CMA
CMA GOVERNMENT
SECURITIES FUND
Annual Report
March 31, 1994
Merrill Lynch BULL LOGO
Officers and Trustees
Arthur Zeikel--President and Trustee
Ronald W. Forbes--Trustee
Cynthia A. Montgomery--Trustee
Charles C. Reilly--Trustee
Kevin A. Ryan--Trustee
Richard R. West--Trustee
Terry K. Glenn--Executive Vice President
Joseph T. Monagle, Jr.--Senior Vice President
Donaldo S. Benito--Vice President
Donald C. Burke--Vice President
Kevin J. McKenna--Vice President
Gerald M. Richard--Treasurer
Robert Harris--Secretary
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02101
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 221-7210*
[FN]
* For inquiries regarding your CMA account,
call (800) CMA-INFO [(800) 262-4636].
<PAGE>
This report is not authorized for use as an offer
of sale or a solicitation of an offer to buy shares
of the Fund unless accompanied or preceded by the
Fund's current prospectus. Past performance results
shown in this report should not be considered a re-
presentation of future performance, which will fluc-
tuate. The Fund seeks to maintain a consistent $1.00
net asset value per share, although this cannot be
assured. An investment in the Fund is neither in-
sured nor guaranteed by the US Government.
CMA Government Securities Fund
Box 9011
Princeton, NJ 08543-9011
DEAR SHAREHOLDER:
For the year ended March 31, 1994, CMA Government Securities Fund
paid shareholders a net annualized dividend of 2.79%*. The Fund's
7-day yield as of March 31, 1994 was 2.92% (excluding gains and
losses) and 2.92% (including gains and losses).
The Environment
Inflationary expectations changed sharply during the six months
ended March 31, 1994. Following several months of better-than-
expected economic results, Federal Reserve Board Chairman Alan
Greenspan indicated in Congressional testimony in January that
continued strong expansion of the economy would lead the central
bank to tighten monetary policy in an effort to control inflation.
On February 4, 1994, the central bank broke with tradition and
publicly announced a modest 25 basis point (0.25%) increase in
short-term interest rates. At the March 22, 1994 meeting of the
Federal Open Market Committee, the Federal Reserve Board again
raised the Federal Funds rate by 25 basis points, and also an-
nounced the increase.
<PAGE>
Rather than view the Federal Reserve Board's first tightening
move as a preemptive strike against inflation, fixed-income in-
vestors focused on Chairman Greenspan's implicit promise of fur-
ther tightening should the rate of inflation accelerate, and
bond prices declined sharply. The setback in the bond market was
also reflected in greater stock market volatility. While the se-
cond increase in the Federal Funds rate was less of a surprise,
investors remained concerned that interest rates would trend up-
ward sharply. As a result, stock and bond prices continued to
decline through the end of March. The volatility in the US cap-
ital markets was mirrored in international markets. Political and
economic developments, along with concerns of heightened global
inflationary pressures, led to a sell-off in most capital markets,
especially the emerging markets that had appreciated strongly in
1993.
In the weeks ahead, investors will continue to gauge the pace of
the economic expansion and watch for signs of an overheating eco-
nomy. At this time, there is little evidence that the rate of
inflation will increase rapidly. Therefore, although the secular
long-term trend toward lower interest rates may be over, it is
not yet certain whether the pace of economic activity will ac-
celerate to the point where extensive Federal Reserve Board tight-
ening will be necessary to contain inflation.
Portfolio Matters
Early in the period under review, improving inflation reports and
a strong US dollar attracted foreign investors into the Government
market. Additionally, labor markets continued to display weakness.
Accordingly, the Fund maintained an average portfolio maturity
in the low 80-day range by taking advantage of inefficiencies in
the US Treasury bill market, adding six-month and one-year Treasury
bills in response to the steep slope of the yield curve in that
sector.
As the period progressed, the Fund took advantage of other oppor-
tunities by executing swaps in the 18-month--2-year sector of the
Treasury note curve at yield pickups greater than the yield curve
generally allowed. Early in 1994, in response to worsening infla-
tionary expectations and strong auto sales, the Fund gradually
reduced its average portfolio maturity to the low 40-day range
by selling its Treasury securities maturing in the 18-month--2-
year range. As part of this more defensive strategy, the Fund in-
creased its short-term Treasury bill position by adding the April
21, 1994 cash management bill. Looking ahead, in response to the
Federal Reserve Board's vigilance over inflation, we expect long-
term interest rates to rise less than short-term interest rates as
the yield curve flattens.
<PAGE>
We appreciate your interest in CMA Government Securities Fund,
and we look forward to assisting you with your financial needs in
the months and years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Donaldo S. Benito)
Donaldo S. Benito
Vice President and Portfolio Manager
April 22, 1994
[FN]
*Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to the
investor after all expenses.
CMA GOVERNMENT SECURITIES FUND
IMPORTANT TAX INFORMATION
None of the ordinary income distributions paid daily by the CMA
Government Securities Fund during the fiscal year ended March 31,
1994 qualify for the dividends-received deduction for corporations.
