pakistan)
- ----------------------------------------------------------------------------------------------------------------------
Peru CAVALI Equity
(Caja de Valores)
- ----------------------------------------------------------------------------------------------------------------------
Philippines PCD Equity
(Phillippine Central Depository)
- ----------------------------------------------------------------------------------------------------------------------
Poland NDS Equity, Long-Term Government Debt + Vouchers
(National Securities Depository) Vouchers
- ----------------------------------------------------------------------------------------------------------------------
CRT Treasury Bills
(Central Registry of Treasury Bills)
- ----------------------------------------------------------------------------------------------------------------------
Portugal Interbolsa Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Romania SNCDD - RASDAQ Equity
(National Company for Clearing,
- ----------------------------------------------------------------------------------------------------------------------
Bucharest Stock Exchange Registry Equity
- ----------------------------------------------------------------------------------------------------------------------
National Bank of Romania Treasury Bills
- ----------------------------------------------------------------------------------------------------------------------
Russia MICEX GKO's
(Moscow Interbank Currency Exchange) (Gosudarstvennye Kratkosrochnye
- ----------------------------------------------------------------------------------------------------------------------
Singapore CDP Equity + Corporate Debt and Malaysian
(Central Depository Pte. Ltd.) equities traded on CLOB
- ----------------------------------------------------------------------------------------------------------------------
Monetary Authority of Singapore Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Slovak SCP Equity + Government Debt
Republic (Stredisko Cennych Papiru)
- ----------------------------------------------------------------------------------------------------------------------
National Bank of Slovakia Treasury Bills
- ----------------------------------------------------------------------------------------------------------------------
So. Africa CD Corporate + Government Debt
(Central Depository)
- ----------------------------------------------------------------------------------------------------------------------
So. Korea KSD Equity, Corporate + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Spain SCLV Equity, + Corporate Debt
(Servicio de Compensacion y Liquidacion)
- ----------------------------------------------------------------------------------------------------------------------
Spain CBEO Government Debt
(Central Book Entry Office)
- ----------------------------------------------------------------------------------------------------------------------
Sri Lanka CDS Equity
(Central Depository System (Private))
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Appendix 1-A
Compulsory Depositories
As of January 6,1998
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Sweden VPC Equity, Corporate + Government Debt
(Vardepapperscentralen AB)
- ----------------------------------------------------------------------------------------------------------------------
Switzerland SEGA Equity, Corporate + Government Debt
(Schweizerische Effekten-Giro AG)
- ----------------------------------------------------------------------------------------------------------------------
Taiwan TSCD Equity + Government Debt
(Taiwan Securities Central Depository)
- ----------------------------------------------------------------------------------------------------------------------
Thailand TSDC Equity, Corporate + Government Debt
(Thailand Securities Depository Company)
- ----------------------------------------------------------------------------------------------------------------------
Tunisia STICODEVAM Equity
(Societe Tunisienne Interprofessionnelle
- ----------------------------------------------------------------------------------------------------------------------
Ministry of Finance Government Debt tradable on the stock
exchange (BTNBs)
- ----------------------------------------------------------------------------------------------------------------------
Central Bank of Tunisia Government Debt tradable on the stock
exchange (BTCs)
- ----------------------------------------------------------------------------------------------------------------------
Turkey Takas Bank Equity + Corporate Debt
- ----------------------------------------------------------------------------------------------------------------------
Central Bank of Turkey Government Debt
- ----------------------------------------------------------------------------------------------------------------------
United CREST Equity + Corporate Debt
(Clearing & settlement system)
- ----------------------------------------------------------------------------------------------------------------------
CMO Sterling CD's & CP
(Central Money-market Office)
