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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.
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Post-Effective Amendment No. 9 X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 11
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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
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 977-9982
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Marc C. Cozzolino, Esq., 810 Seventh Avenue, 17th Floor, New York, NY 10019
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(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
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on (date) pursuant to paragraph (b) of Rule 485
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X 75 days after filing pursuant to paragraph (a) of Rule 485
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on (date) pursuant to paragraph (a) of Rule 485
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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, 1996 on or before
July 31, 1996.
Total Pages:
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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> <C>
Part A
1 Cover Page Cover Page
2 Synopsis Fund Expenses
3 Condensed Financial Information (omitted)
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 Agreements Investment Management and Other
22 Calculation of Performance Date Performance Informance
23 Financial Statements (omitted)
</TABLE>
<PAGE> 3
THE GENERAL INFORMATION, PURCHASES AND REDEMPTIONS
RESERVE CALL 800-637-1700 FAX 212-977-9897
FUNDS
THE RESERVE PRIVATE EQUITY SERIES
- -- Reserve Blue Chip Growth Fund -- Reserve Informed Investors Growth Fund
- -- Reserve Convertible Securities Fund -- Reserve International Equity Fund
- -- Reserve Emerging Growth Fund -- Reserve Large-Cap Value Equity Fund
- -- Reserve Growth and Income Fund -- Reserve Mid-Cap Growth Fund
-- Reserve North American Growth Fund
Each "Fund" or "Portfolio" (is a series of shares issued by The Reserve Private
Equity Series ("Trust"), an open-end mutual fund. This Prospectus, dated
January 5, 1996, as amended __________________________ sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A Statement of Additional Information, dated January 5, 1996, as
amended __________________________ for each Fund has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. A
copy of each Statement of Additional Information may be obtained 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 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 FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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.
PROSPECTUS DATED JANUARY 5, 1996, AS AMENDED __________________
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
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ANNUAL FUND EXPENSE INFORMATION
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>
CLASS CLASS
A D
SHARES SHARES
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<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) Sales Charges may be reduced or eliminated for larger investments and
certain classes of investors. See "How to Buy Shares."
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS). Listed
below are the annual expenses paid by each class of shares for each Fund
regardless of the amount of your investment.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS D SHARES
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COMPREHENSIVE TOTAL COMPREHENSIVE TOTAL
MANAGEMENT 12b-1 OPERATING MANAGEMENT 12b-1 OPERATING
FEE FEE EXPENSES FEE FEE EXPENSES
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<S> <C> <C> <C> <C> <C> <C>
Reserve Blue Chip
Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Reserve
Convertible
Securities Fund 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Reserve Emerging
Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Reserve Growth
and Income 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Reserve Informed
Investors Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Reserve
International
Equity 1.75% 0.25% 2.00% 1.75% 1.00% 2.75%
Reserve Large-Cap
Value 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Reserve Mid-Cap
Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
Reserve North
American Growth 1.50% 0.25% 1.75% 1.50% 1.00% 2.50%
</TABLE>
The purpose of this table is to assist the shareholder in
understanding the costs and expenses that shareholders of each Fund will bear
directly or indirectly. Because the 12b-1 fee is an annual charge, long-term
shareholders in a Fund may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the rules of the National Association of
Securities Dealers, Inc.
The Funds are charged a comprehensive fee (see "Management of the
Funds" on page ___) which includes all management fees and ordinary operating
expenses.
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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.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS D SHARES
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1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve Blue Chip Growth $62 $98 $136 $242 $25 $78 $133 $284
Reserve Convertible Securities Fund $62 $98 $136 $242 $25 $78 $133 $284
Reserve Emerging Growth $62 $98 $136 $242 $25 $78 $133 $284
Reserve Growth and Income $62 $98 $136 $242 $25 $78 $133 $284
Reserve Informed Investors Growth $62 $98 $136 $242 $25 $78 $133 $284
Reserve International Equity $64 $105 $148 $267 $28 $85 $145 $308
Reserve Large-Cap Value $62 $98 $136 $242 $25 $78 $133 $284
Reserve Mid-Cap Growth $62 $98 $136 $242 $25 $78 $133 $284
Reserve North American Growth $62 $98 $136 $242 $25 $78 $133 $284
</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.
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FINANCIAL HIGHLIGHTS
The following information applies to a share of the Reserve Private Equity
Series--Reserve Blue Chip Growth Fund ("Blue Chip"), Reserve Emerging Growth
Fund ("Emerging"), and Reserve Informed Investors Growth Fund ("Informed")
outstanding throughout the period. It should be read in conjunction with the
financial statements and related notes appearing in the Statement of Additional
Information for each Fund. Such information has been audited by Coopers &
Lybrand L.L.P. as indicated in their reports appearing in the Statements of
Additional Information.
<TABLE>
<CAPTION>
RESERVE RESERVE RESERVE
BLUE CHIP GROWTH FUND EMERGING GROWTH FUND INFORMED INVESTORS FUND
--------------------- -------------------- -----------------------
OCTOBER 28, 1994 NOVEMBER 14, 1994 DECEMBER 28, 1994
(COMMENCEMENT OF (COMMENCEMENT OF (COMMENCEMENT OF
OPERATIONS) THROUGH OPERATIONS) THROUGH OPERATIONS) THROUGH
MAY 31, 1995 MAY 31, 1995 MAY 31, 1995
--------------------- -------------------- -----------------------
<S> <C> <C> <C>
Net asset value, beginning of
period . . . . . . . . . . . . $ 10.00 $ 10.00 $ 10.00
Income from investment
operations . . . . . . . . . .
Net investment loss . . . . . . (.03) (.09) (.07)
Net realized and unrealized gain 2.06 2.30 2.06
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Total from investment operations 2.03 2.21 1.99
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Net asset value, end of period $ 12.03 $ 12.21 $ 11.99
======= ======= =======
Total Return . . . . . . . . . 20.30%(2) 22.10% (2) 19.90% (2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of
period . . . . . . . . . . . . $1,993 $1,241 $6,837
Ratio of expenses to average net
assets before waivers . . . . . 1.75% (1) -----
Ratio of expenses to average net
assets, net of waiver . . . . . 1.73% (1) 1.75% (1) 1.75% (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 -.70% (1) -1.62% (1) -1.62% (1)
waiver . . . . . . . . . . . .
Portfolio turnover rate . . . . 68% 43% 59%
Dividends or Distributions . . 0 0 0
</TABLE>
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(1) Annualized
(2) Total return is not annualized, and does not reflect impact of sales charge
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THE TRUST
The Trust was formed on April 22, 1993, under Delaware law and is commonly
known as a Delaware business trust. It is an open-end management investment
company consisting, as of the date of this Prospectus, of nine separate series.
Additional series may be added in the future by the Board of Trustees. The
Reserve Blue Chip Growth Fund, Reserve Convertible Securities Fund, Reserve
Emerging Growth Fund, Reserve Growth and Income Fund, Reserve Informed
Investors Growth Fund, Reserve International Equity Fund, Reserve Large-Cap
Value Equity Fund, Reserve Mid-Cap Growth Fund, and Reserve North American
Growth Fund which are offered by this Prospectus, are classified as
non-diversified mutual funds.
The Funds are advised and managed by Reserve Management Company, Inc. (the
"Adviser"), which supervises the day-to-day investment operations of the Funds.
The Adviser and the Trust, on behalf of each Fund, have entered into
sub-advisory agreements with each of these registered investment advisers (the
"Sub-Advisers"): Trainer, Wortham & Company, Inc. ("Trainer"), 845 Third
Avenue, New York, NY 10022 for Reserve Blue Chip Growth Fund; New Vernon
Advisers, Inc. ("New Vernon"), 310 South Street, P.O. Box 1913, Morristown, NJ
07962, for the Reserve Convertible Securities Fund; Roanoke Asset Management
("Roanoke"), 529 Fifth Avenue, New York, NY 10017, for the Reserve Emerging
Growth Fund; Kenneth J. Gerbino & Company ("Gerbino"), 9595 Wilshire Boulevard,
Suite 200, Beverly Hills, CA 90212, for Reserve Growth and Income Fund; T.H.
