CMA
CMA GOVERNMENT
SECURITIES FUND
Annual Report
March 31, 1996
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
<PAGE>
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02101
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 221-7210*
[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. Statements and
other information herein are as dated and are subject to change.
CMA Government Securities Fund
Box 9011
Princeton, NJ 08543-9011
DEAR SHAREHOLDER:
For the year ended March 31, 1996, CMA Government Securities Fund
paid shareholders a net annualized dividend of 5.39%.* As of March
31, 1996, the Fund's 7-day yield was 4.81%.
<PAGE>
The average portfolio maturity for CMA Government Securities Fund at
March 31, 1996 was 60 days, compared to 77 days at September 30,
1995.
The Environment
As 1995 drew to a close and 1996 began, it appeared that the US
economy was losing momentum. Lackluster retail sales, increases in
initial unemployment claims (along with weak job and income growth),
and evidence of slowing in the manufacturing sector all suggested
that the rate of economic growth was slowing, with some forecasters
even suggesting the possibility of an imminent recession. With
inflationary pressures well subdued, these signs of economic
weakness led the Federal Reserve Board to follow a more
accommodative monetary policy. However, our approach to the market
grew less constructive in late February following the release of
data that suggested the long inventory correction had largely run
its course.
Investor perceptions regarding the rate of future economic growth
changed dramatically with the report of stronger-than-expected
employment data for February and March. As a result, the consensus
outlook regarding the direction of business activity shifted from
expectations of weakness to anticipation of a revival in growth of
the economy. Long-term interest rates rose, and the Federal Reserve
Board left monetary policy on hold. Concerned that economic momentum
was building, we further reduced the Fund's commitment to the
market.
[FN]
*Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to the
investor after all expenses.
Investors are likely to continue to focus on the probable direction
of economic activity and Federal Reserve Board monetary policy in
the weeks ahead. At this time, inflationary pressures do not seem to
be building and the manufacturing sector is still relatively weak,
which suggest that the economy is not on the verge of seriously
overheating. Nevertheless, it is likely that any further indication
of stronger economic activity in the weeks ahead may add to investor
concerns that accelerating economic activity could lead to higher
interest rates.
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.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Donaldo S. Benito)
Donaldo S. Benito
Vice President and Portfolio Manager
April 26, 1996
CMA GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 (IN THOUSANDS)
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
US Government Obligations*--32.9%
<PAGE>
US Treasury $ 25,000 5.87 % 5/02/96 $ 24,885
Bills 12,900 4.78 5/16/96 12,815
52,000 4.785 5/16/96 51,658
5,000 5.28 5/16/96 4,967
20,000 5.335 5/16/96 19,869
20,000 4.55 2/06/97 19,105
9,460 4.67 2/06/97 9,037
US Treasury 85,000 5.875 5/31/96 85,066
Notes 125,000 6.00 6/30/96 125,234
135,000 7.875 7/15/96 135,970
105,000 6.125 7/31/96 105,263
12,900 4.375 8/15/96 12,854
15,000 6.25 8/31/96 15,045
40,000 6.50 9/30/96 40,225
35,000 8.00 10/15/96 35,481
85,000 6.875 10/31/96 85,704
35,000 4.375 11/15/96 34,776
90,000 7.25 11/15/96 90,970
15,000 7.50 12/31/96 15,223
90,000 7.50 1/31/97 91,448
40,400 6.875 2/28/97 40,892
15,000 5.625 6/30/97 14,995
5,000 5.875 7/31/97 5,011
10,000 6.00 8/31/97 10,034
15,000 5.625 10/31/97 14,965
1,000 5.125 2/28/98 988
Total US Government Obligations
(Cost--$1,102,781 ) 1,102,480
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements**--66.0%
$150,000 Aubrey G. Lanston Co., Inc., purchased
on 3/29/96 to yield 5.45% to 4/01/96 150,000
155,000 Barclays de Zoete Wedd Securities, Inc.
