<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1997
SECURITIES ACT FILE NO. 2-69877
INVESTMENT COMPANY ACT FILE NO. 811-3111
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 18
(CHECK APPROPRIATE BOX OR BOXES)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 19
(CHECK APPROPRIATE BOX OR BOXES)
---------------
CMA TAX-EXEMPT FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
CMA TAX-EXEMPT FUND
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------
COPIES TO:
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD LLP FUND ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER NEW YORK, NEW P.O. BOX 9011 PRINCETON, NEW JERSEY
YORK 10048-0557 08543-9011
ATTENTION: THOMAS R. SMITH, JR., ESQ.
KEVIN J. MOYNIHAN, ESQ.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
WORLD FINANCIAL CENTER, NORTH TOWER, NEW YORK, NEW YORK 10281
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
The Registrant has registered an indefinite number of its shares of
beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. The notice required by such Rule for
the Registrant's most recent fiscal year was filed on May 22, 1997.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT OF SHARES OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED BEING REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial
Interest (par value
$.10 per share)...... 3,091,898,606 $1.00 $330,000* $100
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*(1) The calculation of the maximum aggregate offering price is made pursuant
to Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during the
Registrant's previous fiscal year was 27,129,482,654 shares of beneficial
interest.
(3) 24,037,914,048 of the shares described in (2) above have been used for
reduction pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment
Company Act of 1940 in previous filings during the Registrant's current
fiscal year.
(4) 3,091,568,606 of the shares redeemed during the Registrant's previous
fiscal year are being used for the reduction of the registration fee in this
amendment to the Registration Statement.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CMA TAX-EXEMPT FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-
1A ITEM NO. LOCATION
----------- --------
<C> <S> <C>
PART A
Item 1. Cover Page.............. Cover Page
Item 2. Synopsis................ Fee Table
Item 3. Condensed Financial Financial Highlights; Yield
Information............ Information
Item 4. General Description of Investment Objectives and Policies;
Registrant............. Appendix--Additional Information--
Organization of the Funds
Item 5. Management of the Fund.. Fee Table; Appendix--Management of the
Funds; Appendix--Portfolio
Transactions; Inside Back Cover Page
Item 5A. Management's Discussion
of Fund Performance.... Not Applicable
Item 6. Capital Stock and Other Appendix--Additional Information--
Securities............. Organization of the Funds
Item 7. Purchase of Securities Cover Page; Fee Table; Appendix--
Being Offered.......... Purchase of Shares; Appendix--
Redemption of Shares; Inside Back
Cover Page
Item 8. Redemption or Fee Table; Appendix--Purchase of
Repurchase............. Shares; Appendix--Redemption of
Shares
Item 9. Pending Legal
Proceedings............ Not Applicable
PART B
Item 10. Cover Page.............. Cover Page
Item 11. Table of Contents....... Cover Page
Item 12. General Information and
History................ Not Applicable
Item 13. Investment Objectives
and Policies........... Investment Objectives and Policies
Item 14. Management of the Fund.. Management of the Funds
Item 15. Control Persons and
Principal Holders of Management of the Funds; General
Securities............. Information--Additional Information
Item 16. Investment Advisory and
Other Services......... Management of the Funds; Purchase and
Redemption of Shares; General
Information
Item 17. Brokerage Allocation and
Other Practices........ Portfolio Transactions
Item 18. Capital Stock and Other General Information--Description of
Securities............. Shares
Item 19. Purchase, Redemption and
Pricing of Securities Purchase and Redemption of Shares;
Being Offered.......... Determination of Net Asset Value
Item 20. Tax Status.............. Taxes
Item 21. Underwriters............ Purchase and Redemption of Shares
Item 22. Calculation of
Performance Data....... Yield Information
Item 23. Financial Statements.... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<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" or "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(R) Account"). Merrill
Lynch markets its margin account under the name Investor CreditLine SM
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 SM 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 market 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 U.S. 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, in the opinion of counsel to the issuer, from Federal income
taxes, personal income taxes of the designated state and, in certain
instances, local income taxes. 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 CMA 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. In addition, on or about January 2, 1997, certain group
plans and special accounts offered by Merrill Lynch (such as the Employees
AccessSM Account financial service) may not afford participants in such plans
and accounts access to all of the CMA Funds. Participants in such plans or
special accounts should refer to the relevant program descriptions or other
explanatory material for such plans or accounts to determine which of the CMA
Funds are available to them. 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 CMA 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, 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 18, 1997
CMA MONEY FUND
P.O. 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
U.S. 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, NOR HAS THE SECURITIES AND EXCHANGE
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 18, 1997 (the "Statement of Additional Information"), has been filed with
the Securities and Exchange Commission (the "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-7
Portfolio Transactions........... A-8
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> <C>
MONEY MARKET FUND ANNUAL OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS) FOR THE FISCAL YEAR ENDED MARCH 31,
1997:
Management Fees(a)............................................... 0.38%
Rule 12b-1 Fees(b)............................................... 0.13%
Other Expenses:
Dividend and Transfer Agency Fees(c)....................... 0.04%
Other Fees................................................. 0.01%
----
Total Other Expenses............................................. 0.05%
----
Total Money Market 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 following expenses on
a $1,000 investment, assuming an operating
expense ratio of 0.56% and a 5% annual return
throughout the periods........................ $ 6 $18 $31 $70
</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 fiscal year ended March 31, 1997 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 LLP, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <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
----------- ----------- ----------- ----------- ----------- ----------- -----------
Investment in-
come--net...... .0490 .0529 .0437 .0276 .0309 .0498 .0734
Realized and
unrealized gain
(loss) on
investments--
net............ -- .0003 .0005 (.0005) .0019 .0019 .0017
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from
investment
operations..... .0490 .0532 .0442 .0271 .0328 .0517 .0751
----------- ----------- ----------- ----------- ----------- ----------- -----------
Less dividends
and distribu-
tions:
Investment in-
come--net...... (.0490) (.0529) (.0437) (.0276) (.0309) (.0498) (.0734)
Realized gain on
investments--
net............ (.0002) (.0006) (.0003) (.0003) (.0015) (.0020) (.0017)*
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total dividends
and
distributions.. (.0492) (.0535) (.0440) (.0279) (.0324) (.0518) (.0751)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== =========== =========== ===========
TOTAL INVESTMENT
RETURN......... 5.01% 5.51% 4.50% 2.82% 3.30% 5.27% 7.81%
=========== =========== =========== =========== =========== =========== ===========
RATIOS TO AVER-
AGE NET ASSETS:
Expenses........ .56% .56% .56% .55% .55% .54% .54%
=========== =========== =========== =========== =========== =========== ===========
Investment
income and
realized
gain on
investments--
net............ 4.89% 5.35% 4.42% 2.79% 3.25% 5.18% 7.51%*
=========== =========== =========== =========== =========== =========== ===========
SUPPLEMENTAL
DATA:
Net assets, end
of year
(in thousands). $41,984,753 $36,922,858 $29,066,762 $27,071,882 $27,093,682 $29,106,627 $31,163,167
=========== =========== =========== =========== =========== =========== ===========
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
--------------------------------------
1990 1989 1988
----------- ----------- -----------
<S> <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
----------- ----------- -----------
Investment in-
come--net...... .0837 .0754 .0635
Realized and
unrealized gain
(loss) on
investments--
net............ (.0001) (.0004) .0004
----------- ----------- -----------
Total from
investment
operations..... .0836 .0750 .0639
----------- ----------- -----------
Less dividends
and distribu-
tions:
Investment in-
come--net...... (.0836) (.0750) (.0635)
Realized gain on
investments--
net............ -- -- (.0004)*
----------- ----------- -----------
Total dividends
and
distributions.. (.0836) (.0750) (.0639)
----------- ----------- -----------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00
=========== =========== ===========
TOTAL INVESTMENT
RETURN......... 8.69% 7.79% 6.58%
=========== =========== ===========
RATIOS TO AVER-
AGE NET ASSETS:
Expenses........ .55% .55% .55%
=========== =========== ===========
Investment
income and
realized
gain on
investments--
net............ 8.33%* 7.53%* 6.39%*
=========== =========== ===========
SUPPLEMENTAL
DATA:
Net assets, end
of year
(in thousands). $29,768,495 $22,954,950 $20,557,461
=========== =========== ===========
</TABLE>
- -------
* Includes unrealized gain (loss).
Money Market Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information as to the annualized and compounded
annualized yield for the indicated seven-day periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1997 MAY 31, 1997
-------------- ------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 4.96% 5.13%
Excluding gains and losses........................ 4.96% 5.11%
Compounded Annualized Yield......................... 5.08% 5.24%
Average Maturity of Portfolio at End of Period...... 66 days 67 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 IBC'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 Magazine and Fortune Magazine 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
indicative 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 potential benefits.
The Money Market Fund seeks to provide as high a yield potential, consistent
with its objectives, as is available from investments in 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 seeks the reduced risk that
generally results 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. These benefits are at
least partially offset by certain expenses 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 some of the types of short-term money
market securities in which the Money Market Fund may invest:
U.S. 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.
U.S. 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, but not limited to, 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 and funding agreements),
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,
corporations, partnerships or other entities include mortgage or asset-
backed instruments, including pass-through certificates such as
participations in, or bonds and notes backed by, pools of mortgage,
automobile, manufactured housing or other types of consumer loans; credit
card or trade receivables; or pools of mortgage- or asset-backed
securities. 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, but not limited to, 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 investments or 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. Under
such agreements, the counterparty 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,
taken at market value) to brokers, dealers and financial institutions and
receive 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 the loaned
securities
Money Market Fund
6
<PAGE>
and either receives a fee or earns interest on any investments made with
cash 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 market 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.
The Money Market Fund's investments in U.S. Government and Government agency
securities will be in instruments with a remaining maturity of 762 days (25
months) or less. The Money Market Fund's other investments will be in
instruments with a remaining maturity of 397 days (13 months) or less that
have received a short-term rating, or that have been issued by issuers that
have received a short-term rating with respect to a class of debt obligations
that are comparable in priority and security with the instruments, from the
requisite nationally recognized statistical rating organizations ("NRSROs") in
one of the two highest short-term rating categories or, if neither the
instrument nor its issuer is so 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., Thompson Bankwatch, Inc., Moody's Investors Service,
Inc. and Standard & Poor's Ratings Services. The Money Market Fund will
determine the remaining maturity of investments in which it invests in
accordance with Commission regulations.
A Commission regulation limits 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 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 or sell money market securities on a
forward commitment basis at fixed purchase or sale terms. The purchase of
money market securities on a forward commitment 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 increase,
the value of the securities purchased on a forward commitment basis will
generally decrease. 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 purchase commitment. The Money Market Fund may also sell money
market securities on a forward commitment basis. By doing so, the Fund
foregoes the opportunity to sell such securities at a higher price should they
increase in value between the trade and settlement dates.
Money Market Fund
7
<PAGE>
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,
1997, the average maturity of its portfolio ranged from 45 days to 81 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
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, U.S. Government agency securities or domestic bank
money market 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 market 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 10% limitation; (4) invest in the securities of any single issuer, if
immediately after and as a result of such investment, the Money Market Fund
would own 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 18, 1997
CMA GOVERNMENT SECURITIES FUND
P.O. 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 U.S. 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, NOR HAS THE SECURITIES AND EXCHANGE 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 18, 1997 (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-7
Portfolio Transactions........... A-8
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>
GOVERNMENT FUND ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS) FOR
THE FISCAL YEAR ENDED MARCH 31, 1997:
Management Fees(a).................................................. 0.40%
Rule 12b-1 Fees(b).................................................. 0.13%
Other Expenses:
Dividend and Transfer Agency Fees(c).......................... 0.02%
Other Fees.................................................... 0.01%
----
Total Other Expenses................................................ 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
following expenses on a $1,000
investment, assuming an
operating expense ratio of
0.56% and a 5% annual return
throughout the periods........ $ 6 $18 $31 $70
</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 fiscal year ended March 31, 1997 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 LLP, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<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--net.... .0477 .0521 .0419 .0271 .0294 .0473 .0704 .0819
Realized and
unrealized gain
(loss) on
investments--
net............ (.0004) .0002 .0008 (.0013) .0038 .0034 .0014 .0006
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations..... .0473 .0523 .0427 .0258 .0332 .0507 .0718 .0825
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Less dividends
and
distributions:
Investment
income--net.... (.0477) (.0521) (.0419) (.0271) (.0294) (.0473) (.0704) (.0819)
Realized gain on
investments--
net............ --+ (.0003) (.0002) (.0004) (.0026) (.0036) (.0014)* (.0006)*
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total dividends
and
distributions.. (.0477) (.0524) (.0421) (.0275) (.0320) (.0509) (.0718) (.0825)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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......... 4.94% 5.37% 4.30% 2.79% 3.25% 5.17% 7.46% 8.57%
========== ========== ========== ========== ========== ========== ========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses........ .56% .57% .58% .56% .55% .56% .56% .57%
========== ========== ========== ========== ========== ========== ========== ==========
Investment
income and
realized gain
on
investments--
net............ 4.81% 5.25% 4.18% 2.75% 3.20% 5.05% 7.11%* 8.21%*
========== ========== ========== ========== ========== ========== ========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $3,423,468 $3,345,603 $3,132,803 $3,563,595 $3,858,017 $4,452,247 $5,228,619 $3,515,578
========== ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-----------------------
1989 1988
---------- ----------
<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--net.... .0737 .0586
Realized and
unrealized gain
(loss) on
investments--
net............ (.0013) .0011
---------- ----------
Total from
investment
operations..... .0724 .0597
---------- ----------
Less dividends
and
distributions:
Investment
income--net.... (.0724) (.0586)
Realized gain on
investments--
net............ -- (.0011)*
---------- ----------
Total dividends
and
distributions.. (.0724) (.0597)
---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00
========== ==========
TOTAL INVESTMENT
RETURN......... 7.50% 6.13%
========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses........ .59% .59%
========== ==========
Investment
income and
realized gain
on
investments--
net............ 7.25%* 5.97%*
========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $2,494,905 $2,362,766
========== ==========
</TABLE>
- -------
* Includes unrealized gains (losses).
+ Amount is less than $.0001 per share.
Government Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information as to the annualized and compounded
annualized yield for the indicated seven-day periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1997 MAY 31, 1997
-------------- ------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 5.00% 4.93%
Excluding gains and losses........................ 5.00% 4.91%
Compounded Annualized Yield......................... 5.13% 5.03%
Average Maturity of Portfolio at End of Period...... 68 days 71 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 IBC'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 Magazine and Fortune Magazine 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
indicative 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. There
can be no assurance that the investment objectives of the Government Fund will
be realized.
Investment in Government Fund shares offers several potential benefits. The
Government Fund seeks to provide as high a yield potential, consistent with
its objectives, as is available from investments in 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 seeks the reduced market risk that generally results 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. These benefits are at least partially offset by
certain expenses borne by investors, including management fees, distribution
fees, administrative costs and operational costs.
The Government Fund may invest in the U.S. Government securities described
above pursuant to repurchase agreements. Under such agreements, the
counterparty 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 or sell portfolio securities on a forward
commitment basis at fixed purchase or sale terms. The purchase of portfolio
securities on a forward commitment 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 increase, the value
of the securities purchased on a forward commitment basis will generally
decrease. 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 purchase
commitment. The Government Fund may also sell money market securities on a
forward commitment basis. By doing so, the Fund foregoes the opportunity to
sell such securities at a higher price should they increase in value between
the trade and settlement dates.
Government Fund
5
<PAGE>
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, 1997, the average maturity of its portfolio ranged from 50
days to 81 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 18, 1997 CMA TAX-EXEMPT FUND
P.O. 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 (as
defined herein). 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, NOR HAS THE SECURITIES AND EXCHANGE
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 18, 1997 (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.................. 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-7
Portfolio Transactions........... A-8
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>
TAX-EXEMPT FUND ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS) FOR THE FISCAL YEAR ENDED MARCH 31, 1997:
Management Fees(a)................................................... 0.39%
Rule 12b-1 Fees(b)................................................... 0.13%
Other Expenses:
Dividend and Transfer Agency Fees(c)........................... 0.02%
Other Fees..................................................... 0.01%
----
Total Other Expenses................................................. 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
expense ratio of 0.55% and a 5% annual return
throughout the periods........................ $ 6 $18 $31 $69
</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 fiscal year ended March 31, 1997 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 LLP, independent auditors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<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--net.... .03 .03 .03 .02 .02 .04 .05 .06
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Less dividends
from investment
income--net.... (.03) (.03) (.03) (.02) (.02) (.04) (.05) (.06)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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......... 2.99% 3.32% 2.76% 1.96% 2.36% 3.76% 5.39% 5.94%
========== ========== ========== ========== ========== ========== ========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses........ .55% .55% .55% .55% .54% .54% .54% .54%
========== ========== ========== ========== ========== ========== ========== ==========
Investment
income--net.... 2.94% 3.26% 2.70% 1.94% 2.33% 3.70% 5.24% 5.79%
========== ========== ========== ========== ========== ========== ========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $8,347,278 $8,164,160 $7,391,964 $7,911,960 $7,527,054 $7,874,437 $8,695,795 $8,356,203
========== ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------
1989 1988
---------- ----------
<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--net.... .05 .04
---------- ----------
Less dividends
from investment
income--net.... (.05) (.04)
---------- ----------
Net asset value,
end of year.... $ 1.00 $ 1.00
========== ==========
TOTAL INVESTMENT
RETURN......... 5.25% 4.38%
========== ==========
RATIOS TO
AVERAGE NET
ASSETS:
Expenses........ .54% .54%
========== ==========
Investment
income--net.... 5.11% 4.32%
========== ==========
SUPPLEMENTAL
DATA:
Net assets, end
of year (in
thousands)..... $7,348,164 $8,277,540
========== ==========
</TABLE>
Tax-Exempt Fund
3
<PAGE>
YIELD INFORMATION
Set forth below is yield information as to the annualized and compounded
annualized yield and the tax-equivalent yield for the indicated periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1997 MAY 31, 1997
-------------- ------------
<S> <C> <C>
Annualized Yield.................................... 2.96% 3.38%
Compounded Annualized Yield......................... 3.00% 3.44%
Average Maturity of Portfolio at End of Period...... 40 days 34 days
</TABLE>
<TABLE>
<CAPTION>
30-DAY PERIOD ENDED
---------------------------
MARCH 31, 1997 MAY 31, 1997
-------------- ------------
<S> <C> <C>
Tax-equivalent Yield*............................... 3.61% 4.71%
</TABLE>
- --------
* Based upon a Federal income tax rate of 28%.
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 IBC's Tax-
Free Funds Average, an average compiled by IBC'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 Magazine and Fortune Magazine, (iv) historical yield
data relating to other central asset accounts similar to the CMA program or
(v) 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. As
with yield quotations, yield comparisons should not be considered indicative
of the Tax-Exempt Fund's yield or relative performance for any future period.
Tax-Exempt Fund
4
<PAGE>
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 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. There
can be no assurance that the investment objectives of the Tax-Exempt Fund will
be realized.
POTENTIAL BENEFITS
Investment in Tax-Exempt Fund shares offers several potential benefits. The
Tax-Exempt Fund seeks to provide as high a tax-exempt yield potential,
consistent with its objectives, as is available from investments in short-term
Tax-Exempt Securities utilizing professional management and block purchases of
securities. It provides high liquidity because of its redemption features and
seeks the reduced risk that generally results 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. These
benefits are at least partially offset by certain expenses borne by investors,
including management fees, distribution fees, administrative costs and
operational costs.
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 ("VRDNs") and derivative or synthetic municipal
instruments ("Derivative Products"), effectively provide the
Tax-Exempt Fund
5
<PAGE>
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 VRDNs, or
the long-term bonds underlying 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 is typically 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 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 which
adversely affects the Tax-Exempt Fund's net asset value.
Variable Rate Demand Notes. VRDNs are tax-exempt obligations which utilize a
floating or variable interest rate adjustment formula and provide an
unconditional right of demand to receive payment of the unpaid principal
balance plus accrued interest on 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.
Tax-Exempt Fund
6
<PAGE>
Derivative Products. The Tax-Exempt Fund may invest in a variety of
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 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 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. 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 Ratings Services ("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
Tax-Exempt Fund
7
<PAGE>
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.
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) is 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 obligations backed by 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 or credit enhancers 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
Tax-Exempt Fund
8
<PAGE>
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
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 on 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 18, 1997 CMA TREASURY FUND
P.O. 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, NOR HAS THE SECURITIES AND EXCHANGE
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 18, 1997 (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
Policies.................. 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-7
Portfolio Transactions........... A-8
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>
TREASURY FUND ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS) FOR THE FISCAL YEAR ENDED MARCH 31, 1997:
Management Fees(a)................................................... 0.42%
Rule 12b-1 Fees(b)................................................... 0.13%
Other Expenses:
Dividend and Transfer Agency Fees(c)........................... 0.02%
Other Fees..................................................... 0.02%
----
Total Other Expenses................................................. 0.04%
----
Total Treasury Fund Operating Expenses............................... 0.59%
====
</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
expense ratio of 0.59% and a 5% annual return
throughout the periods........................ $ 6 $19 $33 $74
</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 fiscal year ended March 31, 1997 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 LLP, independent auditors.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MARCH 31, APRIL 15, 1991+
---------------------------------------------------------- TO MARCH 31,
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <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 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- ----------
Investment income--
net.................. .0461 .0498 .0409 .0250 .0278 .0453
Realized and
unrealized gain
(loss) on
investments--net..... (.0001) .0001 .0004 .0002 .0026 .0019
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations............. .0460 .0499 .0413 .0252 .0304 .0472
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income--
net.................. (.0461) (.0498) (.0409) (.0250) (.0278) (.0453)
Realized gain on
investments--net..... (.0001) (.0003) (.0002) (.0004) (.0024) (.0020)
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and
distributions.......... (.0462) (.0501) (.0411) (.0254) (.0302) (.0473)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN. 4.70% 5.15% 4.18% 2.57% 3.07% 5.02%*
========== ========== ========== ========== ========== ==========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement.......... .59% .60% .62% .61% .60% .49%*
========== ========== ========== ========== ========== ==========
Expenses................ .59% .60% .62% .61% .62% .68%*
========== ========== ========== ========== ========== ==========
Investment income and
realized gain on
investments--net....... 4.59% 5.01% 4.20% 2.55% 3.01% 4.67%*
========== ========== ========== ========== ========== ==========
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands).. $1,968,516 $1,791,760 $1,428,724 $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 as to the annualized and compounded
annualized yield for the indicated seven-day periods.
<TABLE>
<CAPTION>
SEVEN-DAY PERIOD ENDED
---------------------------
MARCH 31, 1997 MAY 31, 1997
-------------- ------------
<S> <C> <C>
Annualized Yield:
Including gains and losses........................ 4.65% 4.81%
Excluding gains and losses........................ 4.65% 4.75%
Compounded Annualized Yield......................... 4.76% 4.86%
Average Maturity of Portfolio at End of Period...... 65 days 73 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 (which excludes gains and losses) 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 IBC'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 & World Report, Business Week, CDA Investment
Technology, Inc., Forbes Magazine and Fortune Magazine 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
indicative of the Treasury Fund's yield or relative performance for any future
period.
Treasury Fund
4
<PAGE>
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. There can be no assurance that the
investment objectives of the Treasury Fund will be realized.
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, 1997, the
average maturity of the Treasury Fund's portfolio ranged from 49 days to 81
days.
Investment in Treasury Fund shares offers several potential benefits. 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 seeks the reduced market risk that generally results 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. These benefits are at least partially offset by certain expenses
borne by investors, including management fees, distribution fees,
administrative costs and operational costs.
Forward Commitments. The Treasury Fund may purchase or sell portfolio
securities on a forward commitment basis at fixed purchase or sale terms. The
purchase of portfolio securities on a forward commitment 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
increase, the value of the securities purchased on a forward commitment basis
will generally decrease. 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
purchase commitment. The Treasury Fund may also sell securities on a forward
commitment basis. By doing so, the Fund foregoes the opportunity to sell such
securities at a higher price should they increase in value between the trade
and settlement dates.
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 SM 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 (the "CMA State
Funds"), each of which is designed to provide income that is exempt from
Federal income taxes, personal income taxes of the designated state and, in
certain instances, local income taxes. 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, Pierce, Fenner & Smith Incorporated ("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 account (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,
New York time, 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 Merrill Lynch 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 Merrill Lynch
Financial Data Services, Inc., 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 Merrill Lynch
Financial Data Services, Inc., P.O. Box 45290, Jacksonville, Florida 32232-
5290. Purchase orders which are sent by hand should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Investors opening a new account must enclose a completed
Purchase Application which is available from Merrill Lynch 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 U.S. funds and must be drawn in U.S. dollars on a U.S.
bank. Payments for the accounts of corporations, foundations and other
organizations may not be made by third party checks. Since there is a three-
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 (each, a
"Distribution Plan") in compliance with Rule 12b-1 under the Investment
Company Act of 1940, as amended (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 which
the fees are paid. The distribution fee is to compensate Merrill Lynch
A-3
<PAGE>
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 fiscal year ended March 31, 1997, $63,097,234 was paid
to Merrill Lynch pursuant to the Distribution Plans: $46,767,555 by the Money
Market Fund, $4,103,537 by the Government Fund, $9,788,070 by the Tax-Exempt
Fund and $2,438,072 by the Treasury Fund. The annual fee paid to Merrill Lynch
for the fiscal year ended March 31, 1996 aggregated 0.125% of average daily
net assets of each 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 12
noon, New York time, pricing on any business day, 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 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 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 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, in those instances where shareholders request
transactions that settle on a "same-day" basis (such as Federal Funds wire
redemptions, branch office checks, transfers to other Merrill Lynch accounts
and certain securities transactions) the Fund shares necessary to effect such
transactions will be deemed to have been transferred to Merrill Lynch prior to
the Fund's declaration of dividends on that day. In such instances,
shareholders will receive all dividends declared and reinvested through the
date immediately preceding the date of redemption. 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, offers 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 CreditLineSM
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 17Ad-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 above 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, Merrill Lynch
Financial Data Services, Inc., P.O. Box 45290, Jacksonville, Florida 32232-
5290. Redemption requests which are sent by hand should be delivered to
Merrill Lynch Financial Data Services, Inc., 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
A-5
<PAGE>
shares are registered, signed exactly as their names appear on their monthly
statement. The signature(s) on the notice must be guaranteed by an "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. ("ML & Co."), offers a modified version of the CMA account which has
been designed for corporations and other businesses. This account, the Working
Capital ManagementTM 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.
A-6
<PAGE>
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.
The Trustees of each Fund are:
Arthur Zeikel*--President of Fund Asset Management, L.P. (the "Investment
Adviser") and its affiliate, Merrill Lynch Asset Management, L.P.
("MLAM"); President and Director of Princeton Services, Inc. ("Princeton
Services"); Executive Vice President of ML & Co.; Director of Merrill
Lynch Funds Distributor, Inc.
Ronald W. Forbes--Professor of Finance, School of Business, State
University of New York at Albany.
Cynthia A. Montgomery--Professor of Competition and Strategy, Harvard
Business School.
Charles C. Reilly--Former 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--Dean Emeritus, New York University, Leonard N. Stern
School of Business Administration.
- --------
* Interested person, as defined in the Investment Company Act, of each Fund.
INVESTMENT ADVISORY ARRANGEMENTS
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, MLAM, acts as the
investment adviser for more than 140 registered investment companies and
provides investment advisory services to individuals and institutional
accounts. As of May 31, 1997, MLAM and the Investment Adviser had a total of
approximately $252.5 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 fiscal year ended March 31, 1997. The information does not
include amounts paid under each Fund's Distribution Plan to Merrill Lynch.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1997
----------------------------------
AVERAGE
FEE PAID NET ASSETS EFFECTIVE
CMA FUND (MILLIONS) (BILLIONS) FEE RATE
- -------- ----------- ----------- ----------
<S> <C> <C> <C>
Money Market............................... $ 143.7 $ 37.9 0.38%
Government................................. $ 13.5 $ 3.3 0.40%
Tax-Exempt................................. $ 30.8 $ 8.0 0.39%
Treasury................................... $ 8.3 $ 2.0 0.42%
</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 fiscal year ended March 31, 1997, the amounts of such
reimbursement paid by the Money Market Fund, the Government Fund, the Tax-
Exempt Fund and the Treasury Fund aggregated $1,408,811, $220,479, $406,090
and $154,234, respectively. For the fiscal year ended March 31, 1997, the
ratio of total expenses to average net assets was 0.56% for the Money Market
Fund, 0.56% for the Government Fund, 0.55% for the Tax-Exempt Fund and 0.59%
for the Treasury Fund (excluding payments under the Funds' Distribution
Plans).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which is
a subsidiary of ML & Co., acts as the Funds' Transfer Agent pursuant to a
Transfer Agency, Shareholder Servicing Agency, and Proxy Agency Agreement (the
"Transfer Agency Agreement"). Pursuant to the Transfer Agency Agreement, 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 Agreement, the Transfer Agent receives a fee at the rate
of $10.00 per account and the Transfer Agent is entitled to reimbursement from
the Fund for certain transaction charges and out-of-pocket expenses incurred
by it under the Transfer Agency Agreement. For purposes of the Transfer Agency
Agreement, the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing the
beneficial interest of a person on a recordkeeping system, provided the
recordkeeping system is maintained by a wholly-owned subsidiary of ML & Co.
For the year ended March 31, 1997, the total fee paid by each Fund to the
Transfer Agent pursuant to the Transfer Agency Agreement was $15,034,795 by
the Money Market Fund, $551,291 by the Government Fund, $1,466,306 by the Tax-
Exempt Fund and $357,015 by the Treasury Fund.
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
A-8
<PAGE>
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 (the "Commission"). Affiliated persons of a Fund may serve
as its broker in over-the-counter transactions conducted on an agency basis.
The 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.,
its subsidiary Merrill Lynch Money Markets Inc. and Merrill Lynch, subject to
certain terms and conditions. During the fiscal year ended March 31, 1997, the
Money Market Fund engaged in 184 transactions pursuant to such orders
aggregating approximately $11.7 billion; the Government Fund engaged in 4
transactions pursuant to such orders aggregating approximately $469.0 million;
the Tax-Exempt Fund engaged in 31 transactions pursuant to such orders
aggregating approximately $773.4 million; the Treasury Fund engaged in 15
transactions pursuant to such orders aggregating approximately $353.9 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, New York time, 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. Unrealized 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, New York time, on each day the New York Stock Exchange or New York banks
are open for business.