Fitzgerald & Co. ("Fitzgerald"), 180 Church Street, Naugatuck, CT 06770, for
Reserve Informed Investors Growth Fund; Pinnacle Associates, Ltd. ("Pinnacle"),
666 Fifth Avenue, New York, NY 10103, for Reserve International Equity Fund;
Siphron Capital Management ("Siphron"), 280 S. Beverly Drive, Beverly Hills, CA
90212, for Reserve Large-Cap Value Equity Fund; Southern Capital Advisors
("SCA"), 50 Front Street, Memphis, TN 38103, for Reserve Mid-Cap Growth Fund;
and Southern Capital Advisors ("SCA"), 50 Front Street, Memphis, TN 38103, for
Reserve North American Growth Fund.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Funds are not fundamental and may be changed
without the approval of shareholders.
RESERVE BLUE CHIP GROWTH FUND. The Reserve Blue Chip Growth Fund's investment
objective is to seek capital appreciation through investment in a portfolio of
U.S. common stocks believed to offer favorable possibilities of capital
appreciation. Any production of income is secondary to this objective. There
can be no assurance that the Fund will achieve its investment objective.
Generally, the Fund will seek to invest in U.S. equities with investment
characteristics such as earnings growth, financial strength and projected
positive cash flow. These equity securities are usually traded as shares in
the U.S. but sometimes they may be represented by American Depository Receipts
("ADRs"). 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, unless the Fund has adopted a
temporary defensive position.
RESERVE CONVERTIBLE SECURITIES FUND. The Reserve Convertible Securities Fund's
investment objective is to seek returns which derive equally from capital
appreciation and current income. There can be no assurance that the Fund will
achieve its investment objective.
Generally, the Fund will pursue its objective, by investing primarily in
securities which are convertible into, or which derive their returns from,
price changes in the common stock of an underlying corporate issuer. These
include, but are not limited to, convertible debentures, convertible preferred
stocks, and "derivative" convertible securities such as "DECS" (Dividend
Enhanced Convertible Stock), "ACES" (Automatically Convertible Equity
Securities), "PRIDES" (Preferred Redeemable Increased Dividend Equity
Securities.) and "PERCS" (Preferred Equity Redemption Convertible Stock). The
Fund will invest at least 65% of its total assets in convertible securities,
unless the Fund has adopted a temporary defensive position.
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<PAGE> 8
As a means of protecting principal value. the Sub-Adviser favors securities,
possessing certain defensive characteristics, such as those whose underlying
common stocks are undervalued in terms of earnings relative to price, earnings
growth rate relative to price/earnings multiple, and price relative to book
value. Other defensive characteristics sought are high current yields,
short-to-intermediate maturities, and low price volatility relative to price
volatility of the underlying common shares.
The Sub-Adviser will invest a substantial portion of the Fund's assets in
securities which are rated, or which would be rated, lower than investment
grade. The Sub-Adviser will not, however, invest in any such securities unless
it is believed that their yields or growth potential adequately compensate the
holder for the lesser relative creditworthiness of their issuers, and will not
invest in securities of issuers whose creditworthiness the Adviser and the
Sub-Adviser perceives to be deteriorating.
The Sub-Adviser will also invest in "busted" convertible debt securities.
These securities trade like straight corporate debt having similar coupons,
ratings and maturities, and to which the market accords little value for their
convertibility features.
RESERVE EMERGING GROWTH FUND. The Reserve Emerging 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.
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
above-average stock market risk and little or no current income. At least 65%
of the value of the Fund's assets will be invested in smaller-sized companies
whose outstanding shares have an aggregate market value of $1 billion or less,
unless the Fund has adopted a temporary defensive position.
It is the Sub-Adviser's view that small and medium 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 and lack of information. The securities of smaller companies are
often traded over-the-counter and have less liquidity than larger stocks.
Therefore, shares of the Fund may be subject to greater fluctuation on value
than shares of a conservative equity fund which invests in larger
capitalization companies.
RESERVE GROWTH AND INCOME FUND. The Reserve Growth and Income Fund's
investment objective is to provide income and some growth of principal while
moderating risk through variation and hedging strategies. Additionally, a
portion of the Fund may be invested in natural resource securities in an
attempt to hedge the erosion of the purchasing power of the assets resulting
from inflation. The Fund seeks to achieve its objective by primarily investing
at least 65% of the value of the Fund's assets in convertible bonds,
convertible preferred stocks, higher yielding common stocks, and other debt
instruments including government and corporate bonds, unless the Fund has
adopted a temporary defensive position. The Fund may also invest in unrated
convertible securities. Typically the Fund will seek to invest in companies
where emphasis is placed upon sound balance sheets, steady dividend growth,
high cash-flow, and low debt. There can be no assurance that the Fund will
achieve its investment objective.
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<PAGE> 9
RESERVE INFORMED INVESTORS GROWTH FUND. The Reserve Informed Investors Growth
Fund's investment objective is to seek growth through investment in a portfolio
of U.S. securities which are 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. Any production of
income is secondary to this objective. There can be no assurance that the Fund
will achieve its investment objective.
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 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% of the value of the Fund's total assets will be invested
in such companies, unless the Fund has adopted a temporary defensive position.
It is expected that under normal market conditions the Fund will be
substantially fully invested in equity securities believed to have a potential
for capital growth which will result in greater-than-average share price
fluctuations and greater market risk than is involved in other securities.
RESERVE INTERNATIONAL EQUITY FUND. The Reserve International Equity Fund's
investment objective is to seek capital appreciation through investment in a
portfolio of equity securities of companies resident in countries experiencing
more rapid economic growth than mature economies such as the U.S. and Western
Europe. 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 following a structured and
disciplined investment policy of making investments in ADR's and common stocks
of non-U.S. companies. On occasion, warrants, convertible securities 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 investment characteristics, such as earnings growth, financial
strength, and projected positive cash flow as significant factors in assessing
value. When the Sub-Adviser deems it advisable because of unusual economic,
political or market conditions, the Fund may reduce or eliminate positions in
one country and switch the funds to other countries.
The Fund focuses on quality companies with high visibility and growth
characteristics in sales and earnings. Companies frequently are dominant
within their industry niche and many have a near monopoly position within their
country. 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 that 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 macroeconomics factors nationally and internationally, with a
bottom-up individual company selection procedure, which focuses on
microeconomic factors in a particular company. To attempt to control risk the
Fund spreads its assets among 80 to 110 companies in 15 to 23 foreign markets
with an initial position in any single issue between 1% and 2% of assets. Since
investments are in companies that have strong earnings growth, the policy is to
keep the Fund as fully invested as is prudently possible. Therefore, portfolio
investments in cash equivalents usually will not exceed 10% of assets. Stocks
are selected for their long-term investment attractiveness. With a three to
five-year time horizon the usual minimum holding period; portfolio turnover is
low. In all circumstances, the Fund will invest at least 65% of its total
assets in equity securities of issuers associated with at least three different
countries, excluding the United States, unless the Fund has taken a temporary
defensive position. The Fund will restrict investment in the
7
<PAGE> 10
combination of warrants, and stock options to 5% of total assets at the time of
purchase. 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 growth companies at
attractive prices and to maintain those positions for as long as the growth
momentum continues and their valuations do not reach extremes after an advance.
By participating in a large variety of investment opportunities, the
probability of investment success increases, and international diversification
reduces the effect that events in any one country will have on the portfolios.
Portfolios of foreign securities are often effected by different economic
trends than those which effect U.S. securities, which is a basic reason to
diversify the traditional U.S. based portfolio.
Investment Process
Country Allocation. Nine variables have been identified by the Sub-Adviser
which are deemed to be key in determining the future direction of stock
markets. The five macroeconomic factors are: real GDP growth rate and outlook;
current inflation rate and its trend; relative interest rates and their trend;
outlook for the currency; and current account/trade balance levels. The four
stock market technical variables are: intermediate and long-term trends of the
stock prices versus the outlook for corporate profit; relative price/earnings
ratios and dividend yields; country pension fund regulations that can affect
the supply/demand factors for equities; and political stability and government
efforts to promote equity investments.
