<PAGE> 1
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THE
RESERVE
FUNDS
Founders of
"America's First
Money Fund"
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GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
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RTET-I/SEMI-ANNUAL 01/99
[LOGO]
THE
RESERVE
FUNDS
Founders of
"America's First
Money Fund"
-------------------------------------------------------------------------
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SEMI-ANNUAL REPORT
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RESERVE TAX-EXEMPT TRUST
INTERSTATE TAX-EXEMPT FUND
NOVEMBER 30, 1998
<PAGE> 2
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1998--(UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS -- 102.65% (NOTE 1)
--------- --------------------------------- ------------
<C> <S> <C>
ALABAMA -- .14%
Pell City IDA for General Signal Corporation, 3.50% (a),
$ 500,000 10/1/2000.................................................. $ 500,000
------------
ARIZONA -- 4.99%
Apache IDA for Tucson Electric Power Company Series 83B,
1,500,000 3.20% (a), 12/15/2018...................................... 1,500,000
Apache IDA for Tucson Electric Power Company Series 83A,
2,000,000 3.15% (a), 12/15/2018...................................... 1,900,000
1,100,000 Arizona HFA for Pooled Loan Program, 3.20% , 10/1/2015...... 1,100,000
Pima IDA PCR for Tucson Electric Project, 3.20% (a),
5,100,000 10/1/2022.................................................. 5,100,000
Pima IDA PCR for Tucson Electric Project, 3.15%,
6,500,000 10/1/2022.................................................. 6,500,000
2,225,000 Yavapai IDA for Regional Medical Center, 3.15%, 12/1/2026... 2,225,000
------------
18,325,000
------------
CALIFORNIA -- 1.72%
1,000,000 California EDA for ISO Corp. Series B, 3.20%, 4/1/2008...... 1,000,000
California School District Cash Reserves Program, 4.50%,
2,000,000 7/2/1999................................................... 2,008,543
Grand Terrace Community Redevelopment Agency, 4.70% (a),
100,000 12/1/2011.................................................. 100,000
San Francisco MFHRB for Bayside Village Series 85D, 4.60%
3,200,000 (a), 12/1/2005............................................. 3,200,000
------------
6,308,543
------------
CONNECTICUT -- 3.37%
Connecticut HEF for Yale University Series T, 2.90%,
1,000,000 7/1/2029................................................... 1,000,000
Connecticut HEF for Sharon Hospital Issue Series A, 3.00%,
1,000,000 9/1/2029................................................... 1,000,000
Connecticut HFA for Housing Mortgage Finance Program Series
1,400,000 G, 3.05%, 5/15/2018........................................ 1,400,000
Connecticut Special Tax Obligation for Second Lien, 3/10%,
1,470,000 12/1/2010.................................................. 1,470,000
Connecticut Develop. Authority HCR for Independent Living
2,600,000 Project, 2.90% (a), 7/1/2015............................... 2,600,000
Connecticut HEF for Yale University Series T, 3.80% (a),
1,000,000 7/1/2029................................................... 1,000,000
2,500,000 Connecticut State GOB Series B, 3.85% (a), 5/15/2014........ 2,500,000
Hartford Redevelopment Agency MHR for Underwood Towers
1,400,000 Project, 3.05% (a), 6/1/2020............................... 1,400,000
------------
12,370,000
------------
DISTRICT OF COLUMBIA -- 5.91%
Washington, D.C. American University, 3.15% (a),
3,065,000 10/1/2015.................................................. 3,065,000
5,000,000 Washington, D.C. Consortium Issue, 3.60%, 7/1/2023.......... 5,000,000
Washington, D.C. Housing Finance Agency RAW, 2.85%,
2,200,000 7/1/2027................................................... 2,200,000
Washington, D.C. George Washington University, 3.20%,
10,200,000 3/1/2006................................................... 10,200,000
Washington, D.C. National Children's Center, 3.20%,
1,220,000 2/1/2020................................................... 1,220,000