- ----------------------------------------------------------------------------------------------------------------------
CGO Gilts
(Central Gilts Office)
- ----------------------------------------------------------------------------------------------------------------------
United States DTC Equity + Corporate Debt
(Depository Trust Company)
- ----------------------------------------------------------------------------------------------------------------------
PTC Mortgage Back Debt
(Participants Trust Company)
- ----------------------------------------------------------------------------------------------------------------------
Fed Book-Entry Government Debt
- ----------------------------------------------------------------------------------------------------------------------
Zambia LuSE Equity + Government Debt
(LuSE Central Shares Depository Ltd.)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
Domestic Corporate Actions and Proxies
With respect to domestic U.S. and Canadian Securities (the latter if held in
DTC), the following provisions shall apply rather than the pertinent provisions
of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of Bank's
nominee or the nominee of a central depository) and communications with
respect to Securities in the Custody Account as call for voting or
relate to legal proceedings within a reasonable time after sufficient
copies are received by Bank for forwarding to its customers. In
addition, Bank shall follow coupon payments, redemptions, exchanges or
similar matters with respect to Securities in the Custody Account and
advise Customer or the Authorized Person for such Account of rights
issued, tender offers or any other discretionary rights with respect to
such Securities, in each case, of which Bank has received notice from
the issuer of the Securities, or as to which notice is published in
publications routinely utilized by Bank for this purpose
19
<PAGE>
Schedule A
Portfolios of the Reserve Funds:
Reserve Primary Fund
Reserve Government Fund
Reserve Interstate Fund
Reserve New York Tax-Exempt Fund
Reserve Connecticut Tax-Exempt Fund
Reserve Massachusetts Tax-Exempt Fund
Reserve New Jersey Tax-Exempt Fund
Reserve U.S. Treasury Fund
Reserve Convertible Securities Fund
Reserve Florida Tax-Exempt Fund
Reserve Offshore Fund
Reserve Mid-Cap Growth Fund
Reserve Large-Cap Value Fund
Reserve Strategist Money-Market Fund
Reserve Small-Cap Growth Fund
Reserve California Tax-Exempt Fund
Reserve, Blue Chip Growth Fund
Reserve Informed Investor Growth Fund
Reserve Pennsylvania Tax-Exempt Fund
Reserve International Equity Fund
Reserve Primary Institution Fund
Reserve U.S. Government Institutional Fund
Reserve U.S. Treasury Institutional Fund
Reserve Interstate Tax-Exempt Institutional Fund
Reserve Ohio Tax-Exempt Fund
Reserve Michigan Tax-Exempt Fund
The InterVest Fund
- InverVest Fixed-Rate Fund
- InterVest Variable-Rate Fund
20
<PAGE>
Exhibit 99.(i)
July 30, 1999
The Reserve Fund
1250 Broadway
New York, NY 10001
Ladies and Gentlemen:
I have acted as counsel to The Reserve Fund ("Trust"), Massachusetts business
trust, in connection with the preparation and filing of their Registration
Statements on Form N-1A (the "Registration Statements") covering shares of
beneficial interest, no par value per share, of the Trust, on behalf of the
Primary, U.S. Government, U.S. Treasury and Strategist Funds.
I have examined copies of the Declaration of Trust and By-Laws of the Trust, the
Registration Statements, and such other records, proceedings and documents, as I
have deemed necessary for the purpose of this opinion. I have also examined such
other documents, papers, statutes and authorities as I deemed necessary to form
a basis for the opinion hereinafter expressed. In my examination of such
material, I have assumed the genuineness of all signatures and the conformity to
original documents of all copies.
Based upon the foregoing, I am of the opinion that the shares of beneficial
interest, no par value per share, of the Trusts to be issued in accordance with
the terms of the offering, as set forth in the Registration Statements, when so
issued and paid for will constitute validly authorized and legally issued shares
of beneficial interest, fully paid and non-assessable by the Trust.
Very truly yours,
\s\ MaryKathleen Foynes
- -----------------------
MaryKathleen Foynes
General Counsel
Reserve Funds
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this registration
statement on Form N-1A (Securities Act File No. 2-36429 and Investment Company
Act File No. 811-2033) of our report dated July 23, 1999 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 "Custodian, Independent Accountant and Counsel".
PricewaterhouseCoopers LLP
New York, New York
July 29, 1999
<PAGE>
Exhibit 99.(m)
REGISTERED DEALER AGREEMENT
Resrv Partners, Inc. ("RESRV") is the Principal Underwriter for the
shares (the "Shares") of The Reserve Funds (the "Funds"), which are registered
under the Investment Company Act of 1940 as open-end investment companies. The
Shares are offered for sale under the terms specified in the Fund's prospectus
in effect from time to time (the "Prospectus").
