<PAGE> 1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Trustees of Reserve New York Tax-Exempt
Trust -- New York Fund and Reserve Tax-Exempt Trust -- Connecticut,
Massachusetts, California and New Jersey Funds:
We have audited the accompanying statements of net assets of the Reserve New
York Tax-Exempt Trust -- New York Fund and the Connecticut, Massachusetts,
California and New Jersey Funds (four of the series constituting Reserve
Tax-Exempt Trust) and the statements of assets and liabilities of the
Massachusetts and New Jersey Funds, as of May 31, 1996, and the related
statements of operations, the statements of changes in net assets and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the respective
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Reserve New York Tax-Exempt Trust -- New York Fund and the Connecticut,
Massachusetts, California and New Jersey Funds of Reserve Tax-Exempt Trust as of
May 31, 1996, the results of their operations, the changes in their net assets
and their financial highlights for the periods referred to above, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
June 28, 1996
RESERVE NEW YORK TAX-EXEMPT TRUST--NEW YORK FUND
STATEMENT OF NET ASSETS--MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------- ---------- -------------- ------------
<S> <C> <C> <C>
Beacon BAN, 4%................................................................. 8/16/1996 $2,000 $ 2,063,720
Babylon USD TAN, 4.25%......................................................... 6/14/1996 2,000 2,081,133
Babylon IDA for Nabisco Security System, 3.60%(a).............................. 4/1/2000 1,200 1,204,159
Bleecker HDC Terrace Apt Project S85, 3.525%(a)................................ 7/1/2015 2,555 2,570,761
Cattaragus County IDR for Park Centre Development Project, 4.10%(a)............ 1/1/2000 405 407,906
Cattaragus County IDR for Park Centre Development Project, 4.65%(a)............ 1/1/2000 550 554,363
Chautauqua County IDR for Greater Buffalo Press Project, 4.15%(a).............. 1/1/2000 1,700 1,712,346
Dutchess County IDA for M&R Associates Series 1984, 3.50%(a)................... 12/1/2002 420 423,732
Eagle Tax-Exempt Trust CP Series 1994C-Z Class A, 3.70%(a)..................... 6/15/2018 3,000 3,051,919
East Islip Union Free School District TAN, 4.50%............................... 6/28/1996 1,315 1,369,442
Erie County RAN, 4.50%(a)...................................................... 9/20/1996 1,100 1,136,671
Guilderland IDA for North Eastern Industrial Park Series 1993 A,
3.65%(a)................................................................... 12/1/2008 3,700 3,712,884
Jefferson County IDA for Watertown Carthage, 3.75%(a).......................... 12/1/2012 3,500 3,511,834
Merrick Union Free School District TAN, 4.50%.................................. 6/27/1996 1,300 1,353,819
Metropolitan Transportation Authority Commuter Facilities Revenue Bonds
Series 1991, 3.50%(a)...................................................... 7/1/2021 2,200 2,207,427
Montgomery County IDR for Service Merchandise Co., 3.70%(a).................... 12/31/2024 1,600 1,603,073
Nassau County BAN, 4.25%....................................................... 11/15/1996 3,000 3,015,492
Nassau County RAN, 4%.......................................................... 3/5/1997 3,000 3,043,784
New York City GOB, 3.50%(a).................................................... 9/17/1996 2,000 2,014,153
New York City Cultural Resources for Solomon R. Guggenheim, 3.60%(a)........... 12/1/2015 900 900,177
New York City GOB Custodial Receipts Series A31, 3.60%(a)...................... 8/1/2001 4,000 4,032,224
</TABLE>
16
<PAGE> 2
RESERVE NEW YORK TAX-EXEMPT TRUST--NEW YORK FUND
STATEMENT OF NET ASSETS--MAY 31, 1996--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------- ---------- -------------- ------------
<S> <C> <C> <C>
New York City GOB Fiscal 1994 Series A, 3.75%(a)............................... 8/1/2022 $2,000 $ 2,000,410
New York City GOB Pre-refunded, 7%............................................. 8/15/1996 720 754,651
New York City GOB Series A, 3.75%(a)........................................... 8/1/2023 1,850 1,850,379
New York City GOB Series A10, 3.95%(a)......................................... 8/1/2016 1,565 1,565,338
New York City GOB Series B, 3.50%(a)........................................... 8/15/2024 3,400 3,400,650
New York City GOB Series C4-96, 3.90%(a)....................................... 8/1/1996 3,800 3,800,810
New York City GOB Series C4-97, 3.90%(a)....................................... 8/1/1997 1,200 1,200,256
New York City GOB Series C4-98, 3.90%(a)....................................... 8/1/1998 2,500 2,500,533
New York City GOB Fiscal 1992 Series D, 3.55%(a)............................... 2/1/2020 300 300,058
New York City GOB Series E5, 3.85%(a).......................................... 8/1/2017 200 200,042
New York City HDC for Carnegie Park Project, 4.50%(a).......................... 12/1/2016 1,410 1,410,353
New York City HDC for Columbus Green Project, 4.50%(a)......................... 12/1/2009 900 900,225
New York City Municipal Water Finance Authority Pre-refunded, 7.875%(a)........ 6/15/2016 1,090 1,153,413
New York City Municipal Water Finance Authority, 3.20%(a)...................... 8/13/1996 3,000 3,023,869
New York City Municipal Water Finance Authority, 3.80%(a)...................... 6/15/2025 1,300 1,302,483
