MERRILL LYNCH
U.S.A. GOVERNMENT
RESERVES
[FUND LOGO]
STRATEGIC
Performance
Semi-Annual Report
February 28, 1998
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 -- 2/98
[RECYCLE LOGO]
Printed on post-consumer recycled paper
Merrill Lynch U.S.A. Government Reserves February 28, 1998
DEAR SHAREHOLDER
For the six-month period ended February 28, 1998, Merrill Lynch
U.S.A. Government Reserves paid shareholders a net annualized
dividend of 4.83%.* The fund's 7-day yield as of February 28, 1998
was 4.80%.
The average portfolio maturity for Merrill Lynch U.S.A Government
Reserves at February 28, 1998 was 80 days, compared to 85 days at
August 31, 1997.
The Environment
During the six months ended February 28, 1998, investors focused on
the implications that the financial crisis in Asia would have on
economic growth worldwide. In the United States, sentiment
fluctuated between a variety of outlooks. At times, US stock and
bond prices reflected expectations that the slowdown in Asian
economic growth would lead to a sharp decline in US business
activity and, ultimately, a deflationary environment. During other
periods, US investors appeared to expect that the positive trends of
a moderately expanding economy, declining unemployment, enhanced
productivity and corporate profits growth would continue, unimpeded
by the developments in Asia. To date, there have been only a few
signs that Asia's troubles are influencing US economic activity.
Industrial activity is beginning to slow, but the slowdown has not
spread to other sectors of the economy. We continue to have a
constructive view on the market, expecting growth to moderate and
inflation to remain under control.
The Federal Open Market Committee did not ease monetary policy at
its meeting in early February. Subsequently, in his Humphrey-Hawkins
testimony before Congress, Federal Reserve Board Chairman Alan
Greenspan suggested that monetary policy might remain steady for
some time. This raised concerns among US bond investors who had
expected imminent monetary policy easing. As 1998 progresses, it is
likely that investor focus will remain on developments in Asia,
their potential impact on the US economy, and the Federal Reserve
Board's response to them.
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/MARIE HEUMILLER
Marie Heumiller
Vice President and Portfolio Manager
March 31, 1998
We are pleased to announce that Marie Heumiller is responsible for
the day-to-day management of Merrill Lynch U.S.A. Government
Reserves. Ms. Heumiller has been employed by Merrill Lynch Asset
Management, L.P. since 1992 as Vice President and Portfolio Manager.
* Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to
the investor after all expenses.
<TABLE>
<CAPTION>
Merrill Lynch U.S.A. Government Reserves February 28, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
<S> <C> <C> <C> <C>
US Government Obligations -- 37.4%
US Treasury Bills* $3,575 5.37% 4/16/98 $3,552
2,900 5.40 4/30/98 2,874
2,900 5.32 5/07/98 2,872
1,900 5.52 5/28/98 1,875
2,250 5.525 5/28/98 2,221
3,080 5.29 9/17/98 2,991
US Treasury Notes 3,600 5.125 2/28/98 3,600
6,440 6.125 3/31/98 6,445
8,000 7.875 4/15/98 8,029
3,765 5.125 4/30/98 3,762
5,500 5.875 4/30/98 5,503
16,110 6.125 5/15/98 16,131
8,480 8.25 7/15/98 8,565
1,500 5.25 7/31/98 1,499
2,800 6.25 7/31/98 2,809
2,375 5.875 8/15/98 2,379
5,100 9.25 8/15/98 5,185
13,800 6.125 8/31/98 13,840
5,000 4.75 9/30/98 4,978
20,150 6.00 9/30/98 20,202
7,400 7.125 10/15/98 7,476
14,100 5.875 10/31/98 14,124