------------
21,685,000
------------
</TABLE>
2
<PAGE> 3
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1998--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS -- (CONTINUED) (NOTE 1)
--------- ------------------------------------- ------------
<C> <S> <C>
FLORIDA -- 4.34%
Boca Raton IDA for Parking Garage Project, 3.78% (a),
$ 1,200,000 12/1/2014.................................................. $ 1,200,000
Brevard HFA for Malabar Lakes & Park Village, 3.30%,
500,000 12/1/2010.................................................. 500,000
100,000 Dade County Hospital Revenue Bonds, 3.85% (a), 9/1/2025..... 100,000
Dade County IDA for Dolphin Stadium Project Series B, 2.90%
1,000,000 (a), 1/1/2016.............................................. 1,000,000
Dade County IDA for Dolphin Stadium Project Series D, 2.90%,
4,000,000 1/1/2016................................................... 4,000,000
Florida Local Gov't Financial Authority for Lake Wells
700,000 Medical Centers, 3.10%, 3/1/2015........................... 700,000
Gulf Breeze Series 85 A Revenue Bonds, 3.10% (a),
10,000 12/1/2015.................................................. 10,000
Jacksonville Hospital Revenue Bonds for University Medical
2,100,000 Center, 4.60% (a), 2/1/2018................................ 2,100,000
Jacksonville Hospital Revenue Bonds for University Medical
3,000,000 Center, 4.60% (a), 2/1/2019................................ 3,000,000
Orange IDA for Lake Highland Prep School, 3.10%,
2,000,000 10/1/2018.................................................. 2,000,000
Pinnellas Industrial Council -- Chi Chi Rodriguez Youth
200,000 Foundation, 3.25%, 8/1/2016................................ 200,000
1,000,000 Sarasota Bay Village Project, 3.20%, 12/1/2023.............. 1,000,000
University of North Florida HEF for Capital Improvement
100,000 Project, 3.15% (a), 11/1/2024.............................. 100,000
------------
15,910,000
------------
GEORGIA -- 2.13%
Clayton County MFHRB for Rivers Edge Development, 3.25% (a),
3,925,000 8/1/2006................................................... 3,925,000
Clayton Housing Authority for Rainwood Development, 3.53% ,
2,000,000 5/1/2006................................................... 2,000,000
Elbert County Industrial Building Authority Revenue Bonds
1,800,000 for Seaboard Farms of Elberton, 3.25% (a), 7/1/2005........ 1,800,000
Hapeville IDA for Hapeville Hotel Partnership Project, 3.25%
100,000 (a), 11/1/2015............................................. 100,000
------------
7,825,000
------------
IOWA -- 2.02%
Buffalo IDA for Linwood Mining & Materials, 4.20% (a),
805,000 1/1/2000................................................... 805,000
Des Moines Methodist System Inc. -- Iowa Methodist Med.
3,000,000 Project, 3.15%, 8/1/2015................................... 3,000,000
Iowa Finance Authority Bonds for Health Care Systems Series
3,400,000 B, 3.15% (a), 7/1/2020..................................... 3,400,000
Polk County IDA for Convalescence Center Series 88, 3.45%
200,000 (a), 1/1/2011.............................................. 200,000
------------
7,405,000
------------
ILLINOIS -- 1.94%
3,000,000 Chicago MFH for Waveland Associates, 3.45%, 11/1/2010....... 3,000,000
Illinois Health Facility Authority Revolving Fund
1,600,000 Pooled -- F, 3.10%, 8/1/2015............................... 1,600,000
Illinois HFA for Community Hospital Center, 3.15% (a),
900,000 10/1/2015.................................................. 900,000
Streamwood IDA for Olde Church Centre Project, 3.25% (a),
1,635,000 12/1/2014.................................................. 1,635,000
------------
7,135,000
------------
INDIANA -- 2.82%
Indiana Muni Power Authority Revenue Bonds Series A, 3.10%
1,600,000 (a), 1/1/2018.............................................. 1,600,000
Tippecanoe County PCR for Caterpillar Inc., 3.25% (a),
8,750,000 11/1/2006.................................................. 8,750,000
------------
10,350,000
