<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION NO. 811-7734
33-63300
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
---------------------- ---------
Post-Effective Amendment No. 8 X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 6
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(Check appropriate box or boxes.)
RESERVE PRIVATE EQUITY SERIES
(Exact Name of Registrant as Specified in Charter)
810 Seventh Avenue, New York, NY 10019
- - --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 977-9982
-----------------------------
Marc C. Cozzolino, Esq., 810 Seventh Avenue, 17th Floor, New York, NY 10019
- - --------------------------------------------------------------------------------
(Name and Address of Agent for service)
It is proposed that filing will become effective (check appropriate box)
_________ immediately upon filing pursuant to paragraph (b) of Rule 485
_________ on (date) pursuant to paragraph (b) of Rule 485
____X____ 60 days after filing pursuant to paragraph (a) of Rule 485
_________ on (date) pursuant to paragraph (a) of Rule 485
The Commission is requested to send copies of all communications to:
Paul F. Roye, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
The Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 electing to register an indefinite number of
shares of beneficial interest. Registrant intends to file the notice required
by Rule 24f-2 with respect to its fiscal year ending May 31, 1995 on or before
July 31, 1995.
Total Pages: 108
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2
<PAGE> 2
CROSS-REFERENCE SHEET PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
FORM PROSPECTUS AND STATEMENT
N-1A OF ADDITIONAL INFORMATION
ITEM FORM CAPTION CAPTION
- - ---- ----------------------------------- -----------------------------------------------------
<S> <C>
Part A
1 Cover Page Cover Page
2 Synopsis Fund Expenses
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant The Trust; Investment Objective and Policies;
Investment Techniques and Investments
5 Management of the Fund Management, Trustees and Officers of the Trust
6 Capital Stock and Other Securities Shares of Beneficial Interest; Taxes; Dividends and
Distributions
7 Purchase of Securities Being Offered How to Buy shares
8 Redemption or Repurchase Redemptions
9 Legal Proceedings (omitted)
Part B
10 Cover Page Statement of Additional Information
11 Table of Contents Table of Contents
12 General Information and History (omitted)
13 Investment Objective and Policies Investment Policies; Other Policies
14 Management of the Registrant Trustees and Officers of the Trust
15 Control Person and Principal Trustees and Officers of the Trust
Holders of Securities
16 Investment Advisory and Other Investment Management and Other Agreement
Services
17 Brokerage Allocation Portfolio Turnover, Transaction Charges and
Allocation
18 Capital Stock and Other Securities Shares of Beneficial Interest
19 Purchase, Redemption, and Pricing Purchase, Redemption and Pricing of Shares;
of Securities Being Offered Dividends and Taxes
20 Tax Status Distributions and Taxes
21 Underwriters Investment Management and Other Agreements
22 Calculation of Performance Date Performance Information
23 Financial Statements Financial Statements
</TABLE>
3
<PAGE> 3
THE GENERAL INFORMATION, PURCHASES AND REDEMPTIONS
RESERVE NATIONWIDE 800-637-1700
FUNDS
THE RESERVE PRIVATE EQUITY SERIES
<TABLE>
<S> <C>
--- Reserve Emerging Growth Fund --- Reserve Informed Investors Growth Fund
--- Reserve Mid-Cap Growth Fund --- Reserve North American Growth Fund
--- Reserve Blue Chip Growth Fund --- Reserve International Equity Fund
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . 8
Investment Techniques and Investments . . . . . . . . . . . . . . . . . 11
Risk Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . 19
How to Buy Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Shares of Beneficial Interest . . . . . . . . . . . . . . . . . . . . . 27
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Foreign Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 27
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . 28
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
General Information . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
Each fund or portfolio (each "Fund" is, or is a series of, an open-end
management company; The Reserve Private Equity Series ("Trust"). This
Prospectus dated _______________________, 1995 sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" dated _________________,
1995 for each Fund which provides further information regarding certain matters
discussed in this Prospectus and other matters which may be of interest to some
investors has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. This Statement of Additional Information may
be obtained upon request without charge by writing or calling the Fund at the
telephone number shown above.
Each Fund offers two classes of shares which may be purchased at the
investor's choice at a price equal to their net asset value (i) plus an initial
sales charge imposed at the time of purchase (the "Class A shares"), or (ii)
without any initial sales charge (the "Class D shares"). See "How to Buy
Shares."
SHARES OF THE FUND ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
4
<PAGE> 4
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in a Fund. The following tables summarize your maximum transaction
costs when investing in a Fund and the annual expenses for each class of shares
of each Fund.
<TABLE>
<CAPTION>
(R)
CLASS A SHARES CLASS D SHARES
-------------- --------------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) . . . . . . . . . . . . . . . . . . . 4.50% (1) None
Sales charges imposed on dividend reinvestment . . . . . . . . . . . . . None None
Deferred sales charge (as a percentage of
original purchase price or redemption proceeds,
whichever is lower) . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
Redemption fee* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
Exchange fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None None
</TABLE>
*The Fund charges a $10 fee for wire redemptions of less than $10,000.
(1) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge. See "How to Buy Shares."
FUND OPERATING EXPENSES
Listed below are the annual expenses paid by each class of shares for
each fund regardless of the amount of your investment.
<TABLE>
<CAPTION>
Total Total
Comprehensive Operating Comprehensive Operating
Management Fee 12b-1 Expenses Management Fee 12b-1 Expenses
Class A Class A Class A Class D Class D Class D
-------------- ------------- ----------- ------------- ---------- -----------
-
<S> <C> <C> <C> <C> <C> <C>
Emerging Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Mid-Cap Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Blue Chip Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Informed Investors Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
North American Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
International Equity 1.75% 0.25% 2.00% 1.75% 1.00% 2.75%
</TABLE>
The purpose of this table is to assist the investor in understanding the
costs and expenses that a shareholder in a Fund will bear directly or
indirectly. Because the 12b-1 fee is an annual charge, long-term shareholders
may pay more than the economic equivalent of the maximum front-end sales
charges permitted by the rules of the National Association of Securities
Dealers, Inc.
The following example illustrates the expenses that a shareholder would
pay on a $1,000 investment over various time periods assuming: (1) a 5% annual
rate of return and (2) redemption at the end of each time period.
5
<PAGE> 5
<TABLE>
<CAPTION>
Class A Class D
----------- ------------
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Growth . . . . . . . . . . . $62 $98 $136 $242 $25 $78 $133 $284
Mid-Cap Growth . . . . . . . . . . . $62 $98 $136 $242 $25 $78 $133 $284
Blue Chip Growth . . . . . . . . . . $62 $98 $136 $242 $25 $78 $133 $284
Informed Investors Growth . . . . . . $62 $98 $136 $242 $25 $78 $133 $284
North American Growth . . . . . . . . $62 $98 $136 $242 $25 $78 $133 $284
International Equity . . . . . . . . $64 $105 $148 $267 $28 $85 $145 $308
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
FINANCIAL HIGHLIGHTS
The following information applies to a share of the Reserve Emerging Growth
Fund, Reserve Blue Chip Growth Fund and the Reserve Informed Investors Growth
Fund outstanding throughout each period. It should be read in conjunction with
the financial statements and related notes appearing in the Statements of
Additional Information. Such information has been audited by Coopers & Lybrand
L.L.P. as indicated in their reports appearing in the Statements of Additional
Information.
RESERVE EMERGING GROWTH FUND (THE "FUND")
6. FINANCIAL HIGHLIGHTS (FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
NOVEMBER 14, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C>
Net asset value, beginning of period $10.00
-------
Income from investment operations
Net investment loss (.09)
Net realized and unrealized gain 2.30
-------
Total from investment operations 2.21
-------
Net asset value, end of period $12.21
=======
Total Return 22.10%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period $1,241
Ratio of expenses to average net assets 1.75%(1)
Ratio of net investment loss to average
net assets (1.62)%(1)
Portfolio turnover rate 43%
</TABLE>
- - ----------
(1) Annualized
(2) Total return is not annualized, and does not reflect impact
of sales load.
RESERVE BLUE CHIP GROWTH FUND (THE "FUND")
6. FINANCIAL HIGHLIGHTS (FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
OCTOBER 28, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C>
Net asset value, beginning of period $10.00
-------
Income from investment operations
Net investment loss (.03)
Net realized and unrealized gain 2.06
-------
Total from investment operations 2.03
-------
Net asset value, end of period $12.03
=======
Total Return 20.30%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period $1,993
Ratio of expenses to average net assets
before waivers (Notes 3 and 4) 1.75%(1)
Ratio of expenses to average net assets,
net of waiver 1.73%(1)
Ratio of net investment loss to average
net assets, before waivers (Notes 3 and 4) (.72)%(1)
Ratio of net investment loss to average
net assets, net of waiver (.70)%(1)
Portfolio turnover rate 68%
</TABLE>
- - ----------
(1) Annualized
(2) Total return is not annualized, and does not reflect impact of sales
load.
RESERVE INFORMED INVESTORS GROWTH FUND (THE "FUND")
6. FINANCIAL HIGHLIGHTS (FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
DECEMBER 28, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C>
Net asset value, beginning of period $10.00
-------
Income from investment operations
Net investment loss (.07)
Net realized and unrealized gain 2.06
-------
Total from investment operations 1.99
-------
Net asset value, end of period $11.99
=======
Total Return (2) 19.90%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period $6,837
Ratio of expenses to average net assets 1.75%(1)
Ratio of net investment loss to average
net assets (1.62)%(1)
Portfolio turnover rate 59%
</TABLE>
- - ----------
(1) Annualized.
(2) Total return is not annualized, and does not reflect impact of
sales load.
RESERVE EMERGING GROWTH FUND
To the Shareholders of the Reserve Emerging Growth Fund:
At the beginning of 1995, the capital markets reflected generally negative
expectations including continued economic growth at unacceptably high
rates, significant increases in inflation and rising interest rates until the
economy slipped into recession. Interest rates were then about 8.0% and the
S&P 500 had made no progress in over a year. Six months later it is obvious
that the gap between perception and reality was large. Economic activity
slowed without any serious dislocations to the economy, increasing inflation
was nonexistent and corporate profitability exceeded even the most optimistic
forecasts. Interest rates declined to 6.7% and the S&P 500 produced a return of
over twenty percent. Now we are in a timeframe when investors have a much more
positive outlook leaving less room for the significant upside surprises
experienced in the first half. What we see ahead is a solid environment for
stocks and bonds with the direction of interest rates continuing down. The
stocks most likely to outperform will be those companies with superior growth
rates. As the economy moves into a slower growth pattern and corporate profits
slow from the torrid pace of the first half, the relative valuation of
companies with above average secular growth rates driven by new products and
services will increase. The technology area has been an important focus of
Roanoke's and this sector was a strong contributor to this year's performance.
Given the strong underlying fundamentals of this group, we remain committed to
the area even though the short term price volatility of the group has
increased. We continue to maintain a well diversified portfolio with
commitments in a number of diverse sectors including consumer, capital goods,
health care and telecommunications.
Edwin G. Vroom, President
Roanoke Asset Management
Sub-Adviser
RESERVE EMERGING GROWTH FUND
Performance since inception 11/14/94
Fund 16.6%
S&P 500 14.8%
[FIGURE 1]
The performance of Reserve Emerging Growth Fund reflects the maximum 4.5% sales
load.
Past performance is not indicative of future performance.
RESERVE BLUE CHIP GROWTH FUND
To the Shareholders of the Reserve Blue Chip Growth Fund:
Since inception of the Reserve Blue Chip Growth Fund on October 28, 1994, the
market has been surprisingly strong, benefiting from declining interest rates
and excellent corporate earnings. Give our outlook for only modest economic
growth and the high valuation at which the market is currently trading, we
believe stock selection will be the key to above average performance. We are
focusing on companies in areas that have steady and predictable growth
potential such as the technology, financial and drug sectors. Also, companies
with major operations abroad and opportunities for market penetration should do
well, as should companies generating substantial free cash flow that are in a
position to increase dividends and buy back their shares.
Charles V. Moore, President
Trainer Wortham & Company
Sub-Advisor
RESERVE BLUE CHIP GROWTH FUND
Performance since inception 10/28/94
Fund 14.9%
S&P 500 14.7%
[FIGURE 2]
The performance of Reserve Blue Chip Growth Fund reflects the maximum 4.5%
sales load.
Past performance is not indicative of future performance.
RESERVE INFORMED INVESTORS GROWTH FUND
To the Shareholders of the Reserve Informed Investors Growth Fund:
The single factor most materially affecting the fund's performance in the most
recently completed fiscal year was its relatively heavy concentration is the
category broadly-defined as "technology" stocks, this introduced
greater-than-average price volatility to the fund's portfolio valuation but
the fund's holdings of this group should decrease significantly over time.
However, the Fund will continue to emphasize stocks of companies with strong,
accelerating and sustained earnings growth trends.
We also intend to remain as fully invested in common stocks as is possible;
market timing is not part of our philosophy which will mean that the Fund will
experience greater-than-average price volatility from time to time. There is no
intention to change these investment techniques.
Thomas H. Fitzgerald, Jr., President
T.H. Fitzgerald & Company
Sub-Adviser
RESERVE INFORMED INVESTORS GROWTH FUND
Performance since inception 12/28/94
Fund 14.5%
S&P 500 17.2%
[FIGURE 3]
The performance of Reserve Informed Investors Growth Fund reflects the maximum
4.5% sales load.
Past performance is not indicative of future performance.
<PAGE> 6
GLOSSARY
The following terms are frequently used in this Prospectus.
EQUITY SECURITIES are, (i) common stocks, partnership interests, business
trust shares and other equity or ownership interests in business enterprises,
and (ii) securities convertible into, and rights and warrants to subscribe for
the purchase of, such stocks, shares and interests.
DEBT SECURITIES are bonds, debentures, notes, bills, repurchase agreements,
loans, other direct debt instruments and other fixed, floating and variable
rate debt obligations.
FIXED-INCOME SECURITIES are debt securities and dividend-paying preferred
stocks and include floating rate and variable rate instruments.
CONVERTIBLE SECURITIES are fixed-income securities that are convertible into
common stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the United
States Government, its agencies or other federal governmental entities.
FOREIGN GOVERNMENT SECURITIES are securities issued or guaranteed, as to
payment of principal and interest, by governments, quasi-governmental
entities, governmental agencies or other federal governmental entities, other
than the U.S. Government.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which may or may not be members of the Federal Deposit Insurance
Corporation.
RULE 144A SECURITIES are securities that may be resold without registration
pursuant to Rule 144A under the Securities Act of 1933, as amended (the
"SECURITIES ACT").
DEPOSITARY RECEIPTS include American Depositary Receipts ("ADRS"), Global
Depositary Receipts ("GDRS") and other types of depositary receipts.
COMMISSION is the Securities and Exchange Commission.
1940 ACT is the Investment Company Act of 1940, as amended.
CODE is the Internal Revenue Code of 1986, as amended.
7
<PAGE> 7
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives are not fundamental and may be changed without the
approval of shareholders.
RESERVE EMERGING GROWTH FUND. The Emerging Growth Fund's investment objective
is to seek capital appreciation through investment in a portfolio of small
sized U.S. companies. Any production of income is secondary to this objective.
There can be no assurance that the Fund will achieve its investment objective.
The Fund seeks to achieve its objective by primarily investing in
equity securities believed to offer favorable possibilities of capital
appreciation. Generally, the Fund will seek to invest in equity securities
issued by companies with investment characteristics such as accelerating rates
of revenue and earnings growth, market dominance or a strong defensible market
niche, unit growth coupled with stable or rising profit margins, a sound
balance sheet and skilled management with an ownership stake. The Fund is
designed for investors seeking the opportunity for substantial long-term growth
who can accept higher stock market risk than is involved in other securities
and little or no current income. The Fund emphasizes investment in
smaller-sized companies whose outstanding shares have an aggregate market
value of $1 billion or less. At least 65% and up to 100% of the value of the
Fund's assets will be invested in such small sized companies, unless the Fund
has adopted a temporary defensive position. It is expected that under normal
market conditions the Fund will be fully invested in equity securities
emphasizing capital appreciation which may result in greater-than- average
share price fluctuations.
It is the Sub-Adviser's view that small sized companies are generally expected
to show growth over time that is above the growth rate of the overall economy
and that of large established companies. The Fund may also invest in companies
presenting special situations when it is believed that the shares offer a
strong potential for capital appreciation due to the market underestimating
earnings potential, changes in management or other similar opportunities.
Investing in small and medium sized companies involves greater risk than is
customarily associated with investments in larger, more established companies
due to the greater business risks of small size, limited markets and financial
resources. The securities of small companies are often traded over-the-counter
and may not be traded in volume typical on a national securities exchange.
Consequently, the securities of smaller growth companies may have limited
market stability and may be subject to more abrupt or erratic market movements
than securities of larger, more established companies or the market averages in
general. Therefore, shares of the Fund are subject to greater fluctuation in
value than shares of a conservative equity fund or of a growth fund which
invests in larger capitalization companies.
RESERVE MID-CAP GROWTH FUND. The Mid-Cap Growth Fund's investment objective is
to seek capital appreciation through investment in a portfolio of small and
medium sized U.S. companies. Any production of income is secondary to this
objective. There can be no assurance that the Fund will achieve its investment
objective.
The Fund seeks to achieve its objective by investing in equity
securities that management feels offer potential for significant capital
appreciation. The Fund will generally invest in equity securities of companies
that display earnings growing at a rate faster than the market averages; have
consistently outperformed analyst expectations for revenue and earnings growth;
have clean balance sheets and strong financial statements; have outstanding
management with a vested interest in share performance; that have a strong
market niche in a rapidly expanding or new industry; and that are just
beginning to receive brokerage firm sponsorship and analyst coverage. The Fund
is designed for investors seeking the opportunity for substantial long-term
growth who can accept above average stock market risk and little or no current
income. The Fund emphasizes investment in small and medium sized companies
whose outstanding shares have an aggregate market value of $4 billion or less.
The Fund will invest at least of 65% of its total assets in the securities of
mid-capitalization/medium sized companies. It is expected that under normal
market conditions the Fund will be substantially fully invested in equity
securities emphasizing capital appreciation which may result in
greater-than-average share price fluctuations. The Fund's policy of investing
in equity securities believed to have a potential for capital growth means that
the Fund generally may be subject to greater market risk than is involved in
other securities.
Investing in small and medium sized companies involves greater risk than is
customarily associated with investments in larger, more established
companies due to the greater business risks related to their smaller
size, limited markets, and lack of information available. The securities
of many of the smaller companies are often traded over-the-counter
and may not
8
<PAGE> 8
be traded as easily as larger stocks. Therefore, shares of the Fund are
subject to greater fluctuation in value than shares of a conservative equity
fund or of a growth fund which invests in larger capitalization companies.
RESERVE BLUE CHIP GROWTH FUND. The Blue Chip Growth Fund's investment
objective is to seek capital appreciation through investment in a portfolio of
U.S. and non-U.S. securities. Any production of income is secondary to this
objective. There can be no assurance that the Fund will achieve its investment
objective.
The Fund seeks to achieve its objective by primarily investing in common stocks
and convertible securities believed to offer favorable possibilities of capital
appreciation, but some of which may offer little or no current income. A
convertible security is a fixed-income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of common stock of the same or a different issue.
Convertible securities are senior to common stocks in a corporation's capital
structure, but are usually subordinated to similar nonconvertible securities.
While providing a fixed income stream (generally higher in yield than the
income derivable from a common stock but lower than that afforded by a similar
nonconvertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible
security's underlying common stock. The Fund may also purchase warrants.
Generally, the Fund will seek to invest in equity securities issued by
companies with investment characteristics such as earnings growth, financial
strength and projected cash flow as significant factors in assessing value.
The Fund will invest at least 65% of its total assets in securities of "blue
chip" companies that have demonstrated long-term earnings growth, financial
stability and attractive valuation. The Fund may also invest in foreign
securities. The Fund will ordinarily purchase foreign securities which are
traded in the United States or purchase American Depositary Receipts ("ADRs")
which are certificates issued by a United States bank or trust company
representing the right to receive securities of a foreign issuer deposited
with that bank or a correspondent bank. However, the Fund may purchase the
securities of foreign issuers directly in the foreign market.
To the extent the Fund is invested in non-U.S. securities, it may be subject to
greater risks from foreign investments and higher brokerage fees than other
mutual funds. See "Investment in Foreign Securities" in "Investment Techniques
and Investments" below.
RESERVE INFORMED INVESTORS GROWTH FUND. The Informed Investors Growth Fund's
investment objective is to seek capital appreciation through investment in a
portfolio of U.S. securities. Any production of income is secondary to this
objective. There can be no assurance that the Fund will achieve its investment
objective.
The Fund will invest in "Informed Investors" stocks, i.e., seasoned,
well-managed, financially sound companies with demonstrated superior earnings
growth, accelerating cash flow and profit margins and high or sharply rising
return-on-equity. Priority companies are those where management and/or large
outside investors are buyers or owners of the stock, or where the company
itself is repurchasing its own shares on the open market. These are the
"Informed Investors".
Common sense suggests that the "Informed Investors" of the corporate world are
far closer to the day-to-day activities of the companies they own or
manage--and often in a much more informed position to gauge the long-term
effect certain publicly disclosed information or developments may have on the
future price of their company's stock. Basic to the "Informed Investors"
strategy is the belief that it is far more prudent to invest in intrinsically
under-valued stocks which some of the nation's more knowledgeable investors own
or are buying with their own money, rather than to chase fad or glamour stocks
masquerading as disciplines.
The Fund seeks to achieve its objective by primarily investing in common stocks
believed to offer favorable possibilities of capital appreciation, but some of
which may offer little or no current income. Generally, the Fund will seek to
invest in equity securities issued by companies with investment characteristics
such as strong earnings, profit-margin growth and projected cash flow as
significant factors in assessing value. The Fund emphasizes investment in
small and medium-sized companies whose outstanding shares have an aggregate
market value of $200 million to $4 billion. At least 65% and up to 100% of the
value of the Fund's assets will be invested in such small and medium sized
companies, unless the Fund has adopted a temporary defensive position. The Fund
has no limit on investing in either category. It is expected that under normal
market conditions the Fund will be substantially fully invested which may
result in greater-than-average share price fluctuations. The Fund's policy of
investing in equity securities believed to have a potential for capital growth
means that the Fund generally may be subject to greater risk than is involved
in other securities.
9
<PAGE> 9
RESERVE NORTH AMERICAN GROWTH FUND. The North American Growth Fund's
investment objective is to seek capital appreciation through investment in a
portfolio of medium sized U.S. companies. It is the Sub-Adviser's view that
reputable North American companies in the United States, Canada, and Mexico are
generally expected to show growth over time that is above the growth rate of
the overall economy and that of large established companies. This North
American requirement is a cornerstone of the Fund's investment objective which
offers more variation to the shareholder without venturing into underdeveloped
or eccentric markets. The Fund will invest at least 65% of its total assets in
securities of issues of North American countries. The Fund does not choose
investments for dividend or interest income, nor does it try to "time" the
market. The Fund will not employ any hedging strategies, and in all but the
more dire of political or economic circumstances intends to stay fully
invested. Any production of income is secondary to this objective. There
can be no assurance that the Fund will achieve its investment objective.
A varied portfolio of stocks will generally be selected based on the following
criteria for individual stock selection: accelerating year-over-year quarterly
and annual per share earnings; rising quarterly year-over-year and annual
profit margins; a price-earnings multiple which is below that of the company's
projected growth rate; a company which occupies a significant position in its
industry; a balance sheet that is above average in quality for the company
relative to its recent past or for the industry in which it operates; a
definitive source of the earnings acceleration; and stocks which have a
relative strength which is above normal for all stocks.
The Fund may also invest in companies presenting special situations when it is
believed the shares offer a strong potential for capital appreciation due to
the market underestimating the earnings potential, changes in management or
other similar opportunities.
A result of the Fund's stock selection criteria is that the fund will, in all
likelihood, have a market capitalization for its portfolio companies of
about $1.0 billion. Such a market capitalization would be considered to
be "mid-cap" or composed of medium sized companies. The Fund will not invest
in any company with a market capitalization of less than $150 million. The
"mid-cap" nature of the portfolio may result in some increased volatility over
that of the general market average. The majority of the Fund's investments, at
least 50%, will be based in the United States, under normal circumstances, i.e.,
those when a temporary definitive positive is not taken.
The Fund's Adviser and Sub-Adviser believe that the Fund's objective provides
investors with an opportunity to take advantage of investment opportunities in
the United States as well as in other North American countries, where
opportunities may be more rewarding. They also believe that the ability to
invest assets on a regional basis decreases the degree to which events in any
one country can affect the Fund's entire investment portfolio. The percentage
of the Fund's total assets invested in U.S. securities and non-U.S. securities
denominated in foreign currencies will vary depending on the potential for
capital appreciation, the relative yield for such securities, the state of the
economies of the countries in which investments are made and such countries'
financial markets and the relationship of such countries' currencies to the
U.S. dollar.
To the extent the Fund is invested in non-U.S. securities, it may be subject to
greater risks from foreign investments and higher brokerage fees than other
mutual funds. See "Investment in Foreign Securities."
RESERVE INTERNATIONAL EQUITY FUND. The International Equity Fund's investment
objective is to seek capital appreciation through investment in a portfolio of
international equity securities. Any production of income is secondary to this
objective. There can be no assurance that the Fund will achieve its investment
objective.
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The Fund seeks to achieve its objective by following a structured and
disciplined investment policy of buying and holding common stocks. On
occasion, warrants, convertible securities and American Depository Receipts and
fixed income instruments will also be used. Generally, the Fund will seek to
invest in foreign equity securities listed on foreign exchanges and issued by
companies with accelerating earnings growth, strong balance sheet and
projected positive cash flow.
Because of unusual economic, political or market conditions, the Fund may
reduce or eliminate positions in a country and switch the assets to other
countries in the portfolio.
The Fund focuses on quality companies with high visibility and projected high
rates of growth in sales and earnings. Every stock in the Fund has been
carefully selected through research and often direct management contact.
The Sub-Adviser favors companies where management has a significant ownership
stake. The companies which are usually avoided are those that depend heavily
on commodity price levels for their future earnings growth. Portfolios are
structured by combining a top-down quantitative country weighting process, which
looks at macroeconomic factors internationally, with a bottom-up individual
company selection procedure, which focuses on microeconomic factors in a
particular country. The Fund attempts to control the risks inherent in foreign
equity portfolios by investing in 80 to 110 companies, and diversifying among
15 to 23 foreign markets. Initial positions in any single issue are
usually between 1% to 2% of Fund assets. Since investments are in companies
that have strong earnings growth, the policy is to keep as fully invested as
prudently possible. Portfolio investments into cash equivalents usually do
not exceed 10%. Stocks are selected for their long-term investment
attractiveness. A three to five-year time horizon is usually a minimum
holding period; therefore, portfolio turnover is low. In all circumstances,
the Fund will invest at least 65% of its total assets in security of issuers
associated with at least three different countries, excluding the United
States. In addition, at least 65% of the Fund's total assets will be in
equity securities. However, the Fund will restrict investment in the
combination of warrants, and stock options to 5% of total assets out of the 65%
of total assets devoted to equity securities. Short-term profits are not pursued
as an objective, and there is no trading type activity in stocks.
SUMMARY OF INVESTMENT PHILOSOPHY. The primary goal is to obtain consistent
portfolio performance by investing in quality companies with superior growth
records in sales and earnings. The Sub-Adviser's experience has shown that the
best way to make money in common stocks is to buy great growth companies at
attractive prices and to maintain investment positions for as long as the
growth momentum continues. Stocks are held provided their valuations do not
reach extremes after an advance. Portfolios of foreign investments are
affected by different economic trends. By participating in a large variety of
investment opportunities, the probability of investment success increases.
International diversification reduces the effect that events in any country
will have on the portfolios. A decline in the value of investments in one
country is frequently offset by the gains from investments in another country.
STOCK SELECTION. After the top-down country allocation is in place, bottom-up
stock selection becomes the dominant activity. In emerging economies with less
developed capital markets, a strong balance sheet is essential. The process is
based on individual stock selection, not industry weighing. Stocks are not
selected for industry balancing purposes. Companies are frequently dominant
within their industry niche. Highly cyclical stocks and recovery situations
are usually avoided as are companies that are primarily market-share oriented,
regardless of profitability.
SELLING DISCIPLINES. A stock also is sold when the fundamental analysis
factors of a company have changed to such an extent that the company no longer
qualifies as a selection for the portfolio. A stock is sold when industry
conditions or governmental regulations have changed so that the future
environment for the company is no longer favorable. On rarer occasions, a
stock is sold if a significantly more attractive investment selection develops
in that country.
INVESTMENT TECHNIQUES AND INVESTMENTS
The investment techniques and investments described in this section are subject
to the specific requirements or minimum investment policies found in the
Investment Objecties and Policies section.
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CASH EQUIVALENTS. Each Fund may invest in cash equivalents, which are
short-term obligations issued or guaranteed as to interest and principal by the
U.S. Government or any instrumentality thereof (including repurchase agreements
collateralized by such securities); and obligations of domestic and foreign
banks, which are deposits in the instructions. Instruments which are not
rated may be purchased by a Fund provided such instruments are determined to
be of superior quality by the Board of Trustees of the Trust.
REPURCHASE AGREEMENTS. Each Fund may engage in repurchase agreement
transactions. A repurchase agreement is a transaction by which the Fund
purchases a security and simultaneously commits to resell that security to the
seller (a bank or securities dealer) at an agreed upon price at a later date.
Each Fund will limit repurchase agreements to those securities dealers who are
deemed credit worthy pursuant to guidelines adopted by the Board of Trustees.
The Sub-Advisers will follow procedures to assure that all repurchase
agreements are always fully collateralized as to principal and interest. If
the other party to the repurchase agreement defaults on its obligation to
repurchase the underlying securities, a Fund may incur a loss upon disposition
of them if the value of those securities has declined. In the event of
insolvency or bankruptcy of the other party to a repurchase agreement, a Fund
may encounter difficulties and might incur costs upon exercise of its rights
under the repurchase agreement.
LENDING OF PORTFOLIO SECURITIES. Each 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, bank letters of credit or
securities issued by the U.S. Government or its agencies or instrumentalities
(or any combination thereof), which collateral will be required to be
maintained at all times in an amount equal to at least 100% of the current
value of the loaned securities plus accrued interest. The value of the
securities loaned cannot exceed 25% of each Fund's total assets. Loan
arrangements made by a Fund will require the borrower, after notice, to
redeliver the securities within the normal settlement time of three business
days. In connection with a loan of securities, a Fund may pay reasonable
finders, custodian and administrative fees. Loans of securities involve risks
of delay in receiving additional collateral or in recovering the securities
lent or even loss of rights in the collateral in the event of insolvency of the
borrower of the securities. The Statement of Additional Information further
explains each Fund's securities lending policies.
U.S. TREASURY SECURITIES. Each Fund may invest in U.S. Treasury securities,
including Bills, Notes, Bonds and other debt securities issued by the U.S.
Treasury. These instruments are direct obligations of the U.S. Government and,
as such, are backed by the full faith and credit of the United States.
SECURITIES OF U.S. GOVERNMENT AGENCIES AND INSTRUMENTALITIES. Each Fund may
invest in both adjustable rate and fixed rate securities issued or guaranteed
by agencies or instrumentalities of the U.S. Government, including, but not
limited to, Government National Mortgage Association (GNMA), Federal National
Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)
securities. Obligations of GNMA, the Farmers Home Administration and the
Export-Import Bank are backed by the full faith and credit of the United
States. In the case of securities not backed by the full faith and credit of
the United States, the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment. Such securities include
obligations issued by the Student Loan Marketing Association (SLMA), FNMA and
FHLMC, each of which may borrow from the U.S. Treasury to meet its obligations
although the U.S. Treasury is under no obligation to lend to such entities.
GNMA, FNMA and FHLMC may also issue collateralized mortgage obligations.
Each Fund may invest in component parts of U.S. Government securities,
namely either the corpus (principal) of such obligations (principal only or
"PO" class) or one of the interest payments scheduled to be paid on such
obligations (interest only or "IO" class). These obligations may take the form
of (i) obligations from which the interest coupons have been stripped; (ii) the
interest coupons that are stripped: (iii) book-entries at a Federal Reserve
member bank representing ownership of obligation components; or (iv) receipts
evidencing the component parts (corpus or coupons) of U.S. Government
obligations that have not actually been stripped. Such receipts evidence
ownership of component parts of U.S. Government obligations (corpus or coupons)
purchased by a third party (typically an investment banking firm)and held on
behalf of the third party in physical or book-entry form by a major commercial
bank or trust company pursuant to a custody agreement with the third party. A
"stripped security" issued by an investment banking firm or other private
organization is not considered to be a U.S. Government security.
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CONVERTIBLE SECURITIES. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which provide
a stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying stock, although
the higher yield tends to decline as interest rates increase and increase as
interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. The Funds will invest in such securities that are
investment grade, rated A or higher. If a downgrade in a rating occurs, the
Fund will sell the securities.
WARRANTS. A Fund will invest in warrants only if the underlying equity
securities themselves are deemed appropriate by Reserve for inclusion in the
Fund's portfolio. Warrants may be considered more speculative than certain
other types of investments in that they do not entitle a holder of dividends to
voting rights with respect to the underlying securities nor do they represent
any warrant does not necessarily change with the value of underlying security,
although the value of a warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in perception as to
the potential of the underlying security, or any security, or any combination
thereof. If the market price of the underlying security is below the exercise
price set forth in the warrant on the expiration date, the warrant will expire
worthless. Moreover, a warrant ceases to have value if it is not exercised
prior to the expiration date.
DEPOSITARY RECEIPTS AND SECURITIES OF SUPRANATIONAL ENTITIES. Depositary
receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored depositary receipts are not obligated to
disclose material information in the United States and, therefore, there may
not be a correlation between such information and the market value of the
depositary receipts. ADRs are depositary receipts typically issued by a U.S.
bank or trust company that evidence ownership of underlying securities issued
by a foreign corporation. GDRs and other types of depositary receipts are
typically issued by foreign banks or trust companies and evidence ownership of
underlying securities issued by either a foreign or a U.S. company. Generally,
depositary receipts in registered form are designed for use in the U.S.
securities markets, and depositary receipts in bearer form are designed for use
in foreign securities markets. The investments of the INTERNATIONAL EQUITY
FUND in ADRs are deemed to be investments in securities issued by U.S. issuers
and those in GDRs and other types of depositary receipts are deemed to be
investments in the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the
World Bank (International Bank of Reconstruction and Development) and the
European Investment Bank. A European Currency Unit is a basket of specified
amounts of the currencies of the member states of the European Economic
Community. "Semi-governmental securities" are securities issued by entities
owned by either a national, state or equivalent government or are obligations
of one of such government jurisdictions which are not backed by its full faith
and credit and general taxing powers.
ILLIQUID SECURITIES. Subject to any more restrictive applicable
fundamental investment policy, none of the Funds will hold more than 15% of its
net assets in illiquid securities. Illiquid securities generally include (i)
direct placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many individually negotiated currency swaps and any assets
used to cover currency swaps and most privately negotiated investments in state
enterprises that have not yet conducted an initial equity offerings, (ii)
over-the-counter options and assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven days. Because of the
absence of a trading market for illiquid securities, the Funds may not be able
to realize their full value upon sale. With respect to each Fund that may
invest in such securities, Reserve will monitor their illiquidity under the
supervision of the Directors of the fund. To the extent permitted by
applicable law, Rule 144A securities will not be treated as "illiquid" for
purposes of the foregoing restriction so long as such securities meet liquidity
guidelines established by the Fund's Directors. Investment in non-publicly
traded securities by each Fund is restricted to 5% of its total assets (not
including for these purposes Rule 144A securities, to the extent permitted by
applicable law) and is also subject to the 15% restriction on investment in
illiquid securities described above.
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A Fund that invests in securities for which there is no ready market may
therefore not be able to readily sell such securities. To the extent that
these securities are foreign securities, there is no law in many of the
countries in which a Fund may invest similar to the Securities Act requiring an
issuer to register the sale of securities with a governmental agency or
imposing legal restrictions on resales of securities, either as to length of
time the securities may be held or manner of resale. However, there may be
contractual restrictions on resale of securities.
PUT AND CALL OPTIONS ON SPECIFIC SECURITIES. The EMERGING GROWTH FUND,
INFORMED INVESTORS GROWTH FUND and MID-CAP GROWTH FUND may invest up to 5% of
the value of its total assets, represented by the premium paid, in the
purchase of put and call options on specific securities. Such options may be
traded on national securities exchanges or over-the-counter. The Fund may
write and sell covered put option contracts to the extent of 25% of the value
of its total assets at the time such option contracts are written.
There is no limitation on the amount of call options the Funds may write. A
call option gives the purchaser of the option, in exchange for the premium
paid, the right to buy the security subject to the option at the exercise price
at any time prior to expiration of the option. The writer of a call option, in
return for the premium, has the obligation, upon the exercise of the option, to
deliver, depending upon the terms of the options contract, the underlying
securities or a specified amount of cash to the purchaser upon receipt of the
exercise price. A put option gives the purchaser, in return for a premium, the
right to sell the security subject to the option at the exercise price at any
time prior to the expiration of the option. The writer of a put option, in
return for the premium, has the obligation, upon exercise of the option, to
acquire the security underlying the option at the exercise price. If a call
written by the Funds are exercised, the Funds forgo any possible profit from an
increase in the market price of the underlying security or other asset over the
exercise price plus the premium paid. In writing puts, there is a risk that
the Funds may be required to take delivery of the underlying security or other
asset at a disadvantageous price. Also, an option purchased by the Funds may
expire worthless, in which case the Fund would lose the premium paid therefor.
Over-the-counter options ("OTC options") differ from exchange traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer as a
result of insolvency of the dealer or otherwise, in which event the Fund may
experience material losses. However, in writing options the premium is paid in
advance by the dealer. OTC options are available for a greater variety of
securities and other assets, and a wider range of expiration dates and exercise
prices, than for exchange traded options.
The EMERGING GROWTH FUND and MID-CAP GROWTH FUND will only write covered
options. An option is covered if, so long as the Funds are obligated under the
option, it owns an offsetting position in the underlying security or maintains
cash, U.S. Government securities or other liquid high-grade debt obligations
with a market value sufficient to cover its obligations in a segregated account
with its Custodian bank.
