<PAGE>
[LOGO] AMERICAN EXPRESS(Registered)
Financial
Direct
GENERAL INFORMATON AND 24-HOUR YIELD AND BALANCE INFORMATION
800-637-1700
This literature is not authorized for distribution to prospective investors
unless preceded or accompanied by an appropriate current prospectus.
Distributor -- Resrv Partners, Inc.
[LOGO] AMERICAN EXPRESS(Registered)
Financial
Direct
American Express
Money Market Accounts
- ---------------------
Strategist
Money Market
Fund
Annual Report
May 31, 1999
offered by
THE RESERVE FUNDS
<PAGE>
STRATEGIST MONEY-MARKET FUND
STATEMENT OF NET ASSETS--MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT NEGOTIABLE BANK CERTIFICATES OF DEPOSIT--57.0% (NOTE 1)
- ------------ ---------------------------------------------- -----------
<S> <C> <C>
DOMESTIC--11.4%
$ 2,000,000 BankBoston, NA, 4.88%, 7/27/99............................................................. $ 2,000,000
2,000,000 Morgan Guaranty Trust Co., 4.88%, 7/12/99.................................................. 2,000,000
2,000,000 South Trust Bank of Alabama NA, 4.89%, 7/26/99............................................. 2,000,000
-----------
6,000,000
-----------
EURO--26.6%
2,000,000 Abbey National PLC, 4.90%, 7/7/99.......................................................... 2,000,013
2,000,000 Credit Agricole Indosuez, 4.89%, 7/12/99................................................... 2,000,000
2,000,000 Dresdner Bank, 4.85%, 6/21/99.............................................................. 2,000,000
2,000,000 International Nederlanden Bank, 4.94%, 6/30/99............................................. 1,999,987
2,000,000 National Westminster Bank PLC, 4.98%, 9/2/99*.............................................. 2,000,000
2,000,000 Norddeutsche Landesbank Girozentrale, 4.88%, 8/16/99....................................... 2,000,020
2,000,000 Svenska Handelsbanken, 4.88%, 6/8/99....................................................... 2,000,002
-----------
14,000,022
-----------
YANKEES--19.0%
2,000,000 Banque Nationale de Paris, 4.95%, 8/27/99.................................................. 2,000,000
2,000,000 BHF Bank AG, 4.86%, 6/18/99................................................................ 2,000,000
2,000,000 Canadian Imperial Bank of Commerce, 4.82%, 6/28/99......................................... 2,000,000
2,000,000 Lloyds Bank PLC, 4.90%, 7/26/99............................................................ 2,000,000
2,000,000 Westdeutsche Landesbank Girozentrale, GI, 4.88%, 6/16/99................................... 2,000,000
-----------
10,000,000
-----------
Total Negotiable Bank Certificates of Deposit (Cost $30,000,022)........................... 30,000,022
-----------
COLLATERALIZED PROMISSORY NOTES--7.6% (A)
2,000,000 ABN/AMRO, 4.83%, 7/19/99................................................................... 1,987,133
2,000,000 Societe Generale, NA, Inc., 4.83%, 6/9/99.................................................. 1,997,852
-----------
Total Collateralized Promissory Notes (Cost $3,984,985).................................... 3,984,985
-----------
REPURCHASE AGREEMENTS--38.0%
10,000,000 Bear, Stearns & Co. Inc., 4.90%, 6/1/99 (collateralized by $9,334,400 FGPC
6.00%-7.50% due 9/1/13 to 5/1/17 and $1,798,292 FMNS, 6.50% due 6/9/28).................. 10,000,000
10,000,000 Salomon Smith Barney, Inc. 4.90%, 6/1/99 (collateralized by $10,300,000 FHLMC
5.20%, due 1/1/00)....................................................................... 10,000,000
-----------
Total Repurchase Agreements (Cost $20,000,000)............................................. 20,000,000
-----------
TOTAL INVESTMENTS (COST $53,985,007)............................................... 102.6% 53,985,007
LIABILITIES, LESS OTHER ASSETS..................................................... (2.6) (1,359,534)
----- -----------
NET ASSETS......................................................................... 100.0% $52,625,473
----- -----------
----- -----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE BASED ON 52,625,473
SHARES OF BENEFICIAL INTEREST $.001 PAR VALUE OUTSTANDING................................ $1.00
-----
-----
</TABLE>
- ---------------
(a) Collateralized by bank letters of credit.