Stock Selection. After the top-down country allocation is in place, bottom-up
stock selection becomes the dominant activity. The focus is on quality
individual stock selection of companies with high visibility and growth in
sales and earnings. In emerging economies with less developed capital markets,
a strong balance sheet is essential. Stocks are not selected for industry
balancing purposes. Highly cyclical stocks and recovery situations are rarely
used as is the case with companies that are primarily market-share and sales
driven, regardless of profitability and shareholder benefit.
Selling Disciplines. A stock is sold when the fundamental factors (excessive
price/exchange ratio, slowed growth, excessive debt, etc.) have changed to such
an extent that the company no longer qualifies or when industry conditions or
governmental regulations have changed so that they negatively impact the
company's future. On rare occasions, a stock is sold if a significantly more
attractive opportunity develops in that country.
RESERVE LARGE-CAP VALUE EQUITY FUND. The Reserve Large-Cap Value Equity Fund's
investment objective is to seek long term capital appreciation through
investment in a portfolio of large, high quality 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 attractively
valued and undervalued 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 high return on shareholder's equity, strong company management that
enhances shareholder value, good cash flow generation and favorable profit
trends. Fundamentally, investment candidates are understandable businesses
that can generate consistent earnings growth where the company is believed to
be undervalued as a whole. The Fund emphasizes investment in larger U.S.
companies whose outstanding shares have an aggregate market value of $5 billion
or more and is designed for investors seeking the opportunity for
above-average, long-term growth with below-average overall risk (defined as
loss capital) and nominal current income. The Fund will invest at least 65% of
its total assets in equity securities and at least 65% of total assets in the
securities of companies, whose aggregate market value is $5 billion or more,
i.e., "large cap," unless the Fund has adopted a temporary defensive position.
It is the Sub-Adviser's view that high quality, large companies can generate
consistent growth over time that is above the growth rate of the overall
economy. 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.
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<PAGE> 11
RESERVE MID-CAP GROWTH FUND. The Reserve Mid-Cap Growth Fund's investment
objective is to seek capital appreciation through investment in a common stock
portfolio of medium and small sized U.S. companies that offer potential for
significant capital appreciation. 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 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; have a strong market niche in a
rapidly expanding or new industry; and 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 medium and small sized companies whose outstanding shares have an
aggregate market value of $4 billion or less. The Fund will invest at least
65% of its total assets in the securities of such companies, unless the Fund
has adopted a temporary defensive position. 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 securities of smaller
companies are often traded over-the-counter and have less liquidity than larger
stocks. Therefore, shares of the Fund may be subject to greater fluctuation on
value than shares of a conservative equity fund which invests in larger
capitalization companies.
RESERVE NORTH AMERICAN GROWTH FUND. The Reserve North American Growth Fund's
investment objective is to seek capital appreciation through investment in a
portfolio of medium sized companies. It is the Sub-Adviser's view that
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 U.S. economy
and that of large established companies. In general, this requirement is a
cornerstone of the Fund's investment objective which offers more
diversification to the shareholder without venturing into underdeveloped or
eccentric markets. The Fund will invest at least 65% of its total assets in
securities of issuers in North American countries, unless the Fund has adopted
a temporary defensive position. 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: 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 the
average 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 future earnings, changes in management or other
similar opportunities.
A result of the Fund's stock selection criteria is likely that the median
market capitalization for its portfolio companies will be about $1 billion and
such companies would be considered to be "mid-cap" or medium sized companies.
The Fund will not invest in any company with a market capitalization of less
than $150 million or more than $5 billion. The "mid-cap" nature of the
portfolio may result in some increased volatility over that of the general
market average. The Fund will be at least 50% invested in U.S. based
companies.
The Fund's Adviser and Sub-Adviser believe that the Fund's objective provides
investors with a vehicle to take advantage of opportunities in the United
States as well as in other North American countries, where investing may be
more rewarding. They also believe that the ability to invest on an
international basis decreases the degree to which events in any one country can
affect the Fund's entire 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
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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. Therefore, the Sub-Adviser will vary the Fund's investment
portfolio in countries where it considers investment opportunities to be most
attractive.
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."
INVESTMENT TECHNIQUES AND INVESTMENTS
The investments and techniques described in this section are subject to the
specific requirements or minimum investment policies found in the Investment
Objectives and Policies section of each Fund.
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 deposit type obligations of domestic
and foreign banks or the equivalent thereof. Instruments which are not rated
may also be purchased by a Fund provided such instruments are determined to be
of comparable quality by the Sub-Adviser under the supervision of the Adviser
and the Board of Trustees to those instruments in which the Fund may invest.
REPURCHASE AGREEMENTS. Each Fund may engage in repurchase agreement
transactions. A repurchase agreement is a transaction by which a 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 or becomes insolvent or
declares bankruptcy, a Fund may encounter difficulties and incur costs and
possibly a loss upon disposition of the underlying securities.
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 (3)
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. Each Statement of Additional
Information further explains each Fund's securities lending policies.
U.S. TREASURY SECURITIES. Each Fund may invest in securities issued,
guaranteed or collateralized by U.S. Treasury obligations, including Bills,
Notes, Bonds, all of which 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, guaranteed, or
collateralized 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 Funds 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.
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Each Fund may also invest in component parts of these securities or instruments
collateralized thereby, 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.
CONVERTIBLE SECURITIES. The Reserve Convertible Securities, Reserve Growth and
Income and Reserve International Equity Funds may invest in 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 make the convertible security less volatile than the
underlying common stock. As with debt securities, the market value of
convertible securities 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 Baa/BBB or higher or unrated securities of
equivalent quality as determined by the Investment Adviser. Bonds rated
Baa/BBB have speculative characteristics and share some of the same
characteristics of lower-rated securities. For example, sustained periods of
deteriorating economic conditions or of rising interest rates are more likely
to lead to a weakening in the issuer's capacity to pay interest and repay
principal than would be the case of higher-rated securities. If a downgrade
below the minimum rating occurs, the Funds will sell the securities. Foreign
convertible securities, which may be held by the Reserve International Equity
Fund, are not rated.
RIGHTS AND WARRANTS. The Reserve International Equity Fund will invest in
rights or warrants only if the underlying equity securities themselves are
deemed appropriate by the Sub-Adviser for inclusion in the Fund's portfolio.
Rights and warrants may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the underlying securities, nor do they represent any
rights to the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying security, although
it 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 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 right or
warrant ceases to have value if it is not exercised prior to the expiration
date.
DEPOSITORY RECEIPTS. The Reserve International Equity Fund may invest in
depository receipts which 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 depository 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 depository receipts. ADRs are depository receipts typically issued by a
U.S. bank or trust company that evidence ownership of underlying securities
issued by a foreign corporation. Global Depository Receipts ("GDRs") and other
types of depository 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, depository receipts in registered form
are designed for use in the U.S. securities markets, and depository receipts in
bearer form are designed for use in foreign securities markets. Investments of
the Fund in ADRs are deemed to be investments in securities issued by U.S.
issuers and those in GDRs and other types of depository receipts are deemed to
be investments in the underlying foreign securities.
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The Fund may also invest in securities of supranational entities such as the
World Bank or the European Investment Bank.
ILLIQUID SECURITIES. The Funds may hold up to 15% or the value of their net
assets in securities as to which a liquid trading market does not exist and
therefore may not be able to readily sell such securities. Such securities
include securities that are not readily marketable, such as certain securities
that are subject to legal or contractual restrictions on resales, repurchase
agreements providing for settlement in more than seven (7) days after notice,
and certain asset-backed and mortgage-backed securities. The Fund will treat
U.S. Government POs and IOs as illiquid securities so long as the staff of the
Securities and Exchange Commission maintains its position that such securities
are illiquid. Restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 that have a readily available market are not
considered illiquid for purposes of this limitation if they meet guidelines
established by the Board of Trustees.