The successful use of options by the Funds is subject to the Sub-Adviser's
ability to correctly predict movements in the market. If the Sub-Adviser is
not successful in employing options in managing the Funds' investments, the
Funds' performance will be worse than if the Funds did not make such
investments. In addition, the Funds would pay commissions and other costs in
connection with such investments, which may increase the Fund's expenses and
reduce its return.
STOCK INDEX OPTIONS. The EMERGING GROWTH FUND AND MID-CAP GROWTH FUND may both
purchase and write put and call options on stock indexes listed on national
securities exchanges or traded in the over-the-counter market as an investment
vehicle for the purpose of realizing its investment objective or for the
purpose of hedging its portfolio. These Funds may invest up to 5% of the value
of its total assets, represented by the pricing paid, in the purchase of put
and call options on stock indexes. A stock index fluctuates with changes in the
market values of the stocks included in the index.
The effectiveness of purchasing or writing stock index options will depend upon
the extent to which price movements in the Funds' underlying investment
securities correlate with the price movements of the stock index selected.
Because the value of an index option depends upon movements in the level of the
index rather than the price of an individual stock, whether the Funds will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices generally or, in the case
of certain indexes, in an industry or market segment, rather than movements in
the price of an individual stock. As a result, successful use by the Fund of
options on stock indexes will be subject to the Sub-Adviser's ability to
correctly predict movements in the direction of the stock market generally or
of a particular industry. This requires different skills and techniques than
those used in predicting changes in the price of individual stocks. The
Sub-Advisers currently have no experience in the area of stock index options.
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When the Funds write an option on a stock index, the Funds will place in a
segregated account with its custodian cash or liquid securities in an amount at
least equal to the market value of the underlying stock index and will maintain
the account while the option is open or will otherwise cover the transaction.
Generally, such liquid securities are limited to U.S. Government securities or
other high grade debt securities. Index options also involve risks similar to
those risks relating to put and call options described previously.
INVESTMENT IN FOREIGN SECURITIES. The BLUE CHIP GROWTH FUND, NORTH AMERICAN
GROWTH FUND AND INTERNATIONAL EQUITY FUND may purchase foreign equity and debt
securities, including foreign government securities. In making such
investments, the Funds will consider the risks of such investment. Foreign
securities markets generally are not as developed or efficient as those in the
United States and are more volatile. Securities of some foreign issuers are
less liquid and more volatile than securities of comparable United States
issuers. Similarly, volume and liquidity in most foreign securities markets
are less than in the United States and, at times, volatility of price can be
greater than in the United States. In addition, there may be less publicly
available information about a foreign issuer, and foreign issuers are generally
not subject to uniform accounting and financial reporting standards.
The Funds may be subject to additional risks because stock certificates and
other evidences of ownership of foreign issuers will be held outside the United
States. Such additional risks include: possible adverse political and economic
developments, possible nationalization of foreign issuers and possible adoption
of government restrictions which might adversely affect the payment of
principal and interest on foreign securities. Reporting, accounting and
auditing standards for non-United States issuers differ from American standards
in important respects. Corporations in such countries generally do not provide
all of the disclosure required by U.S. law and accounting practice and such
disclosure may be less timely than required by such laws and practices.
In making the allocation of assets in foreign markets, the Sub-Advisers will
consider such factors as prospects for relative economic growth between foreign
countries, expected levels of inflation and interest rates, government policies
influencing business conditions, the range of individual investment
opportunities available, and other pertinent financial, tax, social, political
and national factors, all in relation to the prevailing prices of securities in
each country. Nearly all foreign securities in which the Fund may invest will
be issued by foreign governments or traded on foreign stock exchanges.
The Funds may invest in developing countries, which investments involve exposure
to economic structures that are typically less diverse and mature than in the
United States, and to political systems which are less stable. A developing
country may be considered to be a country which is in the initial stages of its
industrial development.
FOREIGN CURRENCY TRANSACTIONS. The INTERNATIONAL EQUITY FUND may engage in
foreign currency transactions in connection with its investment in foreign
securities but will not speculate in foreign currency exchange. The value of
the assets of the Fund as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and the Fund may incur costs in connection with conversions
between various currencies. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded directly between currency traders
(usually large commercial banks) and their customers.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to fix the U.S. dollar cost (or
proceeds), at that time. By entering into a forward contract in U.S. dollars
for the purchase or sale of the amount of foreign currency involved in an
underlying security transaction, the Fund is able to protect itself from
possible loss between trade and settlement dates resulting from an adverse
change in the relationship between the U.S. dollar and such foreign currency.
However, this tends to limit potential gains that might result from a
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positive change in such currency relationships. The Fund may also hedge its
foreign currency exchange rate risk by engaging in foreign currency financial
futures and options transactions.
When the Fund's Sub-Adviser believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in such foreign
currency. In this situation the Fund may, in the alternative, enter into a
forward contract to sell a different foreign currency for a fixed U.S. dollar
amount where the Fund's Sub-Adviser believes that the U.S. dollar value of the
currency to be sold pursuant to the forward contract will fall whenever there
is a decline in the U.S. dollar value of the currency in which portfolio
securities of the Fund are denominated ("cross-hedge"). The forecasting of
short-term currency market movements is extremely difficult and whether such a
short-term hedging strategy will be successful is highly uncertain.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a contract. Accordingly, it may be
necessary for the Fund to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver when a
decision is made to sell the security and make delivery of the foreign currency
in settlement of a forward contract. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
The Fund will not enter into forward contracts or maintain a net exposure in
such contracts where the Fund would be obligated to deliver an amount of
foreign currency in excess of the value of the Fund's securities or other
assets (a) denominated in that currency or (b) in the case of a "cross-hedge,"
denominated in a currency or currencies that the Fund's Sub-Adviser believes
will have price movements that tend to be correlated closely with that currency.
The Fund's Custodian bank segregates cash or liquid high-grade debt securities
in an amount not less than the value of each Funds's total assets committed to
forward foreign currency exchange contracts entered into for the purchase of a
foreign currency. If the value of the securities segregated declines,
additional cash or securities are added so that the segregated amount is not
less than the amount of the Fund's commitments with respect to such contracts.
There is no limitation as to the percentage of the Fund's assets that may be
committed to such foreign currency exchange contracts. The Fund generally will
not enter into a forward contract with a term longer than one year.
DEFENSIVE POSITION. For temporary defensive purposes, each Fund may invest
in certain types of short-term, liquid, high-grade or high quality (depending
on the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, and other
types of short-term debt securities including notes and bonds. For Funds that
may invest in foreign countries, such securities may also include short-term,
foreign-currency denominated securities of the type mentioned above issued by
foreign governmental entities, companies and supranational organizations. For
a complete description of the types of securities each Fund may invest in while
in a temporary defensive position, please see such Fund's Statement of
Additional Information.
NON-DIVERSIFIED STATUS. As a non-diversified investment company, each Fund is
permitted to have all its assets invested in a limited number of issuers. As a
result, an investment in a Fund could entail greater risk than a mutual fund
with a policy of diversification.
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(R) RISK CONSIDERATIONS
Investment in certain Funds involves the special risk considerations described
below. These risks may be heightened when investing in emerging markets.
CURRENCY CONSIDERATIONS. Some of the assets of the INTERNATIONAL EQUITY FUND,
BLUE CHIP GROWTH FUND and NORTH AMERICAN GROWTH FUND will be invested in
securities denominated in foreign currencies, and a corresponding portion of
the Fund's revenues will be received in such currencies. Therefore, the dollar
equivalent of their net assets, distributions and income will be adversely
affected by reductions in the value of certain foreign currencies relative to
the U.S. Dollar. If the value of the foreign currencies in which a Fund
receives its income falls relative to the U.S. dollar between receipt of the
income, conversion to U.S. dollars, and the making of Fund distributions, the
Fund may be required to liquidate securities in order to make distributions to
meet distribution requirements to qualify as a regulated investment company for
federal income tax purposes. Similarly, if an exchange rate declines between
the time a Fund incurs expenses in U.S. dollars and the time cash expenses are
paid, the amount of the currency required to be converted into U.S. dollars
could be greater than the equivalent amount of such expenses in the currency at
the time they were incurred. In light of these risks, a Fund may engage in
certain currency hedging transactions, which themselves involve certain special
risks. See " Investment Techniques and Investments" above.
FOREIGN INVESTMENT. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, any Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity securities of United
States companies. These markets may be subject to greater influence by adverse
events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the United States.
Securities settlements may in some instances be subject to delays and related
administrative uncertainties. These problems are particularly severe in India,
where settlement is through physical delivery, and, where, currently, a severe
shortage of vault capacity exists among custodial banks, although efforts are
being undertaken to alleviate the shortage. Certain foreign countries require
governmental approval prior to investments by foreign persons or limit
investment by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. These restrictions or controls may at times limit
or preclude investment in certain securities and may increase the costs and
expenses of a Fund. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from certain of the countries is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in
a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
A Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investments. Investing in local markets may
require a Fund to adopt special procedures, which may involve additional costs
to a Fund. The liquidity of a Fund's investments in any country in which any
of these factors exist could be affected and Reserve will monitor the effect
of any such factor or factors on a Fund's investments. Furthermore,
transaction costs including brokerage commissions for transactions both on and
off the securities exchanges in many foreign countries are generally higher
than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects. Generally,
less information is publicly available about certain non-U.S. issuers than
is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization
17
<PAGE> 17
or other confiscation, a Fund could lose its entire investment in the country
involved. In addition, laws in foreign countries governing business
organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Fund than that provided by U.S. laws.
INVESTMENT IN CANADIAN ISSUERS. The NORTH AMERICAN GROWTH FUND, INTERNATIONAL
EQUITY FUND and BLUE CHIP GROWTH FUND may invest in the securities of Canadian
issuers. Canada consists of a federation of ten provinces and two federal
territories (which generally fall under federal authority) with a
constitutional division of powers between the federal and provincial
governments. The Parliament of Canada has jurisdiction over all areas not
assigned exclusively to the provincial legislatures, and has jurisdiction over
such matters as the federal public debt and property, the regulation of trade
and commerce, currency and coinage, banks and banking, national defense, the
postal services, navigation and shipping, and unemployment insurance.
The Canadian economy is based on the free enterprise system with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources. The Canadian economy had experienced little or
no growth over the past several years, and the rate of growth of Canada's gross
domestic product (on an inflation-adjusted basis) has declined.
Canadian dollars are fully exchangeable into U.S. dollars without foreign
exchange controls or other legal restriction. Since the major developed
country currencies were permitted to float freely against one another, the
range of fluctuation in the U.S. dollar/Canadian dollar exchange rate has been
narrower than the range of fluctuation between the U.S. dollar and most major
currencies. Recently, however, Canada has experienced a weakening of its
currency. Through January 31, 1995, the Canadian dollar decreased in value
compared to the U.S. dollar by approximately 5% from September 1994. The range
of fluctuation that occurred in the past is not necessarily indicative of the
range of fluctuation that will occur in the future. Future rates of exchange
cannot be predicted.
INVESTMENT IN MEXICAN ISSUERS. The NORTH AMERICAN GROWTH FUND, INTERNATIONAL
EQUITY FUND and BLUE CHIP GROWTH FUND may invest in the securities of Mexican
issuers. The United Mexican States ("Mexico") is a nation formed by 31 states
and a Federal District (Mexico City). The Political Constitution of Mexico,
which took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
While in recent years the Mexican economy has experienced improvement in a
number of areas, including five consecutive years of growth in gross domestic
product and a substantial reduction in the rate of inflation and in public
sector financial deficit, beginning in 1994, Mexico has experienced an economic
crisis that led to the devaluation of the Peso in December 1994. Much of the
past improvement in the Mexican economy has been attributable to a series of
economic policy initiatives of the Mexican government over the past decade,
which seek to modernize and reform the Mexican economy, control inflation,
reduce the financial deficit, increase public revenues through the reform of
the tax system, establish a competitive and stable currency exchange rate,
liberalize trade restrictions and increase investment and productivity, while
reducing the government's role in the economy. In this regard, the Mexican
government has been proceeding with a program for privatizing certain
state-owned enterprises, developing and modernizing the securities markets,
increasing investment in the private sector and permitting increased levels of
foreign investment. The recent adoption by Canada, the United States and
Mexico of the North American Free Trade Agreement could also contribute to the
growth of the Mexican economy. Relatively high rates of interest, inflation,
unemployment and, most recently, the economic crisis that led to the
devaluation of the Peso beginning in December 1994 continue to affect the
Mexican economy adversely. Mexico is currently the second largest debtor
nation (among developing countries) to commercial banks and foreign
governments. The successful implementation of the economic policy initiatives
and the growth of the Mexican economy involve significant structural changes to
the Mexican economy and will necessitate continued economic and fiscal
discipline. In addition, as a condition to receiving assistance from the
United States, other countries and certain international agencies to stabilize
the Mexican economy, the Mexican government has agreed to adhere to a program
of strict economic reform. An important aspect of Mexico's economic policy is
the ability of the government to be successful in its continuing
18
<PAGE> 18
efforts to control its financial deficit, finance its current account deficit,
further reduce inflation and stabilize the Mexican Peso. Mexico's economy may
also be influenced by international economic conditions, particularly those in
the United States, and by world prices for oil and other commodities. There is
no assurance that Mexico's economic policy initiatives will be successful or
that succeeding administrations will continue these initiatives.
In August 1976, the Mexican government established a policy of allowing the
Mexican Peso to float against the U.S. Dollar and other currencies. Under this
policy, the value of the Mexican Peso consistently declined against the U.S.
Dollar. Under economic policy initiatives implemented since December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 20, 1994, the Mexican
government announced a new policy that would allow a more substantial yet still
controlled devaluation of the Mexican Peso. On December 22, 1994, the Mexican
government announced that it would not continue with the policy announced two
days earlier and would instead permit the Peso to float against other
currencies, resulting in a continued decline against the U.S. Dollar.
In 1982, Mexico imposed strict foreign exchange controls which shortly
thereafter were relaxed and were eliminated in 1991. There is no assurance
that future regulatory actions in Mexico would not affect the Fund's ability to
obtain U.S. Dollars in exchange for Mexican Pesos.
INVESTMENT IN SMALLER, EMERGING COMPANIES. The Funds may invest in smaller,
emerging companies. The EMERGING GROWTH FUND may emphasize investment in,
smaller, emerging companies. Investment in such companies involves greater
risks than is customarily associated with securities of more established
companies. The securities of smaller companies may have relatively limited
marketability and may be subject to more abrupt or erratic market movements
than securities of larger companies or broad market indices.
U.S. AND FOREIGN TAXES. Foreign taxes paid by a Fund may be creditable or
deductible by U.S. shareholders for U.S. income tax purposes. No assurance can
be given that applicable tax laws and interpretations will not change in the
future. Moreover, non-U.S. investors may not be able to credit or deduct such
foreign taxes. Investors should review carefully the information discussed
under the heading "Taxes" and "Foreign Taxes" and should discuss with their
tax advisers the specific tax consequences of investing in a Fund.
FIXED-INCOME SECURITIES. The value of each Fund's shares will fluctuate
with the value of its investments. The value of each Fund's investments in
fixed-income securities will change as the general level of interest rates
fluctuates. During periods of falling interest rates, the values of
fixed-income securities generally rise. Conversely, during periods of rising
interest rates, the values of fixed-income securities generally decline.
MANAGEMENT OF THE FUNDS
19
<PAGE> 19
RESERVE PRIVATE EQUITY SERIES - ADVISER. The Funds' investment adviser is
Reserve Management Company, Inc., 14 Locust Place, Manhasset, New York 11030,
which manages The Reserve Funds with over $3 billion in assets. The Adviser
supervises a continuous investment program for the Funds, evaluates and monitors
the Sub-Adviser's performance, investment program and compliance with
applicable laws and regulations and recommends to the Board of Trustees whether
the Sub-Adviser's contract should be continued or modified. The Adviser is
also responsible for the day-to-day administration of the Fund's activities.
Under the Investment Management Agreement, the Adviser pays all employee costs,
costs of the Sub-Adviser and other ordinary operating expenses of the Fund.
Excluded from ordinary operating expenses are interest, taxes, brokerage fees,
extraordinary legal and accounting fees and expenses, payments made pursuant to
the Trust's Distribution Plan and the fees of the disinterested Trustees.
For its services under the Investment Management Agreement and including
the Funds' ordinary operating expenses, the Adviser is paid a comprehensive fee
of 1.50% per annum of the average daily net assets of the Funds, except for the
International Equity Fund, for which the Adviser is paid a comprehensive fee of
1.75% per annum of average daily net assets of the Fund.
SUB-ADVISERS. The Investment Management Agreement and Sub-Advisory Agreement
provide that the Adviser and Sub-Adviser, respectively, shall not be liable for
any error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the matters to which the agreements relate, except a loss
resulting from the willful misfeasance, bad faith or gross negligence on the
part of the Adviser or Sub-Adviser in the performance of their duties or from
reckless disregard by them of their duties under each respective agreement.
The Adviser and Trust have retained ROANOAKE ASSET MANAGEMENT, 529 Fifth
Avenue, New York, NY 10017, for the RESERVE EMERGING GROWTH FUND; CAMBRIDGE
EQUITY ADVISORS, 5214 Maryland Way, Brentwood, TN 37027, for RESERVE MID-CAP
FUND; TRAINER, WORTHAM & COMPANY, INC., 845 Third Avenue, New York, New York
10022 for RESERVE BLUE CHIP FUND; T.H. FITZGERALD & CO., 180 Church Street,
Naugatuck, CT 06770, for RESERVE INFORMED INVESTORS FUND; SOUTHERN CAPITAL
ADVISORS, 50 Front Street, Memphis, TN 38103, for RESERVE NORTH AMERICAN GROWTH
FUND; and PINNACLE ASSOCIATES, LTD., 666 Fifth Avenue, New York, NY 10103, for
the RESERVE INTERNATIONAL EQUITY FUND.
ROANOKE ASSET MANAGMENT was formed in 1978 and currently manages over $200
million for high net worth individuals, foundations, endowments, corporations
and municipalities. Roanoke has not previously served as an Adviser or
Sub-Adviser to a registered investment company. However, Roanoke has over
fifteen years experience in using the investment policies discussed herein.
Mr. Edwin G. Vroom, President of Roanoke, Mr. Brian J. O'Connor, Executive
Vice President of Roanoke, and Ms. Adele S. Weisman, Senior Vice President of
Roanoke, serve as the Fund's portfolio managers. The Fund's portfolio
management is a team effort with each manager responsible for specific
industries and sectors. Each portfolio manager has over twenty-five years
investment experience and they have worked together for more than twenty years
at Roanoke and previously in the investment department of a major New York
bank.
CAMBRIDGE EQUITY ADVISORS was formed in 1989 and currently manages $250 million
for high net worth individuals, corporations, and foundations. Cambridge has
not previously served as an Adviser or Sub-Adviser to a registered investment
company; however, Cambridge has over 10 years of experience in using the
investment policies discussed herein.
Mr. Michael Goldston, President of the Cambridge Equity Advisors and Mr. Gary
Smith, Vice-President, serve as the Fund's portfolio managers. Mr. Goldston
has been the President of Cambridge for nine years and is responsible for the
day-to-day investment recommendations and decisions for the Fund. The two act
as a team in making decisions. Each portfolio manager has his own area of
responsibility and is involved in the final investment decision.
TRAINER, WORTHAM & COMPANY, INC. was formed in 1924 and manages $1-2
billion for individuals, family trusts and employee benefit plans. The
Sub-Adviser has not previously served as an Adviser or Sub-Adviser to a
registered investment company.
Mr. Charles V. Moore, President of Trainer, Wortham, serves as the Fund's
portfolio manager. Mr. Moore has been the President of the Sub-Adviser for
seventeen years and is responsible for the day-to-day investment
recommendations and decisions for the Fund.
T.H. FITZGERALD & CO. was formed in 1959 and currently manages over $150
million for employee benefit plans, bank trust departments, an insurance
company and a public authority located in the United States and Canada. The
Sub-Adviser has not previously served as an Adviser or Sub-Adviser to a
registered investment company. However, the Sub-Adviser has over ten years
experience in using the investment policies described previously in this
Prospectus.
Mr. Thomas H. Fitzgerald, Jr., founder of T.H. Fitzgerald & Co., serves as the
Fund's portfolio manager. Mr. Fitzgerald has been a principal of the
Sub-Adviser for thirty-four years and is responsible for the day-to-day
investment recommendations and decisions for the Fund.
SOUTHERN CAPITAL ADVISORS, INC. has been in existence since 1986 as a
subsidiary of Morgan Keegan, Inc., a financial services holding company, 50
Front Street, Memphis, Tennessee 38103. On July 14, 1993, Southern Capital
Advisors, Inc. changed its name to Morgan Asset Management Inc. and
Southern Capital Advisors became a division of Morgan Asset Management Inc.
SCA manages approximately $260 million in assets for individuals, employee
benefit plans, foundations and endowments.
Richard A. McStay, C.F.A., is President of Southern Capital Advisors and the
principal equity portfolio manager. Mr. McStay has more than 32 years of
experience in the investment business. He has been associated with Morgan
Keegan & Co., Inc., an affiliate of Morgan Asset Management, Inc. since 1974.
His responsibilities during that twenty year period have included management of
the corporate finance department and director of research. He has also served
as President of Southern Capital Advisors, Inc. and has remained in that role
following its inclusion as a division of Morgan Asset Management, Inc., in
1993.
20
<PAGE> 20
PINNACLE ASSOCIATES, LTD. was formed in 1984 and currently manages over $300
million for individuals, family trusts and employee benefit plans. Pinnacle
has not previously served as an Adviser or Sub-Adviser to a registered
investment company.
Nicholas Reitenbach, Director of International Investments, Senior Vice
President and partner of Pinnacle Associates, Ltd. will have the primary
responsibility for the investment decisions of the Fund. Mr. Reitenbach
manages international portfolios for clients of Pinnacle, including corporate
pension funds, foundations and eleemosynary accounts. The portfolio manager
has over 30 years experience in dealing with the investment techniques
discussed herein.
(R) For their services, all of the Sub-Advisers, except for Pinnacle
Associates, Ltd., receive a sub-advisory fee at the maximum rate of up to .75%
per annum of the respective Fund's average daily net assets. Pinnacle
Associates, Ltd. receives a sub-advisory fee at the maximum rate of up to .875%
per annum of the International Equity Fund's average daily net assets.
PERFORMANCE INFORMATION. Set forth below are certain performance data provided
by the respective Sub-Advisers calculated as follows.
The annual market value of the Sub-Adviser's portfolio was determined as
the sum of the market value of all of its assets (including cash, cash
equivalents, interest, dividends and securities). The annual rate of
return for the Sub-Adviser's portfolio was determined on a time weighted basis
as the percentage change of the portfolio assets after allowing for the effect
of any cash additions or withdrawals which occurred during the year. The
investment performance reflects the cost of brokerage commissions and all other
expenses. The accounts were managed utilizing the same objectives and policies
of the respective Funds.
<TABLE>
<CAPTION>
SUB-ADVISERS INDICES
----------------------------------------------------------------------------- ----------------------------------
Morgan
(R) Stanley
Year Ended Capital
December Southern Russell* International S&P
31 Roanoke* Cambridge Trainer Fitzgerald Capital Pinnacle+ 2000 EAFE+ 500
------------ ------- --------- ------- ---------- --------- -------- ------ ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 95.5% 78.19% 32.2% 60.6% 46.90% 23.43% 46.1% 12.13% 30.5%
1992 22.3 8.57 2.3 12.6 16.89 2.52 18.4 (12.17) 7.7
1993 37.7 16.12 24.4 20.6 24.19 69.71 18.9 32.56 10.0
1994 5.0 (3.42) 2.6 (0.1) (2.39) (9.46) (1.8) 7.77 1.3
Annualized
Return for
the period
1/1/91 to
12/31/94 36.3% 21.36% 14.6% 21.5% 20.11% 18.09% 19.2% 8.91% 11.85%
</TABLE>
21
<PAGE> 21
There are no advisory fees included in the gross return calculations. In
addition, any initial sales charges and distribution fees have not been
deducted. These performance calculations assume the reinvestment of dividends
and distributions.
Investors should not rely on the above performance data of the Sub-Advisers as
an indication of the future performance of a Fund. It should be noted that
management of each Fund will be affected by the Fund's obligation to redeem its
shares upon request, regulatory requirements of the Investment Company Act of
1940 and requirements of the Internal Revenue Code of 1986, as amended, to
qualify as a regulated investment company.
The Standard & Poor's 500 Stock Price Index is widely regarded by
investors as representative of the securities markets in general. Roanoke's
performance is also compared to the Russell 2000 Index which consists of 2,000
of the smallest stocks in the Russell 3000 Index and is widely regarded as a
standard benchmark of small capitalization stock performance. Pinnacle uses
the Morgan Stanley Capital International EAFE (Europe, Australia, Far East)
Index, which is widely regarded by investors as representative of the
international securities markets in general.
HOW TO BUY SHARES
METHOD OF PAYMENT. The minimum initial investment is $1,000 for Class A shares
and $250 for Class D Shares and the minimum subsequent investment for both
Classes of shares is $100, except for IRAs. The Funds reserve the right, with
respect to any person or class of persons, under certain circumstances to waive
or lower investment minimums. An initial purchase must be accompanied by an
Investment Application. If no dealer or broker is named in the Investment
Application, the Distributor will act as dealer for you. You can buy shares of
a Fund each business day at the public offering price next determined after
receipt by a Fund or an investment dealer which has a sales agreement with the
Fund's Distributor of a request in proper form. The
22
<PAGE> 22
public offering price is equal to the net asset value of a Fund plus a sales
charge as set forth in the table below. Payments (denominated in U.S. dollars)
must be made (if purchasing directly from the Fund):
- By check (drawn on a U.S. bank) payable to or endorsed to Reserve Private
Equity Series. You must include your account number on each check unless
it is an initial purchase. Checks should be mailed to Reserve Private
Equity Series, 810 Seventh Avenue, New York, N.Y. 10019-5868. A fee will
be charged if any check used for investment in your account does not
clear.
- By wire - Prior to calling your bank, call the Fund for specific
instructions 800-637-1700.
Investments in a Fund may also be made through investment dealers which have
sales agreements with Resrv Partners, Inc., the distributor of the Fund's
shares ("Authorized Dealer"). Such dealers should send the investor's
Investment Application and payment to the Funds. Payment should be made by
check or wire. Purchase orders will be confirmed at the public
offering price calculated next after receipt by a Fund or an Authorized Dealer,
which order must be promptly transmitted to the Funds, with the properly
completed Investment Application and payment. Orders received by a Fund or
an Authorized Dealer after 4:00 P.M. (New York time) will be priced at the
public offering price in effect at 4:00 P.M. (New York time) on the next
business day.
GENERAL INFORMATION. Each class of shares of each Fund will have the
same relative rights and privileges and be subject to the same sales charges,
fees and expenses except as set forth below. The Board of Trustees may
determine in the future that other allocations of expenses are appropriate and
amend this plan accordingly without the approval of shareholders of any class.
Unless a class of shares is otherwise designated, it shall have the terms set
forth below with respect to Class A shares. Income, realized and unrealized
capital gains and losses, and expenses of a Fund of the Trust not allocated to
a particular class as set forth below shall be allocated to each class of
shares of a Fund on the basis of net asset value of that class in relation to
the net asset value of the Fund. Expenses of the Trust not allocable to a
specific Fund shall be allocated to each Fund on the basis of the net asset
value of that Fund in relation to the net asset value of the Trust.
CLASS A SHARES - INITIAL SALES CHARGE ALTERNATIVE. Class A shares of each
Fund of the Trust are sold at net asset value plus a maximum sales charge of
4.50%, of the public offering price imposed at the time of purchase and are
subject to the minimum purchase requirements set forth in this prospectus. The
initial sales charge may be reduced or waived for certain purchases. The Class
A shares of each Fund are subject to an annual distribution at the rate of .25
of 1%, of the value of each Fund's average daily net assets.
Share purchases of each Fund are made at the public offering price. The public
offering price is the net asset value per share plus a sales charge as shown
below:
<TABLE>
<CAPTION>
Dealers
As a % As a % Reallowance
of Offering of Net Asset as a % of
Amount of Transaction Price per Share Value per Share Offering Price
- - --------------------- --------------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000 4.50 4.71 4.00
$50,000 to less than $100,000 3.50 3.63 3.00
$100,000 to less than $250,000 3.00 3.09 2.50
$250,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 1.50 1.52 1.00
Over $1,000,000 0 0 0
</TABLE>
23
<PAGE> 23
It is the position of the staff of the Securities and Exchange Commission that
if the dealer reallowance exceeds 90% a dealer may considered an underwriter
under the Securities Act of 1933.
Shares of each Fund may be purchased at net asset value, without sales charge,
by brokers of broker-dealers who have a signed dealer agreement with the Fund,
full time employees, their spouses and minor children of the Adviser,
Sub-Adviser, Resrv Partners, Inc., and other affiliated companies; any Trustee
of a Fund and their spouses; any trust, pension, profit sharing, or other
benefit plan in which any such foregoing person is a participant; Sub-Adviser
advisory clients and related persons of such; and through reinvestment of
dividends and capital gains distributions.
In addition, a front-end sales charge will not apply to the following Class A
shares.
1. Purchased for use in a broker-dealer managed account program, provided the
broker-dealer has an executed participation agreement with the Funds
specifying certain asset minimums and qualfications and marketing program
and trading restrictions. Employee benefit plans do not qualify for this
waiver;
2. Purchased in an account for which a bank or broker-dealer charges an asset
management fee, provided the bank or broker-dealer has an agreement with
the Funds;
3. Purchased as part of an employee benefit plan having more than 200 eligible
employee or a minimum of $1 million plan assets invested in the Funds.
CLASS D SHARES - ASSET-BASED SALES CHARGE ALTERNATIVE. Class D
shares of each Fund of the Trust are sold at net asset value without a sales
charge and are subject to the minimum purchase requirements set forth in this
prospectus. The Class D shares of each Fund are subject to an annual
distribution at the rate of 1%, of the value of each Fund's average daily net
assets.
A Fund will thus receive the full amount of your purchase, and you will receive
the entire net asset value of your shares upon redemption. Class D shares
incur higher distribution fees than Class A shares and do not convert to any
other class of shares of a Fund. The higher fees mean a higher expense ratio,
so Class D shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares.
VOTING RIGHTS. Each class of shares of a Fund shall have exclusive voting
rights on any matter submitted to shareholders that relates solely to its
arrangement. Each class of shares of a Fund shall have separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class.
RIGHT OF ACCUMULATION. Reduced sales charges apply to any purchase of shares
of a Fund where the aggregate investment, including such purchase, is $50,000
or more. If, for example, you previously purchased and still hold shares of
the Fund with a current market value of $50,000 and subsequently purchase
shares of a Fund having a current value of $10,000, the sales charge applicable
to the subsequent purchase would be reduced to 3.50% of the offering price.
To qualify for reduced sales charges, at the time of purchase you or your
dealer must notify the Fund or Resrv Partners, Inc., that such purchase should
be combined.
LETTER OF INTENT. Investors who anticipate that they will invest $50,000
(other than through exchanges) or more in shares of a Fund within thirteen
months may execute a Letter of Intent on the form in the Investment
Application. The execution of a Letter of Intent will result in an investor
paying a lower sales charge, at the appropriate quantity purchase level shown
above on all purchases during a thirteen month period. Purchases of other
Trust separate investment portfolios that may be offered may be included to
fulfill the Letter of Intent. A purchase not originally made pursuant to a
Letter of Intent may be included under a backdated Letter of Intent executed
within 90 days after such purchase.
Out of an investor's initial purchase (or subsequent purchases) 5% of the
specified dollar amount of the Letter of Intent will be held in escrow by the
transfer agent in his/her account until his/her total purchases of the Fund
plus his/her accumulation credit (if any) equal the amount specified. A
purchase not originally made pursuant to a Letter of Intent may be included
under a backdated letter executed within 90 days of such purchase (accumulation
credit).
24
<PAGE> 24
If total purchases plus an investor's accumulation credit are less than the
specified amount, the investor agrees to remit to the distributor an amount
equal to the difference in the dollar amount of the sales charge the investor
had actually paid and the amount of the sales charges which he/she would have
paid on his/her aggregate purchases if the total of such purchases had been
made at a single time. If the investor does not pay such difference in sales
charges within 20 business days after written request by the dealer, bank or
distributor, the transfer agent, upon instructions from the distributor is
authorized to effect the repurchase of an appropriate number of escrowed shares
in order to realize such difference.
RESERVE AUTOMATIC TRANSFER. If you have an account balance of $5,000 or more,
you may purchase shares of a Fund ($25 minimum) at regular intervals selected
by you. Shares are purchased monthly, quarterly or annually by transferring
monies from the checking, NOW or bank money market deposit account (as
permitted) designated by you. Only an account maintained in a domestic
financial institution which is an Automatic Clearing House member may be so
designated. To establish a Reserve Automatic Transfer account, you must file
an authorization form with the Funds which is available from them. You may
cancel this privilege or change the amount of purchase at any time by mailing
written notification to the Funds, and the notification will be effective
fifteen business days following receipt. The Funds may impose a charge or
modify or terminate this privilege at any time. Shares purchased by this
privilege may not be redeemed until the Fund has assured itself that good
payment has been collected which will generally be up to ten business days.
This privilege may not be available to clients of certain firms or may be
available subject to conditions or limitations.
RESERVE AUTOMATIC ASSET BUILDER FOR PAYROLL OR PENSION. You may purchase
shares of a Fund ($25 minimum) automatically on a regular basis. Depending
upon your employer's direct deposit program, you may have all or a part of your
paycheck transferred to your existing Fund account each pay period through the
Automatic Clearing House. To establish such an account, you must file an
authorization form, which is available from the Funds, with your employer's
payroll department. Your employer must complete the form and return it to the
Funds. You may change the amount of the purchase or cancel the authorization
only by written notice to your employer. It is the sole responsibility of your
employer, not the Funds or any other person, to arrange for transactions under
the Reserve Automatic Asset Builder plan. The Funds may impose a charge or
modify or terminate this privilege at any time.
RESERVE AUTOMATIC ASSET BUILDER FOR U.S. GOVERNMENT DISTRIBUTIONS. You may
purchase shares of a Fund ($25 minimum) by having federal salary, Social
Security, or certain veteran's benefits or other payments from the federal
government automatically deposited into your Fund account. To enroll in
Reserve Automatic Asset Builder for U.S. Government Distributions, you must
file with the Funds a completed Sign-Up Form for each type of payment to be
deposited. The appropriate form may be obtained from the Funds. Death or
legal incapacity will terminate your participation in this privilege and you
may elect at any time to terminate your participation by notifying in writing
the appropriate federal agency. In addition, the Funds may terminate your
participation upon 30 day's notice to you.
NET ASSET VALUE. Fund shares are issued at net asset value plus a sales charge
(if applicable) and redeemed at the net asset value next determined after
receipt by the Fund of a request in proper form. The net asset value of the
shares of each Fund and each class is calculated at the close of business of
the New York Stock Exchange on each day the New York Stock Exchange is open
which is currently 4:00 P.M. (New York time). The net asset value of each
Fund and each class will not be determined on those days that the New York
Stock Exchange is closed for trading or on days on which no orders to purchase,
sell or redeem shares have been received by a Fund. The New York Stock
Exchange is closed on the following holidays: New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas. The net asset value per share of each Fund and each class is
determined by adding the value of all the portfolio's securities, cash and
other assets, subtracting its liabilities, and dividing the result by the
number of class' shares outstanding. Business days are days when the New York
Stock Exchange is open for regular trading.
INDIVIDUAL RETIREMENT ACCOUNTS. Investors may use each Fund as an investment
for Individual Retirement Accounts ("IRAs"). A master IRA plan, with
information regarding administration fees and other details are available from
Resrv Partners, Inc. The initial minimum investment is $250. Subsequent
investments are accepted in any amount.
DISTRIBUTOR. The Funds' distributor is Resrv Partners, Inc., 810 Seventh
Avenue, New York, N.Y. 10019. The distributor is a wholly owned subsidiary of
the Adviser.
All orders for the purchase of shares of each Fund are subject to acceptance or
rejection by Resrv Partners, Inc. in its sole discretion. The sale of shares
will be suspended during any period when the determination of net asset value
is suspended, and may be suspended by the Board of Trustees whenever in its
judgment it is in the best interests of the Funds to do so.
EXCHANGE PRIVILEGE. Shares of each Fund may be exchanged for shares in the
Reserve money market funds and other separate investment portfolios that may be
offered by the Trust at net asset value. No sales charge applies to exchanges
between identical classes of shares or from the Reserve money market funds to
no-load classes of shares. Exchanges of shares from the Reserve money market
funds to classes other than no-load classes are subject to applicable sales
charges on the Fund unless a waiver of the sales charge is applicable. A
waiver of the sales charge may apply if the shares being exchanged from the
Reserve money market funds were acquired: (a) by a previous exchange from
shares of the portfolio purchased with a sales charge, or (b) through
investments of dividends or capital gains distributions with respect to the
foregoing category of shares. Shares of any of the money market funds or each
Fund must be registered for sale in the investor's state.
The exchange privilege is not available for shares which have been held for
less than 15 days. Exchanges by telephone are an automatic privilege unless
the shareholder notifies the Fund on the Investment Application that his
authorization has been withheld. Unless authorization is withheld, the Fund
will honor requests by any person by telephone at (800) 637-1700. 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. 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 a exchange request by telephone, in which case an exchange request would
have to be made in writing.
The Trust may modify or discontinue the exchange privilege at any time, and
will do so on 60 days' notice, if such notice is required by regulations
adopted under the Investment Company Act of 1940. The notice period may be
shorter if applicable law permits. The Trust reserves the right to reject
telephone or written requests submitted in bulk
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on behalf of 10 or more accounts. Purchases and exchanges should be made for
investment purposes only. 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. The
Funds do not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive. Investors should be aware that the
Fund may, in their discretion, limit or otherwise restrict the number of
times this Exchange Privilege may be exercised by any investor. Any such
restriction will be made on a prospective basis, upon notice to the shareholder
not later than 10 days following such shareholder's most recent exchange.
Telephone and written exchange requests must be received by the Funds by 4:00
P.M. (New York time) on a regular business day to take effect that day.