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
A-9
<PAGE>
Fund, deducting such Fund'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. It is anticipated that the net asset value per share
will remain constant at $1.00 per share, but no assurance can be offered in
this regard. 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"). As long as 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 which it
distributes to shareholders. 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 and the
Treasury Fund from their ordinary income or from an excess of net short-term
capital gains over net long-term capital losses (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses ("capital gain dividends") are
taxable to shareholders as long-term capital gains, regardless of the length
of time the shareholder has owned shares of such Fund. 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 written notice designating the
amounts of any ordinary income dividends or capital gain dividends.
TAXATION OF TAX-EXEMPT FUND DIVIDENDS
To the extent that the dividends distributed to the Tax-Exempt Fund's
shareholders are derived from interest income exempt from Federal income tax
under Code Section 103(a) and are properly designated as "exempt-interest
dividends" by such 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. The
Tax-Exempt 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. 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.
A-10
<PAGE>
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. Distributions, if any, from an excess of net long-term capital gains
over net short-term capital losses derived 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 Tax Exempt Fund shares. 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. Any loss upon the sale or exchange of shares held for six months
or less will be disallowed to the extent of any exempt-interest dividends
received by the shareholder. In addition, any such loss that is not disallowed
under the rule stated above will be treated as long-term capital loss to the
extent of any capital gain 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 certain 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 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 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. Distributions by the Funds, whether
from exempt interest income, ordinary income or capital gains, will not be
eligible for the dividends received deduction allowed to corporations under
the Code. 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). Any loss upon the sale or
exchange of Fund 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.
If the value of assets held by the Money Market Fund, the Government Fund,
the Treasury Fund or the Tax-Exempt Fund declines, the Board of Trustees may
authorize a reduction in the number of outstanding shares
A-11
<PAGE>
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 paid by the Money Market Fund, the Government Fund and the
Treasury Fund, 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.
Ordinary income dividends paid 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.
Dividends and interest received by a Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Under certain Code provisions, some taxpayers may be subject to a 31%
withholding tax on certain ordinary income dividends and on 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, judicial 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 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 only shall be liable. Copies of the Declarations
of Trust, together with all amendments thereto, are on file in the office of
the Secretary 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.
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
A-13
<PAGE>
receive separate copies of each report and communication for each of the
shareholder's related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
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 Merrill Lynch Financial Data Services, Inc. at (800) 221-7210.
A-14
<PAGE>
Investment Adviser
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. 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
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45290
Jacksonville, Florida 32232-5290
Independent Auditors
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
Counsel
Brown & Wood LLP
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 #10117-0797
- --------------------------------------------------------------------------------
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 18, 1997
- --------------------------------------------------------------------------------
[LOGO] MERRILL LYNCH
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CMA MONEY FUND
CMA GOVERNMENT SECURITIES FUND
CMA TAX-EXEMPT FUND
CMA TREASURY FUND
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
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") are no-load money market funds whose
shares are offered to participants in the Cash Management Account(R) ("CMA" or
"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. A CMA account is a conventional
Merrill Lynch cash securities account or margin securities account
("Securities Account") which is linked to the Money Market Fund, the
Government Fund, the Tax-Exempt Fund and the Treasury Fund (collectively, the
"Funds"), money market deposit accounts maintained with depository
institutions and to a Visa(R) card/check account ("Visa(R) Account"). In
addition, investors may 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"). Merrill Lynch markets its margin account under the name
Investor CreditLineSM service.
A customer of Merrill Lynch may subscribe to the CMA program with a minimum
of $20,000 in securities or cash. Subject to the conditions described in the
Prospectuses referred to below, free credit balances in the Securities Account
of CMA participants will be invested periodically in shares of one of the four
Funds. This permits the subscriber to earn a return on such funds pending
further investment in other aspects of the CMA program or utilization through
the Visa(R) Account.
Merrill Lynch charges an annual program participation fee, presently $100
for individuals, for the CMA service (an additional $25 annual program fee is
charged for participation in the CMA Visa(R) Gold Program described in the CMA
Program Description). Merrill Lynch reserves the right to change the fee for
the CMA service or the CMA Visa(R) Gold Program at any time. The shares of
each Fund also may be purchased without the imposition of the annual program
participation fee by investors maintaining accounts directly with the Transfer
Agent who do not subscribe to the CMA program. The minimum initial purchase
for non-CMA subscribers is $5,000 and subsequent purchases must be $1,000 or
more. Such investors will not receive any of the additional services available
to CMA program subscribers, such as a Visa card/check account or the automatic
investment of free credit balances.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.. 2
Money Market Fund................. 2
Government Fund................... 5
Tax-Exempt Fund................... 5
Treasury Fund..................... 8
Management of the Funds............. 8
Purchase and Redemption of Shares... 13
Portfolio Transactions.............. 14
Determination of Net Asset Value.... 16
Yield Information................... 17
Taxes............................... 18
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information................... 21
Appendix.............................. 24
Description of Commercial Paper, Bank
Money Market Instruments and
Corporate Bond Ratings............... 24
Financial Statements
Money Market Fund................... 29
Government Fund..................... 42
Tax-Exempt Fund..................... 48
Treasury Fund....................... 69
</TABLE>
This Statement of Additional Information of the Funds is not a prospectus
and should be read in conjunction with the Prospectuses of the Funds dated
July 18, 1997 (the "Prospectuses"), which have been filed with the Securities
and Exchange Commission (the "Commission") and can be obtained, without
charge, by calling or writing to the Funds at the above telephone number or
address. This Statement of Additional Information has been incorporated by
reference into the Prospectuses.
---------------
The date of this Statement of Additional Information is July 18, 1997.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET FUND
The Money Market Fund is a no-load money market fund. Reference is made to
"Investment Objectives and Policies" in the Prospectus of the Money Market
Fund for a discussion of the investment objectives and policies of such Fund.
As discussed in its Prospectus, the Money Market Fund may invest in money
market securities pursuant to repurchase agreements. Under such agreements,
the counterparty 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. Such agreements usually
cover short periods, such as under a week. The Money Market Fund will require
the seller to provide additional collateral if the market value of the
securities falls below the repurchase price at any time during the term of the
repurchase agreement. In the event of a default by the seller, the Money
Market Fund ordinarily will retain ownership of the securities underlying the
repurchase agreement, and instead of a contractually fixed rate of return, the
rate of return to the Money Market Fund shall be dependent upon intervening
fluctuations of the market value of such securities and the accrued interest
on the securities. In such event, the Money Market Fund would have rights
against the seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to perform. In
certain circumstances, 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. Therefore,
the Money Market Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. From time to
time, the Money Market Fund also may invest in money market securities
pursuant to purchase and sale contracts. While purchase and sale contracts are
similar to repurchase agreements, purchase and sale contracts are structured
so as to be in substance more like a purchase and sale of the underlying
security than is the case with repurchase agreements.
Also, as discussed in the Prospectus, the Money Market Fund may invest in
obligations issued by commercial and savings banks and savings and loan
associations. 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).
In addition, the Money Market Fund may also invest in other U.S. dollar-
denominated obligations of foreign depository institutions and their
subsidiaries. Eurodollar and Yankeedollar obligations must be general
obligations of the parent bank. The obligations of other foreign depository
institutions and their subsidiaries may be the general obligations 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. The Money Market Fund
may also invest in 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.
Eurodollar and Yankeedollar obligations, as well as other obligations of
foreign depository institutions and short-term obligations issued by other
foreign entities, may involve additional investment risks, including adverse
political and economic developments, the possible imposition of withholding
taxes on interest income payable on such obligations, the possible seizure or
nationalization of foreign deposits and the possible establishment of exchange
controls or other foreign governmental laws or restrictions which might
adversely affect the repayment of principal and the payment of interest. The
issuers of such obligations may not be subject to U.S. regulatory
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requirements. Foreign branches or subsidiaries of U.S. banks may be subject to
less stringent reserve requirements than U.S. banks. U.S. branches or
subsidiaries of foreign banks are subject to the reserve requirements of the
state in which they are located. There may be less publicly available
information about a U.S. branch or subsidiary of a foreign bank or other
issuer than about a U.S. bank or other issuer, and such entities may not be
subject to the same accounting, auditing and financial record keeping
standards and requirements as U.S. issuers. Evidence of ownership of
Eurodollar and foreign obligations may be held outside the United States and
the Money Market Fund may be subject to the risks associated with the holding
of such property overseas. Eurodollar and foreign obligations of the Money
Market Fund held overseas will be held by foreign branches of the Money Market
Fund's custodian or by other U.S. or foreign banks under subcustodian
arrangements complying with the requirements of the Investment Company Act of
1940, as amended (the "Investment Company Act").
The investment adviser of the Money Market Fund, Fund Asset Management, L.P.
(the "Investment Adviser"), will carefully consider the above factors in
making investments in Eurodollar obligations and Yankeedollar obligations of
foreign depository institutions and other foreign short-term obligations, and
will not knowingly purchase obligations which, at the time of purchase, are
subject to exchange controls or withholding taxes. Generally, the Money Market
Fund will limit its Yankeedollar investments to obligations of banks organized
in Canada, France, Germany, Japan, the Netherlands, Switzerland, the United
Kingdom and other industrialized nations.
The Money Market Fund may enter into reverse repurchase agreements, as
discussed in its Prospectus. The Money Market Fund will use the proceeds of
reverse repurchase agreements to purchase other money market securities either
maturing, or under an agreement to resell, at a date simultaneous with or
prior to the expiration of the reverse repurchase agreements. The Money Market
Fund will utilize reverse repurchase agreements when the interest income to be
earned from the investment of the proceeds of the transaction is greater than
the interest expense of the reverse repurchase transaction.
The Money Market Fund's investments in U.S. Government and Government agency
securities will be in instruments with a remaining maturity of 762 days (25
months) or less. The Money Market Fund's other investments will be in
instruments with a remaining maturity of 397 days (13 months) or less that
have received a short-term rating, or that have been issued by issuers that
have received a short-term rating with respect to a class of debt obligations
that are comparable in priority and security with the instruments, from the
requisite nationally recognized statistical rating organizations ("NRSROs") in
one of the two highest short-term rating categories or, if neither the
instrument nor its issuer is so rated, will be of comparable quality as
determined by the Trustees of the Money Fund. Currently, there are six NRSROs:
Duff & Phelps Inc., Fitch Investors Service, Inc., IBCA Limited and its
affiliate IBCA Inc., Thompson Bankwatch, Inc., Moody's Investors Service, Inc.
and Standard & Poor's Ratings Services. The Money Market Fund will determine
the remaining maturity of investments in which it invests in accordance with
Commission regulations.
As described in its Prospectus, the Money Market Fund may invest in variable
amount master demand notes. These are demand obligations that permit the
investment of fluctuating amounts at varying market rates of interest.
In addition to the investment restrictions set forth in its Prospectus, the
Money Market Fund has adopted the following restrictions and policies relating
to the investment of its assets and its activities, which are
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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
(which for this purpose means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are represented
or (ii) more than 50% of the outstanding shares). The Money Market Fund may
not: (1) make investments for the purpose of exercising control or management;
(2) underwrite securities issued by other persons; (3) purchase securities of
other investment companies, except in connection with a merger, consolidation,
acquisition or reorganization; (4) purchase or sell real estate (other than
money market securities secured by real estate or interests therein or money
market securities issued by companies which invest in real estate or interests
therein), commodities or commodity contracts, interests in oil, gas or other
mineral exploration or development programs; (5) purchase any securities on
margin, except for use of short-term credit necessary for clearance of
purchases and sales of portfolio securities; (6) make short sales of
securities or maintain a short position or write, purchase or sell puts,
calls, straddles, spreads or combinations thereof; (7) make loans to other
persons, provided that the Money Market Fund may purchase money market
securities or enter into repurchase agreements and lend securities owned or
held by it pursuant to (8) below; (8) lend its portfolio securities in excess
of 33 1/3% of its total assets, taken at market value, provided that such
loans are made according to the guidelines set forth below; (9) borrow amounts
in excess of 20% of its total assets, taken at market value (including the
amount borrowed), and then only from banks as a temporary measure for
extraordinary or emergency purposes (The borrowing provisions shall not apply
to reverse repurchase agreements.) [Usually only "leveraged" investment
companies may borrow in excess of 5% of their assets; however, the Money
Market Fund will not borrow to increase income but only to meet redemption
requests which might otherwise require untimely dispositions of portfolio
securities. The Money Market Fund will not purchase securities while
borrowings are outstanding. Interest paid on such borrowings will reduce net
income.]; (10) mortgage, pledge, hypothecate or in any manner transfer (except
as provided in (8) above) as security for indebtedness any securities owned or
held by the Money Market Fund except as may be necessary in connection with
borrowings referred to in investment restriction (9) above, and then such
mortgaging, pledging or hypothecating may not exceed 10% of the Money Market
Fund's net assets, taken at market value; (11) invest in securities with legal
or contractual restrictions on resale (except for repurchase agreements) or
for which no readily available market exists if, regarding all such
securities, more than 10% of its net assets (taken at market value) would be
invested in such securities; (12) invest in securities of issuers (other than
issuers of U.S. Government agency securities) having a record, together with
predecessors, of less than three years of continuous operation if, regarding
all such securities, more than 5% of its total assets (taken at market value)
would be invested in such securities; (13) enter into reverse repurchase
agreements if, as a result thereof, the Money Market Fund's obligations with
respect to reverse repurchase agreements would exceed one-third of its net
assets (defined to be total assets, taken at market value, less liabilities
other than reverse repurchase arrangements); and (14) purchase or retain the
securities of any issuer, if those individual officers and Trustees of the
Money Market Fund, the Investment Adviser or any subsidiary thereof each
owning beneficially more than 1% of the securities of such issuer own in the
aggregate more than 5% of the securities of the issuer.
Lending of Portfolio Securities. Subject to investment restriction (8)
above, the Money Market Fund may from time to time lend securities from its
portfolio to brokers, dealers and financial institutions and receive
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. Such cash collateral will
be invested in short-term securities, the income from which will increase the
return to the Money Market Fund. Such loans will be terminable at any time.
The Money Market Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights. The Money Market Fund may pay
reasonable fees in connection with the arranging of such loans.
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GOVERNMENT FUND
The Government Fund is a no-load money market fund. Reference is made to
"Investment Objectives and Policies" in the Prospectus of the Government Fund
for a discussion of the investment objectives and policies of such Fund.
As discussed in its Prospectus, the Government Fund may invest in U.S.
Government securities pursuant to repurchase agreements. Reference is made to
"Investment Objectives and Policies--Money Market Fund" herein for a
discussion of such repurchase agreements.
In addition to the investment restrictions set forth in its Prospectus, the
Government Fund has adopted the following 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 (which for
this purpose means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). The Government Fund may not:
(1) act as an underwriter of securities issued by other persons; (2) purchase
any securities on margin, except for use of short-term credit necessary for
clearance of purchases and sales of portfolio securities; (3) make short sales
of securities or maintain a short position or write, purchase or sell puts,
calls, straddles, spreads or combinations thereof; (4) make loans to other
persons, provided that the Government Fund may purchase short-term marketable
securities which are direct obligations of the U.S. Government or enter into
repurchase agreements pertaining thereto; (5) borrow amounts in excess of 20%
of its total assets, taken at market value (including the amount borrowed),
and then only from banks as a temporary measure for extraordinary or emergency
purposes. [Usually only "leveraged" investment companies may borrow in excess
of 5% of their assets; however, the Government Fund will not borrow to
increase income but only to meet redemption requests which might otherwise
require untimely dispositions of portfolio securities. The Government Fund
will not purchase securities while borrowings are outstanding. Interest paid
on such borrowings will reduce net income.]; and (6) mortgage, pledge,
hypothecate or in any manner transfer as security for indebtedness any
securities owned or held by the Government Fund except as may be necessary in
connection with borrowings mentioned in (5) above, and then such mortgaging,
pledging or hypothecating may not exceed 10% of the Government Fund's net
assets, taken at market value.
TAX-EXEMPT FUND
The Tax-Exempt Fund is a no-load tax-exempt money market fund. Reference is
made to "Investment Objectives and Policies" in the Prospectus of the Tax-
Exempt Fund for a discussion of the investment objectives and policies of such
Fund.
As discussed in its Prospectus, the Tax-Exempt Fund may invest in variable
rate demand notes ("VRDNs"). VRDNs are tax-exempt obligations which utilize a
floating or variable interest rate adjustment formula and provide an
unconditional right of demand to receive payment of the unpaid principal
balance plus accrued interest on 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 on the adjustment
date. The adjustments are frequently based upon 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
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("institutions"). Participating VRDNs provide the Tax-Exempt Fund with a
specified undivided interest (up to 100%) of the underlying obligation 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.
The Tax-Exempt Fund has been advised by its counsel that the interest
received on Participating VRDNs will be treated as interest from tax-exempt
obligations as long as the Tax-Exempt Fund does not invest more than a limited
amount (not more than 20%) of its total assets in such investments and certain
other conditions are met. It is contemplated that the Tax-Exempt Fund will not
invest more than a limited amount of its total assets in Participating VRDNs.
The Tax-Exempt Fund can be expected to offer a lower yield than longer-term
municipal bond funds since Tax-Exempt Securities with longer maturities tend
to produce higher yields. Interest rates in the short-term Tax-Exempt
Securities market also may fluctuate more widely from time to time than
interest rates in the long-term municipal bond market. However, because of the
shorter maturities, the market value of the Tax-Exempt Securities held by the
Tax-Exempt Fund can be expected to fluctuate less in value as a result of
changes in interest rates. Because of the interest rate adjustment formula on
VRDNs (including Participating VRDNs), the VRDNs are not comparable to fixed
rate securities. The Tax-Exempt Fund's yield on VRDNs will decline and its
shareholders will forego the opportunity for capital appreciation during
periods when prevailing interest rates have declined. On the other hand,
during periods when prevailing interest rates have increased, the Tax-Exempt
Fund's yield on VRDNs will increase and its shareholders will have a reduced
risk of capital depreciation.
The Tax-Exempt Fund's portfolio of 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 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 Investors Service, Inc., Moody's Investors Service, Inc.
and Standard & Poor's Ratings Group. Certain tax-exempt obligations (primarily
VRDNs and Participating VRDNs) may be entitled to the benefit of standby
letters of credit or similar commitments issued by financial institutions and,
in such instances, the Board of Trustees and 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. For a
description of Tax-Exempt Securities and such ratings, see "Information
Concerning Tax-Exempt Securities" in the Appendix.
Purchase or Sale of Tax-Exempt Securities on a Delayed Delivery Basis or on
a When-Issued Basis. Tax-Exempt Securities may at times be purchased or sold
on a delayed delivery basis or on a when-issued basis.
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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 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.
Purchase of Securities with Fixed Price "Puts." The Tax-Exempt Fund has
authority to purchase fixed rate Tax-Exempt Securities and, for a price,
simultaneously acquire the right to sell such securities back to the seller at
an agreed upon price at any time during a stated period or on a certain date.
Such a right is generally denoted as a fixed price put. Puts with respect to
fixed rate instruments are to be distinguished from the demand or repurchase
features of VRDNs and Participating VRDNs which enable the Tax-Exempt Fund to
dispose of the security at a time when the market value of the security
approximates its par value. The Tax-Exempt Fund does not currently intend to
enter into fixed price put transactions but reserves the right to do so in the
future. No such transactions will be entered into unless such transactions are
permissible under applicable rules under the Investment Company Act and the
Trustees of the Tax-Exempt Fund have approved the proposed terms of such
transactions.
In addition to the investment restrictions set forth in its Prospectus, the
Tax-Exempt Fund has adopted the following 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 (for this purpose a
majority of the shares means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are represented
or (ii) more than 50% of the outstanding shares). The Tax-Exempt Fund may not:
(1) make investments for the purpose of exercising control or management; (2)
purchase securities of other investment companies, except in connection with a
merger, consolidation, acquisition or reorganization; (3) purchase or sell
real estate (provided that such restriction shall not apply to Tax-Exempt
Securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein), commodities or commodity
contracts, interests in oil, gas or other mineral exploration or development
programs; (4) purchase any securities on margin, except for use of short-term
credit necessary for clearance of purchases and sales of portfolio securities;
(5) make short sales of securities or maintain a short position or invest in
put, call, straddle, or spread options or combinations thereof; provided,
however, that the Tax-Exempt Fund shall have the authority to purchase Tax-
Exempt Securities subject to put options as set forth under "Investment
Objectives and Policies" and "Appendix-Information Concerning Tax-Exempt
Securities"; (6) make loans to other persons, provided that the Tax-Exempt
Fund may purchase a portion of an issue of Tax-Exempt Securities (the
acquisition of a portion of an issue of Tax-Exempt Securities or bonds,
debentures or other debt securities which are not publicly distributed is
considered to be the making of a loan under the Investment Company Act); (7)
borrow amounts in excess of 20% of its total assets taken at market value
(including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes. [Usually only "leveraged"
investment companies may borrow in excess of 5% of their assets; however, the
Tax-Exempt Fund will not borrow to increase income but only to meet redemption
requests which might otherwise require untimely dispositions of portfolio
securities. The Tax-Exempt Fund will not
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<PAGE>
purchase securities while borrowings are outstanding. Interest paid on such
borrowings will reduce net income.]; (8) mortgage, pledge, hypothecate or in
any manner transfer as security for indebtedness any securities owned or held
by the Tax-Exempt Fund except as may be necessary in connection with
borrowings mentioned in (7) above, and then such mortgaging, pledging or
hypothecating may not exceed 10% of its total assets, taken at value; (9)
invest in securities with legal or contractual restrictions on resale or for
which no readily available market exists if, regarding all such securities,
more than 10% of its net assets (taken at value), would be invested in such
securities; and (10) act as an underwriter of securities, except to the extent
that the Tax-Exempt Fund may technically be deemed an underwriter when engaged
in the activities described in (6) above or insofar as the Tax-Exempt Fund may
be deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
TREASURY FUND
The Treasury Fund is a no-load money market fund. Reference is made to
"Investment Objectives and Policies" in the Prospectus of the Treasury Fund
for a discussion of the investment objectives and policies of the Treasury
Fund.
The Treasury Fund has adopted the following 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
(which for this purpose means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are represented
or (ii) more than 50% of the outstanding shares). The Treasury Fund may not:
(1) purchase any securities other than direct obligations of the U.S. Treasury
having maturities of no more than 762 days (25 months), (2) act as an
underwriter of securities issued by other persons; (3) purchase any securities
on margin, except for use of short-term credit necessary for clearance of
purchases and sales of portfolio securities; (4) make short sales of
securities or maintain a short position or write, purchase or sell puts,
calls, straddles, spreads or combinations thereof; (5) make loans to other
persons, provided that the Treasury Fund may purchase short-term marketable
securities which are direct obligations of the U.S. Treasury; (6) borrow
amounts in excess of 20% of its total assets, taken at market value (including
the amount borrowed), and then only from banks as a temporary measure for
extraordinary or emergency purposes. [Usually only "leveraged" investment
companies may borrow in excess of 5% of their assets; however, the Treasury
Fund will not borrow to increase income but only to meet redemption requests
which might otherwise require untimely dispositions of portfolio securities.
The Treasury Fund will not purchase securities while borrowings are
outstanding. Interest paid on such borrowings will reduce net income.]; and
(7) mortgage, pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by the Treasury Fund except as may
be necessary in connection with borrowings mentioned in (6) above, and then
such mortgaging, pledging or hypothecating may not exceed 10% of the Treasury
Fund's net assets, taken at market value.
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
Information about the Trustees and executive officers of the Funds,
including their ages and their principal occupations for at least the last
five years, is set forth below. With the exception of six officers, the
persons named below hold the same positions with each of the Funds. Unless
otherwise noted, the address of each Trustee and executive officer is P.O. Box
9011, Princeton, New Jersey 08543-9011.
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Arthur Zeikel (65)--President and Trustee (1)(2)--President of the
Investment Adviser (which term, as used herein, includes its corporate
predecessors) since 1977; President of Merrill Lynch Asset Management, L.P.
("MLAM") (which term, as used herein, includes its corporate predecessors)
since 1977; President and Director of Princeton Services, Inc. ("Princeton
Services") since 1993; Executive Vice President of Merrill Lynch & Co., Inc.
("ML & Co.") since 1990; Director of Merrill Lynch Funds Distributor, Inc.
("MLFD") since 1977.
Ronald W. Forbes (56)--Trustee (2)--1400 Washington Avenue, Albany, New York
12222. Professor of Finance, School of Business, State University of New York
at Albany since 1989.
Cynthia A. Montgomery (44)--Trustee (2)--Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 02163. Professor, Harvard Business School
since 1989; Associate Professor, J.L. Kellogg Graduate School of Management,
Northwestern University from 1985 to 1989; Assistant Professor, Graduate
School of Business Administration, The University of Michigan from 1979 to
1985; Director, UNUM Corporation since 1990 and Director of Newell Co. since
1995.
Charles C. Reilly (66)--Trustee (2)--9 Hampton Harbor Road, Hampton Bays,
New York 11946. Self-employed financial consultant since 1990; President and
Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, The University of Pennsylvania, from 1989
to 1990; Partner, Small Cities Cable Television since 1986.
Kevin A. Ryan (64)--Trustee (2)--127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Founder and current Director of The Boston University
Center for the Advancement of Ethics and Character; Professor of Education at
Boston University since 1982; formerly taught on the faculties of The
University of Chicago, Stanford University and Ohio State University.
Richard R. West (59)--Trustee (2)--Box 604, Genoa, Nevada 89411. Professor
of Finance since 1984, and Dean from 1984 to 1993, and currently Dean Emeritus
of New York University, Leonard N. Stern School of Business Administration;
Director of Bowne & Co., Inc. (financial printers), Vornado, Inc. (real estate
holding company), and Alexander's Inc. (real estate company).
Terry K. Glenn (56)--Executive Vice President (1)(2)--Executive Vice
President of the Investment Adviser and MLAM since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of MLFD
since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
Vincent R. Giordano (52)--Senior Vice President of the Tax-Exempt Fund
(1)(2)--Senior Vice President of the Investment Adviser and MLAM since 1984;
Senior Vice President of Princeton Services since 1993.
Joseph T. Monagle, Jr. (48)--Senior Vice President of the Money Market Fund,
the Government Fund and the Treasury Fund (1)(2)--Senior Vice President of the
Investment Adviser and MLAM since 1990; Senior Vice President of Princeton
Services since 1993.
Donald C. Burke (37)--Vice President (1)(2)--Vice President and Director of
Taxation of the Investment Adviser since 1990.
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Donaldo S. Benito (51)--Vice President of the Government Fund (1)--Vice
President of MLAM since 1986; Assistant Vice President of MLAM from 1984 to
1986.
Peter J. Hayes (38)--Vice President of the Tax-Exempt Fund (1)(2)--Vice
President of MLAM since 1988.
Marie Heumiller (32)--Vice President of the Treasury Fund (1)(2)--Vice
President and Portfolio Manager of MLAM since 1991; employed by MLAM since
1985.
Kenneth A. Jacob (46)--Vice President of the Tax-Exempt Fund (1)(2)--Vice
President of MLAM since 1984.
Kevin J. McKenna (40)--Vice President of the Money Market Fund, the
Government Fund and the Treasury Fund (1)(2)--Vice President of MLAM since
1985.
Helen Marie Sheehan (37)--Vice President of the Tax-Exempt Fund (1)(2)--Vice
President of MLAM since 1991; Assistant Vice President of MLAM from 1989 to
1991; employee of MLAM since 1985.
Gerald M. Richard (48)--Treasurer (1)(2)--Senior Vice President and
Treasurer of the Investment Adviser and MLAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of MLFD since
1981; Treasurer since 1984.
Robert Harris (45)--Secretary (1)(2)--Vice President of MLAM since 1984 and
attorney associated with MLAM since 1980; Secretary of MLFD since 1982.
- --------
(1) Interested person, as defined in the Investment Company Act, of the
Funds.
(2) Such Trustee or officer is a director or officer of certain other
investment companies for which the Investment Adviser or MLAM acts as
investment adviser.
At May 31, 1997 the Trustees and officers of the Funds as a group (18
persons) owned an aggregate of less than 1% of the outstanding shares of
beneficial interest of the Funds. At such date, Mr. Zeikel and the other
officers of the Funds owned an aggregate of less than 1% of the outstanding
shares of common stock of ML & Co.
COMPENSATION OF TRUSTEES
Pursuant to the terms of its Investment Advisory Agreements (the "Investment
Advisory Agreements") with the Funds, the Investment Adviser pays all
compensation of officers and employees of the Funds as well as the fees of all
Trustees of the Funds who are affiliated persons of ML & Co. or its
subsidiaries. Each Fund pays each non-interested Trustee an annual fee plus a
fee for each meeting attended and pays all Trustees' actual out-of-pocket
expenses relating to attendance at meetings. Each Fund also compensates
members of its Audit and Nominating Committee (the "Committee"), which
consists of all of the non-interested Trustees. The Chairman of the Committee
receives an additional annual fee of $1,000 per year. For the fiscal year
ended March 31, 1997, fees and expenses paid by the Money Market Fund, the
Government Fund, the Tax-Exempt Fund and the Treasury Fund to the non-
interested Trustees aggregated $77,644, $40,153, $47,644 and $32,722,
respectively.
The following table sets forth for the fiscal year ended March 31, 1997
compensation paid by the Funds to the non-interested Trustees and for the
calendar year ended December 31, 1996 the aggregate compensation paid
10
<PAGE>
by all investment companies advised by MLAM and its affiliate, FAM ("MLAM/FAM-
Advised Funds") to the non-interested Trustees:
<TABLE>
<CAPTION>
AGGREGATE
COMPEN- COMPENSATION
COMPEN- COMPEN- SATION PENSION OR FROM FUND AND
SATION SATION FROM COMPEN- RETIREMENT MLAM/FAM-
FROM FROM TAX- SATION BENEFITS ACCRUED ADVISED
MONEY GOVERNMENT EXEMPT FROM AS PART OF FUNDS PAID TO
NAME OF TRUSTEE MARKET FUND FUND FUND TREASURY FUND FUND EXPENSE TRUSTEES(1)
--------------- ----------- ---------- ------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald W. Forbes(1)..... $15,200 $7,700 $ 9,200 $6,200 None $142,500
Cynthia A.
Montgomery(1).......... $15,200 $7,700 $ 9,200 $6,200 None $142,500
Charles C. Reilly(1).... $16,200 $8,700 $10,200 $7,200 None $293,833
Kevin A. Ryan(1)........ $15,200 $7,700 $ 9,200 $6,200 None $142,500
Richard R. West(1)...... $15,200 $7,700 $ 9,200 $6,200 None $272,833
</TABLE>
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(1) The Trustees serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Forbes (25 registered investment companies consisting of 38 portfolios);
Ms. Montgomery (25 registered investment companies consisting of 38
portfolios); Mr. Reilly (43 registered investment companies consisting of
56 portfolios); Mr. Ryan (25 registered investment companies consisting of
38 portfolios); and Mr. West (44 registered investment companies
consisting of 66 portfolios).
