<PAGE> 1
General Information, Purchases and
Redemptions
-------------------------------------
24-Hour Price and Balance Information
-------------------------------------
Nationwide 800-637-1700 M
www.reservefunds.com
[RESERVE FUNDS LOGO]
Founders
of
"America's
First
Money Fund"
RESERVE PRIVATE EQUITY SERIES
PROSPECTUS
RESERVE PRIVATE EQUITY SERIES ("RPES" or "Trust") is a no-load, open-end
mutual fund offering shares in seven Funds: Reserve Blue Chip Growth Fund,
Reserve Informed Investors Growth Fund, Reserve International Equity Fund,
Reserve Large-Cap Growth Fund (formerly Reserve Large-Cap Value Fund), Reserve
Mid-Cap Equity Fund (formerly Reserve Mid-Cap Growth Fund), Reserve Small-Cap
Growth Fund and Reserve Strategic Growth Fund (each a "Fund", together the
"Funds"). This Prospectus, dated April 26, 1999, sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A Statement of Additional Information ("SAI"), dated April 26, 1999,
has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated herein by reference. A copy of the SAI may be obtained without
charge by writing or calling the Trust at the telephone number above. The SEC
maintains a web site (http://www.sec.gov) that contains the Prospectus, SAI,
material incorporated by reference, and other information regarding the Funds
filed electronically with the SEC.
Each Fund offers two classes of shares which may be purchased at a price
equal to their net asset value the "Class R shares" (formerly known as Class A
shares) and the "Class I shares". See "How to Buy Shares" on page 16.
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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------
Prospectus dated April 26, 1999.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
<PAGE> 2
SHAREHOLDER EXPENSES
The following tables illustrate all expenses and fees that a shareholder of
each Fund incurred directly or indirectly for the fiscal year ended May 31,
1998.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS R CLASS I
------- -------
<S> <C> <C>
Sales Load Imposed on Purchases............................. None None
Sales Load Imposed on Reinvested Dividends.................. None None
Redemption Fees*............................................ None None
Exchange Fees............................................... None None
</TABLE>
- ---------------
* A $2 fee will be charged for Class R redemption checks issued by the
Funds of less than $100 and $100 for Class I redemption checks of less
than $100,000. Class R wire redemptions of less than $10,000 will be
charged a $10 fee and Class I wire redemptions of less than $100,000
will be charged a $100 fee.
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 R SHARES (FORMERLY CLASS A) CLASS I SHARES
----------------------------------- ------------------------------
TOTAL TOTAL
MANAGEMENT 12B-1 OPERATING MANAGEMENT 12B-1 OPERATING
FEE+ FEE* EXPENSES FEE+ FEE EXPENSES
---------- ----- --------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Reserve Blue Chip Growth............................. 1.20% 0.25% 1.45% 0.90% 0.00% 0.90%
Reserve Informed Investors Growth.................... 1.30% 0.25% 1.55% 1.00% 0.00% 1.00%
Reserve International Equity......................... 1.55% 0.25% 1.80% 1.25% 0.00% 1.25%
Reserve Large-Cap Growth............................. 1.20% 0.25% 1.45% 0.90% 0.00% 0.90%
Reserve Mid-Cap Equity............................... 1.30% 0.25% 1.55% 1.00% 0.00% 1.00%
Reserve Small-Cap Growth............................. 1.30% 0.25% 1.55% 1.00% 0.00% 1.00%
Reserve Strategic Growth**........................... 1.20% 0.25% 1.45% 0.90% 0.00% 0.90%
</TABLE>
- ---------------
+ Most mutual funds display the management fee and ordinary operating expenses
as separate line items. The Management Fee charged the Funds includes all
advisory fees and ordinary operating expenses. (see "Management" on page 14.)
* Due to these distribution expenses, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
** The Trust did not begin offering shares of the Reserve Strategic Growth Fund
until June 1, 1999.
The purpose of this table is to assist the shareholders of each Fund in
understanding the costs and expenses that they will bear directly or indirectly.
2
<PAGE> 3
The following examples illustrate 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.
EXAMPLES
<TABLE>
<CAPTION>
CLASS R SHARES
(FORMERLY CLASS A) CLASS I SHARES
------------------------------- -------------------------------
1 3 5 10 1 3 5 10
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
---- ----- ----- ----- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve Blue Chip Growth..................... $15 $46 $79 $174 $ 9 $29 $50 $111
Reserve Informed Investors Growth............ $16 $49 $84 $185 $10 $32 $55 $122
Reserve International Equity................. $18 $57 $97 $212 $13 $40 $69 $151
Reserve Large-Cap Growth..................... $15 $46 $79 $174 $ 9 $29 $50 $111
Reserve Mid-Cap Equity....................... $16 $49 $84 $185 $10 $32 $55 $122
Reserve Small-Cap Growth..................... $16 $49 $84 $185 $10 $32 $55 $122
Reserve Strategic Growth..................... $15 $46 -- -- $ 9 $29 -- --
</TABLE>
These examples should not be considered a representation of past or future
expenses or performance. Actual expenses may be greater or less than those
shown.
FINANCIAL HIGHLIGHTS
The following information applies to a share of the Reserve Private Equity
Series -- Reserve Blue Chip Growth Fund, Reserve Informed Investors Growth Fund,
Reserve International Equity Fund, Reserve Large-Cap Growth Fund (formerly
Large-Cap Value Fund), Reserve Mid-Cap Equity Fund (formerly Mid-Cap Growth
Fund) and Reserve Small-Cap Growth Fund outstanding throughout each period. Each
Fund, prior to October 1, 1997, had two classes of shares, Class A and Class D.
Effective October 1, 1997, the shares of Class D were merged into Class A.
Effective September 22, 1998, the Class A shares were redesignated as Class R
shares. The Trust did not begin offering Class I shares until October 1, 1998.
Further, the Trust did not begin offering shares of the Reserve Strategic Growth
Fund until June 1, 1999. As of the date of this Prospectus, no other portfolios
or classes of shares were outstanding. This information should be read in
conjunction with the financial statements and related notes incorporated by
reference in the SAI. Such information has been audited by
PricewaterhouseCoopers LLP, whose report appears in the Trust's Annual Report to
Shareholders which is incorporated by reference in the SAI. Further information
concerning investment performance is contained in the Trust's Annual Report to
Shareholders, which is available without charge. Financial information for the
period June 1, 1998 to November 30, 1998 is unaudited.