New York City GOB Series E5, 3.85%(a).......................................... 8/1/2019 300 300,063
New York City GOB Series E5, 3.85%(a).......................................... 8/1/2010 500 500,105
New York City GOB Series E5, 3.85%(a).......................................... 8/1/2015 300 300,063
New York City ERD, 3.60%(a).................................................... 2/1/2029 300 300,950
New York State Series R, 3.75%................................................. 8/6/1996 2,000 2,005,328
New York State ERD/PCR for LILCO Series 85B, 3.25%(a).......................... 3/1/2016 3,000 3,024,905
New York State ERD/PCR for Rochester Gas and Electric Corporation, 3.45%(a).... 10/1/2014 3,000 3,009,332
New York State Job Development Authority Series F, 4.42%(a).................... 3/1/1999 590 592,351
New York State ERD/PCR Rochester Gas & Electric R&D, 3.75%(a).................. 11/15/2015 1,000 1,002,578
Newburgh School District GOB, 4.50%(a)......................................... 6/15/1996 1,250 1,304,685
North Hempstead BAN, 4%........................................................ 2/27/1997 3,000 3,042,109
Oneida County BAN, 4.25%....................................................... 5/9/1997 2,000 2,013,859
Onondaga County IDR for Edgecomb Metals Project, 3.70%(a)...................... 11/1/2009 1,100 1,103,731
Onondaga County IDR for McLane Co. Project, 4.15%(a)........................... 11/1/2004 2,860 2,870,880
Onondaga County IDR for Pass and Seymour, Inc. Project, 3.55%(a)............... 6/15/1997 1,900 1,903,502
Pearl River Union Free School District TAN, 4.25%.............................. 6/27/1996 3,350 3,483,264
Puerto Rico GDB Refunding Bonds Series 1985, 3.60%............................. 8/21/1996 3,000 3,007,672
Roslyn Union Free School District TAN, 4.25%................................... 6/28/1996 2,000 2,079,984
Sayville Union Free School District TAN, 4.25%................................. 6/27/1996 2,000 2,077,999
Schenectady BAN, 4.25%......................................................... 6/27/1996 2,000 2,080,056
Suffolk County IDA, 3.80%(a)................................................... 11/1/2007 1,830 1,836,673
Suffolk County TAN, 4.50%...................................................... 9/12/1996 3,000 3,099,971
Syracuse IDA for General Accident Insurance Co. Project, 3.60%(a).............. 12/1/2003 4,550 4,550,895
Ulster County TAN, 4.25%(a).................................................... 3/26/1997 2,000 2,023,658
West Seneca Central School District BAN, 4.125%................................ 6/26/1996 3,400 3,525,488
Westchester County IDR for M and F Associates Project, 4%(a)................... 7/1/2000 1,670 1,681,690
Yonkers IDR for Consumers Union Facility, 3.75%(a)............................. 7/1/2021 4,600 4,616,565
------------
Total New York Fund Investments (99.38%) (Cost $123,426,475)................... 124,672,845
Other assets, less liabilities (.62%).......................................... 781,561
------------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
prices per share on 125,454,406 shares of beneficial interest of $.001 par
value outstanding............................................................ $125,454,406
============
</TABLE>
- ------------
(a) The interest rate is subject to change periodically. The rates shown were in
effect at May 31, 1996. Securities payable on demand are collateralized by
bank letters of credit or other bank credit agreements.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 3
RESERVE TAX-EXEMPT TRUST--CONNECTICUT FUND
STATEMENT OF NET ASSETS--MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C>
Connecticut DAI for Allen Group Inc., 3.65%(a)................................. 2/1/2013 $1,400 $ 1,404,607
Connecticut DAI for Conco Medical Co. Project Series 85, 3.60%(a).............. 11/1/2005 700 702,324
Connecticut DAI for General Accident Insurance Co., 3.75%(a)................... 12/1/2013 1,700 1,700,348
Connecticut DAI for Martin Brower Corp. Series 1985, 3.30%(a).................. 5/1/2005 270 270,878
Connecticut DAI for Regional YMCA Project, 3.60%(a)............................ 6/1/2008 612 613,413
Connecticut DAI for Trudy Corporation Project, 3.65%(a)........................ 9/1/2009 600 601,975
Connecticut DAI for Zotos International Project, 4%(a)......................... 12/1/2004 1,860 1,866,708
Connecticut Development Authority Health Care Revenue Bonds for Independent
Living Project 1990 Series, 3.55%(a)......................................... 7/1/2015 2,345 2,353,022
Connecticut Development Authority PCR for Central Vermont Public Service,
3.40%(a)..................................................................... 12/1/2015 1,400 1,404,292
Connecticut Development Authority PCR for Connecticut Light and Power Project
Series 1993a, 3.65%(a)....................................................... 9/1/2028 1,300 1,304,577
Connecticut Development Authority PCR for Western Massachusetts Electric Co.,
3.50%(a)..................................................................... 9/1/2028 1,700 1,705,641
Connecticut ERN, 3.80%(a)...................................................... 6/1/1996 2,700 2,709,336
Connecticut ERN Series A, 5.50%................................................ 6/15/1996 550 564,520
Connecticut HEF for Charlotte Hospital Series B, 3.40%(a)...................... 7/1/2010 600 601,970
