CMA
CMA GOVERNMENT
SECURITIES FUND
Annual Report
March 31, 1997
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
Printed on post-consumer recycled paper
Dear Shareholder:
For the year ended March 31, 1997, CMA Government Securities Fund
paid shareholders a net annualized dividend of 4.92%.* As of March
31, 1997, the Fund's 7-day yield was 5.00%.
<PAGE>
The average portfolio maturity for CMA Government Securities Fund at
March 31, 1997 was 68 days, compared to 71 days at September 30,
1996.
The Environment
Stock and bond market turbulence increased during the six-month
period ended March 31, 1997. Mounting evidence of stronger-than-
expected economic growth suggested to investors that the Federal
Reserve Board would make a preemptive strike to contain inflationary
pressures. These concerns were heightened by statements made by
Federal Reserve Board Chairman Alan Greenspan, and culminated in an
announced increase in the Federal Funds rate of 0.25% to 5.5% on
March 25. As investors became concerned that this might prove to be
only the first in a series of monetary policy tightening moves,
interest rates rose and stock and bond prices declined. Following
the central bank's action, investor sentiment fluctuated from
negative to more positive, depending upon whether the latest
economic data releases were perceived to suggest an overheating or
moderating trend. It appears that clear-cut signs of continued low
inflation and moderate economic growth, as well as no further
indications of monetary policy tightening, are needed before
stability returns to the financial markets.
On the international front, despite some weakness, the US dollar
subsequently continued its strong advance relative to the yen and
the Deutschemark, raising concerns about the outlook for US trade.
In early February, the leading industrialized nations expressed
apparent agreement that it was time to seek a lower dollar and less
volatility in the foreign exchange markets. It remains to be seen
whether these stated intentions will be acted upon, or if the US
dollar continues to rise relative to other major currencies.
[FN]
*Based on a constant investment throughout the period, with
dividends compounded daily, and reflecting a net return to the
investor after all expenses.
Portfolio Matters
Early in the period, we focused the Fund's investments in the six-
month--one-year sector, which proved rewarding. As the period
progressed, we increased the Fund's repurchase agreement position to
63% of net assets from 54% because of the attractive yields afforded
in financing rates. Toward the end of the period, we adopted a more
defensive posture by increasing the Fund's holdings in short-term
maturities such as six-month Treasury coupon positions which traded
10 basis points (0.10%) higher than similarly dated Treasury bills.
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 24, 1997
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
<PAGE>
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
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
<PAGE>
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
==========
[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.
<PAGE>
See Notes to Financial Statements.
<TABLE>
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1997
<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
==============
<FN>
++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>
<PAGE>
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>
<TABLE>
CMA GOVERNMENT SECURITIES 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 $ 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
--------------- ---------------
<PAGE>
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
========== ========== ========== ========== ==========
<PAGE>
<FN>
++Amount is less than $.0001 per share.
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.
(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.
<PAGE>
(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") 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>
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.
<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, 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.
<PAGE>
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
</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,
1997 qualify for the dividends-received deduction for corporations.
Additionally, on May 10, 1996, the Fund distributed long-term
capital gains of $.0000087 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:
<PAGE>
For the Quarter Ended Federal Obligations*
June 30, 1996 35.31%
September 30, 1996 38.36%
December 31, 1996 29.49%
March 31, 1997 35.53%
Of the Fund's ordinary income dividends paid during the fiscal year
ended March 31, 1997, 37.90% 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.
[FN]
*For purposes of this calculation, Federal Obligations include US
Treasury Notes, USTreasury 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.