<TABLE>
<CAPTION>
RESERVE BLUE CHIP GROWTH FUND CLASS R (FORMERLY CLASS A)
----------------------------- ------------------------------------------------------------------
JUNE 1, 1998 OCTOBER 28, 1994
THROUGH YEAR ENDED MAY 31, (COMMENCEMENT OF
NOVEMBER 30, -------------------------- OPERATIONS) TO
1998+ 1998 1997 1996 MAY 31, 1995
---------------- ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 15.09 $15.46 $14.91 $12.03 $10.00
------- ------ ------ ------ ------
Income from investment operations
Net investment income (loss)............ (.05) -- (.17) (.10) (.03)
Net realized and unrealized gain........ 2.26 2.82 .91 3.62 2.06
------- ------ ------ ------ ------
Total from investment operations............ 2.21 2.82 .74 3.52 2.03
Less distribution from net realized income
and gain.................................. -- (3.19) (.19) (.64) --
------- ------ ------ ------ ------
Net asset value, end of period.............. $ 17.30 $15.09 $15.46 $14.91 $12.03
======= ====== ====== ====== ======
Total Return................................ 14.65% 19.70% 5.12% 30.10% 20.30%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period...... $10,475 $8,532 $5,428 $5,130 $1,993
Ratio of expenses to average net assets..... 1.63%(1) 1.75% 1.75% 1.75% 1.73%(1)
Ratio of net investment income (loss) to
average net assets........................ (.92)%(1) (.87)% (1.13)% (.94)% (.70)%(1)
Portfolio turnover rate..................... 68% 113% 109% 72% 68%
</TABLE>
3
<PAGE> 4
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
RESERVE INFORMED INVESTORS GROWTH FUND CLASS R (FORMERLY CLASS A)
- -------------------------------------- ----------------------------------------------------------------
JUNE 1, 1998 NOVEMBER 14, 1994
THROUGH YEAR ENDED MAY 31, (COMMENCEMENT OF
NOVEMBER 30, --------------------------- OPERATIONS) TO
1998+ 1998 1997 1996 MAY 31, 1995
------------ ------ ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $10.46 $11.48 $ 14.36 $11.99 $10.00
------ ------ ------- ------ ------
Income from investment operations:
Net investment loss........................ (.07) (.20) (.07) (.33) (.07)
Net realized and unrealized gain (loss).... .67 2.08 (1.66) 3.87 2.06
------ ------ ------- ------ ------
Total from investment operations............... .60 1.88 (1.73) 3.54 1.99
Less distribution from net realized gain....... -- (2.90) (1.15) (1.17) --
------ ------ ------- ------ ------
Net asset value, end of period................. $11.06 $10.46 $ 11.48 $14.36 $11.99
====== ====== ======= ====== ======
Total Return................................... 5.74% 17.88% (11.35)% 29.75% 19.90%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period......... $2,927 $4,334 $ 5,477 $6,393 $6,837
Ratio of expenses to average net assets........ 1.69%(1) 1.75% 1.75% 1.75% 1.75%(1)
Ratio of net investment loss to average net
assets....................................... (.82)%(1) (.91)% (.57)% (1.57)% (1.62)%(1)
Portfolio turnover rate........................ 287% 410% 255% 132% 59%
</TABLE>
<TABLE>
<CAPTION>
RESERVE INTERNATIONAL EQUITY FUND CLASS R (FORMERLY CLASS A)
- --------------------------------- --------------------------------------------------------
JUNE 1, 1998 JULY 13, 1995
THROUGH YEAR ENDED MAY 31, (COMMENCEMENT OF
NOVEMBER 30, ------------------ OPERATIONS) TO
1998+ 1998 1997 MAY 31, 1996
------------ ------- ------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 13.22 $ 12.59 $ 11.26 $10.00
------- ------- ------- ------
Income from investment operations:
Net investment loss.............................. (.02) (.04) (.07) (.05)
Net realized and unrealized gain................. (.52) .67 1.40 1.31
------- ------- ------- ------
Total from investment operations..................... (.54) .63 1.33 1.26
------- ------- ------- ------
Net asset value, end of period....................... $ 12.68 $ 13.22 $ 12.59 $11.26
======= ======= ======= ======
Total Return......................................... (4.08)% 5.00% 11.81% 12.60%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period............... $11,921 $12,851 $12,099 $3,578
Ratio of expenses to average net assets.............. 1.91%(1) 2.00% 2.00% 1.99%(1)
Ratio of net investment loss to average net assets... (.20)%(1) (.39)% (.82)% (.91)%(1)
Portfolio turnover rate.............................. 106% 114% 52% 70%
</TABLE>
4
<PAGE> 5
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
RESERVE LARGE-CAP GROWTH FUND* CLASS R (FORMERLY CLASS A)
- ------------------------------ --------------------------------------------------------
JUNE 1, 1998 JANUARY 2, 1996
THROUGH YEAR ENDED MAY 31, (COMMENCEMENT OF
NOVEMBER 30, ------------------ OPERATIONS) TO
1998+ 1998 1997 MAY 31, 1996
------------ ------- ------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 18.16 $14.61 $10.95 $10.00
------- ------ ------ ------
Income from investment operations:
Net investment loss................................ -- (.03) (.03) (.01)
Net realized and unrealized gains.................. 1.28 3.89 3.69 .96
------- ------ ------ ------
Total from investment operations....................... 1.28 3.86 3.66 .95
Less distribution from net realized gain............... -- (.31) -- --
------- ------ ------ ------
Net asset value, end of period......................... $ 19.44 $18.16 $14.61 $10.95
======= ====== ====== ======
Total Return........................................... 4.18% 26.71% 33.42% 9.50%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period................. $19,970 $6,786 $3,054 $1,231
Ratio of expenses to average net assets................ 1.57%(1) 1.75% 1.75% 1.75%(1)
Ratio of net investment loss to average net assets..... (.09)%(1) (.36)% (.32)% (.32)%(1)
Portfolio turnover rate................................ 14% 25% 18% 0%
</TABLE>
<TABLE>
<CAPTION>
RESERVE MID-CAP EQUITY FUND** CLASS R (FORMERLY CLASS A)
- ----------------------------- ------------------------------------------------------
JUNE 1, 1998 MARCH 13, 1996
THROUGH YEAR ENDED MAY 31, (COMMENCEMENT OF
NOVEMBER 30, ------------------ OPERATIONS) TO
1998+ 1998 1997 MAY 31, 1996
------------ ------- ------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period..................... $12.98 $13.20 $12.29 $10.94
------ ------ ------ ------
Income from investment operations:
Net investment loss...................................... (.20) (.26) (.11) (.01)
Net realized and unrealized gain......................... (2.24) 1.50 1.02 1.36
------ ------ ------ ------
Total from investment operations......................... (2.44) 1.24 .91 1.35
Less distribution from net realized gain................. -- (1.46) -- --
------ ------ ------ ------
Net asset value, end of period........................... $10.54 $12.98 $13.20 $12.29
====== ====== ====== ======
Total Return............................................. 18.80% 10.31% 7.40% 12.34%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period................... $2,176 $3,381 $2,174 $ 131
Ratio of expenses to average net assets.................. 1.69% 1.75% 1.75% 1.74%(1)
Ratio of net investment loss to average net assets....... (.90)% (1.21)% (1.31)% (.97)%(1)
Portfolio turnover rate.................................. 26% 73% 102% 85%
</TABLE>
5
<PAGE> 6
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
RESERVE SMALL-CAP GROWTH FUND CLASS R (FORMERLY CLASS A)
- ----------------------------- -----------------------------------------------------------------
JUNE 1, 1998 NOVEMBER 14, 1994
THROUGH YEAR ENDED MAY 31, (COMMENCEMENT
NOVEMBER 30, -------------------------- OF OPERATIONS) TO
1998+ 1998 1997 1996 MAY 31, 1995
------------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $16.66 $15.52 $19.56 $12.21 $10.00
------ ------ ------ ------ ------
Income from investment operations
Net investment loss....................... (.31) (.39) (.28) (.17) (.09)
Net realized and unrealized gain (loss)... 1.39 1.53 (3.76) 8.05 2.30
------ ------ ------ ------ ------
Total from investment operations.............. 1.08 1.14 (4.04) 7.88 2.21
Less distribution from net realized gain...... -- -- -- (.53) --
------ ------ ------ ------ ------
Net asset value, end of period................ $17.74 $16.66 $15.52 $19.56 $12.21
====== ====== ====== ====== ======
Total Return.................................. 6.49% 7.35% (20.65)% 65.55% 22.10%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets in thousands, end of period........ $4,877 $5,541 $5,789 $6,657 $1,241
Ratio of expenses to average net assets....... 1.66%(1) 1.75% 1.75% 1.75% 1.75%(1)
Ratio of net investment loss to average net
assets...................................... (1.48)%(1) (1.64)% (1.69)% (1.70)% (1.62)%(1)
Portfolio turnover rate....................... 10% 46% 28% 38% 43%
</TABLE>
- ---------------
+ Unaudited
(1) Annualized.
