<PAGE> 1
[THE RESERVE FUNDS LOGO]
Founders of
"America's First
Money Fund"
810 Seventh Avenue, New York, NY 10019-5868
GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
800-637-1700
This literature is not authorized for distribution to prospective investors
unless preceded or accompanied by an appropriate current prospectus.
Distributor -- Resrv Partners, Inc.
[THE RESERVE FUNDS LOGO]
Founders of
"America's First
Money Fund"
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
INTERSTATE TAX-EXEMPT FUND
FOR THE SIX MONTHS ENDED
NOVEMBER 30, 1996
(UNAUDITED)
<PAGE> 2
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1996--(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
ALABAMA -- .68%
Decatur IDA for Scientific Manufacturing, 3.70%(a)........................... 2/1/2014 $ 1,000 $ 1,000,101
Pell IDA for, 3.65%(a)....................................................... 10/1/2000 1,000 1,005,915
ARIZONA -- 6.49%
Apache IDA for Tuscon Electric Power, 3.55%(a)............................... 12/15/2018 4,000 4,006,568
Apache IDA for Tuscon Electric Power, 3.60%(a)............................... 12/15/2018 1,000 1,000,098
Arizona HFA for Series 1986, 3.60%(a)........................................ 10/01/2015 1,500 1,508,859
Chandler IDA for MHR Southpark Apartment, 3.55%(a)........................... 12/01/2002 1,575 1,578,836
Coconino PCR for Tuscon Electric Power Co., Series B, 3.50%(a)............... 5/1/2031 1,000 1,002,419
Gila IDA for Cobre Valley Hospital, 3.50%(a)................................. 11/1/2025 5,300 5,315,444
Maricopa HFA for Samaritan Health, 4%(a)..................................... 12/01/2008 1,000 1,003,027
Maricopa PCR for Palo Verde, 4%(a)........................................... 5/1/2029 400 400,044
Phoenix GOB Series 1995-2, 4%(a)............................................. 6/1/2020 900 902,718
Pima HFA for Tuscon Retirement Center, 3.55%(a).............................. 1/1/2009 800 804,713
Pinal IDA for Magma Copper Project, 4%(a).................................... 12/1/2009 1,400 1,400,153
Yauapai IDA for Kachina Pointe Project, 3.55%(a)............................. 1/1/2009 300 301,768
CALIFORNIA -- 5.46%
California HFA for Sutter Health 1990 Series B, 3.95%(a)..................... 3/1/2020 200 200,021
California School Cash Reserve Program, 4.75%................................ 7/2/1997 3,000 3,074,436
Los Angeles MHR for Malibu Meadows Project Series 91-A, 3.55%(a)............. 12/1/2015 1,000 1,002,904
Los Angeles Transportation Commission Custodial Receipts, 3.85%(a)........... 7/1/2005 590 604,884
Los Angeles TRAN, 4.50%...................................................... 6/30/1997 500 511,431
San Berndino Alta Park Project, 3.70%(a)..................................... 5/1/2006 3,800 3,811,628
San Jose Redevelopment Agency, 3.40%(a)...................................... 7/1/2026 3,900 3,910,618
San Mateo TRANS, 4.50%....................................................... 7/1/1997 3,000 3,066,133
COLORADO -- 2.38%
Engelwood IDA Series 85, 3.70%(a)............................................ 12/1/2010 2,100 2,105,101
Jefferson County IDR for Kinder-Care Learning Centers Series C, 3.90%(a)..... 2/1/2001 1,700 1,700,181
Jefferson Country IDR for S.W. Medical Project Series 85, 3.70%(a)........... 11/1/2010 2,450 2,455,951
Wheat Ridge IDA for Pearse Electronics Inc. Project, 4.05%(a)................ 6/1/1999 800 801,194
CONNECTICUT -- 1.42%
Connecticut HEF for Zotos Corp, 3.80%(a)..................................... 12/1/2004 400 401,287
Connecticut HFA for Independent Living Project, 3.35%(a)..................... 7/1/2015 800 802,201
Connecticut IDR for Conco Medical Co. Project Series 85, 3.50%(a)............ 11/1/2005 600 601,375
Connecticut IDR for Western Electric Series 93, 3.45%(a)..................... 9/1/2028 300 300,838
Hartford Redevelopment Agency MHR for Underwood Towers, 3.35%(a)............. 6/1/2020 2,100 2,105,795
DISTRICT OF COLUMBIA -- .76%
