<PAGE>
CMA MONEY FUND
CMA GOVERNMENT SECURITIES FUND
CMA TAX-EXEMPT FUND
CMA TREASURY FUND
----------------
This document consists of the Prospectuses of CMA Money Fund, CMA Government
Securities Fund, CMA Tax-Exempt Fund and CMA Treasury Fund, four of the money
market mutual funds (collectively, the "CMA Funds") the shares of which are
offered to participants in the Cash Management Account (R) ("CMA (R) account")
financial service program of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") to provide a medium for the investment of free credit
balances held in CMA accounts, and an Appendix to such Prospectuses which
constitutes a part of each Prospectus. A Table of Contents is contained on page
1 of each Prospectus.
----------------
A CMA account is a conventional Merrill Lynch cash securities account or
margin securities account ("Securities Account") which is linked to the CMA
Funds, to money market deposit accounts maintained with depository institutions
and to a Visa (R) card/check account ("Visa Account"). Merrill Lynch markets
its margin account under the name Investor CreditLineSM service. Subscribers to
the CMA service may automatically invest free credit balances held in their CMA
accounts in shares of one of the CMA Funds, or such balances may be
automatically deposited with a depository institution through the Insured
Savings(TM) Account (the "Insured Savings Account"). The CMA Funds and the
Insured Savings Account are collectively referred to as the "Money Accounts".
Each CMA Fund is a no-load money fund seeking current income, preservation of
capital and liquidity available from investing in short-term securities. Of the
CMA Funds offered by this Prospectus, CMA Money Fund invests in money market
securities generally; CMA Government Securities Fund invests in direct
government obligations; CMA Tax-Exempt Fund invests in tax-exempt securities
and pays dividends exempt from Federal income taxation; and CMA Treasury Fund
invests in U.S. Treasury securities. The CMA Funds also include various series
of CMA Multi-State Municipal Series Trust (the "CMA State Funds"), each of
which invests in tax-exempt securities and pays dividends exempt from Federal
and a particular state's income taxation. At the date hereof, CMA State Funds
exist with respect to Arizona, California, Connecticut, Massachusetts,
Michigan, New Jersey, New York, North Carolina, Ohio and Pennsylvania.
Free credit balances held in CMA accounts will be automatically invested in
or deposited through the Money Account selected by the CMA subscriber as his or
her Primary Money Account. The subscriber may make manual investments in any of
the Funds as described under "Purchase of Shares" in the Appendix. The
subscriber may change the Primary Money Account designation at any time by
following the procedures set forth under "Purchase of Shares".
Merrill Lynch charges a program participation fee for the CMA service which
presently is $100 per year (an additional $25 annual program fee is charged for
participation in the CMA Visa (R) Gold Program described in the CMA Program
Description). A different fee may be charged to certain group plans and special
accounts. Merrill Lynch reserves the right to change the fee for the CMA
service or the CMA Visa (R) Gold Program at any time. As described under
"Purchase of Shares", shares of the CMA Funds may also be purchased directly
through the Funds' Transfer Agent by investors who are not subscribers to the
CMA program. Shareholders of the CMA Funds not subscribing to the CMA program
will not be charged the CMA program fee but will not receive any of the
additional services available to CMA program subscribers.
----------------
The information in this document should be read in conjunction with the
description of the Merrill Lynch Cash Management Account program which is
furnished to all CMA subscribers. Reference is made to such description for
information with respect to the CMA program, including the fees related
thereto. Information concerning the other CMA Funds is contained in the
prospectus relating to each of such Funds which is available from Merrill
Lynch, and information concerning the Insured Savings Account is contained in
the Insured Savings Account Fact Sheet. All CMA subscribers are furnished with
the prospectuses of CMA Money Fund, CMA Government Securities Fund, CMA Tax-
Exempt Fund and CMA Treasury Fund. The prospectuses of the CMA State Funds and
the Insured Savings Account Fact Sheet are available from Merrill Lynch. For
more information about the Merrill Lynch Cash Management Account program, call
toll-free from anywhere in the U.S., 1-800-CMA-INFO (1-800-262-4636).
<PAGE>
PROSPECTUS
JULY 29, 1994
CMA MONEY FUND
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Money Fund (the "Money Market Fund") is a no-load, diversified, open-end
investment company seeking current income, preservation of capital and
liquidity available from investing in a diversified portfolio of short-term
money market securities. These securities will consist primarily of short-term
United States Government securities, bank certificates of deposit, commercial
paper and repurchase agreements. Dividends are declared and reinvested daily in
the form of additional shares at net asset value. THE MONEY MARKET FUND SEEKS
TO MAINTAIN A CONSTANT $1.00 NET ASSET VALUE PER SHARE, ALTHOUGH THIS CANNOT BE
ASSURED. AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. The Money Market Fund has adopted a
Distribution and Shareholder Servicing Plan in compliance with Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "Investment Company Act").
There can be no assurance that the investment objectives of the Money Market
Fund will be realized.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Money Market
Fund that is relevant to making an investment in the Money Market Fund. This
Prospectus should be read carefully and retained for future reference. A
statement containing additional information about the Money Market Fund, dated
July 29, 1994 (the "Statement of Additional Information"), has been filed with
the Securities and Exchange Commission and can be obtained without charge by
calling or writing to the Money Market Fund at the above telephone number or
address. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table........................ 2
Financial Highlights............. 3
Yield Information................ 4
Investment Objectives and Poli-
cies............................ 4
Appendix......................... A-1
Purchase of Shares.............. A-1
Redemption of Shares............ A-4
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds.......... A-6
Portfolio Transactions........... A-9
Dividends........................ A-9
Determination of Net Asset Value. A-9
Taxes............................ A-10
Additional Information........... A-13
</TABLE>
<PAGE>
FEE TABLE
<TABLE>
<S> <C> <C>
ANNUAL MONEY MARKET FUND OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS) FOR THE YEAR ENDED MARCH 31, 1994:
Management Fees(a)............................................... 0.38%
Rule 12b-1 Fees(b)............................................... 0.13%
Other Expenses:
Dividend and Transfer Agency Fees.......................... 0.03%
Other Fees................................................. 0.01%
----
Total Other Expenses(c).......................................... 0.04%
----
Total Money Market Fund Operating Expenses....................... 0.55%
====
</TABLE>
- --------
(a) See "Management of the Funds--Investment Advisory Arrangements"--page A-7.
(b) See "Purchase of Shares"--page A-1.
(c) See "Management of the Funds--Transfer Agency Services"--page A-8.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment, assuming an operating ex-
pense ratio of 0.55% and a 5% annual return
throughout the periods........................ $5.62 $17.63 $30.73 $68.93
</TABLE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH") CHARGES
AN ANNUAL PROGRAM PARTICIPATION FEE, PRESENTLY $100 FOR INDIVIDUALS, FOR THE
CMA SERVICE (AN ADDITIONAL FEE, PRESENTLY $25, IS CHARGED FOR PARTICIPATION IN
THE CMA VISA (R) GOLD PROGRAM). SHAREHOLDERS OF THE MONEY MARKET FUND WHOSE
ACCOUNTS ARE MAINTAINED DIRECTLY WITH THE MONEY MARKET FUND'S TRANSFER AGENT
AND WHO ARE NOT SUBSCRIBERS TO THE CMA PROGRAM WILL NOT BE CHARGED THE CMA
PROGRAM FEE BUT WILL NOT RECEIVE ANY OF THE ADDITIONAL SERVICES AVAILABLE TO
CMA PROGRAM SUBSCRIBERS.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Money Market Fund will bear
directly or indirectly. The example set forth above assumes reinvestment of all
dividends and distributions. The example should not be considered a
representation of past or future expenses and actual expenses may be more or
less than those assumed for purposes of the example.
Money Market Fund
2
<PAGE>
FINANCIAL HIGHLIGHTS
Financial statements for the year ended March 31, 1994 and the independent
auditors' report thereon are included in the Statement of Additional
Information. The following per share data and ratios have been derived from
information provided in financial statements of the Money Market Fund audited
by Deloitte & Touche, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE OPER-
ATING PERFOR-
MANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Investment in-
come--net...... .0276 .0309 .0498 .0734 .0837 .0754 .0635 .0579
Realized and
unrealized gain
(loss) on in-
vestments--net. (.0005) .0019 .0019 .0017 (.0001) (.0004) .0004 .0002
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from
investment
operations..... .0271 .0328 .0517 .0751 .0836 .0750 .0639 .0581
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Less dividends
and
distributions:
Investment in-
come--net...... (.0276) (.0309) (.0498) (.0734) (.0836) (.0750) (.0635) (.0579)
Realized gain on
investments--
net............ (.0003) (.0015) (.0020) (.0017)* -- -- (.0004)* (.0002)*
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total dividends
and
distributions.. (.0279) (.0324) (.0518) (.0751) (.0836) (.0750) (.0639) (.0581)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== =========== =========== ===========
TOTAL INVESTMENT
RETURN......... 2.82% 3.30% 5.27% 7.81% 8.69% 7.79% 6.58% 5.97%
=========== =========== =========== =========== =========== =========== =========== ===========
RATIOS TO AVER-
AGE NET ASSETS:
Expenses,
excluding
distribution
fees........... .42% .42% .42% .41% .43% .43% .43% .43%
=========== =========== =========== =========== =========== =========== =========== ===========
Expenses........ .55% .55% .54% .54% .55% .55% .55% .56%
=========== =========== =========== =========== =========== =========== =========== ===========
Investment
income and
realized gain
on
investments--
net............ 2.79% 3.25% 5.18% 7.51%* 8.33%* 7.53%* 6.39%* 5.80%*
=========== =========== =========== =========== =========== =========== =========== ===========
SUPPLEMENTAL DA-
TA:
Net assets, end
of year
(in thousands)
............... $27,071,882 $27,093,682 $29,106,627 $31,163,167 $29,768,495 $22,954,950 $20,557,461 $19,029,720
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------------
1986 1985
----------- -----------
<S> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE OPER-
ATING PERFOR-
MANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00
----------- -----------
Investment in-
come--net...... .0745 .0952
Realized and
unrealized gain
(loss) on in-
vestments--net. .0030 .0026
----------- -----------
Total from
investment
operations..... .0775 .0978
----------- -----------
Less dividends
and
distributions:
Investment in-
come--net...... (.0745) (.0952)
Realized gain on
investments--
net............ (.0030)* (.0026)*
----------- -----------
Total dividends
and
distributions.. (.0775) (.0978)
----------- -----------
Net asset value,
end of year.... $ 1.00 $ 1.00
=========== ===========
TOTAL INVESTMENT
RETURN......... 8.01% 10.29%
=========== ===========
RATIOS TO AVER-
AGE NET ASSETS:
Expenses,
excluding
distribution
fees........... .43% .45%
=========== ===========
Expenses........ .56% .58%
=========== ===========
Investment
income and
realized gain
on
investments--
net............ 7.70%* 9.72%*
=========== ===========
SUPPLEMENTAL DA-
TA:
Net assets, end
of year
(in thousands)
............... $17,957,576 $16,422,472
=========== ===========
</TABLE>
- --------
* Includes unrealized gain (loss).
Money Market Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information concerning the Money Market Fund for the
indicated seven-day periods, computed to include and exclude realized and
unrealized gains and losses, and information as to the compounded annualized
yield (excluding gains and losses) for the same periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1994 MAY 31, 1994
-------------- ------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 2.93% 3.58%
Excluding gains and losses........................ 2.93% 3.56%
Compounded Annualized Yield......................... 2.97% 3.62%
Average Maturity of Portfolio at End of Period...... 41 days 54 days
</TABLE>
The yield of the Money Market Fund refers to the income generated by an
investment in the Money Market Fund over a stated seven-day period. This income
is then annualized: that is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The compounded annualized yield
(which excludes gains and losses) is calculated similarly but, when annualized,
the income earned by an investment in the Money Market Fund is assumed to be
reinvested. The compounded annualized yield will be somewhat higher than the
yield because of the effect of the assumed reinvestment.
The yield on Money Market Fund shares normally will fluctuate on a daily
basis. Therefore, the yield for any given past period is not an indication or
representation by the Money Market Fund of future yields or rates of return on
its shares. The Money Market Fund's yield is affected by changes in interest
rates on money market securities, average portfolio maturity, the types and
quality of portfolio securities held and operating expenses. Current yield
information may not provide a basis for comparison with bank deposits or other
investments which pay a fixed yield over a stated period of time.
On occasion, the Money Market Fund may compare its yield to (i) industry
averages compiled by Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market mutual
funds, (ii) the average yield reported by the Bank Rate Monitor National
Index (TM) for money market deposit accounts offered by the 100 leading banks
and thrift institutions in the ten largest standard metropolitan statistical
areas, (iii) yield data published by Lipper Analytical Services, Inc., (iv) the
yield on an investment in 90-day Treasury bills on a rolling basis, assuming
quarterly compounding, (v) performance data published by Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week,
CDA Investment Technology, Inc., Forbes and Fortune or (vi) historical yield
data relating to other central asset accounts similar to the CMA program. As
with yield quotations, yield comparisons should not be considered
representative of the Money Market Fund's yield or relative performance for any
future period.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Money Market Fund are to seek current
income, preservation of capital and liquidity available from investing in a
diversified portfolio of short-term money market securities. There can be no
assurance that the investment objectives of the Money Market Fund will be
realized.
Money Market Fund
4
<PAGE>
Investment in Money Market Fund shares offers several benefits that are
offset by certain expenses borne by investors, including investment advisory
fees, administrative costs and operational costs. The Money Market Fund seeks
to provide as high a yield potential, consistent with its objectives, as is
available from short-term money market securities utilizing professional money
market management, block purchases of securities and yield improvement
techniques. It provides high liquidity because of its redemption features and
reduced risk resulting from diversification of assets. The shareholder is also
relieved from administrative burdens associated with direct investment in
short-term securities, such as coordinating maturities and reinvestments,
safekeeping and making numerous buy-sell decisions. Certain expenses are borne
by investors, including management fees, distribution fees, administrative
costs and operational costs.
In managing the Money Market Fund's portfolio, Fund Asset Management, L.P.