Telephone exchanges may be effected on regular business days from 9:00 A.M. to
5:00 P.M. (New York time). Exchange requests received after 4:00 P.M. (New
York time) will be effected at the next calculated net asset value plus a sales
charge (if applicable), as described above.
Exchanges of shares are taxable events and may result in a gain or loss for
federal income tax purposes. A prospectus for any of the Reserve money market
funds or other series of the Trust may be obtained from the Distributor or any
Authorized Dealer. An investor considering an exchange should refer to the
appropriate fund prospectus for additional information since each Reserve money
market fund and series of the Trust has different investment objectives and
policies.
DISTRIBUTION PLAN. Under the Plan of Distribution ("Plan"), adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 each Fund pays Resrv
Partners, Inc. for advertising, marketing and distributing the Fund's shares
and for servicing Fund shareholders at an annual rate of .25% of the value of
the Fund's average daily net assets for Class A shares and 1.00% of the value
of the Fund's average daily net assets for Class D shares. The Funds are not
obligated to pay any distribution expense in excess of such distribution
services fee. If the Plan were terminated or not continued, no amounts (other
than amounts accrued but not yet paid) would be owed by the Funds.
Under the Plan, Resrv Partners, Inc. may make payments to brokers, financial
institutions and financial intermediaries for administration, for servicing
Portfolio shareholders who are also their clients and/or for distribution.
Resrv Partners, Inc. determines the amounts to be paid to brokers, financial
institutions and financial intermediaries ("Firms"). Firms receive such fees
in respect of the average daily net asset value of the Fund's shares owned by
shareholders for whom the Firm performs servicing or for whom the Firm is the
dealer of record. Financial institutions providing distribution assistance or
administrative services for each Fund may be required to register as securities
dealers in certain states. The fees payable to Resrv Partners, Inc. under the
Plan for advertising, marketing and distributing the Fund's shares and for
payments to Firms are payable without regard to actual expenses incurred.
Resrv Partners, Inc. may use such fees to promote the sale of shares such as by
paying for the preparation, printing and distribution of prospectuses to other
than current shareholders or other promotional activities.
The Glass-Steagall Act and other applicable laws prohibit federally chartered
or supervised banks from engaging in the business of issuing, underwriting,
selling or distributing securities although national and state chartered banks
are permitted to purchase and sell securities upon the order and for the
account of their customers. Those persons who wish to provide assistance in
the form of activities not primarily intended to result in the sale of Trust
shares (such as administrative and account maintenance services) may include
banks, upon advice of counsel that they are permitted to do so under applicable
laws and regulations, including the Glass-Steagall Act. In such event, no
preference will be given to securities issued by such banks as investments and
the assistance payments received by such banks under the Plan may or may not
compensate the banks for their administrative and account maintenance services
for which the bank may also receive compensation from the bank accounts they
service. It is management's position that payments to banks pursuant to the
Plan for activities not primarily intended to result in the sale of Trust
shares, such as administrative and account maintenance services, do not violate
the Glass-Steagall Act. However, this is an unsettled area of the law and if a
determination contrary to management's position is made by a bank regulatory
agency or court concerning payments to banks contemplated by the Plan, any such
payments will be terminated and any shares registered in the bank's name, for
its underlying customer, will be registered in the name of that customer.
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SHARES OF BENEFICIAL INTEREST
The Trust is an open-end management investment company commonly known as a
mutual fund. The Trust was organized as an unincorporated Delaware business
trust on April 22, 1993, and is authorized to issue an unlimited number of
shares of beneficial interest, which may be issued in any number of series.
Shareholders are entitled to a full vote for each full share held (and
fractional votes for fractional shares) and have equal rights with respect to
earnings, dividends, redemption and in the net assets of their respective
series on liquidation. The Trust has no intention of issuing share
certificates. All shares issued will be fully paid and non-assessable and will
have no preemptive or conversion rights. The Trustees do not intend to hold
annual meetings of shareholders. The Trustees will call such special meetings
of Shareholders as may be required under the Investment Company Act of 1940
(e.g. to approve a new investment advisory agreement or to change the
fundamental investment policies) or by the Declaration of Trust.
TAXES
Each Fund intends to maintain its regulated investment company status for
federal income tax purposes, so that it will not be liable for federal income
taxes to the extent its net income and net capital gains are distributed. The
requirement for maintaining its status as a regulated investment company under
the Internal Revenue Code ("Code") may cause the Funds to restrict the degree
to which they engage in short-term trading, short sales and transactions in
options and futures contracts. Dividends paid by the Fund from net investment
income, including net short term capital gains, whether in cash or in
additional shares of each Fund, will be taxable as ordinary income.
The Code imposes a non-deductible, 4% excise tax on regulated investment
companies that do not distribute to their shareholders in each calendar year an
amount equal to 98% of their calendar year ordinary income, plus 98% of their
capital gain net income (the excess of short and long term capital gains over
short and long term capital losses) for the one year period ending October 31.
Dividends declared in December of any year to shareholders of record on any
date in December will be deemed to have been received by the shareholders and
paid by each Fund on the record date, provided such dividends are paid January
during the following year.
Distributions from long term capital gains designated by each Fund as capital
gain dividends, whether paid in cash or additional shares of each Fund, are
taxable for Federal income tax purposes as long term capital gains, regardless
of the length of time Fund shares have been held and are not eligible for the
dividends received deduction available to corporations. Dividends and other
distributions may also be subject to state and local taxes. A purchase of Fund
shares shortly before the ex-dividend date or capital gains distribution could
result in the receipt of an amount which, although in effect a return of
principal, is subject to income taxes.
Under the Code, exchanges and redemptions of shares, including transfers of
shares of each Fund for shares of another fund with which the Funds have
exchange privileges, are taxable events and, accordingly, may result in capital
gain or loss for shareholders participating in such transactions. Deductions
for losses recognized on the disposition of shares may in some circumstances be
disallowed or deferred. However, if the shares exchanged have been held less
than 91 days, the sales charge paid on such shares is not included in the tax
basis of the exchanged shares, but is carried over and included in the tax
basis of the shares acquired. Furthermore, shareholders electing to reinvest
dividends or other distributions in new shares will nevertheless be treated as
having received such distributions for tax purposes.
For tax purposes, each Fund will send shareholders an annual notice of
dividends and distributions paid during the prior year. Shareholders are
advised to retain all statements received from each Fund to maintain accurate
records of their investments. The tax treatment of non-resident alien
individuals, foreign corporations, and other non-U.S. shareholders may differ
from that described above. Shareholders should consult their own tax advisers
regarding specific questions as to foreign, federal, state and local taxes with
specific reference to their own tax situation.
FOREIGN INCOME TAXES
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Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes
paid, but there can be no assurance that any Fund will be able to do so.
DIVIDENDS AND DISTRIBUTIONS
Shareholders may receive two kinds of distributions from the Funds: dividends
and capital gains distributions. The payment date will be used to determine
net asset value when dividends and capital gains distributions are reinvested.
All dividends and capital gains distributions are paid in the form of
additional shares credited to an investor's account at net asset value unless
the shareholder has requested on the Investment Application or in writing to
the Fund one of the following three options:
(1) Dividend Option - to receive income dividends in cash and capital
gains distributions in additional shares.
(2) Distribution Option - to receive capital gains distributions in
cash and income dividends in additional shares.
(3) Dividend and Distribution Option - to receive both income dividends
and capital gains distributions in cash.
These three options are not available, however, for retirement plans or an
account with a net asset value of less than $1,000.
Any net investment income will be distributed quarterly as dividends to
shareholders. Any net realized short and long term capital gains, if any, will
be paid to shareholders at least annually.
REDEMPTIONS
TIME AND METHOD OF REDEMPTION. The Funds' shares are redeemed at net asset
value determined as of the next close of the New York Stock Exchange on a
regular business day after the written request by any person in proper form is
received by the Fund at, 810 Seventh Avenue, 17th Floor, New York, New York
10019-5868. Redemptions may be effected during regular business days from 9:00
A.M. to 4:00 P.M. (New York time). Redemption requests received after 4:00
P.M. (New York time) will be effected at the next calculated net asset value.
If the Funds have previously been advised in writing of your brokerage or bank
account, telephone requests by any person are accepted for payment to such
account by calling 800-637-1700. The procedures and potential liability of
the Funds and their affiliates in connection with telephone exchanges are
discussed in "Exchange Privilege" above also apply to telephone redemptions.
To reduce such risk, proceeds of telephone redemptions may be sent only to a
bank or brokerage account designated by the shareholder, in writing, on the
Investment Application or in a letter with the signature(s) guaranteed and
telephone redemption requests will be recorded. All other redemption requests
must be signed by the registered owner(s) with signature(s) guaranteed by a
member firm of a national securities exchange, a domestic commercial bank,
credit union, savings bank, savings and loan association or domestic trust
company. If an account has multiple owners, the Fund may rely on the
instructions of any one owner unless otherwise instructed in writing.
Guarantees from notaries public are unacceptable. Additional documentary
evidence of authority is required in the event a redemption is requested by a
corporation, partnership, trust, fiduciary, executor, or administrator. Changes
in redemption instructions, registration or authorized signatures must be in
writing with the signature(s) guaranteed. Payments of $10,000 or more will be
wired upon request without charge. A Class A shareholder will be charged $10
for wires of less than $10,000. The Funds assume no responsibilities for
delays in the receipt of wired or mailed funds. The use of a predesignated
financial institution, such as a savings bank, savings and loan association or
credit union, which is not a member of the Federal Reserve wire system to
receive your wire could cause such a delay.
The Funds ordinarily will make payment for all shares redeemed within seven
days after receipt of a redemption request in proper form except as provided by
rules of the Securities and Exchange Commission or until your purchase check
has cleared (see "Restrictions," below). The Funds will provide written
confirmation of redemption transactions.
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The Funds reserve the right to refuse a telephone redemption if it believes it
is advisable to do so. Procedures for telephone redemptions may be modified or
terminated by the Funds at any time upon proper notice to shareholders. During
times of drastic economic or market conditions, shareholders may experience
difficulty in contacting the Fund by telephone to request a redemption of
shares. In such cases shareholders should consider using another method of
redemption, such as a written request.
REDEMPTIONS THROUGH BROKERS AND FINANCIAL INSTITUTIONS. Redemptions through
brokers and financial institutions may involve such other parties' own
redemption minimums, service fees, and other redemption requirements.
SMALL ACCOUNTS. The Funds reserve the right to redeem shares in any
account with a balance of less than $1,000 in share value. Prior to any such
redemption, the Fund will give the shareholder thirty (30) days' written notice
during which time the shareholder may increase the investment to avoid having
the shares redeemed. The $1,000 minimum balance requirement will be waived if
the account balance drops below $1,000 due to market activity. Shareholders
whose account has a balance of $1,000 must achieve a balance of $2,500 within
12 months or the Fund may choose to impose a fee, upon proper notice to
shareholders. The Funds have reserved the right to adopt a fee policy and
implement it upon notice to all existing shareholders.
RESTRICTIONS. The right of redemption may be suspended or the date of payment
postponed for more than seven days only (a) when the New York Stock Exchange is
closed (other than for customary closings); (b) when, as determined by the
Securities and Exchange Commission ("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 the fair value
of its net assets; or (c) for such periods as the SEC may by order permit. If
a shareholder requests redemption of shares which were purchased recently, a
Fund may delay payment until it is assured that good payment has been received.
In the case of purchases by check, this can take up to 15 days. When a
purchase is made by wire and subsequently redeemed, the proceeds from such
redemption normally will not be transmitted until two business days after the
purchase by wire.
GENERAL INFORMATION
BACKUP WITHHOLDING. The Funds are required by Federal law, subject to certain
exemptions, to withhold 31% of dividends, capital gains distributions and
payments for shares redeemed. In order to avoid this withholding requirement
investors are required to certify, on the account application or separate W-9
Form, that their taxpayer identification number is correct, that they are not
currently subject to backup withholding, or that they are exempt from backup
withholding and the Funds may not have been directed by the IRS to backup
withhold. Shareholders should be aware that, under regulations promulgated by
the Internal Revenue Service, the Funds may be fined $50 annually for each
account for which a certified taxpayer identification number is not provided.
In the event that such a fine is imposed with respect to an uncertified account
in any year, a corresponding charge will be made against the account.
USE OF JOINT PROSPECTUS. Although each Fund is offering only its own shares,
it is possible that a Fund might become liable for any misstatement in the
Prospectus 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.
REPORTS AND STATEMENTS. Shareholders receive an annual report containing
audited financial statements and an unaudited semi-annual report. A statement
is mailed to each shareholder at least quarterly.
SPECIAL SERVICES. The Funds reserve the right, upon notice, to charge
shareholder accounts for specific costs incurred in processing unusual
transactions for shareholders. Such transactions include, but are not limited
to, stop payment requests on official Trust checks, returned checks and special
research services.
PERFORMANCE. From time to time, in advertisements and sales literature, the
Fund may present information regarding the total return on a hypothetical
investment in the Fund for various periods of performance and may make
comparisons of such total return to various stock indices (group of unmanaged
common stocks), including the New York Stock Exchange Composite Index, Standard
& Poor's 500 Stock Index, and the Dow Jones Industrial Average, the NASDAQ
Composite Index, the Wilshire 4000 Index, or to groups of comparable mutual
funds.
Each Fund may provide its period and average annualized "total rates of
return." The "total rate of return" refers to the change in the value of an
investment in the Fund over a stated period which was made at the maximum
public offering price and reflects any change in net asset value per share and
is compounded to include the value of any
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shares purchased with any dividends or capital gains declared during such
period. Period total rates of return may be "annualized." An "annualized"
total rate of return assumes that the period total rate of return is generated
over a one-year period. These total-rate-of-return quotations may be
accompanied by quotations which do not reflect the reduction in value of the
investment due to the initial or contingent deferred sales charges, and which
are thus higher.
In addition to the figures described above, the Fund might use rankings or
ratings determined by Lipper Analytical Services, Inc., an independent service
that monitors the performance of over 1,000 mutual funds, Morningstar, Inc., or
another service to compare the performance of the Fund with the performance of
(i) other funds of similar size and investment objective or (ii) broader groups
of funds. Such comparative performance information will also be stated in the
same terms in which the comparative data or indices are stated. For these
purposes, the performance of the Fund, as well as the performance of the mutual
funds, do not reflect sales loads, the inclusion of which would reduce Fund
performance.
Performance of the Funds will vary from time to time, and past results are
not necessarily indicative of future results. Performance information supplied
by the Funds may not provide a basis of comparison with other investments using
different reinvestment assumptions or time periods.
---------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS IS INTENDED TO CONSTITUTE AN OFFER BY EACH FUND ONLY OF
THE SECURITIES OF WHICH IT IS THE ISSUER AND IS NOT INTENDED TO CONSTITUTE AN
OFFER BY ANY FUND OF THE SECURITIES OF ANY OTHER FUND WHOSE SECURITIES ARE ALSO
OFFERED BY THIS PROSPECTUS. NO FUND INTENDS TO MAKE ANY REPRESENTATION AS TO
THE ACCURACY OR COMPLETENESS OF THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
ANY OTHER FUND.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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RESERVE PRIVATE EQUITY SERIES
RESERVE EMERGING GROWTH FUND
810 SEVENTH AVENUE, NEW YORK, N.Y. 10019
(800) 637-1700
---------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information describes Reserve Private Equity
Series ("Trust") and the Reserve Emerging Growth Fund ("Emerging Growth Fund"
or "Fund"). This Statement is not a Prospectus, but provides detailed
information to supplement the Prospectus and should be read in conjunction with
the Prospectus. A copy of the Prospectus may be obtained (without charge) from
Reserve Private Equity Series. This Statement is dated 1995.
TABLE OF CONTENTS
Page
----
Investment Policies 2
Other Policies 2
Trustees and Officers of the Trust 5
Investment Management and Other Agreements 7
Portfolio Turnover, Transaction Charges and
Allocation 8
Shares of Beneficial Interest 8
Purchase, Redemption and Pricing of Shares 9
Distributions and Taxes 10
Performance Information 12
Report of Independent Accountants 14
Financial Statements 15
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INVESTMENT POLICIES
The Fund has adopted as fundamental policies the following limitations on
its investment activities. These fundamental policies may not be changed
without a majority vote of the Fund shareholders, as defined in the Investment
Company Act of 1940. The Emerging Growth Fund may not:
(1) borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount not to exceed 33 1/3% of the market value
of its assets; (2) issue senior securities as defined in the Investment
Company Act of 1940 except that the Fund may borrow money in accordance with
limitation (1); (3) act as an underwriter with respect to the securities of
others except 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) invest 25% or more of the value of its total
assets in the securities of issuers in any particular industry; (5) purchase,
sell or otherwise invest in real estate or commodities or commodity contracts;
(6) invest in voting securities or in companies for the purpose of exercising
control; and (7) purchase securities on margin, except to obtain such
short-term credits as may be necessary for the clearance of transactions;
however, the Fund may make margin deposits in connection with options and
financial futures transactions.
The Fund has reserved the right to purchase and write interest rate
futures contracts, and put and call options on interest rate futures
contracts. The Fund does not intend to use these techniques for the
foreseeable future and that shareholders will be given notice should the Fund
determine that they will be used.
In addition to the fundamental investment policies listed above, the Fund
has voluntarily adopted certain policies that may be changed or amended by
action of the Trustees without requiring prior notice to or approval of
shareholders. In accordance with such policies and restrictions the Fund
cannot:
(1) purchase from or sell investment securities to any of the officers or
Trustees of the Trust, its investment Adviser, its investment Sub-Adviser, its
principal underwriter or the officers, principals or directors of its
investment Adviser, investment Sub-Adviser or principal underwriter; and (2)
purchase or retain securities of an issuer any of whose officers, directors,
trustees or securityholders is an officer or Trustee of the Trust or a member,
officer, director or trustee of the investment Adviser or Sub- Adviser of the
Fund if one or more of such individuals owns beneficially more than one-half of
one percent (1/2 of 1%) of the securities (taken at market value) of such
issuer and such individuals owning more than one-half of one percent (1/2 of
1%) of such securities together beneficially own more than 5% of such
securities or both.
As a non-diversified company, the Fund is permitted to invest all of its
assets in a limited number of issuers. However, it intends to comply with
Subchapter M of the Internal Revenue Code in order to qualify as a regulated
investment company for federal income tax purposes. To so qualify, the Fund
must diversify its holdings so that, at the close of each quarter of its
taxable year, (a) at least 50% of the value of its total assets is represented
by cash, cash items, securities issued by the U.S. Government or its agencies
or instrumentalities, securities of other regulated investment companies, and
other securities limited generally with respect to any one issuer to an amount
not more than 5% of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer
(other than the U.S. Government or its agencies or instrumentalities or
regulated investment companies), or in two or more issuers that the Fund
controls and that are engaged in the same or similar trades or businesses. In
the event of a decline in the market value of the securities of one or more
such issuers exceeding 5%, an investment in the Fund could entail greater risk
than in a fund which has a policy of diversification.
OTHER POLICIES
LENDING OF SECURITIES. The Fund may, to increase its income, lend its
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
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<PAGE> 32
Guidelines, the loan collateral must, on each business day, at least equal the
value of the loaned securities and must consist of cash, bank letters of credit
or securities of the United States Government (or its agencies or
instrumentalities). To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank would have to be
satisfactory to the Fund. Any loan might be secured by any one or more of the
three types of collateral. The Fund receives amounts equal to the dividends or
interest on loaned securities and also receives one or more negotiated loan
fees, interest on securities used as collateral or interest on short term debt
securities purchased with such collateral, either of which type of interest may
be shared with the borrower. The Fund may also pay reasonable finders,
custodian and administrative fees. Loan arrangements made by the Fund will
comply with all other applicable regulatory requirements including the rules of
The New York Stock Exchange, which require the borrower, after notice, to
redeliver the securities within the normal settlement time of five business
days. While voting rights may pass with the loaned securities, if a material
event will occur affecting an investment on loan, the loan must be called and
the securities voted.
WARRANTS. The Fund also may invest up to 5% of its net assets in warrants.
Included within this amount, may be warrants which are not listed on the New
York or American Stock Exchanges. A reason for investing in warrants is to
permit the Fund to participate in an anticipated increase in the market value
of a security without having to purchase the security to which the warrants
relate. Warrants convey no rights to dividends or voting rights, but only an
option to purchase equity securities of the issuer at a fixed price. If such
securities appreciate, the warrants may be exercised and sold at a gain, but a
loss will be incurred if such securities decrease in value or the term of the
warrant expires before it is exercised. The 5% limitation does not include
warrants acquired by the Fund in units or attached to other securities.
ILLIQUID SECURITIES. The Fund may not invest more than 15% of its net assets
in repurchase agreements which have a maturity of longer than seven days or in
other illiquid securities, including securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual restriction
on resale. Historically, illiquid securities have included securities subject
to contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended ("Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale to the general
public or to certain institutions may not be indicative of the liquidity of
such investments.
Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The Sub-Adviser anticipates that the market
for certain restricted securities such as institutional commercial paper will
expand further as a result of this new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 for which there is a readily available market will not
be deemed to be illiquid if they meet guidelines established by the Board of
Trustees. The Adviser will monitor the liquidity of such restricted
securities subject to the supervision of the Board of Trustees. In reaching
liquidity decisions, the Adviser will consider, inter alia, the following
factors: (1) the frequency of trades and quotes for the security; (2) the
number of dealers wishing to purchase or sell the security and the number of
potential purchasers; (3) dealer undertakings to make a market in the security
and (4) the nature of the
33
<PAGE> 33
security and the nature of the marketplace trades (e.g. the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.
RISKS OF OPTIONS TRANSACTIONS. An exchange-traded option position may be
closed out only on a national securities exchange ("Exchange") which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market
on an Exchange will exist for any particular option at any particular time, and
for some exchange-traded options, no secondary market on an Exchange may exist.
In such event, it might not be possible to effect closing transactions in
particular options with the result that the Fund would have to exercise its
exchange-traded options in order to realize any profit and may incur
transaction costs in connection therewith. If the Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an Exchange
include the following (a) insufficient trading interest in certain options; (b)
restrictions or transactions imposed by an Exchange; (c) trading halts,
suspension or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) interruption of the normal
operations on an Exchange; (e) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(f) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on the Exchange (or in the class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by
the OCC as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages
in options transactions, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an over-the-counter option with a
recognized United States securities dealer ("OTC option") purchased by the
Fund, the Fund could experience a loss of all or part of the value of the
option. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Sub-Adviser.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the option
markets close before the market for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot
be reflected in the option markets.
34
<PAGE> 34
TRUSTEES AND OFFICERS OF THE TRUST
*BRUCE R. BENT, President, Treasurer and Trustee, 810 Seventh Avenue, New
York, New York 10019.
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, Vice President and Secretary of Reserve Management Company,
Inc. ("RMCI") and Reserve Management Corporation, and Chairman and Director of
Resrv Partners, Inc. Before 1968, he was associated with Stone & Webster
Securities Corp., and previously, Teachers Insurance and Annuity Association.
EDWIN EHLERT, JR., Trustee, 125 Elm Street, Westfield, New Jersey 07091.
35
<PAGE> 35
Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency formerly called Travelong of Westfield, Inc.) and Ehlert Travel
Associates of Florida, Inc. (travel agency), and Trustee of RF, RIT, RNYTET,
RTET and RPES.
HENRI W. EMMET, Trustee, 176 East 71st Street, New York, New York 10021.
Mr. Emmet is the Managing Director of Servus Associates, Inc, and U.S.A.
Representative of the First National Bank of Southern Africa and Trustee of RF,
RET, RNYTET, RTET and RPES. Until 1989, he was Senior Vice President of the
New York branch of Banque Nationale de Paris.
BURTT R. EHRLICH, Trustee, 667 Madison Avenue, New York, New York 10021.
Mr. Ehrlich is a Director of Benson Eye Care Corp and a private investor.
Until 1992, he was President and Chairman of Ehrlich Bober Financial Corp., a
municipal securities investment firm.
*DONALD J. HARRINGTON, C.M, Trustee, St. John's University, Jamaica, New
York 11439.
The Reverend Harrington is President of St. John's University (NY) and a
Trustee of RF, RIT, RNYTET, RTET, and RPES. The Reverend Harrington served as
President of Niagara University from 1984 to 1989 and was Executive Vice
President of Niagara University from 1981 to 1984.
NIELS W. JOHNSEN, Trustee, 1 Whitehall Street, New York, New York 10004.
Mr. Johnsen is Chairman of the Board of International Shipholding Corp.
and Central Gulf Lines, Inc. (ship cargo carrier), Director of Centennial
Insurance Co. and Trustee of The Atlantic companies (insurance), RF, RIT,
RNYTET, RTET, and RPES.
THOMAS L. RHODES, Trustee, 150 East 35th Street, New York, New York 10016
Mr. Rhodes is President and a member of the Board of Directors of the
National Review. From 1976 to 1992 Mr. Rhodes was a partner with Goldman,
Sachs & Co., an investment banking firm.
MARC C. COZZOLINO, Counsel and Secretary, 810 Seventh Avenue, New York,
NY 10019.
Mr. Cozzolino is Counsel and Secretary of RF, RIT, RTET, RNYTET, and
RPES. Before joining The Reserve Funds in 1994, Mr. Cozzolino was a staff
attorney at the New Jersey Bureau of Securities.
PAT A. COLLETTI, Controller, 810 Seventh Avenue, New York, New York 10019.
Mr. Colletti is Controller of RF, RIT, RTET, RNYTET, and RPES. Prior to
joining The Reserve Funds in 1985, Mr. Colletti was Supervisor of Accounting of
Money Market Funds for the Dreyfus Corporation.
- - ---------------
* Interested Trustee within the meaning of the Investment Company Act of 1940.
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 or 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 regard of the duties involved in the
conduct of their office.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND FUND COMPLEX
NAME OF TRUSTEE FROM FUND* (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE*
------------------------------------------------------------------------------
<S> <C> <C>
Edwin Ehlert, Jr. $0 $16,500
Henri W. Emmet $0 $16,600
Rev. Donald J. Harrington $0 $16,500
Niels W. Johnsen $0 $16,500
Burtt R. Ehrlich $0 $0
Thomas L. Rhodes $0 $0
</TABLE>
Amount shown are for the Fund's fiscal year ending May 31, 1995.
36
<PAGE> 36
INVESTMENT MANAGEMENT AND OTHER AGREEMENTS
THE ADVISER. Reserve Management Company, Inc. ("Adviser"), 14 Locust
Place, Manhasset, New York, NY 11030, a registered investment Adviser, manages
the Trust and provides it with investment advice pursuant to an Investment
Management Agreement. Under the Investment Management Agreement, the Adviser
manages the Fund, is responsible for the day-to-day oversight of the Trust's
operations and otherwise administers the affairs of the Trust as it deems
advisable subject to the overall control and direction of the Trustees and the
investment policies and limitations of the Trust described in the Prospectus
and Statement of Additional Information. RMCI pays all employee costs and other
ordinary operating costs of the Fund pursuant to the Investment Management
Agreement which include: registration fees paid to the commission and state
regulators, costs associated with the annual update of each Fund's registration
statement, auditing annual financial statements, and printing and mailing
costs (exclusive of those associated with the Rule 12b-1 Plans). Excluded
from ordinary operating costs are interest charges, taxes, brokerage
fees, extraordinary legal and accounting fees and expenses, payments made
pursuant to the Trust's Distribution Plan and the fees of the disinterested
Trustees, for which the Fund pays its direct or allocated share.
For its management services, and for paying all of the employee costs,
costs of the Sub-Adviser and other ordinary operating expenses of the Trust,
RMCI is periodically paid a comprehensive fee, at the annual rate of 1.50% per
annum of the average daily net assets of the Fund.
The Investment Management Agreement is subject to annual review by and
must be approved at least annually by a vote of a majority of the Board of
Trustees, including a majority of those who are not "interested persons" as
defined in the Investment Company Act of 1940, cast in person at a meeting
called for the purpose of voting on such renewal. The Agreement terminates
automatically upon its assignment and may be terminated without penalty upon 60
days' written notice by vote of the Trustees, by vote of a majority of
outstanding voting shares of the Fund or by the Adviser.
THE SUB-ADVISER. Roanoke Asset Management Corp. ("Sub-Adviser"), 529
Fifth Avenue, New York, New York 10017, a registered investment Adviser, acts
as Sub-Adviser to the Fund. The Adviser and Trust have entered into a
Sub-Advisory Agreement with the Sub- Adviser pursuant to which the Adviser will
pay any fees of the Sub-Adviser. The Sub-Advisory Agreement is subject to
annual review by and must be approved annually by the Trustees, including a
majority of those who are not "interested persons" as defined in the Investment
Company Act of 1940, cast in person at a meeting called for purpose of voting
on such renewal. The agreement automatically terminates upon its assignment
and may be terminated without penalty upon 60 days' written notice by vote of
the Trustees, by vote of a majority of outstanding voting shares of the Fund or
by the Sub-Adviser.
CUSTODIAN. Chemical Bank, 4 New York Plaza, New York, New York 10004 is
Custodian for the cash and securities of the Trust. The Custodian maintains
custody of the Trust's cash and securities, handles its securities settlements
and performs transaction processing for receipts and disbursements in
connection with the purchase and sale of the Trust's shares.
DISTRIBUTION AGREEMENT. Resrv Partners, Inc. ("RESRV"), 810 Seventh
Avenue, New York, New York 10019, is a distributor of the shares of the Trust.
RESRV is a "principal underwriter" for the Trust within the meaning of the
Investment Company Act of 1940, and as such acts as agent in arranging for the
continuous offering of Trust shares. RESRV has the right to enter into dealer
agreements with brokers or other persons of its choice for the sale of Trust
shares. RESRV's principal business is the distribution of shares of mutual
funds and it has retained no underwriting commissions during the last three
fiscal years.
The Distribution Agreement must be approved annually by the Trustees,
including a majority of those who are not "interested persons," as defined in
the Investment Company Act of 1940.
DISTRIBUTION PLAN. The Trust maintains a Distribution Plan ("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 Board and approved by
its shareholders. Pursuant to the Plan, the Distributor or its affiliates may
make payments ("assistance payments") to brokers, financial institutions
and financial intermediaries ("payees") in respect of Trust shareholder
accounts ("qualified accounts") as to which the payee has rendered distribution
assistance or other services. The Distributor may also retain amounts to pay
for advertising and marketing expenses. Assistance payments by the
Distributor are made to payees at an annual rate of .25% of the average net
asset value for Class A shares and of 1.00% of the average net asset value for
Class D shares. The Trustees have determined that there is a reasonable
37
<PAGE> 37
likelihood that the Plan will benefit the Trust and its shareholders and that
its costs are primarily intended to result in the sale of the Trust's shares.
Under the Plan, the Trust's officers report quarterly the amounts and
purposes of assistance payments to the Trustees. During the continuance of the
Plan the selection and nomination of the disinterested Trustees of the Trust
are at the discretion of the disinterested Trustees currently in office.
The Plan and related agreements may be terminated at any time by a vote
of a majority of the outstanding voting securities of the Fund. The Plan and
related agreements may be renewed from year to year if approved by a vote of a
majority of the Board of Trustees, including a majority of those who are not
"interested persons", as defined in the Investment Company Act of 1940. 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 majority vote of the Board of Trustees, including a
majority of the disinterested Trustees, cast in person at a meeting called for
the purpose of such vote.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P. 1301 Avenue of
Americas, New York, New York 10019 is the Trust's independent accountants.
PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION
Subject to the overall supervision of the officers of the Trust, its
Board of Trustees, and the Adviser, the Sub-Adviser places all orders for the
purchase and sale of the Fund's investment securities. In general, in the
purchase and sale of investment securities the Sub-Adviser will seek to obtain
prompt and reliable execution of orders at the most favorable prices or yields.
In determining best price and execution, the Sub-Adviser may take into account
a dealer's operational and financial capabilities, the type of transaction
involved, the dealer's general relationship with the Fund's Sub-Adviser, and
any statistical, research, or other services provided by the dealer. 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 in good faith by the Fund's
Sub-Adviser. Brokers or dealers who execute investment securities transactions
for the Fund may also sell its shares; however, any such sales will not be
either a qualifying or disqualifying factor in the selection of brokers or
dealers. Subject to procedures adopted by, and the supervision of, the Board
of Trustees, the Sub-Adviser is authorized to place portfolio transactions
with brokers or dealers affiliated with it provided the commission or fee
charged is comparable to that charged by non-affiliated brokers or dealers on
comparable transactions involving similar securities being purchased or sold
during a comparable period of time on a securities exchange. Any such
transactions will be in accordance with Rule 17e-1 under the Investment Company
Act of 1940.
When transactions are made in the over-the-counter market, the Fund deals
with the primary market makers unless more favorable prices are otherwise
obtainable.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trust to issue an unlimited number
of full and fractional shares of beneficial interest, and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Trust. Each share represents an
interest in the respective series of the Trust proportionately equal to the
interest of each other share. If they deem it advisable in the best interests
of shareholders, the Trustees of the Trust may classify or reclassify any
unissued shares of the Trust by setting or changing the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the stock. Any changes
would be required to comply with any applicable state and Federal securities
laws. These currently require that each series be preferred over all other
series in respect of assets specifically allocated to such class. It is
anticipated that under most circumstances, the rights of any additional series
would be comparable unless otherwise required to respond to the particular
situation. Upon liquidation of the Trust, shareholders are entitled to share
pro rata in the net assets of their respective series of the Trust available
for distribution to such shareholders. No changes can be made to the Trust's
issued shares without shareholder approval.
Each Fund share when issued is fully paid, nonassessable and fully
transferable or redeemable at the shareholder's option. Each share has an
equal interest in the net assets of its series, equal rights to all dividends
and
38
<PAGE> 38
other distributions from its series, and one vote for all purposes. Shares of
separate series vote together for the election of Trustees and have
noncumulative voting rights, meaning that the holders of more than 50% of the
shares voting for the election of Trustees could elect all Trustees if they so
choose, and in such event the holders of the remaining shares could not elect
any person to the Board of Trustees.
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.
Regulations of the Securities and Exchange Commission provide that if a
series is separately affected by a matter requiring a vote (election of
Trustees, ratification of independent accountant selection, and approval of an
underwriting agreement are not considered to have such separate effect and may
be voted upon by the Trust as a whole), each such series votes separately. Each
series votes separately on such matters as approval of the Investment
Management Agreement and material amendments to the Plan, which require
approval by a majority of the effected 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 a meeting of shareholders at
which at least 50 percent of the shares of each group are represented.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Redemption payments are normally made by check or wire transfer, but the
Trust may be authorized to make payment of redemptions partly or wholly in kind
(that is, by delivery of portfolio instruments valued at the same time as the
redemption net asset value is determined). The Trust has made an election
committing it to pay in cash all requests for redemption from the series
involved, by any shareholder or record, limited during any 90-day period to the
lesser of $250,000 or 1% of the net assets of the series at the beginning of
the period. The election is irrevocable pursuant to rules and regulations
under the Investment Company Act or 1940 unless withdrawal is permitted by
order of the Securities and Exchange Commission. In disposing of such
securities an investor might incur transaction costs and on the date of
disposition might receive an amount less than the net asset value of the
redemption.
DETERMINATION OF NET ASSET VALUE. Shares are offered at net asset value
plus a sales charge (if applicable). The net asset value of each Fund
and each class is calculated at the end of each business day (currently 4:00 PM
New York time) that the New York Stock Exchange is open for trading and on
other days there is a sufficient degree of trading to materially affect the
Fund's net asset value. The net asset value is not calculated on New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day, Christmas Day and on other days the New York Stock
Exchange is closed for trading. The net asset value per share of each class is
determined by adding the value of all its securities and other assets,
subtracting its liabilities and dividing the result by the total number of
outstanding shares of each class that represent an interest in the Fund.
Investment securities are valued at the last sale price on the securities
exchange or national securities market on which such securities are primarily
traded. Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average of
the last bid and asked prices, except in the case of open short positions where
the asked price is used for valuation purposes. Bid price is used when no
asked price is available. Market quotations for foreign securities in foreign
currencies are translated into United States dollars at the prevailing rates of
exchange. Any securities or other assets for which recent market quotations
are not readily available are valued at fair value as determined in good faith
by the Board of Trustees.
REDUCED SALES CHARGE. Officers, directors, full time employees and
Trustees, and any trust, pension, profit sharing or qualified retirement plan
of the Adviser, Sub-Adviser, the distributor, the Trust and any affiliate
thereof may purchase shares of the Fund at the net asset value per share.
Spouses and minor children of the foregoing may also purchase shares at net
asset value. In addition, Sub-Adviser advisory clients and related persons of
such may purchase shares at net asset value.
39
<PAGE> 39
DISTRIBUTIONS AND TAXES
The following is a general description of certain tax rules relating to
the Fund. It is not exhaustive and prospective investors may wish to consult
their tax advisers.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986 ("Code") so long as such qualification is in the
best interests of shareholders. If it so qualifies, in any fiscal year in
which it distributes at least 90 percent of its taxable net income, the Fund
generally will not be subjected to federal income tax on such distributed
amounts. Shareholders of the Fund, however, will be subject to federal income
tax on any ordinary net income and net capital gains realized by the Fund and
distributed to shareholders as regular or capital gains dividends, whether
distributed in cash or in the form of additional shares. Net long term capital
gains distributions will be taxable to shareholders as long term capital gains,
regardless of the length of time the corresponding shares have been held.
Upon the taxable disposition (including a sale or redemption) of shares
of the Fund, a shareholder may realize a gain or loss depending upon his basis
in his shares. Such gain or loss generally will be treated as capital gain or
loss (if the shares are capital assets in the shareholder's hands) and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to
the net asset value of a share of the Funds on the reinvestment date.
In order to qualify as a "regulated investment company" under the Code,
the Fund must, among other things, in each taxable year distribute at least 90
percent of its taxable income to shareholders, derive at least 90 percent of
its gross income from dividends, interest and gains from the sale or
disposition of securities and derive less than 30 percent of its gross income
from the sale or disposition of securities held for less than three months.
Accordingly, the Fund will be subject to certain restrictions including
restrictions in the writing of options on securities which have been held for
less than three months, purchasing and selling futures contracts held for less
than three months, in the writing of options which expire in less than three
months, and in effecting closing purchase transactions, with respect to options
which have been written less than three months prior to such transactions.
