<PAGE>
- -------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
(UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Tax Exempt Investments (10.83%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,500,000 County of Essex, NJ BAN 08/07/98 3.89% $ 2,504,429 MIG-1
3,000,000 County of Los Angeles, CA - Series 1997-98A 06/30/98 3.80 3,009,206 MIG-1 SP+1
2,500,000 District of Columbia, GO TRAN
LOC Morgan Guaranty & Union Bank of Switzerland 09/30/98 3.82 2,511,242 VMIG-1 SP+1
3,000,000 Ohio School District Cash Flow COPS 06/30/98 3.83 3,008,350 MIG-1 SP+1
3,000,000 Philadelphia, PA TRAN - Series A 06/30/98 3.95 3,007,071 MIG-1 SP+1
3,000,000 School District of The City of Detroit State School Aid Notes
(Wayne County) 05/01/98 3.85 3,005,684 SP+1
2,500,000 State of California RAN 06/30/98 3.80 2,507,717 MIG-1 SP+1
3,000,000 State of New Mexico 1997-98 TRAN - Series 1997 06/30/98 3.82 3,008,920 MIG-1 SP+1
------------ ------------
22,500,000 Total Other Tax Exempt Investments 22,562,619
------------ ------------
<CAPTION>
Variable Rate Demand Instruments (b) (63.84%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,735,000 Alabama HFA (Windscape Project)
LOC Amsouth Bank N.A. 12/01/03 4.25% $ 3,735,000 VMIG-1
3,700,000 Angelina & Neches River Authority of TX IDC
(TEEC Inc. Temple Inland)
LOC Credit Suisse First Boston 05/01/14 5.05 3,700,000 P1
4,085,000 Bexar County, TX HFDC (Air Force Village II) - Series 1985B
LOC Rabobank Nederland 03/01/12 4.15 4,085,000 A1+
1,570,000 Bloomington, IL Normal Airport Authority - Series 1995A 01/01/13 3.85 1,570,000 VMIG-1
2,900,000 Carlton, WI PCRB
(Wisconsin Power & Light Company Project) - Series B 09/01/05 5.05 2,900,000 P1 A1+
600,000 Chester County, PA 1997 Archdiocese of PA
LOC Corestates Bank, N.A. 07/01/27 5.00 600,000 VMIG-1
3,650,000 City & County of Denver, CO Refunding MHRB
(Cotton Wood Creek Project)
LOC General Electric Capital Corporation 04/15/14 4.30 3,650,000 A1+
6,000,000 City of Baltimore, MD (HM Investments, Ltd.) - Series 1993
LOC Barclays Bank PLC 02/01/00 4.15 6,000,000 A1+
2,000,000 City of Detroit, MI
Water Supply System RB Second Lien Bonds - Series 1995 07/01/25 4.25 2,000,000 A1+
2,000,000 Clayton County, GA MHRB (Rainwood Development Project)
LOC Bankers Trust Company 05/01/06 4.08 2,000,000 A1
2,000,000 Columbia, Alabama Industrial Development Board PCRB
(Alabama Power Project) - Series A 11/01/21 4.80 2,000,000 VMIG-1 A1+
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,000,000 Connecticut State Development Authority
(CT Light & Power Company Project) - Series 1993A
LOC Deutsche Bank A.G. 09/01/28 3.65% $ 6,000,000 VMIG-1 A1+
4,800,000 Connecticut State Special Tax Obligation RB
(Second Lien Transportation Infrastructure)
LOC Commerzbank A.G. 12/01/10 3.65 4,800,000 VMIG-1 A1+
3,000,000 County of Cuyahoga - Series 1997C (Cleveland Clinic) 01/01/26 3.65 3,000,000 VMIG-1 A1+
2,800,000 County of Franklin, OH Hospital Facilities
(Lutheran Senior City, Inc.) RB - Series 1994
LOC National Bank of Detroit 05/01/15 4.15 2,800,000 VMIG-1
5,000,000 County of Hamilton, OH Adjustable Rate Hospital Facilities RB - 1997B
MBIA Insured 01/01/18 3.70 5,000,000 VMIG-1 A1+
7,150,000 DeKalb County, GA Refunding MHRB
(Wood Hills Apartment Project) - Series 1988
LOC Bank of Montreal 12/01/07 3.75 7,150,000 A1+
1,100,000 Delaware County, PA IDA PCRB (Philadelphia Electric Co.) - Series A
LOC Toronto-Dominion Bank 08/01/16 5.05 1,100,000 P1 A1+
1,400,000 Georgetown, KY Educational Institution Improvement
(Georgetown College)
LOC PNC Bank, N.A. 06/01/04 4.25 1,400,000 VMIG-1
5,400,000 Harris County, TX Health Facilities Hospital RB
(Memorial Hospital Systems) 06/01/24 3.65 5,400,000 VMIG-1 A1+
8,800,000 Idaho HEFA (Holy Cross Health System) 12/01/23 4.15 8,800,000 VMIG-1 A1+
3,300,000 Illinois Educational Facilities Authority
(Chicago Children's Museum) - Series 1994
LOC National Bank of Detroit 02/01/28 3.80 3,300,000 VMIG-1 A1+
2,400,000 Indiana HEFA (Rehabilitation Hospital of Indiana)
LOC National Bank of Detroit 11/01/20 3.70 2,400,000 VMIG-1
3,100,000 Jacksonville, FL IDRB
(University of Florida Health Science Center) - Series 1989