INVESTMENT ADVISORY ARRANGEMENTS
Reference is made to "Management of the Funds--Investment Advisory
Arrangements" in the Appendix to the Prospectuses of the Funds for certain
information concerning the investment advisory arrangements of the Funds.
Subject to the direction of the Board of Trustees, the Investment Adviser is
responsible for the actual management of the Funds' portfolio 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.
Securities held by the Funds may also be held by, or be appropriate
investments for, other funds or clients (collectively referred to as
"clients") for which the Investment Adviser or MLAM acts as an investment
adviser. Because of different investment objectives or other factors, a
particular security may be bought for one or more clients when one or more
clients are selling the security. If purchases or sales of securities for the
Funds or other clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective clients in a manner deemed equitable to all by the Investment
Adviser or MLAM. To the extent that transactions on behalf of more than one
client of the Investment Adviser or MLAM during the same period may increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.
The Investment Adviser presently 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 the 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.
11
<PAGE>
Money Market Fund. For the fiscal years ended March 31, 1995, 1996 and 1997
the total advisory fees paid by the Money Market Fund to the Investment
Adviser aggregated $104,060,839, $124,239,520 and $143,662,831, respectively.
Government Fund. For the fiscal years ended March 31, 1995, 1996 and 1997
the total advisory fees paid by the Government Fund to the Investment Adviser
aggregated $12,979,282, $12,987,502 and $13,466,157, respectively.
Tax-Exempt Fund. For the fiscal years ended March 31, 1995, 1996 and 1997
the total advisory fees paid by the Tax-Exempt Fund to the Investment Adviser
aggregated $29,119,924, $29,964,050 and $30,793,066, respectively.
Treasury Fund. For the fiscal years ended March 31, 1995, 1996 and 1997 the
total advisory fees paid by the Treasury Fund to the Investment Adviser
aggregated $5,626,244, $7,235,779 and $8,329,150, respectively.
The Investment Advisory Agreements obligate the Investment Adviser to
provide investment advisory services, to furnish administrative services,
office space and facilities for management of the affairs of each Fund, to pay
all compensation of and furnish office space for officers and employees of the
Fund, as well as the fees of all Trustees of the Funds who are affiliated
persons of ML & Co. or any of its subsidiaries. Except for certain expenses
incurred by Merrill Lynch (see "Purchase and Redemption of Shares"), the Funds
pay all other expenses incurred in their operations, including, among other
things, taxes, expenses for legal and auditing services, costs of printing
proxies, reports, prospectuses and statements of additional information sent
to current shareholders (except to the extent paid for by the Distributor),
charges of the custodian and transfer agent, expenses of redemption of shares,
Commission fees, expenses of registering the shares under Federal and state
securities laws, fees and expenses of non-interested Trustees, accounting and
pricing costs (including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and other expenses properly payable by the Funds. Accounting
services are provided by the Investment Adviser and each Fund reimburses the
Investment Adviser for its costs in connection with such services provided to
that Fund.
For information as to the distribution fee to be paid by each Fund to
Merrill Lynch pursuant to the Distribution Agreements, see "Purchase and
Redemption of Shares" below.
Duration and Termination. Unless earlier terminated as described below, each
Investment Advisory Agreement will continue in effect from year to year if
approved annually (a) by the Trustees of the Fund or by a majority of the
outstanding voting shares of the Fund and (b) by a majority of the Trustees
who are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the shareholders of the Fund.
12
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Reference is made to "Purchase of Shares" and "Redemption of Shares" in the
Appendix to the Prospectuses of the Funds for certain information as to the
purchase and redemption of Fund shares.
Each Fund has entered into a distribution agreement (each, a "Distribution
Agreement") with Merrill Lynch as the distributor. The Distribution Agreements
obligate Merrill Lynch to pay certain expenses in connection with the offering
of the shares of the Funds. After the prospectuses, statements of additional
information and periodic reports have been prepared, set in type and mailed to
shareholders, Merrill Lynch will pay for the printing and distribution of
copies thereof used in connection with the offering to investors. Merrill
Lynch will also pay for other supplementary sales literature and advertising
costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Investment Advisory Agreements
described above.
Each Fund has adopted a Distribution and Shareholder Servicing Plan (each, a
"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 with Merrill Lynch or maintaining accounts directly with the Transfer
Agent who are not subscribers to such program, except that the value of Fund
shares in accounts maintained directly with the Transfer Agent which are not
serviced by Merrill Lynch Financial Consultants will be excluded. The
Distribution Plans reimburse Merrill Lynch only for actual expenses incurred
in the fiscal year in which the fees are paid. The distribution fees are
principally to provide compensation to Merrill Lynch Financial Consultants and
other Merrill Lynch personnel for selling shares of each Fund and for
providing direct personal services to shareholders of the Funds. The
distribution fee is not compensation for the administrative and operational
services rendered to shareholders by Merrill Lynch which are covered by
Investment Advisory Agreements (see "Management of the Funds--Investment
Advisory Arrangements") between each Fund and the Investment Adviser.
The Trustees believe that each Fund's expenditures under its Distribution
Plan benefit such Fund and its shareholders by providing better shareholder
services and by facilitating the sale and distribution of Fund shares. For the
years ended March 31, 1995, 1996 and 1997, the Money Market Fund paid
$34,206,694, $40,955,813 and $46,767,555, respectively, to Merrill Lynch
pursuant to its Distribution Plan. For the years ended March 31, 1995, 1996
and 1997, the Government Fund paid $4,013,060, $4,027,066 and $4,103,537,
respectively, to Merrill Lynch pursuant to its Distribution Plan. For the
years ended March 31, 1995, 1996 and 1997, the Tax-Exempt Fund paid
$9,357,280, $9,683,869 and $9,788,070, respectively, to Merrill Lynch pursuant
to its Distribution Plan. For the years ended March 31, 1995, 1996 and 1997,
the Treasury Fund paid $1,575,699, $2,115,419 and $2,438,072, respectively, to
Merrill Lynch pursuant to the Distribution Plan. All of the amounts expended
under the Distribution Plans for the years ended March 31, 1995, 1996 and 1997
were allocated to Merrill Lynch Financial Consultants, other Merrill Lynch
personnel and related administrative costs.
Among other things, each Distribution Plan provides that Merrill Lynch shall
provide and the Trustees of each Fund shall review quarterly reports of the
distribution expenses made by Merrill Lynch pursuant to the Distribution Plan.
In their consideration of each Distribution Plan, the Trustees must consider
all factors they deem relevant, including information as to the benefits of
the Distribution Plan to the related Fund and its shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Trustees of the Fund who
are not "interested persons" of the Fund as defined in the
13
<PAGE>
Investment Company Act ("Independent Trustees") shall be committed to the
discretion of the Independent Trustees then in office. Each Distribution Plan
can be terminated at any time, without penalty, by the vote of a majority of
the Independent Trustees or by the vote of the holders of a majority of the
outstanding voting securities of each Fund. Finally, the Distribution Plans
cannot be amended to increase materially the amount to be spent by the Fund
thereunder without shareholder approval, and all material amendments are
required to be approved by vote of the Trustees of the Fund, including a
majority of the Independent Trustees, cast in person at a meeting called for
that purpose.
The right to receive payment with respect to any redemption of Fund shares
may be suspended by each Fund for a period of up to seven days. Suspensions of
more than seven days may not be made except (1) for any period (A) during
which the New York Stock Exchange (the "NYSE") is closed other than customary
weekend and holiday closings or (B) during which trading on the NYSE is
restricted; (2) for any period during which an emergency exists as a result of
which (a) disposal by the Fund of securities owned by it is not reasonably
practicable or (b) it is not reasonably practicable for the Fund fairly to
determine the value of its net assets; or (3) for such other periods as the
Commission may by order permit for the protection of securityholders of the
Fund. The Commission shall by rules and regulations determine the conditions
under which (i) trading shall be deemed to be restricted and (ii) an emergency
shall be deemed to exist within the meaning of clause (2) above.
Merrill Lynch has offered the CMA program since September, 1977. While no
significant problems have occurred to date, no predictions can be made as to
the rate of purchases and redemptions of shares which will result from the
automatic features of the CMA program. The portfolio securities of the Funds
are highly liquid and the Funds have the right to borrow up to 20% of their
total assets on a temporary basis to meet unexpected redemptions.
Nevertheless, an erratic redemption pattern could force the Investment Adviser
to invest in securities or maintain an average portfolio maturity which might
lessen the yield that would otherwise be available to the Funds.
PORTFOLIO TRANSACTIONS
The Funds have no obligations to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policy
established by the Trustees and officers of each Fund, the Investment Adviser
is primarily responsible for the Fund's portfolio decisions and the placing of
the Fund's portfolio transactions. In placing orders, it is the policy of the
Funds to obtain the best net results taking into account such factors as price
of the securities offered, the type of transaction involved, the firm's
general execution and operational facilities, and the firm's risk in
positioning the securities involved. While the Investment Adviser generally
seeks reasonably competitive spreads or commissions, the Funds will not
necessarily be paying the lowest spread or commission available. The Fund's
policy of investing in securities with short maturities will result in high
portfolio turnover.
The securities in which each Fund invests are traded primarily in the over-
the-counter ("OTC") 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. The money market
securities in which the Money Market Fund, the Government Fund and the
Treasury Fund invest and the tax-exempt securities in which the Tax-Exempt
Fund invests are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing
portfolio securities
14
<PAGE>
transactions of the Funds primarily will consist of dealer spreads and
underwriting commissions. Under the Investment Company Act, a person
affiliated with the Funds is 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 Commission. Since OTC
transactions are usually principal transactions, an affiliated person of the
Funds may not serve as the Funds' dealer in connection with such transactions,
except pursuant to the exemptive order described below. However, affiliated
persons of the Funds may serve as the Funds' broker in OTC transactions
conducted on an agency basis. The Funds may not purchase securities from any
underwriting syndicate of which Merrill Lynch is a member, except in
accordance with applicable rules under the Investment Company Act.
The Commission has issued an exemptive order permitting the Money Market
Fund, the Government Fund and the Treasury Fund to conduct principal
transactions with Merrill Lynch Government Securities Inc. ("GSI") in U.S.
Government and U.S. Government agency securities, with Merrill Lynch Money
Markets Inc. ("MMI") in certificates of deposit and other short-term bank
money market instruments and commercial paper and with Merrill Lynch in fixed
income securities including medium-term notes. The order contains a number of
conditions, including conditions designed to insure that the price to the
Money Market Fund, the Government Fund and the Treasury Fund from GSI, MMI or
Merrill Lynch is equal to or better than that available from other sources.
GSI, MMI and Merrill Lynch have informed such Funds that they will in no way,
at any time, attempt to influence or control the activities of the Fund or the
Investment Adviser in placing such principal transactions. The exemptive order
allows GSI, MMI or Merrill Lynch to receive a dealer spread on any transaction
with the Money Market Fund, the Government Fund or the Treasury Fund no
greater than its customary dealer spread for transactions of the type
involved. Generally such spreads do not exceed 0.25% of the principal amount
of the securities involved. During the fiscal year ended March 31, 1995, the
Money Market Fund engaged in 383 such transactions aggregating approximately
$23.9 billion, the Government Fund engaged in 5 such transactions aggregating
approximately $174.9 million and the Treasury Fund engaged in 5 such
transactions aggregating approximately $112.0 million. During the fiscal year
ended March 31, 1996, the Money Market Fund engaged in 240 such transactions
aggregating approximately $20.2 billion, the Government Fund engaged in no
such transactions and the Treasury Fund engaged in 34 such transactions
aggregating approximately $616.5 million. During the fiscal year ended March
31, 1997, the Money Market Fund engaged in 184 such transactions aggregating
approximately $11.7 billion, the Government Fund engaged in 4 such
transactions aggregating approximately $469.0 million; and the Treasury Fund
engaged in 15 such transactions aggregating approximately $353.9 million.
Prior to the receipt of a separate exemptive order also described below, the
Tax-Exempt Fund could not purchase securities in principal transactions with
Merrill Lynch, although it could purchase tax-exempt securities from
underwriting syndicates of which Merrill Lynch was a member under certain
conditions in accordance with the provisions of a rule adopted under the
Investment Company Act. In 1987, the Commission issued an exemptive order
permitting the Tax-Exempt Fund to conduct principal transactions with Merrill
Lynch in Tax-Exempt Securities with remaining maturities of one year or less.
This order contains a number of conditions, including conditions designed to
insure that the price to the Tax-Exempt Fund from Merrill Lynch is equal to or
better than that available from other sources. Merrill Lynch has informed the
Tax-Exempt Fund that it will in no way, at any time, attempt to influence or
control the activities of the Fund or the Investment Adviser in placing such
principal transactions. The exemptive order allows Merrill Lynch to receive a
dealer spread on any transaction with the Tax-Exempt Fund no greater than its
customary dealer spread for transactions of the type involved. During the
fiscal year ended March 31, 1995, the Tax-Exempt Fund engaged in 13 principal
transactions with Merrill Lynch, aggregating approximately $130.1 million.
During the fiscal year ended March 31, 1996, the Tax-Exempt Fund engaged in 19
principal transactions with Merrill Lynch, aggregating
15
<PAGE>
approximately $360.7 million. During the fiscal year ended March 31, 1997, the
Tax-Exempt Fund engaged in 31 principal transactions with Merrill Lynch,
aggregating approximately $773.4 million.
The Trustees of each Fund have considered the possibilities of recapturing
for the benefit of the Funds expenses of possible portfolio transactions, such
as dealers' spreads and underwriting commissions, by conducting such portfolio
transactions through affiliated entities, including Merrill Lynch. After
considering all factors deemed relevant, the Trustees made a determination not
to seek such recapture. The Trustees will reconsider this matter from time to
time. The Investment Adviser has arranged for the Funds' custodian to receive
any tender offer solicitation fees on behalf of the Funds payable with respect
to portfolio securities of the Funds.
The Funds do not expect to use one particular dealer, but, subject to
obtaining the best price and execution, dealers who provide supplemental
investment research to the Investment Adviser may receive orders for
transactions by the Funds. Information so received will be in addition to and
not in lieu of the services required to be performed by the Investment Adviser
under its Investment Advisory Agreement and the expenses of the Investment
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information.
DETERMINATION OF NET ASSET VALUE
MONEY MARKET FUND, GOVERNMENT FUND AND TREASURY FUND
The net asset value of the Money Market Fund, the Government Fund and the
Treasury Fund is determined by the Investment Adviser at 12:00 noon, New York
time, on each business day during which the NYSE or New York banks are open
for business, immediately after the daily declaration of dividends. As a
result of this procedure, the net asset value is determined each business day
except for days on which both the NYSE and New York banks are closed. Both the
NYSE and New York banks are closed for New Year's Day, Martin Luther King, Jr.
Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The net asset value per share of the Money Market Fund,
the Government Fund and the Treasury Fund is determined under the "penny
rounding" method by adding the value of all securities and other assets in
each Fund's portfolio, deducting such Fund's liabilities, dividing by the
number of shares of the Fund outstanding and rounding the result to the
nearest whole cent. It is anticipated that the net asset value per share of
each Fund will remain constant at $1.00 per share, but no assurance can be
offered in this regard. 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. 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.
TAX-EXEMPT FUND
The net asset value of the Tax-Exempt Fund for the purpose of pricing orders
for the purchase and redemption of shares is determined by the Investment
Adviser at 12:00 noon, New York time, on each day the NYSE or New York banks
are open for business, immediately after the daily declaration of dividends.
As a result of this procedure, the net asset value is determined each day
except for days on which both the NYSE and New York banks are closed. Both the
NYSE and New York banks are closed on New Year's Day, Martin Luther King, Jr.
Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The net asset value is determined by adding the value
of all securities and other assets in the portfolio, deducting its liabilities
and dividing by the number of shares outstanding. It is anticipated that the
net asset value per share of the Tax-Exempt Fund will remain constant at $1.00
per share, but no assurance can be offered in this regard.
16
<PAGE>
The Tax-Exempt Fund values its portfolio securities based upon their
amortized cost in accordance with the terms of a rule adopted by the
Commission. 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. While this method provides certainty in valuation, it may
result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Tax-Exempt Fund would receive if it sold
the instrument.
----------------
In accordance with the Commission regulations applicable to the valuation of
portfolio securities, the Funds will maintain a dollar-weighted average
portfolio maturity of 90 days or less and will purchase instruments having
remaining maturities of not more than 397 days (13 months),with the exception
of U.S. Government and U.S. Government agency securities, which may have
remaining maturities of up to 762 days (25 months). The Funds will invest only
in securities determined by the Trustees to be of high quality with minimal
credit risks. In addition, the Trustees have established procedures designated
to stabilize, to the extent reasonably possible, each Fund's price per share
as computed for the purpose of sales and redemptions at $1.00. Deviations of
more than an insignificant amount between the net asset value calculated using
market quotations and that calculated on a "penny rounded" basis or, in the
case of the Tax-Exempt Fund, an amortized cost basis, will be reported to the
Trustees of the Fund by the Investment Adviser. In the event the Trustees
determine that a deviation exists with respect to any Fund that may result in
material dilution or other unfair results to investors or existing
shareholders of that Fund, the Fund will take such corrective action as it
regards necessary and appropriate, including the reduction of the number of
outstanding shares of the Fund by having each shareholder proportionately
contribute shares to the Fund's capital; the sale of portfolio instruments
prior to maturity to realize capital gains or losses or to shorten average
portfolio maturity; withholding dividends; or establishing a net asset value
per share solely by using available market quotations. If the number of
outstanding shares is reduced in order to maintain a constant net asset value
of $1.00 per share, the shareholders will contribute proportionately to the
Fund's capital. Each shareholder will be deemed to have agreed to such
contribution by such shareholder's investment in such Fund.
Since the net income of the Funds is determined and declared as a dividend
immediately prior to each time the net asset value of each Fund is determined,
the net asset value per share of the Funds normally remains at $1.00 per share
immediately after each such dividend declaration. Any increase in the value of
a shareholder's investment in a Fund, representing the reinvestment of
dividend income, is reflected by an increase in the number of shares of the
Fund in the account and any decrease in the value of a shareholder's
investment may be reflected by a decrease in the number of shares in the
account. See "Taxes" below.
YIELD INFORMATION
Each Fund normally computes its annualized yield by determining the net
income for a seven-day base period for a hypothetical pre-existing account
having a balance of one share at the beginning of the base period, dividing
the net income by the net asset value of the account at the beginning of the
base period to obtain the base period return, multiplying the result by 365
and then dividing by seven. Under this calculation, the yield on
17
<PAGE>
the Money Market Fund, the Government Fund and the Treasury Fund shares
reflects, and the yield on the Tax-Exempt Fund does not reflect, realized
gains and losses on portfolio securities. In accordance with regulations
adopted by the Commission, each Fund is required to disclose its annualized
yield for certain seven-day periods in a standardized manner that does not
take into consideration any realized or unrealized gains or losses on
portfolio securities. The Commission also permits the calculation of a
standardized effective or compounded yield. This is computed by compounding
the unannualized base period return which is done by adding one to the base
period return, raising the sum to a power equal to 365 divided by seven and
subtracting one from the result. In the case of the Money Market Fund, the
Government Fund and the Treasury Fund, this compounded yield calculation also
reflects realized gains or losses on portfolio securities. Realized gains and
losses are not reflected in the compounded yield calculation of the Tax-Exempt
Fund.
The yield on the Funds' shares normally will fluctuate on a daily basis.
Therefore, the yield for any given past period is not an indication or
representation by the Fund of future yields or rates of return on its shares.
The yield is affected by such factors as changes in interest rates on money
market securities (or short-term Tax-Exempt Securities in the case of the Tax-
Exempt Fund), average portfolio maturity, the types and quality of portfolio
securities held and operating expenses. The yield on Government Fund shares
and Treasury Fund shares for various reasons may not be comparable to the
yield on shares of other money market funds or other investments.
TAXES
FEDERAL
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"). As long as 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 which it
distributes to shareholders. The Funds intend 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 and the
Treasury Fund from their ordinary income or from an excess of net short-term
capital gains over net long-term capital losses (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses ("capital gain dividends") are
taxable to shareholders as long-term capital gains, regardless of the length
of time the shareholder has owned the Money Market Fund, the Government Fund
or the Treasury Fund shares.
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 their
taxable years, the Money Market Fund, the Government Fund and the Treasury
Fund will provide their respective shareholders with a written notice
designating the amounts of any ordinary income or capital gain dividends.
18
<PAGE>
Taxation of Tax-Exempt Fund Dividends
The Tax-Exempt Fund intends to qualify to pay "exempt-interest dividends" as
defined in Section 852(b)(5) of the Code. Under such section if, at the close
of each quarter of its taxable year, at least 50% of the value of its total
assets consists of obligations exempt from Federal income tax ("tax-exempt
obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Tax-Exempt Fund shall
be qualified to pay exempt-interest dividends to its shareholders. Exempt-
interest dividends are dividends or any part thereof paid by the Tax-Exempt
Fund which are attributable to interest on tax-exempt obligations and
designated by the Tax-Exempt Fund as exempt-interest dividends in a written
notice mailed to the Tax-Exempt Fund's shareholders within sixty days after
the close of its taxable year. To the extent that the dividends distributed to
the Tax-Exempt Fund's shareholders are derived from interest income exempt
from Federal income tax under Code Section 103(a) and are properly designated
as exempt-interest dividends, 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.
Interest on indebtedness incurred or continued to purchase or carry shares of
a RIC paying exempt-interest dividends, such as the Tax-Exempt Fund, will not
be deductible by the investor for Federal income tax purposes to the extent
attributable to exempt-interest dividends. Shareholders are advised to consult
their tax advisers with respect to whether exempt-interest dividends retain
the exclusion under Code Section 103(a) if a shareholder would be treated as a
"substantial user" or "related person" under Code Section 147(a) with respect
to property financed with the proceeds of an issue of "industrial development
bonds" or "private activity bonds", if any, held by the Tax-Exempt Fund.
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. Distributions, if any, from an excess of net long-term capital gains
over net short-term capital losses derived from the sale of securities
("capital gain dividends") are taxable as long-term capital gains for Federal
income tax purposes, regardless of the length of time the shareholder has
owned Tax-Exempt Fund shares. 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. Any loss upon the sale or exchange of Tax-Exempt Fund shares
held for six months or less will be disallowed to the extent of any exempt-
interest dividends received by the shareholder. In addition, any such loss
that is not disallowed under the rule stated above will be treated as long-
term capital loss to the extent of any capital gain 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 certain 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 the Tax-Exempt Fund's 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
19
<PAGE>
"adjusted current 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 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 Taxation
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. Distributions by the Funds, whether
from exempt-interest income, ordinary income or capital gains, will not be
eligible for the dividends received deduction allowed to corporations under
the Code. 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). Any loss upon the sale or
exchange of Fund shares held for six months or less will be treated as long-
term capital loss to the extent of any capital gain dividends received by the
shareholder.
If the value of assets held by the Money Market Fund, the Government Fund,
the Treasury Fund or the Tax-Exempt Fund declines, the Board of Trustees may
authorize a reduction in the number of outstanding shares in the 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 paid by the
Money Market Fund, the Government Fund and the Treasury Fund, including
distributions reinvested in additional shares of an affected Fund, will
nonetheless be fully taxable, even if the number of shares in shareholders'
accounts has been reduced as described above.
Ordinary income dividends paid 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.
Dividends and interest received by a Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Under certain Code provisions, some shareholders may be subject to a 31%
withholding tax on certain ordinary income dividends and on 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.
20
<PAGE>
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year-end, plus certain undistributed
amounts from previous years. The required distributions, however, are based
only on the taxable income of a RIC. The excise tax, therefore, will generally
not apply to the tax-exempt income of a fund, such as the Tax-Exempt Fund,
that pays exempt-interest dividends. Although the Money Market Fund, the
Government Fund and the Treasury Fund intend to distribute their income and
capital gains in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of each Fund's taxable
ordinary income and capital gains will be distributed to avoid entirely the
imposition of the tax. In such event, any such Fund will be liable for the tax
only on the amount by which it does not meet the foregoing distribution
requirements.
A loss realized on a sale or exchange of shares of any of the Funds will be
disallowed if other shares of such 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, judicial or administrative
action either prospectively or retroactively.
Ordinary income dividends 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 in whole or in part 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 the Funds.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust of each Fund permits the Trustees to issue an
unlimited number of full and fractional shares of a single class and to divide
or combine the shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interest in the Fund. Each share
represents an equal proportionate interest in the Fund with each other share.
Upon liquidation of the Fund, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to shareholders. Shares
have no preemptive or conversion rights. The rights of redemption and exchange
are described elsewhere herein and in the Prospectuses of the Funds. Shares of
each Fund are fully paid and non-assessable by the Fund.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Trustees and on
other matters submitted to the vote of shareholders. Voting rights are not
cumulative, so that the holders of more than 50% of the shares voting in the
election of Trustees can, if they choose to do so, elect all of the Trustees
of a Fund, in which event the holders of the remaining shares are unable
21
<PAGE>
to elect any person as a Trustee. No amendment may be made to any Declaration
of Trust without the affirmative vote of a majority of the outstanding shares
of the related Fund except under certain limited circumstances set forth in
the Declaration of Trust.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts
02101 (the "Custodian"), acts as Custodian of the Funds' assets. The Custodian
is responsible for safeguarding and controlling the Funds' cash and
securities, handling the receipt and delivery of securities and collecting
interest on the Funds' investments.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484 (the "Transfer Agent"), acts as the Funds'
transfer agent. The Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening, maintenance and servicing of
shareholder accounts.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of each Fund. The selection of
independent auditors is subject to ratification by the shareholders of the
Funds. The independent auditors are responsible for auditing the annual
financial statements of the Funds.
LEGAL COUNSEL
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Funds.
REPORT 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 and other information. An annual report containing financial
statements audited by independent auditors is sent to the shareholders each
year.
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:
Merrill Lynch Financial Data Services, Inc.
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 Merrill Lynch Financial Data Services, Inc. at (800) 221-7210.
22
<PAGE>
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all of the information set forth in the Registration Statements and the
exhibits relating thereto, which each Fund has filed with the Commission,
Washington, D.C., under the Securities Act of 1933, as amended, and the
Investment Company Act, to which reference is hereby made.
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 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 only shall be liable. Copies of the Declarations
of Trust, together with all amendments thereto, are on file in the office of
the Secretary of the Commonwealth of Massachusetts.
To the knowledge of the Funds, no person owned beneficially 5% or more of
any Fund's shares on July 9, 1997.
23
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER, BANK MONEY MARKET INSTRUMENTS AND CORPORATE
BOND RATINGS
COMMERCIAL PAPER AND BANK MONEY MARKET INSTRUMENTS
Commercial paper with the greatest capacity for timely payment is rated A by
Standard & Poor's Ratings Services ("Standard & Poor's"). Issues within this
category are further redefined with designations 1, 2 and 3 to indicate the
relative degree of safety; A-1, the highest of the three, indicates the
capacity for timely repayment is strong; A-2 indicates that capacity for
timely repayment is satisfactory; and A-3 indicates that the capacity for
timely repayment is adequate, but adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation.
Moody's Investors Service, Inc. ("Moody's") employs the designations of
Prime-1, Prime-2 and Prime-3 to indicate the relative repayment ability of
rated issuers. Prime-1 issuers have a superior ability for repayment. Prime-2
issuers have a strong ability for repayment. Prime-3 issuers have an
acceptable ability for repayment.
Commercial paper rated A.1+ by IBCA Limited or its affiliate IBCA, Inc.
(together, "IBCA") are obligations supported by the highest capacity for
timely repayment. Commercial paper rated A.1 are obligations supported by a
strong capacity for timely repayment. Commercial paper rated A.2 are
obligations supported by a satisfactory capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
Fitch Investors Service, Inc. ("Fitch") employs the rating F-1+ to indicate
issues regarded as having the strongest degree of assurance for timely
payment. Issues assigned the rating F-1 reflect an assurance of timely payment
only slightly less in degree than issues rated F-1+. Issues assigned the
rating F-2 indicates a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
Duff & Phelps Credit Ratings Co. ("Duff & Phelps") employs the designation
of Duff 1 with respect to top grade commercial paper and bank money
instruments with very high certainty of timely payment. Duff 1+ indicates the
highest certainty of timely payment: short-term liquidity is outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of timely payment. Duff 2 indicates good certainty of
timely payment: liquidity factors and company fundamentals are sound.
Thomson BankWatch, Inc. ("Thomson") employs the designation TBW-1 to
indicate issues regarded as having a very high degree of likelihood that
principal and interest will be paid on a timely basis. TBW-2 is the second
highest category and indicates that while the degree of safety regarding
timely repayment of principal and payment of interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
CORPORATE BONDS
Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest-rated issues only in small degree.
Bonds which are rated Aaa by Moody's are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. Bonds which are rated Aa
are judged to be of high quality
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<PAGE>
by all standards. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Bonds rated AAA by IBCA are obligations for which there is the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk significantly.
Bonds rated AA are obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and
of very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Bonds rated AAA by Duff & Phelps are deemed to be of the highest credit
quality: the risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt. AA indicates high credit quality: protection
factors are strong, and risk is modest but may vary slightly from time to time
because of economic conditions.
Bonds rated AAA by Thomson are accorded the highest rating category which
indicates that the ability to repay principal and pay interest on a timely
basis is extremely high. AA is the second highest rating category and
indicates a very strong ability to repay principal and pay interest on a
timely basis with limited incremental risk compared to issues rated in the
highest rating category.
INFORMATION CONCERNING TAX-EXEMPT SECURITIES
DESCRIPTION OF TAX-EXEMPT SECURITIES
Tax-Exempt Securities include debt obligations issued to obtain funds for
various public purposes, including construction of a wide range of public
facilities, refunding of outstanding obligations and obtaining of funds for
general operating expenses and loans to other public institutions and
facilities. In addition certain types of industrial development bonds are
issued by or on behalf of public authorities to finance various facilities
operated for private profit, including pollution control facilities. Such
obligations are included within the term Tax-Exempt Securities if the interest
paid thereon is exempt from Federal income tax.
The two principal classifications of Tax-Exempt Securities are "general
obligation" bonds and "revenue" or "special obligation" bonds. General
obligation bonds are secured by the issuer's pledge of its faith, credit, and
taxing power for the repayment of principal and the payment of interest.
