Merrill Lynch
U.S.A. Government
Reserves
FUND LOGO
Semi-Annual Report February 28, 1994
Officers and Trustees
Arthur Zeikel--President and Trustee
Donald Cecil--Trustee
M. Colyer Crum--Trustee
Edward H. Meyer--Trustee
Jack B. Sunderland--Trustee
J. Thomas Touchton--Trustee
Terry K. Glenn--Executive Vice President
Joseph T. Monagle, Jr.--Executive Vice President
Donald C. Burke--Vice President
Linda B. Costanzo--Vice President
Gerald M. Richard--Treasurer
Mark B. Goldfus--Secretary
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 221-7210
<PAGE>
This report is not authorized for use as an offer of sale
or a solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be con-
sidered a representation of future performance, which will
fluctuate. The Fund seeks to maintain a consistent $1.00 net
asset value per share, although this cannot be assured. An
investment in the Fund is neither insured nor guaranteed by
the US Government.
Merrill Lynch
U.S.A. Government Reserves
Box 9011
Princeton, NJ 08543-9011
Dear Shareholder:
For the six-month period ended February 28, 1994, Merrill Lynch U.S.A.
Government Reserves paid shareholders a net annualized dividend of
2.50%.* The fund's 7-day yield as of February 28, 1994 was 2.57% (in-
cluding gains and losses) and 2.57% (excluding gains and losses).
The Environment
Inflationary expectations continued to shift during the six months ended
February 28, 1994. Following better-than-expected economic results,
Federal Reserve Board Chairman Alan Greenspan indicated in Congressional
testimony in January that continued strong expansion of the economy could
lead the central bank to tighten monetary policy in an effort to control
inflation. On February 4, 1994, the central bank broke with tradition and
publicly announced a modest increase in short-term interest rates.
Rather than view the Federal Reserve Board's action as a preemptive strike
against inflation, fixed-income investors focused on Chairman Greenspan's
implicit promise of further tightening should the rate of inflation acceler-
ate, and bond prices declined sharply. The setback in the bond market was
also reflected in greater stock market volatility.
In the weeks ahead, investors will continue to gauge the pace of the eco-
nomic expansion and watch for signs of an overheating economy that could
prompt successive Federal Reserve Board actions to raise short-term interest
rates. At this time, there is little evidence that the rate of inflation
will increase rapidly. Job growth is sluggish, and new claims for unemploy-
ment insurance have trended higher since the beginning of the year. Com-
modity prices have risen somewhat, but in many cases these increases are
occurring from very depressed levels. Therefore, although the secular long-
term trend toward lower interest rates may be over, it is not yet certain
whether the pace of economic activity will accelerate to the point where
extensive Federal Reserve Board tightening will be necessary to contain
inflation.
<PAGE>
[FN]
*Based on a constant investment throughout the period, with dividends
compounded daily, and reflecting a net return to the investor after all
expenses.
Portfolio Matters
During the six-month period ended February 28, 1994, the portfolio was
gradually restructured in anticipation of the possibility of higher inter-
est rates. This strategy proved effective since in early February the
Federal Reserve Board moved to raise the Federal Funds rate from 3.00% to
3.25%.
From September to mid-November, the fund was positioned to reflect optimism
in the markets with the average life ranging from 74 days to 85 days. In-
terest rates remained low throughout September and October, allowing the
fund to profit from the favorable interest rate environment.
By the end of November, the fund's average portfolio maturity was 72 days.
Throughout December, interest rates generally remained in a tight range at
the higher levels established in November since there was little investor
interest in the market prior to year-end. As prices rose for short-term US
Treasury bills in response to technical factors in the market, the fund
swapped out of short-term Treasury bills into repurchase agreements. Inter-
est rates on term repurchase agreements were trading at a positive yield
spread to the Federal Funds rate in anticipation that end-of-year funding
needs would temporarily push up short-term interest rates.
In January, a rally was underway as the tone of the market turned positive.
Economic reports on employment and inflation showed that job growth was
under trend and inflation was well under control. Since the Treasury bill
curve was steep and offered a distinct yield advantage, the fund worked
out of some repurchase agreements and back into Treasury bills. Prompted
by the steepness of the yield curve, we executed swaps in the 15-month--
18-month maturity sector.