LOC Barnett Bank of Jacksonville 07/01/19 4.20 3,100,000 VMIG-1
2,500,000 Maryland State IDA Economic Development RB
(Johnson Control Incorporation) 12/01/03 4.00 2,500,000 VMIG-1 A1
6,650,000 Michigan State Hospital Financial Authority Revenue
(Chelsea Community Hospital)
LOC Comerica Bank 11/15/19 4.10 6,650,000 VMIG-1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,000,000 Michigan State Strategic Fund Limited Obligation RB
(Detroit Edison Company)
LOC Barclays Bank PLC 09/01/30 5.05% $ 3,000,000 P1 A1+
13,300,000 Michigan Strategic Fund PCRB
(Consumers Power Company Project) - Series 1993A
LOC Canadian Imperial Bank of Commerce 06/15/10 5.05 13,300,000 A1+
1,100,000 Monroe County, MI EDC (Detroit Edison) - Series CC
LOC Barclays Bank PLC 10/01/24 5.05 1,100,000 P1
4,420,000 Montgomery County MD, Housing Opportunities Commission MHRB
LOC General Electric Capital Corporation 11/01/07 3.85 4,420,000 A1+
3,920,000 New Hampshire HEFA Hospital RB - Series 1995
LOC Bank of Scotland 09/01/05 4.15 3,920,000 VMIG-1
2,075,000 New Hampshire HEFA RB (Alice Peck Day Memorial Hospital)
LOC Corestates Bank, N.A. 11/01/05 3.95 2,075,000 VMIG-1
1,500,000 Pitkin County, CO IDRB (Aspen Skiing Company Project) - Series B
LOC First National Bank of Chicago 04/01/16 5.05 1,500,000 A1+
6,500,000 Royal Oak, MI Hospital Finance Authority Hospital RB
(William Beaument Hospital) - Series L 01/01/27 4.85 6,500,000 VMIG-1
1,600,000 York County, PA IDA PCRB (Philadelphia Electric Company)
LOC Toronto-Dominion Bank 08/01/16 5.05 1,600,000 P1 A1+
------------ ------------
133,055,000 Total Variable Rate Demand Instruments 133,055,000
------------ ------------
<CAPTION>
Put Bonds (10.42%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,200,000 City of Philadelphia, PA (Water & Waste Water Bonds)
AMBAC Insured 08/05/98 3.82% $ 1,200,000 VMIG-1 A1+
7,500,000 Connecticut State Special Assessment
Unemployment Compensation Advance Fund RB - Series 93C
FGIC Insured 07/01/98 3.90 7,500,000 VMIG-1 A1+
5,000,000 Intermountain Power Agency RB - Series 1985F
LOC Morgan Guaranty Trust Company 06/15/98 3.80 5,000,000 VMIG-1 A1+
2,000,000 Intermountain Power Authority Power Supply RB - Series E
LOC Swiss Bank Corporation 03/16/98 3.75 2,000,000 VMIG-1 A1+
6,010,000 Vermont State Educational & Health Building Finance Agency
(Middlebury College) 11/01/98 3.80 6,010,000 A1+
------------ ------------
21,710,000 Total Put Bonds 21,710,000
------------ ------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- -------- ------- ------
Tax Exempt Commercial Paper (15.16%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,800,000 City of Burlington, KS RB
(Kansas City Power Light Company Project) - Series B
LOC Deutsche Bank A.G. 02/05/98 3.70% $ 2,800,000 P1 A1+
3,000,000 City of Burlington, KS PCRB
(Kansas City Power & Light Company) - Series 1997A
LOC Deutsche Bank A.G. 01/21/98 3.65 3,000,000 P1 A1+
5,300,000 City of Burlington, KS PCRB
(Kansas City Power & Light Company) - Series 1997A
LOC Toronto-Dominion Bank 02/18/98 3.70 5,300,000 A1+
2,000,000 Connecticut HEFA (Yale University) - Series O 02/05/98 3.60 2,000,000 VMIG-1 A1+
3,100,000 Intermountain Power Agency
LOC Swiss Bank Corporation 02/25/98 3.75 3,100,000 VMIG-1 A1+
10,000,000 Intermountain Power Authority
LOC Swiss Bank Corporation 02/11/98 3.75 10,000,000 VMIG-1 A1+
2,000,000 Maricopa County, AZ Pollution Control Corp.(Southern CA Edison)02/25/98 3.80 2,000,000
3,400,000 Rochester, MN Health Care Mayo Foundation
(Mayo Medical Center) - Series C 01/21/98 3.70 3,400,000 P1 A1+
------------ ------------
31,600,000 Total Tax Exempt Commercial Paper 31,600,000
------------ ------------
Total Investments (100.25%) (Cost $208,927,619+) 208,927,619
Liabilities in Excess of Cash and Other Assets (-0.25%) ( 510,782)
------------
Net Assets (100.00%) 208,420,083 Shares Outstanding (Note 3) $208,416,837
============
Net Asset Value, offering and redemption price per share $ 1.00
============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
FOOTNOTES:
(a) Unless the variable rate demand instruments are assigned their own ratings,
the ratings are those of the holding company of the bank whose letter of