Revenue or special obligation bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as from
the user of the facility being
25
<PAGE>
financed. Industrial development bonds are in most cases revenue bonds and do
not generally constitute the pledge of the credit or taxing power of the
issuer of such bonds. The repayment of the principal and the payment of
interest on such industrial revenue bonds depends solely on the ability of the
user of the facilities financed by the bonds to meet its financial obligations
and the pledge, if any, of real and personal property so financed as security
for such payment. The portfolio may generally include "moral obligation" bonds
which are normally issued by special purpose public authorities. If an issuer
of moral obligations bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Yields on Tax-Exempt Securities are dependent on a variety of factors,
including the general condition of the money market and of the municipal bond
market, the size of a particular offering, the maturity of the obligation, and
the rating of the issue. The ability of the Tax-Exempt Fund to achieve its
investment objective is also dependent on the continuing ability of the
issuers of the Tax-Exempt Securities in which the Tax-Exempt Fund invests to
meet their obligations for the payment of interest and repayment of principal
when due. There are variations in the risks involved in holding Tax-Exempt
Securities, both within a particular classification and between
classifications, depending on numerous factors. Furthermore, the rights of
holders of Tax-Exempt Securities and the obligations of the issuers of such
Tax-Exempt Securities may be subject to applicable bankruptcy, insolvency and
similar laws and court decisions affecting the rights of creditors generally,
and such laws, if any, which may be enacted by Congress or state legislatures
affecting specifically the rights of holders of Tax-Exempt Securities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on Tax-Exempt Securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the ability of the Tax-Exempt Fund to
pay "exempt-interest dividends" would be adversely affected and the Tax-Exempt
Fund would re-evaluate its investment objective and policies and consider
changes in its structure. See "Taxes".
RATINGS OF MUNICIPAL NOTES AND SHORT-TERM TAX-EXEMPT COMMERCIAL PAPER
Commercial paper with the greatest capacity for timely payment is rated A by
Standard & Poor's. Issues within this category are further redefined with
designations 1, 2 and 3 to indicate the relative degree of safety; A-1
indicates the degree of safety is strong; issues that possess extremely strong
safety characteristics will be given an A-1+ designation; A-2 indicates that
capacity for timely repayment is satisfactory. A Standard & Poor's rating with
respect to certain municipal note issues with a maturity of less than three
years reflects the liquidity concerns and market access risks unique to notes.
SP-1, the highest note rating, indicates a very strong, or strong, capacity to
repay principal and pay interest. Issues that possess overwhelming safety
characteristics will be given an "SP-1+" designation. SP-2, the second highest
note rating, indicates a satisfactory capacity to repay principal and pay
interest.
Moody's employs the designations of Prime-1, Prime-2 and Prime-3 with
respect to commercial paper to indicate the relative capacity of the rated
issuers (or related supporting institutions) to repay punctually. Prime-1
issues have a superior capacity for repayment. Prime-2 issues have a strong
capacity for repayment, but to a lesser degree than Prime-1. Moody's highest
rating for short-term notes and VRDOs is MIG-1/VMIG-1; MIG-1/VMIG-1 denotes
"best quality", enjoying "strong protection by established cash flows"; MIG-
2/VMIG-2 denotes "high quality" with margins of protection that are ample
although not so large as MIG-1/VMIG-1.
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<PAGE>
Fitch employs the rating F-1+ to indicate short-term debt issues regarded as
having the strongest degree of assurance for timely payment. The rating F-1
reflects an assurance of timely payment only slightly less in degree than
issues rated F-1+. The rating F-2 indicates a satisfactory degree of assurance
for timely payment, although the margin of safety is not as great as indicated
by the F-1+ and F-1 categories.
RATINGS OF MUNICIPAL BONDS
Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree. A
Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors and
insurers of lessees.
Bonds rated Aaa by Moody's are judged to be of the best quality. Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. Bonds rated Aa are judged to be of high quality by all
standards. They are rated lower than the best bonds because the margins of
protection may not be as large or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Moody's applies the
numerical modifier 1 to the classifications Aa through B to indicate that
Moody's believes the issue possesses the strongest investment attributes in
its rating category. Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operating experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and
of very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA. The
ratings take into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operative performance of the issuer and of any
guarantor, as well as the economic and political environment that might affect
the issuer's future financial strength and credit quality. Bonds that have the
same rating are of similar but not necessarily identical credit quality since
the rating categories do not fully reflect small differences in the degrees of
credit risk.
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<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders, CMA Money Fund:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of CMA Money Fund as of March 31, 1997,
the related statements of operations for the year then ended and changes in
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at March 31, 1997 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of CMA Money Fund as
of March 31, 1997, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey May 7, 1997
28
<PAGE>
<TABLE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (IN THOUSANDS)
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Bank Notes--6.8%
<S> <C> <C> <C> <C>
Abbey National $ 275,000 5.312% 5/16/97 $ 274,965
Treasury Services PLC++ 280,000 5.59 2/25/98 279,804
American Express 30,000 5.626 6/26/97 29,998
Centurion Bank++
Bank of America, 100,000 5.64 12/29/97 99,675
Illinois 90,000 5.63 12/30/97 89,702
160,000 5.95 3/24/98 159,570
Colorado National 100,000 5.442 6/18/97 99,998
Bank of Denver++
First Bank N.A., 100,000 5.442 6/18/97 99,998
Milwaukee++ 50,000 5.372 1/22/98 49,968
First Bank System, Inc.++ 50,000 5.442 8/29/97 49,998
First National Bank of 100,000 5.62 6/23/97 99,989
Boston
First National Bank of 100,000 6.00 3/24/98 99,778
Chicago
First Tennessee 25,000 5.40 4/15/97 24,999
Bank, N.A.
Harris Trust & Savings 60,000 5.32 4/14/97 60,000
90,000 5.30 4/15/97 89,999
KeyBank National 125,000 5.42++ 8/21/97 124,971
Association 85,000 5.50 11/20/97 84,735
65,000 5.85 3/11/98 64,765
Morgan Guaranty 264,000 5.615 2/19/98 263,875
Trust Co.++ 245,000 5.64 3/20/98 244,908
NBD Bank N.A., Detroit 200,000 5.78 1/30/98 199,390
Wachovia Bank of 100,000 5.312 4/01/97 100,000
North Carolina, N.A.++ 150,000 5.312 4/03/97 149,999
Total Bank Notes (Cost--$2,843,124) 2,841,084
Certificates of Deposit--0.7%
American Express 20,000 5.33 4/09/97 20,000
Centurion Bank 50,000 5.33 4/14/97 50,000
Bankers Trust Company 100,000 5.41 5/05/97 99,996
Morgan Guaranty Trust 102,000 5.92 3/19/98 101,705
U.S. National Bank of 45,000 5.33 4/11/97 45,000
Oregon
Total Certificates of Deposit (Cost--$316,953) 316,701
Certificates of Deposit--European--2.4%
ABN AMRO Bank N.V., 50,000 5.51 4/08/97 50,000
London 20,000 5.77 5/06/97 20,003
30,000 5.90 3/05/98 29,908
Abbey National Treasury 20,000 5.90 3/13/98 19,938
Services PLC, London
Australia & New Zealand 30,000 5.615 4/02/97 30,000
Banking Group, London
Banco Bilbao Vizcaya, 10,000 5.44 4/24/97 10,000
London 20,000 5.43 5/07/97 19,999
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Certificates of Deposit--European (concluded)
<S> <C> <C> <C> <C>
Bank of Nova Scotia, $ 33,000 5.42 % 4/10/97 $ 33,001
London
Bank of Scotland, 50,000 5.65 4/03/97 50,000
London 50,000 5.54 8/04/97 49,947
Bankers Trust 200,000 5.43 4/10/97 199,998
Company, London
Banque Nationale de 30,000 5.41 5/12/97 29,997
Paris, London
Bayerische Hypotheken- 50,000 5.44 4/07/97 50,000
und-Wechsel Bank, 50,000 5.435 4/14/97 49,999
London
Bayerische Landesbank 70,000 5.43 4/01/97 70,000
Girozentrale, London
Bayerische Vereinsbank 15,000 5.43 4/09/97 15,000
AG, London 18,000 5.54 7/10/97 17,988
Internationale 50,000 5.56 7/21/97 49,966
Nederlanden Bank N.V.,
London
Landesbank Hessen- 50,000 5.52 7/28/97 49,959
Thuringen Girozentrale,
London
National Australia Bank, 24,000 5.43 4/07/97 24,000
London 50,000 5.505 8/06/97 49,940
65,000 5.51 8/06/97 64,924
National Westminster 40,000 5.38 4/01/97 40,000
Bank PLC, London
Total Certificates of Deposit--European
(Cost--$1,024,992) 1,024,567
Certificates of Deposit--Yankee--4.8%
ABN AMRO Bank N.V., 100,000 5.68 12/22/97 99,706
NY 95,000 5.70 1/06/98 94,659
50,000 5.60 2/20/98 49,748
Bank of Nova Scotia, NY 25,000 5.42 4/03/97 25,000
28,000 5.42 4/21/97 28,000
Banque Nationale de 15,000 5.42 4/24/97 15,000
Paris, NY 76,000 5.62 6/18/97 75,989
Barclays Bank PLC, 300,000 5.63 2/27/98 298,554
NY
Bayerische Landesbank 95,000 5.61 12/30/97 94,671
Girozentrale, NY
Canadian Imperial Bank 50,000 5.35 4/14/97 50,000
of Commerce, NY 50,000 5.34 4/15/97 50,000
Commerzbank, NY 50,000 5.415 4/22/97 50,000
Deutsche Bank, NY 200,000 5.50 7/21/97 199,829
100,000 5.69 1/06/98 99,634
40,000 5.76 2/03/98 39,855
60,000 5.63 2/26/98 59,711
Hongkong Bank, NY 100,000 5.65 6/24/97 99,992
</TABLE>
29
<PAGE>
<TABLE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Certificates of Deposit--Yankee (concluded)
<S> <C> <C> <C> <C>
Landesbank Hessen- $ 64,000 5.78 % 1/27/98 $ 63,805
Thuringen Girozentrale, 25,000 5.75 2/03/98 24,906
NY 30,000 5.96 3/20/98 29,916
Rabobank Nederland, 40,400 5.50 4/28/97 40,399
NY
Royal Bank of 87,000 5.725 10/17/97 86,860
Canada, NY 63,000 5.77 1/27/98 62,803
Societe Generale, NY 13,000 5.62 4/01/97 13,000
45,000 5.45 6/04/97 44,980
Svenska 40,000 5.34 4/03/97 40,000
Handelsbanken, NY 30,000 5.41 4/18/97 30,000
Swiss Bank Corp., NY 50,000 5.52 7/23/97 49,960
Westdeutsche Landes- 67,000 5.60 3/06/98 66,952
bank, Girozentrale, NY
Westpac Banking 40,000 5.97 6/06/97 40,001
Corp., NY
Total Certificates of Deposit--Yankee
(Cost--$2,028,126) 2,023,930
Commercial Paper--47.1%
ABN-AMRO North 50,000 5.32 4/01/97 49,993
America Finance Inc. 140,000 5.44 4/01/97 139,979
AC Acquisition 25,000 5.40 4/22/97 24,917
Holding Co. 25,000 5.36 4/29/97 24,892
ARCO British Limited 11,456 5.35 4/14/97 11,432
ARCO Coal Australia Inc. 10,347 5.39 4/17/97 10,321
24,924 5.44 4/22/97 24,841
Allomon Funding 30,144 5.34 4/07/97 30,113
Corporation 11,102 5.33 4/14/97 11,079
Alpine Securitization 15,641 5.28 4/03/97 15,634
Corporation 18,439 5.33 4/03/97 18,431
35,323 5.34 4/08/97 35,281
33,193 5.28 4/10/97 33,144
17,000 5.34 4/17/97 16,957
30,404 5.35 4/17/97 30,327
American Brands, Inc. 10,000 5.31 4/10/97 9,985
22,000 5.45 4/14/97 21,953
24,000 5.34 4/16/97 23,943
American Express 100,000 5.29 4/09/97 99,868
Credit Corp. 100,000 5.25 4/10/97 99,854
150,000 5.32 4/17/97 149,623
100,000 5.32 4/18/97 99,734
100,000 5.31 4/21/97 99,690
50,000 5.32 4/21/97 49,845
50,000 5.33 4/28/97 49,793
American Honda 10,000 5.28 4/02/97 9,997
Finance Corp. 20,000 5.30 4/02/97 19,994
25,000 5.32 4/02/97 24,993
15,000 5.42 4/14/97 14,969
Apreco, Inc. 15,700 5.35 4/08/97 15,681
30,000 5.35 5/12/97 29,813
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
<S> <C> <C> <C> <C>
Asset Securitization $ 20,000 5.30 % 4/07/97 $ 19,979
Cooperative Corp. 52,000 5.35 4/07/97 51,946
98,000 5.30 4/08/97 97,884
54,072 5.26 4/10/97 53,993
66,153 5.32 4/14/97 66,016
50,000 5.32 4/16/97 49,882
33,875 5.38 4/16/97 33,794
100,000 5.32 4/17/97 99,749
67,000 5.34 4/17/97 66,831
28,900 5.33 4/22/97 28,806
30,000 5.33 5/05/97 29,844
Associates Corporation 50,000 5.33 4/02/97 49,985
of North America 50,000 5.33 4/03/97 49,977
50,000 5.30 4/07/97 49,948
50,000 5.32 4/07/97 49,948
50,000 5.30 4/08/97 49,941
100,000 5.26 4/10/97 99,854
50,000 5.30 4/14/97 49,896
75,000 5.34 5/01/97 74,655
Atlantic Asset 50,000 5.37 4/16/97 49,881
Securitization Corp.
Avco Financial 25,000 5.32 4/03/97 24,989
Services, Inc. 20,000 5.31 4/08/97 19,976
15,000 5.30 4/10/97 14,978
40,000 5.34 4/24/97 39,857
B.B.L. North America 28,000 5.38 4/08/97 27,967
72,000 5.34 4/15/97 71,840
B.B.V. Finance 50,000 5.29 4/07/97 49,948
(Delaware), Inc.
BTR Dunlop Finance Inc. 25,000 5.31 4/07/97 24,974
50,000 5.36 4/10/97 49,926
Banc One Corporation 25,000 5.33 4/02/97 24,992
Bank of America, FSB 50,000 5.36 7/24/97 49,093
Bank of Nova Scotia 64,000 5.32 4/21/97 63,801
Bass Finance (C.I.) Ltd. 39,000 5.27 4/21/97 38,880
Bear Stearns 100,000 5.32 4/02/97 99,970
Companies, Inc. 20,000 5.32 4/16/97 19,953
25,000 5.33 4/21/97 24,922
75,000 5.38 7/23/97 73,651
CIT Group Holdings, 50,000 5.31 4/10/97 49,926
Inc., The 100,000 5.25 4/14/97 99,796
50,000 5.30 4/23/97 49,831
200,000 5.56 5/13/97 198,672
150,000 5.56 5/14/97 148,981
CSW Credit, Inc. 27,600 5.28 4/03/97 27,588
21,900 5.34 4/09/97 21,871
18,100 5.33 4/16/97 18,057
8,600 5.35 4/16/97 8,580
21,700 5.26 4/18/97 21,643
7,100 5.35 4/18/97 7,081
8,900 5.35 4/21/97 8,872
18,430 5.33 4/23/97 18,367
</TABLE>
30
<PAGE>
<TABLE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
<S> <C> <C> <C> <C>
CXC Incorporated $ 25,000 5.30 % 4/03/97 $ 24,989
20,000 5.30 4/07/97 19,979
25,000 5.27 4/08/97 24,971
10,000 5.33 4/10/97 9,985
30,000 5.34 4/18/97 29,920
40,000 5.33 4/23/97 39,864
50,000 5.34 4/23/97 49,829
40,000 5.33 4/25/97 39,852
25,000 5.40 4/29/97 24,891
25,000 5.40 4/30/97 24,887
25,000 5.52 5/07/97 24,858
25,000 5.52 5/08/97 24,854
50,000 5.62 5/09/97 49,696
50,000 5.58 5/13/97 49,667
35,000 5.62 5/14/97 34,760
Caisse des Depots et 77,055 5.31 4/08/97 76,964
Consignations 172,945 5.30 5/29/97 171,358
Canadian Wheat 20,000 5.37 5/21/97 19,842
Board
Carnival Corporation 75,000 5.33 4/02/97 74,978
Caterpillar Financial 21,000 5.40 5/02/97 20,899
Services Corp.
Chase Manhattan 200,000 5.36 4/14/97 199,585
Corporation 100,000 5.36 7/24/97 98,186
Cheltenham & 75,000 5.37 7/24/97 73,639
Gloucester PLC
Chrysler Financial 100,000 5.36 4/02/97 99,970
Corp. 25,000 5.35 4/03/97 24,989
100,000 5.34 4/09/97 99,866
25,000 5.61 4/30/97 24,883
Ciesco L.P. 35,000 5.26 4/02/97 34,990
35,000 5.26 4/03/97 34,985
15,000 5.31 4/07/97 14,984
25,000 5.10 4/10/97 24,963
18,000 5.32 4/15/97 17,960
50,000 5.42 4/21/97 49,842
29,000 5.32 4/22/97 28,906
50,000 5.42 4/22/97 49,834
50,000 5.42 4/23/97 49,827
Clipper Receivables 96,261 5.33 4/16/97 96,033
Corp. 15,586 5.40 4/23/97 15,532
13,153 5.55 4/25/97 13,102
Columbia / HCA 25,000 5.33 4/08/97 24,970
Healthcare Corp. 40,000 5.35 4/08/97 39,952
15,000 5.35 4/11/97 14,975
25,000 5.37 4/23/97 24,914
25,000 5.55 5/05/97 24,865
Commercial Credit Corp. 50,000 5.26 4/03/97 49,978
50,000 5.31 4/07/97 49,948
50,000 5.31 4/24/97 49,823
Commerzbank US 87,000 5.34 4/22/97 86,716
Finance Inc.
Commonwealth Bank 76,000 5.54 6/19/97 75,042
of Australia 55,000 5.35 8/06/97 53,889
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
<S> <C> <C> <C> <C>
Corporate Asset $ 40,000 5.25 % 4/03/97 $ 39,982
Funding Co. Inc. 40,000 5.25 4/08/97 39,953
75,000 5.30 4/10/97 74,890
35,700 5.26 4/21/97 35,590
50,000 5.42 4/23/97 49,827
75,000 5.50 4/30/97 74,656
70,000 5.53 5/13/97 69,538
27,150 5.53 5/16/97 26,958
Corporate Receivables 16,550 5.33 4/03/97 16,543
Corp. 25,000 5.32 4/07/97 24,974
50,000 5.32 4/10/97 49,926
55,000 5.34 4/10/97 54,918
75,000 5.33 4/14/97 74,845
100,000 5.35 4/15/97 99,777
25,000 5.40 4/17/97 24,936
30,000 5.30 4/21/97 29,906
20,000 5.43 4/23/97 19,931
11,416 5.40 4/24/97 11,375
32,034 5.58 5/08/97 31,845
30,000 5.30 5/16/97 29,793
30,000 5.30 5/19/97 29,780
Countrywide Home 50,000 5.36 4/14/97 49,896
Loans 30,000 5.37 4/17/97 29,924
20,000 5.36 4/28/97 19,917
Credit Suisse First 20,000 5.35 4/03/97 19,991
Boston Inc. 40,000 5.32 4/07/97 39,958
25,000 5.33 4/07/97 24,974
32,000 5.30 4/22/97 31,895
6,000 5.41 4/24/97 5,978
27,000 5.35 4/29/97 26,883
Creditanstalt 42,260 5.38 4/18/97 42,146
Finance, Inc. 40,000 5.39 4/18/97 39,892
17,740 5.40 4/18/97 17,692
Daimler-Benz North 43,000 5.31 4/10/97 42,937
America Corp. 24,800 5.32 4/14/97 24,749
35,000 5.35 4/29/97 34,848
Dean Witter Discover 22,469 5.31 4/03/97 22,459
& Co. 15,150 5.31 4/07/97 15,134
150,000 5.32 4/07/97 149,845
12,381 5.34 4/21/97 12,342
Deer Park Refining L.P. 37,140 5.27 4/03/97 37,124
12,860 5.32 4/21/97 12,820
Delaware Funding Corp. 84,000 5.33 4/15/97 83,813
25,000 5.35 4/15/97 24,944
84,490 5.30 4/16/97 84,289
24,274 5.48 4/16/97 24,215
53,233 5.30 4/18/97 53,091
76,027 5.34 4/21/97 75,790
52,976 5.32 5/08/97 52,677
Eiger Capital 10,000 5.25 4/03/97 9,996
Corporation 31,539 5.35 4/16/97 31,464
145,000 5.39 4/17/97 144,631
53,461 5.40 4/17/97 53,325
15,000 5.50 4/18/97 14,959
45,000 5.50 4/24/97 44,835
</TABLE>
31
<PAGE>
<TABLE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
<S> <C> <C> <C> <C>
Eksportfinans A/S $ 15,000 5.28 % 4/09/97 $ 14,980
11,680 5.30 4/09/97 11,665
16,100 5.38 7/22/97 15,813
Electronic Data 18,500 5.30 4/02/97 18,495
Systems Corp. 20,000 5.32 4/14/97 19,959
30,000 5.45 4/21/97 29,905
Eureka Securitization 15,000 5.28 4/09/97 14,980
Inc. 30,000 5.30 4/14/97 29,938
10,000 5.33 4/14/97 9,979
50,000 5.40 4/16/97 49,880
10,000 5.28 4/22/97 9,968
40,000 5.33 4/24/97 39,858
25,000 5.55 5/06/97 24,861
Exxon Imperial (US) Inc. 55,255 5.32 4/03/97 55,231
FCAR Owner Trust, 25,000 5.26 4/08/97 24,971
Series I 25,000 5.27 4/21/97 24,922
Falcon Asset 26,000 5.31 4/07/97 25,973
Securitization Corp. 26,725 5.33 4/09/97 26,689
30,390 5.32 4/10/97 30,345
13,585 5.33 4/14/97 13,557
25,150 5.32 4/17/97 25,087
21,776 5.33 4/18/97 21,718
23,224 5.34 4/18/97 23,162
27,400 5.55 4/22/97 27,307
20,165 5.62 5/19/97 20,011
Finova Capital Corp. 50,000 5.35 4/03/97 49,978
73,000 5.36 4/03/97 72,967
60,000 5.29 4/15/97 59,868
20,000 5.55 5/05/97 19,892
15,450 5.58 5/19/97 15,333
First Data Corp. 60,000 5.33 4/08/97 59,929
10,000 5.32 4/10/97 9,985
Fleet Funding Corp. 27,404 5.26 4/01/97 27,400
25,828 5.27 4/07/97 25,802
33,000 5.32 4/09/97 32,956
Ford Credit Co. 50,000 5.50 4/30/97 49,771
Puerto Rico, Inc.
Ford Credit Europe PLC 23,000 5.33 4/04/97 22,986
25,000 5.55 5/08/97 24,854
Ford Motor Credit Co. 140,000 5.30 4/02/97 139,959
50,000 5.25 4/07/97 49,949
150,000 5.32 4/08/97 149,822
200,000 5.32 4/09/97 199,733
200,000 5.53 5/12/97 198,710
200,000 5.36 7/22/97 196,434
100,000 5.36 7/28/97 98,122
France Telecom 10,000 5.35 4/15/97 9,978
17,650 5.32 4/17/97 17,606
GTE Corp. 35,843 5.58 4/16/97 35,754
General Electric 23,500 5.35 4/03/97 23,489
Capital Corp. 200,000 5.30 4/09/97 199,735
200,000 5.36 4/09/97 199,733
140,675 5.38 4/14/97 140,383
50,000 5.33 4/21/97 49,844
100,000 5.48 4/21/97 99,680
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
<S> <C> <C> <C> <C>
General Electric $110,000 5.34 % 5/01/97 $ 109,494
Capital Corp. 130,000 5.54 5/02/97 129,360
(concluded) 50,000 5.35 5/19/97 49,633
250,000 5.40 7/14/97 245,858
200,000 5.35 8/04/97 196,024
General Electric Capital 50,000 5.38 4/14/97 49,896
Services, Inc. 50,000 5.34 5/01/97 49,770
General Motors 18,000 5.39 4/22/97 17,941
Acceptance Corp. 120,000 5.34 5/13/97 119,230
75,000 5.32 5/16/97 74,482
36,950 5.37 7/02/97 36,408
100,000 5.39 7/09/97 98,422
50,000 5.40 7/09/97 49,211
100,000 5.48 7/09/97 98,422
112,500 5.44 7/14/97 110,636
130,000 5.44 7/15/97 127,826
32,500 5.40 7/23/97 31,915
125,000 5.40 7/25/97 122,712
Generale Bank, Inc. 70,000 5.35 4/08/97 69,917
Glaxo Wellcome PLC 19,700 5.35 4/21/97 19,639
Goldman Sachs 38,890 5.30 4/03/97 38,873
Group, L.P. 70,000 5.32 4/09/97 69,907
Greenwich Funding Corp. 7,475 5.27 4/01/97 7,474
21,500 5.27 4/03/97 21,491
36,220 5.33 4/10/97 36,166
50,000 5.35 4/15/97 49,889
20,091 5.43 4/16/97 20,043
20,000 5.30 4/22/97 19,935
26,881 5.57 4/25/97 26,777
66,644 5.35 4/28/97 66,365
Halifax Building Society 100,000 5.34 7/28/97 98,122
Heinz (H.J.) Company 22,000 5.32 4/16/97 21,948
15,750 5.31 4/22/97 15,699
Household Finance Corp. 50,000 5.32 4/03/97 49,978
50,000 5.31 4/07/97 49,948
50,000 5.31 4/08/97 49,941
50,000 5.32 4/24/97 49,823
IBM Credit Corp. 45,000 5.30 4/03/97 44,980
25,000 5.30 4/11/97 24,960
Industrial Bank of Korea 10,000 5.34 4/14/97 9,979
17,000 5.35 4/14/97 16,965
20,000 5.38 5/05/97 19,895
International Business 30,000 5.31 4/21/97 29,907
Machines Corp.
International Lease 25,000 5.45 4/02/97 24,993
Finance Corp. 40,000 5.46 4/03/97 39,982
35,000 5.30 4/10/97 34,948
International 13,918 5.32 4/03/97 13,912
Securitization 16,096 5.33 4/10/97 16,072
Corporation 9,704 5.34 4/10/97 9,690
12,908 5.35 4/10/97 12,889
9,354 5.35 4/18/97 9,329
15,210 5.40 4/18/97 15,169
17,479 5.40 4/23/97 17,419
5,331 5.50 4/24/97 5,311
</TABLE>
32
<PAGE>
<TABLE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
<S> <C> <C> <C> <C>
Internationale Neder- $150,000 5.35 % 4/14/97 $ 149,689
landen (US) Funding Corp.
J.P. Morgan & 86,400 5.34 5/15/97 85,816
Company, Inc.
John Deere Capital Corp. 100,000 5.31 4/03/97 99,956
Kingdom of Sweden 50,000 5.37 5/12/97 49,688
Korea Development 50,000 5.37 4/22/97 49,837
Bank 61,265 5.35 5/12/97 60,883
38,735 5.50 6/16/97 38,265
Lehman Brothers 100,000 5.47 4/21/97 99,681
Holdings Inc.
Lucent Technologies, Inc. 75,000 5.33 4/18/97 74,800
MCI Communications 39,000 5.58 6/23/97 38,484
Corporation 18,000 5.65 6/23/97 17,762
Matterhorn Capital Corp. 13,771 5.40 4/23/97 13,723
31,069 5.50 5/05/97 30,903
McKenna Triangle 40,000 5.28 4/04/97 39,976
National Corp. 80,000 5.25 4/09/97 79,895
10,000 5.36 4/14/97 9,979
Mont Blanc Capital Corp. 15,095 5.35 4/02/97 15,091
89,905 5.38 4/25/97 89,569
20,000 5.35 4/29/97 19,914
Monte Rosa Capital Corp. 11,385 5.33 4/10/97 11,368
67,686 5.35 4/16/97 67,525
49,000 5.35 4/17/97 48,876
74,322 5.35 4/21/97 74,090
Morgan Stanley 50,000 5.47 4/01/97 49,993
Group, Inc. 61,500 5.34 4/16/97 61,354
189,000 5.34 4/21/97 188,410
49,500 5.34 4/23/97 49,331
50,000 5.33 5/05/97 49,740
NYNEX Corporation 30,000 5.34 4/07/97 29,969
25,000 5.34 4/08/97 24,970
15,000 5.34 4/10/97 14,978
20,000 5.36 4/14/97 19,958
22,000 5.46 4/23/97 21,923
National Fleet Funding 20,000 5.28 4/02/97 19,994
Corporation 30,000 5.34 4/14/97 29,938
National Rural Utilities 10,000 5.33 4/10/97 9,985
Cooperative Finance 50,000 5.56 5/06/97 49,722
Corp. 15,000 5.56 5/08/97 14,912
NationsBank Corp. 65,000 5.26 4/07/97 64,934
70,000 5.38 7/28/97 68,686
New Center Asset Trust 200,000 5.37 4/22/97 199,344
195,000 5.34 7/07/97 191,985
Nomura Holding 25,000 5.37 4/01/97 24,996
America, Inc. 25,000 5.30 4/23/97 24,915
19,000 5.30 5/02/97 18,910
25,000 5.39 5/15/97 24,832
Novartis Finance Corp. 40,000 5.33 4/03/97 39,982
25,000 5.33 4/07/97 24,974
25,000 5.33 4/08/97 24,970
45,000 5.33 4/10/97 44,933
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (continued)
<S> <C> <C> <C> <C>
Old Line Funding $ 1,239 5.29 % 4/03/97 $ 1,238
Corp. 30,000 5.35 4/11/97 29,951
53,174 5.41 4/14/97 53,062
51,046 5.45 4/14/97 50,938
50,000 5.35 4/15/97 49,889
22,954 5.45 4/22/97 22,878
16,587 5.55 4/24/97 16,526
Panasonic Finance 21,290 5.31 4/04/97 21,277
Inc.
PepsiCo, 98,085 5.30 4/09/97 97,955
Inc.
Pfizer, Inc. 30,000 5.30 4/14/97 29,938
14,600 5.30 4/17/97 14,563
42,900 5.50 4/21/97 42,762
Preferred Receivables 43,150 5.41 4/01/97 43,144
Funding Corp. 25,150 5.35 4/02/97 25,142
10,000 5.30 4/14/97 9,979
24,500 5.33 4/16/97 24,442
99,850 5.32 4/17/97 99,598
10,050 5.33 4/22/97 10,017
11,850 5.39 4/22/97 11,811
30,275 5.60 4/22/97 30,171
17,825 5.40 4/23/97 17,764
71,525 5.43 5/01/97 71,191
12,975 5.50 6/17/97 12,816
27,210 5.57 6/23/97 26,850
RTZ America Inc. 47,800 5.29 4/09/97 47,737
35,000 5.30 4/14/97 34,927
17,200 5.34 4/14/97 17,164
Rexam PLC 15,000 5.32 4/02/97 14,996
15,000 5.32 4/14/97 14,969
Riverwood Funding 25,000 5.33 4/28/97 24,896
Corp.