Washington, D.C. Housing Finance Agency MHR for Chastleton Development
Project, 4%(a)............................................................. 7/1/1997 2,200 2,236,826
DELAWARE -- .69%
Wilmington GOB, 5%........................................................... 10/1/1997 2,000 2,038,707
FLORIDA -- 4.89%
Boca Raton IDA for Parking Garage Project, 3.825%(a)......................... 12/1/2014 2,900 2,900,308
Broward Country MHR for Welleby Apartment Project, 3.65%(a).................. 12/1/2006 700 702,104
Collier HFA, 3.50%(a)........................................................ 12/1/2015 100 100,292
Dade IDA for Dolphin Stadium Project, 3.60%(a)............................... 1/1/2016 1,400 1,404,139
Dade HFA Hospital Revenue Bonds, 3.50%(a).................................... 9/1/2025 400 400,945
Florida HFA Series 85 Oaks at Mill Creek, 3.60%(a)........................... 11/1/2007 200 200,494
Gulf Breeze Series 85 A Revenue Bonds, 3.55%(a).............................. 12/1/2015 200 200,580
Jacksonville IDR for Coastal Islands Project, 4%(a).......................... 8/1/2008 180 180,020
</TABLE>
2
<PAGE> 3
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1996--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
FLORIDA -- CONTINUED
Lee County IDA for Charter Glade Hospital Project, 3.55%(a).................. 11/1/2007 $ 4,375 $ 4,387,820
Manatee PCR for Florida Power and Light, 4.10%(a)............................ 9/1/2024 900 900,101
Palm Beach Water and Sewer Project, 4%(a).................................... 10/1/2011 900 900,098
Putnam PCR for Florida Power and Light, 4.10%(a)............................. 9/1/2024 100 100,011
St. Johns for Flagler Hospital, 3.50%(a)..................................... 8/1/2016 800 802,340
Tampa Occupational Tax Bonds, 3.50%(a)....................................... 5/1/2027 1,000 1,002,486
University of North Florida Capital Improvement Project, 3.50%(a)............ 11/1/2024 100 100,293
University of North Florida Capital Improvement Project, 3.60%(a)............ 11/1/2024 200 200,589
GEORGIA -- 3.18%
Clayton County DAI for Rivers Edge Development, 3.60%(a)..................... 8/1/2006 2,880 2,888,475
Elbert County Industrial Building Authority Revenue Bonds for Seaboard Farms
of Elberton, 3.70%(a)...................................................... 7/1/2005 1,800 1,811,186
Gwinnett County IDA for United Stationers Supply Company, 3.65%(a)........... 10/31/2002 3,800 3,811,410
Hapeville Hotel Project Development, 4.10%(a)................................ 11/1/2015 900 902,729
HAWAII -- .34%
Honolulu GOB Series A, 4.50%................................................. 1/1/1997 1,000 1,019,466
IOWA -- 2.24%
Buffalo IDA for Linwood Mining & Materials, 3.80%(a)......................... 1/1/2000 1,495 1,495,155
Iowa School Corp. Warrant Certificates Series A, 4.75%....................... 6/27/1996 5,000 5,124,614
ILLINOIS -- 2.31%
Chicago O'Hare International Airport American Airlines, 3.55%(a)............. 1/1/2015 3,000 3,000,291
Chicago O'Hare International Airport American Airlines Series 94, 4.10%(a)... 12/1/2017 2,100 2,100,235
Streamwood Olde Church Centre Project, 3.70%(a).............................. 12/1/2014 1,735 1,740,252
INDIANA -- 8.91%
Indianapolis Airport Custody Receipts Series A, 3.75%(a)..................... 7/1/2015 5,000 5,050,601
Indianapolis EDA Edgecomb Metals Co., 3.50%(a)............................... 12/1/2008 4,600 4,600,440
South Bend Football Hall of Fame Project, 3.50%(a)........................... 2/1/2019 7,950 7,973,014
Tippecanoe County PCR for Caterpillar Inc., 3.60%(a)......................... 11/1/2006 8,750 8,776,083
KANSAS -- 1.38%
Ottawa IDA for Our Own Hardware Co., 3.60%(a)................................ 10/1/2004 4,080 4,080,401
KENTUCKY -- 4.15%
Danville Multi-Lease Project Series 1987, 3.90%(a)........................... 4/1/2007 900 902,911
Jefferson School District Finance Corp GOB., 6.50%........................... 2/1/1997 750 770,054