* Represents when-issued security.
GLOSSARY: FGPC = FHLMC Gold Mortgage-Backed Pass-Through Participation
Certificates; FHLMC = Federal Home Loan Mortgage Corp.; FNMS = FNMA
Mortgage-Backed Pass-Through Securities.
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
STRATEGIST MONEY-MARKET FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1999
<TABLE>
<S> <C>
INTEREST INCOME (Note 1).................................................................................... $2,903,795
----------
EXPENSES (Note 2)
Comprehensive fee......................................................................................... 443,201
Servicing fee............................................................................................. 108,414
----------
Total Expenses.......................................................................................... 551,615
Less: expenses waived (Note 2).......................................................................... (330,015)
----------
Net Expenses............................................................................................ 221,600
----------
NET INVESTMENT INCOME, representing Net Increase in Net Assets from Investment Operations................... $2,682,195
----------
----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, MAY 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS:
Net investment income.................................................................. $ 2,682,195 $ 4,013,759
------------- -------------
DIVIDENDS PAID TO SHAREHOLDERS FROM (Note 1):
Net investment income.................................................................. (2,682,195) (4,013,759)
FROM CAPITAL SHARE TRANSACTIONS (at net asset value of $1.00 per share):
Net proceeds from sale of shares....................................................... 107,753,785 129,839,697
Dividends reinvested................................................................... 2,682,195 4,013,759
Cost of shares redeemed................................................................ (114,079,295) (177,288,649)
------------- -------------
Net decrease derived from capital share transactions and from investment operations...... (3,643,315) (43,435,193)
NET ASSETS:
Beginning of year...................................................................... 56,268,788 99,703,981
------------- -------------
End of year............................................................................ $ 52,625,473 $ 56,268,788
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES:
The Strategist Money-Market Fund, a series of The Reserve Fund, is
registered under the Investment Company Act of 1940 as a non-diversified,
open-end investment company. The policies summarized below are
consistently followed in the preparation of its financial statements in
conformity with generally accepted accounting principles.
A. The Reserve Fund's authorized shares of beneficial interest are
unlimited and are divided into four series: Primary Fund, U.S. Government
Fund, U.S. Treasury Fund and Strategist Money-Market Fund. The financial
statements and notes apply only to the Strategist Money-Market Fund (The
"Fund").
B. Securities are valued at amortized cost, which approximates market
value. The amortized cost method values a security at cost plus accrued
interest at the time of purchase, and thereafter assumes a constant
amortization to maturity of any discount or premium, irrespective of
intervening changes in interest rates or market values. The maturity of
floating or variable rate instruments in which the Fund may invest will be
deemed to be, for floating rate instruments (1) the notice period required
before the Fund is entitled to receive payment of the principal amount of
the instrument; and for variable rate instruments the longer of (1) above
or (2) the period remaining until the instrument's next rate adjustment,
for purpose of Rule 2a-7 and for computing the portfolio's average
weighted life to maturity.
C. It is the Fund's policy to comply with Subchapter M of the Internal
Revenue Code and to distribute all of its taxable income to its
shareholders. Accordingly, no Federal income tax provision is required.
D. Security transactions are recorded on a trade date basis; interest
income is accrued daily and security premium or discount is amortized or
accreted daily. Net investment income is distributed to shareholders daily
and automatically reinvested in additional Fund shares.
