<PAGE>
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GENERAL INFORMATION AND 24-HOUR YIELD AND BALANCE INFORMATION
800-637-1700
This literature is not authorized for distribution to prospective investors
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Distributor--Resrv Partners, Inc.
RTET/INTER/ANNUAL 07/00
[LOGO]
ANNUAL REPORT
INTERSTATE TAX-EXEMPT FUND
MAY 31, 2000
<PAGE>
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--MAY 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS--104.3% (NOTE 1)
--------- ------------------------------ --------
<C> <S> <C>
ALASKA--1.1%
$ 3,000,000 North Slope Boro, Series A, 5.55%, 6/30/00 (b).......... $ 3,003,610
------------
ARIZONA--2.3%
1,000,000 Apache County IDA for Tucson Electric Power Company,
4.10%, 12/1/20 (a)...................................... 1,000,000
540,000 Avondale IDA for National Health Investors, 4.35%,
12/1/14 (a)............................................. 540,000
1,000,000 Maricopa County PCR for Arizona Public Service, 4.35%,
5/1/29 (a).............................................. 1,000,000
3,700,000 Pinal County PCR for Magma Copper, 4.35%, 12/1/09 (a)... 3,700,000
------------
6,240,000
------------
CALIFORNIA--2.1%
100,000 California HFAR for Adventist Health Systems, 4.05%,
8/1/21 (a).............................................. 100,000
630,000 California HFA, 3.50%, 7/15/13 (a)...................... 630,000
600,000 California School Financing Corp. for Capital
Improvement Fing., 3.80%, 7/1/22 (a).................... 600,000
1,000,000 Hayward MFH for Shorewood, 3.90%, 8/1/14 (a)............ 1,000,000
2,400,000 Los Angeles County Transport Community STRB, 3.85%,
7/1/05 (a).............................................. 2,400,000
900,000 San Francisco City & County Redev. Agency, 3.40%,
12/1/17 (a)............................................. 900,000
------------
5,630,000
------------
COLORADO--2.6%
2,800,000 Arapahoe School District #5 for Cherry Creek TAN, 4.25%,
6/30/00................................................. 2,801,146
2,230,000 Arvada URAB for Arvada City, 5.00%, 9/1/00 (b).......... 2,235,707
900,000 Broomfield IDA for Buckeye Investments Project, 4.45%,
12/1/09 (a)............................................. 900,000
850,000 Denver Airport, Series B, 4.30%, 12/1/20 (a)............ 850,000
400,000 Smith Creek Metro District, 4.40%, 10/1/35 (a).......... 400,000
------------
7,186,853
------------
CONNECTICUT--1.4%
400,000 Connecticut Special Tax Transportation Infrastructure
Second Lien Revenue Bonds, 4.10%, 12/1/10 (a) .......... 400,000
500,000 Connecticut HEFA for Gaylord Hospital, Series A, 3.95%,
7/1/20 (a).............................................. 500,000
1,895,000 Connecticut HEFA for Charlotte Hungerford, Series C,
4.10%, 7/1/13 (a)....................................... 1,895,000
1,100,000 Hartford Redev. Agency MFH for Underwood Towers Project,
4.05%, 6/1/20 (a)....................................... 1,100,000
------------
3,895,000
------------
DISTRICT OF COLUMBIA--1.5%
2,000,000 Washington, D.C. General Fund Recovery, Series B-3,
4.50%, 6/1/03 (a)....................................... 2,000,000
2,200,000 Washington, D.C. HFA for MFH Chastleton, 3.50%, 7/1/27
(a)..................................................... 2,200,000
------------
4,200,000
------------
FLORIDA--8.5%
500,000 Dade County HFAR for Miami Children's Hospital, 4.15%,
9/1/25 (a).............................................. 500,000
1,400,000 Dade County IDA for Dolphin Stadium Project, Series C,
4.10%, 1/1/16 (a)....................................... 1,400,000
100,000 Florida Gulf Coast for University of Florida, COP,
4.45%, 8/1/27 (a)....................................... 100,000
700,000 Florida HFA for Multifamily Lake, 4.40%, 6/1/07 (a)..... 700,000
10,000 Gulf Breeze, Series 85 A Revenue Bonds, 4.30%, 12/1/15
(a)..................................................... 10,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--MAY 31, 2000 (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS (CONTINUED) (NOTE 1)
--------- ---------------------------------- --------
<C> <S> <C>
FLORIDA (CONTINUED)