Connecticut HEF for Kingswood Oxford School Issue Series A, 3.60% (a).......... 2/1/2009 560 561,818
Connecticut HEF for New Haven Hospital Series E, 3.60%(a)...................... 6/1/2012 570 570,000
Connecticut HEF for Pomfret School Issue Series A, 3.35%(a).................... 7/1/2024 1,385 1,389,501
Connecticut HFA BDS Project, 3.55%,(a)......................................... 5/15/2018 1,500 1,502,955
Connecticut State Special Assessment Unemployment Compensation RAW Series C,
3.90%(a)..................................................................... 11/15/2001 1,500 1,524,750
Connecticut State Special Assessment Unemployment Compensation Revenue Bonds
Series 1993B Pre-refunded, 7%(a)............................................. 8/15/1996 315 330,008
Connecticut State Special Tax Transportation Infrastructure 2nd Lien Revenue
Bonds, 3.60%(a).............................................................. 12/1/2010 1,570 1,575,321
Hartford Redevelopment Agency MHR for Underwood Towers Project, 3.75%(a)....... 6/1/2020 2,800 2,810,171
Madison BAN, 3.49%............................................................. 3/19/1997 350 352,380
Metropolitan District of Hartford GOB, 5.90%................................... 12/1/1996 250 252,847
Naugatuck BAN, 3.33%........................................................... 3/27/1997 569 572,533
Puerto Rico Industrial, Medical, and Environmental RAW for Reynolds Metals,
3.75%(a)..................................................................... 9/1/2013 1,200 1,211,774
Puerto Rico GOB, 3.60%......................................................... 8/21/1996 1,000 1,002,557
Puerto Rico Industrial, Medical, Higher Education and Environmental Bonds for
PCR, 3.55%(a)................................................................ 12/1/2015 400 401,399
Sprague BAN, 4.25%............................................................. 6/27/1996 525 545,863
Thomaston GOB, 3.43%........................................................... 2/20/1997 416 420,239
Westport BAN, 3.45%............................................................ 6/14/1996 1,000 1,031,948
Windsor Locks GOB, 5.625%...................................................... 5/15/1997 575 587,412
-----------
Total Connecticut Fund Investments (98.98%) (Cost $34,259,000)................. 34,447,087
Other assets, less liabilities, (1.02%)........................................ 354,217
-----------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
prices per share on 34,801,304 shares of beneficial interest of $.001 par
value outstanding............................................................ $34,801,304
===========
</TABLE>
- ---------------
(a) The interest rate is subject to change periodically. The rates shown were in
effect at May 31, 1996. Securities payable on demand are collateralized by
bank letters of credit or other bank credit agreements.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 4
RESERVE TAX-EXEMPT TRUST--MASSACHUSETTS FUND
STATEMENT OF NET ASSETS--MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------- ---------- -------------- ----------
<S> <C> <C> <C>
Duxbury GOB, 5.05%............................................................. 12/1/1996 $ 405 $ 418,066
East Longmeadow GOB, 5.125%(a)................................................. 2/1/1997 260 267,235
Framingham IDA for Perrini Corp., 3.70%(a)..................................... 9/30/2005 300 301,067
Massachusets, Municipal Wholesale Electric Series 1994 C, 3.40%(a)............. 7/1/2019 300 300,977
Massachusetts Pre-refunded GOB Series A, 7.125%(a)............................. 10/1/2005 500 522,158
Massachusetts Dedicated Income Tax Bonds Series B, 3.60%(a).................... 12/1/1997 400 400,079
Massachusetts Dedicated Income Tax Bonds Series E, 3.60%(a).................... 12/1/1997 500 500,098
Massachusetts HEF for Endicott College, 3.65%(a)............................... 10/1/2011 400 401,710
Massachusetts HEF for Clark University, 3.50%(a)............................... 12/1/2004 100 100,341
Massachusetts HEF for Boston University Series H, 3.65%(a)..................... 12/1/2015 400 400,718
Massachusetts HEF for Harvard University, 3.25%(a)............................. 2/1/2016 487 488,585
Massachusetts HEF for Mount IDA College Series A, 3.35%(a)..................... 7/1/2018 400 401,279
Massachusetts HEF Capital Assistance Program Series G-1, 3.20%(a).............. 1/1/2019 100 100,315
Massachusetts HEF Series D, 3.60%(a)........................................... 1/1/2035 100 100,336
Massachusetts HEF Capital Asset Series E, 3.70%(a)............................. 1/1/2035 400 401,362
Massachusetts HEF for Williams College Series E, 3.20%(a)...................... 8/1/2014 400 401,242
Massachusetts HEF for Wellesley College Series B, 3.50%(a)..................... 7/1/2022 400 400,077
Massachusetts IDA for KRH Rolls Inc. Project Series 1988, 3.70%(a)............. 5/1/2006 300 301,948
Massachusetts IDA for Cambridge Issue Series 1985, 3.50%(a).................... 10/1/2010 500 501,707
Massachusetts Showa Womens Institute of Boston, 3.75%(a)....................... 3/15/2004 400 400,082
Rockland GOB, 5.50%(a)......................................................... 7/15/1996 475 498,904
Taunton GOB, 5.375%(a)......................................................... 3/1/1997 200 204,267
Worcester GOB, 3.70%(a)........................................................ 7/1/1996 220 224,802