(the "Investment Adviser") will employ a number of professional money
management techniques, including varying the composition of the Money Market
Fund's investments and the average maturity of the portfolio based on its
assessment of the relative values of the various money market instruments and
future interest rate patterns. The Investment Adviser's assessments will
respond to changing economic and money conditions and to shifts in fiscal and
monetary policy. The Investment Adviser will also seek to improve yield by
taking advantage of yield disparities that regularly occur in the money market.
For example, market conditions frequently result in similar securities trading
at different prices. Also, there are frequently yield disparities between the
various types of money market securities. The Money Market Fund seeks to
enhance yield by purchasing and selling securities based on these yield
disparities.
The following is a description of the types of short-term money market
securities in which the Money Market Fund may invest:
United States Government Securities: Marketable securities issued by or
guaranteed as to principal and interest by the U.S. Government and
supported by the full faith and credit of the United States.
United States Government Agency Securities: Debt securities issued by
U.S. Government-sponsored enterprises, agencies and instrumentalities,
including, but not limited to, the Federal National Mortgage Association,
the Federal Home Loan Mortgage Corporation, the Student Loan Marketing
Association and the Federal Agricultural Mortgage Corporation. Such
securities may also include debt securities issued by international
organizations designated or supported by multiple governmental entities,
such as the International Bank for Reconstruction and Development (the
"World Bank"). Government Agency Securities are not direct obligations of
the U.S. Government but involve various forms of U.S. Government
sponsorship or guarantees and are issued, in general, under the authority
of an act of Congress. The U.S. Government is not obligated to provide
financial support to any of these agencies, instrumentalities or
organizations.
Bank Money Instruments: U.S. dollar-denominated obligations of depository
institutions such as certificates of deposit, including variable rate
certificates of deposit, time deposits, deposit notes, bank notes and
bankers' acceptances. The obligations of commercial banks may be issued by
U.S. banks, foreign branches or subsidiaries of U.S. banks ("Eurodollar"
obligations) or U.S. branches or subsidiaries of foreign banks
("Yankeedollar" obligations). The Money Market Fund may invest only in
Eurodollar obligations which by their terms are general obligations of the
U.S. parent bank. Yankeedollar obligations in which the Money Market Fund
may invest must be issued by U.S. branches or subsidiaries of foreign banks
which are subject to state or Federal banking regulations in the U.S. and
by their terms must be general obligations of the foreign parent.
Money Market Fund
5
<PAGE>
Commercial Paper and Other Short-Term Obligations: Commercial paper
(including variable amount master demand notes), which refers to short-
term, unsecured promissory notes issued by corporations, partnerships,
trusts or other entities to finance short-term credit needs, and non-
convertible debt securities (e.g., bonds and debentures) with no more than
397 days (13 months) remaining to maturity at the date of purchase. Short-
term obligations issued by trusts include mortgage-related or asset-backed
debt instruments, including pass-through certificates such as
participations in, or bonds and notes backed by, pools of mortgage, credit
card, automobile or other types of receivables. These structured financings
will be supported by sufficient collateral and other credit enhancements,
including letters of credit, insurance, reserve funds and guarantees by
third parties, to enable such instruments to obtain the requisite quality
rating by a nationally recognized statistical rating organization, as
described below.
Foreign Bank Money Instruments: U.S. dollar-denominated obligations of
foreign depository institutions and their foreign branches and
subsidiaries, such as certificates of deposit, bankers' acceptances, time
deposits, bank notes and deposit notes. The obligations of such foreign
branches and subsidiaries may be the general obligation of the parent bank
or may be limited to the issuing branch or subsidiary by the terms of the
specific obligation or by government regulation. Such investments will only
be made if determined to be of comparable quality to other investments
permissible for the Money Market Fund. The Money Market Fund will not
invest more than 25% of its total assets (taken at market value at the time
of each investment) in these obligations.
Foreign Short-Term Debt Instruments: U.S. dollar-denominated commercial
paper and other short-term obligations issued by foreign entities. Such
investments are subject to quality standards similar to those applicable to
investments in comparable obligations of domestic issuers.
The following is a description of other types of investment practices in
which the Money Market Fund may invest or engage:
Repurchase Agreements: The Money Market Fund may invest in the money
market securities described above pursuant to repurchase agreements.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government securities or
an affiliate thereof. Under such agreements, the bank or primary dealer or
an affiliate thereof agrees, upon entering into the contract, to repurchase
the security at a mutually agreed upon time and price, thereby determining
the yield during the term of the agreement. This results in a fixed rate of
return insulated from market fluctuations during such period.
Reverse Repurchase Agreements: The Money Market Fund may enter into
reverse repurchase agreements which involve the sale of money market
securities held by the Money Market Fund, with an agreement to repurchase
the securities at an agreed upon price, date and interest payment. During
the time a reverse repurchase agreement is outstanding, the Money Market
Fund will maintain a segregated custodial account containing U.S.
Government or other appropriate high-grade debt securities having a value
equal to the repurchase price.
Lending of Portfolio Securities: The Money Market Fund may lend portfolio
securities (with a value not in excess of 33 1/3% of its total assets) to
brokers, dealers and financial institutions and receive
Money Market Fund
6
<PAGE>
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities. During the period of the
loan, the Money Market Fund receives income on both the loaned securities and
the collateral and thereby increases its yield.
Preservation of capital is a prime investment objective of the Money Market
Fund and, while the types of money market securities in which the Money Market
Fund invests generally are considered to have low principal risk, such
securities are not completely risk-free. There is a risk of the failure of
issuers to meet their principal and interest obligations. Repurchase agreements
may be construed to be collateralized loans by the purchaser to the seller
secured by the securities transferred to the purchaser. In the event of default
by the seller under a repurchase agreement construed to be a collateralized
loan, the underlying securities are not owned by the Money Market Fund but only
constitute collateral for the seller's obligation to pay the repurchase price.
With respect to repurchase agreements, reverse repurchase agreements and the
lending of portfolio securities by the Money Market Fund, there is also the
risk of the failure of parties involved to repurchase at the agreed upon price
or to return the securities involved in such transactions, in which event the
Money Market Fund may suffer time delays and incur costs or possible losses in
connection with such transactions.
Bank money instruments in which the Money Market Fund invests must be issued
by depository institutions with total assets of at least $1 billion, except
that the Money Market Fund may invest in certificates of deposit of smaller
institutions if such certificates of deposit are Federally insured and if, as a
result of such purchase, no more than 10% of total assets (taken at market
value), are invested in such certificates of deposit. Investments in Eurodollar
and Yankeedollar obligations may not exceed 25% of total assets. For purposes
of this requirement, the Money Market Fund treats bank money instruments issued
by U.S. branches or subsidiaries of foreign banks as obligations issued by
domestic banks (not subject to the 25% limitation) if the branch or subsidiary
is subject to the same banking regulation as U.S. banks.
The Money Market Fund's investments in short-term corporate, partnership and
trust debt and bank money instruments will be rated, or will be issued by
issuers who have been rated, in one of the two highest rating categories for
short-term debt obligations by a nationally recognized statistical rating
organization (an "NRSRO") or, if not rated, will be of comparable quality as
determined by the Trustees of the Money Market Fund. The Money Market Fund's
investments in corporate, partnership and trust bonds and debentures (which
must have maturities at the date of purchase of 397 days (13 months) or less)
will be in issuers who have received from the requisite NRSROs a rating, with
respect to a class of short-term debt obligations that is comparable in
priority and security with the investment, in one of the two highest rating
categories for short-term obligations or, if not rated, will be of comparable
quality as determined by the Trustees of the Money Market Fund. Currently,
there are six NRSROs: Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA
Limited and its affiliate IBCA, Inc., Moody's Investors Service, Inc., Standard
& Poor's Corporation and Thompson BankWatch, Inc.
Securities and Exchange Commission regulations limit investments by the Money
Market Fund in securities issued by any one issuer (other than the U.S.
Government, its agencies or instrumentalities) ordinarily to not more than 5%
of its total assets, or in the event that such securities do not have the
highest rating, not more than 1% of its total assets. In addition, such
regulations require that not more than 5% of the Money Market Fund's total
assets be invested in securities that do not have the highest rating, or are
not
Money Market Fund
7
<PAGE>
of comparable quality to securities with the highest rating, as determined by
the Trustees of the Money Market Fund.
The Money Market Fund may purchase money market securities on a forward
commitment basis at fixed purchase terms. The purchase will be recorded on the
date the Money Market Fund enters into the commitment and the value of the
security will thereafter be reflected in the calculation of the Money Market
Fund's net asset value. The value of the security on the delivery date may be
more or less than its purchase price. A separate account of the Money Market
Fund will be established with its custodian consisting of cash or liquid money
market securities having a market value at all times at least equal to the
amount of the forward commitment.
For purposes of its investment policies, the Money Market Fund defines short-
term money market securities as having a maturity of no more than 762 days (25
months) in the case of U.S. Government and agency securities and no more than
397 days (13 months) in the case of all other securities. The dollar-weighted
average maturity of the Money Market Fund's portfolio will not exceed 90 days.
During the Money Market Fund's fiscal year ended March 31, 1994, the average
maturity of its portfolio ranged from 37 days to 90 days.
Investment Restrictions. The Money Market Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Money Market Fund's outstanding
voting securities as defined in the Investment Company Act. Among the more
significant restrictions, the Money Market Fund may not: (1) purchase any
short-term securities other than the types of money market securities and
investments described under "Investment Objectives and Policies"; (2) invest
more than 25% of its total assets (taken at market value at the time of each
investment) in the securities of issuers in any particular industry (other than
U.S. Government securities, Government agency securities or bank money
instruments); (3) purchase the securities of any one issuer, other than U.S.
Government or U.S. Government agency securities, if immediately after such
purchase, more than 5% of the value of its total assets (taken at market value)
would be invested in such issuer, except that in the case of bank money
instruments or repurchase agreements with any one bank up to 25% of the value
of the Money Market Fund's total assets may be invested without regard to such
5% limitation but shall instead be subject to a 15% limitation; (4) invest in
the securities of any single issuer, if immediately after and as a result of
such investment, the Money Market Fund owns more than 10% of the outstanding
securities, or more than 10% of the outstanding voting securities, of such
issuer; and (5) enter into repurchase agreements if, as a result thereof, more
than 10% of the Money Market Fund's total assets (taken at market value at the
time of each investment, together with any other investments deemed illiquid)
would be subject to repurchase agreements maturing in more than seven days.
Money Market Fund
8
<PAGE>
PROSPECTUS
JULY 29, 1994
CMA GOVERNMENT SECURITIES FUND
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Government Securities Fund (the "Government Fund") is a no-load,
diversified, open-end investment company seeking preservation of capital,
liquidity and current income available from investing exclusively in a
diversified portfolio of short-term marketable securities which are direct
obligations of the United States Government and repurchase agreements
pertaining to such securities. Dividends are declared and reinvested daily in
the form of additional shares at net asset value. THE GOVERNMENT FUND SEEKS TO
MAINTAIN A CONSTANT $1.00 NET ASSET VALUE PER SHARE, ALTHOUGH THIS CANNOT BE
ASSURED. AN INVESTMENT IN THE GOVERNMENT FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. The Government Fund has adopted a Distribution and
Shareholder Servicing Plan in compliance with Rule 12b-1 under the Investment
Company Act of 1940 as amended (the "Investment Company Act"). There can be no
assurance that the investment objectives of the Government Fund will be
realized.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Government
Fund that is relevant to making an investment in the Government Fund. This
Prospectus should be read carefully and retained for future reference. A
statement containing additional information about the Government Fund, dated
July 29, 1994 (the "Statement of Additional Information"), has been filed with
the Securities and Exchange Commission and can be obtained without charge by
calling or writing to the Government Fund at the above telephone number or
address. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table........................ 2
Financial Highlights............. 3
Yield Information................ 4
Investment Objectives and Poli-
cies............................ 5
Appendix......................... A-1
Purchase of Shares.............. A-1
Redemption of Shares............ A-4
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds.......... A-6
Portfolio Transactions........... A-9
Dividends........................ A-9
Determination of Net Asset Value. A-9
Taxes............................ A-10
Additional Information........... A-13
</TABLE>
<PAGE>
FEE TABLE
<TABLE>
<S> <C>
ANNUAL GOVERNMENT FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS) FOR THE YEAR ENDED MARCH 31, 1994:
Management Fees (a).................................................... 0.40%
Rule 12b-1 Fees (b).................................................... 0.13%
Other Expenses:
Dividend and Transfer Agency Fees................................ 0.01%
Other Fees....................................................... 0.02%
----
Total Other Expenses (c)............................................... 0.03%
----
Total Government Fund Operating Expenses............................... 0.56%
====
</TABLE>
- --------
(a) See "Management of the Funds--Investment Advisory Arrangements"--page A-7.
(b) See "Purchase of Shares"--page A-1.
(c) See "Management of the Funds--Transfer Agency Services"--page A-8.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
An investor would pay the fol-
lowing expenses on a $1,000
investment, assuming an oper-
ating expense ratio of 0.56%
and a 5% annual return
throughout the periods....... $5.72 $17.95 $31.28 $70.15
</TABLE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH") CHARGES
AN ANNUAL PROGRAM PARTICIPATION FEE, PRESENTLY $100 FOR INDIVIDUALS, FOR THE
CMA SERVICE (AN ADDITIONAL FEE, PRESENTLY $25, IS CHARGED FOR PARTICIPATION IN
THE CMA VISA (R) GOLD PROGRAM). SHAREHOLDERS OF THE GOVERNMENT FUND WHOSE
ACCOUNTS ARE MAINTAINED DIRECTLY WITH THE GOVERNMENT FUND'S TRANSFER AGENT AND
WHO ARE NOT SUBSCRIBERS TO THE CMA PROGRAM WILL NOT BE CHARGED THE CMA PROGRAM
FEE BUT WILL NOT RECEIVE ANY OF THE ADDITIONAL SERVICES AVAILABLE TO CMA
PROGRAM SUBSCRIBERS.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Government Fund will bear directly
or indirectly. The Example set forth above assumes reinvestment of all
dividends and distributions. The example should not be considered a
representation of past or future expenses and actual expenses may be more or
less than those assumed for purposes of the example.