The Code imposes a non-deductible, 4% excise tax on regulated investment
companies that do not distribute to their shareholders in each calendar year an
amount equal to (i) 98% of their calendar year ordinary income; plus 98% of
their capital gain net income (the excess of short and long term capital
losses) for the one year period ending October 31. Dividends declared in
December of any year to shareholders of record on any date in December will be
deemed to have been received by the shareholders and paid by the Fund on the
record date, provided such dividends are paid by February 1 as of the following
year.
Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following
year, are considered taxable income to shareholders on December 31 in the year
declared even though paid in the next year.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the code applicable to foreign individuals and entities unless a reduced
rate of withholding or a withholding exemption is provided under applicable
treaty laws. Non-resident aliens are urged to consult their own tax adviser
concerning the applicability of the United States withholding tax.
The Code includes rules applicable to certain listed options, futures
contracts, and options on futures contracts which the Fund may write, purchase
or sell. Such options and contracts are classified as Section 1256 contracts
under the Code. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other termination of Section 1256
contracts is generally treated as long-term capital gain or loss to the extent
of 60% thereof and short-term capital gain or loss to the extent of 40% thereof
("60/40 gain or loss"). Such contracts, generally are required to be treated
as sold at market value on the last day of such fiscal year and on certain
other dates for federal income
40
<PAGE> 40
tax purposes ("marked-to-market"). Generally, over-the-counter options are not
classified as Section 1256 contracts and are not subject to the mark-to market
rule or to 60/40 gain or loss treatment. Any gains or losses recognized by the
Fund from transactions in over-the-counter options generally constitute
short-term capital gains or losses. If over-the-counter call options written,
or over-the-counter put options purchased, by the Fund are exercised, the gain
or loss realized on the sale of the underlying securities may be either
short-term or long-term, depending on the holding period of the securities. In
determining the amount of gain or loss, the sales proceeds are reduced by the
premium paid for over-the-counter puts or increased by the premium received for
over-the counter calls.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund. In addition,
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections,
this amount, character and timing of gains or losses from the affected straddle
positions will be determined under rules that vary according to the election(s)
made. The rules applicable under certain of the elections may operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle position, the amount which may be distributed to Shareholder,
and which, will be taxed as ordinary income or long-term capital gain, may be
increased or decreased as compared to a fund that did not engage in such
hedging transactions.
The Code and the Treasury Regulations thereunder are subject to change by
legislative or administrative action either prospectively or retroactively.
Dividends paid by the Fund are generally expected to be subject to any
state or local taxes on income. Shareholders should consult their own
attorneys or tax advisers about the tax consequences related to investing in
the Fund.
PERFORMANCE INFORMATION
The Fund may from time to time advertise its total return. Total return
is computed by finding the average annual compounded rates of return over the
1, 5 and 10 year periods or up to the life of the Fund that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P (1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year periods at the end of the 1, 5 or 10 year
periods (or fractional portion thereof)
In advertising and sales literature, the Fund may compare its performance
to (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), the Russell 2000, or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, Inc. a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
41
<PAGE> 41
The Fund may also compute aggregate total return for specified periods
based on a hypothetical Fund account with an assumed initial investment of
$10,000. The aggregate total return is determined by dividing the net asset
value of the account at the end of the specified period by the value of the
initial investment and is expressed as a percentage. Calculation of aggregate
total return reflects payment of the maximum sales charge and assumes
reinvestment of all income dividends and capital gain distributions during the
period.
The Fund may also quote annual, average annual and annualized total
return and aggregate total performance data both as a percentage and as a
dollar amount based on a hypothetical $10,000 investment for various periods.
Such data will be computed as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum sales charge will
not be included with respect to annual, annualized or aggregate rates of return
calculations.
42
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Trustees of The Reserve Private Equity Series:
We have audited the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, of the Emerging Growth Fund
(one of the Funds of the Reserve Private Equity Series) as of May 31, 1995, and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the period November 14, 1994 (commencement of
operations) through May 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995 by correspondence with the custodian and brokers or other auditing
procedures where confirmations from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Emerging Growth Fund of the Reserve Private Equity Series as of
May 31, 1995, the results of its operations, the changes in its net assets, and
its financial highlights for the period referred to above, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
June 23, 1995
<PAGE> 43
RESERVE EMERGING GROWTH FUND (THE "FUND")
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reserve Emerging Growth Fund is a separate series of shares issued by The
Reserve Private Equity Series (the "Trust"). The Trust was formed under
Delaware law as a Delaware business trust. The Trust is registered under the
Investment Company Act of 1940, as amended, as a non-diversified open-end
management investment company. There are an unlimited number of shares of
beneficial interest of $.001 par value authorized in each series. The
accounting policies summarized below are consistently followed in the
preparation of the financial statements in conformity with generally
accepted accounting principles.
SECURITY VALUATION
Portfolio securities are stated at value. A security listed or traded on an
exchange is valued at its last sale price on the exchange where the security
is principally traded or, lacking any sales on a particular day, the
security is valued at the mean between the closing bid and asked prices on
that day. Each security traded in the over-the-counter market is valued at
the mean between its quoted bid and asked prices.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date. Dividend income and
distributions to shareholders are recorded on the ex-dividend dates.
Interest income is accrued daily. Realized gains and losses from securities
transactions and unrealized appreciation or depreciation of securities are
reported on the identified cost basis for both financial statement and
Federal income tax purposes.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for net operating losses. The effect of these
differences for the year ended May 31, 1995 decreased undistributed net
investment loss by $9,569, and decreased aggregate paid in capital by
$9,569.
EXPENSES
Each series is charged only for its direct or allocated (in proportion to
net assets) share of expenses.
FEDERAL INCOME TAXES
It is the Trust's policy to comply with Subchapter M of the Internal Revenue
Code and to distribute substantially all of its taxable income to its
shareholders. Accordingly, no Federal income tax provision is required.
2. INVESTMENT ACTIVITY
Purchases and sales of securities for the period November 14, 1994
(commencement of operations) through May 31, 1995, other than short-term
securities, aggregated $1,377,800 and $406,988 respectively.
<PAGE> 44
RESERVE EMERGING GROWTH FUND (THE "FUND")
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995 - (CONTINUED)
3. INVESTMENT MANAGEMENT AGREEMENT
Reserve Management Company, Inc. (RMCI), serves as the Fund's investment
adviser and pays substantially all ordinary operating expenses of the Fund
for which it receives a comprehensive fee at an annual rate of 1.50% of the
average daily net assets of the Fund.
RMCI is a majority shareholder of the Fund.
4. DISTRIBUTION ASSISTANCE
Pursuant to a Distribution Plan, the Fund will make payments of .25% per
annum of the average daily net assets of shareholder accounts as to which
the payee has rendered distribution assistance. During the period the Fund
paid $1,475 in distribution expenses to RMCI.
5. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the period November 14, 1994
(commencement of operations) through May 31, 1995 were as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Shares sold 218,209 $2,268,282
Redeemed (116,596) (1,251,282)
--------- -------------
Net Increase 101,613 $1,017,000
========= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 45
RESERVE EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value
(cost $1,036,354) $1,204,251
Cash 51,093
Dividends receivable 60
----------
Total Assets 1,255,404
----------
LIABILITIES
Payable for investment securities purchased 14,534
----------
NET ASSETS $1,240,870
==========
NET ASSETS CONSIST OF (NOTE 1)
Capital Stock (Par Value $.001 per share) $ 102
Additional paid in capital 1,007,329
Undistributed net realized gain on investments 65,542
Net unrealized appreciation on investments (Note 1) 167,897
----------
NET ASSETS, at value, applicable to 101,613 outstanding shares
of Beneficial Interest (Note 5) $1,240,870
==========
NET ASSET VALUE, and redemption price per share ($1,240,870 / 101,613) $ 12.21
==========
Maximum offering price per share (100/95.5 of $12.21) $ 12.79
==========
</TABLE>
RESERVE EMERGING GROWTH FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NOVEMBER 14, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
--------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 755
EXPENSES
Comprehensive fee (Note 3) $ 8,849
12b-1 Fee (Note 4) 1,475
---------
Total Expenses 10,324
NET INVESTMENT LOSS (9,569)
Realized and Unrealized Gain on Investments
Net realized gain on investment securities: (Note 1)
Proceeds from sales of securities 406,988
Cost of securities sold (341,446) 65,542
---------
Net unrealized appreciation on investments 167,897
---------
Net realized and unrealized gain on investments 233,439
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 223,870
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 46
RESERVE EMERGING GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NOVEMBER 14, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C>
INCREASE IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment loss $ (9,569)
Net realized gain from investments 65,542
Net unrealized appreciation 167,897
-----------
Net increase in net assets resulting from
operations 223,870
-----------
FROM CAPITAL SHARE TRANSACTIONS (Note 5)
Net proceeds from sales of shares 2,268,282
Cost of shares redeemed (1,251,282)
-----------
Net increase in net assets resulting from
share transactions 1,017,000
-----------
NET INCREASE IN NET ASSETS 1,240,870
NET ASSETS:
Beginning of period 0
-----------
End of period $ 1,240,870
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 47
RESERVE EMERGING GROWTH FUND (THE "FUND")
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995 - (CONTINUED)
6. FINANCIAL HIGHLIGHTS (FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
NOVEMBER 14, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C>
Net asset value, beginning of period $10.00
------
Income from investment operations
Net investment loss (.09)
Net realized and unrealized gain 2.30
------
Total from investment operations 2.21
------
Net asset value, end of period $12.21
======
Total Return 22.10%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period $1,241
Ratio of expenses to average net assets 1.75%(1)
Ratio of net investment loss to average
net assets (1.62)%(1)
Portfolio turnover rate 43%
</TABLE>
- - -------
(1) Annualized
(2) Total return is not annualized, and does not reflect impact
of sales load.
<PAGE> 48
RESERVE EMERGING GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MAY 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
BIO-TECHNOLOGY (2.1%)
* Genzyme Corp. 700 $ 25,900
--------
CAPITAL GOODS - DIVERSIFIED (2.4%)
Danaher Corp. 1,000 30,250
--------
CAPITAL GOODS/INDUSTRIAL (12.0%)
* Benchmark Electronics Inc. 1,000 21,500
Magna International Inc. Cl. A 700 26,600
* Quad Systems Corp. 2,300 20,700
* Richey Electronics Inc. 3,500 24,063
* Vishay Intertechnology Inc. 840 55,545
--------
148,408
--------
COMMUNICATION - CONTENT (1.8%)
* Wescott Communications 1,500 22,500
--------
COMMUNICATION - EQUIPMENT (8.9%)
* Anadrigics Inc. 1,500 25,875
E.C.I. Telecom Ltd 900 15,188
* Premisys Communications Inc. 1,000 50,750
Scientific-Atlanta Inc. 1,000 18,625
--------
110,438
--------
COMMUNICATION - NETWORK (5.4%)
* Heartland Wireless Communications Inc. 1,500 34,500
* Intelcom Group Inc. 1,000 8,875
* People's Choice TV Corp. 1,000 24,187
--------
67,562
--------
COMPUTER NETWORKING (7.4%)
* Ascend Communications Inc. 900 34,875
* Lin Television Corp. 400 14,400
* Network Peripherals Inc. 1,000 22,000
* Shiva Corp. 500 19,375
--------
90,650
--------
COMPUTER SOFTWARE (8.1%)
Autodesk Inc. 800 29,600
* Data Translation Inc. 1,000 27,250
* Symantec Corp. 800 18,400
* Tivoli Systems Inc. 700 25,375
--------
100,625
--------
CONSUMER GROWTH (3.7%)
* Conso Products Co. 1,800 25,200
* Electronic Arts Co. 800 20,600
--------
45,800
--------
ELECTRONIC COMPONENTS - SEMICONDUCTOR (16.3%)
* Cirrus Logic Inc. 500 24,625
* Gasonics International Corp. 2,000 49,000
* Integrated Device Technology Inc. 700 30,450
* KLA Instruments Corp. 500 34,875
* Kulicke & Soffa Industries Inc. 1,500 63,750
--------
202,700
--------
</TABLE>
<PAGE> 49
RESERVE EMERGING GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MAY 31, 1995 - (CONTINUED)
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
ENERGY (1.9%)
Cross Timbers Oil Co. 1,500 $ 23,625
----------
HEALTH (5.8%)
* National Dentex Corp. 3,000 39,000
* Pacificare Health Systems Inc. CI.B 500 33,125
----------
72,125
----------
MANAGED CARE (7.2%)
* Healthsource Inc. 700 27,650
* Horizon Healthcare Corp. 1,000 18,250
* Humana Inc. 1,000 21,125
* Phycor Inc. 750 22,594
----------
89,619
----------
MISC. CONSUMER (2.2%)
* On Assignment Inc. 1,500 26,812
----------
RESTAURANTS (2.9%)
* Cheesecake Factory Inc. 700 17,412
* Outback Steakhouse Inc. 600 17,925
----------
35,337
----------
RETAIL - SPECIALTY (5.6%)
* AnnTaylor Stores Corp. 600 12,525
* Staples Inc. 1,000 28,250
* The Sports Authority Inc. 1,500 28,875
----------
69,650
----------
SYSTEM SOFTWARE/CLIENT SERVER (3.4%)
* Informix Corp. 1,000 42,250
----------
TOTAL COMMON STOCKS (Cost $1,036,354) (97.10%) 1,204,251
Other assets, less liabilities (2.90%) 36,619
----------
NET ASSETS ( 100%) $1,240,870
==========
</TABLE>
Value of investments are shown as a percentage of Net Assets
* Non-income producing security.
For Federal income tax purposes the tax basis of investments owned at May 31,
1995 was $1,036,354, the aggregate gross unrealized appreciation for all
investments was $225,397 and aggregate gross unrealized depreciation for all
investments was $57,500.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 50
RESERVE PRIVATE EQUITY SERIES
RESERVE MID-CAP GROWTH FUND
810 SEVENTH AVENUE, NEW YORK, N.Y. 10019
(800) 637-1700
---------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information describes Reserve Private Equity
Series ("Trust") and the Reserve Mid-Cap Growth Fund ("Mid-Cap Growth Fund" or
"Fund"). This Statement is not a Prospectus, but provides detailed information
to supplement the Prospectus and should be read in conjunction with the
Prospectus. A copy of the Prospectus may be obtained (without charge) from
Reserve Private Equity Series. This Statement is dated 1995.
TABLE OF CONTENTS
Page
----
Investment Policies
Other Policies
Trustees and Officers of the Trust
Investment Management and Other Agreements
Portfolio Turnover, Transaction Charges and
Allocation
Shares of Beneficial Interest
Purchase, Redemption and Pricing of Shares
Distributions and Taxes
Performance Information
Report of Independent Accountants
Financial Statements
43
<PAGE> 51
INVESTMENT POLICIES
The Fund has adopted as fundamental policies the following limitations on
its investment activities. These fundamental policies may not be changed
without a majority vote of the Fund shareholders, as defined in the Investment
Company Act of 1940. The Mid-Cap Growth Fund may not:
(1) borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount not to exceed 33 1/3% of the market value
of its assets; (2) issue senior securities as defined in the Investment
Company Act of 1940 except that the Fund may borrow money in accordance with
limitation (1); (3) act as an underwriter with respect to the securities of
others except 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) invest 25% or more of the value of its total
assets in the securities of issue in any particular industry; (5) purchase,
sell or otherwise invest in real estate or commodities or commodity contracts;
(6) invest in voting securities or in companies for the purpose of
exercising control; and (7) purchase securities on margin, except to obtain
such short-term credits as may be necessary for the clearance of transactions;
however, the Fund may make margin deposits in connection with options and
financial futures transactions.
The Fund has reserved the right to purchase and write interest rate
futures contracts, and put and call options on interest rate futures
contracts. The Fund does not intend to use these techniques for the
foreseeable future and that shareholders will be given notice should the Fund
determine that they will be used.
In addition to the fundamental investment policies listed above, the Fund
has voluntarily adopted certain policies that may be changed or amended by
action of the Trustees without requiring prior notice to or approval of
shareholders. In accordance with such policies and restrictions the Fund
cannot:
(1) purchase from or sell investment securities to any of the officers or
Trustees of the Trust, its investment Adviser, its investment Sub-Adviser, its
principal underwriter or the officers, principals or directors of its
investment Adviser, investment Sub-Adviser or principal underwriter; and (2)
purchase or retain securities of an issuer any of whose officers, directors,
trustees or securityholders is an officer or Trustee of the Trust or a member,
officer, director or trustee of the investment adviser or Sub- Adviser of the
Fund if one or more of such individuals owns beneficially more than one-half of
one percent (1/2 of 1%) of the securities (taken at market value) of such
issuer and such individuals owning more than one-half of one percent (1/2 of
1%) of such securities together beneficially own more than 5% of such
securities or both.
As a non-diversified company, the Fund is permitted to invest all of its
assets in a limited number of issuers. However, it intends to comply with
Subchapter M of the Internal Revenue Code in order to qualify as a regulated
investment company for federal income tax purposes. To so qualify, the Fund
must diversify its holdings so that, at the close of each quarter of its
taxable year, (a) at least 50% of the value of its total assets is represented
by cash, cash items, securities issued by the U.S. Government or its agencies
or instrumentalities, securities of other regulated investment companies, and
other securities limited generally with respect to any one issuer to an amount
not more than 5% of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer
(other than the U.S. Government or its agencies or instrumentalities or
regulated investment companies), or in two or more issuers that the Fund
controls and that are engaged in the same or similar trades or businesses. In
the event of a decline in the market value of the securities of one or more
such issuers exceeding 5%, an investment in the Fund could entail greater risk
than in a fund which has a policy of diversification.
OTHER POLICIES
LENDING OF SECURITIES. The Fund may, to increase its income, lend its
securities to brokers, dealers and institutional investors if the loan is
collateralized in accordance with applicable regulatory requirements (the
"Guidelines") and if, after any loan, the value of the securities loaned does
not exceed 25% of the value of its assets. Under the present Guidelines, the
loan collateral must, on each business day, at least equal the value of the
loaned securities and must
44
<PAGE> 52
consist of cash, bank letters of credit or securities of the United States
Government (or its agencies or instrumentalities). To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by
the Fund if the demand meets the terms of the letter. Such terms and the
issuing bank would have to be satisfactory to the Fund. Any loan might be
secured by any one or more of the three types of collateral. The Fund receives
amounts equal to the dividends or interest on loaned securities and also
receives one or more negotiated loan fees, interest on securities used as
collateral or interest on short term debt securities purchased with such
collateral, either of which type of interest may be shared with the borrower.
The Fund may also pay reasonable finders, custodian and administrative fees.
Loan arrangements made by the Fund will comply with all other applicable
regulatory requirements including the rules of The New York Stock Exchange,
which require the borrower, after notice, to redeliver the securities within
the normal settlement time of five business days. While voting rights may pass
with the loaned securities, if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
WARRANTS. The Fund also may invest up to 5% of its net assets in warrants.
Included within this amount, may be warrants which are not listed on the New
York or American Stock Exchanges. A reason for investing in warrants is to
permit the Fund to participate in an anticipated increase in the market value
of a security without having to purchase the security to which the warrants
relate. Warrants convey no rights to dividends or voting rights, but only an
option to purchase equity securities of the issuer at a fixed price. If such
securities appreciate, the warrants may be exercised and sold at a gain, but a
loss will be incurred if such securities decrease in value or the term of the
warrant expires before it is exercised. The 5% limitation does not include
warrants acquired by the Fund in units or attached to other securities.
RISKS OF OPTIONS TRANSACTIONS. An exchange-traded option position may be
closed out only on a national securities exchange ("Exchange") which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market
on an Exchange will exist for any particular option at any particular time, and
for some exchange-traded options, no secondary market on an Exchange may exist.
In such event, it might not be possible to effect closing transactions in
particular options with the result that the Fund would have to exercise its
exchange-traded options in order to realize any profit and may incur
transaction costs in connection therewith. If the Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an Exchange
include the following (a) insufficient trading interest in certain options; (b)
restrictions or transactions imposed by an Exchange; (c) trading halts,
suspension or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (d) interruption of the normal
operations on an Exchange; (e) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(f) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on the Exchange (or in the class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by
the OCC as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages
in options transactions, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an over-the-counter option with a
recognized United States securities dealer ("OTC option") purchased by the
Fund, the Fund could experience a loss of all or part of the value of the
option. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Sub-Adviser.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the option
markets close before the market for the underlying securities, significant
price and rate movements can take place in the underlying markets that cannot
be reflected in the option markets.
45
<PAGE> 53
TRUSTEES AND OFFICERS OF THE TRUST
*BRUCE R. BENT, President, Treasurer and Trustee, 810 Seventh Avenue, New
York, New York 10019.
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, Vice President and Secretary of Reserve Management Company,
Inc. ("RMCI") and Reserve Management Corporation, and Chairman and Director of
Resrv Partners, Inc. Before 1968, he was associated with Stone & Webster
Securities Corp., and previously, Teachers Insurance and Annuity Association.
EDWIN EHLERT, JR., Trustee, 125 Elm Street, Westfield, New Jersey 07091.
Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency formerly called Travelong of Westfield, Inc.) and Ehlert Travel
Associates of Florida, Inc. (travel agency), and Trustee of RF, RIT, RNYTET,
RTET and RPES.
HENRI W. EMMET, Trustee, 176 East 71st Street, New York, New York 10021.
Mr. Emmet is the Managing Director of Servus Associates, Inc, and U.S.A.
Representative of the First National Bank of Southern Africa and Trustee of RF,
RET, RNYTET, RTET and RPES. Until 1989, he was Senior Vice President of the
New York branch of Banque Nationale de Paris.
BURTT R. EHRLICH, Trustee, 667 Madison Avenue, New York, New York 10021.
Mr. Ehrlich is a Director of Benson Eye Care Corp and a private investor.
Until 1992, he was President and Chairman of Ehrlich Bober Financial Corp., a
municipal securities investment firm.
*DONALD J. HARRINGTON, C.M, Trustee, St. John's University, Jamaica, New
York 11439.
The Reverend Harrington is President of St. John's University (NY) and a
Trustee of RF, RIT, RNYTET, RTET and RPES. The Reverend Harrington served as
President of Niagara University from 1984 to 1989 and was Executive Vice
President of Niagara University from 1981 to 1984. The Reverend Harrington
also served as Director of the Bear Stearns Companies Inc. since 1993.
NIELS W. JOHNSEN, Trustee, 1 Whitehall Street, New York, New York 10004.
Mr. Johnsen is Chairman of the Board of International Shipholding Corp.
and Central Gulf Lines, Inc. (ship cargo carrier), Director of Centennial
Insurance Co. and Trustee of The Atlantic companies (insurance), RF, RIT,
RNYTET, RTET, and RPES.
THOMAS L. RHODES, Trustee, 150 East 35th Street, New York, New York 10016
Mr. Rhodes is President and a member of the Board of Directors of the
National Review. From 1976 to 1992 Mr. Rhodes was a partner with Goldman,
Sachs & Co., an investment banking firm.
MARC C. COZZOLINO, Counsel and Secretary, 810 Seventh Avenue, New York,
NY 10019.
Mr. Cozzolino is Counsel and Secretary of RF, RIT, RTET, RNYTET, and
RPES. Before joining The Reserve Funds in 1994, Mr. Cozzolino was a staff
attorney at the New Jersey Bureau of Securities.
PAT A. COLLETTI, Controller, 810 Seventh Avenue, New York, New York 10019.
Mr. Colletti is Controller of RF, RIT, RTET, RNYTET and RPES. Prior to
joining The Reserve Funds in 1985, Mr. Colletti was Supervisor of Accounting
of Money Market Funds for the Dreyfus Corporation.
47
<PAGE> 54
- - ---------------
* Interested Trustee within the meaning of the Investment Company Act of 1940.
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 or 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 regard of the duties involved in the
conduct of their office.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND FUND COMPLEX
NAME OF TRUSTEE FROM FUND* (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE*
------------------------------------------------------------------------------
<S> <C> <C>
Edwin Ehlert, Jr. $0 $16,500
Henri W. Emmet $0 $16,600
Rev. Donald J. Harrington $0 $16,500
Niels W. Johnsen $0 $16,500
Burtt R. Ehrlich $0 $0
Thomas L. Rhodes $0 $0
</TABLE>
Amount shown are for the Fund's fiscal year ending May 31, 1995.
INVESTMENT MANAGEMENT AND OTHER AGREEMENTS
The Adviser. Reserve Management Company, Inc. ("Adviser"), 14 Locust
Place, Manhasset, New York, NY 11030, a registered investment adviser, manages
the Trust and provides it with investment advice pursuant to an Investment
Management Agreement. Under the Investment Management Agreement, the Adviser
manages the Fund, is responsible for the day-to-day oversight of the Trust's
operations and otherwise administers the affairs of the Trust as it deems
advisable subject to the overall control and direction of the Trustees and the
investment policies and limitations of the Trust described in the Prospectus
and Statement of Additional Information. RMCI pays all employee costs and other
ordinary operating costs of the Fund pursuant to the Investment Management
Agreement which include: registration fees paid to the commission and state
regulators, costs associated with the annual update of each Fund's registration
statement, auditing annual financial statements, and printing and mailing
costs (exclusive of those associated with the Rule 12b-1 Plans).
Excluded from ordinary operating costs are interest charges, taxes,
brokerage fees, extraordinary legal and accounting fees and expenses, payments
made pursuant to the Trust's Distribution Plan and the fees of the
disinterested Trustees, for which the Fund pays its direct or allocated share.
For its management services, and for paying all of the employee costs,
costs of the Sub-Adviser and other ordinary operating expenses of the Trust,
RMCI is periodically paid a comprehensive fee, at the annual rate of 1.50% per
annum of the average daily net assets of the Fund.
The Investment Management Agreement is subject to annual review by and
must be approved at least annually by a vote of a majority of the Board of
Trustees, including a majority of those who are not "interested persons" as
defined in the Investment Company Act of 1940, cast in person at a meeting
called for the purpose of voting on such renewal. The Agreement terminates
automatically upon its assignment and may be terminated without penalty upon 60
days' written notice by vote of the Trustees, by vote of a majority of
outstanding voting shares of the Fund or by the Adviser.
THE SUB-ADVISER. Cambridge Equity Advisors ("Sub-Adviser"), 5214 Maryland
Way, Suite 309, Brentwood, Tennessee 37027 a registered investment Adviser,
acts as Sub-Adviser to the Fund. The Adviser and Trust have entered into a
Sub-Advisory Agreement with the Sub-Adviser pursuant to which the Adviser will
pay any fees of the Sub-Adviser. The Sub-Advisory Agreement is subject to
annual review by and must be approved annually by the Trustees, including a
majority of those who are not "interested persons" as defined in the Investment
Company Act of 1940, cast in person at a meeting called for purpose of voting
on such renewal. The agreement automatically terminates upon its assignment
and may be terminated without penalty upon 60 days' written notice by vote of
the Trustees, by vote of a majority of outstanding voting shares of the Fund or
by the Sub-Adviser.
CUSTODIAN. Chemical Bank, 4 New York Plaza, New York, New York 10004 is
Custodian for the cash and securities of the Trust. The Custodian maintains
custody of the Trust's cash and securities, handles its securities settlements
and performs transaction processing for receipts and disbursements in
connection with the purchase and sale of the Trust's shares.
DISTRIBUTION AGREEMENT. Resrv Partners, Inc. ("RESRV"), 810 Seventh
Avenue, New York, New York 10019, is a distributor of the shares of the Trust.
RESRV is a "principal underwriter" for the Trust within the meaning of the
Investment Company Act of 1940, and as such acts as agent in arranging for the
continuous offering of Trust shares. RESRV has the right to enter into dealer
agreements with brokers or other persons of its choice for the sale of Trust
shares. RESRV's principal business is the distribution of shares of mutual
funds and it has retained no underwriting commissions during the last three
fiscal years.
The Distribution Agreement must be approved annually by the Trustees,
including a majority of those who are not "interested persons," as defined in
the Investment Company Act of 1940.
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<PAGE> 55
DISTRIBUTION PLAN. The Trust maintains a Distribution Plan ("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 Board and
approved by its shareholders. Pursuant to the Plan, the Distributor or its
affiliates may make payments ("assistance payments") to brokers, financial
institutions and financial intermediaries ("payees") in respect of Trust
shareholder accounts ("qualified accounts") as to which the payee has rendered
distribution assistance or other services. The Distributor may also retain
amounts to pay for advertising and marketing expenses. Assistance payments by
the Distributor are made to payees at an annual rate of .25% of the average
net asset value for Class A shares and at an annual rate of 1.00% of the
average net asset value for Class D shares. The Trustees have determined that
there is a reasonable likelihood that the Plan will benefit the Trust and its
shareholders and that its costs are primarily intended to result in the sale of
the Trust's shares.
Under the Plan, the Trust's officers report quarterly the amounts and
purposes of assistance payments to the Trustees. During the continuance of the
Plan the selection and nomination of the disinterested Trustees of the Trust
are at the discretion of the disinterested Trustees currently in office.
The Plan and related agreements may be terminated at any time by a vote
of a majority of the outstanding voting securities of the Fund. The Plan and
related agreements may be renewed from year to year if approved by a vote of a
majority of the Board of Trustees, including a majority of those who are not
"interested persons", as defined in the Investment Company Act of 1940. 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 majority vote of the Board of Trustees, including a
majority of the disinterested Trustees, cast in person at a meeting called for
the purpose of such vote.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 1301 Avenue of
Americas, New York, New York 10019 is the Trust's independent accountants.
PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION
Subject to the overall supervision of the officers of the Trust, its
Board of Trustees, and the Adviser, the Sub-Adviser places all orders for the
purchase and sale of the Fund's investment securities. In general, in the
purchase and sale of investment securities the Sub-Adviser will seek to obtain
prompt and reliable execution of orders at the most favorable prices or yields.
In determining best price and execution, the Sub-Adviser may take into account
a dealer's operational and financial capabilities, the type of transaction
involved, the dealer's general relationship with the Fund's Sub-Adviser, and
any statistical, research, or other services provided by the dealer. 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 in good faith by the Fund's
Sub-Adviser. Brokers or dealers who execute investment securities transactions
for the Fund may also sell its shares; however, any such sales will not be
either a qualifying or disqualifying factor in the selection of brokers or
dealers. Subject to procedures adopted by, and the supervision of, the Board
of Trustees, the Sub-Adviser is authorized to place portfolio transactions
with brokers or dealers affiliated with it provided the commission or fee
charged is comparable to that charged by non-affiliated brokers or dealers on
comparable transactions involving similar securities being purchased or sold
during a comparable period of time on a securities exchange. Any such
transactions will be in accordance with Rule 17e-1 under the Investment Company
Act of 1940.
When transactions are made in the over-the-counter market, the Fund deals
with the primary market makers unless more favorable prices are otherwise
obtainable.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trust to issue an unlimited number
of full and fractional shares of beneficial interest, and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Trust. Each share represents an
interest in the respective series of the Trust proportionately equal to the
interest of each other share. If they deem it advisable in the best interests
49
<PAGE> 56
of shareholders, the Trustees of the Trust may classify or reclassify any
unissued shares of the Trust by setting or changing the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the stock. Any changes
would be required to comply with any applicable state and Federal securities
laws. These currently require that each series be preferred over all other
series in respect of assets specifically allocated to such class. It is
anticipated that under most circumstances, the rights of any additional series
would be comparable unless otherwise required to respond to the particular
situation. Upon liquidation of the Trust, shareholders are entitled to share
pro rata in the net assets of their respective series of the Trust available
for distribution to such shareholders. No changes can be made to the Trust's
issued shares without shareholder approval.
Each Fund share when issued is fully paid, nonassessable and fully
transferable or redeemable at the shareholder's option. Each share has an
equal interest in the net assets of its series, equal rights to all dividends
and other distributions from its series, and one vote for all purposes. Shares
of separate series vote together for the election of Trustees and have
noncumulative voting rights, meaning that the holders of more than 50% of the
shares voting for the election of Trustees could elect all Trustees if they so
choose, and in such event the holders of the remaining shares could not elect
any person to the Board of Trustees.
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.
Regulations of the Securities and Exchange Commission provide that if a
series is separately affected by a matter requiring a vote (election of
Trustees, ratification of independent accountant selection, and approval of an
underwriting agreement are not considered to have such separate effect and may
be voted upon by the Trust as a whole), each such series votes separately. Each
series votes separately on such matters as approval of the Investment
Management Agreement and material amendments to the Plan, which require
approval by a majority of the effected 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 a meeting of shareholders at
which at least 50 percent of the shares of each group are represented.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Redemption payments are normally made by check or wire transfer, but the
Trust may be authorized to make payment of redemptions partly or wholly in kind
(that is, by delivery of portfolio instruments valued at the same time as the
redemption net asset value is determined). The Trust has made an election
committing it to pay in cash all requests for redemption from the series
involved, by any shareholder or record, limited during any 90-day period to the
lesser of $250,000 or 1% of the net assets of the series at the beginning of
the period. The election is irrevocable pursuant to rules and regulations
under the Investment Company Act or 1940 unless withdrawal is permitted by
order of the Securities and Exchange Commission. In disposing of such
securities an investor might incur transaction costs and on the date of
disposition might receive an amount less than the net asset value of the
redemption.
DETERMINATION OF NET ASSET VALUE. Shares are offered at net asset value
plus a sales charge (if applicable). The net asset value of the Fund is
calculated at the end of each business day (currently 4:00 PM New York time)
that the New York Stock Exchange is open for trading and on other days there is
a sufficient degree of trading to materially affect the Fund's net asset value.
The net asset value is not calculated on New Year's Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day,
Christmas Day and on other days the New York Stock Exchange is closed for
trading. The net asset value per share of the Fund is determined by adding the
value of all its securities and other assets, subtracting its liabilities and
dividing the result by the total number of the class' outstanding shares that
represent the class' proportionate interest in the Fund.
Investment securities are valued at the last sale price on the securities
exchange or national securities market on which such securities are primarily
traded. Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average of
the last bid and asked prices, except in the case of open short positions where
the asked price is used for valuation purposes. Bid price is used when no
50
<PAGE> 57
asked price is available. Market quotations for foreign securities in foreign
currencies are translated into United States dollars at the prevailing rates of
exchange. Any securities or other assets for which recent market quotations
are not readily available are valued at fair value as determined in good faith
by the Board of Trustees.
REDUCED SALES CHARGE. Officers, directors, full time employees and
Trustees, and any trust, pension, profit sharing or qualified retirement plan
of the Adviser, Sub-Adviser, the distributor, the Trust and any affiliate
thereof may purchase shares of the Fund at the net asset value per share.
Spouses and minor children of the foregoing may also purchase shares at net
asset value. In addition, Sub-Adviser advisory clients and related persons of
such may purchase shares at net asset value.
DISTRIBUTIONS AND TAXES
The following is a general description of certain tax rules relating to
the Fund. It is not exhaustive and prospective investors may wish to consult
their tax advisers.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986 ("Code") so long as such qualification is in the
best interests of shareholders. If it so qualifies, in any fiscal year in
which it distributes at least 90 percent of its taxable net income, the Fund
generally will not be subjected to federal income tax on such distributed
amounts. Shareholders of the Fund, however, will be subject to federal income
tax on any ordinary net income and net capital gains realized by the Fund and
distributed to shareholders as regular or capital gains dividends, whether
distributed in cash or in the form of additional shares. Net long term capital
gains distributions will be taxable to shareholders as long term capital gains,
regardless of the length of time the corresponding shares have been held.
Upon the taxable disposition (including a sale or redemption) of shares
of the Fund, a shareholder may realize a gain or loss depending upon his basis
in his shares. Such gain or loss generally will be treated as capital gain or
loss (if the shares are capital assets in the shareholder's hands) and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to
the net asset value of a share of the Funds on the reinvestment date.
In order to qualify as a "regulated investment company" under the Code,
the Fund must, among other things, in each taxable year distribute at least 90
percent of its taxable income to shareholders, derive at least 90 percent of
its gross income from dividends, interest and gains from the sale or
disposition of securities and derive less than 30 percent of its gross income
from the sale or disposition of securities held for less than three months.
Accordingly, the Fund will be subject to certain restrictions including
restrictions in the writing of options on securities which have been held for
less than three months, purchasing and selling futures contracts held for less
than three months, in the writing of options which expire in less than three
months, and in effecting closing purchase transactions, with respect to options
which have been written less than three months prior to such transactions.
The Code imposes a non-deductible, 4% excise tax on regulated investment
companies that do not distribute to their shareholders in each calendar year an
amount equal to (i) 98% of their calendar year ordinary income; plus 98% of
their capital gain net income (the excess of short and long term capital
losses) for the one year period ending October 31. Dividends declared in
December of any year to shareholders of record on any date in December will be
deemed to have been received by the shareholders and paid by the Fund on the
record date, provided such dividends are paid by February 1 as of the following
year.
Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following
year, are considered taxable income to shareholders on December 31 in the year
declared even though paid in the next year.
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<PAGE> 58
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the code applicable to foreign individuals and entities unless a reduced
rate of withholding or a withholding exemption is provided under applicable
treaty laws. Non-resident aliens are urged to consult their own tax adviser
concerning the applicability of the United States withholding tax.
The Code includes rules applicable to certain listed options, futures
contracts, and options on futures contracts which the Fund may write, purchase
or sell. Such options and contracts are classified as Section 1256 contracts
under the Code. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other termination of Section 1256
contracts is generally treated as long-term capital gain or loss to the extent
of 60% thereof and short-term capital gain or loss to the extent of 40% thereof
("60/40 gain or loss"). Such contracts, generally are required to be treated
as sold at market value on the last day of such fiscal year and on certain
other dates for federal income tax purposes ("marked-to-market"). Generally,
over- the-counter options are not classified as Section 1256 contracts and are
not subject to the mark-to market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by the Fund from transactions in over-the-counter
options generally constitute short-term capital gains or losses. If
over-the-counter call options written, or over-the-counter put options
purchased, by the Fund are exercised, the gain or loss realized on the sale of
the underlying securities may be either short-term or long-term, depending on
the holding period of the securities. In determining the amount of gain or
loss, the sales proceeds are reduced by the premium paid for over-the-counter
puts or increased by the premium received for over-the counter calls.
The Code and the Treasury Regulations thereunder are subject to change by
legislative or administrative action either prospectively or retroactively.
Dividends paid by the Fund are generally expected to be subject to any
state or local taxes on income. Shareholders should consult their own
attorneys or tax advisers about the tax consequences related to investing in
the Fund.