Santander Finance 40,000 5.41 6/24/97 39,465
(Delaware), Inc. 10,000 5.40 7/23/97 9,820
Sears Roebuck 50,000 5.32 4/01/97 49,993
Acceptance Corp. 50,000 5.28 4/04/97 49,971
50,000 5.28 4/07/97 49,949
50,000 5.28 4/08/97 49,941
50,000 5.28 4/09/97 49,934
Smith Barney Inc. 100,000 5.28 4/01/97 99,985
100,000 5.33 4/14/97 99,793
Societe Generale N.A., 150,000 5.40 4/30/97 149,325
Inc.
Southern 20,150 5.32 4/04/97 20,138
Company
Svenska Handelsbanken, 64,000 5.36 4/07/97 63,933
Inc.
Three Rivers Funding 32,946 5.36 4/17/97 32,863
Corp. 17,054 5.43 4/17/97 17,010
Toshiba America, 25,000 5.33 4/28/97 24,896
Inc.
Transamerica 2,827 5.32 4/14/97 2,821
Corporation
</TABLE>
33
<PAGE>
<TABLE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Commercial Paper (concluded)
<S> <C> <C> <C> <C>
Transamerica Finance $ 20,000 5.32 % 4/03/97 $ 19,991
Corporation 56,110 5.35 4/16/97 55,976
40,000 5.34 4/17/97 39,899
22,000 5.40 4/18/97 21,941
37,000 5.33 4/28/97 36,845
Twin Towers Inc. 40,202 5.44 4/21/97 40,074
15,091 5.34 4/22/97 15,042
23,537 5.65 4/29/97 23,430
35,221 5.40 4/30/97 35,063
10,094 5.56 5/20/97 10,016
25,855 5.50 6/16/97 25,541
WCP Funding Inc. 5,000 5.27 4/03/97 4,998
45,000 5.30 4/07/97 44,954
25,000 5.30 4/15/97 24,944
5,000 5.34 4/16/97 4,988
20,000 5.32 4/17/97 19,950
Westpac Capital 50,000 5.36 7/22/97 49,109
Corporation
Windmill Funding Corp. 65,782 5.32 4/04/97 65,743
18,018 5.32 4/09/97 17,994
24,000 5.29 4/11/97 23,961
28,993 5.35 4/15/97 28,928
28,143 5.40 4/21/97 28,054
64,000 5.45 4/23/97 63,777
35,478 5.50 4/24/97 35,348
85,586 5.57 4/25/97 85,255
Xerox Corp. 104,200 5.30 4/16/97 103,955
43,000 5.32 4/22/97 42,860
30,000 5.42 4/23/97 29,896
Xerox Credit Corp. 100,000 5.30 4/14/97 99,794
Total Commercial Paper
(Cost--$19,781,366) 19,779,077
Corporate Notes--4.7%
Asset-Backed Securities 300,000 5.437 10/15/97 300,000
Investment Trust (ABSIT)
1996-M++
Bear Stearns 10,000 5.487 5/16/97 10,001
Companies, Inc.++ 15,000 5.487 7/16/97 15,004
CIT Group Holdings, 100,000 5.60 12/23/97 99,936
Inc., (The)++ 100,000 5.60 3/03/98 99,937
Chase Manhattan Auto 57,354 5.489 1/15/98 57,336
Owners Trust, 1996-C
Finova Capital Corp.++ 31,550 5.932 4/29/97 31,557
LINCS, Series 1996-3++ 340,000 5.437 1/12/98 340,000
Liquid Asset Backed 414,550 5.687 12/29/97 414,549
Securities, Trust Series,
1996 C, Senior Notes++
Premier Auto Trust 169,000 5.476 12/08/97 168,899
1997-1++
SMM Trust 1997-Q++ 427,000 5.437 1/15/98 426,996
Total Corporate Notes (Cost--$1,964,317) 1,964,215
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
Funding Agreements--0.7%
<S> <C> <C> <C> <C>
Transamerica Life $150,000 5.437% 4/15/97 $ 150,000
Insurance & 25,000 5.437 8/01/97 25,000
Annuity Company++ 50,000 5.437 9/12/97 50,000
Transamerica Occidental 75,000 5.437 11/20/97 75,000
Life Insurance Co.++
Total Funding Agreements (Cost--$300,000) 300,000
Master Notes--2.0%
Goldman Sachs 130,000 5.50 5/01/97 130,000
Group, L.P.++ 700,000 5.50 8/01/97 700,000
Total Master Notes (Cost--$830,000) 830,000
Medium-Term Notes--0.4%
Abbey National 75,000 5.93 3/25/98 74,790
Treasury Services PLC
Goldman 17,000 6.10 4/15/98 16,959
Sachs Group L.P.
International Business 70,000 5.65 1/22/98 69,697
Machines Corp.
Total Medium-Term Notes
(Cost--$161,930) 161,446
US Government & Agency Obligations--
Discount Notes--4.8%
Federal Farm 13,650 5.30 12/16/97 13,092
Credit Bank
Federal Home 51,900 5.20 10/14/97 50,304
Loan Banks 54,100 5.17 10/16/97 52,419
9,825 5.17 10/27/97 9,503
46,680 5.27 10/27/97 45,150
25,665 5.17 11/13/97 24,752
Federal Home Loan 17,533 5.23 4/10/97 17,507
Mortgage Corp. 30,361 5.30 4/17/97 30,285
45,000 5.25 4/23/97 44,850
90,260 5.26 4/29/97 89,881
62,160 5.25 4/30/97 61,889
172,698 5.23 5/02/97 171,893
58,566 5.18 5/16/97 58,172
Federal National 95,000 5.23 5/06/97 94,502
Mortgage Association 218,840 5.23 5/07/97 217,662
25,000 5.18 11/19/97 24,087
18,255 5.30 12/11/97 17,523
25,000 5.31 12/11/97 23,998
40,000 5.30 12/24/97 38,314
US Treasury Bills 175,000 5.192 3/05/98 165,722
400,000 5.195 3/05/98 378,794
US Treasury STRIPS*** 70,000 5.234 11/15/97 67,507
100,000 5.228 2/15/98 95,036
50,000 5.236 2/15/98 47,518
50,000 5.252 2/15/98 47,518
50,000 5.266 2/15/98 47,518
100,000 5.277 2/15/98 95,036
Total US Government & Agency Obligations--
Discount Notes (Cost--$2,034,720) 2,030,432
</TABLE>
34
<PAGE>
<TABLE>
CMA MONEY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government & Agency Obligations--
Non-Discount Notes--24.3%
<S> <C> <C> <C> <C>
Federal Farm $130,000 5.85 % 10/01/97 $ 129,974
Credit Bank 125,000 5.56++ 2/02/98 124,970
85,000 5.53++ 3/02/98 84,956
30,000 5.81 12/04/98 29,688
Federal Home 518,000 5.60++ 12/10/97 517,811
Loan Banks 25,000 5.64++ 1/26/98 24,933
50,000 5.64++ 1/29/98 49,865
50,000 6.17 11/06/98 49,750
50,000 6.26 1/22/99 49,710
Federal Home Loan 50,000 5.59++ 9/30/97 49,985
Mortgage Corp.
Federal National 266,000 5.267++ 4/15/97 265,988
Mortgage Association 305,000 5.547++ 4/28/97 304,984
200,000 5.517++ 4/29/97 199,984
150,000 5.61++ 5/01/97 149,991
171,000 5.287++ 5/14/97 170,982
200,000 5.70++ 5/19/97 200,000
475,000 5.392++ 5/22/97 474,954
555,000 5.59++ 7/16/97 554,890
290,000 5.61++ 8/01/97 289,958
200,000 5.30++ 8/07/97 199,926
350,000 5.61++ 8/22/97 349,919
215,000 5.595++ 9/03/97 214,933
170,000 5.60++ 9/09/97 169,949
162,000 5.60++ 9/29/97 161,952
87,000 5.53 10/14/97 86,843
296,000 5.585++ 10/20/97 295,856
365,000 5.47 12/30/97 363,686
200,000 5.33++ 1/06/98 199,957
190,000 5.19 1/08/98 188,803
286,000 5.57++ 3/26/98 285,835
372,000 5.61++ 3/27/98 371,751
30,000 5.81 11/25/98 29,697
25,000 5.81 12/01/98 24,743
200,000 5.55++ 6/02/99 199,280
40,000 5.55++ 7/26/99 39,843
Student Loan 77,500 5.66++ 8/04/97 77,494
Marketing Association 50,000 5.59++ 8/21/97 50,000
305,000 5.46++ 10/01/97 304,911
<CAPTION>
Face Interest Maturity Value
Issue Amount Rate* Date (Note 1a)
US Government & Agency Obligations--
Non-Discount Notes (concluded)
<S> <C> <C> <C> <C>
Student Loan $ 90,000 5.59++% 10/03/97 $ 89,973
Marketing Association 44,215 5.58++ 10/14/97 44,183
(concluded) 54,500 5.62++ 10/17/97 54,474
23,175 5.76++ 10/30/97 23,181
133,000 5.71++ 2/17/98 132,992
200,000 5.64++ 4/24/98 199,898
60,000 6.02 11/20/98 59,580
65,000 5.80 12/18/98 64,298
US Treasury Notes 150,000 6.50 5/15/97 150,191
125,000 8.50 7/15/97 125,996
600,000 5.875 7/31/97 600,469
515,000 5.75 9/30/97 514,758
150,000 8.75 10/15/97 152,320
113,000 5.625 10/31/97 112,841
361,000 5.00 1/31/98 357,897
75,000 5.125 2/28/98 74,344
100,000 5.625 11/30/98 98,844
Total US Government & Agency
Obligations--Non-Discount Notes
(Cost--$10,205,105) 10,194,990
<CAPTION>
Face
Amount Issue
Repurchase Agreements**--2.0%
<C> <S> <C>
$100,000 Fuji Securities, Inc., purchased on
3/31/97 to yield 6.50% to 4/01/97 100,000
544,433 Goldman Sachs Company, purchased on
3/31/97 to yield 6.53% to 4/01/1997 544,433
133,229 Morgan Stanley & Co., Inc., purchased
on 3/31/97 to yield 6.50% to 4/01/97 133,229
50,000 Smith Barney, Inc., purchased on 3/31/97
to yield 6.50% to 4/01/97 50,000
Total Repurchase Agreements
(Cost--$827,662) 827,662
Total Investments
(Cost $42,318,295)--100.7% 42,294,104
Liabilities in Excess of Other Assets--(0.7%) (309,351)
-----------
Net Assets--100.0% $41,984,753
===========
<FN>
*Commercial Paper and certain US Government & Agency Obligations are
traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund. Other
securities bear interest at the rates shown, payable at fixed dates
through maturity. Interest rates on variable rate securities are
adjusted periodically based on appropriate indexes; the interest
rates shown are the rates in effect at March 31, 1997.
**Repurchase Agreements are fully collateralized by US Government
Obligations.
***STRIPS--Separate Trading of Registered Interest and Principal of
Securities.
++Variable Rate Notes.
See Notes to Financial Statements.
</TABLE>
35
<PAGE>
<TABLE>
CMA MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1997
<S> <C> <C>
Assets:
Investments, at value (identified cost--$42,318,294,559++) (Note 1a) $ 42,294,103,882
Cash 500,673
Receivables:
Interest $ 144,674,582
Securities sold 119,414,724 264,089,306
----------------
Prepaid registration fees and other assets (Note 1d) 1,240,069
----------------
Total assets 42,559,933,930
----------------
Liabilities:
Payables:
Reverse repurchase agreements (Note 4) 544,433,500
Investment adviser (Note 2) 13,392,781
Distributor (Note 2) 12,146,932
Interest expense (Note 4) 75,232
Beneficial interest redeemed 6,277 570,054,722
----------------
Accrued expenses and other liabilities 5,126,341
----------------
Total liabilities 575,181,063
----------------
Net Assets $ 41,984,752,867
================
Net Assets Consist of:
Shares of beneficial interest, $0.10 par value, unlimited number of shares
authorized $ 4,200,894,354
Paid-in capital in excess of par 37,808,049,190
Unrealized depreciation on investments--net (24,190,677)
----------------
Net Assets--Equivalent to $1.00 per share based on 42,008,943,543 shares of
beneficial interest outstanding $ 41,984,752,867
================
<FN>
++Cost for Federal income tax purposes was $42,319,733,887. As of
March 31, 1997, net unrealized depreciation for Federal income tax
purposes amounted to $25,630,005, of which $50,754 related to
appreciated securities and $25,680,759 related to depreciated
securities.
</TABLE>
36
<PAGE>
<TABLE>
CMA MONEY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 2,074,301,136
Expenses:
Investment advisory fees (Note 2) $ 143,662,831
Distribution fees (Note 2) 46,767,555
Transfer agent fees (Note 2) 15,034,795
Interest expense (Note 4) 3,771,341
Registration fees (Note 1d) 1,576,128
Accounting services (Note 2) 1,408,811
Custodian fees 862,926
Printing and shareholder reports 494,726
Professional fees 131,756
Trustees' fees and expenses 77,644
Other 321,909
----------------
Total expenses 214,110,422
----------------
Investment income--net 1,860,190,714
Realized Gain on Investments--Net (Note 1c) 7,267,457
Change in Unrealized Depreciation on Investments--Net (7,046,015)
----------------
Net Increase in Net Assets Resulting from Operations $ 1,860,412,156
================
See Notes to Financial Statements.
</TABLE>
<TABLE>
CMA MONEY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C>
Operations:
Investment income--net $ 1,860,190,714 $ 1,743,074,692
Realized gain on investments--net 7,267,457 18,808,723
Change in unrealized depreciation on investments--net (7,046,015) (9,344,275)
---------------- ----------------
Net increase in net assets resulting from operations 1,860,412,156 1,752,539,140
---------------- ----------------
Dividends & Distributions to Shareholders (Note 1e):
Investment income--net (1,860,190,714) (1,743,074,692)
Realized gain on investments--net (7,267,457) (18,808,723)
---------------- ----------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (1,867,458,171) (1,761,883,415)
---------------- ----------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 157,862,710,322 139,092,550,999
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1e) 1,863,526,563 1,758,190,139
---------------- ----------------
159,726,236,885 140,850,741,138
Cost of shares redeemed (154,657,296,361) (132,985,300,190)
---------------- ----------------
Net increase in net assets derived from beneficial interest transactions 5,068,940,524 7,865,440,948
---------------- ----------------
Net Assets:
Total increase in net assets 5,061,894,509 7,856,096,673
Beginning of year 36,922,858,358 29,066,761,685
---------------- ----------------
End of year $ 41,984,752,867 $ 36,922,858,358
================ ================
See Notes to Financial Statements.
</TABLE>
37
<PAGE>
<TABLE>
CMA MONEY FUND
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have
been derived from information provided in the
financial statements. For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
Investment income--net .0490 .0529 .0437 .0276 .0309
Realized and unrealized gain (loss) on
investments--net -- .0003 .0005 (.0005) .0019
----------- ----------- ----------- ----------- -----------
Total from investment operations .0490 .0532 .0442 .0271 .0328
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net (.0490) (.0529) (.0437) (.0276) (.0309)
Realized gain on investments--net (.0002) (.0006) (.0003) (.0003) (.0015)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (.0492) (.0535) (.0440) (.0279) (.0324)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========== =========== =========== =========== ===========
Total Investment Return 5.01% 5.51% 4.50% 2.82% 3.30%
=========== =========== =========== =========== ===========
Ratios to Average Net Assets:
Expenses .56% .56% .56% .55% .55%
=========== =========== =========== =========== ===========
Investment income and realized gain on
investments--net 4.89% 5.35% 4.42% 2.79% 3.25%
=========== =========== =========== =========== ===========
Supplemental Data:
Net assets, end of year (in thousands) $41,984,753 $36,922,858 $29,066,762 $27,071,882 $27,093,682
=========== =========== =========== =========== ===========
See Notes to Financial Statements.
</TABLE>
38
<PAGE>
CMA MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Money Fund (the "Fund") is registered under the Investment Company Act of
1940 as a no load, diversified, open-end management investment company. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Investments maturing more than sixty days after
the valuation date are valued at the most recent bid price or yield equivalent
as obtained from dealers that make markets in such securities. When securities
are valued with sixty days or less to maturity, the difference between the
valuation existing on the sixty-first day before maturity and maturity value is
amortized on a straight-line basis to maturity. Investments maturing within
sixty days from their date of acquisition are valued at amortized cost, which
approximates market value.
For the purpose of valuation, the maturity of variable rate certificates of
deposit, variable rate commercial paper, short-term corporate bond notes and
variable rate corporate notes is deemed to be the next coupon date on which the
interest rate is to be adjusted. Assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Fund.
(b) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no Federal
income tax provision is required.
(c) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income, including amortization of premium and discount, is recognized
on the accrual basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(e) Dividends and distributions to shareholders--The Fund declares dividends
daily and reinvests daily such dividends (net of non-resident alien tax and
back-up withholding tax withheld) in additional fund shares at net asset value.
Dividends and distributions are declared from the total of net investment income
and net realized gain or loss on investments.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee
based upon the average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not exceeding $500
million; 0.425% of the average daily net assets in excess of $500 million, but
not exceeding $1 billion; and 0.375% of the average daily net assets in excess
of $1 billion.
The Fund has adopted a Distribution and Shareholder Servicing Plan in compliance
with Rule 12b-1 under the Investment Company Act of 1940, pursuant to which
Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S") receives a distribution
fee under the Distribution Agreement from the Fund at the end of each month at
the annual rate of 0.125% of average daily net assets of the Fund for
shareholders who maintain their accounts through MLPF&S. The distribution
39
<PAGE>
CMA MONEY FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
fee is to compensate MLPF&S financial consultants and other directly involved
branch office personnel for selling shares of the Fund and for providing direct
personal services to shareholders. The distribution fee is not compensation for
the administrative and operational services rendered to the Fund by MLPF&S in
processing share orders and administering shareholder accounts.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, MLFDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the periods corresponds to
the amounts included in the Statements of Changes in Net Assets for net proceeds
from sale of shares and cost of shares redeemed, respectively, since shares are
recorded at $1.00 per share.
4. Reverse Repurchase Agreements:
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it may establish a segregated
account with the custodian containing cash, cash equivalents or liquid high
grade debt securities having a value at least equal to the repurchase price.
As of March 31, 1997, the Fund had entered into reverse repurchase agreements in
the amount of $544,433,500. For the year ended March 31, 1997, the maximum
amount entered into was $646,466,793, the average amount outstanding was
approximately $71,555,000, and the daily weighted average interest rate was
5.27%.
40
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Government Securities Fund:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of CMA Government Securities Fund as of
March 31, 1997, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at March 31, 1997 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of CMA Government
Securities Fund as of March 31, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
April 25, 1997
41
<PAGE>
CMA GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations*--35.6%
US Treasury $ 39,300 5.055% 5/22/97 $ 39,003
Bills 5,800 5.17 11/13/97 5,598
8,600 5.205 11/13/97 8,301
10,400 5.175 2/05/98 9,897
US Treasury 70,660 8.50 4/15/97 70,763
Notes 77,495 6.50 4/30/97 77,566
12,900 6.875 4/30/97 12,916
74,175 6.50 5/15/97 74,270
20,000 5.625 6/30/97 20,000
101,200 8.50 7/15/97 102,006
12,750 5.50 7/31/97 12,742
53,100 5.875 7/31/97 53,141
14,400 6.50 8/15/97 14,438
121,625 6.00 8/31/97 121,663
74,200 5.75 9/30/97 74,165
47,300 8.75 10/15/97 48,032
79,300 5.625 10/31/97 79,188
20,000 5.75 10/31/97 19,984
81,000 7.375 11/15/97 81,683
24,970 5.00 1/31/98 24,756
120,580 7.25 2/15/98 121,729
41,560 6.125 3/31/98 41,573
45,000 7.875 4/15/98 45,774
21,235 5.125 4/30/98 21,010
17,200 5.875 4/30/98 17,152
20,000 6.125 5/15/98 19,985
Total US Government Obligations
(Cost--$1,219,024) 1,217,335
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements**--63.9%
$120,000 Aubrey G. Lanston Co., Inc., purchased
on 3/31/97 to yield 6.25% to 4/01/97 120,000
150,000 BZW Securities, Inc., purchased on
3/31/97 to yield 6.45% to 4/01/97 150,000
135,000 Bear Stearns & Co., Inc., purchased on
3/31/97 to yield 6.40% to 4/01/97 135,000
L
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements** (concluded)
$150,000 Daiwa Securities America, Inc.,
purchased on 3/31/97 to yield
6.40% to 4/01/97 $ 150,000
150,000 Donaldson, Lufkin & Jenrette Securities
Corp., purchased on 3/31/97 to yield
6.40% to 4/01/97 150,000
150,000 First Chicago Capital Markets, Inc.,
purchased on 3/31/97 to yield 6.50%
to 4/01/97 150,000
100,000 Fuji Securities Inc., purchased on
3/31/97 to yield 6.40% to 4/01/97 100,000
155,000 Goldman Sachs & Co., purchased on
3/31/97 to yield 6.50% to 4/01/97 155,000
150,000 Greenwich Capital Markets, Inc.,
purchased on 3/31/97 to yield
6.40% to 4/01/97 150,000
152,378 Lehman Brothers Inc., purchased on
3/31/97 to yield 6.40% to 4/01/97 152,378
160,000 Nesbitt Burns Securities, Inc.,
purchased on 3/31/97 to yield 6.45%
to 4/01/97 160,000
155,000 PaineWebber Inc., purchased on
3/31/97 to yield 6.40% to 4/01/97 155,000
150,000 SBC Warburg Inc., purchased on
3/31/97 to yield 6.40% to 4/01/97 150,000
150,000 Smith Barney Inc., purchased on
3/31/97 to yield 6.40% to 4/01/97 150,000
160,000 UBS Securities LLC, purchased on
3/31/97 to yield 6.40% to 4/01/97 160,000
Total Repurchase Agreements
(Cost--$2,187,378) 2,187,378
Total Investments
(Cost--$3,406,402)--99.5% 3,404,713
Other Assets Less Liabilities--0.5% 18,755
----------
Net Assets--100.0% $3,423,468
==========
*US Treasury Bills are traded on a discount basis; the interest
rates shown are the discount rates paid at the time of purchase by
the Fund. US Treasury Notes bear interest at the rates shown,
payable at fixed dates or upon maturity.
**Repurchase Agreements are fully collateralized by US Government
Obligations.
See Notes to Financial Statements.
42
<PAGE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1997
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$3,406,402,214++) (Notes 1a & 1e) $3,404,713,211
Cash 926
Interest receivable 21,162,121
Prepaid registration fees and other assets (Note 1d) 232,180
--------------
Total assets 3,426,108,438
--------------
Liabilities:
Payables:
Investment adviser (Note 2) $ 1,192,254
Distributor (Note 2) 1,086,999
Dividends to shareholders (Note 1f) 1,053
Beneficial interest redeemed 487 2,280,793
--------------
Accrued expenses and other liabilities 359,347
--------------
Total liabilities 2,640,140
--------------
Net Assets $3,423,468,298
==============
Net Assets Consist of:
Shares of beneficial interest, $0.10 par value, unlimited number of shares
authorized $ 342,515,730
Paid-in capital in excess of par 3,082,641,571
Unrealized depreciation on investments--net (1,689,003)
--------------
Net Assets--Equivalent to $1.00 per share based on 3,425,157,301 shares of
beneficial interest outstanding $3,423,468,298
==============
++Cost for Federal income tax purposes. As of March 31, 1997, net
unrealized depreciation for Federal income tax purposes amounted to
$1,689,003, of which $112,392 related to appreciated securities and
$1,801,395 related to depreciated securities.
See Notes to Financial Statements.
</TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 180,768,870
Expenses:
Investment advisory fees (Note 2) $ 13,466,157
Distribution fees (Note 2) 4,103,537
Transfer agent fees (Note 2) 551,291
Accounting services (Note 2) 220,479
Registration fees (Note 1d) 203,974
Custodian fees 192,137
Professional fees 62,890
Printing and shareholder reports 44,435
Trustees' fees and expenses 40,153
Other 42,035
--------------
Total expenses 18,927,088
--------------
Investment income--net
161,841,782
Realized Gain on Investments--Net (Note 1c) 116,775
Change in Unrealized Depreciation on Investments--Net (1,388,661)
--------------
Net Increase in Net Assets Resulting from Operations $ 160,569,896
==============
See Notes to Financial Statements.
</TABLE>
43
<PAGE>
CMA GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended
March 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C>
Operations:
Investment income--net $ 161,841,782 $ 168,765,912
Realized gain on investments--net 116,775 813,513
Change in unrealized depreciation on investments--net (1,388,661) (233,823)
--------------- ---------------
Net increase in net assets resulting from operations 160,569,896 169,345,602
--------------- ---------------
Dividends & Distributions to Shareholders (Note 1f):
Investment income--net (161,841,782) (168,765,912)
Realized gain on investments--net (116,775) (813,513)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (161,958,557) (169,579,425)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 13,617,455,013 13,161,152,625
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions (Note 1f) 161,803,882 169,364,191
--------------- ---------------
13,779,258,895 13,330,516,816
Cost of shares redeemed (13,700,005,200) (13,117,482,781)
--------------- ---------------
Net increase in net assets derived from beneficial interest transactions 79,253,695 213,034,035
--------------- ---------------
Net Assets:
Total increase in net assets 77,865,034 212,800,212
Beginning of year 3,345,603,264 3,132,803,052
--------------- ---------------
End of year $ 3,423,468,298 $ 3,345,603,264
=============== ===============
See Notes to Financial Statements.
</TABLE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements
For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Investment income--net .0477 .0521 .0419 .0271 .0294
Realized and unrealized gain (loss) on
investments--net (.0004) .0002 .0008 (.0013) .0038
---------- ---------- ---------- ---------- ----------
Total from investment operations .0473 .0523 .0427 .0258 .0332
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.0477) (.0521) (.0419) (.0271) (.0294)
Realized gain on investments--net --++ (.0003) (.0002) (.0004) (.0026)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.0477) (.0524) (.0421) (.0275) (.0320)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 4.94% 5.37% 4.30% 2.79% 3.25%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses .56% .57% .58% .56% .55%
========== ========== ========== ========== ==========
Investment income and realized gain on
investments--net 4.81% 5.25% 4.18% 2.75% 3.20%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $3,423,468 $3,345,603 $3,132,803 $3,563,595 $3,858,017
========== ========== ========== ========== ==========
</TABLE>
++Amount is less than $.0001 per share.
See Notes to Financial Statements.
44
<PAGE>
CMA GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Government Securities Fund (the "Fund") is registered under the
Investment Company Act of 1940 as a no load, diversified, open-end
management investment company. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Investments maturing more than sixty
days after the valuation date are valued at the most recent bid
price or yield equivalent as obtained from dealers that make markets
in such securities. When securities are valued with sixty days or
less to maturity, the difference between the valuation existing on
the sixty-first day before maturity and maturity value is amortized
on a straight-line basis to maturity. Investments maturing within
sixty days from their date of acquisition are valued at amortized
cost, which approximates market value. Assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Trustees of the Fund.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
premium and discount) is recognized on the accrual basis. Realized
gains and losses on security transactions are determined on the
identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Repurchase agreements--The Fund invests in US Government
securities pursuant to repurchase agreements with a member bank of
the
Federal Reserve System or a primary dealer in US Government
securities. Under such agreements, the bank or primary dealer agrees
to repurchase the security at a mutually agreed upon time and price.
The Fund takes possession of the underlying securities, marks to
market such securities daily and, if necessary, receives additional
securities to ensure that the contract is adequately collateralized.
(f) Dividends and distributions to shareholders--The Fund declares
dividends daily and reinvests daily such dividends (net of non-
resident alien tax and back-up withholding tax withheld) in
additional fund shares at net asset value. Dividends and
distributions are declared from the total of net investment income
and net realized gain or loss on investments.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets, at the following annual rates: 0.50%
of the Fund's average daily net assets not exceeding $500 million;
0.425% of the average daily net assets in excess of $500 million but
not exceeding $1 billion; and 0.375% of the average daily net assets
in excess of $1 billion.
The Fund has adopted a Distribution and Shareholder Servicing Plan
in compliance with Rule 12b-1 under the Investment Company Act of
1940, pursuant to which Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S")
45
<PAGE>
receives a distribution fee from the Fund at the end of each month at the annual
rate of 0.125% of average daily net assets of the Fund for shareholders who
maintain their accounts through MLPF&S. The distribution fee is to compensate
MLPF&S financial consultants and other directly involved branch office personnel
for selling shares of the Fund and for providing direct personal services to
shareholders. The distribution fee is not compensation for the administrative
and operational services rendered to the Fund by MLPF&S in processing share
orders and administering shareholder accounts.
CMA GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, and/or ML & Co.
3. Transactions in Shares of Beneficial
Interest:
The number of shares purchased and redeemed during the periods
corresponds to the amounts included in the Statements of Changes in
Net Assets for net proceeds from sale of shares and cost of shares
redeemed, respectively, since shares are recorded at $1.00 per
share.
