MASTER RESERVES TRUST
ANNUAL REPORT
December 31, 1995
<PAGE>
MASTER RESERVES TRUST
MONEY MARKET PORTFOLIO I
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations
Net Investment Income 0.057 0.042 0.032 0.037 0.059 0.079 0.089 0.073 0.064 0.066
Less Distributions
Dividends from Net Investment Income (0.057) (0.042) (0.032) (0.037) (0.059) (0.079) (0.089) (0.073) (0.064) (0.066)
-------------------------------------------------------------------------------------------
Net Asset Value, End of Year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===========================================================================================
Total Return 5.83% 4.23% 3.24% 3.76% 6.01% 8.27% 9.25% 7.57% 6.60% 6.76%
Ratios/Supplemental Data
Ratios to Average Net Assets
Net Investment Income 5.83% 4.49% 3.23% 3.70% 5.90% 7.92% 9.24% 7.41% 6.51% 6.42%
Total Expenses 0.09% 0.10% 0.10% 0.19% 0.20% 0.26% 0.30% 0.25% 0.23% 0.24%
Net Assets, End of Year (thousands) $35,910 $30,314 $61,354 $205,818 $56,603 $67,682 $162,336 $280,142 $222,314 $187,845
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
MASTER RESERVES TRUST
MONEY MARKET PORTFOLIO I
SCHEDULE OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Principal Maturity Market
Amount Date Value
--------- -------- -----------
<S> <C> <C>
Bank Notes (2.8%) (c)
$1,000,000 National Bank Detroit, 5.75% (Cost $1,000,008) 01/18/96 $ 1,000,008
-----------
Bankers' Acceptances (5.6%)
1,000,000 Morgan Guaranty Co. of New York, 5.70% 01/16/96 997,783
1,000,000 Union Bank Switzerland, 5.61% 02/01/96 995,325
-----------
Total Bankers Acceptances (Cost $1,993,108) 1,993,108
-----------
Certificate of Deposit (2.8%)
1,000,000 Wachovia Bank, Georgia, 5.81% (Cost $1,000,019) 01/25/96 1,000,019
-----------
Commercial Paper (38.4%) (c)
1,000,000 ABN Amro North America, 5.69% 01/30/96 995,575
1,000,000 Ameritech Capital Funding Corp., 5.60% 02/12/96 993,622
1,000,000 Bell Atlantic Network, 5.50% 02/23/96 992,056
1,000,000 Coca Cola Co., 5.52% 03/15/96 988,928
1,000,000 Dupont EI De Nemours & Co., 5.67% 01/22/96 996,850
500,000 General Electric Capital Corp., 5.62% 01/17/96 498,829
500,000 General Electric Capital Corp., 5.64% 01/24/96 498,277
1,160,000 Heinz (H.J.) Co., 5.57% 02/06/96 1,153,718
1,000,000 Hewlett Packard Co., 5.69% 01/04/96 999,684
500,000 Hewlett Packard Co., 5.63% 01/12/96 499,218
1,000,000 Motorola Credit Corp., 5.73% 01/05/96 999,523
600,000 Nestle Capital Corp., 5.54% 02/16/96 595,845
600,000 Nestle Capital Corp., 5.53% 02/23/96 595,207
1,000,000 Pfizer Inc., 5.70% 01/12/96 998,417
1,000,000 Pitney Bowes Credit Corp., 5.60% 02/09/96 994,089
1,000,000 Procter & Gamble Co., 5.65% 01/10/96 998,744
-----------
Total Commercial Paper (Cost $13,798,461) 13,798,582
-----------
Master Note (1.4%)
499,000 Associates Corporation of North America, 5.71% 01/02/96 499,000
(Cost $499,000) -----------
</TABLE>
2
<PAGE>
MASTER RESERVES TRUST
MONEY MARKET PORTFOLIO I
SCHEDULE OF INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Principal Maturity Market
Amount Date Value
- ---------- -------- ------------
<S> <C> <C>
U.S. Government Agency Issues (38.5%) (c)
1,000,000 Federal Farm Credit Bank Discount Note, 5.54% 02/14/96 $ 993,383
3,194,000 Federal Home Loan Mortgage Discount Note, 5.40% 01/02/96 3,194,000
824,000 Federal Home Loan Mortgage Discount Note, 5.57% 01/03/96 823,873
1,000,000 Federal Home Loan Bank Discount Note, 5.59% 01/10/96 998,758
1,000,000 Federal Home Loan Bank Discount Note, 5.52% 02/28/96 991,260
1,000,000 Federal Home Loan Bank Discount Note, 5.38% 04/23/96 983,511
1,000,000 Federal Home Loan Bank Discount Note, 5.33% 05/13/96 980,933
1,000,000 Federal National Mortgage Association Discount Note, 5.60% 01/05/96 999,533
1,000,000 Federal National Mortgage Association Discount Note, 5.52% 02/21/96 992,333
1,910,000 Federal National Mortgage Association Discount Note, 5.47% 03/08/96 1,891,231
1,000,000 Federal National Mortgage Association Discount Note, 5.41% 03/18/96 988,685
------------
Total U.S. Government Agency Issues (Cost $13,836,283) 13,837,500
------------
Maturity
Repurchase Agreements (10.9%) Value
----------
Smith Barney Harris Upham & Co., 5.90%, purchased 12/29/95
(Collateralized by $1,950,020, FNMA #332607, 7.00%,
12/01/15) maturing 01/02/96 $1,915,255 1,914,000
Investments in repurchase agreements, in a joint trading account
purchased 12/29/95, 5.90% to 5.92% maturing 01/02/96 (b) 2,001,313 2,000,000
-----------
Total Repurchase Agreements (Cost $3,914,000) 3,914,000
