MERRILL LYNCH
U.S.A. GOVERNMENT
RESERVES
FUND LOGO
Semi-Annual Report
February 28, 1995
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 considered 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
<PAGE>
DEAR SHAREHOLDER
For the six-month period ended February 28, 1995, Merrill Lynch
U.S.A. Government Reserves paid shareholders a net annualized
dividend of 4.41%.* The fund's 7-day yield as of February 28, 1995
was 4.96% (including gains and losses) and 4.96% (excluding gains
and losses).
The Environment
The combination of heightened inflationary concerns, anticipation of
further tightening of monetary policy by the Federal Reserve Board,
the turmoil of the Mexican currency crisis and a weakening US dollar
all exerted negative influences on the US financial markets during
the six-month period ended February 28, 1995. On the positive side,
late in the period there were increasing signs that the US economy
may be losing momentum, suggesting that most of the interest rate
increases for this economic cycle may be behind us. As a result of
these economic crosscurrents, the US financial markets continued to
be volatile during the period.
The manufacturing sector proved to be the driving force behind the
US economy as 1994 drew to a close, making an important contribution
to the substantial increase in corporate earnings. US companies have
been successful at containing labor costs, which are an important
component of the inflation outlook. Growth in the economy has not
been translated into higher wages and benefits for US workers.
Consumer spending is growing at a slower pace than in previous
economic recoveries, and was unchanged for the month of January.
Another encouraging sign was the January increase in the personal
savings rate to the highest level in two years. However, this is
following an all-time annual low for the savings rate in 1994.
[FN]
*Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to
the investor after all expenses.
In the weeks ahead, investors will continue to assess economic data
and inflationary trends in order to gauge whether inflationary
pressures have been tempered and the economy is headed for moderate
growth (a "soft landing"), or if the lagged effect of interest rate
rises will result in a curtailment of economic growth. Investors
will also focus on the progress that the new Congress makes on both
reducing spending and the Federal budget deficit and passing tax
cuts that promote savings and investment. At this time, the recent
defeat of the balanced budget amendment in the Senate does not bode
well for the passage of sweeping fiscal reforms.
<PAGE>
Portfolio Matters
Until the beginning of February, most of the six-month period ended
February 28, 1995 was marked by robust economic growth, which kept
upward pressure on short-term interest rates. However, during the
month of February, interest rates moderated substantially, and the
steepness in the short end of the yield curve became less
pronounced.
The Federal Reserve Board raised interest rates twice during the
last six months. November's interest rate increase of 75 basis
points (0.75%) was unexpected by the market, which anticipated a 50
basis point rise. Interest rates on repurchase agreements
immediately rose, as did yields on short-term US Treasury notes and
bills. At the end of December, interest rates on repurchase
agreements were relatively subdued compared to earlier years,
although they did reflect mild upward pressures associated with
year-end financing.
During the six-month period ended February 28, 1995, the yield curve
was quite steep as the spread between Federal Funds and two-year
Treasury notes averaged over 190 basis points. Late in the period,
although our outlook was still cautious, the risk-reward trade-off
justified our entry into longer-term Treasury bills for a
substantial yield pickup over repurchase agreements. Although we had
been purchasing six-month bills for some time prior to the period
under review, we moved the fund out of three-month bills into
predominantly six-month bills and small positions of one-year bills.
The well-anticipated second interest rate hike by the Federal
Reserve Board occurred on February 1, 1995 amid increasing
speculation that economic growth would moderate during the first
quarter. Since that time, a consensus has developed that the Federal
Reserve Board may have reached a comfort level regarding the
relationship between the level of interest rates, economic growth
and the rate of inflation. During the six-month period ended
February 28, 1995, the average life of the fund ranged from 32 days
to 63 days, ending the period at 45 days.