Government Fund
2
<PAGE>
FINANCIAL HIGHLIGHTS
Financial statements for the year ended March 31, 1994 and the independent
auditors' report thereon are included in the Statement of Additional
Information. The following per share data and ratios have been derived from
information provided in financial statements of the Government Fund audited by
Deloitte & Touche, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- ----------
Investment
income (loss)--
net............ .0271 .0294 .0473 .0704 .0819 .0737
Realized and
unrealized gain
(loss) on
investments--
net............ (.0013) .0038 .0034 .0014 .0006 (.0013)
---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations..... .0258 .0332 .0507 .0718 .0825 .0724
---------- ---------- ---------- ---------- ---------- ----------
Less dividends
and
distributions:
Investment
income--net.... (.0271) (.0294) (.0473) (.0704) (.0819) (.0724)
Realized gain on
investments--
net............ (.0004) (.0026) (.0036) (.0014)* (.0006)* --
---------- ---------- ---------- ---------- ---------- ----------
Total dividends
and
distributions.. (.0275) (.0320) (.0509) (.0718) (.0825) (.0724)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT
RETURN:........ 2.79% 3.25% 5.17% 7.46% 8.57% 7.50%
========== ========== ========== ========== ========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
distribution
fees........... .43% .43% .43% .43% .45% .46%
========== ========== ========== ========== ========== ==========
Expenses........ .56% .55% .56% .56% .57% .59%
========== ========== ========== ========== ========== ==========
Investment
income and
realized gain
(loss) on
investments--
net............ 2.75% 3.20% 5.05% 7.11%* 8.21%* 7.25%*
========== ========== ========== ========== ========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $3,563,595 $3,858,017 $4,452,247 $5,228,619 $3,515,578 $2,494,905
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-------------------------------------------------
1988 1987 1986 1985
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ----------
Investment
income (loss)--
net............ .0586 .0546 .0702 .0892
Realized and
unrealized gain
(loss) on
investments--
net............ .0011 .0018 .0042 .0040
---------- ---------- ---------- ----------
Total from
investment
operations..... .0597 .0564 .0744 .0932
---------- ---------- ---------- ----------
Less dividends
and
distributions:
Investment
income--net.... (.0586) (.0546) (.0702) (.0892)
Realized gain on
investments--
net............ (.0011)* (.0018)* (.0042)* (.0040)*
---------- ---------- ---------- ----------
Total dividends
and
distributions.. (.0597) (.0564) (.0744) (.0932)
---------- ---------- ---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
TOTAL INVESTMENT
RETURN:........ 6.13% 5.80% 7.68% 9.79%
========== ========== ========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
distribution
fees........... .47% .46% .48% .50%
========== ========== ========== ==========
Expenses........ .59% .59% .61% .63%
========== ========== ========== ==========
Investment
income and
realized gain
(loss) on
investments--
net............ 5.97%* 5.63%* 7.43%* 9.26%*
========== ========== ========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $2,362,766 $2,076,907 $1,903,593 $1,714,728
========== ========== ========== ==========
</TABLE>
- --------
* Includes unrealized gains (losses).
Government Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information concerning the Government Fund for the
indicated seven-day periods, computed to include and exclude realized and
unrealized gains and losses, and information as to the compounded annualized
yield (excluding such gains and losses) for the same periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1994 MAY 31, 1994
-------------- ------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 2.92% 3.42%
Excluding gains and losses........................ 2.92% 3.42%
Compounded Annualized Yield......................... 2.96% 3.48%
Average Maturity of Portfolio at End of Period...... 45 days 46 days
</TABLE>
The yield of the Government Fund refers to the income generated by an
investment in the Government Fund over a stated seven-day period. This income
is then annualized: that is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The compounded annualized yield
(which excludes gains and losses) is calculated similarly but, when annualized,
the income earned by an investment in the Government Fund is assumed to be
reinvested. The compounded annualized yield will be somewhat higher than the
yield because of the effect of the assumed reinvestment.
The yield on Government Fund shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Government Fund of future yields or rates of return on
its shares. The Government Fund's yield is affected by changes in interest
rates on money market securities, average portfolio maturity, the types and
quality of portfolio securities held and operating expenses. The yield on
Government Fund shares for various reasons may not be comparable to the yield
on shares of other money market funds or other investments. Current yield
information may not provide a basis for comparison with bank deposits or other
investments which pay a fixed yield over a stated period of time.
On occasion, the Government Fund may compare its yield to (i) averages
compiled by Donoghue's Money Fund Report, a widely recognized independent
publication that monitors the performance of money market mutual funds, (ii)
the average yield reported by the Bank Rate Monitor National Index (TM) for
money market deposit accounts offered by the 100 leading banks and thrift
institutions in the ten largest standard metropolitan statistical areas, (iii)
yield data reported by Lipper Analytical Services, Inc., (iv) the yield on an
investment in 90-day Treasury bills on a rolling basis, assuming quarterly
compounding, (v) performance data published by Morningstar Publications, Inc.,
Money Magazine, U.S. News and World Report, Business Week, CDA Investment
Technology, Inc., Forbes and Fortune or (vi) historical yield data relating to
other central asset accounts similar to the CMA program. As with yield
quotations, yield comparisons should not be considered representative of the
Government Fund's yield or relative performance for any future period.
Government Fund
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Government Fund are to seek preservation of
capital, liquidity and current income available from investing exclusively in a
diversified portfolio of short-term marketable securities which are direct
obligations of the U.S. Government and repurchase agreements pertaining to such
securities. Direct U.S. Government obligations consist of securities issued, or
guaranteed as to principal and interest, by the U.S. Government and which are
backed by the full faith and credit of the United States. The Government Fund
may not invest in securities issued or guaranteed by U.S. Government agencies,
instrumentalities or Government-sponsored enterprises which are not backed by
the full faith and credit of the United States.
Investment in Government Fund shares offers several benefits that are offset
by certain expenses borne by investors, including investment advisory fees,
administrative costs and operational costs. The Government Fund seeks to
provide as high a yield potential, consistent with its objectives, as is
available from short-term U.S. Government securities utilizing professional
money market management and block purchases of securities. It provides high
liquidity because of its redemption features and reduced market risk resulting
from diversification of assets. The shareholder is also relieved from
administrative burdens associated with direct investment in short-term U.S.
Government securities, such as coordinating maturities and reinvestments,
safekeeping and making numerous buy-sell decisions.
The Government Fund may invest in the U.S. Government securities described
above pursuant to repurchase agreements. Repurchase agreements may be entered
into only with a member bank of the Federal Reserve System or a primary dealer
in U.S. Government securities or an affiliate thereof. Under such agreements,
the bank or primary dealer or an affiliate thereof agrees, upon entering into
the contract, to repurchase the security from the Government Fund at a mutually
agreed upon time and price, thereby determining the yield during the term of
the agreement. This results in a fixed rate of return insulated from market
fluctuations during such period.
Preservation of capital is a prime investment objective of the Government
Fund and the direct U.S. Government obligations in which it will invest are
generally considered to have the lowest principal risk among money market
securities. Historically, direct U.S. Government obligations have generally had
lower rates of return than other money market securities with less safety.
Repurchase agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to the purchaser.
In the event of default by the seller under a repurchase agreement construed to
be a collateralized loan, the underlying securities are not owned by the
Government Fund but only constitute collateral for the seller's obligation to
pay the repurchase price. With respect to repurchase agreements, there is also
the risk of the failure of parties involved to repurchase at the agreed upon
price, in which event the Government Fund may suffer time delays and incur
costs or possible losses in connection with such transactions.
The Government Fund may purchase portfolio securities on a forward commitment
basis at fixed purchase terms. The purchase will be recorded on the date the
Government Fund enters into the commitment
Government Fund
5
<PAGE>
and the value of the security will thereafter be reflected in the calculation
of the Government Fund's net asset value. The value of the security on the
delivery date may be more or less than its purchase price. A separate account
of the Government Fund will be established with its custodian consisting of
cash or liquid money market securities having a market value at all times at
least equal to the amount of the forward commitment.
For purposes of its investment policies, the Government Fund defines short-
term U.S. Government securities as securities having a maturity of not more
than 762 days (25 months). Fund Asset Management, L.P. (the "Investment
Adviser") expects that substantially all the assets of the Government Fund will
be invested in securities maturing in not more than 397 days (13 months) but at
times some portion may have maturities up to not more than 762 days (25
months). The dollar-weighted average maturity of the Government Fund's
portfolio will not exceed 90 days. During the Government Fund's fiscal year
ended March 31, 1994, the average maturity of its portfolio ranged from 34 days
to 90 days.
Investment Restrictions. The Government Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Government Fund's outstanding
voting securities as defined in the Investment Company Act. Among the more
significant restrictions, the Government Fund may not: (1) purchase any
securities other than short-term marketable securities which are direct
obligations of the U.S. Government and repurchase agreements pertaining to such
securities; (2) enter into repurchase agreements with any one bank or primary
dealer or an affiliate thereof, if immediately thereafter, more than 5% of the
value of its total assets (taken at market value) would be invested in
repurchase agreements with such bank or primary dealer or an affiliate thereof;
and (3) enter into repurchase agreements if, as a result thereof, more than 10%
of the Government Fund's total assets (taken at market value at the time of
each investment) would be subject to repurchase agreements maturing in more
than seven days.
Government Fund
6
<PAGE>
PROSPECTUS
JULY 29, 1994 (AS SUPPLEMENTED JANUARY 6, 1995)
CMA TAX-EXEMPT FUND
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Tax-Exempt Fund (the "Tax-Exempt Fund") is a no-load, diversified, open-
end investment company seeking current income exempt from Federal income
taxes, preservation of capital and liquidity available from investing in a
diversified portfolio of short-term high quality Tax-Exempt Securities.
Portfolio securities will consist principally of short-term municipal notes,
variable rate demand notes and short-term municipal commercial paper. All of
the investments of the Tax-Exempt Fund will be in securities with remaining
maturities of not more than 397 days (13 months). The dollar-weighted average
maturity of the Tax-Exempt Fund's portfolio will be 90 days or less. Dividends
are declared and reinvested daily in the form of additional shares at net
asset value. THE TAX-EXEMPT FUND SEEKS TO MAINTAIN A CONSTANT $1.00 NET ASSET
VALUE PER SHARE, ALTHOUGH THIS CANNOT BE ASSURED. AN INVESTMENT IN THE TAX-
EXEMPT FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. The Tax-
Exempt Fund has adopted a Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Tax-Exempt Fund may invest in
certain otherwise tax-exempt securities which are classified as "private
activity bonds" which may be subject to an alternative minimum tax. See
"Taxes". The Tax-Exempt Fund also may invest in derivative or synthetic
municipal instruments. See "Investment Objectives and Policies--Portfolio
Investments--Derivative Products." There can be no assurance that the
investment objectives of the Tax-Exempt Fund will be realized.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is a concise statement of information about the Tax-Exempt
Fund that is relevant to making an investment in the Tax-Exempt Fund. This
Prospectus should be read carefully and retained for future reference. A
statement containing additional information about the Tax-Exempt Fund, dated
July 29, 1994 (the "Statement of Additional Information"), has been filed with
the Securities and Exchange Commission and can be obtained without charge by
calling or writing to the Tax-Exempt Fund at the above telephone number or
address. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table........................... 2
Financial Highlights................ 3
Yield Information................... 4
Investment Objectives and Policies.. 4
Appendix............................ A-1
Purchase of Shares................. A-1
Redemption of Shares............... A-4
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds........... A-6
Portfolio Transactions............ A-9
Dividends......................... A-9
Determination of Net Asset Value.. A-9
Taxes............................. A-10
Additional Information............ A-13
</TABLE>
<PAGE>
FEE TABLE
<TABLE>
<S> <C> <C>
ANNUAL TAX-EXEMPT FUND OPERATING EXPENSES (AS A PERCENTAGE OF AV-
ERAGE NET ASSETS) FOR THE YEAR ENDED MARCH 31, 1994:
Management Fees (a).................................................. 0.39%
Rule 12b-1 Fees (b).................................................. 0.13%
Other Expenses:
Dividend and Transfer Agency Fees.............................. 0.01%
Other Fees..................................................... 0.02%
----
Total Other Expenses (c)............................................. 0.03%
----
Total Tax-Exempt Fund Operating Expenses............................. 0.55%
====
</TABLE>
- --------
(a) See "Management of the Funds--Investment Advisory Arrangements"--page A-7.
(b) See "Purchase of Shares"--page A-1.
(c) See "Management of the Funds--Transfer Agency Services"--page A-8.
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment, assuming an operating ex-
pense ratio of 0.55% and a
5% annual return throughout the periods....... $5.62 $17.63 $30.73 $68.93
</TABLE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH") CHARGES
AN ANNUAL PROGRAM PARTICIPATION FEE, PRESENTLY $100 FOR INDIVIDUALS, FOR THE
CMA SERVICE (AN ADDITIONAL FEE, PRESENTLY $25, IS CHARGED FOR PARTICIPATION IN
THE CMA VISA (R) GOLD PROGRAM). SHAREHOLDERS OF THE TAX-EXEMPT FUND WHOSE
ACCOUNTS ARE MAINTAINED DIRECTLY WITH THE TAX-EXEMPT FUND'S TRANSFER AGENT AND
WHO ARE NOT SUBSCRIBERS TO THE CMA PROGRAM WILL NOT BE CHARGED THE CMA PROGRAM
FEE BUT WILL NOT RECEIVE ANY OF THE ADDITIONAL SERVICES AVAILABLE TO CMA
PROGRAM SUBSCRIBERS.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Tax-Exempt Fund will bear directly
or indirectly. The example set forth above assumes reinvestment of all
dividends and distributions. The example should not be considered a
representation of past or future expenses and actual expenses may be more or
less than those assumed for purposes of the example.