The terms of mutual agreement ("Agreement") between RESRV ("Distributor")
and the undersigned brokerage firm, financial planner, bank, trust company and
other qualified entities, as well as Successor firms (the "Dealer") concerning
the sale of Shares are as follows:
1. Appointment: The Dealer is hereby appointed by RESRV as a non-exclusive
distributor for the sale of the Shares in those states and jurisdictions of the
United States in which the Dealer and the Shares of the Fund are qualified for
sale. RESRV will notify Dealer in writing as to the states in which the shares
of the Fund have qualified for sale under, or are exempt from the requirements
of the respective securities laws of such states.
2. Sale of Fund Shares: The Dealer agrees to use its best efforts to solicit
qualified investors for orders to purchase shares and to determine suitability.
The Dealer shall place orders for sale of Shares only at their public offering
price and under terms as specified in the Prospectus and Statement of Additional
Information then in effect (collectively referred to as the "Prospectus").
Dealer agrees to provide, or cause to be provided, prospective investors with a
Fund Prospectus. The Dealer agrees not to make any representations about such
Shares not included in said Prospectus or in any authorized supplemental
materials supplied or authorized by RESRV. Dealer represents that the Shares
will be offered and sold in accordance with the terms and conditions of this
Agreement and all applicable laws, rules and regulations and agrees to hold
RESRV harmless and to indemnify RESRV in the event that the Dealer, or any of
its representatives, employees or agents should violate any law, rule or
regulation, or provisions of this Agreement, which violation may result in any
loss or liability (including costs of investigation and counsel fees) to RESRV
or the Fund or any of its portfolios. If RESRV determines to refund any amounts
paid by an investor by reason of such violation by the Dealer, the Dealer shall
promptly return on demand any commissions previously paid or discounts allowed
by RESRV with respect to the transaction for which the refund is made. RESRV
agrees to indemnify and hold harmless Dealer and Dealer's affiliates, officers,
directors and employees from and against any and all losses, liabilities, claims
and costs (including reasonable attorneys' fees) resulting from RESRV's failure
to fulfill its obligations hereunder or from any alleged inaccuracy, omission or
misrepresentation contained in any prospectus, statement of additional
information, any printed information issued by RESRV as information supplemental
to such prospectuses and statements of additional information, or any
advertising or sales materials prepared by RESRV. All expenses, which the Dealer
incurs in connection with activities under this Agreement, shall be borne by the
Dealer.
3. Dealer Relationship: The Dealer shall act in a dealer capacity with respect
to investors and the Dealer shall not have any authority to act as agent of the
Fund, RESRV, or any affiliate of RESRV (including, but not limited to, Reserve
Management Company, Inc. ("RMCI") and any mutual fund managed by RMCI (such
affiliates being "RESRV Affiliates"). The Dealer and its employees are not
authorized to make any representation concerning the Fund, RESRV, or RESRV
Affiliates except those contained in the Prospectus. Dealer may include the name
of any Fund in any printed list of funds which it makes available.
4. Dealer Commissions: During the term of this Agreement, the Dealer shall
receive from RESRV a commission with respect to all accounts accepted by RESRV
in which the executed account application form on file with the Fund is marked
or designated to show that it was provided to the investor by the Dealer (each
such marked account being a "Dealer Account"). The commission to be paid to the
Dealer with respect to each Dealer Account shall be an amount equal to the
dealer commission specified from time to time in the Prospectus.
<PAGE>
Any assistance payments and/or administrative service fees for
distribution pursuant to a distribution plan ("Plan") adopted by the Fund in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended,
due to the Dealer hereunder shall be paid at the end of the month. RESRV will
pay Dealer a monthly fee as set forth in the Plan and current Fund prospectus
based on the net asset value of Fund shares, which are held in accounts which
are designated as a Dealer Account. Payment shall be made within 30 days after
the close of each month for which such fee(s) is payable. No such monthly
payment will be paid if the average net asset value of all Dealer Accounts upon
which the fee is based is less than $25,000.