In Conclusion
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.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
(Linda B. Costanzo)
Linda B. Costanzo
Vice President and Portfolio Manager
April 6, 1995
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations--29.3%
US Treasury Bills* $ 15,000 5.27% 4/06/95 $ 14,912
15,000 5.40 4/06/95 14,912
10,000 5.41 4/06/95 9,941
10,000 5.31 6/01/95 9,851
10,000 6.04 7/06/95 9,792
12,000 6.06 8/10/95 11,679
20,000 6.125 8/10/95 19,466
15,000 5.935 8/31/95 14,550
10,000 6.53 1/11/96 9,466
US Treasury Notes 10,000 4.125 6/30/95 9,940
10,000 4.25 7/31/95 9,922
10,000 4.625 8/15/95 9,931
5,000 3.875 8/31/95 4,944
Total US Government Obligations
(Cost--$149,460) 149,306
Face
Amount Issue
Repurchase Agreements**--75.1%
$25,000 BT Securities Inc., purchased on 2/22/95 to
yield 5.875% to 3/01/95 25,000
20,000 Barclays de Zeote Wedd Securities, Inc.,
purchased on 2/28/95 to yield 6.10% to
3/01/95 20,000
<PAGE>
25,000 CS First Boston Corp., purchased on
2/23/95 to yield 5.87% to 3/02/95 25,000
25,000 Chemical Securities, Inc., purchased on
2/27/95 to yield 5.875% to 3/06/95 25,000
25,000 Citicorp Securities Inc., purchased on
2/28/95 to yield 6.10% to 3/01/95 25,000
SCHEDULE OF INVESTMENTS (in Thousands)
Face Value
Amount Issue (Note 1a)
Repurchase Agreements** (concluded)
$25,000 Dean Witter Reynolds, Inc., purchased on
2/24/95 to yield 5.85% to 3/03/95 $ 25,000
13,467 First Chicago Capital Markets Inc.,
purchased on 2/28/95 to yield 6.05% to
3/01/95 13,467
25,000 Fuji Securities, Inc., purchased on
2/24/95 to yield 5.875% to 3/02/95 25,000
25,000 Goldman Sachs & Co., purchased on
2/24/95 to yield 5.85% to 3/03/95 25,000
25,000 Morgan (J.P.) Securities, Inc., purchased
on 2/28/95 to yield 5.875% to 3/06/95 25,000
25,000 Morgan Stanley &Co., Inc., purchased on
2/22/95 to yield 5.88% to 3/01/95 25,000
25,000 Nikko Securities International Inc.,
purchased on 2/23/95 to yield 5.90% to
3/02/95 25,000
25,000 Nomura Securities International, Inc.,
purchased on 2/28/95 to yield 5.92% to
3/07/95 25,000
25,000 PaineWebber Inc., purchased on 2/22/95
to yield 5.875% to 3/01/95 25,000
25,000 SBC Capital Markets Inc., purchased on
2/24/95 to yield 5.85% to 3/03/95 25,000
<PAGE>
25,000 Smith Barney, Inc., purchased on 2/28/95
to yield 5.92% to 3/07/95 25,000
Total Repurchase Agreements (Cost--$383,467) 383,467
Total Investments (Cost--$532,927)--104.4% 532,773
Liabilities in Excess of Other Assets--(4.4%) (22,461)
--------
Net Assets--100.0% $510,312
========
[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 &
Agency Obligations.
See Notes to Financial Statements.
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$532,927,096*) (Note 1a) $ 532,773,427
Cash 388,416
Receivables:
Interest $ 300,189
Beneficial interest sold 125,489 425,678
--------------
Prepaid registration fees and other assets (Note 1d) 67,782
--------------
Total assets $ 533,655,303
--------------
Liabilities: Payables:
Securities purchased 14,549,929
Beneficial interest redeemed 8,239,916
Investment adviser (Note 2) 178,739
Distributor (Note 2) 161,555 23,130,139
--------------
Accrued expenses and other liabilities 212,690
--------------
Total liabilities 23,342,829
--------------
<PAGE>
Net Assets: Net assets $ 510,312,474
==============
Net Assets Shares of beneficial interest, $0.10 par value, unlimited number of
Consist of: shares authorized $ 51,046,615
Paid-in capital in excess of par 459,419,528
Unrealized depreciation on investments--net* (153,669)
--------------
Net Assets--Equivalent to $1.00 per share, based on 510,466,144
shares of beneficial interest outstanding $ 510,312,474
==============
<FN>
*Cost for Federal income tax purposes. As of February 28, 1995, net
unrealized depreciation for Federal income tax purposes amounted to
$153,669, of which $91,906 related to appreciated securities and
$245,575 related to depreciated securities.
