<PAGE> 1
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.
Founders of
"America's First
Money Fund"
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SEMI-ANNUAL REPORT
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INTERSTATE TAX-EXEMPT FUND
FOR THE SIX MONTHS ENDED
NOVEMBER 30, 1997
(UNAUDITED)
<PAGE> 2
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
ALABAMA -- .63%
Decatur IDA for Scientific Manufacturing, 4.10% (a).......................... 2/1/2014 $ 1,000 $ 1,003,304
Pell City IDA for General Signal Corporation, 4% (a)......................... 10/1/2000 1,000 1,006,508
ARIZONA -- 5.43%
Apache IDA for Tucson Electric Power Company, 3.85% (a)...................... 12/15/2018 8,800 8,815,073
Apache IDA for Tucson Electric Power Company, 3.90% (a)...................... 12/15/2018 2,000 2,003,036
Apache IDA for Tucson Electric Power Company, 4.05% (a)...................... 10/1/2021 1,000 1,001,551
Pima IDA PCR for Tucson Electric Project, 3.90% (a).......................... 10/1/2022 5,600 5,617,774
CALIFORNIA -- 5.68%
California School District Cash Reserves Program Series A, 4.75%............. 7/2/1998 2,000 2,049,669
Grand Terrace Community Redevelopment Agency, 4.10% (a)...................... 12/1/2011 3,100 3,108,786
Irvine Beach Public Facilities Bonds, 3.55% (a).............................. 11/1/2010 700 701,925
Los Angeles USD TRAN, 4.50%.................................................. 6/30/1998 4,900 5,010,149
San Bernadino HFR Alta Park Project, 4.15% (a)............................... 5/1/2006 1,600 1,604,907
San Francisco Bayside Village Series 85D, 3.95% (a).......................... 12/1/2005 3,700 3,724,112
San Joaquin USD TRAN, 4.50%.................................................. 1/15/1998 1,000 1,051,743
San Jose Community Redevelopment Agency, 3.60% (a)........................... 7/1/2026 300 300,814
Union City MHR for Skylark Apartments, 4.20% (a)............................. 11/1/2007 700 701,118
COLORADO -- 2.09%
Englewood HCF for SW Medical Professional Ltd. Series 85 Series 85, 4% (a)... 12/1/2010 2,000 2,005,479
Jefferson County IDR for Kinder-Care Learning Centers Series C, 4% (a)....... 2/1/2001 1,700 1,705,503
Jefferson Country IDR for S.W. Medical Project Series 85, 4% (a)............. 11/1/2010 2,350 2,356,438
Wheat Ridge IDA for Pearse Electronics Inc. Project, 4.25% (a)............... 6/1/1999 625 638,275
CONNECTICUT -- .84%
Connecticut Development Authority Health Care Revenue Bonds for Independent
Living Project 1990 Series, 3.75% (a)...................................... 5/15/2014 1,000 1,002,951
Hartford Redevelopment Agency MHR for Underwood Towers, 3.75% (a)............ 6/1/2020 1,700 1,704,760
DISTRICT OF COLUMBIA -- 1.65%
Washington, DC Housing Finance Agency MHR for Chastleton Development Project,
3.90% (a).................................................................. 7/1/1998 2,200 2,235,672
Washington, DC HSG, 4.05% (a)................................................ 7/1/2027 3,065 3,074,287
FLORIDA -- 2.13%
Boca Raton IDA for Parking Garage Project, 4.325% (a)........................ 12/1/2014 2,600 2,626,963
Broward Country MHR for Welleby Apartment Project, 3.90% (a)................. 12/1/2006 400 401,179
Collier IDA for Retirement Housing Revenue Bonds, 3.90% (a).................. 12/1/2015 100 100,294
Dade County IDA for Dolphin Stadium Project, 3.85% (a)....................... 1/1/2016 2,800 2,808,293
Dade County Hospital Revenue Bonds Project, 3.85% (a)........................ 3/1/2025 100 100,274
Duval County HFA for Lakes of Mayport Apartment Project, 3.90% (a)........... 12/1/2009 500 501,490
Gulf Breeze Series 85 A Revenue Bonds, 4% (a)................................ 12/1/2015 200 200,591
University of North Florida HEF Capital Improvement Project, 3.90% (a)....... 11/1/2024 100 100,298
GEORGIA -- 4.33%
Clayton County DAI for Rivers Edge Development,3.95% (a)..................... 8/1/2006 2,880 2,888,679
Elbert County Industrial Building Authority Revenue Bonds for Seaboard Farms
of Elberton, 4% (a)........................................................ 7/1/2005 1,800 1,811,365
Municipal Electric Authority, 4.05% (a)...................................... 1/1/2026 9,200 9,227,877
IOWA -- 1.96%
Buffalo IDA for Linwood Mining & Materials, 4.20% (a)........................ 1/1/2000 1,165 1,169,022
Iowa School Corp. Warrant Certificates Series A, 4.50%....................... 6/26/1998 5,000 5,116,510
</TABLE>
2
<PAGE> 3
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
ILLINOIS -- 2.15%
Chicago O'Hare Airport for American Airlines, 3.85% (a)...................... 12/1/2017 $ 3,000 $ 3,009,460
Illinois HFC for Community Hospital, 3.90% (a)............................... 10/1/2015 1,400 1,409,005
Illinois HFC for Northern Trust, 3.85% (a)................................... 1/1/2022 800 802,352
Streamwood IDA for Olde Church Centre Project, 4.05% (a)..................... 12/1/2014 1,685 1,690,207
INDIANA -- 4.31%
Indianapolis Airport Custodial Receipts, 4% (a).............................. 7/1/2015 5,000 5,079,712
Tippecanoe County PCR for Caterpillar Inc., 4% (a)........................... 11/1/2006 8,750 8,778,072
KANSAS -- 1.13%
Ottawa IDA for Our Own Hardware Co., 4% (a).................................. 10/1/2004 3,630 3,641,676
KENTUCKY -- 3.30%
Ohio County PCR for Big River Electric Corporation, 4.50% (a)................ 6/1/2013 4,500 4,595,752
Ohio County PCR for Big River Electric Corporation Project Series 1985, 4.50%
(a)........................................................................ 10/1/2015 6,000 6,020,589
LOUISIANA -- 1.23%
Louisiana Public Facilities Authority W. Knighton Project, 3.80% (a)......... 9/1/2025 1,000 1,002,732
Louisiana Public Facilities Authority for College and University Equipment
