[CMA LOGO]
CMA GOVERNMENT
SECURITIES FUND
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Annual Report
March 31, 1998
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[MERRILL LYNCH LOGO]
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DEAR SHAREHOLDER:
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For the year ended March 31, 1998, CMA Government Securities Fund paid
shareholders a net annualized dividend of 5.15%.* As of March 31, 1998, the
Fund's 7-day yield was 5.00%.
The average portfolio maturity for CMA Government Securities Fund at March 31,
1998 was 74 days, compared to 80 days at September 30, 1997.
The Environment
The six months ended March 31, 1998 were positive for most capital markets
worldwide, despite periods of volatility. Investors continued to focus on the
impact that the financial crisis in Asia would have on economic growth
worldwide. In the United States, sentiment fluctuated between a variety of
outlooks. At times, US stock and bond prices reflected expectations that the
slowdown in Asian economic growth would lead to a sharp decline in US business
activity and, ultimately, a deflationary environment. The deterioration of
economic conditions in Japan was of particular concern. During other periods, US
investors appeared to expect that the positive trends of a moderately expanding
economy, declining unemployment, enhanced productivity and corporate profits
growth would continue, unimpeded by the developments in Asia. To date, there
have been only a few signs that Asia's troubles are influencing US economic
activity.
The Federal Open Market Committee did not change monetary policy at its meeting
in early February. Subsequently, in his Humphrey-Hawkins testimony before
Congress, Federal Reserve Board Chairman Alan Greenspan indicated that monetary
policy might remain steady for some time. This raised concerns among those US
bond investors who had expected imminent monetary policy easing. However,
subsequent data releases suggested that US economic growth would remain
moderate, which stabilized the bond market.
For most of the six-month period ended March 31, 1998, the Fund's average life
was in the mid 70-day range, with investment emphasis in 12-month-18-month
Treasury securities and repurchase agreements.
As 1998 progresses, it is likely that investor focus will remain on developments
in Asia, their potential impact on the US economy, and the Federal Reserve
Board's response to them.
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,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Carlo J. Giannini
Carlo J. Giannini
Vice President and Portfolio Manager
April 30, 1998
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Effective January 5, 1998, Carlo J. Giannini assumed the responsibilities of the
day-to-day management for CMA Government Securities Fund. Mr. Giannini has been
Vice President of Merrill Lynch Asset Management, L.P. (an affiliate of the
Investment Adviser) since 1981.
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* Based on a constant investment throughout the period, with dividends
compounded daily, and reflecting a net return to the investor after all
expenses.
1
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CMA GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1998 (IN THOUSANDS)
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Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
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US Government Obligations--37.7%
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US Treasury $ 17,000 5.355% 4/16/98 $ 16,960
Bills* 25,000 5.24 4/23/98 24,916
5,000 5.27 4/23/98 4,983
8,000 5.275 4/23/98 7,973
35,000 5.29 4/23/98 34,883
15,000 5.295 4/23/98 14,950
17,100 5.32 5/07/98 17,011
5,800 5.225 5/28/98 5,753
13,800 5.52 5/28/98 13,687
12,750 5.525 5/28/98 12,646
12,900 5.255 8/20/98 12,640
18,920 5.29 9/17/98 18,463
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US Treasury 74,275 7.875 4/15/98 74,361
Notes* 21,235 5.125 4/30/98 21,228
32,500 5.875 4/30/98 32,508
100,290 6.125 5/15/98 100,368
80,270 8.25 7/15/98 80,903
8,500 5.25 7/31/98 8,495
16,500 6.25 7/31/98 16,544
14,125 5.875 8/15/98 14,143
24,900 9.25 8/15/98 25,238
52,200 6.125 8/31/98 52,331
83,550 6.00 9/30/98 83,761
12,600 7.125 10/15/98 12,706
90,100 5.875 10/31/98 90,241
107,400 5.50 11/15/98 107,350
30,500 8.875 11/15/98 31,105
29,200 5.625 11/30/98 29,216
48,900 6.375 1/15/99 49,202
29,900 5.00 1/31/99 29,755
54,800 5.875 1/31/99 54,924
40,000 5.00 2/15/99 39,800
60,000 6.25 3/31/99 60,398
25,100 6.375 4/30/99 25,304
25,000 9.125 5/15/99 25,930
10,000 6.00 6/30/99 10,047
10,000 6.75 6/30/99 10,134
25,000 5.75 9/30/99 25,043
15,000 5.375 1/31/00 14,931
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US Treasury 25,000 5.282 2/15/99 23,816
STRIPS**
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Total US Government Obligations
(Cost--$1,334,395)......................................... 1,334,647
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Face Value
Amount Issue (Notes 1a & 1e)
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Repurchase Agreements***--61.8%
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$150,000 Aubrey G. Lanston Co., Inc., purchased
on 3/31/98 to yield 5.95% to 4/01/98 ........... $ 150,000
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$160,000 BZW Securities, Inc., purchased on
3/31/98 to yield 5.95% to 4/01/98 .............. 160,000
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$100,000 CIBC Oppenheimer Corp., purchased on
3/31/98 to yield 5.90% to 4/01/98 .............. 100,000
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$150,000 Daiwa Securities America, Inc.,
purchased on 3/31/98 to yield 5.95%
to 4/01/98 ..................................... 150,000
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$160,000 Dean Witter Reynolds, Inc., purchased
on 3/31/98 to yield 5.95% to 4/01/98 ........... 160,000
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$100,000 Fuji Securities Inc., purchased on
3/31/98 to yield 5.97% to 4/01/98 .............. 100,000
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$150,000 Greenwich Capital Markets, Inc., purchased
on 3/31/98 to yield 5.95% to 4/01/98 ........... 150,000