46
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
CMA Tax-Exempt Fund:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of CMA Tax-Exempt Fund as of March 31,
1997, the related statements of operations for the year then ended and changes
in net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at March 31, 1997 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of CMA Tax-Exempt
Fund as of March 31, 1997, the results of its operations, the changes in its
net assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 9, 1997
47
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Alabama-- $ 28,000 Birmingham, Alabama, Medical Clinic Board Revenue Bonds (U.A.H.S.F.),
2.2% VRDN, 3.80% due 12/01/2026 (a) $ 28,000
Columbia, Alabama, IDB, PCR, Refunding (Alabama Power Co. Project),
VRDN (a):
21,200 Series A, 3.60% due 5/01/2022 21,200
8,200 Series C, 3.70% due 10/01/2022 8,200
9,000 Series E, 3.75% due 10/01/2022 9,000
9,800 Decatur, Alabama, IDB, Solid Waste Disposal Revenue Bonds (Amoco
Chemical Co. Project), VRDN, AMT, 3.75% due 5/01/2025 (a) 9,800
7,600 McIntosh, Alabama, IDB, PCR (Ciba-Geigy Corporation Project), VRDN,
Series A, 3.45% due 12/01/2003 (a) 7,600
37,900 McIntosh, Alabama, IDB, Solid Waste Disposal Revenue Bonds (Ciba-Geigy
Corporation Project), VRDN, AMT, 3.45% due 7/01/2004 (a) 37,900
9,170 Mobile, Alabama, IDB, PCR (International Paper Company Project),
Series A, 3.85% due 11/15/1997 9,167
11,600 Mobile, Alabama, IDB, PCR, Refunding (Alabama Power Co. Project), VRDN,
3.60% due 6/01/2015 (a) 11,600
9,905 Montgomery, Alabama, Special Care Facilities Financing Authority, Health
Care Facilities Revenue Bonds (Saint Margaret's Hospital--Daughters
of Charity), VRDN, 3.45% due 11/01/2013 (a) 9,905
15,000 Parrish, Alabama, IDB, PCR, Refunding (Alabama Power Co. Project), VRDN,
3.60% due 6/01/2015 (a) 15,000
15,000 Stevenson, Alabama, IDB, Environmental Improvement Revenue Bonds (Mead
Corporation Project), VRDN, 3.75% due 1/01/2031 (a) 15,000
Alaska--1.4% 10,400 Alaska Industrial Development and Export Authority Revolving Fund, VRDN,
AMT, Series B, 3.50% due 4/01/2023 (a) 10,400
Valdez, Alaska, Marine Terminal Revenue Refunding Bonds (Exxon Pipeline
Co. Project), VRDN (a):
20,000 Series A, 3.70% due 12/01/2033 20,000
60,000 Series B, 3.70% due 12/01/2033 60,000
29,000 Series C, 3.70% due 12/01/2033 29,000
Arizona-- 10,200 Arizona Educational Loan Marketing Corporation Revenue Bonds, VRDN,
2.3% AMT, Series A, 3.55% due 3/01/2015 (a) (c) 10,200
4,300 Maricopa County, Arizona, IDA, Hospital Facilities Revenue Bonds
(Samaritan Health Service Hospital), VRDN, Series B-2, 3.75% due
12/01/2008 (a) (c) 4,300
21,500 Maricopa County, Arizona, PCR (El Paso Electric Co. Project), VRDN,
Series A, 3.60% due 7/01/2014 (a) 21,500
</TABLE>
Portfolio Abbreviations for CMA Tax-Exempt Fund
ACES SM Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
BAN Bond Anticipation Notes
COP Certificates of Participation
CP Commercial Paper
DATES Daily Adjustable Tax-Exempt Securities
EDA Economic Development Authority
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDB Industrial Development Board
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RAN Revenue Anticipation Notes
TAN Tax Anticipation Notes
TRAN Tax Revenue Anticipation Notes
UPDATES Unit Priced Adjustable Tax-Exempt Securities
UT Unlimited Tax
VRDN Variable Rate Demand Notes
48
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Arizona Maricopa County, Arizona, PCR, Refunding (Arizona Public Service Co.),
(concluded) VRDN (a):
$ 38,800 Series A, 3.75% due 5/01/2029 $ 38,800
29,700 Series C, 3.60% due 5/01/2029 29,700
19,700 Series D, 3.65% due 5/01/2029 19,700
15,500 Series F, 3.70% due 5/01/2029 15,500
2,300 Pinal County, Arizona, IDA, PCR (Magma Copper/Newmont Mining Corp.),
VRDN, 3.65% due 12/01/2009 (a) 2,300
Salt River Project, Arizona, Agricultural Improvement and Power
District, Electric System Revenue Promissory Notes, CP:
36,600 3.60% due 8/19/1997 36,600
14,685 3.60% due 8/21/1997 14,685
Arkansas-- 19,000 Little River County, Arkansas, Solid Waste Disposal Revenue Bonds (Nekoosa
0.2% Papers Incorporated Project), VRDN, AMT, 3.55% due 2/01/2025 (a) 19,000
California-- 49,900 California Higher Education Loan Authority, Inc., Student Loan Revenue
4.0% Bonds, AMT, Series C, 3.75% due 6/01/1997 (b) 49,899
California Higher Education Loan Authority, Inc., Student Loan Revenue
Refunding Bonds:
10,000 AMT, Series A, 3.75% due 6/01/1997 10,000
10,000 Senior Lien, Series A-1, 3.95% due 7/01/1997 (b) 10,000
10,000 Senior Lien, Series A-2, 3.70% due 5/01/1997 (b) 10,000
20,425 Series A, 3.70% due 5/01/1997 20,425
33,000 VRDN, AMT, Series E-1, 3.50% due 12/01/2022 (a) (b) 33,000
50,000 California Public Capital Improvements Financing Authority Revenue Bonds
(Pooled Loan Project), Series D, 3.55% due 6/15/1997 50,000
31,400 California State, CP (Morgan Guaranty Trust Co. of NY), 3.40% due 4/09/1997 31,400
California State, RAN:
31,000 Series A, 4.50% due 6/30/1997 31,074
10,000 Series C-1, 3.30% due 6/30/1997 10,000
17,600 Eastern Municipal Water District, California, Water and Sewer Revenue
Refunding Bonds, VRDN, COP, Series B, 3.20% due 7/01/2020 (a) (f) 17,600
3,500 Fremont, California, Unified School District (Alameda County), TRAN, UT,
4.625% due 7/01/1997 3,506
40,000 Los Angeles County, California, Metropolitan Transportation Authority
Revenue Bonds, VRDN, 3.40% due 7/01/2025 (a) (h) 40,000
11,800 San Diego, California, COP, Pooled TRAN, Area Local Government, 4.75%
due 10/01/1997 (h) 11,861
7,500 Southern California Public Power Authority, Revenue Refunding Bonds
(Southern Transmission Project), VRDN, 3.20% due 7/01/2019 (a) (e) 7,500
Colorado-- Colorado Health Facilities Authority Revenue Bonds, VRDN (a):
1.1% 6,700 (North Colorado Medical Center), 3.45% due 5/15/2020 (c) 6,700
10,700 (Sisters of Charity Health Services), 3.45% due 5/15/2025 10,700
12,000 (Sisters of Charity Health Services), Series C, 3.45% due 5/15/2022 12,000
10,500 Denver, Colorado, City and County Airport Revenue Bonds, VRDN, AMT,
Series F, 3.60% due 11/15/2025 (a) 10,500
14,755 Palomino Park, Colorado, Assessment Lien Revenue Bonds (Public Improvements
Corporation), VRDN, 3.65% due 12/01/2035 (a) 14,755
Pitkin County, Colorado, IDR, Refunding (Aspen Skiing Co. Project), VRDN (a):
6,500 AMT, Series B, 3.80% due 4/01/2014 6,500
2,700 Series A, 3.70% due 4/01/2016 2,700
17,850 Platte River Power Authority, Colorado, Power Revenue Refunding Bonds,
Series AA, 6.875% due 6/01/1997 (g) 18,298
8,000 Westminster, Colorado, IDR, Refunding (Ball Corp. Project), VRDN, 3.55%
due 6/01/2005 (a) 8,000
</TABLE>
49
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Connecticut-- Connecticut State, HFA, Housing Mortgage Finance Program:
1.0% $ 4,600 AMT, Series A, Sub-Series A-4, 3.65% due 4/10/1997 $ 4,600
5,000 Series A, Sub-Series A-3, 3.60% due 4/10/1997 5,000
18,200 VRDN, Series G, 3.40% due 5/15/2018 (a) (e) 18,200
22,000 Connecticut State Special Assessment, Unemployment Compensation,
Advanced Fund Revenue Bonds (Connecticut Unemployment), Series C,
3.90% due 7/01/1997 (f) 22,000
Eagle Tax Exempt Trust, VRDN (a):
23,700 3.61% due 11/15/2004 23,700
13,200 3.56% due 8/15/2012 13,200
Delaware-- 15,000 Delaware State, EDA, IDR (Delaware City Waste Recovery), VRDN, AMT,
0.3% Series B, 3.60% due 12/01/2028 (a) 15,000
Delaware State, EDA, Revenue Bonds (Delmarva Power & Light Co. Project),
VRDN, AMT (a):
4,400 3.85% due 10/01/2017 4,400
2,100 Series A, 3.85% due 10/01/2017 2,100
District of 10,300 District of Columbia, General Fund Recovery Bonds, VRDN, UT, Series B-3,
Columbia-- 3.85% due 6/01/2003 (a) 10,300
0.8% 17,400 District of Columbia, Hospital Revenue Bonds (Providence
Hospital--Daughters of Charity), VRDN, Series 89-A, 3.45% due 12/01/2019 (a) 17,400
11,100 District of Columbia, Revenue Bonds (George Washington University),
VRDN, Series A, 3.60% due 3/01/2006 (a) 11,100
26,700 Eagle Tax Exempt Trust, VRDN, Series 1994-A, 3.61% due 6/01/2005 (a) 26,700
Florida-- 3,400 Broward County, Florida, HFA, M/F Housing Revenue Bonds (Margate
2.3% Investments Projects), VRDN, 3.55% due 11/01/2005 (a) 3,400
34,710 Dade County, Florida, Aviation Revenue Refunding Bonds, VRDN, Series V,
3.45% due 10/01/2007 (a) 34,710
3,900 Dade County, Florida, IDA, Exempt Facilities Revenue Refunding Bonds
(Florida Power and Light Co.), VRDN, 3.70% due 6/01/2021 (a) 3,900
5,700 Dade County, Florida, Special Obligation, Capital Asset Acquisition
Bonds, VRDN, 3.70% due 10/01/2010 (a) 5,700
23,700 Eagle Tax Exempt Trust, 3.10% due 4/01/1997 23,700
6,300 Hillsborough County, Florida, IDA, PCR, Refunding (Tampa Electric
Company Project), VRDN, 3.75% due 9/01/2025 (a) 6,300
Jacksonville, Florida, Electric Authority Revenue Bonds, CP:
13,300 3.60% due 8/20/1997 13,300
12,200 TAN, 3.60% due 8/22/1997 12,200
10,000 Orange County Florida School District, TAN, 4% due 9/15/1997 10,011
52,700 Palm Beach County, Florida, School District, TAN, 4.50% due 9/26/1997 53,010
11,100 Pinellas County, Florida, Health Facilities Authority, Revenue Refunding
Bonds (Pooled Hospital Loan Program), DATES, 3.65% due 12/01/2015 (a) 11,100
4,900 Saint Lucie County, Florida, Solid Waste Disposal Revenue Bonds (Florida
Power & Light Co. Project), VRDN, AMT, 3.75% due 1/01/2027 (a) 4,900
6,660 Volusia County, Florida, Health Facilities Authority Revenue Bonds
(Pooled Hospital Loan Program), ACES, 3.65% due 11/01/2015 (a) (f) 6,660
Georgia-- Burke County, Georgia, Development Authority, PCR (Georgia Power
3.7% Company--Plant Vogtle Project), VRDN (a):
52,900 2nd Series, 3.60% due 4/01/2025 52,900
28,900 4th Series, 3.70% due 7/01/2024 28,900
22,400 Refunding, 3.60% due 9/01/2026 22,400
26,700 Refunding, 3rd Series, 3.60% due 9/01/2025 26,700
18,000 Burke County, Georgia, Development Authority, PCR (Oglethorpe Power
Corporation--Plant Vogtle Project), Refunding, Series A, 3.60% due
12/01/1997 (e) 18,000
</TABLE>
50
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Georgia $ 12,100 Burke County, Georgia, Development Authority, PCR (Oglethorpe Power
(concluded) Corporation), VRDN, Series A, 3.35% due 1/01/2016 (a) (f) $ 12,100
41,000 Cobb County, Georgia, TAN, 4% due 12/31/1997 41,088
Eagle Tax Exempt Trust:
4,100 3.60% due 9/01/1997 4,100
9,500 VRDN, 3.45% due 11/01/2005 (a) 9,500
9,500 VRDN, 3.40% due 7/01/2020 (a) 9,500
8,938 Georgia Municipal Association, Pooled Bonds, COP, VRDN, 3.40% due
12/15/2020 (a) (c) 8,938
9,390 Georgia State Residential Finance Authority, Home Ownership Mortgage
Bonds, AMT, Series A, 3.60% due 9/01/1997 (d) 9,390
13,145 Georgia State, Tender Options, Series 79-A, 3.50% due 5/06/1997 13,145
Metropolitan Atlanta Rapid Transit Authority, Georgia, Sales Tax Revenue
Bonds:
7,005 3.55% due 7/01/2002 7,005
7,340 3.55% due 7/01/2004 7,340
Monroe County, Georgia, Development Authority, PCR (Georgia Power Co.),
VRDN (a):
14,900 1st Series, 3.60% due 7/01/2025 14,900
24,900 2nd Series, 3.70% due 7/01/2025 24,900
Illinois-- 7,000 Chicago, Illinois, IDR (Enterprise Center VIII Project), VRDN, AMT,
10.8% 3.65% due 6/01/2022 (a) 7,000
Chicago, Illinois, O'Hare International Airport Revenue Bonds (American
Airlines) (a):
8,800 DATES, Series C, 3.70% due 12/01/2017 8,800
13,300 VRDN, Series A, 3.70% due 12/01/2017 13,300
Chicago, Illinois, O'Hare International Airport Revenue Bonds (General
Airport Second Lien), VRDN (a):
6,630 Series B, 3.50% due 1/01/2015 6,630
20,500 Series C, 3.50% due 1/01/2018 20,500
14,800 Chicago, Illinois, O'Hare International Airport, Special Facilities Revenue
Bonds (Compagnie Nationale--Air France), VRDN, AMT, 3.55% due 5/01/2018 (a) 14,800
Chicago, Illinois, Tender Notes:
121,757 3.55% due 10/31/1997 121,757
23,600 VRDN, Series B, 3.40% due 1/01/2012 (a) 23,600
46,000 Cook County, Illinois, VRDN, 3.45% due 12/01/2001 (a) 46,000
13,800 Eagle Tax Exempt Trust, VRDN, Series 95, Class 7090, 3.61% due 1/01/2024 (a) 13,800
Illinois Development Finance Authority, PCR, Refunding (Commonwealth
Edison Company Project), VRDN, Series B (a):
12,000 3.50% due 12/01/2006 (e) 12,000
42,200 3.45% due 10/15/2014 42,200
Illinois Development Finance Authority, Revenue Bonds, VRDN (a):
25,100 (Lyric Opera Chicago Project), 3.50% due 12/01/2028 25,100
6,000 Refunding (Olin Corporation Project), Series A, 3.70% due 6/01/2004 6,000
Illinois Educational Facilities Authority Revenue Bonds, VRDN (a):
17,300 (Art Institute of Chicago), 3.55% due 3/01/2027 17,300
5,200 (Chicago Historical Society), 3.50% due 12/01/2025 5,200
27,100 (Illinois Institute of Technology), Series A, 3.50% due 9/01/2025 27,100
</TABLE>
51
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Illinois Illinois Health Facilities Authority Revenue Bonds (a):
(concluded) $ 6,900 (Central Dupage Healthcorp. Project), VRDN, 3.75% due 11/01/2020 $ 6,900
13,200 (Decatur Memorial Hospital Project), VRDN, Series A, 3.50% due
11/15/2024 (c) 13,200
29,550 (Franciscan Sisters Health Service), VRDN, 3.80% due 1/01/2018 29,550
15,100 (Highland Park Hospital), VRDN, Series B, 3.50% due 10/01/2012 (f) 15,100
8,500 (Hospital Sisters Services, Inc.), UPDATES, Series E, 3.50% due
12/01/2014 (c) 8,500
42,600 (Northwest Community Hospital), VRDN, 3.45% due 7/01/2025 42,600
72,200 (Northwestern Memorial Hospital), VRDN, 3.65% due 8/15/2025 72,200
7,000 (Pooled Financing Program), VRDN, Series F, 3.45% due 8/01/2015 7,000
30,000 Refunding (Advocate Health Care), VRDN, Series B, 3.55% due 8/15/2022 30,000
105,500 (Resurrection Health Care System), VRDN, 3.70% due 5/01/2011 105,500
Illinois Health Facilities Authority Revenue Bonds (Evanston Hospital
Corporation Project):
30,000 CP, 3.65% due 10/31/1997 30,000
15,000 CP, 3.70% due 12/01/1997 15,000
12,000 CP, Series A, 3.85% due 10/15/1997 12,000
10,000 Series A, 3.65% due 5/29/1997 10,000
10,000 Series B, 3.65% due 5/29/1997 10,000
10,000 Series C, 3.65% due 5/29/1997 10,000
10,000 Series D, 3.65% due 5/29/1997 10,000
5,000 Series E, 3.65% due 5/29/1997 5,000
18,815 Illinois State, GO, VRDN, UT, 3.50% due 8/01/2019 (a) (c) 18,815
4,900 Illinois Student Assistance Commission, Student Loan Revenue Bonds,
VRDN, AMT, Series A, 3.55% due 3/01/2016 (a) 4,900
21,350 Regional Transportation Authority, Illinois, VRDN, 3.50% due 6/01/2025 (a) (c) 21,350
11,100 Southwestern Illinois Development Authority, Solid Waste Disposal Revenue
Bonds (Shell Oil Co.--Wood River Project), VRDN, AMT, 3.75% due 8/01/2021 (a) 11,100
Indiana--4.4% 28,660 Evansville, Indiana, Hospital Authority Revenue Bonds (Saint Mary's Medical
Center--Daughters of Charity), VRDN, 3.45% due 11/01/2013 (a) 28,660
Fort Wayne, Indiana, Hospital Authority Revenue Bonds (Parkview Memorial
Hospital), VRDN (a):
1,645 Series B, 3.40% due 1/01/2016 1,645
2,700 Series B, 3.45% due 1/01/2020 2,700
3,505 Series C, 3.40% due 1/01/2016 3,505
5,670 Series D, 3.40% due 1/01/2016 5,670
Indiana Bond Bank, Advance Funding Notes:
19,000 Series A-1, 4.25% due 7/29/1997 19,047
87,200 Series A-2, 4.25% due 1/21/1998 87,576
Indiana Health Facilities Financing Authority, Hospital Revenue Bonds (a):
25,700 (Clarian Health Partners Inc.), VRDN, Series B, 3.50% due 2/15/2026 25,700
5,400 (Daughters of Charity National Health System), ACES, Series A, 3.45%
due 11/01/2022 5,400
1,700 (Daughters of Charity National Health System), ACES, Series B, 3.45% due
11/01/2022 1,700
18,200 Refunding (Clarian Health Partners Inc.), VRDN, Series A, 3.50% due
2/15/2026 (c) 18,200
11,750 Indiana Health Facilities Financing Authority Revenue Bonds (Capital Access
Designated Pool), VRDN, 3.45% due 1/01/2012 (a) 11,750
Indiana Secondary Market Educational Loans Incorporated, Student Loan
Revenue Bonds, VRDN, AMT, Series B (a) (e):
26,900 3.50% due 12/01/2013 26,900
22,500 3.50% due 12/01/2014 22,500
</TABLE>
52
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Indiana $ 8,500 Indianapolis, Indiana, Bond Bank Notes (Local Public Improvement), Series E,
(concluded) 4.125% due 7/10/1997 $ 8,514
Jasper County, Indiana, PCR, Refunding (Northern Indiana Public Service Co.),
VRDN (a):
8,000 Series B, 3.75% due 6/01/2013 8,000
20,700 Series C, 3.75% due 4/01/2019 20,700
45,325 Marion County, Indiana, Hospital Authority, Hospital Facility Revenue Bonds
(Saint Vincent's Hospital and Healthcare Center--Daughters of Charity), VRDN,
3.45% due 11/01/2013 (a) 45,325
9,400 Princeton, Indiana, PCR, Refunding (PSI Energy Inc. Project), VRDN, 3.65%
due 4/01/2022 (a) 9,400
10,600 Rockport, Indiana, PCR, Refunding (AEP Generating Co. Project), VRDN, Series A,
3.70% due 7/01/2025 (a) (e) 10,600
Iowa--1.6% 5,000 Chillicothe, Iowa, PCR, Refunding (Iowa-Illinois Gas & Electric Project), VRDN,
3.55% due 1/01/2023 (a) 5,000
Iowa Finance Authority, Solid Waste Disposal Revenue Bonds (Cedar River Paper
Company Project), VRDN, Series A (a):
52,500 3.75% due 7/01/2023 52,500
42,000 AMT, 3.75% due 6/01/2024 42,000
20,500 AMT, 3.75% due 5/01/2025 20,500
3,700 Iowa Higher Education Loan Authority Revenue Bonds (Private College
Facilities), ACES, 3.45% due 12/01/2015 (a) (c) 3,700
14,500 Iowa Student Loan Liquidity Corporation, Student Loan Revenue Bonds,
VRDN, AMT, Series B, 3.45% due 12/01/2013 (a) (e) 14,500
Kansas--0.6% 9,100 Butler County, Kansas, Solid Waste Disposal Facilities Revenue Bonds (Texaco
Refining and Marketing Project), VRDN, AMT, Series A, 3.80% due 8/01/2024 (a) 9,100
23,700 Kansas State, Department of Transportation, Highway Revenue Bonds, VRDN,
Series B, 3.35% due 9/01/2014 (a) 23,700
Wichita, Kansas, Hospital Revenue Bonds (CSJ Health Systems), VRDN (a):
1,000 3.65% due 10/01/2002 1,000
15,300 3.65% due 10/01/2008 15,300
Kentucky--1.2% 5,100 Ashland, Kentucky, PCR (Merck & Co./Calgon Carbon Project), Series A, 3.65%
due 10/01/2006 5,100
22,700 Carroll County, Kentucky, Solid Waste Disposal Facilities Revenue Bonds
(Kentucky Utilities Co. Project), VRDN, AMT, Series A, 3.80% due 11/01/2024 (a) 22,700
Daviess County, Kentucky, Solid Waste Disposal Facilities Revenue Bonds
(Scott Paper Co. Project), VRDN, AMT (a):
6,000 Series A, 3.75% due 12/01/2023 6,000
9,300 Series A, 3.75% due 5/01/2024 9,300
8,100 Series B, 3.75% due 12/01/2023 8,100
21,700 Series B, 3.75% due 5/01/2024 21,700
11,100 Kentucky Economic Development Finance Authority Revenue Bonds
(Sisters of Charity), VRDN, 3.75% due 11/01/2020 (a) 11,100
15,000 Trimble County, Kentucky, PCR, Refunding (Louisville Gas & Electric Co.), CP,
Series A, 3.50% due 9/11/1997 15,000
Louisiana--2.6% 31,500 Calcasieu Parish, Louisiana, IDB, Environmental Revenue Refunding Bonds
(Citgo Petroleum Corporation), VRDN, AMT, 3.80% due 3/01/2025 (a) 31,500
8,800 Eagle Tax Exempt Trust, VRDN, Series 94, Class 3803, 3.61% due 5/01/2008 (a) 8,800
7,500 East Baton Rouge Parish, Louisiana, PCR, Refunding (Exxon Project), VRDN, 3.60%
due 3/01/2022 (a) 7,500
5,200 Louisiana Public Facilities Authority, Hospital Revenue Bonds (Hospital Equipment
Financing and Refunding Program), VRDN, Series A, 3.70% due 12/01/2005 (a) 5,200
Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Our Lady of the Lake Regional Medical Center), CP (h):
13,500 3.55% due 4/16/1997 13,500
33,060 3.55% due 4/17/1997 33,060
</TABLE>
53
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Louisiana $ 17,000 Louisiana Public Facilities Authority Revenue Bonds (Kenner Hotel Ltd.),
(concluded) VRDN, 3.65% due 12/01/2015 (a) $ 17,000
35,050 Louisiana State Offshore Terminal Authority, Deepwater Port Revenue
Refunding Bonds (Loop Inc.--First Stage), ACES, 3.75% due 9/01/2006 (a) 35,050
14,100 Plaquemines Parish, Louisiana, Environmental Revenue Bonds (BP
Exploration & Oil), VRDN, AMT, 3.80% due 10/01/2024 (a) 14,100
Saint Charles Parish, Louisiana, PCR, VRDN (a):
19,200 (Shell Oil Company--Norco Project), AMT, 3.75% due 11/01/2021 19,200
4,400 (Shell Oil Company Project), 3.35% due 6/01/2005 4,400
21,000 (Shell Oil Company Project), AMT, Series A, 3.75% due 10/01/2022 21,000
4,400 South Louisiana Port Commission, Louisiana, Revenue Refunding Bonds
(Occidental Petroleum Corp. Project), VRDN, 3.40% due 7/01/2018 (a) 4,400
Maine--0.3% 16,000 Jay, Maine, Solid Waste Disposal Revenue Bonds (International Paper),
AMT, Series A, 3.95% due 6/02/1997 16,000
Maine Health and Higher Educational Facilities Authority Revenue Bonds
(VHA New England Inc.), VRDN (a) (e):
1,250 Series B, 3.45% due 12/01/2025 1,250
1,450 Series F, 3.45% due 12/01/2025 1,450
7,000 Maine State, GO, TAN, 4.50% due 6/27/1997 7,010
Maryland--1.2% 35,700 Baltimore, Maryland, Port Facilities Revenue Bonds (Occidental Petroleum),
VRDN, 3.40% due 10/14/2011 (a) 35,700
Maryland State Health and Higher Educational Facilities Authority
Revenue Bonds, VRDN (a):
23,400 (Pooled Loan Program), Series A, 3.50% due 4/01/2035 23,400
24,200 (Saint Agnes Hospital--Daughters of Charity), 3.45% due 7/01/2013 24,200
Washington Suburban Sanitation District, Maryland, UT:
10,000 BAN, 3.40% due 1/01/1999 10,000
4,000 Water Supply Refunding Bonds, 5.75% due 11/01/1997 4,046
Massachusetts-- 32,130 Clipper Tax Exempt Trust 1994-2, VRDN, Class A, 3.36% due 10/17/2002 (a) 32,130
2.0% 20,900 Eagle Tax Exempt Trust, VRDN, Series J, 3.61% due 8/01/2005 (a) 20,900
10,000 Lynn, Massachusetts, UT, 4.25% due 8/14/1997 10,012
10,000 Lynn, Massachusetts, Water and Sewer Commission, BAN, Series A, UT,
4.25% due 10/08/1997 10,010
43,500 Massachusetts Bay Transportation Authority Notes, Series B, 4.75% due
9/05/1997 43,762
21,000 Massachusetts State Health and Educational Facilities Authority Revenue Bonds
(Capital Asset Program), VRDN, Series D, 3.65% due 1/01/2035 (a) (c) 21,000
2,000 Massachusetts State Municipal Wholesale Electric Company, Power Supply
System Revenue Bonds, VRDN, Series C, 3.30% due 7/01/2019 (a) 2,000
6,100 Massachusetts State Port Authority, Revenue Refunding Bonds, VRDN, AMT,
Series B, 3.65% due 7/01/2018 (a) 6,100
6,900 Massachusetts State, UPDATES, Series B, 3.60% due 12/01/1997 (a) 6,900
8,000 Pioneer Valley, Massachusetts, Transit Authority, RAN, 4.63% due 8/08/1997 8,014
9,000 Springfield, Massachusetts, BAN, 4.60% due 7/11/1997 9,012
Michigan--5.5% 6,300 Delta County, Michigan, Economic Development Corp., Environmental
Improvement Revenue Refunding Bonds (Mead Escambia Paper), VRDN,
Series D, 3.60% due 12/01/2023 (a) 6,300
8,000 Eagle Tax Exempt Trust, VRDN, Series 94, Class 2201, 3.55% due 6/01/2021 (a) 8,000
17,200 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds,
VRDN, 3.30% due 1/01/2020 (a) (f) 17,200
8,460 Holly, Michigan, Area School District, VRDN, UT, 3.50% due 5/01/2020 (a) (f) 8,460
331,600 Michigan State, CP, 4.50% due 9/30/1997 333,292
16,000 Michigan State Building Authority Revenue Bonds, CP, Series 1, 3.65% due
5/01/1997 16,000
</TABLE>
54
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Michigan $ 4,150 Michigan State Hospital Finance Authority Revenue Bonds (Providence
(concluded) Hospital--Daughters of Charity Systems, Incorporated), VRDN, 3.45% due
11/01/2014 (a) $ 4,150
Michigan State Strategic Fund, Limited Obligation Revenue Refunding Bonds,
VRDN (a):
20,400 (Consumers Power Company Project), Series A, 3.65% due 6/15/2010 20,400
6,150 (Detroit Edison Co.), Series CC, 3.65% due 9/01/2030 6,150
1,000 Michigan State Strategic Fund, Solid Waste Disposal Revenue Bonds
(Grayling Generating Project), VRDN, AMT, 3.50% due 1/01/2014 (a) 1,000
9,500 Monroe County, Michigan, Economic Development Corp., Limited Obligation
Revenue Refunding Bonds (Detroit Edison Co.), VRDN, Series CC, 3.65%
due 10/01/2024 (a) 9,500
5,200 Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds (William
Beaumont Hospital), VRDN, Series J, 3.60% due 1/01/2003 (a) 5,200
University of Michigan, University Hospital Revenue Bonds, VRDN, Series A (a):
16,000 (Medical Service Plan), 3.75% due 12/01/2027 16,000
9,800 Refunding, 3.75% due 12/01/2019 9,800
Minnesota--0.7% Eagle Tax Exempt Trust, VRDN (a):
11,100 Series 1994-C-5, 3.61% due 2/01/2015 11,100
45,000 Series A, 3.61% due 8/01/2006 45,000
Mississippi-- 10,000 Harrison County, Mississippi, PCR, Refunding (E.I. du Pont de Nemours & Co.),
0.7% VRDN, 3.75% due 9/01/2010 (a) 10,000
Jackson County, Mississippi, PCR, Refunding (Chevron USA, Inc. Project),
VRDN (a):
1,800 3.70% due 12/01/2016 1,800
2,000 3.70% due 6/01/2023 2,000
27,000 Jackson County, Mississippi, Port Facility Revenue Refunding Bonds
(Chevron USA, Inc. Project), VRDN, 3.65% due 6/01/2023 (a) 27,000
3,000 Mississippi Hospital Equipment and Facilities Authority Revenue Bonds
(Mississippi Baptist Medical Center), VRDN, Series B, 3.40% due 7/01/2012 (a) 3,000
16,415 Perry County, Mississippi, PCR, Refunding (Leaf River Forest Project),
VRDN, 3.75% due 3/01/2002 (a) 16,415
Missouri--1.3% 30,000 Eagle Tax Exempt Trust, VRDN, Series 1993-E, 3.61% due 8/01/2006 (a) 30,000
Missouri Higher Education Loan Authority, Student Loan Revenue Bonds, VRDN,
AMT (a) (b):
7,800 Series A, 3.50% due 6/01/2017 7,800
11,700 Series B, 3.50% due 6/01/2020 11,700
Missouri State Health and Educational Facilities Authority, Health Facilities
Revenue Bonds (Sisters of Mercy Health System), VRDN (a):
30,000 Refunding, Series B, 3.45% due 12/01/2016 30,000
5,000 Series A, 3.45% due 6/01/2019 5,000
27,700 Saint Louis County, Missouri, IDA, Hospital Revenue Bonds (DePaul Health
Center--Daughters of Charity), VRDN, 3.45% due 11/01/2014 (a) 27,700
Montana--0.1% 6,800 Billings, Montana, M/F Housing Revenue Bonds (West Park Retirement Center),
VRDN, 3.45% due 12/01/2007 (a) 6,800
Nebraska--1.0% Nebraska Higher Education Loan Program, Multiple Mode Student Loan
Revenue Bonds, VRDN (a) (b) (c):
12,800 Series A, 3.45% due 12/01/2015 12,800
13,600 Series B, 3.45% due 12/01/2015 13,600
3,100 Series C, 3.45% due 12/01/2015 3,100
17,600 Series D, 3.45% due 12/01/2015 17,600
Nebraska Higher Education Loan Program, Student Loan Revenue Bonds, VRDN,
AMT (a) (b):
3,550 Series A, 3.55% due 12/01/2016 3,550
30,150 Series C, 3.55% due 8/01/2018 30,150
</TABLE>
55
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Nevada--0.1% $ 7,075 Nevada Housing Division (Mesquite Bluffs Apartments), VRDN, AMT, Series B,
3.75% due 5/01/2028 (a) $ 7,075
New Hampshire-- 1,400 New Hampshire Higher Educational and Health Facilities Authority Revenue
0.7% Bonds (VHA New England Inc.), VRDN, Series D, 3.45% due 12/01/2025 (a) (e) 1,400
38,400 New Hampshire State, Business Finance Authority, PCR, Refunding (Public
Service Co.), VRDN, Series E, 3.55% due 5/01/2021 (a) 38,400
5,700 New Hampshire State, HFA, M/F Housing Revenue Bonds (P.R.A.