and Capital Facility Revenue Bonds Series 1985, 4% (a)..................... 9/1/2010 2,950 2,958,236
MARYLAND -- 3.67%
Anne Arundel County Industrial Refunding Revenue Bonds for Kinder-Care
Learning Centers, 4% (a)................................................... 2/1/2001 2,260 2,267,316
Baltimore IDA for Mayor and City Counsel Project, 4.25% (a).................. 8/1/2016 2,300 2,306,897
Maryland HEF Pooled Loan Program Series 85A, 3.85% (a)....................... 4/1/2035 5,000 5,015,808
Maryland HEF Pooled Loan Program Series 1985A, 3.90% (a)..................... 4/1/2035 1,500 1,504,467
Montgomery County IDA for Info Systems and Network Corporation, 3.80% (a).... 4/1/2014 700 702,041
MASSACHUSETTS -- 5.47%
Boston Water and Sewer Commission Revenue Bonds 1994 A, 3.65% (a)............ 11/1/2024 300 300,851
Cohasset BAN, 4.15%.......................................................... 10/1/1998 2,000 2,018,181
Massachusetts IFA for Governor Dummer Academy, 3.75% (a)..................... 7/1/2026 1,300 1,303,296
Massachusetts IFA for Eastern Nazarene College Series 97, 3.60% (a).......... 10/1/2027 1,000 1,002,466
Massachusetts IFA for Quamco Series B, 3.60% (a)............................. 9/1/2001 400 401,112
Massachusetts IFA Water Resource Authority Series 1997, 3.65% (a)............ 4/1/2028 1,000 1,002,801
Natick Bans, 4.25%........................................................... 8/7/1998 5,000 5,078,410
Watertown BAN, 4.25%......................................................... 5/13/1998 5,000 5,122,962
Westfield BAN, 4.50%......................................................... 5/8/1998 1,300 1,335,338
MICHIGAN -- .16%
Jackson EDC for Thrifty Leoni Inc. Project, 4.075% (a)....................... 12/1/2014 500 504,875
MINNESOTA -- 2.96%
Eagan MHR for Aspen Woods, 4.40% (a)......................................... 1/1/2026 5,580 5,598,483
New Brighton Industrial Development Refunding Revenue Bonds for Taylor
Corporation Series 1988, 5.44% (a)......................................... 11/1/1999 385 386,356
New Hope Commercial Development Revenue Bonds for National Beauty Project
Series 1994, 4.20% (a)..................................................... 5/1/2010 775 777,614
New Ulm Robert H. Bradley Project Series 1997, 4.20% (a)..................... 10/1/2011 2,750 2,758,905
MISSOURI -- 2.11%
Cole IDA for Modine Manufacturing Series 85, 4.15% (a)....................... 12/1/2015 2,740 2,758,751
Missouri State Environmental Improvement and Energy Resources Authority
Pollution Control RAW Series A, 3.95% (a).................................. 6/1/2014 3,000 3,058,921
St. Louis Industrial Development Refunding Revenue Bonds for Kinder-Care
Learning Centers, 4% (a)................................................... 2/1/2001 965 968,124
MONTANA -- .20%
Great Falls Commercial Development Revenue Bonds for Liberty Development
Partners Project, 4.20% (a)................................................ 12/1/2007 625 627,108
</TABLE>
3
<PAGE> 4
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
NEBRASKA -- 1.59%
Nuckolls IDA for Agrex Inc. Project, 4.40%, (a).............................. 2/1/2015 $ 5,100 $ 5,118,255
NEVADA -- 1.25%
Clark Unlimited Tax GOB Series A, 4.05% (a).................................. 10/1/2030 4,000 4,012,121
NEW JERSEY -- 5.02%
East Rutherford BAN, 4.31%................................................... 1/23/1998 2,000 2,052,155
Fairfield BAN, 4%............................................................ 12/17/1997 2,000 2,073,844
New Jersey EDA for Volvo of America Corp., 4.378% (a)........................ 12/1/2004 1,600 1,616,147
New Jersey EDA PCR Series 95, 3.65% (a)...................................... 9/1/2012 200 200,555
New Jersey Sports Expo Authority Series 92C, 3.70% (a)....................... 9/1/2024 100 100,881
Rahway BAN, 4%............................................................... 12/23/1997 2,740 2,842,952
Trenton Temp Notes, 4%....................................................... 12/18/1997 3,000 3,114,950
Vernon Board of Education Temp Notes, 4%..................................... 1/16/1998 4,000 4,141,045
NEW MEXICO -- 3.12%
Farmington PCR Public Service Co. of New Mexico for San Juan Project, 4.15%
(a)........................................................................ 4/1/2022 10,000 10,030,439
NEW YORK -- 8.63%
Brentwood UFSD TAN, 4.25%.................................................... 6/30/1998 4,000 4,074,817
New York City GOB Series A, 3.85% (a)........................................ 8/1/2023 4,700 4,712,120
New York City GOB Series A7, 3.85% (a)....................................... 8/1/2020 1,000 1,003,127
New York City GOB Series A7, 3.85% (a)....................................... 8/1/2021 1,700 1,705,317
New York City GOB Series A10, 3.80% (a)...................................... 8/1/2016 1,000 1,003,134
New York City GOB Series E2, 3.85% (a)....................................... 8/1/2021 400 401,251
New York City GOB Series E5, 3.85% (a)....................................... 8/1/2015 500 501,564
New York City GOB Series E5, 3.85% (a)....................................... 8/1/2017 1,000 1,003,127
New York City GOB Series E6, 3.85% (a)....................................... 8/1/2019 1,500 1,504,691
North Hempstead G.O. BAN, 4.25%.............................................. 2/26/1998 4,000 4,133,142
North Hempstead G.O. Series 97B.............................................. 10/29/1998 3,487 3,505,630
Syracuse BAN Series 96A, 3.90%............................................... 12/19/1997 4,000 4,148,591
NORTH CAROLINA -- 1.19%
Mecklenburg IDA for Edgecomb Metals Co. Inc. Series 84, 3.95% (a)............ 12/1/2009 3,800 3,835,849
NORTH DAKOTA -- .34%