-----------
Total Investments (Cost $36,040,879)(a) 36,042,217
Other Assets and Liabilities - Net (-0.4%) (132,182)
-----------
Net Assets (100%) $35,910,035
===========
</TABLE>
(a) The cost of investments for federal income tax purposes is identical to
the cost for financial reporting purposes. Gross unrealized
appreciation and depreciation of investments, based on identified tax
cost, at December 31, 1995 are as follows:
Gross unrealized appreciation......................... $1,338
Gross unrealized depreciation ........................ 0
------
Net unrealized appreciation........................... $1,338
======
(b) The repurchase agreements are fully collaterized by U.S. Government and/or
agency obligations based on market prices at December 31, 1995
(c) Rates shown are the effective yields at the date of purchase.
See Notes to Financial Statements
3
<PAGE>
Master Reserves Trust
Money Market Portfolio I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
Assets (Note 1)
Investments at market value
Portfolio Securities (Cost $32,126,879) $32,128,217
Repurchase Agreements (Cost $3,914,000) 3,914,000
-----------
Total Investments 36,042,217
Cash 2,608
Interest receivable 22,405
-----------
Total assets 36,067,230
-----------
Liabilities (Notes 1 and 2)
Distribution payable 156,841
Accrued management fees 354
-----------
Total liabilities 157,195
-----------
Net assets $35,910,035
===========
Net assets represented by:
Paid-in capital $35,899,786
Accumulated net realized gain
on investments 8,911
Net unrealized appreciation on investments 1,338
-----------
Total net assets $35,910,035
===========
Net Asset Value, offering and redemption price per share:
Net asset value of $35,910,035 / 35,903,688
outstanding shares of beneficial interest $1.00
===========
See Notes to Financial Statements.
4
<PAGE>
Master Reserves Trust
Money Market Portfolio I
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Investment income (Note 1)
Interest $1,518,678
----------
Expenses (Note 2)
Management fee 23,337
----------
Total expenses 23,337
----------
Net investment income 1,495,341
----------
Net realized and unrealized gain on investments (Note 1)
Net realized gain on investments 31
Net change in unrealized appreciation on investments 1,350
----------
Net realized and unrealized gain on investments 1,381
----------
Net increase in net assets resulting from operations $1,496,722
==========
See Notes to Financial Statements.
5
<PAGE>
Master Reserves Trust
Money Market Portfolio I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
<S> <C> <C>
Operations
Net investment income $ 1,495,341 $ 2,177,261
Net realized and unrealized gain (loss) on investments 31 (5,765)
Net change in unrealized appreciation
on investments 1,350 2,171
------------ ------------
Net increase in net assets
resulting from operations 1,496,722 2,173,667
------------ ------------
Distributions to shareholders
from net investment income (1,495,341) (2,177,261)
------------ ------------
Capital share transactions (Note 3)
Proceeds from shares sold 124,846,435 225,765,967
Payments for shares redeemed (120,750,938) (257,357,648)
Net asset value of shares issued
in reinvestment of distributions 1,498,978 555,364
------------ ------------
Net increase (decrease) in net
assets resulting from capital
share transactions 5,594,475 (31,036,317)
------------ ------------
Total increase (decrease) in net assets 5,595,856 (31,039,911)
Net assets
Beginning of year 30,314,179 61,354,090
------------ ------------
End of year $ 35,910,035 $ 30,314,179
============ ============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
(1) SIGNIFICANT ACCOUNTING POLICIES
Master Reserves Trust (the "Fund"), a Massachusetts business trust, is
an open-end management investment company registered under the Investment
Company Act of 1940. Keystone Management, Inc. ("KMI") is the Investment Manager
and Keystone Investment Management Company (formerly Keystone Custodian Funds,
Inc.)("Keystone") is the Investment Adviser. Keystone is a wholly-owned
subsidiary of Keystone Investments, Inc. (formerly Keystone Group, Inc.)("KII"),
a Delaware corporation. KII is privately owned by an investor group consisting
predominantly of current and former members of management of Keystone. Keystone
Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary of Keystone,
is the Fund's transfer and dividend disbursing agent. The Fund is a mutual fund
that seeks maximum current income while perserving capital by investing in money
market instruments.