Worcester BAN, 4.25%(a)........................................................ 8/29/1996 400 412,411
-----------
Total Massachusetts Fund Investments (94.35%) (Cost $8,387,784)................ 8,449,766
Other assets, less liabilities (5.65%)......................................... 505,597
-----------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
price per share on 8,955,363 shares of beneficial interest of $.001 par value
outstanding.................................................................. $8,955,363
===========
</TABLE>
- ---------------
(a) The interest rate is subject to change periodically. The rates shown were in
effect at May 31, 1996. Securities payable on demand are collateralized by
bank letters of credit or other bank credit agreements.
RESERVE TAX-EXEMPT TRUST--CALIFORNIA FUND
STATEMENT OF NET ASSETS--MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C>
Anaheim Certificate of Participation, 3.30%(a)................................. 8/1/2019 $250 $ 252,773
California HFA for Sutter Health Series 1990 B, 3.30%(a)....................... 3/1/2020 500 500,090
California Modesto Santa Clara Redding Public Power, 3.25%(a).................. 7/1/2022 300 300,879
California PCR for Pacific G&E, 3.55%(a)....................................... 11/1/2026 500 500,533
California Statewide Catholic Health GOB, 3.80%(a)............................. 7/1/1996 500 508,179
Foothill/Eastern Transportation Toll Road Revenue Bonds Series 95C, 3.30%(a)... 1/2/2035 600 601,900
Foothill/Eastern Transportation Toll Road Revenue Bonds, 3.40%(a).............. 1/2/2035 500 501,628
Irvine Ranch Water District Election #198, 3.95%(a)............................ 11/15/2013 200 200,043
Lancaster MHR for Westwood Park Apartments 1985, 3.50%(a)...................... 12/1/2007 600 602,036
Los Angeles Community Redevelopment Agency for Baldwin Hills, 3.45%(a)......... 12/1/2014 400 401,325
Los Angeles Community Redevelopment for Promenade Towers Series 1989,
3.25%(a)..................................................................... 4/1/2009 400 402,549
Los Angeles USD TRAN, 4.50%(a)................................................. 7/3/1996 500 520,847
Los Angeles Housing Authority Malibu Meadows Project Series 91-A, 3.55%(a)..... 12/1/2015 500 501,739
Los Angeles MTA General Revenue Union Station Gateway Project Series 1995,
3.60%(a)..................................................................... 7/1/2025 600 602,067
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 5
RESERVE TAX-EXEMPT TRUST--CALIFORNIA FUND
STATEMENT OF NET ASSETS--MAY 31, 1996--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C>
Orange County Apartment Development Revenue Bonds Issue A of 1991, the Lakes
Project 3.45%, Letter of Credit with Citibank(a)............................. 12/1/2006 $400 $ 401,334
Orange County Sanitation District Capital Improvement Program 1990-92, 3.50%
Letter of Credit with National Westminster(a)................................ 8/1/2015 200 200,038
Pasadena IDA for Rose Bowl Improvement Project, 3.65%(a)....................... 12/1/2011 600 602,095
Pico Rivera Community Redevelopment Agency for Rainer Fund Crossroads Plaza
Project, 3.35%(a)............................................................ 12/1/2010 600 601,580
San Bernadino IDA for Gate City, 3.85%(a)...................................... 3/1/2005 300 300,063
San Diego TAN, 4.75%........................................................... 7/3/1996 400 417,605
San Dimas Station I Project, 5.60%(a).......................................... 12/1/2005 400 401,664
San Francisco Yerba Buena Gardens, 3.50%(a).................................... 9/1/2006 200 200,687
San Francisco USD Trans, 4.50%................................................. 7/25/1996 500 519,651
San Jose CP Pre-refunded RAW, 7.90%(a)......................................... 5/1/2010 250 266,130
San Mateo Redevelopment Agency Bridge & Water Pump Station Pre-refunded Bonds,
7.70%(a)..................................................................... 8/1/2001 250 263,090
Santa Ana HDC for Mercury S&L, 3.875%(a)....................................... 11/1/2005 400 402,834
Santa Clara Electric Revenue Bonds Series 85C, 3.40%(a)........................ 7/1/2010 400 401,303
Southern California Public Power Transmission Pre-refunded Project,
7.875%(a).................................................................... 7/1/2018 500 533,220
Union City MHR for Skylark Apartments, 3.50%(a)................................ 11/1/2007 100 100,196
Upland MHR Community Redevelopment Bonds Series B for Northwood Project,
4%(a)........................................................................ 3/1/2014 100 101,011
Vista MHR for Shadow Ridge Apartments Project, 3.15%(a)........................ 5/1/2005 $500 $ 501,420
-----------
Total California Fund Investments (99.99%) (Cost $12,506,805).................. 12,610,509
Other assets, less liabilities (.01%).......................................... 1,460
-----------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
prices per share on 12,611,969 shares of beneficial interest of $.001 par
value outstanding............................................................ $12,611,969
===========
</TABLE>
- ---------------
(a) The interest rate is subject to change periodically. The rates shown were in
effect at May 31, 1996. Securities payable on demand are collateralized by
bank letters of credit or other bank credit agreements.