Minot IDR for Nash Finch Co. Project, 4.20% (a).............................. 12/1/2002 1,100 1,103,710
OHIO -- 6.16%
Brunswick IDA for Kinder-Care Learning Centers Project Series A, 4% (a)...... 6/1/2002 425 426,376
Clermont County HFR for Mercy Health System 1996A, 3.85% (a)................. 12/1/2021 1,000 1,002,940
Columbus ERD Electric Systems Revenue Bonds, 3.70% (a)....................... 9/1/2009 1,000 1,002,838
Cuyahoga IDA for Allen Group Project, 3.90% (a).............................. 12/1/2015 1,000 1,002,730
Cuyahoga HFR for Cleveland Clinic Foundation Series 1997, 3.85% (a).......... 1/1/2016 3,500 3,510,006
Cuyahoga IDA for Edgecomb Metals Co., 3.95% (a).............................. 9/1/2009 1,000 1,009,419
Franklin County IDR Bonds for Kinder-Care Learning Centers Project Series A,
4% (a)..................................................................... 6/1/2002 1,080 1,083,496
Franklin County HFR for U.S. Health Corp. of Columbus Series 1996A, 3.90%
(a)........................................................................ 12/1/2021 3,700 3,710,923
Montgomery IDA for Sister Chart Health Care, 3.90% (a)....................... 5/15/2025 1,900 1,905,601
Port Authority of Cincinnati and Hamilton County IDA for Kenwood Office
Associates Project Series 1985, 3.90% (a).................................. 9/1/2025 2,000 2,006,249
Sharonville IDA for Edgecomb Metals Inc., 3.85% (a).......................... 11/1/2009 1,610 1,615,132
Toledo Special Obligation Assessment Notes, 3.90% (a)........................ 12/1/1998 1,500 1,504,428
OREGON -- .62%
Port of Portland IDR for Tyerson & Sons, 3.95% (a)........................... 11/01/2007 2,000 2,005,984
</TABLE>
4
<PAGE> 5
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
PENNSYLVANIA -- 7.27%
Allegheny County for University of Pittsburgh Project Series 1985, 3.75%
(a)........................................................................ 7/1/2015 $ 900 $ 905,500
Allegheny County IDA for Longwood at Oakmont, 3.85% (a)...................... 7/1/2027 400 401,162
Allegheny County HCF for St. Francis Health System, 4.05% (a)................ 11/1/2027 1,000 1,001,997
Berks County TRAN, 4.375%.................................................... 12/31/1997 2,500 2,601,497
Bucks County IDA for Edgecomb Metals Co. Inc., 3.85% (a)..................... 10/1/2009 530 533,371
Chartier Valley Industrial and Commercial Development Authority Revenue Bonds
for 1133 Penn Associates Project Series A, 4% (a).......................... 8/1/2007 1,564 1,568,679
Clarion County Industrial Development Authority Special Development Revenue
Bonds for Meritcare Project Series A, 4% (a)............................... 12/1/2012 2,100 2,106,283
Delaware Valley Finance Authority Series 85, 3.75% (a)....................... 12/1/2020 1,400 1,404,123
Delaware Valley PCR for Peco Energy Corporation, 3.70%....................... 12/5/1997 700 703,193
Delaware Valley PCR for Philadelphia Electric Co., 3.75% (a)................. 8/1/2016 400 401,142
Emmaus General Authority Local Government Revenue Bonds, 3.95% (a)........... 3/1/2024 2,400 2,407,279
Northeastern HEF Wyoming Valley HCS Revenue Bonds, 3.85% (a)................. 1/1/2024 1,000 1,002,940
Pennsylvania COP, 4.25%...................................................... 7/1/1998 1,000 1,018,631
Philadelphia HEF for Kings College, 4.50% (a)................................ 11/1/1998 3,800 3,826,275
Philadelphia School District TRAN, 4.50%..................................... 6/30/1998 2,000 2,043,036
Philadelphia TRAN, 4.50%..................................................... 6/30/1998 1,000 1,021,710
Philadelphia Hospital Authority for Children's Hospital, 3.80% (a)........... 3/1/2027 400 401,160
PUERTO RICO -- .06%
Puerto Rico Electric Power Authority Series 11, 3.80% (a).................... 7/1/2022 200 203,896
TENNESSEE -- .31%
Chattanooga IDA for Baylor School Project, 3.95% (a)......................... 11/1/2016 1,000 1,003,200
TEXAS -- 2.69%
University of Texas Permanent Fund, 3.80%.................................... 12/4/1997 1,520 1,522,848
North Central HEF for YMCA for Metro Dallas, 3.95% (a)....................... 6/1/2021 4,400 4,413,272
Texas Small Business Facility for Public Capital Access Program, 4.05% (a)... 7/1/2026 2,700 2,707,634
UTAH -- 1.86%
Salt Lake City Parkview Plaza Project, 4.01% (a)............................. 12/1/2014 5,975 5,991,712
VIRGINIA -- 4.05%
Fairfax IDR for Kinder-Care Learning Centers Series E, 4% (a)................ 10/1/1999 4,875 4,890,780
Roanoke IDA for Carilion Health System, 3.75% (a)............................ 7/1/2027 4,300 4,312,529
Virginia HFR for AHC Service, 4.05% (a)...................................... 9/1/2017 3,800 3,812,285
WASHINGTON -- 1.00%
Port of Seattle DAI for Douglas Management Corporation, 4.05% (a)............ 12/1/2005 3,200 3,209,644
WISCONSIN -- 2.87%
Green Bay IDA for St. Mary Cement Company Ltd., 4.05% (a).................... 11/1/2000 4,000 4,011,233
Mukwonago School District TRAN, 4.12%........................................ 8/28/1998 5,150 5,213,683
--------------
Total Interstate Fund Investments (99.46%) (Cost $317,105,442)................ 319,631,775
Other assets, less liabilities (.54%)......................................... 1,731,457
--------------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
prices per share on 321,363,232 shares of beneficial interest of $.001 par
value outstanding............................................................ $ 321,363,232
=============
</TABLE>
- ---------------
(a) The interest rate is subject to change periodically. The rates shown were in
effect at November 30, 1997. Securities payable on demand are collateralized
by bank letters of credit or other bank credit agreements.