(BZW), purchased on 3/29/96 to yield
5.375% to 4/01/96 155,000
140,000 Bear Stearns & Co., Inc., purchased on
3/29/96 to yield 5.35% to 4/01/96 140,000
CMA GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1996 (IN THOUSANDS)
Face Value
Amount Issue (Notes 1a & 1e)
Repurchase Agreements**(concluded)
<PAGE>
$150,000 Chemical Securities, Inc., purchased
on 3/29/96 to yield 5.35% to 4/01/96 $ 150,000
150,000 Daiwa Securities America, Inc.,
purchased on 3/29/96 to yield 5.43%
to 4/01/96 150,000
150,000 Deutsche Bank Securities Corp.,
purchased on 3/29/96 to yield 5.35%
to 4/01/96 150,000
100,000 Fuji Securities Inc., purchased on
3/29/96 to yield 5.43% to 4/01/96 100,000
150,000 Greenwich Capital Markets, Inc.,
purchased on 3/29/96 to yield 5.45%
to 4/01/96 150,000
150,000 HSBC Securities Inc., purchased on
3/29/96 to yield 5.35% to 4/01/96 150,000
147,684 Lehman Brothers Inc., purchased on
3/29/96 to yield 5.45% to 4/01/96 147,684
145,000 Morgan Stanley & Co., Inc., purchased
on 3/29/96 to yield 5.33% to 4/01/96 145,000
150,000 Nikko Securities Co. International, Inc.,
purchased on 3/29/96 to yield 5.35%
to 4/01/96 150,000
160,000 Nomura Securities International, Inc.,
purchased on 3/29/96 to yield 5.42%
to 4/01/96 160,000
150,000 Sanwa Securities USA Co., L.P.,
purchased on 3/29/96 to yield 5.35%
to 4/01/96 150,000
160,000 Smith Barney Inc., purchased on
3/29/96 to yield 5.38% to 4/01/96 160,000
Total Repurchase Agreements
(Cost--$2,207,684) 2,207,684
Total Investments
(Cost--$3,310,465)-- 98.9% 3,310,164
Other Assets Less Liabilities--1.1% 35,439
----------
<PAGE>
Net Assets--100.0% $3,345,603
==========
[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, 1996
<S> <C> <C>
Assets:
Investments, at value (identified cost--$3,310,464,624++) (Notes 1a & 1e) $3,310,164,282
Cash 56
Receivables:
Securities sold $ 19,776,039
Interest 16,754,440
Beneficial interest sold 1,265,160 37,795,639
--------------
Prepaid registration fees and other assets (Note 1d) 255,992
--------------
Total assets 3,348,215,969
--------------
Liabilities:
Payables:
Distributor (Note 2) 1,101,936
Investment adviser (Note 2) 1,086,617 2,188,553
--------------
Accrued expenses and other liabilities 424,152
--------------
Total liabilities 2,612,705
--------------
Net Assets $3,345,603,264
==============
<PAGE>
Net Assets Consist of:
Shares of beneficial interest, $0.10 par value, unlimited number
of shares authorized $ 334,590,361
Paid-in capital in excess of par 3,011,313,245
Unrealized depreciation on investments--net (300,342)
--------------
Net Assets--Equivalent to $1.00 per share based on 3,345,903,606 shares of
beneficial interest outstanding $3,345,603,264
==============
<FN>
++Cost for Federal income tax purposes. As of March 31, 1996, net
unrealized depreciation for Federal income tax purposes amounted to
$300,342, of which $508,593 related to appreciated securities and
$808,935 related to depreciated securities.