5. Purchase Orders: Payments for purchases of Shares made by telephone or wire
order by the Dealer shall be made to the order of RESRV or the Fund
(collectively, "Dealer") and received by Dealer, and all necessary applications
and other documents required by Dealer to establish an account or to settle a
redemption order, within five business days after Dealer's acceptance of our
order or such shorter time as may be required by law. If such payments or other
settlement documents are not timely received by Dealer, we understand that
Dealer reserve the right, without notice, to cancel the purchase or redemption
order, or, at Dealer's option in the case of a purchase order, to sell the
Shares ordered by us back to the Fund, and in either case we shall promptly
reimburse Dealer for any loss to Dealer or the Fund, including without
limitation loss of Dealer's profit, suffered by Dealer resulting from our
failure to make the aforesaid timely payment or settlement. If sales of any
Fund's Shares are contingent upon the Funds receipt of Federal Funds in payment
therefore, we will forward promptly to Dealer any purchase orders and/or
payments received by us for Shares from our customers.
6. Redemption Orders: Dealer may place redemption orders with Dealer for Shares
owned by Dealer's customers, but only in accordance with the terms of the
applicable Fund Prospectus. Dealer understands and agrees that by placing a
redemption order with the Fund or RESRV (collectively "Dealer") by wire or
telephone, it represents that a request for the redemption of the Shares covered
by the redemption order has been delivered to the Dealer by the registered
owner(s) of such Shares, and that such request has been executed in the manner
and with the signature(s) of such registered owners guaranteed as required by
the then current Prospectus of the applicable Fund. Such redemption orders shall
be subject to the following additional conditions:
(a) Dealer shall furnish Dealer with exact registration and account number for
the Shares to be redeemed at the time we place a redemption order by wire or
telephone and shall tender to Dealer, within five business days of our placing
such a redemption order: (i) a stock power or letter, duly signed by the
registered owner(s) of the Shares which are the subject of the order, duly
guaranteed, (ii) any Share certificates required for such redemption, and (iii)
any additional documents which may be required by the applicable fund or its
transfer agent, in accordance with the terms of the then current Prospectus of
the applicable Fund and the policies of the transfer agent. In the alternative,
Dealer shall provide a letter of indemnity in a form approved by the Fund and
RESRV stating that all necessary authorizations have been received from the
registered owner(s) of the Shares.
(b) The redemption price will be the next net asset value per share of the
Shares computed after Dealer receipt, prior the close of the New York Stock
Exchange ("NYSE"), of an order placed by us to redeem such Shares, except that
orders placed by us after the close of the NYSE on a business day will be based
on the Fund's net asset value per share determined that day, but only if such
orders were received by us from our customer prior to the close of business of
the NYSE that day and if we place our redemption order with Dealer prior to
Dealer's normal close of business that day.
(c) In connection with a redemption order we have placed, if Dealer fails to
make delivery of all required certificates and documents in a timely manner as
stated above, Dealer have the right to cancel our redemption order. If any
cancellation of a redemption order or if any error in the timing of the
acceptance of a redemption order placed by Dealer shall result in a loss to
Dealer or the Fund, we shall promptly reimburse Dealer for such loss.
<PAGE>
If any Shares sold by us under the terms of this Agreement are redeemed
by any of the Funds (including without limitation redemptions resulting from an
exchange for Shares of another fund) or are purchased by Dealer as an agent for
the Fund or are tendered to the Fund for redemption within seven business days
after Dealer's confirmation to us of our original purchase order for such
Shares, we shall promptly repay to Dealer the full amount of the commission
allowed to us on the original sales, provided Dealer notify us of such
repurchase or redemption.
7. Representations: The Dealer represents and warrants that it is a registered
securities dealer and is a member in good standing with the National Association
of Securities Dealers, Inc. ("NASD") or in the alternative, it is a foreign
dealer not eligible for membership in the NASD, and is fully licensed and
legally empowered to act as a securities broker-dealer under the laws of each
jurisdiction in which it conducts business or in the alternative, it is a
financial planner, bank, trust company and other qualified entity governed by
applicable laws and regulations. Dealer agrees to abide by the rules and
regulations of the Securities and Exchange Commission and the NASD, where
applicable, relating to the performance of its obligations hereunder, including,
without limitation, Section 26 of Articles III of the NASD Rules of Fair
Practice, and all other applicable laws and regulations, all of which are
incorporated herein by reference.