15,800 5.50 11/15/98 15,792
1,800 8.875 11/15/98 1,841
7,000 5.125 11/30/98 6,976
9,800 5.625 11/30/98 9,806
14,100 6.375 1/15/99 14,197
5,100 5.00 1/31/99 5,074
3,200 5.875 1/31/99 3,208
4,000 6.25 3/31/99 4,029
2,900 6.375 4/30/99 2,926
5,000 6.75 6/30/99 5,025
2,000 5.375 1/31/00 1,992
US Treasury STRIPS+ 4,700 5.282 2/15/99 4,457
---------
Total US Government Obligations
(Cost -- $216,221) 216,235
=========
<CAPTION>
Face
Amount Issue
<S> <C> <C>
Repurchase Agreements** -- 64.4%
$16,000 Aubrey G. Lanston & Co., Inc., purchased
on 2/27/98 to yield 5.65% to 3/02/98 $16,000
20,000 BZW Securities, Inc., purchased on 2/27/98
to yield 5.64% to 3/02/98 20,000
26,000 Daiwa Securities America, Inc., purchased
on 2/27/98 to yield 5.64% to 3/02/98 26,000
26,000 Dean Witter Reynolds, Inc., purchased on
2/27/98 to yield 5.65% to 3/02/98 26,000
26,000 Deutsche Morgan Grenfell, Inc., purchased
on 2/27/98 to yield 5.65% to 3/02/98 26,000
26,000 Donaldson, Lufkin & Jenrette Securities
Corp., purchased on 2/27/98 to yield 5.64%
to 3/02/98 26,000
27,000 Fuji Securities, Inc., purchased on 2/27/98
to yield 5.65% to 3/02/98 27,000
26,000 Greenwich Capital Markets, Inc.,
purchased on 2/27/98 to yield 5.65%
to 3/02/98 26,000
26,000 HSBC Securities, Inc., purchased on
2/27/98 to yield 5.65% to 3/02/98 26,000
26,000 Nesbitt Burns Securities, Inc., purchased
on 2/27/98 to yield 5.65% to 3/02/98 26,000
27,000 Nikko Securities Co. International, Inc.,
purchased on 2/27/98 to yield 5.66% to
3/02/98 27,000
26,000 Nomura Securities International, Inc.,
purchased on 2/27/98 to yield 5.65% to
3/02/98 26,000
24,817 PaineWebber Inc., purchased on 2/27/98
to yield 5.65% to 3/02/98 24,817
26,000 Salomon Brothers, Inc., purchased on
2/27/98 to yield 5.65% to 3/02/98 26,000
24,000 Sanwa Securities USA Co., L.P.,
purchased on 2/27/98 to yield 5.65%
to 3/02/98 24,000
----------
Total Repurchase Agreements
(Cost -- $372,817) 372,817
Total Investments (Cost -- $589,038) -- 101.8% 589,052
Liabilities in Excess of Other Assets -- (1.8%) (10,238)
----------
Net Assets -- 100.0% $578,814
==========
* 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.
+ Separate Traded Registered Interest and Principal of Securities (STRIPS).
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of February 28, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $589,037,827*) (Note 1a) $589,051,572
Cash 981
Receivables:
Interest $3,430,053
Beneficial interest sold 4,150 3,434,203
------------
Prepaid registration fees and other assets (Note 1d) 85,285
------------
Total assets 592,572,041
------------
Liabilities: Payables:
Beneficial interest redeemed 9,523,349
Securities purchased 3,551,536
Investment adviser (Note 2) 199,007
Distributor (Note 2) 167,222 13,441,114
------------
Accrued expenses and other liabilities 317,191
------------
Total liabilities 13,758,305
------------
Net Assets: Net assets $578,813,736
============
Net Assets Shares of beneficial interest, $0.10 par value, unlimited number of
Consist of: shares authorized $57,879,999
Paid-in capital in excess of par 520,919,992
Unrealized appreciation on investments -- net 13,745
------------
Net Assets -- Equivalent to $1.00 per share, based on 578,799,991
shares of beneficial interest outstanding $578,813,736
============
* Cost for Federal income tax purposes. As of February 28, 1998, net unrealized appreciation for
Federal income tax purposes amounted to $13,745, of which $114,445 related to appreciated
securities and $100,700 related to depreciated securities.
