CMA
CMA Government
Securities Fund
Semi-Annual Report
September 30, 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*
<PAGE>
[FN]
*For inquiries regarding your CMA account,
call (800) CMA-INFO [(800) 262-4636].
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance, which will fluctuate. The Fund
seeks to maintain a consistent $1.00 net asset value per share,
although this cannot be assured. An investment in the Fund is
neither insured nor guaranteed by the US Government.
CMA Government Securities Fund
Box 9011
Princeton, NJ 08543-9011
DEAR SHAREHOLDER:
For the six-month period ended September 30, 1994, CMA Government
Securities Fund paid shareholders a net annualized dividend of
3.56%*. As of September 30, 1994, the Fund's 7-day yield was 3.97%
(excluding gains and losses) and 4.04% (including gains and losses).
The Environment
Concerns of increasing inflationary pressures continued to prompt
volatility in the US stock and bond markets during the July--
September period. In addition, the weakness of the US dollar in
foreign exchange markets caused intermittent stock and bond market
declines during the period. While the immediate concerns regarding
the US dollar had diminished by late July, the possibility of
continued tightening by the Federal Reserve Board persisted for most
of the period. However, a lower-than-expected rate of growth
reported for the US economy during the second calendar quarter
allayed inflationary concerns to some degree, despite the fifth
increase this year in short-term interest rates made by the central
bank in mid-August. Inflationary expectations surfaced again with
the announcement of significant upward revision in industrial
production and capacity utilization for the May--July period. When
the central bank did not raise short-term interest rates at the late
September Federal Open Market Committee meeting, financial markets
rallied on the expectation that the US economy was not overheating
and therefore significant further monetary policy tightening would
not be necessary.
<PAGE>
Despite the stronger-than-expected industrial production results,
other economic data suggest that while the economic recovery is
continuing, it is losing some momentum. Consumer spending is
increasing, but at a relatively slow pace, and existing home sales
may have peaked. Inflation remains subdued at the retail level. In
the industrial sector, the sharp increase in manufacturing
production in August was largely the result of a strong increase in
motor vehicle assemblies, which may level off in the weeks ahead. On
balance, it appears that the growth in US industry is progressing at
a steady, modest rate.
Despite evidence of a moderating trend in the US economy, Chairman
Greenspan indicated in his July Humphrey-Hawkins testimony that the
central bank would prefer to err on the side of too much monetary
tightening rather than too little. In the weeks ahead, investors
will continue to assess economic data and inflationary trends in
order to gauge whether further increases in short-term interest
rates are imminent. Continued indications of moderate and
sustainable levels of economic growth would be positive for the US
capital markets.
Portfolio Matters
During the six-month period ended September 30, 1994, CMA Government
Securities Fund adopted a defensive approach to the market. In early
April, as part of a more defensive strategy, we increased the Fund's
short-term Treasury bill position by adding the April 21, 1994 cash
management bill while reducing our exposure to 12-month--18-month
maturities. By mid-May, in response to a weak dollar and a non-farm
payroll gain for April of 267,000, the Federal Reserve Board
increased two important interest rates. It raised the key discount
rate to 3.50% and pushed up the target for the interest rate that
banks charge each other for overnight loans to 4.25% from 3.75%.
[FN]
*Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to the
investor after all expenses.
In early June, top officials at the nation's central bank suggested
that growth in the American economy had slackened slightly and that
inflation was under control. As a result, we implemented a slightly
more ambitious average portfolio maturity for the Fund in the mid 50-
day range by taking a modest position in six-month and one-year
Treasury bills because of their attractive yield spreads to Treasury
coupons. By June month-end, Treasury yields rose as the dollar
plunged in international currency markets. Concerned that the
Federal Reserve Board could tighten monetary policy, we reduced the
Fund's exposure to the market by selling 12-month--15-month Treasury
notes.
<PAGE>
Market forces were unfavorable in early July in anticipation of
further Federal Reserve Board tightening resulting from rising
commodity prices and a weak US dollar. In response, we sold 30-day--
45-day Treasury coupons and purchased modest amounts of September
22, 1994 cash management bills. As the month drew to a close, we
sold these cash management bills and purchased 90-day Treasury bills
for a pickup of 15 basis points as a result of the inefficiency in
the short-term Treasury bill curve. In early August, we maintained
the Fund's defensive posture in anticipation of further Federal
Reserve Board tightening. Accordingly, we increased the Fund's
repurchase agreement holdings to 65% of net assets while reducing
its Treasury position to 35%. By mid-month the Federal Reserve Board
announced an increase in the discount rate to 4.00% from 3.50% and
an increase of its target for the Federal Funds rate to 4.75% from
4.25%. By month-end, we took modest positions in six-month Treasury
bills at attractive spreads to three-month and one-year Treasury
bills. In early September, we continued our cautious approach to the
market in response to continued weakness in the dollar. At September
month-end, in response to stronger-than-expected capacity
utilization and stronger-than-expected industrial production
numbers, we shortened the Fund's average maturity to 48 days by
selling six-month Treasury bills while increasing its repurchase
agreement position. Looking ahead, we believe that short-term
interest rates will continue to increase as a result of the Federal
Reserve Board's resolve to contain inflation.
