MERRILL LYNCH
U.S.A. GOVERNMENT
RESERVES
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
February 28, 1997
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.
Merrill Lynch
U.S.A. Government Reserves
Box 9011
Princeton, NJ
08543-9011 #10087 -- 2/97
Merrill Lynch U.S.A. Government Reserves February 28, 1997
DEAR SHAREHOLDER
For the six-month period ended February 28, 1997, Merrill Lynch U.S.A.
Government Reserves paid shareholders a net annualized dividend of
4.53%.* The fund's 7-day yield as of February 28, 1997 was 4.62%.
The average portfolio maturity for Merrill Lynch U.S.A. Government
Reserves at February 28, 1997 was 72 days, compared to 65 days at August
31, 1996.
The Environment
There was a relatively benign economic environment as 1996 drew to a
close, a trend which continued into the first months of 1997. Inflation
remains low, the pace of economic activity is moderate, and trends in
corporate earnings generally still appear to be favorable, although the
rate of increase in profits will probably be slower in 1997 than in
previous years.
On balance, US economic fundamentals appear to be the most positive they
have been for many years. However, the dilemma facing investors is how
long the economic expansion can continue at a steady, noninflationary
pace. At this late stage of the current economic recovery, investor
expectations can quickly change from positive to negative with the
release of surprising economic results. This tendency was illustrated in
the stock and bond market volatility sparked by Federal Reserve Board
Chairman Alan Greenspan's Humphrey-Hawkins testimony before Congress in
late February. Investors interpreted Chairman Greenspan's comments as
indicative of a tightening in monetary policy, although stock and bond
prices did stabilize subsequently. Continued steady, noninflationary
economic growth would be a very positive development for the stock and
bond markets in the new year, provided that it is not accompanied by
successive preemptive moves by the Federal Reserve Board to raise
interest rates to quell potential inflationary forces. As anticipated,
the Federal Reserve Board did raise the Federal funds rate on March 25,
1997 by 25 basis points (0.25%).
* Based on a constant investment throughout the period, with dividends
compounded daily, and reflecting a net return to
the investor after all expenses.
On the international front, the US dollar continued its strong advance
relative to the yen and the Deutschemark, raising concerns about the
outlook for US trade. In early February, the leading industrialized
nations expressed apparent agreement that it was time to seek a lower
dollar and less volatility in the foreign exchange markets. It remains
to be seen whether these stated intentions will be acted upon, or if the
US dollar continues to rise relative to other major currencies.
Early in the six-month period ended February 28, 1997, we focused the
Fund's investments in the six-month -- one-year sector, which proved
rewarding. As the period progressed, we extended the Fund's average
portfolio maturity to the mid 70-day range through the purchase of two-
year Treasury notes because of the steepness of the yield curve. Toward
the end of the period, we sold two-year Treasury coupons, as we grew
slightly more defensive.
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,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/DONALDO S. BENITO
Donaldo S. Benito
Vice President and Portfolio Manager
April 1, 1997
<TABLE>
<CAPTION>
Merrill Lynch U.S.A. Government Reserves February 28, 1997
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
<S> <C> <C> <C> <C>
US Government Obligations -- 38.4%
US Treasury Bills* $6,400 5.055% 5/22/97 $6,326
4,200 5.17 11/13/97 4,043
1,400 5.205 11/13/97 1,348
1,200 5.175 2/05/98 1,139
US Treasury Notes 19,780 6.625 3/31/97 19,808
7,850 6.875 3/31/97 7,862
11,340 8.50 4/15/97 11,391
10,505 6.50 4/30/97 10,525
2,100 6.875 4/30/97 2,105
7,200 6.50 5/15/97 7,215
9,000 6.125 5/31/97 9,011
5,000 5.625 6/30/97 5,005
18,800 8.50 7/15/97 19,009
2,250 5.50 7/31/97 2,251
12,200 5.875 7/31/97 12,223
600 6.50 8/15/97 603
22,800 6.00 8/31/97 22,843
12,900 5.75 9/30/97 12,916
3,500 8.75 10/15/97 3,568
8,700 5.625 10/31/97 8,703
11,400 7.375 11/15/97 11,532
4,430 5.00 1/31/98 4,400
20,220 7.25 2/15/98 20,485
8,040 6.125 3/31/98 8,071
3,765 5.125 4/30/98 3,737
2,800 5.875 4/30/98 2,801
Total US Government Obligations
(Cost -- $218,909) 218,920
<CAPTION>
Face
Amount Issue
<S> <C> <C>
Repurchase Agreements** -- 62.3%
$22,000 BZW Securities, Inc., purchased on
2/28/97 to yield 5.35% to 3/03/97 22,000
$20,000 Bear Stearns & Co., Inc., purchased on
2/28/97 to yield 5.36% to 3/03/97 20,000
26,000 Daiwa Securities America, Inc., purchased
on 2/24/97 to yield 5.30% to 3/03/97 26,000
26,000 Donaldson, Lufkin & Jenrette Securities
Corp., purchased on 2/26/97 to yield
5.30% to 3/05/97 26,000
27,000 Fuji Securities, Inc., purchased on 2/28/97
to yield 5.39% to 3/03/97 27,000
27,000 Goldman Sachs & Company, purchased on
2/28/97 to yield 5.38% to 3/03/97 27,000
27,000 Greenwich Capital Markets, Inc.,
purchased on 2/28/97 to yield 5.375% to
3/03/97 27,000
25,000 J.P. Morgan Securities Inc., purchased on
2/28/97 to yield 5.375% to 3/03/97 25,000
55,000 Nesbitt Burns Securities, Inc., purchased
on 2/25/97 to yield 5.28% to 3/04/97 55,000
51,482 PaineWebber Inc., purchased on 2/28/97 to
yield 5.39% to 3/03/97 51,482
22,000 SBC Warburg Inc., purchased on 2/28/97 to
yield 5.35% to 3/03/97 22,000
26,000 UBS Securities LLC, purchased on 2/28/97
to yield 5.37% to 3/03/97 26,000
Total Repurchase Agreements
(Cost -- $354,482) 354,482
Total Investments (Cost -- $573,391) -- 100.7% 573,402
Liabilities in Excess of Other Assets -- (0.7%) (3,866)