Purchased over-the-counter ("OTC") options and the assets used as cover for
written OTC options will be treated as illiquid securities so long as the staff
of the Securities and Exchange Commission maintains its position that such
securities are illiquid. However, the Fund may treat a certain portion of the
securities it uses as cover for written OTC options as liquid provided it
follows a specified procedure. The Fund may sell OTC options only to qualified
dealers who agree that the Fund may repurchase any options it writes for a
maximum price to be calculated by a predetermined formula. In such cases, OTC
options would be considered liquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
The Sub-Advisers will monitor the liquidity of such restricted securities under
the supervision of the Adviser and Board of Trustees.
Many of the foreign countries in which the Reserve International Equity Fund
invests do not have a Securities Act similar to the United States 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 Reserve Emerging Growth,
Reserve Growth and Income, Reserve Informed Investors Growth and Reserve
Mid-Cap Growth Funds may invest up to 5% of the value of their 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 Funds 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 a 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 is 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 Funds would lose the premium paid therefor.
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 Funds 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.
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The Funds will only write covered options. An option is covered if, so long as
a Fund is obligated under the option 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 a Fund is subject to its Sub-Adviser's ability
to correctly predict movements in the market. If the Sub-Adviser is not
successful in employing options in managing a Fund's investments, performance
will be worse than if the Fund did not make such investments. In addition, a
Fund would pay commissions and other costs in connection with such investments,
which may increase its expenses and reduce its return.
STOCK INDEX OPTIONS. The Reserve Growth and Income and Reserve Mid-Cap Growth
Funds may 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. The Fund may invest up to 5% of the
value of its total assets, represented by the price 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 Funds may write put
options on stock indexes to the extent of 25% of the value of its total assets
at the time such options are written.
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, their successful use is
dependent upon 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.
When a Fund writes an option on a stock index, it 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.
Index options also involve risks similar to those risks relating to put and
call options described previously.
FUTURES TRANSACTIONS IN GENERAL. The Reserve Growth and Income Fund is not a
commodity pool but may engage in futures and options on futures transactions as
described below for the purpose of hedging against changes in values of the
Fund's investment securities. Futures transactions require different skills
and techniques than those used in predicting changes in the price of individual
investment securities.
The Fund's ability to invest in futures and options thereon is limited to bona
fide hedging pursuant to regulations promulgated by the Commodity Futures
Trading Commission. In addition, the Fund may not engage in such activities if
the sum of the amount of initial margin deposits and premiums paid for
unexpired options on futures contracts will exceed 5% of the value of the
Fund's total assets, after taking into account unrealized profits and
unrealized losses on such contracts it has entered into; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount is excluded in calculating the 5%.
Initially, the Fund will be required to deposit with the broker an amount of
cash or cash equivalents equal to approximately 5% of the contract amount.
This amount is known as "initial margin" and is in the nature of a deposit on
the contract which is returned to the Fund upon termination of the futures
contract, assuming all obligations thereunder have been satisfied. Subsequent
payments, known as "variation margin," to and from the broker, are made daily
as the price of the index or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market". At any time prior to
the expiration of a futures contract, the Fund may elect to close the position
by taking an opposite position at the then prevailing price, which will
terminate the Fund's existing position in the contract.
Although the Fund intends to purchase or sell futures contracts only if there
is an active market for such contracts, no assurance can be given that a liquid
market will exist for the contracts at any particular time. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single
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trading day. Once the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that limit. Futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures
positions and possibly subjecting some traders therein to substantial losses.
If the Fund cannot close a futures position in anticipation of adverse price
movements, the Fund will be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the investment
securities being hedged, if any, may offset partially or completely losses on
the futures contract. However, no assurance can be given that the price of the
securities being hedged will correlate with the price movements in a futures
contract and thus provide an offset to losses on the futures contract.
In addition, due to the risk of an imperfect correlation between the Fund's
investment securities that are subject to the hedging transaction and the
futures contract being used as a hedging device, it is possible that the hedge
will not be fully effective, in that losses on the investment securities may be
in excess of gains on the futures contract, or losses on the futures contract
may be in excess of the gains on the investment securities that were the
subject of the hedge. If the Sub-Adviser is not successful in employing
futures contracts and options thereon as hedging transactions, the Fund's
performance will be worse than if the Fund did not make such investments. In
futures contracts based on indexes, the risk of improper correlation increases
as the composition of the Fund's investment securities varies from the
composition of the index. In an effort to compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the futures contracts, the Fund may buy or sell
futures contracts in a greater or lesser dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the futures
contract has been lesser or greater than that of the underlying securities.
Such "over hedging" or "under hedging" may adversely affect the net asset value
of the Fund if market movements are not as anticipated when the hedge was
established.
The Fund will not purchase or sell futures contracts or related options for
which the aggregate initial margin and initial premiums exceed 5% of the value
of the Fund's total assets. In order to prevent leverage in connection with
the purchase of futures contracts or options thereon by the Fund, an amount of
cash, U.S. Government securities or other liquid high-grade debt obligations
with a daily market value equal to the value of the obligation under the
futures contract or option thereon (less any related margin deposits) will be
maintained in a segregated account at the Custodian Bank. Further, the
Internal Revenue Code's requirements for qualification as a regulated
investment company may also limit the extent to which the Fund can engage in
futures transactions. See "Distributions and Taxes" in the Statement of
Additional Information.
Participation in the options or futures markets involves investment risks and
transaction costs to which the Fund would not be subject absent the use of
these strategies. If the Sub-Adviser's predictions of movements in the
direction of the securities and interest rate markets are inaccurate, the
adverse consequences to the Fund may leave the Fund in a worse position than if
such strategies were not used. Risks inherent in the use of options and
futures contracts and options on futures contracts include (1) dependence on
the Investment Adviser's ability to predict correctly movements in the
direction of interest rates, securities prices and markets; (2) imperfect
correlation between the price of futures contracts and options thereon and
movements in the prices of the securities being hedged; (3) the fact that
skills needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absences of a liquid secondary market
for any particular instrument at any time; (5) the possible need to defer
closing out certain hedged positions to avoid adverse consequences; and (6) the
possible inability of the Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable to do so, or the possible need for the
Fund to sell a portfolio security at a disadvantageous time, due to the need
for the Fund to maintain "cover" or to segregate securities in connection with
hedging transactions. See "Distributions and Taxes" in the Statement of
Additional Information.
STOCK INDEX FUTURES. The Reserve Growth and Income Fund may purchase and sell
stock index futures. A stock index future obligates the seller to deliver (and
the purchaser to take) an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock index at the close
of the last trading day of the contract and the price at which the agreement is
made. No physical delivery of the underlying stocks in the index is made.
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There can be no assurance of the successful use of stock index futures as a
hedging device. In addition to the possibility that there may be an imperfect
correlation between movements in the stock index future and the investment
securities being hedged, the price of stock index futures may not correlate
perfectly with the movement in the stock index because of various market
distortions. The risk of imperfect correlation increases as the composition of
the Fund's investment securities differs from the securities contained in the
applicable stock index. Although all participants in the futures market are
subject to margin deposit and maintenance requirements, certain investors may
close futures contracts through offsetting transactions rather than meeting
additional margin deposit requirements thus distorting the normal relationship
between the index and futures markets. In addition, for speculators the
deposit requirements in the futures market are less burdensome than margin
requirements in the securities market. Therefore, increased participation by
speculators in the futures market may also cause temporary price distortions.
As a result of the foregoing, a correct forecast for general market trends by
the Sub-Adviser still may not result in a successful hedging transaction.
The successful use of stock index futures by the Fund is also subject to the
Sub-Adviser's ability to correctly predict movements in the market. If, for
example, the Fund has hedged against the possibility of a decline in the market
adversely affecting its investment securities and stock prices increase
instead, the Fund will lose part or all of the benefit of the increased value
of the stocks it has hedged due to the offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient cash
to meet its daily variation margin requirements, it may have to sell its
investment securities. Such sales may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
investment securities at a time when it is not advantageous to do so.
INVESTMENT IN FOREIGN SECURITIES. The Reserve North American Growth and
Reserve International Equity Funds may purchase foreign equity and debt
securities, including foreign government securities. The Reserve North
American Growth Fund will not invest more than 25%, and the Reserve
International Equity Fund will not invest more than 10% of its total assets in
the securities of issuers of any single foreign country. Foreign securities
markets generally are not as developed or efficient as those in the United
States and securities traded there are less liquid and more volatile than those
traded in the U.S.