------------
KANSAS -- 1.64%
6,000,000 Olathe GO Temp Notes Series A, 4.125%, 6/1/1999............. 6,010,833
------------
KENTUCKY -- .30%
Lexington Fayette Rev Bonds for Richmond Place Associate
1,100,000 Project, 3.70% (a), 4/1/2015............................... 1,100,000
------------
</TABLE>
3
<PAGE> 4
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1998--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS -- (CONTINUED) (NOTE 1)
--------- ------------------------------------- ------------
<C> <S> <C>
LOUISIANA -- .95%
$ 1,500,000 Calcasieu Parish Sales Tax District 4A, 3.10%, 1/1/2000..... $ 1,500,000
Lake Charles Harbor & Terminal District -- Citgo Pete Corp.,
1,500,000 3.20%, 8/1/2007............................................ 1,500,000
Louisiana Public Facilities Authority W. Knighton Project,
500,000 3.25% (a), 9/1/2025........................................ 500,000
------------
3,500,000
------------
MARYLAND -- 1.33%
Baltimore IDA for Mayor and City Council Project, 3.15% (a),
2,000,000 8/1/2016................................................... 2,000,000
1,000,000 Baltimore Sheppard & Enoch Hospital, 3.15%, 7/1/2021........ 1,000,000
Montgomery County IDA for Info Systems and Network
400,000 Corporation, 3.40% (a), 4/1/2014........................... 400,000
Prince George's County IDA for Frank Parsons Paper Co.,
1,500,000 3.55% (a), 1/1/2013........................................ 1,500,000
------------
4,900,000
------------
MASSACHUSETTS -- 3.10%
Boston Water & Sewer Commission Rev. Bonds, 2.75%,
500,000 11/1/2024.................................................. 500,000
1,000,000 Massachusetts HEF Capital Asset Program, 2.75%, 1/1/2001.... 1,000,000
Massachusetts HEF Brigham & Women's Hospital, 3.00%,
300,000 7/1/2017................................................... 300,000
1,100,000 Massachusetts GOB Series B, 3.05% (a), 8/1/2015............. 1,100,000
Massachusetts HEF for Harvard University, 3.00% (a),
1,087,000 2/1/2016................................................... 1,087,000
Massachusetts HEF for Partners Health Care Systems, 3.00%
600,000 (a), 7/1/2027.............................................. 600,000
Massachusetts IFA for Gordon College Series 97, 3.05% (a),
1,500,000 12/1/ 2027................................................. 1,500,000
Massachusetts IFA for Governor Dummer Academy, 3.05% (a),
700,000 7/1/2026................................................... 700,000
500,000 Massachusetts IFA for Milton Academy, 3.00% (a), 3/1/2027... 500,000
Massachusetts Muni Wholesale Electric Co., 3.00% (a),
600,000 7/1/2019................................................... 600,000
3,500,000 Ware BAN, 4.00%, 12/18/1998................................. 3,500,395
------------
11,387,395
------------
MICHIGAN -- 5.10%
Bruce Hospital Finance Authority for St. Joseph B, 3.05%,
800,000 5/11/2018.................................................. 800,000
400,000 Delta EDC for Mead-Escanaba Paper E, 3.30%, 12/1/2023....... 400,000
Farmington Hills Economic Development Corp for Carrefour,
3,025,000 3.53%, 9/1/2015............................................ 3,025,000
2,895,000 Garden City Hospital Finance Authority, 3.25%, 9/1/2026..... 2,895,000
1,700,000 Grand Rapids Water Supply System, 3.05% (a), 1/1/2020....... 1,700,000
Jackson EDC for Thrifty Leoni Inc. Project, 3.53% (a),
2,700,000 12/1/2014.................................................. 2,700,000
Michigan Hospital Finance Authority St. Mary Hospital of
400,000 Linonia, 3.10%, 7/1/2017................................... 400,000
Michigan Job Development Authority for Hitachi Metals, 3.40%
700,000 (a), 1/1/2004.............................................. 700,000
Michigan Housing Development Authority Harbortown Ltd.,
2,000,000 3.53%, 6/1/2004............................................ 2,000,000
Michigan Job Development Authority for Gordon Food Service,
2,500,000 8/1/2015................................................... 2,500,000
Royal Oak HFA for William Beaumont Hospital Series L, 3.25%,