Ohio County PCR for Big River Electric Corporation, 4.15%(a)................. 6/1/2013 4,500 4,587,738
Ohio County PCR for Big River Electric Corporation Project Series 1985,
4.15%(a)................................................................... 10/1/2015 6,000 6,020,689
LOUISIANA -- 1.87%
Ascension IDR for Borden Inc Project, 3.55%(a)............................... 12/1/2009 1,700 1,718,935
Calcasieu IDA for Olin Corp Series 93, 4.10%(a).............................. 2/1/2016 1,800 1,805,420
Louisiana Offshore Terminal Authority for Loop Inc., 4.05%(a)................ 9/1/2008 1,000 1,000,111
Louisiana PFA for Knighton PJ, 3.50%(a)...................................... 9/1/2025 1,000 1,002,429
MARYLAND -- 2.86%
Anne Arundel County Industrial Refunding Revenue Bonds for Kinder-Care
Learning Centers, 3.90%(a)................................................. 2/1/2001 2,260 2,260,241
Baltimore IDA, 3.70%(a)...................................................... 8/1/2016 2,500 2,506,428
Maryland HEF for Pooled Program Series 85A, 3.60%(a)......................... 4/1/2035 3,000 3,000,295
Montgomery County IDA for Info Systems and Network Corporation, 3.70%(a)..... 4/1/2014 700 702,194
MASSACHUSETTS -- 3.24%
Boston Water and Sewer Commission 1994 A, 3.50%(a)........................... 11/1/2024 500 501,434
Lynn BAN, 3.90%.............................................................. 2/14/1997 3,746 3,866,608
</TABLE>
3
<PAGE> 4
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1996--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
MASSACHUSETTS -- CONTINUED
Massachusetts Dedicated Income Tax Series B, 3.90%(a)........................ 12/1/1997 $ 200 $ 200,021
Massachusetts HEF for Capital Asset Program Series E, 4%(a).................. 1/1/2035 700 702,086
Massachusetts HEF for Capital Asset Program Series E, 4.05%(a)............... 1/1/2035 400 401,199
Massachusetts HEF for Harvard University, 3.45%(a)........................... 2/1/2016 400 401,127
Massachusetts IDA for Cambridge Issue, 3.35%(a).............................. 10/1/2010 1,800 1,804,975
Massachusetts IFA for Quamco Series B, 3.45%(a).............................. 9/1/2001 700 701,949
Massachusetts IFA for Academy Governor Dummer, 3.55%(a)...................... 7/1/2026 1,000 1,002,411
MICHIGAN -- 1.99%
Dearborn EDC for Oakbrook Common Project Series 1993, 3.65%(a)............... 3/1/2025 3,900 3,900,389
Michigan GOB for St. Mary Hospital Series 96A, 3.65%(a)...................... 7/1/2017 2,000 2,006,030
MINNESOTA -- 2.31%
Eagan MHR for Aspen Woods, 3.70%(a).......................................... 1/1/2026 5,580 5,597,114
New Brighton Industrial Development Refunding Revenue Bonds for Taylor
Corporation Series 1988, 5.28%(a).......................................... 11/1/1999 449 448,701
New Hope Commercial Development Revenue Bonds for National Beauty Project
Series 1994, 3.80%(a)...................................................... 5/1/2010 805 805,084
MISSOURI -- 2.88%
Cole IDA Modine Manufacturing Series 85, 3.85%(a)............................ 12/1/2015 2,940 2,958,840
Missouri HFA Series 95 C, 3.55%(a)........................................... 6/1/2022 1,200 1,203,497
Missouri State Environmental Improvement and Energy Resources Authority
Pollution Control RAW Series A, 3.65%(a)................................... 6/1/2014 3,400 3,400,341
St. Louis Industrial Development Refunding Revenue Bonds for Kinder-Care
Learning Centers, 3.90%(a)................................................. 2/1/2001 965 965,103
MONTANA -- .23%
Great Falls Commercial Development Revenue Bonds for Liberty Development
Partners Project, 3.75%(a)................................................. 12/1/2007 680 680,070
NEBRASKA -- 1.86%
Lancaster County Industrial Development Refunding Revenue Bonds for PepsiCola
Bottling Co. of Lincoln, 5.3625%(a)(b)..................................... 5/1/1998 404 404,309
Nuckolls Agnex Inc Project, 4.10%(a)......................................... 2/1/2015 5,100 5,117,091