credit guarantees the issue or the insurance company who insures the issue.
All letters of credit and insurance are irrevocable and direct pay covering
both principal and interest. Certain issuers have either a line of credit,
a liquidity facility, a standby purchase agreement or some other financing
mechanism to ensure the remarketing of the securities. This is not a
guarantee and does not serve to insure or collateralize the issue.
(b) Interest rates are adjustable on a daily, weekly or monthly basis. The rate
shown is the rate in effect at the date of this statement.
<TABLE>
<CAPTION>
KEY:
<S> <C> <C> <C> <C> <C>
BAN = Bond Anticipation Note IDC = Industrial Development Corporation
COPS = Certificates of Participations IDRB = Industrial Development Revenue Bond
EDC = Educational Development Corporation LOC = Letter of Credit
FGIC = Financial Guaranteed Insurance Company MBIA = Municipal Bond Insurance Association
GO = General Obligation MHRB = Multifamily Housing Revenue Bond
HEFA = Health and Education Facilities Authority PCRB = Pollution Control Revenue Bond
HFA = Housing Finance Authority RAN = Revenue Anticipation Note
HFDC = Health Facilities Development Corporation RB = Revenue Bond
IDA = Industrial Development Authority TRAN = Tax and Revenue Anticipation Note
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest income............................................................................. $ 3,954,147
Expenses (Note 2)........................................................................... ( 425,820)
------------
Net investment income....................................................................... 3,528,327
<CAPTION>
<S> <C>
REALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments..................................................... ( -0- )
------------
Net increase in net assets from operations.................................................. $ 3,528,327
============
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
===============================================================================
<TABLE>
<CAPTION>
Six Months
Ended Year
December 31, 1997 Ended
(Unaudited) June 30, 1997
----------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income............................................ $ 3,528,327 $ 7,275,840
Net realized gain (loss) on investments.......................... -0- ( 1,065)
------------- -------------
Net increase in net assets from operations....................... 3,528,327 7,274,775
Dividends to shareholders from net investment income................. ( 3,528,327) ( 7,275,840)
Net increase (decrease) from capital share transactions (Note 3).. 9,366,676 ( 55,199,971)
------------- -------------
Total increase (decrease) in net assets...................... 9,366,676 ( 55,201,036)
Net assets:
Beginning of period.............................................. 199,050,161 254,251,197
------------- -------------
End of period.................................................... $ 208,416,837 $ 199,050,161
============= =============
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
===============================================================================
1. Summary of Accounting Policies
Tax Exempt Proceeds Fund, Inc. is a no-load, diversified, open-end management
investment company registered under the Investment Company Act of 1940. This
Fund is a short term, tax exempt money market fund. Its financial statements are
prepared in accordance with generally accepted accounting principles for
investment companies as follows:
a) Valuation of Securities -
Investments are valued at amortized cost. Under this valuation method, a
portfolio instrument is valued at cost and any discount or premium is
amortized on a constant basis to the maturity of the instrument. The
maturity of variable rate demand instruments is deemed to be the longer of
the period required before the Fund is entitled to receive payment of the
principal amount or the period remaining until the next interest rate
adjustment.
b) Federal Income Taxes -
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its tax exempt and taxable income, if any, to its shareholders.