E. The Fund may enter into repurchase agreements with financial
institutions and securities dealers who are deemed credit-worthy pursuant
to guidelines established by the Fund's Board of Trustees. The Fund's
Investment Adviser will follow procedures intended to provide that all
repurchase agreements are at least 100% collateralized as to principal and
interest. However, in the event of default or bankruptcy by the seller,
realization and/or retention of the collateral may be subject to legal
proceedings. The Fund's custodian holds the underlying securities subject
to repurchase agreements.
(2) MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
Pursuant to an Investment Management Agreement (the "Agreement") between
Reserve Management Company, Inc. ("RMCI") and the Fund, RMCI serves as the
Fund's Investment Adviser subject to the direction of the Board of
Trustees. Under the Agreement, RMCI is responsible for the supervision of
the Fund's day-to-day operations. RMCI manages the Fund's investments,
effects purchases and sales thereof, and absorbs certain promotional
expenses. For its services as Investment Adviser, RMCI receives a
comprehensive fee, calculated at an annual rate of .80% of the Fund's
average daily net assets. For the year ended May 31, 1999, RMCI
voluntarily waived a portion of its fee amounting to $221,601.
(3) DISTRIBUTION ASSISTANCE:
Pursuant to a Plan of Distribution under Rule 12b-1, the Fund may make
assistance payments, at a rate of .20% per annum of the average net asset
value, to firms (including RMCI) for distribution assistance and
administrative services provided to Fund shareholders. The Plan requires
RMCI to pay an equivalent amount from its own resources. For the year
ended May 31, 1999, the Fund accrued $108,414 in distribution fees, that
were voluntarily waived by RMCI.
(4) MANAGEMENT'S USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the dates of the financial statements and the reported amounts of income
and expenses during the reporting periods. Actual results could differ
from those estimates.
(5) COMPOSITION OF NET ASSETS:
At May 31, 1999, the Fund's net assets consisted of $52,625 in par value
and $52,572,848 in paid-in capital.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FINANCIAL HIGHLIGHTS:
Contained below is per share operating performance data for a share of
beneficial interest for each of the periods as indicated.
<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)
</TABLE>
---------------
(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>
<CAPTION>
NET
EXPENSES INVESTMENT
FISCAL YEAR RATIO INCOME
- ------------------- ------------------- -------------------
<S> <C> <C>
1999 .40% 4.84%
1998 .33% 5.29%
1997 .00% 5.44%
1996 .18% 5.12%
</TABLE>
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------
To the Shareholders and the Board of Trustees of Strategist Money-Market Fund:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and financial highlights
present fairly, in all material respects, the financial position of Strategist
Money-Market Fund (one of the four series constituting The Reserve Fund) (the
"Fund") at May 31, 1999, and the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 23, 1999
6
<PAGE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
The Special Meeting of Shareholders of The Reserve Fund (consisting of four
Funds: Primary Fund, U.S. Government Fund, U.S. Treasury Fund, and Strategist
Money-Market Fund); was held on January 15, 1999 at the offices of The Reserve
Funds, 810 Seventh Avenue, New York, NY. The meeting was adjourned until
February 17, 1999, at which time it was held. The meeting was held for the
following purposes:
<TABLE>
<CAPTION>
PROPOSAL WHO WILL VOTE
- --------------------------------------------------------------------------------------------------------- -------------
<S> <C>
PROPOSAL 1
To provide for the election of Trustees Trust Vote
PROPOSAL 2
To approve new Investment Management Agreements All Funds
PROPOSAL 3
To approve amendments to the Trusts' Declaration of Trust to permit the issuance of multiple classes of
shares Trust Vote
PROPOSAL 4
To approve the following proposed amendments:
A. To amend the Declaration of Trust to eliminate the policy on pricing securities; Trust Vote
B. To amend the Declaration of Trust to permit non-material amendments; Trust Vote
C. To amend the Declaration of Trust concerning the right to vote portfolio securities; Trust Vote
D. To amend the Declaration of Trust concerning termination or reorganization of the Trust; Trust Vote
E. To amend the Trusts' fundamental investment policy on the issuance of senior securities; All Funds
F. To amend the Trusts' fundamental investment policy regarding underwriting; All Funds
G. To change the designation of the Trusts' fundamental investment policy on investing for control of
portfolio companies; All Funds
H. To eliminate the Trusts' fundamental investment policies regarding certain portfolio transactions; All Funds
I. To eliminate the Trusts' fundamental investment policy on investing in the securities of other
investment companies; All Funds
J. To amend the Trusts' By-Laws concerning amendments thereto Trust Vote
PROPOSAL 5
To approve changes to the Trusts' Fundamental Investment Policies to Permit a Master Fund/Feeder Fund
Structure All Funds
PROPOSAL 6
To approve the authorization of the Board of Trustees to appoint, replace or terminate sub-advisers
recommended by the adviser or amend the terms of any sub-advisory agreement for the Funds without
shareholder approval All Funds
PROPOSAL 7
To ratify the selection of PricewaterhouseCoopers LLP as independent public accountants for the fiscal
year ending May 31, 1999; and Trust Vote
PROPOSAL 8
To transact such other business as may properly come before the Meeting Such Funds
as Necessary
</TABLE>
7
<PAGE>
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED) (CONTINUED)
A Quorum of the shares of the Trust and the Funds was present at the
Meeting.
The results of the proxy solicitation as to the Trust and the Strategist
Fund on the above matters were as follows:
<TABLE>
<CAPTION>
VOTES WITHHELD/
(1) Board of Trustees VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Bruce R. Bent 2,157,168,944 -- 273,121,130 --
Edwin Ehlert, Jr. 2,157,908,386 -- 272,381,688 --
Henri Emmet 2,156,748,779 -- 273,541,295 --
Donald Harrington 2,158,437,959 -- 271,852,115 --
Bruce R. Bent II 2.153,825,061 -- 276,465,013 --
William Viklund 2,159,301,036 -- 270,989,038 --
Vincent Mattone 2,158,780,203 -- 271,509,871 --
Diana Herrmann 2,159,085,758 -- 271,204,316 --
Richard Bassuk 2,159,173,949 -- 271,116,125 --
<CAPTION>
VOTES WITHHELD/
(2) Investment Management Agreement VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Strategist Money-Market 27,655,294 2,072,254 -- 2,981,328
<CAPTION>
VOTES WITHHELD/
(3) Multiple Classes VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
2,087,080,963 124,909,797 218,597,617
<CAPTION>
VOTES WITHHELD/
(4) VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
(A) Pricing Securities 2,075,483,285 122,649,986 -- 232,156,799
(B) Non-material amendments 2,089,106,337 112,300,977 -- 228,882,757
(C) Vote portfolio securities 2,088,403,109 113,567,557 -- 228,319,405
(D) Termination or Reorganization 2,082,163,331 117,347,013 -- 230,779,727
(E) Senior securities
Strategist Money-Market 27,159,476 2,225,226 -- 3,324,075
(F) Underwriting
Strategist Money-Market 26,974,098 2,495,484 -- 3,239,295
(G) Control of portfolio companies
Strategist Money-Market 27,605,246 2,056,642 -- 3,046,988
(H) Portfolio transactions
Strategist Money-Market 27,359,375 2,332,925 -- 3,016,576
(I) Investing in investment companies
Strategist Money-Market 26,832,531 1,997,544 -- 3,878,802
(J) By-Law amendments 2,079,207,738 119,805,924 -- 231,276,407
<CAPTION>
VOTES WITHHELD/
(5) Master Fund/Feeder Fund VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Strategist Money-Market 28,123,319 1,753,031 -- 2,832,526
<CAPTION>
VOTES WITHHELD/
(6) Trustee Authorization VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Strategist Money-Market 26,697,862 2,797,877 -- 3,213,137
<CAPTION>
VOTES WITHHELD/
(7) PricewaterhouseCoopers LLP VOTES FOR VOTES AGAINST BROKER NON-VOTES ABSTENTIONS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
2,175,082,027 51,660,848 -- 203,547,195
</TABLE>
8