5
<PAGE> 6
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)--(CONTINUED)
SECURITY TYPE ABBREVIATIONS:
BAN -- Bond Anticipation Notes
DAI -- Development Authority Industrial Development Refunding Bonds
EDA -- Economic Development Authority Revenue Bonds
EDC -- Economic Development Corporation
ERD -- Energy Research and Development Authority
GOB -- General Obligation Bonds
HCF -- Health Care Facility
HCS -- Health Care Systems, Inc
HEF -- Health and Educational Facilities Revenue Bonds
HFA -- Health Facilities Authority Revenue Bonds
HFR -- Hospital Facilities 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
PCR -- Pollution Control Revenue Bonds
TRAN -- Tax & Revenue Anticipation Notes
RAN -- Revenue Anticipation Notes
RAW -- Revenue Anticipation Warrants
USD -- Unified School District Bonds
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1997--(UNAUDITED)
<TABLE>
<S> <C>
INTEREST INCOME (Note 1)....................................................................... $6,381,803
----------
EXPENSES (Note 2)
Management fee............................................................................... 850,534
Shareholder servicing, administration and general office expenses............................ 347,490
Distribution assistance (Note 3)............................................................. 322,119
Equipment expense............................................................................ 47,698
Professional fees............................................................................ 42,991
Occupancy costs.............................................................................. 1,942
Stationery, printing and supplies............................................................ 34,131
Trustee fees................................................................................. 3,067
Other expenses............................................................................... 60,894
----------
Total Expenses............................................................................. 1,710,866
----------
NET INVESTMENT INCOME.......................................................................... $4,670,937
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND ("TRUST")
STATEMENT OF CHANGES IN NET ASSETS--(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1997 MAY 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income paid to shareholders as dividends (Note 1)...... $ ( 4,670,937) $ ( 7,762,495)
------------ --------------
FROM CAPITAL SHARE TRANSACTIONS (at net asset value of $1 per share):
Net proceeds from sale of shares...................................... 804,289,894 1,254,673,650
Net asset value of shares issued on reinvestment of dividends......... 4,670,937 7,762,495
------------ --------------
Subtotal............................................................ 808,960,831 1,262,436,145
Cost of shares redeemed............................................... (793,749,465) (1,248,351,729)
------------ --------------
Increase in net assets derived from capital share transactions........ 15,211,366 14,084,416
NET ASSETS:
Beginning of period..................................................... 306,151,866 292,067,450
------------ --------------
End of period........................................................... $ 321,363,232 $ 306,151,866
============ ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
------------------------------
The Trust is registered under the Investment Company Act of 1940 as a
non-diversified, open-end investment company. The policies summarized below
are consistently followed in the preparation of its financial statements in
conformity with generally accepted accounting principles.
A. The Trust's shares of beneficial interest authorized are unlimited and
divided into seven series, Interstate, Connecticut, Massachusetts,
California, Florida, New Jersey and Pennsylvania 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, Florida,
Massachusetts, California, New Jersey and Pennsylvania 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
$538,213 during the six months ended November 30, 1997 for expenditures made
on
7
<PAGE> 8
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND ("TRUST")
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
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, 1997, the Fund had accrued expenses of $24,823 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, 74.03% 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 11/30/97, the Interstate Fund's net assets consisted of $321,363 par-value
and $321,041,869 paid-in-capital.
------------------------
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 1997 1997 1996 1995 1994 1993
- ---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<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...................... .0189 .0361 .0390 .0368 .0268 .0312
Expenses.......................... .0051 .0105 .0105 .0103 .0103 .0104
------- ------- ------- ------- ------- -------
Net investment income (1)......... .0138 .0256 .0285 .0265 .0165 .0208
Dividends from net investment
income (1)...................... (.0138) (.0256) (.0285) (.0265) (.0165) (.0208)
------- ------- ------- ------- ------- -------
Net asset value, end of period.... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======= ======= ======= ======= ======= =======
Total return...................... 2.77%(2) 2.56% 2.85% 2.65% 1.65% 2.08%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C> <C>
Net assets in thousands, end of
period.......................... 321,363 306,152 292,067 315,232 352,594 366,383
Ratio of expenses to average net
assets.......................... 1.01%(2) 1.04% 1.04% 1.00% 1.02% 1.03%
Ratio of net investment income to
average net assets.............. 2.75%(2) 2.52% 2.80% 2.59% 1.63% 2.06%
</TABLE>
- ---------------
(1) Based on compounding of daily dividend. Not indicative of future results.
(2) Annualized.
8
<PAGE> 9
American Express Money Market Account
is a cash management service offered by The
Reserve Funds through American Enterprise
Investment Services Inc., a subsidiary of
American Express Financial Corporation. Shares
offered are shares of The Reserve Funds.
AMERICAN ENTERPRISE INVESTMENT SERVICES INC.
A subsidiary of American Express Financial Corporation
IDS Tower 10
Minneapolis, Minnesota 55440
This literature is not authorized for distribution to prospective investors
unless preceded or accompanied by an appropriate current prospectus.