Therefore, no provision for federal income tax is required. At December 31,
1997, the Fund had a capital loss carryforward of $2,181 and $1,065
available to offset future capital gains expiring June 30, 2001, and June
30, 2005, respectively.
c) Dividends and Distributions -
Dividends from investment income (excluding capital gains and losses, if
any, and amortization of market discount) are declared daily and paid
monthly. Distributions of net capital gains, if any, realized on sales of
investments are made after the close of the Fund's fiscal year, as declared
by the Fund's Board of Directors.
d) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
e) General -
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned. Realized gains and losses from securities
transactions are recorded on the identified cost basis.
2. Investment Management Fees and Other Transactions with Affiliates
Under the Investment Management Contract, the Fund pays an investment management
fee to Reich & Tang Asset Management, L.P. (the 'Manager') at the annual rate of
.40 of 1% per annum of the Fund's average daily net assets up to $250 million;
.35 of 1% per annum of the average daily net assets between $250 million and
$500 million; and .30 of 1% per annum of the average daily net assets over $500
million. The Management Contract also provides that the Manager will bear the
cost of all other expenses of the Fund. Therefore, the fee payable under the
Management Contract will be the only expense of the Fund.
- -------------------------------------------------------------------------------
<PAGE>
===============================================================================
2. Investment Management Fees and Other Transactions with Affiliates (Continued)
Pursuant to a Distribution Plan adopted under Securities and Exchange Commission
Rule 12b-1, the Fund and the Manager have entered into a Distribution Agreement.
The Fund's Board of Directors has adopted the plan in case certain expenses of
the Fund are deemed to constitute indirect payments by the Fund for distribution
expenses.
3. Capital Stock
At December 31, 1997, 20,000,000,000 shares of $.001 par value stock were
authorized and paid in capital amounted to $208,420,083. Transactions in capital
stock, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year
December 31, 1997 Ended
(Unaudited) June 30, 1997
------------- ---------------
<S> <C> <C>
Sold....................................... 210,287,508 395,065,691
Issued on reinvestment of dividends........ 1,018,554 2,142,906
Redeemed................................... ( 201,939,386) ( 452,408,568)
------------- -------------
Net increase (decrease).................... 9,366,676 ( 55,199,971)
============= =============
</TABLE>
At December 31, 1997, the Fund had an accumulated net realized loss of $3,246.
4. Liabilities
At December 31, 1997, the Fund had the following liabilities:
<TABLE>
<CAPTION>
<S> <C>
Accrued management fee.................... $ 73,774
Dividends payable......................... 448,406
-------------
Total liabilities...................... $ 522,180
=============
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
TAX EXEMPT PROCEEDS FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
===============================================================================
5. Financial Highlights
<TABLE>
<CAPTION>
Six Months Year Ended June 30,
Ended ----------------------------------------------------------------------
December 31, 1997 1997 1996 1995 1994 1993
---------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income................... 0.017 0.032 0.033 0.032 0.021 0.022
Less distributions:
Dividends from net investment income.... 0.017 0.032 0.033 0.032 0.021 0.022
-------- -------- -------- -------- -------- --------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return............................... 3.37%* 3.23% 3.31% 3.22% 2.14% 2.27%
Ratios/Supplemental Data
Net assets, end of period (000)............ $ 208,417 $ 199,050 $ 254,251 $ 213,134 $ 133,927 $ 133,230
Ratios to average net assets:
Expenses................................ 0.40%* 0.40% 0.40% 0.40% 0.40% 0.40%
Net investment income................... 3.31%* 3.18% 3.26% 3.22% 2.13% 2.25%
</TABLE>
* Annualized
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors in the Fund
unless preceded or accompanied by an effective prospectus, which includes
information regarding the Fund's objectives and policies, experience of its
management, marketability of shares, and other information.
- --------------------------------------------------------------------------------
Tax Exempt Proceeds Fund, Inc.
600 Fifth Avenue
New York, New York 10020
Manager
Reich & Tang Asset Management, L.P.
600 Fifth Avenue
New York, New York 10020
Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Transfer Agent &
Dividend Disbursing Agent
Reich & Tang Services L.P.
600 Fifth Avenue
New York, New York 10020
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
TAX EXEMPT
PROCEEDS
FUND, INC.
Semi-Annual Report
December 31, 1997
(Unaudited)
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
<PAGE>