(2) Total return is not annualized, and does not reflect impact of sales load.
(3) For the Reserve Convertible Securities Fund, the ratios of expenses to
average net assets, net of waiver, for the period September 3, 1996
(Commencement of Operations) to May 31, 1997 and the fiscal year ended May
31, 1998 were 0.52% and 0.83%, respectively, and the ratios of net
investment loss to average net assets, net of waiver, for the same periods
were 5.52% and 4.69%, respectively.
* Formerly Reserve Large-Cap Value Fund.
** Formerly Reserve Mid-Cap Growth Fund.
6
<PAGE> 7
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Funds are not fundamental and may be
changed without the approval of shareholders. Each of the Funds is classified as
a mutual fund.
RESERVE BLUE CHIP GROWTH FUND. The Reserve Blue Chip Growth Fund's 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 INFORMED INVESTORS GROWTH FUND. The Reserve Informed Investors Growth
Fund's investment objective is to seek growth through investment in a portfolio
primarily of U.S. securities which are seasoned, well-managed and financially
sound companies with demonstrated superior earnings growth, accelerating cash
flow and profit margins and high 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 dividend 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 are often in a much more informed position to gauge the long-term effects
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 stocks which some of the
nation's more knowledgeable investors own or are buying with their own money,
rather than to chase fad or glamor stocks masquerading as disciplines.
The Fund emphasizes investment in companies whose outstanding shares have an
aggregate market value of at least $1 billion, at cost. 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. This can result in
greater-than-average share price fluctuations and greater market risk than is
often experienced in other types of securities.
RESERVE INTERNATIONAL EQUITY FUND. The Reserve International Equity Fund's
objective is to seek capital appreciation through investment in a portfolio of
equity securities of companies resident in countries experiencing rapid economic
growth. 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 ADRs 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 has 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 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's portfolio has been carefully selected through
research and often through direct management contact.
The Fund 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. The Fund's portfolio is
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 Fund intends to remain 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. A three-to-five-year time horizon
will be utilized for a holding period. 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 U.S., unless
the Fund has taken a temporary defensive position. The Fund will restrict
investment in the 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.
7
<PAGE> 8
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. Portfolios of foreign investments are
affected by different economic trends. By participating in a large variety of
investment opportunities, the probability of investment success increases, and
international diversification reduces the effect that events in any one country
will have on the portfolios. Portfolios of foreign securities are often affected
by different economic trends than those which affect U.S. securities, which is a
basic reason to diversify the traditional U.S.-based portfolio with investments
in foreign securities.
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 Gross Domestic Product growth rate and
outlook; current inflation rate and its trend; relative interest rates and their
trends; 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 GROWTH FUND. The Reserve Large-Cap Growth Fund's (formerly
Reserve Large-Cap Value Fund) 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. Candidates are believed to be in a growth
phase or are entering a growth phase in their marketplace and have pricing
flexibility, the potential to increase volume of unit sales, and control over
production and distribution. These companies also focus on their core business,
have a dominant brand name or a valuable franchise, financial fundamentals that
are trending upward, and management that is dedicated to enhancing shareholder
value. 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. Investors seeking the opportunity
for above-average, long-term growth with below-average overall risk (defined as
loss of capital) and nominal current income may wish to consider this Fund.
It is the Fund'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.
RESERVE MID-CAP EQUITY FUND. The Reserve Mid-Cap Equity Fund's (formerly
Reserve Mid-Cap Growth Fund) investment objective is to seek capital
appreciation through investment in a portfolio of medium-size companies. It is
the Sub-Adviser's view that mid-size companies in the U.S. are generally
expected to show growth over time that is above the growth rate of the overall
U.S. economy and that of larger companies. The Fund will invest at least 65% of
its total assets in equity securities of companies considered "mid-cap" or
medium-size companies, unless the Fund has adopted a temporary defensive
position. The Fund does not choose investment for dividend or interest income,
nor does it try to "time the market". The Fund will not employ any hedging
strategies, and intends to stay fully invested. Any production of income is
secondary. There can be no assurance that the Fund will achieve its investment
objective.
8
<PAGE> 9
A varied portfolio of stocks will generally be selected based on at least
one of the following criteria: companies selling at a discount to private market
value; undiscovered, underfollowed, or misunderstood companies with good or
improving earnings growth; low price/cash flow stocks with a visible catalyst
for price appreciation, growth rates greater than and price/cash flow less than
the S&P 400 mid-cap index. Additional considerations will be: management
incentives to increase shareholder value; management ownership of the stock;
margin levels and growth, return on capital invested, and strength of the
balance sheet.
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.
A result of the Fund's stock selection criteria is likely to be that the
median market capitalization for its portfolio companies will be about $2
billion and such companies would be considered "mid-cap" or medium-size
companies. The Fund will not routinely invest in any company with a market
capitalization of less than $500 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 intends to be fully invested unless it has
adopted a temporary defensive position.
