MERRILL LYNCH
U.S.A. GOVERNMENT
RESERVES
FUND LOGO
Semi-Annual Report
February 28, 1999
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. An
investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other Government agency.
Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the
Fund. Past performance results shown in this report should not be
considered a representation of future performance, which will
fluctuate. 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
Printed on post-consumer recycled paper
Merrill Lynch U.S.A. Government Reserves
February 28, 1999
DEAR SHAREHOLDER
For the six-month period ended February 28, 1999, 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, 1999
was 4.05%.
The average portfolio maturity for Merrill Lynch U.S.A. Government
Reserves at February 28, 1999 was 75 days, compared to 65 days at
August 31, 1998.
The Environment
Investor attitudes shifted markedly during the six months ended
February 28, 1999. The US economy demonstrated surprising strength
as 1998 drew to a close. As 1999 began, forecasts of a possible
slowdown gave way to increasing expectations that the US economy
could overheat. As a result, US long-term bond yields backed up to
mid-summer 1998 levels as investors increasingly anticipated
monetary policy tightening by the Federal Reserve Board. However,
shortly after the February quarter's close, investor confidence
returned as weaker-than-expected US employment statistics suggested
that inflationary pressures would continue to be contained and that
the central bank would not make major adjustments to its monetary
policy.
Throughout the February quarter, we remained constructive based on
our view that, although growth was strong, inflation was benign.
As 1999 unfolds, investor focus is likely to remain on the prospects
for the US economy. For the health of the global economy overall,
the ongoing recession in Japan is of great concern. At the same
time, the difficulties in emerging economies such as Russia and
Brazil remain. Progress in easing strains within the global
financial system--combined with continued evidence of
noninflationary economic growth--would likely provide an important
element of stability to the financial markets.
[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 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,
(Terry K. Glenn)
Terry K. Glenn
President and Trustee
(Marie Dwyer)
Marie Dwyer
Vice President and Portfolio Manager
March 30, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch U.S.A. Government
Reserves' Board of Trustees. We are pleased to announce that Terry
K. Glenn has been elected President and Trustee of the Fund. Mr.
Glenn has held the position of Executive Vice President of MLAM
since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Trustees in
wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Trustees.
Merrill Lynch U.S.A. Government Reserves
February 28, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations--38.0%
US Treasury Bills* $ 8,100 3.69 % 4/22/1999 $ 8,044
5,000 4.40 11/12/1999 4,835
US Treasury Notes 11,000 6.25 3/31/1999 11,016
6,100 6.375 4/30/1999 6,117
5,000 6.375 5/15/1999 5,016
10,000 6.25 5/31/1999 10,034
23,000 6.75 5/31/1999 23,101
17,000 6.00 6/30/1999 17,069
5,000 6.75 6/30/1999 5,031
2,000 6.375 7/15/1999 2,012
3,000 6.875 7/31/1999 3,024
22,000 6.00 8/15/1999 22,110
40,000 5.875 8/31/1999 40,187
13,500 5.75 9/30/1999 13,563
21,000 7.125 9/30/1999 21,053
10,000 6.00 10/15/1999 10,069