The Funds may be subject to additional risks because stock certificates and
other evidence of ownership of foreign issuers may be held outside the United
States. Such additional risks include: adverse political and economic
developments; nationalization of foreign issuers and possible adoption of
government restrictions which might affect the payment of principal, interest
and dividends to U.S. investors. In addition, there may be less publicly
available information about a foreign issuer, since they are generally not
subject to the timely accounting and financial reporting disclosure standards
of U.S. companies.
In making the allocation of assets in foreign markets, the Sub-Advisers will
consider such factors as prospects for relative economic growth, inflation,
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 Reserve International Equity Fund may invest will be traded on
foreign stock exchanges or issued by foreign governments.
The Reserve International Equity Fund will invest in developing countries,
which involves 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 one which is in the
initial stages of its conversion from an agrarian insular society to an
international manufacturing participant.
FOREIGN CURRENCY TRANSACTIONS. The Reserve International Equity and Reserve
North American Growth Funds 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 a 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 a Fund may incur
costs in connection with conversions between various currencies. A 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
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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 establish the U.S. dollar
cost or proceeds, as the case may be. 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 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 correlate 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 the Fund'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 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 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 mutual fund, 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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<PAGE> 19
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 Reserve International
Equity and Reserve North American Growth Funds 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 and the
making of Fund distributions, the Fund may be required to liquidate securities
in order to make distributions if it has insufficient cash in U.S. dollars to
meet distribution requirements that the Fund must satisfy 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 in order to pay expenses in 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."
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, the Funds whose investment portfolios include such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity securities of U.S.
companies. These markets may be subject to greater influence by adverse events
affecting the general market, and by large investors trading significant blocks
of securities, than is usual in the U.S. 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 a severe shortage of vault capacity exists among custodial
banks. 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 the Sub-Adviser 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 and less information
may be available to investors than is available about U.S. issuers.
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<PAGE> 20
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as to growth of the gross
domestic product or gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Nationalization, expropriation or confiscator 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 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 Reserve North American Growth and Reserve
International Equity Funds 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 Reserve North American Growth and Reserve
International Equity Funds 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 instituted by 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 ("NAFTA") 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
18
<PAGE> 21
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 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.
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 a Fund's shares will fluctuate with the
value of its investments. The value of fixed-income securities will decline in
value as interest rates rise and increase in value as interest rates decline.
MANAGEMENT OF THE FUNDS
RESERVE PRIVATE EQUITY SERIES--ADVISER. The Funds' Investment Adviser is
Reserve Management Company, Inc.("RMCI" or "Adviser"), 14 Locust Place,
Manhasset, N.Y. 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 each of the Sub-Advisers' performances, investment
programs, 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-Advisers and other ordinary
operating expenses of each 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, the Adviser is paid
a comprehensive fee of 1.50% per annum of the average daily net assets of each
Fund, except for the Reserve International Equity Fund, for which the Adviser
is paid a comprehensive fee of 1.75%.
SUB-ADVISERS. The Investment Management Agreement and Sub-Advisory Agreement
provide that the Adviser and each Sub-Adviser, respectively, shall not be
liable for any error of judgment or mistake of law or for any loss
19
<PAGE> 22
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. None of these organizations have previously served as
either Adviser or Sub-Adviser to a registered investment company.
TRAINER, WORTHAM & COMPANY, INC. was formed in 1924 and manages over $1 billion
for individuals, family trusts and employee benefit plans and has over seventy
years experience using the investment policies discussed herein. Charles V.
Moore, the Fund's portfolio manager has been the President of the Sub-Adviser
since 1978 years and is responsible for the day-to-day investment decisions of
the Fund.
NEW VERNON ADVISORS, INC., an affiliate of William E. Simon & Sons, L.L.C., was
formed in 1990; and currently manages of advises $700 million for private
investment funds, high net worth individuals, charitable organizations and
educational institutions. J. Peter Simon, an Executive Director and Founder
of William E. Simon & Sons, is Senior Vice President of New Vernon Advisors,
Inc., and serves and as the firm's convertible securities manager.
ROANOKE ASSET MANAGEMENT was formed in 1978 and currently manages over $200
million for high net worth individuals, foundations, endowments, corporations
and municipalities and has over fifteen years experience in using the
investment policies discussed herein. Edwin G. Vroom, President, Brian J.
O'Connor, Executive Vice President, and Adele S. Weisman, Senior Vice
President, serve as the Fund's portfolio managers, and have worked together as
a team for over twenty years.
KENNETH J. GERBINO & COMPANY was formed in 1977 and currently manages $60
million for high net worth individuals, pensions, and trusts. The principals
of the company have a combined experience of over fifty years in using the
investment policies discussed herein. Kenneth J. Gerbino has been an
independent money manager for over twenty years and is responsible for
macroeconomic trends and investment strategies for the Fund. Raymond Baker,
Jr. has over thirty years of investment experience and is Director of
Investments at Kenneth J. Gerbino & Company, and will be 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 $200
million for employee benefit plans, bank trust departments, an insurance
company and a public authority and has over ten years' experience in using the
investment policies discussed herein. Thomas H. Fitzgerald, Jr., who founded
his firm in 1959, serves as the Fund's portfolio manager and is responsible for
the day-to-day investment decisions.
PINNACLE ASSOCIATES, LTD. was formed in 1984 and currently manages over $400
million for individuals, family trusts and employee benefit plans. Nicholas
Reitenbach is Director of International Investments, Partner of Pinnacle
Associates, Ltd., and serves as the Fund's primary portfolio manager. Mr.
Reitenbach has over thirty years' experience in utilizing the investment
techniques discussed herein.
SIPHRON CAPITAL MANAGEMENT was formed in 1991 and currently manages over $200
million for tax-exempt, institutional clients. The senior management of
Siphron Capital has over thirty years' experience in using the investment
policies discussed herein. David C. Siphron and Peter D. Siphron, both
partners of the firm, serve as the Fund's portfolio managers, providing
investment recommendations based on a proprietary combination of fundamental
and technical analysis. Portfolio actions are based on mutual consent, with
David Siphron having final approval.
SOUTHERN CAPITAL ADVISORS has been in existence since 1986 as part of Morgan
Keegan, Inc., a financial services holding company. SCA manages approximately
$260 million for individuals, employee benefit plans, foundations and
endowments, and has over nine years experience in dealing with the investment
policies discussed herein. Richard A. McStay, C.F.A., its President, has more
than thirty years of experience in the investment business, and is the
principal portfolio manager for the Fund. He has been associated with Morgan
Keegan & Co., Inc., since 1974.
For their services, all of the Sub-Advisers receive a fee of up to .75% per
annum of the respective Fund's average daily net assets except for Pinnacle
Associates, Ltd., who receives a fee of up to .875%.
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<PAGE> 23
PORTFOLIO TRANSACTIONS. Decisions as to the purchase and sale of securities
for each Fund and the execution of these transactions, including the
negotiation of brokerage commission on such transactions, are the
responsibility of each Sub-Adviser. In general, each Sub-Adviser seeks to
obtain prompt and reliable execution of purchase and sale orders at the most
favorable net prices or yields. In determining the best net price and
execution, each Sub-Adviser may take into account a broker's or dealer's
operational and financial capabilities and the type of transaction involved.
The Sub-Advisers may consider statistical, research, or other services provided
by brokers or dealers, some of which may be useful to each Sub-Adviser in their
other business functions. 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 as determined in good faith
by each Sub-Adviser. Each Sub-Adviser is authorized to place portfolio
transactions with brokers or dealers participating in the distribution of
shares of a Fund, but only if the Sub-Advisers reasonably believe that the
execution and commission are comparable to those available from other qualified
firms. Further, subject to procedures adopted by, and under the supervision of
the Board of Trustees, each Sub-Adviser is authorized to place portfolio
transactions with brokers or dealers affiliated with each Sub-Adviser, provided
the commission or fee paid on the transaction is reasonable and fair when
compared to the commission or fee charged by other brokers or dealers on
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time.