RESERVE SMALL-CAP GROWTH FUND. The Reserve Small-Cap Growth Fund's objective is
to seek capital appreciation through investment in a portfolio of primarily
small capitalization 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 couples 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 total 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 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 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 STRATEGIC GROWTH FUND. The Reserve Strategic Growth Fund's investment
objective is to seek long-term growth through capital appreciation. Any
production of income is secondary to this objective. There can be no assurance
that the Fund will achieve its investment objective.
It is anticipated that the Fund will invest in at least 65% of its total
assets in equity securities of large, established companies with market
capitalizations over $5 billion that trade on major U.S. stock exchanges.
Securities selected for the Fund will be those that the Sub-Adviser feels have
above average long-term potential for capital appreciation, typically due to a
company's future earnings growth, but occasionally involving other criteria. The
Fund expects to own a portfolio of securities across a variety of industry
sectors to minimize unforeseen risks of concentrating in a single industry.
Portfolio turnover is expected to be relatively low as purchases are made with a
view to long-term holdings and not for short-term trading purposes; however,
during rapidly changing economic, market, and political conditions, there may be
significant changes to the portfolio when these equity securities present
special situations because 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. Additionally,
the Fund may invest without restriction in companies of any size, foreign
equities, and U.S. fixed-income securities. The Fund does not expect to hold
significant assets in cash, cash equivalents, foreign fixed-income securities,
warrants, rights, futures, or options.
Investors in the Fund should recognize that the inherent risks of investing
cannot be totally avoided and that there is no assurance that the investment
objective of the Fund will be achieved. The Fund intends to be as fully invested
at all times as practicable unless it has adopted a temporary defensive
position.
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.
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CASH EQUIVALENTS. Each Fund may invest in cash equivalents, which are
short-term obligations issued or guaranteed as to interest and principal by the
U.S. government or any instrumentality thereof (including repurchase agreements
collateralized by such securities) and 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 by the
Sub-Adviser under the supervision of the Adviser and the Board of Trustees to be
of comparable quality 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 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. The SAI 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, and
Bonds, all of which are backed by the full faith and credit of the U.S.
government.
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 U.S. government. In the case of securities not backed by the full
faith and credit of the U.S. government, 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.
Each Fund may also invest in component parts of these securities or
instruments collateralized thereby, namely either the 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 (principal or
interest) of U.S. government obligations that have not actually been stripped.
Such receipts evidence ownership of component parts of U.S. government
obligations purchased by a third party (typically an investment-banking firm)
and held on its behalf by a major commercial bank or trust company pursuant to a
custody agreement. 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 International Equity Fund 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.
Reserve International Equity Fund may invest in convertible securities that
are investment grade, i.e., rated Baa/BBB or higher or unrated securities. These
bonds have speculative characteristics and share some of the same
characteristics of lower-rated securities. For example, sustained periods of
deteriorating economic conditions or 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
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minimum rating occurs, the Fund may sell the securities, but is not required to
do so. Foreign convertible securities, which may be held by the Fund, are not
rated.
To the extent that a security is assigned a different rating by one or more
of the various rating agencies, the Sub-Adviser will use the highest rating
assigned by an agency in determining compliance with the foregoing investment
limitations.
RIGHTS AND WARRANTS. Reserve International Equity Fund may 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. 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 U.S. 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.
The Fund may also invest in securities of supranational entities such as the
World Bank or the European Investment Bank.
ILLIQUID SECURITIES. Each Fund may hold up to 15% of the value of its net
assets in securities for 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 U.S. 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. Each Fund may write and sell
covered put option contracts to the extent of 25% of the value of their total
assets at the time such option contracts are written. However, the Reserve
Small-Cap Growth Fund and Reserve Informed Investors Growth Fund may invest only
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.
There is no limitation on the amount of call options each Fund 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. 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
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of the 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 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 underlying security 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 they paid.
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 nonperformance 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.
The Funds will only write covered options. An option is covered so long as a
Fund which 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 the Fund's investments, performance
will be worse than if the Fund did not make such investments. In addition, the
Fund would pay commissions and other costs in connection with such investments,
which may increase its expenses and reduce its return.
INVESTMENT IN FOREIGN SECURITIES. Reserve International Equity Fund may
purchase foreign equity and debt securities, including foreign government
securities, to an aggregate of not more than 30% 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 U.S. and securities
traded there are less liquid and more volatile than those traded in the U.S.
The Fund may be subject to additional risks because stock certificates and
other evidence of ownership of foreign issuers may be held outside the U.S. 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-Adviser 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.
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 U.S., 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. Reserve International Equity Fund may engage in
foreign-currency transactions in connection with its investment in foreign
securities but will not speculate in foreign-currency exchange. The value of the
assets of the Fund as measured in U.S.-dollars may be affected favorably or
unfavorably by changes in foreign-currency exchange rates and exchange-control
regulations, and the Fund may incur costs in connection with conversions between
various currencies. The Fund will conduct its foreign-currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign-currency exchange market or through forward contracts to purchase or
sell foreign currencies. A forward foreign-currency exchange contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
directly between currency traders (usually large commercial banks) and their
customers.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to 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
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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.
EURO CONVERSION. On January 1, 1999, France, Austria, Germany, Italy, Belgium,
Finland, Ireland, Portugal, Spain, Luxembourg and the Netherlands (eleven
countries in the European Monetary Union) adopted the euro as their official
currency. However, the current currencies will continue in use for cash
transactions until January 1, 2002.
The euro is expected to confer some benefits in those markets, such as
consolidating the government debt market for those countries and reducing some
currency risks and costs. But, the conversion to the new currency could affect
the Trust operationally and also has some special risks. The Trust's portfolio
system, DST, will be both upgrading computer and record keeping equipment to
prepare for the conversion, and will continue to monitor the effects of the
conversion on the value of the Trust's securities. Further, the Adviser is
taking steps to reasonably address this issue and to obtain assurance that
comparable effort is being made by the Trust's other service providers. There
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Trust.
DEFENSIVE POSITION. For temporary defensive purposes, each Fund may invest
without limitation 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 the Funds' SAI.
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.
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
Fund will be invested in securities denominated in foreign currencies and a
corresponding portion of the Fund's revenues will be received in such
currencies. Therefore, the dollar equivalent of their net assets, distributions
and income will be adversely affected by reductions in the value of certain
foreign currencies relative to the U.S. dollar. If the value of the foreign
currencies in which a Fund receives its income falls relative to the U.S. dollar
between receipt of the income and the making of Fund distributions, the Fund may
be required to liquidate securities in order to make
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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 the 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, the Fund may engage in certain
currency-hedging transactions, which themselves involve certain special risks.
See "Investment Techniques and Investments" on page 9.
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 Reserve International Equity Fund, 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 the Fund. In addition, the
repatriation of investment income, capital or the proceeds of sales of
securities from certain 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.