Distributor -- Resrv Partners, Inc.
(C) 1998 American Express Financial Corporation
All rights reserved.
[LOGO]
AMERICAN EXPRESS
MONEY MARKET
ACCOUNTS
OFFERED BY
THE RESERVE FUNDS
SEMI-ANNUAL REPORT
INTERSTATE TAX-EXEMPT FUND
FOR THE SIX MONTHS ENDED
NOVEMBER 30, 1997
(UNAUDITED)
[LOGO]
<PAGE> 10
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
ALABAMA -- .63%
Decatur IDA for Scientific Manufacturing, 4.10% (a).......................... 2/1/2014 $ 1,000 $ 1,003,304
Pell City IDA for General Signal Corporation, 4% (a)......................... 10/1/2000 1,000 1,006,508
ARIZONA -- 5.43%
Apache IDA for Tucson Electric Power Company, 3.85% (a)...................... 12/15/2018 8,800 8,815,073
Apache IDA for Tucson Electric Power Company, 3.90% (a)...................... 12/15/2018 2,000 2,003,036
Apache IDA for Tucson Electric Power Company, 4.05% (a)...................... 10/1/2021 1,000 1,001,551
Pima IDA PCR for Tucson Electric Project, 3.90% (a).......................... 10/1/2022 5,600 5,617,774
CALIFORNIA -- 5.68%
California School District Cash Reserves Program Series A, 4.75%............. 7/2/1998 2,000 2,049,669
Grand Terrace Community Redevelopment Agency, 4.10% (a)...................... 12/1/2011 3,100 3,108,786
Irvine Beach Public Facilities Bonds, 3.55% (a).............................. 11/1/2010 700 701,925
Los Angeles USD TRAN, 4.50%.................................................. 6/30/1998 4,900 5,010,149
San Bernadino HFR Alta Park Project, 4.15% (a)............................... 5/1/2006 1,600 1,604,907
San Francisco Bayside Village Series 85D, 3.95% (a).......................... 12/1/2005 3,700 3,724,112
San Joaquin USD TRAN, 4.50%.................................................. 1/15/1998 1,000 1,051,743
San Jose Community Redevelopment Agency, 3.60% (a)........................... 7/1/2026 300 300,814
Union City MHR for Skylark Apartments, 4.20% (a)............................. 11/1/2007 700 701,118
COLORADO -- 2.09%
Englewood HCF for SW Medical Professional Ltd. Series 85 Series 85, 4% (a)... 12/1/2010 2,000 2,005,479
Jefferson County IDR for Kinder-Care Learning Centers Series C, 4% (a)....... 2/1/2001 1,700 1,705,503
Jefferson Country IDR for S.W. Medical Project Series 85, 4% (a)............. 11/1/2010 2,350 2,356,438
Wheat Ridge IDA for Pearse Electronics Inc. Project, 4.25% (a)............... 6/1/1999 625 638,275
CONNECTICUT -- .84%
Connecticut Development Authority Health Care Revenue Bonds for Independent
Living Project 1990 Series, 3.75% (a)...................................... 5/15/2014 1,000 1,002,951
Hartford Redevelopment Agency MHR for Underwood Towers, 3.75% (a)............ 6/1/2020 1,700 1,704,760
DISTRICT OF COLUMBIA -- 1.65%
Washington, DC Housing Finance Agency MHR for Chastleton Development Project,
3.90% (a).................................................................. 7/1/1998 2,200 2,235,672
Washington, DC HSG, 4.05% (a)................................................ 7/1/2027 3,065 3,074,287
FLORIDA -- 2.13%
Boca Raton IDA for Parking Garage Project, 4.325% (a)........................ 12/1/2014 2,600 2,626,963
Broward Country MHR for Welleby Apartment Project, 3.90% (a)................. 12/1/2006 400 401,179
Collier IDA for Retirement Housing Revenue Bonds, 3.90% (a).................. 12/1/2015 100 100,294
Dade County IDA for Dolphin Stadium Project, 3.85% (a)....................... 1/1/2016 2,800 2,808,293
Dade County Hospital Revenue Bonds Project, 3.85% (a)........................ 3/1/2025 100 100,274
Duval County HFA for Lakes of Mayport Apartment Project, 3.90% (a)........... 12/1/2009 500 501,490
Gulf Breeze Series 85 A Revenue Bonds, 4% (a)................................ 12/1/2015 200 200,591
University of North Florida HEF Capital Improvement Project, 3.90% (a)....... 11/1/2024 100 100,298
GEORGIA -- 4.33%
Clayton County DAI for Rivers Edge Development,3.95% (a)..................... 8/1/2006 2,880 2,888,679
Elbert County Industrial Building Authority Revenue Bonds for Seaboard Farms
of Elberton, 4% (a)........................................................ 7/1/2005 1,800 1,811,365
Municipal Electric Authority, 4.05% (a)...................................... 1/1/2026 9,200 9,227,877
IOWA -- 1.96%
Buffalo IDA for Linwood Mining & Materials, 4.20% (a)........................ 1/1/2000 1,165 1,169,022
Iowa School Corp. Warrant Certificates Series A, 4.50%....................... 6/26/1998 5,000 5,116,510
</TABLE>
2
<PAGE> 11
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
ILLINOIS -- 2.15%
Chicago O'Hare Airport for American Airlines, 3.85% (a)...................... 12/1/2017 $ 3,000 $ 3,009,460
Illinois HFC for Community Hospital, 3.90% (a)............................... 10/1/2015 1,400 1,409,005
Illinois HFC for Northern Trust, 3.85% (a)................................... 1/1/2022 800 802,352
Streamwood IDA for Olde Church Centre Project, 4.05% (a)..................... 12/1/2014 1,685 1,690,207
INDIANA -- 4.31%
Indianapolis Airport Custodial Receipts, 4% (a).............................. 7/1/2015 5,000 5,079,712
Tippecanoe County PCR for Caterpillar Inc., 4% (a)........................... 11/1/2006 8,750 8,778,072
KANSAS -- 1.13%
Ottawa IDA for Our Own Hardware Co., 4% (a).................................. 10/1/2004 3,630 3,641,676
KENTUCKY -- 3.30%
Ohio County PCR for Big River Electric Corporation, 4.50% (a)................ 6/1/2013 4,500 4,595,752
Ohio County PCR for Big River Electric Corporation Project Series 1985, 4.50%
(a)........................................................................ 10/1/2015 6,000 6,020,589
LOUISIANA -- 1.23%
Louisiana Public Facilities Authority W. Knighton Project, 3.80% (a)......... 9/1/2025 1,000 1,002,732
Louisiana Public Facilities Authority for College and University Equipment