1,600,000 1/1/2027................................................... 1,600,000
------------
18,720,000
------------
MINNESOTA -- 2.37%
5,480,000 Eagan MHR for Aspen Woods, 3.30% (a), 1/1/2026.............. 5,480,000
New Brighton Refunding Bonds for Taylor Corp. Series 1988,
321,000 4.96% (a), 11/1/1999....................................... 320,545
New Hope Commercial Dev. Bonds for Nat. Beauty Project
740,000 Series 1994, 3.45% (a), 5/1/2010........................... 740,000
New Ulm Commercial Dev. Authority for Robert H. Bradley
2,140,000 Project, 3.45% (a), 10/1/2011.............................. 2,140,000
------------
8,680,545
------------
</TABLE>
4
<PAGE> 5
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1998--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS -- (CONTINUED) (NOTE 1)
--------- ------------------------------------- ------------
<C> <S> <C>
MISSOURI -- 1.53%
Cole IDA for Mobine Manufacturing Series 85, 4.85% (a),
$ 2,000,000 12/1/2015.................................................. $ 2,000,000
Kansas IDA Hospital Revenue for Baptist Health Series 88A,
625,000 3.15% (a), 8/1/2018........................................ 625,000
Missouri State Environmental Authority RAW Series A, 3.80%
3,000,000 (a), 6/1/2014.............................................. 3,000,000
------------
5,625,000
------------
MONTANA -- .16%
Great Falls Comm. Dev. Bonds for Liberty Development
570,000 Partners, 3.70% (a), 12/1/2007............................. 570,000
------------
NEBRASKA -- 3.20%
2,900,000 Buffalo IDR for Agrex Inc. Project, 3.70%, 2/1/2015......... 2,900,000
Nebraska EFA for Creighton University Project, 3.20% (a),
3,750,000 12/15/2012................................................. 3,750,000
5,100,000 Nuckolls IDA for Agrex Inc Project, 3.70% (a), 2/1/2015..... 5,100,000
------------
11,750,000
------------
NEW JERSEY -- 10.30%
3,100,000 Burlington BAN, 3.63%, 10/18/1999........................... 3,108,557
12,500,000 East Orange BAN, 4.37%, 7/1/1999............................ 12,526,137
1,460,000 Englewood Temp Notes, 3.70%, 7/2/1999....................... 1,460,872
4,000,000 Jersey City School Promissory Note, 4.13%, 3/5/1999......... 4,005,217
New Jersey EDA for Public Service Electric and Gas Series A,
200,000 3.00% (a), 9/1/2012........................................ 200,000
New Jersey EDA for Volvo of America Corp., 3.69% (a),
1,100,000 12/1/2004.................................................. 1,100,000
New Jersey Sports Expo Authority Series C, 3.15% (a),
1,200,000 9/1/2024................................................... 1,200,000
Port Authority of New York & New Jersey, Special Obligation
1,000,000 Rev. Bonds, 3.25%, 5/1/2019................................ 1,000,000
1,350,000 Rutgers University GOB, 7.00% (a), 5/1/2019................. 1,394,638
1,000,000 Trenton School Temporary Note, 3.70%, 3/10/1999............. 1,000,312
8,000,000 Vernon School District Temp Notes, 3.50%, 5/4/1999.......... 8,014,800
2,800,000 Vernon School District Temp Notes, 3.20%, 12/3/1999......... 2,803,248
------------
37,813,781
------------
NEW YORK -- 14.06%
4,300,000 Babylon UFSD TAN, 3.75%, 6/28/1999.......................... 4,302,847
5,000,000 Harrison CSD TAN, 3.75%, 6/30/1999.......................... 5,003,324
1,000,000 New York City GOB Series A4, 3.35% (a), 8/1/2022............ 1,000,000
1,750,000 New York City GOB Series F2, 2.90% (a), 2/15/2012........... 1,750,000
2,400,000 New York City GOB Series E5, 3.30% (a), 8/1/2018............ 2,400,000
1,700,000 New York City GOB Series E5, 3.30% (a), 8/1/2009............ 1,700,000
3,350,000 New York City GOB Series E2, 3.30% (a), 8/1/2020............ 3,350,000
5,000,000 New York City GOB Series A7, 3.30% (a), 8/1/2020............ 5,000,000
3,200,000 New York City COP, 3.20%, 12/9/1998......................... 3,200,000
2,000,000 New York City COP, 3.20%, 12/9/1998......................... 2,000,000
New York State Energy R&D Central Hudson Gas & Elec. Corp.