Properties--Pheasant Run Project), VRDN, AMT, 3.50% due 5/01/2025 (a) 5,700
10,000 New Hampshire State, IDA, Solid Waste Disposal Facility Revenue Bonds
(United Illuminating Co. Project), AMT, Series A, 3.55% due 9/01/1997 10,000
New Jersey-- 20,000 Casino Reinvestment Development Authority, New Jersey, BAN (Corridor
0.5% Projects), Series A, 4.50% due 6/03/1997 20,013
9,600 East Orange, New Jersey, BAN, 4.75% due 8/28/1997 9,619
15,000 State of New Jersey, CP, 3.40% due 5/08/1997 15,000
New Mexico-- 15,500 Albuquerque, New Mexico, Hospital Revenue Bonds (Saint Joseph's Sisters
1.0% of Charity), VRDN, 3.45% due 5/15/2022 (a) 15,500
Farmington, New Mexico, PCR (Arizona Public Service Co.), VRDN (a):
11,300 AMT, Series C, 3.75% due 9/01/2024 11,300
36,000 Series A, 3.60% due 5/01/2024 36,000
14,150 Series B, 3.75% due 9/01/2024 14,150
3,700 Hurley, New Mexico, PCR (Kennecott Santa Fe), VRDN, 3.70% due 12/01/2015 (a) 3,700
New York--3.1% Eagle Tax Exempt Trust, VRDN (a):
27,300 3.61% due 2/15/2007 27,300
7,100 Series 1994-C2, 3.56% due 6/15/2018 7,100
New York City, New York, GO, VRDN, UT (a):
3,000 Sub-Series A-7, 3.70% due 8/01/2019 3,000
8,400 Sub-Series B-3, 3.65% due 8/15/2004 (c) 8,400
New York City, New York, Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds, VRDN (a) (f):
40,500 Series 1993-C, 3.65% due 6/15/2022 40,500
3,500 Series G, 3.75% due 6/15/2024 3,500
New York City, New York, RAN, UT:
70,360 Series A, 4.50% due 4/15/1997 70,383
30,000 Series B, 4.50% due 6/30/1997 30,064
12,500 New York Municipal Assistance Co., New York, CP, 4% due 4/01/1997 12,500
6,500 New York State Dormitory Authority Revenue Bonds (Putters-14A), VRDN,
3.55% due 7/01/2008 (a) 6,500
17,600 New York State, HFA, Revenue Bonds (East 84th Street), VRDN, AMT, Series A,
3.40% due 11/01/2028 (a) 17,600
7,600 New York State, Local Government Assistance Corporation, VRDN, Series F,
3.35% due 4/01/2025 (a) 7,600
21,500 Westchester County, New York, TAN, UT, 3.48% due 12/11/1997 21,497
North Carolina-- 5,000 Charlotte--Mecklenberg Hospital Authority, North Carolina, Health Care
1.7% System Revenue Bonds, VRDN, Series D, 3.35% due 1/15/2026 (a) 5,000
Craven County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority Revenue Bonds (Cravenwood Energy Project), VRDN, AMT (a):
4,500 Series B, 3.80% due 5/01/2011 4,500
3,000 Series C, 3.80% due 5/01/2011 3,000
North Carolina Educational Facilities Finance Agency Revenue Bonds, VRDN (a):
23,950 (Bowman Grey School of Medicine Project), 3.50% due 9/01/2020 23,950
20,240 (Duke University Project), Series A, 3.35% due 6/01/2027 20,240
15,000 (Duke University Project), Series B, 3.35% due 12/01/2021 15,000
16,875 North Carolina Medical Care Commission, Health Care Facilities Revenue
Bonds (Cabarrus Memorial Hospital Project), VRDN, 3.45% due 3/01/2012 (a) 16,875
</TABLE>
56
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
North Carolina North Carolina Medical Care Commission, Hospital Revenue Bonds, VRDN (a):
(concluded) $ 1,700 (Duke University Hospital), Series B, 3.35% due 6/01/2015 $ 1,700
2,000 (Duke University Hospital), Series C, 3.35% due 6/01/2015 2,000
28,500 (North Carolina Baptist Hospital Project), Series B, 3.45% due 6/01/2022 28,500
5,400 Raleigh--Durham, North Carolina, Airport Authority, Special Facility Revenue
Refunding Bonds (American Airlines), VRDN, Series B, 3.70% due 11/01/2015 (a) 5,400
17,000 Wake County, North Carolina, Industrial Facilities and Pollution Control
Financing Authority Revenue Bonds (Carolina Power and Light Company
Project), DATES, 3.80% due 3/01/2017 (a) 17,000
North Dakota-- 13,000 North Dakota, HFA, Home Mortgage Finance Revenue Bonds, AMT, Series C,
0.1% 3.85% due 4/03/1997 13,000
Ohio--1.4% 37,395 Cincinnati, Ohio, City School District, TAN, Series C, 5.41% due 7/10/1997 37,576
20,000 Clermont County, Hospital Facilities Revenue Refunding Bonds
(Mercy Health System), VRDN, Series A, 3.45% due 12/01/2021 (a) 20,000
13,250 Cleveland, Ohio, City School District, RAN, 5% due 6/01/1997 (e) 13,285
10,500 Eagle Tax Exempt Trust, VRDN, 3.56% due 7/01/2015 (a) 10,500
19,000 Franklin County, Ohio, Hospital Revenue Refunding &Improvement Bonds
(US Health Corp.--Columbus), VRDN, Series A, 3.45% due 12/01/2021 (a) 19,000
1,865 Ohio HFA, M/F Housing Revenue Bonds (Kenwood Congregate Retirement
Program), VRDN, 3.35% due 12/01/2015 (a) 1,865
5,137 Ohio School District, COP (Cash Flow Borrowing Program), RAN, Series B,
4.53% due 6/30/1997 5,143
8,100 Ohio State Air Quality Development Authority, Revenue Refunding Bonds
(Cincinnati Gas & Electric), VRDN, Series B, 3.65% due 9/01/2030 (a) 8,100
3,000 Scioto County, Ohio, Hospital Facilities Revenue Bonds (VHA Central Inc.--
Capital Asset), VRDN, Series C, 3.40% due 12/01/2025 (a) (e) 3,000
Oklahoma--1.1% 20,000 Garfield County, Oklahoma, Industrial Authority, PCR, Refunding (Oklahoma Gas
and Electric Company Project), VRDN, Series A, 3.50% due 1/01/2025 (a) 20,000
10,250 Grand River, Oklahoma, Dam Authority Revenue Bonds, VRDN, Series 42,
3.50% due 6/01/2009 (a) (e) 10,250
14,200 Muskogee, Oklahoma, Industrial Trust, PCR, Refunding (Oklahoma Gas and
Electric Co.), VRDN, Series A, 3.55% due 1/01/2025 (a) 14,200
Oklahoma State Industrial Authority Revenue Bonds (Baptist Medical Center),
VRDN (a):
10,500 Series A, 3.55% due 8/15/2024 10,500
40,500 Series B, 3.55% due 8/15/2023 40,500
Oregon--1.8% 8,900 Medford, Oregon, Hospital Facilities Authority Revenue Bonds
(Gross-Rogue Valley Health Services), VRDN, 3.85% due 10/01/2016 (a) 8,900
Oregon State, GO, Veterans' Welfare Bonds, VRDN (a):
53,000 Series 73-E, 3.40% due 12/01/2016 53,000
15,000 Series 73-G, 3.40% due 12/01/2018 15,000
64,300 Series 73-H, 3.40% due 12/01/2019 64,300
8,000 Portland, Oregon, M/F Revenue Bonds (Multi Mode Housing--Union Station),
VRDN, AMT, 3.70% due 12/01/2027 (a) 8,000
Pennsylvania-- 27,000 Allegheny County, Pennsylvania, IDA, PCR (Duquesne Light Project), CP,
4.0% Series A, 3.70% due 2/05/1998 27,000
2,500 Butler County, Pennsylvania, IDA, IDR, Refunding (Wetterau Finance Co. Project),
VRDN, 3.60% due 12/01/2014 (a) 2,500
Eagle Tax Exempt Trust, VRDN (a):
12,300 3.61% due 5/01/2015 12,300
17,000 Series 94, Class 3803, 3.61% due 5/01/2008 17,000
4,600 Geisinger, Pennsylvania, Health Systems Revenue Bonds, VRDN, Series B,
3.70% due 7/01/2022 (a) 4,600
30,000 Harrisburg, Pennsylvania, Revenue Bonds (Pooled Financing Fund), VRDN,
3.60% due 7/01/2021 (a) 30,000
</TABLE>
57
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Pennsylvania $ 3,700 Montgomery County, Pennsylvania, Higher Education and Health Authority,
(concluded) Hospital Revenue Bonds (Holy Redeemer Hospital), VRDN, 3.35%
due 9/01/2018 (a) (e) $ 3,700
Pennsylvania State Higher Education Assistance Agency, Student Loan
Revenue Bonds, VRDN, AMT (a):
5,400 Series A, 3.50% due 1/01/2018 (b) 5,400
26,950 Series A, 3.50% due 12/01/2024 (b) 26,950
10,000 Series B, 3.50% due 7/01/2018 10,000
19,400 Pennsylvania State Higher Educational Facilities Authority, College and
University Revenue Bonds (Temple University), VRDN, 3.70% due 10/01/2009 (a) 19,400
Pennsylvania State Higher Educational Facilities Authority, College and
University Revenue Refunding Bonds (Carnegie Mellon University), VRDN (a):
23,300 Series A, 3.70% due 11/01/2025 23,300
5,000 Series B, 3.70% due 11/01/2027 5,000
15,000 Series C, 3.70% due 11/01/2029 15,000
13,200 Series D, 3.70% due 11/01/2030 13,200
15,000 Pennsylvania State Higher Educational Facilities Authority, Health Services
Revenue Bonds (University of Pennsylvania), ACES, Series B,
3.40% due 1/01/2024 (a) 15,000
10,000 Pennsylvania State, TAN, First Series, 4.50% due 6/30/1997 10,023
7,500 Pennsylvania State University (University Project), Series A, 4.50% due 11/25/1997 7,548
Philadelphia, Pennsylvania, Hospital and Higher Education Facilities Authority,
Hospital Revenue Bonds (Children's Hospital of Philadelphia Project), VRDN (a):
27,450 3.70% due 3/01/2027 27,450
10,900 Series A, 3.70% due 3/01/2027 10,900
6,900 Philadelphia, Pennsylvania, IDA, Revenue Bonds (Institute for Cancer Research
Project), VRDN, Series A, 3.70% due 7/01/2013 (a) 6,900
33,600 Philadelphia, Pennsylvania, TRAN, Series A, 4.50% due 6/30/1997 33,644
8,900 Sayre, Pennsylvania, Health Care Facilities Authority Revenue Bonds
(VHA of Pennsylvania, Inc.--Capital Assets Financing Program), VRDN,
Series L, 3.40% due 12/01/2020 (a) (e) 8,900
South Carolina-- 2,000 Berkeley County, South Carolina, PCR, Refunding (Amoco Chemical Co. Project),
1.3% VRDN, 3.65% due 7/01/2012 (a) 2,000
17,950 Charleston County, South Carolina, Industrial Revenue Refunding Bonds
(Massey Coal Terminal), VRDN, 3.75% due 1/01/2007 (a) 17,950
35,000 Florence County, South Carolina, Solid Waste Disposal and Wastewater
Treatment Facilities Revenue Bonds (Roche Carolina Inc. Project),
VRDN, AMT, 3.65% due 4/01/2026 (a) 35,000
22,400 Orangeburg County, South Carolina, Solid Waste Disposal Facilities Revenue
Bonds (South Carolina Electric & Gas), VRDN, AMT, 3.85% due 11/01/2024 (a) 22,400
South Carolina Jobs, EDA, Revenue Bonds, VRDN (a):
7,200 AMT (Greenfield Industries Inc. Project), 3.55% due 3/01/2015 7,200
5,400 AMT (Wellman, Inc. Project), 3.90% due 12/01/2010 5,400
14,100 AMT (Wellman, Inc. Project), 3.90% due 12/01/2012 14,100
4,550 (Saint Francis Hospital Project), 3.70% due 7/01/2022 4,550
Tennessee--1.3% 16,000 Clarksville, Tennessee, Public Building Authority Revenue Bonds (Pooled
Financing--Tennessee Municipal Bond Fund), VRDN, 3.50% due 10/01/2025 (a) 16,000
9,400 Cleveland, Tennessee, IDB, Revenue Bonds (Newly Wed Foods Incorporated
Project), VRDN, AMT, 3.55% due 1/01/2012 (a) 9,400
8,100 Loudon, Tennessee, IDB, PCR, Refunding (A.E. Staley Manufacturing Co.
Project), VRDN, 3.50% due 9/01/2001 (a) 8,100
14,200 Memphis--Shelby County, Tennessee, Airport Authority Revenue Bonds, VRDN,
AMT, Series B, 3.55% due 3/01/2010 (a) 14,200
13,000 Montgomery County, Tennessee, Public Building Authority Revenue Bonds
(Pooled Financing--Montgomery County Loan), VRDN, 3.50% due 7/01/2019 (a) 13,000
</TABLE>
58
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Tennessee $ 14,955 Morristown, Tennessee, IDB, PCR, Refunding (Akzo Chemicals, Inc. Project),
(concluded) VRDN, 3.50% due 8/01/2001 (a) $ 14,955
5,500 Nashville and Davidson Counties, Tennessee, Metropolitan Health and
Educational Facilities Board Revenue Bonds (Vanderbilt University Project),
Series 85-A, 3.65% due 1/15/1998 5,500
14,000 Tennessee State, BAN, VRDN, Series C, 3.45% due 7/02/2001 (a) 14,000
12,000 Volunteer State Student Funding Corporation, Tennessee, Student Loan
Revenue Bonds, VRDN, AMT, Series A-1, 3.60% due 12/01/2017 (a) 12,000
Texas--18.6% Brazos River Authority, Texas, PCR (Texas Utilities Electric Co.),
VRDN, AMT (a):
29,055 Refunding, Series B, 3.75% due 6/01/2030 29,055
21,305 Refunding, Series B, 3.75% due 2/01/2032 (c) 21,305
62,355 Refunding, Series C, 3.75% due 6/01/2030 62,355
8,000 Series A, 3.75% due 4/01/2030 8,000
29,500 Brazos River Authority, Texas, Revenue Refunding Bonds (Houston Light
and Power Co.), VRDN, AMT, Series 1997, 3.75% due 11/01/2018 (a) (e) 29,500
24,700 Brazos, Texas, Higher Education Authority Incorporated, Student Loan
Revenue Bonds, VRDN, AMT, Series B-1, 3.45% due 6/01/2023 (a) (b) 24,700
4,000 Corpus Christi, Texas, IDR (Dedietrich USA Incorporated Project), VRDN,
AMT, 3.60% due 11/01/2008 (a) 4,000
6,600 Dallas-Fort Worth, Texas, Regional Airport Revenue Bonds, VRDN, Series 5,
3.50% due 11/01/2015 (a) (f) 6,600
7,100 Grapevine, Texas, IDR, Airport Revenue Refunding Bonds (Southern Air
Transportation Project), VRDN, 3.50% due 3/01/2010 (a) 7,100
Greater Texas Student Loan Corp., Student Loan Revenue Refunding Bonds,
AMT (b):
15,000 Series A, 3.70% due 3/01/1998 15,000
4,250 Series B, 3.85% due 6/01/1997 4,250
Gulf Coast, Texas, IDA, Solid Waste Disposal Revenue Bonds (Citgo Petroleum
Corp. Project), VRDN, AMT (a):
13,700 3.80% due 5/01/2025 13,700
15,400 3.80% due 4/01/2026 15,400
7,000 Gulf Coast Waste Disposal Authority, Texas, Environmental Improvement
Revenue Bonds (Amoco Oil Co. Project), 3.45% due 9/01/1997 7,000
Gulf Coast Waste Disposal Authority, Texas, PCR, VRDN, AMT (a):
28,500 (Amoco Oil Co. Project), 3.75% due 5/01/2023 28,500
4,400 Refunding (Exxon Project), 3.65% due 6/01/2020 4,400
Gulf Coast Waste Disposal Authority, Texas, Solid Waste Disposal Revenue
Bonds (Amoco Oil Co. Project), VRDN, AMT (a):
23,000 3.75% due 7/01/2027 23,000
27,600 Refunding, 3.75% due 8/01/2023 27,600
17,710 Harris County, Texas, GO, VRDN, Series 45, 3.50% due 8/15/2016 (a) (f) 17,710
Harris County, Texas, Health Facilities Development Corporation,
Hospital Revenue Bonds, VRDN (a):
180,000 (Methodist Hospital), 3.70% due 12/01/2025 180,000
36,700 Refunding (Methodist Hospital), 3.70% due 12/01/2026 36,700
14,100 (Saint Luke's Episcopal Hospital), Series B, 3.70% due 2/15/2016 14,100
10,800 (Saint Luke's Episcopal Hospital), Series C, 3.70% due 2/15/2016 10,800
17,100 (Saint Luke's Episcopal Hospital), Series D, 3.70% due 2/15/2016 17,100
Harris County, Texas, Industrial Development Corporation, PCR (Exxon Project),
DATES (a):
7,100 Series 1984-A, 3.60% due 3/01/2024 7,100
12,900 Series 1984-B, 3.60% due 3/01/2024 12,900
46,100 Harris County, Texas, Industrial Development Corporation, Solid Waste
Disposal Revenue Bonds (Deer Park Limited Partnership), VRDN, AMT,
Series A, 3.80% due 2/01/2023 (a) 46,100
</TABLE>
59
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Texas Harris County, Texas, Toll Road Revenue Bonds, VRDN (a):
(continued) $ 25,000 Sub-Lien H, 3.40% due 8/01/2020 $ 25,000
15,000 UT, Sub-Lien D, 3.30% due 8/01/2015 15,000
Hockley County, Texas, Industrial Development Corporation, PCR:
11,940 (Amoco Project), 3.60% due 5/01/1997 11,940
34,685 (Amoco Project--Standard Oil Co.), 3.60% due 9/01/1997 34,706
Houston, Texas, CP, Series A:
10,900 3.30% due 5/01/1997 10,900
10,000 3.35% due 5/09/1997 10,000
11,000 Houston, Texas, Water and Sewer System Revenue Bonds, VRDN, Series 22,
3.55% due 12/01/2020 (a) (c) 11,000
72,430 Lower Colorado River Authority, Texas, Revenue Refunding Bonds, VRDN,
3rd Junior Lien, 3.35% due 1/01/2013 (a) (c) 72,430
9,500 Lower Neches Valley Authority, Texas, PCR (Chevron U.S.A. Inc. Project),
3.50% due 8/15/1997 9,500
25,200 Lubbock, Texas, Health Facilities Development Corporation Revenue Bonds
(Saint Joseph Health System), VRDN, Series A, 3.75% due 7/01/2013 (a) 25,200
North Texas Higher Education Authority Incorporated, Student Loan
Revenue Bonds, VRDN, AMT (a) (b) (e):
12,800 Series C, 3.50% due 4/01/2020 12,800
13,700 Series F, 3.50% due 4/01/2020 13,700
North Texas Higher Education Authority Incorporated, Student Loan Revenue
Refunding Bonds, VRDN, AMT (a) (b):
3,000 3.50% due 3/01/1999 3,000
27,900 3.50% due 3/01/2005 27,900
29,000 Series A, 3.50% due 4/01/2005 29,000
5,000 Series A, 3.50% due 4/01/2020 5,000
Panhandle Plains, Texas, Higher Education Authority Incorporated, Student Loan
Revenue Bonds, VRDN, AMT, Series A (a) (b):
29,000 3.45% due 6/01/2021 29,000
13,700 3.45% due 6/01/2025 13,700
4,700 Refunding, 3.45% due 6/01/2008 4,700
18,800 Port Corpus Christi, Texas, Industrial Development Corporation, Sewage
and Solid Waste Disposal Revenue Bonds (Citgo Petroleum Corp. Project),
VRDN, AMT, 3.80% due 4/01/2026 (a) 18,800
10,100 Port of Port Arthur, Texas, Navigational District, PCR, Refunding
(Texaco Inc. Project), VRDN, 3.75% due 10/01/2024 (a) 10,100
15,750 San Antonio, Texas, Electric and Gas Revenue Bonds, CP, Series A, 3.45%
due 5/08/1997 15,750
15,000 San Antonio, Texas, Higher Education Authority, Revenue Refunding Bonds
(Trinity University Project), VRDN, 3.45% due 4/01/2004 (a) 15,000
10,000 San Antonio, Texas, Hotel Occupancy Revenue Bonds, VRDN, 3.50% due
8/15/2019 (a) (f) 10,000
10,000 Texas A&M University, Texas, CP, 3.55% due 5/15/1997 10,000
Texas State, CP:
25,000 3.45% due 5/28/1997 25,000
17,900 3.50% due 6/10/1997 17,900
28,900 Texas State, GO, Refunding (Veterans' Housing Assistance Fund),
VRDN, AMT, 3.35% due 12/01/2016 (a) 28,900
28,400 Texas State, Multi-Modal Water Development Board, VRDN, Series A, 3.80%
due 3/01/2015 (a) 28,400
245,600 Texas State, TRAN, 4.75% due 8/29/1997 246,991
26,885 Travis County, Texas, Health Facility Development Corporation Revenue Bonds
(Daughters of Charity--Seton Medical Center), VRDN, 3.45% due 11/01/2012 (a) 26,885
</TABLE>
60
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONTINUED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Texas $ 21,200 Trinity River Authority, Texas, PCR (Texas Utilities Electric), VRDN, AMT,
(concluded) Series 96A, 3.75% due 3/01/2026 (a) (e) $ 21,200
Waco, Texas, Health Facilities Development Corporation, Health Facilities
Revenue Bonds (Daughters of Charity--Providence Hospital), VRDN (a):
17,800 3.45% due 11/01/2013 17,800
11,900 Series 88A, 3.45% due 11/01/2018 11,900
9,100 West Side Calhoun County, Texas, Development Corporation, PCR (Sohio
Chemical Company Project), UPDATES, 3.70% due 12/01/2015 (a) 9,100
4,200 West Side Calhoun County, Texas, Navigation District, Sewer and Solid Waste
Disposal Revenue Bonds (BP Chemicals Inc. Project), VRDN, AMT, 3.80%
due 4/01/2031 (a) 4,200
Utah--1.4% 16,900 Emery County, Utah, PCR, Refunding (Pacificorp Projects), VRDN, 3.70%
due 11/01/2024 (a) (e) 16,900
4,550 Salt Lake City, Utah, PCR (Amoco-Standard Oil Project), 3.50% due 10/01/1997 4,541
Salt Lake County, Utah, PCR, Refunding (Service Station Holdings Project),
VRDN (a):
20,700 3.70% due 2/01/2008 20,700
22,300 Series B, 3.70% due 8/01/2007 22,300
15,375 Utah County, Utah, Environmental Improvement Revenue Refunding Bonds
(USX Corp. Project), 3.45% due 8/05/1997 15,375
Utah State Board of Regents, Student Loan Revenue Bonds, VRDN, AMT (a) (e):
6,000 Series C, 3.50% due 11/01/2013 6,000
33,500 Series L, 3.50% due 11/01/2025 33,500
Vermont--0.4% 1,100 Vermont Educational and Health Buildings Financing Agency Revenue Bonds
(VHA--New England), VRDN, Series G, 3.45% due 12/01/2025 (a) (e) 1,100
29,175 Vermont State Student Assistance Corporation, Student Loan Revenue Bonds,
VRDN, 3.55% due 1/01/2004 (a) 29,175
Virginia--1.1% 8,500 Eagle Tax Exempt Trust, VRDN, Series 95, Class 7091, 3.56%due 1/15/2013 (a) 8,500
14,000 Peninsula Ports Authority, Virginia, Port Facility Revenue Refunding Bonds
(Shell Oil Company Project), UPDATES, Series A, 3.75% due 12/01/2005 (a) 14,000
20,000 Richmond, Virginia, BAN, Series A, 3.50% due 6/30/1997 20,000
Rockingham County, Virginia, IDA, Revenue Bonds:
16,000 (Merck & Co.), Series A, 3.65% due 10/01/2020 16,000
1,000 VRDN, 3.90% due 10/01/2022 (a) 1,000
33,700 Virginia State Housing Development Authority, Commonwealth Mortgage,
Sub-Series H, 3.40% due 7/22/1997 33,684
Washington-- 16,300 Eagle Tax Exempt Trust, 3.40% due 4/01/1997 16,300
2.3% 30,200 Snohomish County, Washington, Public Utility District No. 001, Electric
Revenue Bonds (Generation System), VRDN, 3.35% due 1/01/2025 (a) (c) 30,200
Washington State Housing Finance Commission, M/F Mortgage Revenue Bonds,
VRDN (a):
6,400 (Arbors on the Park Project), 3.65% due 10/01/2024 6,400
10,600 (Courtside Apartments Project), AMT, 3.55% due 1/01/2026 10,600
Washington State Public Power Supply System Revenue Bonds
(Nuclear Project No. 1), VRDN (a):
18,990 3.60% due 7/01/2004 18,990
6,060 Refunding, Series 1A-1, 3.45% due 7/01/2017 6,060
Washington State Public Power Supply System, Revenue Refunding Bonds
(Nuclear Project No. 3), VRDN (a):
23,365 Series 3A-1, 3.40% due 7/01/2018 23,365
42,785 Series 3A-2, 3.40% due 7/01/2018 42,785
</TABLE>
61
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (CONCLUDED) (IN THOUSANDS)
<CAPTION>
Face Value
State Amount Issue (Note 1a)
<S> <C> <S> <C>
Washington Washington Student Loan Finance Association Revenue Bonds
(concluded) (Guaranteed Student Loan Program), VRDN (a):
$ 9,700 AMT, Series A, 3.65% due 12/01/2002 $ 9,700
6,000 AMT, Series B, 3.65% due 12/01/2002 6,000
10,680 AMT, Series B, 3.50% due 1/01/2004 10,680
10,400 Second Series, 3.55% due 1/01/2001 10,400
West Virginia-- 11,220 Hancock County, West Virginia, County Commission, IDR, Refunding
0.1% (The Boc Group Inc. Project), VRDN, 3.50% due 8/01/2005 (a) 11,220
Wisconsin--1.1% Eagle Tax Exempt Trust, VRDN, Series 94 (a):
5,500 Class 4901, 3.61% due 9/01/2015 5,500
24,300 Class 4905, 3.61% due 10/01/2005 24,300
6,500 Hartland, Wisconsin, IDR (Commercial Communications Inc.--Hegwood LLC
Project), VRDN, AMT, 3.65% due 8/01/2009 (a) 6,500
19,000 Pleasant Prairie, Wisconsin, PCR, Refunding (Wisconsin Electric & Power Co.),
VRDN, Series C, 3.50% due 9/01/2030 (a) 19,000
16,000 Sheboygan, Wisconsin, PCR, Refunding (Wisconsin Power and Light Company
Project), VRDN, Series A, 3.70% due 9/01/2015 (a) 16,000
14,500 Wisconsin State Health and Educational Facilities Authority Revenue Bonds
(Wheaton Franciscan Services), VRDN, 3.35% due 8/15/2016 (a) 14,500
2,150 Wisconsin State Health Facilities Authority Revenue Bonds (Saint Mary's
Hospital of Milwaukee--Daughters of Charity), VRDN, 3.45% due 11/01/2016 (a) 2,150
Wyoming--1.3% 18,000 Lincoln County, Wyoming, Environmental Improvement Revenue Bonds
(Pacificorp. Project), VRDN, AMT, 3.90% due 11/01/2025 (a) 18,000
Lincoln County, Wyoming, PCR:
24,800 (Amoco Project--Standard Oil Ltd.), 3.50% due 10/01/1997 24,772
12,400 (Exxon Project), VRDN, AMT, Series A, 3.70% due 7/01/2017 (a) 12,400
9,000 (Exxon Project), VRDN, AMT, Series B, 3.70% due 7/01/2017 (a) 9,000
11,100 Sweetwater County, Wyoming, Environmental Improvement Revenue Refunding
Bonds (Pacificorp Project), VRDN, AMT, 3.90% due 11/01/2025 (a) 11,100
18,000 Sweetwater County, Wyoming, PCR, Refunding (Pacificorp Project), VRDN,
3.40% due 7/01/2015 (a) 18,000
12,205 Unita County, Wyoming, PCR (Amoco Oil Company Project), Series A,
3.90% due 12/01/1997 12,229
Puerto Rico--2.9% Puerto Rico Commonwealth, Government Development Bank, CP:
45,000 3.40% due 5/01/1997 45,000
45,000 3.40% due 5/02/1997 45,000
18,000 3.35% due 5/05/1997 18,000
15,000 3.40% due 5/06/1997 15,000
20,300 3.40% due 5/07/1997 20,300
20,700 3.20% due 5/09/1997 20,700
76,000 Puerto Rico Commonwealth, TRAN, Series 1997-A, 4% due 7/30/1997 76,141
Total Investments (Cost--$8,398,638*)--100.6% 8,398,638
Liabilities in Excess of Other Assets--(0.6%) (51,360)
----------
Net Assets--100.0% $8,347,278
==========
<FN>
(a)The interest rate is subject to change periodically based on
certain indexes. The interest rate shown is the rate in effect at
March 31, 1997.
(b)SLMA Collateralized.