$ 400,000 Martin County PCR for Florida Power & Light, 4.30%,
9/1/24 (a).............................................. $ 400,000
2,100,000 Martin County PCR for Florida Power & Light, 4.40%,
7/15/22 (a)............................................. 2,100,000
1,700,000 Miami Dade County School Board COP, 4.25%, 8/1/00 (b)... 1,700,820
1,000,000 Orange HFAR for Adventist Health Systems, 4.40%,
11/15/14 (a)............................................ 1,000,000
1,000,000 Pinellas Recovery, Series A, 6.60%, 10/1/00 (b)......... 1,008,040
10,000,000 Pinellas School District TAN, 4.25%, 6/30/00............ 10,004,630
1,500,000 Port St. Lucie PCR for Florida Power & Light, 4.30%,
1/1/26 (a).............................................. 1,500,000
1,580,000 Putnam Country PCR for Florida Power & Light, 4.30%,
9/1/24 (a).............................................. 1,580,000
700,000 Sarasota County HFAR for Health Care--Bay Village,
4.45%, 12/1/23 (a)...................................... 700,000
200,000 Sunshine State Governmental Fin. Commission, 4.30%,
7/1/16 (a).............................................. 200,000
400,000 University of N. Florida for Capital Improvement
Project, 4.40%, 11/1/24 (a)............................. 400,000
------------
23,303,490
------------
GEORGIA--5.5%
4,300,000 Fulton County EFA for Bridgeway Foundation, 5.75%,
6/1/15 (a).............................................. 4,300,000
1,036,706 Georgia Muni. Assoc. Pool Bd. COP, 4.35%, 12/15/20
(a)..................................................... 1,036,706
3,200,000 Hapeville IDA for Tender Hapeville Hotel, 4.45%, 11/1/05
(a)..................................................... 3,200,000
3,250,000 Macon-Bibb County IDA for I75 Business Park & Airport,
4.40%, 7/1/20 (a)....................................... 3,250,000
3,050,000 Municipal Electric Authority of Georgia, 4.25%, 8/11/00
(b)..................................................... 3,050,000
------------
14,836,706
------------
ILLINOIS--3.8%
2,000,000 Chicago O'Hare Int'l Airport, 4.35%, 12/1/17 (a)........ 2,000,000
2,500,000 Illinois DFA for Shakespeare Project, 4.33%, 1/1/19
(a)..................................................... 2,500,000
400,000 Illinois HFAR, 4.30%, 3/1/21 (a)........................ 400,000
1,700,000 Illinois HFAR for Carlyle Foundation, Series B, 4.15%,
7/1/28 (a).............................................. 1,700,000
400,000 Illinois HFAR for Swedish Convenant Hospital, 3.90%,
8/15/27 (a)............................................. 400,000
1,000,000 Illinois PCR for Commonwealth Edison, Series C, 4.10%,
3/1/09 (a).............................................. 1,000,000
500,000 McCook Illinois for St. Andrew Society-B, 4.45%, 12/1/21
(a)..................................................... 500,000
200,000 Naperville Illinois for Heritage YMCA Group, 4.25%,
12/1/29 (a)............................................. 200,000
1,525,000 Streamwood IDA for Olde Church Centre Project, 4.65%,
12/1/14 (a)............................................. 1,525,000
------------
10,225,000
------------
IOWA--0.8%
1,000,000 Des Moines HFAR for Iowa Methodist Medical Center
Project, 4.15%, 8/1/15 (a) ............................. 1,000,000
1,365,000 Polk County Hospital Equipment Revenue, 4.30%, 12/1/02
(a)..................................................... 1,365,000
------------
2,365,000
------------
INDIANA--2.4%
5,000,000 Indiana Bond Bank GO BAN, Series A-2, 4.75%, 1/18/01.... 5,018,244
1,500,000 Indiana TFA, Series A, 5.00%, 6/1/01 (b)................ 1,503,150
------------
6,521,394
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--MAY 31, 2000 (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS (CONTINUED) (NOTE 1)
--------- ---------------------------------- --------
<C> <S> <C>
KENTUCKY--2.9%
$ 5,645,000 Kentucky Asset/Liability, 4.15%, 7/12/00 (b)............ $ 5,645,000
2,235,000 Lexington Fayette Urban Residential Facilities for
Richmond Place Assoc. Project, 4.35%, 4/1/15 (a)........ 2,235,000
------------
7,880,000
------------
LOUISIANA--3.5%
1,500,000 Calcasieu Parish PCR, 4.20%, 8/1/04 (a)................. 1,500,000