8. Compensation: Dealer will be paid in accordance with Schedule A (attached and
incorporated herein).
9. Termination: This Agreement may be terminated by either party upon fifteen
(15) days' written notice to the other and will be automatically terminated upon
the Dealer expulsion form. Dealer's suspension from the NASD for the violation
of any law, rule or regulation relating to the performance of Dealer's
obligations hereunder will terminate this Agreement effective immediately upon
our written notice of termination to the Dealer.
10. Arbitration: Dealer and RESRV agree that all disputes between the parties of
whatever subject matter, whether existing on the date thereof or arising
hereafter, shall be submitted to arbitration in accordance with the code of
Arbitration Procedure of the NASD or the New York Stock Exchange, or similar
rules or code, in effect at the time of the submission of any such dispute.
11. Notices: All communications shall be sent to RESRV to our offices at 1250
Broadway, 32nd Floor, New York, NY 10001. Any notice to Dealer shall be duly
given if mailed or telegraphed to Dealer at the address shown on this Agreement.
12. Governing Law: This Agreement shall be effective as of the date it is
executed and dated by Dealer below. This Agreement and all the rights and
obligations of the parties hereunder shall be governed by and construed under
the laws of the State of New York.
RESRV PARTNERS, INC.
By: _____________________________
Name & Title (print): _____________________________
Date: _____________________________
Dealer: ____________________________________
By: ____________________________________
(Authorized Signature)
<PAGE>
<TABLE>
<S> <C>
Name: ____________________________________ Dealer Code: ______________________
Title: ____________________________________ Phone: ______________________
Address: ____________________________________ NASD B/D No: ______________________
____________________________________
Date: ____________________________________
</TABLE>
<PAGE>
SCHEDULE A
Effective March 11, 1999
MONEY-MARKET FUNDS
A. Money-market funds with the exception of the Reserve Institutional Trust
Subject to the limit of the Plan of each Money-Market Fund, assistance payments
to a selected dealer with an automated interface will be at an annual rate
determined and paid monthly at a rate not less than 0.40% of the average daily
net asset value of each Fund's Qualified Accounts, or in accordance with any
subsequent Notice which may be provided by Resrv Partners, Inc., pursuant to the
Dealer Agreement.
For a Dealer who, in the opinion of Resrv Partners, is making a "good faith"
effort toward economical centralized purchases and sales to facilitate expedited
processing, such as an "automatic sweep," such assistance payments may be at an
annual rate so determined and paid not less than 0.40% of such net asset value
regardless of the schedules above in the discretion of Resrv but for a period
not to exceed 90 days. An "automatic sweep" requires the dealer's computer to
effect the daily movement of purchases, redemptions, and account maintenance
transactions directly to the Fund's computer to the satisfaction of the
management of the Fund which, in turn, will return acknowledgments and account
balances.
For all other Dealers, such assistance payments will be at an annual rate
determined and paid monthly as follows: average daily net asset of less than $2
million, 0.10%; $2 million but less than $5 million, 0.15%; $5 million but less
than $10 million, 0.20% and $10 million or more, 0.30%.
B. Reserve Institutional Trust
With regard to the Reserve Institutional Trust, assistance payments to a
selected dealer will be at an annual rate determined and paid monthly at a rate
not to exceed 0.10%, 0.20%, 0.30% and 0.45% of the average daily net asset value
of the Institutional Funds Class A, Class B, Treasurer's Trust and Class C
Qualified Accounts, respectively.