In Conclusion
We thank you for 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
October 24, 1994
<PAGE>
CMA GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 1994 (IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations*--42.7%
US Treasury $ 30,000 4.59 % 12/01/94 $ 29,758
Bills 25,000 4.61 12/01/94 24,799
125,000 4.95 12/01/94 123,993
160,000 4.49 12/22/94 158,274
65,000 4.535 12/22/94 64,299
25,000 4.54 12/22/94 24,730
50,000 4.77 2/09/95 49,080
25,000 4.81 2/09/95 24,540
50,000 5.15 3/09/95 49,320
30,000 5.37 3/09/95 29,592
20,000 4.905 3/16/95 19,518
100,000 4.915 3/16/95 97,592
25,000 4.975 3/16/95 24,398
25,000 5.10 6/01/95 24,083
30,000 5.21 8/24/95 28,475
15,000 5.29 8/24/95 14,237
20,000 5.38 9/21/95 18,889
US Treasury 50,000 9.50 10/15/94 50,096
Notes 64,000 4.25 10/31/94 63,959
155,000 6.00 11/15/94 155,256
70,000 4.625 11/30/94 69,956
95,000 5.50 2/15/95 95,030
10,000 5.875 5/15/95 10,009
5,000 8.50 5/15/95 5,084
30,000 4.125 5/31/95 29,691
20,000 3.875 10/31/95 19,556
Total US Government Obligations
(Cost--$1,305,849) 1,304,214
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements**--59.3%
$130,000 Bankers Trust Securities Inc., purchased
on 9/30/94 to yield 4.85% to 10/03/94 130,000
117,938 Barclays De Zoette Wedd Securities, Inc.,
purchased on 9/30/94 to yield 4.75%
to 10/03/94 117,938
<PAGE>
CMA GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 1994 (IN THOUSANDS)
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements**(concluded)
$135,000 Bear Stearns & Co., Inc., purchased on
9/30/94 to yield 4.85% to 10/03/94 $ 135,000
130,000 Chemical Securities, Inc., purchased on
9/30/94 to yield 4.80% to 10/03/94 130,000
100,000 Citicorp Securities Inc., purchased
on 9/30/94 to yield 4.90% to 10/03/94 100,000
135,000 Daiwa Securities America, Inc., purchased
on 9/30/94 to yield 4.80% to 10/03/94 135,000
135,000 Deutsche Bank Securities Corp.,
purchased on 9/30/94 to yield 4.85%
to 10/03/94 135,000
100,000 Fuji Securities Inc., purchased on
9/30/94 to yield 5.05% to 10/03/94 100,000
95,000 Greenwich Capital Markets, Inc., purchased
on 9/30/94 to yield 4.75% to 10/03/94 95,000
75,000 Morgan (J.P.) Securities, Inc., purchased
on 9/30/94 to yield 4.85% to 10/03/94 75,000
135,000 Nikko Securities International, Inc.,
purchased on 9/30/94 to yield
4.85% to 10/03/94 135,000
130,000 SBC Government Securities Inc., purchased
on 9/30/94 to yield 4.95% to 10/03/94 130,000
130,000 Sanwa Securities USA Co. L.P.,
purchased on 9/30/94 to yield 4.75%
to 10/03/94 130,000
135,000 Smith Barney Inc., purchased on 9/30/94
to yield 4.85% to 10/03/94 135,000
125,000 UBS Securities, Inc., purchased on
9/30/94 to yield 4.75% to 10/03/94 125,000
<PAGE>
Total Repurchase Agreements
(Cost--$1,807,938) 1,807,938
Total Investments
(Cost--$3,113,787)--102.0% 3,112,152
Liabilities in Excess of Other Assets--(2.0%) (62,056)
----------
Net Assets--100.0% $3,050,096
[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 SEPTEMBER 30, 1994
<CAPTION>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$3,113,787,202++) (Notes 1a & 1e) $ 3,112,151,755
Cash 730
Receivables:
Securities sold $ 49,354,153
Interest 9,645,391
Beneficial interest sold 9,232,304 68,231,848
----------------
Prepaid registration fees and other assets (Note 1d) 200,199
----------------
Total assets 3,180,584,532
----------------
Liabilities:
Payables:
Securities purchased 128,274,539
Investment adviser (Note 2) 1,047,959
Distributor (Note 2) 821,329 130,143,827
----------------
Accrued expenses and other liabilities 344,804
----------------
Total liabilities 130,488,631
----------------
<PAGE>
Net Assets $ 3,050,095,901
================
Net Assets Consist of:
Shares of beneficial interest, $.10 par value, unlimited number of shares
authorized $ 305,173,135
Paid-in capital in excess of par 2,746,558,213
Unrealized depreciation on investments--net (1,635,447)
----------------
Net Assets--Equivalent to $1.00 per share based on 3,051,731,348 shares of
beneficial interest outstanding $ 3,050,095,901
================
<FN>
++Cost for Federal income tax purposes. As of September 30, 1994,
net unrealized depreciation for Federal income tax purposes amounted
to $1,635,447, of which $11,430 related to appreciated securities
and $1,646,877 related to depreciated securities.