Tax-Exempt Fund
2
<PAGE>
FINANCIAL HIGHLIGHTS
Financial statements for the year ended March 31, 1994 and the independent
auditor's report thereon are included in the Statement of Additional
Information. The following per share data and ratios have been derived from
information provided in financial statements of the Tax-Exempt Fund audited by
Deloitte & Touche, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment
income (loss)--
net............ .02 .02 .04 .05 .06 .05 .04 .04
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations..... .02 .02 .04 .05 .06 .05 .04 .04
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Less dividends:
Investment
income--net.... (.02) (.02) (.04) (.05) (.06) (.05) (.04) (.04)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT
RETURN:........ 1.96% 2.36% 3.76% 5.39% 5.94% 5.25% 4.38% 3.97%
========== ========== ========== ========== ========== ========== ========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
distribution
fees........... .42% .42% .42% .41% .42% .42% .42% .42%
========== ========== ========== ========== ========== ========== ========== ==========
Expenses ....... .55% .54% .54% .54% .54% .54% .54% .55%
========== ========== ========== ========== ========== ========== ========== ==========
Investment
income--net.... 1.94% 2.33% 3.70% 5.24% 5.79% 5.11% 4.32% 3.89%
========== ========== ========== ========== ========== ========== ========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $7,911,960 $7,527,054 $7,874,437 $8,695,795 $8,356,203 $7,348,164 $8,277,540 $8,534,034
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------------
1986 1985
---------- ----------
<S> <C> <C>
INCREASE
(DECREASE) IN
NET ASSET
VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
year........... $ 1.00 $ 1.00
---------- ----------
Investment
income (loss)--
net............ .05 .06
---------- ----------
Total from
investment
operations..... .05 .06
---------- ----------
Less dividends:
Investment
income--net.... (.05) (.06)
---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00
========== ==========
TOTAL INVESTMENT
RETURN:........ 4.89% 5.63%
========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses,
excluding
distribution
fees........... .43% .45%
========== ==========
Expenses ....... .56% .57%
========== ==========
Investment
income--net.... 4.80% 5.45%
========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $7,171,113 $4,966,937
========== ==========
</TABLE>
Tax-Exempt Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information concerning the Tax-Exempt Fund as to the
annualized and compounded annualized yield for the indicated seven-day periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1994 MAY 31, 1994
-------------- ------------
<S> <C> <C>
Annualized Yield.................................... 1.80% 2.32%
Compounded Annualized Yield......................... 1.82% 2.35%
Average Maturity of Portfolio at End of Period...... 63 days 50 days
</TABLE>
The yield of the Tax-Exempt Fund refers to the income generated by an
investment in the Tax-Exempt Fund over a stated seven-day period. This income
is then annualized: that is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The compounded annualized yield is
calculated similarly but, when annualized, the income earned by an investment
in the Tax-Exempt Fund is assumed to be reinvested. The compounded annualized
yield will be somewhat higher than the yield because of the effect of the
assumed reinvestment.
The yield on Tax-Exempt Fund shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Tax-Exempt Fund of future yields or rates of return on
its shares. The Tax-Exempt Fund's yield is affected by changes in interest
rates on short-term Tax-Exempt Securities, average portfolio maturity, the
types and quality of portfolio securities held and operating expenses. Current
yield information may not provide a basis for comparison with bank deposits or
other investments which pay a fixed yield over a stated period of time.
On occasion, the Tax-Exempt Fund may compare its yield to (i) the Donoghue's
Tax-Free Funds Average, an average compiled by Donoghue's Money Fund Report, a
widely recognized independent publication that monitors the performance of
money market mutual funds, (ii) yield data published by Lipper Analytical
Services, Inc., (iii) performance data published by Morningstar Publications,
Inc., Money Magazine, U.S. News & World Report, Business Week, CDA Investment
Technology, Inc., Forbes and Fortune or (iv) historical yield data relating to
other central asset accounts similar to the CMA program. As with yield
quotations, yield comparisons should not be considered representative of the
Tax-Exempt Fund's yield or relative performance for any future period.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The investment objectives of the Tax-Exempt Fund are to seek current income
exempt from Federal income taxes, preservation of capital and liquidity
available from investing in a diversified portfolio of short-term high quality
Tax-Exempt Securities. The Tax-Exempt Fund seeks to achieve its objectives by
investing in a diversified portfolio of obligations issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities or
derivative or synthetic municipal instruments, the interest from which is
exempt from Federal income tax (such obligations are herein referred to as
"Tax-Exempt Securities"). The Tax-Exempt Fund may invest in
Tax-Exempt Fund
4
<PAGE>
certain otherwise tax-exempt securities which are classified as "private
activity bonds" which may be subject to an alternative minimum tax. See
"Taxes". The investment objectives of the Tax-Exempt Fund described in this
paragraph are a fundamental policy of the Tax-Exempt Fund and may not be
changed without a vote of the majority of the outstanding shares of the Tax-
Exempt Fund.
POTENTIAL BENEFITS
Investment in Tax-Exempt Fund shares offers several benefits that are offset
by certain expenses borne by investors, including investment advisory fees,
administrative costs and operational costs. The Tax-Exempt Fund seeks to
provide as high a tax-exempt yield potential, consistent with its objectives,
as is available from the short-term Tax-Exempt Securities in which it invests
utilizing professional management and block purchases of securities. It
provides high liquidity because of its redemption features and reduced risk
resulting from diversification of assets. The shareholder is also relieved from
administrative burdens associated with direct investment in short-term
securities, such as coordinating maturities and reinvestments, safekeeping and
making numerous buy-sell decisions.
PORTFOLIO INVESTMENTS
The Tax-Exempt Securities in which the Tax-Exempt Fund invests include
municipal notes, municipal commercial paper and municipal bonds with a
remaining maturity of not more than 397 days (13 months). The Tax-Exempt Fund
will also invest in variable rate demand notes and participations therein (see
"Variable Rate Demand Notes" below) and derivative or synthetic municipal
instruments (see "Derivative Products" below). Municipal notes include tax
anticipation notes, bond anticipation notes and revenue anticipation notes.
Anticipation notes are sold as interim financing in anticipation of tax
collection, bond sales or revenue receipts. Municipal commercial paper refers
to short-term unsecured promissory notes issued generally to finance short-term
credit needs. The Tax-Exempt Fund may invest in all types of tax-exempt
instruments currently outstanding or to be issued in the future which satisfy
the short-term maturity and quality standards of the Tax-Exempt Fund.
The Tax-Exempt Fund presently contemplates that it will not invest more than
25% of its total assets in Tax-Exempt Securities whose issuers are located in
the same state. The Tax-Exempt Fund does not intend to invest more than 25% of
its total assets in industrial development bonds or private activity bonds
where the entities supplying the revenues from which the issues are to be paid
are in the same industry.
Certain of the instruments in which the Tax-Exempt Fund invests, including
variable rate demand notes and derivative or synthetic municipal instruments
("Derivative Products"), effectively provide the Tax-Exempt Fund with economic
interests in long-term municipal bonds, coupled with rights to demand payment
of the principal amounts of such instruments from designated counterparties.
Under Securities and Exchange Commission rules, the Tax-Exempt Fund treats
these instruments as having maturities shorter than the stated maturity dates
of the notes, in the case of variable rate demand notes, or the long-term bonds
underlying the Derivative Products (the "Underlying Bonds"). Such maturities
are sufficiently short-term to allow such instruments to qualify as eligible
investments for money market funds such as the Tax-Exempt Fund. A demand right
is dependent on the financial ability of the counterparty, which typically is a
bank, broker-dealer or other financial institution, to purchase the instrument
at its principal amount. In addition, the right of the Tax-Exempt Fund to
demand payment from a counterparty may be subject to certain conditions,
including
Tax-Exempt Fund
5
<PAGE>
the creditworthiness of the instrument or the Underlying Bond. If a
counterparty is unable to purchase the instrument or, because of conditions on
the right of the Tax-Exempt Fund to demand payment, the counterparty is not
obligated to purchase the instrument on demand, the Tax-Exempt Fund may be
required to dispose of the instrument or the Underlying Bond in the open
market, which may be at a price that adversely affects the Tax-Exempt Fund's
net asset value.
Variable Rate Demand Notes. Variable rate demand notes ("VRDNs") are tax-
exempt obligations which contain a floating or variable interest rate
adjustment formula and an unconditional right of demand to receive payment of
the unpaid principal balance plus accrued interest upon a short notice period.
The interest rates are adjustable at periodic intervals to some prevailing
market rate for similar investments, such adjustment formula being calculated
to maintain the market value of the VRDN at approximately the par value of the
VRDN upon the adjustment date. The adjustments are frequently based on the
prime rate of a bank or some other appropriate interest rate adjustment index.
The Tax-Exempt Fund may also invest in VRDNs in the form of participation
interests ("Participating VRDNs") in variable rate tax-exempt obligations held
by a financial institution, typically commercial banks ("institutions").
Participating VRDNs provide the Tax-Exempt Fund with a specified undivided
interest (up to 100%) of the underlying obligations and the right to demand
payment of the unpaid principal balance plus accrued interest on the
Participating VRDNs from the institution upon a specified number of days'
notice, presently not to exceed 30 days. In addition, each Participating VRDN
is backed by an irrevocable letter of credit or similar commitment of the
institution. The Tax-Exempt Fund has an undivided interest in the underlying
obligation and thus participates on the same basis as the institution in such
obligation except that the institution typically retains fees out of the
interest paid on the obligation for servicing the obligation, providing the
letter of credit or issuing the repurchase commitment.
VRDNs that contain an unconditional right of demand to receive payment of the
unpaid principal balance plus accrued interest on a notice period exceeding
seven days may be deemed to be illiquid securities. A VRDN with a demand notice
period exceeding seven days will therefore be subject to the Fund's restriction
on illiquid investments unless, in the judgment of the Trustees, such VRDN is
liquid. The Trustees may adopt guidelines and delegate to Fund Asset
Management, L.P. (the "Investment Adviser") the daily function of determining
and monitoring liquidity of such VRDNs. The Trustees, however, will retain
sufficient oversight and be ultimately responsible for such determinations.
The Tax-Exempt Fund has been advised by its counsel that the Tax-Exempt Fund
should be entitled to treat the income received on Participating VRDNs as
interest from tax-exempt obligations provided that certain conditions are met.
It is presently contemplated that the Tax-Exempt Fund will not invest more than
a limited amount (not more than 20%) of its total assets in Participating
VRDNs.
Derivative Products. The Tax-Exempt Fund may invest in a variety of short-
term Derivative Products. Derivative Products are typically structured by a
bank, broker-dealer or other financial institution. A Derivative Product
generally consists of a trust or partnership through which the Fund holds an
interest in one or more long-term municipal bonds which are assets of the
applicable entity ("Underlying Bonds") coupled with a conditional right to sell
("put") the Fund's interest in the Underlying Bonds at par plus accrued
interest to a financial institution (a "Liquidity Provider"). Typically, a
Derivative Product is structured as a trust or partnership which provides for
pass-through tax-exempt income. There are currently
Tax-Exempt Fund
6
<PAGE>
three principal types of derivative structures: (1) "Tender Option Bonds",
which are instruments which grant the holder thereof the right to put an
Underlying Bond at par plus accrued interest at specified intervals to a
Liquidity Provider; (2) "Swap Products", in which the trust or partnership
swaps the payments due on an Underlying Bond with a swap counterparty who
agrees to pay a floating municipal money market interest rate; and (3)
"Partnerships", which allocate to the partners income, expenses, capital gains
and losses in accordance with a governing partnership agreement. The Tax-Exempt
Fund may also invest in other forms of Derivative Products.
Investments in Derivative Products raise certain tax, legal, regulatory and
accounting issues which may not be presented by investments in other municipal
bonds. There is some risk that certain issues could be resolved in a manner
which could adversely impact the performance of the Tax-Exempt Fund. For
example, the tax-exempt treatment of the interest paid to holders of Derivative
Products is premised on the legal conclusion that the holders of such
Derivative Products have an ownership interest in the Underlying Bonds. While
the Fund receives an opinion of legal counsel to the effect that the income
from each Derivative Product is tax-exempt to the same extent as the Underlying
Bond, the Internal Revenue Service (the "IRS") has not issued a ruling on this
subject. Were the IRS to issue an adverse ruling, there is a risk that the
interest paid on such Derivative Products would be deemed taxable.
Municipal Lease Obligations. Also included within the general category of the
Tax-Exempt Securities are participation certificates in a lease, an installment
purchase contract or a conditional sales contract (hereinafter collectively
called "lease obligations") entered into by a state or political subdivision to
finance the acquisition or construction of equipment, land or facilities.
Although lease obligations do not constitute general obligations of the issuer
for which the lessee's unlimited taxing power is pledged, a lease obligation is
frequently backed by the lessee's covenant to budget for, appropriate and make
the payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the lessee has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. Although "non-
appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing that has not yet
developed the depth of marketability associated with more conventional
securities. Certain investments in lease obligations may be illiquid. The Tax-
Exempt Fund may not invest in illiquid lease obligations if such investments,
together with all other illiquid investments, would exceed 10% of the Tax-
Exempt Fund's net assets. The Tax-Exempt Fund may, however, invest without
regard to such limitation in lease obligations which the Investment Adviser,
pursuant to guidelines which have been adopted by the Board of Trustees and
subject to the supervision of the Board, determines to be liquid. The
Investment Adviser will deem lease obligations liquid if they are publicly
offered and have received an investment grade rating of Baa or better by
Moody's Investors Service, Inc. ("Moody's"), or BBB or better by Standard &
Poor's Corporation ("Standard & Poor's") or Fitch Investors Service, Inc.
("Fitch"). Unrated lease obligations, or those rated below investment grade,
will be considered liquid if the obligations come to the market through an
underwritten public offering and at least two dealers are willing to give
competitive bids. In reference to the unrated lease obligations, the Investment
Adviser must, among other things, also review the creditworthiness of the
municipality obligated to make payment under the lease obligation and make
certain specified determinations based on such factors as the existence of a
rating or credit enhancement such as insurance, the frequency of trades or
quotes for the obligation and the willingness of dealers to make a market in
the obligation.
Tax-Exempt Fund
7
<PAGE>
SHORT-TERM MATURITY STANDARDS
All of the investments of the Tax-Exempt Fund will be in securities with
remaining maturities of not more than 397 days (13 months). The dollar-weighted
average maturity of the Tax-Exempt Fund's portfolio will be 90 days or less.
The maturity of VRDNs (including Participating VRDNs) are deemed to be the
longer of (i) the notice period required before the Tax-Exempt Fund is entitled
to receive payment of the principal amount of the VRDN upon demand or (ii) the
period remaining until the VRDN's next interest rate adjustment. If not
redeemed by the Tax-Exempt Fund through the demand feature, VRDNs mature on a
specified date which may range up to 30 years from the date of issuance.