NEW HAMPSHIRE -- 1.21%
Carroll TAN, 3.36%........................................................... 12/27/1996 3,500 3,595,527
NEW JERSEY -- 3.75%
Atlantic Highlands BAN, 4.25%................................................ 1/31/97 1,200 1,218,409
Emerson BAN, 3.57%........................................................... 2/6/1997 657 676,354
Fair Lawn BAN, 4%............................................................ 8/1/1997 1,866 1,892,657
New Brunswick Temporary Notes, 4%............................................ 12/23/1996 3,000 3,112,329
New Jersey EDA for Volvo of America Corp., 3.916%(a)......................... 12/1/2004 2,400 2,400,257
New Jersey EDA for PCR Series 95, 3.20%(a)................................... 9/1/2012 600 601,600
New Jersey Sports Expo Authority Series 92 C, 3.20%(a)....................... 9/1/2024 300 302,431
New Jersey Turnpike Authority Series 91 D, 3.35%(a).......................... 1/1/2018 900 911,673
NEW MEXICO -- .71%
Dona Ana IDR Foamex Products, 3.50%(a)....................................... 11/1/2013 2,100 2,106,065
NEW YORK -- 8.80%
MTA TRANS Series 1991, 3.55%(a).............................................. 7/1/2021 500 501,443
Nassau County BAN, 4.50%..................................................... 8/15/1997 4,000 4,053,541
New York City GOB Series B, 4.25%(a)......................................... 8/15/2020 1,500 1,500,174
New York City GOB Series B, 4.25%(a)......................................... 10/1/2020 1,100 1,100,128
New York City GOB Series B-4, 4.25%(a)....................................... 8/15/2022 1,000 1,000,116
New York City GOB Series B-4, 4.10%(a)....................................... 8/15/2023 1,000 1,000,112
New York City GOB Series B-8, 3.55%(a)....................................... 8/15/2024 6,000 6,000,582
New York City GOB Series C4-98, 4.10%(a)..................................... 8/1/1998 500 500,056
</TABLE>
4
<PAGE> 5
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1996--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
NEW YORK -- CONTINUED
New York City GOB Series E4, 4%(a)........................................... 8/1/2021 $ 1,000 $ 1,000,109
New York City Municipal Water Finance Authority Revenue Bonds, 4.25%(a)...... 6/15/2025 1,600 1,602,813
New York State HFA Liberty View Apartments Project, 3.40%.................... 11/1/2005 2,100 2,100,195
North Hempstead BAN, 4%...................................................... 2/27/1997 2,000 2,063,058
Oneida BAN Series D, 4.25%(a)................................................ 5/9/1997 1,550 1,590,254
Ulster TAN, 4.25%(a)......................................................... 3/26/1997 2,000 2,061,375
NORTH CAROLINA -- .03%
North Carolina HEF for Guilford College Project, 3.85%(a).................... 9/1/2023 100 100,297
NORTH DAKOTA -- .54%
Grand Fork, Health Care United Hospital GOB, 5.50%(a)........................ 12/1/1996 500 500,000
Minot IDR for Nash Finch Co. Project, 3.75%(a)............................... 12/1/2002 1,100 1,100,113
OHIO -- 1.52%
Brunswick IDA for Kinder-Care Learning Center Project Series A, 3.90%(a)..... 6/1/2002 425 425,045
Franklin County IDR for US Health Corp, Series 96 A, 3.60(a)................. 12/1/2021 3,000 3,001,475
Franklin County IDR Refunding Revenue Bonds for Kinder-Care Learning Center
Project Series A, 3.90%(a)................................................. 6/1/2002 1,080 1,080,115
OKLAHOMA -- .24%
Oklahoma Individual School District #1 GOB, 7%(a)............................ 12/1/1996 715 715,000
OREGON -- 1.05%
Medford HFA Rogue Valley Health, 4.10%(a).................................... 10/1/2016 1,100 1,100,123
Portland IDR for Tyerson & Son, 3.60%(a)..................................... 11/1/2007 2,000 2,005,915
PENNSYLVANIA -- 4.43%
Allegheny County HFA for Children's Hospital Series 85, 3.50%(a)............. 12/1/2015 900 905,225
Allegheny County HFA for Children's Hospital Series 90B, 3.50%(a)............ 1/1/2021 2,000 2,000,191