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$150,000 HSBC Securities, Inc., purchased on
3/31/98 to yield 5.90% to 4/01/98 .............. 150,000
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$150,000 Nesbitt Burns Securities, Inc., purchased
on 3/31/98 to yield 5.95% to 4/01/98 ........... 150,000
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$150,000 Nikko Securities Co. International, Inc.,
purchased on 3/31/98 to yield 6.03%
to 4/01/98 ..................................... 150,000
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$150,000 Nomura Securities International, Inc.,
purchased on 3/31/98 to yield 5.95%
to 4/01/98 ..................................... 150,000
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$159,180 PaineWebber Inc., purchased on 3/31/98
to yield 5.95% to 4/01/98 ...................... 159,180
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$160,000 Salomon Brothers, Inc., purchased on
3/31/98 to yield 5.95% to 4/01/98 .............. 160,000
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$150,000 Sanwa Securities USA Co., L.P., purchased
on 3/31/98 to yield 5.95% to 4/01/98 ........... 150,000
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$150,000 UBS Securities LLC, purchased on
3/31/98 to yield 5.96% to 4/01/98 .............. 150,000
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Total Repurchase Agreements
(Cost--$2,189,180) ........................................ 2,189,180
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Total Investments
(Cost--$3,523,575)--99.5% ................................. 3,523,827
Other Assets Less Liabilities--0.5% ....................... 16,213
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Net Assets--100.0% ........................................ $3,540,040
==========
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* 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.
** STRIPS--Separate Trading of Registered Interest and Principal of
Securities.
*** Repurchase Agreements are fully collateralized by US Government
Obligations.
See Notes to Financial Statements.
2
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CMA GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1998
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<TABLE>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$3,523,574,603+) (Notes 1a & 1e) . $3,523,826,684
Cash ..................................................................... 513
Interest receivable ...................................................... 18,533,913
Prepaid registration fees and other assets (Note 1d) ..................... 247,490
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Total assets ............................................................. 3,542,608,600
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Liabilities:
Payables:
Investment adviser (Note 2) ............................................ $ 1,239,639
Distributor (Note 2) ................................................... 1,063,158
Dividends to shareholders (Note 1f) .................................... 593 2,303,390
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Accrued expenses and other liabilities ................................... 265,578
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Total liabilities ........................................................ 2,568,968
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Net Assets ............................................................... $3,540,039,632
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Net Assets Consist of:
Shares of beneficial interest, $0.10 par value, unlimited number of shares
authorized ............................................................... $ 353,978,755
Paid-in capital in excess of par ......................................... 3,185,808,796
Unrealized appreciation on investments--net .............................. 252,081
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Net Assets--Equivalent to $1.00 per share based on 3,539,787,550 shares of
beneficial interest outstanding .......................................... $3,540,039,632
==============
</TABLE>
+ Cost for Federal income tax purposes. As of March 31, 1998, net unrealized
appreciation for Federal income tax purposes amounted to $252,081, of which
$528,401 related to appreciated securities and $276,320 related to depreciated
securities.
See Notes to Financial Statements.
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CMA GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998
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<TABLE>
<S> <C> <C>
Investment Income (Note 1c):
Interest and amortization of premium and discount earned.................. $ 186,996,605
Expenses:
Investment advisory fees (Note 2)......................................... $ 13,436,885
Distribution fees (Note 2)................................................ 4,090,796
Transfer agent fees (Note 2).............................................. 531,773
Registration fees (Note 1d)............................................... 369,374
Accounting services (Note 2).............................................. 219,396
Custodian fees............................................................ 214,659
Professional fees......................................................... 72,502
Printing and shareholder reports.......................................... 44,156
Trustees' fees and expenses............................................... 34,134
Other..................................................................... 38,505
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Total expenses............................................................ 19,052,180
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Investment income--net.................................................... 167,944,425
Realized Gain on Investments--Net (Note 1c)............................... 197,541
Change in Unrealized Appreciation/Depreciation on Investments--Net........ 1,941,084
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Net Increase in Net Assets Resulting from Operations...................... $ 170,083,050
==============
</TABLE>
See Notes to Financial Statements.