PERFORMANCE INFORMATION
The Fund may from time to time advertise its total return. Total return
is computed by finding the average annual compounded rates of return over the
1, 5 and 10 year periods or up to the life of the Fund that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10
year periods at the end of the 1, 5 or 10 year
periods (or fractional portion thereof)
In advertising and sales literature, the Fund may compare its performance
to (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), the Russell 2000, or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, Inc. a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
The Fund may also compute aggregate total return for specified periods
based on a hypothetical Fund account with an assumed initial investment of
$10,000. The aggregate total return is determined by dividing the net asset
value of the account at the end of the specified period by the value of the
initial investment and is expressed as a percentage. Calculation of aggregate
total return reflects payment of the maximum sales charge and assumes
reinvestment of all income dividends and capital gain distributions during the
period.
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<PAGE> 59
The Fund may also quote annual, average annual and annualized total
return and aggregate total performance data both as a percentage and as a
dollar amount based on a hypothetical $10,000 investment for various periods.
Such data will be computed as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum sales charge will
not be included with respect to annual, annualized or aggregate rates of return
calculations.
53
<PAGE> 60
RESERVE PRIVATE EQUITY SERIES
RESERVE BLUE CHIP GROWTH FUND
810 SEVENTH AVENUE, NEW YORK, N.Y. 10019
(800) 637-1700
---------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information describes Reserve Private Equity
Series and the Reserve Blue Chip Growth Fund ("Growth Fund" or "Fund"). This
Statement is not a Prospectus, but provides detailed information to supplement
the Prospectus and should be read in conjunction with the Prospectus. A copy
of the Prospectus may be obtained (without charge) from Reserve Private Equity
Series. This Statement is dated 1995.
TABLE OF CONTENTS
Page
----
Investment Policies
Other Policies
Trustees and Officers of the Trust
Investment Management and Other Agreements
Portfolio Turnover, Transaction Charges and
Allocation
Shares of Beneficial Interest
Purchase, Redemption and Pricing of Shares
Distributions and Taxes
Performance Information
Report of Independent Accountants
Financial Statements
54
<PAGE> 61
INVESTMENT POLICIES
The Fund has adopted as fundamental policies the following limitations on
its investment activities. These fundamental policies may not be changed without
a majority vote of the Fund shareholders, as defined in the Investment Company
Act of 1940. The Blue Chip Growth Fund may not:
(1) borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount not to exceed 33 1/3% of the market value of
its assets; (2) issue senior securities as defined in the Investment Company Act
of 1940 except that the Fund may borrow money in accordance with limitation (1);
(3) act as an underwriter with respect to the securities of others except 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) invest
25% or more of the value of its total assets in the securities of issuers in any
particular industry; (5) purchase, sell or otherwise invest in real estate or
commodities or commodity contracts; (6) invest in voting securities or in
companies for the purpose of exercising control.
The Fund has reserved the right to purchase and write interest rate
futures contracts, and put and call options on interest rate futures
contracts. The Fund does not intend to use these techniques for the
foreseeable future and that shareholders will be given notice should the Fund
determine that they will be used.
In addition to the fundamental investment policies listed above, the Fund
has voluntarily adopted certain policies that may be changed or amended by
action of the Trustees without requiring prior notice to or approval of
shareholders. In accordance with such policies and restrictions the Fund cannot:
(1) purchase from or sell investment securities to any of the officers or
Trustees of the Trust, its investment Adviser its investment Sub-Adviser, its
principal underwriter or the officers, principals or directors of its investment
Adviser, investment Sub-Adviser or principal underwriter; and (2) purchase or
retain securities of an issuer any of whose officers, directors, trustees or
securityholders is an officer or Trustee of the Trust or a member, officer,
director or trustee of the investment Adviser or Sub-Adviser of the Fund if one
or more of such individuals owns beneficially more than one-half of one percent
(1/2 of 1%) of the securities (taken at market value) of such issuer and such
individuals owning more than one-half of one percent (1/2 of 1%) of such
securities together beneficially own more than 5% of such securities or both.
As a non-diversified company, the Fund is permitted to invest all of its
assets in a limited number of issuers. However, it intends to comply with
Subchapter M of the Internal Revenue Code in order to qualify as a regulated
investment company for federal income tax purposes. To so qualify, the Fund must
diversify its holdings so that, at the close of each quarter of its taxable
year, (a) at least 50% of the value of its total assets is represented by cash,
cash items, securities issued by the U.S. Government or its agencies or
instrumentalities, securities of other regulated investment companies, and other
securities limited generally with respect to any one issuer to an amount not
more than 5% of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than the U.S. Government or its agencies or instrumentalities or regulated
investment companies), or in two or more issuers that the Fund controls and that
are engaged in the same or similar trades or businesses. In the event of a
decline in the market value of the securities of one or more such issuers
exceeding 5%, an investment in the Fund could entail greater risk than in a fund
which has a policy of diversification.
OTHER POLICIES
LENDING OF SECURITIES. The Fund may, to increase its income, lend its securities
to brokers, dealers and institutional investors if the loan is collateralized in
accordance with applicable regulatory requirements (the "Guidelines") and if,
after any loan, the value of the securities loaned does not exceed 25% of the
value of its assets. Under the present Guidelines, the loan collateral must, on
each business day, at least equal the value of the loaned securities and must
consist of cash, bank letters of credit or securities of the United States
Government (or its agencies or
55
<PAGE> 62
instrumentalities). To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank would have to be
satisfactory to the Fund. Any loan might be secured by any one or more of the
three types of collateral. The Fund receives amounts equal to the dividends or
interest on loaned securities and also receives one or more negotiated loan
fees, interest on securities used as collateral or interest on short term debt
securities purchased with such collateral, either of which type of interest may
be shared with the borrower. The Fund may also pay reasonable finders, custodian
and administrative fees. Loan arrangements made by the Fund will comply with all
other applicable regulatory requirements including the rules of The New York
Stock Exchange, which require the borrower, after notice, to redeliver the
securities within the normal settlement time of five business days. While voting
rights may pass with the loaned securities, if a material event will occur
affecting an investment on loan, the loan must be called and the securities
voted.
WARRANTS. The Fund also may invest up to 5% of its net assets in warrants.
Included within this amount, may be warrants which are not listed on the New
York or American Stock Exchanges. A reason for investing in warrants is to
permit the Fund to participate in an anticipated increase in the market value of
a security without having to purchase the security to which the warrants relate.
Warrants convey no rights to dividends or voting rights, but only an option to
purchase equity securities of the issuer at a fixed price. If such securities
appreciate, the warrants may be exercised and sold at a gain, but a loss will be
incurred if such securities decrease in value or the term of the warrant expires
before it is exercised. The 5% limitation does not include warrants acquired by
the Fund in units or attached to other securities.
SECURITIES OF FOREIGN COMPANIES. Investing in foreign securities may result in
greater risk than that incurred by investing in domestic securities. There is
generally less publicly available information about foreign companies comparable
to reports and ratings that are published about companies in the United States.
The Fund may not invest more than 15% of its net assets in foreign securities.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Similarly,
volume and liquidity in most foreign bond markets is less than in the United
States and at times volatility of price can be greater than in the United
States. Commissions on foreign stock exchanges are generally higher than
commissions on United States exchanges, although the Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of foreign stock exchanges,
brokers and listed companies than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investments or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
The dividends and interest payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Fund's shareholders.
Shareholders otherwise subject to United States federal income taxes may,
subject to certain limitations, be entitled to claim a credit or deduction for
U.S. federal income tax purposes for his or her proportionate share of such
foreign taxes paid by the Fund.
TRUSTEES AND OFFICERS OF THE TRUST
*BRUCE R. BENT, President, Treasurer and Trustee, 810 Seventh Avenue,
New York, New York 10019.
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, Vice President and Secretary of Reserve Management
Company, Inc. ("RMCI") and Reserve Management
56
<PAGE> 63
Corporation, and Chairman and Director of Resrv Partner, Inc. Before 1968, he
was associated with Stone & Webster Securities Corp., and previously, Teachers
Insurance and Annuity Association.
EDWIN EHLERT, JR., Trustee, 125 Elm Street, Westfield, New Jersey 07091.
Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency formerly called Travelong of Westfield, Inc.) and Ehlert Travel
Associates of Florida, Inc. (travel agency), and Trustee of RF, RIT, RNYTET,
RTET, and RPES.
HENRI W. EMMET, Trustee, 176 East 71st Street, New York, New York 10021.
Mr. Emmet is the Managing Director of Servus Associates, Inc. and U.S.A.
Representative of the First National Bank of Southern Africa and Trustee of RF,
RET, RNYTET, RTET, and RPES. Until 1989, he was Senior Vice President of the
New York branch of Banque Nationale de Paris.
BURTT R. EHRLICH, Trustee, 667 Madison Avenue, New York, New York 10021.
Mr. Ehrlich is a Director of Benson Eye Care Corp and a private investor.
Until 1992, he was President and Chairman of Ehrlich Bober Financial Corp., a
municipal securities investment firm.
*DONALD J. HARRINGTON, C.M, Trustee, St. John's University, Jamaica, New
York 11439.
The Reverend Harrington is President of St. John's University (NY) and a
Trustee of RF, RIT, RNYTET, RTET, and RPES. The Reverend Harrington served as
President of Niagara University from 1984 to 1989 and was Executive Vice
President of Niagara University from 1981 to 1984.
NIELS W. JOHNSEN, Trustee, 1 Whitehall Street, New York, New York 10004.
Mr. Johnsen is Chairman of the Board of International Shipholding Corp.
and Central Gulf Lines, Inc. (ship cargo carrier), Director of Centennial
Insurance Co. and Trustee of The Atlantic companies (insurance), RF, RIT,
RNYTET, RTET, and RPES.
THOMAS L. RHODES, Trustee, 150 East 35th Street, New York, New York 10016
Mr. Rhodes is President and a member of the Board of Directors of the
National Review. From 1976 to 1992 Mr. Rhodes was a partner with Goldman, Sachs
& Co., an investment banking firm.
MARC C. COZZOLINO, Counsel and Secretary, 810 Seventh Avenue, New York,
New York 10019.
Mr. Cozzolino is Counsel and Secretary of RF, RIT, RTET, RNYTET, and RPES.
Before joining The Reserve Funds in 1994, Mr. Cozzolino was a staff attorney at
the New Jersey Bureau of Securities.
PAT A. COLLETTI, Controller, 810 Seventh Avenue, New York, New York 10019.
Mr. Colletti is Controller of RF, RIT, RTET, RNYTET, and RPES. Prior to
joining The Reserve Funds in 1985, Mr. Colletti was Supervisor of Accounting of
Money Market Funds for the Dreyfus Corporation.
- - ---------------
* Interested Trustee within the meaning of the Investment Company Act of 1940.
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 or 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 regard of the duties involved in the conduct
of their office.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND FUND COMPLEX
NAME OF TRUSTEE FROM FUND* (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE*
------------------------------------------------------------------------------
<S> <C> <C>
Edwin Ehlert, Jr. $0 $16,500
Henri W. Emmet $0 $16,600
Rev. Donald J. Harrington $0 $16,500
Niels W. Johnsen $0 $16,500
Burtt R. Ehrlich $0 $0
Thomas L. Rhodes $0 $0
</TABLE>
Amount shown are for the Fund's fiscal year ending May 31, 1995.
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<PAGE> 64
INVESTMENT MANAGEMENT AND OTHER AGREEMENTS
THE ADVISER. Reserve Management Company, Inc. ("Adviser"), 14 Locust Place,
Manhasset, New York 11030, a registered investment Adviser, manages the Trust
and provides it with investment advice pursuant to an Investment Management
Agreement. Under the Investment Management Agreement, the Adviser manages the
Fund, including effecting purchases and sales of investment securities, is
responsible for the day-to-day oversight of the Trust's operations and to
otherwise administer the affairs of the Trust as it deems advisable subject to
the overall control and direction of the Trustees and the investment policies
and limitations of the Trust described in the Prospectus and Statement of
Additional Information. RMCI pays all employee costs and other ordinary
operating costs of each Fund pursuant to the Investment Management Agreement
which include: registration fees paid to the commission and state
regulators, costs associated with the annual update of each Fund's registration
statement, auditing annual financial statements, and printing and mailing costs
(exclusive of those associated with the Rule 12b-1 Plans). Excluded from
ordinary operating costs are interest charges, taxes, brokerage fees,
extraordinary legal and accounting fees and expenses, payments made pursuant to
the Trust's Distribution Plan and the fees of the disinterested Trustees, for
which the Fund pays its direct or allocated share.
For its management services, and for paying all of the employee costs,
costs of the Sub-Adviser and other ordinary operating expenses of the Trust,
RMCI is periodically paid a comprehensive fee, at the annual rate of 1.50% per
annum of the average daily net assets of the Fund.
The Investment Management Agreement is subject to annual review by and
must be approved at least annually by a vote of a majority of the Board of
Trustees, including a majority of those who are not "interested persons" as
defined in the Investment Company Act of 1940, cast in person at a meeting
called for the purpose of voting on such renewal. The Agreement terminates
automatically upon its assignment and may be terminated without penalty upon 60
days' written notice by vote of the Trustees, by vote of a majority of
outstanding voting shares of the Fund or by the Adviser.
THE SUB-ADVISER. Trainer, Wortham & Company, Inc. ("Sub-Adviser"), 845
Third Avenue, New York, New York 10022, a registered investment Adviser, acts as
Sub-Adviser to the Fund. The Adviser and Trust have entered into a Sub-Advisory
Agreement with the Sub-Adviser pursuant to which the Adviser will pay any fees
of the Sub-Adviser. The Sub-Advisory Agreement is subject to annual review by
and must be approved annually by the Trustees, including a majority of those who
are not "interested person" as defined in the Investment Company Act of 1940,
cast in person at a meeting called for purpose of voting on such renewal. The
agreement automatically terminates upon its assignment and may be terminated
without penalty upon 60 days' written notice by vote of the Trustees, by vote of
a majority of outstanding voting shares of the Fund or by the Sub-Adviser.
CUSTODIAN. Chemical Bank, 4 New York Plaza, New York, New York 10004 is
Custodian for the cash and securities of the Trust. The Custodian maintains
custody of the Trust's cash and securities, handles its securities settlements
and performs transaction processing for receipts and disbursements in connection
with the purchase and sale of the Trust's shares.
DISTRIBUTION AGREEMENT. Resrv Partners, Inc. ("RESRV"), 810 Seventh
Avenue, New York, New York 10019, is a distributor of the shares of the Trust.
RESRV is a "principal underwriter" for the Trust within the meaning of the
Investment Company Act of 1940, and as such acts as agent in arranging for the
continuous offering of Trust shares. RESRV has the right to enter into dealer
agreements with brokers or other persons of its choice for the sale of Trust
shares. RESRV's principal business is the distribution of shares of mutual funds
and it has retained no underwriting commissions during the last three fiscal
years.
The Distribution Agreement must be approved annually by the Trustees,
including a majority of those who are not "interested persons," as defined in
the Investment Company Act of 1940.
DISTRIBUTION PLAN. The Trust maintains a Distribution Plan ("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 Board and approved by
its shareholders. Pursuant to the Plan, the Distributor or its affiliates may
make payments ("assistance payments") to brokers, financial institutions and
financial intermediaries ("payees") in respect of Trust shareholder accounts
("qualified accounts") as to which the payee has rendered distribution
assistance or other services. The Distributor may also retain amounts to pay for
advertising and marketing expenses. Assistance payments by the Distributor are
made to payees at an annual rate of .25% of the average net asset
value for Class A shares and of 1.00% of the
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<PAGE> 65
average net asset value for Class D shares. The Trustees have determined that
there is a reasonable likelihood that the Plan will benefit the Trust and its
shareholders and that its costs are primarily intended to result in the sale of
the Trust's shares.
Under the Plan, the Trust's officers report quarterly the amounts and
purposes of assistance payments to the Trustees. During the continuance of the
Plan the selection and nomination of the disinterested Trustees of the Trust are
at the discretion of the disinterested Trustees currently in office.
The Plan and related agreements may be terminated at any time by a vote of
a majority of the outstanding voting securities of the Fund. The Plan and
related agreements may be renewed from year to year if approved by a vote of a
majority of the Board of Trustees, including a majority of those who are not
"interested persons", as defined in the Investment Company Act of 1940. 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 majority vote of the Board of Trustees, including a
majority of the disinterested Trustees, cast in person at a meeting called for
the purpose of such vote.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P, 1301 Avenue of
Americas, New York, New York 10019 is the Trust's independent accountants.
PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION
The Fund will not attempt to achieve, nor will it be limited to, a
predetermined rate of portfolio turnover. Turnover rate is the lesser of
purchases or sales of portfolio securities for a year (excluding all securities
with maturities of one year or less) divided by the monthly average of the
market value of such securities.
Subject to the overall supervision of the officers of the Trust, its Board
of Trustees, and the Adviser, the Sub-Adviser places all orders for the purchase
and sale of the Fund's investment securities. In general, in the purchase and
sale of investment securities the Sub-Adviser will seek to obtain prompt and
reliable execution of orders at the most favorable prices or yields. In
determining best price and execution, the Sub-Adviser may take into account a
dealer's operational and financial capabilities, the type of transaction
involved, the dealer's general relationship with the Fund's Sub-Adviser, and any
statistical, research, or other services provided by the dealer. 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 in good faith by the Fund's Sub-Adviser.
Brokers or dealers who execute investment securities transactions for the Fund
may also sell its shares; however, any such sales will not be either a
qualifying or disqualifying factor in the selection of brokers or dealers. The
Sub- Adviser is authorized to place portfolio transactions with brokers or
dealers affiliated with it provided the commission or fee charged is comparable
to that charged by non-affiliated brokers or dealers on comparable transactions
involving similar securities being purchased or sold during a comparable period
of time on a securities exchange. Any such transactions will be in accordance
with Rule 17e-1 under the Investment Company Act of 1940.
When transactions are made in the over-the-counter market, the Fund deals
with the primary market makers unless more favorable prices are otherwise
obtainable.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest, and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Trust. Each share represents an
interest in the respective series of the Trust proportionately equal to the
interest of each other share. If they deem it advisable in the best interests of
shareholders, the Trustees of the Trust may classify or reclassify any unissued
shares of the Trust by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the stock. Any changes
would be required to comply with any applicable state and Federal securities
laws. These currently require that each series be preferred over all other
series in respect of assets specifically allocated to such class. It is
anticipated that under most circumstances, the rights of any additional series
would be comparable unless otherwise required to respond to the particular
situation. Upon liquidation of the Trust, shareholders are entitled to share pro
rata in the net assets of their respective series
59
<PAGE> 66
of the Trust available for distribution to such shareholders. No changes can be
made to the Trust's issued shares without shareholder approval.
Each Fund share when issued is fully paid, nonassessable and fully
transferable or redeemable at the shareholder's option. Each share has an equal
interest in the net assets of its series, equal rights to all dividends and
other distributions from its series, and one vote for all purposes. Shares of
separate series vote together for the election of Trustees and have
noncumulative voting rights, meaning that the holders of more than 50% of the
shares voting for the election of Trustees could elect all Trustees if they so
choose, and in such event the holders of the remaining shares could not elect
any person to the Board of Trustees.
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.
Regulations of the Securities and Exchange Commission provide that if a
series is separately affected by a matter requiring a vote (election of
Trustees, ratification of independent accountant selection, and approval of an
underwriting agreement are not considered to have such separate effect and may
be voted upon by the Trust as a whole), each such series votes separately. Each
series votes separately on such matters as approval of the Investment Management
Agreement, material amendments to the Service Plan, and majority of the effected
shareholders. For this purpose a "majority" is constituted by either 50 percent
of all shares voting as a group or 67 percent of the shares voted as a group at
an annual meeting of shareholders at which at least 50 percent of the shares of
each group are represented.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Redemption payments are normally made by check or wire transfer, but the
Trust may be authorized to make payment of redemptions partly or wholly in kind
(that is, by delivery of portfolio instruments valued at the same time as the
redemption net asset value is determined). The Trust has made an election
committing it to pay in cash all requests for redemption from the series
involved, by any shareholder or record, limited during any 90-day period to the
lesser of $250,000 or 1% of the net assets of the series at the beginning of the
period. The election is irrevocable pursuant to rules and regulations under the
Investment Company Act or 1940 unless withdrawal is permitted by order of
Securities and Exchange Commission. In disposing of such securities an investor
might incur transaction costs and on the date of disposition might receive an
amount less than the net asset value of the redemption.
DETERMINATION OF NET ASSET VALUE. Shares are offered at net asset value
plus a sales charge (if applicable). The net asset value of each Fund is
calculated at the end of each business day (currently 4:00 PM New York time)
that the New York Stock Exchange is open for trading and on other days there is
a sufficient degree of trading to materially affect the Fund's net asset value.
The net asset value is not calculated on New Year's Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day,
Christmas Day and on other days the New York Stock Exchange is closed for
trading. The net asset value per share of the Fund is determined by adding the
value of all its securities and other assets, subtracting its liabilities and
dividing the result by the total number of the class' outstanding shares that
represent the class' proportionate interest in the Fund.
Investment securities are valued at the last sale price on the securities
exchange or national securities market on which such securities are primarily
traded. Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average of the
last bid and asked prices, except in the case of open short positions where the
asked price is used for valuation purposes. Bid price is used when no asked
price is available. Market quotations for foreign securities in foreign
currencies are translated into United States dollars at the prevailing rates of
exchange. Any securities or other assets for which recent market quotations are
not readily available are valued at fair value as determined in good faith by
the Board of Trustees.
REDUCED SALES CHARGE. Officers, directors, full time employees and
Trustees, and any trust, pension, profit sharing or qualified retirement plan of
the Adviser, Sub-Adviser, the distributor, the Trust and any affiliate thereof
may purchase shares of the Fund at the net asset value per share. Spouses and
minor children of the foregoing may also purchase shares at net asset value. In
addition, Sub-Adviser advisory clients and related persons of such may purchase
shares at net asset value.
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<PAGE> 67
DISTRIBUTIONS AND TAXES
The following is a general description of certain tax rules relating to
the Fund. It is not exhaustive and prospective investors may wish to consult
their tax advisers.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986 ("Code") so long as such qualification is in the
best interests of shareholders. If it so qualifies, in any fiscal year in which
it distributes at least 90 percent of its taxable net income, the Fund generally
will not be subjected to federal income tax on such distributed amounts.
Shareholders of the Fund, however, will be subject to federal income tax on any
ordinary net income and net capital gains realized by the Fund and distributed
to shareholders as regular or capital gains dividends, whether distributed in
cash or in the form of additional shares. Net long term capital gains
distributions will be taxable to shareholders as long term capital gains,
regardless of the length of time the corresponding shares have been held.
Upon the taxable disposition (including a sale or redemption) of shares of
the Fund, a shareholder may realize a gain or loss depending upon his basis in
his shares. Such gain or loss generally will be treated as capital gain or loss
(if the shares are capital assets in the shareholder's hands) and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Funds on the reinvestment date.
In order to qualify as a "regulated investment company" under the Code,
the Fund must, among other things, in each taxable year distribute at least 90
percent of its taxable income to shareholders, derive at least 90 percent of its
gross income from dividends, interest and gains from the sale or disposition of
securities and derive less than 30 percent of its gross income from the sale or
disposition of securities held for less than three months. Accordingly, the Fund
will be subject to certain restrictions including restrictions in the writing of
options on securities which have been held for less than three months,
purchasing and selling futures contracts held for less than three months, in the
writing of options which expire in less than three months, and in effecting
closing purchase transactions, with respect to options which have been written
less than three months prior to such transactions.
The Code imposes a non-deductible, 4% excise tax on regulated investment
companies that do not distribute to their shareholders in each calendar year an
amount equal to (i) 98% of their calendar year ordinary income; plus 98% of
their capital gain net income (the excess of short and long term capital losses)
for the one year period ending October 31. Dividends declared in December of any
year to shareholders of record on any date in December will be deemed to have
been received by the shareholders and paid by the Fund on the record date,
provided such dividends are paid by February 1 as of the following year.
Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following year,
are considered taxable income to shareholders on December 31 in the year
declared date even though paid in the next year.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
laws. Non-resident aliens are urged to consult their own tax adviser concerning
the applicability of the United States withholding tax.
The Code includes rules applicable to certain listed options, futures
contracts, and options on futures contracts which the Fund may write, purchase
or sell. Such options and contracts are classified as Section 1256 contracts
under the Code. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other termination of Section 1256
contracts is generally treated as long-term capital gain or loss to the extent
of 60% thereof and short-term capital gain or loss to the extent of 40% thereof
("60/40 gain or loss"). Such contracts,
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<PAGE> 68
generally are required to be treated as sold at market value on the last day of
such fiscal year and on certain other dates for federal income tax purposes
("marked-to-market"). Generally, over-the-counter options are not classified as
Section 1256 contracts and are not subject to the mark-to market rule or to
60/40 gain or loss treatment. Any gains or losses recognized by the Fund from
transactions in over-the-counter options generally constitute short-term capital
gains or losses. If over-the-counter call options written, or over-the-counter
put options purchased, by the Fund are exercised, the gain or loss realized on
the sale of the underlying securities may be either short-term or long-term,
depending on the holding period of the securities. In determining the amount of
gain or loss, the sales proceeds are reduced by the premium paid for
over-the-counter puts or increased by the premium received for over-the counter
calls.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, this
amount, character and timing of gains or losses from the affected straddle
positions will be determined under rules that vary according to the election(s)
made. The rules applicable under certain of the elections may operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle position, the amount which may be distributed to Shareholder,
and which, will be taxed as ordinary income or long-term capital gain, may be
increased or decreased as compared to a fund that did not engage in such
hedging transactions.
The Fund may be subject to non-U.S. tax on income and gains received from
securities of non-U.S. issuers which generally is withheld by a foreign country
at the source. The United States has entered into tax treaties with many foreign
countries which may entitle the Fund to a reduced rate of tax or exemption from
tax on income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of the Fund's assets to be invested within various
countries is not known. The Fund intends to operate so as to qualify for tax
treaty benefits where applicable. To the extent that the Fund is liable for
foreign income taxes withheld at the source, the Fund may operate so as to meet
the requirements of the Code to "pass through" to its shareholders tax benefits
attributable to foreign income taxes paid by the Fund. If more than 50% of the
value of the Fund's total assets at the close of its taxable year is comprised
of securities issued by foreign corporations, the Fund may elect to "pass
through" to its shareholder the amount of foreign income taxes paid by the Fund.
Pursuant to this election, shareholders will be required to (i) include in gross
income, even though not actually received, their respective pro rata share of
foreign taxes paid by the Fund; (ii) treat their pro rata share of foreign taxes
as paid by them; and (iii) subject to certain limitations, either deduct their
pro rata share of foreign taxes in computing their taxable income, or use such
share as foreign tax credit against U.S. income tax (but not both). No deduction
for foreign taxes may be claimed by a non-corporate shareholder who does not
itemize deductions. The Fund may meet the requirements to "pass through" to its
shareholders foreign income taxes paid, but there can be no assurance that the
Fund will be able to do so. Each shareholder will be notified within 60 days
after the close of the taxable year of the Fund if the foreign taxes paid by the
Fund will "pass through" for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid and (ii)
the Fund's gross income from foreign sources.
Generally, a credit for foreign taxes paid or accrued is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, the source of the
Fund's income flows through to its shareholders. Gains from the sale of
securities by the Fund will be treated as derived from U.S. sources and Section
988 gains will be treated as derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source passive income,
including foreign source passive income received from the Fund. Shareholders may
be unable to claim a credit for the full amount of their proportionate share of
the foreign taxes paid by the Fund. The foreign tax credit can be applied to
offset no more than 90% of the alternative minimum tax imposed on corporations
and individuals. The foregoing is only a general
62
<PAGE> 69
description of the foreign tax credit. Because application of a credit depends
on the particular circumstances of each shareholder, shareholders are advised to
consult their own tax advisers.
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC share are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election may be
available that would involve marking to market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates prescribed in the Code), with
the result that unrealized gains are treated as though they were realized. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. The Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
The foregoing is a general summary of certain provisions of the Code and
Treasury Regulations in effect. For the complete provisions, reference should be
made to the pertinent Code sections and Treasury Regulations promulgated
thereunder. The Code and the Treasury Regulations thereunder are subject to
change by legislative or administrative action either prospectively or
retroactively.
Dividends paid by the Fund are generally expected to be subject to any
state or local taxes on income. Shareholders should consult their own attorneys
or tax advisers about the tax consequences related to investing in the Fund.
PERFORMANCE INFORMATION
The Fund may from time to time advertise its total return. Total return is
computed by finding the average annual compounded rates of return over the 1, 5
and 10 year periods or up to the life of the Fund that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the 1, 5
or 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
In advertising and sales literature, the Fund may compare its performance
to (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), the Russell 2000, or other unmanaged indices
63
<PAGE> 70
so that investors may compare the Fund's results with those of a group of
unmanaged securities widely regarded by investors as representative of the
securities markets in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc. a widely used independent research firm which
ranks mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
The Fund may also compute aggregate total return for specified periods
based on a hypothetical Fund account with an assumed initial investment of
$10,000. The aggregate total return is determined by dividing the net asset
value of the account at the end of the specified period by the value of the
initial investment and is expressed as a percentage. Calculation of aggregate
total return reflects payment of the maximum sales charge and assumes
reinvestment of all income dividends and capital gain distributions during the
period.
The Fund may also quote annual, average annual and annualized total return
and aggregate total performance data both as a percentage and as a dollar amount
based on a hypothetical $10,000 investment for various periods. Such data will
be computed as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum sales charge will not be included
with respect to annual, annualized or aggregate rates of return calculations.
64
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Trustees of The Reserve Private Equity Series:
We have audited the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, of the Blue Chip Fund (one of
the Funds of the Reserve Private Equity Series) as of May 31, 1995, and the
related statement of operations, the statement of changes in net assets and the
financial highlights for the period October 28, 1994 (commencement of
operations) through May 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Blue Chip Fund of the Reserve Private Equity Series as of May
31, 1995, the results of its operations, the changes in its net assets, and its
financial highlights for the period referred to above, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
June 23, 1995
<PAGE> 72
RESERVE BLUE CHIP GROWTH FUND (THE "FUND")
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reserve Blue Chip Growth Fund is a separate series of shares issued by The
Reserve Private Equity Series (the "Trust"). The Trust was formed under
Delaware law as a Delaware business trust. The Trust is registered under
the Investment Company Act of 1940, as amended, as a non-diversified
open-end management investment company. There are an unlimited number of
shares of beneficial interest of $.001 par value authorized in each series.
The accounting policies summarized below are consistently followed in the
preparation of the financial statements in conformity with generally
accepted accounting principles.
SECURITY VALUATION
Portfolio securities are stated at value. A security listed or traded on an
exchange is valued at its last sale price on the exchange where the
security is principally traded or, lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market is valued
at the mean between its quoted bid and asked prices.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date. Dividend income and
distributions to shareholders are recorded on the ex-dividend dates.
Interest income is accrued daily. Realized gains and losses from securities
transactions and unrealized appreciation or depreciation of securities are
reported on the identified cost basis for both financial statement and
Federal income tax purposes.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for net operating losses. The effect of these
differences for the year ended May 31, 1995 decreased undistributed net
investment loss by $5,361, and decreased aggregate paid in capital by
$5,361.
EXPENSES
Each series is charged only for its direct or allocated (in proportion to
net assets) share of expenses.
FEDERAL INCOME TAXES
It is the Trust's policy to comply with Subchapter M of the Internal
Revenue Code and to distribute substantially all of its taxable income to
its shareholders. Accordingly, no Federal income tax provision is required.
2. INVESTMENT ACTIVITY
Purchases and sales of securities, for the period October 28, 1994
(commencement of operations) through May 31, 1995, other than short-term
securities, aggregated $2,462,898 and $843,868 respectively.
<PAGE> 73
RESERVE BLUE CHIP GROWTH FUND (THE "FUND")
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995 - (CONTINUED)
3. INVESTMENT MANAGEMENT AGREEMENT
Reserve Management Company, Inc. (RMCI), serves as the Fund's investment
adviser and pays substantially all ordinary operating expenses of the Fund
for which it receives a comprehensive fee at an annual rate of 1.50% of the
average daily net assets of the Fund. RMCI waived comprehensive fees of
$120. Both RMCI and the Sub-Adviser, Trainer, Wortham & Company are
shareholders of the Fund.
4. DISTRIBUTION ASSISTANCE
Pursuant to a Distribution Plan, the Fund will make payments of .25% per
annum of the average daily net assets of shareholder accounts as to which
the payee has rendered distribution assistance. RMCI waived distribution
assistance of $20. During the period, the Fund paid $1,923 in distribution
expenses to RMCI.
5. CAPITAL SHARE TRANSACTIONS
Transactions in capital stock for the period October 28, 1994 (commencement
of operations) through May 31, 1995 were as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Share sold 214,923 $ 2,257,822
Redeemed (49,164) (520,420)
-----------
Net Increase 165,759 $ 1,737,402
===========
</TABLE>
<PAGE> 74
RESERVE BLUE CHIP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value
(cost $1,711,582) $1,880,444
Cash 506,014
Dividends receivable 2,207
----------
Total Assets 2,388,665
LIABILITIES
Payable for investment securities purchased 395,210
NET ASSETS $1,993,455
==========
Net Assets consist of (Note 1)
Capital Stock (Par Value $.001 per share) $ 166
Additional paid in capital 1,731,875
Undistributed net realized gain on investments 92,552
Net unrealized appreciation on investments (Note 1) 168,862
----------
NET ASSETS, at value, applicable to 165,759 outstanding shares
of Beneficial Interest (Note 5) $1,993,455
==========
NET ASSET VALUE, and redemption price per share ($1,993,455 / 165,759) $ 12.03
==========
Maximum offering price per share (100/95.5 of $12.03) $ 12.60
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 75
RESERVE BLUE CHIP GROWTH FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 28, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 7,957
EXPENSES
Comprehensive fee (Note 3) $ 11,535
12b-1 Fee (Note 4) 1,923
---------
Total expenses 13,458
Less: Fees voluntarily waived by
RMCI (Notes 3 and 4) 140
---------
Net Expenses 13,318
---------
NET INVESTMENT LOSS (5,361)
---------
Realized and Unrealized Gain on Investments
Net realized gain on investment securities: (Note 1)
Proceeds from sales of securities 843,868
Cost of securities sold (751,316) 92,552
---------
Net unrealized appreciation on investments 168,862
---------
Net realized and unrealized gain on investments 261,414
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 256,053
=========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 76
RESERVE BLUE CHIP GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
OCTOBER 28, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C>
INCREASE IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment loss $ (5,361)
Net realized gain from investments 92,552
Net unrealized appreciation from investments 168,862
-----------
Net increase in net assets resulting from
operations 256,053
-----------
FROM CAPITAL SHARE TRANSACTIONS (Note 5)
Net proceeds from sales of shares 2,257,822
Cost of shares redeemed (520,420)
-----------
Net increase in net assets resulting from
share transactions 1,737,402
-----------
NET INCREASE IN NET ASSETS 1,993,455
NET ASSETS:
Beginning of period 0
-----------
End of period $ 1,993,455
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 77
RESERVE BLUE CHIP GROWTH FUND (THE "FUND")
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995 - (CONTINUED)
6. FINANCIAL HIGHLIGHTS (FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
OCTOBER 28, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C>
Net asset value, beginning of period $10.00
-------
Income from investment operations
Net investment loss (.03)
Net realized and unrealized gain 2.06
-------
Total from investment operations 2.03
-------
Net asset value, end of period $12.03
=======
Total Return 20.30%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period $1,993
Ratio of expenses to average net assets
before waivers (Notes 3 and 4) 1.75%(1)
Ratio of expenses to average net assets,
net of waiver 1.73%(1)
Ratio of net investment loss to average
net assets, before waivers (Notes 3 and 4) (.72)%(1)
Ratio of net investment loss to average
net assets, net of waiver (.70)%(1)
Portfolio turnover rate 68%
</TABLE>
- - -----------
(1) Annualized
(2) Total return is not annualized, and does not eflect
impact of sales load.
RESERVE BLUE CHIP GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MAY 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
BUSINESS EQUIPMENT (4.5%)
Xerox Corp. 800 $ 90,700
--------
CHEMICALS (3.5%)
First Mississippi Corp. 3,000 69,375
--------
COMMUNICATION - NETWORK (6.0%)
Capital Cities/ABC Inc. 700 67,550
Comcast Corp. Special - Cl.A 3,000 52,500
--------
120,050
COMPUTER SOFTWARE (8.2%)
* Microsoft Corp. 700 59,281
National Data Corp. 5,000 103,750
--------
163,031
DRUGS (4.0%)
Abbott Laboratories 2,000 80,000
--------
ELECTRICAL EQUIPMENT (1.1%)
* American Superconductor Corp. 1,500 22,875
--------
ELECTRONIC COMPONENTS - SEMICONDUCTOR (3.4%)
Intel Corp. 600 67,350
--------
ELECTRONICS (3.7%)
General Signal Corp. 2,000 74,000
--------
ENTERTAINMENT (2.3%)
* Viacom Inc. - CI.B 1,000 46,625
--------
FINANCIAL SERVICES (4.6%)
Citicorp 1,700 90,950
--------
FOOD WHOLESALERS (2.0%)
Sysco Corp. 1,500 40,688
--------
MACHINERY - INDUSTRY/SPEC (4.3%)
Thermo Electron Corp. 2,400 86,400
--------
MULTI-LINE INSURANCE (4.0%)
American International Group Inc. 700 79,625
--------
</TABLE>
<PAGE> 78
RESERVE BLUE CHIP GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MAY 31, 1995 - (CONTINUED)
<TABLE>
<CAPTION>
COMMON STOCKS (CONTINUED) VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
OIL/GAS EQUIPMENT SERVICES (5.4%)
* Petroleum Geo-Services - ADR 2,000 $ 55,000
Schlumberger Ltd. 800 52,000
----------
107,000
OIL - INTERNATIONAL (2.7%)
Texaco Inc. 800 54,800
----------
PHARMACEUTICALS (8.5%)
Johnson & Johnson 1,500 99,375
Merck & Co. 1,500 70,688
----------
170,063
PUBLISHING (2.5%)
* Harte-Hanks Communications Inc. 2,000 49,000
----------
RESTAURANTS (2.9%)
McDonalds Corp. 1,500 56,812
----------
RETAIL (2.4%)
Tandy Corp. 1,000 46,750
----------
RETAIL - SPECIALTIES (3.7%)
* Department 56 Inc. 2,000 73,250
----------
RETAIL STORES-DEPARTMENT (2.3%)
* Federated Department Stores Inc. 2,000 46,000
----------
TELECOMMUNICATIONS (2.7%)
* Commnet Cellular Inc. 2,000 53,750
----------
TELECOMMUNICATIONS EQUIPMENT (9.6%)
* Glenayre Technologies Inc. 1,700 107,525
Motorola Inc. 1,400 83,825
----------
191,350
TOTAL COMMON STOCKS (Cost $1,711,582) (94.30%) 1,880,444
Other assets, less liabilities (5.70%) 113,011
---------
NET ASSETS (100%) $1,993,455
==========
</TABLE>
Value of investments are shown as a percentage of Net Assets.