and Capital Facility Revenue Bonds Series 1985, 4% (a)..................... 9/1/2010 2,950 2,958,236
MARYLAND -- 3.67%
Anne Arundel County Industrial Refunding Revenue Bonds for Kinder-Care
Learning Centers, 4% (a)................................................... 2/1/2001 2,260 2,267,316
Baltimore IDA for Mayor and City Counsel Project, 4.25% (a).................. 8/1/2016 2,300 2,306,897
Maryland HEF Pooled Loan Program Series 85A, 3.85% (a)....................... 4/1/2035 5,000 5,015,808
Maryland HEF Pooled Loan Program Series 1985A, 3.90% (a)..................... 4/1/2035 1,500 1,504,467
Montgomery County IDA for Info Systems and Network Corporation, 3.80% (a).... 4/1/2014 700 702,041
MASSACHUSETTS -- 5.47%
Boston Water and Sewer Commission Revenue Bonds 1994 A, 3.65% (a)............ 11/1/2024 300 300,851
Cohasset BAN, 4.15%.......................................................... 10/1/1998 2,000 2,018,181
Massachusetts IFA for Governor Dummer Academy, 3.75% (a)..................... 7/1/2026 1,300 1,303,296
Massachusetts IFA for Eastern Nazarene College Series 97, 3.60% (a).......... 10/1/2027 1,000 1,002,466
Massachusetts IFA for Quamco Series B, 3.60% (a)............................. 9/1/2001 400 401,112
Massachusetts IFA Water Resource Authority Series 1997, 3.65% (a)............ 4/1/2028 1,000 1,002,801
Natick Bans, 4.25%........................................................... 8/7/1998 5,000 5,078,410
Watertown BAN, 4.25%......................................................... 5/13/1998 5,000 5,122,962
Westfield BAN, 4.50%......................................................... 5/8/1998 1,300 1,335,338
MICHIGAN -- .16%
Jackson EDC for Thrifty Leoni Inc. Project, 4.075% (a)....................... 12/1/2014 500 504,875
MINNESOTA -- 2.96%
Eagan MHR for Aspen Woods, 4.40% (a)......................................... 1/1/2026 5,580 5,598,483
New Brighton Industrial Development Refunding Revenue Bonds for Taylor
Corporation Series 1988, 5.44% (a)......................................... 11/1/1999 385 386,356
New Hope Commercial Development Revenue Bonds for National Beauty Project
Series 1994, 4.20% (a)..................................................... 5/1/2010 775 777,614
New Ulm Robert H. Bradley Project Series 1997, 4.20% (a)..................... 10/1/2011 2,750 2,758,905
MISSOURI -- 2.11%
Cole IDA for Modine Manufacturing Series 85, 4.15% (a)....................... 12/1/2015 2,740 2,758,751
Missouri State Environmental Improvement and Energy Resources Authority
Pollution Control RAW Series A, 3.95% (a).................................. 6/1/2014 3,000 3,058,921
St. Louis Industrial Development Refunding Revenue Bonds for Kinder-Care
Learning Centers, 4% (a)................................................... 2/1/2001 965 968,124
MONTANA -- .20%
Great Falls Commercial Development Revenue Bonds for Liberty Development
Partners Project, 4.20% (a)................................................ 12/1/2007 625 627,108
</TABLE>
3
<PAGE> 12
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
NEBRASKA -- 1.59%
Nuckolls IDA for Agrex Inc. Project, 4.40%, (a).............................. 2/1/2015 $ 5,100 $ 5,118,255
NEVADA -- 1.25%
Clark Unlimited Tax GOB Series A, 4.05% (a).................................. 10/1/2030 4,000 4,012,121
NEW JERSEY -- 5.02%
East Rutherford BAN, 4.31%................................................... 1/23/1998 2,000 2,052,155
Fairfield BAN, 4%............................................................ 12/17/1997 2,000 2,073,844
New Jersey EDA for Volvo of America Corp., 4.378% (a)........................ 12/1/2004 1,600 1,616,147
New Jersey EDA PCR Series 95, 3.65% (a)...................................... 9/1/2012 200 200,555
New Jersey Sports Expo Authority Series 92C, 3.70% (a)....................... 9/1/2024 100 100,881
Rahway BAN, 4%............................................................... 12/23/1997 2,740 2,842,952
Trenton Temp Notes, 4%....................................................... 12/18/1997 3,000 3,114,950
Vernon Board of Education Temp Notes, 4%..................................... 1/16/1998 4,000 4,141,045
NEW MEXICO -- 3.12%
Farmington PCR Public Service Co. of New Mexico for San Juan Project, 4.15%
(a)........................................................................ 4/1/2022 10,000 10,030,439
NEW YORK -- 8.63%
Brentwood UFSD TAN, 4.25%.................................................... 6/30/1998 4,000 4,074,817
New York City GOB Series A, 3.85% (a)........................................ 8/1/2023 4,700 4,712,120
New York City GOB Series A7, 3.85% (a)....................................... 8/1/2020 1,000 1,003,127
New York City GOB Series A7, 3.85% (a)....................................... 8/1/2021 1,700 1,705,317
New York City GOB Series A10, 3.80% (a)...................................... 8/1/2016 1,000 1,003,134
New York City GOB Series E2, 3.85% (a)....................................... 8/1/2021 400 401,251
New York City GOB Series E5, 3.85% (a)....................................... 8/1/2015 500 501,564
New York City GOB Series E5, 3.85% (a)....................................... 8/1/2017 1,000 1,003,127
New York City GOB Series E6, 3.85% (a)....................................... 8/1/2019 1,500 1,504,691
North Hempstead G.O. BAN, 4.25%.............................................. 2/26/1998 4,000 4,133,142
North Hempstead G.O. Series 97B.............................................. 10/29/1998 3,487 3,505,630
Syracuse BAN Series 96A, 3.90%............................................... 12/19/1997 4,000 4,148,591
NORTH CAROLINA -- 1.19%
Mecklenburg IDA for Edgecomb Metals Co. Inc. Series 84, 3.95% (a)............ 12/1/2009 3,800 3,835,849
NORTH DAKOTA -- .34%
Minot IDR for Nash Finch Co. Project, 4.20% (a).............................. 12/1/2002 1,100 1,103,710