Butler County IDA for Lutheran Welfare Series A, 4.25%(a).................... 11/1/2026 1,700 1,715,317
Chartier Valley Industrial and Commercial Development Authority Revenue Bonds
for 1133 Penn Associates Project Series A, 3.65%(a)........................ 8/1/2007 1,664 1,668,997
Chartier Valley Industrial and Commercial Development Authority Revenue Bonds
for William Penn Project, 3.65%(a)......................................... 12/1/2016 2,400 2,407,623
Clarion County Industrial Development Authority Special Development Revenue
Bonds for Meritcare Project Series A, 3.65%(a)............................. 12/1/2012 2,100 2,106,306
Schuykill IDA for North East Power Co., 4.05%(a)............................. 12/1/2011 2,300 2,300,255
TENNESSEE -- 2.83%
Bradley IDA for Olin Corp Series 93, 4.10%(a)................................ 11/1/2017 500 501,505
Carter County IDB Seville Properties Series 1991, 3.60%(a)................... 6/15/2013 100 100,301
Chattanooga IDA for Baylor School Project 96, 3.55%(a)....................... 11/1/2016 1,000 1,000,097
Knox IDB for Loews Investment Corp., 3.75%(a)................................ 10/1/2005 500 501,588
Metropolitan Nashville/Davidson Lake Shore Estates, 3.60%(a)................. 9/1/2009 200 200,602
Stewart BAN, 4.80%........................................................... 2/15/1997 2,000 2,032,995
Tennessee School Bond Authority, 3.55%....................................... 3/1/1998 4,000 4,011,836
TEXAS -- .88%
Nueces River Authority PCR for Reynolds Inc., 4.20%(a)....................... 12/1/1999 2,600 2,600,298
UTAH -- .30%
Bountiful DAI for Bountiful Gateway Park Project, 3.75%(a)................... 12/1/1997 865 867,747
VIRGINIA -- 4.19%
Alexandria HFA for Goodwin, 4.25%(a)......................................... 10/1/2006 2,000 2,000,232
Richmond Airport Authority, 3.40%(a)......................................... 7/1/2025 1,700 1,703,976
Fairfax County Industrial Development Refunding Revenue Bonds for Kinder-Care
Learning Centers Series E, 3.90%(a)........................................ 10/1/1999 4,875 4,875,519
</TABLE>
5
<PAGE> 6
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1996--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
VIRGINIA -- CONTINUED
Virginia HFA for AHC Service, 3.70%(a)....................................... 9/1/2017 $ 3,800 $ 3,800,384
VERMONT -- .57%
Vermont GOB Temporary Notes, 4.875%.......................................... 1/15/1997 1,660 1,693,213
WASHINGTON -- 4.07%
Port of Seattle DAI for Douglas Management Corporation, 3.65%(a)............. 12/1/2005 3,200 3,209,443
Seattle PCR for Municipal Light and Power, 3.55%(a).......................... 11/1/2018 800 801,949
Snohomish Pre-refunded GOB, 7.875%........................................... 1/1/2006 3,250 3,432,913
Washington PCR for Public Power Project, 3.55%(a)............................ 7/1/2018 4,600 4,613,329
WEST VIRGINIA -- .17%
West Virginia HFA for Mid Atlantic Hospital, 3.60%(a)........................ 12/1/2025 500 501,464
WISCONSIN -- 1.52%
Dresser DAI for F&A Dairy Products Inc., 3.75%(a)............................ 9/1/1998 500 500,052
Green Bay IDA for St. Mary Cement Company Ltd., 3.65%(a)..................... 11/1/2000 4,000 4,010,068
------------
Total Interstate Fund Investments (99.33%) (Cost $292,748,242)................ 294,147,736
Other assets, less liabilities (.67%)......................................... 1,988,862
------------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
prices per share on 296,136,598 shares of beneficial interest of $.001 par
value outstanding............................................................ $ 296,136,598
============
</TABLE>
- ---------------
(a) The interest rate is subject to change periodically. The rates shown were in
effect at November 30, 1996. Securities payable on demand are collateralized
by bank letters of credit or other bank credit agreements.