7,000 5.875 11/15/1999 7,045
5,000 5.625 11/30/1999 5,026
8,000 5.375 1/31/2000 8,025
5,000 7.75 1/31/2000 5,119
5,000 5.875 2/15/2000 5,039
3,000 5.50 2/29/2000 3,013
2,000 7.125 2/29/2000 2,040
10,000 6.875 3/31/2000 10,188
1,000 4.50 9/30/2000 990
1,300 4.625 12/31/2000 1,288
Total US Government Obligations
(Cost--$250,335) 250,054
Face
Amount Issue
Repurchase Agreements**--62.2%
$32,000 Aubrey G. Lanston & Co., Inc., purchased
on 2/26/1999 to yield 4.77% to 3/01/1999 32,000
16,000 Barclays Capital Inc., purchased on 2/26/1999
to yield 4.76% to 3/01/1999 16,000
SCHEDULE OF INVESTMENTS (in Thousands)
Face Value
Amount Issue (Note 1a)
Repurchase Agreements (concluded)
$32,000 Credit Suisse First Boston Corp.,
purchased on 2/26/1999 to yield 4.85%
to 3/01/1999 $ 32,000
32,000 Deutsche Bank Securities Inc., purchased on
2/18/1999 to yield 4.78% to 3/04/1999 32,000
25,000 Donaldson, Lufkin & Jenrette Securities Corp.,
purchased on 2/26/1999 to yield 4.76% to
3/01/1999 25,000
32,000 Greenwich Capital Markets, Inc., purchased
on 2/26/1999 to yield 4.77% to 3/01/1999 32,000
32,000 J.P. Morgan Securities Inc., purchased on
2/26/1999 to yield 4.84% to 3/01/1999 32,000
32,000 Lehman Brothers Inc., purchased on
2/26/1999 to yield 4.80% to 3/01/1999 32,000
32,000 Morgan Stanley & Co., Inc., purchased on
2/26/1999 to yield 4.84% to 3/01/1999 32,000
32,000 Nesbitt Burns Securities, Inc., purchased on
2/26/1999 to yield 4.77% to 3/01/1999 32,000
32,000 Nomura Securities International, Inc.,
purchased on 2/26/1999 to yield 4.85% to
3/01/1999 32,000
19,479 PaineWebber Inc., purchased on 2/26/1999
to yield 4.78% to 3/01/1999 19,479
30,000 Salomon, Smith Barney, Inc., purchased on
2/26/1999 to yield 4.77% to 3/01/1999 30,000
30,000 Warburg Dillon Read LLC, purchased on
2/26/1999 to yield 4.82% to 3/01/1999 30,000
Total Repurchase Agreements
(Cost--$408,479) 408,479
Total Investments (Cost--$658,814)--100.2% 658,533
Liabilities in Excess of Other Assets--(0.2%) (1,355)
--------
Net Assets--100.0% $657,178
========
[FN]
*US Treasury Bills are traded on a discount basis; the interest
rates shown reflect 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.
Merrill Lynch U.S.A. Government Reserves
February 28, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$658,814,066*) (Note 1a) $ 658,532,814
Cash 494
Interest receivable 4,467,090
Prepaid registration fees and other assets (Note 1d) 45,730
--------------
Total assets 663,046,128
--------------
Liabilities: Payables:
Beneficial interest redeemed $ 5,243,598
Investment adviser (Note 2) 227,301
Distributor (Note 2) 178,998
Dividends to shareholders (Note 1f) 293 5,650,190
--------------
Accrued expenses and other liabilities 218,412
--------------
Total liabilities 5,868,602
--------------
Net Assets: Net assets $ 657,177,526
==============
Net Assets Shares of beneficial interest, $0.10 par value, unlimited number of
Consist of: shares authorized $ 65,745,878
Paid-in capital in excess of par 591,712,900
Unrealized depreciation on investments--net (281,252)
--------------
Net Assets--Equivalent to $1.00 per share based on 657,458,778
shares of beneficial interest outstanding $ 657,177,526
==============
<FN>
*Cost for Federal income tax purposes. As of February 28, 1999, net
unrealized depreciation for Federal income tax purposes amounted
to $281,252, of which $171,454 related to appreciated securities
and $452,706 related to depreciated securities.
See Notes to Financial Statements.