1,075,000 Louisiana PFA for College & University Equipment, 4.30%,
9/1/10 (a).............................................. 1,075,000
7,000,000 Louisiana PFA, 4.00%, 6/19/20 (a)....................... 7,000,000
------------
9,575,000
------------
MAINE--1.2%
1,755,000 Maine HEFA, Series A, 4.15%, 7/1/22 (a)................. 1,755,000
1,600,000 Maine HEFA, Series B, 4.20%, 12/1/25 (a)................ 1,600,000
------------
3,355,000
------------
MARYLAND--0.9%
600,000 Baltimore IDA for Baltimore Cap Acquisition, 4.10%,
8/1/16 (a).............................................. 600,000
900,000 Maryland Health & Higher Education Authority for
Hospital Closure Issue, Series A, 4.35%, 11/1/49 (a).... 900,000
1,000,000 Maryland Health & Higher Education Authority for Pooled
Loan Program, Series A, 4.00%, 4/1/35 (a)............... 1,000,000
------------
2,500,000
------------
MASSACHUSETTS--3.0%
1,000,000 Boston WSR Series A, 4.15%, 11/1/24 (a)................. 1,000,000
1,500,000 Massachusetts Bay Transit Authority, Series B, 7.875%,
3/1/21 (b).............................................. 1,568,536
500,000 Massachusetts GO Series 97B, 5.00%, 1/1/01 (b).......... 502,041
800,000 Massachusetts GO Series A, 4.25%, 9/1/16 (a)............ 800,000
300,000 Massachusetts GO Series B, 4.30%, 8/1/15 (a)............ 300,000
100,000 Massachusetts HEFA for Brigham & Women's Hospital,
4.00%, 7/1/17 (a)....................................... 100,000
35,000 Massachusetts HEFA for Becker College, 5.10%,
7/1/09(a)............................................... 35,000
500,000 Massachusetts HEFA for Capital Asset Program, 5.00%,
1/1/01 (b).............................................. 500,000
1,200,000 Massachusetts HEFA for Capital Asset Program, Series D,
4.45%, 1/1/35(a)........................................ 1,200,000
100,000 Massachusetts HEFA for Capital Asset Program,
Series G-1, 3.75%, 1/1/19 (a)........................... 100,000
200,000 Massachusetts HEFA for Hallmark Health System,
Series B, 4.35%, 7/1/27 (a)............................. 200,000
200,000 Massachusetts HFA for Multi-Family Housing Project,
4.00%, 1/15/10 (a)...................................... 200,000
465,000 Massachusetts IDR for Lower Mills, 4.35%, 12/1/20 (a)... 465,000
140,000 Massachusetts IFA for Quemco, Series B, 4.15%, 9/1/01
(a)..................................................... 140,000
600,000 Massachusetts Water Resource Authority, Series A, 4.00%,
4/1/28 (a).............................................. 600,000
400,000 Massachusetts Water Resource Authority, Series D, 4.00%,
8/1/37 (a).............................................. 400,000
100,000 Massachusetts Wholesale Electric Power Supply System,
Series C, 4.00%, 7/1/19 (a)............................. 100,000
------------
8,210,577
------------
MICHIGAN--1.4%
900,000 Delta County EDC for MEAD Escambia Paper, Series C,
4.40%, 12/1/23 (a)...................................... 900,000
735,000 Garden City HFAR for Garden City Hospital, 4.40%, 9/1/26
(a)..................................................... 735,000
400,000 Jackson County EDC for Thrifty Leoni Inc. Project,
4.37%, 12/1/14 (a)...................................... 400,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--MAY 31, 2000 (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS (CONTINUED) (NOTE 1)
--------- ---------------------------------- --------
<C> <S> <C>
MICHIGAN (CONTINUED)
$ 200,000 Michigan HFA for St. Mary Hospital of Livonia, 4.20%,
7/1/17 (a).............................................. $ 200,000
550,000 Michigan Job Development Authority for Wyandotte Cort,
4.10%, 12/1/09 (a) ..................................... 550,000
1,000,000 Wayne State University, 4.50%, 11/15/00 (b)............. 1,001,437
------------
3,786,437
------------
MINNESOTA--3.0%
1,400,000 Cohasset for Minnesota Power & Light, 4.40%, 6/1/13
(a)..................................................... 1,400,000
4,000,000 Seaway Port Authority Duluth for St. Lawrence Cement,
4.40%, 3/1/20 (a)....................................... 4,000,000
2,650,000 St. Cloud HRB, 4.30%, 7/1/27 (a)........................ 2,650,000