In late January it appeared that fourth quarter 1993 growth was stronger
than previously believed. At the same time, despite inclement weather, it
seemed that first quarter 1994 growth was also going to exceed expecta-
tions. Yields began to rise once more as Federal Reserve Board Chairman
Alan Greenspan testified before a Congressional committee that the Federal
Reserve Board was concerned about future inflation based on current growth
trends in the economy. Prior to the Federal Reserve Board's move to raise
interest rates, we reduced the fund's exposure to longer-term Treasury
bill and Treasury note positions and lowered the fund's average portfolio
maturity to the low 50-day area. At the end of February, the fund's average
portfolio maturity stood at a relatively cautious 45 days. We appreciate
your ongoing support of Merrill Lynch U.S.A. Government Reserves, and we
look forward to sharing our investment outlook and strategy with you in
our upcoming annual report to shareholders.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Linda B. Costanzo)
Linda B. Costanzo
Vice President and Portfolio Manager
March 24, 1994
Merrill Lynch U.S.A. Government Reserves
Schedule of Investments as of February 28, 1994 (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations--19.0%
US Treasury Bills* $ 25,000 3.11 % 4/07/94 $ 24,919
5,000 3.18 4/07/94 4,984
25,000 3.18 6/09/94 24,762
10,000 3.2975 8/25/94 9,823
US Treasury Notes 20,000 3.875 2/28/95 19,947
10,000 4.125 6/30/95 9,978
10,000 4.25 7/31/95 9,984
5,000 3.875 8/31/95 4,964
Total US Government Obligations
(Cost--$109,632) 109,361
Face
Amount Issue
Repurchase Agreements**--82.4%
$27,000 BT Securities Corp., purchased
on 2/23/94 to yield 3.27% to 3/02/94 27,000
27,000 Bear Stearns & Co. Inc., purchased
on 2/24/94 to yield 3.27% to 3/03/94 27,000
17,270 Carroll McEntee & McGinley Inc., purchased
on 2/28/94 to yield 3.40% to 3/01/94 17,270
<PAGE>
27,000 Chemical Securities, Inc., purchased
on 2/24/94 to yield 3.27% to 3/03/94 27,000
27,000 Citicorp Securities Inc., purchased on
2/23/94 to yield 3.28% to 3/02/94 27,000
27,000 First Boston Corporation (The), purchased
on 2/23/94 to yield 3.27% to 3/02/94 27,000
27,000 First Chicago Capital Markets Inc., purchased
on 2/23/94 to yield 3.28% to 3/02/94 27,000
27,000 Fuji Securities, Inc., purchased
on 2/22/94 to yield 3.25% to 3/01/94 27,000
Face Value
Amount Issue (Note 1a)
Repurchase Agreements** (concluded)
$27,000 Goldman Sachs & Co., purchased
on 2/25/94 to yield 3.22% to 3/04/94 $ 27,000
27,000 Kidder, Peabody & Co., Inc., purchased
on 2/25/94 to yield 3.30% to 3/02/94 27,000
27,000 Morgan (J.P.) Securities, Inc., purchased
on 2/22/94 to yield 3.25% to 3/01/94 27,000
27,000 Morgan Stanley & Co., Inc., purchased
on 2/25/94 to yield 3.25% to 3/04/94 27,000
27,000 PaineWebber Inc., purchased on 2/25/94
to yield 3.28% to 3/01/94 27,000
27,000 Prudential-Bache Securities, Inc.,
purchased on 2/24/94 to yield 3.26%
to 3/03/94 27,000
27,000 Sanwa-BGK Securities Co., L.P., purchased
on 2/23/94 to yield 3.27% to 3/02/94 27,000
8,953 Smith Barney Shearson Inc., purchased
on 2/23/94 to yield 3.28% to 3/02/94 8,953
18,047 Smith Barney Shearson Inc., purchased
on 2/25/94 to yield 3.28% to 3/02/94 18,047
27,000 Swiss Bank Corp., purchased
on 2/25/94 to yield 3.25% to 3/04/94 27,000
27,000 UBS Securities, Inc., purchased
on 2/22/94 to yield 3.25% to 3/01/94 27,000
<PAGE>
Total Repurchase Agreements
(Cost--$476,270) 476,270
Total Investments (Cost--$585,902)--101.4% 585,631
Liabilities in Excess of Other Assets--(1.4%) (7,924)
-------
Net Assets--100.0% $577,707
========
[FN]
*US Treasury Bills are traded on a discount basis; the interest
rates shown are the discount rates paid at the time of purchase
by the fund.
**Repurchase Agreements are fully collateralized by US Government
Obligations.