HIGH QUALITY STANDARDS
The Tax-Exempt Fund's portfolio investments in municipal notes and short-term
tax-exempt commercial paper will be limited to those obligations which (i) are
secured by a pledge of the full faith and credit of the United States, or (ii)
are rated, or issued by issuers who have been rated, in one of the two highest
rating categories for short-term municipal debt obligations by a nationally
recognized statistical rating organization (an "NRSRO") or, if not rated, will
be of comparable quality as determined by the Trustees of the Tax-Exempt Fund.
The Tax-Exempt Fund's investments in municipal bonds (which must have
maturities at the date of purchase of 397 days (13 months) or less) will be in
issuers who have received from the requisite NRSROs a rating, with respect to a
class of short-term debt obligations that is comparable in priority and
security with the investment, in one of the two highest rating categories for
short-term obligations or, if not rated, will be of comparable quality as
determined by the Trustees of the Tax-Exempt Fund. Currently, there are three
NRSROs which rate municipal obligations: Fitch, Moody's and Standard & Poor's.
Certain tax-exempt obligations (primarily VRDNs and Participating VRDNs) may be
entitled to the benefit of letters of credit or similar commitments issued by
financial institutions and, in such instances, the Investment Adviser will take
into account the obligation of the financial institution in assessing the
quality of such instrument. The Tax-Exempt Fund may also purchase other types
of tax-exempt instruments if, in the opinion of the Trustees, such obligations
are equivalent to securities having the ratings described above.
Preservation of capital is a prime investment objective of the Tax-Exempt
Fund, and, while the types of short-term Tax-Exempt Securities in which the
Tax-Exempt Fund invests are not completely risk free, such securities are
generally considered by the Investment Adviser to have low risk of the failure
of issuers to meet their principal and interest obligations. These securities
have a lower principal risk compared to lower rated obligations and generally
to longer term obligations which entail the risk of changing conditions over a
longer period of time.
OTHER FACTORS
Management of the Tax-Exempt Fund will endeavor to be as fully invested as
reasonably practicable in order to maximize the yield on the Tax-Exempt Fund's
portfolio. Because the Tax-Exempt Fund does not intend to realize taxable
investment income, it will not invest in taxable short-term money market
securities. Tax-Exempt Securities generally do not trade on the basis of same
day settlements and, accordingly, a portfolio of such securities cannot be
managed on a daily basis with the same flexibility as a portfolio of money
market securities which can be bought and sold on a same day basis. There may
be times when the Tax-Exempt Fund has uninvested cash resulting from an influx
of cash due to large purchases of shares or
Tax-Exempt Fund
8
<PAGE>
maturities of portfolio securities. The Tax-Exempt Fund may also be required to
maintain cash reserves or incur temporary bank borrowings to make redemption
payments which are made on the same day the redemption request is received.
Such inability to be fully invested would lower the yield on the portfolio.
The Tax-Exempt Fund's portfolio holdings represent a significant percentage
of the market in short-term tax-exempt securities and the yield on the
portfolio could be negatively impacted from time to time by the lack of
availability of short-term high quality Tax-Exempt Securities. The Tax-Exempt
Fund reserves the right to suspend or otherwise limit sales of its shares if,
as a result of difficulties in acquiring portfolio securities, it is determined
that it is not in the interests of the Tax-Exempt Fund's shareholders to issue
additional shares.
Tax-Exempt Securities may at times be purchased or sold on a delayed delivery
basis or a when-issued basis. These transactions arise when securities are
purchased or sold by the Tax-Exempt Fund with payment and delivery taking place
in the future, often a month or more after the purchase. The payment obligation
and the interest rate are each fixed at the time the buyer enters into the
commitment. The Tax-Exempt Fund will only make commitments to purchase such
securities with the intention of actually acquiring the securities, but the
Fund may sell these securities prior to settlement date if it is deemed
advisable. No new when-issued commitments will be made if more than 40% of the
Tax-Exempt Fund's net assets would become so committed. Purchasing Tax-Exempt
Securities on a when-issued basis involves the risk that the yields available
in the market when the delivery takes place may actually be higher than those
obtained in the transaction itself; if yields so increase, the value of the
when-issued obligation will generally decrease. The Tax-Exempt Fund will
maintain a separate account at its custodian bank consisting of cash or liquid
Tax-Exempt Securities (valued on a daily basis) equal at all times to the
amount of the when-issued commitment.
Investment Restrictions. The Tax-Exempt Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Tax-Exempt Fund's outstanding
shares as defined in the Investment Company Act. Among the more significant
restrictions, the Tax-Exempt Fund may not: (1) purchase any securities other
than Tax-Exempt Securities referred to under "Investment Objectives and
Policies" herein and "Appendix--Information Concerning Tax-Exempt Securities"
in the Statement of Additional Information; (2) invest more than 5% of its
total assets (taken at market value at the time of each investment) in the
securities of any one issuer except that such restriction shall not apply to
securities backed (i.e., guaranteed) by the United States Government or its
agencies or instrumentalities (for purposes of this restriction, the Tax-Exempt
Fund will regard each state and each political subdivision, agency or
instrumentality of such state and each multi-state agency of which such state
is a member and each public authority which issues securities on behalf of a
private entity as a separate issuer, except that if the security is backed only
by the assets and revenues of a non-government entity then the entity with the
ultimate responsibility for the payment of interest and principal may be
regarded as the sole issuer); and (3) invest more than 5% of its total assets
(taken at market value at the time of each investment) in industrial revenue
bonds where the entity supplying the revenues from which the issue is to be
paid, including predecessors, has a record of less than three years of
continuous operation.
Tax-Exempt Fund
9
<PAGE>
[This page intentionally left blank]
<PAGE>
PROSPECTUS
JULY 29, 1994
CMA TREASURY FUND
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
CMA Treasury Fund (the "Treasury Fund") is a no-load, diversified, open-end
investment company seeking preservation of capital, liquidity and current
income available from investing exclusively in a diversified portfolio of
short-term marketable securities which are direct obligations of the U.S.
Treasury. Dividends are declared and reinvested daily in the form of additional
shares at net asset value. THE TREASURY FUND SEEKS TO MAINTAIN A CONSTANT $1.00
NET ASSET VALUE PER SHARE, ALTHOUGH THIS CANNOT BE ASSURED. AN INVESTMENT IN
THE TREASURY FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. The
Treasury Fund has adopted a Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). There can be no assurance that the investment
objectives of the Treasury Fund will be realized.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
This Prospectus is a concise statement of information about the Treasury Fund
that is relevant to making an investment in the Treasury Fund. This Prospectus
should be read carefully and retained for future reference. A statement
containing additional information about the Treasury Fund, dated July 29, 1994
(the "Statement of Additional Information"), has been filed with the Securities
and Exchange Commission and can be obtained without charge by calling or
writing to the Treasury Fund at the above telephone number or address. The
Statement of Additional Information is hereby incorporated by reference into
this Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table........................ 2
Financial Highlights............. 3
Yield Information................ 4
Investment Objectives and Poli-
cies............................ 4
Appendix......................... A-1
Purchase of Shares.............. A-1
Redemption of Shares............ A-4
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Funds.......... A-6
Portfolio Transactions........... A-9
Dividends........................ A-9
Determination of Net Asset Value. A-9
Taxes............................ A-10
Additional Information........... A-13
</TABLE>
<PAGE>
FEE TABLE
<TABLE>
<S> <C> <C>
ANNUAL TREASURY FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVER-
AGE NET ASSETS)
FOR THE YEAR ENDED MARCH 31, 1994:
Management Fees(a)................................................... 0.44%
Rule 12b-1 Fees(b)................................................... 0.13%
Other Expenses:
Dividend and Transfer Agency Fees.............................. 0.01%
Other Fees..................................................... 0.03%
----
Total Other Expenses(c).............................................. 0.04%
----
Total Treasury Fund Operating Expenses............................... 0.61%
====
</TABLE>
- --------
(a) See "Management of the Funds--Investment Advisory Arrangements"--page A-7.
(b) See "Purchase of Shares"--page A-1.
(c) See "Management of the Funds--Transfer Agency Services"--page A-8.
<TABLE>
<CAPTION>
EXAMPLE: CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment, assuming an operating
expense ratio of 0.61% and a 5% annual return
throughout the periods........................ $6.23 $19.53 $34.03 $76.21
</TABLE>
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH") CHARGES
AN ANNUAL PROGRAM PARTICIPATION FEE, PRESENTLY $100 FOR INDIVIDUALS, FOR THE
CMA SERVICE (AN ADDITIONAL FEE, PRESENTLY $25, IS CHARGED FOR PARTICIPATION IN
THE CMA VISA (R) GOLD PROGRAM). SHAREHOLDERS OF THE TREASURY FUND WHOSE
ACCOUNTS ARE MAINTAINED DIRECTLY WITH THE FUND'S TRANSFER AGENT AND WHO ARE NOT
SUBSCRIBERS TO THE CMA PROGRAM WILL NOT BE CHARGED THE CMA PROGRAM FEE BUT WILL
NOT RECEIVE ANY OF THE ADDITIONAL SERVICES AVAILABLE TO CMA PROGRAM
SUBSCRIBERS.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Treasury Fund will bear directly
or indirectly. The example set forth above assumes reinvestment of all
dividends and distributions. The example should not be considered a
representation of past or future expenses and actual expenses may be more or
less than those assumed for purposes of the example.
Treasury Fund
2
<PAGE>
FINANCIAL HIGHLIGHTS
Financial statements for the year ended March 31, 1994 and the independent
auditor's report thereon are included in the Statement of Additional
Information. The following per share data and ratios have been derived from
information provided in financial statements of the Treasury Fund audited by
Deloitte & Touche, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD
MARCH 31, APRIL 15, 1991+
---------------------- TO
1994 1993 MARCH 31, 1992
---------- ---------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Investment income--net............... .0250 .0278 .0453
Realized and unrealized gain on in-
vestments--net...................... .0002 .0026 .0019
---------- ---------- ----------
Total from investment operations....... .0252 .0304 .0472
---------- ---------- ----------
Less dividends and distributions:
Investment income--net............... (.0250) (.0278) (.0453)
Realized gain on investments--net.... (.0004) (.0024) (.0020)
---------- ---------- ----------
Total dividends and distributions...... (.0254) (.0302) (.0473)
---------- ---------- ----------
Net asset value, end of period......... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
TOTAL INVESTMENT RETURN:............... 2.57% 3.07% 5.02%*
========== ========== ==========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement and ex-
cluding distribution fees............. .49% .48% .36%*
========== ========== ==========
Expenses, net of reimbursement......... .61% .60% .49%*
========== ========== ==========
Expenses............................... .61% .62% .68%*
========== ========== ==========
Investment income and realized gain on
investments--net...................... 2.55% 3.01% 4.67%*
========== ========== ==========
SUPPLEMENTAL DATA:
Net Assets, end of period (in
thousands)............................ $1,220,440 $1,287,061 $1,221,461
========== ========== ==========
</TABLE>
- --------
+Commencement of Operations
*Annualized
Treasury Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information concerning the Treasury Fund for the
indicated seven-day periods, computed to include and exclude realized and
unrealized gains and losses, and information as to the compounded annualized
yield (excluding gains and losses) for the same periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1994 MAY 31, 1994
-------------- ------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 2.65% 3.21%
Excluding gains and losses........................ 2.65% 3.21%
Compounded Annualized Yield......................... 2.69% 3.26%
Average Maturity of Portfolio at End of Period...... 33 days 49 days
</TABLE>
The yield of the Treasury Fund refers to the income generated by an
investment in the Treasury Fund over a stated seven-day period. This income is
then annualized; that is, the amount of income generated by the investment
during that period is assumed to be generated each seven-day period over a 52-
week period and is shown as a percentage of the investment. The compounded
annualized yield is calculated similarly but, when annualized, the income
earned by an investment in the Treasury Fund is assumed to be reinvested. The
compounded annualized yield will be somewhat higher than the yield because of
the effect of the assumed reinvestment.
The yield on Treasury Fund shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Treasury Fund of future yields or rates of return on its
shares. The Treasury Fund's yield is affected by changes in interest rates on
Treasury securities, average portfolio maturity, the types and quality of
portfolio securities held and operating expenses. The yield on Treasury Fund
shares for various reasons may not be comparable to the yield on shares of
other money market funds or other investments. Current yield information may
not provide a basis for comparison with bank deposits or other investments
which pay a fixed yield over a stated period of time.
On occasion, the Treasury Fund may compare its yield to (i) yield data
reported by Donoghue's Money Fund Report (including Donoghue's U.S. Funds
Average), a widely recognized independent publication that monitors the
performance of money market mutual funds, (ii) the average yield reported by
the Bank Rate Monitor National Index(TM) for money market deposit accounts
offered by the 100 leading banks and thrift institutions in the ten largest
standard metropolitan statistical areas, (iii) yield data reported by Lipper
Analytical Services, Inc., (iv) the yield on an investment in 90-day Treasury
bills on a rolling basis, assuming quarterly compounding, (v) performance data
published by Morningstar Publications, Inc., Money Magazine, U.S. News & World
Report, Business Week, CDA Investment Technology, Inc., Forbes and Fortune or
(vi) historical yield data relating to other central asset accounts similar to
the CMA program. As with yield quotations, yield comparisons should not be
considered representative of the Treasury Fund's yield or relative performance
for any future period.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Treasury Fund are to seek preservation of
capital, liquidity and current income available from investing exclusively in a
diversified portfolio of short-term marketable securities which are direct
obligations of the U.S. Treasury.
Treasury Fund
4
<PAGE>
Preservation of capital is a prime investment objective of the Treasury Fund
and the direct U.S. Treasury obligations in which it will invest are generally
considered to have the lowest principal risk among money market securities.
Historically, direct U.S. Treasury obligations have generally had lower rates
of return than other money market securities with less safety.
For purposes of its investment objectives, the Treasury Fund defines short-
term marketable securities which are direct obligations of the U.S. Treasury as
any U.S. Treasury obligations having maturities of no more than 762 days (25
months). The dollar-weighted average maturity of the Treasury Fund's portfolio
will not exceed 90 days. During the year ended March 31, 1994, the average
maturity of the Treasury Fund's portfolio ranged from 28 days to 90 days.