RESERVE TAX-EXEMPT TRUST--NEW JERSEY FUND
STATEMENT OF NET ASSETS--MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C>
Cranbury BAN, 3.39%............................................................ 8/30/1996 $ 600 $ 604,763
East Orange BAN, 4.625%........................................................ 12/12/1996 1,191 1,220,380
East Orange Unlimited Tax GOB, 4.90%(a)........................................ 8/1/1996 500 509,259
East Rutherford TAN, 4.25%..................................................... 4/25/1997 1,000 1,008,832
Emerson County BAN, 3.57%...................................................... 2/06/1997 300 303,755
Essex County Improvement Authority GOB, 3.40%(a)............................... 12/01/2025 2,000 2,006,574
Essex County TAN, 4%(a)........................................................ 8/19/1996 1,000 1,015,793
Jersey City GOB, 4.90%(a)...................................................... 12/15/1996 250 257,739
Jersey City BAN, 4.25%......................................................... 9/27/1996 1,000 1,024,376
Jersey City BAN, 4.75%......................................................... 9/27/1996 500 517,278
Livingston BAN, 3.78%.......................................................... 6/7/1996 461 478,144
Millburn Township BAN, 3.79%................................................... 12/27/1996 646 657,895
Mount Olive BAN, 4%............................................................ 10/15/1996 470 482,159
New Jersey EDA for Bayonne IMTT Docking Revenue Bonds, 3.50%(a)................ 12/1/2027 1,200 1,203,759
New Jersey EDA for Bayonne IMTT Docking Revenue Bonds, 3.55%(a)................ 12/1/2027 1,100 1,103,495
New Jersey Economic Recovery Notes, 3.75%(a)................................... 8/1/2008 900 903,207
New Jersey EDA for Economic Growth Bond Series F, 3.40%(a)..................... 8/1/2014 800 802,685
New Jersey EDA for Bayonne IMTT Docking Revenue Bonds, 3.50%(a)................ 12/1/2027 1,200 1,203,759
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 6
RESERVE TAX-EXEMPT TRUST--NEW JERSEY FUND
STATEMENT OF NET ASSETS--MAY 31, 1996--(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION OF SECURITY DATE (IN THOUSANDS) (NOTE 1)
- ------------------------------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C>
New Jersey EDA for St. Peters School Series 1995, 3.55%(a)..................... 1/1/2010 $1,260 $ 1,264,362
New Jersey EDA for Volvo of American Corp, 4.279%(a)........................... 12/1/2004 3,500 3,512,647
New Jersey GOB Series 86, 6.50%................................................ 8/15/1996 750 769,136
New Jersey HCF Hospital Capital Asset, 3.45%(a)................................ 7/01/2035 400 401,321
New Jersey HEF Higher Trust Fund Revenue Bonds Series 1995A, 5.125%(a)......... 9/1/1996 545 554,094
New Jersey Sports Expo Authority Series 92C, 3.50%(a).......................... 9/01/2024 3,000 3,025,537
New Jersey Transportation Series 1996A CP, 3.50%(a)............................ 6/12/1996 1,000 1,004,016
New Jersey Transportation Series 1996C CP, 3.75%(a)............................ 6/14/1996 2,700 2,704,980
New Jersey Turnpike Authority General Series 91D, 3.25%(a)..................... 1/01/2018 3,300 3,343,341
North Caldwell BAN, 3.79%...................................................... 6/14/1996 607 629,390
Pennington Borough BAN 4.15%................................................... 6/27/1996 817 825,237
Port Authority of New York and New Jersey Special Obligation Revenue,
3.60%(a)..................................................................... 5/1/2019 3,200 3,210,195
Princeton BAN, 3.58%........................................................... 6/14/1996 400 413,853
Puerto Rico Industrial, Medical, Environmental PCR, 3.55%(a)................... 12/1/12015 300 301,049
Raritan Township BAN, 3.875%................................................... 6/20/1996 625 636,091
Wayne Township GOB, 6.60%...................................................... 8/01/1996 200 205,416
-----------
Total New Jersey Fund Investments (92.88%) (Cost $37,778,795).................. 38,104,517
Other assets, less liabilities, (7.12%)........................................ 2,921,284
-----------
NET ASSETS (100%) equivalent to $1.00 net asset value, offering and redemption
prices per share on 41,025,801 shares of beneficial interest of $.001 par
value outstanding............................................................ $41,025,801
==========
</TABLE>
- ---------------
(a) The interest rate is subject to change periodically. The rates shown were in
effect at May 31, 1996. Securities payable on demand are collateralized by
bank letters of credit or other bank credit agreements.