The 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 the Fund to adopt special procedures, which may involve
additional costs to the Fund. The liquidity of the 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 the 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.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of the gross
domestic product or gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments.
Nationalization, expropriation or confiscatory taxation, currency blockage,
political changes, government regulation, political or social instability or
diplomatic developments could adversely affect the economy of a foreign country
or the Fund's investments in that country. In the event of expropriation,
nationalization or other confiscation, the 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.
U.S. AND FOREIGN TAXES (RISK CONSIDERATIONS). Although each of the Funds
intends to continue to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), and to distribute
substantially all of its taxable income so as to avoid the imposition of U.S.
income and excise taxes, it is possible that events could occur which would
cause a Fund to incur some U.S. taxes. In addition, one or more of the Funds
with investments in stock or securities of foreign corporations (e.g., the
Reserve International Equity Fund), may incur foreign income taxes. The
applicable tax laws which affect the Funds and their shareholders are subject to
change, which may be retroactive. Prospective investors should consult their own
tax advisors with regard to the federal tax consequences of the purchase,
ownership, or disposition of a Fund's shares, as well as the tax consequences
arising under the laws of any state, foreign country, or other taxing
jurisdiction. See the discussion on "Taxes" and "Foreign Taxes" set forth below.
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
INVESTMENT MANAGEMENT AGREEMENT. Since November 15, 1971, Reserve Management
Company, Inc. (the "Adviser"), 1250 Broadway, New York, NY 10001-3701, and its
affiliates have provided investment advice to The Reserve Funds, which as of the
date of
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this prospectus has assets in excess of $5.4 billion. Under the Investment
Management Agreement, the Adviser manages the Funds and invests in furtherance
of its objectives and policies subject to the overall control and direction of
the Funds' Board of Trustees. The Adviser supervises a continuous investment
program for the Funds, evaluates and monitors each Sub-Adviser's performance,
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 each 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 Management Fee represented as a percentage of the average daily net
assets of each Fund and class in the amounts shown on the chart entitled "Annual
Fund Operating Expenses" found on page 2.
YEAR 2000. The Trust could be adversely affected if the computer systems and
service providers that interface with it are unable to process data from January
1, 2000 and after. However, the Adviser is taking steps to reasonably address
this issue and to obtain assurance that a comparable effort is being made by the
Trust's other service providers. There can be no assurance that these steps will
be sufficient to avoid any adverse impact to the Trust.
SUB-ADVISERS. The Investment Management Agreement and Sub-Advisory Agreements
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 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.
Section 15(a) of the 1940 Act requires that all contracts pursuant to which
persons serve as investment advisers to investment companies be approved by
shareholders. As interpreted, this requirement also applies to the appointment
of Sub-Advisers to the Funds. The SEC, however, has granted conditional
exemptions for the shareholder approval requirements for situations where a fund
utilizes a multi-manager approach to portfolio investing. The Adviser and the
Trust have obtained such an exemption. The Board of Trustees of the Trust can,
without further shareholder approval, appoint additional or replacement
Sub-Advisers, terminate Sub-Advisers, rehire existing Sub-Advisers whose
agreements have been assigned (and thus automatically terminated) and enter into
or modify Sub-Advisory agreements.
The Adviser and Trust have retained the Sub-Advisers listed below. Each is a
registered investment adviser.
TRAINER, WORTHAM & COMPANY, INC., 845 THIRD AVENUE, NEW YORK, NY 10022, a
wholly owned subsidiary of First Republic Bank, was formed in 1924 and manages
over $2.5 billion for individuals, family trusts and employee benefit plans and
has over seventy years experience using the investment policies discussed
herein. Robert J. Vile is the Fund's primary portfolio manager. Mr. Vile is a
Managing Director of the Sub-Adviser and is responsible for the day-to-day
investment decisions of the Reserve Blue Chip Growth Fund.
T.H. FITZGERALD & CO., 180 CHURCH STREET, NAUGATUCK, CT 06770, 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 of experience in using the investment policies discussed herein. Thomas H.
Fitzgerald, Jr., who founded his firm, serves as the Fund's portfolio manager
and is responsible for the day-to-day investment decisions of the Reserve
Informed Investors Growth Fund.
PINNACLE ASSOCIATES, LTD., 666 FIFTH AVENUE, NEW YORK, NY 10103, 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 and partner of Pinnacle Associates, Ltd., and serves as the Reserve
International Equity Fund's primary portfolio manager. Mr. Reitenbach has over
thirty years experience in using the investment techniques discussed herein.
SIPHRON CAPITAL MANAGEMENT, 280 S. BEVERLY DRIVE, BEVERLY HILLS, CA 90212,
was formed in 1991 and currently manages over $750 million for tax-exempt and
taxable 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 Reserve Large-Cap
Growth 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.
PEKIN, SINGER & SHAPIRO ASSET MANAGEMENT, 311 SOUTH WACKER DRIVE, CHICAGO,
IL 60606, was formed in 1990 and currently manages over $359 million for
individuals, family trusts, and institutions. JoAnne Pekin, a founder of the
firm and its President, and Martha Doran serve as the Fund's portfolio managers.
Mrs. Pekin has more than thirty years experience in the investment business and
is responsible for the day-to-day investment decisions of the Reserve Mid-Cap
Equity Fund.
ROANOKE ASSET MANAGEMENT, 529 FIFTH AVENUE, NEW YORK, NY 10017, was formed
in 1978 and currently manages over $200 million for high-net-worth individuals,
foundations, endowments, corporations and municipalities, and each of the
portfolio managers
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has over twenty-five 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. Together,
they are responsible for the day-to-day investment decisions of the Reserve
Small-Cap Growth Fund.
CONDOR CAPITAL MANAGEMENT, INC., 1973 WASHINGTON VALLEY ROAD, MARTINSVILLE,
NJ, 08836, was formed in 1988 and currently manages over $185 million for
individuals, family trusts and institutions. Kenneth P. Shapiro, President, and
Stephen D. Tipping, Vice President, serve as the Fund's portfolio managers and
are responsible for the day-to-day investment decisions of the Reserve Strategic
Growth Fund.
For their services, the Sub-Advisers of the Funds, with the exception of
Condor Capital Management ("Condor"), receive an annual fee of up to one-half of
the Adviser's net profit for the year before taxes of the respective fund. Net
profit is deemed to be the Management Fee less fund expenses and all applicable
sales and marketing costs. For the services rendered by Condor, the Adviser
shall pay to Condor at the end of each calendar quarter an annualized fee equal
to 0.30% of the Fund's assets. The Adviser may also pay a Sub-Adviser for
marketing assistance.