Investment in Treasury Fund shares offers several benefits that are offset by
certain expenses borne by investors, including investment advisory fees,
administrative costs and operational costs. The Treasury Fund seeks to provide
as high a yield potential, consistent with its objectives, as is available
through investment in short-term U.S. Treasury obligations utilizing
professional money market management and block purchases of securities. It
provides high liquidity because of its redemption features and reduced market
risk resulting from diversification of assets. The shareholder is also relieved
from administrative burdens associated with direct investment in U.S. Treasury
securities, such as coordinating maturities and reinvestments, and making
numerous buy-sell decisions.
Forward Commitments. The Treasury Fund may purchase portfolio securities on a
forward commitment basis at fixed purchase terms. The purchase will be recorded
on the date the Treasury Fund enters into the commitment and the value of the
security will thereafter be reflected in the calculation of the Treasury Fund's
net asset value. The value of the security on the delivery date may be more or
less than its purchase price. A separate account of the Treasury Fund will be
established with its custodian consisting of cash or Treasury securities having
a market value at all times at least equal to the amount of the forward
commitment.
Investment Restrictions. The Treasury Fund has adopted a number of
restrictions and policies relating to the investment of its assets and its
activities, which are fundamental policies and may not be changed without the
approval of the holders of a majority of the Treasury Fund's outstanding voting
securities as defined in the Investment Company Act. Among the more significant
restrictions, the Treasury Fund may not purchase any securities other than
direct obligations of the U.S. Treasury with remaining maturities of 762 days
(25 months) or less.
Treasury Fund
5
<PAGE>
[This page intentionally left blank]
<PAGE>
APPENDIX
This Appendix constitutes a part of the Prospectuses of CMA Money Fund (the
"Money Market Fund"), CMA Government Securities Fund (the "Government Fund"),
CMA Tax-Exempt Fund (the "Tax-Exempt Fund") and CMA Treasury Fund (the
"Treasury Fund"). The Money Market Fund, the Government Fund, the Tax-Exempt
Fund and the Treasury Fund are referred to in this Appendix collectively as the
"Funds". Unless otherwise indicated, the information set forth herein is
applicable to each Fund. Management of the Funds has considered the possibility
that the use of a combined prospectus may subject one Fund to liability for an
alleged misstatement relating to another Fund. Management believes that this
possibility is remote.
As described in the description of the Merrill Lynch Cash Management Account
program, a subscriber to CMA financial services may also elect to have free
credit balances in CMA accounts deposited in individual money market deposit
accounts established for such subscriber at designated depository institutions
pursuant to the Insured Savings Account (the "Insured Savings Account"). In
addition, investors may also have their free credit balances invested in
certain series of CMA Multi-State Municipal Series Trust, each of which is
designed to provide income that is exempt from taxation in a particular state
(the "CMA State Funds"). For more information about the CMA State Funds,
investors should contact their Merrill Lynch Financial Consultants. The Funds,
the CMA State Funds and the Insured Savings Account are collectively referred
to in this Appendix as the Money Accounts. However, this Appendix does not
purport to describe the Insured Savings Account or the CMA State Funds.
Prospective participants in the Insured Savings Account are referred to the
fact sheet with respect thereto which is available from Merrill Lynch, and
prospective investors in the CMA State Funds are referred to the prospectuses
for those funds which are available from Merrill Lynch.
PURCHASE OF SHARES
The shares of the Funds are offered to participants in the CMA program to
provide a medium for the investment of free credit balances held in CMA
accounts and to individual investors maintaining accounts directly with the
Funds' Transfer Agent. Persons subscribing to CMA services will have free
credit balances invested in shares of the Money Market Fund, the Government
Fund, the Tax-Exempt Fund or the Treasury Fund, depending on which Fund has
been designated by the participant as the primary investment (the "Primary
Money Account"). Alternatively, subscribers may designate the Insured Savings
Account or one of the CMA State Funds as their Primary Money Account.
Purchases of shares of a Fund designated as the Primary Money Account will be
made pursuant to the CMA automatic or manual purchase procedures described
below. Purchases of shares of the Funds may also be made by investors
maintaining accounts with the Funds' Transfer Agent pursuant to the procedures
described below.
The purchase price for shares of the Funds is the net asset value per share
next determined after receipt by a Fund of an automatic or manual purchase
order in proper form. Shares purchased will receive the next dividend declared
after such shares are issued which will be immediately prior to the 12 noon
pricing on the following business day. A purchase order will not be effective
until cash in the form of Federal funds becomes available to the Fund (see
below for information as to when free credit balances held in CMA accounts
become available to the Funds). There are no minimum investment requirements
for subscribers to the Cash Management Account program other than for manual
purchases.
A-1
<PAGE>
PURCHASE OF SHARES BY CASH MANAGEMENT ACCOUNT SUBSCRIBERS
Subscribers to the CMA service have the option to change the designation of
their Primary Money Account at any time by notifying their Merrill Lynch
Financial Consultants. At that time, a subscriber may instruct his or her
Financial Consultant to redeem shares of a Fund designated as the Primary Money
Account and to transfer the proceeds to the newly-designated Primary Money
Account.
Automatic Purchases. Free credit balances arising in a CMA account are
automatically invested in shares of a Fund designated as the Primary Money
Account not later than the first business day of each week on which either the
New York Stock Exchange or New York banks are open, which normally will be
Monday. Free credit balances arising from the following transactions will be
invested automatically prior to the automatic weekly sweeps. Free credit
balances arising from the sale of securities which do not settle on the day of
the transaction (such as most common and preferred stock transactions) and from
principal repayments on debt securities become available to the Funds and will
be invested in shares on the business day following receipt of the proceeds
with respect thereto in the CMA account. Proceeds from the sale of shares of
Merrill Lynch Ready Assets Trust and Merrill Lynch U.S.A. Government Reserves
and from the sale of securities settling on a same day basis also become
available to the Funds and will be invested in shares on the next business day
following receipt. Free credit balances of $1,000 or more arising from cash
deposits into a CMA account, dividend and interest payments or any other source
become available to the Funds and are invested in shares on the next business
day following receipt in the CMA account unless such balance results from a
cash deposit made after the cashiering deadline of the Merrill Lynch office in
which the deposit is made, in which case the resulting free credit balances are
invested on the second following business day. A CMA participant desiring to
make a cash deposit should contact his or her Merrill Lynch Financial
Consultant for information concerning the local office's cashiering deadline,
which is dependent on such office's arrangements with its commercial banks.
Free credit balances of less than $1,000 are invested in shares in the
automatic weekly sweep. Free credit balances of $1.00 or more are invested
daily in certain accounts including those established under the Working Capital
Management (TM) account program or the CMA for Retirement Plans program.
Additional information on these programs is available from Merrill Lynch.
Manual Purchases. Subscribers to the CMA service may make manual investments
of $1,000 or more at any time in shares of a Fund not selected as their Primary
Money Account. Manual purchases shall be effective on the day following the day
the order is placed with Merrill Lynch, except that orders involving cash
deposits made on the date of a manual purchase shall become effective on the
second business day thereafter if they are placed after the cashiering deadline
referred to in the preceding paragraph. As a result, CMA customers who enter
manual purchase orders which include cash deposits made on that day after such
cashiering deadline will not receive the daily dividend which would have been
received had their orders been entered prior to the deadline. In addition,
manual purchases of $500,000 or more can be made effective on the same day the
order is placed with Merrill Lynch provided that requirements as to timely
notification and transfer of a Federal funds wire in the proper amount are met.
CMA customers desiring further information on this method of purchasing shares
should contact their Financial Consultants.
Merrill Lynch reserves the right to terminate a subscriber's participation in
the Cash Management Account program for any reason.
All purchases of the Funds' shares and dividend reinvestments will be
confirmed to Cash Management Account subscribers (rounded to the nearest share)
in the transaction statement which is sent to all participants in such Account
monthly.
A-2
<PAGE>
PURCHASE OF SHARES BY NON-CASH MANAGEMENT ACCOUNT SUBSCRIBERS
Shares of the Funds may be purchased by investors maintaining accounts
directly with the Funds' Transfer Agent who are not subscribers to the Cash
Management Account program. Shareholders of the Funds not subscribing to such
program will not be charged the applicable program fee, but will not receive
any of the services available to program subscribers, such as the Visa
card/check account or the automatic investment of free credit balances. The
minimum initial purchase for non-program subscribers is $5,000 and the minimum
subsequent purchase is $1,000. Investors desiring to purchase shares directly
through the Transfer Agent as described below should contact Financial Data
Services, Inc., Transfer Agency Operations Department, P.O. Box 45290,
Jacksonville, Florida 32232-5290 or call (800) 221-7210.
Payment to the Transfer Agent. Investors who are not subscribers to the CMA
program may submit purchase orders directly by mail or otherwise to the
Transfer Agent. Purchase orders by mail should be sent to Financial Data
Services, Inc., Transfer Agency Operations Department, P.O. Box 45290,
Jacksonville, Florida 32232-5290. Purchase orders which are sent by hand should
be delivered to Financial Data Services, Inc., Transfer Agency Operations
Department, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Investors opening a new account must enclose a completed Purchase Application
which is available from Financial Data Services, Inc. Existing shareholders
should enclose the detachable stub from a monthly account statement which they
have received. Checks should be made payable to Merrill Lynch, Pierce, Fenner &
Smith Incorporated. Certified checks are not necessary, but checks are accepted
subject to collection at full face value in United States funds and must be
drawn in United States dollars on a United States bank. Payments for the
accounts of corporations, foundations and other organizations may not be made
by third party checks. Since there is a five-day settlement period applicable
to the sale of most securities, delays may occur when an investor is
liquidating other investments for investment in one of the Funds.
----------------
As described under "Investment Objectives and Policies" in its Prospectus,
the Tax-Exempt Fund has reserved the right to suspend or otherwise limit sales
of its shares if, as a result of difficulties in obtaining portfolio
securities, it is determined that it is not in the interests of the Tax-Exempt
Fund's shareholders to issue additional shares. If sales of shares of the Tax-
Exempt Fund are suspended, shareholders who have designated such Fund as their
Primary Money Account will be permitted to designate the Money Market Fund, the
Government Fund, the Treasury Fund, one of the CMA State Funds (if available)
or the Insured Savings Account as their Primary Money Account. Pending such an
election, Merrill Lynch will consider various alternatives with respect to
automatic investments for such accounts, including the investment of free
credit balances in such accounts in shares of the Money Market Fund, the
Government Fund or the Treasury Fund.
Each Fund has entered into a Distribution Agreement with Merrill Lynch
pursuant to which Merrill Lynch acts as the distributor for the Fund.
Each Fund has adopted a Distribution and Shareholder Servicing Plan
("Distribution Plan") in compliance with Rule 12b-1 under the Investment
Company Act pursuant to which Merrill Lynch receives a distribution fee under
the Distribution Agreement from each Fund at the end of each month at the
annual rate of 0.125% of average daily net assets of such Fund attributable to
subscribers to the CMA program and to investors maintaining securities accounts
at Merrill Lynch or maintaining accounts directly with the Transfer Agent who
are not subscribers to such program, except that the value of the Fund shares
in accounts maintained directly with the Transfer Agent which are not serviced
by Merrill Lynch Financial Consultants will be excluded. The fees reimburse
Merrill Lynch only for actual expenses incurred in the fiscal year in
A-3
<PAGE>
which the fees are paid. The distribution fee is to compensate Merrill Lynch
Financial Consultants and other directly involved branch office personnel for
selling shares of each Fund and for providing direct personal services to
shareholders. For the year ended March 31, 1994, $49,043,195 was paid to
Merrill Lynch pursuant to the Distribution Plans: $33,387,092 by the Money
Market Fund, $4,610,312 by the Government Fund, $9,483,835 by the Tax-Exempt
Fund and $1,561,956 by the Treasury Fund. The annual fee paid to Merrill Lynch
for the year ended March 31, 1994 aggregated 0.12% of average daily net assets
of each Fund. At May 31, 1994, the net assets of the Funds aggregated
approximately $39.4 billion. At this asset level, the annual fees payable to
Merrill Lynch pursuant to the Distribution Plans would aggregate approximately
$33.6 million by the Money Market Fund, $4.6 million by the Government Fund,
$9.5 million by the Tax-Exempt Fund and $1.6 million by the Treasury Fund.
REDEMPTION OF SHARES
Each Fund is required to redeem for cash all full and fractional shares of
the Fund. The redemption price is the net asset value per share next
determined after receipt by the Transfer Agent of proper notice of redemption
as described in accordance with either the automatic or manual procedures set
forth below. If such notice is received by the Transfer Agent prior to the
determination of net asset value at 12 noon, New York City time, on any day
that the New York Stock Exchange or New York banks are open for business, the
redemption will be effective on such day. Payment of the redemption proceeds
will be made on the same day the redemption becomes effective. If the notice
is received after 12 noon, New York City time, the redemption will be
effective on the next business day and payment will be made on such next day.
REDEMPTION OF SHARES BY CASH MANAGEMENT ACCOUNT SUBSCRIBERS
Automatic Redemptions. Redemptions will be effected automatically by Merrill
Lynch to satisfy debit balances in the Securities Account created by activity
therein or to satisfy debit balances created by Visa card purchases, card
advances (which may be obtained through participating banks and automated
teller machines) or checks written against the Visa Account. Each CMA account
will be automatically scanned for debits each business day prior to 12 noon,
New York City time. After application of any free credit balances in the
account to such debits, shares of the Funds (or the CMA State Funds, if
applicable) will be redeemed at net asset value at the 12 noon, New York City
time pricing, and funds deposited pursuant to the Insured Savings Account will
be withdrawn, to the extent necessary to satisfy any remaining debits in
either the Securities Account or the Visa Account. Automatic redemptions or
withdrawals will be made first from the participant's Primary Money Account
and then, to the extent necessary, from Money Accounts not designated as the
Primary Money Account. Unless otherwise requested by the participant,
redemptions or withdrawals from non-Primary Money Accounts will be made in the
order the Money Accounts were established; thus, redemptions or withdrawals
will first be made from the non-Primary Money Account which the participant
first established. Margin loans through the Investor CreditLine SM service
will be utilized to satisfy debits remaining after the liquidation of all
funds invested in or deposited through Money Accounts, and shares of the Funds
may not be purchased, nor may deposits be made pursuant to the Insured Savings
Account, until all debits and margin loans in the account are satisfied.