SECURITY TYPE ABBREVIATIONS:
<TABLE>
<S> <C> <C>
BAN -- Bond Anticipation Notes
CP -- Certificate of Participation
DAI -- Development Authority Industrial Development
Refunding Bonds
EDA -- Economic Development Authority Revenue Bonds
ERN -- Economic Recovery Notes
ERD -- Energy Research and Development Authority
GDB -- Government Development Bonds
GOB -- General Obligation Bonds
HCF -- Health Care Facilities Revenue Bonds
HDC -- Housing Development Corporation Bonds
HEF -- Health and Educational Facilities Revenue Bonds
HFA -- Health Facilities Authority Revenue Bonds
HFR -- Housing Finance Agency Revenue Bonds
IDA -- Industrial Development Authority Revenue Bonds
IDR -- Industrial Development Agency Revenue Bonds
MHR -- Multifamily Housing Revenue Bonds
MTA -- Metropolitan Transportation Authority
PCR -- Pollution Control Revenue Bonds
RAN -- Revenue Anticipation Notes
RAW -- Revenue Anticipation Warrants
TAN -- Tax Anticipation Notes
TRAN -- Tax & Revenue Anticipation Notes
USD -- Unified School District
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE> 7
RESERVE TAX-EXEMPT TRUST ("TRUST")
STATEMENT OF ASSETS AND LIABILITIES--MAY 31, 1996
<TABLE>
<CAPTION>
MASSACHUSETTS
FUND
-------------
<S> <C>
ASSETS:
Investments, at value (identified cost -- $8,387,784)..................................... $ 8,449,766
Cash...................................................................................... 506,184
-------------
Total Assets............................................................................ 8,955,950
-------------
LIABILITIES:
Accrued expenses.......................................................................... 587
-------------
Total Liabilities....................................................................... 587
-------------
NET ASSETS.................................................................................. $ 8,955,363
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest, $.001 par value, unlimited number of shares authorized..... $ 8,955
Paid-in capital in excess of par.......................................................... 8,946,408
-------------
NET ASSETS -- Equivalent to $1.00 per share based on 8,955,363 shares of beneficial interest
outstanding............................................................................... $ 8,955,363
==============
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES--MAY 31, 1996
<TABLE>
<CAPTION>
NEW JERSEY
FUND
-------------
<S> <C>
ASSETS:
Investments, at value (identified cost -- $37,778,795).................................... $38,104,517
Cash...................................................................................... 2,924,848
-------------
Total Assets............................................................................ 41,029,365
-------------
LIABILITIES:
Accrued expenses.......................................................................... 3,564
-------------
Total Liabilities....................................................................... 3,564
-------------
NET ASSETS.................................................................................. $41,025,801
==============
NET ASSETS CONSIST OF:
Shares of beneficial interest, $.001 par value, unlimited number of shares authorized..... $ 41,026
Paid-in capital in excess of par.......................................................... 40,984,775
-------------
NET ASSETS -- Equivalent to $1.00 per share based on 41,025,801 shares of beneficial
interest outstanding...................................................................... $41,025,801
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE> 8
STATEMENTS OF OPERATIONS--YEAR ENDED MAY 31, 1996
<TABLE>
<CAPTION>
RESERVE TAX-EXEMPT TRUST
----------------------------------------------------------------------
NEW YORK CONNECTICUT MASSACHUSETTS CALIFORNIA NEW JERSEY
FUND FUND FUND FUND FUND
---------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME (Note 1)......................... $5,792,951 $ 1,114,793 $ 378,290 $ 374,650 $1,118,099
---------- ----------- ------------- ---------- ----------
EXPENSES (Note 2)
Management fee................................. 775,398 155,027 53,512 50,807 154,727
Shareholder servicing, administration and
general office expenses...................... 342,572 67,381 21,737 19,346 66,449
Distribution assistance (Note 3)............... 299,169 45,547 2,822 20,231 61,458
Equipment expense.............................. 55,582 12,123 4,280 3,799 10,796
Professional fees.............................. 47,201 12,337 5,666 5,123 10,800
Occupancy costs................................ 33,052 7,085 2,526 2,210 6,356
Stationery, printing and supplies.............. 37,863 6,698 1,934 1,682 7,293
Trustee fees................................... 4,409 918 343 305 813
Other expenses................................. 7,970 2,939 2,435 1,242 2,154
---------- ----------- ------------- ---------- ----------