(b) Private Placement -- Sale restricted to issuer.
SECURITY TYPE ABBREVIATIONS:
BAN -- Bond Anticipation Notes
CP -- Certificates of Participation
DAI -- Development Authority Industrial Development Refunding Bonds
EDA -- Economic Development Authority Revenue Bonds
EDC -- Economic Development Corporation
GOB -- General Obligation Bonds
HEF -- Health and Educational Facilities Revenue Bonds
HFA -- Health Facilities Authority Revenue Bonds
IDA -- Industrial Development Authority Revenue Bonds
IDB -- Industrial Development Board Revenue Bonds
IDR -- Industrial Development Agency Revenue Bonds
IFA -- Industrial Finance Agency Revenue Bonds
MHR -- Multifamily Housing Revenue Bonds
MTA -- Metropolitan Transportation Authority Revenue Bonds
PFA -- Public Facilities Authority
PCR -- Pollution Control Revenue Bonds
TAN -- Tax Anticipation Notes
TRAN -- Tax & Revenue Anticipation Notes
RAN -- Revenue Anticipation Notes
RAW -- Revenue Anticipation Warrants
USD -- Unified School District Bonds
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1996--(UNAUDITED)
<TABLE>
<S> <C>
INTEREST INCOME (Note 1)....................................................................... $5,384,833
----------
EXPENSES (Note 2)
Management fee............................................................................... 767,870
Shareholder servicing, administration and general office expenses............................ 325,193
Distribution assistance (Note 3)............................................................. 289,464
Equipment expense............................................................................ 53,727
Professional fees............................................................................ 37,061
Occupancy costs.............................................................................. 21,517
Stationery, printing and supplies............................................................ 36,081
Trustee fees................................................................................. 8,752
Other expenses............................................................................... 47,332
----------
Total Expenses............................................................................. 1,586,997
----------
NET INVESTMENT INCOME.......................................................................... $3,797,836
==========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS--(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1996 MAY 31, 1996
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income paid to shareholders as dividends (Note 1)...... $ (3,797,836) $ (8,935,332)
------------ --------------
FROM CAPITAL SHARE TRANSACTIONS (at net asset value of $1 per share):
Net proceeds from sale of shares...................................... 601,358,513 1,383,537,294
Net asset value of shares issued on reinvestment of dividends......... 3,797,836 8,935,332
------------ --------------
Subtotal............................................................ 605,156,349 1,392,472,626
Cost of shares redeemed............................................... (601,087,201) (1,415,637,331)
------------ --------------
Increase (decrease) in net assets derived from capital share
transactions......................................................... 4,069,148 (23,164,705)
NET ASSETS:
Beginning of period..................................................... 292,067,450 315,232,155
------------ --------------
End of period........................................................... $ 296,136,598 $ 292,067,450
============ ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
RESERVE TAX EXEMPT TRUST--INTERSTATE FUND ("TRUST")
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
------------------------------
The Trust is registered under the Investment Company Act of 1940 as a
nondiversified, open end investment company. The policies summarized below
are consistently followed in the preparation of its financial statements in
conformity with generally accepted accounting principles.
A. The Trust's shares of beneficial interest authorized are unlimited and
divided into six series, Interstate, Connecticut, Massachusetts, California,
Florida and New Jersey Funds. These financial statements and notes apply only
to the Interstate Fund ("Fund").
B. Securities are stated at value which represents amortized cost plus
interest accrued to date. Under Securities and Exchange Commission Rule 2a-7,
the Trust uses amortized cost to value the Fund, by which investments are
valued at cost and the difference between the cost of each instrument and its
value at maturity is accrued into income on a straight line basis over the
days to maturity, irrespective of intervening changes in interest rates or
market value of investments. The maturity of floating or variable rate
instruments in which the Trust may invest will be deemed to be, for floating
rate instruments (1) following, and for variable rate instruments the longer
of (1) or (2) following: (1) the notice period required before the Fund is
entitled to receive payment of the principal amount of the instrument; (2)
the period remaining until the instrument's next rate adjustment, for
purposes of Rule 2a-7 and for computing the portfolio's average weighted life
to maturity.
C. It is the Trust's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code and to distribute all income to its
shareholders. Accordingly, no Federal income tax provision is required.