(c)MBIA Insured.
(d)FHA Insured.
(e)AMBAC Insured.
(f)FGIC Insured.
(g)Prerefunded.
(h)FSA Insured.
*Cost for Federal income tax purposes.
See Notes to Financial Statements.
</TABLE>
62
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1997
<S> <C> <C>
Assets:
Investments, at value (identified cost--$8,398,637,630) (Note 1a) $ 8,398,637,630
Cash 29,779
Receivables:
Interest $ 49,311,648
Securities sold 3,487,147 52,798,795
---------------
Prepaid registration fees and other assets (Note 1d) 395,016
---------------
Total assets 8,451,861,220
---------------
Liabilities:
Payables:
Securities purchased 98,406,452
Investment adviser (Note 2) 2,766,520
Distributor (Note 2) 2,520,088
Dividends to shareholders (Note 1e) 1,794
Beneficial interest redeemed 662 103,695,516
---------------
Accrued expenses and other liabilities 888,182
---------------
Total liabilities 104,583,698
---------------
Net Assets $ 8,347,277,522
===============
Net Assets Consist of:
Shares of beneficial interest, $0.10 par value, unlimited number of shares
authorized $ 834,975,801
Paid-in capital in excess of par 7,514,540,352
Undistributed investment income--net 19,471
Accumulated realized capital losses--net (Note 4) (2,258,102)
---------------
Net Assets--Equivalent to $1.00 per share based on 8,349,758,013 shares of
beneficial interest outstanding $ 8,347,277,522
===============
See Notes to Financial Statements.
</TABLE>
63
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 278,950,355
Expenses:
Investment advisory fees (Note 2) $ 30,793,066
Distribution fees (Note 2) 9,788,070
Transfer agent fees (Note 2) 1,466,306
Registration fees (Note 1d) 512,544
Accounting services (Note 2) 406,090
Custodian fees 216,738
Printing and shareholder reports 145,484
Professional fees 74,331
Trustees' fees and expenses 47,644
Pricing fees 47,021
Other 114,214
---------------
Total expenses 43,611,508
---------------
Investment income--net 235,338,847
Realized Gain on Investments--Net (Note 1c) 2,077,078
---------------
Net Increase in Net Assets Resulting from Operations $ 237,415,925
===============
See Notes to Financial Statements.
</TABLE>
<TABLE>
CMA TAX-EXEMPT FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C>
Operations:
Investment income--net $ 235,338,847 $ 253,032,458
Realized gain on investments--net 2,077,078 722,425
--------------- ---------------
Net increase in net assets resulting from operations 237,415,925 253,754,883
--------------- ---------------
Dividends to Shareholders (Note 1e):
Investment income--net (235,183,162) (252,865,367)
--------------- ---------------
Net decrease in net assets resulting from dividends to shareholders (235,183,162) (252,865,367)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 27,075,188,082 25,775,869,013
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1e) 235,179,553 252,865,978
--------------- ---------------
27,310,367,635 26,028,734,991
Cost of shares redeemed (27,129,482,654) (25,257,428,388)
--------------- ---------------
Net increase in net assets derived from beneficial interest
transactions 180,884,981 771,306,603
--------------- ---------------
Net Assets:
Total increase in net assets 183,117,744 772,196,119
Beginning of year 8,164,159,778 7,391,963,659
--------------- ---------------
End of year* $ 8,347,277,522 $ 8,164,159,778
=============== ===============
<FN>
*Undistributed investment income--net (Note 1f) $ 19,471 $ 1,500
=============== ===============
See Notes to Financial Statements.
</TABLE>
64
<PAGE>
<TABLE>
CMA TAX-EXEMPT FUND
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Investment income--net .03 .03 .03 .02 .02
---------- ---------- ---------- ---------- ----------
Less dividends from investment income--net (.03) (.03) (.03) (.02) (.02)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 2.99% 3.32% 2.76% 1.96% 2.36%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses .55% .55% .55% .55% .54%
========== ========== ========== ========== ==========
Investment income--net 2.94% 3.26% 2.70% 1.94% 2.33%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $8,347,278 $8,164,160 $7,391,964 $7,911,960 $7,527,054
========== ========== ========== ========== ==========
See Notes to Financial Statements.
</TABLE>
65
<PAGE>
CMA TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Tax-Exempt Fund (the "Fund") is registered under the Investment
Company Act of 1940 as a no-load, diversified, open-end management
investment company. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Investments are valued at amortized
cost, which approximates market value. For the purpose of valuation,
the maturity of a variable rate demand instrument is deemed to be
the next coupon date on which the interest rate is to be adjusted.
In the case of a floating rate instrument, the remaining maturity is
the demand notice payment period.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
premium and discount) is recognized on the accrual basis. Realized
gains and losses on security transactions are determined on the
identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions to shareholders--The Fund declares
dividends daily and reinvests daily such dividends (net of non-
resident alien tax and back-up withholding tax withheld) in
additional fund shares at net asset value. Dividends are declared
from the total of net investment income, excluding discounts earned
other than original issue discounts. Net realized capital gains, if
any, are normally distributed annually after deducting prior years'
loss carryforward. The Fund may distribute capital gains more
frequently than annually in order to maintain the Fund's net asset
value at $1.00 per share.
(f) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$137,714 have been reclassified between accumulated net realized
capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value
per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.50%
of the Fund's average daily net assets not exceeding $500 million;
0.425% of the average daily net assets in excess of $500 million but
not exceeding $1 billion; and 0.375% of the average daily net assets
in excess of $1 billion.
Pursuant to the Distribution and Shareholder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of 1940,
Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S") receives a
distribution fee from the Fund at the end of each month at the
66
<PAGE>
CMA TAX-EXEMPT FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
annual rate of 0.125% of the average daily net assets of the Fund.
The distribution fee is to compensate MLPF&S financial consultants
and other directly involved branch office personnel for selling
shares of the Fund and for providing direct personal services to
shareholders. The distribution fee is not compensation for the
administrative and operational services rendered to the Fund by
MLPF&S in processing share orders and administering shareholder
accounts.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the periods
corresponds to the amounts included in the Statements of Changes in
Net Assets for net proceeds from sale of shares and cost of shares
redeemed, respectively, since shares are recorded at $1.00 per
share.
4. Capital Loss Carryforward:
At March 31, 1997, the Fund had a net capital loss carryforward of
approximately $2,258,000, of which $1,358,000 expires in 1998,
$210,000 expires in 1999, and $690,000 expires in 2003. This amount
will be available to offset like amounts of any future taxable
gains. Expired capital loss carry-forward in the amount of $205,513
has been reclassified to paid-in capital in excess of par.
67
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
CMA Treasury Fund:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of CMA Treasury Fund as of March 31,
1997, the related statements of operations for the year then ended and changes
in net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at March 31, 1997 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of CMA Treasury Fund
as of March 31, 1997, the results of its operations, the changes in its net
assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 2, 1997
68
<PAGE>
CMA TREASURY FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1997 (IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations*--100.1%
US Treasury $ 39,142 4.90 % 4/03/97 $ 39,126
Bills 71,000 4.905 4/03/97 70,971
15,791 4.94 4/03/97 15,784
25,000 4.945 4/03/97 24,990
47,149 4.97 4/03/97 47,129
25,218 5.03 4/03/97 25,208
31,034 5.045 4/03/97 31,021
25,906 5.09 4/03/97 25,895
25,000 5.095 4/03/97 24,990
2,403 5.10 4/03/97 2,402
53,244 5.125 4/17/97 53,115
5,391 5.135 4/17/97 5,378
610 5.14 4/17/97 609
2,590 5.145 4/17/97 2,584
104,822 5.15 4/17/97 104,567
25,000 5.155 4/17/97 24,939
272 5.16 4/17/97 271
10,872 5.18 4/17/97 10,845
25,000 5.01 5/01/97 24,892
42,582 5.03 5/01/97 42,398
1,665 4.995 5/08/97 1,656
20,000 5.06 5/08/97 19,895
19,233 5.16 5/08/97 19,128
1,077 5.22 5/08/97 1,071
25,000 5.225 5/08/97 24,862
25,000 5.23 5/08/97 24,862
3,787 5.235 5/08/97 3,766
3,849 4.95 5/15/97 3,825
6,261 4.955 5/15/97 6,221
34,000 4.975 5/15/97 33,785
43,867 4.99 5/15/97 43,590
20,000 5.01 5/15/97 19,873
38,092 4.95 5/22/97 37,804
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations* (concluded)
US Treasury $ 35,000 4.97 % 5/22/97 $ 34,736
Bills 74,932 4.975 5/22/97 74,366
(concluded) 45,000 4.98 5/22/97 44,660
3,161 5.07 5/29/97 3,134
14,000 5.105 6/05/97 13,866
32,951 4.965 6/19/97 32,569
8,579 5.075 6/26/97 8,471
10,000 5.65 4/02/98 9,426
10,000 5.655 4/02/98 9,426
US Treasury 12,000 8.50 4/15/97 12,018
Notes 20,000 6.50 4/30/97 20,018
122,000 6.875 4/30/97 122,150
227,000 6.50 5/15/97 227,289
40,000 8.50 5/15/97 40,141
90,000 5.625 6/30/97 90,000
30,000 6.375 6/30/97 30,052
80,000 8.50 7/15/97 80,637
15,000 5.50 7/31/97 14,991
85,000 5.875 7/31/97 85,066
55,000 6.50 8/15/97 55,146
75,000 5.75 9/30/97 74,965
6,000 5.625 10/31/97 5,992
20,000 5.75 10/31/97 19,984
2,000 5.375 11/30/97 1,992
14,000 5.00 1/31/98 13,880
3,400 5.125 2/28/98 3,370
25,000 7.875 4/15/98 25,430
Total US Government Obligations
(Cost--$1,971,898) 1,971,227
Total Investments
(Cost--$1,971,898)--100.1% 1,971,227
Liabilities in Excess of Other Assets--(0.1%) (2,711)
----------
Net Assets--100.0% $1,968,516
==========
*US Treasury Bills are traded on a discount basis; the interest
rates shown are the discount rates paid at the time of purchase by
the Fund. US Treasury Notes bear interest at the rates shown,
payable at fixed dates through maturity.
See Notes to Financial Statements.
69
<PAGE>
CMA TREASURY FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$1,971,897,715++) (Note 1a) $1,971,227,163
Cash 25,977
Interest receivable 17,543,618
Prepaid registration fees and other assets (Note 1d) 132,656
--------------
Total assets 1,988,929,414
--------------
Liabilities:
Payables:
Securities purchased $ 18,856,939
Investment adviser (Note 2) 714,820
Distributor (Note 2) 620,317
Dividends to shareholders (Note 1e) 875
Beneficial interest redeemed 106 20,193,057
--------------
Accrued expenses and other liabilities 220,053
--------------
Total liabilities 20,413,110
--------------
Net Assets $1,968,516,304
==============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares authorized $ 196,918,686
Paid-in capital in excess of par 1,772,268,170
Unrealized depreciation on investments--net (670,552)
--------------
Net Assets--Equivalent to $1.00 per share based on 1,969,186,856 shares of
beneficial interest outstanding $1,968,516,304
==============
</TABLE>
++Cost for Federal income tax purposes was $1,971,946,655. As of
March 31, 1997, net unrealized depreciation for Federal income tax
purposes amounted to $719,492, of which $12,137 related to
appreciated securities and $731,629 related to depreciated
securities.
CMA TREASURY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 103,557,280
Expenses:
Investment advisory fees (Note 2) $ 8,329,150
Distribution fees (Note 2) 2,438,072
Transfer agent fees (Note 2) 357,015
Registration fees (Note 1d) 179,017
Accounting services (Note 2) 154,234
Custodian fees 104,858
Professional fees 54,038
Interest expense 35,862
Trustees' fees and expenses 32,722
Printing and shareholder reports 32,375
Other 26,277
--------------
Total expenses 11,743,620
--------------
Investment income--net
91,813,660
Realized Gain on Investments--Net (Note 1c) 274,352
Change in Unrealized Depreciation on Investments--Net (444,830)
--------------
Net Increase in Net Assets Resulting from Operations $ 91,643,182
==============
</TABLE>
See Notes to Financial Statements.
70
<PAGE>
CMA TREASURY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <C> <C>
Operations:
Investment income--net $ 91,813,660 $ 84,634,023
Realized gain on investments--net 274,352 505,763
Change in unrealized depreciation on investments--net (444,830) (315,062)
--------------- ---------------
Net increase in net assets resulting from operations 91,643,182 84,824,724
--------------- ---------------
Dividends and Distributions to Shareholders (Note 1e):
Investment income--net (91,813,660) (84,634,023)
Realized gain on investments--net (274,352) (505,763)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (92,088,012) (85,139,786)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 11,230,658,782 9,805,828,858
Net asset value of shares issued to shareholders in reinvestment of dividends
(Note 1e) 91,987,088 85,083,173
--------------- ---------------
11,322,645,870 9,890,912,031
Cost of shares redeemed (11,145,444,645) (9,527,560,949)
--------------- ---------------
Net increase in net assets derived from beneficial interest transactions 177,201,225 363,351,082
--------------- ---------------
Net Assets:
Total increase in net assets 176,756,395 363,036,020
Beginning of year 1,791,759,909 1,428,723,889
--------------- ---------------
End of year $ 1,968,516,304 $ 1,791,759,909
=============== ===============
</TABLE>
CMA TREASURY FUND
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived
from information provided in the financial statements.
<TABLE>
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Investment income--net .0461 .0498 .0409 .0250 .0278
Realized and unrealized gain (loss) on
investments--net (.0001) .0001 .0004 .0002 .0026
---------- ---------- ---------- ---------- ----------
Total from investment operations .0460 .0499 .0413 .0252 .0304
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.0461) (.0498) (.0409) (.0250) (.0278)
Realized gain on investments--net (.0001) (.0003) (.0002) (.0004) (.0024)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.0462) (.0501) (.0411) (.0254) (.0302)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 4.70% 5.15% 4.18% 2.57% 3.07%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, net of reimbursement .59% .60% .62% .61% .60%
========== ========== ========== ========== ==========
Expenses .59% .60% .62% .61% .62%
========== ========== ========== ========== ==========
Investment income and realized gain on
investments--net 4.59% 5.01% 4.20% 2.55% 3.01%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $1,968,516 $1,791,760 $1,428,724 $1,220,440 $1,287,061
========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
71
<PAGE>
CMA TREASURY FUND
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
CMA Treasury Fund (the "Fund") is registered under the Investment
Company Act of 1940 as a no-load, diversified, open-end investment
management company. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Investments maturing more than sixty
days after the valuation date are valued at the most recent bid
price or yield equivalent as obtained from dealers that make markets
in such securities. When securities are valued with sixty days or
less to maturity, the difference between the valuation existing on
the sixty-first day before maturity and maturity value is amortized
on a straight-line basis to maturity. Investments maturing within
sixty days from their date of acquisition are valued at amortized
cost, which approximates market. Assets for which market quotations
are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Trustees of the
Fund.
(b) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required.
(c) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income (including amortization of
premium and discount) is recognized on the accrual basis. Realized
gains and losses on security transactions are determined on the
identified cost basis.
(d) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(e) Dividends and distributions to shareholders--The Fund declares
dividends daily and reinvests daily such dividends (net of non-
resident alien tax and back-up withholding tax withheld) in
additional fund shares at net asset value. Dividends and
distributions are declared from the total of net investment income
and net realized gain or loss on investments.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following annual rates: 0.50%
of the Fund's average daily net assets not exceeding $500 million;
0.425% of the average daily net assets in excess of $500 million,
but not exceeding $1 billion; and 0.375% of the average daily net
assets in excess of $1 billion.
The Fund has adopted a Distribution and Shareholder Servicing Plan
in compliance with Rule 12b-1 under the Investment Company Act of
1940, pursuant to which Merrill Lynch, Pierce, Fenner and Smith Inc.
("MLPF&S") receives a distribution fee under the Distribution
Agreement from the Fund at the end of each month at the annual rate
of 0.125% of average daily net assets of the Fund for shareholders
who maintain their accounts through MLPF&S. The distribution fee is
to compensate MLPF&S financial consultants and other directly
involved
72
<PAGE>
branch office personnel for selling shares of the Fund and
for providing direct personal services to shareholders. The
distribution fee is not compensation for the administrative and
operational services rendered to the Fund by MLPF&S in processing
share orders and administering shareholder accounts.
CMA TREASURY FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, PSI, MLFDS, and/or ML & Co.
3. Shares of Beneficial Interest:
The number of shares purchased and redeemed during the periods
corresponds to the amounts included in the Statements of Changes in
Net Assets for net proceeds from sale of shares and cost of shares
redeemed, respectively, since shares are recorded at $1.00 per
share.
73
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
Code #10116-0797
- --------------------------------------------------------------------------------
CMA MONEY FUND
CMA GOVERNMENT
SECURITIES FUND
CMA TAX-EXEMPT
FUND
CMA TREASURY FUND
- --------------------------------------------------------------------------------
STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
CMA(R)
July 18, 1997
- --------------------------------------------------------------------------------
[LOGO] MERRILL LYNCH
<PAGE>
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A)FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the years in the ten-year period
ended March 31, 1997.
Contained in Part B:
Schedule of Investments as of March 31, 1997.
Statement of Assets and Liabilities as of March 31, 1997.
Statement of Operations for the year ended March 31, 1997.
Statements of Changes in Net Assets for the years ended March 31,
1996 and 1997.
Financial Highlights for each of the years in the five-year period
ended March 31, 1997.
(B)EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(a) --Declaration of Trust of the Registrant dated June 5, 1989.(a)
(b) --Amendment to Declaration of Trust dated July 31, 1990.(a)
2 --By-Laws of the Registrant.(a)
3 --None.
4 --Portions of the Declaration of Trust and By-Laws of the
Registrant defining the rights of holders of shares of the
Registrant.(b)
5(a) --Management Agreement between the Registrant and Fund Asset
Management, Inc.(c)
(b) --Supplement to Management Agreement with Fund Asset Management,
L.P.(c)
6 --Form of Distribution Agreement between the Registrant and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.(a)
7 --None.
8(a) --Custody Agreement between the Registrant and State Street Bank
and Trust Company.(a)
(b) --Amendment to Custody Agreement dated December 12, 1988.(a)
9(a) --Amended Transfer Agency Agreement between the Registrant and
Financial Data Services, Inc.(a)
(b) --Form of Cash Management Account Agreement.(a)
10 --Opinion of Brown & Wood LLP, counsel to the Registrant.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 --None.
13 --None.
14 --None.
15 --Form of Distribution and Shareholder Servicing Plan of the
Registrant.(a)
16 --None.
17 --Financial Data Schedule.
</TABLE>
C-1
<PAGE>
- --------
(a) Previously filed pursuant to the Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") phase-in requirements on July 28, 1995 as an exhibit
to Post-Effective Amendment No. 16 to the Registration Statement.
(b) Reference is made to Article II, Section 2.3 and Articles III, V, VI,
VIII, IX, X and XI of the Registrant's Declaration of Trust, filed as
Exhibit 1 to Post-Effective Amendment No. 16 to the Registrant's
Registration Statement under the Securities Act of 1933, as amended (the
"Registration Statement"); and to Articles I, V and VI of the Registrant's
By-Laws, filed as Exhibit 2 to Post-Effective Amendment No. 16 to the
Registration Statement.
(c) Previously filed on July 28, 1994 as an exhibit to Post-Effective
Amendment No. 15 to the Registrant's Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS
TITLE OF CLASS AT MAY 31, 1997
-------------- ---------------
<S> <C>
Shares of beneficial interest, par value $0.10 per
share.................................................. 121,078
</TABLE>
- --------
Note: The number of holders shown above includes holders of record plus
beneficial owners whose shares are held of record by Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees, and
agents (including persons who serve at its request as directors, officers
or trustees of another organization in which it has any interest as a
shareholder, creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as
fines and penalties, and as counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a trustee, officer, employee or agent, except
with respect to any matter as to which he shall have been adjudicated to
have acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties; provided, however, that as to any matter disposed
of by a compromise payment by such person, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence
or reckless disregard of duty, or the matter of good faith and reasonable
belief as to the best interests of the Trust, had been adjudicated, it
would have been adjudicated in favor of such person. The rights accruing to
any person under these provisions shall not exclude any other right to
which he may be lawfully entitled; provided that no person may satisfy any
right of indemnity or reimbursement granted herein or in Section 5.1 or to
which he may be otherwise entitled except out of the property of the Trust,
and no Shareholder shall be personally liable to any person with respect to
any
C-2
<PAGE>
claim for indemnity or reimbursement or otherwise. The Trustees may make
advance payments in connection with indemnification under this Section 5.3,
provided that the indemnified person shall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he
is not entitled to such indemnification."
The Registrant's By-Laws provide that insofar as the conditional advancing
of indemnification moneys pursuant to Section 5.3 of the Declaration of Trust
for actions based upon the Investment Company Act of 1940 may be concerned,
such payments will be made only on the following conditions: (i) the advances
must be limited to amounts used, or to be used, for the preparation or
presentation of a defense to the action, including costs connected with the
preparation of a settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that amount of the
advance which exceeds the amount to which it is ultimately determined he is
entitled to receive from the Registrant by reason of indemnification; and
(iii) (a) such promise must be secured by a surety bond, other suitable
insurance or an equivalent form of security which assures that any repayments
may be obtained by the Registrant without delay or litigation, which bond,
insurance or other form of security must be provided by the recipient of the
advance, or (b) a majority of a quorum of the Registrant's disinterested, non-
party Trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that the recipient
of the advance ultimately will be found entitled to indemnification.
In Section 8 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "1933 Act"), against certain types of civil
liabilities arising in connection with the Registration Statement or
Prospectus.
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to Trustees, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Fund Asset Management (the "Manager" or "FAM") acts as investment adviser
for the following open-end investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc.,
Financial Institutions Series Trust, Merrill Lynch Basic Value Fund, Inc.,
Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond
Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch
World Income
C-3
<PAGE>
Fund, Inc. and The Municipal Fund Accumulation Program, Inc., and for the
following closed-end investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Debt
Strategies Fund, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc.,
MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., Muni Holdings Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Florida Fund, MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc.,
MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc.,
MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II,
Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield
Quality Fund II, Inc., Senior High Income Portfolio, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and
Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of FAM, acts as
investment adviser for the following open-end investment companies: Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income
Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset
Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Fund for Tomorrow, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch Growth Fund, Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch Latin
America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch
Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready
Assets Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Series
Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch
Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch
U.S.A. Government Reserves, Merrill Lynch U.S. Treasury Money Fund, Merrill
Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Fund, Inc. and
Hotchkis and Wiley Funds (as advised by Hotchkis and Wiley, a division of
MLAM), and for the following closed-end investment companies: Convertible
Holdings, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc., and
Merrill Lynch Senior Floating Rate Fund, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Investment Adviser, MLAM,
Princeton Services, Inc., ("Princeton Services") and Princeton Administrators,
L.P. is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton,
New Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is
World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281. The address of Merrill Lynch Financial Data Services, Inc. ("MLFDS") is
4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
C-4
<PAGE>
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or
employment of a substantial nature in which each such person or entity has
been engaged since April 1, 1995 for his, her or its own account or in the
capacity of director, officer, employee, partner or trustee. In addition, Mr.
Zeikel is President, Mr. Glenn is Executive Vice President and Mr. Richard is
Treasurer of all or substantially all of the investment companies described in
the preceding paragraph. Messrs. Zeikel, Glenn and Richard also hold the same
position with substantially all of the investment companies advised by MLAM as
they do with those advised by the Manager and Messrs. Giordano, Harvey,
Kirstein and Monagle are directors or officers of one or more of such
companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION(S) WITH BUSINESS, PROFESSION,
NAME MANAGER VOCATION OR EMPLOYMENT
---- ---------------- ----------------------
<S> <C> <C>
ML & Co................. Limited Partner Financial Services Holding Company;
Limited Partner of MLAM
Princeton Services...... General Partner General Partner of MLAM
Arthur Zeikel........... President President of MLAM; President and
Director of Princeton Services;
Director of MLFD; Executive Vice
President of ML & Co.
Terry K. Glenn.......... Executive Vice Executive Vice President of MLAM;
President Executive Vice President and Director
of Princeton Services; President and
Director of MLFD; Director of MLFDS;
President of Princeton Administrators,
L.P.
Vincent R. Giordano..... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Norman R. Harvey........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Michael J. Hennewinkel.. Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General Counsel
General Counsel and and Secretary of MLAM; Senior Vice
Secretary President, General Counsel, Director
and Secretary of Princeton Services;
Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller of
and Controller MLAM; Senior Vice President and
Controller of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr. Senior Vice President Senior Vice President of MLAM; Senior
....................... Vice President of Princeton Services
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION(S) WITH BUSINESS, PROFESSION,
NAME MANAGER VOCATION OR EMPLOYMENT
---- ---------------- ----------------------
<S> <C> <C>
Michael L. Quinn........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch from 1989 to
1995
Richard L. Reller....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of
and Treasurer MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Ronald L. Welburn....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Merrill Lynch acts as the principal underwriter for the Registrant.
Merrill Lynch also acts as the principal underwriter for each of the following
open-end investment companies referred to in the first paragraph of Item 28:
CBA Money Fund, CMA Multi-State Municipal Series Trust, CMA Money Fund, CMA
Treasury Fund and CMA Government Securities Fund, The Corporate Fund
Accumulation Program, Inc. and The Municipal Fund Accumulation Program, Inc.,
and also acts as the principal underwriter for each of the closed-end
investment companies referred to in the first paragraph of Item 28, and as the
depositor of the following unit investment trusts: The Corporate Income Fund,
Municipal Investment Trust Fund, The ML Trust for Government Guaranteed
Securities and The Government Securities Income Fund.
(b) Set forth below is information concerning each director and executive
officer of Merrill Lynch. The principal business address of each such person
is World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281.
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITION(S) AND OFFICE(S)
NAME WITH MERRILL LYNCH WITH REGISTRANT
---- ------------------------------------- -------------------------
<S> <C> <C>
Stephen L. Hammerman.... Chairman None
Herbert M. Allison,
Jr. ................... President and Chief Executive Officer None
John L. Steffens........ Executive Vice President and Director None
David H. Komansky....... Director None
Barry S. Friedberg...... Executive Vice President None
Edward L. Goldberg...... Executive Vice President None
Jerome P. Kenney........ Executive Vice President None
Thomas H. Patrick....... Executive Vice President None
Winthrop H. Smith,
Jr. ................... Executive Vice President None
Rober M. Vasey.......... Executive Vice President None
George A. Schierren..... General Counsel None
Theresa Lang............ Treasurer None
Gregory T. Russo........ Secretary None
</TABLE>
(c) Not applicable.
C-6
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder will be maintained at the offices of the Registrant, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536, and MLFDS, 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Funds--
Investment Advisory Arrangements" in the Appendix to the Prospectus
constituting Part A of the Registration Statement and under the caption
"Management of the Funds--Investment Advisory Arrangements" in the Statement
of Additional Information constituting Part B of the Registration Statement,
Registrant is not a party to any management-related services contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
C-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO THE
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE
TOWNSHIP OF PLAINSBORO AND STATE OF NEW JERSEY ON THE 17TH DAY OF JULY, 1997.
CMA Tax-Exempt Fund (Registrant)
/s/ Terry K. Glenn
By ___________________________________
(TERRY K. GLENN, EXECUTIVE VICE
PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSON IN THE CAPACITY AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
Arthur Zeikel* President
- ------------------------------------ (Principal
(ARTHUR ZEIKEL) Executive Officer)
and Trustee
Gerald M. Richard* Treasurer
- ------------------------------------ (Principal
(GERALD M. RICHARD) Financial and
Accounting
Officer)
Ronald W. Forbes* Trustee
- ------------------------------------
(RONALD W. FORBES)
Cynthia A. Montgomery* Trustee
- ------------------------------------
(CYNTHIA A. MONTGOMERY)
Charles C. Reilly* Trustee
- ------------------------------------
(CHARLES C. REILLY)
Kevin A. Ryan* Trustee
- ------------------------------------
(KEVIN A. RYAN)
Richard R. West* Trustee
- ------------------------------------
(RICHARD R. WEST)
*By /s/ Terry K. Glenn
-------------------------------- July 17, 1997
(TERRY K. GLENN, ATTORNEY-IN-FACT)
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10 --Opinion of Brown & Wood LLP, counsel to the Registrant
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant
17 --Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRILL LYNCH CMA TAX-EXEMPT FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 8398637630
<INVESTMENTS-AT-VALUE> 8398637630
<RECEIVABLES> 52798795
<ASSETS-OTHER> 424795
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8451861220
<PAYABLE-FOR-SECURITIES> 98406452
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6177246
<TOTAL-LIABILITIES> 104583698
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8349516153
<SHARES-COMMON-STOCK> 8349758013
<SHARES-COMMON-PRIOR> 8168873032
<ACCUMULATED-NII-CURRENT> 19471
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2258102)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8347277522
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 278950355
<OTHER-INCOME> 0
<EXPENSES-NET> (43611508)
<NET-INVESTMENT-INCOME> 235338847
<REALIZED-GAINS-CURRENT> 2077078
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 237415925
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (235183162)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27075188082
<NUMBER-OF-SHARES-REDEEMED> (27129482654)
<SHARES-REINVESTED> 235179553
<NET-CHANGE-IN-ASSETS> 183117744
<ACCUMULATED-NII-PRIOR> 1500
<ACCUMULATED-GAINS-PRIOR> (4678407)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30793066
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 43611508
<AVERAGE-NET-ASSETS> 7950083201
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.10
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: (212) 839-5300
FACSIMILE: (212) 839-5599
July 18, 1997
CMA Tax-Exempt Fund
P.O. Box 9011
Princeton, New Jersey 08543-9011
Dear Sirs:
This opinion is furnished in connection with the registration by CMA Tax-
Exempt Fund, a Massachusetts business trust (the "Fund"), of shares of its
common stock, par value $.10 per share (the "Common Stock"), under the
Securities Act of 1933, as amended, pursuant to a registration statement on Form
N-1A (File No. 2-69877), as amended (the "Registration Statement"), in the
amounts set forth under "Amount Being Registered" on the facing page of the
Registration Statement.
As counsel for the Fund, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Declaration of Trust of the
Fund, as amended, the By-Laws of the Fund and such other documents as we have
deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of beneficial interest.
<PAGE>
In rendering this opinion, we have relied as to matters of Massachusetts
law upon an opinion of Bingham, Dana & Gould LLP rendered to the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus and
Statement of Additional Information constituting parts thereof.
Very truly yours,
/s/ BROWN & WOOD LLP
2
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
CMA Tax-Exempt Fund:
We consent to the use in Post-Effective Amendment No. 18 to Registration
Statement No. 2-69877 of our report dated May 9, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
July 17, 1997
