CMA
CMA GOVERNMENT
SECURITIES FUND
--------------------
Annual Report
[GRAPHIC OMITTED]
March 31, 1999
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[LOGO] Merrill Lynch
<PAGE>
Dear Shareholder:
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For the year ended March 31, 1999, CMA Government Securities Fund paid
shareholders a net annualized dividend of 4.81%.* As of March 31, 1999, the
Fund's 7-day yield was 4.32%.
The average portfolio maturity for CMA Government Securities Fund at March 31,
1999 was 73 days, unchanged from the average on September 30, 1998.
The Environment
There were some conflicting signals regarding the future direction of the US
economy during the six months ended March 31, 1999. However, on balance the
economic outlook continued to be positive. The US economic expansion is ongoing,
especially in the consumer sector. Economic growth has not ignited inflation,
although the Organization for Petroleum Exporting Countries (OPEC) successfully
engineered a near-term increase in the price of crude oil. Against this
backdrop, the US Federal Reserve Board kept monetary policy on hold. During the
period, we purchased 14-month and 18-month US Treasury coupons, reflecting our
view that interest rates would remain steady.
Outside of the United States, signs of growth are less apparent in other major
industrial economies, although the economic outlook appears to be improving in
Europe. Although the crisis in Yugoslavia has raised serious geopolitical
concerns, it was not a significant factor in the economic or investment outlook.
In Japan, there are not yet clear signs that Japan's economy is improving, and
the emerging economies remain tentative.
In the US capital markets, long-term interest rates have risen somewhat thus far
in 1999, but yield spreads between Treasury and corporate issues are tightening.
However, the major news was the Dow Jones Industrial Average closing above the
10,000 level for the first time; shortly after the end of the March period,
other stock market indexes reached record high levels. Nevertheless, the US
stock market's rise was very narrow in scope, with relatively few
large-capitalization issues accounting for the advance.
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/ Terry K. Glenn
Terry K. Glenn
President and Trustee
/s/ Carlo J. Giannini
Carlo J. Giannini
Vice President and Portfolio Manager
May 4, 1999
================================================================================
After more than 20 years of service, Arthur Zeikel recently retired as Chairman
of Merrill Lynch Asset Management, L.P. (MLAM). Mr. Zeikel served as President
of MLAM from 1977 to 1997 and as Chairman since December 1997. Mr. Zeikel is one
of the country's most respected leaders in asset management and presided over
the growth of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500 billion. Mr.
Zeikel will remain on CMA Government Securities Fund's Board of Trustees. We are
pleased to announce that Terry K. Glenn has been elected President and Trustee
of the Fund. Mr. Glenn has held the position of Executive Vice President of MLAM
since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Trustees in wishing him
well in his retirement from Merrill Lynch and are pleased that he will continue
as a member of the Fund's Board of Trustees.
================================================================================
* Based on a constant investment throughout the period, with dividends
compounded daily, and reflecting a net return to the investor after all
expenses.
1
<PAGE>
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CMA GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS AS OF MARCH 31, 1999 (IN THOUSANDS)
================================================================================
Face Interest Maturity Value
Issue Amount Rate Date (Note 1a)
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US Government Obligations--39.5%
- --------------------------------------------------------------------------------
US Treasury $155,000 4.80 % 4/19/99 $ 154,607
Bills* 45,700 3.69 4/22/99 45,574
25,000 4.725 4/22/99 24,928
25,000 4.735 4/22/99 24,928
5,000 4.36 12/09/99 4,845
- --------------------------------------------------------------------------------
US Treasury 70,100 6.375 4/30/99 70,194
Notes* 10,000 6.50 4/30/99 10,012
25,000 9.125 5/15/99 25,127