D. Investments are recorded as of the date of their purchase and sale.
Interest income is determined on the basis of interest accrued, premium
amortized, and discount accreted.
E. Net investment income on investments is distributed to shareholders daily
and automatically reinvested in additional shares.
F. The Fund is charged only for its direct or allocated (in proportion to net
assets or number of shareholder accounts) share of expenses.
2. MANAGEMENT FEE, SHAREHOLDER SERVICING COSTS AND TRANSACTIONS WITH AFFILIATES:
----------------------------------------------------------------------------
Reserve Management Company, Inc. ("RMCI") manages the Interstate portfolio's
investments, as well as the investments of the Connecticut, Massachusetts,
California and New Jersey Funds of the Reserve Tax-Exempt Trust, effects
purchases and sales thereof, and absorbs certain promotional expenses. For
such services RMCI receives management fees at an annual rate of .50% of the
first $500 million, .475% of the next $500 million, .45% of the next $500
million, .425% of the next $500 million, and .40% of any excess over $2
billion of the average daily closing net assets of each Fund. Also, under the
current Service Agreement, RMCI was reimbursed $529,663 during the six months
ended November 30, 1996 for expenditures made on behalf of the Fund for
personnel, office space and equipment and shareholder accounting and
administrative services, to conduct the Fund's business. At November 30,
1996, the Fund had accrued expenses of $25,552 due to RMCI.
3. DISTRIBUTION ASSISTANCE:
-----------------------
Pursuant to a Distribution Plan, the Trust will make payments of up to .20%
per annum of the average net asset value of the Trust qualified shareholder
accounts as to which the payee or RMCI has rendered assistance in
distributing its shares.
4. INVESTMENT CONCENTRATION:
-------------------------
The Interstate Fund invests substantially all of its assets in a portfolio of
tax-exempt debt obligations primarily consisting of issuers of various
states. The issuers' abilities to meet their obligations may be affected by
economic, regional or political developments. In order to reduce the credit
risk associated with such factors, 88.15% of the Interstate Funds investments
were backed by letters of credit, bond insurance of financial institutions
and financial guaranty assurance agencies.
5. MANAGEMENT'S USE OF ESTIMATES:
--------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the dates of
the financial statements and the reported amounts of income and expenses
during the reporting periods. Actual results could differ from those
estimates.
6. COMPONENTS OF NET ASSETS:
---------------------------
At 11/30/96, the Interstate Fund's net assets consisted of $296,137 par-value
and $295,840,461 paid-in-capital.
8
<PAGE> 9
RESERVE TAX EXEMPT TRUST--INTERSTATE FUND ("TRUST")
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
------------------------
FEDERAL TAX INFORMATION
The dividends distributed by the Interstate Fund are exempt interest
dividends for Federal tax purposes.
SUPPLEMENTARY INFORMATION (UNAUDITED) (FOR ONE SHARE OUTSTANDING DURING EACH
PERIOD):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEARS ENDED MAY 31,
NOVEMBER 30, ----------------------------------------------------------------------------
INTERSTATE FUND 1996 1996 1995 1994 1993 1992
- ------------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
------- ------- ------- ------- ------- -------
Income from
investment
operations...... .0176 .0390 .0368 .0268 .0312 .0455
Expenses.......... .0052 .0105 .0103 .0103 .0104 .0106
------- ------- ------- ------- ------- -------
Net investment
income(1)....... .0124 .0285 .0265 .0165 .0208 .0349
Dividends from net
investment
income(1)....... (.0124) (.0285) (.0265) (.0165) (.0208) (.0349)
------- ------- ------- ------- ------- -------
Net asset value,
end of period... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======= ======= ======= ======= ======= =======
Total return...... 2.49%(2) 2.85% 2.65% 1.65% 2.08% 3.49%
<CAPTION>
RATIOS/SUPPLEMENTAL
DATA
<S> <C> <C> <C> <C> <C> <C>
Net assets in
thousands, end
of period....... 296,137 292,067 315,232 352,594 366,383 358,101
Ratio of expenses
to average net
assets.......... 1.03%(2) 1.04% 1.00% 1.02% 1.03% 1.03%
Ratio of net
investment
income to
average
net assets...... 2.47%(2) 2.80% 2.59% 1.63% 2.06% 3.41%
</TABLE>
- ---------------
(1) Based on compounding of daily dividend. Not indicative of future results.
(2) Annualized.
9