1,200,000 3.25%, 2/1/2029............................................ 1,200,000
New York State R&D Authority for NY Electric, 3.25%,
500,000 2/1/2029................................................... 500,000
3,234,405 North Hempstead BAN, 3.50%, 10/29/1998...................... 3,243,327
2,642,000 Oyster Bay BAN, 4.00%, 4/30/1999............................ 2,645,451
6,000,000 Riverhead CSD TAN 3.75%, 6/25/1999.......................... 6,003,565
5,000,000 Rochester BAN, 3.75%, 3/9/1999.............................. 5,002,329
3,300,000 Williamson CSD RAN, 3.70%, 6/25/1999........................ 3,301,062
------------
51,601,905
------------
NORTH DAKOTA -- .16%
600,000 Minot IDR for Finance Project, 4.20% (a), 12/1/2002......... 600,000
------------
</TABLE>
5
<PAGE> 6
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1998--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS -- (CONTINUED) (NOTE 1)
--------- ------------------------------------- ------------
<C> <S> <C>
OHIO -- 5.46%
Brunswick IDA for Kinder-Care Learning Centers Project
$ 325,000 Series A, 3.45% (a), 6/1/2002.............................. $ 325,000
Claremont Hospital Facilities Revenue for Mercy Health
900,000 Systems, 3.10% (a), 12/1/2021.............................. 900,000
Columbus ERD for Electric Systems Revenue Bonds, 3.30% (a),
700,000 9/1/2009................................................... 700,000
Cuyahoga IDA for Allen Group Project, 3.10% (a),
900,000 12/1/2015.................................................. 900,000
1,400,000 Cuyahoga IDA for Cleveland Clinic, 1/1/2016................. 1,400,000
900,000 Cuyahoga IDA for Edgecomb Metals Co., 3.40% (a), 9/1/2009... 900,000
Franklin County Bonds for Kinder-Care Project Series A,
1,080,000 3.45% (a), 6/1/2002........................................ 1,080,000
Franklin County Hospital Revenue for US Health Corp Series
3,500,000 A, 3.15% (a), 12/1/2021.................................... 3,440,000
Lucas County HFR for Lutheran Homes Society Project, 3.15%
900,000 (a), 11/1/2019............................................. 900,000
Mohoning Hospital Facilities Revenue for Forum Health Group
2,800,000 Series B, 3.15%(a), 12/1/2028.............................. 2,800,000
2,100,000 Ohio COP, 2.90%, 3/9/1999................................... 2,100,000
Ottawa Hospital Facilities Luther Home of Mercy Project,
1,580,000 3.30%, 10/1/2017........................................... 1,580,000
Sharonville IDA for Edgecomb Metals Inc., 3.10% (a),
1,610,000 11/1/2009.................................................. 1,610,000
Toledo Special Obligation Assessment Notes, 3.15%,
1,400,000 12/1/1998.................................................. 1,400,000
------------
20,035,000
------------
OKLAHOMA -- .95%
3,500,000 Oklahoma IDA for Christian College, 4.63% (a), 7/1/2015..... 3,500,000
------------
OREGON -- 1.61%
2,000,000 Oregon Series 73F, 3.15%, 12/1/2017......................... 2,000,000
3,900,000 Portland MFR for South Park Project, 3.10% (a), 12/1/2011... 3,900,000
------------
5,900,000
------------
PENNSYLVANIA -- 7.13%
Allegheny Hospital Dev. Auth. for Children's Hospital Series
800,000 B, 3.35% (a), 12/1/2015.................................... 800,000
Allegheny Hospital Dev. Auth. for Allegheny Hospital Series
1,400,000 B, 4.00% (a), 9/1/2010..................................... 1,400,000
Allegheny Hospital Dev. Auth. for Allegheny Hospital Series
3,000,000 B, 4.00% (a), 9/1/2010..................................... 3,000,000
Allegheny University Project Series 85, 3.00% (a),
900,000 7/1/2015................................................... 900,000
Chartier Valley IDA Bonds for 1133 Penn Ave. Series A, 3.30%
564,000 (a), 8/1/2007.............................................. 564,000
Clarion County IDA Bonds for Meritcare Project Series A,
700,000 3.30% (a), 12/1/2012....................................... 700,000
1,800,000 Dallastown Area School District GOB, 3.29% (a), 2/1/2018.... 1,800,000
Dauphin General Authority Revenue Bonds, 3.29% (a),