The annual portfolio turnover rate of each Fund is expected to approximate
100%, except for Reserve International Equity Fund, which is expected to be
less than 100% under normal market conditions. See "Portfolio Turnover,
Transaction Charges and Allocation" in the Statement of Additional Information.
TRUSTEES. Under the Declaration of Trust, which is governed by the laws of the
State of Delaware, the Trustees are ultimately responsible for the conduct of
the its affairs. The Trustees serve indefinite terms (subject to certain
removal procedures) and they appoint their own successors, provided that at
least a majority of the Trustees have been elected by shareholders. The
Declaration of Trust provides that a Trustee may be removed at any special
meeting of shareholders by a vote of a majority of the Trust's outstanding
shares.
TRANSFER AGENT AND DIVIDEND PAYING AGENT. The Trust acts as its own transfer
agent and divided paying agent.
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. However, shareholders (except
IRAs) must achieve a balance of $2,500 within twelve (12) months or the Fund
may choose to impose a fee (currently $5 monthly), see "Small Accounts". The
initial minimum investment for an IRA is $250, and subsequent investments are
accepted in any amount. 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 Account
Application. If no dealer or broker is named in the Account 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 of
payment and a request in proper form by a Fund or by an investment dealer which
has a sales agreement with the Fund's Distributor. The public offering price
is equal to the net asset value of a Fund (plus a sales charge for Class A
shares as set forth in the table below). Payments (denominated in U.S.
dollars) must be made (if purchasing directly from a 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 (currently $15) will be imposed if
any check used for investment in your account does not clear. The
investor is also liable to reimburse the Fund for any loss
incurred due to a returned check.
- By wire - Prior to calling your bank, call the Fund for specific
instructions at (800) 637-1700.
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<PAGE> 24
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 Account
Application and payment to the Fund. Payment may 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 Fund), of a properly completed Account Application and
payment. The Fund must be notified before 4:00 P.M. (New York time) of the
amount to be transmitted and the account to be credited and the Fund must
receive the credit at its bank by 4:00 P.M. (New York time). 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.
The Distributor, at its expense, will also provide additional compensation to
broker-dealers, financial consultants and financial institutions in connection
with actual or anticipated sales of Shares of a Fund, but only to the extent
permitted by law or regulation.
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 load for Class A shares will be waived on all assets transferred directly
to The Reserve Private Equity Series from funds outside of Reserve on which a
similar load has already been paid.
SALES TABLE. 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>
AS A % OF AS A % OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE PER VALUE PER OFFERING
AMOUNT OF TRANSACTION SHARE SHARE 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 or more . . . . . . . 0 0 0
</TABLE>
It is the position of the staff of the Securities and Exchange Commission that
if the dealer reallowance exceeds 90%, a dealer may be considered an
underwriter under the Securities Act of 1933.
Class A shares of each Fund may be purchased at net asset value, without sales
charge, by employees of brokers or broker-dealers who have a signed dealer
agreement with the Fund, full time employees; their spouses and minor children;
the Adviser, Sub-Adviser(s), Resrv Partners, Inc., and other affiliated
companies; any Trustee of a Fund and their spouses; any trust, pension, profit
sharing, or other benefit plan; Sub-Adviser advisory clients and related
22
<PAGE> 25
persons of such; by a bank or broker-dealer that charges an asset management
fee, provided the bank or broker-dealer has an agreement with the Funds; and
through reinvestment of dividends and capital gains distributions.
Direct clients of Resrv Partners, Inc., who were Reserve money fund
shareholders as of September 30, 1995, may purchase Class A shares of each Fund
at net asset value until March 31, 1996, and thereafter (as long as they are
qualified shareholders of Reserve money funds) at net asset value plus a
maximum sales charge of 1%.
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.
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 (ROA). Reduced sales charges apply to any purchase of
Class A shares of a Fund where the aggregate investment, among all the Reserve
Private Series Class A shares, including such purchase, is $50,000 or more.
If, for example, you previously purchased and still hold shares of a 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 (LOI). Investors who anticipate that they will invest $50,000
(other than through exchanges) or more in Class A shares of a Fund within
thirteen months may execute an LOI on the form in the Account Application. The
execution of an LOI 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 Class A shares in other Funds in the
Reserve Private Equity Series, other than money funds, that may be offered, can
be included to fulfill the LOI.
Out of an investor's initial purchase (or subsequent purchases) 5% of the
specified dollar amount of the LOI will be held in escrow by the transfer agent
in their account until their total purchases of the Fund plus their
accumulation credit (if any) equal the amount specified. A purchase not
originally made pursuant to an LOI may be included under a backdated letter
executed within ninety (90) days of such purchase (accumulation credit).
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 they would have
paid on their 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 twenty (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 PRIVATE EQUITY SERIES AUTOMATIC ASSET-BUILDER TRANSFER PLANS. If you
have an account balance of $5,000 or more, you may purchase shares of a Fund
($25 minimum) from a checking, NOW, or bank money market deposit account or
from a U.S. Government distribution ($50 minimum) such as Social Security,
federal salary, or certain veteran's benefits, or other payments from the
federal government or to transfer funds from your PES
23
<PAGE> 26
account to your bank account. Fill out the Reserve Private Equity Series
Automatic Asset-Builder form included in the Account Application or call the
Funds at (800) 637-1700.
DOLLAR COST AVERAGING. Shareholders may elect to have a specified amount
automatically exchanged, either monthly or quarterly on or about the 1st day of
the applicable month, from one of their accounts (either Private Equity cash
account or a money fund account) into one or more Reserve Private Equity Series
Funds, provided that Class A or D shares may only be exchanged for Class A or D
shares of another Reserve Private Equity Series Fund. The account from which
exchanges are to be made must have a value of at least $5,000 when a
shareholder elects to begin this program, and the exchange minimum is $50 per
transaction. All of the accounts that are part of this program must have
identical registrations. The net asset value of shares purchased under this
program may vary, and may be more or less advantageous than if shares were not
exchanged automatically. There is no charge for entering the Dollar Cost
Averaging program. Sales charges may apply, as described under the caption
"Exchange Privilege."
PRIVATE EQUITY CASH ACCOUNT. The Private Equity Cash Account allows the
shareholders access to the Reserve money market funds which may be utilized for
dollar cost averaging, or as a temporary investment vehicle should you wish to
reduce your exposure to the equity markets.
NET ASSET VALUE. Fund shares are issued at net asset value plus a sales charge
(for Class A shares) and redeemable 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 a Fund's portfolio securities, cash and other assets, subtracting
its liabilities, and dividing the result by the number of class' shares
outstanding.
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. ("RPI"), 810
Seventh Avenue, New York, N.Y. 10019-5868. 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 a Fund 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 any Reserve Private
Equity Series Fund must be registered for sale in the investor's state.
24
<PAGE> 27
The exchange privilege is not available for shares which have been held for
less than fifteen (15) days. Exchanges by telephone are an automatic privilege
unless the shareholder notifies the Fund on the Account Application that his
authorization has been withheld. Unless authorization is withheld, the Fund
will honor requests by any person by telephone at (800) 637-1700, that the Fund
deems to be valid. The Funds and their affiliates may be liable for any losses
caused by their failure to employ reasonable procedures to avoid unauthorized
or fraudulent instructions. To reduce such risk, the registration of the
account into which shares are to be exchanged must be identical to the
registration of the originating account and all telephone exchange requests
will be recorded. The Fund may also require the use of a password or other
form of personal identification. In addition, each Fund will provide written
confirmation of exchange transactions. During periods of volatile economic and
market conditions, a shareholder may have difficulty making an exchange request
by telephone, in which case an exchange request would have to be made in
writing.