Merrill Lynch, in conjunction with an affiliate, has introduced a modified
feature, the CMA Visa (R) Gold Program, to the CMA account for individual
shareholders. Participants in the CMA Visa (R) Gold Program may purchase
goods or services at participating merchants with the Visa (R) Gold card. Such
purchases may be paid for by automatic debit on the fourth Wednesday of each
month. See the Merrill Lynch Cash Management Account Program Description for
more information concerning the CMA Visa (R) Gold Program.
A-4
<PAGE>
As set forth in the current description of the CMA program, a participant
whose Securities Account is a margin account through the Investor
CreditLine SM service may designate a minimum balance to be maintained in
shares of the Funds or the CMA State Funds or deposits made pursuant to the
Insured Savings Account (the "Minimum Money Accounts Balance"). If a
participant designates a Minimum Money Accounts Balance, the shares or
deposits representing such balance will not be redeemed or withdrawn until
loans equal to the available margin loan value of securities in the Securities
Account have been made. Participants considering the establishment of a
Minimum Money Accounts Balance should review the description of this service
contained in the description of the CMA program which is available from
Merrill Lynch.
Shareholders of the Funds may arrange to have periodic investments made in
certain other mutual funds sponsored by Merrill Lynch through the CMA
Automated Investment Program. Under this program, the shareholder's Money
Account will be automatically debited at periodic intervals in an amount of
$250 or more, as selected by the shareholder, and investment made in the fund
the shareholder has designated. Further information on this program is
available from Merrill Lynch.
Manual Redemptions. Shareholders may redeem shares of a Fund directly by
submitting a written notice of redemption directly to Merrill Lynch, which
will submit the requests to the Funds' Transfer Agent. Cash proceeds from the
manual redemption of Fund shares will be ordinarily mailed to the shareholder
at his or her address of record, or upon request, mailed or wired (if $10,000
or more) to his or her bank account. Redemption requests should not be sent to
the Fund or the Transfer Agent. If inadvertently sent to the Fund or the
Transfer Agent, redemption requests will be forwarded to Merrill Lynch. The
notice requires the signatures of all persons in whose name the shares are
registered, signed exactly as their names appear on their monthly statement.
The signature(s) on the redemption request must be guaranteed by an "eligible
guarantor institution" as such is defined in Rule 17 Ad-15 under the
Securities Exchange Act of 1934, the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, additional
documents such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or certificates of corporate
authority may be required. CMA customers desiring to effect manual redemptions
should contact their Merrill Lynch Financial Consultants.
All redemptions of Fund shares will be confirmed to Cash Management Account
subscribers (rounded to the nearest share) in the CMA Transaction Statement
which is sent to all CMA participants monthly.
REDEMPTION OF SHARES BY NON-CASH MANAGEMENT ACCOUNT SUBSCRIBERS
Shareholders may redeem shares of the Funds held in a Merrill Lynch
securities account directly by submitting a written notice of redemption to
Merrill Lynch, which will submit the requests to the Funds' Transfer Agent as
described under "Redemption of Shares--Redemption of Shares by Cash Management
Account Subscribers--Manual Redemptions".
Shareholders maintaining an account directly with the Transfer Agent, who
are not CMA program participants, may redeem shares of the Funds by submitting
a written notice by mail directly to the Transfer Agent, Financial Data
Services, Inc., Transfer Agency Operations Department, P.O. Box 45290,
Jacksonville, Florida 32232-5290. Redemption requests which are sent by hand
should be delivered to Financial Data Services, Inc. Transfer Agency
Operations Department, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-
6484. Cash proceeds from the manual redemption of Fund shares will be mailed
to the shareholder at his or her address of record. Redemption requests should
not be sent to the Funds or Merrill Lynch. If inadvertently sent to the Funds
or Merrill Lynch such redemption requests will be forwarded to the Transfer
Agent. The notice requires the signatures of all persons in whose names the
shares are registered, signed exactly as their names appear on their monthly
statement. The signature(s) on the notice must be guaranteed by an
A-5
<PAGE>
"eligible guarantor institution" as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, the existence and validity of which may be
verified by the Transfer Agent by the use of industry publications. Notarized
signatures are not sufficient. In certain instances, additional documents such
as, but not limited to, trust instruments, death certificates, appointments as
executor or administrator, or certificates of corporate authority may be
required.
At various times the Funds may be requested to redeem shares, in manual or
automatic redemptions, with respect to which good payment has not yet been
received by Merrill Lynch. A Fund may delay, or cause to be delayed, the
payment of the redemption proceeds until such time as it has assured itself
that good payment has been collected for the purchase of such shares.
Normally, this delay will not exceed 10 days. In addition, the Funds reserve
the right not to effect automatic redemptions where the shares to be redeemed
have been purchased by check within 15 days prior to the date the redemption
request is received.
Merrill Lynch, in conjunction with another subsidiary of Merrill Lynch &
Co., Inc., has introduced a modified version of the CMA account which has been
designed for corporations and other businesses. This account, the Working
Capital Management (TM) account ("WCMA(R) account"), provides participants
with the features of a regular CMA account and also optional lines of credit.
A brochure describing the WCMA program, as well as information concerning
charges for participation in the program, is available from Merrill Lynch.
Participants in the WCMA program are able to invest funds in one or more of
the Funds designated by them. Checks and other funds transmitted to a WCMA
account will generally be applied, first to the payment of pending securities
transactions or other charges in the participant's securities account, second,
to reduce outstanding balances in the lines of credit available through such
program and, third, to purchase shares of the designated Fund. To the extent
not otherwise applied, funds transmitted by Federal funds wire or an automated
clearinghouse service will be invested in shares of the designated Fund on the
business day following receipt of such funds by Merrill Lynch. Funds received
in a WCMA account from the sale of securities will be invested in the
designated Fund as described above. The amount payable on a check received in
a WCMA account prior to the cashiering deadline referred to above will be
invested on the second business day following receipt of the check by Merrill
Lynch. Redemptions of Fund shares will be effected as described above to
satisfy debit balances, such as those created by purchases of securities or by
checks written against a bank providing checking services to WCMA
participants. WCMA participants that have a line of credit will, however, be
permitted to maintain a minimum Fund balance; for participants who elect to
maintain such a balance, debits from check usage will be satisfied through the
line of credit so that such balance is maintained. However, if the full amount
of available credit is not sufficient to satisfy the debit, it will be
satisfied from the minimum balance.
From time to time, Merrill Lynch also may offer the Funds to participants in
certain other programs sponsored by Merrill Lynch. Some or all of the features
of the CMA account may not be available in such programs. For more information
on the services available under such programs, participants should contact
their financial consultants.
MANAGEMENT OF THE FUNDS
TRUSTEES
The Trustees of each Fund consist of six individuals, five of whom are not
"interested persons" of the Fund as defined in the Investment Company Act. The
Trustees of each Fund are responsible for the overall supervision of the
operations of the Fund and perform the various duties imposed on the directors
of investment companies by the Investment Company Act.
A-6
<PAGE>
The Trustees of each Fund are:
Arthur Zeikel*--President and Chief Investment Officer of the Investment
Adviser; Executive Vice President of Merrill Lynch & Co., Inc. ("ML &
Co."); Executive Vice President of Merrill Lynch; President and Director
of Princeton Services, Inc. ("Princeton Services"); and Director of
Merrill Lynch Funds Distributor, Inc. (the "Distributor").
Ronald W. Forbes--Professor of Finance, School of Business, State
University of New York at Albany.
Cynthia A. Montgomery--Professor of Finance, Harvard Business School.
Charles C. Reilly--Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor,
Columbia University Graduate School of Business.
Kevin A. Ryan--Professor of Education, Boston University, founder and
current Director of the Boston University Center for the Advancement of
Ethics and Character.
Richard R. West--Professor of Finance and former Dean, New York University
Leonard N. Stern School of Business Administration.
- --------
* Interested person, as defined in the Investment Company Act of 1940, of each
Fund.
INVESTMENT ADVISORY ARRANGEMENTS
Fund Asset Management, L.P. (the "Investment Adviser") is owned and
controlled by ML & Co., a financial services holding company and the parent of
Merrill Lynch. The Investment Adviser or an affiliate of the Investment
Adviser, Merrill Lynch Asset Management, L.P. ("MLAM"), acts as the investment
adviser for the Funds and provides the Funds with management services pursuant
to a separate investment advisory agreement with each Fund. The Investment
Adviser or MLAM acts as the investment adviser for more than 100 registered
investment companies and provides investment advisory services to individuals
and institutional accounts. MLAM also offers portfolio management and portfolio
analysis services to individual and institutional accounts. As of June 29,
1994, MLAM and the Investment Adviser had a total of approximately $161.4
billion in investment company and other portfolio assets under management,
including accounts of certain affiliates of MLAM.
The investment advisory agreements with the Investment Adviser (the
"Investment Advisory Agreements") provide that, subject to the direction of the
Trustees, the Investment Adviser is responsible for the actual management of
the Funds' portfolios and constantly reviews the Funds' holdings in light of
its own research analysis and that from other relevant sources. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser, subject to the review of the Board of
Trustees. The Investment Adviser performs certain of the other administrative
services and provides all of the office space, facilities, equipment and
necessary personnel for portfolio management of the Funds.
As compensation for its services under the Investment Advisory Agreements,
the Investment Adviser receives a fee from each Fund at the end of each month
at the annual rates of 0.50% of the first $500 million of average daily net
assets of the Fund, 0.425% of average daily net assets in excess of $500
million but not exceeding $1 billion, and 0.375% of average daily net assets in
excess of $1 billion.
A-7
<PAGE>
The following table sets forth information as to the advisory fees paid by
each Fund for the year ended March 31, 1994 and the annual fees payable at the
net asset level of each Fund as of May 31, 1994. The information does not
include amounts paid under each Fund's Distribution Plan to Merrill Lynch.
<TABLE>
<CAPTION>
PRO FORMA INFORMATION BASED UPON
YEAR ENDED MARCH 31, 1994 NET ASSET LEVEL AS OF MAY 31, 1994
------------------------------- --------------------------------------
AVERAGE ANNUAL FEE
FEE PAID NET ASSETS EFFECTIVE NET ASSETS EFFECTIVE PAYABLE
CMA FUND (MILLIONS) (MILLIONS) FEE RATE (MILLIONS) FEE RATE (MILLIONS)
- -------- ---------- ---------- --------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Money Market............ $101.6 $26,851.5 0.38% $26,984.1 0.38% $102.1
Government.............. $ 14.8 $ 3,708.0 0.40% $ 3,423.6 0.40% $ 13.7
Tax-Exempt.............. $ 29.5 $ 7,624.9 0.39% $ 7,602.0 0.39% $ 29.4
Treasury................ $ 5.6 $ 1,257.7 0.44% $ 1,149.1 0.45% $ 5.2
</TABLE>
- --------
The Investment Advisory Agreements obligate each Fund to pay certain expenses
incurred in its operations, including, among other things, the investment
advisory fee, legal and audit fees, unaffiliated Trustees' fees and expenses,
registration fees, custodian and transfer agency fees, accounting and pricing
costs, and certain of the costs of printing proxies, shareholder reports,
prospectuses and statements of additional information. Accounting services are
provided to each of the Funds by the Investment Adviser, and each Fund
reimburses the Investment Adviser for its costs in connection with such
services. For the year ended March 31, 1994, the amounts of such reimbursement
paid by the Money Market Fund, the Government Fund, the Tax-Exempt Fund and the
Treasury Fund aggregated $627,978, $123,850, $391,102 and $65,637,
respectively. For the year ended March 31, 1994, the ratio of total expenses to
average net assets was 0.42% for the Money Market Fund, 0.43% for the
Government Fund, 0.42% for the Tax-Exempt Fund (excluding payments under the
Funds' Distribution Plans) and 0.49% for the Treasury Fund (excluding payments
under the Fund's Distribution Plan and net of reimbursement).
TRANSFER AGENCY SERVICES
Each of the Funds has entered into a Transfer Agency, Shareholder Servicing
Agency, and Proxy Agency Agreement (each, a "Transfer Agency Agreement") with
Financial Data Services, Inc. (the "Transfer Agent"), a wholly-owned subsidiary
of ML & Co. Pursuant to the Transfer Agency Agreements, the Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreements, the Funds pay the Transfer Agent a fee of $5.25 per shareholder
account for the first one million accounts and $4.75 per shareholder account
thereafter and the Transfer Agent is entitled to reimbursement from the Funds
for out-of-pocket expenses incurred by the Transfer Agent under the Transfer
Agency Agreements. For the year ended March 31, 1994, $7,473,902 was paid to
the Transfer Agent by the Money Market Fund, $409,908 was paid to the Transfer
Agent by the Government Fund, $994,413 was paid to the Transfer Agent by the
Tax-Exempt Fund and $156,000 was paid to the Transfer Agent by the Treasury
Fund pursuant to their Transfer Agency Agreements, including reimbursement of
out-of-pocket expenses. At May 31, 1994, the Money Market Fund, the Government
Fund, the Tax-Exempt Fund and the Treasury Fund had 1,046,465, 55,752, 134,823
and 18,237 shareholder accounts, respectively. At these levels of accounts, the
annual fees payable to the Transfer Agent would aggregate approximately
$5,470,709, $292,698, $707,821 and $95,744, respectively.
A-8
<PAGE>
PORTFOLIO TRANSACTIONS
The portfolio securities in which the Funds invest are traded primarily in
the over-the-counter market. Where possible, the Funds will deal directly with
the dealers who make a market in the securities involved, except in those
circumstances where better prices and execution are available elsewhere. Such
dealers usually are acting as principals for their own accounts. On occasion,
securities may be purchased directly from the issuer. Such portfolio securities
generally are traded on a net basis and normally do not involve either
brokerage commissions or transfer taxes. The cost of executing portfolio
transactions primarily will consist of dealer spreads and underwriting
commissions. Under the Investment Company Act, persons affiliated with the
Funds are prohibited from dealing with the Funds as a principal in the purchase
and sale of securities unless an exemptive order allowing such transactions is
obtained from the Securities and Exchange Commission. Affiliated persons of a
Fund may serve as its broker in over-the-counter transactions conducted on an
agency basis.