</TABLE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned $ 187,252,903
Expenses:
Investment advisory fees (Note 2) $ 12,987,502
Distribution fees (Note 2) 4,027,066
Transfer agent fees (Note 2) 552,329
Registration fees (Note 1d) 301,980
Accounting services (Note 2) 232,468
Custodian fees 190,763
Professional fees 69,966
Printing and shareholder reports 43,257
Trustees' fees and expenses 39,965
Other 41,695
--------------
Total expenses 18,486,991
--------------
Investment income--net 168,765,912
Realized Gain on Investments--Net (Note 1c) 813,513
Change in Unrealized Depreciation on Investments--Net (233,823)
--------------
Net Increase in Net Assets Resulting from Operations $ 169,345,602
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <C> <C>
Operations:
Investment income--net $ 168,765,912 $ 134,445,813
Realized gain on investments--net 813,513 607,823
Change in unrealized depreciation on investments--net (233,823) 1,913,030
--------------- ---------------
Net increase in net assets resulting from operations 169,345,602 136,966,666
--------------- ---------------
Dividends & Distributions to Shareholders (Note 1f):
Investment income-- net (168,765,912) (134,445,813)
Realized gain on investments-- net (813,513) (607,823)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (169,579,425) (135,053,636)
--------------- ---------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares 13,161,152,625 12,035,321,698
Net asset value of shares issued to shareholders in reinvestment of dividends
and distributions (Note 1f) 169,364,191 134,913,910
--------------- ---------------
13,330,516,816 12,170,235,608
Cost of shares redeemed (13,117,482,781) (12,602,941,002)
--------------- ---------------
Net increase (decrease) in net assets derived from beneficial interest
transactions 213,034,035 (432,705,394)
--------------- ---------------
Net Assets:
Total increase (decrease) in net assets 212,800,212 (430,792,364)
Beginning of year 3,132,803,052 3,563,595,416
--------------- ---------------
End of year $ 3,345,603,264 $ 3,132,803,052
=============== ===============
</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 Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<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 .0521 .0419 .0271 .0294 .0473
Realized and unrealized gain (loss) on
investments--net .0002 .0008 (.0013) .0038 .0034
---------- ---------- ---------- ---------- ----------
Total from investment operations .0523 .0427 .0258 .0332 .0507
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.0521) (.0419) (.0271) (.0294) (.0473)
Realized gain on investments--net (.0003) (.0002) (.0004) (.0026) (.0036)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.0524) (.0421) (.0275) (.0320) (.0509)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return 5.39% 4.30% 2.79% 3.25% 5.17%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses .57% .58% .56% .55% .56%
========== ========== ========== ========== ==========
Investment income and realized gain on
investments--net 5.25% 4.18% 2.75% 3.20% 5.05%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $3,345,603 $3,132,803 $3,563,595 $3,858,017 $4,452,247
========== ========== ========== ========== ==========
See Notes to Financial Statements.
</TABLE>
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.
<PAGE>
(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.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM" or "Adviser"). 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.
<PAGE>
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.
CMA GOVERNMENT SECURITIES FUND
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.
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, MLPF&S, MLFDS, and/or ML & Co.
<PAGE>
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, 1996, 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, 1996 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.
CMA GOVERNMENT SECURITIES FUND
INDEPENDENT AUDITORS' REPORT (CONCLUDED)
<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, 1996, 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 30, 1996
</AUDIT-REPORT>
CMA GOVERNMENT SECURITIES FUND
IMPORTANT TAX INFORMATION (UNAUDITED)
None of the ordinary income distributions paid daily by the CMA
Government Securities Fund during its fiscal year ended March 31,
1996 qualify for the dividends-received deduction for corporations.
Additionally, on June 5, 1995, the Fund distributed long-term
capital gains of $.000001 per share.
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
invested in Federal Obligations as of the end of each quarter of the
fiscal year:
For the Quarter Ended Federal Obligations*
June 30, 1995 33.20%
September 30, 1995 29.18%
December 31, 1995 31.08%
March 31, 1996 32.93%
Of the Fund's ordinary income dividends paid during the fiscal year
ended March 31, 1996, 46.34% was attributable to Federal
Obligations. In calculating the foregoing percentage, expenses of
the Fund have been allocated on a pro rata basis.
Please retain this information for your records.
<PAGE>
[FN]
*For purposes of this calculation, Federal Obligations include 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.