100,000 11/1/2017.................................................. 100,000
Delaware IDA PCR for Philadelphia Electric Company, 3.30%
400,000 (a), 8/1/2016.............................................. 400,000
Delaware Valley Finance Authority Rev. Bonds Series 85D,
3,350,000 3.05% (a), 12/1/2020....................................... 3,350,000
Delaware Valley Regional Financing Authority Revenue Bonds
1,000,000 Series B, 3.05%, 12/1/2020................................. 1,000,000
Emmaus GOB Local Government Revenue Bonds, 3.15% (a),
4,000,000 12/1/2028.................................................. 4,000,000
Northeastern HEF Wyoming Valley HCF Revenue Bonds, 3.10%
200,000 (a), 1/1/2024.............................................. 200,000
Philadelphia MHR for Harbor View Tower Project, 3.30% (a),
2,250,000 11/1/2027.................................................. 2,250,000
2,500,000 Philadelphia TRAN, 4.25%, 6/30/1999......................... 2,508,564
2,000,000 Sayre Health Care Facilities, 3.20%, 12/1/2020.............. 2,000,000
1,200,000 York General Authority Pooled Financing, 3.25%, 9/1/2026.... 1,200,000
------------
26,172,564
------------
PUERTO RICO -- .54%
Puerto Rico Electric Power Authority Series 11, 3.03% (a),
500,000 7/1/2022................................................... 500,000
Puerto Rico Highway & Transportation Authority, 2.75%,
1,500,000 7/1/2028................................................... 1,500,000
------------
2,000,000
------------
SOUTH CAROLINA -- .62%
South Carolina HFA for Waverly Place Project, 3.15% (a),
2,270,000 11/1/2007.................................................. 2,270,000
------------
</TABLE>
6
<PAGE> 7
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1998--(UNAUDITED)--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS -- (CONTINUED) (NOTE 1)
--------- ------------------------------------- ------------
<C> <S> <C>
TENNESSEE -- .34%
Chattanooga IDA for Baylor School Project, 3.20% (a),
$ 375,000 11/1/2016.................................................. $ 375,000
Franklin HEF for Franklin Health Care Center, 5.00% (a),
865,000 6/1/2005................................................... 865,000
------------
1,240,000
------------
TEXAS -- 1.58%
Harris HCF for Greater Houston Project, 3.20% (a),
1,700,000 11/1/2025.................................................. 1,700,000
Midlothian IDC for Box-Crow Cement Co. Project, 3.15%,
1,400,000 12/1/2009.................................................. 1,400,000
Texas Small Business IDC for Public Access Project, 3.20%
2,700,000 (a), 7/1/2026.............................................. 2,700,000
------------
5,800,000
------------
UTAH -- 1.85%
1,300,000 Emery County PCR for Pacificorp Project, 3.10%, 7/1/2015.... 1,300,000
Salt Lake City IDR for Parkview Plaza Project, 3.28% (a),
5,475,000 12/1/2014.................................................. 5,475,000
------------
6,775,000
------------
VIRGINIA -- 2.68%
375,000 Bristol IDA for Healthcare Center, 5.00%, 3/1/2010.......... 375,000
Capital Region Airport Commission for Richmond International
1,000,000 Airport, 3.05%, 7/1/2025................................... 1,000,000
3,960,000 Hampton MHR for Avalon at Hampton, 3.10%, 6/15/2026......... 3,960,000
Louisa IDA for Pooled Financing Municipal Bond Fund, 3.20%,
1,900,000 1/1/2020................................................... 1,900,000
Lynchburg IDA HRB for VHA Mid Atlantic States Inc., 3.60%,
1,000,000 12/1/2025.................................................. 1,000,000
Newport News MHR for Newport -- Oxford Project, 3.45%,
200,000 11/1/2006.................................................. 200,000
Waynesborough IDA for Residential Care Facilities, 3.35%,
1,400,000 12/1/2028.................................................. 1,400,000
------------
9,835,000
------------
WASHINGTON -- 2.23%
Port of Seattle IDC for Douglas Management Corporation,
3,200,000 3.35% (a), 12/1/2005....................................... 3,200,000
Washington Public Power Supply System Number 3 Rev. Ref.