The Securities and Exchange Commission has issued exemptive orders permitting
the Money Market Fund, the Government Fund, the Tax-Exempt Fund and the
Treasury Fund to conduct certain principal transactions with Merrill Lynch
Government Securities Inc., Merrill Lynch Money Markets Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, subject to certain terms and conditions.
During the fiscal year ended March 31, 1994, the Money Market Fund engaged in
402 transactions pursuant to such orders aggregating approximately $19.9
billion; the Tax-Exempt Fund engaged in 35 transactions aggregating
approximately $603.6 million; the Government Fund engaged in 131 transactions
aggregating approximately $5.0 billion; and the Treasury Fund engaged in 29
transactions pursuant to such order aggregating approximately $478.8 million.
DIVIDENDS
All of the net income of each Fund is declared as dividends daily. Each
Fund's net income for dividend purposes is determined by the Investment Adviser
at 12 noon on each day the New York Stock Exchange or New York banks are open
for business immediately prior to the determination of the Fund's net asset
value on that day (see "Determination of Net Asset Value"). Net income of the
Money Market Fund, the Government Fund and the Treasury Fund (from the time of
the immediately preceding determination thereof) consists of (i) interest
accrued and/or discount earned (including both original issue and market
discount), (ii) less the estimated expenses of the Fund (including the fees
payable to the Investment Adviser) applicable to that dividend period and (iii)
plus or minus all realized gains and losses on the portfolio securities. Net
income of the Tax-Exempt Fund (from the time of the immediately preceding
determination thereof) consists of interest accrued and/or original issue
discount earned, less amortization of premium and the estimated expenses of the
Tax-Exempt Fund (including the fees payable to the Investment Adviser)
applicable to that dividend period. The amount of discount or premium on
portfolio securities is fixed at the time of their purchase and consists of the
difference between the purchase price for such securities and the principal
amount of such securities. Realized gains and losses are reflected in the Tax-
Exempt Fund's net assets and are not included in net income. Dividends are
declared and reinvested daily in the form of additional full and fractional
shares of the Funds at net asset value.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund is determined by the Investment Adviser once
daily, immediately after the daily declaration of dividends, as of 12 noon on
each day the New York Stock Exchange or New York banks are open for business.
A-9
<PAGE>
The net asset value of the Money Market Fund, the Government Fund and the
Treasury Fund is determined pursuant to the "penny-rounding" method by adding
the fair value of all securities and other assets in each portfolio, deducting
such portfolio's liabilities and dividing by the number of shares of that Fund
outstanding. The result of this computation will be rounded to the nearest
whole cent. Securities with remaining maturities of greater than 60 days for
which market quotations are readily available will be valued at market value.
Securities with remaining maturities of 60 days or less will be valued on an
amortized cost basis, i.e. by valuing the instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. Other securities held by the Money Market Fund, the Government
Fund and the Treasury Fund will be valued at their fair value as determined in
good faith by or under direction of the Board of Trustees.
The Tax-Exempt Fund values its portfolio securities based on their amortized
cost. This involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
TAXES
The Funds intend to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If the Money Market Fund, the Government
Fund, the Treasury Fund or the Tax-Exempt Fund so qualifies, such Fund (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains (see below) which it
distributes to shareholders, in any taxable year in which it distributes at
least 90% of its taxable net income and 90% of its tax-exempt net income. Each
Fund intends to distribute substantially all of such income.
TAXATION OF MONEY MARKET FUND, GOVERNMENT FUND AND TREASURY FUND DIVIDENDS
Dividends paid by the Money Market Fund, the Government Fund or the Treasury
Fund from their ordinary income and distributions of such Funds' net realized
short-term capital gains (together referred to hereafter as "ordinary income
dividends") are taxable to shareholders as ordinary income. Distributions made
from such Funds' net realized long-term capital gains from the sale of
securities ("capital gain dividends") are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has owned Fund
shares. Distributions in excess of a Fund's earnings and profits will first
reduce the adjusted tax basis of a holder's shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such holder
(assuming the shares are held as a capital asset).
If the value of assets held by the Money Market Fund, the Government Fund or
the Treasury Fund declines, the Board of Trustees may authorize a reduction in
the number of outstanding shares in respective shareholders' accounts so as to
preserve a net asset value of $1.00 per share. After such a reduction, the
basis of eliminated shares would be added to the basis of shareholders'
remaining Fund shares, and any shareholders disposing of shares at that time
may recognize a capital loss. Distributions, including distributions reinvested
in additional shares of the affected Fund, will nonetheless be fully taxable,
even if the number of shares in shareholders' accounts has been reduced as
described above. Any loss on the sale or exchange of shares in the Funds held
for six months or less, however, will be treated as long-term capital loss to
the extent of any capital gain dividends received by the shareholder.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of a Fund. Not later than 60 days after the close of its
taxable year, each such Fund will provide its shareholders with a
A-10
<PAGE>
written notice designating the amounts of any ordinary income dividends or
capital gain dividends. Distributions by the Money Market Fund, the Government
Fund and the Treasury Fund will not be eligible for the dividends received
deduction allowed to corporations under the Code.
TAXATION OF TAX-EXEMPT FUND DIVIDENDS
The Tax-Exempt Fund intends to qualify to pay "exempt-interest dividends"
under the Code, and if it so qualifies, dividends derived from the interest
earned on tax-exempt securities which are designated by such Fund as exempt-
interest dividends will not be subject to Federal income taxes. To the extent
that the dividends distributed to the Tax-Exempt Fund's shareholders are
derived from interest income exempt from Federal tax and are properly
designated as "exempt-interest dividends" by the Fund, they will be excludable
from a shareholder's gross income for Federal income tax purposes. Exempt-
interest dividends are included, however, in determining the portion, if any,
of a person's social security and railroad retirement benefits subject to
Federal income taxes. Persons who may be "substantial users" (or "related
persons" of substantial users) of facilities financed by industrial development
bonds or private activity bonds held by the Tax-Exempt Fund should consult
their tax advisers before purchasing Fund shares. The Fund will inform
shareholders annually as to the portion of the Tax-Exempt Fund's distributions
which constitutes exempt-interest dividends. Interest on indebtedness incurred
or continued to purchase or carry shares of the Tax-Exempt Fund is not
deductible for Federal income tax purposes to the extent attributable to
exempt-interest dividends.
To the extent that the Tax-Exempt Fund's distributions are derived from
interest on its taxable investments or from an excess of net short-term capital
gains over net long-term capital losses ("ordinary income dividends"), such
distributions are considered ordinary income for Federal income tax purposes.
Such distributions are not eligible for the dividends received deduction for
corporations. Distributions, if any, of net long-term capital gains from the
sale of securities ("capital gain dividends") are taxable at long-term capital
gains rates for Federal income tax purposes, regardless of the length of time
the shareholder has owned Fund shares. Under the Revenue Reconciliation Act of
1993, all or a portion of the Tax-Exempt Fund's gain from the sale or
redemption of tax-exempt obligations purchased at a market discount will be
treated as ordinary income rather than capital gain. This rule may increase the
amount of ordinary income dividends received by shareholders. Distributions in
excess of the Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are
held as a capital asset). Any loss upon the sale or exchange of shares held for
six months or less, however, will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder. In addition,
such loss will be disallowed to the extent of any exempt-interest dividends
received by the shareholder.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. The alternative minimum tax applies
to interest received on "private activity bonds" issued after August 7, 1986.
Private activity bonds are bonds which, although tax-exempt, are used for
purposes other than those generally performed by governmental units and which
benefit non-governmental entities (e.g., bonds used for industrial development
or housing purposes). Income received on such bonds is classified as an item of
"tax preference", which could subject investors in such bonds, including
shareholders of the Tax-Exempt Fund, to an alternative minimum tax. The Tax-
Exempt Fund will purchase such "private activity bonds" and will report to
shareholders within 60 days after its taxable year-end the portion of its
dividends declared during the year which constitutes an item of tax preference
for alternative minimum tax purposes. The Code further provides that
corporations are subject to an alternative minimum tax based, in part, on
certain differences between taxable income as adjusted for other tax
preferences and the corporation's "adjusted current
A-11
<PAGE>
earnings", which more closely reflect a corporation's economic income. Because
an exempt-interest dividend paid by the Tax-Exempt Fund will be included in
adjusted current earnings, a corporate shareholder may be required to pay
alternative minimum tax on exempt-interest dividends paid by the Tax-Exempt
Fund.
The Revenue Reconciliation Act of 1993 has added new marginal tax brackets of
36% and 39.6% for individuals and has created a graduated structure of 26% and
28% for the alternative minimum tax applicable to individual taxpayers. These
rate increases may affect an individual investor's after-tax return from an
investment in the Tax-Exempt Fund as compared with such investor's return from
taxable investments.
The Code provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Tax-Exempt Fund) during the
taxable year.
GENERAL
If the Money Market Fund, the Government Fund, the Treasury Fund or the Tax-
Exempt Fund pays a dividend in January which was declared in the previous
October, November or December to shareholders of record on a specified date in
one of such months, then such dividend will be treated for tax purposes as
being paid by such Fund and received by its shareholders on December 31 of the
year in which such dividend was declared.
Ordinary income dividends paid by a Fund to shareholders who are nonresident
aliens or foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of the United
States withholding tax.
Under certain provisions of the Code, some taxpayers may be subject to a 31%
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with a Fund or who, to such Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
A loss realized on a sale or exchange of shares of any of the Funds will be
disallowed if shares of the Fund are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether and what percentage of dividend income attributable to U.S.
Government obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in any of the Funds.
A-12
<PAGE>
ADDITIONAL INFORMATION
ORGANIZATION OF THE FUNDS
The Money Market Fund, the Government Fund and the Tax-Exempt Fund are
unincorporated business trusts organized on June 5, 1989 under the laws of
Massachusetts. The Money Market Fund is the successor to a Massachusetts
business trust organized on September 19, 1977, the Government Fund is the
successor to a Massachusetts business trust organized on August 3, 1981 and the
Tax-Exempt Fund is the successor to a Massachusetts business trust organized on
January 15, 1981. The Treasury Fund is an unincorporated business trust
organized on October 24, 1990 under the laws of Massachusetts. Each Fund is a
no-load, diversified, open-end investment company. The Declaration of Trust of
each Fund permits the Trustees to issue an unlimited number of full and
fractional shares of a single class. Upon liquidation of any of the Funds,
shareholders of that Fund are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders. Shares are fully paid and
nonassessable by the Funds. Shareholders are entitled to one vote for each full
share held and fractional votes for fractional shares held and to vote in the
election of Trustees and on other matters submitted to the vote of
shareholders.
The Declarations of Trust do not require that the Funds hold annual meetings
of shareholders. However, each Fund will be required to call special meetings
of shareholders in accordance with the requirements of the Investment Company
Act to seek approval of new management and advisory arrangements, of a material
increase in distribution fees or of a change in the fundamental policies,
objectives or restrictions of such Fund. Each Fund also would be required to
hold a special shareholders' meeting to elect new Trustees at such time as less
than a majority of the Trustees holding office have been elected by
shareholders. Each Declaration of Trust provides that a shareholders' meeting
may be called for any reason at the request of 10% of the outstanding shares of
the related Fund or by a majority of the Trustees. Except as set forth above,
the Trustees shall continue to hold office and appoint successor Trustees.
The Declarations of Trust establishing the Funds refer to the Trustees under
the Declarations of Trust collectively as Trustees, but not as individuals or
personally; and except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties, no Trustee, shareholder,
officer, employee or agent of any of the Funds shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim of any Fund but the "Trust Property"
(as defined in the Declarations of Trust) only shall be liable. Copies of the
Declarations of Trust, together with all amendments thereto, are on file in the
office of the Commonwealth of Massachusetts.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to each Fund at the address or
telephone number set forth on the cover page of such Fund's Prospectus.
REPORTS TO SHAREHOLDERS
The fiscal year of each Fund ends on the last day of March of each year. Each
Fund will send to its shareholders at least semi-annually reports showing its
portfolio securities and other information. An annual report containing
financial statements audited by independent auditors is sent to shareholders
each year.
A-13
<PAGE>
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: Client Services
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch and/or mutual fund account numbers. If
you have any questions regarding this please call your Merrill Lynch Financial
Consultant or Financial Data Services, Inc. at 800-221-7210.
A-14
<PAGE>
Investment Adviser
Fund Asset Management, L.P.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
Distributor
Merrill Lynch, Pierce, Fenner & Smith Incorporated
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02101
Transfer Agent
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Operations Department
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45290
Jacksonville, Florida 32232-5290
Independent Auditors
Deloitte & Touche
117 Campus Drive
Princeton, New Jersey 08540
Counsel
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
No person has been authorized to give any information or to make any
representations, other than those contained in these Prospectuses, in
connection with the offers contained therein, and, if given or made, such other
information or representations must not be relied upon as having been
authorized by the Funds, the Investment Adviser or Merrill Lynch, Pierce,
Fenner & Smith Incorporated. These Prospectuses do not constitute an offering
in any state in which such offering may not lawfully be made.
Code #10117-0195
- --------------------------------------------------------------------------------
CMA MONEY FUND
CMA GOVERNMENT
SECURITIES FUND
CMA TAX-EXEMPT
FUND
CMA TREASURY FUND
- --------------------------------------------------------------------------------
PROSPECTUSES
- --------------------------------------------------------------------------------
CMA (R)
The enclosed prospectuses describe four fully managed money market funds.
Shares of the Funds are offered to participants in the Cash Management
Account (R) ("CMA (R) account") program of Merrill Lynch, Pierce, Fenner &
Smith Incorporated and to investors maintaining accounts directly with the
Transfer Agent.
Investors should be aware that the Cash Management Account service is not a
bank account and that a shareholder's investment in the Funds is not insured by
any governmental agency. As with any investment in securities, the value of a
shareholder's investment in the Funds may fluctuate.
Principal Office of the Funds
800 Scudders Mill Road
Plainsboro, New Jersey 08536
July 29,1994
(as supplemented January 6, 1995
in the case of CMA Tax-Exempt Fund)
- --------------------------------------------------------------------------------
LOGO MERRILL LYNCH