<CAPTION>
Statement of Operations
For the Six Months Ended
February 28, 1999
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 16,482,957
(Note 1c):
Expenses: Investment advisory fees (Note 2) $ 1,452,422
Transfer agent fees (Note 2) 537,649
Distribution fees (Note 2) 371,439
Registration fees (Note 1d) 47,754
Accounting services (Note 2) 46,759
Custodian fees 36,387
Professional fees 34,044
Printing and shareholder reports 29,230
Trustees' fees and expenses 24,039
Other 5,897
--------------
Total expenses 2,585,620
--------------
Investment income--net 13,897,337
--------------
Realized & Realized gain on investments--net 136,700
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net (644,939)
(Loss) on --------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 13,389,098
(Note 1c): ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S.A. Government Reserves
February 28, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 13,897,337 $ 27,768,449
Realized gain on investments--net 136,700 29,131
Change in unrealized appreciation/depreciation on
investments--net (644,939) 317,956
-------------- --------------
Net increase in net assets resulting from operations 13,389,098 28,115,536
-------------- --------------
Dividends & Investment income--net (13,897,337) (27,768,449)
Distributions to Realized gain on investments--net (136,700) (29,131)
Shareholders -------------- --------------
(Note 1f): Net decrease in net assets resulting from dividends and
distributions to shareholders (14,034,037) (27,797,580)
-------------- --------------
Beneficial Net proceeds from sale of shares 944,711,045 1,655,219,704
Interest Net asset value of shares issued to shareholders in
Transactions reinvestment of dividends and distributions (Note 1f) 14,032,806 27,785,818
(Note 3): -------------- --------------
958,743,851 1,683,005,522
Cost of shares redeemed (908,941,670) (1,633,427,991)
-------------- --------------
Net increase in net assets derived from beneficial interest
transactions 49,802,181 49,577,531
-------------- --------------
Net Assets: Total increase in net assets 49,157,242 49,895,487
Beginning of period 608,020,284 558,124,797
-------------- --------------
End of period $ 657,177,526 $ 608,020,284
============== ==============
See Notes to Financial Statements.
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
February 28, For the Year Ended August 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<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 .0211 .0484 .0471 .0474 .0472
Realized and unrealized gain (loss) on
investments--net (.0008) .0007 .0005 (.0002) .0017
-------- -------- -------- -------- --------
Total from investment operations .0203 .0491 .0476 .0472 .0489
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.0211) (.0484) (.0471) (.0474) (.0472)
Realized gain on investments--net (.0002) (.0001) (.0001) (.0003) (.0007)
-------- -------- -------- -------- --------
Total dividends and distributions (.0213) (.0485) (.0472) (.0477) (.0479)
-------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total investment return 4.41%* 4.92% 4.81% 4.97% 4.87%
======== ======== ======== ======== ========
Ratios to Average Expenses .80%* .83% .82% .82% .85%
Net Assets: ======== ======== ======== ======== ========
Investment income and realized gain
on investments--net 4.35%* 4.82% 4.71% 4.78% 4.79%
======== ======== ======== ======== ========
Supplemental Data: Net assets, end of period (in thousands) $657,178 $608,020 $558,125 $554,285 $558,929
======== ======== ======== ======== ========
<FN>
*Annualized.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch U.S.A. Government Reserves
February 28, 1999
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. The Fund's financial statements are
prepared in accordance with generally accepted accounting principles
which may require the use of management accruals and estimates.
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--Portfolio securities with remaining
maturities of greater than sixty days are valued at the most recent
bid price or yield equivalent as obtained from dealers that make
markets in such securities. As securities transition from sixty-one
to sixty days 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. Securities
maturing sixty days or less 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. Other investments for which market value quotations are
not available are valued at their fair value as determined in good
faith by or under the direction of the Fund's Board of Trustees.
(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. Under such agreements,
the counterparty 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.
Merrill Lynch U.S.A. Government Reserves
February 28, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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 Incorporated
("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 officers and/or
directors of MLAM, PSI, FDS, 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.
Merrill Lynch U.S.A. Government Reserves
February 28, 1999
OFFICERS AND TRUSTEES
Terry K. Glenn, 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
Arthur Zeikel, Trustee
Joseph T. Monagle Jr., Executive Vice President
Kevin J. McKenna, Senior Vice President
Marie Dwyer, Vice President
Donald C. Burke, Vice President and Treasurer
Thomas D. Jones, III, Secretary
Gerald M. Richard, Treasurer of Merrill Lynch
U.S.A. Government Reserves has recently retired.
His colleagues at Merrill Lynch Asset Manage-
ment, L.P. join the Fund's Board of Trustees in
wishing Mr. Richard well in his retirement.
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 221-7210