85,000 6.25 5/31/99 85,193
15,000 6.75 5/31/99 15,045
10,000 6.00 6/30/99 10,032
60,000 6.75 6/30/99 60,307
45,000 5.875 7/31/99 45,169
25,000 6.875 7/31/99 25,174
45,000 6.00 8/15/99 45,211
78,000 5.875 8/31/99 78,359
45,000 6.875 8/31/99 45,388
100,000 5.75 9/30/99 100,508
65,000 6.00 10/15/99 65,429
45,000 5.625 10/31/99 45,214
70,000 7.50 10/31/99 71,065
10,000 5.625 11/30/99 10,055
30,000 5.625 12/31/99 30,184
67,000 5.375 1/31/00 67,283
40,000 7.75 1/31/00 40,927
10,000 5.50 2/29/00 10,055
80,000 7.125 2/29/00 81,569
40,000 6.875 3/31/00 40,759
10,000 6.375 5/15/00 10,152
10,000 8.875 5/15/00 10,421
40,000 6.25 5/31/00 40,578
10,000 5.375 6/30/00 10,050
15,000 5.375 7/31/00 15,075
10,000 4.50 9/30/00 9,926
30,000 4.00 10/31/00 29,538
- --------------------------------------------------------------------------------
Total US Government Obligations
(Cost--$1,458,300)....................................... 1,458,881
- --------------------------------------------------------------------------------
Face Value
Amount Issue (Notes 1a & 1b)
- --------------------------------------------------------------------------------
Repurchase Agreements**--60.5%
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$150,000 Aubrey G. Lanston & Co., Inc., purchased
on 3/31/99 to yield 4.90% to 4/01/99 ........ 150,000
- --------------------------------------------------------------------------------
$160,000 Barclays Capital Inc., purchased on
3/31/99 to yield 4.90% to 4/01/99 ........... $ 160,000
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180,000 Credit Suisse First Boston Corp.,
purchased on 3/31/99 to yield 5.02%
to 4/01/99................................... 180,000
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180,000 Deutsche Bank Securities Inc.,
purchased on 3/31/99 to yield 4.98%
to 4/01/99.................................... 180,000
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160,000 Donaldson, Lufkin & Jenrette Securities
Corp., purchased on 3/31/99 to yield
4.90% to 4/01/99.............................. 160,000
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180,000 Goldman Sachs & Company, purchased
on 3/31/99 to yield 5% to 4/01/99............. 180,000
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170,000 Greenwich Capital Markets, Inc.,
purchased on 3/31/99 to yield
4.90% to 4/01/99.............................. 170,000
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182,000 J.P. Morgan Securities Inc., purchased
on 3/05/99 to yield 4.80% to 4/01/99.......... 182,000
- --------------------------------------------------------------------------------
180,000 Lehman Brothers Inc., purchased on
3/31/99 to yield 4.98% to 4/01/99............. 180,000
- --------------------------------------------------------------------------------
180,000 Morgan Stanley & Co., purchased on
3/31/99 to yield 4.98% to 4/01/99............. 180,000
- --------------------------------------------------------------------------------
180,000 Nesbitt Burns Securities, Inc.,
purchased on 3/31/99 to yield 4.90%
to 4/01/99.................................... 180,000
- --------------------------------------------------------------------------------
152,064 PaineWebber Inc., purchased on
3/31/99 to yield 4.90% to 4/01/99............. 152,064
- --------------------------------------------------------------------------------
180,000 Prudential Securities Inc., purchased
on 3/31/99 to yield 4.98% to 4/01/99 ......... 180,000
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost--$2,234,064)....................................... 2,234,064
- --------------------------------------------------------------------------------
Total Investments
(Cost--$3,692,364)--100.0%............................... 3,692,945
Other Assets Less Liabilities--0.0% ..................... 241
----------
Net Assets--100.0%....................................... $3,693,186
==========
================================================================================
* US Treasury Bills are traded on a discount basis; the interest rates shown
reflect the discount rates paid at the time of purchase by the Fund. US
Treasury Notes bear interest at the rates shown, payable at fixed rates
upon maturity.
** Repurchase Agreements are fully collateralized by US Government
Obligations.
See Notes to Financial Statements.