Total Expenses............................... 1,603,215 310,055 95,255 104,745 320,846
---------- ----------- ------------- ---------- ----------
Less: Management fees and other expenses
voluntarily waived by Investment Manager..... (5,399)
---------- ----------- ------------- ---------- ----------
Net Expenses................................... 1,603,215 310,055 89,856 104,745 320,846
---------- ----------- ------------- ---------- ----------
NET INVESTMENT INCOME............................ $4,189,736 $ 804,738 $ 288,434 $ 269,905 $ 797,253
========== ========== ============ ========= ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE> 9
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
RESERVE NEW YORK
TAX-EXEMPT TRUST RESERVE TAX-EXEMPT TRUST
------------------------------ -------------------------------------------------------------
NEW YORK FUND CONNECTICUT FUND MASSACHUSETTS FUND
------------------------------ ----------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1996 MAY 31, 1995 MAY 31, 1996 MAY 31, 1995 MAY 31, 1996 MAY 31, 1995
------------- ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income paid to
shareholders as dividends
(Note 1)................... $ (4,189,736) $ (3,792,798) $ (804,738 ) $ (971,157) $ (288,434 ) $ (352,318 )
------------- ------------- ------------ ------------- ------------ ------------
FROM CAPITAL SHARE
TRANSACTIONS
(at net asset value of $1
per share):
Net proceeds from sale of
shares................... 636,980,296 592,052,007 98,890,288 114,340,212 44,175,742 58,983,470
Net asset value of shares
issued on reinvestment of
dividends................ 4,189,736 3,792,798 804,738 971,157 288,434 352,318
------------- ------------- ------------ ------------- ------------ ------------
Subtotal................. 641,170,032 595,844,805 99,695,026 115,311,369 44,464,176 59,335,788
Cost of shares
redeemed............... (668,621,594) (591,325,629) (91,519,680 ) (217,378,001) (45,677,798 ) (63,991,145 )
------------- ------------- ------------ ------------- ------------ ------------
Increase (decrease) in net
assets derived from
capital share
transactions............. (27,451,562) 4,519,176 8,175,346 (102,066,632) (1,213,622 ) (4,655,357 )
NET ASSETS:
Beginning of year............ 152,905,968 148,386,792 26,625,958 128,692,590 10,168,985 14,824,342
------------- ------------- ------------ ------------- ------------ ------------
End of year.................. $ 125,454,406 $ 152,905,968 $34,801,304 $ 26,625,958 $ 8,955,363 $10,168,985
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
RESERVE TAX-EXEMPT TRUST
---------------------------------------------------------------------
CALIFORNIA FUND NEW JERSEY FUND
-------------------------------- ---------------------------------
OCTOBER 17, 1994 JUNE 21, 1994
(COMMENCEMENT OF (COMMENCEMENT OF
OPERATIONS) OPERATIONS)
YEAR ENDED THROUGH YEAR ENDED THROUGH
MAY 31, 1996 MAY 31, 1995 MAY 31, 1996 MAY 31, 1995
------------ ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT
OPERATIONS:
Net investment income paid to shareholders as
dividends (Note 1).............................. $ (269,905 ) $ (142,286) $ (797,253) $ (296,207)
------------ ---------------- ------------- ----------------
FROM CAPITAL SHARE TRANSACTIONS
(at net asset value of $1 per share):
Net proceeds from sale of shares................ 51,508,091 29,447,705 189,336,696 74,669,862
Net asset value of shares issued on reinvestment
of dividends.................................. 269,905 142,286 797,253 296,207
------------ ---------------- ------------- ----------------
Subtotal...................................... 51,777,996 29,589,991 190,133,949 74,966,069
Cost of shares redeemed....................... (50,253,639 ) (18,502,379) (170,715,398) (53,358,819)
------------ ---------------- ------------- ----------------
Increase in net assets derived from capital share
transactions and from investment operations..... 1,524,357 11,087,612 19,418,551 21,607,250
NET ASSETS:
Beginning of period............................... 11,087,612 0 21,607,250 0
------------ ---------------- ------------- ----------------
End of period..................................... $12,611,969 $ 11,087,612 $ 41,025,801 $ 21,607,250
============ ================= ============ =================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE> 10
RESERVE NEW YORK TAX-EXEMPT TRUST ("NY TRUST")
RESERVE TAX-EXEMPT TRUST (CONNECTICUT, MASSACHUSETTS,
CALIFORNIA AND NEW JERSEY FUNDS) ("TRUST")
(THE NY TRUST AND TRUST ARE COLLECTIVELY REFERRED TO AS "TRUSTS")
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The Trusts are registered under the Investment Company Act of 1940 as
nondiversified, open-end management investment companies. The policies
summarized below are consistently followed in the preparation of their
financial statements in conformity with generally accepted accounting
principles.