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 its 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 not expected to exceed
100% under normal market conditions except for the Reserve Informed Investors
Funds. High portfolio turnover rates (i.e., over 100%) can increase the Fund's
transaction costs, including brokerage commissions. The Reserve International
Equity Fund, expected to be less than 100% under normal market conditions. See
"Portfolio Turnover, Transaction Charges and Allocation" in the SAI.
During the fiscal years ended May 31, 1996, 1997 and 1998, the portfolio
turnover rate for the Reserve Informed Investors Growth Fund was higher than
expected due to the following market conditions: (1) extraordinary volatility,
especially in the small to medium capitalization stocks which have a dominant
weight in the portfolio, made it necessary to re-balance the Fund's weighted
capitalization; (2) concentration of informed investor buy signals in a tightly
defined number of industry sectors led to higher than normal portfolio sector
concentration which often amplified volatility and turnover rates through the
need for re-balancing of the portfolio; (3) market responses to the earnings
outlook for a broad list of portfolio-held companies led to a series of
management miscalls; and (4) a substantial portion of the gain on the S&P 500
indices has been attributable to the largest capitalization stocks in the
indices. The Sub-Adviser has had to guide the Fund through a market which has
been turbulent and extremely narrow as a result, while strictly adhering to the
Fund's informed investor strategy. During the current fiscal year, the
Sub-Adviser expects the turnover to approximate 455%, but does not expect it to
exceed 500%.
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
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 dividend-paying agent.
HOW TO BUY SHARES
METHOD OF PAYMENT. For Class R Shares, the minimum initial investment is $1,000
and the minimum subsequent investment is $100, except for IRAs. However, Class R
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
Balances"). The initial minimum investment in Class R Shares for
16
<PAGE> 17
an IRA is $250, and subsequent investments are accepted in any amount. For Class
I Shares, the minimum initial investment is $250,000 and the minimum subsequent
investment is $10,000. 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. Shares of the Funds may be purchased each Business Day at the
public offering price determined after receipt of payment and a request in
proper form by the Funds or by an investment dealer who has a sales agreement
with the Funds' Distributor. The public offering price is equal to the net asset
value of a Fund. Payments (denominated in U.S. dollars) must be made if
purchasing directly from the Funds:
- 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 The Reserve
Funds, 1250 Broadway, New York, NY 10001-3701. 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 Funds for any loss
incurred due to a returned check. Neither initial nor subsequent
investments may be made by a third party check.
- By wire -- Prior to calling your bank, call the Funds for specific
instructions at 800-637-1700 or the broker-dealer or financial institution
from whom you received this prospectus.
Investments in the Funds may also be made through investment dealers who
have sales agreements with RESRV., the distributor of the Funds' shares
("Authorized Dealer"). Such dealers should send the investor's Account
Application and payment to the Funds. Payment may be made by check or wire.
Purchase orders will be confirmed at the public offering price calculated after
receipt by the Funds or an Authorized Dealer (which order must be promptly
transmitted to the Funds) of a properly completed Account Application and
payment. The Funds must be notified before 4:00 PM (New York time) of the amount
to be transmitted and the account to be credited, and the Funds must receive the
credit at their bank by 4:00 PM (New York time). Orders received by the Funds or
an Authorized Dealer after 4:00 PM (New York time) will be priced at the public
offering price in effect at 4:00 PM (New York time) on the next Business Day.
GENERAL INFORMATION. Shares of each Fund will have the same relative rights and
privileges and be subject to the same 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. Income, realized and unrealized capital gains and losses, and
expenses of the Funds of the Trust shall be allocated to shares of the Fund that
earned or incurred them. 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 ("NAV") 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 the Funds, but only to
the extent permitted by law or regulation.
VOTING RIGHTS. Shares of the Funds shall have exclusive voting rights on any
matter submitted to shareholders pursuant to the 1940 Act, the Declaration of
Trust and the Trust's By-laws.
RESERVE PRIVATE EQUITY SERIES AUTOMATIC ASSET-BUILDER PLAN. (Class R shares
only). 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 ($25 minimum) such as Social
Security, federal salary, or certain veterans' benefits, or other payments from
the federal government. Call the Funds at 800-637-1700 for an application.
NET ASSET VALUE. Fund shares are issued at NAV which is calculated at the close
of each Business Day (normally 4:00 PM New York time). A Business Day is Monday
through Friday, exclusive of New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day (observed), Independence Day, Labor
Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas and days the New
York Stock Exchange ("NYSE") is closed for trading. The NAV per share of each
Fund 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 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 is 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. ("RESRV"), 1250
Broadway, New York, NY 10001-3701. 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, at 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 RPES 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 NAV.
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The exchange privilege is not available for shares which have been held for
less than fifteen (15) days. Exchanges by telephone are an automatic privilege
unless the shareholder notifies the Fund on the Account Application that this
authorization has been withheld. Unless authorization is withheld, the Fund will
honor requests by any person by telephone at 800-637-1700, that the Fund deems
to be valid. The Funds and their affiliates may be liable for any losses caused
by their failure to employ reasonable procedures to avoid unauthorized or
fraudulent instructions. To reduce such risk, the registration of the account
into which shares are to be exchanged must be identical to the registration of
the originating account and all telephone exchange requests will be recorded.
The Fund may also require the use of a password or other form of personal
identification. In addition, each Fund will provide written confirmation of
exchange transactions. During periods of volatile economic and market
conditions, a shareholder may have difficulty making an exchange request by
telephone, in which case an exchange request would have to be made in writing.
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 1940 Act. The notice period may be shorter if applicable law
permits. The Trust reserves the right to reject telephone or written requests
submitted in bulk on behalf of ten (10) or more accounts. A pattern of frequent
exchanges may be deemed by the Adviser to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Adviser's discretion, may
be limited by the Fund's refusal to accept additional purchases and/or exchanges
from the investor and/or the imposition of fees. The Funds do not have any
specific definition of what constitutes a pattern of frequent exchanges. Any
such restriction will be made on a prospective basis, upon notice to the
shareholder not later than ten (10) days following such shareholder's most
recent exchange. Telephone and written exchange requests must be received by the
Funds by 4:00 PM (New York time) on a regular Business Day to take effect that
day. Exchange requests received after 4:00 PM (New York time) will be effected
at the next calculated NAV.
Exchanges of shares are taxable events and may result in a gain or loss for
federal income tax purposes. See the discussion at "Taxes" set forth below. 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 Distribution Plan ("Plan") adopted pursuant to
Rule 12b-1 under the 1940 Act, each Fund pays RESRV for advertising, marketing
and distributing each Fund's Class R shares and for servicing each Fund's Class
R shareholders at a maximum annual rate of 0.25% of the value of each Fund's
average daily net assets attributable to its Class R shares. If the Plan were
terminated or not continued, no amounts (other than amounts accrued but not yet
paid) would be owed by the Funds. The Class I shares of each Fund do not
participate in the Plan.
