MASTER RESERVES TRUST
------------------------
SEMI-ANNUAL REPORT
June 30, 1996
-------------------------
<PAGE>
MASTER RESERVES TRUST
MONEY MARKET PORTFOLIO I
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996 Year Ended December 31,
Unaudited 1995 1994 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 0.026 0.057 0.042 0.032 0.037 0.059
Less Distributions
Dividends from Net Investment Income (0.026) (0.057) (0.042) (0.032) (0.037) (0.059)
-----------------------------------------------------------------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================
Total Return 2.67% 5.83% 4.23% 3.24% 3.76% 6.01%
Ratios/Supplemental Data
Ratios to Average Net Assets:
Net Investment Income 5.30%(a) 5.83% 4.49% 3.23% 3.70% 5.90%
Total Expenses 0.09%(a) 0.09% 0.10% 0.10% 0.19% 0.20%
Net Assets, End of Period (thousands) $34,491 $35,910 $30,314 $61,354 $205,818 $56,603
</TABLE>
(a) Annualized
See Notes to Financial Statements
1
<PAGE>
MASTER RESERVES TRUST
MONEY MARKET PORTFOLIO I
SCHEDULE OF INVESTMENTS
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Maturity Market
Amount Date Value
- ------------ ----------- ------------------
<S> <C> <C> <C>
Certificate of Deposit (2.9%)
$1,000,000 Bayerische Landesbank, 5.41% (Cost $1,000,032) 10/29/96 $999,271
------------------
Commercial Paper (47.9%) (b)
1,000,000 ABN Amro North America, 5.29% 11/12/96 979,565
1,000,000 American Express Credit Corp., 5.33% 07/17/96 997,631
500,000 Associates Corp. North America, 5.29% 07/12/96 499,192
1,000,000 Bell Atlantic Financial Services, 5.36% 07/26/96 996,278
1,000,000 Bellsouth Telecommunications Inc., 5.32% 07/19/96 997,340
1,000,000 Coca Cola Co., 5.30% 08/19/96 992,786
1,000,000 Commerzbank AG, New York Branch, 5.32% 07/08/96 998,966
885,000 duPont (EI) de Nemours & Co., 5.32% 07/24/96 881,992
502,000 duPont (EI) de Nemours & Co., 5.37% 08/05/96 499,378
1,000,000 Emerson Electric, 5.32% 07/23/96 996,749
1,000,000 General Electric Capital Corp., 5.26% 08/14/96 993,571
500,000 Heinz H J Co., 5.28% 07/02/96 499,927
500,000 Heinz H J Co., 5.37% 07/30/96 497,837
600,000 Hewlett Packard Co., 5.37% 08/30/96 594,630
1,000,000 Kellogg Co., 5.25% 07/18/96 997,521
1,000,000 Motorola Credit Corp., 5.32% 07/22/96 996,897
1,000,000 Procter & Gamble Co., 5.28% 07/17/96 997,653
600,000 Unilever Capital Corp,. 5.35% 07/08/96 599,376
526,000 Unilever Capital Corp,. 5.40% 08/09/96 522,923
1,000,000 Wal Mart Stores Inc., 5.26% 07/25/96 996,493
------------------
Total Commercial Paper (Cost $16,537,450) 16,536,705
------------------
Master Note (1.4%)
499,000 Associates Corporation of North America, 5.23% 07/01/96 499,000
(Cost $499,000) ------------------
U.S. Government Agency Issues (22.2%) (b)
680,000 Federal Farm Credit Bank Discount Note, 5.30% 08/23/96 674,694
1,000,000 Federal Home Loan Mortgage Discount Note, 5.25% 08/05/96 994,896
1,000,000 Federal Home Loan Mortgage Discount Note, 5.25% 07/03/96 999,708
1,000,000 Federal Home Loan Mortgage Discount Note, 5.28% 07/15/96 997,947
1,000,000 Federal National Mortgage Association Discount Note, 09/26/96 987,047
1,000,000 Federal National Mortgage Association Discount Note, 07/09/96 998,924
2,000,000 Federal National Mortgage Association Discount Note, 07/12/96 1,996,786
------------------
Total U.S. Government Agency Issues (Cost $7,650,461) 7,650,002
------------------
2
<PAGE>
MASTER RESERVES TRUST
MONEY MARKET PORTFOLIO I
SCHEDULE OF INVESTMENTS
June 30, 1996 (Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Maturity Market
Repurchase Agreements (25.8%) Value Value
----------- ------------------
<S> <C> <C>
State Street Bank & Trust Co., 5.00%, purchased 6/28/96
(Collateralized by $6,022,000, FHLMC #840151, 7.523%,
08/01/22) maturing 07/01/96 $5,902,458 $5,900,000
Investments in repurchase agreements, in a joint trading account
purchased 6/28/96, 5.551% maturing 07/01/96 (a) 3,001,388 3,000,000
------------------
Total Repurchase Agreements (Cost $8,900,000) 8,900,000
------------------
Total Investments (Cost $34,586,943) 34,584,978
Other Assets and Liabilities - Net (-0.2%) (94,089)
------------------
Net Assets (100%) $34,490,889
==================
- -----------------------------------------------------------------------------------------------------
(a) The repurchase agreements are fully collaterized by U.S. Government and/or agency obligations
based on market prices at June 28, 1996
(b) Rates shown are the effective yields at the date of purchase.