EQUITY FUNDS
A Dealer, who is responsible for the sale of shares shall be compensated in
accordance with the 0.25% annual 12b-1 fee, paid monthly.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> STRATEGIST MONEY-MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<INVESTMENTS-AT-COST> 53,985,007
<INVESTMENTS-AT-VALUE> 53,985,007
<RECEIVABLES> 152,312
<ASSETS-OTHER> 490,460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54,627,779
<PAYABLE-FOR-SECURITIES> 2,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,306
<TOTAL-LIABILITIES> 2,000,306
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,625,473
<SHARES-COMMON-STOCK> 52,625,473
<SHARES-COMMON-PRIOR> 56,268,788
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 52,625,473
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,903,795
<OTHER-INCOME> 0
<EXPENSES-NET> 221,600
<NET-INVESTMENT-INCOME> 2,682,195
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,682,195
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,682,195
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 107,753,785
<NUMBER-OF-SHARES-REDEEMED> 114,079,295
<SHARES-REINVESTED> 2,682,195
<NET-CHANGE-IN-ASSETS> (3,643,315)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 443,201
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 551,615
<AVERAGE-NET-ASSETS> 55,414,682
<PER-SHARE-NAV-BEGIN> 1.000
<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> 1.000
<EXPENSE-RATIO> 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> PRIMARY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<INVESTMENTS-AT-COST> 3,470,099,181
<INVESTMENTS-AT-VALUE> 3,470,099,181
<RECEIVABLES> 10,172,625
<ASSETS-OTHER> 156,066
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,480,427,872
<PAYABLE-FOR-SECURITIES> 150,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 364,781
<TOTAL-LIABILITIES> 150,364,781
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,330,063,091
<SHARES-COMMON-STOCK> 3,330,063,091
<SHARES-COMMON-PRIOR> 2,707,620,063
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,330,063,091
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 165,783,965
<OTHER-INCOME> 0
<EXPENSES-NET> 31,417,996
<NET-INVESTMENT-INCOME> 134,365,969
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 134,365,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 134,365,969
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,224,681,639
<NUMBER-OF-SHARES-REDEEMED> 15,736,604,580
<SHARES-REINVESTED> 134,365,969
<NET-CHANGE-IN-ASSETS> 622,443,028
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,863,140
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,417,996
<AVERAGE-NET-ASSETS> 3,154,006,413
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .044
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.044)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> U.S. GOVERNMENT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<INVESTMENTS-AT-COST> 714,000,000
<INVESTMENTS-AT-VALUE> 714,000,000
<RECEIVABLES> 387,077
<ASSETS-OTHER> 1,885,304
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 716,272,381
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78,453
<TOTAL-LIABILITIES> 78,453
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 716,193,928
<SHARES-COMMON-STOCK> 716,193,928
<SHARES-COMMON-PRIOR> 652,467,622
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 716,193,928
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,980,516
<OTHER-INCOME> 0
<EXPENSES-NET> 7,182,230
<NET-INVESTMENT-INCOME> 29,798,286
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 29,798,286
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29,798,286
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,450,382,930
<NUMBER-OF-SHARES-REDEEMED> 3,416,454,910
<SHARES-REINVESTED> 29,798,296
<NET-CHANGE-IN-ASSETS> 63,726,306
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,530,115
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,182,230
<AVERAGE-NET-ASSETS> 717,026,673
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .043
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.043)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .94
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> U.S. TREASURY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<INVESTMENTS-AT-COST> 283,970,490
<INVESTMENTS-AT-VALUE> 283,970,490
<RECEIVABLES> 0
<ASSETS-OTHER> 2,755,758
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 286,726,248
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,183
<TOTAL-LIABILITIES> 24,183
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 286,702,065
<SHARES-COMMON-STOCK> 286,702,065
<SHARES-COMMON-PRIOR> 239,760,293
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 286,702,065
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,142,886
<OTHER-INCOME> 0
<EXPENSES-NET> 2,125,886
<NET-INVESTMENT-INCOME> 11,017,000
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11,017,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,017,000
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,315,560,422
<NUMBER-OF-SHARES-REDEEMED> 1,279,635,650
<SHARES-REINVESTED> 11,017,000
<NET-CHANGE-IN-ASSETS> 46,941,722
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,208,713
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,761,013
<AVERAGE-NET-ASSETS> 276,150,191
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .041
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.041)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .77
</TABLE>