</TABLE>
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
February 28, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 13,803,625
(Note 1c):
Expenses: Investment advisory fees (Note 2) $ 1,196,739
Transfer agent fees (Note 2) 516,846
Distribution fees (Note 2) 312,835
Registration fees (Note 1d) 62,547
Accounting services (Note 2) 35,046
Printing and shareholder reports 32,217
Professional fees 31,854
Trustees' fees and expenses 21,115
Custodian fees 19,809
Other 6,168
--------------
Total expenses 2,235,176
--------------
Investment income--net 11,568,449
--------------
Realized & Realized gain on investments--net 64,864
Unrealized Change in unrealized depreciation on investments--net 320,170
Gain on --------------
Investments Net Increase in Net Assets Resulting from Operations $ 11,953,483
- --Net ==============
(Note 1c):
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: Feb. 28, 1995 Aug. 31, 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 11,568,449 $ 16,068,852
Realized gain on investments--net 64,864 99,437
Change in unrealized appreciation/depreciation on invest-
ments--net 320,170 (542,027)
-------------- --------------
Net increase in net assets resulting from operations 11,953,483 15,626,262
-------------- --------------
Dividends & Investment income--net (11,568,449) (16,068,852)
Distributions to Realized gain on investments--net (64,864) (99,437)
Shareholders -------------- --------------
(Note 1f): Net decrease in net assets resulting from dividends and
distributions to shareholders (11,633,313) (16,168,289)
-------------- --------------
Beneficial Net proceeds from sale of shares 715,852,225 1,560,756,479
Interest Net asset value of shares issued to shareholders in
Transactions reinvestment of dividends and distributions (Note 1f) 11,625,576 16,149,544
(Note 3): -------------- --------------
727,477,801 1,576,906,023
Cost of shares redeemed (761,659,798) (1,607,233,265)
-------------- --------------
Net decrease in net assets derived from beneficial interest
transactions (34,181,997) (30,327,242)
-------------- --------------
Net Assets: Total decrease in net assets (33,861,827) (30,869,269)
Beginning of period 544,174,301 575,043,570
-------------- --------------
End of period $ 510,312,474 $ 544,174,301
============== ==============
</TABLE>
<PAGE>
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Six
Months Ended For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: Feb. 28, 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .0216 .0280 .0248 .0365 .0602
Realized and unrealized gain (loss)
on investments--net .0007 (.0007) .0007 .0046 .0013
-------- -------- -------- -------- --------
Total from investment operations .0223 .0273 .0255 .0411 .0615
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.0216) (.0280) (.0248) (.0365) (.0602)
Realized gain on investments--net (.0001) (.0002) (.0013) (.0038) (.0013)**
-------- -------- -------- -------- --------
Total dividends and distributions (.0217) (.0282) (.0261) (.0403) (.0615)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return 4.41%* 2.84% 2.64% 4.15% 6.37%
======== ======== ======== ======== ========
Ratios to Expenses, excluding distribution fees .72%* .69% .63% .63% .61%
Average ======== ======== ======== ======== ========
Net Assets: Expenses .84%* .81% .75% .75% .73%
======== ======== ======== ======== ========
Investment income and realized gain
on investments--net 4.37%* 2.82% 2.61% 4.10% 6.07%**
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $510,312 $544,174 $575,044 $584,067 $658,207
Data: ======== ======== ======== ======== ========
<FN>
*Annualized.
**Includes unrealized gain (loss).
See Notes to Financial Statements.
</TABLE>
<PAGE>
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
management investment company. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
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 market value. 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 acquisition are valued at amortized cost, which approximates
market value. 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.
(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 recognized on the accrual basis. Realized
gains and losses on security transactions 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 agreements, 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.
<PAGE>
(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 Transac-
tions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of ML & Co., Inc. ("ML & Co."), which is the
limited partner. 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 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.
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
distribution fee is to compensate MLPF&S financial consultants and
other directly involved branch office personnel for selling shares
of the Fund and providing 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 sharebuilder 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 MLAM, FDS, PSI, MLPF&S, and/or ML & Co.
<PAGE>
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 respect to net proceeds from sale of shares and cost
of shares redeemed, respectively, since shares are recorded at $1.00
per share.
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
90 Washington Street, 12th Floor
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 221-7210