Under the Plan, RESRV at its discretion may make payments to brokers,
financial institutions and financial intermediaries ("Firms") for administration
and for servicing Fund shareholders who are also their clients and/or for
distribution. Firms receive such fees with respect to the average daily NAV of
each Fund's Class R shares owned by shareholders for whom they perform services
and are the dealer of record. Firms providing distribution assistance or
administrative services for each Fund may be required to register as securities
dealers in certain states. The fees, payable to RESRV under the Plan, are made
without regard to actual expenses incurred. Thus, if fees exceed distribution
expenses, RESRV will incur a profit; however, if expenses exceed fees, then they
will incur a loss. RESRV may use such fees to promote the sale of shares by
paying for the preparation, printing and distribution of prospectuses to other
than current shareholders or other promotional activities.
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 portfolios
and classes. 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
portfolios 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 1940 Act (e.g., to approve a new
investment advisory agreement or to change the fundamental investment policies)
or by the Declaration of Trust.
TAXES
The following discussion is intended for general information only.
Prospective investors should consult their own tax advisors with regard to the
federal tax consequences of the purchase, ownership, or disposition of Fund
shares, as well as the tax consequences arising under the laws of any state,
foreign country, or other taxing jurisdiction.
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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 investment company taxable income and net capital gains
are distributed. 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 nondeductible 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 October, November, or December of any year to shareholders
of record on any date in such a month will be deemed to have been received by
the shareholders and paid by each Fund on December 31 of such year, provided
such dividends are paid during January of the following year.
Distribution of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), if any, designated as capital gain
dividends may be taxable to individuals and certain other shareholders at the
maximum federal 20% capital gains rate, depending upon the holding period of the
assets giving rise to the capital gains, whether paid in cash or additional
shares of the Fund, regardless of the length of time Fund shares have been held,
and are not eligible for the dividends-received deduction available to
corporations. Dividends and other distributions may also be subject to state and
local taxes. A purchase of Fund shares shortly before the ex-dividend date or
capital gains distribution could result in the receipt of an amount which,
although in effect a return of principal, is subject to income taxes.
Under the Code, exchanges and redemptions of shares, including transfers of
shares of each Fund for shares of another fund with which the Funds have
exchange privileges, are taxable events, and accordingly, may result in a
capital gain or loss for shareholders participating in such transactions.
Capital gains may be taxable to individuals and certain other shareholders at
the maximum federal 20% capital gains rate, depending upon the shareholder's
holding period for the Fund shares. Deductions for losses recognized on the
disposition of shares may, in some circumstances, be disallowed or deferred.
Furthermore, shareholders electing to reinvest dividends or other distributions
in new shares will, nevertheless, be treated as having received such
distributions for tax purposes.
A Fund may be required to withhold U.S. federal income tax at the rate of
31% of all taxable distributions payable to certain shareholders who fail to
provide the Fund with their correct taxpayer identification number or to make
required certifications, or who have been notified by the Internal Revenue
Service that they are subject to backup withholding. Backup withholding is not
an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability.
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. Further information relating to tax matters is contained in the SAI.
Prospective investors should consult their own tax advisors with regard to the
federal tax consequences of the purchase, ownership, or disposition of Fund
shares, as well as the tax consequences arising under the laws of any state,
foreign country, or other taxing jurisdiction.
FOREIGN TAXES
One or more of the Funds with investments in stock or securities of foreign
corporations, (e.g., the Reserve International Equity Fund), may incur foreign
income taxes, including foreign taxes withheld at the source. If certain
statutory requirements are met, a Fund which incurs foreign income taxes may
make an election which has the effect of causing a U.S. shareholder to include
in income and treat as if paid by such shareholder his or her pro rata share of
such foreign income taxes, for which the U.S. shareholder may be able to claim a
tax deduction or tax credit. There can be no assurance that a Fund will meet the
requirements or elect to pass through its foreign income taxes to its
shareholders. Further information relating to tax matters is contained in the
SAI. Prospective investors should consult their own tax advisors with regard to
the federal tax consequences of the purchase, ownership, or disposition of Fund
shares, as well as the tax consequences arising under the laws of any state,
foreign country, or other taxing jurisdiction.
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 NAV unless the
shareholder has requested on the Account Application or in writing to the Fund
one of the following three options:
(1) Distribute capital gains in cash and reinvest income dividends.
(2) Distribute income dividends in cash and reinvest capital gains.
(3) Distribute both income dividends and capital gains in cash.
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These three options are not available for retirement plans or accounts with
a NAV 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 NAV when dividends and capital gains distributions are reinvested.
REDEMPTIONS
TIME AND METHOD OF REDEMPTION. Each Fund's shares are redeemed at NAV
determined as of the next close of the NYSE on a regular Business Day after the
written request by any person in proper form is received by the Fund, at 1250
Broadway, New York, NY 10001-3701. Redemptions may be effected during regular
Business Days from 9:00 AM to 4:00 PM (New York time). Redemption requests
received after the close of business will be effected at the next calculated
NAV.
WRITTEN AND TELEPHONE REDEMPTION REQUESTS. The Funds strongly suggest (but do
not require) that each Class R redemption be at least $1,000 and each Class I
redemption be at least $100,000, except for redemptions which are intended to
liquidate the account. A shareholder will be charged $2 for Class R redemption
checks issued by the Funds for less than $100, and $100 for Class I redemption
checks of less than $100,000. Upon request, redemptions will be made by bank
wire, however, Class R wire redemptions of less than $10,000 will be charged a
fee (currently $10) and Class I wire redemptions of less than $100,000 will also
be charged a fee (currently $100). The Funds assume no responsibility for delays
in the receipt of wired or mailed funds. The use of a predesignated financial
institution, such as a savings bank, credit union or savings and loan
association which is not a member of the Federal Reserve wire system to receive
your wire could cause such a delay. If a Fund has previously been advised in
writing of your brokerage or bank account, telephone requests will be accepted
by calling 800-637-1700. The Funds may be liable for any losses caused by their
failure to employ reasonable procedures. To reduce the risk of loss, proceeds of
telephone redemptions may be sent only (1) to the bank or brokerage account
designated by the shareholder on the Application or in a letter with the
signature(s) guaranteed; or (2) to the address of record if all the conditions
listed below are met. To change the designated brokerage or bank account it is
necessary to contact the Firm through which shares of the Fund were purchased
or, if purchased directly from the Funds, it is necessary to send a written
request to the Funds with signature(s) guaranteed as described below. Other
redemption orders must be in writing with the necessary signature(s) guaranteed
by a domestic commercial bank; a domestic trust company; a domestic savings
bank, credit union or savings association; or a member firm of a national
securities exchange. Guarantees from notaries public are unacceptable. The Funds
will waive the signature guarantee requirement for redemption requests once
every thirty (30) days if all of the following conditions apply: if the
redemption check is (1) for $5,000 or less; (2) payable to the shareholder(s) of
record; and (3) 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. Redemption instructions
and election of the plans described below may be made when your account is
opened. Subsequent elections and changes in instructions must be in writing with
the signature(s) guaranteed. Changes in registration or authorized signatories
may require additional documentation.
