MERRILL LYNCH
U.S.A. GOVERNMENT
RESERVES
FUND LOGO
Semi-Annual Report
February 29, 1996
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. Statements and
other information herein are as dated and are subject to change.
<PAGE>
Merrill Lynch
U.S.A. Government Reserves
Box 9011
Princeton, NJ
08543-9011
DEAR SHAREHOLDER
For the six-month period ended February 29, 1996, Merrill Lynch
U.S.A. Government Reserves paid shareholders a net annualized
dividend of 5.05%*. The fund's 7-day yield as of February 29, 1996
was 4.77%.
The average portfolio maturity for Merrill Lynch U.S.A. Government
Reserves at February 29, 1996 was 60 days, compared to 70 days at
August 31, 1995.
The Environment
Throughout most of the six-month period ended February 29, 1996, it
appeared that the US economy was losing momentum. Consumer spending
was barely growing and the industrial sector was at a virtual
standstill. With inflationary pressures subdued, the Federal Reserve
Board responded to the slowing economy by continued modest monetary
policy easing. However, toward the end of the six-month period, a
series of economic releases began to suggest that economic activity
would not continue to be as sluggish as originally expected. A surge
in auto sales and factory orders, rising consumer confidence and
strong housing starts led some investors to believe that economic
activity was again accelerating and further easing by the Federal
Reserve Board unlikely. These concerns were highlighted in early
March with the report of a sharp increase in new jobs in February
and a drop in unemployment. In the weeks ahead, it is likely that
investors will continue to monitor economic data releases closely as
they attempt to gauge the US economy's progress.
<PAGE>
The impasse between the Clinton Administration and Congress over the
Federal budget continues. However, both sides have made concessions
since the debate began. It appears that investors are currently
focusing on the progress that has been made rather than on the
differences that remain. Initially, President Clinton proposed
deficits of about $190 billion annually through fiscal year 2002. He
now proposes balanced budgets, as do the Republicans. Furthermore,
even without policy changes, it appears that the US Federal budget
deficit should remain stable at about 2% of gross domestic product
for the rest of the decade. This is far better than is the case for
most Group of Seven industrial nations and a great improvement over
the last 15 years. Nevertheless, current indications are that a
piecemeal budget accord is the most likely outcome. Although this
may fall short of investors' best expectations, it appears that the
Federal budget debate over the past year has resulted in a trend
toward a more conservative fiscal policy.
[FN]
*Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to the
investor after all expenses.
For much of the six-month period ended February 29, 1996, a weak
economy and a steep yield curve encouraged us to maintain a
relatively aggressive investment posture. In response to recent
evidence of a recovering economy and a significant flattening of the
front end of the yield curve, we moved to reduce the fund's average
maturity.
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>
(Donaldo S. Benito)
Donaldo S. Benito
Portfolio Manager
April 9, 1996
We are pleased to announce that Donaldo S. Benito is responsible for
the day-to-day management of Merrill Lynch U.S.A. Government
Reserves. Mr. Benito has been employed by Merrill Lynch Asset
Management, L.P. since 1986 as Vice President.
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations--28.5%
US Treasury Bills* $15,000 5.32 % 5/02/96 $ 14,872
7,000 5.605 5/02/96 6,940
2,100 4.78 5/16/96 2,078
8,000 4.785 5/16/96 7,916
5,000 5.34 10/17/96 4,844
12,000 4.55 2/06/97 11,437
1,540 4.67 2/06/97 1,468
US Treasury Notes 6,000 6.00 6/30/96 6,022
5,000 7.875 7/15/96 5,049
15,000 6.125 7/31/96 15,061
2,100 4.375 8/15/96 2,094
5,000 6.50 9/30/96 5,038
15,000 6.875 10/31/96 15,157
6,000 7.25 11/15/96 6,082
12,000 7.50 1/31/97 12,236
18,600 6.875 2/28/97 18,902
10,000 5.625 6/30/97 10,044
10,000 5.875 7/31/97 10,075
3,000 5.75 9/30/97 3,016
2,000 5.25 12/31/97 1,995
<PAGE>
Total US Government Obligations
(Cost--$160,122) 160,326
Face
Amount Issue
Repurchase Agreements**--68.5%
$22,000 Chase Securities Inc., purchased on
2/29/96 to yield 5.40% to 3/01/96 22,000
24,827 Chemical Securities, Inc., purchased on
2/29/96 to yield 5.40% to 3/01/96 24,827
23,000 Daiwa Securities America, Inc., purchased
on 2/29/96 to yield 5.43% to 3/01/96 23,000
23,000 Dean Witter Reynolds, Inc., purchased on
2/23/96 to yield 5.18% to 3/01/96 23,000
SCHEDULE OF INVESTMENTS (in Thousands)
Face Value
Amount Issue (Note 1a)
Repurchase Agreements** (concluded)
$23,000 Deutsche Bank Securities Corp., purchased
on 2/29/96 to yield 5.42% to 3/01/96 $ 23,000
23,000 Donaldson, Lufkin & Jenrette Securities Corp.,
purchased on 2/23/96 to yield 5.15% to 3/01/96 23,000
22,000 First Chicago Capital Markets Inc., purchased
on 2/29/96 to yield 5.40% to 3/01/96 22,000
<PAGE>
23,000 Fuji Securities, Inc., purchased on 2/29/96 to
yield 5.42% to 3/01/96 23,000
22,000 Greenwich Capital Markets, Inc., purchased
on 2/29/96 to yield 5.40% to 3/01/96 22,000
23,000 HSBC Securities, Inc., purchased on 2/29/96
to yield 5.42% to 3/01/96 23,000
24,000 Lanston (Aubrey G.) Co., Inc., purchased on
2/29/96 to yield 5.43% to 3/01/96 24,000
24,000 Morgan Stanley & Co., Inc., purchased on
2/23/96 to yield 5.15% to 3/01/96 24,000
22,000 Nikko Securities International Inc., purchased
on 2/29/96 to yield 5.42% to 3/01/96 22,000
20,000 Nomura Securities International, Inc.,
purchased on 2/28/96 to yield 5.25% to 3/06/96 20,000
23,000 PaineWebber Inc., purchased on 2/29/96
to yield 5.45% to 3/01/96 23,000
22,000 Smith Barney, Inc., purchased on 2/29/96
to yield 5.42% to 3/01/96 22,000
22,000 UBS Securities, Inc., purchased on 2/29/96
to yield 5.41% to 3/01/96 22,000
Total Repurchase Agreements
(Cost--$385,827) 385,827
Total Investments (Cost--$545,949)--97.0% 546,153
Other Assets Less Liabilities--3.0% 17,069
--------
Net Assets--100.0% $563,222
========
[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.