--------
Net Assets -- 100.0% $569,536
========
* 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.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of February 28, 1997
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $573,390,774*) (Note 1a) $573,401,676
Cash 347
Receivables:
Interest $3,127,992
Securities sold 120,313
Beneficial interest sold 58,677 3,306,982
----------
Prepaid registration fees and other assets (Note 1d) 88,378
------------
Total assets 576,797,383
------------
Liabilities: Payables:
Beneficial interest redeemed 6,614,059
Investment adviser (Note 2) 195,343
Distributor (Note 2) 158,127
Dividends to shareholders (Note 1f) 176 6,967,705
----------
Accrued expenses and other liabilities 293,637
------------
Total liabilities 7,261,342
------------
Net Assets: Net assets $569,536,041
============
Net Assets Shares of beneficial interest, $0.10 par value, unlimited number of
Consist of: shares authorized $56,952,514
Paid-in capital in excess of par 512,572,625
Unrealized appreciation on investments -- net 10,902
------------
Net Assets -- Equivalent to $1.00 per share, based on 569,525,139
shares of beneficial interest outstanding $569,536,041
============
* Cost for Federal income tax purposes. As of February 28, 1997, net
unrealized appreciation for Federal income tax purposes amounted to
$10,902, of which $84,766 related to appreciated securities and $73,864
related to depreciated securities.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
February 28, 1997
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and
(Note 1c): discount earned $15,024,505
Expenses: Investment advisory fees (Note 2) $1,237,769
Transfer agent fees (Note 2) 502,531
Distribution fees (Note 2) 305,657
Registration fees (Note 1d) 54,644
Custodian fees 38,641
Professional fees 32,097
Accounting services (Note 2) 29,263
Printing and shareholder reports 27,114
Trustees' fees and expenses 22,004
Other 10,597
----------
Total expenses 2,260,317
-----------
Investment income -- net 12,764,188
-----------
Realized & Realized gain on investments -- net 11,880
Unrealized Gain on Change in unrealized appreciation/depreciation on investments -- net 215,105
Investments -- Net -----------
(Note 1c): Net Increase in Net Assets Resulting from Operations $12,991,173
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the Six For the Year
Months Ended Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C> <C>
Operations: Investment income -- net $12,764,188 $26,170,999
Realized gain on investments -- net 11,880 192,438
Change in unrealized appreciation/depreciation on investments -- net 215,105 (250,285)
------------ -----------
Net increase in net assets resulting from operations 12,991,173 26,113,152
------------ -----------
Dividends & Investment income -- net (12,764,188) (26,170,999)
Distributions to Realized gain on investments -- net (11,880) (192,438)
Shareholders ------------ -----------
(Note 1f): Net decrease in net assets resulting from dividends and distributions
to shareholders (12,776,068) (26,363,437)
------------ -----------
Beneficial Interest Net proceeds from sale of shares 781,822,560 1,473,714,747
Transactions Net asset value of shares issued to shareholders in reinvestment of
(Note 3): dividends and distributions (Note 1f) 12,773,111 26,345,553
------------ -------------
794,595,671 1,500,060,300
Cost of shares redeemed (779,559,363) (1,504,454,157)
------------ -------------
Net increase (decrease) in net assets derived from beneficial interest
transactions 15,036,308 (4,393,857)
------------ -----------
Net Assets: Total increase (decrease) in net assets 15,251,413 (4,644,142)
Beginning of period 554,284,628 558,928,770
------------ ------------
End of period $569,536,041 $554,284,628
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
For the
Six
Months
The following per share data and ratios have been derived Ended
from information provided in the financial statements. Feb. 28, For the Year Ended August 31,
1997 1996 1995 1994 1993
Increase (Decrease) in Net Asset Value:
<S> <C> <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 .0233 .0474 .0472 .0280 .0248
Realized and unrealized gain (loss) on
investments -- net .0004 (.0002) .0017 (.0007) .0007
-------- -------- -------- -------- --------
Total from investment operations .0237 .0472 .0489 .0273 .0255
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net (.0233) (.0474) (.0472) (.0280) (.0248)
Realized gain on investments -- net --+ (.0003) (.0007) (.0002) (.0013)
-------- -------- -------- -------- --------
Total dividends and distributions (.0233) (.0477) (.0479) (.0282) (.0261)
-------- -------- -------- -------- --------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ========
Total investment return 4.53%* 4.97% 4.87% 2.84% 2.63%
======== ======== ======== ======== ========
Ratios to Average Expenses .82%* .82% .85% .81% .75%
Net Assets: ======== ======== ======== ======== ========
Investment income and realized gain
on investments -- net 4.64%* 4.78% 4.79% 2.82% 2.61%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $569,536 $554,285 $558,929 $544,174 $575,044
Data: ======== ======== ======== ======== ========
* Annualized.
+ Amount is less than $.0001 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S.A. Government Reserves February 28, 1997
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.
(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 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, 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
Donaldo S. Benito, Vice President
Donald C. Burke, 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
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 221-7210