* Non-income producing security.
For federal income tax purposes the tax basis for investments owned at May 31,
1995 was $1,711,582, the aggregate gross unrealized appreciation for all
investments was $194,550 and aggregate gross unrealized depreciation for all
investments was $25,688.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 79
RESERVE PRIVATE EQUITY SERIES
RESERVE INFORMED INVESTORS GROWTH FUND
810 SEVENTH AVENUE, NEW YORK, N.Y. 10019
(800) 637-1700
---------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information describes Reserve Private Equity
Series and the Reserve Informed Investors Growth Fund ("Fund"). This Statement
is not a Prospectus, but provides detailed information to supplement the
Prospectus and should be read in conjunction with the Prospectus. A copy of the
Prospectus may be obtained (without charge) from Reserve Private Equity Series.
This Statement is dated , 1995.
TABLE OF CONTENTS
Page
----
Investment Policies
Trustees and Officers of the Trust
Investment Management and Other Agreements
Portfolio Turnover, Transaction Charges and
Allocation
Shares of Beneficial Interest
Purchase, Redemption and Pricing of Shares
Distributions and Taxes
Performance Information
Report of Independent Accounts
Financial Statements
65
<PAGE> 80
INVESTMENT POLICIES
The Fund has adopted as fundamental policies the following limitations on
its investment activities. These fundamental policies may not be changed without
a majority vote of the Fund shareholders, as defined in the Investment Company
Act of 1940. The Fund may not:
(1) borrow money except as a temporary measure for extraordinary or
emergency purposes and then only in an amount not to exceed 33 1/3% of the
market value of its assets; (2) issue senior securities as defined in the
Investment Company Act of 1940 except that the Fund may borrow money in
accordance with limitation (1); (3) act as an underwriter with respect to the
securities of others except 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) invest 25% or more of the value of its
total assets in the securities of issuers in any particular industry; (5)
purchase, sell or otherwise invest in real estate or commodities or
commodity contracts; (6) invest in voting securities or in companies for the
purpose of exercising control; and (7) purchase securities on margin, except to
obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
options and financial futures transactions.
The Fund has reserved the right to purchase and write interest rate
futures contracts, and put and call options on interest rate futures
contracts. The Fund does not intend to use these techniques for the
foreseeable future and that shareholders will be given notice should the Fund
determine that they will be used.
In addition to the fundamental investment policies listed above, the Fund
has voluntarily adopted certain policies that may be changed or amended by
action of the Trustees without requiring prior notice to or approval of
shareholders. In accordance with such policies and restrictions that the Fund
cannot:
(1) purchase from or sell investment securities to any of the officers or
Trustees of the Trust, its investment Adviser its investment Sub-Adviser, its
principal underwriter or the officers, principals or directors of its investment
Adviser, investment Sub-Adviser or principal underwriter; (2) purchase or retain
securities of an issuer any of whose officers, directors, trustees or
securityholders is an officer or Trustee of the Trust or a member, officer,
director or trustee of the investment Adviser or Sub- Adviser of the Fund if one
or more of such individuals owns beneficially more than one-half of one percent
(1/2 of 1%) of the securities (taken at market value) of such issuer and such
individuals owning more than one-half of one percent (1/2 of 1%) of such
securities together beneficially own more than 5% of such securities or both;
and (3) invest in initial public offerings.
As a non-diversified company, the Fund is permitted to invest all of its
assets in a limited number of issuers. However, it intends to comply with
Subchapter M of the Internal Revenue Code in order to qualify as a regulated
investment company for federal income tax purposes. To so qualify, the Fund must
diversify its holdings so that, at the close of each quarter of its taxable
year, (a) at least 50% of the value of its total assets is represented by cash,
cash items, securities issued by the U.S. Government or its agencies or
instrumentalities, securities of other regulated investment companies, and other
securities limited generally with respect to any one issuer to an amount not
more than 5% of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than the U.S. Government or its agencies or instrumentalities or regulated
investment companies), or in two or more issuers that the Fund controls and that
are engaged in the same or similar trades or business. In the event of a decline
in the market value of the securities of one or more such issuers exceeding 5%,
an investment in the Fund could entail greater risk than in a fund which has a
policy of diversification.
TRUSTEES AND OFFICERS OF THE TRUST
*BRUCE R. BENT, President, Treasurer and Trustee, 810 Seventh Avenue, New
York, NY 10019.
66
<PAGE> 81
Mr. Bent is President, Treasurer, and Trustee of The Reserve Fund ("RF"),
Reserve Institutional Trust ("RIT"), Reserve Tax-Exempt Trust ("RTET") and
Reserve New York Tax-Exempt Trust ("RNYTET") and Reserve Private Equity Series
("RPES"), Director, Vice President and Secretary of Reserve Management Company,
Inc. ("RMCI") and Reserve Management Corporation, and Chairman and Director of
Resrv Partner, Inc. Before 1968, he was associated with Stone & Webster
Securities Corp., and previously, Teachers Insurance and Annuity Association.
EDWIN EHLERT, JR., Trustee, 125 Elm Street, Westfield, New Jersey 07091.
Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency formerly called Travelong of Westfield, Inc.) and Ehlert Travel
Associates of Florida, Inc. (travel agency), and Trustee of RF, RIT, RNYTET
RTET and RPES.
HENRI W. EMMET, Trustee, 176 East 71st Street, Avenue, New York, New York
10021.
Mr. Emmet is the Managing Director of Servus Associates, Inc. and U.S.A.
Representative of the First National Bank of Southern Africa and Trustee of RF,
RET, RNYTET, RTET and RPES. Until 1989, he was Senior Vice President of the New
York branch of Banque Nationale de Paris.
BURTT R. EHRLICH, Trustee, 667 Madison Avenue, New York, New York 10021.
Mr. Ehrlich is a Director of Benson Eye Care Corp. and a private investor.
Until 1992, he was President and Chairman of Ehrlich Bober Financial Corp., a
municipal securities investment firm.
*DONALD J. HARRINGTON, C.M, Trustee, St. John's University, Jamaica, New
York 11439.
The Reverend Harrington is President of St. John's University (NY) and a
Trustee of RF, RIT, RNYTET, RTET and RPES. The Reverend Harrington served as
President of Niagara University from 1984 to 1989 and was Executive Vice
President of Niagara University from 1981 to 1984.
NIELS W. JOHNSEN, Trustee, 1 Whitehall Street, New York, New York 10004.
Mr. Johnsen is Chairman of the Board of International Shipholding Corp.
and Central Gulf Lines, Inc. (ship cargo carrier), Director of Centennial
Insurance Co. and Trustee of The Atlantic companies (insurance), RF, RIT,
RNYTET, RTET and RPES.
THOMAS L. RHODES, Trustee, 150 East 35th Street, New York, New York 10016.
Mr. Rhodes is President and a member of the Board of Directors of the
National Review. From 1976 to 1992 Mr. Rhodes was a partner with Goldman, Sachs
& Co., an investment banking firm.
MARC C. COZZOLINO, Counsel and Secretary, 810 Seventh Avenue, New York,
New York 10019.
Mr. Cozzolino is Counsel and Secretary of RF, RIT, RTET, RNYTET and RPES.
Before joining The Reserve Funds in 1994, Mr. Cozzolino was a staff attorney at
the New Jersey Bureau of Securities.
PAT A. COLLETTI, Controller, 810 Seventh Avenue, New York, New York 10019.
Mr. Colletti is Controller of RF, RIT, RTET, RNYTET and RPES. Prior to
joining the Reserve funds in 1985, Mr. Colletti was Supervisor of Accounting of
Money Market Funds for the Dreyfus Corporation.
- - ---------------
* Interested Trustee within the meaning of the Investment Company Act of 1940.
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 or obligation of any kind in which
they become involved by virtue of their
67
<PAGE> 82
service as a Trustee or officer of the Trust, except liabilities incurred
by reason of their willful misfeasance, bad faith, gross negligence or
reckless regard of the duties involved in the conduct of their office.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND FUND COMPLEX
NAME OF TRUSTEE FROM FUND* (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE*
------------------------------------------------------------------------------
<S> <C> <C>
Edwin Ehlert, Jr. $0 $16,500
Henri W. Emmet $0 $16,600
Rev. Donald J. Harrington $0 $16,500
Niels W. Johnsen $0 $16,500
Burtt R. Ehrlich $0 $0
Thomas L. Rhodes $0 $0
</TABLE>
Amount shown are for the Fund's fiscal year ending May 31, 1995.
INVESTMENT MANAGEMENT AND OTHER AGREEMENTS
THE ADVISER. Reserve Management Company, Inc. ("Adviser"), 14 Locust
Place, Manhasset, New York, New York 11030, a registered investment Adviser,
manages the Trust and provides it with investment advice pursuant to an
Investment Management Agreement. Under the Investment Management Agreement, the
Adviser manages the Portfolio, including effecting purchases and sales of
investment securities, is responsible for the day-to-day oversight of the
Trust's operations and to otherwise administer the affairs of the Trust as it
deems advisable subject to the overall control and direction of the Trustees and
the investment policies and limitations of the Trust described in the Prospectus
and Statement of Additional Information. RMCI pays all employee costs and other
ordinary operating costs of each Fund pursuant to the Investment Management
Agreement which include: registration fees paid to the commission and state
regulators, costs associated with the annual update of each Fund's registration
statement, auditing annual financial statements, and printing and mailing
costs (exclusive of those associated with the Rule 12b-1 Plans).
Excluded from ordinary operating costs are interest charges, taxes,
brokerage fees, extraordinary legal and accounting fees and expenses, payments
made pursuant to the Trust's Distribution Plan and the fees of the disinterested
Trustees, for which the Fund pays its direct or allocated share.
For its management services, and for paying all of the employee costs,
costs of the Sub-Adviser and other ordinary operating expenses of the Trust,
RMCI is periodically paid a comprehensive fee, at the annual rate of 1.50% per
annum of the average daily net assets of the Fund. The Fund's comprehensive fee
is higher than the advisory fee of most other funds; however, this comprehensive
fee covers most operating expenses.
The Investment Management Agreement is subject to annual review by and
must be approved at least annually by a vote of a majority of the Board of
Trustees, including a majority of those who are not "interested persons" as
defined in the Investment Company Act of 1940, cast in person at a meeting
called for purpose of voting on such renewal. The agreement terminates
automatically upon its assignment and may be terminated without penalty upon 60
days' written notice by vote of the Trustees, by vote of a majority of
outstanding voting shares of a Fund or by the Adviser.
THE SUB-ADVISER. T.H. Fitzgerald & Co., ("Sub-Adviser"), 80 Wall Street,
New York, New York 10005, a registered investment Adviser, acts as Sub-Adviser
to the Fund. The Adviser and Trust have entered into a Sub-Advisory Agreement
with the Sub-Adviser pursuant to which the Adviser will pay any fees of the
Sub-Adviser. The Sub-Advisory Agreement is subject to annual review by and must
be approved annually by the Trustees, including a majority of those who are not
"interested person" as defined in the Investment Company Act of 1940, cast in
person at a meeting called for purpose of voting on such renewal. The agreement
automatically terminates upon its assignment and may be terminated without
penalty upon 60 days' written notice by vote of the Trustees, by vote of a
majority of outstanding voting shares of the Fund or by the Sub-Adviser.
CUSTODIAN. Chemical Bank, 4 New York Plaza, New York, New York 10004 is
Custodian for the cash and securities of the Trust. The Custodian maintains
custody of the Trust's cash and securities, handles its securities settlements
and performs transaction processing for receipts and disbursements in connection
with the purchase and sale of the Trust's shares.
DISTRIBUTION AGREEMENT. Resrv Partners, Inc. ("RESRV"), 810 Seventh
Avenue, New York, New York 10019, is a distributor of the shares of the Trust.
RESRV is a "principal underwriter" for the Trust within the meaning of the
Investment Company Act of 1940, and as such acts as agent in arranging for the
continuous offering of Trust shares. RESRV has the right to enter into dealer
agreements with brokers or other persons of its choice for the sale of Trust
shares. RESRV's principal business is the distribution of shares of mutual funds
and it has retained no underwriting commissions during the last three fiscal
years.
The Distribution Agreement must be approved annually by the Trustees,
including a majority of those who are not "interested persons," as defined in
the Investment Company Act of 1940.
DISTRIBUTION PLAN. The Trust maintains a Distribution Plan ("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 Board and approved by
its shareholders. Pursuant
68
<PAGE> 83
to the Plan, the Distributor or its affiliates may make payments ("assistance
payments") to brokers and financial institutions ("payees") in respect of Trust
shareholder accounts ("qualified accounts") as to which the payee has rendered
distribution assistance or other services. The Distributor may also retain
amounts to pay for advertising and marketing expenses. Assistance payments by
the Distributor are made to payees at an annual rate of .25% of the
average net asset value for Class A shares and 1.00% of the average net
asset value for Class D shares. The Trustees have determined that there is a
reasonable likelihood that the Plan will benefit the Trust and its shareholders
and that its costs are primarily intended to result in the sale of the Trust's
shares.
Under the Plan, the Trust's officers report quarterly the amounts and
purposes of assistance payments to the Trustees. During the continuance of the
Plan the selection and nomination of the disinterested Trustees of the Trust are
at the discretion of the disinterested Trustees currently in office.
The Plan and related agreements may be terminated at any time by a vote of
a majority of the outstanding voting securities of the Fund. The Plan and
related agreements may be renewed from year to year if approved by a vote of a
majority of the Board of Trustees, including a majority of those who are not
"interested persons", as defined in the Investment Company Act of 1940. 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 majority vote of the Board of Trustees, including a
majority of the disinterested Trustees, cast in person at a meeting called for
the purpose of such vote.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 1301 Avenue of
Americas, New York, New York 10019 is the Trust's independent accountants.
PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION
The Fund will not attempt to achieve, nor will it be limited to, a
predetermined rate of portfolio turnover. Turnover rate is the lesser of
purchases or sales of portfolio securities for a year (excluding all securities
with maturities of one year or less) divided by the monthly average of the
market value of such securities.
Subject to the overall supervision of the officers of the Trust, its Board
of Trustees, and the Adviser; the Sub-Adviser places all orders for the purchase
and sale of the Trust's investment securities. In general, in the purchase and
sale of investment securities the investment Adviser will seek to obtain prompt
and reliable execution of orders at the most favorable prices or yields. In
determining best price and execution, the investment Adviser may take into
account a dealer's operational and financial capabilities, the type of
transaction involved, the dealer's general relationship with the Trust's
investment Adviser, and any statistical, research, or other services provided by
the dealer. 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 Trust as determined in good faith by
the Trust's investment Adviser. Brokers or dealers who execute investment
securities transactions for the Trust may also sell its shares; however, any
such sales will not be either a qualifying or disqualifying factor in the
selection of brokers or dealers.
When transactions are made in the over-the-counter market, the Trust deals
with the primary market makers unless more favorable prices are otherwise
obtainable.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest, and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Trust. Each share represents an
interest in the respective series of the Trust proportionately equal to the
interest of each other share. If they deem it advisable in the best interests of
shareholders, the Trustees of the Trust may classify or reclassify any unissued
shares of the Trust by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the stock. Any changes
would be required to comply with any applicable state and federal securities
laws. These currently require that each series be preferred over all other
69
<PAGE> 84
series in respect of assets specifically allocated to such class. It is
anticipated that under most circumstances, the rights of any additional series
would be comparable unless otherwise required to respond to the particular
situation. Upon liquidation of the Trust, shareholders are entitled to share pro
rata in the net assets of their respective series of the Trust available for
distribution to such shareholders. No changes can be made to the Trust's issued
shares without shareholder approval.
Each Fund share when issued is fully paid, nonassessable and fully
transferable or redeemable at the shareholder's option. Each share has an equal
interest in the net assets of its series, equal rights to all dividends and
other distributions from its series, and one vote for all purposes. Shares of
separate series vote together for the election of Trustees and have
noncumulative voting rights, meaning that the holders of more than 50% of the
shares voting for the election of Trustees could elect all Trustees if they so
choose, and in such event the holders of the remaining shares could not elect
any person to the Board of Trustees.
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.
Regulations of the Securities and Exchange Commission provide that if a
series is separately affected by a matter requiring a vote (election of
Trustees, ratification of independent accountant selection, and approval of an
underwriting agreement are not considered to have such separate effect and may
be voted upon by the Trust as a whole), each such series votes separately. Each
series votes separately on such matters as approval of the Investment Management
Agreement, material amendments to the Service Plan, and majority of the effected
shareholders. For this purpose a "majority" is constituted by either 50 percent
of all shares voting as a group or 67 percent of the shares voted as a group at
an annual meeting of shareholders at which at least 50 percent of the shares of
each group are represented.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Redemption payments are normally made by check or wire transfer, but the
Trust may be authorized to make payment of redemptions partly or wholly in kind
(that is, by delivery of portfolio instruments valued at the same time as the
redemption net asset value is determined). The Trust has made an election
committing it to pay in cash all requests for redemption from the series
involved, by any shareholder or record, limited during any 90-day period to the
lesser of $250,000 or 1% of the net assets of the series at the beginning of the
period. The election is irrevocable pursuant to rules and regulations under the
Investment Company Act or 1940 unless withdrawal is permitted by order of
Securities and Exchange Commission. In disposing of such securities an investor
might incur transaction costs and on the date of disposition might receive an
amount less than the net asset value of the redemption.
DETERMINATION OF NET ASSET VALUE. Shares are offered at net asset value
plus a sales charge (if applicable). The net asset value of the Fund is
calculated at the end of each business day (currently 4:00 PM New York time)
that the New York Stock Exchange is open for trading and on other days there
is a sufficient degree of trading to materially affect the Fund's net asset
value. The net asset value is not calculated on New Year's Day, Presidents'
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day, Christmas Day and on other days the New York Stock Exchange
is closed for trading. The net asset value per share of the Fund is determined
by adding the value of all its securities and other assets, subtracting its
liabilities and dividing the result by the total number of each class'
outstanding shares that represent each class' proportionate interest in the
Fund.
Investment securities are valued at the last sale price on the securities
exchange or national securities market on which such securities are primarily
traded. Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average of the
last bid and asked prices, except in the case of open short positions where the
asked price is used for valuation purposes. Bid price is used when no asked
price is available. Market quotations for foreign securities in foreign
currencies are translated into United States dollars at the prevailing rates of
exchange. Any securities or other assets for which recent market quotations are
not readily available are valued at fair value as determined in good faith by
the Board of Trustees.
70
<PAGE> 85
REDUCED SALES CHARGE. Officers, directors, full time employees and
Trustees, and any trust, pension, profit sharing or qualified retirement plan of
the Adviser, Sub-Adviser, the distributor, the Trust and any affiliate thereof
may purchase shares of the Fund at the net asset value per share. Spouses and
minor children of the foregoing may also purchase shares at net asset value. In
addition, Sub-Adviser advisory clients and related persons of such may purchase
shares at net asset value.
DISTRIBUTIONS AND TAXES
The following is a general description of certain tax rules relating to
the Fund. It is not exhaustive and prospective investors may wish to consult
their tax advisers.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986 ("Code") so long as such qualification is in the
best interests of shareholders. If it so qualifies, in any fiscal year in which
it distributes at least 90 percent of its taxable net income, the Fund generally
will not be subjected to federal income tax on such distributed amounts.
Shareholders of the Fund, however, will be subject to federal income tax on any
ordinary net income and net capital gains realized by the Fund and distributed
to shareholders as regular or capital gains dividends, whether distributed in
cash or in the form of additional shares. Net long term capital gains
distributions will be taxable to shareholders as long term capital gains,
regardless of the length of time the corresponding shares have been held.
Upon the taxable disposition (including a sale or redemption) of shares of
the Fund, a shareholder may realize a gain or loss depending upon his basis in
his shares. Such gain or loss generally will be treated as capital gain or loss
(if the shares are capital assets in the shareholder's hands) and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Funds on the reinvestment date.
In order to qualify as a "regulated investment company" under the Code,
the Fund must, among other things, on each taxable year distribute at least 90
percent of its taxable income to shareholders, derive at least 90 percent of its
gross income from dividends, interest and gains from the sale or disposition of
securities and derive less than 30 percent of its gross income from the sale or
disposition of securities held for less than three months. Accordingly, the Fund
will be subject to certain restrictions including restrictions in the writing of
options on securities which have been held for less than three months,
purchasing and selling futures contracts held for less than three months, in the
writing of options which expire in less than three months, and in effecting
closing purchase transactions, with respect to options which have been written
less than three months prior to such transactions.
The Code imposes a non-deductible, 4% excise tax on regulated investment
companies that do not distribute to their shareholders in each calendar year an
amount equal to (i) 98% of their calendar year ordinary income; plus 98% of
their capital gain net income (the excess of short and long term capital losses)
for the one year period ending October 31. Dividends declared in December of any
year to shareholders of record on any date in December will be deemed to have
been received by the shareholders and paid by the Fund on the record date,
provided such dividends are paid by February 1 as of the following year.
Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following year,
are considered taxable income to shareholders on December 31 in the year
declared even though paid in the next year.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
laws. Non-resident aliens are urged to consult their own tax adviser concerning
the applicability of the United States withholding tax.
71
<PAGE> 86
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, this
amount, character and timing of gains or losses form the affected straddle
positions will be determined under rules that vary according to the election(s)
made. The rules applicable under certain of the elections may operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle position, the amount which may be distributed to Shareholder,
and which, will be taxed to them as ordinary income or long-term capital gain,
may be increased or decreased as compared to a fund that did not engage in such
hedging transactions.
Dividends paid by the Fund are generally expected to be subject to any
state or local taxes on income. Shareholders should consult their own attorneys
or tax advisers about the tax consequences related to investing in the Fund.
The foregoing is a general summary of certain provisions of the Code and
Treasury Regulations in effect. For the complete provisions, reference should be
made to the pertinent Code sections and Treasury Regulations promulgated
thereunder. The Code and the Treasury Regulations thereunder are subject to
change by legislative or administrative action either prospectively or
retroactively.
PERFORMANCE INFORMATION
The Fund may from time to time advertise its total return. Total return is
computed by finding the average annual compounded rates of return over the 1,5
and 10 year periods or up to the life of the Fund that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the 1,5
or 10 year periods at the end of the 1,5 or 10
year periods (or fractional portion thereof)
In advertising and sales literature, the Fund may compare its performance
to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), the Russell 2000, or other unmanaged indices so that investors
may compare the Fund's results with those of a group of unmanaged securities
widely regarded by investors as representative of the securities markets in
general; (ii) other groups of mutual funds tracked by Lipper Analytical
Services, Inc., a widely used independent research firm which ranks mutual funds
by overall performance, investment objectives, and assets, or tracked by other
services, companies, publications, or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Fund.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
The Fund may also compute aggregate total return for specified periods
based on a hypothetical Fund account with an assumed initial investment of
$10,000. The aggregate total return is determined by dividing the net asset
value of the account at the end of the specified period by the value of the
initial investment and is expressed as a percentage. Calculation of aggregate
total return reflects payment of the maximum sales charge and assumes
reinvestment of all income dividends and capital gain distributions during the
period.
72
<PAGE> 87
The Fund may also quote annual, average annual and annualized total return
and aggregate total performance data both as percentage and as a dollar amount
based on a hypothetical $10,000 investment for various periods. Such data will
be computed as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum sales charge will not be included
with respect to annual, annualized or aggregate rates of return calculations.
73
<PAGE> 88
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Trustees of The Reserve Private Equity Series:
We have audited the accompanying statement of assets and liabilities,
including the schedule of portfolio investments, of the Informed Investors Fund
(one of the Funds of the Reserve Private Equity Series) as of May 31, 1995, and
the related statement of operations, the statement of changes in net assets and
the financial highlights for the period December 28, 1994 (commencement of
operations) through May 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Informed Investors Fund of the Reserve Private Equity Series as
of May 31, 1995, the results of its operations, the changes in its net assets,
and its financial highlights for the period referred to above, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
June 23, 1995
<PAGE> 89
RESERVE INFORMED INVESTORS GROWTH FUND (THE "FUND")
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reserve Informed Investors Growth Fund is a separate series of shares
issued by The Reserve Private Equity Series (the "Trust"). The Trust was
formed under Delaware law as a Delaware business trust. The Trust is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified open-end management investment company. There are an
unlimited number of shares of beneficial interest of $.001 par value
authorized in each series. The accounting policies summarized below are
consistently followed in the preparation of the financial statements in
conformity with generally accepted accounting principles.
SECURITY VALUATION
Portfolio securities are stated at value. A security listed or traded on an
exchange is valued at its last sale price on the exchange where the
security is principally traded or, lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market is valued
at the mean between its quoted bid and asked prices.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date. Dividend income and
distributions to shareholders are recorded on the ex-dividend dates.
Interest income is accrued daily. Realized gains and losses from securities
transactions and unrealized appreciation or depreciation of securities are
reported on the identified cost basis for both financial statement and
Federal income tax purposes.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for net operating losses. The effect of these
differences for the year ended May 31, 1995 decreased undistributed net
investment loss by $38,948 and decreased aggregate paid in capital by
$38,948.
EXPENSES
Each series charged only for its direct or allocated (in proportion to net
assets) share of expenses.
FEDERAL INCOME TAXES
It is the Trust's policy to comply with Subchapter M of the Internal
Revenue Code and to distribute substantially all of its taxable income to
its shareholders. Accordingly, no Federal income tax provision is required.
2. INVESTMENT ACTIVITY
Purchases and sales of securities for the period December 28, 1994
(Commencement of Operations) through May 31, 1995, other than short-term
securities, aggregated $8,905,639 and $3,189,520 respectively.
<PAGE> 90
RESERVE INFORMED INVESTORS GROWTH FUND (THE "FUND")
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995 - (CONTINUED)
3. INVESTMENT MANAGEMENT AGREEMENT
Reserve Management Company, Inc. (RMCI), serves as the Fund's investment
adviser and pays substantially all ordinary operating expenses of the Fund
for which it receives a comprehensive fee at an annual rate of 1.50% of the
average daily net assets of the Fund. RMCI is a shareholder of the Fund.
4. DISTRIBUTION ASSISTANCE
Pursuant to a Distribution Plan, the Fund will make payments of .25% per
annum of the average daily net assets of shareholder accounts as to which
the payee has rendered distribution assistance. During the period, the Fund
paid $6,015 in distribution expenses to RMCI.
5. CAPITAL SHARE TRANSACTIONS
Transactions in capital stock for the period December 28, 1994
(commencement of operations) through May 31, 1995 were as follows:
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Share sold 634,326 $ 6,422,521
Redeemed (64,254) (656,742)
----------- -----------
Net Increase 570,072 $ 5,765,779
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 91
RESERVE INFORMED INVESTORS GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995
<TABLE>
<S> <C>
ASSETS
Investment in securities, at value
(cost $5,495,629) $ 6,826,488
Cash 184,181
Receivable for investment securities sold 110,002
Dividends receivable 875
-----------
Total Assets 7,121,546
-----------
LIABILITIES
Payable for fund shares redeemed 12,000
Payable for investment securities purchased 272,346
-----------
Total Liabilities 284,346
-----------
NET ASSETS $ 6,837,200
===========
NET ASSETS CONSIST OF (Note 1)
Capital Stock (Par Value $.001 per share) $ 570
Additional paid in capital 5,726,261
Accumulated net realized loss on investments (220,490)
Net unrealized appreciation on investments (Note 1) 1,330,859
-----------
NET ASSETS, at value, applicable to 570,072 outstanding shares
of Beneficial Interest (Note 5) $ 6,837,200
===========
NET ASSET VALUE, and redemption price per share ($6,837,200 / 570,072) $ 11.99
===========
Maximum offering price per share (100/95.5 of $11.99) $ 12.55
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 92
RESERVE INFORMED INVESTORS GROWTH FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 28, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 3,154
EXPENSES
Comprehensive fee (Note 3) $ 36,087
12b-1 Fee (Note 4) 6,015
-----------
Total Expenses 42,102
-----------
NET INVESTMENT LOSS (38,948)
-----------
Realized and Unrealized Gain on Investments
Net realized loss on investment securities: (Note 1)
Proceeds from sales of securities 3,189,520
Cost of securities sold (3,410,010) (220,490)
-----------
Net unrealized appreciation on investments 1,330,859
-----------
Net realized and unrealized gain on investments 1,110,369
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,071,421
===========
</TABLE>
RESERVE INFORMED INVESTORS GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DECEMBER 28, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C>
INCREASE IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment loss $ (38,948)
Net realized loss from investments (220,490)
Net unrealized appreciation 1,330,859
-----------
Net increase in net assets resulting from
operations 1,071,421
FROM CAPITAL SHARE TRANSACTIONS (Note 5)
Net proceeds from sales of shares 6,422,521
Cost of shares redeemed (656,742)
-----------
Net increase in net assets resulting from
share transactions 5,765,779
-----------
NET INCREASE IN NET ASSETS 6,837,200
NET ASSETS:
Beginning of period 0
-----------
End of period $ 6,837,200
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 93
RESERVE INFORMED INVESTORS GROWTH FUND (THE "FUND")
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995 - (CONTINUED)
6. FINANCIAL HIGHLIGHTS (FOR ONE SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
DECEMBER 28, 1994
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 1995
-------------------
<S> <C>
Net asset value, beginning of period $10.00
Income from investment operations
Net investment loss (.07)
Net realized and unrealized gain 2.06
-----
Total from investment operations 1.99
-----
Net asset value, end of period $11.99
=====
Total Return (2) 19.90%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period $6,837
Ratio of expenses to average net assets 1.75%(1)
Ratio of net investment loss to average
net assets (1.62)%(1)
Portfolio turnover rate 59%
</TABLE>
- - ------------
(1) Annualized.
(2) Total return is not annualized, and does not reflect impact
of sales load.
<PAGE> 94
SEE NOTES TO FINANCIAL STATEMENTS.
RESERVE INFORMED INVESTORS GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MAY 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS VALUE
SHARES (NOTE 1)
------ --------
<S> <C> <C>
COMPUTER COMMUNICATIONS EQUIPMENT (7.5%)
* Adaptec Inc. 7,200 $ 216,900
* 3 Com Corp. 4,600 294,400
-----------
511,300
-----------
ELECTRIC MEASUREMENT & TESTING INSTRUMENTS (9.7%)
* Tencor Instruments 4,400 295,900
* Teradyne Inc. 6,800 368,050
-----------
663,950
-----------
GENERAL INDUSTRIAL MACHINERY & EQUIPMENT (1.6%)
Helix Technology Corp. 3,000 114,000
-----------
OPTICAL INSTRUMENTS AND LENSES (4.1%)
* KLA Instruments Corp. 4,000 279,000
-----------
PACKAGED SOFTWARE (9.6%)
* Broderbund Software Inc. 3,100 139,500
* Cadence Design Systems 9,400 279,650
Computer Associates International Inc. 3,600 235,800
-----------
654,950
-----------
RADIO, TV AND BROADCAST COMMUNICATION EQUIPMENT (8.0%)
* Andrew Corp. 11,250 548,438
-----------
SEMICONDUCTOR, RELATED DEVICE (34.9%)
* Altera Corp. 4,000 311,500
* Atmel Corp. 7,200 316,800
* Cypress Semiconductor Corp. 5,100 165,112
* Integrated Device Technology Inc. 4,400 191,400
Intel Corp. 2,000 224,500
Linear Technology Corp. 3,800 232,750
Micron Technology Inc. 17,500 780,938
* Xilinx Inc. 1,900 160,075
-----------
2,383,075
-----------
SPECIAL INDUSTRIAL MACHINERY (12.7%)
* Applied Materials Inc. 2,800 215,600
* Kulicke & Soffa Industries Inc. 3,300 140,250
* Lam Research Corp. 6,300 360,675
* Novellus Systems Inc. 2,500 155,000
-----------
871,525
-----------
TELEPHONE & TELGRAPH APPARATUS (11.7%)
* Tellabs Inc. 15,900 524,700
* U.S. Robotics Corp. 3,300 275,550
-----------
800,250
-----------
TOTAL COMMON STOCKS (Cost $5,495,629) (99.8%) 6,826,488
Other assets, less liabilities (.2%) 10,712
-----------
NET ASSETS (100%) $ 6,837,200
===========
</TABLE>
Value of investments are shown as a percentage of Net Assets.
* Non-income producing security.
For Federal income tax purposes the tax basis of investments owned at May 31,
1995 was $5,495,629, the aggregated gross unrealized appreciation for all
investments was $1,418,732 and aggregate gross unrealized depreciation for
all investments was $87,873.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 95
RESERVE PRIVATE EQUITY SERIES
RESERVE NORTH AMERICAN GROWTH FUND
810 SEVENTH AVENUE, NEW YORK, N.Y. 10019
(800) 637-1700
---------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information describes Reserve Private Equity
Series ("Trust") and the Reserve North American Growth Fund ("North American
Growth Fund" or "Fund"). This Statement is not a Prospectus, but provides
detailed information to supplement the Prospectus and should be read in
conjunction with the Prospectus. A copy of the Prospectus may be obtained
(without charge) from Reserve Private Equity Series. This Statement is dated
1995.
TABLE OF CONTENTS
Page
----
Investment Policies
Other Policies
Trustees and Officers of the Trust
Investment Management and Other Agreements
Portfolio Turnover, Transaction Charges and
Allocation
Shares of Beneficial Interest
Purchase, Redemption and Pricing of Shares
Distributions and Taxes
Performance Information
Additional Information
Report of Independent Accountants
Financial Statements
74
<PAGE> 96
INVESTMENT POLICIES
The Fund has adopted as fundamental policies the following limitations on
its investment activities. These fundamental policies may not be changed without
a majority vote of the Fund shareholders, as defined in the Investment Company
Act of 1940. The North American Growth Fund may not:
(1) borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount not to exceed 33 1/3% of the market value of
its assets; (2) issue senior securities as defined in the Investment Company Act
of 1940 except that the Fund may borrow money in accordance with limitation (1);
(3) act as an underwriter with respect to the securities of others except 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) invest
25% or more of the value of its total assets in the securities of issuers in any
particular industry; (5) purchase, sell or otherwise invest in real estate or
commodities or commodity contracts; (6) invest in voting securities or in
companies for the purpose of exercising control; and (7) purchase securities
on margin, except to obtain such short-term credits as may be necessary for the
clearance of transactions.
The Fund has reserved the right to purchase and write interest rate
futures contracts, and put and call options on interest rate futures
contracts. The Fund does not intend to use these techniques for the
foreseeable future and that shareholders will be given notice should the Fund
determine that they will be used.
In addition to the fundamental investment policies listed above, the Fund
has voluntarily adopted certain policies that may be changed or amended by
action of the Trustees without requiring prior notice to or approval of
shareholders. In accordance with such policies and restrictions the Fund cannot:
(1) purchase from or sell investment securities to any of the officers or
Trustees of the Trust, its investment Adviser, its investment Sub-Adviser, its
principal underwriter or the officers, principals or directors of its investment
Adviser, investment Sub-Adviser or principal underwriter; and (2) purchase or
retain securities of an issuer any of whose officers, directors, trustees or
securityholders is an officer or Trustee of the Trust or a member, officer,
director or trustee of the investment Adviser or Sub-Adviser of the Fund if one
or more of such individuals owns beneficially more than one-half of one percent
(1/2 of 1%) of the securities (taken at market value) of such issuer and such
individuals owning more than one-half of one percent (1/2 of 1%) of such
securities together beneficially own more than 5% of such securities or both.
As a non-diversified company, the Fund is permitted to invest all of its
assets in a limited number of issuers. However, it intends to comply with
Subchapter M of the Internal Revenue Code in order to qualify as a regulated
investment company for federal income tax purposes. To so qualify, the Fund must
diversify its holdings so that, at the close of each quarter of its taxable
year, (a) at least 50% of the value of its total assets is represented by cash,
cash items, securities issued by the U.S. Government or its agencies or
instrumentalities, securities of other regulated investment companies, and other
securities limited generally with respect to any one issuer to an amount not
more than 5% of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than the U.S. Government or its agencies or instrumentalities or regulated
investment companies), or in two or more issuers that the Fund controls and that
are engaged in the same or similar trades or businesses. In the event of a
decline in the market value of the securities of one or more such issuers
exceeding 5%, an investment in the Fund could entail greater risk than in a fund
which has a policy of diversification.
OTHER POLICIES
LENDING OF SECURITIES. The Fund may, to increase its income, lend its securities
to brokers, dealers and institutional investors if the loan is collateralized in
accordance with applicable regulatory requirements (the "Guidelines") and if,
after any loan, the value of the securities loaned does not exceed 25% of the
value of its assets. Under the present Guidelines, the loan collateral must, on
each business day, at least equal the value of the loaned securities and must
consist of cash, bank letters of credit or securities of the United States
Government (or its agencies or
75
<PAGE> 97
instrumentalities). To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. Such terms and the issuing bank would have to be
satisfactory to the Fund. Any loan might be secured by any one or more of the
three types of collateral. The Fund receives amounts equal to the dividends or
interest on loaned securities and also receives one or more negotiated loan
fees, interest on securities used as collateral or interest on short term debt
securities purchased with such collateral, either of which type of interest may
be shared with the borrower. The Fund may also pay reasonable finders, custodian
and administrative fees. Loan arrangements made by the Fund will comply with all
other applicable regulatory requirements including the rules of The New York
Stock Exchange, which require the borrower, after notice, to redeliver the
securities within the normal settlement time of five business days. While voting
rights may pass with the loaned securities, if a material event will occur
affecting an investment on loan, the loan must be called and the securities
voted.