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 29, 1996
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$545,948,554*) (Note 1a) $ 546,152,860
Cash 58
Receivables:
Securities sold $ 22,102,049
Interest 1,152,342
Beneficial interest sold 832 23,255,223
-------------
Prepaid registration fees and other assets (Note 1d) 116,840
-------------
Total assets 569,524,981
-------------
Liabilities: Payables:
Beneficial interest redeemed 5,539,233
Investment adviser (Note 2) 200,311
Distributor (Note 2) 173,075
Deferred income 58,234 5,970,853
-------------
Accrued expenses and other liabilities 331,761
-------------
Total liabilities 6,302,614
-------------
Net Assets: Net assets $ 563,222,367
=============
Net Assets Shares of beneficial interest, $0.10 par value, unlimited number of
Consist of: shares authorized $ 56,301,806
Paid-in capital in excess of par 506,716,255
Unrealized appreciation on investments--net* 204,306
-------------
Net Assets--Equivalent to $1.00 per share, based on 563,018,061
shares of beneficial interest outstanding $ 563,222,367
=============
<FN>
*Cost for Federal income tax purposes. As of February 29, 1996, net
unrealized appreciation for Federal income tax purposes amounted to
$204,306, of which $294,282 related to appreciated securities and
$89,976 related to depreciated securities.
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended February 29, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 16,000,302
(Note 1c):
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 1,253,511
Transfer agent fees (Note 2) 452,319
Distribution fees (Note 2) 325,613
Registration fees (Note 1d) 95,113
Custodian fees 40,031
Accounting services (Note 2) 36,746
Professional fees 36,353
Printing and shareholder reports 26,821
Trustees' fees and expenses 22,416
Other 6,772
-------------
Total expenses 2,295,695
-------------
Investment income--net 13,704,607
-------------
Realized & Realized gain on investments--net 182,629
Unrealized Gain on Change in unrealized appreciation on investments--net 158,224
Investments--Net -------------
(Note 1c): Net Increase in Net Assets Resulting from Operations $ 14,045,460
=============
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
February 29, August 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 13,704,607 $ 25,278,399
Realized gain on investments--net 182,629 351,372
Change in unrealized appreciation/depreciation on investments
--net 158,224 519,921
------------- -------------
Net increase in net assets resulting from operations 14,045,460 26,149,692
------------- -------------
Dividends & Investment income--net (13,704,607) (25,278,399)
Distributions to Realized gain on investments--net (182,629) (351,372)
Shareholders ------------- -------------
(Note 1f): Net decrease in net assets resulting from dividends and
distributions to shareholders (13,887,236) (25,629,771)
------------- -------------
<PAGE>
Beneficial Interest Net proceeds from sale of shares 742,243,815 1,488,684,962
Transactions Net asset value of shares issued to shareholders in reinvestment
(Note 3): of dividends and distributions (Note 1f) 13,879,915 25,615,698
------------- -------------
756,123,730 1,514,300,660
Cost of shares redeemed (751,988,357) (1,500,066,112)
------------- -------------
Net increase in net assets derived from beneficial interest
transactions 4,135,373 14,234,548
------------- -------------
Net Assets: Total increase in net assets 4,293,597 14,754,469
Beginning of period 558,928,770 544,174,301
------------- -------------
End of period $ 563,222,367 $ 558,928,770
============= =============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Six
Months
The following per share data and ratios have been derived Ended
from information provided in the financial statements. Feb. 29, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<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 .0245 .0472 .0280 .0248 .0365
Realized and unrealized gain (loss) on
investments--net .0006 .0017 (.0007) .0007 .0046
-------- -------- -------- -------- --------
Total from investment operations .0251 .0489 .0273 .0255 .0411
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.0245) (.0472) (.0280) (.0248) (.0365)
Realized gain on investments--net (.0003) (.0007) (.0002) (.0013) (.0038)
-------- -------- -------- -------- --------
Total dividends and distributions (.0248) (.0479) (.0282) (.0261) (.0403)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return 5.05%* 4.89% 2.85% 2.64% 4.15%
======== ======== ======== ======== ========
<PAGE>
Ratios to Average Expenses .82%* .85% .81% .75% .75%
Net Assets: ======== ======== ======== ======== ========
Investment income and realized gain
on investments--net 4.98%* 4.79% 2.82% 2.61% 4.10%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $563,222 $558,929 $544,174 $575,044 $584,067
Data: ======== ======== ======== ======== ========
<FN>
*Annualized.
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
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 Board of 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.
<PAGE>
(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.
(f) Dividends and distributions 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 and
distributions 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"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & 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 MLAM 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
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.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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 officers and/or
directors of MLAM, PSI, MLFDS, 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 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
<PAGE
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 221-7210