The Funds reserve the right to refuse a telephone redemption if they believe
it is advisable to do so. Procedures for telephone redemptions may be modified
or terminated by a Fund at any time without notice to shareholders. During times
of drastic economic or market conditions, shareholders may experience difficulty
in contacting the Funds by telephone to request a redemption or exchange of a
Fund's shares. In such cases shareholders should consider using another method
of redemption, such as a written request.
AUTOMATIC WITHDRAWAL PLANS. (Class R shares only). If you have an account with
a balance of at least $5,000, you may make a written election to participate in
either of the following: (i) an Income Distribution Plan providing for monthly,
quarterly or annual payments by redemption of shares from reinvested dividends
or distributions paid to your account during the preceding period; or (ii) a
Fixed Amount Withdrawal Plan providing for the automatic redemption of a
sufficient number of shares of your account to make a specified monthly,
quarterly or annual payment of a fixed amount. Changes to instructions must be
in writing with signature(s) guaranteed. In order for such payments to continue
under either Plan, there must be a minimum of $25 available from reinvested
dividends or distributions. Payments can be made to you or your designee. An
application for the Automatic Withdrawal Plans can be obtained from the Funds.
The amount, frequency and recipient of the payments may be changed by giving
proper written notice to the Funds. The Funds may impose a charge or modify or
terminate any Automatic Withdrawal Plan at any time after the participant has
been duly notified. This privilege may not be available to clients of some Firms
or may be available subject to conditions or limitations.
RESERVE AUTOMATIC TRANSFER PLAN. (Class R shares only). You may redeem Class R
shares of a Fund by telephone (minimum $100) without charge if you have filed a
separate Reserve Automatic Transfer Plan application with the Fund. The proceeds
will be transferred between your Fund account and the checking, NOW or bank
money-market deposit account (as permitted) designated in the application. Only
such an account maintained in a domestic financial institution which is an
Automated Clearing House member may be so designated. Redemption proceeds will
be on deposit in your account at the Automated Clearing House member bank
ordinarily two (2) Business Days after receipt of the redemption request. The
Funds may impose a charge or modify or terminate this privilege at any
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time after the participant has been duly notified. This privilege may not be
available to clients of some Firms or may be available subject to conditions or
limitations.
REDEMPTIONS THROUGH BROKERS AND FINANCIAL INSTITUTIONS. Redemptions through
brokers and financial institutions may involve such Firms' own redemption
minimums, service fees, and other redemption requirements.
RESTRICTIONS. The right of redemption may be suspended or the date of payment
postponed for more than seven (7) days only (a) when the NYSE is closed (other
than for customary closings), (b) when, as determined by the SEC, trading on the
NYSE is restricted or an emergency exists making it not reasonably practicable
to dispose of securities owned by the Fund or for it to determine fairly the
value of its net assets, or (c) for such periods as the SEC may by order permit.
If shares of a Fund are purchased by check or Reserve Automatic Transfer Plan,
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 redemptions
normally will not be transmitted until two (2) Business Days after the purchase
by wire.
GENERAL INFORMATION
JOINT OWNERSHIP. When an account is registered in the name of one person or
another, for example a husband or wife, either person is entitled to redeem
shares in the account. The Funds assume no responsibility to either joint owner
for actions taken by the other with respect to an account so registered. The
investment Application provides that persons so registering their account
indemnify and hold the Fund harmless for actions taken by either party.
BACKUP WITHHOLDING. The Funds are required by federal law to withhold 31% of
dividends and other distributions that are subject to federal income tax if (i)
a correct and certified Taxpayer Identification Number ("TIN") is not provided
for your account, (ii) you fail to certify that you have not been notified by
the IRS that you underreported taxable interest or dividend payments or (iii) a
Fund is notified by the IRS (or a broker) that the TIN provided is incorrect or
you are otherwise subject to backup withholding. Amounts withheld and forwarded
to the IRS can be credited as a payment of tax when completing your federal
income tax return. For individual shareholders, the TIN is the social security
number. However, special rules apply for certain accounts. For example, for an
account established under the Uniform Gift to Minors Act, the TIN of the minor
should be furnished. Shareholders should be aware that, under regulations
promulgated by the IRS, a Fund may be fined $50 annually for each account for
which a certified TIN is not provided or is incorrect. In the event that such a
fine is imposed, a corresponding charge will be made against the account.
REPORTS AND STATEMENTS. Shareholders receive an annual report containing
audited financial statements and an unaudited semiannual report. A statement is
mailed to each shareholder at least quarterly.
SMALL BALANCES. (Class R shares only). If a Class R shareholder account (other
than an IRA) does not achieve a balance of $2,500 within twelve (12) months, the
Funds reserve the right to impose a monthly fee (currently $5) or redeem the
account and remit the proceeds. The minimum balance requirement will be waived
if the account balance drops below $2,500 due to market depreciation. Some Firms
may establish variations of minimum balances and fee amounts if those variations
are approved by the Funds.
RESERVE EASY ACCESS. Easy Access is The Reserve Funds' 24-hour toll-free
telephone service that lets customers use a touch-tone phone to obtain price
information and account balances. To use it, call 800-637-1700 and follow the
instructions. Clients may also access full account activity for the previous six
months on the internet at www.reservefunds.com.
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), or to groups of mutual 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 other mutual funds, do not reflect sales charges, the
inclusion of which would reduce a fund's performance.
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.
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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 provide 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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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
which includes 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 U.S.
government, its agencies or other federal governmental entities.
FOREIGN GOVERNMENT SECURITIES are securities issued or guaranteed 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").
1940 ACT is the Investment Company Act of 1940, as amended.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PAGE
---
Shareholder Expenses............................ 2
Financial Highlights............................ 3
Investment Objectives and Policies.............. 7
Investment Techniques and Investments........... 9
Risk Considerations............................. 13
Management...................................... 14
How to Buy Shares............................... 16
Shares of Beneficial Interest................... 18
Taxes........................................... 18
Foreign Taxes................................... 19
Dividends and Distributions..................... 19
Redemptions..................................... 20
General Information............................. 21
Glossary........................................ 23
Investors are advised to read and retain
this Prospectus for future reference.
</TABLE>
Founders of
"America's First
Money Fund"
1250 Broadway, New York, NY 10001-3701
GENERAL INFORMATION, PURCHASES AND REDEMPTIONS
Nationwide 800-637-1700 M www.reservefunds.com
Distributor -- Resrv Partners, Inc.
RPES 04/99