</TABLE>
See Notes to Financial Statements
3
<PAGE>
Master Reserves Trust
Money Market Portfolio I
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
Assets (Note 1)
Investments at market value
Portfolio Securities (Cost $25,686,943) $25,684,978
Repurchase Agreements (Cost $8,900,000) 8,900,000
-----------------
Total Investments 34,584,978
Cash 39,854
Interest receivable 15,489
--------------
Total assets 34,640,321
--------------
Liabilities (Notes 1 and 2)
Distributions payable 142,326
Accrued management fees 7,106
--------------
Total liabilities 149,432
--------------
Net assets $34,490,889
==============
Net assets represented by:
Paid-in capital $34,483,559
Accumulated net realized gain on investments 9,295
Net unrealized depreciation on investments (1,965)
--------------
Total net assets $34,490,889
==============
Net Asset Value, offering and redemption price per share:
Net asset value of $34,490,889 - 34,487,461
outstanding shares of beneficial interest $1.00
==============
See Notes to Financial Statements
4
<PAGE>
Master Reserves Trust
Money Market Portfolio I
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
Investment income (Note 1)
Interest $825,448
--------
Expenses (Note 2)
Management fee 13,779
--------
Total expenses 13,779
--------
Net investment income 811,669
--------
Net realized and unrealized gain (loss) on investments (Note 1)
Net realized gain on investments 384
Net change in unrealized depreciation on investments (3,303)
--------
Net realized and unrealized loss on investments (2,919)
--------
Net increase in net assets resulting from operations $808,750
========
See Notes to Financial Statements
5
<PAGE>
Master Reserves Trust
Money Market Portfolio I
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
-------------
(Unaudited)
Operations
Net Investment Income $811,669 $1,495,341
Net realized gain on investments 384 31
Net change in unrealized appreciation
(depreciation) on investments (3,303) 1,350
---------- -----------
Net Increase in net assets resulting
from operations 808,750 1,496,722
---------- -----------
Distributions to shareholders from net
investment income (Note 1) (811,669) (1,495,341)
---------- -----------
Capital share transactions (Note 3)
Proceeds from shares sold 51,112,708 124,846,435
Payments for shares redeemed (53,355,120) (120,750,938)
Net asset value of shares issued in
reinvestment of distributions 826,185 1,498,978
---------- -----------
Net increase (decrease) in net assets
resulting from capital
share transactions (1,416,227) 5,594,475
---------- -----------
Total increase (decrease) in net assets (1,419,146) 5,595,856
Net assets
Beginning of period 35,910,035 30,314,179
---------- -----------
End of period $34,490,889 $35,910,035
========== ===========
See Notes to Financial Statements
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
(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 ("Keystone") is the Investment
Adviser. Keystone is a wholly-owned subsidiary of Keystone Investments, 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 preserving
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
require 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 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 taxable investment
income and net taxable capital gains, if any, to its shareholders. The Portfolio
intends to avoid any 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
the 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.
8
<PAGE>
(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 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