See Notes to Financial Statements.
<TABLE>
Merrill Lynch U.S.A. Government Reserves
Statement of Assets and Liabilities as of February 28, 1994
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$585,901,503*) (Note 1a) $ 585,630,888
Receivables:
Interest $ 280,452
Beneficial interest sold 156,258 436,710
-----------
Prepaid registration fees and other assets (Note 1d) 187,152
-------------
Total assets 586,254,750
-------------
Liabilities:
Payables:
Beneficial interest redeemed 8,020,015
Investment adviser (Note 2) 197,811
Distributor (Note 2) 166,497 8,384,323
-----------
Accrued expenses and other liabilities 163,074
-------------
Total liabilities 8,547,397
-------------
Net assets $ 577,707,353
=============
Net Assets Consist of:
Shares of beneficial interest, $0.10 par value, unlimited number
of shares authorized $ 57,797,797
Paid-in capital in excess of par 520,180,171
Unrealized depreciation on investments--net* (270,615)
------------
<PAGE>
Net Assets--Equivalent to $1.00 per share, based on 577,977,968
shares of beneficial interest outstanding $ 577,707,353
=============
<FN>
*Cost for Federal income tax purposes. As of February 28, 1994, net
unrealized depreciation for Federal income tax purposes amounted to
$270,615, of which $1,319 related to appreciated securities and $271,934
related to depreciated securities.
</TABLE>
<TABLE>
Merrill Lynch U.S.A. Government Reserves
Statement of Operations for the Six Months Ended February 28, 1994
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 9,122,250
Expenses:
Investment advisory fees (Note 2) $ 1,270,943
Transfer agent fees (Note 2) 394,063
Distribution fees (Note 2) 335,411
Registration fees (Note 1d) 79,042
Professional fees 32,643
Accounting services (Note 2) 28,781
Printing and shareholder reports 24,074
Trustees' fees and expenses 20,032
Custodian fees 18,041
Other 6,697
-----------
Total expenses 2,209,727
-------------
Investment income--net 6,912,523
Realized Gain on Investments--Net (Note 1c) 75,436
Change in Unrealized Appreciation/Depreciation on Investments--Net (338,803)
-------------
Net Increase in Net Assets Resulting from Operations $ 6,649,156
=============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch U.S.A. Government Reserves
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
Feb. 28, 1994 Aug. 31, 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 6,912,523 $ 15,010,689
Realized gain on investments--net 75,436 808,358
Change in unrealized appreciation/depreciation on investments--net (338,803) (388,973)
------------- --------------
Net increase in net assets resulting from operations 6,649,156 15,430,074
------------- --------------
Dividends & Distributions to Shareholders (Note 1f):
Investment income--net (6,912,523) (15,010,689)
Realized gain on investments--net (75,436) (808,358)
------------- --------------
Net decrease in net assets resulting from dividends and distributions to shareholders (6,987,959) (15,819,047)
------------- --------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 792,810,355 1,541,281,030
Net asset value of shares issued to shareholders in reinvestment of dividends (Note 1f) 6,979,687 15,804,764
------------- --------------
799,790,042 1,557,085,794
Cost of shares redeemed (796,787,456) (1,565,720,173)
------------- --------------
Net increase (decrease) in net assets derived from beneficial interest transactions 3,002,586 (8,634,379)
------------- --------------
Net Assets:
Total increase (decrease) in net assets 2,663,783 (9,023,352)
Beginning of period 575,043,570 584,066,922
------------- --------------
End of period $ 577,707,353 $ 575,043,570
============= ==============
</TABLE>
<PAGE>
<TABLE>
Merrill Lynch U.S.A. Government Reserves
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Six For the Year Ended August 31,
Months Ended --------------------------------------------
Increase (Decrease) in Net Asset Value: Feb. 28, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment income--net .0121 .0248 .0365 .0602 .0755
Realized and unrealized gain (loss) on investments--net (.0005) .0007 .0046 .0013 .0004
-------- -------- -------- -------- --------
Total from investment operations .0116 .0255 .0411 .0615 .0759
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.0121) (.0248) (.0365) (.0602) (.0755)
Realized gain on investments--net (.0001) (.0013) (.0038) (.0013)** (.0004)**
-------- -------- -------- -------- --------
Total dividends and distributions (.0122) (.0261) (.0403) (.0615) (.0759)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Investment Return 2.50%* 2.64% 4.15% 6.37% 7.89%
======== ======== ======== ======== ========
Ratios to Average Net Assets:
Expenses, excluding distribution fees .66%* .63% .63% .61% .67%
======== ======== ======== ======== ========
Expenses .78%* .75% .75% .73% .81%
======== ======== ======== ======== ========
Investment income and realized gain on investments--net 2.47%* 2.61% 4.10% 6.07%** 7.57%**
======== ======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) $577,707 $575,044 $584,067 $658,207 $438,829
======== ======== ======== ======== ========
<FN>
*Annualized.