</TABLE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1994
<CAPTION>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 68,368,592
Expenses:
Investment advisory fees (Note 2) $ 6,694,248
Distribution fees (Note 2) 2,077,658
Transfer agent fees (Note 2) 298,530
Registration fees (Note 1d) 190,153
Custodian fees 157,105
Accounting services (Note 2) 71,089
Printing and shareholder reports 32,217
Professional fees 30,362
Trustees' fees and expenses 20,134
Other 23,890
----------------
Total expenses 9,595,386
----------------
Investment income--net 58,773,206
Realized Gain on Investments--Net (Note 1c) 182,235
Change in Unrealized Depreciation on Investments--Net 344,102
----------------
Net Increase in Net Assets Resulting from Operations $ 59,299,543
================
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the Year
Months Ended Ended
Sept. 30, 1994 March 31, 1994
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Investment income--net $ 58,773,206 $ 100,362,237
Realized gain on investments--net 182,235 1,638,506
Change in unrealized appreciation/depreciation on investments--net 344,102 (6,268,035)
---------------- ----------------
Net increase in net assets resulting from operations 59,299,543 95,732,708
---------------- ----------------
Dividends & Distributions to Shareholders (Note 1f):
Investment income--net (58,773,206) (100,362,237)
Realized gain on investments--net (182,235) (1,638,506)
---------------- ----------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (58,955,441) (102,000,743)
---------------- ----------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 5,646,506,577 13,417,186,906
Net asset value of shares issued to shareholders in reinvestment of
dividends (Note 1f) 58,894,854 101,906,587
---------------- ----------------
5,705,401,431 13,519,093,493
Cost of shares redeemed (6,219,245,048) (13,807,246,615)
---------------- ----------------
Net decrease in net assets derived from beneficial interest transactions (513,843,617) (288,153,122)
---------------- ----------------
Net Assets:
Total decrease in net assets (513,499,515) (294,421,157)
Beginning of period 3,563,595,416 3,858,016,573
---------------- ----------------
End of period $ 3,050,095,901 $ 3,563,595,416
================ ================
</TABLE>
<PAGE>
<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 Six
Months Ended For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: Sept. 30, 1994 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Investment income--net .0177 .0271 .0294 .0473 .0704
Realized and unrealized gain (loss) on
investments--net .0002 (.0013) .0038 .0034 .0014
---------- ---------- ---------- ---------- ----------
Total from investment operations .0179 .0258 .0332 .0507 .0718
---------- ---------- ---------- ---------- ----------
Less dividends:
Investment income--net (.0177) (.0271) (.0294) (.0473) (.0704)
Realized gain on investments--net (.0001) (.0004) (.0026) (.0036) (.0014)**
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.0178) (.0275) (.0320) (.0509) (.0718)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 3.56%* 2.79% 3.25% 5.17% 7.46%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses, excluding distribution fees .45%* .43% .43% .43% .43%
========== ========== ========== ========== ==========
Expenses .58%* .56% .55% .56% .56%
========== ========== ========== ========== ==========
Investment income and realized gain on
investments--net. 3.53%* 2.75% 3.20% 5.05% 7.11%**
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of period (in thousands) $3,050,096 $3,563,595 $3,858,017 $4,452,247 $5,228,619
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Includes unrealized gains (losses).
See Notes to Financial Statements.
</TABLE>
CMA GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
<PAGE>
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 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 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.
<PAGE>
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. ("ML & Co."). The limited partners
are ML & Co. and Fund Asset Management, Inc. ("FAMI"), 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"), an affiliate of FAM, 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.
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.
<PAGE>
Certain officers and/or trustees of the Fund are officers and/or
directors of FAM, FAMI, FDS, PSI, 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.