5,000,000 Bonds, 3.00%, 7/1/2018..................................... 5,000,000
------------
8,200,000
------------
WISCONSIN -- 3.59%
Green Bay IDA for St. Mary Cement Company Ltd., 4.00% (a),
3,500,000 11/1/2000.................................................. 3,500,000
1,000,000 Wisconsin GOB, 6.50%, 5/1/1999.............................. 1,021,034
8,650,000 Wisconsin COP, 3.20%, 2/9/1999.............................. 8,650,000
------------
13,171,034
------------
WYOMING -- .49%
Sweetwater County IDA PCR for Pacificorp Project Series A,
1,800,000 3.05% (a), 7/1/2015........................................ 1,800,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS (COST $376,899,416)....................... 102.65% 376,771,600
OTHER ASSETS, LESS LIABILITIES.............................. (2.65) (9,730,206)
------ ------------
NET ASSETS.................................................. 100.00% $367,041,394
====== ============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE, BASED ON
367,041,394 SHARES OF BENEFICIAL INTEREST, $.001 PAR VALUE
OUTSTANDING......................................................... $1.00
---
---
</TABLE>
- ---------------
(a) The interest rate is subject to change periodically. The rates shown were in
effect at November 30, 1998. Securities payable on demand are collateralized
by bank letters of credit or other bank credit agreements.
7
<PAGE> 8
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--NOVEMBER 30, 1998--(UNAUDITED)--(CONTINUED)
SECURITY TYPE ABBREVIATIONS:
<TABLE>
<S> <C> <C>
BAN -- Bond Anticipation Notes
COP -- Certificates of Participation
CSD -- Central School District
DAI -- Development Authority Industrial Development Refunding Bonds
EDA -- Economic Development Authority Revenue Bonds
EDC -- Economic Development Corporation
EFA -- Economic Finance Authority
ERD -- Energy Research and Development Authority
GOB -- General Obligation Bonds
HCF -- Health Care Facility
HCR -- Housing Corporation Revenue Bonds
HDA -- Hospital Development Authority
HAD -- Housing Development Authority
HEF -- Health and Educational Facilities Revenue Bonds
HEFA -- Health & Education Facilities Authority
HFA -- Health Facilities Authority Revenue Bonds
HFA -- Hospital Finance Authority
HFA -- Housing Finance Authority
HFDC -- Housing Finance Development Corp
HFR -- Health Facilities Revenue Bonds
HRB -- Hospital Revenue Bonds
IDA -- Industrial Development Authority Revenue Bonds
IDC -- Industrial Development Corporation Revenue Bonds
IDR -- Industrial Development Agency Revenue Bonds
IFA -- Industrial Finance Agency Revenue Bonds
MFHRB -- Multi-family Housing Revenue Bonds
MHR -- Multi-family Housing Revenue Bonds
PCR -- Pollution Control Revenue Bonds
RAN -- Revenue Anticipation Notes
RAW -- Revenue Anticipation Warrants
TRAN -- Tax & Revenue Anticipation Notes
UFSD -- Union Free School District
USD -- Unified School District Bonds
VHA -- Veterans' Hospital Administration
VHA -- Veterans' Housing Authority
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1998--(UNAUDITED)
<TABLE>
<S> <C>
INTEREST INCOME (Note 1).................................... $6,583,225
----------
EXPENSES (Note 2)
Management fee............................................ 934,893
Shareholder servicing, administration and general office
expenses................................................ 387,508
Distribution assistance (Note 2).......................... 356,454
Equipment expense......................................... 54,345
Professional fees......................................... 54,201
Occupancy costs........................................... 19,918
Stationery, printing and supplies......................... 31,587
Trustee fees.............................................. 2,677
Other expenses............................................ 28,204
----------
Total Expenses.......................................... 1,869,787
----------
NET INVESTMENT INCOME, representing increase in Net Assets
from Investment Operations................................ $4,713,438
==========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1998* MAY 31, 1998
------------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income paid to shareholders as dividends
(Note 1).............................................. $ (4,713,438) $ (9,250,843)
------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS (at net asset value of
$1.00 per share):
Net proceeds from sale of shares........................ 740,895,658 1,583,012,502
Dividends reinvested.................................... 4,713,438 9,250,843
Cost of shares redeemed................................. (731,436,559) (1,545,546,354)
------------- ---------------
Net increase in net assets derived from capital share
transactions and from investment operations........... 14,172,537 46,716,991
NET ASSETS:
Beginning of period....................................... 352,868,857 306,151,866
------------- ---------------
End of period............................................. $ 367,041,394 $ 352,868,857
============= ===============
</TABLE>
- ---------------
* Unaudited.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND ("TRUST")
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
The Reserve Tax-Exempt Trust (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 authorized shares of beneficial interest are unlimited and
divided into nine (9) series: Interstate, California, Connecticut, Florida,
Massachusetts, Michigan, New Jersey, Ohio and Pennsylvania Tax-Exempt Funds.