The Trust may modify or discontinue the exchange privilege at any time, and
will do so on sixty (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 on behalf of ten (10)
or more accounts. A pattern of frequent exchanges may be deemed by the Adviser
to be abusive and contrary to the best interests of the Fund's other
shareholders and, at the Adviser's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor
and/or the imposition of fees. The Funds do not have any specific definition
of what constitutes a pattern of frequent exchanges. Any such restriction will
be made on a prospective basis, upon notice to the shareholder not later than
ten (10) days following such shareholder's most recent exchange. Telephone and
written exchange requests must be received by the Funds by 4:00 P.M. (New York
time) on a regular business day to take effect that day. 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 for Class A shares).
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 Fund 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 each Fund's shares
and for servicing each Fund's shareholders at an annual rate of .25% of the
value of each Fund's average daily net assets for Class A shares and 1.00% of
the value of each 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 service 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 and for servicing
Fund shareholders who are also their clients and/or for distribution. RPI
determines the amounts to be paid to brokers, financial institutions and
financial intermediaries ("Firms"). Firms receive such fees with respect to
the average daily net asset value of each Fund's shares owned by shareholders
for whom the Firm performs services 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 "RPI," under the Plan for
advertising, marketing and distributing each Fund's shares and for payments to
Firms are payable without regard to actual expenses incurred. Thus, if fees
exceed distribution expenses, RPI will incur a profit; however, if expenses
exceed fees, then it will incur a loss. RPI may use such fees to promote the
sale of shares for 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
25
<PAGE> 28
(such as administrative and account maintenance services) may include banks,
upon advice of their 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.
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 each 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 during
January of 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 Trust 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 a
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 ninety-one (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,
26
<PAGE> 29
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
Investment income received by the Reserve International Equity and Reserve
North American Growth Funds from sources within foreign countries may be
subject to foreign income taxes withheld at the source. To the extent that a
Fund is liable for such foreign income taxes, it will attempt to meet the
requirements of the Code to "pass through" to its shareholders credits for such
taxes, but there can be no assurance that it will be able to do so.
DIVIDENDS AND DISTRIBUTIONS
All dividends and capital gains distributions, if any, 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 Account 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) 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 and/or if the distribution
would be less than $25.
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. The payment date will be used to
determine net asset value when dividends and capital gains distributions are
reinvested.
REDEMPTIONS
TIME AND METHOD OF REDEMPTION. Each Fund's 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, 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 the close of
business 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 for redemptions 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 as
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
Account 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
27
<PAGE> 30
administrator. Changes in redemption instructions, registration or authorized
signatures must be in writing with the signature(s) guaranteed. The Funds will
waive the signature guarantee requirement on a redemption request once every
thirty (30) days if ALL of the following conditions apply: (1) the redemption
is for $5,000 or less; (2) the redemption check is payable to the
shareholder(s) of record; and (3) the redemption check is mailed to the
shareholder(s) at the address of record. The requirement of a guaranteed
signature protects against an unauthorized person redeeming shares and
obtaining the redemption proceeds. Payments of $10,000 or more will be wired
upon request without charge. A fee, currently $10, will be charged 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 (7)
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.
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. If a shareholder account (other than an IRA) does not achieve
a balance of $2,500 within twelve (12) months, the Fund reserves the right to
impose a fee (currently $5 monthly), after thirty (30) days' written notice to
the shareholder. The minimum balance requirement will be waived if the account
balance drops below $2,500 due to market depreciation. Class D share accounts
offered in conjunction with a broker sweep are exempt unless shareholders have
been notified to the contrary.
RESTRICTIONS. The right of redemption may be suspended or the date of payment
postponed for more than seven (7) 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 each 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
shares of a Fund are purchased by check, the Fund may delay transmittal of
redemption proceeds until such time as it has assured itself that good payment
has been collected for the purchase of such shares, which will generally be up
to ten (10) business days. When a purchase is made by wire and subsequently
redeemed, the proceeds from such redemption normally will not be transmitted
until two (2) business days after the purchase by wire.
GENERAL INFORMATION
BACKUP WITHHOLDING. Each Fund is 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, or that they are
not currently subject to backup withholding. Shareholders should be aware that,
under regulations promulgated by the IRS, 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 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.
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<PAGE> 31
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
Funds may present information regarding the total return on a hypothetical
investment in a 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, the Dow Jones Industrial Average, the NASDAQ
Composite Index, the Russell 2000 Index, and the Morgan Stanley Capital
International EAFE Index, or to groups of comparable mutual funds.
Total return for a period is the percentage change in value during the period
of an investment in the Fund's shares, including the value of shares acquired
through reinvestment of all dividends and capital gains distributions. The
average annual total return for a given period may be calculated by finding the
average annual compounded rate of return that would equate a hypothetical
$1,000 investment to the value that the investment could be redeemed for at the
end of the period. All of the calculations described above will assume the
reinvestment of dividends and distributions in additional shares of the Fund
and the deduction of the maximum sales charge (Class A shares) from the initial
investment.
In addition to the figures described above, a 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 a Fund, as well as the performance of the mutual
funds, do not reflect sales charges, the inclusion of which would reduce a
Fund's performance.
Performance of a Fund will vary from time to time, and past results are not
necessarily indicative of future results. Performance information supplied by
each Fund may not provided a basis of comparison with other investments using
different reinvestment assumptions or time periods.
-------------------------------------------
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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<PAGE> 32
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").
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.
30
<PAGE> 33
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
------------------------------------------------- ----
<S> <C>
Annual Fund Expense Information . . . . . . . . 2
Financial Highlights . . . . . . . . . . . . . . 4
The Trust . . . . . . . . . . . . . . . . . . . 5
Investment Objectives and Policies . . . . . . . 5
Investment Techniques and Investments . . . . . 10
Risk Considerations . . . . . . . . . . . . . . 17
Management of the Funds . . . . . . . . . . . . 19
How to Buy Shares . . . . . . . . . . . . . . . 21
Shares of Beneficial Interest . . . . . . . . . 26
Taxes . . . . . . . . . . . . . . . . . . . . . 26
Foreign Income Taxes . . . . . . . . . . . . . . 27
Dividends and Distributions . . . . . . . . . . 27
Redemptions . . . . . . . . . . . . . . . . . . 27
General Information . . . . . . . . . . . . . . 28
Glossary . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
<PAGE> 34
RESERVE PRIVATE EQUITY SERIES
RESERVE CONVERTIBLE SECURITIES 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 Convertible Securities Fund
("Convertible Securities 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 _________________________________.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Other Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Trustees and Officers of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investment Management and Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio Turnover, Transaction Charges and Allocation . . . . . . . . . . . . . . . . . . . 7
Shares of Beneficial Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Purchase, Redemption and Pricing of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 8
Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<PAGE> 35
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 Convertible Securities Fund may not:
(1) borrow money except as a temporary measure for extraordinary or
emergency proposes 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 issues in any particular industry;
(5) purchase, sell or otherwise invest in real estate or commodities
or commodity contracts except the Fund may purchase readily marketable
securities of companies holding real estate or interests therein and
interest rate futures contracts, stock index futures contracts, and
put and call options on interest rate futures 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.
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
2
<PAGE> 36
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 three 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.
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
the 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 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.
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<PAGE> 37
DEFENSIVE POSITION. For temporary defensive purposes, the Fund may vary from
its investment policy during periods in which conditions in securities markets
or other economic or political conditions warrant. In such circumstances, the
Fund will increase its position in debt securities, which may include
short-term U.S. Government securities and U.S. dollar- or foreign
currency-denominated short-term indebtedness, cash equivalents and fixed-income
securities issued or guaranteed by governmental entities, or by companies or
supranational organizations (e.g., International Bank for Reconstruction and
Development and the European community) rated AA or better by Standard & Poor's
Corporation, or Aa or better by Moody's Investor Service, Inc.; or if not so
rated, of equivalent investment quality as determined by the Adviser. Apart
from periods of defensive investment, the Fund may also at any time temporarily
invest funds awaiting reinvestment or held as reserves for dividends and other
distributions to shareholders in U.S. dollar-denominated money-market
instruments.
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 Global Interaction, Inc., and formerly
served as the Managing Director of Servus Associates, Inc.; 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.
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<PAGE> 38
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.
**Father Harrington is a member of the Board of Directors of Bear, Stearns &
Co.
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. 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.