SECURITIES OF FOREIGN COMPANIES. Investing in foreign securities may
result in greater risk than that incurred by investing in domestic securities.
There is generally less publicly available information about foreign companies
comparable to reports and ratings that are published about companies in the
United States.
It is comtemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Similarly,
volume and liquidity in most foreign bond markets is less than in the United
States and at times volatility of price can be greater than in the United
States. Commissions on foreign stock exchanges are generally higher than
commissions on United States exchanges, although the Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of foreign stock exchanges,
brokers and listed companies than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investments or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic development which could
affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
The dividends and interest payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes thus reducng
the net amount of income available for distribution to the Fund's shareholders.
Shareholders otherwise subject to United States federal income taxes may,
subject to certain limitations, be entitled to claim a credit or deduction for
U.S. federal income tax purposes for his or her proportionate share of such
foreign taxes paid by the Fund.
TRUSTEES AND OFFICERS OF THE TRUST
*BRUCE R. BENT, President, Treasurer and Trustee, 810 Seventh Avenue, New
York, New York 10019.
Mr. Bent is President, Treasurer, and Trustee of The Reserve Fund ("RF"),
Reserve Institutional Trust ("RIT"), Reserve Tax-Exempt Trust ("RTET") and
Reserve New York Tax-Exempt Trust ("RNYTET") and Reserve Private Equity Series
("RPES"), Director, Vice President and Secretary of Reserve Management Company,
Inc. ("RMCI") and Reserve Management Corporation, and Chairman and Director of
Resrv Partners, Inc. Before 1968, he was associated with Stone & Webster
Securities Corp., and previously, Teachers Insurance and Annuity Association.
EDWIN EHLERT, JR., Trustee, 125 Elm Street, Westfield, New Jersey 07091.
Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency formerly called Travelong of Westfield, Inc.) and Ehlert Travel
Associates of Florida, Inc. (travel agency), and Trustee of RF, RIT, RNYTET,
RTET and RPES.
HENRI W. EMMET, Trustee, 176 East 71st Street, New York, New York 10021.
76
<PAGE> 98
Mr. Emmet is the Managing Director of Servus Associates, Inc, and U.S.A.
Representative of the First National Bank of Southern Africa and Trustee of RF,
RET, RNYTET, RTET, and RPES. Until 1989, he was Senior Vice President of the
New York branch of Banque Nationale de Paris.
BURTT R. EHRLICH, Trustee, 667 Madison Avenue, New York, New York 10021.
Mr. Ehrlich is a Director of Benson Eye Care Corp and a private investor.
Until 1992, he was President and Chairman of Ehrlich Bober Financial Corp., a
municipal securities investment firm.
*DONALD J. HARRINGTON, C.M, Trustee, St. John's University, Jamaica, New
York 11439.
The Reverend Harrington is President of St. John's University (NY) and a
Trustee of RF, RIT, RNYTET, RTET and RPES. The Reverend Harrington served as
President of Niagara University from 1984 to 1989 and was Executive Vice
President of Niagara University from 1981 to 1984. The Reverend Harrington also
served as Director of the Bear Stearns Companies Inc. since 1993.
NIELS W. JOHNSEN, Trustee, 1 Whitehall Street, New York, New York 10004.
Mr. Johnsen is Chairman of the Board of International Shipholding Corp.
and Central Gulf Lines, Inc. (ship cargo carrier), Director of Centennial
Insurance Co. and Trustee of The Atlantic companies (insurance), RF, RIT,
RNYTET, RTET and RPES.
THOMAS L. RHODES, Trustee, 150 East 35th Street, New York, New York 10016
Mr. Rhodes is President and a member of the Board of Directors of the
National Review. From 1976 to 1992 Mr. Rhodes was a partner with Goldman, Sachs
& Co., an investment banking firm.
MARC C. COZZOLINO, Counsel and Secretary, 810 Seventh Avenue, New York,
NY 10019.
Mr. Cozzolino is Counsel and Secretary of RF, RIT, RTET, RNYTET and RPES.
Before joining The Reserve Funds in 1994, Mr. Cozzolino was a staff attorney at
the New Jersey Bureau of Securities.
PAT A. COLLETTI, Controller, 810 Seventh Avenue, New York, New York 10019.
Mr. Colletti is Controller of RF, RIT, RTET, RNYTET and RPES. Prior to
joining The Reserve Funds in 1985, Mr. Colletti was Supervisor of Accounting
of Money Market Funds for the Dreyfus Corporation.
- - ---------------
* Interested Trustee within the meaning of the Investment Company Act of 1940.
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 or 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 regard of the duties involved in the conduct
of their office.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND FUND COMPLEX
NAME OF TRUSTEE FROM FUND* (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE*
------------------------------------------------------------------------------
<S> <C> <C>
Edwin Ehlert, Jr. $0 $16,500
Henri W. Emmet $0 $16,600
Rev. Donald J. Harrington $0 $16,500
Niels W. Johnsen $0 $16,500
Burtt R. Ehrlich $0 $0
Thomas L. Rhodes $0 $0
</TABLE>
Amount shown are for the Fund's fiscal year ending May 31, 1995.
INVESTMENT MANAGEMENT AND OTHER AGREEMENTS
The Adviser. Reserve Management Company, Inc. ("Adviser"),14 Locust Place,
Manhasset, New York, NY 11030, a registered investment Adviser, manages the
Trust and provides it with investment advice pursuant to an Investment
Management Agreement. Under the Investment Management Agreement, the Adviser
manages the Fund, is responsible for the day-to-day oversight of the Trust's
operations and otherwise administers the affairs of the Trust as it deems
advisable subject to the overall control and direction of the Trustees and the
investment policies and limitations of the Trust described in the Prospectus and
Statement of Additional Information. RMCI pays all employee costs and other
ordinary operating costs of the Fund pursuant to the Investment Management
Agreement which include: registration fees paid to the commission and state
regulators, costs associated with the annual update of each Fund's registration
statement, auditing annual financial statements, and printing and mailing
costs (exclusive of those associated with the Rule 12b-1 Plans).
Excluded
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<PAGE> 99
from ordinary operating costs are interest charges, taxes, brokerage fees,
extraordinary legal and accounting fees and expenses, payments made pursuant to
the Trust's Distribution Plan and the fees of the disinterested Trustees, for
which the Fund pays its direct or allocated share.
For its management services, and for paying all of the employee costs,
costs of the Sub-Adviser and other ordinary operating expenses of the Trust,
RMCI is periodically paid a comprehensive fee, at the annual rate of 1.50% per
annum of the average daily net assets of the Fund.
The Investment Management Agreement is subject to annual review by and
must be approved at least annually by a vote of a majority of the Board of
Trustees, including a majority of those who are not "interested persons" as
defined in the Investment Company Act of 1940, cast in person at a meeting
called for the purpose of voting on such renewal. The Agreement terminates
automatically upon its assignment and may be terminated without penalty upon 60
days' written notice by vote of the Trustees, by vote of a majority of
outstanding voting shares of the Fund or by the Adviser.
THE SUB-ADVISER. Southern Capital Advisors ("Sub-Adviser"), a division of
Morgan Asset Management, Inc., 50 Front Street, Memphis, Tennessee 38103, a
registered investment Adviser, acts as Sub-Adviser to the Fund. The Adviser and
Trust have entered into a Sub-Advisory Agreement with the Sub-Adviser pursuant
to which the Adviser will pay any fees of the Sub-Adviser. The Sub-Advisory
Agreement is subject to annual review by and must be approved annually by the
Trustees, including a majority of those who are not "interested persons" as
defined in the Investment Company Act of 1940, cast in person at a meeting
called for purpose of voting on such renewal. The agreement automatically
terminates upon its assignment and may be terminated without penalty upon 60
days' written notice by vote of the Trustees, by vote of a majority of
outstanding voting shares of the Fund or by the Sub-Adviser.
CUSTODIAN. Chemical Bank, 4 New York Plaza, New York, New York 10004 is
Custodian for the cash and securities of the Trust. The Custodian maintains
custody of the Trust's cash and securities, handles its securities settlements
and performs transaction processing for receipts and disbursements in connection
with the purchase and sale of the Trust's shares.
DISTRIBUTION AGREEMENT. Resrv Partners, Inc. ("RESRV"), 810 Seventh
Avenue, New York, New York 10019, is a distributor of the shares of the Trust.
RESRV is a "principal underwriter" for the Trust within the meaning of the
Investment Company Act of 1940, and as such acts as agent in arranging for the
continuous offering of Trust shares. RESRV has the right to enter into dealer
agreements with brokers or other persons of its choice for the sale of Trust
shares. RESRV's principal business is the distribution of shares of mutual funds
and it has retained no underwriting commissions during the last three fiscal
years.
The Distribution Agreement must be approved annually by the Trustees,
including a majority of those who are not "interested persons," as defined in
the Investment Company Act of 1940.
DISTRIBUTION PLAN. The Trust maintains a Distribution Plan ("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 Board and approved by
its shareholders. Pursuant to the Plan, the Distributor or its affiliates may
make payments ("assistance payments") to brokers, financial institutions and
financial intermediaries ("payees") in respect of Trust shareholder accounts
("qualified accounts") as to which the payee has rendered distribution
assistance or other services. The Distributor may also retain amounts to pay for
advertising and marketing expenses. Assistance payments by the Distributor are
made to payees at an annual rate of .25% of the average net asset
value for Class A shares and 1.00% of the average net asset value
for Class D shares. The Trustees have determined that there is a reasonable
likelihood that the Plan will benefit the Trust and its shareholders and that
its costs are primarily intended to result in the sale of the Trust's shares.
Under the Plan, the Trust's officers report quarterly the amounts and
purposes of assistance payments to the Trustees. During the continuance of the
Plan the selection and nomination of the disinterested Trustees of the Trust are
at the discretion of the disinterested Trustees currently in office.
The Plan and related agreements may be terminated at any time by a vote of
a majority of the outstanding voting securities of the Fund. The Plan and
related agreements may be renewed from year to year if approved by a vote of a
majority of the Board of Trustees, including a majority of those who are not
"interested persons," as
78
<PAGE> 100
defined in the Investment Company Act of 1940. 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 majority
vote of the Board of Trustees, including a majority of the disinterested
Trustees, cast in person at a meeting called for the purpose of such vote.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 1301 Avenue of
Americas, New York, New York 10019 is the Trust's independent accountants.
PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION
Subject to the overall supervision of the officers of the Trust, its Board
of Trustees, and the Adviser, the Sub-Adviser places all orders for the purchase
and sale of the Fund's investment securities. In general, in the purchase and
sale of investment securities the Sub-Adviser will seek to obtain prompt and
reliable execution of orders at the most favorable prices or yields. In
determining best price and execution, the Sub-Adviser may take into account a
dealer's operational and financial capabilities, the type of transaction
involved, the dealer's general relationship with the Fund's Sub-Adviser, and any
statistical, research, or other services provided by the dealer. 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 in good faith by the Fund's Sub-Adviser.
Brokers or dealers who execute investment securities transactions for the Fund
may also sell its shares; however, any such sales will not be either a
qualifying or disqualifying factor in the selection of brokers or dealers.
Subject to procedures adopted by, and the supervision of, the Board of Trustees,
the Sub-Adviser is authorized to place portfolio transactions with brokers or
dealers affiliated with it provided the commission or fee charged is comparable
to that charged by non-affiliated brokers or dealers on comparable transactions
involving similar securities being purchased or sold during a comparable period
of time on a securities exchange. Any such transactions will be in accordance
with Rule 17e-1 under the Investment Company Act of 1940.
When transactions are made in the over-the-counter market, the Fund deals
with the primary market makers unless more favorable prices are otherwise
obtainable.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trust to issue an unlimited number of
full and fractional shares of beneficial interest, and to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the Trust. Each share represents an
interest in the respective series of the Trust proportionately equal to the
interest of each other share. If they deem it advisable in the best interests of
shareholders, the Trustees of the Trust may classify or reclassify any unissued
shares of the Trust by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the stock. Any changes
would be required to comply with any applicable state and Federal securities
laws. These currently require that each series be preferred over all other
series in respect of assets specifically allocated to such class. It is
anticipated that under most circumstances, the rights of any additional series
would be comparable unless otherwise required to respond to the particular
situation. Upon liquidation of the Trust, shareholders are entitled to share pro
rata in the net assets of their respective series of the Trust available for
distribution to such shareholders. No changes can be made to the Trust's issued
shares without shareholder approval.
Each Fund share when issued is fully paid, nonassessable and fully
transferable or redeemable at the shareholder's option. Each share has an equal
interest in the net assets of its series, equal rights to all dividends and
other distributions from its series, and one vote for all purposes. Shares of
separate series vote together for the election of Trustees and have
noncumulative voting rights, meaning that the holders of more than 50% of the
shares voting for the election of Trustees could elect all Trustees if they so
choose, and in such event the holders of the remaining shares could not elect
any person to the Board of Trustees.
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.
79
<PAGE> 101
Regulations of the Securities and Exchange Commission provide that if a
series is separately affected by a matter requiring a vote (election of
Trustees, ratification of independent accountant selection, and approval of an
underwriting agreement are not considered to have such separate effect and may
be voted upon by the Trust as a whole), each such series votes separately. Each
series votes separately on such matters as approval of the Investment Management
Agreement and material amendments to the Plan, which require approval by a
majority of the effected 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 a meeting of shareholders at which at least 50
percent of the shares of each group are represented.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Redemption payments are normally made by check or wire transfer, but the
Trust may be authorized to make payment of redemptions partly or wholly in kind
(that is, by delivery of portfolio instruments valued at the same time as the
redemption net asset value is determined). The Trust has made an election
committing it to pay in cash all requests for redemption from the series
involved, by any shareholder or record, limited during any 90-day period to the
lesser of $250,000 or 1% of the net assets of the series at the beginning of the
period. The election is irrevocable pursuant to rules and regulations under the
Investment Company Act or 1940 unless withdrawal is permitted by order of the
Securities and Exchange Commission. In disposing of such securities an investor
might incur transaction costs and on the date of disposition might receive an
amount less than the net asset value of the redemption.
DETERMINATION OF NET ASSET VALUE. Shares are offered at net asset value
plus a sales charge (if applicable). The net asset value of the Fund is
calculated at the end of each business day (currently 4:00 PM New York time)
that the New York Stock Exchange is open for trading and on other days there is
a sufficient degree of trading to materially affect the Fund's net asset value.
The net asset value is not calculated on New Year's Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day,
Christmas Day and on other days the New York Stock Exchange is closed for
trading. The net asset value per share of the Fund is determined by adding the
value of all its securities and other assets, subtracting its liabilities and
dividing the result by the total number of the class' outstanding shares that
represent each class' proportionate interest in the Fund.
Investment securities are valued at the last sale price on the securities
exchange or national securities market on which such securities are primarily
traded. Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average of the
last bid and asked prices, except in the case of open short positions where the
asked price is used for valuation purposes. Bid price is used when no asked
price is available. Market quotations for foreign securities in foreign
currencies are translated into United States dollars at the prevailing rates of
exchange. Any securities or other assets for which recent market quotations are
not readily available are valued at fair value as determined in good faith by
the Board of Trustees.
REDUCED SALES CHARGE. Officers, directors, full time employees and
Trustees, and any trust, pension, profit sharing or qualified retirement plan of
the Adviser, Sub-Adviser, the distributor, the Trust and any affiliate thereof
may purchase shares of the Fund at the net asset value per share. Spouses and
minor children of the foregoing may also purchase shares at net asset value. In
addition, Sub-Adviser advisory clients and related persons of such may purchase
shares at net asset value.
DISTRIBUTIONS AND TAXES
The following is a general description of certain tax rules relating to
the Fund. It is not exhaustive and prospective investors may wish to consult
their tax advisers.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986 ("Code") so long as such qualification is in the
best interests of shareholders. If it so qualifies, in any fiscal year in which
it distributes at least 90 percent of its taxable net income, the Fund generally
will not be subjected to federal income tax on such distributed amounts.
Shareholders of the Fund, however, will be subject to federal income tax on any
ordinary net income and net capital gains realized by the Fund and distributed
to shareholders as regular or capital gains dividends, whether distributed in
cash or in the form of additional shares. Net long term capital gains
80
<PAGE> 102
distributions will be taxable to shareholders as long term capital gains,
regardless of the length of time the corresponding shares have been held.
Upon the taxable disposition (including a sale or redemption) of shares of
the Fund, a shareholder may realize a gain or loss depending upon his basis in
his shares. Such gain or loss generally will be treated as capital gain or loss
(if the shares are capital assets in the shareholder's hands) and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. However, a loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gain dividends have
been paid will, to the extent of such capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
Shareholders receiving distributions in the form of additional shares will have
a cost basis for Federal income tax purposes in each share received equal to the
net asset value of a share of the Funds on the reinvestment date.
In order to qualify as a "regulated investment company" under the Code,
the Fund must, among other things, in each taxable year distribute at least 90
percent of its taxable income to shareholders, derive at least 90 percent of its
gross income from dividends, interest and gains from the sale or disposition of
securities and derive less than 30 percent of its gross income from the sale or
disposition of securities held for less than three months. Accordingly, the Fund
will be subject to certain restrictions including restrictions in the writing of
options on securities which have been held for less than three months,
purchasing and selling futures contracts held for less than three months, in the
writing of options which expire in less than three months, and in effecting
closing purchase transactions, with respect to options which have been written
less than three months prior to such transactions.
The Code imposes a non-deductible, 4% excise tax on regulated investment
companies that do not distribute to their shareholders in each calendar year an
amount equal to (i) 98% of their calendar year ordinary income; plus 98% of
their capital gain net income (the excess of short and long term capital losses)
for the one year period ending October 31. Dividends declared in December of any
year to shareholders of record on any date in December will be deemed to have
been received by the shareholders and paid by the Fund on the record date,
provided such dividends are paid by February 1 as of the following year.
Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following year,
are considered taxable income to shareholders on December 31 in the year
declared even though paid in the next year.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
laws. Non-resident aliens are urged to consult their own tax adviser concerning
the applicability of the United States withholding tax.
The Code includes rules applicable to certain listed options, futures
contracts, and options on futures contracts which the Fund may write, purchase
or sell. Such options and contracts are classified as Section 1256 contracts
under the Code. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other termination of Section 1256
contracts is generally treated as long-term capital gain or loss to the extent
of 60% thereof and short-term capital gain or loss to the extent of 40% thereof
("60/40 gain or loss"). Such contracts, generally are required to be treated as
sold at market value on the last day of such fiscal year and on certain other
dates for federal income tax purposes ("marked-to-market"). Generally,
over-the-counter options are not classified as Section 1256 contracts and are
not subject to the mark-to market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by the Fund from transactions in over-the-counter
options generally constitute short-term capital gains or losses. If
over-the-counter call options written, or over-the-counter put options
purchased, by the Fund are exercised, the gain or loss realized on the sale of
the underlying securities may be either short-term or long-term, depending on
the holding period of the securities. In determining the amount of gain or loss,
the sales proceeds are reduced by the premium paid for over-the-counter puts or
increased by the premium received for over-the counter calls.
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<PAGE> 103
The Code and the Treasury Regulations thereunder are subject to change by
legislative or administrative action either prospectively or retroactively.
Dividends paid by the Fund are generally expected to be subject to any
state or local taxes on income. Shareholders should consult their own attorneys
or tax advisers about the tax consequences related to investing in the Fund.
PERFORMANCE INFORMATION
The Fund may from time to time advertise its total return. Total return is
computed by finding the average annual compounded rates of return over the 1,5
and 10 year periods or up to the life of the Fund that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the 1,5
or 10 year periods at the end of the 1,5 or 10
year periods (or fractional portion thereof)
In advertising and sales literature, the Fund may compare its performance
to (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), the Russell 2000, or other unmanaged indices so that investors
may compare the Fund's results with those of a group of unmanaged securities
widely regarded by investors as representative of the securities markets in
general; (ii) other groups of mutual funds tracked by Lipper Analytical
Services, Inc. a widely used independent research firm which ranks mutual funds
by overall performance, investment objectives and assets, or tracked by other
services, companies, publications, or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Fund.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
The Fund may also compute aggregate total return for specified periods
based on a hypothetical Fund account with an assumed initial investment of
$10,000. The aggregate total return is determined by dividing the net asset
value of the account at the end of the specified period by the value of the
initial investment and is expressed as a percentage. Calculation of aggregate
total return reflects payment of the maximum sales charge and assumes
reinvestment of all income dividends and capital gain distributions during the
period.
The Fund may also quote annual, average annual and annualized total return
and aggregate total performance data both as a percentage and as a dollar amount
based on a hypothetical $10,000 investment for various periods. Such data will
be computed as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum sales charge will not be included
with respect to annual, annualized or aggregate rates of return calculations.
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ADDITIONAL INFORMATION ABOUT CANADA
The information in this section is based on material obtained by the Fund
from various Canadian governmental and other economic sources believed to be
accurate, but has not been independently verified by the Fund or the Adviser. It
is not intended to be a complete description of Canada, its economy, or the
consequences of investing in Canadian Government Securities.
TERRITORY AND POPULATION
Canada is the second largest country in the world in terms of land mass
with an area of 9.97 million square kilometers (3.85 million square miles). It
is located north of the continental United States of America and east of Alaska.
Canada comprises ten provinces (Alberta, British Columbia, Manitoba, New
Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Quebec, and
Saskatchewan) and two territories (the Northwest Territories and the Yukon
Territory). Its population is approximately 29 million.
GOVERNMENT
Canada is a constitutional monarchy with Queen Elizabeth II of the United
Kingdom its nominal head of state. The Queen is represented by the Canadian
governor-general, appointed on the recommendation of the Canadian prime
minister. Canada's government has a federal structure, with a federal government
and ten provincial governments. Its Parliament consists of a House of Commons
and a Senate. Members of the House of Commons are elected by Canadian citizens
over 18 years of age. Senators are appointed on a regional basis by the prime
minister. The federal government is headed by the prime minister, who is chosen
from the party that has won the majority of seats in the House of Commons. The
provincial governments each have a legislative assembly and a premier.
Legislative authority resides in the federal parliament and the ten
provincial legislative assemblies. Provinces have extensive power with specific
areas of jurisdiction. The federal government has defined areas of jurisdiction
and the power to act in areas declared by Parliament to be for the general
advantage of Canada. This general power has been used to justify federal action
in certain areas of provincial jurisdiction. Concurrent federal and provincial
jurisdiction exists in certain matters, including agriculture, immigration, and
pensions. The power-sharing issue between the federal government and provincial
governments has been contentious and has proven to be a central issue in the
process of constitutional reform.
POLITICS
Since World War II, the federal government has been formed by either the
Liberal Party or the Progressive Conservative Party. In October 1993, the
Liberal Party, under the leadership of Mr. Jean Chretien, won 178 of the 295
seats in the Canadian House of Commons ending nine years of rule by the
Progressive Conservative Party. He remains popular, and unless the Liberal Party
calls for an earlier election, the next general election will take place in
October 1998.
Canada has had three major developments regarding unity and constitutional
reform in four years. The first two major developments were the rejection of the
Meech Lake Amendment in 1990 and the Charlottetown Accord in 1992. Those reforms
would have given Quebec constitutional recognition as a distinct society,
transferred powers from the federal to the provincial governments and reformed
the Senate by providing for more equal representation among the provinces.
The third major development is the possibility of Quebec's independence.
On September 12, 1994, the Quebec separatist party, Parti Quebecois, under the
leadership of Jacques Parizeau, won 77 seats in the provincial election with
44.7% of the vote. The Liberal Party won 47 seats with 44.3% of the vote. The
Parti Quebecois's agenda includes a call for a referendum sometime in 1995,
supporting independence. On February 6, 1995, the first of 15 regional
commissions started a month of consultations with regard to a draft law
regarding independence. The commissions are expected to produce a joint report
which will provide the basis for amendments to the draft law. This would be
followed by the referendum campaign and vote. In 1980, Quebec voted against
independence by a margin of 60% to 40%. Polls indicate that there is not enough
support to pass a referendum for independence. Furthermore, on February 13,
1995, in what had been seen as a preview to the referendum, Liberal Party
candidates defeated Parti Quebecois candidates in two parliamentary by-elections
in Quebec.
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<PAGE> 105
Mr. Parizeau has also suggested that he might introduce a series of
referendums until separatism wins, instead of one all-encompassing referendum.
The Quebec government's proposals suggest that Quebec would be able to keep the
Canadian dollar as its currency, share its armed forces with Canada and be a
partner of Canada with regard to international agreements and alliances. The
actual mechanics of separatoin, if it were to occur, and the possible effects on
Canada's economy are still not clear. Prime Minister Chretien has stated that
the national government would prevail in a vote on separatism. Still, until the
vote on the referendum, and for the foreseeable future, Quebec's position within
Canada will continue to dominate political debate.
MONETARY AND BANKING SYSTEM
The central bank of Canada is the Bank of Canada. Its main functions are
to advise on the formulation and execution of monetary policy and supervise
commercial banks acting as a fiscal agent to the federal government, managing
the foreign-exchange fund. The currency unit of Canada is the Canadian dollar.
Canada does not impose foreign exchange controls on capital receipts or payments
by residents or non-residents.
NORTH AMERICAN FREE TRADE AGREEMENT
Canada and the United States are each other's largest trading partners and
as a result, there is a significant linkage between the two economies. Bilateral
trade between Canada and the United States in 1993 was larger than it had been
between any other two countries in the world. On January 2, 1988, Canada and the
United States signed the Free Trade Agreement (the "FTA"), which was ratified by
the Canadian Parliament and the United States Senate. In the summer of 1991, the
United States, Canada, and Mexico began negotiating the North American Free
Trade Agreement ("NAFTA"). NAFTA was signed on December 17, 1992 at separate
ceremonies in Washington, D.C., Mexico City, and Ottowa. On December 30, 1993,
after the legislatures in the United States and Mexico had ratified NAFTA, the
Canadian government announced that it had proclaimed NAFTA into law and had
exchanged the written notifications with the United States and Mexico needed to
bring NAFTA into force. As a result, NAFTA effectively replaced the FTA. When
fully implemented, NAFTA is designed to create a North America Free Trade Area,
expand the flow of goods, services, and investments, and eventually eliminate
tariff barriers, import quotas, and technical barriers among Canada, the United
States, and Mexico.
ECONOMIC INFORMATION REGARDING CANADA
Canada experienced rapid economic expansion during most of the 1980s. Its
economy, like many other industrialized nations, fell into a recession from late
1990 through 1992. The 1990-1992 recession partly created and partly highlighted
some difficulties which the present government is attempting to resolve. The
relatively low level of economic activity during this period reduced the growth
of tax receipts with the result that the already high levels of government debt
increased.
RECENT DEVELOPMENTS. In its first budget, presented in February 1994, the
Liberal Party introduced new spending cuts to reduce Canada's budget deficit.
Canada's budget deficit is one of the largest for any of the OECD members. For
the fiscal year 1994-95, its budget deficit is estimated to be 5.5% of GDP
compared to 2.5% for the United States. The government has stated its commitment
to reduce the deficit to approximately 4.2% of GDP in the 1995-1996 fiscal year,
and to 3% of GDP in the 1996-1997 fiscal year. While the government's budget
deficit objectives can be achieved with continued economic growth and lower
interest rates, they also indicate a further rise in the debt-to-GDP ratio which
would continue to grow until the 1996-1997 fiscal year.
In addition to the growth of the federal government deficit, provincial
government debt has risen rapidly. Developments, including increased spending on
social services at the provincial level, were responsible for a significant
amount of the growth of public debt from 1990-1992. In response to the increase
in provincial debt, a number of rating agencies downgraded some provincial debt
ratings. All provinces now have plans to balance their respective budgets. This
may prove to be difficult, considering the increase in interest rates and the
federal government's plan to reduce certain transfers to the provinces.
During 1994, despite growing output and low inflation, concern over the
country's deficit and the uncertainty associated with Quebec's status within
Canada has led to a weakening of its currency and higher interest rates. These
higher interest rates have threatened the federal deficit reduction target. In
December 1994, the Canadian Parliament proposed legislation increasing taxes by
C$1.1 billion and reducing spending by C$8.7 billion over the next two years. It
is still not clear whether these measures, if enacted, will have the effect of
meeting the federal deficit-
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<PAGE> 106
reduction targets. Through January 31, 1995, the Canadian dollar decreased in
value compared to the U.S. dollar by approximately 21% from October 1991, and
approximately 5% from September 1994. On January 20, 1995, the Canadian dollar
fell to September 1994. On January 20, 1995, the Canadian dollar fell to 70.2,
its lowest rate in almost nine years, and close to its record low of 69.2. The
Bank of Canada responded by increasing rates on Treasury bills and selling U.S.
dollars. The Canadian dollar has increased in value against the U.S. dollar from
70.2 on January 20, 1995 to 70.8 on February 16, 1995.
The following provides certain statistical and related information
regarding historical rates of exchange between the U.S. dollar and the Canadian
dollar, information concerning inflation rates, historical information regarding
the Canadian gross domestic product, and information concerning yields on
certain Canadian government securities. Historical figures are not necessarily
indicative of future fluctuations.
CURRENCY EXCHANGE RATES. The exchange rate between the U.S. dollar and the
Canadian dollar is at any moment related to the supply of and demand for the two
currencies, and changes in the rate result over time from the interaction of
many factors directly or indirectly affecting economic conditions in the United
States and Canada, including economic and political developments in other
countries, and government policy and intervention in the money markets.
Despite the recent drop in value of the Canadian dollar, the range of
fluctuation in the U.S. dollar/Canadian dollar exchange rate has been narrower
than the range of fluctuation between the U.S. dollar and most other major
currencies. However, the range that occurred in the past is not necessarily
indicative of fluctuations in that rate that may occur over time, which may be
wider or more confined than the range that occurred over a historic period of
comparable length. Future rates of exchange cannot be predicted, particularly
over extended periods of time.
The following table sets forth, for each year indicated, the annual
average of the daily noon buying rates in New York for cable transfers in U.S.
dollars for one Canadian dollar as certified by the Federal Reserve Bank of New
York:
<TABLE>
<CAPTION>
U.S. Dollars
------------
<S> <C>
1981 . . . . . . . . . . . . . . . . . . . . 0.83
1982 . . . . . . . . . . . . . . . . . . . . 0.81
1983 . . . . . . . . . . . . . . . . . . . . 0.81
1984 . . . . . . . . . . . . . . . . . . . . 0.77
1985 . . . . . . . . . . . . . . . . . . . . 0.73
1986 . . . . . . . . . . . . . . . . . . . . 0.72
1987 . . . . . . . . . . . . . . . . . . . . 0.75
1988 . . . . . . . . . . . . . . . . . . . . 0.81
1989 . . . . . . . . . . . . . . . . . . . . 0.84
1990 . . . . . . . . . . . . . . . . . . . . 0.86
1991 . . . . . . . . . . . . . . . . . . . . 0.87
1992 . . . . . . . . . . . . . . . . . . . . 0.83
1993 . . . . . . . . . . . . . . . . . . . . 0.78
1994 . . . . . . . . . . . . . . . . . . . . 0.73
</TABLE>
Source: FEDERAL RESERVE BULLETIN
INFLATION RATE OF THE CANADIAN CONSUMER PRICE INDEX.
Inflation has remained below 2% since 1991 and the government and the Bank of
Canada have reaffirmed the target of holding inflation inside a band of 1-3% for
1995.
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<PAGE> 107
The following table sets forth for each year indicated the average
change in the Canadian consumer price index for the twelve months ended
December 31 of such year (1986 = 100).
<TABLE>
<CAPTION>
National Consumer
Price Index
-----------
<S> <C>
1981 . . . . . . . . . . . . . . . . . . . . 12.4%
1982 . . . . . . . . . . . . . . . . . . . . 10.9
1983 . . . . . . . . . . . . . . . . . . . . . 5.7
1984 . . . . . . . . . . . . . . . . . . . . . 4.4
1985 . . . . . . . . . . . . . . . . . . . . . 3.9
1986 . . . . . . . . . . . . . . . . . . . . . 4.2
1987 . . . . . . . . . . . . . . . . . . . . . 4.4
1988 . . . . . . . . . . . . . . . . . . . . . 4.0
1989 . . . . . . . . . . . . . . . . . . . . . 5.0
1990 . . . . . . . . . . . . . . . . . . . . . 4.8
1991 . . . . . . . . . . . . . . . . . . . . . 5.6
1992 . . . . . . . . . . . . . . . . . . . . . 1.5
1993 . . . . . . . . . . . . . . . . . . . . . 1.8
</TABLE>
Source: BANK OF CANADA REVIEW, WINTER 1994-1995; Statistics Canada.
CANADIAN GROSS DOMESTIC PRODUCT. The following table sets forth
Canada's gross domestic product ("GDP") for the years 1981 through 1993 at
historical and constant prices.
<TABLE>
<CAPTION>
Gross Domestic Change From
Gross Domestic Product at 1986 Prior Year at
Product Prices Constant Prices
-------------- --------------- ---------------
(millions of Canadian dollars)
(%)
<S> <C> <C> <C>
1981 355,994 440,127 3.7%
1982 374,442 425,970 (3.2)
1983 405,717 439,448 3.2
1984 444,735 467,167 6.3
1985 477,988 489,437 4.8
1986 505,666 505,666 3.3
1987 551,597 526,730 4.2
1988 605,906 552,958 5.0
1989 650,748 566,486 2.4
1990 669,467 565,155 (0.2)
1991 674,766 554,735 (1.8)
1992 688,391 558,165 0.6
1993 711,658 570,541 2.2
</TABLE>
Source: BANK OF CANADA REVIEW, WINTER 1994-1995; Statistics Canada.
YIELDS ON CANADIAN GOVERNMENT TREASURY BILLS AND BONDS. The following table sets
forth the average monthly yield on 3-month and 6-month Government of Canada
Treasury Bills and 5-year and 10-year Canadian Benchmark Bonds for 1994.
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<PAGE> 108
<TABLE>
<CAPTION>
Treasury Bills Benchmark Bonds
1994 3 Months 6 Months 5 Years 10 years
- - ---- ------------------------ -------------------------
<S> <C> <C> <C> <C>
January 3.63% 3.71% 5.40% 6.39%
February 3.84 4.17 6.12 6.94
March 5.47 6.04 7.47 7.95
April 5.86 6.28 7.44 7.95
May 6.14 6.55 8.01 8.41
June 6.38 7.29 8.82 9.11
July 5.76 6.64 8.96 9.36
August 5.52 5.79 8.32 8.74
September 5.20 5.69 8.36 8.88
October 5.39 6.04 8.55 9.14
November 5.86 6.52 8.81 9.16
December 7.14 8.12 8.99 9.07
</TABLE>
Source: BANK OF CANADA REVIEW, WINTER 1994-1995; Statistics Canada.
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<PAGE> 109
RESERVE PRIVATE EQUITY SERIES
RESERVE INTERNATIONAL EQUITY FUND
810 SEVENTH AVENUE, NEW YORK, N.Y. 10019
(800) 637-1700
---------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information describes Reserve Private Equity
Series ("Trust") and the Reserve International Equity Fund ("International
Equity Fund" or "Fund"). This Statement is not a Prospectus, but provides
detailed information to supplement the Prospectus and should be read in
conjunction with the Prospectus. A copy of the Prospectus may be obtained
(without charge) from Reserve Private Equity Series. This Statement is dated
1995.
TABLE OF CONTENTS
Page
----
Investment Policies
Other Policies
Trustees and Officers of the Trust
Investment Management and Other Agreements
Portfolio Turnover, Transaction Charges and
Allocation
Shares of Beneficial Interest
Purchase, Redemption and Pricing of Shares
Distributions and Taxes
Performance Information
Report of Independent Accountants
Financial Information
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<PAGE> 110
INVESTMENT POLICIES
The Fund has adopted as fundamental policies the following limitations on
its investment activities. These fundamental policies may not be changed without
a majority vote of the Fund shareholders, as defined in the Investment Company
Act of 1940. The International Equity Fund may not:
(1) borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount not to exceed 33 1/3% of the market value
of its assets; (2) issue senior securities as defined in the Investment Company
Act of 1940 except that the Fund may borrow money in accordance with limitation
(1); (3) act as an underwriter with respect to the securities of others except
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) purchase, sell or otherwise invest in real estate or commodities or
commodity contracts (5) invest in voting securities or in companies for the
purpose of exercising control; and (6) purchase securities on margin, except to
obtain such short-term credits as may be necessary for the clearance of
transactions; however, the Fund may make margin deposits in connection with
options and financial futures transactions.
The Fund has reserved the right to purchase and write interest rate
futures contracts, and put and call options on interest rate futures
contracts. The Fund does not intend to use these techniques for the
foreseeable future and that shareholders will be given notice should the Fund
determine that they will be used.
In addition to the fundamental investment policies listed above, the Fund
has voluntarily adopted certain policies that may be changed or amended by
action of the Trustees without requiring prior notice to or approval of
shareholders. In accordance with such policies and restrictions the Fund cannot:
(1) purchase from or sell investment securities to any of the officers or
Trustees of the Trust, its investment Adviser its investment Sub-Adviser, its
principal underwriter or the officers, principals or directors of its investment
Adviser, investment Sub-Adviser or principal underwriter; and (2) purchase or
retain securities of an issuer any of whose officers, directors, trustees or
securityholders is an officer or Trustee of the Trust or a member, officer,
director or trustee of the investment Adviser or Sub-Adviser of the Fund if one
or more of such individuals owns beneficially more than one-half of one percent
(1/2 of 1%) of the securities (taken at market value) of such issuer and such
individuals owning more than one-half of one percent (1/2 of 1%) of such
securities together beneficially own more than 5% of such securities or both.
As a non-diversified company, the Fund is permitted to invest all of its
assets in a limited number of issuers. However, it intends to comply with
Subchapter M of the Internal Revenue Code in order to qualify as a regulated
investment company for federal income tax purposes. To so qualify, the Fund must
diversify its holdings so that, at the close of each quarter of its taxable
year, (a) at least 50% of the value of its total assets is represented by cash,
cash items, securities issued by the U.S. Government or its agencies or
instrumentalities, securities of other regulated investment companies, and other
securities limited generally with respect to any one issuer to an amount not
more than 5% of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than the U.S. Government or its agencies or instrumentalities or regulated
investment companies), or in two or more issuers that the Fund controls and that
are engaged in the same or similar trades or businesses. In the event of a
decline in the market value of the securities of one or more such issuers
exceeding 5%, an investment in the Fund could entail greater risk than in a fund
which has a policy of diversification.