OHIO -- 6.16%
Brunswick IDA for Kinder-Care Learning Centers Project Series A, 4% (a)...... 6/1/2002 425 426,376
Clermont County HFR for Mercy Health System 1996A, 3.85% (a)................. 12/1/2021 1,000 1,002,940
Columbus ERD Electric Systems Revenue Bonds, 3.70% (a)....................... 9/1/2009 1,000 1,002,838
Cuyahoga IDA for Allen Group Project, 3.90% (a).............................. 12/1/2015 1,000 1,002,730
Cuyahoga HFR for Cleveland Clinic Foundation Series 1997, 3.85% (a).......... 1/1/2016 3,500 3,510,006
Cuyahoga IDA for Edgecomb Metals Co., 3.95% (a).............................. 9/1/2009 1,000 1,009,419
Franklin County IDR Bonds for Kinder-Care Learning Centers Project Series A,
4% (a)..................................................................... 6/1/2002 1,080 1,083,496
Franklin County HFR for U.S. Health Corp. of Columbus Series 1996A, 3.90%
(a)........................................................................ 12/1/2021 3,700 3,710,923
Montgomery IDA for Sister Chart Health Care, 3.90% (a)....................... 5/15/2025 1,900 1,905,601
Port Authority of Cincinnati and Hamilton County IDA for Kenwood Office
Associates Project Series 1985, 3.90% (a).................................. 9/1/2025 2,000 2,006,249
Sharonville IDA for Edgecomb Metals Inc., 3.85% (a).......................... 11/1/2009 1,610 1,615,132
Toledo Special Obligation Assessment Notes, 3.90% (a)........................ 12/1/1998 1,500 1,504,428
OREGON -- .62%
Port of Portland IDR for Tyerson & Sons, 3.95% (a)........................... 11/01/2007 2,000 2,005,984
</TABLE>
4
<PAGE> 13
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------ ---------- -------------- --------------
<S> <C> <C> <C>
PENNSYLVANIA -- 7.27%
Allegheny County for University of Pittsburgh Project Series 1985, 3.75%
(a)........................................................................ 7/1/2015 $ 900 $ 905,500
Allegheny County IDA for Longwood at Oakmont, 3.85% (a)...................... 7/1/2027 400 401,162
Allegheny County HCF for St. Francis Health System, 4.05% (a)................ 11/1/2027 1,000 1,001,997
Berks County TRAN, 4.375%.................................................... 12/31/1997 2,500 2,601,497
Bucks County IDA for Edgecomb Metals Co. Inc., 3.85% (a)..................... 10/1/2009 530 533,371
Chartier Valley Industrial and Commercial Development Authority Revenue Bonds
for 1133 Penn Associates Project Series A, 4% (a).......................... 8/1/2007 1,564 1,568,679
Clarion County Industrial Development Authority Special Development Revenue
Bonds for Meritcare Project Series A, 4% (a)............................... 12/1/2012 2,100 2,106,283
Delaware Valley Finance Authority Series 85, 3.75% (a)....................... 12/1/2020 1,400 1,404,123
Delaware Valley PCR for Peco Energy Corporation, 3.70%....................... 12/5/1997 700 703,193
Delaware Valley PCR for Philadelphia Electric Co., 3.75% (a)................. 8/1/2016 400 401,142
Emmaus General Authority Local Government Revenue Bonds, 3.95% (a)........... 3/1/2024 2,400 2,407,279
Northeastern HEF Wyoming Valley HCS Revenue Bonds, 3.85% (a)................. 1/1/2024 1,000 1,002,940
Pennsylvania COP, 4.25%...................................................... 7/1/1998 1,000 1,018,631
Philadelphia HEF for Kings College, 4.50% (a)................................ 11/1/1998 3,800 3,826,275
Philadelphia School District TRAN, 4.50%..................................... 6/30/1998 2,000 2,043,036
Philadelphia TRAN, 4.50%..................................................... 6/30/1998 1,000 1,021,710
Philadelphia Hospital Authority for Children's Hospital, 3.80% (a)........... 3/1/2027 400 401,160
PUERTO RICO -- .06%
Puerto Rico Electric Power Authority Series 11, 3.80% (a).................... 7/1/2022 200 203,896
TENNESSEE -- .31%
Chattanooga IDA for Baylor School Project, 3.95% (a)......................... 11/1/2016 1,000 1,003,200
TEXAS -- 2.69%
University of Texas Permanent Fund, 3.80%.................................... 12/4/1997 1,520 1,522,848
North Central HEF for YMCA for Metro Dallas, 3.95% (a)....................... 6/1/2021 4,400 4,413,272
Texas Small Business Facility for Public Capital Access Program, 4.05% (a)... 7/1/2026 2,700 2,707,634
UTAH -- 1.86%
Salt Lake City Parkview Plaza Project, 4.01% (a)............................. 12/1/2014 5,975 5,991,712
VIRGINIA -- 4.05%
Fairfax IDR for Kinder-Care Learning Centers Series E, 4% (a)................ 10/1/1999 4,875 4,890,780
Roanoke IDA for Carilion Health System, 3.75% (a)............................ 7/1/2027 4,300 4,312,529
Virginia HFR for AHC Service, 4.05% (a)...................................... 9/1/2017 3,800 3,812,285
WASHINGTON -- 1.00%
Port of Seattle DAI for Douglas Management Corporation, 4.05% (a)............ 12/1/2005 3,200 3,209,644
WISCONSIN -- 2.87%
Green Bay IDA for St. Mary Cement Company Ltd., 4.05% (a).................... 11/1/2000 4,000 4,011,233
Mukwonago School District TRAN, 4.12%........................................ 8/28/1998 5,150 5,213,683
--------------
Total Interstate Fund Investments (99.46%) (Cost $317,105,442)................ 319,631,775
Other assets, less liabilities (.54%)......................................... 1,731,457
--------------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
prices per share on 321,363,232 shares of beneficial interest of $.001 par
value outstanding............................................................ $ 321,363,232
=============
</TABLE>
- ---------------
(a) The interest rate is subject to change periodically. The rates shown were in
effect at November 30, 1997. Securities payable on demand are collateralized
by bank letters of credit or other bank credit agreements.