Additionally, there were no long-term capital gains distributions
declared during the year.
The law varies in each state as to whether and what percentage of
dividend income attributable to Federal Obligations is exempt from
state income tax. We recommend that you consult your tax adviser
to determine if any portion of the dividends you received is exempt
from state income tax.
Listed below are the percentages of total assets of the Fund in-
vested in Federal Obligations* as of the end of each quarter of
the fiscal year:
For the Quarter Ended
June 30, 1993 21.43%
September 30, 1993 27.86%
December 31, 1993 33.78%
March 31, 1994 36.78%
<PAGE>
Of the Fund's dividends declared daily to shareholders from ordinary
income during the fiscal year ended March 31, 1994, 29.36% was
attributable to Federal Obligations. In calculating the foregoing
percentages, Fund expenses have been allocated on a pro rata basis.
Please retain this information for your records.
[FN]
*For purposes of this calculation, Federal Obligations in-
clude US Treasury Notes, US Treasury Bills and US Treasury
Bonds. Also included are obligations issued by the following
agencies: Banks for Cooperatives, Federal Intermediate Credit
Banks, Federal Land Banks, Federal Home Loan Banks, and the
Student Loan Marketing Association. Repurchase Agreements are
not included in this calculation.
CMA GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1994 (in Thousands)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations*--36.8%
US Treasury $200,000 3.47 % 4/21/94 $ 199,595
Bills 55,000 3.00 5/26/94 54,705
80,000 3.03 5/26/94 79,571
15,000 3.095 6/16/94 14,887
150,000 3.165 8/04/94 148,073
US Treasury 27,750 7.00 4/15/94 27,789
Notes 19,225 9.50 5/15/94 19,362
138,000 5.125 5/31/94 138,302
185,956 5.00 6/30/94 186,537
132,000 4.25 8/31/94 132,144
30,000 4.00 9/30/94 30,000
64,000 4.25 10/31/94 64,050
100,000 6.00 11/15/94 101,109
70,000 4.625 11/30/94 70,175
45,000 5.50 2/15/95 45,380
Total US Government Obligations
(Cost--$1,313,659) 1,311,679
<PAGE>
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements**--62.9%
$ 165,000 Bankers Trust Securities Inc., purchased
on 3/31/94 to yield 3.55% to 4/04/94 165,000
165,000 Bear Stearns & Co., Inc., purchased on
3/31/94 to yield 3.45% to 4/04/94 165,000
45,000 Carroll McEntee & McGinley, Inc.,
purchased on 3/31/94 to yield 3.55%
to 4/04/94 45,000
165,000 Citicorp Securities Inc., purchased
on 3/31/94 to yield 3.40% to 4/04/94 165,000
150,000 Daiwa Securities America, Inc., purchased
on 3/31/94 to yield 3.55% to 4/04/94 150,000
165,000 Deutsche Bank Securities Corp.,
purchased on 3/31/94 to yield 3.55%
to 4/04/94 165,000
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements**(concluded)
$ 125,000 Fuji Securities Inc., purchased on
3/31/94 to yield 3.58% to 4/04/94 $ 125,000
155,000 Kidder Peabody & Co., Inc., purchased
on 3/31/94 to yield 3.45% to 4/04/94 155,000
152,322 Merrill Lynch Government Securities
Inc., purchased on 3/31/94 to yield
3.40% to 4/04/94 152,322
150,000 Morgan Stanley & Co., Inc.,
purchased on 3/31/94 to yield
3.45% to 4/04/94 150,000
160,000 Nikko Securities International, Inc.,
purchased on 3/31/94 to yield
3.55% to 4/04/94 160,000
<PAGE>
165,000 Nomura Securities International, Inc.,
purchased on 3/31/94 to yield 3.58%
to 4/04/94 165,000
165,000 PaineWebber Inc., purchased on
3/31/94 to yield 3.55% to 4/04/94 165,000
150,000 Sanwa Securities USA Co. L.P.,
purchased on 3/31/94 to yield 3.50%
to 4/04/94 150,000
165,000 UBS Securities, Inc., purchased on
3/31/94 to yield 3.50% to 4/04/94 165,000
Total Repurchase Agreements
(Cost--$2,242,322) 2,242,322
Total Investments
(Cost--$3,555,980)--99.7% 3,554,001
Other Assets Less Liabilities--0.3% 9,594
----------
Net Assets--100.0% $3,563,595
==========
[FN]
* 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.
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1994
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$3,555,980,498++) (Notes 1a & 1e) $3,554,000,949
Cash 901
Interest receivable 11,478,326
Prepaid registration fees and other assets (Note 1d) 200,198
--------------
Total assets 3,565,680,374
--------------
<PAGE>
Liabilities:
Payables:
Investment adviser (Note 2) $ 1,230,527
Distributor (Note 2) 633,244
Beneficial interest redeemed 2,068 1,865,839
---------------
Accrued expenses and other liabilities 219,119
--------------
Total liabilities 2,084,958
--------------
Net Assets $3,563,595,416
==============
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 356,557,495
Paid-in capital in excess of par 3,209,017,470
Unrealized depreciation on investments--net (1,979,549)
--------------
Net Assets--Equivalent to $1.00 per share based on 3,565,574,965 shares of
beneficial interest outstanding $3,563,595,416
==============
<FN>
++Cost for Federal income tax purposes. As of March 31, 1994, net unrealized
depreciation for Federal income tax purposes amounted to $1,979,549, of
which $196,860 related to appreciated securities and $2,176,409 related
to depreciated securities.