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<PAGE> 39
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. New Vernon Advisors, Inc., ("Sub-Advisor"), 310 South Street,
P.O. Box 1913, Morristown, NJ 07962, 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 not to exceed .25% of the
average net asset value for Class A shares and 1.00% of the average net asset
value for Class D shares, of all payees' qualified accounts. 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 the
Americas, New York, New York 10019 is the Trust's independent accountant.
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<PAGE> 40
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.
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
7
<PAGE> 41
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. 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 outstanding shares 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.
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
8
<PAGE> 42
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.
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
9
<PAGE> 43
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 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
10
<PAGE> 44
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.
Bond Ratings
Moody's Investors Service, Inc.: Aaa -- judged to be the best quality,
carry the smallest degree of investment risk; Aa -- judged to be of high
quality by all standards; A -- possess many favorable investment attributes and
are to be considered as higher medium grade obligations; Baa -- considered as
medium grade obligations which are neither highly protected nor poorly secured.
Moody's Investors Service, Inc. also applies numerical indicators, 1, 2 and 3,
to rating categories Aa through Baa. The modifier 1 indicates that the
security is in the higher end of its rating category; the modifier 2 indicates
a mid-range ranking; and 3 indicates a ranking toward the lower end of the
category.
Standard & Poor's Corporation: AAA -- highest grade obligations,
possess the ultimate degree of protection as to principal and interest; AA --
also qualify as high grade obligations, and in the majority of instances differ
from AAA issues only in small degree; A -- regarded as upper medium grade, have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions, interest and principal are
regarded as safe; BBB -regarded as having adequate capacity to pay interest and
repay principal but are more susceptible than higher rated obligations to the
adverse effects of changes in economic and trade conditions. Standard & Poor's
Corporation applies indicators "+", no character, and "-" to the above rating
categories AA through BBB. The indicators show relative standing within the
major rating categories.
Fitch Investors Services, Inc.: AAA -- Securities of this rating are
regarded as strictly high-grade, broadly marketable, suitable for investment by
trustees and fiduciary institutions, and liable to but slight market
fluctuation other than through changes in the money rate; AA -- Securities in
this group are of safety virtually beyond question, and as a class are readily
salable while many are highly active; their merits are not greatly unlike those
of the AAA class, but a security so rated may be of junior though strong lien
- -- in many cases directly following an AAA security -- or the margin of safety
is less strikingly broad; A -- A securities are strong investments and in many
cases of highly active market, but are not so heavily protected as the two
upper classes or possibly are of similar security but less quickly salable; as
a class they are more sensitive in standing and market to material changes in
current earnings of the company.
Commercial Paper Ratings
Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the
smallest degree of investment risk. The modifiers 1, 2 and 3 are used to
denote relative strength within this highest classification.
Standard & Poor's Corporation: "A" is the highest commercial paper rating
category utilized by S&P which uses the numbers 1+, 1, 2 and 3 to denote
relative strength within its "A" classification.
11
<PAGE> 45
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.
<PAGE> 46
(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.
(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
<PAGE> 47
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 May 31, 1996 there were 8,942 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 brought (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 securit 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
<PAGE> 48
the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based
upon a review of r:adily available facts (as opposed to a
trial-type inquiry or full i vestigation), 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 S.R. Brown President. Treasurer and President. Treasurer and
Director Director of Reserve Management
Corporation of the same address as
the Trust; Director and Treasurer of
Transfer Agent Inc., 14 Locust Place,
Manhasset, NY 11030
Bruce R. Bent Vice President. Secretary and Vice President. Secretary and
Director Director of 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 tne Trust.
</TABLE>
<PAGE> 49
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.
<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.
Southern Capital Advisors, 50 Front Street, Morgan Keegan
Tower, Memphis, TN 38103. Pinnacle Associates Ltd., 666
Fifth Avenue, 14th Floor, New York, NY 10103; Siphron Capital
Management, 280 S. Beverly Drive, Beverly Hills, CA 90212;
and Kenneth J. Gerbino & Company, 9595 Wilshire Boulevard,
Suite 200, Beverly Hills, CA 90212; New Vernon Advisors,
Inc., 310 South Street, P.O. Box 1913, Morristown, NJ 07962
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.
<PAGE> 50
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this
PostEffective 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. 9 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 25th day of June, 1996.
/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-PostEffective Amendment No. 9 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 6/25/96
----------------------------------- ----------------------
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 6/25/96
----------------------------------- ---------------------
Marc C. Cozzolino, *Attorney-in-Fact
Counsel and Secretary
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description
- ----------- -----------
<S> <C> <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 New Vernon Advisors, Inc.**
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 - Not Applicable
17. Powers of Attorney
18. Rule 18f-3 Plan
</TABLE>
* To be filed by amendment
**Previously filed
<PAGE> 1
Exhibit 10
June 25, 1996
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 Fund, North American Growth Fund, International
Equity Fund, Large-Cap Value Equity Fund and Growth and Income Fund and
Convertible Securities 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
<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-lA) of Reserve
Private Equity Series, on the financial statements and financial highlights of
the Reserve Blue Chip Growth Fund, Reserve Emerging Growth Fund, 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
<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 oSecurities"), 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 o f 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
<PAGE> 1
Exhibit 18
RESERVE PRIVATE EQUITY SERIES
PLAN IN ACCORDANCE WITH RULE 18F-3
WHEREAS, Reserve Private Equity Series (the "Trust") is registered as an
open-end management investment company under the Investment Company Act of 1940
(the "1940 Act");
WHEREAS, the Trust has engaged RESRV Partners, Inc., a broker-dealer registered
under the Securities and Exchange Act of 1934, to distribute the shares of
beneficial interest of the Trust;
WHEREAS, the Trust has adopted a distribution plan pursuant to and in
accordance with the requirements of Rule 12b-1 under the 1940 Act;
WHEREAS, the Trust is authorized to issue one or more series of shares of
beneficial interest, with each series representing a separate investment
portfolio (each "Fund");
WHEREAS, the Trust has determine to issue more than one class of shares of
beneficial interest in each Fund;
WHEREAS, the Trustees have requested and evaluated, and the Trust and RESRV
Partners, Inc. are required to furnish, such information as may be reasonably
necessary to evaluate the Plan; and
WHEREAS, a majority of the Board of Trustees of the Trust, including a majority
of Trustees who are not "interested persons" of the Trust (as defined in the
1940 Act), has determined that this Plan as proposed to be adopted, including
the expense allocation among the two classes of each Fund, is in the best
interests of each class of each Fund individually and the Trust as a whole.
NOW THEREFORE, the Trust hereby adopts this Plan on the following terms and
conditions:
I. GENERAL
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 or other services to provide to a class of shares
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 the 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 value
of the Trust.
II. FEE STRUCTURE/DISTRIBUTION
CLASS A SHARES
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 the relevant Fund's prospectus. The initial sales charge may be reduced or
waived for certain purchases. The Class A shares of the Funds are subject to
annual distribution and shareholder servicing fees at the rate of .25 to 1%, of
the value of each Fund's average daily net assets.
<PAGE> 2
CLASS D SHARES
Class D shares of each Fund of the Trust are sold at net asset value
without a front-end sales charge and are subject to the minimum purchase
requirements set forth in the relevant Fund's prospectus. The Class D shares
of the Funds are subject to annual distribution and shareholder servicing fees
at the rate of 1% of the value of each Fund's average daily net assets. A
deferred sales charge of 1% is assessed on redemptions made within the first
year of investing.
III. EXCHANGE PRIVILEGES
As set forth below and the relevant Fund's prospectus, each class of
shares of a Fund may be exchanged for shares in the Reserve money market funds
at net asset value and other Funds that may be offered by the Trust. No sales
charge is imposed at the time of an exchange, except that exchanges of shares
from a Reserve money market fund (not acquired by means of an exchange of
shares from a Fund) to a Fund are subject to applicable sales charges imposed
on purchases of that Fund, as set forth in the Fund's prospectus. Shares of one
class of a Fund that are exchanged for shares of a Reserve money market fund
may be subsequently exchanged only for shares of that same class of the Fund or
another Fund of the Trust.
IV. 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.
Dated: June 19, 1996