OTHER POLICIES
WARRANTS. The Fund also may invest up to 5% of its net assets in warrants.
Included within this amount, may be warrants which are not listed on the New
York or American Stock Exchanges. A reason for investing in warrants is to
permit the Fund to participate in an anticipated increase in the market value
of a security without having to purchase the security to which the warrants
relate. Warrants convey no rights to dividends or voting rights, but only an
option to purchase equity securities of the issuer at a fixed price. If such
securities appreciate, the warrants may be exercised and sold at a gain, but a
loss will be incurred if such securities decrease in value or the term of the
warrant expires before it is exercised. The 5% limitation does not include
warrants acquired by the Fund in units or attached to other securities.
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<PAGE> 111
SECURITIES OF FOREIGN COMPANIES. Investing in foreign securities may result in
greater risk than that incurred by investing in domestic securities. There is
generally less publicly available information about foreign companies comparable
to reports and ratings that are published about companies in the United States.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Similarly,
volume and liquidity in most foreign bond markets is less than in the United
States and at times volatility of price can be greater than in the United
States. Commissions on foreign stock exchanges are generally higher than
commissions on United States exchanges, although the Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of foreign stock exchanges,
brokers and listed companies than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investments or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
The dividends and interest payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Fund's shareholders.
Shareholders otherwise subject to United States federal income taxes may,
subject to certain limitations, be entitled to claim a credit or deduction for
U.S. federal income tax purposes for his or her proportionate share of such
foreign taxes paid by the Fund.
TRUSTEES AND OFFICERS OF THE TRUST
*BRUCE R. BENT, President, Treasurer and Trustee, 810 Seventh Avenue, New
York, NY 10019.
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, Vice President and Secretary of Reserve Management Company,
Inc. ("RMCI") and Reserve Management Corporation, and Chairman and Director of
Resrv Partners, Inc. Before 1968, he was associated with Stone & Webster
Securities Corp., and previously, Teachers Insurance and Annuity Association.
EDWIN EHLERT, JR., Trustee, 125 Elm Street, Westfield, New Jersey 07091.
Mr. Ehlert is President and Director of Ehlert Travel Associates, Inc.
(travel agency formerly called Travelong of Westfield, Inc.) and Ehlert Travel
Associates of Florida, Inc. (travel agency), and Trustee of RF, RIT, RNYTET,
RTET and RPES.
HENRI W. EMMET, Trustee, 176 East 71st Street, New York, New York 10021.
Mr. Emmet is the Managing Director of Servus Associates, Inc. and U.S.A.
Representative of the First National Bank of Southern Africa and Trustee of RF,
RET, RNYTET, RTET and RPES. Until 1989, he was Senior Vice President of the New
York branch of Banque Nationale de Paris.
BURTT R. EHRLICH, Trustee, 667 Madison Avenue, New York, New York 10021.
Mr. Ehrlich is a Director of Benson Eye Care Corp and a private investor.
Until 1992, he was President and Chairman of Ehrlich Bober Financial Corp., a
municipal securities investment firm.
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<PAGE> 112
*DONALD J. HARRINGTON, C.M, Trustee, St. John's University, Jamaica, New
York 11439.
The Reverend Harrington is President of St. John's University (NY) and
a Trustee of RF, RIT, RNYTET, RTET and RPES. The Reverend Harrington served as
President of Niagara University from 1984 to 1989 and was Executive Vice
President of Niagara University from 1981 to 1984.
NIELS W. JOHNSEN, Trustee, 1 Whitehall Street, New York, New York 10004.
Mr. Johnsen is Chairman of the Board of International Shipholding Corp.
and Central Gulf Lines, Inc. (ship cargo carrier), Director of Centennial
Insurance Co. and Trustee of The Atlantic companies (insurance), RF, RIT,
RNYTET, RTET and RPES.
THOMAS L. RHODES, Trustee, 150 East 35th Street, New York, New York 10016
Mr. Rhodes is President and a member of the Board of Directors of the
National Review. From 1976 to 1992 Mr. Rhodes was a partner with Goldman,
Sachs & Co., an investment banking firm.
MARC C. COZZOLINO, Counsel and Secretary and Trustee, 810 Seventh Avenue,
New York, NY 10019.
Mr. Cozzolino is Counsel and Secretary of RF, RIT, RTET, RNYTET and
RPES. Before joining The Reserve Funds in 1994, Mr. Cozzolino was a staff
attorney at the New Jersey Bureau of Securities.
PAT A. COLLETTI, Controller, 810 Seventh Avenue, New York, New York 10019.
Mr. Colletti is Controller of RF, RIT, RTET, RNYTET and RPES. Prior to
joining the Reserve funds in 1985, Mr. Colletti was Supervisor of Accounting
of Money Market Funds for the Dreyfus Corporation.
- - ---------------
* Interested Trustee within the meaning of the Investment Company Act of 1940.
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 or 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 regard of the duties involved in the conduct
of their office.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM FUND AND FUND COMPLEX
NAME OF TRUSTEE FROM FUND* (4 ADDITIONAL TRUSTS) PAID TO TRUSTEE*
------------------------------------------------------------------------------
<S> <C> <C>
Edwin Ehlert, Jr. $0 $16,500
Henri W. Emmet $0 $16,600
Rev. Donald J. Harrington $0 $16,500
Niels W. Johnsen $0 $16,500
Burtt R. Ehrlich $0 $0
Thomas L. Rhodes $0 $0
</TABLE>
Amount shown are for the Fund's fiscal year ending May 31, 1995.
INVESTMENT MANAGEMENT AND OTHER AGREEMENTS
THE ADVISER. Reserve Management Company, Inc. ("Adviser"), 14 Locust
Place, Manhasset, New York, 11030, a registered investment Adviser, manages
the Trust and provides it with investment advice pursuant to an Investment
Management Agreement. Under the Investment Management Agreement, the Adviser
manages the Fund, including effecting purchases and sales of investment
securities, is responsible for the day-to-day oversight of the Trust's
operations and to otherwise administer the affairs of the Trust as it deems
advisable subject to the overall control and direction of the Trustees and the
investment policies and limitations of the Trust described in the Prospectus
and Statement of Additional Information. RMCI pays all employee costs
and other ordinary operating costs of each Fund pursuant to the Investment
Management brokerage Agreement which include: registration fees paid to the
commission and state regulators, costs associated with the annual update of
each Fund's registration statement, auditing annual financial statements, and
printing and mailing costs (exclusive of those associated with the Rule 12b-1
Plans). Excluded from ordinary operating costs are interest charges, taxes,
fees, extraordinary legal and accounting fees and expenses, payments made
pursuant to the Trust's Distribution Plan and the fees of the disinterested
Trustees, for which the Fund pays its direct or allocated share.
For its management services, and for paying all of the employee costs,
costs of the Sub-Adviser and other ordinary operating expenses of the Trust,
RMCI is periodically paid a comprehensive fee, at the annual rate of 1.50%
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<PAGE> 113
per annum of the average daily net assets of the Fund. The Fund's comprehensive
fee is higher than the advisory fee of most other funds; however, this
comprehensive fee covers most operating expenses.
The Investment Management Agreement is subject to annual review by and
must be approved at least annually by a vote of a majority of the Board of
Trustees, including a majority of those who are not "interested persons" as
defined in the Investment Company Act of 1940, cast in person at a meeting
called for the purpose of voting on such renewal. The Agreement terminates
automatically upon its assignment and may be terminated without penalty upon 60
days' written notice by vote of the Trustees, by vote of a majority of
outstanding voting shares of the Fund or by the Adviser.
THE SUB-ADVISER. Pinnacle Associates Ltd., ("Sub-Adviser"), 666 Fifth
Avenue, New York, New York 10103, a registered investment Adviser, acts as
Sub-Adviser to the Fund. The Adviser and Trust have entered into a Sub-Advisory
Agreement with the Sub- Adviser pursuant to which the Adviser will pay any fees
of the Sub-Adviser. The Sub-Advisory Agreement is subject to annual review by
and must be approved annually by the Trustees, including a majority of those who
are not "interested persons" as defined in the Investment Company Act of 1940,
cast in person at a meeting called for purpose of voting on such renewal. The
agreement automatically terminates upon its assignment and may be terminated
without penalty upon 60 days' written notice by vote of the Trustees, by vote of
a majority of outstanding voting shares of the Fund or by the Sub-Adviser.
CUSTODIAN. Chemical Bank, 4 New York Plaza, New York, New York 10004 is
Custodian for the cash and securities of the Trust. The Custodian maintains
custody of the Trust's cash and securities, handles its securities settlements
and performs transaction processing for receipts and disbursements in connection
with the purchase and sale of the Trust's shares.
DISTRIBUTION AGREEMENT. Resrv Partners, Inc. ("RESRV"), 810 Seventh
Avenue, New York, New York 10019, is a distributor of the shares of the Trust.
RESRV is a "principal underwriter" for the Trust within the meaning of the
Investment Company Act of 1940, and as such acts as agent in arranging for the
continuous offering of Trust shares. RESRV has the right to enter into dealer
agreements with brokers or other persons of its choice for the sale of Trust
shares. RESRV's principal business is the distribution of shares of mutual funds
and it has retained no underwriting commissions during the last three fiscal
years.
The Distribution Agreement must be approved annually by the Trustees,
including a majority of those who are not "interested persons," as defined in
the Investment Company Act of 1940.
DISTRIBUTION PLAN. The Trust maintains a Distribution Plan ("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 Board and
approved by its shareholders. Pursuant to the Plan, the Distributor or its
affiliates may make payments ("assistance payments") to brokers, financial
institutions and financial intermediaries ("payees") in respect of Trust
shareholder accounts ("qualified accounts") as to which the payee has rendered
distribution assistance or other services. The Distributor may also retain
amounts to pay for advertising and marketing expenses. Assistance payments by
the Distributor are made to payees at an annual rate of .25% of the average net
asset value for Class A shares and 1.00% of the average net asset value for
Class D shares. The Trustees have determined that there is a reasonable
likelihood that the Plan will benefit the Trust and its shareholders and that
its costs are primarily intended to result in the sale of the Trust's shares.
Under the Plan, the Trust's officers report quarterly the amounts and
purposes of assistance payments to the Trustees. During the continuance of the
Plan the selection and nomination of the disinterested Trustees of the Trust are
at the discretion of the disinterested Trustees currently in office.
The Plan and related agreements may be terminated at any time by a vote of
a majority of the outstanding voting securities of the Fund. The Plan and
related agreements may be renewed from year to year if approved by a vote of a
majority of the Board of Trustees, including a majority of those who are not
"interested persons", as defined in the Investment Company Act of 1940. 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 majority vote of the Board of Trustees, including a
majority of the disinterested Trustees, cast in person at a meeting called for
the purpose of such vote.
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<PAGE> 114
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 1301 Avenue of
Americas, New York, New York 10019 is the Trust's independent accountants.
PORTFOLIO TURNOVER, TRANSACTION CHARGES AND ALLOCATION
Subject to the overall supervision of the officers of the Trust its Board
of Trustees, and the Adviser, the Sub-Adviser places all orders for the purchase
and sale of the Trust's investment securities. In general, in the purchase and
sale of investment securities the investment Adviser will seek to obtain prompt
and reliable execution of orders at the most favorable prices or yields. In
determining best price and execution, the investment Adviser may take into
account a dealer's operational and financial capabilities, the type of
transaction involved, the dealer's general relationship with the Trust's
investment Adviser, and any statistical, research, or other services provided by
the dealer. 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 Trust as determined in good faith by
the Trust's investment Adviser. Brokers or dealers who execute investment
securities transactions for the Trust may also sell its shares; however, any
such sales will not be either a qualifying or disqualifying factor in the
selection of brokers or dealers.
When transactions are made in the over-the-counter market, the Trust deals
with the primary market makers unless more favorable prices are otherwise
obtainable.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest, and to divide or combine
the shares into a greater or lesser number of shares without thereby changing
the proportionate beneficial interests in the Trust. Each share represents an
interest in the respective series of the Trust proportionately equal to the
interest of each other share. If they deem it advisable in the best interests of
shareholders, the Trustees of the Trust may classify or reclassify any unissued
shares of the Trust by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the stock. Any changes
would be required to comply with any applicable state and Federal securities
laws. These currently require that each series be preferred over all other
series in respect of assets specifically allocated to such class. It is
anticipated that under most circumstances, the rights of any additional series
would be comparable unless otherwise required to respond to the particular
situation. Upon liquidation of the Trust, shareholders are entitled to share pro
rata in the net assets of their respective series of the Trust available for
distribution to such shareholders. No changes can be made to the Trust's issued
shares without shareholder approval.
Each Fund share when issued is fully paid, nonassessable and fully
transferable or redeemable at the shareholder's option. Each share has an equal
interest in the net assets of its series, equal rights to all dividends and
other distributions from its series, and one vote for all purposes. Shares of
separate series vote together for the election of Trustees and have
noncumulative voting rights, meaning that the holders of more than 50% of the
shares voting for the election of Trustees could elect all Trustees if they so
choose, and in such event the holders of the remaining shares could not elect
any person to the Board of Trustees.
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.
Regulations of the Securities and Exchange Commission provide that if a
series is separately affected by a matter requiring a vote (election of
Trustees, ratification of independent accountant selection, and approval of an
underwriting agreement are not considered to have such separate effect and may
be voted upon by the Trust as a whole), each such series votes separately. Each
series votes separately on such matters as approval of the Investment Management
Agreement, material amendments to the Service Plan, and majority of the effected
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.
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<PAGE> 115
PURCHASE, REDEMPTION AND PRICING OF SHARES
Redemption payments are normally made by check or wire transfer, but the
Trust may be authorized to make payment of redemptions partly or wholly in kind
(that is, by delivery of portfolio instruments valued at the same time as the
redemption net asset value is determined). The Trust has made an election
committing it to pay in cash all requests for redemption from the series
involved, by any shareholder or record, limited during any 90-day period to the
lesser of $250,000 or 1% of the net assets of the series at the beginning of the
period. The election is irrevocable pursuant to rules and regulations under the
Investment Company Act or 1940 unless withdrawal is permitted by order of
Securities and Exchange Commission. In disposing of such securities an investor
might incur transaction costs and on the date of disposition might receive an
amount less than the net asset value of the redemption.
DETERMINATION OF NET ASSET VALUE. Shares are offered at net asset value
plus a sales charge (if applicable). The net asset value of the Fund is
calculated at the end of each business day (currently 4:00 PM New York
time) that the New York Stock Exchange is open for trading and on other days
there is a sufficient degree of trading to materially affect the Fund's net
asset value. The net asset value is not calculated on New Year's Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Thanksgiving Day, Christmas Day and on other days the New York Stock
Exchange is closed for trading. The net asset value per share of each class of
the Fund is determined by adding the value of all its securities and other
assets, subtracting its liabilities and dividing the result by the total number
of the class' outstanding shares that represent the class' proportionate
interest in the Fund.
Investment securities are valued at the last sale price on the securities
exchange or national securities market on which such securities are primarily
traded. Securities not listed on an exchange or national securities market, or
securities in which there were no transactions, are valued at the average of the
last bid and asked prices, except in the case of open short positions where the
asked price is used for valuation purposes. Bid price is used when no asked
price is available. Market quotations for foreign securities in foreign
currencies are translated into United States dollars at the prevailing rates of
exchange. Any securities or other assets for which recent market quotations are
not readily available are valued at fair value as determined in good faith by
the Board of Trustees.
REDUCED SALES CHARGE. Officers, directors, full time employees and
Trustees, and any trust, pension, profit sharing or qualified retirement plan of
the Adviser, Sub-Adviser, the distributor, the Trust and any affiliate thereof
may purchase shares of the Fund at the net asset value per share. Spouses and
minor children of the foregoing may also purchase shares at net asset value. In
addition, Sub-Adviser advisory clients and related persons of such may purchase
shares at net asset value.
DISTRIBUTIONS AND TAXES
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986 ("Code") so long as such qualification is in the
best interests of shareholders. If it so qualifies, in any fiscal year in which
it distributes at least 90 percent of its taxable net income, the Fund generally
will not be subjected to federal income tax on such distributed amounts.
Shareholders of the Fund, however, will be subject to federal income tax on any
ordinary net income and net capital gains realized by the Fund and distributed
to shareholders as regular or capital gains dividends, whether distributed in
cash or in the form of additional shares. Net long term capital gains
distributions will be taxable to shareholders as long term capital gains,
regardless of the length of time the corresponding shares have been held.
In order to qualify as a "regulated investment company" under the Code,
the Fund must, among other things, in each taxable year distribute at least 90
percent of its taxable income to shareholders, derive at least 90 percent of its
gross income from dividends, interest and gains from the sale or disposition of
securities and derive less than 30 percent of its gross income from the sale or
disposition of securities held for less than three months. Accordingly, the Fund
will be subject to certain restrictions including restrictions in the writing of
options on securities which have been held for less than three months,
purchasing and selling futures contracts held for less than three months, in the
writing of options which expire in less than three months, and in effecting
closing purchase transactions, with respect to options which have been written
less than three months prior to such transactions.
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<PAGE> 116
The Code imposes a non-deductible, 4% excise tax on regulated investment
companies that do not distribute to their shareholders in each calendar year an
amount equal to (i) 98% of their calendar year ordinary income; plus 98% of
their capital gain net income (the excess of short and long term capital losses)
for the one year period ending October 31. Dividends declared in December of any
year to shareholders of record on any date in December will be deemed to have
been received by the shareholders and paid by the Fund on the record date,
provided such dividends are paid by February 1 as of the following year.
Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following year,
are considered taxable income to shareholders December 31 in the year declared
even though paid in the next year.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
laws. Non-resident aliens are urged to consult their own tax adviser concerning
the applicability of the United States withholding tax.
The Code includes rules applicable to certain listed options, futures
contracts, and options on futures contracts which the Fund may write, purchase
or sell. Such options and contracts are classified as Section 1256 contracts
under the Code. The character of gain or loss resulting from the sale,
disposition, closing out, expiration or other termination of Section 1256
contracts is generally treated as long-term capital gain or loss to the extent
of 60% thereof and short-term capital gain or loss to the extent of 40% thereof
("60/40 gain or loss"). Such contracts, generally are required to be treated as
sold at market value on the last day of such fiscal year and on certain other
dates for federal income tax purposes ("marked-to-market"). Generally,
over-the-counter options are not classified as Section 1256 contracts and are
not subject to the mark-to-market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by the Fund from transactions in over-the-counter
options generally constitute short-term capital gains or losses. If
over-the-counter call options written, or over-the-counter put options
purchased, by the Fund are exercised, the gain or loss realized on the sale of
the underlying securities may be either short-term or long-term, depending on
the holding period of the securities. In determining the amount of gain or loss,
the sales proceeds are reduced by the premium paid for over-the-counter puts or
increased by the premium received for over-the-counter calls.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of engaging in hedging
transactions are not entirely clear. Hedging transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to Shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, this
amount, character and timing of gains or losses form the affected straddle
positions will be determined under rules that vary according to the election(s)
made. The rules applicable under certain of the elections may operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because the straddle rules may affect the character of gains or losses,
defer losses and/or accelerate the recognition of gains or losses from the
affected straddle position, the amount which may be distributed to Shareholder,
and which, will be taxed to them as ordinary income or long-term capital gain,
may be increased or decreased as compared to a fund that did not engage in such
hedging transactions.
The Fund may be subject to non-U.S. tax on income and gains received from
securities of non-U.S. issuers which generally is withheld by a foreign country
at the source. The United States has entered into tax treaties with many foreign
countries which may entitle the Fund to a reduced rate of tax or exemption from
tax on income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of the Fund's assets to be invested within various
countries is not known. The Fund intends to operate so as to qualify for tax
treaty benefits where applicable. To the extent that the Fund is liable for
foreign income taxes withheld at the source, the Fund may operate so as to meet
the requirements of the Code to "pass through" to its shareholders tax benefits
attributable to foreign income taxes paid by the Fund. If more than 50% of the
value of the Fund's total assets at the close of its
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<PAGE> 117
taxable year is comprised of securities issued by foreign corporations, the Fund
may elect to "pass through" to its shareholders the amount of foreign taxes paid
by the Fund. Pursuant to this election shareholders will be required to (i)
include in gross income, even though not actually received, their respective pro
rata share of foreign taxes paid by the Fund; (ii) treat their pro rata share of
foreign taxes as paid by them; and (iii) subject to certain limitations, either
deduct their pro rata share of foreign taxes in computing their taxable income,
or use such share as foreign tax credit against U.S. income tax (but not both).
No deduction for foreign taxes may be claimed by a non-corporate shareholder who
does not itemize deductions. The Fund may meet the requirements to "pass
through" to its shareholders foreign income taxes paid, but there can be no
assurance that the Fund will be able to do so. Each shareholder will be notified
within 60 days after the close of the taxable year of the Fund if the foreign
taxes paid by the Fund will "pass through" for that year , and, if so, the
amount of each shareholder's pro rata share (by country) of (i) the foreign
taxes paid and (ii) the Fund's gross income from foreign sources.
Generally, a credit for foreign taxes paid or accrued is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, the source of the
Fund's income flows through to its shareholders. Gains from the sale of
securities by the Fund will be treated as derived from U.S. sources and Section
988 gains will be treated as derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source passive income,
including foreign source passive income received from the Fund. Shareholders may
be unable to claim a credit for the full amount of their proportionate share of
the foreign taxes paid by the Fund. The foreign tax credit can be applied to
offset no more than 90% of the alternative minimum tax imposed on corporations
and individuals. The foregoing is only a general description of the foreign tax
credit. Because application of a credit depends on the particular circumstances
of each shareholder, shareholders are advised to consult their own tax advisers.
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election may be
available that would involve marking to market the Fund's PFIC shares at the end
of each taxable year ( and on certain other dates prescribed in the Code), with
the result that unrealized gains are treated as though they were realized. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. The Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
The Code and the Treasury Regulations thereunder are subject to change by
legislative or administrative action either prospectively or retroactively.
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Dividends paid by the Fund are generally expected to be subject to any
state or local taxes on income. Shareholders should consult their own attorneys
or tax advisers about the status of distributions from the Fund in their own tax
jurisdictions.
PERFORMANCE INFORMATION
The Fund may from time to time advertise its total return. Total return is
computed by finding the average annual compounded rates of return over the 1,5
and 10 year periods or up to the life of the Fund that would equate the initial
amount invested to the ending redeemable value, according to the following
formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the 1,5
or 10 year periods at the end of the 1,5 or 10
year periods (or fractional portion thereof)
In advertising and sales literature, the Fund may compare its performance
to (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones Industrial
Average ("DJIA"), the Russell 2000, or other unmanaged indices so that investors
may compare the Fund's results with those of a group of unmanaged securities
widely regarded by investors as representative of the securities markets in
general; (ii) other groups of mutual funds tracked by Lipper Analytical
Services, Inc. a widely used independent research firm which ranks mutual funds
by overall performance, investment objectives and assets, or tracked by other
services, companies, publications, or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Fund.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
The Fund may also compute aggregate total return for specified periods
based on a hypothetical Fund account with an assumed initial investment of
$10,000. The aggregate total return is determined by dividing the net asset
value of the account at the end of the specified period by the value of the
initial investment and is expressed as a percentage. Calculation of aggregate
total return reflects payment of the maximum sales charge and assumes
reinvestment of all income dividends and capital gain distributions during the
period.
The Fund may also quote annual, average annual and annualized total return
and aggregate total performance data both as a percentage and as a dollar amount
based on a hypothetical $10,000 investment for various periods. Such data will
be computed as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum sales charge will not be included
with respect to annual, annualized or aggregate rates of return calculations.
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Part C
Item 24. Financial Statements and Exhibits
(a) Financial Statements Included in Part A:
(1) Financial Highlights
Financial Statements Included in Part B:
(1) Report of Independent Accountants
(2) Notes to Financial Statements
(3) Statements of Net Assets of May 31, 1995
(4) Statements of Operations for year ended May 31, 1995
(5) Statements of Changes in Net Assets for the year ended May
31, 1995
(6) Schedule of Portfolio Investments at May 31, 1995
(b) Exhibits
(1) Amended Declaration of Trust was filed as an Exhibit to
Registrant's Pre-effective Amendment No. 1 filed September 3,
1993 and is herewith incorporated by reference.
(2) Amended Bylaws of the Registrant were filed as an Exhibit to
Registrant's Pre-effective Amendment No. 1 filed September 3,
1993 and is herewith incorporated by reference.
(3) Not Applicable.
(4) Not Applicable.
(5) (a) Form of Investment Management Agreement between the
Registrant and Reserve Management Company, Inc. was filed as
an Exhibit to the Registrant's Registration Statement filed
May 25, 1993 and is herewith incorporated by reference. (b)
Form of Sub-Investment Management Agreements between the
Registrant, Reserve Management Company, Inc. and Sub-Adviser,
is herewith incorporated by reference.
(6) (a) Form of Distribution Agreement between the Registrant and
Resrv Partners, Inc. was filed as an Exhibit to the
Registrant's Registration Statement filed May 25, 1993 and is
herewith incorporated by reference. (b)Form of Dealer
Agreement. was filed as an Exhibit to the Registrant's
Registration Statement filed May 25, 1993 and is herewith
incorporated by reference.
(7) Pension Plan of Reserve Management corporation was filed as an
exhibit to Post-Effective Amendment No. 32 of The Reserve
Fund, File No. 2-36429; amendments to Pension Plan filed as an
exhibit to Post-Effective No. 45 of The Reserve Fund (File
No. 2-36429) dated July 31, 1989 and is herewith incorporated
by reference.
(8) Form of Custodian Agreement between Registrant and Custodial
Trust Company was filed as an Exhibit to Pre-effective
Amendment No.1 filed September 3, 1993 and is herewith
incorporated by reference.
(9) Not Applicable.
(10) Opinion of counsel.*
(11) Consent of Independent Accountants*
(12) Not Applicable.
(13) Form of Subscription Agreement was filed as an Exhibit to the
Registrant's Registration Statement filed May 25, 1993 and is
herewith incorporated by reference.
*Filed herewith
**To be filed by amendment
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(14) Not Applicable.
(15) Form of Service Plan was filed as an Exhibit to the
Registrant's Registration Statement filed May 25, 1993 and is
herewith incorporated by reference.
(16) Schedule for computation of each performance quotation
provided in Registration Statement.
(17) Powers of Attorney*
(18) Rule 18f-3 Plan
*Filed herewith
**To be filed by amendment
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Item 25. Persons Controlled by or Under Common Control with Registrant
As of January 1, 1995, Reserve Management Company, Inc., a
New Jersey corporation, was a shareholder of Registrant.
Item 26. Number of Holders of Securities
As of July 31, 1995 there were 269 recordholders of the Registrant.
Item 27. Indemnification
Reference is made to Section 10.02 of the Registrant's Declaration of
Trust. No indemnification shall be provided hereunder to a Covered
person:
Section 10.02 provides that
(i) who shall have been adjudicated by a court or other
body including, without limitation, arbitration panels or self-
regulatory organizations before which the proceeding was broght (A)
to be liable to the trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office or (B) not to have
acted in good faith in the reasonable belief that his action was in
the best interest of the trust; or
(ii) in the event of a settlement, unless there has been
a determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office, (A) by
the court or other body approving the settlement; (B) by at least a
majority of those Trustees who are neither Interested Persons of the
Trust nor are parties to the matter based upon a review of readily
available facts (as opposed to a full trial-type inquiry); or (c) by
written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry);
provided, however, that any Shareholder may, by appropriate legal
proceedings, challenge any such determination by the Trustees or by
independent counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other rights to
which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be a Covered Person and
shall inure to the benefit of the heirs, executors and administrators
of such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation
of a defense to any claim, action, suit or proceeding of the
character described in Subsection 10.02(a) of this Section 10.02 may
be paid by the Trust or Series from time to time prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the
Trust or Series if it is ultimately determined that he is not
entitled to indemnification under this Section 10.02; provided,
however, that either (i) such Covered Person shall have provided
appropriate security for such undertaking, (ii) the Trust is insured
against losses arising out of any such advance payments or (iii)
either a majority of the Trustees who are neither Interested Persons
of the Trust nor parties to the matter, or independent legal counsel
in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered
Person will be found entitled to indemnification under Section 10.02.
Each Trustee, officer, employee or agent of the registrant, and any
person who has served at it request as 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 State of Delaware, 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, officer and
controlling persons of the Registrant pursuant to the Declaration to
Trust or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange commission such
indemnification against such liabilities (other than the payment by
the Registrant of any expenses incurred or paid by a 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 public policy as express in the Act and
will governed the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
<TABLE>
<CAPTION>
Position with
Name the Adviser Other Business
- - ---------------- ----------------- -----------------------------------------
<S> <C> <C>
Henry B.R. Brown President, Treasurer and President, Treasurer and Director of Reserve
Director Management Corporation of the same address as
the Trust; Director and Treasurer of Transfer
Agent Inc., 14 Locust Place, Manhasset, NY
11030
Bruce R. Bent Vice President, Secretary and Vice President, Secretary and Director of
Director Director Reserve Management Corporation
and Director of Resrv Partners, Inc. both of
the same address as the Trust.
Marc C. Cozzolino Counsel Counsel of Reserve Management Corporation and
Counsel and Secretary of Resrv Partners,
Inc. both of the same address as the Trust.
</TABLE>
Item 29. Principal Underwriters
(a) Resrv Partners, Inc., the principal underwriter of the
Registrant, also acts as principal underwriter to The Reserve
Fund, Reserve Institutional Trust, Reserve Tax-Exempt Trust, and
Reserve New York Tax-Exempt Trust.
100
<PAGE> 122
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Position and Offices
Business Address With Resrv Partners, Inc. With Registrant
---------------- ------------------------- ---------------
<S> <C> <C>
Bruce R. Bent Chairman and Director President, Treasurer & Trustee
Marc C. Cozzolino Counsel & Secretary Counsel & Secretary
</TABLE>
Item 30. Location of Accounts and Records
All records required to maintained by Section 31(a) of the 1940 Act
and the Rules promulgated thereunder are maintained at 810 Seventh
Avenue, New York NY 10019 except those relating to receipts and
deliveries of securities, which are maintained by the Registrant's
Custodians and certain records regarding portfolio transactions which
are maintained at the offices of the Sub-Advisers: T.H. Fitzgerald &
Co., Research Center, 305 Center Rd., Easton, CT 00612; Trainer,
Wortham & Company, Inc., 845 Third Avenue, New York, NY 10022;
Roanoke Asset Management, 529 Fifth Avenue, New York, NY 10017.
Cambridge Equity Advisors, 5214 Mayland Way, Suite 309, Brentwood, TN
37027. Southern Capital Advisors, 50 Front Street, Morgan Keegan
Tower, Memphis, TN 38103. Pinnacle Associates Ltd., 666 Fifth Avenue,
14th Floor, New York, NY 10103.
Item 31. Management Services
See "Investment Management and Other Agreements" in Part B.
Item 32. Undertakings
Registrant makes the following undertakings:
(a) to file a post effective amendment, using financial statements
which may not be certified, with four to six months from the
effective date of this Registration Statement.
101
<PAGE> 123
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(a) under the Securities Act of 1933 and
Registrant has duly caused this Post-Effective Amendment No. 6 to its
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of New York and State of New York, on the 6th day
of October, 1995.
/s/ Bruce R. Bent
------------------------
Bruce R. Bent, President
Attest:
/s/ Marc C. Cozzolino
------------------------------------
Marc C. Cozzolino, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 6 to its Registration Statement has been below signed by
the following persons in the capacities and on the dates indicated.
/s/ Bruce R. Bent Date 10/6/95
- - ------------------------------------------ ----------------
Bruce R. Bent, President, Treasurer
and Board Member (principal executive,
operating and financial officer)
* /s/ Date
- - ------------------------------------------ ----------------
Edwin Ehlert Jr., Board Member
* /s/ Date
- - ------------------------------------------ ----------------
Henri W. Emmet, Board Member
* /s/ Date
- - ------------------------------------------ ----------------
Donald J. Harrington, Board Member
* /s/ Date
- - ------------------------------------------ ----------------
Niels W. Johnsen, Board Member
* /s/ Date
- - ------------------------------------------ ----------------
Burtt R. Ehrlich, Board Member
* /s/ Date
- - ------------------------------------------ ----------------
Thomas L. Rhodes, Board Member
/s/ Marc C. Cozzolino Date 10/6/95
- - ------------------------------------------ ----------------
Marc C. Cozzolino, *Attorney-in-Fact
Counsel and Secretary
102
<PAGE> 124
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description
----------- -----------
<S> <C>
1. Declaration of Trust of Registrant.**
2. Bylaws of Registrant.**
3. Not Applicable.
4. Not Applicable.
5. (a) Form of Investment Management Agreement between the
Registrant and Reserve Management Company Inc. **
(b) Form of Sub-Investment Management Agreement between
Registrant, Reserve Management Company, Inc. and Various Sub-Advisors.**
6. (a) Form of Distribution Agreement between the Registrant
and Resrv Partners, Inc. **
(b) Form of Selected Dealer Agreement. **
7. Pension Plan of Reserve Management Corp. filed
as an exhibit to Post-Effective Amendment No., 32
of The Reserve Fund (File No. 2-36429);
amendments thereto filed as an exhibit to
Post-Effective Amendment No. 45 and all are
incorporated by reference.
8. Form of Custodian Agreements between Registrant and
Custodial Trust Company.**
9. Not Applicable.
10. Opinion of Counsel.
11. Consent of Independent Accountants
12. Not Applicable
13. Form of Subscription Agreement between the Registrant
and Reserve Management Company, Inc. **
14. Not Applicable
15. Form of Service Plan **
16. Schedule for computation of each performance quotation
provided in Registration Statement.*
17. Powers of Attorney
18. Rule 18f-3 Plan**
</TABLE>
* To be filed by amendment
**Previously filed
<PAGE> 1
Exhibit 10
October 6, 1995
Board of Trustees
Reserve Private Equity Series
810 Seventh Avenue
New York, New York 10019
Gentlemen:
I have acted as counsel to the Reserve Private Equity Series, a Delaware
business trust (the "Fund"), in connection with the registration of shares of
the Blue Chip Growth, Emerging Growth, Informed Investors Growth Fund, Mid-Cap
Growth Fund, North American Growth Fund and International Equity Fund ("Funds")
with the Securities and Exchange Commission.
As counsel to the Fund, I have made such investigations and have examined
and relied upon the originals or copies, certified or otherwise identified to my
satisfaction, of such records, instruments, certificates, memoranda and other
documents as I have deemed necessary or advisable for the purposes of this
opinion.
1. The Fund has been duly incorporated and is validly existing
under the laws of Delaware.
2. To the best of my knowledge, no further approval, consent or
other order of the Board of Trustees is legally required in
connection with the organization of the Portfolios and the
registration of their shares.
3. To the best of my knowledge, the shares of the Portfolios,
when issued, will be legally issued, non-assessable and, when
subscribed to, fully paid.
I consent to the filing of this opinion as an exhibit to the Fund's
registration statement under the Securities Act of 1933.
Very truly yours,
/s/ Marc C. Cozzolino
---------------------
Marc C. Cozzolino
Counsel
103
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our reports dated June 23, 1995, appearing in
the Post-Effective Amendment to Registration Statement (Form N-1A) of Reserve
Private Equity Series, on the financial statements and financial highlights of
the Reserve Blue Chip Growth Fund, Reserve Emerging Growth Fund and Reserve
Informed Investors Growth Fund (three of the Funds constituting the Reserve
Private Equity Series) to be filed with the Securities and Exchange Commission
under the provisions of the Securities Act of 1933 and the Investment Company
Act of 1940, as amended.
We also consent to the reference to our Firm under the caption "Custodial
Services and Independent Accountants" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
New York, New York
September 25, 1995
104
<PAGE> 1
Exhibit 17
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of THE
RESERVE PRIVATE EQUITY SERIES, a Delaware business trust, does hereby constitute
and appoint Marc C. Cozzolino and William Goodwin, and each of them, his true
and lawful attorney and agent to do any and all acts and things and to execute
any and all instruments which said attorney and agent may deem necessary or
advisable; (i) to enable the said Trust to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission in respect thereof, in connection with the registration
under said Securities Act of the shares of beneficial interest of said Trust
(the "Securities"), including specifically, but without limiting the generality
of the foregoing, the power and authority to sign for and on behalf of the
undersigned the name of the undersigned as trustee of said Trust to a
Registration Statement or to any amendment thereto filed with the Securities and
Exchange Commission in respect of said Securities and to any instrument or
document filed as part of, as an exhibit to or in connection with said
Registration Statement or amendment; (ii) to enable said Trust to comply with
the Investment Company act of 1940, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under said Investment Company Act of the Trust,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign for and on behalf of the undersigned the name of
the undersigned as trustee of said Trust to a Registration Statement or to any
amendment thereto filed with the Securities and Exchange Commission in respect
of said Trust and to any instrument or document filed as part of, as an exhibit
to or in connection with said Registration Statement or amendment; and (iii) to
register or qualify said Securities for sale and to register or license said
Trust as a broker or dealer in said Securities under the securities or Blue Sky
laws of all such states as may be necessary or appropriate to permit therein the
offering and sale of said Securities as contemplated by said Registration
Statement, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign for and on behalf of the undersigned
the name of the undersigned as trustee of said Trust to any application,
statement, petition, prospectus, notice or other instrument or document, or to
any amendment thereto, or to any exhibit filed as a part thereof or in
connection therewith, which is required to be signed by the undersigned and to
be filed with the public authority or authorities administering said securities
or Blue Sky laws for the purpose of so registering or qualifying said Securities
or registering or licensing said Trust, and the undersigned does hereby ratify
and confirm as his own act and deed all that said attorney and agent shall do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
21st day of June 1995.
/s/ Edwin Ehlert, Jr.
----------------------------------
Edwin Ehlert, Jr., Board Member
/s/ Henri W. Emmet
----------------------------------
Henri W. Emmet, Board Member
/s/ Donald J. Harrington
----------------------------------
Donald J. Harrington, Board Member
/s/ Niels W. Johnsen
----------------------------------
Niels W. Johnsen, Board Member
/s/ Burtt R. Ehrlich
----------------------------------
Burtt R. Ehrlich, Board Member
/s/ Thomas L. Rhodes
----------------------------------
Thomas L. Rhodes, Board Member