A. The Trust and NY Trust shares of beneficial interest authorized are
unlimited. The Trust's shares are divided into five series, Connecticut Fund,
Interstate Fund, Massachusetts Fund, California Fund and New Jersey Fund.
These financial statements and notes apply only to the Connecticut,
Massachusetts, California and New Jersey Funds of Reserve Tax-Exempt Trust
and to the New York Fund of Reserve New York Tax-Exempt Trust.
B. Securities are stated at value which represents amortized cost plus
interest accrued to date. Under Securities and Exchange Commission Rule 2a-7,
the Trusts use amortized cost to value each Fund, by which investments are
valued at cost and the difference between the cost of each instrument and its
value at maturity is accrued into income on a straight line basis over the
number of days to maturity, irrespective of intervening changes in interest
rates or market values of investments. The maturity of floating or variable
rate instruments in which the Trusts may invest will be deemed to be, for
floating rate instruments (1) following, and for variable rate instruments
the longer of (1) or (2) following: (1) the notice period required before the
Fund is entitled to receive payment of the principal amount of the
instrument; (2) the period remaining until the instrument's next rate
adjustment, for purposes of Rule 2a-7 and for computing each portfolio's
average weighted life to maturity.
C. It is the Trusts' policy to comply with the requirements of Subchapter M
of the Internal Revenue Code and to distribute all income to its
shareholders. Accordingly, no Federal income tax provision is required.
D. Investments are recorded as of the date of their purchase and sale.
Interest income is determined on the basis of interest accrued, premium
amortized, and discount accreted.
E. Net investment income on investments is distributed to shareholders daily
and automatically reinvested in additional shares.
F. Each Fund is charged only for its direct or allocated (in proportion to
net assets or number of shareholder accounts) share of expenses.
2. MANAGEMENT FEE, SHAREHOLDER SERVICING COSTS AND TRANSACTIONS WITH AFFILIATES:
Reserve Management Company, Inc. ("RMCI") manages the Trusts' investments,
effects purchases and sales thereof, and absorbs certain promotional
expenses. For such services RMCI receives management fees from each Fund at
an annual rate of .50% of the first $500 million, .475% of the next $500
million, .45% of the next $500 million, .425% of the next $500 million and
.40% of any excess over $2 billion of the average daily closing net assets.
Also, under the current Service Agreement, RMCI was reimbursed $528,648 (New
York Fund), $109,481 (Connecticut Fund), $38,921 (Massachusetts Fund),
$33,708 (California Fund) and $104,660 (New Jersey Fund) during the year
ended May 31, 1996 for expenditures made on behalf of the Trusts' for
personnel, office space and equipment and shareholder accounting and
administrative services, to conduct the Trusts' business. The manager waived
management fees and expenses of $5,399 on the Massachusetts Fund. At May 31,
1996 the New York, Connecticut, Massachusetts, California and New Jersey
Funds, had accrued expenses of $10,795, $2,852, $587, $1,065 and $3,564,
respectively, due to RMCI.
3. DISTRIBUTION ASSISTANCE:
Pursuant to a Distribution Plan, each Trust will make payments of up to .20%
per annum of the average net asset value of the Trust qualified shareholder
accounts as to which the payee or RMCI has rendered assistance in
distributing its shares.
25
<PAGE> 11
RESERVE NEW YORK TAX-EXEMPT TRUST ("NY TRUST")
RESERVE TAX-EXEMPT TRUST (CONNECTICUT, MASSACHUSETTS,
CALIFORNIA AND NEW JERSEY FUNDS) ("TRUST")
(THE NY TRUST AND TRUST ARE COLLECTIVELY REFERRED TO AS "TRUSTS")
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. INVESTMENT CONCENTRATION
The New York, Connecticut, Massachusetts, California and New Jersey Funds
invest substantially all of their assets in portfolios of tax-exempt debt
obligations primarily consisting of issuers of each of the respective states.
The issuers' abilities to meet their obligations may be affected by economic,
regional or political developments. In order to reduce the credit risk
associated with such factors, 63.26%, 83.57%, 90.30%, 80.01% and 74.34% of
the New York, Connecticut, Massachusetts, California and New Jersey Funds'
investments, respectively, were backed by letters of credit, bond insurance
of financial institutions and financial guaranty assurance agencies.
6. COMPONENTS OF NET ASSETS
At 5/31/96, the following funds had these components of net assets:
<TABLE>
<CAPTION>
NEW YORK CONNECTICUT CALIFORNIA
------------ ----------- -----------
<S> <C> <C> <C>
Par Value................................................... $ 125,454 $ 34,801 $ 12,612
Paid-in-Capital............................................. 125,328,952 34,766,503 12,599,357
----------- ---------- ----------
Net Assets.................................................. $125,454,406 $34,801,304 $12,611,969
----------- ---------- ----------
</TABLE>
---------------------
FEDERAL TAX INFORMATION
The dividends distributed by each Fund are exempt interest dividends for Federal
tax purposes.
26