</TABLE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1994
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 121,014,273
Expenses:
Investment advisory fees (Note 2) $ 14,779,998
Distribution fees (Note 2) 4,610,312
Transfer agent fees (Note 2) 409,908
Registration fees (Note 1d) 357,570
Custodian fees 201,571
Accounting services (Note 2) 123,850
Printing and shareholder reports 55,408
Professional fees 44,098
Trustees' fees and expenses 35,097
Other 34,224
---------------
Total expenses 20,652,036
--------------
Investment income--net 100,362,237
<PAGE>
Realized Gain on Investments--Net (Note 1c) 1,638,506
Change in Unrealized Appreciation/Depreciation on Investments--Net (6,268,035)
--------------
Net Increase in Net Assets Resulting from Operations $95,732,708
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
1994 1993
Increase (Decrease) in Net Assets:
<S> <C> <C>
Operations:
Investment income--net $ 100,362,237 $ 121,609,939
Realized gain on investments--net 1,638,506 10,657,600
Change in unrealized appreciation/depreciation on investments--net (6,268,035) 5,223,345
--------------- ----------------
Net increase in net assets resulting from operations 95,732,708 137,490,884
--------------- ----------------
Dividends & Distributions to Shareholders (Note 1f):
Investment income--net (100,362,237) (121,609,939)
Realized gain on investments--net (1,638,506) (10,657,600)
--------------- ----------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (102,000,743) (132,267,539)
--------------- ----------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 13,417,186,906 14,178,403,925
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions (Note 1f) 101,906,587 132,155,015
--------------- ----------------
13,519,093,493 14,310,558,940
Cost of shares redeemed (13,807,246,615) (14,910,012,663)
--------------- ----------------
Net decrease in net assets derived from beneficial interest transactions (288,153,122) (599,453,723)
--------------- ----------------
<PAGE>
Net Assets:
Total decrease in net assets (294,421,157) (594,230,378)
Beginning of year 3,858,016,573 4,452,246,951
--------------- ----------------
End of year $ 3,563,595,416 $ 3,858,016,573
=============== ================
</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: 1994 1993 1992 1991 1990
<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 .0271 .0294 .0473 .0704 .0819
Realized and unrealized gain (loss) on
investments--net (.0013) .0038 .0034 .0014 .0006
---------- ---------- ---------- ---------- ----------
Total from investment operations .0258 .0332 .0507 .0718 .0825
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.0271) (.0294) (.0473) (.0704) (.0819)
Realized gain on investments--net (.0004) (.0026) (.0036) (.0014)* (.0006)*
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.0275) (.0320) (.0509) (.0718) (.0825)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 2.79% 3.25% 5.17% 7.46% 8.57%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, excluding distribution fees .43% .43% .43% .43% .45%
========== ========== ========== ========== ==========
Expenses .56% .55% .56% .56% .57%
========== ========== ========== ========== ==========
Investment income and realized gain on
investments--net. 2.75% 3.20% 5.05% 7.11%* 8.21%*
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $3,563,595 $3,858,017 $4,452,247 $5,228,619 $3,515,578
========== ========== ========== ========== ==========
<FN>
* Includes unrealized gains (losses).
</TABLE>
<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 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 mat-
uring 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 re-
quirements 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 trans-
actions 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. Real-
ized 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.
<PAGE>
(f) Dividends and distributions to shareholders--The Fund declares
dividends daily and reinvests daily such dividends (net of non-
resident alien 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"). Effective January 1, 1994,
the investment advisory business of FAM was reorganized from a
corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of FAM is
Princeton Services, Inc., an indirect wholly-owned subsidiary of
ML & Co. The limited partners are ML & Co. and Merrill Lynch
Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co.
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 most
restrictive annual expense limitation requires that the Adviser
reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and commissions,
and extraordinary items) exceed 2.5% of the Fund's first $30
million of average daily net assets, 2.0% of the Fund's next $70
million of average daily net assets, and 1.5% of the average daily
net assets in excess thereof. No fee payment will be made to the
Adviser during any year which will cause such expenses to exceed
the pro rata expense limitation at the time of such payment.
NOTES TO FINANCIAL STATEMENTS (concluded)
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 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.
<PAGE>
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary
of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, MLIM, FDS, MLPF&S, 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.
<AUDIT-REPORT>
CMA GOVERNMENT SECURITIES FUND
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, 1994, 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 audit-
ing 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 mis-
statement. 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,
1994 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.
<PAGE>
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, 1994, 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
Princeton, New Jersey
April 29, 1994
</AUDIT-REPORT>