2
<PAGE>
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CMA GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 31, 1999
================================================================================
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (identified cost--$3,692,363,612+) (Notes 1a & 1b) $3,692,944,981
Cash ................................................................... 100,493
Interest receivable .................................................... 17,999,712
Prepaid registration fees and other assets (Note 1e) ................... 234,297
-------------
Total assets ........................................................... 3,711,279,483
-------------
Liabilities:
Payables:
Securities purchased .................................................. $ 15,208,633
Investment adviser (Note 2) ........................................... 1,349,534
Distributor (Note 2) .................................................. 1,153,499
Beneficial interest redeemed .......................................... 25 17,711,691
--------------
Accrued expenses and other liabilities ................................. 381,745
--------------
Total liabilities ...................................................... 18,093,436
--------------
Net Assets ............................................................. $3,693,186,047
==============
Net Assets Consist of:
Shares of beneficial interest, $0.10 par value, unlimited number of shares
authorized ............................................................. $ 369,260,468
Paid-in capital in excess of par ....................................... 3,323,344,210
Unrealized appreciation on investments--net ............................ 581,369
--------------
Net Assets--Equivalent to $1.00 per share based on 3,692,604,678 shares of
beneficial interest outstanding ........................................ $3,693,186,047
==============
</TABLE>
+ Cost for Federal income tax purposes was $3,692,366,157. As of March 31, 1999,
net unrealized appreciation for Federal income tax purposes amounted to
$578,824, of which $1,492,049 related to appreciated securities and $913,225
related to depreciated securities.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
CMA GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1999
================================================================================
<TABLE>
<S> <C> <C>
Investment Income (Note 1d):
Interest and amortization of premium and discount earned ............... $ 186,731,066
Expenses:
Investment advisory fees (Note 2) ...................................... $ 14,245,998
Distribution fees (Note 2) ............................................. 4,383,190
Transfer agent fees (Note 2) ........................................... 488,200
Registration fees (Note 1e) ............................................ 422,610
Accounting services (Note 2) ........................................... 228,558
Custodian fees ......................................................... 202,154
Professional fees ...................................................... 79,468
Printing and shareholder reports ....................................... 59,543
Trustees' fees and expenses ............................................ 31,582
Other .................................................................. 22,575
--------------
Total expenses ......................................................... 20,163,878
--------------
Investment income--net ................................................. 166,567,188
Realized Gain on Investments--Net (Note 1d) ............................ 419,102
Change in Unrealized Appreciation on Investments--Net .................. 329,288
--------------
Net Increase in Net Assets Resulting from Operations ................... $ 167,315,578
==============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
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CMA GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
For the Year Ended March 31,
-----------------------------------------
Increase (Decrease) in Net Assets: 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Investment income--net ........................................................... $ 166,567,188 $ 167,944,425
Realized gain on investments--net ................................................ 419,102 197,541
Change in unrealized appreciation/depreciation on investments--net ............... 329,288 1,941,084
---------------- ----------------
Net increase in net assets resulting from operations ............................. 167,315,578 170,083,050
---------------- ----------------
Dividends & Distributions to Shareholders (Note 1f):
Investment income--net ........................................................... (166,567,188) (167,944,425)
Realized gain on investments--net ................................................ (419,102) (197,541)
---------------- ----------------
Net decrease in net assets resulting from dividends and distributions
to shareholders .................................................................. (166,986,290) (168,141,966)
---------------- ----------------
Beneficial Interest Transactions (Note 3):
Net proceeds from sale of shares ................................................. 13,270,135,147 14,532,261,909
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions (Note 1f) ............................................ 166,833,005 167,986,012
---------------- ----------------
13,436,968,152 14,700,247,921
Cost of shares redeemed .......................................................... (13,284,151,025) (14,585,617,671)
---------------- ----------------
Net increase in net assets derived from beneficial interest transactions ......... 152,817,127 114,630,250
---------------- ----------------
Net Assets:
Total increase in net assets ..................................................... 153,146,415 116,571,334
Beginning of year ................................................................ 3,540,039,632 3,423,468,298
---------------- ----------------
End of year ...................................................................... $ 3,693,186,047 $ 3,540,039,632
================ ================
</TABLE>
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CMA GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
================================================================================
<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,
-------------------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<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.......................... .0468 .0501 .0477 .0521 .0419
Realized and unrealized gain (loss) on
investments--net................................ .0002 .0007 (.0004) .0002 .0008
---------- ---------- ---------- ---------- ----------
Total from investment operations................ .0470 .0508 .0473 .0523 .0427
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net........................ (.0468) (.0501) (.0477) (.0521) (.0419)
Realized gain on investments--net............. (.0001) (.0001) --+ (.0003) (.0002)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions............... (.0469) (.0502) (.0477) (.0524) (.0421)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Investment Return......................... 4.81% 5.15% 4.96% 5.37% 4.30%
========== ========== ========== ========== ==========
Ratios to Average Net Assets:
Expenses........................................ .57% .57% .56% .57% .58%
========== ========== ========== ========== ==========
Investment income and realized gain on
investments--net................................ 4.68% 5.02% 4.81% 5.25% 4.18%
========== ========== ========== ========== ==========
Supplemental Data:
Net assets, end of year (in thousands).......... $3,693,186 $3,540,040 $3,423,468 $3,345,603 $3,132,803
========== ========== ========== ========== ==========
</TABLE>
+ Amount is less than $.0001 per share.