------------
8,050,000
NEVADA--3.3%
9,000,000 Las Vegas Valley Water District, 4.10%, 6/6/00 (b)...... 9,000,000
------------
NEW JERSEY--4.3%
1,800,000 Bernard Township BAN, 5.15%, 5/18/01.................... 1,806,596
1,000,000 Camden Improvement Authority for Jewish Community
Center, 4.25%, 12/1/10 (a).............................. 1,000,000
700,000 Essex County Improvement Authority for the Children's
Institute, 4.20%, 2/1/20 (a)............................ 700,000
600,000 Essex County Improvement Authority, 3.85%, 12/1/25
(a)..................................................... 600,000
3,200,000 New Jersey EDA for Volvo of America Corp., 4.67%--4.78%,
12/1/04 (a)............................................. 3,200,000
700,000 New Jersey EFA for College of New Jersey, Series A,
4.10%, 7/1/29 (a)....................................... 700,000
1,000,000 New Jersey HCF for Hospital Corp. Asset, 4.05%, 7/1/35
(a)..................................................... 1,000,000
1,300,000 New Jersey Sports & Exposition Authority, Series C,
4.25%, 9/1/24 (a)....................................... 1,300,000
1,300,000 New Jersey Turnpike Authority General, Series D, 3.80%,
1/1/18 (a).............................................. 1,300,000
------------
11,606,596
------------
NEW YORK--10.8%
7,050,000 Converse County PCR, 4.05%, 6/2/00 (b).................. 7,050,000
4,000,000 MTA, Series 98, 4.80%, 6/12/00 (b)...................... 4,000,000
3,200,000 New York City GO, Series A4, 4.30%, 8/1/22 (a).......... 3,200,000
5,000,000 New York City GO, Series A7, 4.30%, 8/1/20 (a).......... 5,000,000
400,000 New York City GO, Series D, 4.05%, 2/1/20 (a)........... 400,000
1,000,000 New York City GO, Series E5, 4.30%, 8/1/17 (a).......... 1,000,000
3,100,000 New York City GO, Series E6, 4.30%, 8/1/19 (a).......... 3,100,000
1,000,000 New York State HFA, Series A, 3.80%, 3/15/27 (a)........ 1,000,000
4,600,000 Tarrytown UFSD TAN, 4.00%, 6/26/00...................... 4,601,365
------------
29,351,365
------------
NORTH CAROLINA--0.4%
1,000,000 Lenoir Country PCR for Texasgulf, 4.38%, 12/1/03 (a).... 1,000,000
------------
OHIO--3.5%
300,000 Cincinnati & Hamilton County Port Authority, EDC for
Kenwood Office Association, 4.45%, 9/1/25 (a)........... 300,000
1,000,000 Clermont County HRB for Mercy Health System, Series B,
4.85%, 9/1/20 (a)....................................... 1,001,574
500,000 Columbus Electric Systems Revenue Bonds, 4.20%, 9/1/09
(a)..................................................... 500,000
250,000 Cuyahoga County HRB, Series A, 4.35%, 1/1/16 (a)........ 250,000
1,675,000 Cuyahoga HRB for Cleveland Clinic, Series A, 4.10%,
1/1/26 (a).............................................. 1,675,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--MAY 31, 2000 (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS (CONTINUED) (NOTE 1)
--------- ---------------------------------- --------
<C> <S> <C>
OHIO (CONTINUED)
$ 350,000 Cuyahoga HRB for University Hospital Cleveland, 4.30%,
1/1/16 (a).............................................. $ 350,000
750,000 Cuyahoga IDA for Allen Group, 3.95%, 12/1/15 (a)........ 750,000
600,000 Lucas County HFR for Lutheran Homes Society Project,
4.45%, 11/1/19 (a)...................................... 600,000
1,200,000 Ohio Air Quality DAR for Timken, 4.15%, 6/1/01 (a)...... 1,200,000
300,000 Ohio Air Quality DAR for Cincinnati Gas & Electric,
4.30%, 9/1/30 (a)....................................... 300,000
400,000 Ohio WDA PCR for Cleveland Electric, Series B, 4.20%,
8/1/20 (a).............................................. 400,000
1,305,000 Ottawa Hospital Facilities Luther Home of Mercy Project,
4.45%, 10/1/17 (a)...................................... 1,305,000
710,000 Sharonville IDA for Edgecomb Metals Inc., 4.25%, 11/1/09
(a)..................................................... 710,000
------------
9,341,574
------------
OKLAHOMA--0.4%
1,000,000 Tulsa IDR for Park Chase Apartment, Series A-1, 4.25%,
12/15/29 (a)............................................ 1,000,000
------------
OREGON--0.2%
500,000 Portland MFH for South Park Block Project A, 4.25%,