**Includes unrealized gain (loss).
See Notes to Financial Statements.
</TABLE>
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch U.S.A. Government Reserves (the "Fund") is registered under
the Investment Company Act of 1940 as a diversified, open-end investment
management company. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Investments maturing more than sixty days
after the valuation date are valued at the most recent bid price or yield
equivalent as obtained from dealers that make markets in such securities.
When securities are valued with sixty days or less to maturity, the
difference between the valuation existing on the sixty-first day before
maturity and maturity value is amortized on a straight-line basis to
maturity. Investments maturing within sixty days from their date of acqui-
sition are valued at amortized cost which approximates market. For purposes
of valuation, the maturity of a variable rate security is deemed to be
the next coupon date on which the interest rate is to be adjusted. Assets
for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the trustees
of the Fund.
<PAGE>
(b) 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 taxable income to its shareholders. Therefore,
no Federal income tax provision is required.
(c) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income (including amortization of premium or discount) is re-
cognized on the accrual basis. Realized gains and losses on security trans-
actions are determined on the identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Repurchase agreements--The Fund invests in US Government securities
pursuant to repurchase agreements with a member bank of the Federal Reserve
System or a primary dealer in US Government securities. Under such agree-
ments, the bank or primary dealer agrees to repurchase the security at a
mutually agreed upon time and price. The Fund takes possession of the
underlying securities, marks to market such securities and, if necessary,
receives additional securities daily to ensure that the contract is fully
collateralized.
(f) Dividends to shareholders--The Fund declares dividends daily and
reinvests daily such dividends (net of non-resident alien tax and backup
withholding tax withheld) in additional fund shares at net asset value.
Dividends are declared from the total of net investment income and net
realized gain or loss on investments.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill
Lynch Asset Management, L.P. ("MLAM"). Effective January 1, 1994, the
investment advisory business of MLAM was reorganized from a corporation
to a limited partnership. Both prior to and after the reorganization,
ultimate control of MLAM was vested with Merrill Lynch & Co., Inc. ("ML
& Co"). The general partner of MLAM is Princeton Services, Inc., an
indirect wholly-owned subsidiary of ML & Co. The limited partners are
ML & Co. and Merrill Lynch Investment Management, Inc. ("MLIM") which is
also an indirect wholly-owned subsidiary of ML & Co. For such services,
the Fund pays a monthly fee equal to an annual rate of 0.45% of the average
daily net assets of the Fund.
The Investment Advisory Agreement obligates MLAM to reimburse the Fund to
the extent the Fund's expenses (excluding interest, taxes, distribution
fees, brokerage fees and commissions, and extraordinary items) exceed 2.5%
of the Fund's first $30 million of average daily net assets, 2.0% of the
next $70 million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. No fee payment will be made to the Investment
Adviser during the year which will cause such expenses to exceed the expense
limitation at the time of such payment.
<PAGE>
The Fund has a Distribution and Shareholder Servicing Plan in accordance with
Rule 12b-1 under the Investment Company Act of 1940, pursuant to which
Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S") receives a distribution
fee under the Distribution Agreement from the Fund at the end of each month
at the annual rate of 0.125% of average daily net assets of the accounts
of Fund shareholders who maintain their accounts through MLPF&S. The distri-
bution fee is to compensate MLPF&S financial consultants and other directly
involved branch office personnel for selling shares of the Fund and pro-
viding direct personal services to shareholders. The distribution fee is
not compensation for the administrative and operational services rendered
to the Fund by MLPF&S in processing share orders and administering share-
builder accounts.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML
& Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or trustees of the Fund are also officers and/or
directors of MLIM, FDS, MLPF&S, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares sold and redeemed during the periods corresponds to
the amounts included in the Statements of Changes in Net Assets with re-
spect to net proceeds from sale of shares and cost of shares redeemed,
respectively, since shares are recorded at $1.00 per share.