3
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CMA GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
For the Year Ended March 31,
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Increase (Decrease) in Net Assets: 1998 1997
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<S> <C> <C>
Operations:
Investment income--net ................................................. $ 167,944,425 $ 161,841,782
Realized gain on investments--net ...................................... 197,541 116,775
Change in unrealized appreciation/depreciation on investments--net ..... 1,941,084 (1,388,661)
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Net increase in net assets resulting from operations ................... 170,083,050 160,569,896
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Dividends & Distributions to Shareholders (Note 1f):
Investment income--net ................................................. (167,944,425) (161,841,782)
Realized gain on investments--net ...................................... (197,541) (116,775)
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Net decrease in net assets resulting from dividends and distributions
to shareholders ........................................................ (168,141,966) (161,958,557)
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Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares ....................................... 14,532,261,909 13,617,455,013
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions (Note 1f) .................................. 167,986,012 161,803,882
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14,700,247,921 13,779,258,895
Cost of shares redeemed ................................................ (14,585,617,671) (13,700,005,200)
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Net increase in net assets derived from beneficial interest transactions 114,630,250 79,253,695
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Net Assets:
Total increase in net assets ........................................... 116,571,334 77,865,034
Beginning of year ...................................................... 3,423,468,298 3,345,603,264
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End of year ............................................................ $ 3,540,039,632 $ 3,423,468,298
================ ================
</TABLE>
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CMA GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended March 31,
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Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
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<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 ............... .0501 .0477 .0521 .0419 .0271
Realized and unrealized gain (loss) on
investments--net ..................... .0007 (.0004) .0002 .0008 (.0013)
---------- ---------- ---------- ---------- ----------
Total from investment operations ..... .0508 .0473 .0523 .0427 .0258
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net ............. (.0501) (.0477) (.0521) (.0419) (.0271)
Realized gain on investments--net .. (.0001) --+ (.0003) (.0002) (.0004)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions .... (.0502) (.0477) (.0524) (.0421) (.0275)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return .............. 5.15% 4.96% 5.37% 4.30% 2.79%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses ............................. .57% .56% .57% .58% .56%
========== ========== ========== ========== ==========
Investment income and realized gain on
investments--net ..................... 5.02% 4.81% 5.25% 4.18% 2.75%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands) $3,540,040 $3,423,468 $3,345,603 $3,132,803 $3,563,595
========== ========== ========== ========== ==========
</TABLE>
+ Amount is less than $.0001 per share.
See Notes to Financial Statements.
4
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CMA GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
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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. Under such agreements, the bank or 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
fully 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
5
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CMA GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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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, 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.
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CMA GOVERNMENT SECURITIES FUND
INDEPENDENT AUDITORS' REPORT
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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,
1998, 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, 1998 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, 1998, 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 5, 1998
6
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CMA GOVERNMENT SECURITIES FUND
IMPORTANT TAX INFORMATION (UNAUDITED)
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None of the ordinary income distributions paid daily by CMA Government
Securities Fund during its fiscal year ended March 31, 1998 qualify for the
dividends-received deduction for corporations. The Fund distributed long-term
capital gains of $.0000035 per share to shareholders of record as of June 13,
1997. All of this long-term capital gains distribution is subject to a 28% tax
rate. Additionally, the Fund distributed long-term capital gains of $.0000051
per share to shareholders of record as of March 30, 1998. Of this amount, 49.49%
is subject to a 20% tax rate, and 50.51% is subject to a 28% tax rate.
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:
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For the Quarter Ended Federal Obligations*
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June 30, 1997.................................... 24.56%
September 30, 1997............................... 23.14%
December 31, 1997................................ 25.92%
March 31, 1998................................... 37.67%
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Of the Fund's ordinary income dividends paid during the fiscal year ended March
31, 1998, 37.87% 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.
* 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.
7
<PAGE>
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
Kevin J. McKenna--Senior Vice President
Joseph T. Monagle Jr.--Senior Vice President
Donald C. Burke--Vice President
Carlo J. Giannini--Vice President
Gerald M. Richard--Treasurer
Robert Harris--Secretary
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*
*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 #11212--3/98
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