12/1/11 (a)............................................. 500,000
------------
PENNSYLVANIA--11.2%
1,700,000 Allegheny HDA for Allegheny General Hospital, Series B,
4.85%, 9/1/10 (a)....................................... 1,700,000
2,100,000 Allegheny HDA for Allegheny General Hospital, Series B,
4.85%, 9/1/20 (a)....................................... 2,100,000
900,000 Allegheny HDA for Children's Hospital Pittsburgh, 4.40%,
12/1/15 (a)............................................. 900,000
1,000,000 Allegheny HDA for St Francis Health System, 4.55%,
11/1/27 (a)............................................. 1,000,000
1,500,000 Allegheny IDA for Environmental Import, 4.25%, 12/1/32
(a)..................................................... 1,500,000
500,000 Allegheny IDA, Series C, 4.40%, 7/1/27 (a).............. 500,000
1,400,000 Allegheny University of Pittsburgh Project, Series 85,
4.25%, 7/1/15 (a)....................................... 1,400,000
200,000 Allegheny University of Pittsburgh Project, Series C,
4.55%, 3/1/13 (a)....................................... 200,000
600,000 Chartier Valley IDR Bonds for 1133 Penn. Ave. Assoc.,
Series A, 4.40%, 8/1/07 (a)............................. 600,000
1,600,000 Clarion County Special Development Revenue IDA for
Meritcare Project, Series A, 4.40%, 12/1/12 (a)......... 1,600,000
500,000 Conestoga Valley School District, Series B, 7.10%,
5/1/11 (b).............................................. 512,300
1,255,000 Dallastown Area School District GO, 4.38%, 2/1/18 (a)... 1,255,000
200,000 Dauphin County General Authority Revenue Bonds, 4.38%,
11/1/17 (a)............................................. 200,000
300,000 Delaware Valley Finance Authority Rev. Bonds, Series B,
4.30%, 12/1/20 (a)...................................... 300,000
350,000 Emmaus GO Local Government Revenue Bonds, 4.15%, 12/1/28
(a)..................................................... 350,000
600,000 Emmaus GO Local Government Revenue Bonds, 4.20%, 3/1/24
(a)..................................................... 600,000
2,000,000 Franklin County IDA for Chambersburg Hospital, 4.40%,
12/1/24 (a)............................................. 2,000,000
2,000,000 Lancaster County HRB for Brethren Village, 4.38%,
6/15/20 (a)............................................. 2,000,000
3,000,000 Lancaster County GO, 4.38%, 5/1/30 (a).................. 3,000,000
3,325,000 Lehigh IDA for Allentown Airport, 4.25%, 12/1/05 (a).... 3,325,000
1,180,000 Montgomery County IDA for Girl Scouts, 4.50%, 2/1/25
(a)..................................................... 1,180,000
1,440,000 Philadelphia MFH for Harbor View Tower Project, 4.40%,
11/1/27 (a)............................................. 1,440,000
1,000,000 Sayre HCF for Cap Financing Project, Series L, 4.15%,
12/1/20 (a)............................................. 1,000,000
500,000 Washington County Higher Education Pooled Equipment,
4.35%, 11/1/05 (a)...................................... 500,000
300,000 York General Authority Pooled Financing, 4.40%, 9/1/26
(a)..................................................... 300,000
600,000 York General Authority Pooled Financing, Series A,
4.35%, 9/1/26 (a)....................................... 600,000
500,000 York IDA for Public Service Electric & Gas, Series A,
3.90%, 9/1/20 (a)....................................... 500,000
------------
30,562,300
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--MAY 31, 2000 (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS (CONTINUED) (NOTE 1)
--------- ---------------------------------- --------
<C> <S> <C>
RHODE ISLAND--1.1%
$ 3,000,000 East Providence TAN, 4.50%, 7/7/00...................... $ 3,001,074
------------
SOUTH CAROLINA--0.5%
1,285,000 South Carolina EFA for Anderson College, 4.45%, 10/1/23
(a)..................................................... 1,285,000
------------
TENNESSEE--0.4%
290,000 Chattanooga IDA for Baylor School Project, 4.40%,
11/1/16 (a)............................................. 290,000
765,000 Franklin HEFA for Franklin Health Care Center, 4.85%,
6/1/05 (a).............................................. 765,000