See Notes to Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended
February 28, 1998
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $15,936,668
(Note 1c):
Expenses: Investment advisory fees (Note 2) $1,265,558
Transfer agent fees (Note 2) 512,932
Distribution fees (Note 2) 330,552
Registration fees (Note 1d) 53,887
Professional fees 43,329
Custodian fees 42,425
Printing and shareholder reports 41,476
Accounting services (Note 2) 31,242
Trustees' fees and expenses 21,598
Other 8,195
------------
Total expenses 2,351,194
------------
Investment income -- net 13,585,474
------------
Realized & Realized gain on investments -- net 14,251
Unrealized Change in unrealized appreciation on investments -- net (31,986)
Gain (Loss) on ------------
Investments -- Net Net Increase in Net Assets Resulting from Operations $13,567,739
(Note 1c): ============
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: 1998 1997
<S> <C> <C> <C>
Operations: Investment income -- net $13,585,474 $25,908,094
Realized gain on investments -- net 14,251 42,945
Change in unrealized appreciation/depreciation on
investments -- net (31,986) 249,934
--------------- ---------------
Net increase in net assets resulting from operations 13,567,739 26,200,973
--------------- ---------------
Dividends & Investment income -- net (13,585,474) (25,908,094)
Distributions to Realized gain on investments -- net (14,251) (42,945)
Shareholders --------------- ---------------
(Note 1f): Net decrease in net assets resulting from dividends and
distributions to shareholders (13,599,725) (25,951,039)
--------------- ---------------
Beneficial Interest Net proceeds from sale of shares 806,327,649 1,575,865,679
Transactions Net asset value of shares issued to shareholders in
(Note 3): reinvestment of dividends and distributions (Note 1f) 13,593,177 25,939,110
--------------- ---------------
819,920,826 1,601,804,789
Cost of shares redeemed (799,199,901) (1,598,214,554)
--------------- ---------------
Net increase in net assets derived from beneficial interest
transactions 20,720,925 3,590,235
--------------- ---------------
Net Assets: Total increase in net assets 20,688,939 3,840,169
Beginning of period 558,124,797 554,284,628
--------------- ---------------
End of period $578,813,736 $558,124,797
=============== ===============
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,
1998 1997 1996 1995 1994
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 .0241 .0471 .0474 .0472 .0280
Realized and unrealized gain (loss) on
investments -- net (.0001) .0005 (.0002) .0017 (.0007)
--------- --------- --------- --------- ---------
Total from investment operations .0240 .0476 .0472 .0489 .0273
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income -- net (.0241) (.0471) (.0474) (.0472) (.0280)
Realized gain on investments -- net --+ (.0001) (.0003) (.0007) (.0002)
--------- --------- --------- --------- ---------
Total dividends and distributions (.0241) (.0472) (.0477) (.0479) (.0282)
--------- --------- --------- --------- ---------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
========= ========= ========= ========= =========
Total investment return 4.83%* 4.81% 4.97% 4.87% 2.84%
========= ========= ========= ========= =========
Ratios to Average Expenses .84%* .82% .82% .85% .81%
Net Assets: ========= ========= ========= ========= =========
Investment income and realized gain
on investments -- net 4.84%* 4.71% 4.78% 4.79% 2.82%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $578,814 $558,125 $554,285 $558,929 $544,174
Data: ========= ========= ========= ========= =========
* Annualized.
+ Amount is less than $.0001 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S.A. Government Reserves February 28, 1998
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
Fred G. Weiss, Trustee
Terry K. Glenn, Executive Vice President
Joseph T. Monagle Jr., Executive Vice President
Kevin J. McKenna, Senior Vice President
Donald C. Burke, Vice President
Marie Heumiller, Vice President
Gerald M. Richard, Treasurer
Thomas D. Jones, III, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 221-7210