5
<PAGE> 14
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1997--(UNAUDITED)--(CONTINUED)
SECURITY TYPE ABBREVIATIONS:
BAN -- Bond Anticipation Notes
DAI -- Development Authority Industrial Development Refunding Bonds
EDA -- Economic Development Authority Revenue Bonds
EDC -- Economic Development Corporation
ERD -- Energy Research and Development Authority
GOB -- General Obligation Bonds
HCF -- Health Care Facility
HCS -- Health Care Systems, Inc
HEF -- Health and Educational Facilities Revenue Bonds
HFA -- Health Facilities Authority Revenue Bonds
HFR -- Hospital Facilities 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
PCR -- Pollution Control Revenue Bonds
TRAN -- Tax & Revenue Anticipation Notes
RAN -- Revenue Anticipation Notes
RAW -- Revenue Anticipation Warrants
USD -- Unified School District Bonds
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1997--(UNAUDITED)
<TABLE>
<S> <C>
INTEREST INCOME (Note 1)....................................................................... $6,381,803
----------
EXPENSES (Note 2)
Management fee............................................................................... 850,534
Shareholder servicing, administration and general office expenses............................ 347,490
Distribution assistance (Note 3)............................................................. 322,119
Equipment expense............................................................................ 47,698
Professional fees............................................................................ 42,991
Occupancy costs.............................................................................. 1,942
Stationery, printing and supplies............................................................ 34,131
Trustee fees................................................................................. 3,067
Other expenses............................................................................... 60,894
----------
Total Expenses............................................................................. 1,710,866
----------
NET INVESTMENT INCOME.......................................................................... $4,670,937
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 15
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND ("TRUST")
STATEMENT OF CHANGES IN NET ASSETS--(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1997 MAY 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income paid to shareholders as dividends (Note 1)...... $ ( 4,670,937) $ ( 7,762,495)
------------ --------------
FROM CAPITAL SHARE TRANSACTIONS (at net asset value of $1 per share):
Net proceeds from sale of shares...................................... 804,289,894 1,254,673,650
Net asset value of shares issued on reinvestment of dividends......... 4,670,937 7,762,495
------------ --------------
Subtotal............................................................ 808,960,831 1,262,436,145
Cost of shares redeemed............................................... (793,749,465) (1,248,351,729)
------------ --------------
Increase in net assets derived from capital share transactions........ 15,211,366 14,084,416
NET ASSETS:
Beginning of period..................................................... 306,151,866 292,067,450
------------ --------------
End of period........................................................... $ 321,363,232 $ 306,151,866
============ ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
------------------------------
The Trust is registered under the Investment Company Act of 1940 as a
non-diversified, open-end investment company. The policies summarized below
are consistently followed in the preparation of its financial statements in
conformity with generally accepted accounting principles.
A. The Trust's shares of beneficial interest authorized are unlimited and
divided into seven series, Interstate, Connecticut, Massachusetts,
California, Florida, New Jersey and Pennsylvania 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, Florida,
Massachusetts, California, New Jersey and Pennsylvania 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
$538,213 during the six months ended November 30, 1997 for expenditures made
on
7
<PAGE> 16
RESERVE TAX-EXEMPT TRUST--INTERSTATE FUND ("TRUST")
NOTES TO FINANCIAL STATEMENTS--(UNAUDITED)--(CONTINUED)
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, 1997, the Fund had accrued expenses of $24,823 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, 74.03% 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 11/30/97, the Interstate Fund's net assets consisted of $321,363 par-value
and $321,041,869 paid-in-capital.
------------------------
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 1997 1997 1996 1995 1994 1993
- ---------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<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...................... .0189 .0361 .0390 .0368 .0268 .0312
Expenses.......................... .0051 .0105 .0105 .0103 .0103 .0104
------- ------- ------- ------- ------- -------
Net investment income (1)......... .0138 .0256 .0285 .0265 .0165 .0208
Dividends from net investment
income (1)...................... (.0138) (.0256) (.0285) (.0265) (.0165) (.0208)
------- ------- ------- ------- ------- -------
Net asset value, end of period.... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======= ======= ======= ======= ======= =======
Total return...................... 2.77%(2) 2.56% 2.85% 2.65% 1.65% 2.08%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C> <C>
Net assets in thousands, end of
period.......................... 321,363 306,152 292,067 315,232 352,594 366,383
Ratio of expenses to average net
assets.......................... 1.01%(2) 1.04% 1.04% 1.00% 1.02% 1.03%
Ratio of net investment income to
average net assets.............. 2.75%(2) 2.52% 2.80% 2.59% 1.63% 2.06%
</TABLE>
- ---------------
(1) Based on compounding of daily dividend. Not indicative of future results.
(2) Annualized.
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