------------
1,055,000
------------
TEXAS--7.4%
1,010,000 Addison GO, 6.25%, 2/15/01 (b).......................... 1,023,778
5,000,000 Austin for Travis & Williamson Utilities, Series A,
4.25%, 8/11/00 (b)...................................... 5,000,000
1,700,000 Harris County HFDC for YMCA, 4.35%, 7/1/34 (a).......... 1,700,000
900,000 Midlothian IDC PCR for Box-Crow Cement Project, 4.05%,
12/1/09 (a)............................................. 900,000
1,000,000 Sabine River Authority PCR for Texas Utilities, 4.35%,
3/1/26 (a).............................................. 1,000,000
10,500,000 Texas TRAN, Series A, 4.50%, 8/31/00.................... 10,520,183
------------
20,143,961
------------
VIRGINIA--8.7%
1,900,000 Albemarle County IDA for University Virginia, 4.15%,
10/1/22 (a)............................................. 1,900,000
1,940,000 Alexandria IDA for Pooled Loan Project, Series A, 4.15%,
7/1/26 (a).............................................. 1,940,000
265,000 Bristol IDA for Healthcare Center Inc., 4.85%, 3/1/10
(a)..................................................... 265,000
2,400,000 Clarke County IDA for Winchester Medical Center, 4.30%,
1/1/30 (a).............................................. 2,400,000
1,220,000 Hampton MFH for Shoreline Apartments, 4.25%,12/1/19
(a)..................................................... 1,220,000
1,025,000 Henrico County IDA for Hermitage, 4.40%, 8/1/23 (a)..... 1,025,000
1,900,000 Loudoun County IDA for Falcons Landing, 4.10%, 11/1/28
(a)..................................................... 1,900,000
900,000 Lynchburg IDA HRB for VHA Mid Atlantic States Inc.,
4.20%, 12/1/25 (a)...................................... 900,000
850,000 Newport News MFH for Newport--Oxford Project, 4.40%,
11/1/06 (a)............................................. 850,000
5,000,000 Norfolk Airport Authority, 4.00%, 8/23/00 (b)........... 5,000,000
800,000 Richmond IDA for Ninth & Cary Association, 4.35%, 9/1/10
(a)..................................................... 800,000
300,000 Roanoke County IDA for Friendship Manor, 4.30%, 8/1/13
(a)..................................................... 300,000
5,000,000 Roanoke IDA for Carilion Health Systems, Series B,
4.45%, 7/1/27 (a)....................................... 5,000,000
250,000 Virginia College Building Authority EFA for University
Richmond, 4.35%, 11/1/22 (a)............................ 250,000
------------
23,750,000
------------
WASHINGTON--0.9%
2,400,000 Port of Seattle IDC for Douglas Management Corp., 4.45%,
12/1/05 (a)............................................. 2,400,000
------------
WEST VIRGINIA--0.4%
1,000,000 West Virginia School Building Authority, 7.25%, 7/1/15
(b)..................................................... 1,022,556
------------
WISCONSIN--0.1%
400,000 Green Bay IDA for St. Mary's Holdings, Inc., 4.40%,
11/1/00 (a)............................................. 400,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF NET ASSETS--MAY 31, 2000 (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT TAX-EXEMPT OBLIGATIONS (CONTINUED) (NOTE 1)
--------- ---------------------------------- --------
<C> <S> <C>
WYOMING--2.8%
$ 7,500,000 Sweetwater County PCR, 3.90%, 6/7/00 (b)................ $ 7,500,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS (COST $283,683,493)............... 104.3% 283,683,493
LIABILITIES, LESS OTHER ASSETS...................... (4.3) (11,739,139)
-------- ------------
NET ASSETS.......................................... 100.0% $271,944,354
======== ============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE,
BASED ON 271,944,354 SHARES OF BENEFICIAL INTEREST,
$.001 PAR VALUE OUTSTANDING................................... $1.00
============
</TABLE>
-----------------
(a) The interest rates, as reported on May 31, 2000, are subject to change
periodically. Securities payable on demand are collateralized by bank
letters of credit or other credit agreements.
(b) Securities are collateralized by letters of credit or other credit
agreements.
<TABLE>
<CAPTION>
SECURITY TYPE ABBREVIATIONS
<S> <C> <C>
BAN -- Bond Anticipation Notes