See Notes to Financial Statements.
4
<PAGE>
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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 Fund's financial statements are prepared in accordance with
generally accepted accounting principles which may require the use of management
accruals and estimates. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities with remaining maturities of
greater than sixty days are valued at the most recent bid price or yield
equivalent as obtained from dealers that make markets in such securities. As
securities transition from sixty-one to sixty days 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. Securities
maturing sixty days or less from their date of acquisition are valued at
amortized cost, which approximates market value. For the purpose of valuation,
the maturity of a variable rate security is deemed to be the next coupon date on
which the interest rate is to be adjusted. Other investments for which market
value quotations are not available are valued at their fair value as determined
in good faith by or under the direction of the Fund's Board of Trustees.
(b) Repurchase agreements--The Fund invests in US Government securities pursuant
to repurchase agreements. Under such agreements, the counterparty 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 and, if
necessary, receives additional securities daily to ensure that the contract is
fully collateralized.
(c) 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.
(d) 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.
(e) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(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.
5
<PAGE>
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CMA GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
================================================================================
The Fund has adopted a Distribution and Share holder Servicing Plan in
compliance with Rule 12b-1 under the Investment Company Act of 1940, pursuant to
which Merrill Lynch, Pierce, Fenner & Smith Incorporated ("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.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, FDS, 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.
- --------------------------------------------------------------------------------
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,
1999, 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, 1999 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, 1999, 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 11, 1999
6
<PAGE>
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CMA Government Securities Fund
Important Tax Information (unaudited)
================================================================================
None of the ordinary income distributions paid daily by CMA Government
Securities Fund during its fiscal year ended March 31, 1999 qualify for the
dividends-received deduction for corporations. The Fund distributed long-term
capital gains of $.0000255 per share to shareholders of record as of March 24,
1999. All of this long-term capital gains distribution is subject to a 20% 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:
- ------------------------------------------------
Percentage of
For the Quarter Ended Federal Obligations*
- ------------------------------------------------
June 30, 1998................... 21.64%
September 30, 1998.............. 32.41
December 31, 1998............... 21.51
March 31, 1999.................. 39.31
- ------------------------------------------------
Of the Fund's ordinary income dividends paid during the fiscal year ended March
31, 1999, 33.59% was attributable to Federal Obligations. In calculating the
foregoing percentage, Fund expenses 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.
- --------------------------------------------------------------------------------
CMA GOVERNMENT SECURITIES FUND
OFFICERS AND TRUSTEES
================================================================================
Terry K. Glenn--President and Trustee
Ronald W. Forbes--Trustee
Cynthia A. Montgomery--Trustee
Charles C. Reilly--Trustee
Kevin A. Ryan--Trustee
Richard R. West--Trustee
Arthur Zeikel--Trustee
Kevin J. McKenna--Senior Vice President
Joseph T. Monagle Jr.--Senior Vice President
Carlo J. Giannini--Vice President
Donald C. Burke--Vice President
and Treasurer
Robert Harris--Secretary
- -------------------------------------------------------
Gerald M. Richard, Treasurer of CMA Govern ment
Securities Fund has recently retired. His colleagues at
Merrill Lynch Asset Management, L.P. join the Fund's
Board of Trustees in wishing Mr. Richard well in his
retirement.
- -------------------------------------------------------
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02101
Transfer Agent
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].
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. An investment in the Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other Government agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund. Past performance
results shown in this report should not be considered a representation of future
performance, which will fluctuate. Statements and other information herein are
as dated and are subject to change.
CMA Government Securities Fund
Box 9011
Princeton, NJ 08543-9011 11212-3/99
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