The Fund currently offers institutional and other substantial investors a
money market portfolio (Money Market Portfolio I) (the "Portfolio"). The Fund
began offering shares of the Portfolio on May 4, 1976.
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles which
requires management to make estimates and assumptions that affect amounts
reported herein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the
Portfolio.
A. Portfolio securities which are purchased with maturities of sixty
days or less are valued at amortized cost (original purchase cost as adjusted
for amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market. Portfolio securities maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Portfolio securities maturing in more than sixty days when
purchased, which are held on the sixtieth day prior to maturity, are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market. All other securities and other assets are valued at fair
value as determined in good faith using methods prescribed by the Board of
Trustees.
7
<PAGE>
B. Securities transactions are accounted for on the trade date.
Interest income is recorded on the accrual basis. Realized gains and losses from
securities transactions are determined using the identified cost basis for both
financial reporting and federal income tax purposes.
C. The Portfolio has qualified, and intends to qualify in the future,
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (Internal Revenue Code). Thus, the Portfolio is relieved of any federal
income tax liability by distributing all of its net investment income and net
capital gains, if any, to its shareholders. The Portfolio intends to avoid
excise tax liability by making the required distributions under the Internal
Revenue Code.
D. When the Portfolio enters into a repurchase agreement (a purchase of
securities whereby the seller agrees to repurchase the securities at a mutually
agreed upon date and price) the repurchase price of the securities will
generally equal the amount paid by the Portfolio plus a negotiated interest
amount. The seller under the repurchase agreement will be required to provide
securities ("collateral") to the Portfolio whose value will be maintained at an
amount not less than the repurchase price, and which generally will be
maintained at 101% of the repurchase price. The Portfolio monitors the value of
collateral on a daily basis, and if the value of the collateral falls below
required levels, the Portfolio intends to seek additional collateral from the
seller or terminate the repurchase agreement. If the seller defaults, the
Portfolio would suffer a loss to the extent that the proceeds from the sale of
the underlying securities were less than the repurchase price. Any such loss
would be increased by any cost incurred on disposing of such securities. If
bankruptcy proceedings are commenced against the seller under the repurchase
agreement, the realization on the collateral may be delayed or limited.
Repurchase agreements entered into by the Portfolio will be limited to
transactions with dealers or domestic banks believed to present minimal credit
risks, and the Portfolio will take constructive receipt of all securities
underlying repurchase agreements until such agreements expire.
E. The Portfolio declares dividends from net investment income daily,
pays dividends monthly and automatically reinvests such dividends in additional
shares at net asset value, unless shareholders request payment in cash. Net
realized short-term capital gains of the portfolio, if any, will be distributed
annually.
(2) MANAGEMENT FEE AND OTHER PARTY TRANSACTIONS
Under the terms of the current management contract, Keystone provides
investment management and administrative services as well as office space,
equipment and clerical personnel for handling the
8
<PAGE>
affairs of the Fund. At the request and subject to the discretion of the
Trustees of the Fund, Keystone is required at its own expense to provide or
cause to be provided to the Fund the following additional operating services,
facilities and supplies: custodial, auditing, valuation, bookkeeping, legal,
stock transfer and dividend disbursing services, shareholders' reports, and
shareholders' meetings and maintenance of registration with the Securities and
Exchange Commission and various states, as well as insurance and membership in
trade associations and related items. In return, Keystone is entitled to a fee,
payable quarterly, computed at the annual rate of 0.09% of average daily net
assets of the Portfolio.
(3) SHARES OF BENEFICIAL INTEREST
The Fund is authorized to issue an unlimited number of shares, no par
value, for each portfolio. All capital share transactions included in the
Portfolio's Statement of Changes in Net Assets were made at net asset value of
$1.00 per share.
9
<PAGE>
[KPMG LOGO] Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Master Reserves Trust
We have audited the accompanying statement of assets and liabilities of Money
Market Portfolio I of Master Reserves Trust, including the schedule of
investments, as of December 31, 1995, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the ten-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund'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
December 31, 1995, by correspondence with the custodian. 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 Money
Market Portfolio I of Master Reserves Trust as of December 31, 1995, the results
of its operations for the year then ended, the changes in its net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the ten-year period then ended in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 26, 1996