COP -- Certificate of Participation
DAR -- Development Authority Revenue Bonds
DFA -- Development Finance Authority Revenue Bonds
EDA -- Economic Development Authority Revenue Bonds
EDC -- Economic Development Corporation
EFA -- Educational Facilities Authority
GO -- General Obligation Bonds
HCF -- Health Care Facility Financing Authority
HDA -- Hospital Development Authority
HEFA -- Health & Education Facilities Authority
HFA -- Housing Finance Authority
HFAR -- Health Facilities Authority Revenue Bonds
HFDC -- Health Facilities Development Corp.
HFR -- Health Facilities Revenue Bonds
HRB -- Hospital Revenue Bonds
IDC -- Industrial Development Corporation Revenue Bonds
IDA -- Industrial Development Authority Revenue Bonds
IDR -- Industrial Development Agency Revenue Bonds
IFA -- Industrial Finance Agency Revenue Bonds
MFH -- Multi-family Housing Revenue Bonds
MTA -- Metropolitan Transportation Authority
PCR -- Pollution Control Revenue Bonds
PFA -- Public Finance Authority
STRB -- Sales Tax Revenue Bonds
TAN -- Tax Anticipation Notes
Transportation Finance Authority Highway Revenue
TFA -- Bonds
TRAN -- Tax & Revenue Anticipation Notes
UFSD -- Union Free School District
URAB -- Urban Renewal Authority Bonds
WDA -- Water Development Authority
WSR -- Water & Sewer Revenue Bonds
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2000
<TABLE>
<S> <C>
INTEREST INCOME (Note 1).......................... $10,299,118
----------
EXPENSES (Note 2)
Management fee.................................. 98,045
Comprehensive fee............................... 2,130,759
Distribution assistance......................... 572,134
Other expense................................... 59,501
----------
Total Expenses................................ 2,860,439
----------
NET INVESTMENT INCOME, representing Net Increase
in Net Assets from Investment Operations........ $7,438,679
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
RESERVE TAX-EXEMPT TRUST--INTERSTATE TAX-EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 2000 MAY 31, 1999
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS:
Net investment income................. $ 7,438,679 $ 8,590,706
--------------- ---------------
DIVIDENDS PAID TO SHAREHOLDERS FROM:
Net investment income (Note 1)........ (7,438,679) (8,590,706)
--------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS (at net asset value of $1.00 per share):
Net proceeds from sale of shares...... 1,476,564,219 1,500,543,145
Dividends reinvested.................. 7,438,679 8,590,706
Cost of shares redeemed............... (1,504,687,462) (1,569,373,790)
--------------- ---------------
Net decrease in net assets derived
from capital share transactions and
from Investment Operations.......... (20,684,564) (60,239,939)
NET ASSETS:
Beginning of year..................... 292,628,918 352,868,857
--------------- ---------------
End of year........................... $ 271,944,354 $ 292,628,918
=============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------------------------------------------------------
The Reserve Tax-Exempt Trust (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. As of May 31, 2000, the Trust's authorized shares of beneficial interest
are unlimited and divided into ten (10) series: Interstate, California II,
Connecticut, Florida, Massachusetts, Michigan, New Jersey, Ohio,
Pennsylvania and Virginia Tax-Exempt Funds. The financial statements and
notes apply only to the Interstate Tax-Exempt Fund (the "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. The maturity of floating or variable rate
instruments in which the Fund may invest will be deemed to be, for floating
rate instruments: (1) the notice period required before the Fund is
entitled to receive payment of the principal amount of the instrument, and
for variable rate instruments the longer of (1) above or (2) the period
remaining until the instrument's next interest 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 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. Net investment income is distributed to shareholders daily
and automatically reinvested in additional shares.