These financial statements and notes apply only to the Interstate Tax-Exempt
Fund ("Fund").
B. Securities are valued at amortized cost which approximates market value.
The amortized cost method values a security at cost plus accrued interest at
the time of purchase, and thereafter assumes a constant amortization to
maturity of any discount or premium, irrespective of intervening changes in
interest rates or market values. Pursuant to Rule 2a-7, for the purpose of
computing the average-weighted life to maturity, floating or variable rate
instruments, in which the Fund may invest, will be deemed to be: (1) the
notice period required before the Fund is entitled to receive payment of
principal or, (2) the period remaining until the instrument's next interest
rate adjustment.
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. Security transactions are recorded on a trade date basis; interest income
is accrued daily and security premium or discount is amortized or accreted
daily.
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 AND OTHER TRANSACTIONS WITH AFFILIATES:
--------------------------------------------------------
Pursuant to an Investment Management Agreement (the "Agreement") between
Reserve Management Company, Inc. ("RMCI") and the Fund, RMCI serves as the
Fund's Investment Adviser subject to the direction of the Board of Trustees.
Under the Agreement, RMCI is responsible for the supervision of the
day-to-day operations of the Fund. RMCI manages the Fund's investments,
effects purchases and sales thereof, and absorbs certain promotional
expenses. For its services as Investment Adviser, RMCI receives a management
fee 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 net assets of
the Fund.
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 Fund's qualified shareholder
accounts as to which the payee or RMCI has rendered assistance in
distributing its shares.
(3) INVESTMENT CONCENTRATION:
---------------------------
The Fund invests substantially all of its assets in a portfolio of
tax-exempt debt obligations issued by states, territories and possessions of
the United States. The issuers' ability to meet their obligations may be
affected by economic, regional or political developments. In order to reduce
the credit risk associated with such factors, 75.10% of the Fund's
investments were backed by letters of credit, bond insurance of financial
institutions and financial guaranty assurance agencies.
(4) 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.
(5) COMPONENTS OF NET ASSETS:
-----------------------------
At November 30, 1998, the Fund's net assets consisted of $367,041 par-value
and $366,674,353 paid-in-capital.
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(6) FINANCIAL HIGHLIGHTS:
----------------------
Contained below is per share operating performance data for a share of
beneficial interest outstanding for each of the periods indicated. The
information should be read in conjunction with the accompanying financial
data and related notes.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED FISCAL YEARS ENDED MAY 31,
NOVEMBER 30, ----------------------------------------------------
1998(A) 1998 1997 1996 1995 1994
------------ ---- ---- ---- ---- ----
<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
------- -------- -------- -------- -------- --------
Net investment income...................... .0127 .0279 .0256 .0285 .0265 .0165
Dividends from net investment income....... (.0127) (.0279) (.0256) (.0285) (.0265) (.0165)
------- -------- -------- -------- -------- --------
Net asset value, end of period............. $1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======= ======== ======== ======== ======== ========
Total return............................... 2.57%(b) 2.79% 2.56% 2.85% 2.65% 1.65%
RATIOS/SUPPLEMENTAL DATA
-------------------------------------------
Net assets end of period (millions)........ $ 367.0 $ 352.9 $ 306.2 $ 292.1 $ 315.2 $ 352.6
Ratio of expenses to average net assets.... 1.00%(b) .97% 1.04% 1.04% 1.00% 1.02%
Ratio of net investment income to average
net assets............................... 2.52%(b) 2.75% 2.52% 2.80% 2.59% 1.63%
</TABLE>
- ---------------
(a) Unaudited.
(b) Annualized.
------------------------
FEDERAL TAX INFORMATION
The dividends distributed by the Fund are exempt interest dividends for
Federal tax purposes.
------------------------
11