E. The Fund was charged only for its direct and/or allocated share of
expenses (in proportion to net assets or number of shareholder accounts).
(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, manages the Fund's investments, effects
purchases and sales thereof, and absorbs certain promotional expenses. For
its services as Investment Adviser prior to June 26, 1999, RMCI received a
management fee, calculated 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
average daily net assets of the Fund.
Effective June 26, 1999, the Fund entered into a new Investment Management
agreement with RMCI, which is substantially similar to the Investment
Management Agreement previously in effect with regard to the Fund, except
for a new comprehensive management fee. The Agreement provides that RMCI
will furnish continuous investment advisory and management services to the
Fund.
For its services, RMCI receives a fee of 0.80% per year of the average
daily net assets of the Fund. Excluded from the definition of customary
operating expenses are interest, taxes, brokerage fees, extraordinary legal
and accounting fees and expenses, and the fees of disinterested Trustees,
for which the Fund pays its direct or allocated share.
DISTRIBUTION ASSISTANCE:
---------------------------------------------------------------------------
Pursuant to a Plan of Distribution, the Trust may make assistance payments
at an annual rate of .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. For the fiscal year ended
May 31, 2000, the Fund paid $572,134 in distribution assistance.
(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 and their subdivisions. 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, 88% of the Fund's investments were backed by letters of credit,
bond insurance of financial institutions and financial guaranty assurance
agencies.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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) COMPOSITION OF NET ASSETS:
--------------------------------------------------------------------------------
At May 31, 2000, the Fund's net assets consisted of $271,944 par-value and
$271,672,410 paid-in-capital.
(6) FINANCIAL HIGHLIGHTS:
--------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of
beneficial interest outstanding for each of the periods indicated.
<TABLE>
<CAPTION>
FOR FISCAL YEARS ENDED MAY 31,
-------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment income
from investment
operations............. .0267 .0242 .0279 .0256 .0285
Less dividends from net
investment income...... (.0267) (.0242) (.0279) (.0256) (.0285)
------- ------- ------- ------- -------
Net asset value, end of
year................... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total Return............. 2.67% 2.42% 2.79% 2.56% 2.85%
RATIOS/SUPPLEMENTAL DATA
-------------------------
Net assets end of year
(millions)............. $ 271.9 $ 292.6 $ 352.9 $ 306.2 $ 292.1
Ratio of expenses to
average net assets..... 1.00% 1.00% .97% 1.04% 1.04%
Ratio of net investment
income to average net
assets................. 2.60% 2.38% 2.75% 2.52% 2.80%
</TABLE>
--------------------
FEDERAL TAX INFORMATION
--------------------
The dividends distributed by the Fund are "exempt interest dividends" for
federal tax purposes.
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Shareholders and the Board of Trustees of Reserve Tax-Exempt
Trust--Interstate Tax-Exempt Fund:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Interstate Tax-Exempt Fund (one of ten series constituting Reserve Tax-Exempt
Trust) (the "Fund") at May 31, 2000, and the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at May 31,
2000 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
July 15, 2000
13